Company Final Accounts

Company Final Accounts (including a Manufacturing Account)
	Key Learning Outcomes Introduction Sample Exam Q&A Student Activity

Key Learning Outcomes

Understand how to position each item in the final accounts and balance sheet.
Understand how to lay out the final accounts and balance sheet.
Understand how to do the adjustments.
Know the maximum time for this question ‒ 54 minutes.

Introduction: Company Final Accounts

Company Final Accounts including a Manufacturing Account is one of three final accounts questions asked as Question 1 in Section 1 of the Accounting examination over the years as follows:

(1) Company Final Accounts including a Manufacturing Account: 1997, 2001, 2005, 2009, 2011, 2013.

(2) Company Final Accounts: 2000, 2002, 2004, 2007, 2012, 2015.

(3) Sole Trader ‒ Final Accounts: 1999, 2003, 2006, 2008, 2010, 2014.

The years stated above are listed solely to assist revision.

Section 1 of the Accounting examination is worth 120 marks out of a total of 400 marks (30%).

The choice in Section 1 is to answer either Question 1 only (120 marks) or to answer any two questions from Questions 2, 3, 4 (60 marks each).

Practical Matters:

(1)   Always do the solution in the same way ‒ this will increase speed and confidence.
(2)   Use only one pen in the solution ‒ use of colour slows down the work.
(3)   Write the workings on the left and right hand side of a double page.
(4) Write the solution on the left and right hand side of a double page.
(5)   Do not try to predict the examination paper ‒ study all possible questions in this section.

Sample Exam Q&A

Question

Bond Ltd, has an Authorised Capital of €1,400,000 divided into 800,000 Ordinary Shares at €1 each and 600,000 8% Preference Shares at €1 each. The following Trial Balance was extracted from its books at 31/12/2015:

The following information and instructions are to be taken into account:

(i)	The figure for finished goods includes stock which cost €4,500 but now has a realisable value of €2,800.
(ii)	Finished goods, sent to a customer on Dec. 31 on a ‘Sale or Return’ basis, were treated incorrectly as a credit sale. The recommended retail selling price of these goods was €9,000, which is cost plus 25%.
(iii)	Repairs to plant and machinery amounting to €2,500 were carried out during the year by one of the firm’s employees. An amount of €600 of this expenditure consisted of parts taken from the firm’s stocks while the remainder represented wages.
(iv)	Provide for depreciation on plant and machinery at the annual rate of 20% of cost from the date of purchase to the date of sale. NOTE: On 31/10/2015 machinery, which cost €15,000 on 30/06/2011, was traded in against a new machine which cost €36,000. An allowance of €1,500 was given on the old machine. The cheque for the net amount of this transaction was entered in the bank account but was incorrectly treated as a purchase of raw materials. These were the only entries made in the books in respect of this transaction.
(v)	The suspense figure arises as a result of the incorrect figure for debenture interest (although the correct entry had been made in the bank account) and discount received €500 entered only in the creditors account.
(vi)	The figure for bank in the Trial Balance has been taken from the firm’s bank account. However, a bank statement dated 31/12/2015 has arrived showing an overdraft of €30,220. A comparison of the bank account and the bank statement has revealed the following discrepancies: A cheque for €790 issued to a supplier had been entered in the books (cash book and ledger) as €970. A credit transfer of €700 had been paid direct to the firm’s bank account on behalf of a debtor who has recently been declared bankrupt. This represents a first and final payment of 35c in the €1. A cheque for fees €900 issued to a director had not yet been presented for payment.
(vii)	The Directors recommend that: Provision should be made for both Investment Income and Debenture Interest due. A provision for bad debts to be created equal to 5% of debtors. Factory Buildings to be depreciated by 2% of cost.

You are required to prepare:

(a) A Manufacturing, Trading and Profit and Loss Account for the year ended 31/12/2015.

(b) Balance Sheet as at 31/12/2015.

Sample Answers (a & b)

Manufacturing Account of Bond Ltd. for the year ended 31/12/2015

Trading and Profit and Loss Account for the year ended 31/12/2015

Balance Sheet as at 31/12/2015

Workings:

(i)	The figure for finished goods includes stock which cost €4,500 but now has a realisable value of €2,800.
(ii)	Finished goods, sent to a customer on Dec. 31 on a ‘Sale or Return’ basis, were treated incorrectly as a credit sale. The recommended retail selling price of these goods was €9,000, which is cost plus 25%.
(iii)	Repairs to plant and machinery amounting to €2,500 were carried out during the year by one of the firm’s employees. An amount of €600 of this expenditure consisted of parts taken from the firm’s stocks while the remainder represented wages.
(iv)	Provide for depreciation on plant and machinery at the annual rate of 20% of cost from the date of purchase to the date of sale. NOTE: On 31/10/2015 machinery, which cost €15,000 on 30/06/2011, was traded in against a new machine which cost €36,000. An allowance of €1,500 was given on the old machine. The cheque for the net amount of this transaction was entered in the bank account but was incorrectly treated as a purchase of raw materials. These were the only entries made in the books in respect of this transaction.
(v)	The suspense figure arises as a result of the incorrect figure for debenture interest (although the correct entry had been made in the bank account) and discount received €500 entered only in the creditors account.
(vi)	The figure for bank in the Trial Balance has been taken from the firm’s bank account. However, a bank statement dated 31/12/2015 has arrived showing an overdraft of €30,220. A comparison of the bank account and the bank statement has revealed the following discrepancies: A cheque for €790 issued to a supplier had been entered in the books (cash book and ledger) as €970. A credit transfer of €700 had been paid direct to the firm’s bank account on behalf of a debtor who has recently been declared bankrupt. This represents a first and final payment of 35c in the €1. A cheque for fees €900 issued to a director had not yet been presented for payment.
(vii)	The Directors recommend that: Provision should be made for both Investment Income and Debenture Interest due. A provision for bad debts to be created equal to 5% of debtors. Factory Buildings to be depreciated by 2% of cost.

Student Activity

Q1	State where the following items would be shown in the final accounts: (a) Discount (Net) ‒ credit side of Trial Balance. (b) Profit and Loss Balance 01/01 ‒ debit side of Trial Balance. (c) VAT ‒ debit side of Trial Balance. (d) VAT ‒ credit side of Trial Balance
Q2	State the layout of the following: (a) Manufacturing Account. (b) Trading and Profit and Account. (c) Balance Sheet.
Q3	State how the following information should be treated: An invoice has been received for raw materials costing €20,000 which were in transit on 31/12. No record has been made in the books.
Q4	State how the following information should be treated: During the year the company built an extension to the warehouse. The work was carried out by the company’s own employees. The cost of their labour €25,000 is included in factory wages. The materials costing €35,000 were taken from stocks. No record has been made in the books in respect of this extension.
Q5	State how the following information should be treated: Patents €75,000 (31/12/2015) are being written off over 8 years which commenced in 2012.
Q6	State how the following information should be treated: Factory Buildings (Cost €590,000 and Acc. Dep. €130,000) are to be depreciated at 2% of cost. At the end of the year the company revalued the buildings at €700,000.
Q7	State how the following information should be treated: The directors are proposing that Corporation Tax of €35,000 be provided for.
Q8	State how the following information should be treated: Goods should be transferred from factory at Current Market Value €850,000. (Cost of Manufacture is €811,500).