Leaving Certificate Accounting Teacher's Manual

CONTENTS
Chapter 2: Double-Entry Book-keeping and the Trial Balance ......................................................... 1

Chapter 3: Profit Measurement and Balance Sheet Preparation ........................................................ 5
Chapter 4: Value Added Tax and Statutory Deductions..................................................................... 8
Chapter 5: Accruals, Prepayments, Bad Debts, Provisions and Bad Debts Recovered..................... 12
Chapter 6: Depreciation and Revaluation .......................................................................................... 15
Chapter 8: Final Accounts of a Sole Trader with Adjustments .......................................................... 29
Chapter 9: Bank Reconciliation Statements....................................................................................... 44
Chapter 10: Control Accounts.............................................................................................................. 48
Chapter 11: Correction of Errors – Suspense Account ........................................................................ 53
Chapter 12: The Conceptual Framework of Accounting ..................................................................... 66
Chapter 14: Limited Companies .......................................................................................................... 67
Chapter 15: Final Accounts of a Limited Company with Adjustments ............................................... 73
Chapter 16: Manufacturing Accounts .................................................................................................. 96
Chapter 17: Departmental Accounts .................................................................................................... 113
Chapter 18: Published Accounts (Higher Level Only) ........................................................................ 126
Chapter 19: Analysis and Interpretation of Financial Statements........................................................ 148
Chapter 20: Cash Flow Statements ...................................................................................................... 168
Chapter 21: Club Accounts and Accounts of Service Firms................................................................ 181
Chapter 22: Incomplete Records I ....................................................................................................... 206
Chapter 23: Incomplete Records II ...................................................................................................... 232
Chapter 24: Farm Accounts.................................................................................................................. 259
Chapter 25: Tabular Statements ........................................................................................................... 272
Chapter 26: Introduction to Management Accounting......................................................................... 275
Chapter 27: Cost Classification............................................................................................................ 276
Chapter 28: Product Costing ................................................................................................................ 278
Chapter 29: Cost Volume Profit Analysis (Marginal Costing) ............................................................. 288
Chapter 30: Budgeting and Budgetary Control.................................................................................... 299
© Kevin O Riordan 2000
ISBN 1841 31 3750
Folens Publishers, Hibernian Industrial Estate, Greenhills Road. Tallaght, Dublin 24.
The Publisher reserves the right to change, without notice, at any time the specification of this
product, whether by change of materials, colours, bindings, format, text revision or any other
characteristic.
2
QUESTION 2.1
Double-Entry Book-keeping and
the Trial Balance: Solutions
Bank Account
July 1 Capital 35,000 July 12 Creditor 10,500
July 25 Sales 4,000 July 15 Wages 2,000
July 21 Advertising 1,000
July 28 Machinery 15,000
July 31 Balance c/d 10,500
39,000 39,000
Aug 1 Balance b/d 10,500
Capital Account (Peter Howard)
July 31 Balance c/d 35,000 July 1 Bank 35,000
35,000 35,000
Purchases Account
July 5 Creditor 12,000
July 20 Creditor 8,000 July 31 Balance c/d 20,000
20,000 20,000
Creditor Account
July 12 Bank 10,500 July 5 Purchases 12,000
July 12 Discount Received 1,500 July 20 Purchases 8,000
July 22 Purchases Returns 1,000
July 31 Balance c/d 7,000
20,000 20,000
Discount Received Account
July 31 Balance c/d 1,500 July 12 Creditor 1,500
1,500 1,500
Purchases Returns Account
July 31 Balance c/d 1,000 July 22 Creditor 1,000
1,000 1,000
Sales Account
July 17 Debtor 16,000
July 25 Bank 4,000
July 31 Balance c/d 21,500 July 31 Debtor 1,500
21,500 21,500
Debtor Account
July 7 Sales 16,000 July 8 Sales Returns 3,000
July 31 Sales 1,500 July 31 Balance c/d 14,500
17,500 17,500
1
Leaving Certificate Accounting
Sales Returns Account

July 8 Debtor 3,000 July 31 Balance c/d 3,000
3,000 3,000
Wages Account
July 15 Bank 2,000 July 31 Balance c/d 2,000
2,000 2,000
Advertising Account
1,000 1,000
Machinery Account
15,000 15,000
Trial Balance as at 31 July € €
Name of Account Debit Credit
Bank............................................................ 10,500
Capital......................................................... 35,000
Purchases .................................................... 20,000
Creditors ..................................................... 7,000
Discount Received........................................ 1,500
Purchases Returns........................................ 1,000
Sales............................................................ 21,500
Debtor......................................................... 14,500
Sales Returns ............................................... 3,000
Wages ......................................................... 2,000
Advertising .................................................. 1,000
Machinery ................................................... 15,000
66,000 66,000
QUESTION 2.2
Bank Account
Mar 1 Capital 12,000 Mar 3 Rent 150
Mar 30 Cash 4,800 Mar 8 Wages 100
Mar 11 Creditor 2,900
Mar 16 Wages 100
Mar 20 Rates 50
Mar 22 Motor Vehicle 5,000
Mar 23 Wages 100
Mar 25 Rent 150
Mar 31 Wages 120
Mar 31 Balance c/d 8,130
16,800 16,800
Apr 1 Balance b/d 8,130
2
Solutions
Rent Account
Mar 3 Bank 150
Mar 25 Bank 150 Mar 31 Balance c/d 300
300 300
Apr 1 Balance b/d 300
Creditor Account
Mar 11 Bank 2,900 Mar 7 Purchases 3,000
Mar 11 Discount Received 100 Mar 24 Purchases 2,000
Mar 26 Purchases Returns 300
Mar 31 Balance c/d 1,700
5,000 5,000
Purchases Account
Mar 7 Creditor 3,000 Mar 29 Drawings 600
Mar 24 Creditor 2,000 Mar 31 Balance c/d 4,400
5,000 5,000
Discount Received Account
Mar 31 Balance c/d 100 Mar 11 Creditor 100
100 100
Mar 31 Balance c/d 300 Mar 26 Creditor 300
300 300
Wages Account
Mar 8 Bank 100
Mar 16 Bank 100
Mar 23 Bank 100
420 420
Sales Account
Mar 10 Cash 2,000
Mar 19 Debtor 4,000
Mar 27 Debtor 2,700
Mar 31 Balance c/d 13,200 Mar 28 Cash 4,500
13,200 13,200
Cash Account
Mar 10 Sales 2,000 Mar 15 Advertising 750
Mar 28 Sales 4,500 Mar 30 Bank 4,800
Mar 31 Balance c/d 950
6,500 6,500
Advertising Account
Mar 15 Cash 750 Mar 31 Balance c/d 750
750 750
3
Debtor Account
Mar 19 Sales 4,000 Mar 21 Sales Returns 500
Mar 27 Sales 2,700 Mar 31 Balance c/d 6,200
6,700 6,700

Mar 21 Debtor 500 Mar 31 Balance c/d 500
500 500
Rates Account
50 50
Motor Vehicle Account

Mar 21 Bank 5,000 Mar 31 Balance c/d 5,000
5,000 5,000
Drawings Account
Mar 29 Purchases 600 Mar 31 Balance c/d 600
600 600
Capital Account
Mar 31 Balance c/d 12,000 Mar 1 Bank 12,000
12,000 12,000
Trial Balance as at 31 March € €

Name of Account Debit Credit
Bank............................................................. 8,130
Rent ............................................................. 300
Creditor........................................................ 1,700
Purchases ..................................................... 4,400
Discount Received ........................................ 100
Purchases Returns......................................... 300
Wages .......................................................... 420
Sales............................................................. 13,200
Cash............................................................. 950
Advertising ................................................... 750
Debtor.......................................................... 6,200
Sales Returns ................................................ 500
Rates ............................................................ 50
Motor Vehicles ............................................. 5,000
Drawings...................................................... 600
Capital ......................................................... 12,000
27,300 27,300
4
3
QUESTION 3.1
Profit Measurement and Balance
Sheet Preparation: Solutions
(a) Revenue (b) Capital (c) Revenue (d) Capital

(e) Capital (f) Revenue (g) Revenue (h) Capital
(i) Revenue (j) Capital (k) Capital
QUESTION 3.2
(a) Trading Account (b) Profit and Loss Account (c) Balance Sheet (d) Balance Sheet
(e) Trading account (f) Profit and Loss Account (g) Profit and Loss Account (h) Profit and Loss Account
(i) Balance Sheet (j) Balance Sheet (k) Balance Sheet
QUESTION 3.3
Trading and Profit and Loss Account for the year ended 31/12/-0
€ € €
Sales 89,000
Less Cost of Sales
Opening Stock 4,000
Add Purchases 42,000
Less Purchases Returns (700)
41,300
45,300
Less closing stock (5,000)
(40,300)
Gross profit 48,700
Add income
Discount received 400
49,100
Less expenses
Wages 10,000
Discount allowed 600
Insurance 1,500
Carriage outwards 890
Postage and stationery 110
Light and heat 1,700
(14,800)
Net profit 34,300
5
Balance Sheet as at 31/12/-0

€ € €
Fixed Assets
Premises 80,000
Furniture and fittings 12,000
92,000
Current Assets
Stock 5,000
Debtors 8,000
13,000
Less Current Liabilities
Creditors 4,000
Bank Overdraft 2,000
(6,000)
7,000
99,000
Financed by
Capital 71,700
Add Net Profit 34,300
106,000
Less Drawings (7,000)
99,000
QUESTION 3.4
€ €
Sales 151,000
Less sales returns (1,000)
150,000
Less Cost of Sales
Opening Stock 20,000
Add carriage inwards 3,000
Add custom duties 4,500
134,500
Less closing stock (30,000)
(104,500)
Gross profit 45,500
Add income
Rent received 7,500
53,000
Less expenses
Wages 19,000
Light and heat 2,000
Advertising 3,000
Insurance 7,000
General expenses 6,000
(37,000)
Net profit 16,000
6
Solutions

€ € €
Fixed Assets
Land and buildings 100,000
Furniture and equipment 20,000
Motor vehicles 12,000
132,000
Current Assets
Stock 30,000
Debtors 20,000
Cash 1,000
51,000
Creditors 25,000
(41,000)
10,000
142,000
Financed by
Capital 136,000
152,000
142,000
7
4
QUESTION 4.1
Value Added Tax and Statutory
Deductions: Solutions
Purchases Account
May 1 Creditor 15,000
May 19 Creditor 5,000 May 31 Balance c/d 20,000
20,000 20,000
June 1 Balance c/d 20,000
VAT Account
May 1 Creditor (Purchases) 1,500 May 3 Debtor (Sales) 2,500
May 15 Bank (Eircom) 4 May 4 Creditor (Purchases returns) 100
May 19 Creditors (Purchases) 500 May 11 Debtor (Sales) 700
May 20 Debtors (Sales returns) 50 May 28 Debtor (Sales) 400
May 27 Bank (Stationery) 10
May 31 Balance c/d 1,636
3,700 3,700
June 1 Balance b/d 1,636
Creditor Account
May 4 Purchases returns 1,100 May 1 Purchases 16,500
May 22 Bank 15,400 May 19 Purchases 5,500
May 31 Balance b/d 5,500
22,000 22,000
Sales Account
May 3 Debtor 25,000
May 11 Debtor 7,000
May 7 Balance c/d 36,000 May 28 Debtor 4,000
36,000 36,000
Debtor Account
May 3 Sales 27,500 May 10 Bank 27,500
May 11 Sales 7,700 May 20 Sales returns 550
May 28 Sales 4,400 May 31 Balance c/d 11,550
39,600 39,600
May 31 Balance b/d 1,000 May 4 Creditor 1,000
1,000 1,000
Bank Account
May 10 Debtor 27,500 May 15 Telephone expenses 44
May 17 Entertainment expenses 330
May 22 Creditor 15,400
May 25 Motor vehicles 6,600
May 27 Stationery 110
May 28 Balance c/d 5,016
27,500 27,500
8
Solutions
Telephone Expenses Account

May 15 Bank 40 May 31 Balance c/d 40
40 40
June 1 Balance b/d 40
Entertainment Expenses Account
330 330
May 20 Debtor 500 May 31 Balance c/d 500
500 500
Motor Vehicles Account
May 25 Bank 6,600 May 31 Balance c/d 6,600
6,600 6,600
Stationery Account
100 100
The Trading Account for the month will show the following entries:
Sales €36,000
Less sales returns (500)
€35,500
Purchases €20,000
Less purchases returns (1,000)
€19,000
The Profit and Loss Account at the end of the month will show the following expenses:
Telephone €40
Entertainment €330
Stationery €100
The Balance Sheet at the end of the month will show the following:
Fixed assets
Motor vehicle €6,600
Current assets
Debtor €11,550
Bank €5,016
Current liabilities
Creditors €5,500
VAT €1,636
QUESTION 4.2
Wages Account
Nov 30 Bank 16,020
PAYE 10,320
PRSI (EE) 2,310
VHI 350
Savings club 4,000
PRSI (ER) 4,950 Nov 30 Balance c/d 37,950
37,950 37,950
Dec 1 Balance b/d 37,950
9
Bank Account
Nov 30 Wages 16,020
PAYE/PRSI Account
Nov 30 Wages 10,320
Wages (EE) 2,310
Nov 30 Balance c/d 17,580 Wages (ER) 4,950
17,580 17,580
VHI Account
Nov 30 Balance c/d 350 Nov 30 Wages 350
350 350
Dec 1 Balance b/d 350
Savings Club Account
Nov 30 Balance c/d 4,000 Nov 30 Wages 4,000
4,000 4,000
The Profit and Loss Account for the year will show the following expense:
Wages €37,950
The Balance Sheet at the end of the month will show the following:
Current liabilities
PAYE/PRSI €17,580
VHI €350
Savings club €4,000
QUESTION 4.3
€ € €
Sales 45,000
Less Returns In (1,000)
44,000
Less Cost of Sales
Opening Stock 2,000
Less Returns Out (500)
20,500
Add Carriage In 500
23,000
Less Closing Stock (4,000)
(19,000)
Gross Profit 25,000
Add Income
Discount Received 500
Rent Received 2,000
Less Expenses 27,500
Wages
Rates 14,000
Insurance 600
Discount allowed 1,400
Light and Heat 300
Postage and Stationery 600
700
(17,600)
Net Profit 9,900
10
Solutions
Balance Sheet As At 31/12/-0

€ € €
Fixed Assets
Premises 60,000
Motor Vehicles 20,000
80,000
Current Assets
Closing Stock 4,000
Debtors 14,000
Cash 1,000
19,000
Creditors 8,000
PRSI/PAYE 2,500
VAT 1,800
(14,300)
4,700
84,700
Financed by
Capital 78,800
88,700
84,700
11
5
QUESTION 5.1
Accruals, Prepayments, Bad Debts, Provisions
and Bad Debts Recovered: Solutions
Car Tax Account

1/1/-6 Balance b/d 72
1/4/-6 Bank 168 31/12/-6 Profit and Loss Account 324
1/10/-6 Bank 168 31/12/-6 Balance c/d (three months prepaid) 84
408 408
504 504
QUESTION 5.2
(a) Bad Debts Account
1/10/-7 Debtors 440
31/12/-7 Debtors 100 31/12/-7 Profit and Loss Account 540
540 540
(b) Provision for Bad Debts Account

31/12/-7 Balance c/d (5% of 14,000) 700 31/12/-7 Profit and Loss Account 80
700 700
QUESTION 5.3
Car Insurance Account
1/1/-8 Balance b/d 200 31/12/-8 Profit and Loss Account 920
1,160 1,160
1/1/-9 Balance b/d 240 31/12/-9 Profit and Loss Account 1,140
1/4/-9 Bank 1,200 31/12/-9 Balance c/d (three months prepaid) 300
1,440 1,440
QUESTION 5.4
Rent Receivable Account
31/12/-5 Profit and Loss Account 1,350 1/1/-5 Balance b/d 600
31/12/-5 Balance c/d (six months prepaid) 750 1/7/-5 Bank 1,500
2,100 2,100
31/12/-6 Profit and Loss Account 1,650 1/1/-6 Balance b/d 750
31/12/-6 Balance c/d (six months prepaid) 900 1/7/-6 Bank 1,800
2,550 2,550
12
Solutions
QUESTION 5.5
Motor Vehicles Tax Account
1/4/-7 Bank 520 31/12/-7 Profit and Loss Account 1,020
1,280 1,280
1,460 1,460
QUESTION 5.6
1/5/-8 Debtors 550 1/5/-8 Provision for Bad Debts 550
750 750

1/5/-8 Bad Debts 550 1/1/-8 Balance b/d 800
31/12/-8 Bad Debts 200
1,650 1,650
QUESTION 5.7
1/6/-6 Debtors 480
31/12/-8 Debtors 400 31/12/-8 Profit and Loss Account 880
880 880

980 980
QUESTION 5.8
Rent Account
870 870
1,020 1,020
13
QUESTION 5.9
1,140 1,140

1/6/-8 Bad Debts 640 1/1/-8 Balance b/d 1,680
31/12/-8 Bad Debts 500
31/12/-8 Balance c/d (5% of 24,000) 1,200 31/12/-8 Profit and Loss Account 660
2,340 2,340
1/1/-9 Balance b/d 1,200
QUESTION 5.10
Debtors 900 31/12/-8 Profit and Loss Account 900
900 900

31/12/-8 Balance c/d 1,400 31/12/-8 Profit and Loss Account 600
1,400 1,400
1/1/-9 Balance b/d 1,400
(c) Provision for Discount Allowed Account

31/12/-8 Profit and Loss Account
31/12/-8 Balance c/d 392 (2% of 20,000 – 400) 392
392 392
(d) Profit and Loss Account for the year ended 31/12/-8 (Extract)
Expenses
Bad Debts 900
Provision for Bad Debts Increase 600
Provision for Discount Allowed Increase 392
(e) Balance Sheet as at 31/12/-8 (Extract)

Current Assets
Debtors 26,000
Less Provision for Bad Debts (1,400)
Less Provision for Discount Allowed (392) 24,208
QUESTION 5.11
Rent and Rates Account
3/1/-7 Bank 1,800 1/1/-7 Balance c/d (three months rates due) 420
7/1/-7 Bank 840
20/6/-7 Bank 1,800
4/9/-7 Bank 960
6/9/-7 Bank 1,800
31/12/-7 Balance c/d (three months rent due) 1,800 31/12/-7 Balance c/d (three rates prepaid) 480
9,960 9,960
1/1/-8 Balance b/d 480 1/1/-8 Balance b/d 1,800
14
6
QUESTION 6.1
Depreciation and
Revaluation: Solutions
(a) Buses Account

1/1/-3 Balance b/d 80,000
1/7/-3 Bank 25,000 31/12/-3 Balance c/d 105,000
105,000 105,000
1/1/-4 Balance b/d 105,000 1/1/-4 Disposal 20,000
31/12/-4 Balance c/d 85,000
105,000 105,000
(b) Provision for Depreciation Account

1/1/-3 Balance b/d 25,000
31/12/-3 Balance c/d 35,000 31/12/-3 Profit and loss 10,000
35,000 35,000
1/1/-4 Disposal 12,500 1/1/-4 Balance b/d 35,000
31/12/-4 Balance c/d 31,000 31/12/-4 Profit and Loss 8,500
43,500 43,500
(c) Bus Disposal Account
1/1/-4 Bus 20,000 1/1/-4 Depreciation 12,500
1/1/-4 Bank 7,000
31/12/-4 Loss 500
20,000 20,000
QUESTION 6.2
(a) Buses Account
1/1/-5 Balance b/d 95,000
1/7/-5 Bank 35,000 31/12/-5 Balance c/d 130,000
130,000 130,000
31/12/-6 Balance c/d 102,000
130,000 130,000
1/1/-5 Balance b/d 40,000
64,000 64,000
85,000 85,000
31/12/-6 Profit 700 1/7/-6 Bank 4,600
28,700 28,700
15
QUESTION 6.3
(a) Lorries Account
1/1/-7 Balance b/d 150,000
1/4/-7 Bank 60,000 31/12/-7 Balance c/d 210,000
210,000 210,000
31/12/-8 Balance c/d 170,000
210,000 210,000
1/1/-7 Balance b/d 45,000
66,000 66,000
85,000 85,000
(c) Lorry Disposal Account

1/9/-8 Lorries 40,000 1/9/-8 Depreciation 28,500
1/9/-8 Bank 9,000
31/12/-8 Loss 2,500
40,000 40,000
QUESTION 6.4
(a) Buses Account
1/4/-8 Bank 70,000 31/12/-8 Balance c/d 200,000
245,000 245,000
1/1/-9 Balance b/d 200,000 31/12/-9 Balance c/d 200,000
200,000 200,000

71,500 71,500
1/1/-9 Balance b/d 43,500
63,500 63,500

31/12/-8 Profit 1,000 1/4/-8 Bank 19,000
46,000 46,000
QUESTION 6.5
(a) Truck Account
1/10/-6 Bank 54,000 31/12/-6 Balance c/d 189,000
214,000 214,000
1/7/-7 Bank 36,000 31/12/-7 Balance c/d 195,000
225,000 225,000
16
Solutions

65,000 65,000
78,000 78,000
(c) Truck Disposal Account

1/12/-6 Truck 25,000 1/12/-6 Depreciation 14,000
31/12/-6 Profit 5,000 1/12/-6 Bank 16,000
30,000 30,000
1/9/-7 Truck 30,000 1/9/-7 Depreciation 20,000
31/12/-7 Profit 2,000 1/9/-7 Bank 12,000
32,000 32,000
QUESTION 6.6
Bus Account
1/1/-8 Buses at cost amounted to €145,000
1/7/-8 Bus which cost €40,000 was sold
1/9/-9 Bus purchased for €25,000
1/12/-9 Bus purchased on credit for €27,000
Provision for Depreciation Account

1/1/-8 Accumulated balance on depreciation was €30,000
1/7/-8 Bus sold on 1/7/-8 had accumulated depreciation of €10,000
31/12/-8 Annual depreciation charge was €11,000
31/12/-9 Annual depreciation charge was €23,000
Disposal Account
1/7/-8 Bus sold cost €40,000
1/7/-8 Accumulated depreciation on bus sold was €10,000
1/7/-8 Bus was sold for €28,000
31/12/-8 Loss on disposal of bus was €2,000
QUESTION 6.7 (HIGHER LEVEL) (Reference to Calculations in Brackets).

(a) Vehicles Account
1/1/-8 Balance b/d (1) 80,000 1/4/-8 Disposal 26,000
1/4/-8 Trade-in 15,000
Bank 20,000 31/12/-8 Balance c/d 89,000
115,000 115,000
1/10/-9 Bank 44,000 31/12/-9 Balance c/d 101,000
133,000 133,000
1/1/00 Balance b/d 101,000
17

1/4/-8 Disposal (3) 13,000 1/1/-8 Balance b/d (2) 42,400
31/12/-8 Balance c/d 44,550 31/12/-8 Profit and loss (4) 15,150
57,550 57,550
1/10/-9 Disposal (5) 22,100 1/1/-9 Balance b/d 44,550
58,550 58,550
1/1/00 Balance b/d 36,450
(c) Vehicles Disposal Account
1/4/-8 Vehicle 26,000 1/4/-8 Depreciation (3) 13,000
31/12/-8 Profit and loss 2,000 1/4/-8 Trade-in 15,000
28,000 28,000
1/10/-9 Vehicle 32,000 1/10/-9 Depreciation (5) 22,100
1/10/-9 Bank 500
31/12/-9 Profit and loss 9,400
32,000 32,000
CALCULATIONS (€)
1. Opening balance on Vehicles Account as 1/1/-8
No. 1 – 22,000
No. 2 – 26,000
No. 3 – 30,000
Tachograph 2,000
80,000
2. Opening balance on Provision for Depreciation Account as at 1/1/-8
No. 1 – (1/7/-3 – 1/1/-8) = 4 years, 6 months (4 1--- ) x 20% of 22,000 = ...................................... 19,800
2
No. 2 – (1/10/-5 – 1/1/-8) = 2 years, 3 months (2 1--- ) x 20% of 26,000 = ................................... 11,700
4
No. 3 – (1/4/-6 – 1/1/-8) = 1 year, 9 months (1 3--- ) x 20% of 30,000 = ....................................... 10,500
4
Tachograph – (1/1/-7 – 1/1/-8) = 1 year x 20% of 2,000 = ......................................................... 400
Total = ............................................................................................................................. 42,400
3. Depreciation to date of Sale Vehicle No. 2

1/10/-5 – 1/4/-8 = 2 years, 6 months (2 1--- ) x 20% of 26,000 =.................................................... 13,000
2
4. Annual Depreciation Charge for the year ended 31/12/-8

No. 1 – 1 year x 20% of 22,000 (N.B. – only 1--- year remaining) = ........................................... 2,200
2
No. 2 – 3 months ( 1--- ) of 20% of 26,000...................................................................................... 1,300

4
No. 3 – 1 year x 20% of 32,000 = .............................................................................................. 6,400
No. 4 – 9 months ( 3--- ) x 20% of 35,000 = ................................................................................... 5,250
4
Total = ................................................................................................................................ 15,150
Vehicle – (1/4/-6 – 1/10/-9) = 3 years, 6 months (3 1--- ) x 20% of 30,000 = ................................ 21,000
2
Tachograph – (1/1/-7 – 1/10/-9) = 2 years, 9 months (2 3--- ) x 20% of 2,000 = ........................... 1,100
4
Total = ................................................................................................................................ 22,100
18
Solutions

No. 1 – Fully depreciated = ........................................................................................................ Nil
No. 3 – 9 months ( 3--- ) x 20% of 32,000 =.................................................................................... 4,800
4
No. 4 – 1 year x 20% of 35,000 = ............................................................................................... 7,000
No. 5 – 3 months ( 1--- ) x 20% of 44,000 = ................................................................................... 2,200
4
Total = ................................................................................................................................ 14,000
QUESTION 6.8 (HIGHER LEVEL) (Reference to Calculations in Brackets)

1/10/-8 Bank 31,000
Trade-in 9,000 31/12/-8 Balance c/d 100,000
120,000 120,000
1/8/-9 Bank 48,000 31/12/-9 Balance c/d 112,000
148,000 148,000
1/1/-0 Balance b/d 112,000
56,500 56,500
31/12/-9 Balance b/d 30,500 31/12/-9 Profit and loss (6) 12,750
49,250 49,250
1/1/-0 Balance b/d 30,500
1/10/-8 Vehicles 20,000 1/10/-8 Depreciation (3) 20,000
31/12/-8 Profit and Loss 9,000 1/10/-8 Trade-in 9,000
29,000 29,000
31/12/-9 Profit and Loss 1,250 1/7/-9 Bank 2,500
1/7/-9 Bank (Insurance) 16,000
37,250 37,250
CALCULATIONS (€)
1. Opening balance on Vehicles Account as at 1/1/-8
No. 1 – 20,000
No. 2 – 24,000
No. 3 – 32,000
Tachograph 4,000
80,000

No. 1 – (1/7/-9 – 1/1/-8) = 8 years, 6 months, i.e. fully depreciated =........................................ 20,000
No. 2 – (1/10/-2 – 1/1/-8) = 5 years, 3 months (5 1--- ) x 12 1--- % of 24,000 = ................................ 15,750
4 2
No. 3 – (1/4/-5 – 1/1/-8) = 2 years, 9 months 2( 3--- ) x 12 1--- % of 32,000 = .................................. 11,000
4 2
Tachograph – (1/1/-6 – 1/1/-8) = 2 years x 12 1--- % of 4,000 =..................................................... 1,000

2
Total = ............................................................................................................................. 47,750
19

1/7/-9 – 1/10/-8 = Fully Depreciated = ....................................................................................... 20,000

No. 1 – Fully Depreciated = ....................................................................................................... Nil
No. 2 – 1 year x 12 1--- % of 24,000................................................................................................ 3,000
2
No. 3 – 1 year x 12 1--- % of 36,000 = ........................................................................................... 4,500

2
No. 4 – 3 months ( --- ) x 12 1--- % of 40,000 = ................................................................................

1
1,250
4 2
Total = ................................................................................................................................ 8,750

Vehicle – (1/4/-5 – 1/7/-9) = 4 years, 3 months (4 1--- ) x 12 1--- % of 32,000 = ............................... 17,000
4 2
Tachograph – (1/1/-6 – 1/7/-9) = 3 years, 6 months (3 1--- ) x 12 1--- % of 4,000 = ........................... 1,750
2 2
Total = ................................................................................................................................ 18,750

No. 2 – 1 year x 12 1--- % of 24,000 = ........................................................................................... 3,000
2
No. 3 – 6 months ( 1--- ) x 12 1--- % of 36,000 =................................................................................. 2,250

2 2
1
No. 4 – 1 year x 12 --- % of 40,000 = ............................................................................................ 5,000
2
5 1
No. 5 – 5 months ( -----
- ) x 12 --- % of 48,000 = ............................................................................. 2,500
12 2
Total = ................................................................................................................................ 12,750
1/9/-0 Bank 36,000
182,000 182,000
1/4/-1 Bank 35,000
192,000 192,000
1/1/-2 Balance b/d 148,000

31/12/200 Balance c/d 47,600 31/12/-0 Profit and Loss (4) 26,000
76,400 76,400
31/12/-1 Balance b/d 59,100 31/12/-1 Profit and Loss (5) 24,700
72,300 72,300
1/1/-2 Balance b/d 59,100
20
Solutions

1/9/200 Vehicles 48,000 1/9/-0 Depreciation (3) 28,800
1/9/-0 Trade-in 18,000
31/8/-0 Profit and Loss 1,200
48,000 48,000
1/4/-1 Trade-in 23,000
1/4/-1 Bank (insurance) 4,000
44,000 44,000
CALCULATIONS (€)
No. 1 – 36,000
No. 2 – 42,000
No. 3 – 44,000
Tachograph 6,000
128,000
7
No. 1 – (1/6/-6 – 1/1/-0) = 3 years, 7 months (3-----
-) x 20% of 36,000 = ..................................... 25,800
12
5
No. 2 – (1/8/-7 – 1/1/-0) = 2 years, 5 months (2------) x 20% of 42,000 = ..................................... 20,300
12
No. 3 – (1/10/-9 – 1/1/-0) = 3 months ( 1--- ) x 20% of 44,000 = ................................................... 2,200
4
Tachograph – (1/4/-8 – 1/1/-0) = 1 year, 9 months (1 3--- ) x 20% of 6,000 = ............................... 2,100
4
Total = ............................................................................................................................. 50,400

1
Vehicle – (1/8/-7 – 1/9/-0) = 3 years, 1 months (3-----
-) x 20% of 42,000 = .................................. 25,900
12
5
Tachograph – (1/4/-8 – 1/9/-0) = 2 years, 5 months (2-----
-) x 20% of 6,000 = ............................. 2,900
12
Total = ............................................................................................................................. 28,800

No. 1 – 1 year x 20% of 36,000 .................................................................................................. =7,200
No. 2 – 8 months ( 2--- ) x 20% of 48,000 ....................................................................................... =6,400
3
No. 3 – 1 year x 20% of 44,000 = .............................................................................................. 8,800
No. 4 – 4 months ( 1--- ) x 20% of 54,000 = ................................................................................... 3,600
3
Total = ................................................................................................................................ 26,000
1/10/-9 – 1/4/-1 = 1 year, 6 months (1 1--- ) x 20% of 44,000 = ..................................................... 13,200
2

5
No. 1 – 1 year (only 5 months chargeable) (-----
-) x 20% of 36,000 =......................................... 3,000
12
No. 3 – 3 months ( 1--- ) x 20% of 44,000 =.................................................................................... 2,200
4
No. 4 – 1 year x 20% of 54,000 = ............................................................................................... 10,800
No. 5 – 9 months ( 3--- ) x 20% of 58,000 = .................................................................................. 8,700
4
................................................................................................................................ 24,700
21

1/9/-8 Bank 38,000
181,000 181,000
1/4/-9 Bank 53,000 157,000
Trade-in 11,000 31/12/-9 Balance c/d
199,000 199,000
1/1/-0 Balance b/d 157,000

31/12/-8 Balance c/d 37,752 31/12/-8 Profit and Loss (4) 18,555
62,675 62,675
62,770 62,770
1/1/-0 Balance b/d 46,306

1/9/-8 Trade-in 16,000
46,000 46,000
1/4/-9 Trade-in 11,000
1/4/-9 Bank (Insurance) 8,000
42,000 42,000
CALCULATIONS (€)
No. 1 – 40,000
No. 2 – 39,000
No. 3 – 42,000
Tachograph 6,000
127,000
No. 1 – (1/1/-5 – 1/1/-8) = 3 years
Year 1 – 40,000 x 20% = ............................................................. 8,000
Year 2 – (40,000 – 8,000) = 32,000 x 20% =............................... 6,400
Year 3 – (32,000 – 6,400) = 25,600 x 20% =............................. 5,120 ................19,520
No. 2 – (1/1/-6 – 1/1/-8) = 2 years
Year 1 – 39,000 x 20% = ............................................................ 7,800
Year 2 – (39,000 – 7,800) = 31,200 x 20% = ............................. 6,240 ................14,040
No. 3 – (1/1/-7 – 1/1/-8) = 1 year
Year 1 – 42,000 x 20% = ........................................................... 8,400 ..................8,400
Tachograph – (1/1/-6 – 1/1/-8) = 2 years,
Year 1 – 6,000 x 20% = ............................................................... 1,200
Year 2 – (6,000 – 1,200) = 4,800 x 20%..................................... 960 ..................2,160
Total = .................................................................................................................... 44,120
22
Solutions

Vehicle – (1/1/-5 – 1/9/-8) = 3 years, 8 months (3 2--- )
3
Years 1, 2 and 3 (as above calculation 2) = .............................. 19,520
Year 4 (25,600 – 5,120) = 20,480 x 20% x ( 2--- ) = .................... 2,731 ................22,251
3
Tachograph – (1/1/-6 – 1/9/-8) = 2 years, 8 months (2 2--- )

3
Years 1 and 2 (as above calculation 2) = ..................................... 2,160
Year 3 (4,800 – 960) = 3,840 x 20% x ( 2--- ) = .............................. 512 ..................2,672
3
Total = .....................................................................................................................24,923

No. 1 – 2--- year (as above calculation 3) .............................................................................3,243
3
No. 2 – 1 year x 20% of (31,200 – 6,240) = 24,960 = .......................................................4,992
No. 3 – 1 year x 20% of (42,000 – 8,400) = 33,600 = ......................................................6,720
No. 4 – 1--- year x 20% of 54,000 = ....................................................................................3,600
3
Total = .................................................................................................................... 18,555

(1/1/-7 – 1/4/-9) = 2 years, 3 months (2 1--- )
4
Year 1 Calculation 2 = .................................................................. 8,400
Year 2 Calculation 4 = .................................................................. 6,720
Year 3 – 1--- year x 20% of (33,600 – 6,720 = 26,880) ............................. 1,344
4
Total = ........................................................................................ 16,464

No. 2 – 1 year x 20% of (24,960 – 4,992) = 19,968 = .................................... ..................3,994
No. 3 – 1--- year (as above calculation 5) .......................................................... ..................1,344
4
No. 4 – 1 year x 20% of (54,000 – 3,600) = 50,400 = .................................... ................10,080
No. 5 – 3--- year x 20% of 64,000 = ................................................................. ..................9,600
4
Total = .................................................................................................... ................25,018

(a) Trucks Account
1/8/-4 Bank 48,000
235,500 235,500
1/4/-5 Bank 42,000
Trade-in 26,000 31/12/-4 Balance c/d
188,000
248,000 248,000
1/1/-6 Balance b/d 188,000
23

101,469 101,469
94,707 94,707
1/1/-6 Balance b/d 63,379
(c) Trucks Disposal Account
1/8/-4 Trucks 55,500 1/8/-4 Depreciation (3) 34,300
1/8/-4 Trade-in 17,000
55,500 55,500
1/5/-5 Trucks 60,000 1/5/-5 Depreciation (5) 31,328
1/5/-5 Trade-in 26,000
31/12/-5 Profit and Loss 7,328 1/5/-5 Bank (Insurance) 10,000
67,328 67,328
CALCULATIONS (€)
1. Opening balance on Trucks Account as at 1/1/-4
No. 1 – 50,000
No. 2 – 55,000
No. 3 – 60,000
Tachograph 5,500
170,500
No. 1 – (1/1/-0 – 1/1/-4) = 4 years
Year 1 – 50,000 x 20% = ........................................................... 10,000
Year 2 – (50,000 – 10,000) = 40,000 x 20% =............................. 8,000
Year 3 – (40,000 – 8,000) = 32,000 x 20% =............................... 6,400
Year 4 – (32,000 – 6,400) = 25,600 x 20% =.............................. 5,120 ................29,520
No. 2 – (1/1/-1 – 1/1/-4) = 3 years
Year 1 – 55,000 x 20% = .......................................................... 11,000
Year 2 – (55,000 – 11,000) = 44,000 x 20% =............................. 8,800
Year 3 – (44,000 – 8,800) = 35,200 x 20% = ............................ 7,040 ................26,840
No. 3 – (1/1/-2 – 1/1/-4) = 2 years
Year 1 – 60,000 x 20% = .......................................................... 12,000
Year 2 – (60,000 – 12,000) = 48,000 x 20% =........................... 9,600 ................21,600
Tachograph – (1/1/-6 – 1/1/-8) = 2 years,
Year 1 – 5,500 x 20% = ............................................................... 1,100
Year 2 (5,500 – 1,100) = 4,400 x 20%............................................ 880 ..................1,980
Total = .................................................................................................... ................79,940
3. Depreciation to date of Sale: Truck No. 1
7
Vehicle – (1/1/-0 – 1/8/-4) = 3 years, 7 months (3 -----
-)
12
Years 1, 2 and 3 (as above calculation 2) = .............................. 29,520
7
Year 4 (25,600 – 5,120) = 20,480 x 20% x ( -----
- ) = .................. 2,389 ................31,909
12
7
Tachograph – (1/1/-2 – 1/8/-4) = 2 years, 7 months (2 -----
-)
12
Years 1 and 2 (as above calculation 2) = ..................................... 1,980
7
Year 3 (4,400 – 880) = 3,520 x 20% x ( -----
- ) = ............................ 411 ..................2,391
12
Total = .................................................................................................... ................34,300
24
Solutions

7
No. 1 – -----
- year (as above calculation 3) = ....................................................... ..................2,800
12
No. 2 – 1 year x 20% of (35,200 – 7,040) = 28,160 = .................................... ..................5,632
No. 3 – 1 year x 20% of (48,000 – 9,600) = 38,400 = ................................... ..................7,680
5
No. 4 – -----
- year x 20% of 65,000 = ................................................................. ..................5,417
12
Total = .................................................................................................... ................21,529
5. Depreciation to date of Sale Truck No. 3
(1/1/-2 – 1/5/-5) = 3 years, 4 months (3 1--- )
3
Year 1 and 2 – Calculation 2 =............................................................. ................21,600
Year 3 – Calculation 4 = ....................................................................... ..................7,680
Year 4 – 1--- year x 20% of (38,400 – 7,680) = 30,720 = ........................ ..................2,048
3
Total = .................................................................................................... ................31,328

No. 2 – 1 year x 20% of (28,160 – 5,632) = 22,528 = .................................... ..................4,506
No. 3 – 1--- year (as above calculation 5) .......................................................... ..................2,048
3
No. 4 – 1 year x 20% of (65,000 – 5,417) = 59,583 = .................................... ................11,917
No. 5 – 2--- year x 20% of 68,000 = ................................................................. ..................9,067
3
Total = .................................................................................................... ................27,538
QUESTION 6.12 (HIGHER LEVEL)

(a) Land and Buildings Account
1/1/-7 Revaluation reserve 614,000 31/12/-7 Balance c/d 1,214,000
1,414,000 1,414,000
1/1/-8 Balance b/d 1,214,000

1/1/-7 Revaluation Reserve 22,500 31/12/-7 Profit and Loss (3) 22,000
31/12/-7 Balance c/d 22,000
59,500 59,500
1/1/-7 Balance b/d 22,000
(c) Buildings Disposal Account

1/1/-7 Land and Buildings 200,000 1/1/-7 Depreciation (2) 15,000
465,000 465,000
(d) Revaluation Reserve Account

1/1/-7 Land and Buildings 614,000
31/12/-7 Balance c/d 636,500 1/1/-7 Depreciation 22,500
636,500 636,500
1/1/-8 Balance b/d 636,500
25
CALCULATIONS (€)
1. Opening Balance on Provision for Depreciation Account as at 1/1/-7
500,000
1/1/-4 – 1/1/-7 = 3 years x ------------------- = .......................................................................................37,500
40
2. Depreciation to date of Sale of buildings on 1/1/-7
200,000
1/1/-4 – 1/1/-7 = 3 years x ------------------- = .......................................................................................15,000
40
3. Annual Depreciation charge for the year ended 31/12/-7
814,000
1 year x ------------------- = ....................................................................................................................22,000
37
(a) Land and Buildings Account
1/1/-7 Balance b/d 1,300,000 1/1/-7 Disposal 200,000
1/1/-7 Revaluation reserve 1,225,000 31/12/-7 Balance c/d 2,325,000
2,525,000 2,525,000
1/1/-8 Balance b/d 2,325,000

1/1/-7 Revaluation Reserve 60,000 31/12/-7 Profit and Loss (3) 35,000
31/12/-7 Balance c/d 35,000
115,000 115,000
1/1/-8 Balance b/d 35,000
(c) Buildings Disposal Account

1/1/-7 Land and Buildings 200,000 1/1/-7 Depreciation (2) 20,000
250,000 250,000
(d) Revaluation Reserve Account

1/1/-7 Land and Buildings 1,225,00
31/12/-7 Balance c/d 1,285,000 1/1/-7 Depreciation 60,000
1,285,000 1,285,000
1/1/-8 Balance b/d 1,285,000
CALCULATIONS (€)
1. Opening Balance on Provision for Depreciation Account as at 1/1/-7
800,000
1/1/-2 – 1/1/-7 = 5 years x ------------------- = .......................................................................................80,000
50
2. Depreciation to date of sale of buildings on 1/1/-7
200,000
1/1/-2 – 1/1/-7 = 5 years x ------------------- = .......................................................................................20,000
50
3. Annual Depreciation charge for the year ended 31/12/-7
2, 325,000 – 750,000
1 year x --------------------------------------------------- = ................................................................................................35,000
45
26
Solutions

Land and Buildings Account
1/1/-4 Balance b/d 250,000
1/1/-4 Revaluation reserve 230,000 31/12/-4 Balance c/d 480,000
480,000 480,000
1/1/-5 Balance b/d 480,000
1/1/-5 Bank 200,000 31/12/-5 Balance c/d 680,000
680,000 680,000
1/1/-6 Balance b/d 680,000
1/1/-6 Revaluation reserve (4) 140,000 31/12/-6 Balance c/d 820,000
820,000 820,000
1/1/-7 Balance b/d 820,000 1/1/-7 Disposal (7) 450,000
31/12/-7 Balance c/d 370,000
820,000 820,000
Depreciation Land and Buildings Account

1/1/-4 Revaluation Reserve 36,000 1/1/-4 Balance b/d (1) 36,000
43,200 43,200
1/1/-5 Balance b/d 7,200
18,400 18,400
1/1/-6 Revaluation reserve 18,400 1/1/-6 Balance b/d 18,400
32,400 32,400
19,000 19,000
Revaluation Reserve Account

266,000 266,000
31/12/-5 Balance b/d 266,000 1/1/-5 Balance b/d 266,000
266,000 266,000
1/1/-6 Balance b/d 266,000
424,400 424,000
31/12/-7 Profit and Loss (9) 300,400 1/1/-7 Balance b/d 424,000
31/12/-7 Balance c/d 124,000
424,400 424,400
Disposal Account
1/1/-7 Land and Buildings 450,000 1/1/-7 Depreciation 9,000
529,000 529,000
27
CALCULATIONS (€)
1. Accumulated Depreciation to date on 1/1/-4
9 years at 2% of €200,000 = ........................................................................................ €36,000
2. Annual Depreciation charge for year ended 31/12/-4
1 year at 2% of €360,000 =............................................................................................ €7,200
1 year at 2% of €560,000 =.......................................................................................... €11,200
4. Revaluation on 1/1/-6
25% on €560,000 =.................................................................................................... €140,000
1 year at 2% of €700,000 =............................................................................................ €9,000
6. Accumulated depreciation on buildings sold on 1/1/-7
1 year at 2% of €450,000 =............................................................................................ €9,000
7. Revalued value of buildings sold on 1/1/-7
Purchased 1/1/-5 = €200,000
Revalued 1/1/-4 = €160,000
Revalued 1/1/-6 = 90,000
€450,000

1 year at 2% of €250,000 =............................................................................................ €5,000
9. Revalued amount of buildings disposed of on 1/1/-7 transferred to Profit and Loss Account.
Revaluation 1/1/-4 = 160,000
Accumulated depreciation on 1/1/-4 = 36,000
Revaluation 1/1/-6 (25% of 360,000) = 90,000
Accumulated depreciation on 1/1/-6
(2 years at 2% of 360,000) = 14,400
300,400
28
8
QUESTION 8.1
Final Accounts of a Sole Trader
with Adjustments: Solutions
Schedule of Adjustments (€)

Trading Account P+L Account Balance Sheet
1. Closing Stock 15,000 15,000 – 15,000
2. Light and Heat 6,000 + 410 – 6,410 410
3. Rent and Rates 12,000 + 12,000 – 24,000 12,000
4. Insurance 9,000 – 3,000 – 6,000 3,000
5. Advertising 10,000 + 3,000 – 13,000 3,000
6. Carriage Out 5,000 + 1,500 – 6,500 1,500
7. Depreciation Land and Buildings 12,000 + 3,600 – 3,600 15,600
8. Depreciation Motor Vehicles 40,000 + 16,000 – 16,000 56,000
9. Depreciation Furniture and Equipment 6,000 + 1,000 – 1,000 7,000
(a) Trading and Profit and Loss Account for the year ended 31/12/-9
Sales 8. 400,000
Less Cost of Sales
– Returns Out (400)
209,600
Add Carriage In 6,000
227,600
Less Closing Stock 1. (15,000)
(212,600)
Gross Profit 187,400
Add Income –
187,400
Less Expenses
Light and Heat 2. 6,410
Rent and Rates 3. 24,000
Insurance 4. 6,000
Advertising 5. 13,000
Carriage Out 6. 6,500
Depreciation Land and Buildings 7. 3,600
Depreciation Motor Vehicles 8. 16,000
Depreciation Furniture and Equipment 9. 1,000
Wages 24,000
(100,510)
Net Profit 86,890
29
(b) Balance Sheet as at 31/12/-9

Cost Depreciation Value
Fixed Assets
Land and Buildings 7. 180,000 15,600 164,400
Motor Vehicles 8. 80,000 56,000 24,000
Furniture and Equipment 9. 10,000 7,000 3,000
270,000 78,600 191,400
Current Assets
Closing Stock 1. 15,000
Insurance Prepaid 4. 3,000
Debtors 40,000
58,000
Light and Heat Due 2. 410
Rent and Rates Due 3. 12,000
Advertising Due 5. 3,000
Carriage Out Due 6. 1,500
Creditors 18,000
Bank 5,600
(40,510)
17,490
208,890
Financed By
Capital 120,000
206,890
188,890
Long-Term Liabilities
15-Year Loan 20,000
208,890
QUESTION 8.2
Trading a/c P+L a/c Bal. Sheet
1. Closing Stock 100,000 100,000 – 100,000
2. Rates 6,800 – 3,400 – 3,400 3,400
3. Postage and Stationery 4,500 – 500 – 4,000 500
4. Bad Debts 500 – 500 –
5. Debtors 70,000 – 500 – – 69,500
6. Provision for Bad Debts 3,475 – 3,475 3,475
7. Depreciation on Buildings 4,000 – 4,000 4,000
8. Depreciation on Delivery Vans 24,000 + 12,000 – 12,000 36,000
9. Fixtures and Fittings 24,000 + 12,000 – 12,000 36,000
30
Solutions
Sales 520,000
– Returns In (4,000)
516,000
Less Cost of Sales
– Returns Out (5,000)
295,000
385,000
(285,000)
Add Income
Rent Received 18,000
Discount Received 3,800
252,800
Less Expenses
Rates 2. 3,400
Postage and Stationery 3. 4,000
Bad Debts 4. 500
Provision for Bad Debts 6. 3,475
Depreciation on Buildings 7. 4,000
Depreciation on Delivery Vans 8. 12,000
Depreciation on Fixtures, Fittings 9. 12,000
Discount Allowed 2,500
Loan Interest 1,920
General Expenses 8,000
Insurance 11,200
(62,995)
Net Profit 189,805

Fixed Assets
Buildings 7. 200,000 4,000 196,000
Delivery Vans 8. 120,000 36,000 84,000
Fixtures and Fittings 9. 80,000 36,000 44,000
400,000 76,000 324,000
Current Assets
Rates Prepaid 2. 3,400
Stock of Stationery 3. 500
Debtors 5. 69,500
Less Provision for Bad Debts 6. (3,475)
66,025
169,925
Creditors 28,200
Bank 27,000
VAT 16,000
(71,200)
98,725
422,725
Financed By
Capital 250,000
439,805
406,725
15 Year Loan 16,000
422,725
31
QUESTION 8.3
Trading Acc P+L Acc Bal. Sheet
1. Closing Stock 12,000 12,000 – 12,000
2. Advertising 14,000 – 3,500 – 10,500 3,500
3. Carriage In 2,400 – 960 1,440 – –
4. Drawings 17,000 + 960 – – 17,960
5. Depreciation on Motor Vehicles 20,000 + 12,000 – 12,000 32,000
6. Depreciation on Furniture and Equipment 18,000 + 2,800 – 2,800 20,800
7. Loan Interest 1,000 + 1,000 – 2,000 1,000
8. Provision for Bad Debts 1,000 + 200 – 200 1,200
(a) Trading, Profit and Loss Account for the year ended 31/12/-8
Sales 190,000
– Returns In (600)
189,400
Less Cost of Sales
73,500
Add Carriage In 3. 1,440
95,940
(83,940)
Add Income
Rent Received 9,000
Patent Royalties 7,000
20,200
125,660
Less Expenses
Depreciation on Motor Vehicles 5. 12,000
Depreciation on Fixtures + Fittings 6. 2,800
Loan Interest 7. 2,000
Provision for Bad Debts 8. 200
Rent 6,500
Wages and Salaries 20,000
Light and Heat 7,000
(70,000)
Net Profit 55,660
32
Solutions

Fixed Assets
Motor Vehicles 5. 60,000 32,000 28,000
Furniture and Equipment 6. 46,000 20,800 25,200
106,000 52,800 53,200
Patents 40,000
Current Assets 93,200
Advertising Prepaid 2. 3,500
Debtors 20,000
Bank 18,800
7,000
41,300
Loan Interest Due 7. 1,000
VAT 9,000
PRSI 2,800
Creditors 30,000
(42,800)
(1,500)
91,700
Financed By
Capital 34,000
89,660
Less Drawings 4. (17,960)
71,700
10 Year Loan 20,000
91,700
QUESTION 8.4
1. Closing Stock 6,000 6,000 – 6,000
2. Rent, Rates, Insurance 12,000 – 1,000 – 600 – 10,400 1,600
4. Advertising 3,000 – 750 – 2,250 750
5. Commission 33,000 + 3,000 – 36,000 3,000
6. Bad Debts 400 + 600 – 1,000 –
7. Debtors 16,000 – 600 – – 15,400
8. Provision for Bad Debts 800 + 124 – 124 924
10. Carriage 12,000 – 8,400 3,600 8,400 –
11. Wages and Salaries 24,000 – 2,400 – 21,600 –
12. Drawings 29,100 + 2,400 – – 31,500
13. Loan Interest 18,000 – 18,000 18,000
33
Sales 225,000
– Returns In (500)
224,500
Less Cost of Sales
Opening Stock 7,000
113,900
124,500
(118,500)
Add Income
Commission 5. 36,000
Investment Interest Received 4,000
41,200
147,200
Less Expenses
Rent, Rates, Insurance 2. 10,400
Bad Debts 6. 1,000
Wages and Salaries 11. 21,600
Discount Allowed 900
Showroom Expenses 4,000
Telephone 900
(85,774)
Net Profit 61,426
34
Solutions

Fixed Assets
Buildings 200,000 – 200,000
Motor Vehicles 9. 50,000 35,000 15,000
250,000 35,000 215,000
10% Investments 40,000
255,000
Current Assets
Rent, Rates Insurance Prepaid 2. 1,600
Advertising Prepaid 4 750
Commission Due 5. 3,000
Debtors 7. 15,400
Less Provision for Bad Debts 8. (924)
14,476
Petty Cash 100
Bank 3,200
29,526
Creditors 14,000
VAT 1,900
PRSI 700
(34,600)
(5,074)
249,926
Financed By
Capital 100,000
161,426
Less Drawings 12. 31,500
129,926
15% Loan 120,000
249,926
QUESTION 8.5
1. Closing Stock 65,000 65,000 – 65,000
2. Stationery 1,400 – 300 – 1,100 300
3. Carriage 8,000 – 4,800 3,200 4,800 –
5. Drawings 12,000 + 14,800 – – 26,800
6. Depreciation on Buildings 5,000 – 5,000 5,000
8. Depreciation on Office Equipment 5,000 + 1,300 – 1,300 6,300
9. Loan Interest 3,000 + 3,000 – 6,000 3,000
10. Advertising 3,600 – 1,200 – 2,400 1,200
11. Provision for Bad Debts 1,500 – 100 – 100 1,400
35
Sales 520,000
514,000
Less Cost of Sales
396,800
448,000
(383,000)
Add Income
Commission 6,700
Reduction in Provision for Bad Debts 11. 100
8,900
139,900
Less Expenses
Stationery 2. 1,100
Depreciation on Office Equipment 8. 1,300
(119,800)
Net Profit 20,100
36
Solutions

Fixed Assets
Buildings 6. 250,000 5,000 245,000
Motor Vehicles 7. 110,000 66,000 44,000
Office Equipment 8. 18,000 6,300 11,700
378,000 77,300 300,700
Patents 30,000
330,700
Current Assets
Debtors 28,000
26,600
VAT 1,600
94,700
Creditors 30,000
PRSI 2,900
Bank 26,200
(62,100)
32,600
363,300
Financed By
Capital 280,000
300,100
273,300
Term Loan 90,000
363,300
QUESTION 8.6
Schedule of Adjustments
1. Closing Stock 83,000 83,000 – 83,000
2. Investment Interest 4,000 – 4,000 4,000
3. Provision for Bad Debts 600 – 100 – 100 500
4. Repairs 20,000 – 15,000 – 5,000 –
5. Buildings 100,000 + 15,000 – – 115,000
6. Loan Interest 200 + 200 – 400 200
7. Depreciation on Buildings 20,000 + 3,450 – 3,450 23,450
9. Depreciation on Furniture and Fittings 3,000 + 700 – 700 3,700
10. Wages 58,000 – 18,000 – 40,000 –
11. Drawings 49,300 + 18,000 – – 67,300
12. Light and Heat 4,100 + 900 – 5,000 900
13. Insurance 5,600 – 1,400 – 4,200 1,400
37
Sales 825,000
Less Cost of Sales
695,000
(612,000)
Add Income
Investment Interest 2. 4,000
4,100
217,100
Less Expenses
Repairs 4. 5,000
Loan Interest 6. 400
Depreciation on Furniture and Fittings 9. 700
Wages 10. 40,000
Insurance 13. 4,200
Distribution Expenses 5,000
Bad Debts 800
(70,550)
Net Profit 146,550
38
Solutions

Fixed Assets
Buildings 5.7. 115,000 23,450 91,550
Motor Vehicles 8. 30,000 22,000 8,000
Fixtures and Fittings 9. 10,000 3,700 6,300
155,000 49,150 105,850
Investments 50,000
155,850
Current Assets
Investment Interest Due 2. 4,000
Debtors 10,000
9,500
Insurance Prepaid 13. 1,400
Petty Cash 100
98,000
Loan Interest Due 6. 200
Creditors 9,000
Bank 3,000
Loan (Repayable in eight months) 4,000
VAT 1,900
PAYE 3,500
PRSI 2,100
(24,600)
73,400
229,250
Financed By
Capital 150,000
296,550
229,250
QUESTION 8.7
1. Closing Stock 62,000 62,000 – 62,000
3. Repairs 25,000 – 20,000 – 5,000 –
4. Drawings 27,000 + 20,000 + 5,000 – – 52,000
5. Loan Interest 4,000 (2/3 year) – 4,000 4,000
6. Bad Debts 1,000 – 1,000 –
7. Debtors 40,000 – 1,000 – – 39,000
9. Carriage 6,700 – 2,680 = 4,020 2,680 4,020 –
10. Rates 6,000 – 2,000 – 4,000 2,000
14. Rent Received 18,000 – 3,000 – 15,000 3,000
39
Sales 543,550
538,550
Less Cost of Sales
282,700
369,380
(307,380)
Add Income
Rent Received 14. 15,000
Commission 4,000
22,700
253,870
Less Expenses
Repairs 3. 5,000
Bad Debts 6. 1,000
Rates 10. 4,000
Rent Paid 6,000
(160,170)
Net Profit 93,700
40
Solutions

Fixed Assets
Premises 150,000 – 150,000
Motor Vehicles 12. 120,000 60,000 60,000
340,000 98,000 242,000
Current Assets
Debtors 7. 39,000
37,050
Rates Prepaid 10. 2,000
Petty Cash 150
VAT 1,400
103,000
Rent Received Prepaid 14. 3,000
Creditors 30,000
Bank 22,500
PRSI 3,800
(63,300)
39,700
281,700
Financed By
Capital 200,000
293,700
241,700
10 Year Loan 40,000
281,700
QUESTION 8.8
1. Closing Stock 21,000 21,000 – 21,000
2. Rent 6,500 + 500 – 7,000 500
5. Carriage 4,000 – 1,600 = 2,400 1,600 2,400 –
7. Drawings 17,500 + 6,000 + 600 – – 24,100
8. Loan Interest 1,000 (5/12 year) – 1,000 1,000
9. Commission 3,000 – 750 – 2,250 750
10. Light and Heat 7,000 + 300 – 7,300 300
11. Bad Debts 700 – 700 –
12. Debtors 16,000 – 700 – – 15,300
13. Provision for Bad Debts 300 + 465 – 465 765
14. General Expenses 8,000 – 600 – 7,400 –
41
Sales 311,000
Less Cost of Sales
197,600
226,200
(205,200)
Add Income
Commission 9. 2,250
3,350
109,150
Less Expenses
Rent 2. 7,000
Bad Debts 11. 700
General Expenses 14. 7,400
Repairs 36,000
Distribution 11,000
Insurance 2,800
(121,615)
Net Loss (12,465)
42
Solutions

Fixed Assets
Delivery Vans 3. 48,000 27,600 20,400
72,000 40,550 31,450
Current Assets
Debtors 12. 15,300
14,535
35,535
Rent Due 2. 500
Commission Prepaid 9. 750
Creditors 14,000
VAT 1,300
PAYE and PRSI 1,700
Bank 20,000
(39,550) (4,015)
27,435
Financed By
Capital 40,000
Less Net Loss (12,465)
27,535
Long-Term Liabilities 3,435

Term Loan 24,000
27,435
43
9
QUESTION 9.1
Bank Reconciliation
Statements: Solutions
(a) Adjusted Bank Account

Balance b/d 165 Standing Order 106
Dividends Received 550 Bank Charges 14
Interest Received 250 J. Brady (r/d) 205
Balance c/d 640
965 965
Balance b/d 640
(b) Bank Reconciliation Statement

Balance as per adjusted bank account 640
Add cheques not yet presented for payment – 019415 310
– 019417 130
– 019418 290
– 019422 105 835
1,475
Less lodgements not yet credited by the bank (1,225)
Balance which should be on statement 250
Add bank error 50
Balance as per bank statement 300
QUESTION 9.2
Balance b/d 850 R/D (iii) 410
Dividends (iv) 200 Error (ii) 296
Credit Transfer (iv) 320 Charges (iv) 40
Balance c/d 624
1,370 1,370
Balance b/d 624

Balance as per adjusted Bank Account 624
Add Cheques not yet presented for payment (i) 630
Less Lodgement not yet credited by the bank (vi) (80)
Balance which should be on bank statement 1,174
Add error at Bank (v) 90
Less error at Bank (vii) (350)
QUESTION 9.3
Balance b/d 800 Error on cheque No. 019328 27
Dividends 120 R/D 140
Charges 30
Standing Order 180
Balance c/d 543
900 920
Balance b/d 543
44
Solutions

Add cheques not yet presented for payment – 019326 110
– 019329 120
230
Less Lodgements not yet credited by the bank (350)
Balance which should be on bank statement 423
Less error at Bank 123
QUESTION 9.4
Balance b/d 1,500 Error (i) 840
Interest (iii) 120 R/D (ii) 200
Charges (iii) 60
Interest (iii) 160
ATM (iii) 100
Balance c/d 260
1,620 1,620
Balance b/d 260

Add Cheques not yet presented for payment (iv) 205
Less Lodgements not yet credited by the bank (iv) (430)
Add error at bank (v) 80
Less error at Bank (vi) 115
QUESTION 9.5
Balance b/d 1,520 R/D (i) 234
Dividends (ii) 217 Standing Order (ii) 124
Error (iv) 1,176 Charges (ii) 29
Balance c/d 2,526
2,913 2,913
Balance b/d 2,526

Balance as per adjusted Bank Account 2,526
Add Cheques not yet presented for payment (vi) 312
Less Lodgements not yet credited by the bank 597 (iv)
450 (v)
(1,047)
Add error at Bank (iii) 154
Less error at Bank (vii) (140)
Balance as per bank statement 1,805
45
QUESTION 9.6
Balance b/d 2,065 R/D 130
Interest 80 Charges 45
Standing Order 280
Balance c/d 1,690
2,145 2,145
Balance b/d 1,690

Add Cheques not yet presented for payment – 567894 120
– 567897 140
260
Less error at Bank (160)
QUESTION 9.7
Balance b/d 1,340 R/D (ii) 110
Error (i) 718 Standing Order (v) 124
Credit Transfer (v) 230 Charges (v) 22
Balance c/d 2,032
2,288 2,288
Balance b/d 2,032

Add Cheques not yet presented for payment (iv) 642
Less Lodgements not yet credited by the bank (iii) (740)
Add error at Bank (vi) 190
Less error at Bank (vii) 650

Balance b/d 1,868 Standing Order 140
Lodgement Error (22/9) 80 Direct Debit 284
Dividends 129 Charges 17
Credit Transfer 28 R/D 24
Balance c/d 1,640
2,105 2,105
Balance b/d 1,640
46
Solutions

Add Cheques not yet presented for payment – 000130 123
– 000133 25
– 000135 119
– 000137 402
– 000138 117
786
Less Lodgements not yet credited by the bank – 1,100
– 380
(1,480)
Add bank error (cheque No. 000134) 90
Less bank error (cheque No. 019384) (310)
Add error at Bank (c/t to be refunded) 28

Balance b/d 6,310 Error (i) 1,176
Credit Transfer (ii) 28 Standing Orders (ii) 118
Cancelled cheque (v) 103 Direct Debits (ii) 72
Lodgement Error (viii) 3 R/D (iv) 109
Balance c/d 4,969
6,444 6,444
Balance b/d 4,969

Add Cheques not yet presented for payment (2,605 – 103) (v) 2,502
Add Bank error (ii) 300
Add Bank error (vi) 165
47
10
QUESTION 10.1
Control Accounts
Debtors Ledger Control Account

1/3/-3 Balance b/d 612 1/3/-3 Balance b/d 18
Credit Sales 3,800 Returns In 150
Cheques 2,111
Discount Allowed 29
Bad Debts 120
31/3/-3 Balance c/d 18 31/3/-3 Balance c/d 2,002
4,430 4,430
1/4/-3 Balance b/d 2,002 1/4/-3 Balance b/d 18
Creditors Ledger Control Account

1/3/-3 Balance b/d 19 1/3/-3 Balance b/d 290
Returns Out 27 Credit Purchases 2,700
Cheques 1,527
Bills Payable 300
31/3/-3 Balance c/d 1,015 31/3/-3 Balance c/d 19
3,009 3,009
QUESTION 10.2
Debtors Control Account
1/9/-6 Balance b/d 3,500 Bad Debts 50
Credit Sales (11,500 – 2,500) 9,000 Cheques 9,800
Interest Charged 30 Contras 280
Returns In 510
Discount Allowed 270
12,565 12,565
QUESTION 10.3
Credit Sales 34,000 Discount Allowed 1,000
R/d cheques 100 Returns In 350
Bills Receivable 3,200
Cheques 24,000
Bad Debts 400
Contras 560
42,400 42,400
48
Solutions

Discount Received 300 Interest Charged 105
Bills Payable 1,510
Cheques 18,200
Contras 560
32,255 32,255
QUESTION 10.4
Interest 40 Bills Receivable 400
Credit Sales 6,120 Returns In 210
Cheques Dishonoured 100 Discount Allowed 130
Cash 3,700
Bad Debts 60
Contras 125
7,915 7,915

Payments 4,300
Contras 125
7,070 7,070
QUESTION 10.5
1/1/-9 Balance b/d 4,300 Returns In 220
Cheques Dishonoured 120 Discount Allowed 370
Interest 60 Bills Receivable 1,200
Credit Sales (11,400 – 500) 10,900 Cheques 5,200
Discount Disallowed 20 Bad Debts 110
Contras 190
15,480 15,480

Bills Payable 400 1/1/-9 Balance b/d 3,800
Discount Received 410 Credit Purchases 8,200
Returns Out 180
Cash 4,000
Contras 190
12,050 12,050
49
QUESTION 10.6
Sales 32,000 Discount Allowed 960
Interest 70 Returns In 340
Cheques Dishonoured 330 Bills Receivable 1,300
Cheques 22,780
Bad Debts 220
Contras 410
40,960 40,960

Returns Out 610 Credit Purchases (24,900 – 1,800) 23,100
Bills Payable 1,320 Discount Disallowed 100
Cash 17,300
Contras 410
32,690 32,690
QUESTION 10.7
(a) Adjusted Creditors Ledger Control Account
Returns to P.Burke (III) 160 31/12/-5 Balance b/d 8,560
Contra (V) 220 Discount Disallowed (ii) 40
Balance c/d 8,510 Error (VII) 290
8,890 8,890
31/12/-5 Balance b/d 8,510
(b) Adjusted Schedule (List) of Creditors’ Balances

Original Total of Schedule: 8,422
Less J. Barry (I) (60)
Less P. Burke (II) (160)
Add Interest (IV) 48
Less Dr. Balance (VI) (30)
Add Error (VII) 290
Adjusted Total 8,510

(a) Adjusted Creditors Ledger Control Account
Credit Note (V) 120 Returns to J. Arnold (I) 90
Capital (VI) 1,000 Discount Disallowed (II) 70
J. Barry (III) 640
Interest (IV) 30
Balance c/d 11,160 Balance c/d 190
12,470 12,400
Balance b/d 190 Balance b/d 11,160
50
Solutions
(b) Schedule (List) of Creditors’ Balances

Add J. Arnold (I) 90
Add J. Barry (III) 640
Less Interest (IV) (34)
Less Credit Note (V) (360)
Less Capital (VI) (1,000)

(a) Adjusted Debtors Ledger Control Account
Error (III) 92 Error (I) 180
Discount Disallowed (VII) 46 Interest (II) 35
Credit Note (IV) 75
Balance c/d 230 Balance c/d 15,278
15,798 15,798
Balance b/d 15,278 Balance b/d 230
(b) Schedule (List) of Debtors’ Balances

Add Invoice (I) 790
Less Interest (II) (25)
Add Error (III) 92
Less Credit Note (IV) (132)
Add Cash Sales (V) 245
Less Bills Payable (VI) (800)
Adjusted Total (15,278 – 230) 15,048

(a) Adjusted Debtors Ledger Control Account
Discount Disallowed (II) 30 Interest (I) 10
Invoice (III) 90 Credit Note (V) 105
Credit Note (VII) 16
19,366 19,366
(b) Adjusted Schedule (List) of Debtors’ Balances

Less Interest (I) (28)
Add Invoice (III) 870
Less Bills Payable (IV) (750)
Less Credit Note (V) (120)
Add Cash Sales (VI) 425
Less Restocking (VII) (128)
Adjusted Total (18,861 – 390) 18,471
51

(a) Adjusted Debtors Control Account
Discount Disallowed (II) 96 Credit Note (I) 123
Bills payable (V) 100
Interest (VI) 81
14,837 14,837

Less Credit Note (I) (444)
Less Cash Sales (III) (300)
Add Invoice (IV) 1,024
Add Interest (VI) 189

(a) Adjusted Debtors Control Account
Due to Debtor (V) 280 Returns In (I) 3,820
Interest (VI) 63 Contras (II) 65
Cheque Dishonoured (VII) 392
Discount Disallowed (VII) 8 Balance c/d 44,948
49,113 49,113
Balance b/d 44,948

Less Returns In (I) (3,820)
Add Balance Omitted (IV) 45
Add Invoice (VI) 2,770
Add Cheque Dishonoured (VII) 721
Add Discount Disallowed (VII) 26
52
11
QUESTION 11.1
Correction of Errors –
Suspense Account: Solutions
(a) Journal Entries

Details Debit Credit
(i) Sales Returns 70
Debtor 70
(ii) Interest 16
Suspense 16
(iii) Creditors 150
Bank 150
(iv) Rent 90
Suspense 90
(v) Repairs 170
Machinery 170
(b) Suspense Account

Original Balance 106 Interest (II) 16
Rent (IV) 90
106 106
QUESTION 11.2
(a) Journal Entries
(i) Creditor 60
Purchases Returns 60
(ii) E. Harvey 190
E. Harley 190
(iii) Suspense 90
Rent Received 90
(iv) Debtors 9
Suspense 9
(v) Asset 3,000
Purchases 3,000

Rent Received (iii) 90 Original Balance 81
Debtors (iv) 9
90 90
53
QUESTION 11.3
(a) Journal Entries
(i) Suspense 19
Purchases 19
(ii) Advertising 240
Bank 240
(iii) Carriage In 63
Suspense 63
(iv) Debtor 180
Sales 180
(v) Suspense 80
Bank 80
(vi) Rent Received 23
Discount Allowed 23
(vii) Drawings 148
Repairs 148
(viii) S.King 28
S. Kidd 28
(ix) Drawings 140
Purchases 140

Purchases (I) 19 Original Balance 36
Bank (V) 80 Carriage In (III) 63
99 99
(c) Statement of Revised Profit

Original Net Profit 16,700
Add Purchases (I) 19
Less Advertising (II) (240)
Less Carriage In (III) (63)
Add Sales (IV) 180
Less Rent Received (VI) (23)
Add Discount Allowed (VI) 23
Add Repairs (VII) 148
Add Purchases (IX) 140
Revised Net Profit 16,884
QUESTION 11.4
(a) Journal Entries
(i) Suspense 168
Interest Received 168
(ii) Bad Debts 120
J. McDonagh (Debtor) 120
(iii) Equipment 250
Purchases 250
Suspense 500
J. Treacy (Creditor) 500
(iv) J. O Toole (Creditor) 176
Suspense 176
(v) Sales 89
Suspense 89
(vi) Drawings 3,000
Motor Expenses 3,000
54
Solutions

Interest Received (I) 168 Balance 403
J. Treacy (III) 500 J. O Toole (IV) 176
Sales (V) 89
668 668
QUESTION 11.5
(a) Journal Entries
(i) Bad Debts 120
J. Agnew 120
(ii) Suspense 320
(iii) Creditor 110
Purchases Returns 110
(iv) Debtor 180
Suspense 180
(v) Suspense 92
Sales 92
(vi) Expenses 45
Suspense 45

Interest (II) 320 Debtor (IV) 180
Sales (V) 92 Expenses (VI) 45
Original Balance 187
412 412
QUESTION 11.6
(a) Journal Entries
(i) Interest 240
Suspense 240
(ii) Sales Returns 180
Debtor 180
(iii) Purchases 70
Suspense 70
(iv) Suspense 90
Creditor 90
(v) Motor Repairs 60
Motor Vehicles 60
(vi) Drawings 150
Suspense 150
(b) Statement of Revised Profit

Less Interest (I) (240)
Less Sales Returns (II) (180)
Less Purchases (III) (70)
Less Motor Repairs (V) (60)
55
QUESTION 11.7
(a) Journal Entries
(i) Sales Returns 300
Suspense 300
(ii) Equipment 230
Suspense 90
Repairs 320
(iii) Discount Allowed 180
Suspense 180
(iv) Suspense 200
Purchases 200
(v) Drawings 100
Suspense 100

Repairs (II) 90 Sales Returns (I) 300
Purchases (IV) 200 Discount All. (III) 180
Original Balance 290 Drawings (V) 100
580 580
(c) Ledger Accounts

(i)
Equipment Account
Correction 230
Bank Account
Original 230
Repairs Account
Original 320 Correction 230
Correction – Suspense 90
(ii)
Discount Allowed Account
Correction – Suspense 180 Original 90
Debtors Account
Original 90
(iii)
Purchases Account
Original 7,840 Correction – Suspense 200
Creditors Account
Original 7,640
56
Solutions
QUESTION 11.8
(a) Journal Entries
(i) Equipment 600
Purchases 600
Suspense 1,200
Creditor 1,200
(ii) Suspense 165
Rent Received 165
(iii) Creditor 90
Suspense 90
(iv) Drawings 91
General Expenses 91
(v) Bank 40
Bad Debts 120
Debtor 160
(vi) Commission Received 6,000
Capital 5,000
Suspense 1,000

Creditor (I) 1,200 Creditor (III) 90
Rent Recd. (II) 165 Commission (vi) 1,000
Original Balance 275
1,365 1,365

Add Rent Recd. (II) 165
Add Gen. Exps (IV) 91
Less Bad Debts (V) (120)
Less Commission (VI) (6,000)

(a) Journal Entries
(i) Creditor 320
Capital 320
(ii) Suspense 830
P. returns 40
Creditor 790
(iii) Debtor 400
Discount All. 20
Bank 380
Bad Debts 400
Debtor 400
(iv) Creditor 120
Buildings 300
Repairs 120
Drawings 300
Suspense 840
(v) Sales 2,600
Debtor 2,600
Bank 2,600
Capital 2,600
57

Add Purchases Returns (II) 40
Add Discount Allowed (III) 20
Less Bad Debts (III) (400)
Less Repairs (IV) (120)
Less Sales (V) (2,600)

(a) Journal Entries
(i) Purchases 8,000
Equipment 8,800
P. Wynne (Creditor) 16,000
Suspense 800
(ii) Equipment 40
Sales Returns 540
Suspense 410
Debtor 540
Purchases 450
(iii) Drawings 380
Discount Allowed 20
Debtor 400
(iv) Creditor 11,700
Purchases Returns 6,400
Creditor 6,400
Suspense 11,700
(v) Creditor 1,200
Commission 1,000
Capital 2,000

Less Purchases (I) (8,000)
Less Sales Returns (II) (540)
Add Purchases (II) 450
Less Discount Allowed (III) (20)
Less Purchases Returns (IV) (6,400)
Less Commission (V) (1,000)
Add Discount Received (V) 200
58
Solutions

(a) Journal Entries
(i) Sales 650
Loss on Sale 100
Motor Vehicles 750
J. Patten (Debtor) 1,210
Suspense 1,210
(ii) Creditor 240
Suspense 240
(iii) Premises 7,000
Capital 7,000
(iv) Drawings 140
Debtor 140
Sales 140
Purchases 140
(v) Bank 320

Original Balance 1,450 Debtor (I) 1,210
Creditor (II) 240
1,450 1,450

Less Sales (I) (650)
Less Loss on Sales (I) (100)
Less Sales (IV) (140)
Add Purchases (IV) 140
Add Interest (V) 320
(d) Corrected Balance Sheet

Fixed Assets
Premises (40,000 + 7,000) 47,000
Motors (19,000 – 750) 18,250
65,250
Current Assets
Stock (10,000 – 1,450) 8,550
Debtors (4,800 + 1,210 – 140) 5,870
10% Deposit Account 3,200
17,620
Creditors (6,400 – 240) 6,160
Bank (5,600 – 320) 5,280
(11,440)
6,180
71,430
Financed By
Capital (61,000 + 7,000) 68,000
75,970
Less Drawings (4,400 + 140) (4,540)
71,430
59

(a) Journal Entries
(i) Suspense 760
Purchases 760
Equipment 670
J. Delaney (Creditor) 670
(ii) Suspense 2,500
Bank 2,500
Motors 3,500
Capital 3,500
(iii) Creditor 180
Suspense 180
(iv) Repairs 80
Drawings 50
Bank 130
Creditor 130
Motors 130
Suspense 160
(v) Rent 1,000
Rent Due 1,000

Purchases (I) 760 Creditor (III) 180
Bank (II) 2,500 Creditor (IV) 130
Motors (IV) 130
Original Difference 2,820
3,260 3,260

Less Repairs (IV) (80)
Less Rent (V) (1,000)

Fixed Assets
Premises 30,000
Motors (5,000 + 3,500 + 130) 8,630
Equipment (9,000 + 670) 9,670
48,300
Current Assets
Stock (11,000 + 2,820) 13,820
Debtors 4,000
Bank (3,000 – 2,500 – 130) 370
18,190
Creditors (8,000 + 670 – 180 – 130) 8,360
Rent Due 1,000
(9,360)
8,830
57,130
Financed By
Capital (38,000 + 3,500) 41,500
64,180
Less Drawings (7,000 + 50) (7,050)
57,130
60
Solutions

(a) Journal Entries
(i) J. Collins (Debtor) 11,000
Sales 6,400
Delivery Vans 4,600
Suspense 12,800
(ii) Purchases Returns 20
Suspense 680
Creditor 700
(iii) Debtor 500
Bank 485
Discount Allowed 15
Bad Debts 500
Debtor 500
(iv) Purchases Returns 36
Creditors 428
Suspense 464
(v) Creditor 440
Capital 400

Creditor (II) 680 Debtor (I) 12,800
P. Returns (IV) 36
Original Balance 12,584 Creditor (IV) 428
13,264 13,264

Less Sales (I) (6,400)
Less Purchases Returns (II) (20)
Add Disc. Allowed (III) 15
Less Bad Debts (III) (500)
Less Purchases Returns (IV) (36)
Add Disc. Received (V) 40

Fixed Assets
Premises 50,000
Delivery Vans (20,000 – 4,600) 15,400
65,400
Current Assets
Stock (22,000 – 12,584) 9,416
Debtors (8,000 + 11,000 + 500 – 500) 19,000
28,416
Creditors (12,000 + 700 – 428 – 440) 11,832
Bank (2,000 + 485) 2,485
(14,317)
14,099
79,499
Financed By
Capital (80,000 + 400) 80,400
82,499
79,499
61

(a) Journal Entries
Debit Credit
(i) Motor Vehicles 2,900
Purchases 2,900
Suspense 4,800
J. Brady (Creditor) 4,800
(ii) Suspense 1,600
Bank 1,600
(iii) Returns In 700
Debtor 700
Stock (Balance Sheet) 600
Stock (Trading Account) 600
(iv) Debtors 3,600
Capital 3,600
Sales 3,600
Bank 3,600
(v) Suspense 190
Returns Out 20
Creditor 210

Creditor (I) 4,800 Original Balance 6,950
Bank (II) 1,600
Creditor (III) 190
6,590 6,590

Add Purchases (I) 2,900
Less Returns In (III) (700)
Add Stock (Trading) (III) 600
Less Sales (IV) (3,600)
Less Returns Out (V) (20)

Fixed Assets
Motor Vehicles (22,000 + 2,900) 24,900
Equipment 14,000
38,900
Current Assets
Stock (15,000 + 600) 15,600
Debtors (7,800 – 700 + 3,600) 10,700
Bills Receivable 3,000
29,300
Creditors (11,000 – 6,590 + 4,800 + 210) 9,420
Bank (6,800 + 1,600 + 3,600) 12,000
(21,420)
7,880
46,780
Financed By
Capital (47,000 + 3,600) 50,600
58,180
46,780
62
Solutions

(a) Journal Entries
Debit Credit
(i) Bank 520
Creditor 560
Creditor 300
Cash 300
(ii) Repairs 600
Drawings 360
Premises 960
Suspense 1,920
(iii) Drawings 390
Discount Allowed 10
Debtor 400
(iv) Creditor 9,200
Purchases 4,500
Capital 4,500
(v) Debtor 188
Sales Returns 127
Suspense 315

Original Balance 2,235 Repairs (II) 600
Drawings (II) 360
Premises (II) 960
Debtor (V) 188
Sales Returns (V) 127
2,235 2,235

Less Discount Received (I) (40)
Less Repairs (II) (600)
Less Discount Allowed (III) (10)
Add Purchases (IV) 4,500
Add Discount Received (IV) 200
Less Sales Returns (V) (127)
63

Fixed Assets
Premises (165,000 + 960) 165,960
Furniture and Equipment 33,000
198,960
Current Assets
Stock 94,000
Debtors (10,600 – 400 + 188) 10,388
Cash (400 – 300) 100
104,488
Creditors (72,000 + 2,235 + 560 – 300 – 9,200) 65,295
Bank (19,000 – 520) 18,480
(83,775)
20,713
219,673
Financed By
Capital (176,000 + 4,500) 180,500
226,423
Less Drawings (6,000 + 360 + 390) (6,750)
219,673

(a) Journal Entries
(i) Bank 610
Creditor 640
Creditor 400
Cash 400
(ii) Repairs 800
Drawings 630
Premises 1,430
Suspense 2,860
(iii) Creditor 75
Capital 70
Discount Received 5
(iv) Drawings 800
Creditor 800
Purchases 1,600
(v) Sales Returns 196
Suspense 74
Debtor 122

Original Balance 2,934 Repairs (II) 800
Drawings (II) 630
Premises (II) 1,430
Sales Returns (V) 74
2,934 2,934
64
Solutions

Less Discount Received (I) (30)
Less Repairs (II) (800)
Add Discount Received (III) 5
Add Purchases (IV) 1,600
Less Sales Returns (V) (196)

Fixed Assets
Premises (180,000 + 1,430) 181,430
Machinery 48,000
229,430
Current Assets
Stock 73,000
Debtors (12,000 – 122) 11,878
Cash (600 – 400) 200
85,078
Creditors (27,000 + 2,934 + 640 – 400 – 75 – 800) 29,299
Bank (24,000 – 610) 23,390
(52,689)
32,389
261,819
Financed By
Capital (227,600 + 70) 227,670
271,249
Less Drawings (8,000 + 630 + 800) (9,430)
261,819
65
12
QUESTION 12.1
The Conceptual Framework of
Accounting: Solutions
1. Concept of Going Concern – see text for explanation. Example: The accountant values assets in the balance
sheet at cost. If the liquidation of the business was imminent, the assets would have to be valued at market value.
2. Concept of Accruals – see text for explanation. Example: Rent due and unpaid for the last two months of the
financial year is included in the Profit and Loss Account as part of the Expense Rent.
3. Concept of Prudence – see text for explanation. Example: A provision for bad debts of 5% of outstanding
debtors is maintained.
4. Concept of consistency – see text for explanation. Example: Fixed assets are written off each year on a
reducing balance system.
QUESTION 12.2
Accounting Concept Going Concern
Accounting Base Historical Cost Basis
Accounting Policy Fixed Assets Valued at Cost

QUESTION 12.3
Concept – Prudence
Base – Research expenditure is not to be capitalised
Policy – Research expenditure appears as an expense in the Profit and Loss Account of the period in which it was
incurred.
QUESTION 12.4
Consistent periods of account allow valid comparisons be made between periods.
QUESTION 12.5
1. Principle of realisation – see text for explanation Example: The rise in value of a fixed asset is not recorded
as profit in the period of the rise, but is recorded as profit in the period when the asset is sold.
2. Principle of double-entry – see text for explanation Example: A bank loan received to buy a new delivery van
appears as an asset (delivery vans) and a liability (bank loan due).
3. Principle of objectivity – see text for explanation Example: The valuation and ownership of fixed assets does
not depend upon the judgement of the accountant but on the receipt paid for the asset and the deeds of
ownership.
QUESTION 12.6
An item in the accounts is considered immaterial if its omission would not effect the opinion of the users of the accounts.
No, because the accounts, under the money measurement concept, can only show the financial position of the firm.
Other factors, relevant or not to the health of the enterprise cannot be shown in the accounts.
(a) Going concern (b) Accruals (c) Consistency
(d) Prudence (e) Entity (f) Money measurement
(g) Materiality (h) Realisation (i) Accruals
(j) Accruals (k) Consistency (l) Double entry
(m) Prudence (n) Going concern
66
14
QUESTION 14.1
Limited Companies: Solutions
(a) Profit and Loss Account for the year ended 31/12/-7
Net Profit 103,000
Less Transfer to General Reserve (24,000)
79,000
Less Ordinary Dividends
Proposed (15,200)
Preference Dividends
Paid 3,850
Proposed 3,850 (7,700)
Retained Profits 56,100
(b) Balance Sheet (Extracts)

Current Liabilities
Proposed Dividends 19,050
Financed by
Share Capital Authorised Issued Paid-up
€1 Ordinary Shares 300,000 190,000 190,000
€1 11% Preference Shares 100,000 70,000 70,000
400,000 260,000 260,000
Reserves
General Reserve 67,000
Profit and Loss Account 56,100
QUESTION 14.2
Net Profit 69,000
59,000
Proposed (12,000)
Paid 3,000
Proposed 9,000
(12,000)

Current Liabilities
Financed by
€1 Ordinary Shares 300,000 200,000 200,000
500,000 300,000 300,000
Reserves
General Reserves 90,000
67
QUESTION 14.3
Net Profit before Taxation 120,000
Less Taxation (23,000)
Profit after Taxation 97,000
72,000
Proposed (17,500)
Paid 3,000
Proposed 3,000
(6,000)
Retained Profits for the year 48,500
Profit and Loss Balance from last year 20,000
Profit and Loss Balance to next year 68,500

Current Liabilities
Taxation Due 23,000
Financed by
€1 Ordinary Shares 300,000 250,000 250,000
400,000 325,000 325,000
Reserves
General Reserves 90,000
QUESTION 14.4
(a) Profit and Loss Account for the year ended 31/12/-9 €
170,000
Interim 15,000
Proposed 20,000 (35,000)
Interim 7,000
Proposed 7,000
(14,000)
68
Solutions

€ € €
Fixed Assets
Tangible 800,000 200,000 600,000
Intangible 100,000
700,000
Current Assets
Stock 120,000
Debtors less Provision for Bad Debts 100,000
Cash on Hand 5,000
225,000
Creditors 70,000
Taxation Due 25,000
(125,000)
100,000
Total Assets less Current Liabilities 800,000
Financed by
€1 Ordinary Shares 500,000 300,000 300,000
800,000 500,000 500,000
Reserves
Share Premium 3,000
250,000
Shareholders’ Funds 750,000
Long Term Liabilities
14% Debentures 50,000
800,000
QUESTION 14.5
87,000
Paid 24,000
Proposed 40,000
(64,000)
Paid 7,500
Proposed 7,500
(15,000)
69

Current Liabilities
Taxation Due 29,000
Financed by
€1 Ordinary Shares 700,000 400,000 400,000
1,000,000 550,000 550,000
Reserves
QUESTION 14.6
(a) Profit and Loss Account for the year ended 31/12/-7 €
120,000
Interim 20,000
Proposed 30,000
(50,000)
Interim 6,000
Proposed 6,000
(12,000)
70
Solutions

€ € €
Fixed Assets
Tangible 600,000 100,000 500,000
Intangible 100,000
Financial 50,000
650,000
Current Assets
Stock 70,000
Debtors less Provision for Bad Debts 40,000
Cash on Hand and at Bank 15,000
125,000
Creditors 50,000
Taxation Due 40,000
(126,000)
(1,000)
Financed by
€1 Ordinary Shares 400,000 340,000 340,00
600,000 460,000 460,000
Reserves
Share Premium 9,000
Shareholders’ Funds 129,000
649,000
QUESTION 14.7
51,500
Paid 17,500
Proposed 20,000
(37,500)
Paid 4,500
Proposed 4,500
(9,000)
71

Current Liabilities
Taxation Duei 21,000
Financed by
€1 Ordinary Shares 400,000 250,000 250,000
550,000 350,000 350,000
Reserves
72
15
QUESTION 15.1
Final Accounts of a Limited Company
with Adjustments: Solutions

Trading Profit and Balance
Adjustments Account Loss Account Sheet
1. Closing Stock 30,000 30,000 – 30,000
2. General Expenses 20,000 – 8,000 – 12,000 –
3. Debenture Interest 8,000 + 8,000 – 16,000 8,000
5. Depreciation on Furniture and Fittings 6,000 + 1,200 – 1,200 7,200
6. Directors’ Fees 6,000 – 6,000 6,000
7. Auditors’ Fees 1,000 – 1,000 1,000
8. Patents 100,000 – 10,000 – 10,000 90,000
9. Rent of Showroom 5,000 – 1,250 – 3,750 1,250
10. Preference Dividend Proposed 10,000 – 10,000 10,000
11. Ordinary Dividend Proposed 10,000 – 10,000 10,000
12. Corporation Tax – 27,000 27,000
(a) Trading and Profit and Loss Account for the year ended 31/12/-2 (€)
Sales 385,000
– Cost of Sales
Opening Stocks 25,000
+ Purchases 179,000
204,000
– Closing Stock 1. (30,000)
(174,000)
+ Income
Investment Interest 1,600
212,600
– Expenses
Distribution
Rent of Showroom 9. 3,750
13,750
Administration
General expenses 2. 12,000
Depreciation on Furniture and Fittings 5. 1,200
Directors’ Fees 6. 6,000
Auditors’ Fees 7. 1,000
Rates and Insurance 4,000
Amortisation of Patent 8. 10,000
Salaries and Wages 35,000
69,200
Financial
Debenture Interest 3. 16,000
16,000
(98,950)
Taxation 12. (27,000)
Less Dividends Proposed
Ordinary 11. 10,000
Preference 10. 10,000
(20,000)
+ Profit and Loss Balance from last year 30,000
73

€ € €
Fixed Assets Cost Depr Value
Land and Buildings 300,000 – 300,000
Delivery Vans 4. 40,000 20,000 20,000
Furniture and Fittings 5. 12,000 7,200 4,800
352,000 27,200 324,800
Patents 8. 90,000
Goodwill 60,000
494,800
Current Assets
Debtors 30,000
Bank 86,600
Showroom Rent Prepaid 9. 1,250
147,850
– Current Liabilities
Creditors 18,000
VAT 6,000
Debenture Interest Due 3. 8,000
Directors’ Fees Due 6. 6,000
Auditors’ Fees Due 7. 1,000
Preference Dividend Proposed 10. 10,000
Ordinary Dividend Proposed 11. 10,000
Taxation Due 12. 27,000
(86,000)
61,850
Financed By
Share Capital Auth. Issued Paid-Up
€1 Ordinary Shares 300,000 200,000 200,000
500,000 300,000 300,000
Reserves
556,650
74
Solutions
QUESTION 15.2
1. Closing Stock 10,000 + 25,000 35,000 – 35,000
2. Suspense 1,000 – 250 –750 – – –
3. Interim Preference Dividend 2,000 + 250 + 2,250 4,500 2,250
4. General Expenses 22,000 + 750 – 22,750 –
5. Rent 5,000 – 2,500 – 2,500 2,500
6. Land and Buildings 250,000 + 6,000 + 10,000 – – 266,000
7. Salaries and Wages 40,000 – 6,000 – 34,000 –
8. Purchases 129,000 – 10,000 119,000 – –
9. Sales 380,000 – 30,000 350,000 – –
10. Debtors 55,000 – 30,000 – – 25,000
11. Depreciation on Land and Buildings 2,920 – 2,920 2,920
12. Depreciation on Vans 25,000 + 4,000 – 4,000 29,000
13. Depreciation on Fixtures and Fittings 7,000 + 5,000 – 5,000 12,000
15. Corporation Tax 60,000 – 60,000 60,000
16. General Reserve 10,000 + 10,000 – 10,000 20,000
17. Debenture Interest 10,000 – 10,000 10,000
18. Investment Income 12,100 – 12,100 12,100
75
Sales 9. 350,000
Less Cost of Sales
+ Purchases 8. 119,000
134,000
(99,000)
+ Income
Rent 5. 2,500
265,600
– Expenses
Distribution
Depreciation on Vans 12. 4,000
Salesforce Salaries 6,000
Carriage Out 2,000
12,000
Administration
General Expenses 4. 22,750
Salaries and Wages 7. 34,000
Depreciation on Furniture and Fittings 13. 5,000
Directors’ Fees 10,000
Auditors’ Fees 4,000
Rent, Rates and Insurance 25,000
103,670
Financial
10,000
(125,670)
– Taxation 15. (60,000)
– Transfer to Reserve 16. (10,000)
69,930
– Dividends
– Ordinary – Proposed 14. 15,000
Preference – Paid 3. 2,250
– Proposed 3. 2,250
(19,500)
76
Solutions

€ € €
Fixed Assets Cost Depr. Value
Land and Buildings 6. 11. 266,000 2,920 263,080
Delivery Vans 12. 45,000 29,000 16,000
Furniture and Fittings 13. 25,000 12,000 13,000
336,000 43,920 292,080
Goodwill 76,000
478,080
Current Assets
Debtors 10. 25,000
Bank 16,000
Investment Income Due 18. 12,100
88,100
Creditors 45,000
VAT 4,000
Preference Dividend Due 3. 2,250
Ordinary Dividend Due 14. 15,000
Rent Prepaid 5. 2,500
(138,750)
(50,650)
Financed By
€1 Ordinary Shares 250,000 150,000 150,000
400,000 200,000 200,000
Reserves
General Reserve 16. 20,000
Share Premium 15,000
127,430
427,430
77

Trading Account Profit and Balance Sheet
Adjustments Loss Account
1. Closing Stock 80,000 80,000 – 80,000
2. Bank (10,000) + 1,750 – – 8,250
3. Investment Income 1,750 + 875 – 2,625 875
4. Auditors’ Fees 700 – 700 700
5. Directors’ Fees 3,000 – 3,000 3,000
6. Patents 6,000 + 2,000 – – 8,000
7. Interim Preference Dividend 10,000 – 2,000 + 8,000 – 16,000 8,000
8. Depreciation on Land and Buildings 5,000 – 5,000 5,000
12. Debtors 30,000 – 1,000 – – 29,000
13. Bad Debts 1,000 – 1,000 –
14. Provision for Bad Debts 1,450 – 1,450 1,450
15. Corporation Tax 20,000 – 20,000 20,000
Sales 606,000
Less Cost of Sales
+ Purchases 310,000
337,000
(257,000)
+ Income
Rent 6,000
357,625
– Expenses
Distribution
Selling and Distribution 8,000
Depreciation on Vans 9. 16,000
24,000
Administration
Administration Expenses 138,000
Auditors’ Fees 4. 700
Depreciation Buildings 8. 5,000
Bad Debts 13. 1,000
Provision for Bad Debts 14. 1,450
149,150
Financial
6,000
(179,150)
Taxation 15. (20,000)
– Dividends
Ordinary – Proposed 10. 8,000
– Proposed 7. 8,000
(24,000)
+ Profit and Loss Balance from last year (20,000)
78
Solutions

€ € €
Land and Buildings 8. 450,000 5,000 445,000
Delivery Vans 9. 100,000 36,000 64,000
550,000 41,000 509,000
Patents 6. 8,000
567,000
Current Assets
Debtors 12. 29,000
– Provision for Bad Debts 14. (1,450) 27,550
Investment Income Due 3. 875
108,425
Creditors 10,000
Bank 2. 8,250
Auditors’ Fees Due 4. 700
Directors’ Fees Due 5. 3,000
Preference Dividends Due 7. 8,000
Ordinary Dividends Due 10. 8,000
(60,950)
47,475
Financed By
€1 Ordinary Shares 500,000 200,000 200,000
700,000 400,000 400,000
Reserves
154,475
614,475
79

1. Closing Stock 37,400 –1,500 + 7,000 42,900 – 42,900
2. Goodwill 9,500 + 3,000 – 2,500 – 2,500 10,000
3. Investment Income 3,000 + 9,000 – 12,000 9,000
4. Advertising 3,100 – 50 + 200 – 3,250 –
5. Debenture Interest 2,050 + 50 + 6,300 – 8,400 6,300
6. Debtors 27,200 – 200 – – 27,000
7. Salaries and General Expenses 97,200 – 8,500 – 88,700 –
8. Purchases 740,000 + 7,000 – 21,500 725,000 – –
9. Creditors 35,100 + 7,000 – – 42,100
10. Buildings 401,000 – 25,000 + 30,000 – – 406,000
11. Insurance Claim Due 25,000 – – 25,000
14. Corporation Tax 15,000 – 15,000 15,000
Sales 1,020,000
Less Cost of Sales
761,100
– Closing Stock (42,900)
(718,200)
+ Income
Investment Income 3. 12,000
Reduction in Provision 16. 100
Discount (Net) 2,100
316,000
– Expenses
Distribution
Van Depreciation 15. 13,750
17,000
Administration
Salaries and General Expenses 7. 88,700
Rent 8,600
Amount Written off Goodwill 2. 2,500
Financial 110,800
Debenture Interest
5. 8,400
8,400
(136,200)
Taxation 14. (15,000)
– Dividends
Ordinary – Paid 19,500
– Proposed 13. 52,500
– Proposed 5,500
(83,000)
– Profit and Loss Balance from last year (6,400)
80
Solutions

€ € €
Buildings 10. 406,000 – 406,000
Delivery Vans 15. 140,000 43,750 96,250
546,000 43,750 502,250
Goodwill 10,000
632,250
Current Assets
Debtors 6. 27,000
Insurance Claim Due 11. 25,000
102,550
Creditors 9. 42,100
Bank 18,000
(139,400)
(36,850)
Financed By
€1 Ordinary Shares 650,000 350,000 350,000
850,000 450,000 450,000
Reserves
595,400
81

1. Closing Stock 36,900 – 2,000 34,900 – 34,900
2. Goodwill 8,800 + 6,400 – 3,800 – 3,800 11,400
3. Investment Income 6,400 + 7,500 + 5,300 (A) – 19,200 5,300
4. Advertising 4,400 – 200 – 300 + 150 –2,500 – 1,550 –
5. Debenture Interest 2,000 + 200 + 8250 (B) – 10,450 8,250
6. Creditors 31,100 – 300 – – 30,800
7. Sales 932,000 + 150 932,150 – –
8. Directors Fees 24,500 + 2,500 – 27,000 –
9. Bank (17,000) + 7,500 – 300 – 1,740 – 1,200 – – 12,740
10. Debtors 26,400 + 300 – – 26,700
11. Rent 8,700 + 1,740 – 10,440 –
12. Salaries and General Expenses 99,800 + 1,200 – 101,000 –
14. Ordinary Dividend Proposed – 4,000 4,000
16. Corporation Tax 2,000 – 2,000 2,000
17. General Reserve 4,000 – 4,000 4,000
18. Van Depreciation 38,000 + 28,000 – 28,000 66,000
Notes
(A) Investment Income = €160,000 @ 12% = €192,200 (€5,300 due)

(B) Debenture Interest = €80,000 @ 11% for 1 year = €8,800
€20,000 @ 11% for 3/4 year = €1,650
€10,450 (€8,250 due)
82
Solutions
Sales 7. 932,150
Less Cost of Sales
+ Purchases 751,000
782,700
(747,800)
+ Income
Provision for Bad Debts Decrease 15. 265
206,515
– Expenses
Distribution
29,550
Administration
Rent 11. 10,440
142,240
Financial
10,450
(182,240)
Taxation (2,000)
Transfer to General reserve 17. (4,000)
– Dividends
– Proposed 4,000 14. (26,500)
Preference – Paid 4,500
– Proposed 9,000 13. (13,500)
Retained Profits (21,725)
83

€ € €
Buildings 414,000 – 414,000
Delivery Vans 18. 140,000 66,000 74,000
554,000 66,000 488,000
Goodwill 2. 11,400
659,400
Current Assets
Debtors 10. 26,700
65,565
Creditors 6. 30,800
Bank 9. 12,740
(66,790)
(1,225)
Financed By
€1 Ordinary Shares 600,000 400,000 400,000
900,000 550,000 550,000
Reserves
8,175
658,175
84
Solutions

1. Closing Stock 42,600 – 2,000 + 4,000 – 8,000 36,600 – 36,600
2. Goodwill 12,400 + 3,600 – 3,200 – 3,200 12,800
4. Sales 875,100 – 6,000 869,100 – –
5. Debtors 45,900 – 6,000 – – 39,900
6. Purchases 660,000 – 8,000 – 6,000 – 25,500 620,500 – –
7. Creditors 43,300 – 8,000 – – 35,300
8. Buildings 451,000 – 20,000 + 9,500 + 25,500 – – 466,000
9. Salaries and General Expenses 99,800 – 9,500 – 90,300 –
14. Corporation Tax 30,000 – 30,000 30,000
Sales 4. 869,100
Less Cost of Sales
658,100
(621,500)
+ Income
267,400
– Expenses
Distribution
Depreciation on Van 16. 19,000
Advertising 7,500
26,500
Administration
Rent 4,800
Directors Fees 24,000
Audit Fees 5,000
Provision for Bad Debts Increase 16. 395
127,695
Financial
7,200
(161,395)
– Dividends
– Proposed 12. 40,000 (54,000)
– Proposed 11. 10,000 (20,000)
– Profit and Loss Balance from last year (8,600)
= Profit and Loss Balance to next year (6,595)
85

€ € €
Buildings 8. 466,000 – 466,000
Delivery Vans 16. 140,000 64,000 76,000
606,000 64,000 542,000
Goodwill 2. 12,800
714,800
Current Assets
Debtors 5. 39,900
VAT 4,300
115,605
Creditors 7. 35,300
Preference Dividends Proposed 11. 10,000
Ordinary Dividends Proposed 12. 40,000
Bank 22,000
PAYE 4,900
(147,000)
(31,395)
Financed By
€1 Ordinary Shares 600,000 400,000 400,000
900,000 600,000 600,000
Reserves
Profit and Loss Account (6,595)
683,405
86
Solutions

1. Closing Stock 50,000 – 2,000 48,000 – 48,000
2. Goodwill 12,000 + 4,800 – 8,400 – 8,400 8,400
3. Investment Income 4,800 + 9,600 – 14,400 –
4. Patents 20,000 – 4,000 – 4,000 16,000
5. Advertising 6,000 + 400 – 200 + 180 – 6,380 –
6. Debenture Interest 2,800 – 400 + 10,800 (A) – 13,200 10,800
7. Creditors 35,400 – 200 – – 35,200
8. Rent 17,000 – 180 – 340 – 16,480 340
10. Bank (16,000) + 9,600 + 1,500 – – 4,900
11. Debtors 31,500 – 1,500 – 5,000 – – 25,000
12. Bad Debts 5,000 – 5,000 –
15. Corporation Tax 40,000 – 40,000 40,000
Notes
(A) Debenture Interest = €120,000 at 8% for 1 year = 9,600

€60,000 at 8% for 3/4 year = 3,600
€13,200 (€10,800 due)
87
Sales 906,000
Less Cost of Sales
+ Purchases 595,000
625,000
577,000
+ Income
Patent Royalties 3,000
346,750
– Expenses
Distribution
38,780
Administration
Goodwill Written off 2. 8,400
Patents Written off 4. 4,000
Rent 8. 16,480
Bad Debts 12. 5,000
Salaries and General Expenses 102,000
Audit Fees 6,000
181,880
Financial
13,200
(233,860)
Taxation 15. (40,000)
– Dividends
– Proposed 14. 15,000 (45,000)
– Proposed 13. 6,000 (8,000)
= Profit and Loss Balance to next year 39,190
88
Solutions

€ € €
Buildings 400,000 – 400,000
Delivery Vans 9. 162,000 98,400 63,600
562,000 98,400 463,600
Goodwill 2. 8,400
Patents 4. 16,000
648,000
Current Assets
Debtors 11. 25,000
Rent Prepaid 8. 340
72,090
Creditors 7. 35,200
Bank 10. 4,900
Taxation 15. 40,000
VAT 5,600
PAYE/PRSI 3,400
(120,900)
(48,810)
Financed By
€1 Ordinary Shares 600,000 300,000 300,000
1,000,000 380,000 380,000
Reserves
599,190
89

1. Closing Stock 62,000 – 2,000 60,000 – 60,000
2. Purchases 670,000 – 25,000 – 4,000 641,000 – –
3. Buildings 400,000 + 25,000 + 75,000 – – 500,000
5. Buildings Depreciation 100,000 + 8,500 – 108,500 – 8,500 –
6. Revaluation Reserve 75,000 + 108,500 – – 183,500
7. Insurance Claim 3,000 – – 3,000
8. Loss by Fire 1,000 – 1,000 –
9. Bank 106,200 – 28,000 – – 78,200
10. Patents 28,000 – 2,800 – 2,800 25,200
12. Debenture Interest 4,800 (A) – 4,800 4,800
14. Corporation Tax 30,000 – 30,000 30,000
15. Goodwill 180,000 – 12,000 – 12,000 168,000
Notes
(A) Debenture Interest

€30,000 at 8% for 1 year = 2,400
€40,000 at 8% for 3/4 year = 2,400
€4,800 (All due)
90
Solutions
Sales 960,000
Less Cost of Sales
690,000
(630,000)
+ Income
Rent Received 3,560
337,445
– Expenses
Distribution
Carriage Out 8,000
29,000
Administration
Buildings Depreciation 5. 8,500
Fire Loss 8. 1,000
Patents Amortised 10. 2,800
Salaries and General Expenses 92,000
137,800
Financial
4,800
(171,600)
Taxation (30,000)
– Dividends
– Proposed 13. 35,000 (60,000)
Preference – Paid –
– Proposed 11. 12,000 (12,000)
91
(b) Balance Sheet as at 31/12/-1 € € €

Buildings 500,000 – 500,000
Delivery Vans 5. 270,000 81,000 189,000
770,000 81,000 689,000
Goodwill 15. 168,000
Patents 10. 25,200
882,200
Current Assets
Debtors 26,300
Insurance Claim Due 3,000
Bank 78,200
166,185
Creditors 27,100
VAT 2,100
PAYE/PRSI 3,900
(114,900)
51,285
933,485
Financed By
€1 Ordinary Shares 700,000 400,000 400,000
1,000,000 550,000 550,000
Reserves
Revaluation Reserve 6. 183,500
Share Premium 8,000
Debenture Redemption Reserve 50,000
313,485
933,485
92
Solutions

1. Closing Stock 45,000 – 400 – 700 – 8,800 35,100 – 35,100
2. Salaries and General Expenses 79,000 – 400 – 700 – 1,500 76,400 1,100
3. Purchases 712,000 – 8,800 – 500 – 11,800 690,900 – –
4. Creditors 24,000 – 8,800 – – 15,200
5. Delivery Van Expenses 18,000 + 1,500 + 500 – 20,000 –
6. Rent 3,000 – 150 + 200 – 3,050 –
7. Debenture Interest 1,350 + 150 + 4,500 (A) 6,000 4,500
8. Bad Debt Recovered 200 – 200 –
9. Van 120,000 – 12,000 + 5,000 + 11,800 – – 124,800
10. Van Depreciation 20,000 – 6,500 (B) + 15,350 (C) – 15,350 28,850
11. Van Disposal 12,000 – 6,500 – 5,000 – 500 –
14. Corporation Tax 3,000 – 3,000 3,000
15. Goodwill 180,000 – 12,000 – 12,000 168,000
Notes
(A) Debenture Interest €60,000 at 10% for one year = €6,000 (€4,500 due)
(B) Depreciation to Date of Disposal on 31/5/-7

1/2/-3 → 31/5/-7 = 41/3 years at 121/2% of €12,000 = €6,500
(C) Annual Depreciation Charge for the year ended 31/12/-7

(i) Van Sold - 5/12 year at 121/2% of €12,000 = €625
(ii) Van Bought - 7/12 year at 121/2% of €16,800 = €1,225
(iii) Remaining Vans – 1 year at 121/2% of (€120,000 – €12,000) = €13,500
Total = €15,350
93
Sales 880,000
Less Cost of Sales
730,900
(695,800)
+ Income
Bad Debt Recovered 8. 200
184,400
– Expenses
Distribution
Delivery Van Expenses 5. 20,000
Loss on Van Disposal 11. 500
Advertising 1,650
37,500
Administration
Salaries and Gen. Expenses 2. 76,400
Rent 6. 3,050
Provision for Bad Debts Increase 16. 765
Audit Fees 4,000
105,715
Financial
6,000
(149,215)
Taxation (3,000)
– Dividends
– Proposed 22,500 (48,100)
– Proposed 9,000 (12,000)
Retained Profit (27,915)
94
Solutions

€ € €
Land and Buildings 450,000 100,000 350,000
Delivery Vans 9.10. 124,800 28,850 95,950
574,800 128,850 445,950
Goodwill 15. 168,000
613,950
Current Assets
Debtors 37,300
– Provision for Bad Debts (1,865) 35,435
Stock of Fuel 2. 700
71,635
Creditors 4. 15,200
VAT 2,800
PAYE/PRSI 4,200
Bank 300
(61,500)
10,135
Financed By
€1 Ordinary Shares 500,000 450,000 450,000
600,000 550,000 550,000
Reserves
14,085
624,085
95
16
QUESTION 16.1
Manufacturing Accounts: Solutions
Clinical Instruments Ltd

Manufacturing Account for the year ended 31/12/-2 (€)
Opening Stock Raw Materials 16,000
+ Purchases Raw Materials 112,000
128,000
– Closing Stock Raw Materials (19,000)
Cost of Raw Materials Used 109,000
+ Direct Costs
Factory Wages 62,000
Hire of Special Equipment 12,000
74,000
Prime Cost 183,000
+ Indirect Costs
Factory Insurance 8,000
Factory Light and Heat 9,000
Depreciation on Plant and Machinery 6,000
Supervisors’ Salaries 18,000
Opening Stock WIP 10,000
Closing Stock WIP (8,000)
43,000
Cost of Production 226,000
QUESTION 16.2
Bracken Fencing Ltd
207,000
219,000
Cost of Materials Used 206,000
+ Direct Costs
Royalty Fees 9,000
Manufacturing Wages 94,000
103,000
Prime Cost 309,000
+ Indirect Costs
Factory Rent 7,000
Factory Supervisor’s Salary 30,000
Factory Rates 6,000
Repairs to Plant and Machinery 5,000
77,000
96
Solutions
QUESTION 16.3
Curtis Cables Ltd
312,000
+ Carriage In 2,000
336,000
+ Direct Costs
Factory Direct Wages 125,000
Prime Cost 437,000
+ Indirect Costs
Depreciation on Factory Buildings 6,000
Factory Indirect Wages 24,000
Factory Rent and Rates 8,000
Opening Stock Work in Progress 15,000
Closing Stock Work in Progress (17,000)
78,000
Trading Account for the Year Ended 31/12/-4 (€)

Sales of Finished Goods 728,000
Less Cost of Sales
Opening Stock Finished Goods 17,000
+ Cost of Production 515,000
532,000
– Closing Stock Finished Goods (21,000)
(511,000)
97
QUESTION 16.4
Clemence Tiles Ltd
Manufacturing Account for the year ended 31/12/-6
+ Carriage In 3,000
+ Customs Duty 13,000
326,000
+ Direct Costs
Factory Direct Wages 120,000
Royalty Fees 12,000
142,000
Prime Cost 439,000
+ Indirect Costs
Depreciation on Factory Buildings 2,000
62,000
501,000
– Sales of Scrap Materials (13,000)
Trading Account for the Year Ended 31/12/-6 (€)

Less Cost of Sales
+ Cost of Production 488,000
499,000
(490,000)
98
Solutions
QUESTION 16.5
Barlow Engineering Limited
+ Carriage In 7,200
116,200
+ Direct Costs
Factory Wages 51,000
Prime Cost 153,000
+ Indirect Costs
Factory Rent 19,100
Factory Rates 3,400
Indirect Wages 11,500
Indirect Materials 17,700
73,000
226,000
Gross Manufacturing Profit 10,500
Current Market Value 230,000
Trading Account for the year ended 31/12/-8 (€)

Less Cost of Sales
+ Current Market Value 230,000
241,000
226,900
Gross Trading Profit 45,500
Total Gross Profit 56,000
QUESTION 16.6
Polymer Fabrications Ltd
Trading/ Profit and Loss Balance Sheet
Manufacturing Account
Adjustments Account
1. Carriage 6,000 4,500 1,500 –
2. Wages 48,000 32,000 16,000 –
3. Insurance 5,000 4,000 1,000 –
4. Rates 2,000 1,600 400 –
5. Debenture Interest 7200 – 7,200 7,200
6. P+M Depreciation 10,000+4,500 20,000 – 60,000
7. Office Equipment Depreciation 10,000+4,500 4,500 14,500
8. Advertising 5,000–1,250 3,750 1,250
99
(a) Manufacturing Account for the year ended 31/12/-3 (€)

+ Carriage In 1. 4,500
261,500
+ Direct Costs
Direct Wages 2. 32,000
42,000
Prime Cost 272,500
+ Indirect Costs
Factory Insurance 3. 4,000
Factory Rates 4. 1,600
P+M Depreciation 6. 20,000
27,600
300,100
Gross Manufacturing Loss (43,500)
(b) Trading and Profit and Loss Account for the year ended 31/12/-3 (€)

Less Cost of Sales
262,000
(248,000)
– Gross Manufacturing Loss (43,500)
+ Income
Rent Received 5,000
53,500
– Expenses
Distribution
8,250
Administration
Administration Wages 2. 16,000
Office Insurance 3. 1,000
Office Rates 4. 400
Equipment Depreciation 7. 4,500
Stationery 800
Directors Fees 30,000
5. 55,600
Financial
Debenture Interest 7,200
7,200
(71,050)
Net Profit Before Taxation (17,550)
= Profit and Loss Balance to next year (13,050)
100
Solutions
(c) Balance Sheet as at 31/12/-3

€ € €
Buildings 190,000 – 190,000
Plant And Machinery 6. 140,000 60,000 80,000
360,000 74,500 285,500
Goodwill 25,000
310,500
Current Assets
Closing Stocks – Raw Materials 31,000
– Work-in-Progress 18,000
– Finished Goods 14,000
Debtors 18,000
– Provision for Bad Debts 1,000 17,000
VAT 700
81,950
Creditors 26,000
PAYE / PRSI 800
Bank 11,500
(45,500)
36,450
Financed By
Share Capital Auth Issued Paid-up

€1 Ordinary Shares 450,000 300,000 300,000
Reserves
Profit and Loss Account (13,050)
12% Debenture 60,000
346,950
(d) The company should cease production and concentrate on retailing only, as its trading profit would be
€92,000 if it bought in finished goods at current market value of €250,000
O’Hara Extrusions Ltd
Adjustments Trading/ Profit and Loss Balance Sheet

Account
1. Bank (2,000)+2,500+120+660 – – 1,280
2. Creditors 14,000+2500 – – 16,500
3. Debtors 28,000–120–180 – – 27,700
4. Bad Debts 180 – 180 –
5. Investment Income 1,320+660 – 1,980 –
6. P+M Depreciation 40,000+36,000 36,000 – 76,000
7. Office Equip. Depreciation 30,000+6,000 – 6,000 36,000
8. Buildings Depreciation 80,000+15,000 8,250 6,750 95,000
13. Provision for Bad Debts 1,500–115 – 115 1,385
101

212,000
+ Direct Costs
54,000
Prime Cost 237,000
+ Indirect Costs
Depreciation on Plant and Machinery 6. 36,000
Factory Buildings Depreciation 8. 8,250
70,750
307,750

Trading Account for the year ended 31/12/-2 (€)

Less Cost of Sales
387,000
(351,000)
+ Gross Manufacturing Profit 45,050
+ Income
Reduction in Provision 13. 115 2,095
162,825
– Expenses
Distribution
Administration
Bad Debts 180
Office Equipment 7. 6,000
Office Buildings Depreciation 8. 6,750
40,930
Financial
6,000
(55,330)
Net Profit Before Taxation 107,495
Taxation (45,000)
Profit After Taxation 62,495
– Dividends
Ordinary – Paid –
– Proposed 10. 10,000 (10,000)
Preference – Paid –
– Proposed 9,000 (9,000)
102
Solutions

€ € €
Buildings 8. 300,000 95,000 205,000
Plant and Machinery 6. 220,000 76,000 144,000
580,000 207,000 373,000
Goodwill 35,000
432,000
Current Assets
Debtors 3. 27,700
Bank 1. 1,280
VAT 1,400
127,995
Creditors 2. 16,500
PAYE/PRSI 10,000
(96,500)
31,495
Total Assets Less Current Liabilities 463,495
Financed by
€1 Ordinary Shares 300,000 200,000 200,000
500,000 300,000 300,000
Reserves
113,495
463,495
103

Boxel Plastics Ltd
Adjustments Trading/ Profit and Loss Balance Sheet

Account
1. Sales of Scrap 6,500–4,000 2,500 – –
2. Office Equipment 63,000–6,000 – – 57,000
3. Office Equipment Depreciation 26,000–1,650+6,300 – 6,300 30,650
4. Disposal 6,000–1,650–4,000 – 350 –
5. Land and Building Depreciation 100,000+15,000–115,000 15,000 – –
6. Plant and Machinery Depreciation 60,000+40,000 40,000 – 100,000
7. Rent Recd. 6,000–200+7,000+5,000–8,000 – 9,800 –
8. Debenture Interest Paid 4,700–200+4,500 – 9,000 4,500
9. Debtors 30,000+7,000 – – 37,000
10. Purchases Finished Goods 5,000 5,000 – –
11. VAT 3,000+8,000 – – 11,000
12. Land and Buildings 400,000+200,000 – – 600,000
13. Revaluation Reserve 200,000+115,000 – – 315,000
17. Provision for Bad Debts 900+950 – 950 1850
18. General Reserve 28,000–20,000 – 20,000 8,000
(a) Manufacturing Accounts for the year ended 31/12/-3 (€)

192,000
+ Direct Costs
83,600
Prime Cost 251,600
+ Indirect Costs
Land and Buildings Depreciation 5. 15,000
Plant and Machinery Depreciation 6. 40,000
Factory General Expenses 4,400
68,900
320,500
104
Solutions
Trading and Profit and Loss Account for the year ended 31/12/-3 (€)
Less Cost of Sales
Purchases of Finished Goods 10. 5,000
344,000
(321,000)
Gross Profit 39,000
+ Income
Rent Received 7. 9,800
48,800
– Expenses
Distribution
Administration
Depreciation Office Equipment 3. 6,300
Loss on Disposal 4. 350
Increase in Provision for Bad Debts 17. 950
21,300
Financial
9,000
(41,500)
Taxation 16. (1,500)
Profits After Taxation 5,800
+ Transfer from General Reserve 18. 20,000
25,800

– Proposed 15. 9,500 (28,000)
– Proposed 14. 4,500 (6,000)
Retained Profits (8,200)
105

€ € €
Land and Buildings 5.12. 600,000 – 600,000
Office Equipment 2.3. 57,000 30,650 26,350
917,000 130,650 786,350
Current Assets
Debtors 9. 37,000
96,150
Creditors 44,700
Bank 9,000
VAT 11. 11,000
PAYE / PRSI 2,500
(87,200)
8,950
Financed by
€1 Ordinary Shares 400,000 280,000 280,000
600,000 380,000 380,000
Reserves
Revaluation Reserve 13. 315,000
325,300
795,300
106
Solutions
QUESTION 16.9
Cameron Engineering Ltd.
Adjustments Trading/ Profit Balance Sheet
Manufacturing and Loss
Account Account
1. Closing Stock Finished Goods 14,000 – 2,400 11,600 – 11,600
2. Goodwill 11,500 + 1800 – 2660 – 2,660 10,640
3. Vans 60,000 – 12,000 + 6,000 + 24,000 – – 78,000
A
4. Van Depreciation 21,000 – 7,600 + 14,700
B – 14,700 28,100
5. Disposal 12,000 – 7,600 – 6,000 – 1,600 –
6. Purchases 100,000 – 24,000 – 7,000 – 7,000 62,000 – –
7. Buildings 295,000 – 30,000 + 18,000 + 7,000 – – 290,000
8. Manufacturing Wages 67,000 – 18,000 49,000 – –
10. Loss by Fire 2,000 – 2,000
14. Administration Expenses 14,900 – 2,400 – 12,500 –
16. Provision for Bad Debts 700 + 750 – 750 1,450
17. Plan and Mach. Depr. 25,000 + 10,000 10,000 – 35,000
Notes
A Depreciation to Date of Sale

1/2/-1 → 31/ /-4 = 3 1/6 yrs. at 20% of €12,000 =7,600
B Annual Depreciation Charge
Van sold – 1/4 year at 20% of €12,000 = 600
Van bought – 3/4 year at 20%of €30,000 = 4,500
Remaining vans – 1 year at 20% of €30,000 = 9,600
Total =14,700
107

+ Purchases Raw Materials 6. 62,000
74,000
Direct Costs
Manufacturing Wages 8. 49,000
Direct Factory Expenses 14,600
58,600
Prime Cost 117,600
+ Indirect Expenses
Depreciation on Plant and Machinery 17. 10,000
Indirect Factory Expenses 4,800
14,800
132,400
Trading and Profit and Loss Account for the year ended 31/12/-4 (€)
Less Cost of Sales

Purchases of Finished Goods 6,000
145,100
– Closing Stock Finished Goods 1. (11,600)
(133,500)
+ Income
Profit on Disposal 5. 1,600
Discount (Net) 600
254,900
– Expenses
Distribution
23,430
Administration
Administration Expenses 14. 12,500
Loss by Fire 10. 2,000
17,910
Financial
9,600
(50,940)
Taxation (50,000)
Profits After Taxation 153,960
– Dividends
– Proposed 12. 5,000 (15,000)
– Proposed 11. 5,000 (10,000) (25,000)
108
Solutions
(b) Balance Sheet at 31/12/-4

€ € €
Buildings 7. 290,000 – 290,000
Delivery Vans 3.4. 78,000 28,100 49,900
486,000 63,100 404,900
Goodwill 2. 10,640
16% Investment 45,000
460,540
Current Assets
Closing Stock – Raw Materials 15,000
– Finished Goods 1. 11,600
Debtors 29,000
119,550
Creditors 47,000
Bank 10,030
VAT 6,000
PAYE/ PRSI 3,000
(133,230)
(13,680)
Financed by
€1 Ordinary Shares 200,000 100,000 100,000
400,000 200,000 200,000
Reserves
166,860
446,860
(c) Unit Cost of Production

Production
Opening Stock 26
+ Production commenced 307
333
– Closing Stock (33)
= Units Produced 300

Unit Cost = ------------------------------------------------------------- = ------------------- = €427
Number of Units Produced 300
109
QUESTION 16.10
Garfield Pumps Ltd
Adjustments Trading/ Profit and Balance Sheet

Manufacturing Loss
Account Account
1. Purchases Raw Materials 270,000+5,600 275,600 – –
2. Creditors 24,200+5,600 – – 29,800
3. Stock Raw Materials 17,500+5,600 23,100 – 23,100
4. Sales Finished Goods 495,000–10,000 485,000 – –
5. Debtors 22,800–10,000 – – 12,800
6. Stock Finished Goods 18,200+8,000 26,200 – 26,200
7. Plant and Machinery 160,000–8,000 – – 152,000
8. Repairs to Plant and Machinery 8,000 8,000 – –
9. Rent 6,800+400+3,240–2,250 – 8,190 –
10. Discount 900–400 – 500 –
11. Factory Rates 5,000+3,240 8,240 – –
12. Preference Dividend 4,500–2,250+2,250 – 4,500 2,250
13. Plant and Machinery Depreciation 40,000+30,400 30,400 – 70,400
14. Office Furniture Depreciation 6,000+3,000 – 10,000 4,500
15. Buildings Depreciation 40,000+10,000 6,000 4,000 50,,000
16. Ordinary Dividend 5,500+4,500 – 10,000 4,500
19. Provision for Bad Debts 400+240 – 240 640

+ Purchases Raw Materials 1. 275,600
291,600
– Closing Stock Raw Materials 3. (23,100)
+ Direct Costs
Direct Wages 62,000
70,600
Prime Cost 339,100
+ Indirect Costs
Factory Rates 11. 8,240
Indirect Wages 18,000
Depreciation Plant and Machinery 13. 30,400
Depreciation Factory Buildings 15. 6,000
Repairs Plant and Machinery 8. 8,000
92,740
431,840
– Sales of Scrap (13,500)
110
Solutions
Trading, Profit and Loss Account for the year ended 31/12/-6 (€)
Sales of Finished Goods 4. 485,000
– Cost of Sales
449,400
– Closing Stock Finished Goods 6. (26,200)
(423,200)
+ Gross Manufacturing Profit 11,660
+ Income
Rent Received 8,190
Discount(Net) 500
82,150
– Expenses
Distribution 10,900
Administration
Expenses 15,600
Depreciation Office Furniture 14. 3,000
Depreciation Office Buildings 15. 4,000
22,840
Financial
3,250
(36,990)
Taxation (12,000)
Profit After Taxation 33,160
– Dividends
Ordinary 16. 10,000
Preference 12. 4,500
(14,500)
+ Profit and Lass Balance from last year 13,000
111
(b) Balance Sheet at 31/12/-6

€ € €
Buildings 15. 200,000 50,000 150,000
Plant and Machinery 7.13. 152,000 70,400 81,600
Office Furniture 14. 30,000 9,000 21,000
382,000 129,400 252,600
Current Assets
Closing Stocks – Raw Materials 3. 23,100
– Finished Goods 6. 26,200
Debtors 5. 12,800
Provisions for Bad Debts 19. (640)
12,160
82,460
Creditors 2. 29,800
VAT 4,000
Bank 7,600
(63,400)
19,060
Financed by
Share Capital Auth Issued Paid–up
€1 Ordinary Shares 200,000 100,000 100,000
400,000 150,000 150,000
Reserves
Revaluation Reserve 25,000
56,660
271,660
112
17
QUESTION 17.1
Departmental Accounts: Solutions
P. Ganley Ltd
Trading Account for the year ended ... (€)
Grocery Hardware Total Grocery Hardware Total
Sales 150,000 275,000 425,000
Less Cost of Sales
Opening Stock 22,000 31,000 53,000
+ Purchases 80,000 110,000 190,000
+ Carriage In – 8,000 8,000
+ Import Duty 10,000 – 10,000
112,000 149,000 261,000
– Closing Stock (19,000) (33,000) (52,000)
(93,000) (116,000) (209,000)
Gross Profit 57,000 159,000 216,000
QUESTION 17.2
T. Printle Ltd
Trading Account for the year ended ... (€)
Footwear Sportswear Total Footwear Sportswear Total
Sales 56,000 70,000 126,000
– Returns In (3,000) (2,000) (5,000)
53,000 68,000 121,000
Less Cost of Sales
Opening Stock 11,000 25,000 36,000
+ Purchases 42,000 49,000 91,000
– Returns Out (200) (800) (1,000)
+ Carriage In 2,000 5,000 7,000
54,800 78,200 133,000
– Closing Stock (9,000) (21,000) (30,000)
(45,800) (57,200) (103,000)
7,200 10,800 18,000
113
QUESTION 17.3
Younge Ltd
Grocery Drapery Total Grocery Drapery Total
Sales 180,000 180,000 360,000
Less Cost of Sales
Opening Stock 25,000 14,200 39,200
+ Purchases 140,000 130,000 270,000
165,000 144,200 309,200
– Closing Stock (23,000) (12,500) (35,500)
(142,000) (131,700) (273,700)
Gross Profit 38,000 48,300 86,300
– Expenses
Distribution
Tailoring Expenses – 200 200
Advertising (Sales 1:1) 650 650 1,300
Van Depreciation (Sales 1:1) 9,000 9,000 18,000
Administration
Rent and Rates (Fl. Space 4:1) 420 1,680 2,100
Stationery (Sales 1:1) 450 450 900
Cleaning / Repairs (Fl. Space 4:1) 680 2,720 3,400
Insurance (Fl. Space 4:1) 152 608 760
Light / Heat (Fl. Space 4:1) 640 2,560 3,200
Salaries (Sales 1:1) 20,300 20,300 40,600
Equipment Depr. (Fl. Space 4:1) 160 640 800
Financial
Overdraft Int. (Sales 1:1) 150 150 300
Term Loan Int. (Sales 1:1) 1,850 1,850 3,700
(34,452) (40,808) (75,260)
Net Profit 3,548 7,492 11,040
+ P+L Balance From Last Year 1,200
= P+L Balance To Next Year 12,240
114
Solutions

€ € €
Delivery Vans 72,000 28,000 44,000
Equipment 8,000 2,800 5,200
80,000 30,000 49,200
Goodwill 20,000
69,200
Current Assets
Closing Stock – Grocery 23,000
– Drapery 12,500
Debtors 22,800
– Provision for Bed Debts (200) 22,600
58,100
Creditors 7,600
VAT 2,600
PAYE / PRSI 1,400
Bank 3,460
(15,060)
43,040
Financed By

€1 Ordinary Shares 100,000 50,000 50,000
Reserves
Bank Term Loan 50,000
112,240
QUESTION 17.4
Berri Ltd
Trading Profit / Loss Balance
Adjustments Account Account Sheet
2. Equipment Depreciation 9,000 + 5,200 – 5,200 14,200
4. Advertising 2,100 – 700 – 1,400 700
5. Stationery 1,800 – 400 – 1,400 400
115
Footwear Sportswear Total Footwear Sportswear Total
Sales 210,000 280,000 490,000
Less Cost of Sales
Opening Stock 17,500 21,500 39,000
+ Purchases 155,000 167,000 322,000
+ Carriage In 1,300 – 1,300
+ Import Duty – 1,700 1,700
173,800 190,200 364,000
– Closing Stock (17,000) (18,500) (35,500)
(156,800) (171,700) (328,500)
Gross Profit 53,200 108,300 161,500
+ Income – Equipment Repairs – 490 490
53,200 108,790 161,990
– Expenses
Distribution
Advertising (Sales 3:4) 4 600 800 1,400
Van Depreciation (Sales 3:4) 1 6,000 8,000 14,000
Administration
General Expenses (Sales 3:4) 9,000 12,000 21,000
Salaries (Sales 3:4) 21,000 28,000 49,000
Repairs to Buildings (Fl. Space 3:2) 2,100 1,400 3,500
Insurance (Fl. Space 3:2) 1,680 1,120 2,800
Bad Debts (Sales 3:4) 180 240 420
Stationery (Sales 3:4) 5 600 800 1,400
Equipment Depr. (Fl. Space 3:2) 2 3,120 2,080 5,200
Financial
Debenture Interest (Sales 3:4) 3 2,400 3,200 5,600
(46,680) (57,640) (104,320)
Net Profit 6,520 51,150 57,670
– P+L Balance From Last Year (14,480)
116
Solutions
Balance Sheet as at 31/12/-9 € € €

Delivery Vans 1. 142,000 44,000 98,000
Equipment 2. 35,000 14,200 20,800
177,000 58,200 118,800
Goodwill 44,000
162,800
Current Assets
Closing Stocks – Footwear 17,000
– Sportswear 18,500
Debtors 23,400
Advertising Prepaid 4. 700
Stationery 5. 500
60,000
- Current Liabilities
Creditors 29,000
Bank 8,010
VAT 1,600
PAYE / PRSI 1,400
(45,610)
14,390
Financed by
Share Capital Auth. Issued Paid-up
€1 Ordinary Shares 150,000 80,000 80,000
Reserves
57,190
177,190
QUESTION 17.5
Smith Ltd
Trading Profit and Loss Balance

1. Provision for Bad Debts 780 – 300 – 300 480
2. Purchases – Grocery 75,000 – 4,000 71,000 – –
3. Purchases – Drapery 150,000 + 4,000 154,000 – –
6. Rent and Rates 4,000 – 1,000 – 3,000 1,000
117
Drapery Grocery Total Drapery Grocery Total
Sales 200,000 100,000 300,000
– Returns In (400) (200) (600)
199,600 99,800 299,400
Less Cost of Sales
Opening Stock 29,000 24,000 53,000
+ Purchases 2. 154,000 71,000 225,000
+ Import Duty 1,000 1,300 2,300
184,000 96,300 280,300
– Closing Stock (27,000) (21,000) (48,000)
(157,000) (75,300) (232,300)
Gross Profit 42,600 24,500 67,100
+ Income
Provision / Bad Debts (Sales 2:1) 1. 200 100 300
42,800 24,600 67,400
– Expenses
Distribution
Van Depreciation (Sales 2:1) 7. 8,000 4,000 12,000
Advertising (Sales 2:1) 1,600 800 2,400
Administration
Rent and Rates (Sales 3:1) 6. 2,250 750 3,000
Cleaning (Fl. Space 3:1) 900 300 1,200
Discount (Sales 2:1) 1,000 500 1,500
Equipment Depr. (Fl. Space 3:1) 8. 900 300 1,200
Financial
Interest on Loan (Sales 2:1) 1,000 500 1,500
Overdraft Interest (Sales 2:1) 200 100 300
Debenture Interest (Sales 2:1) 4. 2,000 4,000 6,000
(17,850) (11,250) (29,100)
Net Profit 24,950 13,350 38,300
+ Investment Income 5. 8,200
46,500
– Dividends (7,000)
118
Solutions

€ € €
Cost Depr. Value
Fixed Assets
Delivery Vans 7 80,000 32,000 48,000
Equipment 8 16,000 5,200 10,800
96,000 37,200 58,800
Goodwill 8,000
148,800
Current Assets
Closing Stocks – Drapery 27,000
– Grocery 21,000
Debtors 12,000
– Provision for Bad Debts 1 (480) 11,520
Investment Income Due 5 8,200
Rent and Rates Prepaid 6 1,000
68,720
- Current Liabilities
Creditors 15,000
Bank 3,020
VAT 4,000
PAYE / PRSI 3,000
Debenture Interest Due 4 6,000
(31,020)
37,700
Financed by
€1 Ordinary Shares 150,000 70,000 70,000
Reserves
51,500
Term Loan 15,000
65,000
186,500
QUESTION 17.6
Modern Fashions Ltd
Trading Profit/Loss Balance Sheet
Adjustments Account Account
1. Buildings Depreciation 20,000 + 7,000 – 7,000 27,000
2. Vans Depreciation 18,000 + 20,000 – 20,000 38,000
5. Rates 500 + 500 – 1,000 500
7. Purchases Childrenswear 140,000 – 10,000 130,000 – –
8. Purchases Ladieswear 88,000 + 10,000 – 6,000 92,000 – –
9. Repairs to Equipment 6,000 – 6,000 –
10. Stationery 1,620 – 100 – 1,520 100
119
Ladies Childrens Total Ladies Childrens Total
Wear Wear Wear Wear
Sales 180,000 270,000 450,000
Less Cost of Sales
Opening Stock 19,000 20,000 39,000
+ Purchases 7. 92,000 130,000 222,000
+ Import Duty 1,100 1,500 2,600
112,100 151,500 263,600
– Closing Stock (21,000) (16,000) (37,000)
(91,100) (135,500) (226,600)
Gross Profit 88,900 134,500 223,400
+ Income – Alteration Fees 1,000 – 1,000
89,900 134,500 224,400
– Expenses
Distribution
Advertising (Sales 2:3) 1,200 1,800 3,000
Administration
Buildings Depreciation (Fl Space 3:1) 1. 5,250 1,750 7,000
Equipment Depr. (Fl. Space 3:1) 3. 1,200 400 1,600
Rates (Fl. Space 3:1) 5. 750 250 1,000
Provision for Bad Debts (Sales 2:3) 6. 240 360 600
Equipment Repairs 9. 6,000 – 6,000
Stationery (Sales 2:3) 10. 608 912 1,520
Salaries (Employees 7:3) 58,660 25,140 83,800
Building Repairs (Fl. Space 3:1) 3,375 1,125 4,500
Insurance (Fl. Space 3:1) 4,350 1,450 5,800
Financial
Debenture Interest (Sales 2:3) 4. 800 1,200 2,000
(90,433) (46,387) (136,820)
Net Profit (Loss) (533) 88,113 87,580
– Dividends (10,000)
120
Solutions

€ € €
Cost Depr. Value
Fixed Assets
Buildings 1. 140,000 27,000 113,000
Delivery Vans 2. 100,000 38,000 62,000
Equipment 3. 26,000 11,600 14,400
266,000 76,600 189,400
Goodwill 18,000
207,400
Current Assets
Closing Stock – Ladieswear 21,000
– Childrenswear 16,000
Debtors 48,000
Stock of Stationery 100
82,700
Creditors 35,400
VAT 1,500
PAYE/PRSI 3,000
Bank 120
Rates Due 5. 500
(42,520)
40,180
Financed by
€1 Ordinary Shares 100,000 65,000 65,000
Reserves
102,580
247,580
O’Driscolls Ltd
Trading Profit/Loss Balance
1. Closing Stock – Paint 23,000 – 1,600 21,400 – 21,400
2. Bank 5,000 – 20 – 500 – 800 + 540 – – 4,220
3. Bank charges 20 – 20 –
4. Insurance 2,500 + 500 – 3,000 –
5. Rent and Rates 5,200 + 800 – 6,000 –
6. Creditors 22,200 + 540 – – 22,740
7. Advertising 3,600 – 1,350 – 2,250 1,350
11. Preference Dividend 3,500 – 3,500 3,500
12. Ordinary Dividend 2,500 – 2,500 2,500
13. Goodwill 40,000 + 2,100 – – 42,100
14. Discount Received 2,100 – 2,100 –
121
Hardware Paint Total Hardware Paint Total
Sales 350,000 350,000 700,000
Less Cost of Sales
Opening Stock 48,000 24,000 72,000
+ Purchases 280,000 210,000 490,000
Carriage In 3,000 3,400 6,400
331,000 237,400 568,400
– Closing Stock 1. (42,000) (21,400) (63,400)
(289,000) (216,000) (505,000)
Gross Profit 61,000 134,000 195,000
+ Income
Disc. Recd. (Purchases 4:3) 14. 1,200 900 2,100
Key Cutting 2,400 – 2,400
64,600 134,900 199,500
– Expenses
Distribution
Advertising (Sales 1:1) 7. 1,125 1,125 2,250
Van Depreciation (Sales 1:1) 20,000 20,000 40,000
Administration
Bank Charges (Sales 1:1) 3. 10 10 20
Insurance (Fl. Space 4:1) 4. 2,400 600 3,000
Rent and Rates (Fl. Space 4:1) 5. 4,800 1,200 6,000
Equipment Depr. (Bk. Value 2:3) 9. 1,440 2,160 3,600
Equipment Repairs (Bk. Value 2:3) 3,120 4,680 7,800
Stationery (Sales 1:1) 1,400 1,400 2,800
Hire of Paint Mixer – 1,400 1,400
Wages (Employees 3:1) 61,650 20,550 82,200
Light and Heat (Fl. Space 4:1) 5,920 1,480 7,400
Financial
(107,465) (60,205) (167,670)
Net Profit(Loss) (42,865) 74,695 31,830
– Dividends
Ordinary 12. (2,500)
Preference 11. (3,500)
122
Solutions

€ € €
Cost Depr. Value
Fixed Assets
Delivery Vans 8. 160,000 66,000 94,000
Equipment 9. 36,000 17,600 18,400
196,000 83,600 112,400
Goodwill 13. 42,100
154,500
Current Assets
Closing Stock – Hardware 42,000
– Paint 1. 21,400
Debtors 47,600
– Provision for Bad Debts (300) 47,300
Bank 3. 4,220
116,270
Creditors 6. 22,740
VAT 1,700
PAYE / PRSI 1,400
(33,040)
83,230
237,730
Financed by
€1 Ordinary Shares 200,000 50,000 50,000
400,000 100,000 100,000
Reserves
57,730
237,730
(c) Report on the Advisability of Closing Down the Hardware Department

The Hardware Department is suffering a loss of €42,865 on its operations. In accounting terms the net profit on the
firm as a whole would rise to €74,695 if the department was shut down but other factors must be considered:
(i) Has the Hardware Department consistently made losses over a number of trading periods or was this just a
‘once-off’ loss?
(ii) Can the floor space of the closed department be utilised by the other department or rented out to another
firm?
(iii) Can the staff of the closed department be successfully redeployed within the firm?
(iv) What, if any, redundancy costs will arise?
(v) The closing down of the Hardware Department will not affect the fixed expenses which must be paid, e.g.
debenture interest, rent and rates etc.
123

O’Reilly and Sons Ltd
Trading Profit/Loss Balance
1. Stock of Footwear 43,000 – 4,000 39,000 – 39,000
2. Buildings 400,000 + 5,000 – – 405,000
3. Wages 50,000 – 3,000 – 47,000 –
4. Purchases Drapery 232,000 – 2,000 230,000 – –
5. Advertising 11,500 – 250 – 200 – 11,050 –
6. Debenture Interest 1000 +250 + 1,250 – 2,500 1,250
7. Bad Debts 200 – 200 –
8. Buildings Depreciation 40,000 + 8,100 – 8,100 48,100
10. Vans Depreciation 22,000 + 11,600 – 11,600 33,600
11. Preference Dividend 10,000 – 10,000 10,000
12. Ordinary Dividend 15,000 – 15,000 15,000
Footwear Drapery Total Footwear Drapery Total
Sales 200,000 300,000 500,000
Less Cost of Sales
Opening Stock 40,000 39,000 79,000
+ Purchases 4. 108,500 230,000 338,500
148,500 269,000 417,500
– Closing Stock 1. (39,000) (42,000) (81,000)
(109,500) (227,000) (336,500)
Gross Profit 90,500 73,000 163,500
– Expenses
Distribution
Advertising (Sales 2:3) 5. 4,420 6,630 11,050
Administration
Wages (Employees 3:2) 3. 28,200 18,800 47,000
Bad Debts (Sales 2:3) 7. 80 120 200
Buildings Depr. (Fl. Space 1:3) 8. 2,025 6,075 8,100
Equipment Depr. (Bk. Value 4:1) 9. 3,840 960 4,800
Equipment Repairs (Bk. Value 4:1) 1,520 380 1,900
Tailoring Expenses – 2,000 2,000
Rent and Rates (Fl. Space 1:3) 1,800 5,400 7,200
Stationery (Sales 2:3) 320 480 800
Insurance (Fl. Space 1:3) 450 1,350 1,800
Directors’ Fees (Sales 2:3) 3,200 4,800 8,000
Financial
(51,495) (55,455) (106,950)
Net Profit 39,005 17,545 56,550
+ Investment Income 13. 1,200
– Taxation 14. (12,000)
45,750
– Dividends
Preference 11. (10,000)
Ordinary 12. (15,000)
124
Solutions

€ € €
Cost Depr. Value
Fixed Assets
Buildings 2.8. 405,000 48,100 356,900
Equipment 9. 60,000 16,800 43,200
Delivery Vans 10. 116,000 33,600 82,400
581,000 98,500 482,500
20,000
Current Assets
Closing Stock – Footwear 1 39,000
– Drapery 42,000
Debtors 40,000
– Provision for Bad Debts (700) 39,300
Investment Income Due 13 1,200
121,500
Creditors 11,000
VAT 3,600
PAYE / PRSI 400
Bank 11,000
(64,250)
57,250
Financed by
€1 Ordinary Shares 400,000 300,000 300,000
700,000 500,000 500,000
Reserves
34,750
559,750
125
18
QUESTION 18.1
Published Accounts
(Higher Level Only): Solutions
Published Profit and Loss Account for the Year Ended 31/12/-9
€’000
Turnover 932
Cost of Sales (748)
Gross Profit 184
Distribution Costs (30)
Administration Expenses (142)
Other Operating Income 3
Operating Profit 15
Interest Receivable 19
Interest Payable (10)
Profit on Ordinary Activities Before Taxation 24
Taxation on Profit on Ordinary Activities (4)
Profit on Ordinary Activities After Taxation 20
Dividends Paid (7)
Dividends Proposed (9)
Retained Profits 4
Profit and Loss Balance brought forward 4
Profit and Loss Balance to be carried forward 8
Published Balance Sheet as at 31/12/-9

€’000
Fixed Assets
Intangible 12
Tangible 488
Financial 160
Current Assets 660
Stocks 34
Debtors 30
64
Creditors: Amounts falling due within one year (66)
Net Current Assets (Liabilities) (2)
Total Assets less Current Liabilities 658
Financed by
Creditors: Amounts falling due after more than one year 100
Capital and Reserves
Called up Share Capital 550
Profit and Loss Account 8
658
126
Solutions
QUESTION 18.2
Published Profit and Loss Account for the Year Ended 31/12/-1
Note €’000
Turnover 869
Cost of Sales (621)
Gross Profit 248
Administration Expenses (123)
Operating Profit (1) 99
Tax on Profit on Ordinary Activities (20)
Dividends Paid (2) (24)
Dividends Proposed (2) (50)
Retained Profits 9

Note €’000
Fixed Assets
Intangible 13
Tangible (3) 542
Financial 160
Current Assets 715
Stocks 36
Debtors 60
96
Creditors: Amounts falling due within one year (91)
Net Current Assets (Liabilities) 5
Financed by
720
Notes to the Financial Statements

1. Operating Profit
The Operating Profit is arrived at after charging:
Depreciation €19,000
Amortisation of Goodwill €3,000
Directors’ Remuneration €24,000
Auditors’ Remuneration €5,000
127
2. Dividends
Ordinary Dividends – Interim Paid (3.5 cent per share) €14,000
– Proposed (10 cent per share) €40,000
Preference Dividends – Interim Paid (5 cent per share) €10,000
3. Tangible Fixed Assets
Buildings Vans Total
Cost or Valuation
1/1/-1 466,000 140,000 606,000
Disposals/Acquisitions – – –
Revaluations – – –
31/12/-1 466,000 140,000 606,000
Depreciation
1/1/-1 – 45,000 45,000
Charge for the year – 19,000 19,000
Revaluation – – –
31/12/-1 – 64,000 64,000
Net Book Value
31/12/-1 466,000 76,000 542,000
QUESTION 18.3
Palace Plc
Workings (Sources given in Brackets)
(A) Cost of Sales
Opening Stock (Trial Balance) 25
Purchases (Trial Balance) 179
Patents Written Off (Note v) 10
214
Closing Stock (Note i) (30)
184
(B) Distribution Costs
Rent of Showroom (Trial Balance) 5
Depreciation on Vans (Note iii) 10
15
(C) Administration Expenses
Salaries and Wages (Trial Balance) 35
General Expenses (Trial Balance) 20
Rates and Insurance (Trial Balance) 4
Depreciation Fixtures and Fittings (Note iii) 3
Directors’ Fees (Note iv) 6
Auditors’ Fees (Note iv) 1
Goodwill written off (Note vi) 3
Damages Provision (Note viii) 6
78
(D) Interest Payable
Debenture Interest Due (Note iv) 16
(E) Dividends Proposed

Ordinary Dividends (Note vii) 10
Preference Dividends (Note vii) 10
20
128
Solutions
(F) Intangible Fixed Assets

Patents (Trial Balance) 100
Written Off (Note v) (10)
Goodwill (Trial Balance) 60
Written Off (Note vi) (3)
147
(G) Tangible Fixed Assets
Land and Buildings (Trial Balance) 300
Revaluation (Note ii) 150 450
Delivery Vans (Trial Balance) 40
Depreciation Vans (Trial Balance) (10)
Profit and Loss Charge (Note iii) (10) 20
Fixtures and Fittings (Trial Balance) (12)
Depreciation (Trial Balance) (6)
Profit and Loss Charge (3) 3
473
(H) Creditors: Amounts falling due within one year
Creditors (Trial Balance) 18
VAT (Trial Balance) 6
Taxation Due (Note iv) 27
Directors’ Fees Due (Note iv) 6
Auditors’ Fees Due (Note iv) 1
Proposed Dividends (Note vii) 20
94
Published Profit and Loss Account of Palace Plc for the year ended 31/12/-2
Note: €’000 Workings
Turnover 385
Cost of Sales (184) (A)
Gross Profit 201
Distribution Costs (15) (B)
Administration Expenses (78) (C)
Interest Payable (16) (D)
Dividends Proposed (2) (20) (E)
Retained Profits 48
129
Balance Sheet of Palace Plc as at 31/12/-2

Note €’000 Workings
Fixed Assets
Intangible 147 (F)
Tangible (3) 473 (G)
Financial 20
640
Current Assets
Stocks 30
Debtors 30
Bank 88
148
Creditors: Amounts falling due within one year (94) (H)
Net Current Assets 54
Financed by
Provisions for liabilities and charges 6
Called up Capital 300
Revaluation Reserve 150
694
(a) Accounting Policy Notes
Stock
Stocks are valued at the lower of cost and net realisable value.
Stocks are valued using First In First Out (FIFO).
(b) Notes to the Financial Statements
1. Operating Profit
The operating profit is arrived at after charging:
Patent Amortised €10,000
Goodwill Amortised €3,000
Directors’ Remuneration €6,000
Advisors’ Remuneration €1,000
2. Dividends
Ordinary Dividends – Proposed (5 cent per share) €10,000
Preference Dividends – Proposed (10 cent per share) €10,000
Land and Delivery Fixtures and Total
Buildings Vans Fittings
Cost or Valuation (€)
1/1/-2 300,000 40,000 12,000 352,000
Disposals/Acquisitions – – – –
Revaluations 150,000 – – 150,000
31/12/-2 450,000 40,000 12,000 502,000
Depreciation (€)
1/1/-2 – 10,000 6,000 16,000
Charge for the year – 10,000 3,000 13,000
Revaluation – – – –
31/12/-2 – 20,000 9,000 29,000
Net Book Value (€)
31/12/-2 450,000 20,000 3,000 473,000
The Land and Buildings were revalued on 31/12/-2 to €450,000
4. Provisions for Liabilities and Charges
The company is being sued for breach of contract by one of its customers. The company’s legal advisors consider
the company to be liable for damages of €6,000. Consequently, a provision has been made for this amount.
130
Solutions
QUESTION 18.4
Pallisade Plc
(A) Cost of Sales
Purchases (Trial Balance) 130
145
135
Salesforce Salaries (Trial Balance) 16
Carriage Out (Trial Balance) 2
Depreciation Vans (Note ii) 4
22
Rent, Rates and Insurance (Trial Balance) 25
Directors’ Fees (Trial Balance) 10
Auditors’ Fees (Trial Balance) 4
Salaries and Wages (Trial Balance) 40
General Expenses (Trial Balance) 22
Depreciation Buildings (Note ii) 4
Depreciation Fixtures and Fittings (Note ii) 5
Goodwill written off (Note v) 10
120
(D) Dividends Proposed
Ordinary Dividends (Note vi) 6
Preference Dividends (Note v) 3
9
(E) Intangible Fixed Assets
Written Off (Note v) (10)
66
(F) Tangible Fixed Assets
Revaluation (Note iv) 200
Profit and Loss Charge (Note ii) (4)
Revaluation (Note iv) 54 500
Delivery Vans (Trial Balance) 45
Profit and Loss Charge (Note ii) (4) 16
Fixtures and Fittings (Trial Balance) 25
529
(G) Creditors: Amounts falling due within one year
Taxation Due (Note iii) 60
Debenture Interest Due (Note iii) 10
Dividends Due (Note vi) 9
131
(H) Revaluation Reserve
Land and Buildings (Note iv) 200
Depreciation (Note iv) 54
254
131
Published Profit and Loss Account of Pallisade Plc for the year ended 31/12/-3
Turnover 380
Cost of Sales (135) (A)
Gross Profit 245
Distribution Costs (22) (B)
Dividends Proposed (2) (9) (D)
Retained Profits 14
Published Balance Sheet of Pallisade Plc as at 31/12/-3

Fixed Assets
Intangible 66 (E)
Tangible (3) 529 (F)
Financial 110
705
Current Assets
Stocks 10
Debtors 55
Bank 6
71
Creditors: Amount falling due within one year (131) (G)
Financed by
Creditors: Amount falling due after more than one year 100
Revaluation Reserve 254 (H)
General Reserve 10
Share Premium 15
645
Stocks
Stocks are valued at the lower of cost and net realisable value. Stocks are valued using First In First Out (FIFO).
Tangible Fixed Assets

Freehold land is not depreciated. Other tangible fixed assets are depreciated at the following rates:
Buildings – 2% on cost
Vans – 20% on reduced value
Fixtures and fittings – 20% on cost.
132
Solutions
(b) Notes To The Financial Statements

1. Operating Profit
Goodwill amortised €10,000
Directors’ remuneration €10,000
Auditors’ remuneration €4,000
2. Dividends
Ordinary dividends – Paid (8 cent per share) €12,000
Preference dividends – Paid (5 cent per share) €3,000
Land and Delivery Fixtures and Total
Buildings Vans Fittings
1/1/-3 300,000 45,000 25,000 370,000
Disposals/Acquisitions – – – –
Revaluations 200,000 – – 200,000
31/12/-3 500,000 45,000 25,000 570,000
Depreciation (€)
1/1/-3 50,000 25,000 7,000 82,000
Charge for the year 4,000 4,000 5,000 13,000
Revaluation (54,000) – – (54,000)
31/12/-3 – 29,000 12,000 41,000
31/12/-3 500,000 16,000 13,000 529,000
The Land and Buildings were valued by Selby, Auctioneers and Valuers on 31/12/-3 on an
existing use, open market basis.
4. Contingent Liabilities
There exists a liability not provided for in the accounts. The company is being sued for €30,000 but the company’s
legal advisors believe the suit will be unsuccessful.
133
QUESTION 18.5
Plimpton Plc
(A) Cost of Sales
Opening Stock (Trial Balance) 1,600
Purchases (Trial Balance) 17,000
Amortisation of Patent (Note v) 10
18,610
Closing Stock (Note i) (1,800)
16,810
(B) Administration Expenses
Administration Expenses (Trial Balance) 1,800
Depreciation Equipment (Note ii) 56
Goodwill Written Off (Note vi) 18
Directors’ Remuneration (Note iv) 50
Auditors’ Remuneration (Note iv) 15
1,949
(C) Interest Payable
Debenture Interest Paid (Trial Balance) 16
32
(D) Intangible Fixed Assets
Written Off (Note v) 10 90
Written Off (Note vi) (18) 162
252
(E) Tangible Fixed Assets
Buildings (Trial Balance) 200
Revaluation (Note iii) 150
Profit and Loss Charge (Note ii) (10)
Revaluation (Note iii) 110 350
Equipment (Trial Balance) 280
474
(F) Debtors
Debtors (Trial Balance) 1,700
Provision for Bad Debts (Trial Balance) (60)
1,649
Creditors (Trial Balance) 1,000
PAYE / PRSI (Trial Balance) 7
Directors’ Remuneration Due (Note iv) 50
Auditors’ Remuneration Due (Note iv) 15
Dividends Due (Note vii) 22
1,300
Buildings (Note iii) 150
Depreciation (Note iii) 110
260
134
Solutions
Published Profit and Loss Account of Plimpton Plc for the year ended 31/12/-4
Turnover 22,000
Cost of Sales (16,810) (A)
Gross Profit 5,190
Distribution Costs (2,000)
Administration Expenses (1,949) (B)
Operating Profit (1) 1,431
Interest Payable (32) (C)
Profit on Ordinary Activities Before Taxation 1,399
Profit on Ordinary Activities After Taxation 1,209
Profit and Loss Balance to be carried forward 1,563
Published Balance Sheet of Plimpton plc as at 31/12/-4

Note: €’000 Workings
Fixed Assets
Intangible 252 (D)
Tangible (3) 474 (E)
Financial (4) 80
806
Current Assets
Stocks 1,800
Debtors 1,649 (F)
Bank 12
3461
Creditors: Amounts falling due within one year (1,300) (G)
Net Current Assets 2,161
Financed by
Creditors: Amount falling due after more than one year 400
General Reserve 44
Share Premium 200
2,967
135

Stocks
Stocks are valued at the lower of cost and net realisable value. Stocks are valued using First In First Out (FIFO)

Tangible Fixed Assets are depreciated at the following rates:
Equipment – 20% on cost.

1. Operating Profit
Intangible assets amortised €28,000
2. Dividends
Ordinary dividends – Paid (4.75p per share) €19,000
– Proposed (4.25p per share) €17,000
Preference dividends – Paid (5p per share) €5,000
– Proposed (5p per share) €5,000
Buildings Equipment Total
1/1/-4 200,000 280,000 480,000
Revaluation 150,000 – 150,000
31/12/-4 350,000 280,000 630,000
Depreciation (€)
1/1/-4 100,000 100,000 200,000
Charge for the year 10,000 56,000 66,000
Revaluation (110,000) – (110,000)
31/12/-4 – 156,000 156,000
31/12/-4 350,000 124,000 474,000
4. Listed Investments
Investments held are quoted on the Irish Stock Exchange.
The market value of these investments at 31/12/-4 was €95,000.
(At 31/12/-3: €92,000)
136
Solutions
QUESTION 18.6
Proofrock Plc
(A) Cost of Sales
2,170
2,080
(B) Administration Expenses
Administration Expenses (Trial Balance) 700
Depreciation Equipment (Note ii) 40
Auditors’ Remuneration (Note iv) 10
Directors’ Remuneration (Note iv) 40
Goodwill Written Off (Note v) 8
Provision for Damages (Note viii) 12
836
(C) Dividends Proposed
Preference Dividends (Note vi) 4
34
(D) Tangible Fixed Assets
Land and Buildings (Trial Balance) 1,600
Profit and Loss Charge (Note ii) (26) 1,174
Equipment (Trial Balance) 400
1,334
(E) Creditors: Amounts falling due within one year
Bank (Trial Balance) 30
PAYE/PRSI (Trial Balance) 18
Auditors’ Remuneration Due (Note iv) 10
Directors’ Remuneration Due (Note iv) 40
Dividends Due (Note vi) 34
414
Published Profit and Loss Account of Proofrock Plc for the year ended 31/12/-5
Turnover 3,900
Gross Profit 1,820
Administration Expenses (836) (B)
Profit on Sale of Land 20
Dividends Proposed (2) (34) (C)
Retained Profits 720
137
Published Balance Sheet of Proofrock as at 31/12/-5

Fixed Assets
Intangible 72
Tangible (3) 1,334 (D)
Financial (4) 120
1,526
Current Assets
Stocks 90
Debtors 240
330
Creditors: Amounts falling due within one year (414) (E)
Financed by
Provisions for Liabilities and Charges (5) 12
1,442
Stocks

Freehold land is not depreciated. Other tangible assets are depreciated at the following rates:
Equipment – 10% on cost.

1. Operating Profit
Goodwill amortised €8,000
2. Dividends

Land and
Buildings Equipment Total
1/1/-5 1,620,000 400,000 2,020,000
Disposals/Acquisitions (20,000) – (20,000)
31/12/-5 1,600,000 400,000 2,000,000
Depreciation (€)
1/1/-5 400,000 200,000 600,000
31/12/-5 426,000 240,000 666,000
31/12/-5 1,174,000 160,000 1,334,000
138
Solutions
4. Financial Fixed Assets

Listed investments, cost €75,000, have an Irish Stock Exchange market value of
€94,000 at 31/12/-5 (31/12/-4: €78,000)
Unlisted investments, cost €45,000, are valued by the directors at €51,000 at
31/12/-5 (31/12/-4: €50,000)
There were no purchases or sales of investments during the year.

A claim for breach of contract of €12,000 has been made against the company by one of its customers. Our legal
advisors believe the company to be liable, so a provision has been made in this year’s accounts.
QUESTION 18.7
Principals Plc
(A) Cost of Sales
Amortisation of Patent (Note v) 25
21,961
19,963
Distribution Costs (Trial Balance) 1,660
Buildings Depreciation (Note iii) 6
Machinery Depreciation (Note iii) 4
1,670
Buildings Depreciation (Note iii) 24
Machinery Depreciation (Note iii) 36
Directors’ Remuneration (Note vi) 60
Auditors’ Remuneration (Note vi) 20
1,140
Debenture Interest Due (Note vi) 35
70
Ordinary Dividends (Note vii) 36
Preference Dividends (Note vii) 18
54
(F) Intangible Fixed Assets
Amortised (Note v) (25)
225
(G) Tangible Fixed Assets
Revaluation (Note iv) 250
Profit and Loss Charge (Note iii) (30)
Revaluation (Note iv) 80 650
Machinery (Trial Balance) 200
Profit and Loss Charge (Note iii) (40) 100
750
139
(H) Debtors
3,482
(I) Creditors: Amounts falling due within one year
Directors’ Remuneration Due (Note vi) 60
Auditors’ Remuneration Due (Note vi) 20
Taxation Due (Note vi) 400
Debenture Interest Due (Note vi) 35
Dividends Due (Note vii) 54
2,420
(J) Revaluation Reserve
Land and Buildings (Note iv) 250
Depreciation (Note iv) 80
330
Published Profit and Loss Account for Principals Plc for the year ended 31/12/-6
Turnover 25,000
Gross Profit 5,037
Distribution Costs (1,670) (B)
Administration Expenses (1,140) (C)
Profit on Ordinary Activities after Taxation 1,833
Profit and Loss Balance Brought Forward 708
Profit and Loss Balance to be Carried Forward 2,445

Fixed Assets
Intangible 225 (F)
Tangible (3) 750 (G)
Financial 180
1,155
Current Assets
Stocks 1,998
Debtors 3,482 (H)
Bank 260
5,740
Creditors: Amounts falling due within one year (2,420) (I)
Financed By 700
Creditors: Amounts falling due after one year 1,000
Capital and Reserves 330
Called up Share Capital 2,445
Revaluation Reserve (J)
Profit and Loss Account
4,475
140
Solutions

Stocks

Freehold land is not depreciated. Other tangible fixed assets are depreciated at the following rates:

Machinery – 20% on cost.

1. Operating Profit
An exceptional bad debt of €300,000 was incurred during the year as one of the company’s debtors went into
bankruptcy
2. Dividends
Preference dividends – Paid (4.5 cent per share) €18,000
– Proposed (4.5 cent per share) €18,000

Land and
Buildings Machinery Total
1/1/-6 400 200 600
Revaluation 250 – 250
31/12/-6 650 200 850
Depreciation (€)
1/1/-6 50 60 110
Charge for the year 30 40 70
Revaluation (80) – (80)
31/12/-6 – 100 100
Net Book Value
31/12/-6 650 100 750
4. Capital Commitments
The following capital commitments, authorised by the directors have not been provided for in the financial
statements:
Contracted for €300,000
Not contracted for €400,000
141
QUESTION 18.8
Shore Plc
(A) Cost of Sales
7,080
5,740
Depreciation Buildings (Note iv) 3
Depreciation Fixtures and Fittings (Note iv) 44
2,947
Directors’ Remuneration (Note ii) 20
Auditors’ Remuneration (Note ii) 5
Goodwill Written Off (Note v) 24
Provision for Liability (Note viii) 40
1,549
Debenture Interest Due (Note ii) 18
36
Preference Dividends (Note vi) 5
29
(F) Tangible Fixed Assets
Buildings (Trial Balance) 300
Profit and Loss Charge (Note iv) (10) 490
655
(G) Debtors
2,285
(H) Creditors: Amounts falling due within one year
Directors’ Remuneration Due (Note ii) 20
Auditors’ Remuneration Due (Note ii) 5
Taxation Due (Note ii) 300
Debenture Interest Due (Note ii) 18
Dividends Proposed (Note vi) 29
1,973
(I) Revaluation Reserve
Buildings (Note iii) 200
Depreciation (Note iii) 50
250
142
Solutions
Published Profit and Loss Account for the year ended 31/12/-6

Turnover 11,900
Gross Profit 6,160
Administration Expenses (1,549) (C)
Operating Income 55
Profit on Ordinary Activities after Taxation 1,383

Fixed Assets
Intangible 216
Tangible (3) 655 (F)
Financial (4) 200
1,071
Current Assets
Stocks 1,340
Debtors 2,285 (G)
Bank 78
3,703
Creditors: Amounts falling due within one year (1,973) (H)
Financed By
Provision for Liabilities and Charges (5) 40
Share Premium 40
Revaluation Reserve 250 (I)
2,801

Stocks

Tangible assets are depreciated at the following rates:
Fixtures and Fittings – 25% on the reduced value
Buildings were revalued on 1/1/-6 by Gant Properties on an open market, existing use basis.
143

1. Operating Profit
Goodwill Amortised €24,000
2. Dividends
Ordinary dividends – Paid (4.5 cent per share) €18,000
Fixtures
Buildings and Fittings Total
1/1/-6 300,000 260,000 560,000
Revaluation 200,000 – 200,000
31/12/-6 500,000 260,000 760,000
Depreciation (€)
1/1/-6 50,000 40,000 90,000
Revaluation (50,000) – (50,000)
Charge for the year 55,000 65,000
31/12/-6 – 95,000 105,000
Net Book Value
31/12/-6 490,000 165,000 655,000

These are in listed companies on the Irish Stock Exchange. They are shown at cost. Their market value on 31/12/-6
is €280,000

A claim has been made against the company by an employee for damages as a result of an accident at work. The
company’s legal advisors believe the company to be liable for damages of €40,000. A provision for this amount is
included in this year’s accounts.
144
Solutions
QUESTION 18.9
DOR Plc
(A) Cost of Sales
Patent Amortised (Note vii) 20
15,460
14,022
1,156

Administration Expenses (Trial Balance) 689
Bad Debts (Trial Balance) 120
Directors’ Remuneration (Note iii) 15
Auditors’ Remuneration (Note iii) 3
Provision for Liability (Note viii) 65
938
36
(E) Tangible Fixed Assets
Revaluation (Note vi) 250
Profit and Loss Charge (Note iv) (5)
Revaluation (Note vi) 51 500
740
(F) Debtors
1,936
Directors’ Remuneration Due (Note iii) 15
Auditors’ Remuneration Due (Note iii) 3
Taxation Due (Note iii) 355
Dividends Proposed (Note x) 51
2,087
Land and Buildings (Note v) 250
Depreciation (Note v) 51
301
145
Published Profit and Loss Account of DOR Plc for the year ended 31/12/-3

Turnover 16,950
Gross Profit 2,928
Profit on Sale of Land 110
Interest Payable (2) (36) (D)
Profit on Ordinary Activities after Taxation 599
(10)
Transfer to Reserve (589)
Retained Profit 526
Balance Sheet of DOR Plc as at 31/12/-3
Fixed Assets
Intangible 140
Tangible (4) 740 (E)
Financial (5) 350
1,230
Current Assets
Stocks 1,438
Debtors 1,936 (F)
Bank 55
3,429
Creditors: Amounts falling due within one year (2,087) (G)
Financed By
Creditors: Amounts falling due after more than one year (6) 300
Provision for Liabilities and Charges 65
Called up Share Capital (7) 700
Share Premium 170
General Reserve 10
2,572

Stocks

Freehold Land is not depreciated. Other tangible assets are depreciated at the following rates:
Fixtures and Fittings – 20% on the reduced value
146
Solutions

1. Operating Profit
Operating profit is arrived at after charging:
Patent Amortised €20,000
There was an exceptional bad debt of €120,000 because a customer was declared bankrupt.
2. Interest Payable
This is payable on debentures repayable within five years.
3. Dividends
Ordinary dividends – Paid (.75 cent per share) €9,000
Land and Fixtures
Buildings and Fittings Total
1/1/-3 275,000 560,000 835,000
Disposals/Acquisitions (25,000) – (25,000)
Revaluation 250,000 – 250,000
31/12/-3 500,000 560,000 1,060,000
Depreciation (€)
1/1/-3 46,000 260,000 306,000
Revaluation (51,000) – (51,000)
31/12/-3 – 320,000 320,000
Net Book Value
31/12/-3 500,000 240,000 740,000
Listed Investments, cost €350,000, have a market value of €370,000 at 31/12/-3.
There were no purchases or sales of investments during the year.
6. Debentures
12% Debentures of €300,000 are secured by a fixed charge over the company’s tangible fixed assets. They are
repayable within five years at the company’s option.
7. Called up Share Capital
Authorised Issued Paid-up
Ordinary Shares at 50 cent 600,000 600,000 600,000
6% Preference Shares at €1 100,000 100,000 100,000
700,000 700,000 700,000
Capital Commitments
The following capital commitments, authorised by the directors have not been provided for in the financial
statements.
Contracted for €550,000
Not contracted for €350,000
8. Contingent Liability
The company is being sued by a customer for late delivery of goods. The company’s legal advisors believe the
company is unlikely to be liable under the terms of the sales contract. They estimate the maximum liability at
€25,000.
147
19
QUESTION 19.1
Analysis and Interpretation of
Financial Statements: Solutions
Finn Ltd
Sales 516,000
– Cost of Sales
+ Purchases 434,000
456,000
430,000
Gross Profit 86,000
– Expenses (51,000)
Net Profit 35,000
+ Balance b/f 21,000
Balance c/f 56,000
(a) (i) Return on Capital Employed

Profit (Before interest and Tax
- × 100 = 35,000 + 12,000 × 100
= -------------------------------------------------------------------------------------------------
’
-------------------------------------------------- = 23.5%
Shareholders funds + Long-Term Liabilities 200,000
(ii) Purchases = 434,000
(iii) Period of Credit allowed to Debtors
Debtors
= ------------------------- × 365 = 30 Days
Credit sales
(iv) Interest Cover
Operating Profit 35,000 + 12,000
= ------------------------------------- = ------------------------------------ = 3.9 times
Interest 12,000
(b) (i) Liquid Assets

Liquid Assets are the current assets which are readily convertible into cash. They comprise bank, cash,
debtors, short-term investments etc.
(ii) Gearing
This is concerned with finance of limited companies. A highly geared company is mainly financed by
fixed interest debt (debenture loans and preference shares). a lowly geared company is mainly financed
by equity (ordinary shareholders and reserves).
(iii) Rate of Stock Turnover
Rate of Stock Turnover measures the frequency with which stock is sold during the trading period. It is
given by the formula:
Cost of Sales
--------------------------------
Average Stock
430,000
For Finn Ltd the rate is given by ------------------------------------
( 22,000 + 26,000 ) ÷ 2
- = 18 times
If stock turns over 18 times a year then stock is on the shelves for 365/18, or 20 days, on average,
between purchase and sale.
148
Solutions
(iv) Intangible Assets

Intangible Assets are assets which have value but no physical presence, e.g. goodwill, patents and
trademarks, copyrights and capitalised development costs. Trademarks and Copyrights are known as
Intellectual Property. Intangible assets have a finite life, in most cases, so they are written off, or
amortised, in the Profit and Loss Account in much the same way as tangible assets are depreciated.
(c) Interests of Shareholders

Shareholders are interested in:
(i) Profitability
Profit (After Tax and Preference Dividends) 35,000
Return on Shareholders’ funds = --------------------------------------------------------------------------------------------------- × 100 = ----------------- × 100 = 29%
Ordinary Shares+Reserves 120,000
This rate is compared to the rates of interest offered by risk-free investments, i.e. banks, building
societies, etc.
(ii) Liquidity
Current Ratio = Current Assets: Current Liabilities = 1.68:1
Acid Test = Liquid Assets: Current Liabilities = 1.24:1
Both of these ratios are satisfactory as norms are 1.5:1 and 1:1 for current and liquid ratios respectively.
Finn Ltd can meet its short-term debts as they become due.
QUESTION 19.2
McCool Ltd
Sales 310,000
– Cost of Sales
Purchases on credit 260,000
296,000
(250,000)
Gross Profit 60,000
(a) (i) Percentage Mark-up on Cost

Gross Profit 60,000
= ---------------------------- × 100 = ----------------- × 100 = 24%
Cost of Sales 250,000
(ii) Closing Stock = €46,000
(iii) Period of Credit received from Creditors
Creditors 50,000
= ------------------------------------- × 365 = ----------------- × 365 = 70 days
Credit Purchases 260,000
(iv) Return on Capital Employed
Profit (Before Interest and Tax) 18,000 + 7,000
= -------------------------------------------------------------------------------------------------- × 100 = -------------------------------- × 100 =10.9%
(b) (i) Intangible Assets (See solution to question 19.1)

(ii) Dividends
Dividends is the portion of company profit given to shareholders. It is the return on their investment in
the company. Preference shareholders get a fixed return and ordinary shareholders’ dividend depends on
the level of profits available in any year.
(iii) Shareholders’ funds
Shareholders’ funds is the total investment by shareholders in a company. It is made up of issued share
capital plus reserves.
(iv) Rate of Stock Turnover (see solution to question 19.1)
149
(c) Liquidity
This year’s liquidity ratios are:
Current ratio = Current assets : Current liabilities
= 104,000 : 68,000
= 1.5 : 1
Acid Test = Current assets less Stock : Current Liabilities
= 58,000 : 68,000
= .85 :1
Liquidity has disimproved since the previous year. The company is less able to meet its short-term debts as they fall
due.
QUESTION 19.3
Calley Ltd
Sales 492,000
– Cost of Sales
+ Purchases 406,000
432,000
(410,000)
Gross Profit 82,000
(a) (i) Sales = €492,000

(ii) Return on Capital Employed
Profit (Before Interest and Tax) 7,000 + 9,000 × 100
= -------------------------------------------------------------------------------------------------- × 100 = --------------------------------------------- = 5.7%
(iii) Mark-up on Cost
Gross Profit 82,000
= ---------------------------- × 100 = ----------------- × 100 = 20%
(iv) Interest Cover
= ------------------------------------
Interest
- = ----------------------------- = 1.7 times
9,000
(b) (i) Liquid Assets

Liquid assets are the current assets which are readily convertible into cash. They comprise bank, cash,
debtors, short-term investments etc.
(ii) Gearing
Gearing is concerned with finance of limited companies. A highly geared company is mainly financed
by fixed interest debt (debenture loans and preference shares). A lowly geared company is mainly
financed by equity (ordinary shares and reserves).
Rate of stock turnover measures the frequency with which stock is sold during the trading period. It is
Cost of Sales
--------------------------------
Average Stock
410,000
For Calley Ltd, the rate is given by (-----------------------------------------------
26,000 + 22,000 ) ÷ 2
- = 17 times
If stock turns over 17 times a year then stock is on the shelves for 365/17 or 21 days, on average,
between purchase and sale.
150
Solutions
(iv) Intangible Assets

Intangible assets are assets which have value but no physical presence, e.g. goodwill, patents and
trademarks, copyrights and capitalised development costs. Trademarks and copyrights are known as
intellectual property. Intangible assets have a finite life, in most cases, so they are written off, or
amortised, in the Profit and Loss Account in much the same way as tangible assets are depreciated.
(c) Interests of Shareholders

Shareholders are interested in:
(i) Profitability
Return on shareholders’ funds
Profit (After Interest and Tax)
= ------------------------------------------------------------------- × 100
Ordinary Shares + Reserves
7,000 + 9,000
= ----------------------------- × 100 = 7.2%
220,000
This rate is compared to the rates of interest offered by risk-free investments, i.e. banks, building
societies etc.
(ii) Liquidity
Current ratio = Current assets : Current liabilities
= 74,000 : 67,000
= 1.1 : 1
Acid Test = Current assets less Stock : Current Liabilities
= (74,000 – 22,000) : 67,000
= 0.77 :1
Both of these rates are unsatisfactory as norms are 1.5:1 and 1:1 for Current Ratio and Acid Test
respectively. Calley Ltd cannot meet its short-term debts as they fall due.
QUESTION 19.4
Raltherm Ltd
Sales 145,000 Fixed Assets 168,000
– Cost of sales Current Assets 55,000
Opening Stock 17,000 Current Liabilities (25,000)
+ Purchases 116,000 30,000
133,000 198,000
– Closing Stock (23,000) Financed By
(110,000) Share Capital 130,000
Gross Profit 35,000 Reserves – Profit and Loss Account 18,000
– Expenses 15,000 Long Term Liabilities
Net Profit for year 20,000 6% Debentures 50,000
– Dividends Proposed (6,500) 198,000
Profit and Loss Balance B/F 4,500
Profit and Loss Balance C/F 18,000
(a) (i) Purchases

Purchases = €116,000
(ii) Period of Credit given to Debtors
Debtors 29,000
= -------------------------- × 365 = ----------------- × 365 = 73 days
Credit Sales 145,000
(iii) Return on Capital Employed
= -------------------------------------------------------------------------------------------------- × 100 = ------------------------------------------------ = 11.6%
(iv) Rate of Stock Turnover
Cost of Sales 110,000 110,000
= -------------------------------- = ------------------------------------------------ = ----------------- = 5.5 times
Average Stock ( 17,000 + 23,000 ) ÷ 2 20,000
151
(b) (i) Auditors

Auditors are independent experts who give their opinion on whether the accounts give a ‘true and fair
view’ of the financial position of the company. They are independent accountants appointed by the
shareholders.
(ii) Gearing (See solution to question 19.1)
(iii) Liquid Assets (See solution to question 19.1)
(iv) Shareholders’ funds (See solution to question 19.2)
(c) Gearing
The gearing ratio is given by:
Equity capital : Fixed Interest Debt = 148,000 : 50,000
= 2.96:1, i.e. a lowly geared company as the majority of its finance comes from equity capital.
QUESTION 19.5
Moriarty Ltd
Sales 250,000
Less Cost of sales
+ Purchases 140,000
206,000
(188,000)
Gross Profit 62,000
(a) (i) Purchases

Purchases = €140,000
(ii) Return on capital employed
- × 100 = ------------------------------------------------ = 27.25%
= -------------------------------------------------------------------------------------------------
’
(iii) Period of Credit given to Debtors
Debtors 15,000
= -------------------------- × 365 = ----------------- × 365 = 27 days
(iv) Gross Margin
Gross Profit 62,000
= -------------------------- × 100 = ----------------- × 100 = 25%
Sales 250,000
(b) (i) Rate of stock turnover (See solution to question 19.1)

(ii) Memorandum of Association
A Memorandum of Association is a document which governs a company’s dealings with the outside
world. It states the company name, its objects, its limited liability and its authorised share capital.
(iii) Capital Employed
Capital Employed is the total invested in a company. It is made up of shareholders’ funds (capital and
reserves) plus long-term liabilities.
(iv) 8% Cumulative Preference Shares
This is a share entitled to a fixed return of 8% per annum. The return is payable before any payment to
ordinary shareholders. If dividends are unpaid, due to insufficient profits, the dividend is carried forward
(or accumulated) to a future date.
(c) Liquidity Ratios

The liquidity ratios are:
(i) Current Ratio = Current Assets : Current liabilities = 1.6:1
(ii) Acid Test = Current Assets less Stock : Current Liabilities = .88:1
The firm has liquidity problems as it cannot meet its short-term debts as they fall due.
152
Solutions
QUESTION 19.6
Durie Ltd
Sales 29000 Fixed Assets 337,000
– Cost of sales Current Assets 82,000
Opening Stock 21,000 Current Liabilities (39,000)
+ Purchases 156,000 43,000
177,000 380,000
– Closing Stock (23,000) Financed By
(154,000) Share Capital 250,000
Gross Profit 136,000 Reserves – Profit and Loss Account 90,000
– Expenses (36,000) Long-Term Liabilities
Net Profit for year 100,000 6% Debentures 40,000
Profit and Loss Balance B/F 15,000
Profit and Loss Balance C/F 90,000
(a) (i) Cost of Sales = €154,000

(ii) Rate of Stock Turnover
= ----------------------------------- = ----------------------------------------------------- = 7 times
Average Stock ( 21,000 + 23,000 ) ÷ 2
(iii) Acid Test Ratio
= Current Assets minus stock : Current Liabilities
(82,000 – 23,00) : 39,000
1.5 : 1
(iv) Total Expenses to Sales Ratio

Total Expenses 36,000
= --------------------------------- × 100 = ----------------- × 100 = 12.4%
Sales 290,000
(b) (i) Articles of Association

The Articles of Association is a document which governs the internal conditions of a company. It states
the rights of shareholders, the procedure for meetings and any other internal regulations.
(ii) Debenture (See solution to question 19.3)
(iii) Shareholders’ funds (See solution to question 19.2)
(iv) Gearing (See solution to question 19.1)
(c) Return on Shareholders’ Funds
Profit (After Tax and Preference Dividends) × 100
The return on shareholders’ funds = -----------------------------------------------------------------------------------------------------------------
Ordinary Shares + Reserves
100,000 × 100
= -------------------------------------- = 29% This is far better than the 13% earned by an investment in the financial
250,000 + 90,000
institutions.
153
QUESTION 19.7
Avril Ltd
Sales 150,000
– Cost of Sales
+ Purchases 120,000
145,000
(110,000)
Gross Profit 40,000
(a) (i) Closing Stock = €35,000

(ii) Period of Credit given to Debtors
Debtors 12,000
= -------------------------- × 365 = ----------------- × 365 = 35 days
(iii) Period of Credit Received from Creditors
Creditors 22,000
= ------------------------------------- × 365 = ----------------- × 365 = 66 days
Credit Purchases 120,000
(iv) Return on Shareholders’ Funds
Profit (After Tax and Preference Dividends) 15,000
= -------------------------------------------------------------------------------------------------- × 100 = --------------- × 100 = 18.75%
Ordinary shares+Reserves 80,000
(b) (i) Debt / Total Capital Percentage

This shows what percentage of total capital invested in a company is represented by debt capital, i.e.
100,000
Borrowings. For Avril Ltd it is ----------------- × 100 = 56%
180,000
(ii) Auditor (See solution to question 19.4)
(iii) Liquid Assets (See solution to question 19.1)
(iv) Intangible Assets (See solution to question 19.1)
(c) Interest Cover for Year Ended 31/12/-1

= ------------------------------------- = -------------------------------- = 6 times
Interest 5,000
The interest cover, which measures a firm’s ability to meet its interest payments has dropped from the
previous year. Thus Avril Ltd is less able to meet its interest repayments this year.
QUESTION 19.8
James Ltd
31/12/-2 31/12/-3 31/12/-2 31/12/-3
Sales 140,000 135,000 Fixed Assets 153,000 170,000
– Cost of Sales Current Assets 30,000 36,000
Opening Stock 14,000 16,000 Current Liabilities (18,000) 23,000
+ Purchases 106,000 102,000 12,000 13,000
120,000 118,000 165,000 183,000
– Closing Stock (15,000) (19,000)
(105,000) (99,000) Financed By
Gross Profit 35,000 36,000 Share Capital 100,000 100,000
– Expenses (20,000) (18,000) Reserves 25,000 43,000
Net Profit 15,000 18,000 Long-Term Liabilities 40,000 40,000
+ P+L Balance b/f 10,000 25,000 165,000 183,000
P+L Balance c/f 25,000 43,000
(a) (i) Purchases

Purchases for year ended 31/12/-2 = €106,000
Purchases for year ended 31/12/-3 = €102,000
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(ii) Fixed Assets

Fixed Assets as at 31/12/-2 = €153,000
Fixed Assets as at 31/12/-3 = €170,000
Gross Profit
(iii) Mark-up = ---------------------------- × 100
Cost of Sales
35,000
for year ended 31/12/-2 = ----------------- × 100 = 33.3%
105,000
36,000
for year ended 31/12/-3 = --------------- × 100 = 36.3%
99,000
(iv) Acid Test Ratio = Current Assets minus stock : Current Liabilities
for year ended 31/12/-2 = 30,000 – 15,000 : 18,000 = .83:1
for year ended 31/12/-3 = 36,000 – 19,000 : 23,000 = .74:1
(b) (i) Dividend

Dividend is the portion of company profits which is given to shareholders. It is the return on their
investment in the company. Preference shareholders get a fixed return and ordinary shareholders
dividend depends on the level of profits available in any year.
(ii) Shareholders' funds
Shareholders’ funds is the total investment by shareholders in a company. It is made up of issued share
capital plus reserves.
Rate of Stock Turnover measures the frequency with which stock is sold during the trading period. It is
Cost of Sales
--------------------------------
Average Stock
for James Ltd. The rate is given as:
105,000
for year ended 31/12/-2 = (-----------------------------------------------
14,000 + 15,000 ) ÷ 2
- = 7.2 times
99,000
for year ended 31/12/-3 = (-----------------------------------------------
16,000 + 19,000 ) ÷ 2
- = 5.6 times
(iv) Auditors
Auditors are independent experts who give their opinion on whether the accounts are a ‘true and fair
view’ of the financial position of the company. They are independent accountants appointed by the
shareholders.
(c) Profitability
The return on capital employed is the best measure of the profitability of the company as a whole.
The return is calculated by:
Profit (Before Interest and Tax)
-------------------------------------------------------------------------------------------------- × 100
Shareholders ’ funds + Long-Term Liabilities
15,000 + 4,000
for year ended 31/12/-2 = -------------------------------- × 100 = 11.5%
165,000
18,000 + 4,000
for year ended 31/12/-3 = --------------------------------- × 100 = 12%
183,000
James Ltd was more profitable for the year ended 31/12/-3.
155

Smith Plc
Sales 982,000 Fixed Assets (+ Investments) 682,000
– Cost of sales (602,000) Current Assets 212,000
Gross Profit 380,000 Current Liabilities
– Expenses (136,000) Creditors 45,000
Net Profit for year 244,000 Dividends 27,000 (72,000)
Retained Profits 217,000 822,000
Profit and Loss Balance B/F (20,000) Financed By
Profit and Loss Balance C/F 197,000 Shares – Ordinary 400,000
– Preference 100,000
Reserves – Profit and Loss Account 197,000
822,000
(a) (i) Opening Stock

Stock Turnover
-------------------------------- = ----------------- = 9
= Average Stock x
∴ 9x = 602,000
x = 68,000
∴ Opening Stock + Closing stock = 2(68,000) = 136,000
Opening Stock = 136,000 – 60,000 = 76,000
(ii) Dividend Cover

Profit (After Tax and Preference Dividend) 244,000 – 7,000
= -----------------------------------------------------------------------------------------------
Total Ordinary Dividend
- = ---------------------------------- = 11.85 times
20,000
(iii) Dividend Yield
Dividend per share 20,000/400,000
- = 0.05
= --------------------------------------------------- × 100 = --------------------------------- --------- × 100 = 2%
Market price per share 2.50 2.50
(iv) Earnings per share
Profit (After Tax and Preference dividend) 244,000 – 7,000
= ------------------------------------------------------------------------------------------------ = ---------------------------------- = 59 cent
Number of issued ordinary shares 400,000
(v) Price Earnings Ratio
Market price per share 2.50
= ---------------------------------------------------
Earnings per share = 0.59 = 4.2 years or 4.2:1
---------
(b) Advice to Potential Shareholders

A potential shareholder would be interested in the following:
1. Profitability of the firm compared with the borrowing rate of finance
Return on capital employed
Profit (Before Interest and Tax) × 100 244,000 + 10,000
- = -------------------------------------- × 100 = 31%
= -------------------------------------------------------------------------------------------------
’
Return on shareholders’ funds
Profit (After Tax and Preference Dividends) 244,000 – 7,000
= -------------------------------------------------------------------------------------------------- × 100 = ---------------------------------------- × 100 = 40%
Ordinary shares + reserves 400,000 + 197,000
These rates compare very favourably with the 10% being charged for the finance.
2. Proportion of the Company Owned after the Purchase
The holder of 230,000 of the 400,000 ordinary shares issued would have a controlling interest in the
company. Thus the holder could change any company policy such as dividend payment etc.
156
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3. Present Dividend Policy

EPS : DPS = 59 cent : 5 cent
The ordinary shareholders only received 5 cent out of 59 cent they have earned. This represents only
8% of their earnings. This is a very poor payout ratio.
4. Profit Trends
Last year’s Profit and Loss balance was €20,000 loss and this has been turned around into a
€197,000 profit. Good trend.
5. Investment Policy
A good investment policy as they have gained 80% in value.
6. Liquidity
Current Ratio = 212,000 : 72,000 = 3:1
Acid Test = 152,000 : 72,000 = 2:1
These are both above acceptable norms of 1.5:1 and 1:1
respectively.
7. Sector
Leisurewear is a growth sector.
8. Share Price
Share price is 20 cent below market price offering a discount of €46,000 on the purchase.
9. Gearing
The Debt/Total capital percentage is 27% making this a low-geared firm which would suit an ordinary
shareholder as interest commitments are not high.
Overall I would advise my friend to buy the shares.

– Cost of sales (600,000) Investments 178,000
Gross Profit 350,000 Current Assets 270,000
– Total Expenses (160,000) Current Liabilities (179,000)
Net Profit before tax 190,000 91,000
Taxation (50,000) 935,000
Profit after tax 140,000 Financed By
– Proposed Dividends (86,000) Shares – Ordinary 450,000
54,000 – Preference 200,000
– Transfer to Reserve (24,000) Reserves – General Reserve 125,000
Retained Profits 30,000 – Profit and Loss Account 50,000
Profit and Loss Balance B/F 20,000 Long Term Liabilities
Profit and Loss Balance C/F 50,000 9% Debentures 110,000
935,000
(a) (i) Return on Shareholders’ Funds

Profit (After Tax and Preference dividends)
= -------------------------------------------------------------------------------------------------- × 100
Ordinary shares + reserves
14,000 – 16,000
= ---------------------------------------- × 100 = 19.8%
450,000 + 175,000
(ii) General Reserve
General Reserve at 31/12/-8 was €125,000
(iii) Stock Turnover
Cost of sales 600,000
= -------------------------------- = ----------------- = 8 ∴ 8x = 600,000
Average stock x
x = 75,000
Opening stock + closing stock = 2(75,000) = 150,000
Opening stock = 150,000 – closing stock
= 150,000 – 80,000
157
= 70,000
(iv) Dividend Yield
Dividend per share × 100 70,000/450,000 × 100 0.156 × 100
= --------------------------------------------------------
Market price per share =
- ------------------------------------------------- = -------------------------- = 8.9%
1.75 1.75
Market Price per Share 1.75 1.75
= ---------------------------------------------------
Earnings per share
- = ------------------------------------- = --------- = 6.25 years
140,000 – 16,000 0.28
-------------------------------------
450,000
(b) Report
For: Bank requested for loan €300,000
By whom prepared: S. Omebody
Subject matter: Advisability of granting the loan
Body of report:
1. Gearing
The debt / total capital percentage of the company is 33%. Thus it is a low geared company. If the loan is
granted the gearing will become high at 65%, making the fixed interest payment on the loan a greater burden
on company profits. The interest cover now is 20 times but this will fall to five times if the loan is granted,
unless profits increase.
2. Security
Collateral is provided by the fixed assets. At the moment the book value of fixed assets available for
collateral is €556,000 (666,000-110,000). The nature of, and depreciation policy on these fixed assets must
be ascertained.
3. Purpose of the loan
The loan is for productive purposes. This would suit the bank as it is interested in lending for profit-
enhancing projects.
4. Sector
Further investigations are necessary to see if Pendrive Plc is performing comparably well with its
competitors in the pharmaceutical industry. The area of Research and Development is very important.
5. Liquidity
Current Ratio = 1.51:1
Acid Test = 1.06:1
These compare favourably with norms of 1.5:1 and 1:1 respectively.
6. Profitability
The return on shareholders’ funds is 19.8%
The return on capital employed is 21%
Both compare favourably with the 11% charged on the loan.
7. Investment policy – Investments have risen in value by 11%. Good policy.
Recommendations
Grant the loan provided the market value of tangible fixed assets can provide enough collateral for the loan.
With increased profits generated by the new machinery, the loan interest should be easily covered.
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Solutions

Watson Plc
(a) 31/12/-2 31/12/-1
(i) Interest Cover
Operating Profit 33,500 – 11,000 39,500 + 11,000
= ------------------------------------- ------------------------------------- -----------------------------------
Interest Charges 11,000 11,000
= 4 times = 4.6 times
(ii) Earnings per Share
Profit (After tax and preference dividend) 23,500 – 13,500 27,500 – 13,500
= ----------------------------------------------------------------------------------------------- ---------------------------------- ----------------------------------
Number of issued ordinary shares 400,000 400,000
= 2.5p = 3.5p
(iii) Dividend Yield
Dividend per Share 20,000/400,000 20,000/400,000
= ---------------------------------------------------- × 100 ----------------------------------
0.75
----------------------------------
0.9
Market Price per Share
= 6.7% = 5.6%
(b) Interests of Debenture Holders
Debenture holders would be interested in:
1. Repayment date
Debenture loan is due for repayment on 31/12/-6. This is four years hence and there are no
reserves set aside for this repayment.
2. Security
The security for the debentures is provided by the fixed assets in the year ended 31/12/-1. The
security cover was 460,000:100,000 (or 4.6:1) and in the year ended 31/12/-2 the cover has
improved to 487,000:100,000 (or 4.9:1). Security cover is satisfactory provided the assets’ book
value is a true reflection of their market value.
3. Interest Cover
Interest cover has fallen from 4.6 times to four times. This is a drop in cover of 13% in one year. A
very poor trend.
4. Liquidity
Current ratio fell from 1.25:1 to 1.04:1
Acid test ratio fell from .9:1 to .39:1
The firm has severe liquidity problems. It is below the norms of 1.5:1 and 1:1 respectively in both
years and the situation is worsening.
5. Return on Capital Employed 31/12/-2 31/12/-1
Profit (Before interest and tax)
= -----------------------------------------------------------------------------------------------
’
- 6.7% 7.6%
Shareholders funds + Long-term liabilities
The downward trend in profitability is an unhealthy development.
6. Dividend Policy (EPS:DPS)
In the year ended 31/12/-1 the company paid each ordinary shareholder a dividend of 5 cent
despite earnings per share of only 3.5 cent. In the year ended 31/12/-2, the situation has worsened
to where ordinary shareholders are still receiving a dividend per share of 5 cent despite earnings
per share of only 2.5 cent. The company is using profits and reserves to pay dividends, which
would better suit debenture holders if they were retained as reserves.
7. Gearing
The firm is low geared but any possible advantage to the debenture holders is offset by the poor,
and worsening, profit performance.
8. Sector
The construction industry is cyclical. If the industry is heading into the downward part of the
cycle, the debenture holders can see no end to the poor profit performance.
The debenture holders would be worried about their loan repayment in four years time. If the
present trends in profitability and liquidity continue, they may consider calling in a receiver.
159

McMillan Plc
Sales 545,000 Fixed Assets
Cost of sales (218,500) Tangible 500,000
Gross Profit 326,500 Intangible 100,000
Operating Expenses (160,000) Investments 100,000
Operating Profit 166,500 700,000
Interest (16,500) Current Assets 190,000
Net Profit for year 150,000 Current Liabilities
Dividends Proposed (74,000) Creditors 41,000
76,000 Dividends due 74,000 (115,000)
Transfer to Reserve (40,000) 75,000
Retained Profits 36,000 775,000
Profit and Loss Balance B/F (11,000) Financed By
Profit and Loss Balance C/F 25,000 Shares – Ordinary 200,000
– Preference 300,000
Reserves – General Reserve 100,000
– Profit and Loss Account 25,000
775,000
(a) (i) Cash Sales

Period of Credit allowed to Debtors
Debtors × 12 53,000 × 12
= ----------------------------
Credit Sales =
- -------------------------- = 2
x
∴2x = 636,000
∴ x = 318,000
Total Sales = 545,000

Cash Sales = Total Sales – Credit Sales
= 545,000 – 318,000
= 227,000
(ii) Earnings per Share
Profit (After tax and preference dividend) 150,000 – 24,000
= ----------------------------------------------------------------------------------------------- = -------------------------------------- = 63 cent
(iii) Dividend Cover
= ----------------------------------------------------------------------------------------------- = ------------------------------------------ = 2.5 times
Total ordinary dividend 50,000
(iv) Interest Cover
Operating profit 166,500
= ------------------------------------- = ----------------- = 10 times
Interest charges 16,500
(v) Market Value of Shares
Dividend Yield
Dividend per share × 100
= ---------------------------------------------------------
Market price per share
50,000/200,000 0.25 × 100

= ---------------------------------- × 100 = 10% = ------------------------ = 10
x x
∴10x = 25
= 2.50
The market value of one ordinary share is €2.50
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(b) Interests of Potential Shareholder

A potential shareholder would be interested in the following:
1. Profitability of the firm Compared with Borrowing Rate of Finance
Return on capital employed
Profit (Before interest and tax) × 100 166,500
= -------------------------------------------------------------------------------------------------- = ----------------- × 100 = 21%
Return on Shareholders’ Funds

Profit (After tax and preference dividends) × 100 150,000 – 24,000
= --------------------------------------------------------------------------------------------------------------- = ------------------------------------- × 100 = 39%
Ordinary shares and reserves 325,000
These rates compare favourably with the 13% being charged for finance. Borrowings will amount
to €250,000 with annual interest of €32,500.
2. Proportion of the Company Owned after the Purchase
The holder of 100,000 ordinary shares would be a major, if not the major shareholder in the
company. As such he/she would exert great influence over dividend policies and policies in
general.
3. Present Dividend Policy
EPS:DPS = 63 cent : 25 cent
The ordinary shareholders are 25 cent out of the 63 cent they earned. This is a payout rate of 40%.
Shareholders would be satisfied with these figures.
4. Profit Trends
McMillan Plc. increased its reserves (€11,000) last year to a positive balance of €25,000 this year.
This is an improving trend.
5. Investment policy
A good investment policy as they have risen 10% in value.
6. Liquidity
Current ratio = 1.6:1
Acid test = 0.8:1
Current ratio is acceptable but the acid test ratio is below the accepted norm of 1:1.
7. Contingent Liability
If this materialises, then an already poor liquidity situation will worsen.
8. Sector
Computer software is a successful but highly mobile industry. Unless the Research and
Development function is located in Ireland, the company could lose out to lower wage economies
in Eastern Europe or Asia.
9. Debentures
Debentures are repayable in two years time but there are reserves built up and there is enough time
to meet the €150,000 payout.
Overall, this is a sound investment, the only worrying point being the liquidity and the contingent
liability. As long as the licence is guaranteed, I would advise my friend to buy the shares.

Tinn Plc
(a) 31/12/-6 31/12/-5
(i) Return on Shareholders’ Funds
Profit (After tax and preference dividend)
= -------------------------------------------------------------------------------------------------------
- 74,000 – 8,000 × 100 24,000 – 8,000 × 100
( Shareholders funds + Long-Term Liabilities )
’ ----------------------------------------------- -----------------------------------------------
750,000 708,000
= 8.8% = 2.25%
161
(ii) Dividend Yield
Dividend per Share 32,000 – 8,000/500,000 18,000 – 8,000/500,000
= ---------------------------------------------------- × 100 ----------------------------------------------------- -----------------------------------------------------
Market Price per Share 1.85 1.50
0.048 × 100 0.02 × 100
= -------------------------- = ------------------------
1.85 1.50
= 2.6% = 1.3%
(iii) Interest Cover
Net profit + Interest 94,000 + 8,100 29,000 + 8,100
= ----------------------------------------------- --------------------------------- ---------------------------------
Interest 8,100 8,100
= 12.6 times = 4.6 times

(b) Interests of Ordinary Shareholders
Ordinary shareholders would be interested in:
1. Profit trends
Return on shareholders’ funds has improved from 2.25% to 8.8%. This is a healthy trend.
The return on capital employed has risen from 5.2% to 13.6% which compares favourably
with returns from risk free investments.
2. Dividends
Dividend cover has improved from 1.6 times to 2.75 times. The cover is low but improving.
Dividend Policy (EPS:DPS) in the year ended 31/12/-5 was to give 62% of earnings to
ordinary shareholders as dividends. This dropped to 36% for the year ended 31/12/-6. The
company is retaining more profits as reserves.
Dividend yield has doubled from 1.3% to 2.6%. The yield is low by comparison with yields
from risk-free investments but the trend is good.
3. Liquidity
Current ratio has improved from 1.03:1 to 2:1
Acid test ratio has improved from 0.3:1 to 1.4:1
The liquidity position is much healthier and the trend is good.
4. Sector
The current economic health of the industrial sector would be of interest to shareholders.
This is linked directly to the health of the economy as a whole.
5. Gearing
Gearing is low at around 25%. This suits ordinary shareholders as less profit is devoted to
fixed interest repayments.
6. Interest cover
This has improved from 4.6 times to 12.6 times. This is a healthy trend.
7. Security
The book value of fixed assets has fallen, probably due to depreciation charges. The shareholders
would need to know the nature of and depreciation policy for, all fixed assets.
8. Market Price
The stock market price may be a guide to the general health of the company. The price has
risen by 23% in the last year. Coupled with a rising P/E ratio, the indications are that the
market has confidence in the company. However share prices are prone to movement due to
rumours of takeover bids, general economic conditions, political events and many other
factors which have little to do with the company itself.
(c) Limitations of Ratio Analysis
1. Ratios deal with figures only. Figures in isolation do not give a full picture of the company.
2. Comparisons of the company over time may be misleading if conditions have changed.
3. Changes in the value of money due to inflation will distort the ratios.
4. Comparisons of different companies must take into consideration different accounting
policies adopted by different firms.
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Fryere Plc
31/12/-7 31/12/-6 31/12/-7 31/12/-6
Sales 1,072,000 806,000 Fixed Assets 898,000 728,000
Cost of Sales (692,000) (430,000) Current Assets 210,000 200,000
Gross Profit 380,000 376,000 Current Liabilities
Operating Expenses (190,000) (170,000) Creditors (93,200) (136,600)
Operating Profit 190,000 206,000 Dividends due (64,000) (57,000)
Interest (9,600) (9,600) 950,800 734,400
Net Profit 180,400 196,400 Financed by
Dividends (64,000) (57,000) 8% Debentures 120,000 120,000
Retained 116,400 139,400 Shares – Ordinary 500,000 500,000
P+L Balance B/F 14,400 (125,000) Shares – Preference 200,000 100,000
P+L Balance C/F 130,800 14,400 Reserves 130,800 14,400
950,800 734,400
(a) 31/12/-7 31/12/-6

(i) Earnings per Share
= ----------------------------------------------------------------------------------------------- ------------------------------------- ----------------------------------
Number of issued ordinary shares 500,000 500,000
= 33 cent = 38 cent
(ii) Return on Shareholders’ Funds x 100
= ----------------------------------------------------------------------------------------------- ---------------------------------------- --------------------------------------
Ordinary shares + Reserves 500,000 + 130,800 500,000 + 14,000
= 26% = 37%
(iii) Interest Cover
Operating profit 190,000 206,000
= ------------------------------------- ----------------- -----------------
Interest 9,600 9,600
= 20 times = 21 times
(iv) Debt/Total Capital Percentage
Debt capital 120,000 + 200,000 120,000 + 100, 000
---------------------------- × 100 ----------------------------------------
950,800
------------------------------------------
734,400
Total capital
= 34% = 30%
(b) Would the Bank grant the Loan?
A bank which has been asked for a loan would be interested in:
1. Gearing
The firm is low geared but the rate is rising from 30% to 34%. If the loan is granted, the gearing
would rise to 65% making it a highly geared firm. This would make fixed interest repayments a
greater burden on company profits. The interest cover is good at 20 times but this would fall if the
loan is granted, unless profits increase.
2. Purpose of the Loan
The loan is for productive purposes. This would suit the bank as it is interested in lending for profit
generating projects.
3. Collateral
Collateral is provided by the fixed assets. At the moment, the book value of fixed assets available
for collateral is €778,000 (898,000 – 120,000). The nature of, and depreciation policy for, these
fixed assets must be ascertained.
4. Liquidity
Current ratio has improved from 1.03:1 to 1.3:1
Acid test ratio has improved from .6:1 to 1.1:1
These are healthy trends.
163
5. Sector
The fast food sector is bouyant and with increased leisure time will probably expand.
6. Profitability
Return on capital employed has dropped from 28% to 19%.
Return on shareholders funds has dropped from 37% to 26%.
While the rates of profitability are high, the falling trend is unhealthy.
The bank would grant the loan after careful examination of the security available.

Clodagh Fashions Plc
(a) 31/12/-3 31/12/-2
(i) Dividend Yield
Dividend per share × 100 68,000 – 18,000/250,000 43,000 – 18,000/250,000
= --------------------------------------------------------- ------------------------------------------------------- -------------------------------------------------------
0.2 × 100 0.1 × 100

= --------------------- = ---------------------
1.65 1.50
= 12% = 6.7%
(ii) Return on Shareholders’ Funds
= ----------------------------------------------------------------------------------------------- -------------------------------------- --------------------------------------
Ordinary shares + reserves 250,000 + 43,000 250,000 + 14,000
= 12% = 6.7%
(iii) Calculation of Purchases
Purchases = Cost of sales 579,000 527,000
+ Closing Stock 78,000 63,000
– Opening stock (63,000) (58,000)
594,000 532,000
(iv) Cash Purchase Figures
Average Period of Credit Received
Creditors × 12 20,000 × 12 108,000 × 12
------------------------------------- -------------------------- = 2 ----------------------------- = 2.5
Credit purchases x x
x = 120,000 x = 518,400
Cash purchases = Total purchases 594,000 532,000
– Credit purchases (120,000) (518,400)
474,000 13,600

Ordinary shareholders would be interested in the following:
1. Profit trends
Return on shareholders’ funds has improved from 19% to 27%. This is a very healthy trend .
Return on capital employed has improved from 18% to 24% which compares favourably with risk-
free investments.
2. Dividends
Dividend cover has dropped slightly from 2 times to 1.58 times. This is low cover.
Dividend Policy/(EPS:DPS) in the year ended 31/12/-2 was to give 49% of earnings to
shareholders in the form of dividends. This rose to 63% in the year ended 31/12/-3. Shareholders
would be happy with this trend.
Dividend yield has risen from 6.7% to 12%. This is a good yield by comparison with most risk-
free investments. The trend is rising.
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Solutions
3. Liquidity
Current ratio has improved from 1.05 to 1.48:1
Acid test ratio has improved from .7:1 to .9:1
Liquidity is improving but still remains below the norms of 2:1 and 1:1 for current ratio and acid
test ratio respectively.
4. Debenture Repayment Date
Debenture loan is repayable in five years time. Reserves are increasing.
5. Sector
High quality women’s clothing is a profitable but volatile market. The huge increase in cash
purchases (€13,600 in year ended 31/12/-2 to €474,000 in the year ended 31/12-3) shows a
reluctance amongst suppliers to grant credit to Clodagh Fashions Plc. What has caused this?
6. Gearing
Gearing has moved from 53% to 50%, i.e. neutral gearing.
7. Interest Cover
The cover has improved from 10.4 times to 14.5 times. This is a healthy trend.
8. Security
The book value of fixed assets has fallen, probably due to depreciation charges. The shareholders
would need to know the nature of, and depreciation policy for, these fixed assets.
9. Market Price
See solution to question 19.13

Penn Plc
Cost of Sales (710,000) Current Assets 190,000
Gross Profit 160,000 Current Liabilities (158,000)
Operating Expenses (95,600) 32,000
Operating Profit 64,400 747,000
Interest Charges (14,400) Financed By
Net Profit before Taxation 50,000 Long Term Liabilities
Taxation (25,000) 12% Debentures 120,000
Profit after Taxation 25,000 Share Capital –Ordinary 350,000
Proposed Dividends (25,000) – Preference 200,000
Retained Profits – Reserves
Profit and Loss Balance B/F 60,000 Revaluation Reserve 17,000
Profit and Loss Balance C/F 60,000 Profit and Loss Account 60,000
747,000
(a) (i) Interest Cover

Operating profit 64,400
= ------------------------------------- = --------------- = 4.47 times
Interest 14,400

Profit (After tax and preference dividend) × 100 25,000 – 18,000
= -------------------------------------------------------------------------------------------------------------- = -------------------------------------- = 1.6%
Ordinary shares + Reserves 350,000 + 77,000
(iii) Opening Stock

Stock Turnover
Cost of sales 710,000
= -------------------------------- = ----------------- = 10 ∴x = 71,000
Average stock x
Opening Stock + Closing Stock = 2(71,000) = 142,000
Opening stock = 142,000 – Closing Stock
= 142,000 – 112,000
= 30,000
165
(iv) Earnings per Share

= ----------------------------------------------------------------------------------------------- = ---------------------------------- = 2 cent

Market price per share 2.00
= ------------------------------------------------------ = ---------- = 100
Earnings per share 0.02
(b) Report
For: Bank requested for loan €200,000

By whom prepared: A. Student
Subject matter: Advisability of granting the loan
Body of report:
1. Gearing
The debt/total capital percentage of the company is 16%. Thus it is a low geared company. If the loan is
granted, the gearing will rise to 43% which is still low. The interest cover is 4.47 times at the moment but at
the present profit level, the €26,000 annual interest would reduce the cover to 2.2 times, which is too low for
comfort.
2. Security
Collateral is provided by the fixed assets. At the moment, the book value of the fixed assets available for
collateral is €595,000 (715,000 – 120,000). The nature of and depreciation policy for these fixed assets must
be ascertained. The presence of a revaluation reserve in the Balance Sheet shows assets have been revalued
in the past and they may need to be revalued again.
3. Purpose of the Loan
The loan is to finance new technology. The bank would be interested in lending for profit-generating
ventures.
4. Profitability
The return on shareholders’ funds is 1.6%
The return on capital employed is 8.6%
These compare unfavourably with the 13% being charged on the loan. If the profit trend is falling, the loan
interest would become an increasing burden on the company, eventually becoming unsustainable. Projected
profit figures would be required from the company.
5. Liquidity
The current ratio is 1.2:1 and the acid test is 0.5:1. These are poor when compared with norms of 2:1 and 1:1
respectively.
6. Sector
The ice-cream market is seasonal and dependent on good summer weather. The fact that closing stock is
nearly four times greater than opening stock suggests that the company may have had a poor year and that it
is producing goods that are not selling and being stored. The closing stock may be overvalued.
Recommendation: Refuse the loan.
166
Solutions
QUESTION 19.17
Foldups Plc
(a) 31/12/-7 31/12/-6
(i) Dividend Yield
Dividend per share × 100 27,500/275,000 × 100 16,500/275,000 × 100
= --------------------------------------------------------- ------------------------------------------------- -------------------------------------------------
0.10 × 100 0.06 × 100
= ------------------------ = ------------------------
2.10 1.95
= 4.76% = 3.08%
Profit (After tax and preference dividends) × 100 159,500 – 12,000 × 100 105,000 – 12,000 × 100
= --------------------------------------------------------------------------------------------------------------- ---------------------------------------------------- ----------------------------------------------------
Ordinary shares + Reserves 275,000 + 345,000 275,000 + 165,000
147,500 × 100 93,000 × 100
= -------------------------------- = -----------------------------
620,000 440,000
= 24% = 21%
(iii) Price Earnings Ratio
= --------------------------------------------------- ------------------------------------- ----------------------------------
Earnings per share 147,500/275,000 93,000/275,000
2.10 1.95
= --------- = ---------
0.54 0.34
= 3.9:1 = 5.7:1
(iv) Interest Cover
Operating profit 209.500 + 18,000 145,000 + 18,000
= ------------------------------------- -------------------------------------- --------------------------------------
Interest charges 18,000 18,000
= 12.6 times = 9 times
Ordinary shareholders would be interested in the following:
1. Profit Trends
Return on shareholders’ funds has improved from 21% to 24%. This is a healthy trend. Return on
capital employed has improved from 24.6% to 27%. This is a healthy trend and compares
favourably with returns from risk-free investments.
2. Dividends
Dividend cover has dropped slightly from 5.6 times to 5.3 times. Dividend policy (EPS:DPS) in
the year ended 31/12/-6 was to give 18% of earnings to shareholders in the form of dividends. This
has remained fairly constant at 18.5% in the year ended 31/12/-7. Shareholders would be satisfied
with this policy. Dividend yield has risen from 3.08% to 4.76%. The trend is positive.
3. Liquidity
Current ratio has improved from 1.3:1 to 1.4:1
Acid test has improved from 0.8:1 to 1.04:1
The current ratio is below the accepted norm of 1.5:1 minimum
The acid test is above the accepted norm of 1:1
Both ratios have a positive trend.
4. Revaluation Reserve
The revaluation reserve increased by €60,000 over the year. This indicates that a fixed asset,
probably land, had a market value in excess of its book value. The increase in the value of the asset
represents unrealised profits for the shareholders. They would be satisfied with this.
5. Sector
Foldups Plc serves the computer industry. This is a growth sector.
6. Gearing
The debt/total capital has fallen from 33 1/3% to 26%.
The gearing is becoming lower. Coupled with the rising interest cover, this is a healthy trend.
7. Market Price
See solution to question 19.13
(c) Ratio Comparison
Ratios may be compared with the same ratios for 1) a budgeted period, 2) competitors and 3) industry norms
or averages.
167
20
QUESTION 20.1
Cash Flow Statements
Mayhope Ltd
(a) Reconciliation of Operating Profit to Net Cash Flow
Operating Profit 79,000
Depreciation 40,000
Stock Decrease 30,000
Debtors Increase (20,000)
Creditors Increase 21,000
Net Cash Inflow from Operating Activities 150,000
(b) Cash Flow Statement

Operating Activities
Returns on Investments and Servicing of Finance
Dividends Paid (27,000)
Taxation
Corporation Profits Tax Paid (41,000)
Investing Activities
Payments to Acquire Tangible Fixed Assets (100,000)
Net Cash Outflow Before Financing (18,000)
Financing
Shares Issued 20,000
Increase in Cash 2,000
Proof
Opening Bank Balance 5,000
Closing Bank Balance 7,000
QUESTION 20.2
Grimm Ltd
Depreciation 11,000
Stock Increase (12,000)
168
Solutions

Taxation
Payments to Acquire Fixed Assets (70,000)
Financing
Decrease in Cash (14,000)
Proof
QUESTION 20.3
Firestal Ltd
Depreciation 30,000
Stock Decrease (30,000)
Creditors Increase (40,000)

Interest Paid (10,000)
(150,000)
Taxation
Financing
Loans Repaid (30,000)
70,000
Proof
169
QUESTION 20.4
Sliotar Ltd
Depreciation 27,000
Debtors Decrease 5,000

Taxation
Corporation Tax Paid (53,000)
Financing
Proof

Tuxedo Plc
Preparatory Notes (in €’000s) Discovered Items marked with Asterisk
Note 1 Land and Buildings Account Note 4 Plant and Machinery Account
Balance b/d 320 Disposal 100 Balance b/d 290
Bank * 80 Balance c/d 300 Bank * 120 Balance c/d 410
400 400 410 410
Note 2 Depreciation Account Note 5 Depreciation Account

Disposal * 70 Balance b/d 79 Balance b/d 150
Balance c/d 75 Profit and Loss 66 Balance c/d 190 Profit and Loss 40
145 145 190 190
Note 3 Disposal Account Note 6 Taxation Account

Buildings 100 Bank 45 Bank * 210 Balance b/d 190
Profit * 15 Depreciation * 70 Balance c/d 180 Profit and Loss 200
115 115 390 390
Note 7 Dividends Account

Bank * 100 Balance b/d 30
Balance c/d 40 Profit and Loss 110
140 140
170
Solutions

Depreciation (Notes 2 and 5) 106,000
Profit on Disposal (Note 3) (15,000)
Creditors Decrease
(10,000)
Dividends Paid (Note 7) (100,000)
(115,000)
Taxation
Corporation Tax Paid (Note 6) (210,000)
Payments to Acquire Tangible Fixed Assets
– Land and Buildings (Note 1)
(80,000)
– Plant and Machinery (Note 4)
Quoted Investments (120,000)
Cash on Disposal (Note 3) (50,000)
45,000
(205,000)
Financing
Loan Borrowed 50,000
100,000
Proof
QUESTION 20.6
Lapwing Plc
Preparatory Notes (in €’000s) Discovered Items are marked with an Asterisk
Balance b/d 480 Disposal 120 Balance b/d 300 Disposal 100
630 630 350 350

Disposal * 70 Balance b/d 110 Disposal * 30 Balance b/d 90
220 220 130 130
Note 3 Disposal Account Note 6 Disposal Account

Land and Buildings 120 Bank 60 Plant and Machinery 100 Loss 5
Profit * 10 Depreciation * 70 Depreciation 30
130 30 Bank * 65
100 100
171
Note 7 Motor Vehicles Note 8 Depreciation Account

Balance b/d 70 Balance b/d 30
Bank * 50 Balance c/d 120 Balance c/d 60 Profit and Loss 30
120 120 60 60

Depreciation (110 + 40 + 30) 180,000
Loss on Disposal 5,000
Profit on Disposal (10,000)
Creditors Decrease (60,000)

(79,000)
Taxation
Payments to Acquire Tangible Fixed Assets
(150 + 50 + 50) (250,000)
Cash on Disposal (60 + 65) 125,000
(125,000)
Net Cash Outflow Before Financing 2,000
Financing
Debenture Loan 30,000
Proof
Opening Bank Balance (17,000)
Decrease in Cash 32,000

Jaycee Plc
Preparatory Notes Discovered Items are marked with an Asterisk
Note 1 Debenture Interest Account Note 2 Investment Interest Account
Bank * 26,800 Balance b/d 15,000 Balance b/d 10,000 Bank * 18,000
Balance c/d 5,000 Profit and Loss 16,800 Profit and Loss 10,000 Balance c/d 2,000
31,800 31,800 20,000 20,000
Calculation of Debenture Interest Payable Note 5 Calculation of Investment Interest Receivable

€150,000 at 12% for 2/
3 year 12,000 €100,000 at 10% for 1 year = 10,000
€120,000 at 12% for 1/3 year 4,800

16,800
172
Solutions
Balance b/d 400,000 Disposal 120,000 Balance b/d 300,000 Disposal 100,000
Bank * 312,000 Balance c/d 600,000 Balance c/d 200,000
712,000 712,000 300,000 300,000

Disposal * 20,000 Profit and Loss 150,000 Disposal * 40,000 Balance b/d 110,000
Balance c/d 190,000 Balance b/d * 60,000 Balance c/d 140,000 Profit and Loss 70,000
210,000 210,000 180,000 180,000

Buildings 112,000 Bank 90,000 Machinery 100,000 Depreciation * 40,000
Depreciation * 20,000 Loss 6,000
Loss * 2,000 Bank * 54,000
112,000 112,000 100,000 100,000
Note 9 Dividends Account Note 10 Taxation Account

Bank * 160,000 Balance b/d 70,000 Balance b/d 20,000 Profit and Loss 90,000
Balance c/d 39,000 Profit and Loss 129,000 Balance c/d 90,000 Bank * 20,000
199,000 199,000 110,000 110,000

Depreciation 130,000
Loss on Disposal (Notes 5 and 8) 8,000

Interest Paid (Note 1) (26,800)
Interest Received (Note 2) 18,000
(168,800)
Taxation
Tax Rebate (Note 10) 20,000
Payments to Acquire Tangible Fixed Assets – (Note 3) (312,000)
Cash on Disposal (Notes 5 and 8) 144,000
(168,000)
Net Cash Inflow Before Financing 26,000
Financing
Loan Repaid (30,000)
(20,000)
Proof
173

Manimex Plc
(a) Abridged Profit and Loss Account for the year ended 31/12/-5
Profit and Loss Balance c/f 29,000
Profit and Loss Balance b/f 21,000
Dividends (600,000 at 5 cent) 30,000
Taxation (Note 7) 42,000
Profit before Taxation 80,000
Interest Paid (10% on 100,000 for 6 months) 5,000
Note 1 Land and Buildings Account Note 4 Equipment Account
Balance b/d 350 Disposal 130 Balance b/d 190 Disposal * 40
540 540 280 280

Disposal * 20 Balance b/d 60 Disposal * 10 Balance b/d 75
90 90 102 102

Buildings 130 Bank 160 Equipment * 40 Loss 10
Profit 50 Depreciation * 20 Depreciation * 10
180 180 Bank * 20
40 40
Note 7 Taxation Account Note 8 Dividends Account

Bank 29 Balance b/d 54 Bank * 27 Balance b/d 19
Balance c/d 67 Profit and Loss * 42 Balance c/d 22 Profit and Loss 30
96 96 49 49
(b) Reconciliation of Operating Profit to Net Cash Flow

Depreciation (30 + 27 + 20) 77,000
Loss on Disposal (Note 6) 10,000
174
Solutions
(c) Cash Flow Statement

(32,000)
Taxation
Corporation Profits Tax Paid (Note 7) (29,000)
Payments to Acquire Tangible Fixed Assets (Note 1) (190,000)
(Note 2) (90,000)
(100,000)
Financing
Repayment of Loan (100,000)
10,000
Proof
Opening Cash and Bank Balance 4,000
Closing Cash and Bank Balance (30,000)

Ark Plc
Note 1 Tangible Fixed Assets Account Note 2 Disposal Account
Balance b/d 290 Disposal 43 Fixed Assets 43 Bank 49
Bank 47 Depreciation * 17 Profit * 6
Revaluation 33 Balance c/d 310 49 49
370 370
Note 3 Interest Receivable Account Note 4 Interest Payable Account

Balance b/d 4 Bank * 6 Bank * 18 Balance b/d 14
Profit and Loss 5 Balance c/d 3 Balance c/d 12 Profit and Loss 16
9 9 30 30

Bank * 74 Balance b/d 60 Bank * 40 Balance b/d 33
144 144 78 78

Amounts Written Off Intangible Assets 10,000
Depreciation (Note 1) 17,000
175

Interest Received (Note 3) 6,000
(86,000)
Taxation
Payments to Acquire Tangible Fixed Assets – (Note 1) (47,000)
Payments to Acquire Financial Fixed Assets (30,000)
Cash on Disposal 49,000
(28,000)
Financing
(69,000)
Proof
Closing Bank Balance (19,000)

Cain Plc
Note 1 Tangible Fixed Assets Note 2 Disposal Account
Balance b/d 1,384 Disposal 110 Assets 110 Bank 130
Revaluation 400 Depreciation 152 Profit * 20
Bank * 455 Balance c/d 1,977 130 130
2,239 2,239
Note 3 Interest Account Note 4 Calculation of Interest Payable

Bank * 65 Balance b/d 30 300 at 10% for 1 year = 30
Profit and Loss (Note 4) 35 1
100 at 10% for /2 year = 5
65 65 35

Bank * 105 Balance b/d 60 Bank * 259 Balance b/d 117
150 150 407 407
176
Solutions

Add Interest Payable (Note 4) 35,000
Depreciation 152,000
Amounts Written Off Intangible Assets 20,000

(170,000)
Taxation
Payments to Acquire Financial Fixed Assets (40,000)
(365,000)
Financing
Loan Borrowed 100,000
400,000
Proof
(c) See textbook page 281.

Abel Plc
Dividends (400,000 x 10 cent) 40,000
Interest Payable (Note 12) 10,000
177
Note 1 Land and Buildings Account Note 7 Vehicles Account
Balance b/d 380 Disposal 20 Balance b/d 112 Disposal 20
Revaluation 60 Balance c/d 92
Bank * 40 Balance c/d 460 112 112
480 480

Disposal * 5 Balance b/d 40 Balance b/d 22
75 75 42 42
Note 3 Disposal Account (Buildings) Note 9 Disposal Account (Vehicles)

Buildings 20 Bank 25 Vehicles 20 Loss 12
Profit * 10 Depreciation * 5 Bank * 8
30 30 20 20
Note 4 Equipment Account Note 10 Taxation Account

Balance b/d 210 Disposal 30 Bank 75 Balance b/d 75
Bank * 120 Balance c/d 300 Balance c/d 85 Profit and Loss * 85
330 330 160 160
Note 5 Depreciation Account Note 11 Dividends Account

Disposal 25 Balance b/d 90 Bank * 30 Balance b/d 40
Balance c/d 80 Profit and Loss * 15 Balance c/d 50 Profit and Loss 40
105 105 80 80
Note 6 Disposal Account (Equipment) Note 12 Interest Account

Equipment 30 Depreciation 25 Bank * 9 Balance b/d 5
Profit 15 Bank * 20 Balance c/d 6 Profit and Loss 10
45 45 15 15

Depreciation (Note 2, 5, 8) 70,000
Amount Written off Goodwill 20,000
Profit on Disposal (Note 3, 6) (25,000)
178
Solutions

(39,000)
Taxation
Payments to Acquire Tangible Fixed Assets – (Notes 1, 4) (160,000)
Cash on Disposal (Notes 3, 6, 9) 53,000
(107,000)
Financing
–
Net Cash Increase 100,000
Proof
Opening Bank Balance (25,000)

Lerner Plc
Dividends 43,000
Interest Paid €200,000 at 12% 24,000
Preparatory Notes (in €’000s) Discovered Items marked with Asterisk

Note 1 Fixed Assets Account
Balance b/d 510 Disposal 60
Bank * 200 Balance c/d 650
710 710
Note 2 Depreciation Account

Disposal 40 Balance b/d 130
Balance c/d 150 Profit and Loss Account * 60
190 190
Note 3 Disposal Account (Buildings)

Fixed Assets 60 Depreciation 40
Bank 15
Loss * 5
60 60
179

Depreciation (Note 2) 60,000

Operating Activities 143,000
Net Cash Inflow from Operating Activities
(74,000)
Taxation
Cash on Disposal (Note 3) 15,000
(185,000)
Financing
Issue of Shares – 100,000
At a Premium – 50,000
Debentures Issued 50,000
200,000
Proof
Bank Balance on 31/12/-4 (63,000)
Bank Balance on 31/12/-5 (12,000)
180
21
QUESTION 21.1
Club Accounts and Accounts of
Service Firms: Solutions
Artane Residents Association

Receipts and Payments Account for the year ended 31/12/-0
Balance b/d 800 Rent of Parish Hall 240
Subscriptions 2,400 Printing Costs 250
Golf Classic Receipts 1,100 Stationery 150
Bingo Receipts 10,800 Bingo Prizes 2,900
Sale of Work Receipts 820 Advertising Costs 310
Golf Classics Expenses 410
Furniture 2,500
Ladders 900
Balance c/d 8,260
15,920 15,920
QUESTION 21.2
Donegal Musical Society
(a) Receipts and Payments Account for the year ended 31/12/-1
Balance b/d 350 Hire of Parish Hall 300
Subscriptions 1,680 Hire of Costumes 1,500
Gate Receipts 3,820 Hire of Musicians 1,700
Raffle Ticket Sales 5,000 Raffle Prizes 3,000
Church Gate Collection 525 Royalties 300
Donation 2,000 Advertising 4,000
Insurance 800
Purchase of Props. 1,400
Balance c/d 375
13,375 13,375
(b) Limitations of a Receipts and Payments Account

(i) Does not take accruals and prepayments into account.
(ii) Does not distinguish between capital and revenue payments and receipts.
(iii) Does not record depreciation on assets held
(iv) Cannot reveal if activities which should generate profits are, in fact, generating profits.
QUESTION 21.3
Tralee Tennis Club
(a) Calculation of Accumulated Fund on 1/1/-4
Assets Liabilities
Clubhouse and Land 120,000 Sundry Expenses Due 120
Equipment 19,000
Investments 8,000
Bar Stock 2,000
Subscriptions Due 300
Bank 4,120 Accumulated Fund 153,300
153,420 153,420
181
Notes 1. Bar Trading Account

Opening Stock 2,000 Bar Sales 41,000
Bar Purchases 21,000
23,000
Closing Stock 23,000
Profit on Bar 20,100
41,000 41,000
2. Subscriptions Account
Balance b/d 300 Receipts and Payments 24,500
Income and Expenditure 23,000
Balance c/d 1,200
24,500 24,500
3. Sundry Expenses Account

Receipts and Payments 5,000 Balance b/d 120
Balance c/d 180 Income and Expenditure 5,060
5,180 5,180
(b) Income and Expenditure Account for the year ended 31/12/-4
Sundry Expenses (Note 3) 5,060 Profit on Bar (Note 1) 20,100
Depreciation on Equipment Subscriptions (Note 2) 23,000
(20% of 19,000 + 6,000) 5,000 Interest 1,600
Profit on Competition (2,500 – 300) 2,200
Surplus 37,440 Profit on Raffle (1,500 – 900) 600
47,500 47,500

Cost Depr. Value
Fixed Assets
Clubhouse and Land (120,000 + 30,000) 150,000 – 150,000
Equipment (19,000 + 6,000) 25,000 5,000 20,000
175,000 5,000 170,000
Investments 8,000
Bar Stock 2,100
Bank 12,020
14,120
Current Liabilities
Sundry Expenses Due 180
Subscriptions Prepaid 1,200
(1,380)
12,740
190,740
Financed By
Accumulated Fund 153,300
+ Surplus 37,440
190,740
182
Solutions
QUESTION 21.4
Nenagh Golf Club
Assets Liabilities
Clubhouse 150,000 Expenses Due 420
Equipment 20,000 Bar Creditors 1,700
Investments 16,000
Bar Stock 2,900
Cash 1,540 Accumulated Fund 188,850
190,970 190,970
Notes 1. Subscriptions Account

Balance c/d 170
26,250 26,250
2. Bar Trading Account

Opening Stock 2,900 Bar Sales 24,800
Bar Purchases (Note 2a) 14,800
17,700
Closing Stock (2,300)
Profit on Restaurant 9,400
24,800 24,800
2. a Bar Creditors Control Account

Receipts and Payments 14,700 Balance b/d 1,700
Balance c/d 1,800 Income and Expenditure 14,800
16,500 16,500
3. General Expenses Account

Balance c/d 280
27,500 27,500
General Expenses (Note 3) 26,800 Subscriptions (Note 1) 25,550
Loss on Competitions 1,120 Profit on Bar (Note 2) 9,400
Depreciation on Equipment Interest 1,600
(20% of 20,000 + 6,300) 5,260
Depreciation on Clubhouse 3,000
Surplus 370
36,550 36,550
183

Cost Depr. Value
Fixed Assets
Clubhouse 150,000 3,000 147,000
Equipment (20,000 + 6,300) 26,300 5,260 21,040
176,300 8,260 168,040
Investments 16,000
Building Society 3,000
187,040
Current Assets
Bar Stock 2,300
Expenses Prepaid 280
Cash 1,570
4,150
Current Liabilities
Bar Creditors 1,800
Subscriptions Prepaid 170
(1,970)
2,180
189,220
Financed By
+ Surplus 370
189,220
QUESTION 21.5
Ballina Football Club
Assets Liabilities
Clubhouse and Land 120,000 Bar Creditors 2,700
Equipment 22,000
Bar Stock 4,600
Investments 15,000
Bar Debtors 200
Expenses Prepaid 120
Cash in Hand 410
Cash at Bank 3,200 Accumulated Fund 163,250
165,950 165,950

Income and Expenditure 25,850 Balance c/d 270
26,270 26,270

Opening Stock 4,600 Sales (Note 2a) 28,680
Bar Purchases (Note 2b) 18,500
23,100
28,680 28,680
184
Solutions
2. a Bar Debtors Control Account

Sales 28,680 Balance c/d 280
28,880 28,880
2. b Bar Creditors Control Account

Balance c/d 2,300 Purchases 18,500
21,200 21,200

Balance b/d 120
Receipts and Payments 24,800
25,210 25,210
Depreciation on Equipment Profit on Bar (Note 2) 10,680
(10% of 22,000 + 12,000) 3,400 Interest 1,800
Surplus 10,220 Profit on Disco 500
38,830 38,830

Cost Depr. Value
Fixed Assets
Clubhouse and Land 120,000 – 120,000
Equipment (22,000 + 12,000) 34,000 3,400 30,600
154,000 3,400 150,600
Investments 15,000
165,600
Current Assets
Bar Stock 5,100
Bar Debtors 280
Cash 710
Bank 4,100
10,460
Current Liabilities
Bar Creditors 2,300
Expenses Due 290
(2,590)
7,870
173,470
Financed By
+ Surplus 10,220
173,470
(d) Differences between an Income and Expenditure Account and a Receipts and Payments Account
A Receipts and Payments Account is a cash book. It shows opening cash/bank balances, all monies received,
all monies paid out and a closing cash/bank balance.
An Income and Expenditure Account is a Profit and Loss Account. It shows all revenue receipts and
payments, it includes all prepayments and accruals, it shows all non-cash expenditure, e.g. depreciation and
it shows the surplus or deficit of income for the period.
185
QUESTION 21.6
Clare Kayak Club
(a) Subscriptions Account for the year ended 31/12/-3

1/1/-3 Balance b/d 1/1/-3 Balance c/d
(6 x 120 + 10 x 80) 1,520 (7 x 120 + 2 x 80) 1,000
31/12/-3 Income and Expenditure
(45 x 120 + 160 x 80) 18,200 31/12/-3 Receipts and Payments 18,440
Balance c/d
(4 x 120 + 12 x 80) 1,440 Balance c/d 1,720
21,160 21,160
1/1/-4 Balance b/d 1,720 1/1/-4 Balance b/d 1,440
(b) Calculation of Unpaid Summer Members

Unpaid members at 31/12/-3 1,720
– Unpaid all-year members (3 x 120) (360)
= Unpaid summer members 1,360
Unpaid summer members
---------------------------------------------------------------------- = Number of unpaid summer members
Summer members subscription
1,360
⇒ ------------ = 17 members
80
QUESTION 21.7
Malahide Bowling Club
Assets Liabilities
Clubhouse 230,000 Bar Creditors 1,400
Equipment 54,000 Subscriptions Prepaid 190
Investments 18,000 Expenses Due 380
Bar Stock 3,400 Life Membership 5,000
Bar Debtors 160
Cash 380 Accumulated Fund 298,970
305,940 305,940

Balance b/d 190
Income and Expenditure 29,670 Receipts and Payments 29,350
Balance c/d 170 Balance c/d 300
29,840 29,840
2. Life Members Account

Income and Expenditure 700 Balance b/d 5,000
Balance c/d 6,300 Receipts and Payments 2,000
7,000 7,000

32,400
48,070 48,070
186
Solutions

48,230 48,230

30,400 30,400

27,100 27,100
Depreciation on Equipment Life Membership (Note 2) 700
(54,000 + 16,000 – 62,000) 8,000 Profit on Bar (Note 3) 19,870
Profit on Poker Classic 4,300
Surplus 20,720 Interest 900
55,440 55,440

Cost Depr. Value
Fixed Assets
Clubhouse 230,000 – 230,000
Equipment (54,000 + 16,000) 70,000 8,000 62,000
300,000 8,000 292,000
Investments 18,000
Prize Bonds 3,000
327,000
Current Assets
Bar Stock 4,200
Bar Debtors 230
Cash 530
5,260
Current Liabilities
Bar Creditors 1,100
(1,270)
3,990
330,990
Financed By
+ Surplus 20,720
Donation 5,000
324,690
Life Membership (Note 2) 6,300
330,990
187
QUESTION 21.8
Sligo Leisure and Recreation Club
Assets 500,000 Liabilities 2,900
Clubhouse and Land 200,000 Bar Creditors 200
Equipment 20,000 Subscriptions Prepaid 16,000
Investments 2,500 Life Membership 920
Bar Stock 1,200 Expenses Due
Coffee Shop Stock 140
Bar Debtors 500
Cash 2,950 707,420
Bank Accumulated Fund
727,440 727,440

Income and Expenditure 27,750 Receipts and Payments 27,300
28,400 28,400

Income and Expenditure 1,900 Balance b/d 16,000
19,000 19,000

Cost of Sales (3,900)
8,260
38,060 38,060

38,200 38,200

34,100 34,100
4. Coffee Shop Trading Account

Opening Stock 1,200 Sales 12,000
Purchases 8,000
9,200
Closing Stock (800)
Cost of Sales 8,400
Profit on Coffee Shop 3,600
12,000 12,000
5. Wages Account
Balance c/d 1,500 Income and Expenditure 21,500
21,500 21,500
188
Solutions

18,710 18,710
7. Interest Receivable Account

2,500 2,500
8. Interest Receivable Account

2,500 2,500
9. Equipment Account
Balance b/d 200,000 Income and Expenditure (Depr.) 13,000
Receipts and Payments 29,000 Balance c/d 216,000
229,000 229,000
Wages (Note 5) 21,500 Subscriptions (Note 1) 27,750
General Expenses (Note 4) 17,790 Life Membership (Note 2) 1,900
Depreciation on Equipment (Note 8) 13,000 Profit on Bar (Note 3) 8,260
Profit on Coffee Shop (Note 4) 3,600
Interest Receivable (Note 7) 2,500
Locker Rents 4,000
Advertising Receipts 16,000
Surplus 11,720
64,010 64,010
Cost Depr. Value
Fixed Assets
Equipment (Note 8) 229,000 13,000 216,000
729,000 13,000 716,000
Investments 20,000
736,000
Current Assets
Bar Stock 3,900
Coffee Shop Stock 800
Bar Debtors 200
Interest Due 500
Cash 280
6,580
Current Liabilities
Bar Creditors 3,100
Wages Due 1,500
(6,340)
240
736,240
Financed By
+ Surplus 11,720
719,140
Life Memberships (Note 2) 17,100
736,240
189

Ballaghaderreen Cricket Club
Assets Liabilities
Clubhouse and Land 220,000 Levy Reserve Fund 2,800
Equipment 80,000 Life Members 6,000
Bar Stock 1,300 Bar Creditors 3,200
Bar Debtors 190 Wages Due 98
Subscriptions Due 300 Loan 10,000
Bank Current Account 2,900 Loan Interest Due
(12,000 – 10,000 = 2,000)
2,000 Interest = 2 years
1 year = 1,000 1,000
304,690 304,690

9,000 9,000

Income and Expenditure 700 Balance b/d 6,000
7,000 7,000

Opening Stock 1,300 Sales (54,002 – 190 + 320) 54,132
Purchases (31,600 – 3,200 + 2,900) 31,300
32,600
54,132 54,132
Balance b/d 80,000 Receipts and Payments 5,000
Receipts and Payments 6,000 Depreciation 5,000
Balance c/d 76,000
86,000 86,000
Depreciation on Equipment (Note 4) 5,000 Subscriptions (Note 1) 8,700
Groundsman’s Wages (15,602 – 98) 15,504 Life Members (Note 2) 700
Sundry Expenses 10,500 Profit on Bar (Note 3) 24,232
Loan Interest 1,000
Surplus 1,628
33,632 33,632
190
Solutions

Cost Depr. Value
Fixed Assets
Equipment (Note 4) 81,000 5,000 76,000
301,000 5,000 296,000
Current Assets
Bar Stock 2,700
Bar Debtors 320
3,770
Current Liabilities
Bar Creditors 2,900
(6,050)
(2,280)
293,720
Financed By
Surplus 1,628
Entrance Fees 200
Donations 1,200
284,620
Levy Reserve Fund 2,800
293,720

Carndonagh Golf Club
Assets Liabilities
Clubhouse and Land 500,000 Life Members 8,000
Machinery 25,000 Bar Creditors 2,540
Bar Stock 3,500 Loan 6,000
Bar Debtors 720 Loan Interest Due
6% Investments 20,000 (7,440 – 6,000 = 1,440)
Bank Current Account 900 2 years = 1,440 Interest
11/2 years = 1,080 1,080
615,120 615,120

Life Member 500 Balance b/d 750
Levy Reserve Fund 6,500 Receipts and Payments 24,800
Balance c/d 350
25,550 25,550
191

Purchases (37,000 – 2,540 + 3,800) 38,260
41,760
57,770 57,770
3. Investment Interest Account

Income and Expenditure 1,200 Receipts and Payments 800
Balance c/d 400
1,200 1,200
Balance b/d 65,000 Disposal 17,000
Receipts and Payments 28,000 Depreciation 6,000
Balance c/d 70,000
93,000 93,000
5. Equipment Disposal Account

Equipment 17,000 Receipts and Payments 6,000
17,000 17,000
6. Machinery Account
Balance b/d 25,000 Depreciation 2,000
Balance c/d 23,000
25,000 25,000
7. Loan Account
8. Loan Interest Account

Income and Expenditure 360
1,440 1,440
Depreciation on Machinery (Note 6) 2,000 Profit on Bar (Note 2) 21,810
Loss on Disposal (Note 5) 11,000 Investment Interest (Note 3) 1,200
Loan Interest (Note 8) 360 Profit on Competition (2,540 – 1,980) 560
Sundry Expenses 15,800 Locker Rents 2,800
Green Fees 11,200
Surplus 20,610
55,770 55,770
192
Solutions

Cost Depr. Value
Fixed Assets
Machinery (Note 6) 25,000 2,000 23,000
Equipment (Note 4) 76,000 6,000 70,000
601,000 8,000 593,000
628,000
Current Assets
Bar Stock 5,800
Bar Debtors 290
Investment Interest Due (Note 3) 400
Bank 2,020
8,510
Current Liabilities
Bar Creditors 3,800
(4,150)
4,360
632,360
Financed By
Surplus 20,610
617,360
Levy Reserve 6,500
632,360
(d) Advice to Club
The club may dispense with the imposition of the levy on its members. The €20,000 extension can be
financed by withdrawing the money invested in the building society and cashing in some of the 6%
investments held.
QUESTION 21.11
Portarlington Tennis Club
Assets Liabilities
Clubhouse and Grounds 230,000 Life Membership 20,000
Equipment 15,000 Levy Reserve Fund 24,000
Bar Debtors 220 Bank 6,120
8% Investments 20,000 Loan 30,000
Investment Interest Due 400 Loan Interest Due
Levies Due (11 x 40) 440 (35,400 – 3,000 = 5,400)
Subscriptions Due 1,860 11/2 years = 5,400 Interest
5,400 10
10 months = ------------- × ------
1 1/2 12
= 3,000 3,000
279,920 279,920
193

Levies Due 440
65,300 65,300

Purchases (67,400 – 9,300 + 6,600) 64,700
76,700
85,090 85,090

2,000 2,000
32,000 32,000
5. Loan Account

5,400 5,400
Loan Interest (Note 6) 2,400 Profit on Bar (Note 2) 23,590
Loss on Catering (3,700 – 4,100) 400 Investment Interest (Note 3) 1,600
General Expenses 28,700 Annual Grant 10,000
Surplus 51,590 Profit on Competition (2,800 – 1,900) 900
87,090 87,090
194
Solutions

Cost Depr. Value
Fixed Assets
Clubhouse and Grounds 230,000 – 230,000
Equipment 32,000 4,000 28,000
262,000 4,000 258,000
Prize Bonds 2,000
280,000
Current Assets
Bar Stock 15,200
Bar Debtors 310
Bank 6,180
21,690
Current Liabilities
Bar Creditors (6,600)
15,090
295,090
Financed By
Surplus 51,590
239,090
Life Memberships 20,000
Levy Reserve Fund (24,000 + 12,000) 36,000
295,090
(d) Advice to the Treasurer:
(i) Get outside caterers to come in on a fee-per-job basis. Cease the internal catering as it is running at a loss.
(ii) Get rid of the levy as it is no longer required. The club is cash-rich. It has turned an overdraft of €6,120
into a bank balance of €6,180 after paying off a €30,000 loan plus interest accrued.

Kinvara Golf Club
Assets Liabilities
Equipment 25,000 Life Membership 10,000
Bar Debtors 610 Bar Creditors 4,900
Investment Interest Due 350 Levy Reserve Fund 15,000
Rent Prepaid 4,000 Bank Current Account 9,350
Prize Bonds 5,000 Loan 5,000
Bar Stock 7,000 Loan Interest Due
11% Investments (6,392 – 5,000 = 1,392)
(2,550 – 350 = 2,200) 2 years = 1,392
11% = 2,200 1,392
20 months = ------------- × 20
100% = 20,000 20,000 24 1,160
= 1,160
Subscriptions Due 1,500 Accumulated Fund 18,050
63,460 63,460

Life Membership 5,000
57,500 57,500
195

Purchases (72,380 – 4,900 + 9,600) 77,080
* 84,080
Profit on Bar 9,690
84,770 84,770
Depreciation 2,000
Balance c/d 15,000
25,000 25,000
Loss on Catering (2,600 – 4,700) 2,100 Profit on Bar (Note 2) 9,690
Loss on Disposal 4,000 Investment Interest 2,200
Rent (30,000 + 4,000 – 5,000) 29,000
Loan Interest (1,392 – 1,160) 232 Deficit 14,742
62,632 62,632

Cost Depr. Value
Fixed Assets
Equipment 17,000 2,000 15,000
Prize Bonds 5,000
40,000
Current Assets
Bar Stock 9,000
Bar Debtors 380
Rent Prepaid (2 months) 5,000
Bank 18,528
32,908
Current Liabilities
23,308
63,308
Financed By
Deficit (14,742)
3,308
Prize Bond Prize 10,000
Lotto Grant 5,000
18,308
Life Membership (10,000 + 5,000) 15,000
63,308
196
Solutions
(d) Advice to the Treasurer:

(i) The levy should be continued as the purchase of the land will enable the club to reduce or discontinue
paying rent which is its main expense.
(ii) The deficit of income must be addressed by
a) Discontinuing the catering.
b) Investigating the bar profit which is only 11% of sales, far below the norm for the pub industry.
c) Increase subscriptions (at present they are €120 per member).
d) Sell more life memberships.
(iii) The capital receipts cannot be expected to recur. The investments may have to be liquidated to provide
working capital next year.
Newbridge Basketball Club
Assets Liabilities
Clubhouse and Arena 300,000 Life Membership 16,000
Equipment 17,000 Levy Reserve Fund 15,000
7% Government Investments 10,000 Wages Due 500
Bar Debtors 110 Loan 20,000
Bank 12,000 Loan Interest Due
Investment Interest Due 200 (23,780 – 20,000 = 3,780)
Levies Due (14 x 50) 700 11/2 years = 3,780
1 year = 2,520 2,520
Subscriptions Due 1,050 Accumulated Fund 289,540
347,060 347,060

Life Members 4,000
Levies Due 700
56,000 56,000
2. Life Membership Account

Balance c/d 17,500 Subscriptions 4,000
20,000 20,000
3. 7% Government Investment Interest Account

Balance b/d 200 Receipts and Payments 900
900 900
Purchases (49,000 – 3,500 + 4,800) 50,300
* 56,300
Barman’s Wages (16,500 – 500) 16,000
* 65,900
76,130 76,130
197
Receipts and Payments 11,000 Depreciation (20% of 24,000) 4,800
Balance c/d 19,200
28,000 28,000
6. 9% Investment Bonds Interest Account

Income and Expenditure 540 Balance c/d 540
540 540
7. Loan Account

3,780 3,780
Loan Interest (Note 8) 1,260 Life Membership (Note 2) 2,500
Loss on Disposal (4,000 – 3,000) 1,000 7% Interest (Note 3) 700
Sundry Expenses 39,720 Profit on Bar (Note 4) 10,230
9% Interest (Note 6) 540
Sponsorship 20,000
Surplus 31,540 Profit on Catering (2,800 – 1,200) 1,600
78,320 78,320
Cost Depr. Value
Fixed Assets
Clubhouse and Arena 300,000 – 300,000
Equipment (Note 5) 24,000 4,800 19,200
324,000 4,800 319,200
7% Government Investments 10,000
9% Investments Bonds 12,000
341,200
Current Assets
Bar Stock 6,400
Bar Debtors 240
9% Investment Interest Due 540
Bank 17,500
24,680
Current Liabilities
19,880
361,080
Financed By
Surplus 31,540
321,080
361,080
(d) Advice to the Treasurer
(i) Renegotiate a sponsorship agreement with the existing sponsor or seek a new sponsor.
(ii) With new sponsorship in place, the levy may be discontinued as there are funds available within the
club (Investments and bank balance) to finance the extension.
198
Solutions

Merrion Bowling Club
Assets Liabilities
Clubhouse and Greens 300,000 Bar Creditors 3,500
Bar Stock 12,000 Life Memberships 24,000
Bar Debtors 200 Greenkeeper’s Wages Due 150
Subscriptions Due 400 Loan 16,000
Bank 2,800 (20,800 – 16,000 = 4,800)
7% Government Investments 21/2 years = 4,800
(1,120 – 280 = 840) 4,800
21 months = --------------- × 21
7% = 840 30
100% = 12,000 12,000 = 3,360 3,360
343,680 343,680

Life Members 4,000 Receipts and Payments 23,700
24,800 24,800
28,000 28,000

Purchases (17,200 – 3,500 + 2,700) 16,400
28,400
29,450 29,450
4. Greenkeeper’s Wages Account

15,170 15,170
Greenkeeper’s Wages (Note 4) 15,020 Profit on Bar (Note 3) 11,050
Loan Interest (4,800 – 3,360) 1,440 Investment Interest 840
Honorarium to Treasurer 200 Profit on Coffee Morning 3,500
Surplus 15,730
35,390 35,390
199

Cost Depr. Value
Fixed Assets
Clubhouse and Greens 300,000 – 300,000
Equipment (Note 2) 28,000 3,000 25,000
328,000 3,000 325,000
337,000
Current Assets
Bar Stock 10,000
Bar Debtors 350
11,150
Current Liabilities
Bar Creditors 2,700
Wages Due 170
Honorarium Due 200
(8,050)
3,100
340,100
Financed By
Surplus 15,730
312,100
Life Membership (24,000 + 4,000) 28,000
340,100

Blackheath Sport and Fitness Club
Assets Liabilities
Equipment 56,000 Levy Reserve 22,750
Rent Prepaid 600 Subscriptions Prepaid 300
Bar Debtors 150 General Expenses Due 420
8% Government Investments 15,000 Bank Overdraft 3,500
Prize Bonds 2,000 Loan 10,000
Subscriptions Due 400 Loan Interest Due
Investment Interest Due (11,800 – 10,000 = 1,800)
(1,800 – 1,200 = 600) 600 3 years = 1,800
21/2 years = 1,500 1,500
76,850 76,850

Levy Reserve 22,750 Receipts and Payments 55,550
Balance c/d 200
55,850 55,850
200
Solutions

Purchases (37,200 – 3,800 + 2,500) 35,900
38,000
52,930 52,930
80,000 80,000
4. Rent Account
(1/
Balance b/d 4 year) 600 Income and Expenditure 2,850
Receipts and Payments (1 year) 3,000 Balance c/d (1/ 4 of 3,000) 750
3,600 3,600
Depreciation on Equipment (20% of 69,000) 13,800 Subscriptions (Note 1) 32,500
Rent (Note 4) 2,850 Profit on Bar (Note 2) 18,730
Loss on Creche (2,900 – 5,000) 2,100 Annual Grant 4,000
Loss on Disposal (11,000 – 7,000) 4,000 Profit on Raffle (2,800 – 800) 2,000
General Expenses (4,600 – 420) 4,180 Investment Interest 1,200
Loan Interest (1,800 – 1,500) 300
Surplus 31,200
58,430 58,430

Cost Depr. Value
Fixed Assets
Equipment (Note 2) 69,000 13,800 55,200
Prize Bonds (2,000 + 1,000) 3,000
73,200
Current Assets
Bar Stock 3,800
Bar Debtors 180
Bank 36,050
Rent Prepaid (Note 4) 750
40,780
Current Liabilities
Bar Creditors 2,500
(2,700)
38,080
111,280
Financed By
Surplus 31,200
65,780
Levy Reserve (22,750 + 22,750) 45,500
111,280
(d) Advice on Five-Year Levy
The levy should continue as the club’s liquid assets (Investments €15,000, prize bonds €3,000 and bank
account €36,050) total €54,050 which is short of the €115,000 required to build the premises.
201

Poseidon Swimming Club
Assets Liabilities
Motor Van 6,000 Life Membership 4,000
Building Society 5,000 Loan 4,000
Pool Rental Prepaid 200 (4,864 – 4,000 = 864)
Stock of Swim Gear 280 11/2 years = 864
Bank Account 1,800
7% Government Investments 8 months = 864
-------- × 8
18
(560 – 140 = 420) = 384 384
7% = 420
100% = 6,000 6,000
Subscriptions Due (Note 1) 105 Accumulated Fund 13,931
22,525 22,525

Balance b/d (Discovered Figure) 105 Balance b/d 210
Income and Expenditure (54 x 35) 1,890 Receipts and Payments 2,135
Balance c/d (12 x 35) 420 Balance c/d (2 x 35) 70
2,415 2,415
2. Swimming Gear Trading Account

Opening Stock 280 Sales 3,260
Purchases 1,900
2,180
Closing Stock (310)
Cost of Sales 1,870
Profit on Bar 1,390
3,260 3,260

Balance b/d 140 Receipts and Payments 560
560 560
4. Life Membership Account
6,000 6,000
5. Pool Rental Account

(1/
Balance b/d 6 year) 200 Income and Expenditure 1,700
Receipts and Payments (1 year) 1,800 Balance c/d (1/6 of 1,800) 300
2,000 2,000
Pool Rental (Note 5) 1,700 Subscriptions (Note 1) 1,890
Coach’s Wages (7,000 + 300) 7,300 Profit on Swim Gear Sales (Note 2) 1,390
Motor and Travel Expenses 1,100 Investment Interest (Note 3) 420
Loan Interest (864 – 384) 480 Life Membership (Note 4) 1,200
General Expenses 2,226 Profit on Gala 1,850
Depreciation Sponsorship 10,000
Equipment (3,000 + 2,000 – 4,600) 400 Building Society Interest 510
Motors (6,000 – 4,800) 1,200
Surplus 2,854
17,260 17,260
202
Solutions

Cost Depr. Value
Fixed Assets
Motor Van 6,000 1,200 4,800
Equipment 5,000 400 4,600
11,000 1,600 9,400
Building Society Deposit Account (5,000 + 4,000 + 510) 9,510
Stock of Swimming Gear
Pool Rental Prepaid 70
Bank 300
2,715
3,395
Current Liabilities
Wages Due 300
(720)
2,675
27,585
Financed By
Surplus 2,854
Lotto Grant 6,000
22,785
27,585
QUESTION 21.17
Red Pole Barbers Ltd
Insurance (1,100 – 275) 825 Fee Income 17,550
Rent (8,000 – 2,000) 6,000
Loan Interest 2,160
Light and Heat (800 + 170) 970
Rates (300 + 150) 450
Advertising (3,500 + 500) 4,000
Wages 9,000
Depreciation on Equipment 1,800 Net Loss 7,655
25,205 25,205
203

Cost Depr. Value
Fixed Assets
Equipment 18,000 1,800 16,200
Current Assets
Bank 850
Insurance Prepaid 275
Rent Prepaid 2,000
3,125
Current Liabilities
ESB Bill Due 170
Advertising Due 500
Rates Due 150
(820)
2,305
18,505
Financed By
Share Capital Authorised and Issued
€1 Ordinary Shares 10,000
Reserves Profit and Loss Account (7,655)
Bank Loan (20,000 – 3,840) 16,160
18,505

Oriona Ltd
Notes 1. Bank Loan Account

Bank (10 x 80) 800 Bank 10,000
Balance c/d 9,200
10,000 10,000
2. Interest on Bank Loan Account

Bank (10 x 220) 2,200 Profit and Loss (11 x 220) 2,420
Balance c/d 220
2,420 2,420
3. Fees Account
Profit and Loss 23,000 Bank (VAT Exclusive) 23,000
23,000 23,000
4. Beauty Products Trading Account

Purchases 2,700 Sales (VAT Exclusive) 4,703
Closing Stock (500)
Cost of Sales 2,200
Profit 2,503
4,703 4,703
5. VAT Account
Bank 3,800 Bank (VAT on Sales) 987
Balance c/d 2,017 Bank (VAT on Fees) 4,830
5,817 5,817
204
Solutions
Interest on Loan (Note 2) 2,420 Fees Charged (Note 3) 23,000
Insurance (840 – 70) 770 Profit on Beauty Products (Note 4) 2,503
Equipment Rental 1,700
Premises Rental 7,000
Beauty Products (3,800 – 700) 3,100
Wages 5,000
Advertising 800
Postage and Stationery 400
Rates (600 + 300) 900
Depreciation Equipment (11,000 – 9,500) 1,500
Net Profit 713
25,503 25,503

Cost Depr. Value
Fixed Assets
Equipment 11,000 1,500 9,500
Current Assets
Closing Stock – Beauty Products Shop Stock 700
– For Resale 500
Bank 1,880
3,150
Current Liabilities
Loan Interest Due (Note 2) 220
VAT Due (Note 5) 2,017
Rates Due 300
(2,537)
613
10,113
Financed By
Share Capital (€1 Shares) 200
Reserves – Profit and Loss Account 713
Bank Loan (Note 1) 9,200
10,113
205
22
QUESTION 22.1
Incomplete Records I
(Cash Book Method): Solutions
D. Jarvis (Items marked * are discovered items)

Note 1 Calculation of Opening Capital 1/1/-0
Assets Liabilities
Premises 65,000 General Expenses Due 450
Motors 27,000 Creditors 4,700
Stock 7,000
Debtors 3,400
Cash 1,420 Capital * 98,670
103,820 103,820
Note 2 Cash Account

Balance b/d 1,420 Payments 92,900
Receipts 92,800 Balance c/d 1,320
94,220 94,220
Note 3 Debtors Control Account

Balance b/d 3,400 Cash 24,300
Credit Sales * 24,800 Balance c/d 3,900
28,200 28,200
Note 4 Sales Account

Debtors (Note 3) 24,800
Trading Account * 93,300 Cash 68,500
93,300 93,300
Note 5 Creditors Control Account

Cash 27,000 Balance b/d 4,700
Balance c/d 6,300 Credit Purchases * 28,600
33,300 33,300
Note 6 Purchases Account

Creditors (Note 5) 28,600
Cash 39,400 Trading Account * 68,000
68,000 68,000
Note 7 General Expenses Account

Cash 14,700 Balance b/d 450
Balance c/d 350 Profit and Loss Account * 14,600
15,050 15,050
Sales (Note 4) 93,300
Less Cost of Sales
Opening Stock 7,000
Purchases (Note 6) 68,000
75,000
(67,000)
Gross Profit 26,300
– Expenses
General Expenses (Note 7) (14,600)
Net Profit 11,700
206
Solutions

Fixed Assets
Premises 65,000
Motors 27,000
Equipment 6,000
98,000
Current Assets
Stock 8,000
Debtors 3,900
Cash (Note 2) 1,320
‘ 13,220
Current Liabilities
Creditors 6,300
General Expenses Due 350
(6,650)
6,570
104,570
Financed By
Capital (Note 1) 98,670
Net Profit 11,700
110,370
Drawings (5,800)
104,570
QUESTION 22.2
N. Purdy (Items marked * are discovered items)
Assets Liabilities
Buildings 43,000 Creditors 3,700
Furniture and Fittings 3,400 General Expenses Due 300
Debtors 2,800
Stock 6,400
Cash 1,700 Capital * 53,300
57,300 57,300
Note 2 Cash Account

Balance b/d 1,700 Payments 67,300
Receipts 66,600 Balance c/d * 1,000
68,300 68,300
Balance b/d 2,800 Cash 26,900
30,600 30,600

Trading Account * 67,500 Cash 39,700
67,500 67,500

30,100 30,100
207

45,800 45,800

Balance c/d 400 Profit and Loss Account 8,200
8,500 8,500
Less Cost of Sales
Opening Stock 6,400
52,200
(45,500)
Gross Profit 22,000
– Expenses
General Expenses (Note 7) (8,200)
Net Profit 13,800

Fixed Assets
Buildings 43,000
Furniture and Fittings 3,400
Motor Van 4,300
50,700
Current Assets
Stock 6,700
Debtors 3,700
Cash (Note 2) 1,000
11,400
Current Liabilities
Creditors 3,100
General Expenses Due 400
(3,500)
7,900
58,600
Financed By
Net Profit 13,800
67,100
Drawings (8,500)
58,600
208
Solutions
QUESTION 22.3
P. Yardley (Items marked * are discovered items)
Assets Liabilities
Premises 125,000 Creditors 2,700
Equipment 18,000
Debtors 8,700
Stock 7,200
Commission Due 600
Bank 1,800 Capital 158,600
161,300 161,300
Note 2 Bank Account

Balance b/d 1,800 Cheque Payments 80,100
Receipts Lodged 69,100
Balance c/d * 9,200
80,100 80,100

Balance b/d 8,700 Bank 28,200
36,000 36,000

Trading Account * 67,000 Bank 39,700
67,000 67,000

Bank 21,600 Balance b/d 2,700
24,500 24,500

Bank 27,800 Trading Account * 49,600
49,600 49,600
Note 7 Commission Receivable Account

Balance b/d 600 Bank 1,200
Profit and Loss Account * 600
1,200 1,200
Note 8 Wages and General Expenses Account

Bank 19,600
19,900 19,900
Note 9 Equipment Account

Balance b/d 18,000 Depreciation * 2,000
Balance c/d 16,000
18,000 18,000
209
Less Cost of Sales
Opening Stock 7,200
56,800
(50,280)
Gross Profit 16,720
+ Income
Commission (Note 7) 600
17,320
– Expenses
Wages and General Expenses (Note 8) 19,900
Depreciation on Equipment (Note 9) 2,000
(21,900)
Net Loss (4,580)
Cost Depr Value
Fixed Assets
Premises 125,000 – 125,000
Equipment (Note 9) 18,000 2,000 16,000
Delivery Van 6,900 – 6,900
149,900 2,000 147,900
Current Assets
Stock 6,520
Debtors 7,800
14,320
Current Liabilities
Creditors 2,900
Wages Due 300
Bank Overdraft (Note 2) 9,200
(12,400)
1,920
149,820
Financed By
Net Loss (4,580)
Drawings (4,200)
149,820
QUESTION 22.4
C. O Reilly (Items marked * are discovered items)
Assets Liabilities
Premises 90,000 Advertising Due 400
Vans 15,000 Creditors 6,900
Furniture 18,800
Stock 8,500
Debtors 5,200
Bank 2,600 Capital * 132,800
140,100 140,100
Note 2 Bank Account

Balance b/d 2,600 Cheque Payments 113,600
Receipts Lodged 116,100 Balance c/d * 5,100
118,700 118,700
210
Solutions

Bal b/d 5,200 Bank 21,600
26,900 26,900

109,000 109,000

31,200 31,200

73,500 73,500
Note 7 Rent Receivable Account

Profit and Loss Account * 6,600 Bank 7,200
Balance b/d 600
7,200 7,200

Bank 21,400 Balance b/d 400
21,900 21,900
Note 9 Furniture Account

Bank 12,200 Balance c/d 28,000
31,000 31,000
Note 10 Vans Account

Balance c/d 14,000
15,000 15,000
Less Cost of Sales
Opening Stock 8,500
82,000
(72,800)
Gross Profit 36,200
+ Income
Rent (Note 7) 6,600
42,800
– Expenses
Depreciation on Furniture (Note 9) 3,000
Depreciation on Vans (Note 10) 1,000
(25,500)
Net Profit 17,300
211

Cost Depr Value
Fixed Assets
Premises 90,000 – 90,000
Equipment (Note 10) 15,000 1,000 14,000
Furniture (Note 9) 31,000 3,000 28,000
136,000 4,000 132,000
Current Assets
Stock 9,200
Debtors 5,300
Bank (Note 2) 5,100
19,600
Current Liabilities
Creditors 7,100
Wages Due 500
Rent Receivable Prepaid 600
(8,200)
11,400
143,400
Financed By
Net Profit 17,300
150,100
Drawings (6,700)
143,400
QUESTION 22.5
D. Keane (Items marked * are discovered items)
Assets Liabilities
Premises 110,000 Wages Due 1,000
Vans 25,000 Creditors 7,400
Equipment 24,000
Rates Prepaid 300
Debtors 4,600
Stock 9,400
Bank 860 Capital * 165,760
174,160 174,160
Note 2 Bank Account

Balance b/d 860 Cheque Payments 115,960
Receipts Lodged 109,100
Balance c/d 6,000
115,960 115,960

20,000 20,000

105,100 105,100
212
Solutions

33,660 33,660

41,460 41,460

Bank 3,500
Profit and Loss Account * 4,000 Balance c/d 500
4,000 4,000

Balance b/d 300 Balance b/d 1,000
Bank 24,000 Profit and Loss Account * 23,300
24,300 24,300

64,000 64,000
Note 11 Vans Account

Balance c/d 23,000
25,000 25,000
Less Cost of Sales
Opening Stock 9,400
50,860
(40,160)
Gross Profit 64,940
+ Income
Rent (Note 8) 4,000
Commission 1,100
70,040
– Expenses
Depreciation on Vans (Note 11) 2,000
(29,300)
Net Profit 40,740
213

Cost Depr Value
Fixed Assets
Premises 110,000 – 110,000
Vans (Note 11) 25,000 2,000 23,000
Equipment (Note 10) 64,000 4,000 60,000
199,000 6,000 193,000
Current Assets
Stock 10,700
Debtors 5,200
Rent Receivable Due 500
16,400
Current Liabilities
Creditors 6,600
(12,600)
3,800
196,800
Financed By
Net Profit 40,740
206,500
Drawings (9,700)
196,800

P. Wilson (Items marked * are discovered items)
Note 1 Opening Balance Sheet 1/1/-6
Assets Liabilities
Stock 4,500 Wages Due 400
Debtors 9,500 Rent Prepaid 800
Capital * 50,000
55,000 55,000
Note 2 Cash Account

Cash Sales * 72,570 Purchases 20,400
Lodgements 31,000
Drawings (60 x 52) 3,120
Balance c/d 450
72,570 72,570
Note 3 Bank Account

Cash 31,000 Equipment 15,000
Loan 24,000 Motor Van 19,000
Debtors 14,300 Creditors 14,100
Rent 1,600 Insurance 1,200
Drawings 3,500
Balance c/d * 14,300
70,900 70,900

24,400 24,400
214
Solutions

Trading Account * 87,470 Cash (Note 2) 72,570
87,470 87,470

17,800 17,800

Creditors (Note 6) 14,000 Drawings (50 x 52) 2,600
34,400 34,400

Balance b/d 800
Profit and Loss Account * 2,400 Bank 1,600
2,400 2,400
Note 9 Salaries and Wages Account

Profit and Loss Account * 17,200
17,600 17,600
Note 10 Insurance Account

Bank 1,200 Drawings (1/4 of 1,200) 300
Balance c/d 300
1,200 1,200
Note 11 Light and Heat Account

Bank 3,800 Drawings (1/5 of 4,000) 800
4,000 4,000
Note 12 Drawings Account

Cash (Note 2) 3,120
Bank (Note 3) 3,500
Stock (Note 7) 2,600
Insurance (Note 10) 300
Light and Heat (Note 11) 800 Capital * 10,320
10,320 10,320
Less Cost of Sales
Opening Stock 4,500
36,300
(32,400)
Gross Profit 55,070
+ Income
Rent Receivable (Note 8) 2,400
57,470
– Expenses
Salaries and Wages (Note 9) 17,200
Light and Heat (Note 11) 3,200
Loan Interest (1/4 of 10% of 24,000) 600
(21,600)
Net Profit 35,870
215

Fixed Assets
Premises 41,000
Equipment 15,000
Motor Van 19,000
75,000
Current Assets
Stock 3,900
Debtors 10,100
Bank (Note 3) 14,300
Cash 450
29,050
Current Liabilities
Creditors 3,700
ESB Bill Due 200
Loan Interest Due 600
Loan Instalment Due 3,000
(7,500)
21,550
96,550
Financed By
+ Net Profit 35,870
85,870
– Drawings (Note 11) (10,320)
75,550
Loan (24,000 – 3,000) 21,000
96,550
QUESTION 22.7
P. Ronaldo (Items marked * are discovered items)
Note 1 Balance Sheet as at 1/1/-7
Assets Liabilities
Stock 12,200 ESB Bill Due 270
Debtors 18,000 Capital 102,000
Goodwill * 2,870
118,570 118,570
Note 2 Cash Account

Cash Sales * 136,900 Salaries and Wages 31,700
Lodgements 65,000
Purchases 37,480
Drawings 2,000
Balance c/d 720
136,900 136,900
Note 3 Bank Account

Cash 65,000 Creditors 36,200
Debtors 19,600 Insurance 1,200
Capital 2,800 Van 21,000
Loan 80,000 Light and Heat 4,830
Interest 4,000
Drawings 3,900
Premises 80,000
Investment Fund 7,200
Balance c/d * 9,070
167,400 167,400
216
Solutions

30,900 30,900
149,800 149,800
52,600 52,600
Creditors (Note 6) 36,300 Drawings 3,000
73,780 73,780
Balance b/d 500 Profit and Loss Account * 1,100
Bank 1,200 Balance c/d 600
1,700 1,700
Balance c/d 240 Drawings (1/5 of 4,800) 960
5,070 5,070
Note 10 Interest Account
Bank 4,000 Drawings (1/4 of 4,800) 1,200
4,800 4,800
Cash (Note 2) 2,000
Bank (Note 3) 3,900
Light and Heat (Note 9) 960
Interest (Note 10) 1,200 Capital * 11,060
11,060 11,060
Less Cost of Sales
82,980
(70,280)
Gross Profit 79,520
+ Income
Interest on Investment Fund 72
79,592
– Expenses
Insurance (Note 8) 1,100
Interest (Note 10) 3,600
(40,240)
Net Profit 39,352
217

Fixed Assets
Premises (85,000 + 80,000) 165,000
Van 21,000
Goodwill (Note 1) 2,870
Investment Fund (7,200 + 72) 7,272
196,142
Current Assets
Stock 12,700
Debtors 11,300
Cash 720
Bank (Note 3) 9,070
34,390
Current Liabilities
Creditors 16,400
ESB Bill Due 240
Interest Due (Note 10) 800
(17,440)
16,950
213,092
Financed By
Capital (102,000 + 2,800) 104,800
Net Profit 39,352
Drawings (Note 11) 144,152
(11,060)
133,092
Loan (12%) 80,000
213,092

J. Mooney (Items marked * are discovered items)
Note 1 Balance Sheet 1/1/-8
Assets Liabilities
Stock 12,600 Wages Due 1,000
Rates Prepaid 400
Debtors 6,500
Cash 300 Capital 130,000
135,000 135,000
Note 2 Cash Account

Balance b/d 300 Purchases 38,500
Cash Sales * 107,880 Wages and General Expenses 24,200
Lodgements 43,000
Drawings (40 x 52) 2,080
Balance c/d 400
108,180 108,180
Note 3 Bank Account

Cash 43,000 Van 48,000
Debtors 27,100 Rates 3,600
Capital 5,000 Creditors 18,900
Term Loan 48,000 Insurance 3,800
Term Loan Repayment 8,400
123,100 123,100
218
Solutions

35,700 35,700

137,080 137,080

22,700 22,700

57,200 57,200

24,200 24,200
Note 9 Rates Account

4,000 4,000

Bank 3,800 Drawings 1,400
Balance c/d (1/4 of 2,400) 600
3,800 3,800
Note 11 Term Loan Account

Bank (8 x 800) 6,400 Bank 48,000
48,000 48,000
Note 12 Loan Instalment Account

Bank (7 x 800) 5,600 Term Loan (8 x 800) 6,400
Balance c/d * 800
6,400 6,400
Note 13 Loan Interest Account

Bank (7 x 400) 2,800 Profit and Loss Account (8 x 400) 3,200
Balance c/d * 400
3,200 3,200

Cash (Note 2) 2,080
Insurance (Note 10) 1,400 Capital 7,120
7,120 7,120
219
Less Cost of Sales
66,160
(53,160)
Gross Profit 83,920
– Expenses
Rates (Note 9) 3,400
Loan Interest (Note 13) 3,200
(31,600)
Net Profit 52,320

Fixed Assets
Premises 115,200
Vans 48,000
163,200
Current Assets
Stock 13,000
Debtors 8,600
Cash 400
Rates Prepaid 600
Insurance Prepaid (Note 10) 600
63,600
Current Liabilities
Creditors 3,800
Loan Instalment Due (Note 12) 800
(5,000)
58,600
221,800
Financed By
Capital (130,000 + 5,000) 135,000
Net Profit 52,320
187,320
Drawings (Note 14) (7,120)
180,200
10% Term Loan (Note 11) 41,600
221,800
220
Solutions

J. Cremen (Items marked * are discovered items)
Assets Liabilities
Buildings 80,000 Wages Due 500
Stock 16,500
Debtors 13,000
Stock of Oil 250
Cash 350
Creditor 60 Capital * 109,660
110,160 110,160
Note 2 Cash Account

Balance b/d 350 Purchases 26,500
Cash Sales * 92,600 Wages and General Expenses 29,300
Lodgements 34,000
Drawings (50 x 52) 2,600
Balance c/d 550
92,950 92,950
Note 3 Bank Account

Debtors 19,300 Vans 30,000
Dividends (Capital) 1,200 Creditors 18,700
Cash 34,000 Interest 5,625
Rent 600 Light, Heat and Fuel 2,620
Loan 50,000 Drawings 2,800
Premises 45,000
Balance c/d * 7,645 Investment Fund (800 x 10) 8,000
112,745 112,745

26,200 26,200

105,800 105,800

Balance b/d 60
Bank 18,700
21,560 21,560

48,060 48,060
221

29,300 29,300
Note 9 Interest Account

Bank 5,625 Drawings (1/5 of 6,250) 1,250
6,250 6,250
Note 10 Light, Heat and Fuel Account

Balance b/d 250 Drawings (1/3 of 2,760) 920
3,070 3,070

Cash (Note 2) 2,600
Bank (Note 3) 2,800
Light, Heat, Fuel (Note 10) 920 Capital * 11,730
11,730 11,730
Less Cost of Sales
60,400
(42,200)
Gross Profit 63,600
+ Income
Rent receivable 600
Investment Income 760
64,960
– Expenses
Light, Heat, Fuel (note 10) 1,840
(35,640)
Net Profit 29,320
222
Solutions

Fixed Assets
Buildings (80,000 + 45,000) 125,000
Vans 30,000
163,760
Current Assets
Stock 18,200
Stock of Oil 310
Debtors 6,900
Cash 550
25,960
Current Liabilities
Creditors 2,800
ESB Bill Due 200
Interest (Note 9) 625
(11,270)
14,690
178,450
Financed By
Capital Introduced 1,200
Net Profit 29,320
140,180
128,450
15% Loan 50,000
178,450
QUESTION 22.10
P. Cleary (Items marked * are discovered items)
Note 1 Opening Balance Sheet on 1/1/-0
Assets Liabilities
Stock 14,200 Rent Prepaid 250
Debtors 12,000 Wages Due 500
7% Investments 6,000 Capital 195,000
Investment Interest Due 140
Goodwill * 16,310
208,650 208,650
Note 2 Cash Account

Cash Sales * 171,780 Lodgements 98,000
Wages and General Expenses 23,700
Purchases 47,500
Drawings (40 x 52) 2,080
Balance c/d 500
171,780 171,780
223
Note 3 Bank Account

Debtors 37,000 Vans 22,000
Cash 98,000 Creditors 33,100
Investment Interest 560 Light and Heat 6,500
Rent 1,200 Loan Payment 3,200
Loan 60,000 Advertising 6,000
Furniture 12,000
Drawings 2,700
Premises 50,000
196,760 196,760

52,900 52,900

212,680 212,680

44,300 44,300

78,900 78,900
Note 8 7% Investment Interest Account

Balance b/d * 140 Bank 560
560 560

Profit and Loss Account 1,500 Balance c/d * 1,500
1,500 1,500
Note 10 Rent Received Account

Profit and Loss Account * 1,150 Balance b/d 250
Balance c/d 300 Bank 1,200
1,450 1,450

23,700 23,700

Bank 6,500 Drawings (1/4 of 6,900) 1,725
6,900 6,900
224
Solutions

Bank (2 x 1,000) 2,000 Loan Account (3 x 1,000) 3,000
Balance c/d 1,000
3,000 3,000

Bank (2 x 600) 1,200 Drawings (1/5 of 1,800) 360
1,800 1,800
Note 15 Advertising Account

Balance c/d 1,000
6,000 6,000

Cash (Note 2) 2,080
Bank (Note 3) 2,700
Loan Interest (Note 14) 360
Furniture 4,000 Capital * 14,505
14,505 14,505
Less Cost of Sales
89,460
(71,860)
+ Income
7% Investment Interest (Note 8) 420
6% Investment Interest (Note 9) 1,500
Rent Receivable (Note 10) 1,150
3,070
– Expenses 143,890
Advertising (note 15) 5,000
(34,815)
Net Profit 109,075
225

Fixed Assets
Premises (160,000 + 50,000) 210,000
Vans 22,000
Furniture (12,000 – 4,000) 8,000
312,310
Current Assets
Stock 17,600
Debtors 15,900
Cash 500
Advertising Prepaid 1,000
6% Investment Interest Due (Note 9) 1,500
47,760
Current Liabilities
Creditors 11,200
ESB Bill Due 400
Rent Receivable Prepaid 300
Loan Instalment Due (Note 13) 1,000
(13,500)
34,260
346,570
Financed By
Capital 195,000
Net Profit 109,075
304,075
289,570
Loan (60,000 – 3,000) 57,000
346,570

O. Connaughton (Items marked * are discovered items)
Note 1 Opening Balance Sheet on 1/1/-1
Assets Liabilities
Buildings 90,000 Advertising Due 200
Stock 20,000 Creditors 12,000
Debtors 14,000
Cash 100 Capital * 112,500
124,700 124,700
Note 2 Cash Account

Balance b/d 100 Lodgements 73,000
Cash Sales * 161,740 Purchases 43,700
Advertising 800
Rates 1,800
Drawings (100 x 52) 5,200
Balance c/d 140
161,840 161,840
226
Solutions
Note 3 Bank Account

Cash 73,000 Light and Heat 4,620
Debtors 56,900 Insurance (Annual Premium) 2,800
Lotto Win (Capital) 5,000 Loan Interest 1,400
Loan 70,000 Creditors 43,800
Drawings 1,200
Buildings 65,000
Rent 4,380
204,900 204,900

79,900 79,900

227,640 227,640

54,800 54,800

86,500 86,500

Cash 800 Balance b/d 200
1,500 1,500

Bank 4,620 Drawings (1/5 of 5,145) 1,029
5,145 5,145

Bank 2,800 Balance c/d (1/4 of 2,800) 700
3,400 3,400

Balance c/d 1,400
2,800 2,800
Note 12 Rent Account

Bank 4,380 Drawings (1/5 of 4,380) 876
Balance c/d (10/12 of 3,504) 2,920
4,380 4,380
227

Cash (Note 2) 5,200
Bank (Note 3) 1,200
Rent (Note 12) 876 Capital * 10,905
10,905 10,905
Less Cost of Sales
103,900
(84,900)
– Expenses
Advertising (Note 8) 1,300
Rent (Note 12) 584
Rates 1,800
(50,500)
Net Profit 92,240

Fixed Assets
Buildings (90,000 + 65,000) 155,000
200,000
Current Assets
Stock 19,000
Debtors 23,000
Cash 140
Rent Prepaid (Note 12) 2,920
82,460
Current Liabilities
Creditors 11,000
ESB Bill Due 525
Advertising Due 700
Loan Interest Due (Note 11) 1,400
Loan Instalment Due 3,500
(17,125)
65,335
265,335
Financed By
Additional Capital 5,000
117,500
Net Profit 92,240
209,740
198,835
Long-term Liabilities
Loan (70,000 – 3,500) 66,500
265,335
228
Solutions

T. Healy (Items marked * are discovered items)
Assets Liabilities
Buildings 100,000 Debtor 1,200
Motors 16,000 Creditors 3,700
Stock of Fuel 200
Rates Prepaid 150
11% Investments 10,000 Capital * 130,350
136,350 136,350
Note 2 Cash Account

Cash Sales * 54,450 Lodgements 23,000
Purchases 21,000
Wages 8,000
Drawings (200 x 12) 2,400
Balance c/d 50
54,450 54,450
Note 3 Bank Account

Cash 23,000 Light, Heat and Fuel 1,740
Debtors 17,000 Creditors 17,500
Investment Interest 1,000 Interest 2,500
Loan 50,000 Rates 660
Drawings (Car Repairs) 300
Wages 4,000
Van 12,000
Drawings (Holidays) 10,000
Buildings 30,000
91,000 91,000

Balance b/d 1,200
Bank 17,000
40,200 40,200

94,650 94,650

20,300 20,300

37,600 37,600
Note 8 11% Investment Account

Profit and Loss Account 1,100 Bank 1,000
Balance c/d 100
1,100 1,100
229
Note 9 Wages Account

Bank 4,000 Drawings (1/4 of 12,000) 3,000
12,900 12,900
Note 10 Light, Heat and Fuel Account

Balance b/d 200 Drawings (1/3 of 1,710) 570
Balance c/d 230
1,940 1,940

Balance c/d 500
3,000 3,000

Balance b/d 150 Profit and Loss Account 645
Bank 660 Balance c/d (1/4 of 660) 165
810 810
Note 13 Motors Account

Balance b/d 16,000 Profit and Loss Account (Depreciation) * 3,000
28,000 28,000

Cash (Note 2) 2,400
Bank (Note 3) 300
Wages (Note 9) 3,000
Light, Heat and Fuel (Note 10) 570 Capital * 18,870
18,870 18,870
Less Cost of Sales
45,000
(30,000)
64,650
+ Income
Investment Fund Interest 10
65,760
– Expenses
Light, Heat and Fuel (Note 10) 1,140
Rates (Note 12) 645
Depreciation on Motors (Note 13) 3,000
(16,585)
Net Profit 49,175
230
Solutions

Buildings (100,000 + 30,000) 130,000 – 130,000
Motors (Note 13) 28,000 3,000 25,000
Investment Fund (1,800 +10) 1,810
166,810
Current Assets
Stock 15,000
Debtors 22,000
Bank 10,500
Stock of Fuel 230
Rates Prepaid (Note 12) 165
Cash 50
48,045
Current Liabilities
Creditors 2,800
Wages Due 900
(4,200)
43,845
210,655
Financed By
Net Profit 49,175
179,525
160,655
12% Loan 50,000
210,655
231
23
QUESTION 23.1
Incomplete Records II
(Balance Sheet Method): Solutions
O. Thomas
(a) Opening Balance Sheet (Statement of Affairs) on 1/1/-0
Assets Liabilities
Buildings 61,000 Bank Overdraft 2,500
Motor Vehicles 17,000 Wages Due 400
Equipment 8,000 Creditors 9,500
Stock 9,000
Debtors 13,000
Rates Prepaid 250 Capital (Net Worth) 95,850
108,250 108,250

Assets 127,000
Less Liabilities (13,700)
Net Worth 31/12/-0 113,300
Financed By
Capital 1/1/-0 95,850
+ Capital Introduced 4,000
99,850
– Drawings (700 + 5,200) (5,900)
93,950
Net Profit (Balancing Figure) 17,350
111,300
QUESTION 23.2
R. Brown
Assets Liabilities
Buildings 72,000 Bank Overdraft 2,700
Motor Vehicles 41,000 Wages Due 200
Equipment 10,000 Creditors 6,400
Stock 11,000
Debtors 12,500
Rates Prepaid 400 Capital (Net Worth) 137,600
146,900 146,900
232
Solutions

Assets 178,500
– Depreciation on Motor Vehicles (8,200)
170,300
Net Worth 31/12/-1 160,000
Financed By
Capital 1/1/-1 137,600
140,400
– Drawings (5,000 + 5,600) (10,600)
129,800
160,000
QUESTION 23.3
R. Cash
Assets Liabilities
Fixtures and Fittings 19,000 Expenses Due 700
Motor Vehicles 27,000 Bank Overdraft 3,400
Stock 17,200
Debtors 14,300
Advertising Prepaid 1,200 Capital (Net Worth) 150,700
172,700 172,700

Assets 210,400
– Depreciation on Motor Vehicles (5,400)
205,000
Less Liabilities 24,500
+ Expenses Due 500
(25,000)
Net Worth 31/12/-2 180,000
Financed By
Capital 1/1/-2 150,700
156,700
– Drawings (600 + 2,600) (3,200)
153,500
180,000
233
QUESTION 23.4
K. Moon
Premises 82,000 – 82,000
Motor Vehicles 46,000 18,400 27,600
128,000 18,400 109,600
Current Assets
Stock 14,000
Debtors 19,000
Rates Prepaid 300
33,300
Current Liabilities
Creditors 13,500
Expenses Due 500
(17,000)
16,300
125,900
Financed By
Capital 1/1/-3 90,000
95,000
– Drawings (2,080 + 2,600 + 3,000) (7,680)
87,320
125,870
QUESTION 23.5
L. Todd
Assets Liabilities
Debtors 16,500 Expenses Due 900
Bank 2,400
Premises 79,000
Fixtures and Fittings 24,000
Vans (50,000 – 20,000) 30,000 Capital (Net Worth) 151,500
166,400 166,400
234
Solutions

Assets 186,580
– Depreciation on Fixtures and Fittings 4,800
– Depreciation on Vans 10,000 (14,800)
+ Rates Prepaid 220
172,000
140,000
Financed By
Capital 1/1/-4 151,500
160,500
– Drawings (6,000 + 5,200) (11,200)
149,300
Net Loss (Balancing Figure) (9,300)
140,000
QUESTION 23.6
W. Boyer
Assets Liabilities
Debtors 23,200 Wages Due 700
Rates Prepaid 1,900 Bank Overdraft 3,500
Premises 110,000
Equipment (14,000 – 4,000) 10,000
Delivery Vans 30,000 Capital (Net Worth) 164,600
193,100 193,100

Assets 221,600
– Depreciation on Equipment 2,800
– Depreciation on Vans 3,000
(5,800)
+ Rates Prepaid 2,200
218,000
Less Liabilities 32,700
+ Interest Due on Overdraft 300
(33,000)
Net Worth 31/12/-5 185,000
Financed By
Capital 1/1/-5 164,600
170,600
– Drawings (3,000 + 2,600 + 2,400) (8,000)
162,600
Net Loss (Balancing Figure) 22,400
185,000
235
QUESTION 23.7
F. Woolworth

Buildings 180,000 – 180,000
Equipment 60,000 15,000 45,000
Vans 60,000 30,000 30,000
300,000 45,000 255,000
Goodwill 9,000
274,000
Current Assets
Stock 21,000
Debtors 19,500
Bank 3,800
Rates Prepaid 150
44,450
Current Liabilities
Creditors 14,000
ESB Bill Due 200
(14,450)
30,000
304,000
Financed By
Capital 1/1/-6 271,000
276,000
– Drawings (3,800 + 3,120 + 4,160) (11,080)
264,920
15% Loan 12,000
276,920
304,000

F. Devitt
Note 1 Opening Balance Sheet (Statement of Affairs) on 1/1/-7
Assets Liabilities
Stock 15,000 Expenses Due 1,100
Debtors 18,400
Cash 900
Equipment 25,000 Capital 100,000
113,000 113,000
236
Solutions
(a) Closing Balance Sheet as at 31/12/-7

Fixed Assets
Premises 53,000
Equipment 25,000
Vans 17,000
95,000
Current Assets
Stock 17,000
Debtors 17,200
Cash 1,200
Bank 5,200
Advertising Prepaid 400
41,800
Current Liabilities
Creditors 12,300
ESB Bill Due 280
(12,580)
29,220
124,220
Financed By
Capital 1/1/-7 100,000
110,000
95,950
124,220
Notes (Items marked * are discovered items)

Stock (90 x 52) 4,680
Cash (50 x 52) 2,600
Holiday 3,000
Insurance (Note 4) 1,600 Capital * 14,050
14,050 14,050

Bank 8,400 Drawings (1/4 of 8,680) 2,170
8,680 8,680

Balance b/d 700 Drawings (1/3 of 4,800) 1,600
Balance c/d 800
5,500 5,500

27,000 27,000
237

Balance c/d 400
1,600 1,600
(b) Profit and Loss Account for the year ended 31/12/-7
Gross Profit (Net Profit + Expenses) 64,980
Expenses
(36,710)
Net Profit (From Closing Balance Sheet) 28,270
Trading Account for the year ended 31/12/-7

Sales 259,920 (100%)
Less Cost of Sales
Purchases (201,620 – 4,680) 196,940
211,940
(194,940)
Gross Profit (From Profit and Loss Account) 64,980 (25%)
(c) Statement of Advice for Devitt
Devitt should keep an analysed cash book and a ledger, supported by appropriate books of first entry. This
would allow for more accurate record-keeping and less reliance on estimates.

T. Barr
Assets Liabilities
Goodwill * 3,900
163,800 163,800
238
Solutions
(a) Balance Sheet as at 31/12/-8

Fixed Assets
Premises (120,000 + 50,000) 170,000
Equipment (24,000 – 8,000) 16,000
189,900
Current Assets
Stock 24,000
Debtors 16,000
Bank 4,000
Cash 300
45,400
Current Liabilities
Creditors 9,000
ESB Bill Due 300
Loan Instalment Due (Note 2) 1,000
(10,800)
34,600
224,500
Financed By
Capital 1/1/-9 150,000
155,000
134,625
Loan (60,000 – 8,000) 52,000
186,625
224,500

Bank (500 x 7) 3,500 Drawings (1/5 of 4,000) 800
Balance c/d * 500 Profit and Loss Account * 3,200
Interest Payable (500 x 8) 4,000 4,000

Bank (1,000 x 7) 7,000 Loan Account (1,000 x 8) 8,000
Balance c/d * 1,000
8,000 8,000

Holiday 4,000
Cash (200 x 12) 2,400
Stock (300 x 12) 3,600
Equipment 8,000
Loan Interest (Note 2) 800 Capital * 20,375
20,375 20,375
239

Bank 6,000 Drawings (1/4 of 6,300) 1,575
6,300 6,300

4,800 4,800

Balance b/d 300 Profit and Loss 2,600
3,000 3,000

28,000 28,000
Gross Profit (Gross Profit + Expenses) 78,700
Expenses
(40,825)

Sales 196,750 (100%)
Less Cost of Sales
Purchases (124,650 – 3,600) 121,050
142,050
(118,050)

B. Dack
Assets Liabilities
Premises 100,000 Wages Due 500
Bank (120,000 – 110,000) 10,000
Goodwill * 10,500
133,500 133,500
240
Solutions

Premises 100,000 – 100,000
Machinery 18,000 1,000 17,000
Motor Van 5,000 500 4,500
Computer (11,000 – 2,200) 8,800 – 8,800
131,800 130,300
140,800
Current Assets
Stock 1,500
Debtors 13,500
Bank 8,000
Rates Prepaid 100
23,100
Current Liabilities
Creditors 12,000
ESB Bill Due 300
(12,500)
10,600
151,400
Financed By
Capital 1/1/-9 120,000
130,000
115,760
Loan (20,000 – 2,000) 18,000
133,760
151,400

Bank 300 Drawings (1/5 of 500) 100
Balance c/d 200 Profit and Loss Account * 400
500 500

Stock (500 x 12) 6,000
Cash (300 x 12) 3,600
Holiday 2,000
Computer 2,200 Capital * 14,240
14,240 14,240

Bank 1,400 Drawings (1/5 of 1,700) 340
1,700 1,700
241

Bank 600 Profit and Loss Account * 500
Balance c/d 100
600 600

12,000 12,000
Gross Profit (Net Profit + Expenses) 32,900
Expenses
Loan Interest (Note 2) 400
Rates (Note 5) 500
Depreciation – Machinery 1,000
– Motor Van 500
(15,260)

Sales (Gross Profit + Cost of Sales) 115,150
Less Cost of Sales
Opening Stock 1,000
Purchases (88,750 – 6,000) 82,750
83,750
(82,250) (100%)
(c) Statement of Advice for Dack
Dack should keep an analysed cash book and a ledger, supported by appropriate books of first entry. This
would enable Dack to prepare final accounts accurately and avoid relying on estimates.

J. Bolton
Assets Liabilities
Motors 20,000 Advertising Due 1,000
Rates Prepaid 500 Capital 160,000
Debtors 24,100
Stock 10,500
Bank (160,000 – 140,000) 20,000
Goodwill * 11,800
176,900 176,900
242
Solutions

Fixed Assets
Premises (90,000 + 45,000) 135,000
Motors 20,000
Equipment (12,000 – 4,000) 8,000
163,000
176,920
Current Assets
Stock 16,400
Debtors 23,800
Bank 27,200
68,000
Current Liabilities
Creditors 12,200
ESB Bill Due 650
Advertising Due 500
(13,850)
54,150
231,070
Financed By
Capital 1/1/-0 160,000
164,000
144,335
Loan 60,000
204,335
231,070

Bank 2,400 Balance c/d (1/4 of 2,400) 600
2,900 2,900

Bank 2,000 Drawings (1/4 of 2,500) 625
2,500 2,500

Stock (90 x 52) 4,680
Cash (70 x 52) 3,640
Equipment 4,000
Education Fees (Note 6) 5,250 Capital * 19,665
19,665 19,665
243

Bank 6,700 Drawings (1/5 of 7,350) 1,470
7,350 7,350
Note 6 Education Fees Account

Bank 7,000 Drawings (3/4 of 7,000) 5,250
7,000 7,000

3,500 3,500
Gross Profit (Net Profit + Expenses – Income) 91,920
Income
92,040
Expenses
Education Fees (Note 6) 1,750
Wages and General Expenses 51,000
(65,305)

Sales 306,400 (100%)
Less Cost of Sales
Purchases (225,060 – 4,680) 220,380
230,880
(214,480)
(c) Statement of Advice for Bolton
Bolton should keep an analysed cash book and a ledger, supported by appropriate books of first entry. This
would facilitate the preparation of final accounts and do away with the need for estimates.
244
Solutions

M. Nevin
Assets Liabilities
Stock 11,200 Wages Due 300
Debtors 19,000 Bank Overdraft 9,800
Rates Prepaid 250
Cash 100 Capital * 122,100
144,700 144,700

Premises 80,000 – 80,000
Motor Vehicles 24,000 3,000 21,000
Equipment (16,000 – 12,000) 4,000 – 4,000
108,000 3,000 105,000
115,000
Current Assets
Stock 12,100
Debtors 18,400
Rates Prepaid 300
Bank 12,900
Cash 100
44,900
Current Liabilities
Creditors 13,200
Wages Due 200
ESB Bill Due 200
Rent Receivable Prepaid (Note 3) 4,000
(17,600)
27,300
142,300
Financed By
Capital 1/1/-1 (Note 1) 122,100
99,630
142,300

Balance b/d 150 Bank 750
Profit and Loss Account 1,100 Balance c/d * 500
1,250 1,250
245

Profit and Loss Account (2/12) 800 Bank 4,800
Balance c/d (10/12) * 4,000
4,800 4,800

Stock (60 x 52) 3,120
Cash (40 x 52) 2,080
College Fees (Note 6) 3,500
Equipment 12,000 Capital * 22,470
22,470 22,470

Bank 4,800 Drawings (1/4 of 5,000) 1,250
5,000 5,000
Note 6 College Fees Account

Bank 7,000 Drawings (1/2 of 7,000) 3,500
7,000 7,000

Bank 2,600 Drawings (1/5 of 2,600) 520
Balance b/d 600
2,600 2,600

Balance c/d 200 Proift and Loss Account * 19,500
19,800 19,800

3,850 3,850
246
Solutions
Income
Rent Receivable (Note 3) 800
1,900
77,450
Expenses
College Fees (Note 6) 3,500
Depreciation on Motors 3,000
(34,780)

Sales 302,200 (100%)
Less Cost of Sales
Purchases (230,670 – 3,120) 227,550
238,750
(226,650)

S. Healy
Assets Liabilities
Motor Van 10,000 AIB Loan 5,000
Equipment 19,000 ESB Bill Due 400
8% Investments 12,000 Wages Due 1,500
Stock 15,000
Debtors 10,000
Rates Prepaid 684
Insurance Prepaid 300 Capital * 129,084
146,984 146,984
247

Fixed Assets
Premises 80,000
Motor Van (10,000 + 10,000) 20,000
Equipment (19,000 + 40,000) 59,000
Furniture (6,000 – 1,200) 4,800
163,800
180,125
Current Assets
Stock 12,000
Debtors 6,000
Bank 7,000
26,119
Current Liabilities
Creditors 9,000
ESB Bill Due 500
Wages Due 600
(11,100)
15,019
195,144
Financed By
Capital 1/1/-2 129,084
116,144
National Irish Bank Loan 50,000
166,144
195,144

Balance b/d (1/2 year) 684 Profit and Loss Account * 1,428
Bank (Full Year) 1,488 Balance c/d * 744
2,172 2,172

Profit and Loss Account (1/4 year) 300 Drawings (1/5 of 1,500) 300
Bank (Full Year) 1,500 Profit and Loss Account * 1,125
Balance c/d (1/4 of 1,500) 375
1,800 1,800
Note 4 Loan Interest (National Irish Bank) Account

Balance b/d 1,000
3,000 3,000
248
Solutions

Family Holiday 4,400
Furniture 1,200
Cash (60 x 52) 3,120
Stock 3,000 Capital * 12,940
12,940 12,940

Drawings (1/5 of 4,600) 920
5,100 5,100
Note 7 AIB Loan Account

5,600 5,600

38,600 38,600
Income
8% Investment Interest 960
1,085
88,033
Expenses
Loan Interest National Irish Bank (Note 4) 3,000
Loan Interest AIB (Note 7) 600
Advertising 12,000
(59,033)

Sales 217,370 (100%)
Less Cost of Sales
Purchases (130,422 – 3,000) 127,422
142,422
(130,422)
249
(c) Record Keeping

Healy’s record keeping is unsatisfactory because it relies on estimates. A better system would be to keep an
analysed cash book and ledger, supported by appropriate books of first entry.

S. O’Rourke
Assets Liabilities
Premises 104,000 Wages Due 500
Stock 14,400 ESB Bill Due 200
Insurance Prepaid 240 Creditors 11,400
Bank (140,000 – 130,000) 10,000
Goodwill 8,760
152,100 152,100

Premises (104,000 + 70,000) 174,000 – 174,000
Furniture (12,000 – 6,000) 6,000 6,000
Equipment 20,000 2,000 18,000
200,000 2,000 198,000
213,230
Current Assets
Stock 12,300
Debtors 17,500
Bank 26,500
Rates Prepaid 200
56,770
Current Liabilities
Creditors 14,200
ESB Bill Due 160
(15,160)
41,610
254,840
Financed By
Capital 1/1/-3 140,000
+ Capital Introduced (650 + 2,000) 2,650
142,650
127,618
Loan 80,000
254,840
250
Solutions

Bank (full year) 1,080 Balance c/d (
1
/4 of 1,080) 270
1,320 1,320

Bank 3,200 Drawings (1/4 of 4,000) 1,000
4,000 4,000

Stock (70 x 52) 3,640
Cash (65 x 52) 3,380
Furniture 6,000
Rates (note 6) 600 Capital * 15,032
15,032 15,032

Drawings (1/5 of 2,060) 412
2,260 2,260

Bank 1,800 Drawings (1/3 of 1,800) 600
Balance c/d 200
1,800 1,800

38,500 38,500
251
Income
Investment Interest 470
93,920
Expenses
Depreciation on Equipment 2,000
(46,698)

Less Cost of Sales
Purchases (235,165 – 3,640) 231,525
245,925
(233,625) (100%)

R. Foster
Assets Liabilities
Land 200,000 Creditors 14,000
Rates Prepaid 375 Capital 250,000
Debtors 16,000
Bank (250,000 – 237,375) 12,625
Goodwill * 9,000
265,200 265,200
252
Solutions

Land and Buildings (200,000 + 50,000) 250,000 – 250,000
Equipment (Note 2) 80,000 8,000 72,000
330,000 8,000 322,000
348,500
Current Assets
Stock 8,000
Debtors 14,000
25,305
Current Liabilities
Creditors (15,000 – 1,000) 14,000
Wages Due 1,800
ESB Bill Due 460
(57,547)
(32,242)
316,258
Financed By
Capital 1/1/-4 250,000
224,283
Loan (80,000 – 4,000) 76,000
300,283
316,258

Loan 65,000 Profit and Loss Account (Depreciation)* 8,000
80,000 80,000

Bank (full year) 1,620 Balance c/d (
1
/4 of 1,620) 405
1,995 1,995

Balance b/d 700 Bank 1,200
Profit and Loss Account * 1,400 Balance c/d * 900
2,100 2,100

Bank 4,000 Drawings (1/4 of 5,000) 1,250
Balance c/d 1,000 Profit and Loss Account * 3,750
5,000 5,000
253

Boat 12,000
Stock (500 x 12) 6,000
Cash (50 x 52) 2,600
General Expenses (Note 8) 2,125 Capital * 25,717
25,717 25,717

Bank 8,250 Drawings (1/5 of 8,710) 1,742
8,710 8,710

Bank 17,000 Drawings (1/8 of 8,710) 2,125
17,000 17,000
Income
Investment Interest 1,400
75,758
Expenses
General Expenses (Note 8) 14,875
Wages (20,000 – 1,200 + 1,800) 20,600
Advertising (6,000 – 2,000) 4,000
(59,783)

Less Cost of Sales
Opening Stock 9,000
Purchases (190,895 – 6,000) 184,895
193,895
(185,895) (100%)
254
Solutions

R. Savage
Cost Depr. Value
Fixed Assets 280,000 28,000 252,000
Current Assets
Stock 30,000
Debtors (300,000 ÷ 12) x 1 25,000
Bank 5,000
60,000
Current Liabilities
Creditors 30,000
30,000
282,000
Financed By
Capital 1/1/-5 265,000
– Drawings (15,000)
250,000
282,000
(b) Trading and Profit and Loss Account for the year ended 31/12/-5
Sales (Cash Sales €148,000, Credit Sales €300,000) 448,000 (100%)
Less Cost of Sales
Purchases 366,000
(336,000)
Gross Profit 112,000 (25%)
Expenses
Depreciation 28,000
Sundry Other Expenses 52,000
(80,000)
255

M. Ryan
Cost Depr. Value
Fixed Assets 120,000 6,000 114,000
Current Assets
Stock 45,000
Debtors (282,000 ÷ 12) x 1 23,500
Bank 6,500
75,000
Current Liabilities
Creditors 20,000
(30,000)
45,000
159,000
Financed By
Capital 1/1/-6 118,000
104,000
159,000
(b) Trading, Profit and Loss Account for the year ended 31/12/-6
Sales (Cash Sales €38,000, Credit Sales €282,000) 320,000 (100%)
Less Cost of Sales
Purchases (291,000 – 6,000) 285,000
(240,000)
Expenses
Depreciation 6,000
(25,000)
256
Solutions

M. Lyle
Cost Depr. Value
Fixed Assets 140,000 7,000 133,000
Current Assets
Stock 20,000
Debtors (270,000 ÷ 12) x 2 45,000
Bank 15,000
80,000
Current Liabilities
Creditors 28,000
Bills Payable 12,000
(40,000)
40,000
173,000
Financed By
Capital 142,000
Capital Introduced 15,000
157,000
139,000
173,000
(b) Trading, Profit and Loss Account for the year ended 31/12/-7
Sales (Cash Sales €30,000, Credit Sales €270,000) 300,000
Less Cost of Sales
Purchases (267,200 – 7,200) 260,000
240,000 (100%)
+ Income
61,000
– Expenses
Depreciation 7,000
(27,000)
257

R. Daly
Cost Depr. Value
Fixed Assets 100,000 10,000 90,000
Current Assets
Stock 7,500
Debtors (240,000 ÷ 12) x 11/2 30,000
Bank 7,500
45,000
Current Liabilities
Creditors (175,500 ÷ 12) x 1 14,625
(15,000)
30,000
120,000
Financed By
Capital 1/1/-8 42,500
30,000
5 year loan 50,000
80,000
120,000
(b) Trading and Profit and Loss Account for the year ended 31/12/-8
Sales (All on Credit) 240,000 (100%)
Less Cost of Sales
Purchases (All on Credit) 177,500
168,000
+ Income
Rent Received 1,000
73,000
– Expenses
Depreciation 10,000
(33,000)
258
24
QUESTION 24.1
Farm Accounts: Solutions
Analysed Receipts and Payments Account R. Beatty

Receipts
Details Total Cattle and Milk Sales Sheep Sales Government
Grants
Balance b/d 1,200 – – –
Milk Sales 17,000 17,000 – –
Beef Premium 2,100 – – 2,100
Sheep Sales 14,000 – 14,000 –
Cattle Sales 25,000 25,000
Ewe Premium 6,000 – – 6,000
Wool Sales 1,500 1,500
Total Receipts 66,800 42,000 15,500 8,100
Payments
Details Total Cattle and Milk Sheep Sundry Drawings
Dairy Wages 4,000 4,000 – – –
General Wages 12,000 – – 12,000 –
Light and Heat 700 – – 700 –
Cattle Feed 5,000 5,000 – – –
Sheep Feed 2,000 – 2,000 – –
Conacre 1,200 1,200
Cattle 9,000 9,000 – – –
Drawings 5,500 – – – 5,500
Sheep 4,000 – 4,000 – –
Repairs 300 – – 300 –
Fertilizer 1,200 – – 1,200 –
Total Payments 44,900 18,000 6,000 15,400 5,500
Balance c/d 21,900
QUESTION 24.2
N. Power: Analysed Receipts and Payments Account

Receipts
Details Total Cattle Sales Poultry Sales Grain Sales Government
Grants
Balance b/d 3,500 – – – –
Cattle 21,000 21,000 – – –
Poultry 14,000 – 14,000 – –
Grain 6,500 – – 6,500 –
Beef Premium 3,000 – – – 3,000
Headage 4,000 – – – 4,000
Total Receipts 52,000 21,000 14,000 6,500 7,000
259
Payments
Details Total Cattle Poultry Grain Sundry Drawings
Cattle 9,000 9,000 – – – –
Poultry 7,000 – 7,000 – – –
Seed 1,500 – – 1,500 – –
Wages 6,000 – – 6,000 – –
Wages 13,500 – – – 13,500 –
Drawings 7,000 – – – – 7,000
Feed 1,500 1,500 – – – –
Feed 300 – 300 – – –
Fencing 900 – – – 900 –
Repairs 100 – – – 100 –
Fertilizer 1,200 – – – 1,200 –
Light and Heat 700 – – – 700 –
Insurance 900 – – – 900 –
Total Payments 49,600 10,500 7,300 7,500 17,300 7,000
Balance c/d 2,400
QUESTION 24.3
The McMahon Family
(a) Enterprise Analysis Account for the year ended 31/12/-5 – Cattle and Milk
Sales – Milk 17,000
– Cattle 26,000
Drawings (700 + 2,500) 3,200
Beef Premium 4,500
Closing Stock of Cattle 21,000
71,700
Less Expenses
Opening Stock of Cattle 22,000
Purchases 9,000
Feed 3,000
Dairy Wages 6,500
General Wages (1/2 of 15,000) 7,500
Haulage (1/2 of 2,000) 1,000
(49,000)
Gross Profit (Contribution) 22,700
Enterprise Analysis Account for the year ended 31/12/-5 – Grain Crops
Sales 13,500
Closing Stock 8,500
22,000
Less Expenses
Opening Stock 4,000
Seeds 1,200
Sowing Wages 3,800
Reaping Wages 4,200
General Wages (1/2 of 15,000) 7,500
Haulage (1/2 of 2,000) 1,000
(21,700)
Gross Profit (Contribution) 300
260
Solutions
(a) General Profit and Loss Account for the year ended 31/12/-5
Contribution from Cattle and Milk 22,700
Contribution from Grain Crops 300
Conacre 1,200
24,200
Less Expenses
Fencing 200
Repairs 2,500
Insurance 700
(5,100)
Net Profit 19,100
QUESTION 24.4
The O’Reilly Family
Sales – Milk 140,000
– Cattle 280,000
Drawings (700 + 3,800) 4,500
509,500
Less Expenses
Purchases 210,000
Feedstuffs 25,000
Dairy Wages 14,000
Veterinary Fees 5,700
Milking Parlour Repairs 2,100
Fertilizer Costs (1/2 of 1,500 + 4,800 – 2,400) 1,950
General Wages (1/2 of 24,000) 12,000
Haulage (1/2 of 6,000) 3,000
(363,750)
Sales 62,600
77,600
Less Expenses
Purchases of Seed 13,000
Pesticides (700 + 5,300 – 300) 5,700
Sowing Wages 5,500
Reaping Wages 8,200
Fertilizer Costs (1/2 of 1,500 + 4,800 – 2,400) 1,950
General Wages (1/2 of 24,000) 12,000
Haulage (1/2 of 6,000) 3,000
61,350
261
(b) General Profit and Loss Account for the year ended 31/12/-6
Contribution from Grain Crops 16,250
162,000
Less Expenses
Electricity and Diesel Oil (300 + 3,200 – 400) 3,100
Insurance 700
Bank Charges 200
(6,200)
Net Profit 155,800
QUESTION 24.5
The Doyle Family
(a) Enterprise Analysis Accounts for the year ended 31/12/-7

Cattle Sheep Pigs
Sales 301,000 74,000 94,000
Premium 12,000 4,000 –
Drawings 2,700 1,700 900
Closing Stocks 95,000 32,000 23,000
410,700 111,700 117,900
Less Expenses
Opening Stock 98,000 28,000 21,000
Purchases 212,000 39,000 72,000
Wages (1/3 of 65,000 + 1,000) 22,000 22,000 22,000
Haulage (1/3 of 19,000 + 2,000) 7,000 7,000 7,000
Veterinary Fees (1/3 of 3,500 + 400) 1,300 1,300 1,300

(340,300) (97,300) (123,300)
Gross Profit (Contribution) 70,400 144,400 (5,400)
Contribution from Cattle 70,400
Contribution from Sheep 14,400
Contribution from Pigs (5,400)
Conacre 9,000
88,400
Less Expenses
Light and Heat (7,000 – 1,400) 5,600
Bank Charges 500
Accountancy Fees 2,000
Insurance (7,000 – 1,400) 5,600
Repairs (4,000 – 800) 3,200
Bank Interest 1,500
General Expenses (6,500 – 1,300) 5,200
Depreciation – Farm Machinery 7,000
– Tractors 10,000
(40,600)
Net Profit 47,800
262
Solutions

Cost Depr Value
Fixed Assets
Farm Machinery 70,000 7,000 63,000
Tractors 50,000 10,000 40,000
420,000 17,000 403,000
Current Assets
Stock – Cattle 95,000
– Sheep 32,000
– Pigs 23,000
150,000
Debtors 17,000
167,000
Current Liabilities
Creditors 21,000
Vet Fees Due 400
Haulage Due 2,000
Wages Due 1,000
(39,400)
127,600
530,600
Financed by
Capital 500,000
+ Net Profit 47,800
547,800
– Drawings (7,000 + 2,700 + 1,700 + 900 + 1,400 + 1,400 + 800 + 1,300) (17,200)
530,600
QUESTION 24.6
The Galvin Family
(a) Statement of Capital on 1/1/-1
Assets Liabilities
Farm Land and Buildings 400,000 ESB Bill Due 320
Equipment 120,000 Due to Vet. 4,500
Cattle Stock 70,000 Loan 10,000
Pigs Stock 40,000 Loan Interest Due 1,890
Horses Stock 65,000 21/2 year = 2,700
Diesel Oil Stock 700 13/4 year = 1,890
Due from Goffs 14,700
Due from Creamery 5,600
Bank 3,800 Capital on 1/1/- 703,570
720,280 720,280
263
(b) Enterprise Analysis Account for the year ended 31/12/-1 – Cattle and Milk
Sales to Creamery (84,000 – 5,600 + 6,500) 84,900
Cattle Sales 127,000
Beef Premium 13,000
Drawings 500
285,400
Less Expenses
Dairy Wages 17,000
Cattle Purchases 82,000
Vet. Fees (40% of 19,500 – 4,500) 6,000
Farm Repairs (40% of 11,000) 4,400
General Farm Expenses (40% of 6,500) 2,600
Depreciation on Equipment
(1/3 of 120,000 + 95,000 – 15,000 – 191,000) 3,000
Insurance (1/3 of 4,800 + 1,800 – 600 – 336) 448
Light Heat and Fuel
(20% of 700 + 3,000 – 320 – 600 – 695) 417
(185,865)
Enterprise Analysis Account – Pigs
Pig Sales 76,000
Closing Stock of Pigs 7,000
83,000
Less Expenses
Opening Stock of Pigs 40,000
Pig Purchases 29,000
Vet. Fees (20% of 19,500 – 4,500) 3,000
Farm Repairs (20% of 11,000) 2,200
(1/3 of 120,000 + 95,000 – 15,000 – 191,000) 3,000
Insurance (1/3 of 4,800 + 1,800 – 600 – 336) 448
Light Heat and Fuel
(40% of 700 + 3,000 – 320 – 600 – 695) 834
(79,782)
Enterprise Analysis Account – Horses

Horse Sales (26,250 – 14,700) 11,550
Annual Grant from Bord na gCapaill 12,000
Closing Stock of Horses 18,000
41,550
Less Expenses
Opening Stock of Horses 65,000
Horse Purchases 21,000
Vet. Fees (40% of 19,500 – 4,500) 6,000
Farm Repairs (40% of 11,000) 4,400
(1/3 of 120,000 + 95,000 – 15,000 – 191,000) 3,000
Insurance (1/3 of 4,800 + 1,800 – 600 – 336) 448
Light Heat and Fuel
(40% of 700 + 3,000 – 320 – 600 – 695) 834
(103,282)
Gross Profit (Contribution) (61,732)
264
Solutions
(c) General Profit and Loss Account for the year ended 31/12/-1
Contribution from Pigs 3,218
Contribution from Horses (61,732)
Profit on Model Farm Exhibition (24,000 – 15,000) 9,000
50,021
Less Expenses
Loan interest (2,700 – 1,890) 810
Bank Charges 500
(8,310)
Net Profit 41,711
(d) Balance Sheet as at 31/12/-1

Cost Depr Value
Fixed Assets
Equipment 200,000 9,000 191,000
600,000 9,000 591,000
Current Assets
– Pigs 7,000
– Horses 18,000
– Diesel Fuel 600
85,600
Insurance Prepaid (4 months) 600
Deposit Account 40,000
Current Account 12,050
144,750
735,750
Financed by
Capital 1/1/-1 703,570
+ Net Profit 41,711
745,281
– Drawings (8,000 + 336 + 695 + 500) (9,531)
735,750
(e) Advice for the Galvins
The margin on cattle and milk is 47%, on pigs 4%, and there is a loss on horses. Depending on the acreage
devoted to each enterprise, it would appear that Galvin should specialise in cattle and milk and end the other
two enterprises. There may be expensive shut down costs involved. The farm’s liquidity situation is such that
the money that is presently tied up in current assets, especially stocks and cash, could be more profitably
utilised in fixed assets which would generate profits.
265
QUESTION 24.7
Brian and Mary McArdle
Sales – Cattle 43,000

– Milk (29,500 + 1,800) 31,300
Beef Premium 4,500
Drawings (600 + 2,100) 2,700
160,500
Less Expenses
Purchases 29,000
Feedstuffs 9,000
Dairy Wages 5,300
Veterinary Fees (1,200 – 240) 960
Barley Fed to Cattle 1,900
Repairs to Milking Parlour 2,800
Haulage (70% of 5,800) 4,060
Depreciation – Machinery (70% of 3,000) 2,100
– Equipment (70% of 9,000) 6,300
Diesel Oil (70% of 200 + 1,800 – 500) 1,050
(137,470)
Enterprise Analysis Account for the year ended 31/12/-9 – Barley

Sales – Barley 19,000
– Straw 2,600
EU Barley Subsidies (1,300 + 1,200) 2,500
Barley fed to Cattle 1,900
Closing Stock 6,000
32,000
Less Expenses
Opening Stock 7,000
Seeds 900
Pesticides 3,000
Crop Spraying 2,000
Sowing and Harvesting Wages 5,600
Fertiliser (2,500 + 4,500 – 3,000) 4,000
Haulage (30% of 5,800) 1,740
Depreciation – Machinery (30% of 3,000) 900
– Equipment (30% of 9,000) 2,700
Diesel Oil (30% of 200 + 1,800 – 500) 450
(28,290)

Contribution from Barley 3,710
Conacre 1,800
28,540
Less Expenses
Insurance (700 – 140) 560
Light and Heat (1,300 – 260) 1,040
Loan Interest 2,000
(3,600)
Net Profit 24,940
266
Solutions

Cost Depr Value
Fixed Assets
Farm Land and Buildings 450,000 – 450,000
Farm Machinery 55,000 28,000 27,000
Farm Equipment 45,000 26,000 19,000
550,000 54,000 496,000
Current Assets
– Fertiliser 3,000
– Barley 6,000
– Diesel Oil 500
88,500
Debtors (1,900 + 1,800 + 1,200) 4,900
Cash 100
93,500
Current Liabilities
Creditors 16,400
Bank 1,700
(18,100)
75,400
571,400
Financed by
Capital (524,800 + 2,800) 527,600
+ Net Profit 24,940
552,540
– Drawings (2,800 + 600 + 2,100 + 240 + 140 + 260) (6,140)
546,400
ACC Loan 25,000
571,400
(d) Advice to the McArdle Family
The farm made a profit of €24,940 during the year. This represents a return on capital employed of just
under 5%. This would have to be compared with previous years and returns from similar enterprises. The per
acreage contribution of cattle and milk was €164.50 per acre (23,030/140) and the per acreage contribution
of barley was €61.83 per acre (3,710/60).
The return on the cattle and milk enterprise is superior to that on barley so a higher concentration on cattle
and milk is desirable but may not be possible due to suitability of land, milk quotas available etc.

The Lynch Family
(a) Statement of Capital on 1/1/-0
Assets Liabilities
Farm Land and Buildings 200,000 Creditors for Cattle 12,000
Farm Equipment 15,000
Farm Machinery 25,000
Stock of Cattle 29,000
Stock of Grain 4,000
Prize Bonds 5,000
Due from Meat Factory 9,500
Bank 3,500 Capital on 1/1/-0 280,820
292,280 292,820
267
(b) Enterprise Analysis Account for the year ended 31/12/-0 – Cattle and Milk
Sales to Meat Factory (23,800 – 9,500 + 10,800) 25,100
Sales at Market 19,000
Sales of Milk (27,200 – 1,500 + 2,800) 28,500
Beef Premium 3,900
Drawings (1,000 + 3,000) 4,000
112,500
Less Expenses
Purchases (23,000 – 12,000 + 11,500) 22,500
Feedstuffs 11,100
Grain Fed to Cattle 1,900
Veterinary Fees (3,000 – 600) 2,400
Dairy Wages 11,700
General Farm Expenses (1/2 of 2,300) 1,150
Machinery Repairs (1/2 of 3,200) 1,600
Haulage (1/2 of 5,500) 2,750
(84,100)
Sales 15,300
Grain Subsidy 2,800
Grain fed to Cattle 1,900
Closing Stock 7,000
27,000
Less Expenses
Opening Stock 4,000
Seeds 2,900
Sowing and Harvesting 3,900
Pesticides 2,500
Crop Spraying 2,900
General Farm Expenses (1/2 of 2,300) 1,150
Machinery Repairs (1/2 of 3,200) 1,600
Haulage (1/2 of 5,500) 2,750
(21,700)
(c) General Profit and Loss Account for the year ended 31/12/-0

Contribution from Grain Crops 5,300
Conacre 3,500
37,200
Less Expenses
Insurance (320 + 2,040 – 340) 2,020
Water Rates (160 – 32) 128
Depreciation – Equipment (15,000 + 17,000 – 30,000) 2,000
– Machinery (25,000 – 21,000) 4,000
(8,148)
Net Profit 29,052
268
Solutions
(d) Balance Sheet as at 31/12/-0

Cost Depr Value
Fixed Assets
Farm Equipment 32,000 2,000 30,000
Farm Machinery 25,000 4,000 21,000
257,000 6,000 251,000
Prize Bonds 5,000
256,000
Current Assets
– Grain 7,000
39,000
Debtors – Creamery 2,800
– Meat Factory 10,800
Bank 1,800
Insurance Prepaid (two months) 340
54,740
Current Liabilities
Creditors for Cattle (11,500)
43,240
299,240
Financed by
Capital 1/1/-0 280,820
+ Net Profit 29,052
309,872
– Drawings (6,000 + 1,000 + 3,000 + 600 + 32) 10,632
299,240
QUESTION 24.9
The McGimpsey Family
Sales – Cows 190,000

– Calves 45,000
– Milk (118,000 + 5,000) 123,000
Beef Premium 4,000
Drawings (2,200 + 800) 3,000
467,000
Less Expenses
Purchases 140,000
Feedstuffs 11,000
Dairy Wages (24,000 + 1,000) 25,000
Repairs to Milking Parlour 1,500
Veterinary Fees (7,000 + 300) ÷ 2 3,650
Haulage (5,000 + 2,500) ÷ 3 2,500
Cattle Pen Repairs 3,000
(284,650)
269
Enterprise Analysis Account for the year ended 31/12/-8 – Sheep
Sales – Sheep 124,000

– Wool 3,000
Ewe Premium 5,000
Drawings 1,900
166,900
Less Expenses
Purchases 101,000
Feedstuffs 3,000
Sheep Dip Expenses 700
Sheep Shearing 700
Veterinary Fees (7,000 + 300) ÷ 2 3,650
Haulage (5,000 + 2,500) 2,500
(148,550)
Enterprise Analysis Account – Grain Crops
Sales – Grain 21,000

39,000
Less Expenses
Pesticides (1,500 + 4,000 – 2,000) 3,500
Purchases of Seeds 9,000
Repairs to Harvester 1,200
Sowing Wages 5,000
Harvesting Wages 7,000
Crop Spraying 2,000
Haulage (5,000 + 2,500) ÷ 3 2,500
(40,200)
Gross Profit (Contribution) (1,200)

Contribution from Sheep 18,350
Contribution from Grain Crops (1,200)
Conacre 12,000
Rent of Land for Annual Ploughing Championships 39,000
250,500
Less Expenses
Diesel Oil (2,000 + 5,000 – 1,800 – 1,300) 3,900
Light and Heat (4,000 + 200 – 1,050) 3,150
General Wages (40,000 – 10,000) 30,000
Depreciation – Farm Machinery 27,000
– Farm Equipment 14,000
– Tractors 13,500
Bank Interest 1,000
Accountancy Fees 3,000
(95,550)
Net Profit 154,950
270
Solutions

Cost Depr Value
Fixed Assets
Farm Machinery 120,000 57,000 63,000
Farm Equipment 70,000 44,000 36,000
Tractors 90,000 43,500 46,500
730,000 144,500 585,500
Current Assets
Stock – Pesticides 2,000
– Diesel Oil 1,800
– Cattle 102,000
– Sheep 33,000
– Grain 18,000
156,800
Debtors (27,100 + 5,000) 32,100
Cash 500
189,400
Creditors 35,000
Bank 3,000
Dairy Wages Due 1,000
Haulage Due 2,500
ESB Bill Due 200
Vet Fees Due 300
(42,000)
147,400
732,900
Financed by
Capital 600,000
+ Net Profit 154,950
754,950
– Drawings (4,800 + 2,200 + 1,900 + 800 + 1,300 + 1,050 + 10,000) (22,050)
732,900
271
25
QUESTION 25.1
Tabular Statements: Solutions
Lassiter Ltd
1/1/-4 Jan Feb Mar Apr June July Aug 31/12/-4
Buildings 120,000 20,000 140,000
Machinery 25,000 5,000 30,000
Stock 35,000 (10,000) 8,000 33,000
Debtors 21,000 (1,000) 12,000 32,000
Bills Receivable 10,000 10,000
211,000 – – (1,000) 20,000 2,000 8,000 5,000 245,000
Share Capital 130,000 70,000 200,000
General Reserve 20,000 20,000
Profit and Loss Account 38,000 100 (700) 2,000 (3,000) 36,400
Creditors 18,000 (1,100) 8,000 24,900
Bank Overdraft 5,000 1,000 (70,000) (300) 8,000 (56,300)
TSB Loan 20,000 20,000
211,000 – – (1,000) 20,000 2,000 8,000 5,000 245,000
QUESTION 25.2
Mitchell Ltd
1/1/-5 Jan Feb Mar May July Oct Dec 31/12/-5
Buildings 60,000 40,000 100,000
Equipment 40,000 6,000 46,000
Motor Vans 20,000 20,000
Stock 44,000 (8,000) 1,000 37,000
Debtors 21,000 (3,000) 4,800 (1,200) 21,600
Bills Receivable 8,000 8,000
193,000 – – (3,000) (3,200) 6,000 40,000 (200) 232,600
Share Capital 150,000 50,000 200,000
Share Premium 10,000 10,000 20,000
Profit and Loss 12,000 300 (1,800) 1,600 (2,000) (200) 9,900
Creditors 17,500 (2,800) 14,700
Bank Overdraft 3,500 (60,000) 2,500 (1,200) (4,800) 8,000 (52,000)
Revaluation Reserve 40,000 40,000
193,000 – – (3,000) (3,200) 6,000 40,000 (200) 232,600
272
Solutions

Quantum Ltd
1/1/-6 Jan Feb March April May June1 July Aug Oct Dec 31/12/-6
Buildings 110,000 60,000 170,000
Equipment 60,000 9,000 69,000
Stock 62,000 (12,000) 300 4,500 (800) 54,000
Debtors 27,000 14,400 (360) 1,200 42,240
Insurance Prepaid 300 60 360
259,300 60,000 2,400 (60) – 1,200 60 – 4,500 (800) 9,000 335,600
Share Capital 170,000 15,000 185,000
Share Premium 34,000 5,000 39,000
Profit and Loss Account 21,000 2,400 (60) 2,000 (1,380) 200 (80) 2,000 26,080
Creditors 29,000 4,500 (720) 32,780
Bank Overdraft 3,300 (20,000) (800) 1,440 1,800 7,000 (7,260)
Bills Payable 2,000 (2,000) –
259,300 60,000 2,400 (60) – 1,200 60 – 4,500 (800) 9,000 335,600
Notes (1) June – A payment of €1,440 annual premium brings insurance prepaid to 31/3/-7. Thus 3 months at
€120 per month = €360 prepaid.

Jones Ltd
1/1/-7 Jan Feb March April May June August Sept. Dec. 31/12/-7
Land and Buildings 260,000 260,000
– Accumulated Depreciation (20,000) (6,000) (26,000)
Motor Vehicles 90,000 50,000 140,000
– Accumulated Depr. (30,000) (28,000) (58,000)
Goodwill 40,000 5,000 45,000
Stock 50,000 12,000 4,900 (7,200) 688 60,388
Debtors 41,000 20,000 (2,000) 9,000 (774) 67,226
431,220 87,000 40 – – (2,000) 4,900 1,800 (86) (34,000) 488,874
Share Capital 250,000 50,000 300,000
Share Premium 50,000 15,000 65,000
Profit and Loss Account 28,220 (1,520) 13,800 (15,000) (1,200) 1,800 (86) (34,000) (7,986)
Creditors 35,000 22,000 4,900 61,900
Bank Overdraft 15,000 1,560 (14,400) 15,000 (800) 16,360
Rent Rec. Prepaid 3,000 600 3,600
431,220 87,000 40 – – (2,000) 4,900 1,800 (86) (34,000) 488,874
273

ROI Ltd
1/1/-8 January May August Sept Dec 31/12/-8
Buildings 180,000 40,000 220,000
Plant and Machinery 90,000 30,000 120,000
Motors 50,000 (5,000) 45,000
– Accumulated Depreciation (10,000) 7,000 (3,000) (6,000)
Stock 28,000 16,000 (20,000) 34,000
Debtors 32,000 30,000 62,000
– Bad Debts Provision (2,000) 1,000 (1,000)
Bank 4,000 (800) (5,000) (1,800)
Insurance Prepaid 1,050 150 1,200
Goodwill 14,000 14,000
323,050 100,000 (650) (3,000) 10,000 (11,000) 418,400
Share Capital 200,000 80,000 280,000
Profit and Loss Account 34,200 (1,150) (3,000) 4,000 (11,000) 23,050
Creditors 25,000 25,000
VAT 3,850 6,000 9,850
Share Premium 20,000 20,000
Rent Receivable Prepaid 500 500
323,050 100,000 (650) (3,000) 10,000 (11,000) 418,400

Westward Ltd
1/1/-9 Jan Feb March May June July Dec 31/12/-9
Land and Buildings 300,000 100,000 80,000 480,000
Motor Vans 90,000 10,000 (20,000) 80,000
Stock 72,000 10,000 (3,000) 79,000
Debtors 40,000 (3,200) 36,800
– Bad Debts Provision (2,000) 160 (1,840)
Goodwill 10,000 10,000
Equipment 40,000 40,000
450,360 120,000 150,000 (3,000) (3,170) – (9,000) (23,440) 681,750
Share Capital 250,000 100,000 350,000
Share Premium 50,000 25,000 75,000
Profit and Loss Account 72,000 (300) (1,730) 300 2,000 (23,440) 48,830
Creditors 25,000 25,000 (2,700) (3,100) 44,200
Bank 1,360 (1,440) 2,800 (11,000) (8,280)
Bills Payable 2,000 2,000
450,360 120,000 150,000 (3,000) (3,170) – (9,000) (23,440) 681,750
274
Solutions
QUESTION 25.7
Flagpole Ltd
1/1/-0 Jan. Feb. March April June Sept Dec 31/12/-0
Land and Buildings 200,000 100,000 300,000
– Accumulated Depr. (10,000) 10,000 (3,600) (3,600)
Motor Vans 50,000 (15,000) 35,000
– Accumulated Depr. (20,000) 8,000 (7,000) (19,000)
Goodwill 16,000 16,000
10% Investments 20,000 20,000
Stock 35,000 5,000 (7,500) (300) 32,200
Debtors 30,000 9,900 39,900
Bank 6,000 8,100 6,000 20,100
Investment Income Due 500 500
Bad Debts Provision (1,995) (1,995)
327,000 5,000 2,400 (300) 8,600 110,000 (1,000) (12,595) 439,105
Share Capital 200,000 200,000
Share Premium 50,000 50,000
Profit and Loss Account 45,000 1,500 (33) 8,400 (1,000) (12,595) 41,272
Creditors 27,000 5,500 (297) 32,203
VAT 3,000 (500) 900 30 3,430
Rent Receivable Prepaid 2,000 200 2,200
327,000 5,000 2,400 (300) 8,600 110,000 (1,000) (12,595) 439,105
26
QUESTION 26.1
Introduction to Management
Accounting: Solutions
(i) Management (ii) Financial (iii) Management

(iv) Financial (v) Financial (vi) Management
(vii) Financial (viii) Financial (ix) Management
(x) Management (xi) Financial (xii) Management
(xiii) Financial (xiv) Financial
QUESTION 26.2
See textbook page 384.
QUESTION 26.3
See textbook page 385.
275
27
QUESTION 27.1
Cost Classification: Solutions
Tabula Ltd
Manufacturing Costs Non-Manufacturing Costs
-------------------------------------------------- --------------------------------------------------------------
(i)(iv)(v)(vi)(ix)(x) (ii)(iii)(vii)(viii)
QUESTION 27.2
Goona Ltd
Direct Costs of Production Indirect Costs of Production
-------------------------------------------------------------- ------------------------------------------------------------------
(i)(iii)(iv)(viii)(ix) (ii)(v)(vi)(vii)(x)
QUESTION 27.3
Finneogue Ltd
Fixed Costs Variable Costs Mixed Costs
-------------------------- --------------------------------- ----------------------------
(ii)(iii)(vii)(ix) (i)(iv)(v)(x) (vi)(vii)
QUESTION 27.4
Situation Graph Number
(a) 5
(b) 1
(c) 4
(d) 3
(e) 2
QUESTION 27.5
Odeplex Cinema Ltd
Step 1:
Customers Costs
High 51,000 €91,500
Low 16,000 €39,000
Difference 35,000 €52,500
Variable Cost = €52,500
Step 2: Variable cost per unit = €52,500/35,000 = €1.50 per customer
Step 3:
High Low
Total Cost €91,500 €39,000
– Variable cost €76,500(51,000 x €1.50) €24,000 (16,000 x €1.50)
= Fixed cost €15,000 €15,000
Step 4: At 54,000 customers, maintenance costs will be €15,000 fixed plus €81,000 (54,000 x €1.50) = €96,000
276
Solutions
QUESTION 27.6
Pelo Car Sales Ltd
Step 1:
Sales Costs
High €730,000 €85,000
Low €510,000 €63,000
Difference €220,000 €22,000
Step 2: Variable cost per unit = €22,000/€220,000 = 10%
Step 3:
High Low
Total Cost €85,000 €63,000
– Variable cost €73,000 (10% of €730,000) €51,000 (10% of €510,000)
= Fixed cost €12,000 €12,000
Step 4: At sales of €680,000, salesforce earnings will be €12,000 fixed plus €68,000 (10% of €680,000) =
€80,000
QUESTION 27.7
Wringo Ltd
Step 1:
Spools of wire produced Costs
High 13,000 €34,890
Low 10,000 €29,550
Step 2: Variable cost per unit = €5,340/€3,000 = €1.78
Step 3:
High Low
Total Cost €34,890 €29,550
– Variable cost €23,140 (13,000 x 1.78) €17,800 (10,000 x 1.78)
= Fixed cost €11,750 €11,750
Step 4: At production of 16,000 spools of wire, production overheads will be €11,750 fixed + €28,480 (16,000 x
€1,78) = €40,230.
QUESTION 27.8
Avora Ltd
Controllable by the Marketing Manager Uncontrollable by the Marketing Manager
------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------
(i)(ii)(iii)(v)(vi)(viii)(ix)(x) (iv)(vii)
QUESTION 27.9
Bawbogue Ltd
Product Cost Period Cost

---------------------------------------- ---------------------------
(i)(iii)(v)(vi)(vii)(ix)(x) (i)(iv)(viii)
277
28
QUESTION 28.1
Product Costing: Solutions
Alpha Ltd
Overhead Analysis Sheet
Overhead Basis of Total Machining Assembly Polishing
Apportionment
Supervisors’ Salaries Number of Employees 42,000 7,000 21,000 14,000
Rent and Rates Floor Space 7,000 3,500 1,750 1,750
Light and Heat Floor Space 21,000 10,500 5,250 5,250
Equipment Insurance Book Value 2,500 1,000 1,000 500
Equipment Depreciation Book Value 10,000 4,000 4,000 2,000
Buildings Depreciation Book Value 7,000 3,000 2,000 2,000
Buildings Insurance Book Value 14,000 6,000 4,000 4,000
Canteen Costs Number of Employees 15,000 2,500 7,500 5,000
118,500 37,500 46,500 34,500
QUESTION 28.2
Beta Ltd
Overhead Analysis Sheet
Overhead Basis of Total Casting Polishing Administration Maintenance
Apportionment
Rent and Rates Floor Space 2,520 1,260 840 210 210
Light and Heat Floor Space 12,000 6,000 4,000 1,000 1,000
Machinery Insurance Book Value 18,000 9,600 8,400 – –
Canteen Costs No. of Employees 50,000 22,500 18,750 3,750 5,000
Buildings Depr. Book Value 4,000 1,400 1,700 500 400
Machinery Power Machine Hours 33,600 25,200 8,400 – –
Supervisors’ Salaries No. of Employees 104,000 46,800 39,000 7,800 10,400
Machine Depr. Book Value 13,500 7,200 6,300 – –
237,620 119,960 87,390 13,260 17,010
Reapportion. Admin. Machine Hours 9,945 3,315 (13,260)
Reapportion. Maint. Machine Hours 12,758 4,252 (17,010)
237,620 142,663 94,957
278
Solutions
QUESTION 28.3
Gamma Ltd
(a) Overhead Analysis Sheet
Overhead Basis of Total Dept A Dept B Dept C
Apportionment
Supervisors’ Salaries Direct Wages 60,000 32,000 8,000 20,000
Repairs to Building Book Value 3,150 1,350 900 900
Canteen Costs Number of employees 4,000 1,600 1,600 800
Materials Handling Direct Materials 7,000 2,800 2,800 1,400
Equipment Depreciation Book Value 4,000 1,500 1,300 1,200
Machinery Maintenance Machine Hours 9,800 1,960 5,880 1,960
Machinery Insurance Machine Hours 2,600 520 1,560 520
Buildings Insurance Book Value 4,900 2,100 1,400 1,400
Administration Costs Number of employees 15,000 6,000 6,000 3,000
130,450 61,830 33,440 35,180
(b) Overhead Absorption Rates

(i) Department A
Total Department Overheads 61,830 61,830
= ---------------------------------------------------------------------- = -------------------- = --------------- = € 3.86 per labour hour
Department Labour Hours 80,000/5 16,000
(ii) Department B
Total Department Overheads 33,440
= ---------------------------------------------------------------------- = ------------------ = €0.28 per machine hour
Department Machine Hours 120,000
(iii) Department C
Total Department Overheads 35,180 35,180
= ---------------------------------------------------------------------- = -------------------- = --------------- = €3.52 per labour hour
Department Labour Hours 50,000/5 10,000
(c)
Cost of Production of Job No. 73X (€).
Direct Materials 20,000
Direct Wages 1,750
Overheads
Department A – 200 x €3.86 772
Department B – 4,000 x €0.28 1,120
Department C – 150 x €3.52 528
QUESTION 28.4
Delta Ltd
(a) Overhead Absorption Rates
Department 1
= ---------------------------------------------------------------------- = ---------------- = €0.85 per labour hour
Department Labour Hours 20,000
Department 2
= ---------------------------------------------------------------------- = ------------------- = €0.13 per machine hour
Department 3
= --------------------------------------------------------------------- = ------------------- = €0.27 per machine hour
279
Department 4
= ---------------------------------------------------------------------- = ---------------- = €1.13 per labour hour
Department Labour Hours 12,000
(b) Selling Price of Job No. 1974
Raw Materials – 3,000 kgs at €3.90 per Kg. = 11,700
Direct Wages
Dept 1 – 400 hours at €5 = 2,000
Dept 2 – 100 hours at €6 = 600
Dept 3 – 90 hours at €5 = 450
Dept 4 – 200 hours at €8 = 1,600
4,650
Overheads
Dept 1 – 400 hours at €0.85 = 340
Dept 2 – 4,000 hours at €0.13 = 520
Dept 3 – 3,500 hours at €0.27 = 945
Dept 4 – 200 hours at €1.13 = 226
2,031
Cost of Production (75%) 18,381
Expected Profit (25%) 6,127
Selling Price (100%) 24,508
QUESTION 28.5
Epsilon Ltd
(i) Cutting Department
Budgeted Overhead 27,000
= ------------------------------------------------------------- = ------------------- = €0.15 per machine hour
Budgeted Machine Hours 180,000
(ii) Assembly Department
= --------------------------------------------------------- = ---------------- = €1.20 per labour hour
Budgeted Labour Hours 70,000
(iii) Finishing Department
= --------------------------------------------------------- = ------------------- = €1.32 per labour hour
Budgeted Labour Hours 80,000
(b) Under/over-absorption of Overheads

Cutting Assembly Finishing Total
Actual Overhead 30,000 86,000 106,000 222,000
Absorbed Overhead 28,500 (i) 87,600 (ii) 104,280 (iii) 220,380
(Under)/Over Absorbed (1,500) 1,600 (1,720) (1,620)
Notes: Absorbed overheads = actual hours at predetermined rates

(i) Cutting Department
190,000 machine hours at €0.15 = €28,500
73,000 labour hours at €1.20 = €87,600
79,000 labour hours at €1.32 = €104,280
280
Solutions
QUESTION 28.6
Zeta Ltd
(i) Department A
Fixed Variable
Overheads 126,000 146,250
= ------------------------------------ ------------------ ------------------
Machine Hours 45,000 45,000
= €2.80 = €3.25
(ii) Department B
Fixed Variable
Overheads 50,000 116,800
= ------------------------------------ ---------------- ------------------
= €1.25 = €2.92
(iii) Department C
Fixed Variable
Overheads 17,000 57,400
= -------------------------------- ---------------- ---------------
Labour Hours 20,000 20,000
= €0.85 = €2.87
(b) Selling price of Job No. 219
Raw Materials – 18,000 metres at €1.40 per metre = 25,200
Direct Wages
Dept A – 200 hours at €18 per hour = 3,600
Dept B – 100 hours at €16 per hour = 1,600
Dept C – 500 hours at €14 per hour = 7,000
12,200
Variable Overheads
Dept A – 900 hours at €3.25 = 2,925
Dept B – 700 hours at €2.92 = 2,044
Dept C – 500 hours at €2.87 = 1,435
6,404
Fixed Overheads
Dept A – 900 hours at €2.80 = 2,520
Dept B – 700 hours at €1.25 = 875
Dept C – 500 hours at €0.85 = 425
3,820
(c) See textbook page 393.

ETA Ltd
Design Department
Fixed Variable
Overheads 1,100 1,280
= ---------------------------------- ------------- -------------
Labour Hours 400 400
= €2.75 = €3.20
281
Machine Shop
Fixed Variable
Overheads 950 1,050
= ------------------------------------ -------- ------------
Machine Hours 500 500
= €1.90 = €2.10
Finishing Department
Fixed Variable
Overheads 2,800 6,720
= -------------------------------- ------------ ------------
Labour Hours 1,600 1,600
= €1.75 = €4.20
(b) General Administration Overhead Absorption Rate

Overhead 2,268
----------------------------------------------------------------------- = ------------ = €1.05
Total Budgeted Labour Hours 2,160
(c) Selling price of Job No. 77R

Raw Materials – 5,200 sq. m at €0.17 per sq. m. = 884.00
Direct Wages
Design Department – 10 hours at €10= 100.00
Machine Shop – 8 hours at €8 = 64.00
Finishing Department – 24 hours at €7 = 189.00
353.00
Variable Overheads
Design Department – 10 hours at €3.20 = 32.00
Machine Shop – 20 hours at €2.10 = 42.00
Finishing Department – 24 hours at €4.20 = 100.80
174.80
Fixed Overheads
Design Department – 10 hours at €2.75 = 27.50
Machine Shop – 20 hours at €1.90 = 38.00
Finishing Department – 24 hours at €1.75 = 42.00
107.50
General Administration Overhead
42 hours at €1.05 = 44.10
Cost of Production (80%) 1,563.40
Expected Profit (20%) 390.85
Selling Price (100%) 1,954.25

Theta Ltd
Overhead Basis of Total Machining Assembly Finishing
Apportionment
Supervisors’ Salaries Direct labour 104,500 25,080 37,620 41,800
Machinery Maintenance Machine hours 15,400 11,550 2,310 1,540
General Administration Number of Employees 18,000 4,320 6,480 7,200
Materials Handling Direct Materials 30,000 20,000 6,000 4,000
Canteen Costs Number of Employees 27,000 6,480 9,720 10,800
Plant Insurance Plant Valuation 6,400 3,600 2,400 400
Plant Depreciation Plant Valuation 8,000 4,500 3,000 500
Employee Benefits Number of Employees 12,000 2,880 4,320 4,800
Power and Steam Kilowatt Hours 50,000 34,000 12,000 4,000
313,300 126,410 97,850 89,040
282
Solutions

(i) Machining Department
Total Overheads 126,410
= --------------------------------------- = ------------------- = €0.84 per machine hour
Machine Hours 150,000
= --------------------------------------- = ------------------------------ = €2.72 per labour hour
Labour Hours 342,000/9.50
= --------------------------------------- = ------------------------------ = €2.23 per labour hour
Labour Hours 380,000/9.50
(c) Selling Price of Job No. 819Z

Direct Materials – (70,000 + 23,000 + 5,000) = 98,000
Direct Labour (6,650 + 21,850 + 38,000) = 66,500
Overheads
Machining Department – 5,000 x €0.84 = 4,200
Assembly Department – 2,300 x €2.72 = 6,256
Finishing Department – 4,000 x €2.23 = 8,920


Iota Ltd
Overhead Basis of Apportionment Total Production Departments Service Departments
1 2 1 2
Machinery Insurance Valuation 13,300 7,000 6,300 – –
Machinery Depreciation Valuation 5,890 3,100 2,790 – –
Administration No. of Employees 19,000 6,080 3,800 3,800 5,320
Supervision No. of Employees 50,000 16,000 10,000 10,000 14,000
Rent and Rates Floor Space 7,800 2,600 1,950 1,950 1,300
Light and Heat Floor Space 6,960 2,320 1,740 1,740 1,160
Canteen No. of Employees 30,000 9,600 6,000 6,000 8,400
Materials Handling Direct Materials 8,890 6,350 2,540 – –
General Repairs Floor Space 4,200 1,400 1,050 1,050 700
Buildings Insurance Floor Space 6,480 2,160 1,620 1,620 1,080
152,520 56,610 37,790 26,160 31,960
Reapportion Machine Hours 17,440 8,720 (26,160)
Reapportion Machine Hours 21,307 10,653 (31,960)
152,520 95,357 57,163

(i) Production Department 1
= --------------------------------------- = ------------------ = € 0.24 per machine hour
(ii) Production Department 2
= --------------------------------------- = ------------------- = € 0.29 per machine hour
283
(c) Selling price of Product No. 23–194

Prime Cost 16.90
Overheads
Production Department 1 – 13 x €0.24 = 3.12
Production Department 2 – 18 x €0.29 = 5.22
Cost of Production (80%) 25.24

Expected Profit (20%) 6.31
(100%) 31.55
(d) Under/over-absorption of Overheads
Actual overheads 8.32 per unit
Overheads absorbed (14 x 0.24 + 17 x 0.29) = 8.29 per unit
Under absorption (0.03) per unit

Kappa Ltd
(a) High/Low method – Budgeted Overheads
Output Dept A Dept B Dept C
High 15,000 38,750 30,000 20,750
Low 9,000 25,250 19,200 13,250
Difference 6,000 13,500 10,800 7,500
13,500 10,800 7,500
Variable Cost per unit --------------- --------------- ------------
6,000 6,000 6,000
= 2.25 1.80 1.25
Fixed Costs (Total costs – Variable costs) 5,000 3,000 2,000
(b) High/Low Method – Actual Overheads
Output Dept A Dept B Dept C
High 15,000 36,500 31,500 19,250
Low 9,000 23,900 20,100 12,350
Difference 6,000 12,600 11,400 6,900
12,600 11,400 6,900
Variable Cost per unit --------------- --------------- ------------
6,000 6,000 6,000
= 2.10 1.90 1.15
Fixed Costs (Total costs – variable costs) 5,000 3,000 2,000
(c) Under/over-absorption of Variable Overheads for the First Six Months

Dept A Dept B Dept C Total
Actual 147,000 133,000 80,500 360,500
Budgeted 157,500 126,000 87,500 371,000
(Under)/Over Absorbed 10,500 (7,000) 7,000 10,500

Lambda Ltd
(i) Design Department
Fixed Variable
Total Budgeted Overheads 12,000 30,000
= ---------------------------------------------------------------- --------------- ----------------
Direct Labour Hours 6,000 6,000
= €2 per hour = €5 per hour
(ii) Machining Department
Fixed Variable
= ---------------------------------------------------------------- ---------------- ----------------
= €6 per hour = €7.50 per hour
284
Solutions

Fixed Variable
= ---------------------------------------------------------------- ---------------- ---------------
Direct Labour Hours 8,000 8,000
= €1.25 per hour = €6.25 per hour
(b) Selling price of Job No. 731/T

Direct Materials
Machining Department – 3,800 metres at €25 (640,000/25,600) = 95,000
Finishing Department – 650 metres at €20 (110,000/5,500) = 13,000
Direct Labour
Design Department – 60 hours at €20 (120,000/6,000)= 1,200
Machining Department – 15 hours at €8 (20,000/2,500)= 120
Finishing Department – 12 hours at €5 (40,000/8,000) = 60
Variable Overheads
Design Department – 60 hours at €5 = 300
Machining Department – 150 hours at €7.50 = 1,125
Finishing Department – 12 hours at €6.25 = 75
Fixed Overheads
Design Department – 60 hours at €2 = 120
Machining Department – 150 hours at €6 = 900
Finishing Department – 12 hours at €1.25 = 15
(c) Actual selling price 121,241.25 (124,350 – 21/2%)
Actual cost of production 117,510.75 (111,915 + 5%)
Actual Profit 3,730.50

Mu Ltd
(a) Stores Ledger Card

Date Receipts Issued to Production Balance
Quantity Price Value Quantity Price Value Quantity Value
July 1 100 115.00
July 1 150 1.18 177.00 250 292.00
July 4 120 Note 1 138.60 130 153.40
July 9 300 1.21 363.00 430 516.40
July 15 225 Note 2 268.35 205 248.05
July 21 110 1.25 137.50 315 385.55
July 22 210 Note 3 254.30 105 131.25
July 27 300 1.27 381.00 405 512.25
July 29 70 Note 4 87.50 335 424.75
July 31 50 1.26 63.00 385 487.75
Note 1 Note 2
100 at 1.15 = 115.00 130 at 1.18 = 153.40
20 at 1.18 = 23.60 95 at 1.21 = 114.95
138.60 268.35
Note 3 Note 4
205 at 1.21 = 248.05 70 at 1.25 = 87.50
5 at 1.25 = 6.25
254.30
285
(b) Closing Stock Valuation at 31 July

35 at 1.25 = 43.75
300 at 1.27 = 381.00
50 at 1.26 = 63.00
487.75

Nu Ltd
(i) Credit Sales for the year (€) (ii) Credit purchases for the year (€)
50 at €28 = 1,400 200 at €20 = 4,000
300 at €30 = 9,000 500 at €22 = 11,000
180 at €40 = 7,200 400 at €22 = 8,800
600 at €45 = 27,000 500 at €24 = 12,000
44,600 35,800
Add V.A.T. at 10% 4,460 Add VAT at 10% 3,850
Sales to Debtors 49,060 Purch. From Creds. 39,650
(a) Debtors Control Account

Sales 49,060 Balance c/d 4,800
54,660 54,660
Balance b/d 4,800
Creditors Control Account

42,780 42,780
Balance b/d 4,200
(b) Stores Ledger Card

Date Receipts Issues Balance
Units Value Units Value Units Value
(€) (€) (€)
1/1/-1 55 990
15/1/-1 200 4,000 155 4,990
8/2/-1 50 900 205 4,090
7/3/-1 500 11,000 705 15,090
22/4/-1 20 390 685 14,700
1/5/-1 300 6,230 385 8,470
21/6/-1 400 8,800 785 17,270
20/7/-1 180 3,960 605 13,310
11/8/-1 40 880 565 12,430
1/9-1 100 2,200 465 10,230
12/10/-1 500 12,000 965 22,230
19/11/-1 600 13,470 365 8,760
Notes:
8/2/-1 – (50 x 18) = 900
22/4/-1 – (5 x 18 + 15 x 20) = 390
1/5/-1 – (185 x 20 +115 x 22) = 6,230
20/7/-1 – (180 x 22) = 3,960
11/8/-1 – (40 x 22) = 880
1/9/-1 – (100 x 22) = 2,200
19/11/-1 – (65 x 22 + 400 x 22 + 135 x 24) = 13,470
286
Solutions
Cash sales for the year (€)

20 at £28 = 560
40 at £28 = 1,120
100 at £30 = 3,000
100 at £40 = 4,000
Total 8,680
VAT at 10% 868
Cash Sales 9,548
(c) Trading Account for the year ended 31/12/-1 (€)

Sales – Credit 44,600
– Cash 8,680
53,280
Less Cost of Sales
Opening Stock 990
+ Purchases 35,800
36,790
– Closing Stock 6,360
(30,430)
Gross Profit 22,850
(d) VAT Account

Purchases 3,580 Sales on Credit 4,460
Bank 1,248 Sales for Cash 868
Balance c/d 500
5,328 5,328
Balance b/d 500
287
29
QUESTION 29.1
Cost Volume Profit Analysis
(Marginal Costing): Solutions
Soprano Ltd
(a) Sales price per Unit = €18
(b) Variable cost per Unit = €12.60
(c) Contribution per Unit = 18 – 12.60 = 5.40
(d) Break-even point
Fixed Costs 135,000
= ------------------------- = ----------------- = 25,000 units x €18 = €450,000
CPU 5.40
QUESTION 29.2
Tenor Ltd
(a) Contribution per Unit
25 – 15 = 10
(b) Break-even point
Fixed Costs 275,000
= ------------------------- = ------------------ = 27,500 units × €25 = €687,500
CPU 10
(c) Marginal Costing Statement (33,000 units)

Sales (33,000 x 25) 825,000
– Variable Costs (33,000 x 15) 495,000
= Contribution 330,000
– Fixed Costs 275,000
= Profits 55,000
QUESTION 29.3
Alto Ltd
(a) Break-even Point in Sales Revenue
Fixed Costs 264,600 264,600 × 100
= ------------------------- = ----------------- = -------------------------------- = £630,000
C/S Ratio 42% 42
(b) Break-even Point in Units
630,000 ÷ 45 = 14,000 units
(c) Marginal Costing Statement at 14,000 units
Sales (14,000 x 45) 630,000
– Variable Costs (58%) 365,400
= Contribution (42%) 264,600
= Profits Nil
(d) Marginal Costing Statement at 18,000 units

Sales (18,000 x 45) 810,000
= Profits 75,600
288
Solutions
QUESTION 29.4
Arco Ltd
= Sales price – Variable cost
= 62 – 39.06
= €22.94
(b) Break-even Point in Units
Fixed Costs 137,640
= ------------------------- = ----------------- = 6,000 units
CPU 22.9 4
(c) Break-even Point in Sales Revenue
Fixed Costs 137,640 ˜
= ------------------------- = ----------------- = €372,000
C/S Ratio 37%
(d) Target Profit
Fixed Costs + Target Profit
= ------------------------------------------------------------
CPU
137,640 + 100,000
= ---------------------------------------- = 10,360 units
22.94
(e) Margin of Safety Percentage
Actual Sales – B/E Sales × 100
= --------------------------------------------------------------------
Actual Sales
10,000 – 6,000 × 100
= ----------------------------------------------- = 40%
10,000
(f) Marginal Costing Statement (i) 4,000 (ii) 6,000 (iii) 8,000 (iv) 20,000
Sales 248,000 372,000 496,000 1,240,000
– Variable Costs 156,240 234,360 312,480 781,200
= Contribution 91,760 137,940 183,520 458,800
– Fixed Costs 137,640 137,640 137,640 137,640
= Profits (Losses) (45,88) Nil 45,880 321,160
QUESTION 29.5
Tremolo Ltd
(a) C/S Ratio
Contribution × 100
= -------------------------------------------
Sales
Profit + Fixed Costs × 100 34,850 + 188,190
= ------------------------------------------------------------ = --------------------------------------- × 100 = 41%
Sales 544,000
(b) Break-even point in Sales Revenue
Fixed Costs 188,190
= ------------------------- = ----------------- = €459,000
C/S Ratio 41%
(c) Target Profit
= ------------------------------------------------------------
C/S Ratio
188,190 + 50,000
= -------------------------------------- = €580,951
41%
(d) Marginal Costing Statement

Sales 750,000
= Profits 119,310
289
QUESTION 29.6
Sharp Ltd
= Sales price – Variable cost
= 8.20 – 5.33
= 2.87
(b) Break-even Point
Fixed Costs 48,790
= ------------------------
CPU
- = --------------- = 17,000 units x €8.20 = €139,400
2.87
(c) Margin of Safety Percentage
= --------------------------------------------------------------------
Actual Sales
21,000 – 17,000 × 100
= --------------------------------------------------- = 19%
21,000
(d) Target Profit
= ------------------------------------------------------------
CPU
48,790 + 20,000
= ----------------------------------- = 23,969 units
2.87
(e) Sales – Variable Costs – Fixed Costs = Profits
((21,000 + 2,100) x 8.20) – ((21,000 + 2,100)) x 5.33) – (48,790 + 7,000) = Profits
189,420 – 123,123 – 55,790 = €10,507.
(f) Marginal Costing Statement
Sales (16,000 x 9) 144,000
– Variable Costs (16,000 x 5.33) 85,280
= Profits 9,930

Crescendo Ltd
Cost Classification
Cost Fixed Variable
Direct Materials – 210,000
Direct Labour – 195,000
Factory Overheads 15,000 60,000
Administration 59,000 –
Distribution 52,500 52,500
Totals 126,500 517,500
Marginal Costing Statement at 15,000 units

Total Per Unit
Sales 690,000 46.00
– Variable Costs 517,500 34.50
= Contribution 172,500 11.50
= Profits 46,000
(a) Break-even Point

Fixed Costs 126,500
= ------------------------- = ----------------- = 11,000 units
CPU 11.50
290
Solutions
Margin of Safety Percentage

= --------------------------------------------------------------------
Actual Sales
15,000 – 11,000 × 100
= --------------------------------------------------- = 27%
15,000
(b) Profit Target
Fixed Costs + Profit Target
= ------------------------------------------------------------
CPU
126,500 + 55,200
= --------------------------------------
11.50
= 15,800 units
(c) Let S = Sales Price
Sales – Variable Costs – Fixed Costs = Profits
15,000 S – (15,000 x 34.50) – 139,150 = 46,000
15,000 S – 517,500 – 139,150 = 46,000
15,000 S = 702,650
S = €46.84
Sales (18,750 x 41.40) 776,250
– Variable Costs (18,750 x 34.50) 646,875
= Profits 22,425

Collegno Ltd
Note: Number of units omitted from question (6,500 units)
(a) Break-even Point = 4,000 units

Margin of Safety = 2,500 units (42%)
(b) See textbook page 418
291

Forzato Ltd
Cost Classification
Cost Fixed Variable
Manufacturing 24,500 45,500
Selling and Distribution 2,000 38,000
Administration 4,500 500
Totals 31,000 84,000
Total Per Unit
Sales 135,000 45
– Variable Costs 84,000 28
= Contribution 51,000 17
= Profits 20,000

Fixed Costs 31,000
= ------------------------
CPU
- = --------------- = 1,824 units x €45 = €82,080
17
(b) Profit Target
Fixed Costs + Profit Target 31,000 + 30,000
= ------------------------------------------------------------ = ----------------------------------- = 3,589 units
CPU 17
(c) Let number of units = N
45N – 24N – 34,100 = 40,000
21N = 74,100
N = 3,529 Units
Sales (3,450 x 40) 138,000
– Variable Costs (3,450 x 25) 86,250
– Fixed Costs (31,000 + 6,200) 37,200
= Profits 14,550
(e) See textbook page 418

Fortissimo Ltd
(a) Break-even Point in Sales Revenue
Fixed Costs 170,000
= ------------------------- = ----------------- = €377,778
C/S Ratio 45%
(b) Profit Target
= ------------------------------------------------------------ = -------------------------------------- = €477,778
C/S Ratio 45%
(c) Let x = Sales Revenue
170,000 + 11%x
------------------------------------ = x
45%
45%x = 170,000 + 11%x
34%x = 170,000
x = €500,000
(d) Variable costs are 55% of sales.
A 5% increase brings variable costs up to 57.75% of sales and the C/S ratio down to 42.25%
Fixed Costs 161,500
Break-even Point in sales revenue = ------------------------- = ----------------- = €382,249
C/S Ratio 42.25%
292
Solutions
QUESTION 29.11
Rubato Ltd
Cost Fixed Variable
Direct Labour 199,920
Production Overheads 99,270 136,920
Administration Expenses 118,250 –
Distribution Costs 28,000 94,500
Totals 245,520 872,340

Total Per Unit
Sales 1,302,000 620.00
= Profits 184,140

Fixed Costs 245,520
= ------------------------- = ----------------- = 1,200 units
CPU 204.60
Margin of safety Percentage
Actual Sales – Breakeven Sales × 100
= -------------------------------------------------------------------------------------
Actual Sales
2,100 – 1,200
= ----------------------------- = 43%
2,100
(b) Profit Target
= ------------------------------------------------------------
CPU
245,520 + 202,554
= ----------------------------------------
204.60
= 2,190 units
(c) Let N = number of units
620N – 415.40N – 245,520 = 0.15(620N)
204.60N – 245,520 = 93N
111.6N = 245,520
N = 2,200 units
(d) Let S = sales price
3,000S – (3,000 x 415.40) – 245,520 = 184,140
3,000S – 1,246,200 – 245,520 = 184,140
3,000S = 1,246,200 + 245,520 + 184,140
S = €558.62
(e) Let N = number of units
(N x (620 + 62)) – (N x 425) – 245,520 = 500,000
682N – 425N – 245,520 = 500,000
257N = 500,000 + 245,520 \ N = 2,901 units
Maximum Capacity = 3,000 units
2,901
∴ ------------ × 100 = 96.7% of capacity
3,000
293

Harmonic Ltd
Cost Classification – Production Overheads
Output Costs
High 16,000 65,600
Low 13,000 58,100
Difference 3,000 7,500
7,500
Variable cost per unit = ------------ = €2.50
3,000
High Low
Total Cost 65,600 58,100
– Variable Cost 40,000 32,500
= Fixed Costs 25,600 25,600
Cost Classification
Cost Fixed Variable
Administration Expenses 28,000 –
150,000 360,000

Total Per Unit
Sales 540,000 30
= Profits 30,000

Fixed Costs 150,000
= ------------------------- = ----------------- = 15,000 units
CPU 10
Actual Sales – B/E Sales × 100 18,000 – 15,000 × 100
= -------------------------------------------------------------------- = -------------------------------------------------- = 17%
Actual Sales 18,000
(b) Profit Target
= ------------------------------------------------------------ = -------------------------------------- = 18,600 units
CPU 10
(c) Let N = number of units
30N – 20N – 150,000 = 0.2(30N)
10N – 15,000 = 6N
4N = 150,000
N = 37,500 units

Sales (19,800 x 27) 534,600
– Variable Costs (19,800 x 21) 415,800
= Profits 61,300
294
Solutions
(e) After-tax Profit

Fixed Costs + (Target Profit ÷ 1 – Tax Rate)
= -------------------------------------------------------------------------------------------------
CPU
150,000 + (45,000 ÷ 90%)
= -----------------------------------------------------------
10
150,000 + 50,000
= --------------------------------------
10
= 20,000 units

Tralagh Ltd
Cost Classification – Indirect Costs
Output Costs
High 7,000 106,000
Low 4,000 88,000
Difference 3,000 18,000
Variable cost per unit= 18,000/3,000 = €6 per hour

High Low
Total Cost 106,000 88,000
– Variable Costs 42,000 24,000
= Fixed Costs 64,000 64,000
Cost Classification
Cost Fixed Variable
Direct Costs – 300,000
Indirect Costs 64,000 36,000
Administration Expenses 12,000 48,000
96,000 444,000

Total Per Unit
Sales 720,000 120
= Profits 180,000
Fixed Costs 96,000
= ------------------------- = --------------- = 2,087 units
CPU 46
6,000 – 2,087 × 100
--------------------------------------------- = 65%
6,000
295
(b) Break-even Chart
(c) Profit Target

= ------------------------------------------------------------
CPU
96,000 + 200,000 296,000
= -------------------------------------- = ----------------- = 6,998 units
46 – 3.70 42.30

Sales (5,700 x 140) 798,000
– Variable Costs (5,700 x 81.40) 463,980
– Fixed Costs (96,000 + 19,200) 115,200
218,820
(e) After-tax Profit Target

Fixed Costs + (Target Profit ÷ 1 – Tax Rate)
= -------------------------------------------------------------------------------------------------
CPU
96,000 + (180,000 ÷ 90%)
= -----------------------------------------------------------
46 + 3
96,000 + 200,000
= --------------------------------------
49
= 6,041 units
(f) A constant product mix is only a valid assumption in the short term, i.e. over a very small range of output.
Most firms would vary their product mix to maximize the firm’s profits in varying market circumstances.

Ponticello Ltd
Cost Classification
Cost Fixed Variable
Manufacturing 32,564 289,560
Non-Manufacturing 42,654 36,040
Total 75,218 325,600
Marginal Costing Statement at 800 units

Total Per Unit
Sales 440,000 550
= Profits 39,182
296
Solutions

Fixed Costs 75,218
= ------------------------- = --------------- = 526 units
CPU 143
Actual Sales – B/E Sales × 100 800 – 526 × 100
= -------------------------------------------------------------------- = ------------------------------------ = 34%
Actual Sales 800
(b) Let S = Sales Price
800S – (800 x 400) – 82,740 = 39,182
800S = 320,000 + 82,740 + 39,182
800S = 441,922
S = €552.40
(c) Let N = Number of units
550N – 407N – 75,218 = 0.15(550N)
143N – 75,218 = 82.5N
60.5N = 75,218
N = 1,244

Sales (800 x 550) 440,000
– Variable Costs (800 x (407 – 20)) 309,600
– Fixed Costs (75,218 + 20,000) 95,218
= Profits 35,182
(e) Marginal Costing Statement

Sales (880 x 525) 462,000
– Variable Costs (880 x (407 + 12)) 368,720
= Profits 18,062

Pitch Ltd
Cost Classification
Cost Fixed Variable
Administration Expenses 92,000 16,000
182,700 511,200

Total Per Unit
Sales 720,000 45.00
= Profits 26,100
297

Fixed Costs 182,700
= ------------------------- = ----------------- = 14,000 units
CPU 13.05
Actual Sales – B/E Sales × 100 16,000 – 14,000 × 100
= -------------------------------------------------------------------- = -------------------------------------------------- = 12.5%
Actual Sales 16,000
(b) Let S = Sales Price
16,000S – (16,000 x 31.95) – 182,700 = 0.1(16,000S)
16,000S – 511,200 – 182,700 = 1,600S
14,400S = 693,900
S = €48.19
(c) Plan (A) Marginal Costing Statement

Sales (19,200 x €42.75) 820,800
– Variable Costs (19,200 x €31.95) 613,440
= Profits 24,660
Plan (B) Marginal Costing Statement

Sales (18,400 x €45) 828,000
– Variable Costs (18,400 x €32.22) 592,848
= Profits 40,452
Plan (C) Marginal Costing Statement

Sales (16,000 x €45) 720,000
– Variable Costs (16,000 x €26.95) 431,200
= Profits 86,100 Optimum
298
30
QUESTION 30.1
Budgeting and
Budgetary Control: Solutions
Rocklom Ltd
(a) Sales Budget
Super Excell
Budgeted Quantities 8,000 3,500
Expected Sales Price €20 €30
Budgeted Sales €160,000 €105,000
(b) Unit Production Budget Super Excell

Budgeted Sales 8,000 3,500
+ Budgeted Closing Stock 800 250
– Opening Stock (700) (300)
= Budgeted Production 8,100 units 3,450 units
QUESTION 30.2
Hiform Ltd
(a) Sales Budget
Quantum Magnum
(b) Unit Production Budget Quantum Magnum

+ Budgeted Closing Stock 1,000 500
(c) Raw Materials Usage Budget Material A Material B

Quantum (7,100 x 6) 42,600
(7,100 x 14) 99,400
Magnum (4,900 x 9) 44,100
(4,900 x 11) 53,900
Budgeted Materials Usage 86,700 kgs 153,300 kgs
(d) Raw Materials Purchases Budget Material A Material B

Budgeted Materials Usage 86,700 153,300
+ Budgeted Closing Stock 7,000 13,500
– Opening Stock (6,500) (11,000)
= Budgeted Materials Purchased (kgs) 87,200 155,800
299
QUESTION 30.3
Inkprop Ltd
(a) Sales Budget
Asterisk Comma
Expected Sales Price 120 130
Budgeted Sales €1,320,000 €1,820,000
(b) Unit Production Budget Asterisk Comma

– Opening Stock (3,000) (5,500)
(c) Direct Labour Budget Asterisk Comma

Budgeted Production 12,500 units 12,500 units
x Labour Hours per unit 4 hours 6 hours
= Budgeted Labour Hours 50,000 hours 75,000 hours
x Labour rate per hour €11 €11
= Budgeted Direct Labour Costs €550,000 €825,000
QUESTION 30.4
Fonplus Ltd
(a) Sales Budget
Red Blue
(b) Unit Production Budget Red Blue

– Opening Stock (1,000) (400)
(c) Direct Labour Budget Dept. X Dept. Y

Red (4,250 x 7) 29,750 hours
(4,250 x 9) 38,250 hours
Blue (3,400 x 4) 13,600 hours
(3,400 x 12) 40,800 hours
Budgeted Labour Hours 43,350 hours 79,050 hours
x Labour rate per hour €9 €9
300
Solutions
QUESTION 30.5
Deprints Ltd
(a) Sales Budget
Basic Deluxe
Budgeted Sales €750,000 €1,400,000
(b) Unit Production Budget Basic Deluxe

– Opening Stock (500) (7,000)
(c) Raw Materials Usage Budget Material C Material D

Basic (5,100 x 4) 20,400
(5,100 x 7) 35,700
Deluxe (7,200 x 6) 43,200
(7,200 x 6) 43,200
Budgeted Materials Usage 63,600 mtrs 78,900 mtrs
(d) Raw Materials Purchases Budget Material C Material D

Budgeted Materials Usage 60,300 78,900
– Opening Stock (10,000) (13,000)
= Budgeted Material Purchases 65,600 mtrs 80,400 mtrs
x Expected Prices €3 €5
= Budgeted Material Purchases (€) €196,800 €402,000
(e) Direct Labour Budget Basic Deluxe

x Labour Hours per unit 6 hours 10 hours
x Labour Rate per hour €12 €12
301
QUESTION 30.6
Bankfort Ltd
Cash Budget
Receipts from Sales Jan Feb Mar Apr May June Total
Debtors on 1 January 7,200 – – – – – 7,200
Jan Sales 1,600 6,400 – – – – 8,000
Feb Sales – 2,000 8,000 – – – 10,000
Mar Sales – – 2,000 8,000 – – 10,000
Apr Sales – – – 2,400 9,600 – 12,000
May Sales – – – – 2,600 10,400 13,000
June Sales – – – – – 2,800 2,800
Total Receipts = 8,800 8,400 10,000 10,400 12,200 13,200 63,000
Payments for Purchases
Creditors on 1 January 3,600 – – – – – 3,600
Jan Purchases 2,400 3,600 – – – – 6,000
Feb Purchases – 2,800 4,200 – – – 7,000
Mar Purchases – – 3,600 5,400 – – 9,000
Apr Purchases – – – 3,600 5,400 – 9,000
May Purchases – – – – 3,600 5,400 9,000
Jun Purchases – – – – – 4,000 4,000
6,000 6,400 7,800 9,000 9,000 9,400 47,600
Expenses 3,000 3,000 3,000 3,500 3,500 3,500 19,500
Total Payments = 9,000 9,400 10,800 12,500 12,500 12,900 67,100
Net Cash Inflow (Outflow) (200) (1,000) (800) (2,100) (300) 300 (4,100)
Opening Balance 5,300 5,100 4,100 3,300 1,200 900 5,300
Closing Balance 5,100 4,100 3,300 1,200 900 1,200 1,200
QUESTION 30.7
Chinblon Ltd
Cash Budget
Receipts from Sales Jan Feb Mar Apr May June Total
Nov Sales 15,200 – – – – – 15,200
Dec Sales 16,000 16,000 – – – – 32,000
Jan Sales 8,000 16,000 16,000 – – – 40,000
Feb Sales – 9,000 18,000 18,000 – – 45,000
Mar Sales – – 10,000 20,000 20,000 – 50,000
Apr Sales – – – 11,000 22,000 22,000 55,000
May Sales – – – – 12,000 24,000 36,000
Jun Sales – – – – – 14,000 14,000
Total Receipts = 39,200 41,000 44,000 49,000 54,000 60,000 287,200
Jan Purchases 16,000 16,000 – – – – 32,000
Feb Purchases – 18,000 18,000 – – – 36,000
Mar Purchases – – 20,000 20,000 – – 40,000
Apr Purchases – – – 22,000 22,000 – 44,000
May Purchases – – – – 24,000 24,000 48,000
Jun Purchases – – – – – 28,000 28,000
36,000 34,000 38,000 42,000 46,000 52,000 248,000
Expenses 4,000 4,000 4,000 5,000 5,000 5,000 27,000
Total Payments = 40,000 38,000 42,000 47,000 51,000 57,000 275,000
Net Cash Inflow (Outflow) (800) 3,000 2,000 2,000 3,000 3,000 12,200
Opening Balance (5,200) (6,000) (3,000) (1,000) 1,000 4,000 (5,200)
Closing Balance (6,000) (3,000) (1,000) 1,000 4,000 7,000 7,000
302
Solutions
QUESTION 30.8
Rafton Ltd
(a)
Cash Budget
Receipts from Sales Jan Feb Mar Apr May Jun Total
Jan Sales 10,000 40,000 – – – – 50,000
Feb Sales – 12,000 48,000 – – – 60,000
Mar Sales – – 14,000 56,000 – – 70,000
Apr Sales – – – 14,000 56,000 – 70,000
May Sales – – – – 18,000 72,000 90,000
Jun Sales – – – – – 19,200 19,200
Total Receipts = 31,000 52,000 62,000 70,000 74,000 91,200 380,200
Jan Purchases 15,000 15,000 – – – – 30,000
Feb Purchases – 18,000 18,000 – – – 36,000
Mar Purchases – – 21,000 21,000 – – 42,000
Apr Purchases – – – 22,000 22,000 – 44,000
May Purchases – – – – 27,000 27,000 54,000
Jun Purchases – – – – – 28,800 28,800
29,500 33,000 39,000 43,000 49,000 55,800 249,300
Rent 300 300 300 300 300 300 1,800
Wages 7,000 7,000 7,000 7,000 7,000 7,000 42,000
Other Expenses 400 400 400 400 400 400 2,400
Machinery – – – – 60,000 – 60,000
Total Payments = 37,200 40,700 46,700 50,700 116,700 63,500 355,500
Net Cash Inflow (Outflow) (6,200) 11,300 15,300 19,300 (42,700) 27,700 24,700
Opening Balance 1,500 (4,700) 6,600 21,900 41,200 (1,500) 1,500
Closing Balance (4,700) 6,600 21,900 41,200 (1,500) 26,200 26,200
(b) Budgeted Balance Sheet as at 30 June

Fixed Assets (90,000 + 60,000) 150,000
Current Assets – Stock 13,800
– Debtors (80% of June Sales) 76,800
– Bank 26,200
116,800
Current Liabilities – Creditors (50% of June Purchases) (28,800)
88,000
238,000
Financed By:
Share Capital 110,000
Profit and Loss Balance 128,000
238,000
303
QUESTION 30.9
Quinset Ltd
(a)
Cash Budget
Receipts from Sales Jan Feb Mar Apr May Jun Total
Jan Sales 16,800 25,200 – – – – 42,000
Feb Sales – 19,200 28,800 – – – 48,000
Mar Sales – – 18,400 27,600 – – 46,000
Apr Sales – – – 20,800 31,200 – 52,000
May Sales – – – – 20,000 30,000 50,000
Jun Sales – – – – – 22,400 22,400
Total Receipts = 34,800 44,400 47,200 48,400 51,200 52,400 278,400
Jan Purchases 16,800 16,800 – – – – 33,600
Feb Purchases – 19,200 19,200 – – – 38,400
Mar Purchases – – 21,600 21,600 – – 43,200
Apr Purchases – – – 23,500 23,500 – 47,000
May Purchases – – – – 23,000 23,000 46,000
Jun Purchases – – – – – 23,000 23,000
32,800 36,000 40,800 45,100 46,500 46,000 247,200
Wages 2,000 2,000 2,000 2,000 2,000 2,000 12,000
Rent 400 400 400 400 400 400 2,400
Other Expenses 600 600 600 600 600 600 3,600
Delivery Van – – – 15,000 – – 15,000
Total Payments 35,800 39,000 43,800 63,100 49,500 49,000 280,200
Net Cash Inflow (Outflow) (1,000) 5,400 3,400 (14,700) 1,700 3,400 (1,800)
Opening Balance 9,000 8,000 13,400 16,800 2,100 3,800 9,000
Closing Balance 8,000 13,400 16,800 2,100 3,800 7,200 7,200
(b) Budgeted Trading and Profit and Loss Account for six months ended 30 June
Sales 294,000
Less Cost of Sales
+ Purchases 254,200
273,200
(253,200)
Gross Profit 40,800
Less Expenses
Wages 12,000
Rent 2,400
Other Expenses 3,600
(18,000)
Net Profit 22,800
304
Solutions
(c) Budgeted Balance Sheet as at 30 June

Fixed Assets (120,000 + 15,000) 135,000
Current Assets
Stock 20,000
Debtors (60% of June Sales) 33,600
Bank 7,200
60,800
Current Liabilities
Creditors (50% of June Purchases) (23,000)
37,800
172,800
Financed By
Profit and Loss Balance 22,800
172,800
QUESTION 30.10
Quaestor Ltd
(a) Sales Budget
Product 1 Product 2
Budgeted Sales €4,400,000 €6,400,000
(b) Unit Production Budget Product 1 Product 2

(c) Raw Materials Usage Budget Material A Material B Material C

Product 1 (9,900 x 4) 39,600
(9,900 x 6) 59,400
(9,900 x 10) 99,000
Product 2 (15,900 x 6) 95,400
(15,900 x 4) 63,600
(15,900 x 8) 127,200
Budgeted Materials Usage 135,000 kgs 123,000 kgs 226,000 kgs
(d) Raw Materials Purchases Budget Material A Material B Material C

Budgeted Usage 135,000 123,000 226,200
+ Budgeted Closing Stock 5,000 6,000 10,000
– Opening Stock (6,000) (7,000) (9,000)
134,000 kgs 122,000 kgs 227,200 kgs
x Expected Prices €3 €7 €4
= Budgeted Material Purchases €402,000 €854,000 €908,800
305
(e) Direct Labour Budget Dept X Dept Y

Product 1 (9,900 x 10) 99,000 hours
(9,900 x 12) 118,800 hours
Product 2 (15,900 x 4) 63,600 hours
(15,900 x 16) 254,400 hours
= Budgeted Labour Costs €1,300,800 €3,732,000
(f) Variable Overhead Budget

Product 1 Product 2
Budgeted Labour Hours 162,600 373,200
x Overhead Rate per hour €2 €2
= Budgeted Variable Overheads €325,200 €746,400
(g) Budgeted Manufacturing Account for the year

€ €
Opening Stock Raw Materials
A – 6,000 kgs at €2 per kg = 12,000
B – 7,000 kgs at €6 per kg = 42,000
C – 9,000 kgs at €4 per kg = 36,000
90,000
+ Purchases of Raw Materials
A – 402,000
B – 854,000
C – 908,800 2,164,800
2,254,800
– Closing Stock of Raw Materials
A – 5,000 kgs at €3 per kg = 15,000
B – 6,000 kgs at €7 per kg = 42,000
C – 10,000 kgs at €4 per kg = 40,000
(97,000)
= Cost of Raw Materials Consumed 2,157,800
+ Direct Labour Costs
Dept X – 1,300,800
Dept Y – 3,732,000 5,032,800
= Prime Cost 7,190,600
+ Overheads
Variable
Product 1 – 325,200
Product 2 – 746,400 1,071,600
Fixed 527,000
1,598,600
= Cost of Production 8,789,200
306
Solutions
(h) Budgeted Trading Account for the year

Sales
Product 1 4,400,000
Product 2 6,400,000
10,800,000
Less Cost of Sales
Opening Stock of Finished Goods
Product 1 – 700 units at €310 per unit = 217,000
Product 2 – 500 units at € 298 per unit = 149,000
366,000
+ Cost of Production 8,789,200
9,155,200
Closing Stock of Finished Goods
(327,800)
(8,827,400)
Gross Profit 1,972,600

Martella Ltd
(a) Sales Budget
Regular High Spec
(b) Unit Production Budget Regular High Spec

= Budgeted Production 3,050 1,824
(c) Raw Materials Usage Budget Material G Material H

Regular (3,050 x 3) 9,150
(3,050 x 6) 18,300
High Spec (1,824 x 5) 9,120
(1,824 x 4) 7,296
(d) Raw Materials Purchases Budget Material G Material H

Budgeted Usage 18,270 25,596
– Opening Stock (2,000) (3,000)
18,670 kgs 29,196 kgs
= Budgeted Material Purchases €74,680 €52,392
307
(e) Direct Labour Budget Regular High Spec

x Labour Hours per Unit 12 hours 18 hours
(f) Variable Production Overhead Budget

Regular High Spec
= Budgeted Overhead Costs €146,400 €131,328

€ €
Opening Stock of Raw Materials
Material G – 2,000 kgs at €3.50 per kg = 7,000
Material H – 3,000 kgs at €1.50 per kg = 4,500 11,500
Material G – 74,680
Material H – 52,392 127,072
138,572
Material G – 2,400 kgs at €4 per kg = 9,600
Material H – 3,600 kgs at €2 per kg = 7,200 (16,800)
= Cost of Raw Materials Consumed 121,772
Regular – 439,200
High Spec – 393,984 833,184
= Prime Cost 954,956
+ Overheads:
Variable
Regular – 146,400
High Spec – 131,328 277,728
Fixed 173,580 451,308

Sales
Regular – 930,000
High Spec – 810,000 1,740,000
Less Cost of Sales
Regular – 250 units at €210 = 52,500
High Spec – 120 units at €315 = 37,800 90,300
1,496,564
Closing Stock of Finished Goods (Note 1)
Regular – 300 units at €246 = 73,800
High Spec – 144 units at €361 = 51,984
(125,784)
(1,370,780)
308
Solutions
Note 1 Valuation of Closing Stock of Finished Goods

Regular High Spec
Material G (€4 per kg) 12 20
Material H (€2 per kg) 12 8
Direct Labour (€12 per hour) 144 216
Variable Overheads (€4 per hour) 48 72
Fixed Overheads (€2.50 per hour)* 30 45
Total Unit Cost 246 361
Total Fixed Overheads 173,580 173,580

* -------------------------------------------------- = ----------------------------------- = ----------------- = €2.50
Total Labour Hours 36,600 + 32,832 69,432

Frictex Ltd
(a) Sales Budget

Normal Extra
Budgeted Sales €4,800,000 €2,850,000
(b) Unit Production Budget Normal Extra

+ Budgeted Closing Stock 1,980 540
– Opening Stock (2,200) (600)
(c) Raw Materials Usage Budget Material P Material Q

Normal (11,780 x 10) 117,800
(11,780 x 5) 58,900
Extra (4,940 x 6) 29,640
(4,940 x 12) 59,280
(d) Raw Materials Purchases Budget Material P Material Q

Budgeted Usage 147,440 118,180
– Opening Stock (30,000) (24,000)
144,440 kgs 115,780 kgs
= Budgeted Material Purchases €722,200 €926,240
(e) Direct Labour Budget Dept. 1 Dept. 2

Normal (11,780 x 4) 47,120 hours
(11,780 x 7) 82,460 hours
Extra (4,940 x 6) 29,640 hours
(4,940 x 10) 49,400 hours
= Budgeted Labour Costs €1,074,640 €1,846,040
309
(f) Variable Production Overhead Budget

Normal Extra
= Budgeted Overhead Costs €383,800 €659,300

€ €
Opening Stock of Raw Materials
Material P – 30,000 kgs at €4 per kg = 120,000
Material Q – 24,000 kgs at €7 per kg = 168,000 288,000
Material P – 722,200
Material Q – 926,240 1,648,440
1,936,440
Material P – 27,000 kgs at €5 per kg = 135,000
Material H – 21,600 kgs at €8 per kg = 172,800 (307,800)
= Cost of Raw Materials Consumed 1,628,640
Dept 1 – 1,074,640
Dept 2 – 1,846,040 2,920,680
= Prime Cost 4,549,320
+ Overheads:
Variable
Normal – 383,800
Extra – 659,300 1,043,100
Fixed 625,860 1,668,960

Sales
Normal – 4,800,000
Extra – 2,850,000 7,650,000
Less Cost of Sales
Normal – 2,200 units at €298 per unit = 655,600
Extra – 600 units at €428 per unit = 256,800 912,400
7,130,680
Closing Stock of Finished Goods (Note 1)
Normal – 1,980 units at €332 per unit = 657,360
Extra – 540 units at €478 per unit = 258,120 (915,480)
(6,215,200)
Gross Profit 1,434,800
310
Solutions
Note 1 Valuation of Closing Stock of Finished Goods

Normal Extra
Material P (€5 per kg) 50 30
Material Q (€8 per kg) 40 96
Direct Labour (€14 per hour)
Dept. 1 56 84
Dept. 2 98 140
Variable Overheads (€5 per hour) 55 80
Fixed Overheads (€3 per hour)* 33 48
Total Unit Cost 332 478
Total Fixed Overheads 625,860 625,860
* -------------------------------------------------- = -------------------------------------- = ----------------- = €3.00
Total Labour Hours 76,760 + 131,860 208,620

Famteb Ltd
(a) Sales Budget
JAN FEB MAR TOTAL
Budgeted Quantities 12,000 13,000 15,000 40,000
Expected Sales Prices 50 50 55
Budgeted Sales (€) 600,000 650,000 825,000 2,075,000
(b) Unit Production Budget

JAN FEB MAR TOTAL
Budgeted Sales 12,000 13,000 15,000 40,000
+ Budgeted Closing Stock 6,500 7,500 7,500 21,500
– Opening Stock (6,000) (6,500) (7,500) (20,000)
= Budgeted Production (Units) 12,500 14,000 15,000 41,500
(c) Raw Materials Usage Budget

JAN FEB MAR TOTAL
Budgeted Production 12,500 14,000 15,000 41,500
x Usage in kgs 8 8 8 8
= Budgeted Usage (kgs) 100,000 112,000 120,000 332,000
(d) Raw Materials Purchases Budget

JAN FEB MAR TOTAL
Budgeted Usage 100,000 112,000 120,000 332,000
+ Budgeted Closing Stock 22,400 24,000 24,800 71,200
– Opening Stock (21,000) (22,400) (24,000) (67,400)
101,400 113,600 120,800 335,800
x Expected Price €2.50 €2.50 €2.50 2.50
= Budgeted Materials Purchases (€) 253,500 284,000 302,000 839,500
311
(e) Cash Budget

Receipts from Sales JAN FEB MAR TOTAL
Debtors on 1 January 290,000 – – 290,000
Jan Sales 240,000 360,000 – 600,000
Feb Sales – 260,000 390,000 650,000
Mar Sales – – 330,000 330,000
Total Receipts = 530,000 620,000 720,000 1,870,000
Creditors on 1 January 198,000 – – 198,000
Jan Purchases 48,165 202,800 – 250,965
Feb Purchases – 53,960 227,200 281,160
Mar Purchases – – 57,380 57,380
246,165 256,760 284,580 787,505
Wages 15,000 15,000 15,000 45,000
Variable Overheads 25,000 28,000 30,000 83,000
Fixed Overheads 4,000 4,000 4,000 12,000
Administration Expenses 2,000 2,000 2,000 6,000
Distribution Costs 12,000 13,000 15,000 40,000
Total Payments = 304,165 318,760 350,580 973,505
Total Cash Inflow 225,835 301,240 369,420 896,495
Opening Balance (305,645) (79,810) 221,430 (305,645)
Closing Balance (79,810) 221,430 590,850 590,850

Acrod Ltd
(a) Sales Budget
JAN FEB MAR APR MAY JUNE TOTAL
Budgeted Quantities 500 1,000 2,000 3,000 5,000 6,000 17,500
Expected Sales Prices 20 20 22 23 23 23
Budgeted Sales 10,000 20,000 44,000 69,000 115,000 138,000 396,000
(b) Unit Production Budget

Budgeted Sales 500 1,000 2,000 3,000 5,000 6,000 17,500
+ Budgeted Closing Stock 250 500 750 1,250 1,500 1,500 5,750
– Opening Stock – (250) (500) (750) (1,250) (1,500) (4,250)
= Budgeted Production 750 1,250 2,250 3,500 5,250 6,000 19,000
(c) Raw Materials Usage Budget

Budgeted Production 750 1,250 2,250 3,500 5,250 6,000 19,000
x Usage in kgs 5 5 5 5 5 5 5
= Budgeted Usage (kgs) 3,750 6,250 11,250 17,500 26,250 30,000 95,000
(d) Raw Materials Purchases Budget

Budgeted Usage 3,750 6,250 11,250 17,500 26,250 30,000 95,000
+ Budgeted Closing Stock 3,125 5,625 8,750 13,125 15,000 15,625 61,250
– Opening Stock – (3,125) (5,625) (8,750) (13,125) (15,000) (45,625)
6,875 8,750 14,375 21,875 28,125 30,625 110,625
x Expected Price (€) 2 2 2 2 2 2 2
= Budgeted Materials Purchases (€) 13,750 17,500 28,750 43,750 56,250 61,250 221,250
312
Solutions
(e) Cash Budget

Receipts from Sales JAN FEB MAR APR MAY JUNE TOTAL
Jan Sales 1,900 4,000 4,000 – – – 9,900
Feb Sales – 3,800 8,000 8,000 – – 19,800
Mar Sales – – 8,360 17,600 17,600 – 43,560
Apr Sales – – – 13,110 27,600 27,600 68,310
May Sales – – – – 21,850 46,000 67,850
Jun Sales – – – – – 26,220 26,220
Total Receipts = 1,900 7,800 20,360 38,710 67,050 99,820 235,640
Jan Purchases – 6,875 6,875 – – – 13,750
Feb Purchases – – 8,750 8,750 – – 17,500
Mar Purchases – – – 14,375 14,375 – 28,750
Apr Purchases – – – – 21,875 21,875 43,750
May Purchases – – – – – 28,125 28,125
Jun Purchases – – – – – – –
6,875 15,625 23,125 36,250 50,000 131,875
Wages 5,000 5,000 5,000 5,000 5,000 5,000 30,000
Variable Overheads 1,500 2,500 4,500 7,000 10,500 12,000 38,000
Fixed Overheads (– 9,000) 2,000 2,000 2,000 2,000 2,000 2,000 12,000
Administration Expenses 1,000 1,000 1,000 1,000 1,000 1,000 6,000
Distribution Costs 250 500 1,000 1,500 2,500 3,000 8,750
Equipment – 100,000 – – – – 100,000
Loan Interest – – 1,000 1,000 1,000 1,000 4,000
Total Payments = 9,750 117,875 30,125 40,625 58,250 74,000 330,625
Net Cash Inflow (Outflow) (7,850) (110,075) (9,765) (1,915) 8,800 25,820 (94,985)
Opening Balance 5,000 (2,850) (12,925) (22,690) (24,605) (15,805) 5,000
Loan – 100,000 – – – – 100,000
Closing Balance (2,850) (12,925) (22,690) (24,605) (15,805) 10,015 10,015

Grantar Ltd
(a) Purchases Budget
Budgeted Sales (at 60%) 12,000 13,200 15,600 15,000 16,800 18,000 90,600
– Opening Stock – (2,640) (3,120) (3,000) (3,360) (3,600) (15,720)
= Budgeted Purchases (€) 14,460 13,680 15,480 15,360 17,040 18,240 94,440
(b) Schedule of Receipts from Sales
Jan Sales 7,600 8,000 3,600 – – – 19,200
Feb Sales – 8,360 8,800 3,960 – – 21,120
Mar Sales – – 9,880 10,400 4,680 – 24,960
Apr Sales – – – 9,500 10,000 4,500 24,000
May Sales – – – – 10,640 11,200 21,840
Jun Sales – – – – – 11,400 11,400
7,600 16,360 22,280 23,860 25,320 27,100 122,520
(c) Schedule of Payments for Purchases

Jan Purchases 1,464 10,248 2,928 – – – 14,640
Feb Purchases – 1,368 9,576 2,736 – – 13,680
Mar Purchases – – 1,548 10,836 3,096 – 15,480
Apr Purchases – – – 1,536 10,752 3,072 15,360
May Purchases – – – – 1,704 11,928 13,632
Jun Purchases – – – – – 1,824 1,824
1,464 11,616 14,052 15,108 15,552 16,824 74,616
313
QUESTION 30.16
Blinstap Ltd
Budgeted Sales (at 80%) 8,000 12,800 14,400 12,000 11,200 9,600 68,000
– Opening Stock (4,000) (6,400) (7,200) (6,000) (5,600) (4,800) (34,000)
= Budgeted Purchases (€) 10,400 13,600 13,200 11,600 10,400 8,800 68,000
(b) Cash Budget

Receipts from Sales JAN FEB MAR APR MAY JUNE TOTAL
Jan Sales 6,000 4,000 – – – – 10,000
Feb Sales – 9,600 6,400 – – – 16,000
Mar Sales – – 10,800 7,200 – – 18,000
Apr Sales – – – 9,000 6,000 – 15,000
May Sales – – – – 8,400 5,600 14,000
Jun Sales – – – – – 7,200 7,200
Total Receipts = 11,000 13,600 17,200 16,200 14,400 12,800 85,200
Jan Purchases 1,040 9,360 – – – – 10,400
Feb Purchases – 1,360 12,240 – – – 13,600
Mar Purchases – – 1,320 11,880 – – 13,200
Apr Purchases – – – 1,160 10,440 – 11,600
May Purchases – – – – 1,040 9,360 10,400
Jun Purchases – – – – – 880 880
7,040 10,720 13,560 13,040 11,480 10,240 66,080
Rent – 240 – 240 – 240 720
Wages 400 400 400 400 400 400 2,400
Motor Van 10,000 – – – – – 10,000
Total Payments = 17,440 11,360 13,960 13,680 11,880 10,880 79,200
Net Cash Inflow (Outflow) (6,440) 2,240 3,240 2,520 2,520 1,920 6,000
Opening Balance 1,800 2,360 4,600 7,840 10,360 12,880 1,800
(4,640) 4,600 7,840 10,360 12,880 14,800 7,800
Loan 7,000 – – – – – 7,000
Loan Repaid – – – – – (7,350)* (7,350)
Closing Balance 2,360 4,600 7,840 10,360 12,880 7,450 7,450
* Calculation of Interest Payable on the Loan

€840
€7,000 at 12% for 5 months (Jan 31st⇒ June 30th) = ------------ × 5 = €350.
12
(c) Budgeted Trading and Profit and Loss Account for six months ended 30 June
Sales 85,000
Less Cost of Sales
Opening Stock 4,000
+ Purchases 68,000
72,000
(68,000)
= Gross Profit 17,000
– Expenses
Rent (720 + 200 – 240) 680
Wages 2,400
Loan Interest 350
(5,430)
= Net Profit 11,570
314
Solutions
(d) Budgeted Balance Sheet as at 30 June

Equipment 20,000 1,000 19,000
Motor Van 10,000 1,000 9,000
30,000 2,000 28,000
Current Assets
Stock 4,000
Debtors (40% of June Sales) 4,800
Bank 7,450
Rent Prepaid 240
16,490
Current Liabilities
Creditors (90% of June Purchases) (7,920)
8,570
36,570
Financed By
36,570

Corden Ltd
JAN FEB MAR TOTAL
Budgeted Sales Units 450 500 600 1,550
+ Budgeted Closing Stock 250 300 275 825
– Opening Stock (225) (250) (300) (775)
= Budgeted Purchases Units 475 550 575 1,600
x Expected Prices €25 €25 €30
= Budgeted Purchases (€) 11,875 13,750 17,250 42,875
(b) Cash Budget

Receipts from Sales JAN FEB MAR TOTAL
Debtors on 1 January 16,000 – – 16,000
Jan Sales 4,275 18,000 – 22,275
Feb Sales – 4,750 20,000 24,750
Mar Sales – – 6,840 6,840
Total Receipts = 20,275 22,750 26,840 69,865
Creditors on 1 January 6,150 – – 6,150
Jan Purchases 4,275 7,125 – 11,400
Feb Purchases – 4,950 8,250 13,200
Mar Purchases – – 6,210 6,210
10,425 12,075 14,460 36,960
Wages 9,000 9,000 9,000 27,000
Rent 500 – – 500
Other Expenses 600 600 600 1,800
Equipment 60,000 – – 60,000
Total Payments = 80,525 21,675 24,060 126,260
Net Cash Inflow (Outflow) (60,250) 1,075 2,780 (56,395)
Opening Balance 2,000 2,750 3,825 2,000
(58,250) 3,825 6,605 (54,395)
Loan 61,000 – – 61,000
Closing Balance 2,750 3,825 6,605 6,605
315
(c) Budgeted Trading and Profit and Loss Account for three months ended 31 March
Sales (450 x 50) + (500 x 50) + (600 x 60) 83,500
Less Cost of Sales
Opening Stock 4,500
+ Purchases 42,875
47,375
– Closing Stock (275 x 30) (8,250)
(39,125)
= Gross Profit 44,375
+ Income
Discount Received ((42,875 x .4) x .1) 1,715
46,090
– Expenses
Wages 27,000
Rates 300
Other Expenses 1,800
Discount Allowed ((83,500 x .2) x .05) 835
Loan Interest (61,000 at 12% for two months) 1,220
(35,955)
Net Profit 10,135
+ Profit and Loss Balance b/f 5,850
Profit and Loss Balance c/d 15,985
(d) Budgeted Balance Sheet as at 31 March

Buildings 100,000 – 100,000
Motors 40,000 1,800 38,200
Equipment 60,000 3,000 57,000
200,000 4,800 195,200
Current Assets
Stock 8,250
Debtors (80% of March Sales) 28,800
Bank 6,605
43,655
Current Liabilities
Creditors (60% of March Purchases) 10,350
Rates Due 300
Loan Interest Due 1,220
(11,870)
31,785
226,985
Financed By
165,985
Loan 61,000
226,985
316
Solutions

Slimpton Ltd
(a) Comparison of Actual Costs with Static Budget
Costs Actual Budgeted Variance
Direct Materials 320,000 300,000 20,000 Adverse
Direct Labour 231,000 220,000 11,000 Adverse
Variable Production Overheads 141,000 130,000 11,000 Adverse
Fixed Production Overheads 80,000 70,000 10,000 Adverse
772,000 720,000 52,000 Adverse
(b) Comparison of Actual Costs with Budget flexed to 22,000 units

Direct Materials 320,000 330,000 10,000 Favourable
Direct Labour 231,000 242,000 11,000 Favourable
Variable Production Overheads 141,000 143,000 2,000 Favourable
Fixed Production Overheads 80,000 70,000 10,000 Adverse
772,000 785,000 13,000 Favourable

Marthan Ltd
(a) Comparison of Actual Costs with Static Budget
Direct Materials 466,990 469,000 2,010 Favourable
Variable Production Overheads 261,300 269,500 8,200 Favourable
Fixed Production Overheads 158,000 159,000 1,000 Favourable
1,238,040 1,258,000 19,960 Favourable
(b) Comparison of Actual Costs with Static Budget flexed to 67,000 units
Direct Labour 351,750 345,050 6,700 Adverse
Variable Production Overheads 261,300 257,950 3,350 Adverse
Fixed Production Overheads 158,000 159,000 1,000 Favourable
1,238,040 1,210,900 27,140 Adverse

Fedusa Ltd
(a) Classification of Costs
(i) Direct Materials
These are variable costs as they vary directly with activity:
56,250 81,250 100,000
--------------- = --------------- = ----------------- = €6.25 per unit
9,000 13,000 16,000
(ii) Direct Labour
These are variable costs as they vary directly with activity:
47,700 68,900 84,800
--------------- = --------------- = --------------- = €5.30 per unit
9,000 13,000 16,000
(iii) Variable production overheads are variable as they vary directly with activity:
26,100 37,700 46,400
--------------- = --------------- = --------------- = €2.90 per unit
9,000 13,000 16,000
317
(iv) Fixed production overheads

Totally fixed at €13,000 regardless of activity
(v) Administrative expenses
These are mixed costs as they vary indirectly with activity:
25,650 33,050 38,600
---------------- ≠ ---------------- ≠ ----------------
9,000 13,000 16,000
Using the high-low method to separate into fixed and variable:
Activity Cost
High 16,000 38,600
Low 9,000 25,650
Variable Cost per unit = €12,950/7,000 = €1.85 per unit

High Low
Total Cost 38,600 25,650
= Fixed Costs €9,000 €9,000
Administration expenses are €9,000 fixed and €1.85 per unit variable
(vi) Distribution costs
These are mixed costs as they vary indirectly with activity:
35,200 46,400 54,800
--------------- ≠ --------------- ≠ ---------------
9,000 13,000 16,000
Using the high-low method to separate into fixed and variable:
Activity Cost
High 16,000 54,800
Low 9,000 35,200
Variable Cost per unit = €19,600/7,000 = €2.80 per unit

High Low
Total Cost 54,800 35,200
= Fixed Costs €10,000 €10,000
Distribution costs are €10,000 fixed and €2.80 per unit variable
(b) Budget Flexed to 14,000 units

Direct Materials (14,000 x €6.25) 87,500
Direct Labour (14,000 x €5.30) 74,200
Variable Production Overheads (14,000 x €2.90) 40,600
Fixed Production Overheads 13,000
Administration Expenses (€9,000 + 14,000 x €1.85) 34,900
Distribution Costs (€10,000 + 14,000 x €2.80) 49,200
Total Cost €299,400

Weargo Ltd
Direct materials and direct labour are variable costs.
Administrative expenses are fixed costs.
Production overheads and distribution costs are mixed costs
Direct material costs are €4.50 per unit (and 1.50 per kg)
Direct labour costs are €10 per unit (and €5 per hour)
Production overheads are €45,000 fixed and €1.80 per unit variable
Administration expenses are fixed at €77,000
Distribution costs are €60,000 fixed and €0.25 per unit variable
318
Solutions
(b) Budget Flexed to 75,000 units (€)

Direct Labour (75,000 x €10.00) 750,000
Production Overheads (45,000 + 75,000 x €1.80) 180,000
Total Cost 1,423,250
(c) Comparison of Actual Costs with Budget flexed to 75,000 units
Production Overheads 195,000 180,000 15,000 Adverse
Administration Expenses 80,000 77,000 3,000 Adverse
Distribution Costs 85,250 78,750 6,500 Adverse
1,414,000 1,423,250 9,250 Favourable
(d) Direct Materials Variance = €97,500 Adverse

Price Variance = (€150 – €1.45) x 300,000 kgs. = €15,000 Favourable
Usage Variance = (225,000 kgs – 300,000 kgs) x €150 = €112,500 Adverse
Total Direct Materials variance = €97,500 Adverse
Direct Labour Variance = €131,250 Favourable
Price Variance = (€5.00 – €5.50) x 112,500 hours = €56,250 Adverse
Usage Variance = (112,500 hours – 150,000 hours) x €50 = €187,500 Favourable
Total Direct Labour variance = €131,250 Favourable

Cobstand Ltd
Sales are variable at €35.15 per unit
Direct materials are variable at €15.85 per unit
Direct labour costs are variable at €7.62 per unit
Production overheads are €7,000 fixed and €3.14 variable per unit
Administration expenses are fixed at €5,000
Distribution costs are €11,000 fixed and €2.79 variable per unit
(b) Budget Flexed to 7,000 units (€)
Sales Revenue 246,050
Direct Labour (7,000 x €7.62) 53,340
Production Overheads (€7,000 + 7,000 x €3.14) 28,980
Total Cost 228,800
Profits 17,250
(c) Marginal Costing Statement at 7,000 units
Total Per unit
Sales 246,050 35.15
= Profit 17,250
Break-even Point
Fixed Costs 23,000
= ------------------------------------------------- = --------------- = 4,000 units(€140,600)
Contribution per Unit 5.75
319

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CONTENTS

Chapter 2: Double-Entry Book-keeping and the Trial Balance ......................................................... 1

© Kevin O Riordan 2000

ISBN 1841 31 3750

Sales Returns Account

Sales Returns Account

Motor Vehicle Account

Trial Balance as at 31 March € €

(a) Revenue (b) Capital (c) Revenue (d) Capital

Balance Sheet as at 31/12/-0

Balance Sheet as at 30/6/-9

Telephone Expenses Account

Balance Sheet As At 31/12/-0

Car Tax Account

(b) Provision for Bad Debts Account

(b) Provision for Bad Debts Account

(b) Provision for Bad Debts Account

(b) Provision for Bad Debts Account

(b) Provision for Bad Debts Account

(c) Provision for Discount Allowed Account

(e) Balance Sheet as at 31/12/-8 (Extract)

(a) Buses Account

(b) Provision for Depreciation Account

(c) Lorry Disposal Account

(b) Provision for Depreciation Account

(c) Bus Disposal Account

(b) Provision for Depreciation Account

(c) Truck Disposal Account

Provision for Depreciation Account

QUESTION 6.7 (HIGHER LEVEL) (Reference to Calculations in Brackets).

(b) Provision for Depreciation Account

3. Depreciation to date of Sale Vehicle No. 2

4. Annual Depreciation Charge for the year ended 31/12/-8

No. 2 – 3 months ( 1--- ) of 20% of 26,000...................................................................................... 1,300

6. Annual Depreciation Charge for the year ended 31/12/-9

QUESTION 6.8 (HIGHER LEVEL) (Reference to Calculations in Brackets)

2. Opening balance on Provision for Depreciation Account as at 1/1/-9

Tachograph – (1/1/-6 – 1/1/-8) = 2 years x 12 1--- % of 4,000 =..................................................... 1,000

Total = ............................................................................................................................. 47,750

3. Depreciation to date of Sale Vehicle No. 1

4. Annual Depreciation Charge for the year ended 31/12/-8

No. 3 – 1 year x 12 1--- % of 36,000 = ........................................................................................... 4,500

No. 4 – 3 months ( --- ) x 12 1--- % of 40,000 = ................................................................................

5. Depreciation to date of Sale Vehicle No. 3

6. Annual Depreciation Charge for the year ended 31/12/-9

No. 3 – 6 months ( 1--- ) x 12 1--- % of 36,000 =................................................................................. 2,250

(b) Provision for Depreciation Account

(c) Vehicles Disposal Account

Total = ............................................................................................................................. 50,400

3. Depreciation to date of Sale Vehicle No. 2

4. Annual Depreciation Charge for the year ended 31/12/-0

6. Annual Depreciation Charge for the year ended 31/12/-1

QUESTION 6.10 (HIGHER LEVEL) (Reference to Calculations in Brackets)

(b) Provision for Depreciation Account

(c) Vehicles Disposal Account

3. Depreciation to date of Sale Vehicle No. 1

Tachograph – (1/1/-6 – 1/9/-8) = 2 years, 8 months (2 2--- )

4. Annual Depreciation Charge for the year ended 31/12/-8

5. Depreciation to date of Sale Vehicle No. 3

6. Annual Depreciation Charge for the year ended 31/12/-9

QUESTION 6.11 (HIGHER LEVEL) (Reference to Calculations in Brackets)

(b) Provision for Depreciation Account

4. Annual Depreciation Charge for the year ended 31/12/-4

Leaving Certificate Accounting Teacher's Manual

Leaving Certificate Accounting Teacher's Manual