Chapter 23 An introduction to the accounts of limited companies

Q1 Bracket and Racket Ltd.

(a)
Trading and Profit and Loss Account
for six months ended 30 September 2002
$000 $000
Turnover (30841 53 820 + 420) 2631
Cost of sales
Stock at 1 April 2002 1540
Purchases (1996 1210 + 510) 1296
2836
Stock at 30 September 2002 704 2132
Gross profit 499
Wages 205
Expenses (823 192 + 103) 734
Interest on overdraft 20
Loss on disposal of building (70 53) 17
Provision for doubtful debts 21
Depreciation: Buildings 45
Fixtures and fittings 25 1067
Net loss 568
1
Cash takings: Cash expenditure: $(205 000 + 2 784 000 + 45 000 + 45 000) = $3 079 000
Add increase in cash balance 5 000
Total cash received $3 084 000

(b) Balance Sheet at 30 September 2002

$000 $000 $000
Fixed assets at net book value
Buildings (250 70 45) 135
Fixtures and fittings (100 25) 75
210
Current assets
Stock 704
Debtors (420 21) 399
Cash 8 1111
Current liabilities
Creditors for supplies 510
Accruals 103
Bank 258 871 240
450

Share capital: Ordinary shares 25

Retained profits (910 568) 342
367
Loan account: Bracket 59
Racket 24 83
450
Q2 Pecnut Ltd

(a) Profit and Loss Account for the year ended 31 March 2004
$000 $000 $000
Turnover 2 683
Cost of sales
Stock at 1 April 2003 85
Purchases 1 152
1 237
Stock at 31 March 2004 105 1 132
Gross profit 1 551
Selling and distribution 540
Administration 648
Depreciation of motor vehicles 21 669 1 209
Operating profit 342
Debenture interest 36
306
Transfer to General Reserve 10
Proposed dividend on ordinary shares 150 160
Retained profit for the year 146

(b) Balance Sheet at 31 March 2004

Cost or Depn NBV
valuation
$000 $000 $000
Tangible fixed assets
Freehold buildings 2 000 - 2 000
Motor vehicles 246 183 63
2 246 183 2 063
Current assets
Stock 105
Trade debtors 96
201
Creditors: amounts falling due within one year
Bank 51
Trade creditors 60
Debenture interest 18
Ordinary dividend 150 279
Net current liabilities (78)
Total assets less current liabilities 1985
Creditors: amounts falling due after more than one year
10% debentures 2007/2010 360
1625

Share capital and reserves

Ordinary shares of $1 600
Capital Redemption Reserve 680
General Reserve 130
Retained profit (69 + 146) 215
1 625
(c) A companys Profit and Loss Account must give a true and fair view of the profit or loss earned in the
period covered by the account, and its Balance Sheet must give a true and fair view of the position of the
company at the end of the period.
A company is a going concern if there is no intention to wind it up it in the foreseeable future. If a company is
insolvent (unable to pay its creditors as they fall due) it is not a going concern and will be wound up. The assets
should be valued in the Balance Sheet at the amounts they could be expected to fetch in an enforced sale, which
could be much less than their book values. If the assets have to be written down in value, the loss must be
provided for in the Profit and Loss Account with the consequent affect on profit.
The application of the going concern concept is necessary if the Profit and Loss Account and Balance Sheet are
to give true and fair views.