Chapter 5 Rhetorical Modes
2. DESCRIPTION
Land 0% on cost
Building 10% on cost
Plant and equipment 20% on cost
Motor vehicles 25% on reducing balance Furniture and fittings 15% on reducing balance Required:
a. Prepare the following statements for internal use:
b. Statement of profit or loss and other comprehensive income for the year ended 30th September, 20x5
c. Statement of Financial Position at 30th September, 20x5 Solution
Tutorial notes
1. Closing inventory: since the NRV of N420m is lower than the cost value of $500m, it means that, the closing inventor should be recognized at N420m (IAS 2) while the cost value of N500m should be ignored.
2. Accrued insurance and rate: The accrued insurance and rate of N60m should be recognized under current liabilities in the SOFP. In the income statement, the accrued expense of N60m will be added to the trial balance value of N140m (i.e. N60m + N140m = N200m.
3. Prepaid wages: The prepaid usages of N30m should be recognized under current asset (after trade receivables) in the SOFP. The prepaid wages of 30m will be subtracted from the trial balance value of N200,000 in the income statement,
4. Provision for income (corporate) tax: The provision for income tax of $180m should be recognized under current liabilities in the SOFP. The N180m tax provision will be subtracted from profit before tax in order to derive profit for the year in the income statement.
Goodness Plc
Statement of Profit or Loss year ended 30 September, 20x5 N’000 N’000
Sales 1,800,000
Less returns inwards (120,000)
Net sales 1,680,000
Less cost of sales
Opening inventory 300,000
Add purchases 950,000
Less returns outwards (100,000)
Cost of goods available for sale 150,000
Less closing inventory (nt 1) (420,000)
Cost of goods sold (730,000)
Gross Profit 950,000
Add other incomes
Commission received 150,000
Investment income 120,000
Other incomes 510,000 780,000
Total incomes 1,730,000
Less expenses
Salaries & wages (200,000 – 30,000) 170,000
Directors remunerations 150,000
Insurance & rates (140,000+60,000) 200,000
Loan interest 56,000
Sundry expenses 100,000
Depreciation charges
Buildings 40,000
Plant and equipment 70,000
Motor vehicles 55,000
Furniture & fittings 82,500 (923,500)
Profit before tax (PBT) 806,500
Taxation (note 4) (180,000)
Profit for the year 626,500
Calculation of movement in retained earnings
N’000 Retained earnings in the trial balance 310,500
Add profit for the year 626,500
Less dividends paid (0)
SOFP retained earnings 937,000
Statement of financial position as at 30 September 20x5
Non-current assets Cost Accum. Dep Carrying amount
N’000 N’000 N’000
Land 250,000 0 250,000
Buildings 400,000 150,000 250,000
Plant and equipment 350,000 290,000 60,000
Motor vehicles 350,000 185,000 165,000
Furniture & fittings 550,000 82,500 467,500
1,900,000 707,500 1,192,500
Long-term investment 400,000
1,592,500 Current assets
Inventory 420,000
Trade receivables 250,000
Prepaid wages 30,000
Short term investments 200,000
Cash in hand 150,000 1,050,000
Total assets 2,642,500
Equity & Liabilities
Equity (capital & reserves):
Ordinary share capital 150,000
Share premium 230,000
Revaluation surplus 80,000
Retained earnings (from movement in retained earnings) 937,000 1,297,000 Non-current liability
Long-term loans 250,000
Current liabilities
Short-term loan 280,000
Bank overdraft 475,500
Taxation (nt 4) 180,000
Accrued insurance and rates 60,000 995,500
Total equity and liabilities 2,642,500
4.0 CONCLUSION
Preparation of final account of a limited company for both internal users and external users (public) is crucial in financial accounting.
5.0 SUMMARY
This unit discussed in detail the accounting and recommended format guiding the preparation of final account of a limited company. Peculiar features are clearly explained and accounting treatment of each element.
6.0 TUTOR MARKED ASSIGNMENT
1. List 5 peculiar features of a Company Financial Statement 2. Explain the following terms:
i. Authorised share capital ii. Paid up capital
iii. Reserves capital iv. Allotment of shares v. Under-subscription
3. OGO OLUWA Ltd presents to you the following list of balances of 31st December 20x1 N
200,000 ordinary shares of N1 each 200,000
Cash and bank balances 39,686
Freehold Premises 50,000
Wages and Salaries 21,400
Profit and Loss Account 1/1/20x1 2,500
Discount allowed 6,450
Purchases 281,600
Trade Debtors 30,030
Interim Preference Dividend 3,000
50,000 8% Preference shares of N1 each 50,000
Provision for bad debts 1/1/20x1 905
Return inwards 10,300
Debenture interest 3,000
10% Debenture Interest 50,000
Interim Ordinary dividend 5,000
Directors fees 15,600
Share premium 8,000
Postages and telephone 5,800
General reserves 10,000
Plant and machinery (cost N300,000) 180,000
Insurance expenses 2,000
Trade creditors 20,020
Return outwards 17,350
Sales 409,641
Stock 1/1/20x1 23,800
Discount received 9,250
Additional information are as follows:-
(a) The authorised share capital of the company is N400,000 ordinary share of N1 each and 100,000 8% preference share of N1 each.
(b) Stock on 31st December 20x4 was N27,280
(c) During the year, goods worth N6,500 were lost to theft. No entry had been made in the books to reflect this.
(d) Insurance prepaid was N200
(e) During the year a plant originally costing N50,000 and on which N30,000 depreciation had been provided was sold for N22,000. The proceeds were included in sales.
(f) Depreciation has been and is to be provided on plant and machinery at 10% on cost.
(g) Provision for bad debt is to be maintained at N2,500
(h) The directors wish to provide for (i) a final preference dividend (ii) a final ordinary dividend of 5%.
You are required to prepare:
(a) Statement of Profit and Loss and other comprehensive income.
(b) Appropriation accounts for the year ended 31st December 20x1 (c) Statement of financial position as at that date.
7.0 REFERENCES/FURTHER READING
Akeju, J. B. (2011) “Financial Accounting for Beginners, JBA Associate Ltd, Shomolu Lagos.
Anao, A.R. (2009) “An Introduction to Financial Accounting” Longman Nigeria Plc, Ikeja, Lagos. 2nd Edition.
Igben, R.O. (2009) “Financial Accounting Made Simple, Vol. 2, ROI Publishers, Isolo, Lagos. 3rd Edition
Institute of Chartered Accountant of Nigeria, Financial Accounting, Study Pack Lagos.
Ishola, K. A. (2012) “Foundation in Accounting for Tertiary Institutions (In compliance with the Requirements of International Financial Reporting Standards)”, Lavgark (Nigeria Publishers) Limited, Ilorin.
Jennings, A. R., (2001), Financial Accounting, London, Letts Educational
Wood, F. and Horner D. (2010), Business Accounting Basics, Pearson Education Limited, Edinburgh Gate Harlow, England
Salawu, R.O. (2017) “Financial Accounting for the Professionals”, OAU Press Limited, Ile-Ife.
Siyanbola, T.T. (2015) “Advanced Financial Accounting (IFRS Compliant)”, Gastos Consults Educational Publisher, Lagos.
The Institute of Cost Accountants of India (2013), Financial Accounting, Intermediate Study note, CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
MODULE 4: INTRODUCTION TO INTERPRETATION OF ACCOUNTS AND