CHAPTER 13


Question 3 Terry Ltd has an authorised capital of €800,000 divided into 600,000 Ordinary Shares at €1 each and 200,000 8% Preference Shares at €1 each.


€ Buildings at cost


Delivery Vans (cost €280,000) 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) Purchase and Sales Dividends Paid


Bad Debts Provision Debtors and Creditors Bank


Salaries and General Expenses 10% Debentures


Issued Share Capital Ordinary Shares


8% Preference Shares


Director’s fees Rent


Advertising (including Suspense)


41,000 35,500 35,000


1,956,000 1,956,000


The following information and instructions are to be taken into account: (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 €56,200. This figure includes damaged stock which cost €7,000 but which now has a net realisable value of €3,000.


(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 01/04/2012 a delivery van which had cost €24,000 on 01/10/2009 was traded in against a new van which cost €60,000. An allowance of €7,000 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 facility room which cost €40,000 and stock which cost €10,000 were destroyed by fire. A new store was built by the company’s own workers. The cost of their labour €20,000 had been treated as a business expense and the materials costing €54,000 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 €400 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 4% 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 incorrect bank overdraft figure. A comparison of the bank account and the bank statement has revealed the following discrepancies: 1) A cheque for €800 issued to a supplier had been entered in the books (cashbook and ledger) as €700. 2) A credit transfer of €550 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 25c in the €1. 3) A cheque for fees €1,400 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.


185 13


500,000 150,000


10,000 22,000


50,000 5,500


200,000 27,000


700,000 1,000,000 22,000


2,000 90,000 100,000


150,000 500,000


200,000 75% = Bad Debt


50,000 22,000


€


TIP


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