Question 1:
David Tam started his own trading company, David Company, a few years ago. The accounting year of the company runs from 1 April to 31 March.
The following trial balance was extracted from the company's books at the close of business on 31 March 2017 before any adjustments.
Trial balance as at 31 March 2017
|
Plant and equipment, at cost
Motor vehicles, at cost
Accumulated depreciation, as at 1 April 2016
|
Dr ($)
8,416,000
3,220,000
|
Cr ($)
|
|
- Plant and equipment
|
|
2,412,000
|
|
- Motor vehicles
|
|
880,000
|
|
Inventory, as at 1 April 2016
|
126,900
|
|
|
Trade Receivables and Payables
|
667,400
|
774,960
|
|
Cash at Bank
|
445,700
|
|
|
4% bank loan (repayable in 2022)
|
|
2,000,000
|
|
Paid-up capital
|
|
3,000,000
|
|
Retained profit, as at 1 April 2016
|
|
2,130,020
|
|
Allowance for doubtful debts of trade receivables, as at
|
1 April 2016
|
12,000
|
|
Purchases and Sales
|
1,041,300
|
4,888.400
|
|
Carriage inwards
|
102,480
|
|
|
Carriage outwards
|
104,200
|
|
|
Rent and rates
|
562,100
|
|
|
Bank loan interest
|
40,000
|
|
|
Water and electricity
|
347,600
|
|
|
Wages and salaries
|
648,200
|
|
|
Insurance
|
134,900
|
|
|
Advertising
|
141,700
|
|
|
Bad debts
|
28,000
|
|
|
Sundry expense
|
85,600
|
|
|
Discounts allowed and received
|
87,300
|
99,400
|
|
Returns inwards and outwards
|
74,500
|
77,100
|
|
|
16,273,880
|
16,273,880
|
The following additional information is available at 31 March 2017:
(1) Cost of the inventories as at 31 March 2017 amounted to $166,200. On the same date, the estimated selling price of the inventories was $184,200, with estimated costs
(2) The depreciation policy is as follows:
Plant and equipment 5% per annum using straight line method
Motor vehicles 20% per annum using reducing balance method
(3) On 1 April 2016, a motor vehicle which was bought at $420,000 on 1 April 2012 was sold at a price of $200,000. The disposal proceeds was debited in bank account and credited in sales account respectively.
(4) Advertising fee $45,000 for the months from January 2017 to May 2017 was still not yet recorded and settled on 31 May 2017.
(5) Included in the insurance cost was an amount of $60,000 which belongs to insurance premium for the period from 1 October 2016 to 30 September 2017.
(6) $15,000 due from one of the customers was considered to be uncollectible and to be written off. The allowance for doubtful debts was assessed to be $17,000 as at 31 March 2017.
(7) Bank loan interest for the second half year had not yet been provided, nor paid for.
(8) Motor vehicle related expense is to be allocated between administration expenses and selling & distribution costs in the ratio of 1:2.
Required:
(a) Prepare the relevant journal entries for items (3) to (6).
(b) Prepare a statement of profit or loss and other comprehensive income for David Company for the year ended 31 March 2017.
(c) Prepare a statement of financial position as at 31 March 2017.
(d) Explain, with examples, how could you apply those fundamental qualitative characteristics when preparing the financial statements of a company