QUESTION ONE (20 MARKS)

Auto Transmitters Ltd. Is a medium-size factory in Nairobi Industrial Area which manufactures transmitters.

The following trial balance was extracted from the books of the company as at 31 December 2020:

	Sh.	Sh.
Ordinary share capital		4,000,000
Preference share capital		2,000,000
Profit and loss account (1 January 2020)		424,750
Freehold land and building (land Sh.400,000)	1,700,000
Plant and machinery at cost	7,300,000
Office equipment at cost	1,100,000
Motor vehicles at cost	2,000,000
Accumulated depreciation (1 January 2020):
Plant and machinery		2,245,000
Office equipment		245,000
Motor vehicles		800,000
Accounts receivable and payable	5,000,000	3,562,260
Provision for bad and doubtful debts		10,000
Manufacturing wages	5,014,000
Stocks at cost (1 January 2020):
Raw materials	700,000
Work-in-progress	1,260,000
Finished goods	2,500,000
Distribution costs	850,130
Returns inwards	151,060
Purchases of raw materials	5,186,000
Sales		26,001,470
Balance at bank		600,200
Directors salaries	601,140
Maintenance of plant and machinery	301,020
Rent	400,630
Advertising	1,900,480
Rates	501,710
Insurance	201,160
Office salaries	1,660,130
Electricity	460,270
Factory lighting	300,140
Bank interest	70,700
Interim preference dividend paid	100,000
General administration expenses	630,110	________
	39,888,680	39,888,680

Additional information:

1. Depreciation is to be provided as follows:

• Plant and machinery at 15% on cost
• Office equipment at 10% on cost.
• Motor vehicles at 25% on written down value
• Building (erected during the year) at 2% on straight-line basis.

2. Prepaid rates as at 31 December 2020 were Sh.31,400.

3. An insurance premium for public liability cover in the sum of Sh.33,520 was paid for a period of one year to 31 March 2016. The amount owing for electricity and rent as at 31 December 2020 was Sh.12,140 and Sh.23,210 respectively.

4. Rent, rates, electricity and insurance expenses are to be apportioned in the ratio to the factory and to office expenses.

5. A provision for bad and doubtful debts at 1% of the debtors is to be made.

6. The share capital (authorised and fully paid) as at 31 December 2020 was as follows:

• 800,000 ordinary shares of Sh.5 each
• 200,000 10% preference shares of Sh.10 each

A provision for the final preference dividend and a dividend of Sh.2.25 per ordinary share is to be made.

7. Office salaries include Sh.642,370 paid to salesmen while directors salaries include Sh.200,000 paid to the production director.

8. Corporation tax of Sh.1,000,000 is to be provided for.

9. 1,500 transmitters were completed and transferred to the warehouse at a transfer price of Sh.10,000 per transmitter.

10. The value of stocks as at 31 December 2020 were as follows:

Sh.

Raw materials at cost 562,000

Work-in-progress at cost 471,900

Finished goods at transfer price 1,000,000 (100 transmitters)

(Note that owing to a change in accounting policy, the closing stock of finished goods was valued at transfer price during the year ended 31 December 2020).

Required:

1. Manufacturing, and statement of profit or loss for the ended 31 December 2020. (14 marks)
2. Statement of financial position (6 marks)