Bits and Pieces Ltd runs a hardware store supplying items to the wholesale trade.

The company’s trial balance at 30 April 20X8

before any final adjustments have been made is as follows:
SALDOS AJUSTES SALDO AJUSTADO
DETALLE
DEUDOR ACREEDOR DEBE HABER DEUDOR ACREEDOR
SHOP FITTINGS: COST £ 100,000
PROVISION FOR DEPRECIATION AT 1 MAY 20X7 £ 24,000
DELIVERY VANS: COST £ 65,000
PROVISION FOR DEPRECIATION AT 1 MAY 20X7 £ 23,000
INVENTORY AT 1 MAY 20X7 AT COST £ 74,820
TRADE RECEIVABLES £ 91,250
PROVISION FOR DOUBTFUL DEBTS AT 1 MAY 20X7 £ 2,750
PREPAYMENTS AT 1 MAY 20X7 £ 3,200
CASH AT BANK £ 7,380
TRADE PAYABLES £ 48,400
12% DEBENTURE LOAN REPAYABLE IN 20Y1 £ 50,000
ORDINARY SHARE CAPITAL 70.000 SHARES OF $1 EACH £ 70,000
RETAINED PROFIT AT 1 MAY 20X7 £ 11,280
SALES £ 965,920
PURCHASES £ 643,000
WAGES AND SALARIES £ 39,500
DIRECTOR'S REMUNERATION £ 48,000
RENT £ 21,600
ELECTRICITY £ 11,800
ADMINISTRATION EXPENSES £ 26,750
DISTRIBUTION COSTS £ 57,450
INTERIM DIVIDEND PAID £ 5,600

£ 1,195,350 £ 1,195,350
The following additional information is available:
1. Depreciation is to be provided at the following rates: Shop fittings 10 per cent per year on cost. Delivery vans 20 per cent per year
using the decreasing balance method.
2. Inventory was counted at the close of business on 30 April 20X8 and was valued at cost, £71,220. This figure included £1,580 for
some damaged goods, which would normally be sold for £3,250. They were sold in a clearance sale in May 20X8 for £1,200.
3. A customer notified the company on 26 April that he was returning goods of the wrong specification for which he had been invoiced
£5,200. The returned goods were received into the shop on 2 May on which date the return was recorded in the accounting records.
The goods cost Bits and Pieces Ltd £2,580 and were returned in good condition.
4. Bad debts of £2,700 are to be written off, and the provision for doubtful debts is to be increased to £3,450.
5. The figure for prepayments in the trial balance is in respect of two months’ rent paid in advance. As from 1 January 20X8 the
company’s rent increased to £24,000 per year, payable quarterly in advance.
6. An invoice received from a supplier for £5,300 was entered in the accounting records as £3,500 in error, and this sum was paid to
the supplier.
7. Provision is to be made for the audit fee of £3,000 and for a full year’s interest on the debenture loan.
8. Corporation tax on the profit for the year to 30 April 20X8 is estimated to be £24,000.
Required
a. An income statement for Bits and Pieces Ltd for the year ended 30 April 20X8, and its statement of financial position as at 30 April
20X8, in a form suitable for the directors.
b. Bits and Pieces Ltd recently appointed a new finance director. Explain to this director why depreciation is charged on the
company’s nonfixed assets, and suggest possible reasons for the differences in the treatment of shop fittings and delivery vans.