13 FINAL ACCOUNTS


Question 2 Derry Ltd has an authorised capital of €1,500,000 divided into 1,000,000 Ordinary Shares at €1 each and 500,000 10% Preference Shares at €1 each.


€ Buildings at Cost


Delivery Vans (Cost €200,000) Discount (Net)


Stock on hand 01/01/2012


Debenture Interest for the first four months P & L Balance 01/01/2012 4% Investments 01/01/2012 Purchases and Sales Debtors and Creditors Bank


Patents (including 6 months’ Investment Income) Salary and General Expenses (including Suspense) Director’s Fees Advertising


Bad Debt Provision 9% Debentures Dividends Paid


Issued Share Capital Ordinary Shares


10% Preference Shares Capital Reserve 2,455,000


600,000 150,000


7,000


55,000 8,400


55,600 200,000


1,000,000 90,000


23,000


190,000 42,000 6,000


3,000 200,000 35,000


500,000 200,000 50,000


2,455,000


The following information and instructions are to be taken into account: (i) Patents, which incorporate 6 months’ investment income, are to be written off over a 4-year period commencing in 2012.


(ii) Stock on 31/12/2012 at cost was €81,200. This figure includes damaged stock which cost €5,400 but which now has a realisable value of €2,300.


(iii) 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 allowed €450 entered only in the discount account.


(iv) Provide for depreciation on delivery vans at an annual rate of 10% of cost from the date of purchase to the date of sale. On 01/04/2012, a delivery van which had cost €28,000 on 01/04/2009 was traded in against a new van which cost €54,000. An allowance of €6,000 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.


13


(v) The advertising payment is for an 18-month newspaper advert campaign which started on 01/07/2012. (vi) During 2012, stock which cost €5,000 was destroyed by flooding. The insurance company has agreed to contribute €4,000 in compensation for the fire damage. The loss is to be treated as a selling and distribution expense in the profit and loss.


(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 arrived showing a bank overdraft of €13,280. A comparison of the bank account and the bank statement has revealed the following discrepancies: 1) A cheque for €640 issued to a supplier had been entered in the books (cashbook and ledger) as €460. 2) A credit transfer of €900 had been paid directly to the company’s bank account on behalf of a debtor who had 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.


(viii) The Directors recommend that: a) Provisions are to be made for both investment income and debenture interest due. b) Provision for bad debts is to be adjusted to 4% of debtors. c) Buildings are to be depreciated by 2% of cost.


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.


Increase in Provision for Bad Debt is a selling and distribution expense.


1,400,000 80,000 15,000


€


184


TIP


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