Exercise 1: The accountant of Zabit Co has prepared the following trial balances as at 31

December 20X7
$’000 $’000
50c ordinary shares 400
Share premium 220
10% loan stock (secured) 200
Retained earnings 1.1.X7 242
Revaluation surplus 1.1.X7 171
Land and buildings -cost 530
Plant and machinery – cost 830
Accumulated depreciation
Buildings 1.1.X7 20
Plant and machinery 1.1.X7 222
Inventory 1.1.X7 190
Sales 2,695
Purchases 2,152
Discount receipt 35
Disposal 150
Ordinary dividend 8
Loan interest 10
Wages and Salaries 254
Sundry expenses 113
Accounts receivable 179
Allowance for receivable 7
Accounts payable 195
Current tax (Tax payable) 4
Cash 122
Suspense accounts 135

Additional information as at 31 December 20X7:

1. A customer has gone bankrupt owing $73,000. This debt is not expected to be recovered
and an adjustment should be made. An allowance for receivables of 5% is to be set up.
2. In dealing with suspense account, the company has checked and found the following errors:
- Cash received from the sale of an equipment at 1st Jan 20X7 was correctly entered in the
cash book but was debited to the disposal account $80,000. The disposed equipment has been
correctly removed from the above trial balance.
- A $12,500 paid for machinery repairs was correctly treated in the cash book but was credited
to Plant and machinery asset account.
3. Building which has cost of $200,000 is depreciated at 5% per annum on their original cost.
Plant and machinery are depreciated at 20% per annum using reducing balance method.
Depreciation is charged to cost of sales.
At 31 December 20X7, Land and buildings was revalued downward by $70,000.
4. Sundry expenses include $12,000 paid in respect of insurance for the year ending 30 Sep
20X8.
5. Closing inventory at 31 Dec 20X7 was valued at $150,000
6. The balance of current tax (Tax payable) in the above trial balance represent an over or
under provision brought forward from previous period. Zabit Co estimates their tax liability
for profits earned in 20X7 will be $5,000.
Required:
(a) Journalize all the adjusting entries
(b) Prepare the statement of profit or loss for the year ended 31 Dec 20X7.
(c) Prepare the statement of financial position as at 31 Dec 20X7