Jesam is a proprietor operating a company called Jesam Investments. The following is the trial balance...

 

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Jesam is a proprietor operating a company called Jesam Investments. The following is the trial balance for the year ended 31st December 2019. (20 Marks) Sales Purchases Capital as at 1 Jan 2019 Bank Cash Accounts receivable (debtors) Accounts payable (creditors) Office rent Insurance Electricity Postage expenses Communication expenses Advertising expenses Distribution costs Inventory as at 1 Jan 2019 Salaries and wages Interest paid Drawings Land and buildings Equipment at cost Provision for Depreciation as at 1 Jan 2019 Long term Loan The notes as at 31 December 2019 are as follows: (1) (iii) (iv) DR € 159,000 5,000 1,000 33,000 48,000 20,000 40,000 6,000 18,000 24,000 19,000 21,000 154,000 3,000 38,000 360,000 180,000 1,129,000 Inventory as at 31 December 2019 was valued at €23,000 Insurance expenses owing amounted to €1,500 Salaries and wages owing amounted to €5,500 Equipment is to be depreciated at 25% per annum on cost CR € 591,000 369.000 19,000 70,000 80,000 1,129,000 Required: (a) Prepare the Income statement for the year ended 31 December 2019 (5 marks) (b) Prepare a balance sheet (statement of financial position) as at 31 December 2019 (5 marks). (c) Take an assumption that a manufacturing company happens to have a faulty production process leading to significant returns of products sold to customers because they are faulty. Clearly illustrate with an example how that will impact on the company's gross profit and the operating profit (2 Marks) (d) Supposing, the scenario explained in question (c) above is that such returns were instead being done by the company to its suppliers, will that change the gross profit? Explain your answer with an example relating to the income statement you have presented in question (a) how the gross profit will be impacted (2 Marks) (e) Clearly explain how depreciation of non-current assets is treated in the income statement and in the balance sheet. Use an example from the income statement and the balance sheet you have developed as per the requirement for question (a) and (b) above (2 Marks) (f) Based on your answers for question (a) and (b), take an assumption that the company provided a 5% allowance for doubtful debts (also known as the provision for doubtful debts) explain how this will be treated in the income statement and in the balance sheet. Illustrate your answer with relevant calculations (2 Marks). Jesam is a proprietor operating a company called Jesam Investments. The following is the trial balance for the year ended 31st December 2019. (20 Marks) Sales Purchases Capital as at 1 Jan 2019 Bank Cash Accounts receivable (debtors) Accounts payable (creditors) Office rent Insurance Electricity Postage expenses Communication expenses Advertising expenses Distribution costs Inventory as at 1 Jan 2019 Salaries and wages Interest paid Drawings Land and buildings Equipment at cost Provision for Depreciation as at 1 Jan 2019 Long term Loan The notes as at 31 December 2019 are as follows: (1) (iii) (iv) DR € 159,000 5,000 1,000 33,000 48,000 20,000 40,000 6,000 18,000 24,000 19,000 21,000 154,000 3,000 38,000 360,000 180,000 1,129,000 Inventory as at 31 December 2019 was valued at €23,000 Insurance expenses owing amounted to €1,500 Salaries and wages owing amounted to €5,500 Equipment is to be depreciated at 25% per annum on cost CR € 591,000 369.000 19,000 70,000 80,000 1,129,000 Required: (a) Prepare the Income statement for the year ended 31 December 2019 (5 marks) (b) Prepare a balance sheet (statement of financial position) as at 31 December 2019 (5 marks). (c) Take an assumption that a manufacturing company happens to have a faulty production process leading to significant returns of products sold to customers because they are faulty. Clearly illustrate with an example how that will impact on the company's gross profit and the operating profit (2 Marks) (d) Supposing, the scenario explained in question (c) above is that such returns were instead being done by the company to its suppliers, will that change the gross profit? Explain your answer with an example relating to the income statement you have presented in question (a) how the gross profit will be impacted (2 Marks) (e) Clearly explain how depreciation of non-current assets is treated in the income statement and in the balance sheet. Use an example from the income statement and the balance sheet you have developed as per the requirement for question (a) and (b) above (2 Marks) (f) Based on your answers for question (a) and (b), take an assumption that the company provided a 5% allowance for doubtful debts (also known as the provision for doubtful debts) explain how this will be treated in the income statement and in the balance sheet. Illustrate your answer with relevant calculations (2 Marks).

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