Question 1 - COMPULSORY You are provided with the trial balance of Gerry Ltd. as at 31st December 2018: Plant & Equipment - cost as at 1/1/18 1,550,000 Plant & Equipment - accumulated depreciation as at 1/1/18 558,000 Premises - cost as at 1/1/18 850,000 Premises accumulated depreciation as at 1/1/18 170,000 Ordinary Share Capital (1 shares) 800,000 Share Premium 200,000 Retained Earnings as at 1/1/18 243,925 Trade payables 567,950 Trade receivables 934,560 Allowance for doubtful debts as at 1/1/18 32,400 Cash at Bank 34,850 Inventory as at 1/1/18 584,000 Rent received 12,500 Purchases 1,890,650 Carriage outwards 32,550 Revenue 3,650,000 Discount allowed 7,340 Debenture interest 24,000 Bad debts 11,500 Purchases returns 27,880 Administration expenses 664,235 Distribution costs 78,970 8% Debentures (redeemable 2025) 400,000 6,662,655 6,662,655 You are provided with the following information: (a) Inventory was valued at 485,590 at the 31st December 2018. (b) During December 2018 the company sold equipment it no longer required for 65,000. The equipment had originally cost 96,000 and had been purchased in September 2016. No entries have been made in the accounts with regard to this transaction. The cheque was received in January 2019. Question one continues on the next page 3 Question one continued (c) Depreciation is to be provided on Premises at 2% straight-line and on Plant & Equipment at 20% reducing balance. It is company policy to charge a full years depreciation in the year of purchase and none in the year of sale. (d) Included in administration expenses is an amount for insurance of 7,800. This amount was paid for insurance to cover the twelve months ending 28 February 2019. Also included in administration expenses is the electricity cost for the year. The last bill received and paid for was for October 2018. The average monthly bill for electricity is 350. (e) The rent received is for the sublet of a retail unit. The tenant agreed to pay 15,000 per annum commencing on 1 January 2018. (f) A customer who owed 22,400 has been declared bankrupt and will be unable to pay. The directors wish to maintain an allowance for doubtful debts equal to 5% of outstanding trade receivables at the year end. (g) Debenture interest and corporation tax need to be provided for at the year end. Corporation tax has been assessed at 62,000 for the year. Required: (a) Show the ledger accounts with the relevant entries from the 1st January 2018 to the 31st December 2018 for the following accounts: (i) Plant & Equipment - Cost Account (ii) Plant & Equipment - Accumulated Depreciation Account (iii) Plant & Equipment - Depreciation Expense Account (iv) Plant & Equipment - Disposal Account (16 marks) (b) Prepare a Statement of Profit or Loss and a Statement of Changes in Equity for the year ended 31st December 2018 and a Statement of Financial Position as at the 31st December 2018 for Gerry Ltd. (44 marks) (c) Financial accounts are prepared under the assumption of the accruals/matching concept. Explain what this means and provide examples from the question above to support your explanation. (5 marks) Total: 65 mark