The Following Information Is Also Available

The Following Information Is Also Available

91 (P1) (1)

  1. Wonder Limited, a trading company, has an authorized share capital of $6 000 000 dividend into 3 000 000 8% preference shares of $1 rach and 3 000 000 ordinary shares of $1 each.

The following balances have been extracted from the books as at 31 March 1991:

$ / $
Sales / 11 150 000
Stock at 1 April 1990 / 230 000
Purchases / 5 930 000
Selling and distribution costs / 1 240 500
Administrative expenses / 1 114 000
Over-provision of profits tax 1989-90 / 78 000
Audit fee / 27 000
Directors' remuneration / 629 000
Quoted investment at a cost / 2 005 000
Issued and fully paid:
$1 ordinary shares / 2 000 000
$1 8% preference shares / 2 000 000
Profit and loss account 1 April 1990 / 995 000
Creditors / 1 533 000
Share premium / 67 500
Land and building, at cost / 2 400 000
Equipment and fittings
At cost / 1 890 000
Provision for depreciation 1 April 1990 / 787 500
Bank / 1 895 600
Debtors (net) / 1 637 500
Cash / 17 400
Rental income / 25 000
investment income / 20 000
10% debentures / 400 000
Debenture interest / 40 000
19 056 000 / 19 056 000

The following information is also available:

(i)Depreciation is to be charged at 25% per annum on the cost of equipment and fittings by the straight-line method. All equipment and fittings have been purchased within the last three years. The land and buildings were acquired on 1 April 1990 when the value of the land was estimated at $900 000. The directors have agreed that the buildings are to be depreciated at 2% per annum on cost.

(ii)Provision for doubtful debts is to be increased by $46 500. No entries have been made in the books for an amount of $727 500 owed by a customer who has been adjudicated bankrupt.

(iii)Trading stock was valued at $320 000 on 31 March 1991.

(iv)In previous years, the stocks had been valued at cost on FIFO basis. As the physical stock records are maintained at selling price for control purposes, the directors decided to value stock at selling price less 30% as at 31 March 1991. The net effect of the change in the method of valuation of stock is considered to be immaterial by the directors.

(v)On 31 March 1991. the company entered into a contract for capital expenditure of $370 000, for which no provision has been made.

(vi)Purchases included $500 000 of uninsured stock which had been damaged in a fire.

(vii)On 31 March 1991, the company redeemed $100 000 out of its $400 000 10% debentures. No entries have yet been made in respect of this redemption during the year.

(viii)The quoted investment had a market value of $2 100 000 as at 31 March 1991.

(ix)Included in administrative expenses are:

$
Accountancy fees
Salaries tax paid for the directors
Legal expenses
Salaries of administrative staff / 8 400
110 500
36 000
540 000

(x)No entry has been made for outstanding audit fee amounting to $20 000.

(xi)Included in selling and distribution costs are:

$
Transport expenses
Salaries of sales staff
Commission of sales staff / 48 000
327 000
658 000

(xii)Profits tax is estimated at $247 500 for the year.

(xiii)The directors recommend the payment of the preference dividend for the year and an ordinary dividend of 10C per share

You are required to prepare the following in a vertical form suitable for publication and in accordance with the Tenth Schedule of the Companies Ordinance (Chapter 32):

(a) the profit and loss account for the year ended 31 March 1991; (12 marks)

(b) the balance sheet as at that date; and (10 marks)

(c) notes to the accounts. (8 marks)