Question 2

The following trial balance relates to Sandown at 30 September 2009

$’000
Revenue
Cost of sales 246,800
Return outwards
Return inwards 1,000
Distribution costs 17,400
Administrative expenses 50,500
Loan interest paid 1,000
Provision for doubtful debts
Discounts received
Discounts allowed 2,100
Freehold Land 13,000
Freehold Building 50,000
Plant and equipment at cost 42,200
Brand at cost 30,000
Accumulated depreciation – 1 October 2008 – building
– plant a
Accumulated amortisation – 30 September 2009 – brand
Prepaid expenses 11,500
Accrued expenses
Inventory at 30 September 2009 53,000
Trade receivables 44,500
Bank 8,000
Trade payables
Equity shares of 20 cents each
Loan notes
Retained earnings at 1 October 2008
571,000
The following notes are relevant:
i Sandown’s revenue includes $16 million for goods sold to Pending on 30 September 2009. The terms of the sale
are that Sandown will incur ongoing service and support costs of $1·2 million per annum for three years after
the sale. Sandown normally makes a gross profit of $0.8M per annum on such servicing and support work.

ii Inventory at 30 September 2009 includes an item bought three years ago for $800,000, the said item is now
obsolete and can be sold for $330,000.
iii Plant and equipment is depreciated at 40% per annum using the reducing balance method.
iv Tax of $16 million is to be provided for the year.
v Based on past experience the allowance for receivables is to be increased to 5% of trade receivables.

Required:
Prepare the following statements, for internal use:
(i) the income statement for the year ended 31 May 2010; and (18 marks)
(ii) the statement of financial position as at 31 May 2010 (17 marks)
r 2009
$’000
380,000

3,000

1,300
2,200

8,000
19,700
9,000

5,000

42,900
50,000
18,440
31,460
571,000

r 2009. The terms of the sale

annum for three years after
icing and support work.

00,000, the said item is now

method.

trade receivables.

(18 marks)
(17 marks)
Income statement for the year ended Sept 30, 2009 $ $
Sales 380,000 1
Less: Returns (1,000) 1
Less: Unearned revenue (6,000) 1
Discount Allowed (2,100) 1
Net Sales 370,900
Less: Cost of Goods Sold:
Cost of sales 246,800 1
Purchase Returns (3,000) 1
Inventory write down expense 470 2
Discount Received (2,200) 242,070 1
Gross Profit 128,830
Less: Expenses:
Distribution costs 17,400 1
Administrative expenses 50,500 1
Loan interest paid 1,000 1
Bad debt expense [(44,700*.05)-1,300] 925 2
Depreciation Equipment 9,000 1
Depreciation Buildings 1,000 1
79,825
Profit before tax 49,005
Taxation 16,000 2
pn000696:
Profit after tax 33,005
Student respective
profits should be taken
Statement of changes in retained earnings for the year ended Sept 30, 2009 into account and marks
Opening retained earnings 31,460 0.5 awarded accordingly.
Profit for the year 33,005 0.5
Closing retained earnings 64,465

Balance sheet as at Sept 30, 2009 $ $

Assets
Non Current Assets
Plant and Equipment at cost 42,200 1
Freehold land 13,000 1
Brand 30,000 1
Buildings at value 50,000 2
Less: Accumulated Depreciation 135,200
Equipment (28,700) 1
Brand (9,000) 1
Buildings (9,000) (46,700)
88,500
Current Assets
Inventory (53,000-800+330) 52,530 2
Accounts Receivables 44,500 1
pn000696:
Provision for doubtful debts (2,225) 1
1 mark for 53,000 and 1
Prepaid expenses 11,500 0.5 mark for (-800+300)
Cash at bank/in hand 8,000 0.5
114,305
Total Assets 202,805
Equity and Liabilities
Liabilities
Non Current Liabilities
Bank Loan 18,440 0.5
Current Liabilities
Trade payables 42,900 0.5
Tax payable 16,000 0.5
Accrued expenses 5,000 0.5 pn000696:
Unearned revenue 6,000 0.5 If same as taken in the
69,900 income statement then
marks should be
Equity awarded
Share Capital 50,000 0.5
Retained earnings 64,465 114,465
Total equity and liabilities 202,805
B65: pn000696:
If same as taken in the income statement then marks should be awarded

D30: pn000696:
Student respective profits should be taken into account and marks awarded accordingly.

E50: pn000696:
1 mark for 53,000 and 1 mark for (-800+300)