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(a) Profit and loss account for the year ended 31 December 20X6
Sales
Cost of sales
Working 1
Gross profit
Administration expenses Working 2
Distribution expenses
Operating profit
Income from fixed asset investments
Interest payable and similar charges
(18,000 Deb + 3000)
Exceptional costs
Profit before tax on ordinary activities
Tax on ordinary activities
Profit after tax on ordinary activities
Dividends
Retained profit for year
[2]
[5]
[6]
[7]
[8]
[9]
1,100,000
(5,600)
14,000
(10,000)
1,098,400
206,300
(150,000)
(1,500)
7,000
2,500
6,750
71,050
1,628,000
1,098,400
529,600
(71,050)
(32,800)
425,750
6,000
(21,000)
(150,000)
260,750
115,750
145,000
(54,000)
91,000
[1]
[2]
[3]
Current assets
Stock [156,360 + stock obsolescence realisable 5,600]
Debtors [179,830 + 1,500 provision written back]
Creditors amounts falling due within 1 year [4]
Net current assets
Total assets less current liabilities
Creditors amounts falling due after 1 year
[5]
Share capital
Revaluation reserve
Profit and loss account [b/f 98,000 + 91,000]
(b)
[1]
Accounting policies
General
Depreciation
Exceptional items
[2]
[3]
Staff costs
Purchasing
Distribution
Administration
6
3
1
10
40,000
341,250
130,000
511,250
161,950
181,330
343,280
(210,530)
132,750
644,000
(180,000)
464,000
250,000
25,000
189,000
464,000
45,000
22,500
7,500
75,000
[4]
Directors emoluments
Chairman
nil
Highest paid director
19,800
Other directors earn salaries in the range 15,000 20,000
[5]
6,000
[6]
3,000
18,000
21,000
[7]
Exceptional costs
Restructuring
150,000
[9]
(45,000)
105,000
120,000
(4,250)
115,750
Dividends
Interim at 3.6p
Proposed at 7.2p
18,000
36,000
54,000
7,500
2,500
10,000
40,000
42,500
[3]
50,000
Land/
Blgs
Plant/
Machinery
Fixtures
225,000
20,000
90,000
78,000
Total
25,000
250,000
110,000
54,000
323,000
90,000
(24,000)
25,000
414,000
9,000
3,000
16,000
11,000
12,000
238,000
220,000
27,000
83,000
4,000
37,500
6,750
(10,500)
33,750
20,250
40,500
62,500
20,750
(10,500)
72,750
341,250
260,500
(24,000)
Investments
Listed on recognised stock exchange
130,000
[5]
180,000
Revaluation
At 1 January 20X6
Movement during year
At 31 December 20X6
25,000
25,000
Profit &
loss
98,000
91,000
189,000
Comments
Provision
is an amount retained from profit
it provides for a loss or liability likely to be incurred but amount is uncertain
shown in balance sheet after creditors or deducted from asset e.g. bad debt
provision.
Reserve
a realised or unrealised gain which has not either legally or at the companys
discretion been distributed as dividends
i.e. it is retained in the business e.g. retained profits, share premium, revaluation
reserve
it is shown in the balance sheet after share capital.
Liability
is an obligation in the future requiring the transfer of assets e.g. cash payment or
provision of services to other entities
it entails a probable future sacrifice
it may also include the amount owed to the owners of the business
it is reported under creditors within or after one year.
Contingent liability
is a condition that exists at the balance sheet date
where the outcome will be determined by a future uncertain event
it appears as a note to the balance sheet.
2.
The fraud is an adjusting event under SSAP 17, and as it has been discovered the
financial statements will not show a true and fair view unless they are adjusted
for it. The 30,000 should therefore be written off in the profit and loss account.
3.
This is an exceptional item because it is material but arises from the ordinary
activities of the business. It should be charged in arriving at the profit on
ordinary activities, and should be separately disclosed.
4.
The agreement to purchase this business relates to the period after the year-end
and is therefore a non-adjusting event under SSAP 17, as knowledge of it does
not affect the companys position at 31 March 20X8. However, disclose the
information by way of note.
5.
6.
7. The rights issue relates entirely to the period after the year end, therefore it is a
non-adjusting event under SSAP 17. This should be disclosed by way of note.
One of the three marks should be given for noting share premium.