MGT101 - Financial Accounting - I - Lecture Handout 40

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FINANCIAL STATEMENTS OF LIMITED COMPANIES (Continued)

Question

Following trial balance has been extracted from the books of Alpha Ltd. as on June 30, 2002.

You are required to prepare the profit and loss account for the year and the Balance Sheet as at June 30, 2002.

Alpha Limited
Trial Balance
As at June 30, 2002
Title of Account Dr. Rs. Cr. Rs.
Paid up capital   175,000
10 % Debentures   75,000
Building at Cost 237,500  
Equipment at Cost 20,000  
Vehicles at Cost 43,000  
Accumulated Dep. – Building   11,250
Equipment   6,000
Vehicles   12,900
Stock Opening Balance 12,900  
Sales   245,500
Purchases 134,775  
Carriage Inward 4,050  
Salaries and Wages 23,100  
Directors Remuneration 15,750  
Vehicle Running Expenses 20,300  
Insurance 7,325  
Miscellaneous Expenses 1,400  
Markup on Debentures 3,750  
Debtors 46,525  
Creditors   28,425
Bank 20,975  
General Reserve   12,500
Share Premium Account   35,000
Interim Dividend Paid 8,750  
Accumulated Profit and Loss account   42,350
TOTAL 643,925 643,925

Additional Information:

  • Closing stock Rs. 68,050.
  • Depreciation Building 5,000, Vehicles Rs 7,500, Equipment 3,000.
  • Six months Debenture markup is to be accrued.
  • 10% final dividend is to be paid in addition to interim dividend.
  • Transfer Rs. 5,000 to general reserve.
  • Authorized share capital is Rs. 250,000 divided in to 25,000 shares of Rs. 10 each.
  • Provision for Income Tax to be made Rs. 12,500.

Solution:

Balance Sheet

Alpha Ltd.
Balance Sheet
As At June 30, 2002
Particulars Note Amount Rs.
Fixed Assets at WDV 1 254,850
Current Assets
Debtors
Stock in Trade
Bank Balance
  46,525
68,050
20,975
    135,550
Current Liabilities
Creditors
Proposed Dividend
Debenture Markup Payable
Provision for Tax
  28,425
17,500
3,750
12,500
    62,175
Working Capital   73,375
Net Assets Employed   328,225
Financed By:
Authorized Capital
25,000 Shares of Rs. 10 each
  250,000
Paid Up Capital
17,500 shares of Rs. 10 each
Share Premium
General Reserve (12,500 + 5,000 transferred from P & L)
Accumulated Profit and Loss Account
  175,000
35,000
17,500
25,725
Share Holders’ Equity
Debentures
  253,225
75,000
Total   328,225

Profit & Loss Account

Alpha Ltd
Profit and Loss Account
For the Year Ended June 30 2002
Particulars Note Rs.
Sales   245,500
Less: Cost of Goods Sold   127,500
Gross Profit   118,000
Less: Administrative Expenses    
Directors Remuneration   15,750
Salaries and Wages   23,100
Vehicle Running Expenses   20,300
Insurance   7,325
Depreciation   15,500
Miscellaneous Expenses   1,400
    83,375
Operating Profit   34,625
Less: Debenture Markup   7,500
Net Profit Before Tax   27,125
Less: Provision for Tax   12,500
Net Profit after tax   14,625
Add: Accumulated Profit Brought Forward   42,350
    56,975
Less: Appropriation    
General Reserve   5,000
Interim dividend   8,750
Proposed Final Dividend (10% of 175,000)   17,500
    31,250
Accumulated Profit Carried Forward   25,725

Note # 1 Fixed Asset at WDV

Particulars Cost R
A
T
E
Acc. Dep. WDV
  As At
1-7-01
Addition/
Deletion
As At
30-6-02
As At
1-7-01
For The
Year
As At
30-6-02
As At
30-6-02
Building 237,500 0 237,500   11,250 5,000 16,250 221,250
Equipment 20,000 0 20,000   6,000 3,000 9,000 11,000
Vehicles 43,000 0 43,000   12,900 7,500 20,400 22,600
TOTAL 300,500 0 300,500   30,150 15,500 45,650 254,850

Note # 2 Cost of Goods Sold

Opening Stock

56,725
Add: Purchases
134,775
Add: Carriage inward
4,050
Less: Closing Stock
(68,050)
127,500

Note # 3 Mark up on Debentures

Mark up given in trial

3,750
Add: Accrued Mark up for six months
(75,000 x 10% x 6/12) 3,750
Total Mark Up
7,500

Statement of Changes in Equity

Statement of changes in equity shows movement in share holders’ equity during the reported period.
Share holders equity includes:

  • Share Capital
  • Share Premium Reserve
  • General Reserve
  • Accumulated Profit & Loss Account

Types of Reserves

Reserves are of two types:

  • Distributable Reserve
  • Non Distributable Reserve

Distributable Reserve

Distributable reserves are those reserves which are distributable among the share holders of the company, for Example, General Reserve, Accumulated Profit & loss etc.

Non Distributable Reserve

Non Distributable reserves are those reserves which are created for a specific purpose. These can not be distributed among share holders. These can be utilized for that particular purpose, for which, these are created. For example, Share Premium Reserve, Revaluation Reserve.

Procedure for Preparing Statement of Change in Equity

All the opening balances of share holders’ equity are listed down first. Movement during the year in share holders’ equity is recorded. After adding/reducing the share holders’ equity, closing balances are calculated. All information regarding share holders’ equity is collected from balance sheet of the company. According to International Accounting Standards, fixed assets revaluation reserve is included in the statement of changes in equity. But The Companies Ordinance does not allow revaluation reserve to become a part of statement of changes in equity. As Companies Ordinance prevails over International Accounting Standards, so we do not show Revaluation reserve in the statement of changes in equity.

Statement of Change in Equity

Alpha Ltd
Statement of Changes in Equity
For Year Ended June 30, 2002
  Share
Capita
l
Share
Premiu
m
Account
General
Reserv
e
Profit
& Loss
A/c
Total
Balance On Jun 30,
2001
175,000 35,000 12,500 42,350 264,850
Net Profit for the
Period
      14,625 14,625
Transfer to General
Reserve
    5,000 (5,000) 0
Dividend       (26,250) (26,250)
Balance On June 30,
2002
175,000 35,000 17,500 25,725 253,225

Notes to the Accounts

Notes to the accounts are explanatory notes on financial statements of the company. These include all the information, from formation of company to the calculation of figures, arrived at, during the preparation of financial statements.

Notes of Alpha Ltd. are as follows:

Company and Its operations
o Company was formed in the year --------
o The company trades in electronic consumer items.

Significant Accounting Policies:

Historical Cost Convention
o These accounts have been prepared under the historical cost convention.
Revenue Recognition
o Sales are recorded on dispatch of goods to customers.
Fixed Assets
o Fixed Assets are recorded at cost less accumulated depreciation.
Stock Valuation
o Method of stock valuation is --------
Taxation
o Provision for Taxation is calculated on the basis of -------

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