IAS 1 Question 11

QUESTION 11 – Financial Statements (CAF1 A16)

Following is the summarised trial balance of Fortune Traders (FT) for the year ended 30 June
2016:
Debit Credit ----- Rs. in '000 ----- ​Buildings – cost 3,700 Buildings - accumulated depreciation
as at 1 July 2015 1,436 Plant & machinery - cost 6,650 Plant & machinery - accumulated
depreciation at 1 July 2015 2,414 Stock-in-trade as at 1 July 2015 1,045 Purchases 16,000
Purchase returns 220 Sales 28,900 Sales returns 90 Capital as at 1 July 2015 3,000 Selling
and administration expenses 5,855 12% loan payable 5,000 Trade receivables 3,600 Provision
for doubtful debts as at 1 July 2015 180 Prepayments and other receivables 380 Trade and
other payables 2,080 Cash and bank balances 5,850 Suspense account 60
43,230 43,230

Additional information: ​(i) FT depreciates its fixed assets from the month of addition.
Depreciation is to be charged on
written-down value (WDV) as follows:
Buildings 5% Plant & machinery
10%

(ii) On 1 March 2016, FT paid an advance of Rs. 330,000 for purchase of a machine and debited it
to plant and machinery. The machine was delivered on 1 September 2016.

(iii) Closing inventory was valued at Rs. 1,560,000. This included goods costing Rs. 35,000
returned by a customer on 30 June 2016 but not yet accounted for. These goods were earlier sold
at cost plus 40%.

(iv) The loan was acquired on 1 January 2016 and the principal amount is repayable in eight equal
half yearly installments commencing from 1 January 2017. Interest is payable half yearly on 1
January and 1 July each year.

(v) Selling and administration expenses include fire insurance premium amounting to Rs. 430,000
and Rs. 240,000 paid for office and owner's personal premises respectively. The policies are valid
up to 31 December 2016.

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IAS 1 Question 11
(vi) Rent and salaries amounting to Rs. 137,000 and Rs. 89,000 respectively are to be accrued
at 30 June 2016.

(vii) At 30 June 2016, the provision for doubtful debts is to be reduced by Rs. 30,000.

(viii) Suspense account represents an error which occurred when a credit note of Rs. 30,000
received for goods returned to a supplier was mistakenly posted as credit to trade payable
account.

Required: ​(a) Prepare a statement of comprehensive income for the year ended 30
June 2016.
(
08) ​(b) Prepare a statement of financial position as at 30 June 2016.
(09)
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IAS 1 Question 11

ANSWER 11 – Financial Statements (CAF1 A16)

Fortune Traders Statement of

Comprehensive Income For the year
ended 30 June 2016
Rs. 000 Rs. 000
Sales 28,900 Less: Sales return (90 + 49 ​J5​) (139) 28,761
Less: Cost of goods
sold
Opening Stock 1,045 Purchases 16,000 Purchases return (220)
16,825 ​Less Closing
Stock ​J3 ​(1,560) (15,265) Gross profit 13,496 ​Add: Other income

​ xpenses Selling & admin 5,855 + 504 ​J1 ​– 455 ​J6 ​+ 137 ​J7 ​+ 89 ​J7 ​6,130 Bad debts
Less: E
expenses (reduction) ​J8 ​(30) Finance charges ​J5 ​300 (6,400) ​Net profit ​7,096

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IAS 1 Question 11

Fortune Traders Statement of Financial Position As at 30 June 2016 ​Non-current assets

Rs. 000 ​Building 3,700 Accumulated depreciation 1,436 + 113 ​J1 ​(1,549)
2,1
51 Plant and machinery 6,650 – 330 ​J2 ​6,320 Accumulated depreciation 2,414 + 391 ​J1 ​(2,805)
 3,515

​ tock ​J3 ​1,560 Trade debtors 3,600 – 49 ​J4 ​3,551 Less: Allowance 180 – 30
Current assets S
J8 ​(150)

Prepayments and advances 380 + 330 ​J2 ​+ 215 ​J6 ​925 Cash and bank balances 5,850
11,736
17,402

Owner’s equity ​Capital 3,000 ​Add ​Net profit 7,096 ​Less ​Drawings (240) 9,856 ​Non-current
liabilities ​Long term loan 5,000 x 7/8 4,325 4,325 ​Current liabilities ​Current portion of long
term loan 5,000 x 1/8 675 Trade payables 2,080 – 60 ​J9 ​2,020 Interest payable ​J5 ​300
Accrued expenses ​J7 ​226
3,221
17,402

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IAS 1 Question 11
Journal Entries Rs.000
(i) 1
Page ​5 ​of ​5 (​ kashifadeel.com) ​Depreciation expense 504
Accumulated depreciation – Buildings 113 Accumulated depreciation – P&M 391 3,700 –
1,436 = 2,264 x 5% = 113 [6,650 – 330 ​J2​] – 2,414 = 3,906 x 10% = 391
Advance for machinery ​ 330
(ii) 2 ​ Plant and machinery ​
330 Correction of error
Inventory ​ 1,560
(iii) 3 ​ COS ​
1,560 Closing inventory
 Sales return ​ 49
(iii) 4 ​ Receivables ​
49 35 x 140% = Rs. 49
Interest expense ​ 300
(iv) 5 ​ Interest payable ​
300 5,000 x 12% x 6/12 = Rs. 300
(v) 6
Prepayment 430 x 6/12 215 Drawings 240
Selling and admin expenses 455 Prepayment and drawings recorded
(vi) 7
Rent expense 137 Salaries expense 89
Accrued expenses 226 Accrual recorded
Allowance for doubtful debts ​ 30
(vii) 8 ​ Bad debts ​
30 Decrease in allowance for doubtful debts
Trade payables ​ 60
(viii) 9 ​ Suspense ​
60 Correction of error