Phoenix Plc Trial Balance At 30 June 20x7 Answer

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An extract from the solution is provided in the Appendix at the end of the text for exercises marked with an asterisk (*).

* Question 1

The following trial balance was extracted from the books of Old NV on 31 December 20X1.

Sales 12,050

Returns outwards 313

Provision for depreciation plant 738 vehicles 375 Rent receivable 100 Trade payables 738 Debentures 250 Issued share capital - ordinary € 1 shares 3,125 - preference shares (treated as equity) 625 Share premium 250 Retained earnings 875 Inventory 825 Purchases 6,263 Returns inwards 350 Carriage inwards 13 Carriage outwards 125 Salesmen's salaries 800 Administrative wages and salaries 738 Plant (includes €362,000 acquired in 20X1) 1,562 Motor vehicles 1,125 Goodwill 1,062 Distribution expenses 290 Administrative expenses 286 Directors' remuneration 375 Trade receivables 3,875 Cash at bank and in hand 1,750 _

19,439 19,439

Note of information not taken into the trial balance data:

(ii) Depreciation of plant at 20% straight-line.

(iii) Depreciation of vehicles at 25% reducing balance.

(iv) The goodwill suffered an impairment in the year of € 177,000.

(vi) Debenture interest of €25,000.

(b) Closing inventory was valued at € 1,125,000 at the lower of cost and net realisable value.

(c) Administrative expenses were prepaid by € 12,000. Required:

(a) Prepare an income statement for internal use for the year ended 31 December 20X1.

(b) Prepare an income statement for the year ended 31 December 20X1 and a balance sheet as at that date in Format 1 style of presentation.

* Question 2

HK Ltd has prepared its draft trial balance to 30 June 20X1, which is shown opposite.

The authorised share capital is 4,000,000 9% preference shares of $1 each and 18,000,000 ordinary shares of 50c each.

The following information is available:

1 The depreciation policy of the company is to provide depreciation at the following rates: Plant and machinery 20% on cost

Fixtures and fittings 10% on cost

Buildings 2% on cost

In addition, it has been decided to create a reserve of 10% on the cost of plant and machinery to allow for the increased cost of replacement. (Depreciation for 20X1 has not been provided in the draft trial balance.) Charge all depreciation to cost of sales.

2 Acquisitions of property plant and equipment during the year were: Plant $173,000 Fixtures $144,000

3 Government grants of $85,000 have been received in respect of plant purchased during the year and are shown in the trial balance.

4 During the year freehold land which cost $720,000 was sold for $2,036,000. It was valued in last year's balance sheet at $ 1,500,000. The revaluation surplus had been credited to revaluation reserve.

5 Inventory shown in the trial balance ($11,794,000) consists of: Raw materials $1,872,000 Work-in-progress $6,660,000

Finished goods $3,262,000

6 Trade receivables and payables are all payable and due within the next financial year. The loan is unsecured and repayable in ten years' time.

Trial balance at 30 June 20X1

Freehold land 2,880

Freehold buildings (cost $4,680) 4,126

Plant and machinery (cost $3,096) 1,858

Fixtures and fittings (cost $864) 691

Goodwill 480

Trade receivables 7,263

Trade payables 2,591

Inventory 11,794

Bank balance 11,561

Income tax on loan interest 151

Development grant received 85

Profit on sale of freehold land 536

Sales 381,600

Cost of sales 318,979

Administration expenses 9,000

Distribution costs 35,100

Directors' emoluments 562

Bad debts 157

Auditors' remuneration 112

Hire of plant and machinery 2,400

Loan interest paid net 454

Dividends paid during the year - preference 162

- ordinary 426

Share capital - preference shares (treated as equity) 3,600

- ordinary shares 5,400

Retained earnings 6,364

Revaluation account 780

408,156 408,156

7 During the year a fire took place at one of the company's depots, involving losses of $200,000. These losses have been written off to cost of sales shown in the trial balance. Since the end of the financial year a settlement of $150,000 has been agreed with the company's insurers.

8 It is agreed that $500,000 of the finished goods inventory is obsolete and should be written off. However since the end of the financial year an offer has been received from another company to buy this inventory for $300,000, subject to certain modifications being made at an estimated cost to HK Ltd of $50,000.This has now been agreed.

9 A contract has been entered into, with a building contractor to extend the company's premises. The contract price is $5,000,000 and the work is scheduled to start in December 20X1.

10 A final ordinary dividend of 3c per share is declared and was an obligation before the year-end, together with the balance of the preference dividend. Neither dividend was paid at the year-end.

11 The income tax charge in the income statement is to be that based on the net profit for the year, at a rate of 35%.

12 The goodwill has not been impaired.

13 The loan was raised during the year and there is no outstanding interest accrued at the year-end. Required:

(a) Prepare the company's income statement for the year to 30 June 20X1 and a balance sheet as at that date, complying with the relevant accounting standards in so far as the information given permits.

(All calculations to nearest $000.)

(b) Prepare the property, plant and equipment schedule for the notes to the accounts.

(c) Explain the usefulness of the schedule prepared in (b).

Question 3

Basalt plc is a wholesaler The following is its trial balance as at 31 December 20X0.





Ordinary share capital: £1 shares


Share premium


General reserve


Retained earnings as at

1 January 20X0


Inventory as at 1 January 20X0






Administrative expenses


Distribution expenses


Plant and machinery - cost


Plant and machinery -

provision for depreciation


Returns outwards


Returns inwards


Carriage inwards


Warehouse wages


Salesmen's salaries


Administrative wages and salaries


Hire of motor vehicles


Directors' remuneration


Rent receivable


Trade receivables


Cash at bank


Trade payables






The following additional information is supplied:

(i) Depreciate plant and machinery 20% on straight-line basis.

(ii) Inventory at 31 December 20X0 is £90,000.

(iii) Accrue auditors' remuneration £2,000.

(iv) Income tax for the year will be £58,000 payable October 20X1.

(v) It is estimated that 7/11 of the plant and machinery is used in connection with distribution, with the remainder for administration.The motor vehicle costs should be assigned to distribution.


(a) Prepare an income statement and balance sheet in a form that complies with IAS 1. No notes to the accounts are required.

(b) Briefly explain what you would expect to find in the following sections of a UK company annual report:

(i) Directors' report. (ii) Chairman's report. (iii) Auditors' report.

Question 4

Raffles Ltd trades as a wine wholesaler with a large warehouse in Asia.The trainee accountant at Raffles Ltd has produced the following draft accounts for the year ended 31 December 20X6.

Income Statement



Less: Cost of sales


Gross profit


Debenture interest paid


Distribution costs


Audit fees


Impairment of goodwill


Income tax liability on profits


Interim dividend


Dividend received from Diat P'or plc


Bank interest


Over provision of income tax in prior years



Land and buildings


Plant and machinery


Fixtures and fittings


Administrative expenses


Net profit


Draft balance sheet at 31 December 20X6

Bank balance

10% debentures 20X9

Ordinary share capital

50c nominal value Trade payables Income tax creditor Retained earnings Revaluation reserve

12,700 180,000

250,000 32,830

165,000 172,900 25,000 838,430

Inventory Receivables Land and buildings Plant and machinery Fixtures and fittings


Investments at cost

156,350 179,830 238,000 74,000 20,250

40,000 130,000


The following information is relevant:

1 The directors maintain that the investments in Diat P'or plc will be held by the company on a continuing basis and that the current market value of the investments at the balance sheet date was $135,000. However since the balance sheet date there has been a substantial fall in market prices and these investments are now valued at $90,000.

2 The authorised share capital of Raffles Ltd is 600,000 ordinary shares.

3 During the year the company paid shareholders the proposed 20X5 final dividend of $30,000. This transaction has already been recorded in the accounts.

4 The company incurred $150,000 in restructuring costs during the year These have been debited to the administrative expenses account.The trainee accountant subsequently informs you that tax relief of $45,000 will be given on these costs and that this relief has not yet been accounted for in the records.

5 The company employs an average of ten staff,60% of whom work in the wine purchasing and importing department, 30% in the distribution department and the remainder in the accounts department. Staff costs total $75,000.

6 The company has three directors.The managing director earns $18,000 while the purchasing and distribution directors earn $14,000 each. In addition the directors receive bonuses and pensions of $1,800 each. All staff costs have been debited to the income statement.

7 The directors propose to decrease the bad debt provision by $1,500 as a result of the improved credit control in the company in recent months.

8 Depreciation policy is as follows:

Land and buildings: No depreciation on land. Buildings are depreciated over 25 years on a straight-line basis.This is to be charged to cost of sales. Plant and machinery: 10% on cost, charge to cost of sales

Fixtures and fittings: 25% reducing balance, charge to administration.

9 The directors have provided information on a potential lawsuit. A customer is suing them for allegedly tampering with the imported wine by injecting an illegal substance to improve the colour of the wine.The managing director informs you that this lawsuit is just 'sour grapes' by a jealous customer and provides evidence from the company solicitor which indicates that there is only a small possibility that the claim for $8,000 will succeed.

10 Purchased goodwill was acquired in 20X3 for $50,000. The annual impairment test revealed an impairment of $2,500 in the current year.

11 Plant and machinery of $80,000 was purchased during the year to add to the $20,000 plant already owned. Fixtures and fittings acquired two years ago with a net book value of $13,500 were disposed of.Accumulated depreciation of fixtures and fittings at 1 January 20X6 was $37,500.

12 Land was revalued by $25,000 by Messrs Moneybags, Chartered Surveyors, on an open market value basis, to $l75,000.The revaluation surplus was credited to the revaluation reserve.There is no change in the value of the buildings.

13 Gross profit is stated after charging $15,000 relating to obsolete cases of wine that have 'gone off'. Since that time an offer has been received by the company for its obsolete wine stock of $8,000, provided the company does additional vinification on the wine at a cost of $2,000 to bring it up to the buyer's requirements. A cash discount of 5% is allowed for early settlement and it is anticipated that the buyer will take advantage of this discount.

14 Costs of $10,000 relating to special plant and machinery have been included in cost of sales in error This was not spotted until after the production of the draft accounts.


(a) Prepare an income statement for the year ended 31 December 20X6 and a balance sheet at that date for presentation to the members of Raffles Ltd in accordance with relevant accounting standards.

(b) Produce detailed notes to the income statement and balance sheet of Raffles Ltd for the year ended 31 December 20X6.

Question 5

Phoenix plc trial balance at 30 June 20X7 was as follows:



Freehold premises


Plant and machinery



Furniture and fittings



Inventory at 30 June 20X7




Administrative expenses


Ordinary shares of £1 each


Trade investments


Revaluation reserve


Development cost


Share premium


Personal ledger balances



Cost of goods sold


Distribution costs


Overprovision for tax


Dividend received


Interim dividend paid


Retained earnings


Disposal of warehouse


Cash and bank balances


The following information is available:

1 Freehold premises acquired for £1.8 million were revalued in 20X4, recognising a gain of £600,000. These include a warehouse, which cost £120,000, was revalued at £150,000 and was sold in June 20X7 for £225,000. Phoenix does not depreciate freehold premises.

2 Phoenix wishes to report Plant and Machinery at open market value which is estimated to be £1,960,000 on 1 July 20X6.

3 Company policy is to depreciate its assets on the straight-line method at annual rates as follows:

Plant and machinery 10%

Furniture and fittings 5%

4 Until this year the company's policy has been to capitalise development costs, to the extent permitted by relevant accounting standards.The company must now write off the development costs, including £124,000 incurred in the year, as the project no longer meets the capitalisation criteria.

5 During the year the company has issued one million shares of £1 at £1.20 each.

6 Included within administrative expenses are the following: Staff salary (including £125,000 to directors) £468,000 Directors' fees £96,000 Audit fees and expenses £86,000

7 Income tax for the year is estimated at £122,000.

8 Directors propose a final dividend of 4p per share declared and an obligation, but not paid at the year-end.


(a) In respect of the year ended 30 June 20X7: The income statement.

(b) The balance sheet as at 30 June 20X7.

(c) The statement of movement of property, plant and equipment.

(d) The statement of recognised gains and losses.

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    What is accrue auditors remuneration?
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