SECTION C (20 marks)

Answer ONE question in this section.

· · Jd C L' ·t d has drafted the trial balance as at

Before the preparation of the mcome statement, u y ompany 1m1 e
8.
31 December 2018 as follows:

Dr Cr
$ $
7 500
Accumulated depreciation - furniture, 1 January 2018 [note (ii)] 250 000
Accumulated depreciation - motor van, 1 January 2018
Administrative expenses 697 000
m~ 600 000
10% debentures 190 000
Furniture [note (ii)] 785 000
Inventory, 1 January 2018
1000000
Motor van 500 000
Ordinary shares capital 1987000
788 000
Purchases and sales . 828 600
Retained profits, 1 January 2018
257 800
()
Selling and distribution expenses 225 600
458 900
Trade receivables and trade payables 4 398 700
4 398 700

Additional information:

(i) It is the company's policy to depreciate its non-current assets on a straight-line basis at an annual
rate of 25%. Depreciation expenses are classified as administrative expenses.

(ii) On 30 September 2018, Judy Company Limited traded a piece of motor van, which bought on 1
October 2017 with a cost of $250 000 for a furniture. The trade-in value was agreed at $300 000.
No accounting record had been made for the above arrangement. In respect of this trade-in, the
company was required to pay $60 000 for the furniture, $10 000 for painting the company logo,
$8 000 for the insurance during its delivery and $25 000 annual maintenance fee. All these
expenditures had been recorded in furniture account.

(iii) $6 000 selling and distribution expenses had been prepaid. No accounting record had been made f
regarding the above. '..

(iv) In December 2018, goods cost at $60 000 were sent to a customer with $80 000 marked price on a
sale-or-return basis. These had been recorded as credit sales for the year. The goods had not been
included in the closing inventory. As at 31 December 2018, 50% of these goods were accepted by
the customer. The remaining 50% had been included in the closing inventory as at invoiced price.

(v) Inventory as at 31 December 2018 had a cost of$80 000. 10% of the inventory was slightly
damaged and had a net realizable value of $7 000.

KDSE BAFS-PAPER 2A SET 8 8 GOODREAD PUBLISHING LTD.