CHAPTER 13 Practice Questions
Question 1 Costa Ltd has an authorised capital of 1,500,000 divided into 1,000,000 Ordinary Shares at €1 each and 500,000 4% Preference Shares at €1 each. The following Trial Balance was extracted from its books on 31/12/2012: €
€ Buildings at cost
Delivery Vans (cost €200,000) Discount (Net)
P & L Balance 01/01/2012 Stocks on hand 01/01/2012
Debenture Interest for the first four months 9% Investments 01/01/2012
Patents (incorporating 3 months’ Investment Income) Purchases and Sales Dividends Paid
Bad Debts Provision Debtors and Creditors Bank
Salaries and General Expenses 8% Debentures
Issued Share Capital Ordinary Shares
4% Preference Shares
Director’s Fees Rent
Advertising (including Suspense)
30,000 25,000 35,000
2,644,700 2,644,700
(i) Patents, which incorporated 3 months’ investment income, are to be written off over a 5 year period commencing in 2012.
(ii) Stock on 31/12/2012 at cost was €80,000. This figure includes damaged stock which cost €5,000 but which now has a net realisable value of €2,600.
(iii) Provide for depreciation on delivery vans at the annual rate of 10% of cost from the date of purchase to the date of sale. Note: On 31/03/2012, a delivery van which had cost €20,000 on 31/03/2009 was traded in against a new van which cost €40,000. An allowance of €5,000 was given on the old van. The cheque for the net amount of this transaction was incorrectly treated as a purchase of trading stock. This was the only entry made in the books in respect of this transaction.
(iv) During 2012, a store room which cost €42,000 and stock which cost €8,000 were destroyed by fire. A new store was built by the company’s own workers. The cost of their labour €19,000 had been treated as a business expense and the materials costing €47,000 were taken from the company’s stocks. The insurance company has agreed to contribute €50,000 in compensation for the fire damage. No adjustment had been made in the books in respect of the old or new store.
(v) The suspense figure arises as a result of the incorrect figure for debenture interest (although the correct entry had been made in the bank account) and discount received €500 entered only in the creditors account.
(vi)The Directors recommend that: a) Provision is to be made for both investment income and debenture interest due. b) Provision for bad debts is to be adjusted to 3% of debtors. c) Buildings are to be depreciated by 2% of cost.
(vii) The figure for bank in the Trial Balance has been taken from the company’s bank account. However, a bank statement dated 31/12/2012 has arrived showing an overdraft of €43,560. A comparison of the bank account and the bank statement has revealed the following discrepancies: 1) A cheque for €500 issued to a supplier had been entered in the books (cashbook and ledger) as €600. 2) A credit transfer of €1,000 had been paid directly to the company’s bank account on behalf of a debtor who has recently been declared bankrupt. This represents a first and final payment of 30c in the €1. 3) A cheque for fees €1,000 issued to a director had not yet been presented for payment.
You are required to prepare a: (a) Trading and Profit and Loss Account for the year ended 31/12/2012. (b) Balance Sheet as at 31/12/2012.
183 13
800,000 150,000
10,000
15,000 70,000 4,200
200,000 25,500
1,000,000 40,000
100,000 150,000
1,500,000 3,000
70,000 11,700
150,000 700,000
200,000
Bank in the Trial Balance may be a debit or credit (overdraft) balance. Profit and Loss Balance in the Trial Balance could be a debit or credit balance. Debit side = Loss made last year
TIPS
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