Seminar Solutions - Term 2

ACC1110Financial Accounting

SEMINAR SOLUTIONS: TERM 2

2009/2010

Module Leader: Ellie Franklin

Academic Team: Agnes Grondin,John Walsh, Pallavi Kishore, Mark Ma

Accounting and Finance Department

Week 13 Seminar: Revision

1. Recording Business Transactions

May commenced business on 1st July 2006 as a wholesale greengrocer with capital in the bank of £2,000. Her transactions for July were as follows :-

1st Bought a second hand van by cheque for £8007th Purchased goods on credit costing £250 from A Brown11th Sold goods on credit to B Green amounting to £45014th Purchased goods on credit costing £100 from M White15th Sold goods to N Black for £250 on credit16th Returned goods to A Brown of £5018th B Green returned goods of £7520th Sent A Brown a cheque for £14023rd Received a cheque from B Green for £24027th Paid telephone bill of £65 by cheque31st Paid electric bill of £45 by cheque

You are required to enter the above transactions in the books of prime entry and the general ledger.

1. Sales Day Book Purchases Day Book11th B Green 450 7th A Brown 25015th N Black 250 14th M White 100

700 350

Sales Returns Day Book Purchases Returns Day Book18th B Green 75 16th A Brown 50

Bank

1st Capital200

0 1st Van 80023rd B Green 240

20th A Brown 14027th Telephone 6531st Electricity 4531st Balance c/d

1190

2240

2240

1st Balance b/d119

0

Capital31st Balance c/d

2000 1st Bank

2000

2000

2000

1st Balance b/d200

0

Van

1st Bank 80031st Balance c/d 800

800 8001st Balance b/d 800

Purchases31st As per PDB 350

31st

As per PRDB 50

31st To IS 300

350 350

A Brown16th Returns 50 7th Purchases 25020th Bank 140 31st Balance c/d 60


M White31st Balance c/d 100

14th Purchases 100


Sales31st

As per SRDB 75

31st As per SDB 700

31st To IS 625

700 700

B Green11th Sales 450

18th Returns 7523rd Bank 24031st Balance c/d 135


N Black15th Sales 250

31st Balance c/d 250


Telephone27th Bank 65

31st To IS 65

65 65

Electricity31st Bank 45

31st To IS 45

45 45

2. Depreciation

A company buys a machine for £40,000 on 1st January 2003. The estimated useful life of the machine was 4 years and its estimated residual value was £1,024. The reducing balance percentage is 30%.

Using both straight-line and reducing balance methods of depreciation, calculate the net book value of the machine as at 31st December 2005 and show how this would be presented in the balance sheet as at 31st December 2005.

Solution:

Straight Line

40000 – 1024 = 9744 4

Net book value as at 31st December 2005 :-40000 – (9744 x 3) = 10768

Reducing Balance

40000 x 30% = 12000

(40000 – 12000) x 30% = 8400

(40000 – 20400) x 30% = 5880

Net Book Value as at 31st December 2005 :-

40000 – (12000+8400+5880)= 13720

Balance Sheets as at 31st December 2005

Non Current Assets Cost Acc depn NBV

Machinery (SL) 40000 29232 10768

Machinery (RB) 40000 26280 13720

3. Sale of Non Current Assets

Flora commenced business on the 1st January 2002 as a florist and draws up accounts to year end 31st December. On the same date she purchased fixtures and fittings for £25,000 and a

delivery van for £16,000. The fixtures and fittings were estimated to have a useful life of 8 years and a residual value of £1,800.

During December 2006 the delivery van was involved in an accident and the insurance company considered it a write off. Flora received a cheque for £3,200 in December 2006 from the insurers in full settlement. Flora then purchased a replacement van in December 2006 for £12,000.

Flora has a depreciation policy to charge a full year in the year of purchase and none in the year of disposal. Fixtures and fittings are depreciated on a straight-line basis and motor vehicles on a 25% reducing balance basis.

Prepare the following ledger accounts for the year ending 31st December 2006 :- - Fixtures and Fittings account- Motor Vehicles account- Depreciation expense account- Accumulated depreciation account – fixtures and fittings- Accumulated depreciation account – motor vehicles- Disposals account

3. Workings

1. Fixtures & fittings (25000 - 1800) / 8 = 2900 Acc depn to 31/12/05 2900 x 4 years 11600

2. Motor vehicles

Acc depn to 31/12/0516000 x 25% 4000 31/12/02

(16000-4000) x 25% 30007000 31/12/03

(16000-7000) x 25% 22509250 31/12/04

(16000-9250) x 25% 168810938 31/12/05

3. Disposal of van Proceeds 3200

NBV (16000-10938) -5062-1862

4. Depreciation on new van 12000 x 25% 3000

Ledgers

Fixtures and Fittings Bal b/d 25000 Bal c/d 25000Bal b/d 25000 Motor Vehicles Bal b/d 16000 Disposals 16000Van 12000 Bal c/d 12000

28000 28000Bal b/d 12000

Depreciation F&F chg 2900 To IS 5900Van chg 3000

5900 5900

Fixtures & fitting Acc DepnBal b/d 11600

Bal c/d 14500 depn chg 290014500 14500

Bal b/d 14500

Motor vehicles Acc Depn Disposals 10938 Bal b/d 10938Bal c/d 3000 depn chg 3000

13938 13938Bal b/d 3000

Disposal Van 16000 Acc Depn 10938

Proceeds 3200Loss to P&L 1862

16000 16000

4. Accruals Prepayments, Bad Debts and Doubtful Debts

June’s year end date is 31st March 2006. When June began to prepare her final accounts for 31st March 2006, she noticed the following :-

During the year she had paid rent for her business property of £15,000, which related to the year ending 31st December 2006.

She was still waiting for the audit and accountancy fees for the year. Last years fees were for £1500.

She has experienced difficulty chasing up one of her customers who owes £500. June has decided to write this off as a bad debt.

June wants to carry on the 5% provision for doubtful debts this year. This years year end trade debtors amounts to £30,000 and last year’s provision was £1000. This year provision should be calculated after writing off any bad debts.

For the year ended 31st March 2006, calculate the prepayment, accrual, trade debtors and provision for doubtful debts which should be shown in the balance sheet as at 31st March 2006.

Prepayment

£15000 paid for year ended 31st December 2006.

Therefore 9 months prepayment is 15000 x 9/12 = £11250

Accrual

Make an accrual based on last year’s bill - £1500

Bad Debt

Write off £500 as a loss

Provision for Doubtful Debts

This year’s provision 5% x (30000-500) = 1475

Last year’s provision 1000

Therefore increase last years provision by £475.

Balance Sheet as at 31st March 2006

Current AssetsTrade Debtors 29500Provision for DD (1475)Prepayments 11250

Current LiabilitiesAccruals 1500

5. Share Issues

XYZ Plc has 15 million £1 ordinary shares in issue. The directors have decided to make a two for five rights issue at a price of £1.80 per share (market value id £2.50 per share).

Calculate the rights issue and show the double entry.

.

Rights issue 15000000 x 2 = 6,000,000 shares 5

6,000,000 x 1.80 = £10,800,000

Dr Bank 10,800,000Cr Share Capital 6,000,000 (6,000,000 x £1)Cr Share Premium 4,800,000 (6,000,000 x 80p)

Week 14 Seminar: Year End Adjustments

1. Martine Ltd had the following trial balance at 31 December 2003:

£Share capital 100,000Reserves at 1.1.03 150,000Long term loans 100,000Opening stock at 1.1.03 200,000Purchases 350,000Sales 750,000Sales returns 3,000Motor vehicles at cost 100,000Motor vehicles accumulated depreciation at 1.1.03 60,000Office equipment at cost 120,000Office equipment accumulated depreciation at 1.1.03 50,000Land 230,000General expenses 203,000Selling expenses 10,000Trade Creditors 200,000Trade Debtors 194,000Interest paid 5,000Bank overdraft 5,000

You are given the following additional information:

1. Closing stock is £180,000.2. Insurance of £2,000 for the 12 months to 30 June 2004 is included in general expenses.3. Audit & accountancy fees for the year of £1,000 have not been paid and are to be

provided for.4. A sum of £20,000 included in debtors relates to a customer who has gone bankrupt.5. Depreciation for the year is to be charged on the straight-line basis on motor vehicles at

20% and office equipment at 15%.

You are required to draw up an Extended Trial Balance for Martine Ltd for the year ended 31st December 2003.

Martine Ltd

Workings

1. Cost of Sales

Opening stock + purchases – closing stock200000 + 350000 – 180000 = 370000

2. Prepayment

Paid £2000 insurance for the year ended 30 June 2004.Therefore, prepayment of 6 months – 2000 x 6/12 = £1000

Dr Prepayment 1000Cr General exps 1000

3. Accrual

Dr Audit fees 1000Cr Accruals 1000

4. Bad Debt

Dr Bad debt exps 20000Cr Trade debtors 20000

5. Depreciation

Motor Vehicles (SL) 100000 x 20% = 20000Office Equipment (SL) 120000 x 15% = 18000

Dr Depreciation exps 38000Cr MV Acc Depn 20000Cr OE Acc Depn 18000

Extended Trial balance for Martine Ltd for the year ended 31.12.03

TB Adj IS BS £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Dr Cr Dr Cr Dr Cr Dr CrShare capital 100 100Reserves as at 1.103 150 150Long term loans 100 100Opening stock as at 1.1.03 200 200Purchases 350 350Sales 750 750Sales returns 3 3Motor vehicles at cost 100 100MV Acc Depn as at 1.1.03 60 20 80Office Equipment at cost 120 120OE Acc Depn as at 1.1.03 50 18 68Land at cost 230 230General expenses 203 1 202Selling expenses 10 10Trade Creditors 200 200Trade Debtors 194 20 174Interest paid 5 5Bank Overdraft 5 5Closing stock at 31.12.03 180 180Prepayments 1 1Audit fees 1 1Accruals 1 1Bad debt 20 20Depreciation expense 38 38Profit for the year (bal) 101 101

Total 1415 1415 60 60 930 930 805 805

2. The Trial Balance of Summer Products Ltd as at 31.12.02 is as follows:

£000's

Turnover 950Purchases 500Overdraft 30Opening Stock 174Provision for Doubtful Debts 1.1.02 6Motor Vehicles (At Cost) 150Fixtures and Fittings (At Cost) 45Accumulated Depreciation 1.1.02

Motor Vehicles 75Fixtures & Fittings 15

Trade Creditors 90Trade Debtors 375Share Capital 150General Reserve 35Profit and Loss at 1.1.02 100Salaries/Wages 200General Expenses 180Debenture Interest 12Long Term Investment 5510% Debentures 240

Additional Information:1. Closing Stock 31.12.02 £126,000.2. Provision for Doubtful Debts should equal 8% Debtors.3. Audit Fees expected to be £10,000.4. £20,000 of General Expenses have been pre-paid.5. Depreciation: MV 40% Reducing Balance

F&F 20% Straight Line

You are required to draw up an Extended Trial Balance for Summer Products Ltd for the year ended 31st December 2002.

Summer Products Ltd

Workings

1. Cost of Sales

Opening stock + purchases – closing stock174 + 500 – 126 = 548

2. Provision for Doubtful Debts

TY provision 8% x 375 = 30LY provision 6Increase in provision 24

Dr Doubtful debts 24Cr Provision for DD 24

3. Accruals


4. Prepayment

Dr Prepayments 20Cr General expenses 20

5. Depreciation

MV (40% RB) (150-75) x 40% = 30FF (20% SL) 45 x 20% = 9

Dr Depreciation exp 39Cr MV Acc Depn 30Cr FF Acc Depn 9

6. Debenture interest

Charge for the year 10% x 240 24Paid in the year 12Therefore need to accrue 12

Dr Debenture interest 12Cr Accrued interest 12

Extended trial Balance for Summer Products Ltd for the year ended 31.12.02

TB Adj IS BS £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Dr Cr Dr Cr Dr Cr Dr CrTurnover 950 950Purchases 500 500Overdraft 30 30Opening stock 174 174Provision for DD at 1.1.02 6 24 30Motor vehicles at cost 150 150Fixtures & Fittings at cost 45 45MV Acc Depn at 1.1.02 75 30 105FF Acc Depn at 1.1.02 15 9 24Trade Creditors 90 90Trade Debtors 375 375Share Capital 150 150General Reserve 35 35Profit & Loss a/c at 1.1.02 100 100Salaries and wages 200 200General expenses 180 20 160Debenture interest 12 12 24Long term investment 55 5510% Debentures 240 240Closing stock at 31.12.02 126 126Doubtful debts 24 24Audit fees 10 10Accruals 10 10Prepayment 20 20Depreciation expense 39 39Accrued interest 12 12Loss for the year (bal) 55 55

Total 1691 1691 105 105 1131 1131 826 826

Week 15 Seminar: Preparation of Final Accounts

1. The Trial Balance of Tutu Ltd as at 31.12.03 is given below.

£000's Fixtures & Fittings (At Cost) 180 Motor Vehicles (At Cost) 100 Accumulated Depreciation at 1.1.03 Fixtures & Fittings 20 Motor Vehicles 30Stock at 1.1.03 60Sales 200Purchases 100Provision for audit fees 6Share Capital 100Reserves 20P/L account 1.1.03 94Creditors 40Debtors 50Cash 2510% Debentures 30Admin. Expenses 25Debenture Interest 2Provision for Doubtful Debts 2

Additional Information:

1. Closing Stock £90,000. 2. Depreciation

F&F Reducing Balance 10% MV Straight Line 30%

3. Doubtful Debt Provision should be equal to 10% Debtors. 4. Audit Fee provision should be increased to £10,000. 5. Admin. Expenses include prepayment of £17,000.

Prepare an income statement and a balance sheet for the year ended 31 December 2003.

Tutu Ltd

Workings

1. Cost of Sales

Opening stock + purchases – closing stock

60000 + 100000 – 90000 = 70000

2. Depreciation

F&F (RB) 10% x (180000-20000) = 16000MV (SL) 30% x 100000 = 30000

Dr Depreciation exps 46000Cr FF Acc Depn 16000Cr MV Acc Depn 30000

3. Provision for DD

TY provision 10% x 50000 = 5000LY provision 2000

Dr Doubtful Debts exps 3000Cr Provision for DD 3000

4. Audit fee provision

TY 10000LY 6000

Dr Audit fees 6000Cr Provision 6000

5. Prepayment

Dr Prepayment 17000Cr Admin exps 17000

6. Debenture Interest

Charge for the year 10% x 30000 = 3000Paid already 2000


Income Statement for Tutu Ltd for the year ended 31 st December 2003

Sales 200000

Cost of sales (W1) (70000)

Gross profit 130000

Admin expenses (25-17+3+4+46) (61000)

Operating profit 69000

Interest (3000)

Profit before tax 66000

Tax -

Profit for the year 66000

Balance Sheet for Tutu Ltd as at 31 st December 2003

Non Current AssetsFixtures & Fittings 180000 36000 144000Motor Vehicles 100000 60000 40000

184000Current AssetsStock 90000Trade Debtors 50000Provision for DD (5000)Prepayments 17000Bank 25000

177000Total Assets 361000

EquityShare capital 100000Reserves 20000Profit & loss a/c (94000+66000) 160000

280000Non Current Liabilities10% debentures 30000

Current LiabilitiesTrade Creditors 40000Accruals (10000+1000) 11000

51000Total Equity & Liabilities 361000

2. The Trial Balance of Tulsa Ltd as at 31st December 2004 is given below.

£'000s

Profit & Loss a/c 1/1/04 1340Ordinary Share Capital 860012% Debentures 1000Freehold Land 2700Building at cost 4400Plant & Machinery at cost 2300Fixtures & Fittings at cost 1200Debtors 1200Stock - 1/1/04 2100Cash 1200Creditors 800Provision for Doubtful Debts 100AccumulatedDepreciation- Buildings 400- Plant & Machinery 300- Fixtures & Fittings 200Sales 20500Purchases 15600Bad Debts 90Wages & Salaries 1100Administrative Expenses 600Distribution Costs 690Debenture Interest paid 60


1. Depreciation to be charged

Buildings - 5% straight linePlant & Machinery - 10% straight lineFix. & Fittings - 10% straight line

2. Stock as at 31/12/04 was £1,800,000

3. Provision for doubtful debts to be made equal to 10% of outstanding debtors as at 31/12/04.

4. Provision for auditors’ fees £100,000

Prepare an income statement and balance sheet for 31.12.04

Tulsa Ltd

Workings

1. Depreciation

Buidings (SL) 5% x 4400000 = 220000PM (SL) 10% x 2300000 = 230000FF (SL) 10% x 1200000 = 120000

Dr Depreciation exps 570000Cr BuildingsAcc Depn 220000Cr PM Acc Depn 230000Cr FF Acc Depn 120000

2. Cost of Sales

Opening stock + purchases – closing stock

2100000 + 15600000 – 1800000 = 15900000

3. Provision for DD

TY provision 10% x 1200000 = 120000LY provision 100000

Dr Doubtful Debts exps 20000Cr Provision for DD 20000

4. Accrual



Charge for the year 12% x 1000000 = 120000Paid already 60000


Income Statement for Tulsa Ltd for the year ended 31 st December 2004

Sales 20500000

Cost of sales (W2) (1590000)

Gross profit 4600000

Admin expenses (600+90+1100+570+20+100) (2480000)

Distribution costs (690000)

Operating profit 1430000

Interest (120000)

Profit before tax 1310000

Tax -

Profit for the year 1310000

Balance Sheet for Tulsa Ltd as at 31 st December 2004

Non Current AssetsLand 2700000 2700000Buildings 4400000 620000 3780000Plant & Machinery 2300000 530000 1770000Fixtures & Fittings 1200000 320000 880000

9130000Current AssetsStock 1800000Trade Debtors 1200000Provision for DD (120000)Bank 1200000

4080000Total Assets 13210000

EquityShare capital 8600000Profit & loss a/c (1340000+1310000) 2650000

11250000Non Current Liabilities10% debentures 1000000

Current LiabilitiesTrade Creditors 800000Accruals (100000+60000) 160000


Week 16 Seminar: Preparation of Final Accounts

ACC1755 Exam 2006/2007

The following is the trial balance for Reservations 2000 Plc as at 31st December 2006.Reservations 2000 Plc

Trial Balance as at 31st December 2006 DR CR

£ £

Purchases 15,260Sales 103,460Stock as at 01.01.2006 6,230Trade Debtors 8,240Trade Creditors 7,210Sales staff salaries and wages 12,320Selling and distribution expenses 7,210Advertising and marketing 4,050Administrative salaries and wages 14,200Administrative expenses 17,950Ordinary £1 share capital 100,000Share premium account 20,000Profit and loss a/c as at 01.01.2006 42,000Land 100,000Buildings 100,000Office Equipment 50,000Motor Vehicles 15,000Accumulated Depreciation - Buildings 20,000Accumulated Depreciation – Office Equipment 15,000Accumulated Depreciation – Motor Vehicles 6,5606% debentures 50,000Cash at Bank 13,520Cash on Hand 250

364,230 364,230

Additional information:

1. The stock as at 31st December 2006 was valued at £4,560.2. Buildings and office equipment are depreciated at a straight line rate of 2% and 10%

respectively. The depreciation charge is split 50% selling & distribution and 50% administrative.

3. Motor Vehicles are only used by the sales staff and depreciated at 25% reducing balance.

4. A 5% provision for doubtful debts needs to be made.

5. Tax for the year is estimated to be £1,200.6. The value of the Land has been reviewed and should be revalued to £150,000.7. Included in administrative expenses is insurance covering the period 1st October

2006 to 30th September 2007 for £8,000.8. The audit fee for the year ended 31st December 2006 is estimated to be £9,000.9. The directors have approved a bonus issue of ordinary shares to existing

shareholders of two shares for every ten shares held. This has not been reflected in the accounts.

10. Advertising and marketing and depreciation for motor vehicles should be included in selling and distribution expenses. The increase in provision for doubtful debts and audit fee should be included in administrative expenses.

Required

Prepare an income statement for the year ended 31st December 2006 and a balance sheet as at that date. This should be in a form suitable for publication. (Notes to the accounts are not required)

(25 Marks)

Workings

1. COS 6230+15260-4560 = 16930

2. Depreciation

Buildings 2% x 100000 = 2000Office Equipment 10% x 50000 = 5000Motor Vehicles 25% x (15000-6560) = 2110

3. Provision for Doubtful Debts

5% x 8240 = 412

4. Taxation

Dr Taxation 1200Cr Tax payable 1200

5. Revaluation

Dr Land 50000Cr Revaluation reserve 50000

6. Prepayment

9/12 x 8000 = 6000

Dr Prepayments 6000Cr Admin exps 6000

7. Accrual

Dr Audit Fees 9000Cr Accrual 9000

8. Bonus Issue

100000 / 10 x 2 = 20000

Dr Share Premium 20000Cr Share Capital 20000

9. Expenditure

Selling & distribution 12320+7210+1000+2500+2110+4050 = 29190Admin expenses 14200+17950+1000+2500+412-6000+9000 = 39062

10. Debenture Interest6% x 50000 = 3000

Income Statement for year ended 31st December 2006

Sales 103460Cost of Sales (16930)Gross Profit 86530Selling & Distribution 29190Administrative Expenses 39062

(68252)Profit before interest 18278Interest (3000)Profit before taxation 15278Taxation (1200)Retained profit for the year 14078

Balance Sheet as at 31st December 2006

Non Current AssetsLand 150000 0 150000Buildings 100000 22000 78000Office Equipment 50000 20000 30000Motor Vehicles 15000 8670 6330

264330Current AssetsStock 4560Trade Debtors 8240Prov for DD (412)Prepayments 6000Bank 13520Cash 250


EquityShare Capital 120000Revaluation Reserve 50000Profit & Loss a/c 56078

226078Non Current Liabilities6% Debentures 50000

Current LiabilitiesTrade Creditors 7210Tax payable 1200Accruals 12000


Week 17: Reading Week – no seminar

There are no seminars during this week.

Week 18 Seminar: Mock Test

Students will complete a mock test during seminar. That is collected (for review by tutor and to be able to tailor revision time in the areas where help is needed as well as identify students who are at risk of failing the exam).

The individual mock test will not be specifically marked/returned to students.

At the end of the time to complete the test, show solutions to students to mark their own script so that they recognise their errors with immediate effect. Tutor should run through common problems (instant feedback)

Test scripts to be collected at the end and returned to Module Leader.

The following question was given to students as a prep for the mock test and they might approach you with questions (although no formal debrief of this question is planned).

ACC1755 Exam 2006/2007

The trial balance of Greenwood Ltd as at 30th September 2005 was as follows:

DR CR£ £

Audit fee 1,200Bad debts 5,320Trade Debtors 92,360Trade Creditors 108,450Provision for Doubtful Debts as at 1.10.04 3,000Delivery expenses 22,060Production wages 32,300Warehouse wages 30,200Administrative salaries 15,200Purchases 426,500Sales 623,300Administrative expenses 5,600Rent 12,600Stock as at 1.10.04 18,950Ordinary 50p shares 100,000Share premium 50,000Profit and loss a/c as at 1.10.04 26,000Buildings 275,000Equipment 12,000Motor vehicles 18,500Accumulated depreciation as at 1.10.04

Buildings 3,750Equipment 3,600

Motor vehicles 6,5007% Debentures 95,000Cash 51,810

1,019,600 1,019,600

The following additional information is available :

1. Stock as a 30.09.05 was valued at £20,650.2. Buildings and equipment are used at 50% administrative and 50% distribution, and

are to be depreciated at the rate of 1% and 10% on a straight line basis respectively.3. Motor vehicles are only used for distribution, and are depreciated at 20% on a

reducing balance basis.4. This year’s provision for doubtful debts is to be set at 5%.5. £500 was prepaid for rent and £600 is owing for production wages as at 30.09.05.6. The estimated tax charge for this year is £22,680.7. The directors have agreed to pay a dividend of 3p per share.8. Production wages should be included in cost of sales. Bad debts, increase in

provision for doubtful debts, delivery expenses, warehouse wages and motor vehicle depreciation should be included in Selling & Distribution. Audit fee, administrative salaries and rent should be included in Administrative Expenses.

RequiredPrepare an Income Statement for the year ended 30th September 2005 and a Balance Sheet as at that date. This should be in a form suitable for publication. (Notes to the accounts are not required)

(25 marks)

SOLUTION (to compare your answer to). Ask your tutor in the next seminar or during their Open Door times re any problems you encounter/any questions that arise.

1. COS = 18950 + 426500 - 20650 = 424800

2. Depreciation

Building = 1% x 275000 = 2750 (1375 to admin and 1375 to sell&dist)Equipment = 10% x 12000 = 1200 (600 to admin and 600 to sell&dist)

3. Depreciation

Motor vehicles = 20% x (18500-6500) = 2400 (to sell&dist)

4. Provision for DD

This year’s provision 5% x 92360 = 4618Last year’s provision 3000Increase in provision 1618

5. Prepayment and accrual

Dr Prepayments 500Cr Rent 500

Dr Production wages 600Cr Accruals 600

6. Taxation

Dr Taxation 22680Cr Corp tax payable 22680

7. Dividend

£100000 / 50p = 200000 ordinary shares x 3p = £6000


Interest accrual 7% x 95000 = 6650

9. Expenditure

Cost of sales 424800 + 32300 + 600 = 457700

Selling & Distribution 5320 + 1618 + 22060 + 30200 + 1375 + 600 + 2400 = 63573

Administrative exps 1200 + 15200 + 5600 + 12600 – 500 + 1375 + 600 = 36075

Income Statement for year ended 30th September 2005

Sales 623300Cost of Sales (457700)Gross Profit 165600Selling & Distribution 63573Administrative Expenses 36075 99648Profit on ordinary activities before interest 65952Interest payable (6650)Profit on ordinary activities before taxation 59302Taxation (22680)Profit on ordinary activities after taxation 36622Dividends (6000)Retained Profit for the year 30622

Balance Sheet as at 30th September 2005

Non Current AssetsBuildings 275000 6500 268500Equipment 12000 4800 7200Motor Vehicles 18500 8900 9600

285300Current AssetsStock 20650Trade Debtors 92360Provision for DD (4618)Prepayment 500Bank 51810


EquityShare Capital 100000Share Premium 50000Profit & Loss a/c 56622

206622Non Current Liabilities7% Debentures 95000

Current LiabilitiesTrade Creditors 108450Corporation tax payable 22680Accruals 7250Declared Dividends 6000


Week 20 Seminar: Cash Flow Statements

1. Working Capital Plc

The balance sheets of Working Capital Plc as at 31st December 2004 and 31st December 2003 are shown below.

2004 2003 £’000 £’000

Non Current Assets 270 180Accumulated depreciation 90 56

180 124Current AssetsStock 50 42Trade Debtors 40 33Cash - 11

90 86Total Assets 270 210Total EquityShare Capital (£1 each) 25 20Share Premium 10 8Profit and loss a/c 65 55 100 83Non Current Liabilities15% Debentures 80 60

Current LiabilitiesTrade Creditors 33 24Taxation 19 17Dividends 28 26Bank overdraft 10 - 90 67Total Equity Liabilities 270 210


1. There were no disposals of non current assets during the year 2004.2. The company does not pay interim dividends.3. New debentures and shares issued in 2004 were issued on 1st January 2004.4. Debenture interest was paid during the year.5. The operating profit for the year ended 31st December 2004 was £69,000.

Prepare a cash flow statement for Working Capital Plc for the year ended 31st December 2004.

Working Capital Plc - Solution

Cash Flow Statement for Working Capital Plc for the year ended 31 st December 2004 £’000 £’000

Net cash flow from operating activities :-Operating Profit 69Add back depreciation (90-56) 34Increase in stock (50-42) (8)Increase in trade debtors (40-33) (7)Increase in trade creditors (33-24) 9Cash generated from operations 97Interest paid (80 x 15%) (12)Taxation paid (last year’s liability) (17)Net cash inflow from operating activities 68

Net cash flow from investing activities :-Purchase of non current assets (270-180) (90)Net cash outflow from investing activities (90)

Net cash flow from financing activities :-Proceeds from share issues (35-28) 7Proceeds from debenture issues (80-60) 20Dividend paid (last year’s liability) (26)Net cash inflow from financing activities 1

Net decrease in cash and cash equivalents (21)

Cash and cash equivalents at beginning of period 11 Cash and cash equivalents at end of period (10)

2. Axbrit Plc

The balance sheet of Axbrit Plc for the year ended 31st march 2002 is as follows:

2002 2001£’000 £’000

Non Current AssetsProperty, plant and equipment 230 160Accumulated depreciation 60 44 170 116Current AssetsStock 25 20Trade Debtors 15 18Cash 27 21Total Assets 237 175

EquityShare Capital 33 27Capital Reserves 30 24Profit and loss a/c 79 43

142 94Non Current Liabilities 32 30

Current LiabilitiesTrade Creditors 47 39Taxation 16 12Total Equity & Liabilities 237 175

Additional information:

1. There were no non current assets disposed of in the year.2. The increase in the long term liability took place on 1st April 2001 and carried a rate of 10% interest which was paid in the year.3. Dividend paid during the year were £18,000.4. The operating profit for the year ended 31st March 2002 was £73,200.

Prepare a cash flow statement for Axbrit Plc for the year ended 31st March 2002.

Axbrit – Solution

Cash Flow Statement for Axbrit Plc for the year ended 31st March 2002

£’000 £’000Net cash flow from operating activities :-Operating profit 73.2Add back depreciation (60-44) 16Increase in stock (25-20) (5)Decrease in debtors (18-15) 3Increase in creditors (47-39) 8Cash generated from operations 95.2Interest paid (10% x 32) (3.2)Tax paid (last year’s liability) (12)Net cash inflow from operating activities 80

Net cash flow from investing activities :-Purchase of non current assets (230-160) (70)Net cash outflow from investing activities (70)

Net cash flow from financing activities :-Proceeds from share issues (63 – 51) 12Proceeds from long term loan (32-30) 2Dividends paid (18)Net cash outflow from financing activities (4)

Net increase in cash and cash equivalents 6

Cash and cash equivalents at beginning of period 21Cash and cash equivalents at end of period 27

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Seminar Solutions - Term 2