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Financial reporting exercises

Exercise 1: The following is the statement of financial position of Moon’s business at 1 Jan of
last year
£
£
ASSETS
Non-current assets
Property land and equipment
Buildings
20,000
Fitting: Cost
15,000
Depreciation
2,000
13,000
Current assets
Inventories of stationery
130
Trading inventories
1,350
Prepaid Rent
500

Trade receivables
1,840
Cash
2,180
6,000
Total assets
39,000
EQUITY AND LIABILITIES
Owner’s equity
Non-current liability
Borrowings
Current liabilities
Trade payables
Accrued electricity
Total equity and liabilities

20,050
17,000
1,680
270
1,950
39,000

The following is the summary of the transactions that took place during the year:
1. Inventories were bought on credit for £17,000
2. Inventories were bought for £3,700 cash
3. Credit sales revenue amounted to £33,000 (cost £15,000)
4. Cash sales revenue amounted to £10,300 (cost £4,900)
5. Wages of £3,700 were paid
6. Rent of £3,000 was paid. The annual rental amounts to £3,000
7. Electricity of £1,000 was paid
8. General expense of £500 was paid
9. Additional fittings were purchased on 1 Jan for £2,000. The cash for this was raised from
additional borrowings of this amount. The interest rate is 15% a year, the same as for
existing borrowings
10. £1,500 of the borrowings was repaid on 30 June.
11. Cash received from trade payables amounted to £32,800
12. Cash paid to trade payables amounted to £18,000
13. The owner withdraw £10,000 cash and £500 inventories for private use.



At the end of the year it was found that:
a. The electricity bill for the last quarter of the year for £300 had not been paid
b. Trade receivables amounting to £250 were unlikely to the received. (Bad debt)
c. The value of stationery remaining was estimated at £150. Stationery is included in
general expense
d. The borrowings carried interest of 15% a year and were unpaid at the year end
e. Depreciation to be taken at 15% on the cost of the fittings owned at the year end.
Buildings are not depreciated.
You are required to:
a. Prepare open ledger accounts and bring down all the balances in the opening statement
of financial position.
b. Make entries to record the transactions 1 to 13 and abcde (adjusting entries (above),
opening any additional accounts as necessary.
c. Open an income statement (part of the double entry, remember). Make the necessary
entries for the bulleted list above and the appropriate transfers to the income statement
d. List the remaining balances in the same form as the opening statement of the financial
position (above).


JOURNAL ENTRIES
Date
Transaction
Dec 31/ Trading inventories
1
Trade payables
To record credit buying inventories
2

3

4

5

6

7

8

9

10

Trading inventories
Cash
To record buying inventories cash

Folio

Debit
17,000

17,000
3,700
3,700

Trade receivable
Sales revenue
Cost of sales
Trading inventories
To record credit sales

33,000

Cash
Sales revenue
Cost of sales
Trading inventories
To record cash sales

10,300

33,000
15,000
15,000

10,300
4,900
4,900

Wages expense
Cash
To record wages payment

3,700

Rent expense
Cash
To record rent payment

3,000

Electricity expense
Cash
To record electricity payment

1,000

General expense
Cash
To record general payment

PAGE 1
Credit

3,700

3,000

1,000
500
500

Fitting cost
Borrowings
To record purchasing fittings

2,000

Borrowings
Cash

1,500

2,000

1,500


To record repaid borrowings
JOURNAL ENTRIES
Date
Transaction
11
Cash
Trade receivables
To record cash received
12

13

a

b

c

d

Folio

Debit
32,800

32,800

Trade payable
Cash
To record payment of trade payable

18,000

Moon’s equity
Cash
Trading inventories
To record withdraw

10,500

Electricity expense
Accrued electricity
To record electricity payable
Bad debt expense
Allowance for bad debt
To record bad debt
Inventories of Stationery
General expense
To record remaining of stationery
Interest expense (borrowings) 1st
Interest on borrowings payable
Interest expense (borrowings) 2nd
Interest on borrowings payable
To record interest payables

PAGE 2
Credit

18,000

10,000
500
30
30
250
250
20
20
1,425
1,425
1,312.5
1,312.5

1st: (17,000 + 2,000) x 15% x 6/12
2nd (19,000 – 1,500) x 15% x 6/12
e

Depreciation expense _ fittings
Accumulated depreciation
To record depreciation of fittings
(15,000 + 2,000) x 15%

2,550
2,550


Buildings

Account No.

Date

Items

Beg
Dec 3
1

Foli
o

BS

c/d

Debit

Date

Items

Dec 3
1

20,000

Account No.
Items

Beg
Borrowings
c/d

Foli
o

Debit

BS
J1

15,000
2,000
17,000

Date

Items

Fitting depreciation (Accumulated)
Date

Items

Foli
o

Debit

Date

Items

Cash

Foli
o

J1

c/d

Debit

Date

Items

Credit

2,000
2,550
4,550

J2

Credit

20

480

Items

Beg
Trade payable
Cash
c/d

Account No.
Foli
o

Debit

BS
J1
J1

1,350
17,000
3,700
1,650

Date

Items

COS
COS
Owner’s equity

Cost of sales
Date

BS
J1

Foli
o

Inventories of stationery

500

Trading inventories

Dec 3
1

Credit

Account No.
Items

Date

Foli
o

Beg
Depreciation expense
c/d

General Expense

Dec 3
1

Foli
o

Account No.

Dec 3
1

Date

Credit

20,000

Fittings cost
Date

Foli
o

Foli
o

Credit

J1
J1
J2

15,000
4,900
500

Account No.
Items

Trading inventories

Foli
o

Debit

J1

15,000

Date

Items

Foli
o

Credit


Dec 3
1

Trading inventories
c/d

J1

4,900
19,900


Rent expense

Account No.

Date

Items

Cash
Dec 3
1

Foli
o

J1

c/d

Debit

Date

Items

Dec 3
1

3,000

Account No.
Items

Beg
Sales revenue
c/d

Foli
o

Debit

BS
J1

1,840
33,000
2,040

Foli
o

Debit

BS
J1
J2

2,180
10,300
32,800

Date

Items

Cash

Cash

Foli
o

Credit

J2

32,800

Account No.

Date

Items

Beg
Sales revenue
Trade receivables

Dec 3
1

Credit

3,000

Trade receivables
Date

Foli
o

c/d

Date

Items

Trading inventories
Wages expense
Rent Expense
Electricity expense
General expense
Borrowings
Trade payables
Owner’s Equity

Cash
Trading inventories

Foli
o

Debit

J2
J2

10,000
500

Date

Items

Beg
Dec 3
1

3,700
3,700
3,000
1,000
500
1,500
18,000
10,000

Foli
o

Credit

BS

20,050

c/d

9,550

Borrowings

Account No.
Items

Cash

J1
J1
J1
J1
J1
J1
J2
J2

Account No.
Items

Date

Credit

3,880

Owner’s Equity
Date

Foli
o

Foli
o

J1

Debit

Date

1,500
Dec 3
1

Items

Beg
Fitting cost
c/d

Foli
o

Credit

BS
J1

17,000
2,000
17,500



Trade payables
Date

Account No.
Items

Cash

Foli
o

Debit

Date

J2

18,000
Dec 3
1

Items

Beg
Trading inventories
c/d

Electricity expense
Date

Dec 3
1

Foli
o

Debit

J1
J2

Date

Items

Foli
o

Credit

Account No.
Items

Foli
o

Debit

Date

Items

Dec 3
1

Trade receivables
Cash
c/d

Wages expense

Foli
o

Credit

J1
J1

33,000
10,300
43,300

Account No.
Items

Foli
o

Debit

Date

Items

Cash
Dec 3
1

Items

c/d

3,700
3,700

Foli
o

Debit

Date

Items

Interest expense
Interest expense
c/d

Depreciation expense

Fitting depreciation

Credit

Account No.

Dec 3
1

Items

Foli
o

J1

Interest on borrowings payables

Date

1,680
17,000
680

1,030

Date

Date

BS
J1

1,000
30

Sales revenue

Date

Credit

Account No.

Items

Cash
Accrued Electricity
c/d

Foli
o

Foli
o

Credit

J2
J2

1,425
1,312.5
2,737.5

Account No.
Foli
o

J2

Debit

2,550

Date

Items

Foli
o

Credit


Dec 3
1

c/d

2,550


Prepaid rent

Account No.

Date

Items

Beg
Dec 3
1

Foli
o

BS

c/d

Debit

Date

Items

500

Items

Account No.
Foli
o

Debit

Date

Dec 3
1

Items

Beg
Electricity expense
c/d

Bad Debt expense
Date

Items

Foli
o

J2

c/d

Debit

Date

Items

Foli
o

Debit

Date

Dec 3
1

Items

Items
Interest on borrowings
Interest on borrowings

Foli
o

J2

c/d

Credit

Credit

250
250

Interest expense (borrowings)

c/d

Foli
o

Account No.
Bad debt expense

Dec 3
1

270
30
300

250

Items

Date

BS
J2

Credit

250

Allowance for bad debt
Date

Foli
o

Account No.

Allowance for bad debt

Dec 3
1

Credit

500

Accrued electricity
Date

Foli
o

Account No.
Foli
o

Debit

J2
J2

1,425
1,312.5
2,737.5

Date

Items

Foli
o

Credit


MOON COMPANY
ADJUSTED TRIAL BALANCE
December 31, 20XX
£
Buildings
Fittings
Accumulated depreciation
Inventories of stationery
Trading inventories
Prepaid rent
Trade receivables
Cash
Owner’s equity
Borrowings
Trade payables
Accrued electricity
Bad debt expense
Allowance for bad debt
General expense
Interest on borrowings payable
Cost of sales
Sales revenue
Wages expense
Interest expense (borrowings)
Electricity expense
Depreciation expense
Rent expense
Total

£
20,000
17,000
4,550
150
1,650
500
2,040
3,880
9,550
17,500
680
300
250
250
480
2,737.5
19,900
43,300

3,700
2,737.5
1,030
2,550
3,000
78,867.5

_______
78,867.5


MOON COMPANY
INCOME STATEMENT
For the year ended 31 Dec 20XX
£
Sales revenue
Less Cost of sales
Gross profit
Less expense
General
Wages
Interest
Rent
Electricity
Bad debt
Depreciation
Net profit

£
43,300
(19,900)
23,400

480
3,700
2,737.5
3,000
1,030
250
2,550
13,747.5
9,652.5


MOON COMPANY
BALANCE SHEET
As at Dec 31, 20XX
£
ASSETS
Non-current assets
Property plant and equipment
Buildings
Fittings: Cost
Depreciation
Allowance for bad debt
Current assets
Inventories of stationery
Trading inventories
Prepaid rent
Trade receivables
Cash
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Plus net profit
Noncurrent liabilities
Interest payables (borrowings)
Borrowings
Current liabilities
Trade payables
Accrued electricity
Total equity and liabilities

£

20,000
17,000
4,550

12,450
(250)
150
1,650
500
2,040
3,880
40,420
9,550
9,652.5
2,737.5
17,500
680
300
40,420

Company Accounts
The following balances have been extracted from the books of Moon Limited as at 31 December
20XX


Freeland
Building
Equipment
Receivables
Raw materials inventories at 31/12/20XX
Finished goods inventories 01/01/20XX
Cash in bank
Cash in hand
Raw materials and consumables used
Employee benefit expense
Miscellaneous expenses
Investment in shares
Finance costs
Bad debts
Repairs and maintenance
Advance income tax

Income from investments
Provision for bad debts
Trade payables
Accrued preference dividend payable
Provision in expenses
Accumulated depreciation - Buildings
Accumulated depreciation - Equipment
Suspense account
Equity share $1 each
9% preference shares
Share premium
Bank overdraft
Bank term loan (of which $20,000 due
within 1 year)
Sales
Retained earnings

$500,000
437,500
162,500
375,000
150,000
125,000
12,500
2,500
675,000
150,000
20,000
450,000
7,500
2,500
3,750
15,000
3,088,75
0
10,000
5,000
55,000
90,000
30,000
37,500
15,000
15,000
916,250
250,000
25,000
231,250
150,000
1,250,00
0
8,750
3,088,75
0

The following addition details are relevant:
1. Provision of bad debts is to be maintained at 10% of trade receivables
2. The land was revalued at $700,000 but the effect is yet to be given in the accounts
3. The suspense account represented the following


Surplus on physical verification of inventory
$15,000
4. Provision for income tax
$ 80,000
5. Market value of investments (ignore deferred tax) $455,000
6. CEO is entitled for a remuneration of
$15,500
7. Depreciation to be charged per annum using straight line method
Building 3%
Equipment 5%
8. Dividend on preference shares is in arrears for 5 years. The board has decided to pay dividend
for 4 years
9. Bills receivable maturing after the reporting date and discounted amounted to $ 18,000
10. Finished goods and work in process inventories at 31/12/20XX $140,000
11. Tax rate for the year is 25%
You are required to: Prepare financial statements from incomplete records. Prepare financial
statements in a form suitable for publication by sole trader.

Moon Company Ltd
Statement of financial position
As at 31 December 20XX


Cost

Calculate retained earnings
£
Retained earnings, Jan 1
Add net income

£
8,750
287,00


0
295,75
0
22,500
273,25
0

Less preference dividend
Retained earning Dec 11

Moon Company Ltd
Statement of Comprehensive Income
For the year ended 31 December 20XX

Date

Items
Beg

Dec

3
1

c/d

Foli
o
BS

Debit

Date

25,000
Fittings cost

Items

Foli
o

Credit


Date

Dec

3
1

Items
Beg
Borrowings
c/d

Date

Items
Cash

3
1

Dec

3
1

Dec

3
1

J1

Items
Trading inventories
Trading inventories
c/d

Items
Cash

3
1

Date

Items

Foli
o

Credit

10,000
2,000
12,000

580

Items

Folio
BS
J2

Credit
2,000
2,400
4,400

Foli
o
J2

Credit

Foli
o
J1
J1
J2

Credit

Items

Foli
o

Credit

Items

Foli
o

Credit

Items

Foli
o
J2

Credit

Inventories of stationery

10

570

Beg
Trade payable
Cash
c/d

Date

Dec

Folio

Items

Date

Date

General Expense
Debit
Date

c/d

Date

Debit

Fitting depreciation (Accumulated)
Folio
Debit
Date
Items
Beg
Depreciation expense
Dec 31 c/d

Items

Date

Dec

Foli
o
BS
J1

Foli
o
BS
J1
J1

Foli
o
J1
J1

Foli
o
J1

c/d

Trading inventories
Debit
Date
1,350
17,220
3,760
1,650

Items
COS
COS
Owner’s equity

Cost of sales
Debit
Date

15,220
4,900
560

15,220
4,900
20,120
Rent expense
Debit
Date
3,000
3,000

Items
Beg
Sales revenue

Foli
o
BS
J1

Trade receivables
Debit
Date
1,840
33,100

Cash

32,810


Dec

3
1

c/d

Date

2,130

Items
Beg
Sales revenue
Trade receivables

Dec

3
1

Foli
o
BS
J1
J1

c/d

Date

Cash
Debit

Date

2,180
10,360
32,810

Trading inventories
Wages expense
Rent Expense
Electricity expense
General expense
Borrowings
Trade payables
Owner’s Equity

Cash
Trading inventories

Foli
o
J2
J2

Owner’s Equity
Debit
Date
10,400
560

Items
Cash

Foli
o
J1

Cash

Foli
o
J2

1,000

Dec

3
1

Items
Cash
Accrued Electricity
c/d

Foli
o
J1
J2

3
1

Trade payables
Debit
Date
18,150
Dec

Date

3
1

Borrowings
Debit
Date

Dec

Items

Items
Beg

Dec

Date

Foli
o
J1
J1
J1
J1
J1
J1
J2
J2

Credit

Foli
o
BS

Credit

3,760
3,770
3,000
1,070
580
1,000
18,150
10,400

3,620

Items

Date

Items

3
1

Electricity expense
Debit
Date
1,070
20
1,090
Sales revenue

c/d

25,050
14,090

Items
Beg
Fitting cost
c/d

Items
Beg
Trading inventories
c/d

Items

Foli
o
BS
J1

Credit

Foli
o
BS
J1

Credit

Foli
o

Credit

12,000
2,000
13,000

1,690
17,230
760


Date

Items

Foli
o

Debit

Date

Dec

Date

Items

Foli
o

Items
Trade receivables
Cash
c/d

3
1

Credit
33,100
10,360
43,460

Wages expense
Debit
Date

Items
Cash

Dec

Foli
o
J1
J1

3
1

Foli
o
J1

c/d

Credit
3,770
3,770

Interest on borrowings payables
Date

Items

Foli
o

Debit

Date

Dec

3
1

Items
Interest expense
Interest expense
c/d

Foli
o
J2
J2

Credit

Foli
o

Credit

700
650
1350

Depreciation expense
Date

Items
Fitting depreciation

Dec

3
1

c/d

Foli
o
J2

Debit
2,400
2,400

Date

Items


Prepaid rent
Date

Items

Beg
Dec

3
1

Foli
o
BS

c/d

Debit

Date

Items

Foli
o

Credit

Date

Items

Foli
o
BS
J2

Credit

500
500

Accrued electricity
Date
Items

Foli
o

Debit

Dec

3
1

Beg
Electricity expense
c/d

270
20
290

Bad Debt expense
Date

Items
Allowance for bad
debt

Dec

3
1

Foli
o
J2

c/d

Debit

Date

Items

Foli
o

Credit

Date

Items

Foli
o
J2

Credit

260
260

Allowance for bad debt
Date
Items

Foli
o

Debit

Bad debt expense
Dec

3
1

c/d

260
260

Interest expense (borrowings)
Date

Dec

3
1

Items
Interest on
borrowings
Interest on
borrowings
c/d

Foli
o
J2
J2

Debit

Date

Items

Foli
o

Credit

700
650
1,350

The following is the statement of financial position of Moon’s business at 1 Jan of last year
The following is the summary of the transactions that took place
£
£
during the year:
ASSETS
14.
Inventories were bought on credit for £17,000
Non-current assets


Property land and equipment
Buildings
Fitting: Cost
Depreciation
Current assets
Inventories of stationery
Trading inventories
Prepaid Rent
Trade receivables
Cash
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liability
Borrowings
Current liabilities
Trade payables
Accrued electricity
Total equity and liabilities

15.

15,00
0
2,000

Inventories were bought for £3,700 cash

20,000 16.

Credit sales revenue amounted to £33,000 (cost £15,000)

17.
13,000 18.
19.
20.
130
21.
1,350
22.

Cash sales revenue amounted to £10,300 (cost £4,900)
Wages of £3,700 were paid
Rent of £3,000 was paid. The annual rental amounts to £3,000
Electricity of £1,000 was paid
General expense of £500 was paid
Additional fittings were purchased on 1 Jan for £2,000. The

500
cash for this was raised from additional borrowings of this amount.
1,840
The interest rate is 15% a year, the same as for existing borrowings
2,180 23.
£1,500 of the borrowings was repaid on 30 June.
6,000 24.
Cash received from trade payables amounted to £32,800
39,000 25.
Cash paid to trade payables amounted to £18,000

26.
20,050
17,000
1,680
270
1,950
39,000

The owner withdraw £10,000 cash and £500 inventories for
private use.
At the end of the year it was found that:
f. The electricity bill for the last quarter of the year for £300 had not
been paid
g. Trade receivables amounting to £250 were unlikely to the received.
(Bad debt)
h. The value of stationery remaining was estimated at £150. Stationery
is included in general expense
i. The borrowings carried interest of 15% a year and were unpaid at the
year end
j. Depreciation to be taken at 15% on the cost of the fittings owned at
the year end. Buildings are not depreciated.
You are required to:
e. Prepare open ledger accounts and bring down all the balances in the
opening statement of financial position.
f. Make entries to record the transactions 1 to 13 and abcde (adjusting
entries (above), opening any additional accounts as necessary.
g. Open an income statement (part of the double entry, remember).
Make the necessary entries for the bulleted list above and the
appropriate transfers to the income statement
h. List the remaining balances in the same form as the opening
statement of the financial position (above).

JOURNAL ENTRIES
Date

T


Dec

31/1

T

2

T

3

T

C
4

C

C
5

W

6

R

7

E

8

G

9

F

10

B

11

C

12

T

13

M

a

E

b

B


c

In

d

In

In

1s
2n
D

e

Buildings
Date

Items

Folio
BS

Beg

Debit
20,000

Date

Dec 31 c/d
20,000
Fittings cost
Date
Items
Folio
Debit
Beg
BS
15,000
Borrowings
J1
2,000
Dec 31 c/d
17,000
Fitting depreciation (Accumulated)
Date
Items
Folio
Debit
Date
Dec
General Expense
Date
Items
Cash

Folio
J1

Debit
500

Date

Date

Items

Account No.
Folio
Credit

Items

Account No.
Folio
Credit

Items

31

Beg
Depreciation expense
c/d

Items
Inventories of stationery

Dec 31 c/d
480
Trading inventories
Date
Items
Folio
Debit
Date
Items
Beg
BS
1,350
COS
Trade payable
J1
17,000
COS
Cash
J1
3,700
Owner’s equity
Dec 31 c/d
1,650
Cost of sales
Date
Items
Folio
Debit
Date
Items
Trading inventories
J1
15,000
Trading inventories
J1
4,900
Dec 31 c/d
19,900

Account No.
Folio
Credit
BS
2,000
J1
2,550
4,550
Account No.
Folio
Credit
J2
20
Account No.
Folio
Credit
J1
15,000
J1
4,900
J2
500
Account No.
Folio
Credit


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