Gooch Ltd manufactures and sells clothing and their inexperienced bookkeeper has produced the following trial balance for the 15 months ended 31 ^st  March 2019. The company has decided to move the financial year end away from December as that is a very busy time for them.  

You are required to: 

Prepare journal entries to deal with all necessary adjustments, clearly showing that the errors have been corrected and the suspense account cleared.

Prepare a statement of profit or loss, a statement of changes in equity and a statement of financial position for the period to 31 ^st  March 2019 in a format that would be fit for publication.

Using the financial statements that you have prepared in (b) above and the data given below relating to the year ended on 31 December 2017 you are required to identify the important issues that would need to be given attention by the company’s auditors and suggest some relevant audit tests that would need to be carried out.

Gooch Ltd – Trial Balance as at 31 March 2019 

                                                                                                         

	£’000	£’000
Accumulated depreciation of land and buildings at 1.1.18		250
Accumulated depreciation of shop fittings at 1.1.18		150
Accumulated depreciation of production machinery at 1.1.18		750
Allowance for receivables		20
Bank loan at 5% p.a.		2000
Carriage Inwards	58
Carriage outwards	66
Cash at bank		18
Directors remuneration	120
Discounts allowed	12
Discounts received	24
Dividends paid	500
Heat and light	480
Insurance	400
Inventory of raw materials as at 1.1.18	320
Inventory of work in progress at 1.1.18	180
Inventory of finished goods at 1.1.18	640
Land and buildings	6000
Loan interest paid	100
Office Expenses	40
Payables		330
Production Machinery	1000
Purchases	3960
Receivables	620
Retained Earnings		5518
Returns Inwards	68
Returns Outwards		40
Sales		5456
Share Capital (Shares of 10p each)		1000
Share Premium Account		600
Shop fittings	750
Wages	890
TOTALS	16228	16143

 

Additional information: 

 The land and buildings are shown at cost including £3,000,000 for the land. Buildings are depreciated on a straight-line basis over 60 years  

Shop fittings are depreciated at 20% per year on a reducing balance basis 

 Machinery is depreciated on a reducing balance basis at 25% per year  

There have been no additions of property, plant or equipment in the period. 

 A dividend of 5p per share was proposed on 28 ^th  February 2019 but has not yet been paid and a further dividend of 10p per share is expected to be proposed in April.  

Insurance includes £18,000 for the year to December 2019 

 An accrual for heat and light for March 2019 is needed. One third of heat and light is for administration and the rest is for production.  

An invoice from a supplier for £24,000 has been debited to purchases and debited to receivables 

 A bill for insurance for £12,000 has been credited to the bank account and debited to office expenses  

The 25 year bank loan was taken out 5 years ago and the capital is being repaid in equal annual installments. 

 Inventory at 31 March 2019 is valued at a cost of £640,000 for raw materials and £360,000 for work in progress. There was a serious fire in the finished goods warehouse on 31 March 2019 that destroyed the finished goods inventory and all records relating to it. Gooch Ltd claim to operate to a strict policy of making a 40% gross profit mark-up. The destroyed goods are covered by an insurance policy that covers the cost of the goods.  

A debt of £36,000 is irrecoverable and further debts of £180,000 are 60 days or more overdue. 

 Gooch Ltd sold some shop fittings on 31 March 2109 for £20,000 in cash. The bookkeeper has not recorded the transaction. The fittings cost £80,000 5 years ago.  

60% of the wages relate to production labour. 

 Corporation tax for the period is estimated at £12,000  

Relevant data from the financial statements to 31 December 2017: 

 

Revenue                            £2,980,000 

 Gross profit                       £688,000  

Profit for the year  £75,000 

 Trade Receivables £300,000  

Trade Payables                  £250,000 

Answer rating: 100% (QA)

Step 1 Rectification entries Date Particulars LF Dr 000 Cr 000 Suspense Ac Dr 48 To Payables Ac 24 To Receivables Ac 24 Being invoice recording rectif... View the full answer