Suggested Solutions to Group Discussion 11 March 2023

Exercise 1
Premium Games Private Limited
Adjusting entries

Notes Dr CR
1 Stock at 31 December 2022: $13,000. Stock Cost of
SFP Sales
SPL & OCI
2 The provision for bad and doubtful debts is to be made equal to 5%
of the trade debtors as at 31 December 2022.
5 % of 160 000 = 8 000. Provision had been 5 000 so there is need Bad Debts Receivables
to increase the figure by 3 000 SPL & OCI SFP
3 Land and Buildings are to be depreciated at a rate of 2% on cost,
and the vehicles at a rate of 20% on a reducing balance basis.
Land and Buildings @ 2% of 850 000 = 17 000 Depn Acc Depn
SPL & OCI SFP
Vehicles @ 20% of 225 000 = 45 000 DEPN Acc Depn
SPL & OCI SFP
4 At 31 December 2022, $48 000 was owed for wages and salaries,
and insurance paid in advance was $1 000.
Accrual of wages and salaries amounting to 48 000 Wages Current
&Sals Liabs
SPL & OCI SFP
Matching concept- insurance paid in advance of 1 000 Prepayment Insurance
SFP SPL & OCI
5 The Directors have decided to recommend a dividend of $19 000
on the ordinary shares and $9 000 on the preference shares.
Accrual of dividend declared on ordinary shares of 19 000 Ord Div Current
SPL & OCI Liab
SFP
Accrual of dividend declared on preference shares of 9 000 Pref Div Current
SPL & OCI Liab
SFP
6 Loan interest of $8 000 has not yet been paid.
Accrual of interest amounting to 8 000 Interest Current
SPL & OCI Liab
SFP
7 Estimated corporation tax of $58 000 for the year has not yet been
paid.
Accrual of Tax amounting to 58 000 Taxation Current
SPL & OCI Liab
SFP

1
 Premium Games Private Limited
Statement of Profit of Loss and other comprehensive income for the year ended 31
December 2022

Statement of Financial Performance

Note $ $
Sales 1,500,000

Less Cost of Goods sold

Opening stock 10,000
Purchases 750,000
Closing stock 1 (13,000) 747,000

Gross Profit 753,000

Less Administrative Costs
General expenses 125,000
Electricity 12,000
Telephone 5,000
Wages and salaries 167 000 + 48 000 4 215,000
Depreciation 17 000 + 45 000 3 62,000
Insurance 6 000-1000 4 5,000
Provision for bad debts 3000 2 3,000 427,000

Profit before interest and tax 326,000

Less interest
Long term loan 6 8,000
Preference dividend declared 5 9,000 17,000

Net Profit for the year 309,000

Less corporation tax 7 58,000 58,000

Net Profit for the year after tax 251,000

Less Ordinary Share Dividend

Dividend declared 5 19,000 19,000

Retained profits carried forward 232,000

2
 Premium Games Private Limited
Statement of Financial position as at 31 December 2022

Statement of Finacial Position

Note $000 $000 $000
Non-current assets Cost Acc Depn NBV
Land and buildings 2 850,000 42,000 808,000
Motor vehicles 2 312,000 132,000 180,000
988,000
Current assets
Stock 1 13,000
Debtors (160000 - 8000) 2 152,000
Prepaid insurance 4 1,000
Cash 186,000 352,000
1,340,000

Capital and Reserves

Ordinary shares at $1 each 425,000
Share premium reserve 22,000
Retained earnings 259,000 706,000

Non-current liabilities
Long term loan 87,000
Preference shares 312,000 399,000

Current Liabilities
Trade creditors 93,000
Tax payable 58,000
Interest payable 8,000
Wages payable 48,000
Dividend declared 28,000 235,000
1,340,000

3
EXERCISE 2

Premium Fragrances

ADJUSTING ENTRIES

1) An additional $74,000 of depreciation that should have been charged on fixtures and
fittings.
Dr Depreciation Account 74 000 (SPL&OCI Account)
Cr Accumulated Depreciation 74 000 (SFP)

2) Invoices for credit sales on 31 December 2022 amounting to $34,000 have not been
included; cost of sales is not affected.
Dr Receivables 34 000 (SFP)
Cr Sales 34 000 (SLP&OCI)

3) Trade receivables totaling $21,000 are recognised as having gone bad, but they have
not yet been written off.
Dr Bad debts written off 21 000 (SPL & OCI)
Cr Receivables 21 000 (SFP)

4) Inventories which had been purchased for $2,000 have been damaged and are
unsaleable. This is not reflected in the financial statements.
Dr Cost of Sales 2 000 (SPL & OCI)
Cr Inventory 2 000 (SFP)

5) Fixtures and fittings to the value of $16,000 were delivered just before 31 December
2022, but these assets were not included in the financial statements and the purchase
invoice had not been processed.
Dr Assets 16 000 (SFP)
Cr Payable 16 000 (SFP)

4
6) Wages for Saturday-only staff, amounting to $1,000, have not been paid for the final
Saturday of the year. This is not reflected in the financial statements.
Dr Wages 1 000 (SPL & OCI)
Cr Accruals/Liabilities 1 000 (SFP)

7) Tax is payable at 30 per cent of profit before taxation. Assume that it is payable
shortly after the year-end.
Dr Tax 415 (SPL & OCI)
Cr Accruals/Liabilities 415 (SPF)

8) Retained Earnings Reconciliation

Statement of Financial Position 1,468 (From Intern’s presentation)
Reported Profit for the year (1,012) (From Intern’s presentation)
Balance brought forward 456
Adjusted retained earnings 967
Balance carried forward 1 423

5
REVISED FINANCIAL STATEMENTS FOR PREMIUM FRAGRANCES FOR THE
YEAR ENDED 31 DECEMBER 2022, INCORPORATING THE INFORMATION IN
NOTES 1 TO 7

Premium Fragrances
Statement of Profit or Loss and Other Comprehensive Income for the period ended 31
December 2022
Note $000 $000

Revenue 12 080 + 34 Note 2 12 114

Cost of sales (6 282 + 2) Note 4 (6 284)
Gross profit 5 830
Labour costs (2 658 + 1) Note 6 (2 659)
Bad debts written off (21) Note 3 (21)
Depreciation (625 + 74) Note 1 (699)
Other operating costs (1 003) 4 382
Operating profit 1 448
Interest payable (66)
Profit before taxation 1 382
Taxation 30% * 1 382 (414.6)
Retained Earnings for the year 967

6
 Premium Fragrances
Statement of Financial Position as at 31 December 2022

Note $000 $000

Non-current assets 2 728 + 16-74 5 and 1 2 670

Current assets
Inventories (1 583 – 2) 4 1 581
Receivables (996 + 34 – 2 and 3 1 009
21)
Cash 26 2 616
Total assets 5 286

Equity and Liabilities

Share capital
(50c shares, fully paid) 750
Share premium 250
Retained profit 1 423
2 423

Non-current liabilities
Borrowings – secured 300
loan notes (2023)

Current liabilities
Trade payables 1 118
Other payables (417 + 16 +1) 5 and 6 434
Tax 415 7 415
Borrowings – overdraft 596 2 563

Total equity and 5 286

liabilities