1.

Rectangle Ltd
The following trial balance was extracted from the nominal ledger of Rectangle Ltd on
30 June 20Y3:
£ £
Sales 5,190,000
Inventories at 1 July 20Y2 418,000
Purchases 2,854,500
Administrative expenses 1,082,000
Irrecoverable debts expense 123,500
Land and buildings cost 2,540,000
Plant and machinery cost 1,000,000
Office equipment cost 214,000
Goodwill 120,000
Land and buildings accumulated depreciation at 1 July 20Y2 635,000
Plant and machinery accumulated depreciation at 1 July 20Y2 360,000

Office equipment accumulated depreciation at 1 July 20Y2 80,250

Trade receivables 487,000
Bank 53,400
Ordinary share capital (£1 shares) 1,000,000
6% irredeemable preference shares (£1 shares) 500,000
Share premium account 100,000
Retained earnings 825,550
Ordinary dividends 50,000
Preference dividends 30,000
Accounts payable 281,600
8,972,400 8,972,400

The following adjustments have yet to be accounted for:

1. There were no additions to or disposals of non-current assets during the financial
year. The company depreciates its non-current assets as follows:
Buildings over 40 years on a straight line
basis Plant and Machinery 20% reducing
balance Office equipment 25% straight line
Land and buildings includes land that cost £500,000. Half of the depreciation on
buildings is charged to cost of sales with the remainder charged to administrative
expenses. Plant and machinery depreciation is charged to cost of sales. Office
equipment depreciation is charged to administrative expenses.
2. An impairment review revealed that goodwill should be written down to 80% of the
value shown in the draft trial balance at 30 June 20Y3. Any amount written off
goodwill should be charged as an administrative expense.
3. An inventory count and subsequent inventory calculations has shown closing
inventory to be £427,000.
 4. Rectangle Ltd hired some machinery to help manufacture additional products to cope
with increased demand. The cost to hire the machinery for the period from 1 December
20Y2 to 30 November 20Y3 (inclusive) is £90,000.
The rental payments are six monthly. £45,000 was paid on 1 December 20Y2 the
remaining £45,000 was paid on 1 June 20Y3. Machinery hire costs are charged to cost of
sales.
5. Shortly after the year end an electricity bill for the company factory for £18,600 was
received. This invoice covered the quarter from 1 June 20Y3 to 31 August 20Y3 and was
charged to cost of sales in July 20Y3.
6. The company made a 1 for 5 bonus issue of ordinary shares on 30 June 20Y3, utilising
share premium. No accounting entries have been made in respect of this issue.
7. The customer owing £14,600 at 30 June 20Y3 has since gone into administration and the
full amount is considered irrecoverable. The company presents irrecoverable debts as
other operating expenses in the statement of profit or loss.
8. It has been discovered that a purchase invoice received on 25 June 20X3 for £19,800 was
incorrectly accounted for. The invoice was entered into the accounting system as £18,900
and is included within purchases and trade payables.
9. Income tax for the year ended 30 June 20Y3 is yet toe be provided for. It is estimated that
£260,500 of tax will be payable.

Requirement
Prepare the statement of profit and loss for Rectangle Ltd for the year ended 30 June
20Y3 and the statement of financial position at that date.

Statement of profit and loss for the year ended 30 June 20Y3
£
Revenue Cost of
sales Gross profit
Administrative expenses Other
operating expenses Profit/(loss)
from operations Finance costs
Profit/(loss) before tax
Income tax
Profit/(loss) for year
 Statement of financial position at 30 June 20Y3
£
Non-current assets
Land and buildings Plant and
machinery Office equipment Goodwill
Current assets
Inventories Trade receivables
Prepayments
Cash and cash equivalents
Total assets

Equity
Equity share capital
Preference share capital
Share premium Retained
earnings

Non-current liabilities
Borrowings
Current liabilities
Borrowings Trade payables
Accruals Provisions
Tax payable
Total equity and liabilities

Answer :

Statement of profit and loss for the year ended 30 June 20Y3
£
Revenue Cost of 5,190,000
(2,986,600)
sales Gross profit
Administrative expenses
Other operating expenses
Profit/(loss) from operations
Finance costs
Profit/(loss) before tax
Income tax
Profit/(loss) for year

Statement of financial position at 30 June 20Y3

£
Non-current assets
Land and buildings Plant and 1,854,000
machinery Office equipment Goodwill 512,00
80,250
Current assets 96,000
Inventories Trade receivables 427,000
Prepayments 472,400
Cash and cash equivalents 37,500
53,400
Total assets 5,532,550
Equity
Equity share capital 1,200,000
Preference share capital 500,000
Share premium Retained -
earnings 1,283,350

Non-current liabilities
Borrowings -
Current liabilities
Borrowings Trade payables -
Accruals Provisions 282,500
Tax payable 6,200
Total equity and liabilities -
260,500
5,532,500
1. Allocation of cost

Administrative
Cost of sales
expense
£ £
Opening Inventory 418.000
Trial Balance 1.082.000 2.854.500
Purchase invoice adjustment 900
Depreciation 79.000 153.500
Impairment of goodwill 24.000 -
Electricity accrual (18,600/3) 6.200
Prepayment for machine hire
- 37.500
(90,000 x 5/12)
Closing inventories - 427.000
1.185.000 2.986.600

2. Irrecoverable debts and trade receivable

Other operating Trade

Expense receivable
£ £
Trial Balance 123.500 487.000
Irrecoverable debt written off 14.600 14.600
138.100 472.400

3. Non-current assets

Plant and
Office
Land Building Machiner Total
Equipment
y
£ £ £ £ £
Cost 500.000 2.040.000 1.000.000 214.000
Accumulated depreciation - -635.000 -360.000 -80.250
Carrying amount per TB 500.000 1.405.000 640.000 133.750
Depreciation - -51.000 -128.000 -53.500
Carrying amount 30 June 2.446.25
500.000 1.354.000 512.000 80.250
20Y3 0

4. Equity

Ordinary Share Retained Preference

Share Capital Premium Earnings share capital
£ £ £ £
Opening balance 1.000.000 100.000 825.550 500.000
Profit in year - - 637.800 -
Bonus issue -200.000 -100.000 100.000 -
Preference dividens - - -30.000 -
Equity devidens - - -50.000 -
Carrying amount 30 June
1.200.00 - 1.283.350 500.000
20Y3
2. Lupin Ltd
Extracts from the financial statements for Lupin ltd for the year ended 31 March 20X4 are
as follows:

Statement of profit and loss for the year ended 31 March 20X4
£
Profit from operations 603,000
Finance costs (85,000)
Profit before tax 518,000
Income tax (168,000)
Profit for year 350,000

Statements of financial position at 31 March

20X4 20X3
£ £
Non-current assets
Property, plant and equipment 3,555,000 3,400,000
Intangibles assets 165,000 55,000

Current assets
Inventories 485,000 362,000
Trade receivables 250,000 300,000
Cash and cash equivalents 331,000 122,000
Total assets 4,786,000 4,239,000

Equity share capital (£1 shares) 1,000,000 850,000

Share premium 400,000 350,000
Retained earnings 1,953,000 1,603,000

Non-current liabilities
Borrowings 830,000 1,000,000

Current liabilities
Tax payable 245,000 230,000
Trade payables 261,000 150,000
Accruals 97,000 56,000
Total equity and liabilities 4,786,000 4,239,000

Additional information
1. Included in profit from operations is a loss of £90,000 in respect of the disposal
machinery in the year. This machinery had a carrying amount of £540,000 at the disposal
date.
2. Included in trade payables at 31 March 20X4 is an amount of £95,000 in respect of a
purchase of an item of property, plant and equipment in the year that has not yet been paid
for.
3. Included in accruals at 31 March 20X4 is accrued interest of £16,000. The corresponding
figure for 20X3 is £25,000.
 4. The depreciation charge for the year was £245,000.
5. Intangible assets costing £125,000 were purchased for cash during the year. There were
no disposals of intangible assets.
6. On 1 April 20X3 Lupin Ltd made a one for ten bonus issue from share premium.

Requirement
Prepare a statement of cash flows for the year ended 31 March 20X4.
Statement of cash flows for the year ended 31 March 20X4
£
Cash flows from operating activities
Profit before tax
Finance costs
Depreciation
Amortisation
Gain/loss on sales of property, plant and equipment
Movement in inventories
Movement in trade receivables
Movement in trade payables
Cash generated from operations

Tax paid Interest

paid
Net cash from/used in operating activities

Cash flows from investing activities Purchase

of property, plant and equipment Purchase of
intangible assets
Proceeds from sale of property, plant and equipment
Proceeds from sale of intangible assets
Net cash from/used in investing activities

Cash flows from financing activities

Proceeds from issue of shares
Movement in borrowings
Dividends paid
Net cash from/used in financing activities

Net increase/decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year Cash
and cash equivalents at end of year
 Answer :

Cash flows from operating activities £

Profit before tax 518,000
Finance costs 85,000
Depreciation 245,000
Amortisation 15,000
Gain/loss on sales of property, plant and equipment 90,000
Movement in inventories (123,000)
Movement in trade receivables 50,000
Movement in trade payables 16,000
Movement in Accruals 50,000
Cash generated from operations 946,000

Tax paid Interest (153,000)

paid (94,000)
Net cash from/used in operating activities 699,000

Cash flows from investing activities Purchase

of property, plant and equipment Purchase of (845,000)
intangible assets (125,000)
Proceeds from sale of property, plant and equipment (450,000)
Proceeds from sale of intangible assets -
Net cash from/used in investing activities (520,000)

Cash flows from financing activities

Proceeds from issue of shares 200,000
Movement in borrowings (170,000)
Dividends paid -
Net cash from/used in financing activities 30,000

Net increase/decrease in cash and cash equivalents 209,000

Cash and cash equivalents at beginning of year Cash 122,000
and cash equivalents at end of year 331,000
Movement in inventories (362,000-485,000)
Movement in trade receivables
(300,000-250,000)
Movement in trade payables
(261,000-150,000-95,000)
Movement in Accruals ((97,000-
16,000)-(56,000-25,000))

Proceeds from sale of property, plant and equipment (540,000-90,000)

Proceeds from issue of shares (65,000+135,000)

Movement in borrowings (1,000,000-830,000)
1. Intangibles
£ £
B/d 55.000 Amortisation(bal fig) 15.000
Amortisation 125.000 C/d 165.000
180.000 180.000

2.
Tax paid
£ £
Cash(Bal fig) 153.000 B/d 230.000
C/d 245.000 Statement of profit or loss 168.000
398.000 398.000

3. Interest
£ £
Cash(Bal fig) 94.000 B/d 25.000
C/d 16.000 Statement of profit or loss 85.000
110.000 110.000

4.
PPE
£ £
B/d 3.400.000 Disposal 540.000
Purchase(Bal fig) 845.000 Depreciation 245.000
Trade Payable 95.000 C/d 3.555.000
4.340.000 4.340.000

5. Share capital
£ £
B/d 850.000
Bonus Element 85.000
C/d 1.000.000 Cash(bal fig) 65.000
1.000.000 1.000.000

6. Share Premium

£ £
B/d 350.000
Bonus Element 85.000 Cash(bal fig) 135.000
C/d 400.000
485.000 485.000