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Solution to Question One Loose Tools Account

Date Details 2005 Jan. 1 Balance b/f Bank Mafg a/c: Material Labour 2006 Jan. 1 Balance b/f Bank Mafg a/c: Material Labour 2007 Jan. 1 Balance b/f bank Mafg a/c: Material Labour 2008 Jan. 1 Balance b/f Amount Details 2005 1,250 Dec. 31 P + L 2,000 Balance c/d 169 275 3,694 2006 2,700 Dec. 31 P + L 1,450 Balance c/d 390 495 5,035 2007 3,340 Dec. 31 Bank 1,890 P+L 290 Balance c/d 145 5,665 3,680 Date Amount 994 2,700

3,694 1,695 3,340

5,035 88 1,897 3,680 5,665

Solution to Question Two a) (i) Straight line method Depreciation charge for 2004 through 2007 Cost P18 000 / 4 years = P4500 per year (ii) Diminishing balance method Depreciation charge for 2004 18 000 x 60% = P10 800 2005 (18 000 - 10 800) x 60% = P4 320 2006 (18 000 - 10 800 - 4320) x 60% = P1728 2007 (18 000 - 10 800 - 4 320 - 1 728) x 60 = P691 (iii) Units of Output Method Cost per unit of output = P18 000/180 000 units = P0.10 Depreciation charge for 2004 35 000 units x P0.10 = P3 500 2005 45 000 units x P0.10 = P4 500 2006 45 000 units x P0.10 = P4 500 2007 55 000 units x P0.10 = P5 500
b)

b) Date Laser Oprinter Account at cost Details Amount 18,000 18,000 Date Details 2007 Jul-01 Dispsal Amount 18,000 18,000

2007 Jan. 1 Balance b/f

Laser Printer Provision for Depreciation account 2007 Jul-01 Disposal 2007 17,194 Jan. 1 Balance b/f Jul-01 Depreciation 17,194

16,848 346 17,194

Laser Printer Disposal account 2007 Jul-01 Laser Printer at cost P+L 18,000 1,194 19,194 2007 Jul-01 Provision for depre Bank 17,194 2,000 19,194

Solution to Question Four Dorrit and Dombie Ltd Manufacturing, trading and profit and loss account for the year ended 31 March 2007 Raw materials consumed Opening inventory Purchases Less: closing inventory Direct wages Licence fees Prime cost Factory overheads Indirect wages Property expenses 82 +8 = 90 x 80% Canteen expenses 36 + 4 = 40 x 80% Depreciation on machinery Dep on canteen equipment 10 x 80% P'000 P'000 28 300 328 32 296 360 104 760 88 72 32 36 8 236 996 58 1,054 54 1,000 100 1,100 1,800 33 1,100 58 1,191 66 1,125 675

Add opening WIP Less closing WIP Factory cost of goods produced Factory profit 1 000 x 10% Transferred to trading account Sales Less: cost of sales Opening inventory of finished goods Transferred from manufacturing Purchases of finished goods Less closing inventory of finished goods Gross profit Less: Administration expenses

Property expenses 90 x 20% Canteen expenses 40 x 20% Other administration xps 40 + 5 Office salaries Depreciation: canteen equip. 10 x 20% Office machinery Selling and distribution xps 37 + 3 Net profit on trading Add factory profit Less increase in provision for unrealised profit 6 -3 Overall profit b) Balance Sheet extract as at 31 March 2007 Current assets Raw material Work in progress Finisged goods Less provision for unrealised profit

18 8 45 50 2 5 128 40 100 3 97 604 168 507

32 54 66 6 60 146

c) Absorption cost of each unit Units sold Closing inventory of finished goods Goods required Less purchases Less opening inventory Units produced Absorption cost per unit P1 000 000 / 4400 units

4,500 264 4,764 - 232 4,532 - 132 4,400 P227.27

Solution to Question Five Manufacturing Co Ltd Manufacturing, Trading and Profit and Loss account For the year ended 31 December 2007 Ram material consumed Opening inventory Purchases Add carriage inwards

18,000 245,500 1,350 246,850 264,850 - 22,000 242,850 351,000 593,850 22,900 58,000 27,000 10,000 10,200 15,250 10,500 7,200 43,000 8,800

Less Closing inventory Direct wages (345 000 + 6 000) Prime cost Factory overhead Indirect wages (21 000 + 1 900) Rent & Rates (54 000 + 5 000 - 1 000) Electricity Repairs and maintainance Insurance 12 000- 1800) Depreciation on loose tools 15 000+13 650 -13 400 Deptn MV 84 000 x 25% x 50% Deptn on property 240 000 x 4% x 75% Deptn on P&M 215 000 x 20% MV xps 17 600 x 50% Production costs WIP adjustment 27 800 - 24 500 Total cost of production Profit on manufacturing Transferred to Trading account Sales Less cost of sales Opening inventory of finished goods Transferred from Trading account Less Closing inventory Gross profit Discount received Less: Administrative expenses Administration xps 76 000 Rent & Rates (28 000 + 2 800 - 800)

212,850 806,700 3,300 810,000 90,000 900,000 1,200,000

42,500 900,000 942,500 - 67,500 875,000 325,000 1,760 326,760 74,000 30,000

Electricity Repairs & Maintainance Insurance 4 000 - 600 MV xps 17 600 x 50% Depreciation on property 240 000 x 4% x 25% on MV 84 000 x 25% x 50% on Office machinery 26 000 x 20% Selling and distribution exps 52 190+ 3 000 Finance costs Discount allowed Debenture interest 20 00 x 8%

13,500 8,200 3,400 8,800 2,400 10,500 5,200 156,000 55,190 2,140 1,600 3,740 214,930 111,830 90,000 - 2,750 87,250 199,080

Total xps Trading profit Add manufacturing profit Less increase in prov. of unrealised profit Overall profit

Workings Manufacturing profit is 1/10 of transferred value or 1/9 of cost of production as hinted in the manufacturing account. Therefore Unrealised profit on closing inventory is 67 500 x 10% 6,750 Less unrealised profit on opening inventory 4,000 is 2,750

Manufacturing Co Ltd Balance Sheet as at 31 December 2007 ASSETS Non Current Assets Freehold property Plant and Machinery Motor vehicles Office machinery Loose tools COST ACC. DETN 240,000 105,600 215,000 168,000 84,000 63,000 26,000 23,200 28,650 15,250 593,650 375,050 NBV 134,400 47,000 21,000 2,800 13,400 218,600

Current assets Inventories Raw materials Work in progress Finished goods Less: unrealised profit Trade receivables Prepayments Cash at bank

22,000 24,500 67,500 6,750 60,750 114,640 4,200 54,260

280,350 498,950

EQUITY AND LIABILITIES Capital and Reserves Share capital Retained profit Net profit for the year Non Current Liabilities 8% Debentures Current Liabilities Trade payables Accruals Accrued interest

150,000 86,830 199,080 285,910 435,910 20,000

23,540 18,700 800

43,040 498,950