Chapter 5 Rhetorical Modes
3. Implied Point
This represents the revaluation surplus from the revaluation of non-current assets during the current period or year,
Example 1
The following trial balance is extracted from the books of Joloade Ltd as an 31st December, 2013.
PARTICULARS Dr Cr
N N
Inventory 1/1/2013 10,000
Sales 95,250
Purchases 65,340
Carriage Inwards 440
Carriage outwards 160
Debtors and Creditors 21,000 23,000
Ordinary share capital 100,000
7% Preference share capital 30,000
6% Debentures 24,000
Goodwill 20,050
Preliminary expenses 3,210
Land and Building 45,000
Equipment 35,000
Motor vehicle 55,000
Bank 28,560
Cash in hand 24,000
Provision for depreciation: Equipment 3,050
Motor vehicle 4,300
General reserve 13,200
Share premium 5,000
Interim ordinary dividend 4,050
Profit and loss 28,200
Motor expenses 780
General expenses 480
Debenture interest 740
Rates 1,520
Salaries & Wages 4,370
Directors remuneration 4,250
Auditors remuneration 2,050 _______
326,000 326,000 Additional Information:
i. Inventory at 31/12/2013 was N30,000.
ii. Accrued debenture interest and salary are N700 and N250 respectively.
iii. Transfer N4100 to general reserve
iv. Authorized share capital is N50,000 in Preference shares and N300,000 in ordinary shares.
v. Provision for depreciation: Motor vehicle – N4,5000 Equipment - N2,300 vi. Write off goodwill N1,500; Preliminary expenses N3,210 vii. Corporation Tax – N2,500
viii. Provide for preference dividend N2,100 and final ordinary dividend of 5%. You are required to prepare the final accounts of Jolaade Ltd for the year ended 31st December, 2013.
Solution to Example 1
Jolaade Ltd
Dr Trading, Profit and Loss Account for the year ended 31st December 2013 Cr
N N N
Opening inventory 10,000 Sales
95,250
Add: Purchases 65,340
Carriage Inwards 440 65,780
75,780
Less: Closing Stock 30,000
COST OF GOODS SOLD 45,780
GROSS PROFIT 49,470 _____
95,250 95,250
Expenses: Gross profit b/d 49,470
Carriage outwards 160
Salaries & Wages(wk1) 4,620
Directors remuneration 4,250
Auditors remuneration 2,050
Rates 1,520
Motor expenses 780
Debenture Interest (wk2) 1,440
General expenses 480
Depreciation: Motor vehicle 4,500
Equipment 2,300
NET PROFIT 27,370 _____
49,470 49,470
Dr Appropriation Account Cr
N N
Goodwill 1,500 Net profit b/d
27,370
General reserve 4,100 Profit from last year 28,200
Preliminary expenses written off 3,210
Corporation tax 2,500
Ordinary dividend: Interim 4,050 Final(wk6) 5,000 Preference dividend – Final 2,100
Retained Profit 33,110 _____
55,570 55,570
Statement of Financial Position As At 31st December, 2013
N N N N N
Authorized Share Capital: Non-Current Assets: Cost Depr NBV Ordinary share capital 300,000 Land & Building 45,000 - 45,000 Preference share capital 50,000 Motor vehicle 55,000 8,800 46,200
350,000 Equipment 35,000 5,350 29,650
Issued share capital: 135,000 14,150120,850
Ordinary share capital 100,000 Goodwill (wk3) 18,550 Preference share capital 30,000
130,000 Reserves:
Share premium 5,000
General reserve(wk5) 17,300
Retained profit 33,110 55,410
Long Term Liabilities Current Assets:
6% Debenture 24,000 Inventory 30,000
Current Liabilities: Debtors 21,000
Creditors 23,000 Bank 28,560
Debenture accrued 700 Cash 24,000
103,560
Salary accrued 250
Corporation tax 2,500
Proposed Dividend:
Ordinary shares (wk6) 5,000
Preference shares 2,100 33,550 ______
242,960 242,960
Workings (contd):
1. Ordinary shares dividend: 5% x N100,000 = N5,000 2. Depreciation:
a. Motor vehicle: N4,300 + N4,500 = N8,800 b. Equipment: N3,050 + N2,300 = N5,350 Workings
Dr Salaries and Wages A/c Cr
N N
Bal b/f 4,370 Bal c/d 4,620 Accrual 250
4,620 4,620
Dr Goodwill Cr
N N
Bal b/d 20,050 Written off 1,500 Bal c/d 18,550
20,050 20,050
Dr Cr
N N
Bal b/f 4,370 Bal c/d 4,620 Accrual 250
4,620 4,620
Example 2
Goodness Plc is an established merchandising business making accounts annually to 30th September.
The following is the trial balance of the company as at 30th September, 20x5
Dr Cr
N’000 N’000
Ordinary shares of 50k each 150,000
Share premium 230,000
Revaluation surplus 80,000
Retained earnings 310,500
Sales 1,800,000
Purchases 950,000
Inventory at 1st October 20x4 300,000
Returns inwards 120,000
Returns outwards 100,000
Salaries and wages 200,000
Directors remunerations 160,000
Insurance and rates 140,000
Land 250,000
Building at cost 400,000
Accumulated depreciation on building 110,000
Plant and equipment at cost 850,000
Accumulated depreciation on plant and equipment 220,000
Motor vehicles at cost 350,000
Accumulated depreciation on motor vehicles 130,000
Furniture and fitting at cost 550,000
Accumulated depreciation on F&F 200,000
Trade receivables 250,000
Trade payables 310,000
Long term investment 400,000
Short term investment 200,000
Cash in hand 150,000
Long term loan 250,000
Investment income 120,000
Commission received 150,000
Other income 510,000
Short term loan 280,000
Loan interest 56,000
Sundry expenses 100,000
Bank overdraft - 475,500
5,426,000 5,426,000
Relevant notes
i. Inventory at 30th September 20x5, valued at cost was N500 millions. Its net realizable value is estimated at N420 million as a result of obsolescence.
ii. At 30th September, insurance and rates outstanding amounted to N60 million.
iii. At 30th September, prepaid wages amounted to $30 million.
iv. Provision for corporation tax of N180 million is to be made on the profit for the year.
v. The company depreciates non-current assets as follows:
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.