Part I

The ac。 ounting system

hc opcns fOr thc busincss,Abdul红 vcs,an-toe∵ ∷ Purchasos
busincss rccchcs,$10000,An account fOr Abdul $

器
找昱夸
亻
早 愚省
⒒
dcbitcd.
F号 :;;扩 f:l釜 111茗 ;∶ I鞯 bc・
Apr3 Bank 3000

Tfansaction4Apri14,Abdul sc11s a quanoty Of

th9宫 ♂ρd跽 ifOr$8OO and pγ s thc moncyinto thc

\
∶

∷/'
∷
Bank
ba血 k.

$
∶
1
$

〓
、

B
・〓

∷
∷
浊∷
``
Apr1 Abdul¨

∷a∷
Cap⒒ a1 10000

'.
\
∷∷ $ $
Ab4u1△ C咖田 Apr1 AVaul~capkal100Qo Ap=2 Motor∷ Veh。 les zO00
$ $
Apr4 sak心 800 Apr∷ 3 Purchaβ e$ 3Q00
Apr1 Ba酞 10000
sa1os
Note。 Each cntryis datcd and shO硒 s thc namc Of

s一
$
thc Othcr accountin whch thc doublc entry is

0
Apr4 Ba纽 k
complcted。 Makc surc四 u shOW伍 csc dct砬 ls for
cvcry cnt坪 you makc in alcdgcr accOunt,
Transacdon5AprⅡ 7,A custor11cr rcturns sOrnc
EntⅡcsin lcdgcr accOunts arc knOwn as posdngs,
goOds and rccc1vcs a rCfund of$40,
and bool‘ ∶lf;cpCrs arc s缸 d to‘ posr transacoOns to thc
lζ

accounts, Bank
Transacdon2AprⅡ 2.Abdul buys a rnotOr vcIiclc
$ $
for thc busincss and pγ s$2000from伍 c busincss Apr1 Ab-ut-Cap攻 a110000 Apr2 Mo” 200Q r`℃ hdcs
Bank accOunt,A卜 1otor`石 diclcs accOunt must bc Apr4阮 1cs BO0 Apr3 pⅡ ch灬 es 30ρ 0
opcncd, Apr7 salcs Rcmrns 40

Bank 。
忄。Ⅱ屮Ⅱ
$ $ $
Apr1 Aodul_Cap⒒ a110000 Apr2 Motor Vehdcs 2000
Apr7Bal△ k 40

Mot0t Vehodoo Note.GoOds rcturncd arc not dcbitcd tO Salcs

$ account but to Salcs Rcturns account.This account1s
Apr2 Bahk 2000 /also knOw/n as GoodsInvˉ ards or Rcmrns InvTards
account.
Transaction3AprⅡ 3,AbdLll bu阝 goods Whch hc
Transaction6.qpru8,Abdulrctums sOmc goOds
诫 r⒍ ∝Ⅱ in thc normal coursc of tradc fOr$3000
cosong$100to a suppⅡ cr and rccciˇ cs a rcfund.
and pays by chcquc,

Bank
B∷ ank
$∷

$
$∞

∞∷

$
23

Apr1 Aodul~C⒎
^υ

pita110∷ 09Q Ap∶ ? M0tor、 ℃hic1cs

00

∞4

Apr1 Abdtll_Ca狃 t斑 10000 ApF2 Motor Vehdes

2

.qpr4sales 800Ap=β
00
∞
3

Purchases
/Apr3 Pur山 ascks
Apr8 PuFchascρ l孓 smms 100 Apr7 s械 cs ROmr众 s
 Purchases Rcturns Transaction9AprⅡ 12,Abdul pays rcnt on a
$ $ warchousc by chcquc,$1000.
Apr8 Bank 100 Bank
$ $
Note.GoOds rcttlrncd tO a supphcr arc crcditcd tO Apr1 Abdul-Caplta110000 Apr2 RIotor、℃hk1es 2000
Purchascs Rcturns account.This account is also Apr4 salcs 800 Apr3 Purchases 3000
Apr8 Purch灬 es Remrns 100 ^pr7 sales Rcmrns 40
knOwn as GoOds Out△lyards account, Apr11Tania-Loan 5000 Apr10 ˇIotor`石 chic1es 4000
Transaction7丿 ΛpⅡ 110,Abdul buys anothcr Apr12 Rent Pa,⒓ blc 1000
motor vchiclc fOr thc busincss and pays$4000by
chcquc。 Rent Payab1e

$
Bank Apr12Bank 1000

$∞
$
Apr1Aodd-Caplt狃 10000Apr2 Motor、 ℃
hd∝ Transacdon10丿、prⅡ 14,Abdul sublcts part Of
∞
Apr4 sales 800 Apr3 Purchases
Apr8 Purchascs Rcturns 100 Apr7 salcs Rcturns 4∞
thc warchouse and rccchcs a chcquc允 r$300for
Apr10 ˇ【
otor X/ehiclcs thc rcnt.This is paid intO thc bank,

Bank
、
V1otor Vehdes
$ $
$ Apr1 Abdul-Capita110000 Apr2 ˇIotor、 石
chc1cs 2000
Apr2 Bank 2000 Apr4 s・ alcs 800 Apr3 Purchascs 3000
Apr10Bank 4000 Apr8 Purchases Returns 100 Apr7 sales Returns 40
Apr11Tania-Loan 5000 Apr10 R/fotor X/chic1cs 4000

Notc,∮Ls cxplaincd in§ 1.2,an accountis a history Apr14Rcnt Rccckablc 300 Apr12 Rcnt Payablc 1000

of all transactions of a shnilar naturc,Thcrcforc,it is ’

not ncccssary to Opcn anOthcr accOunt fOr thc sccond
Rent Rece加 ablc
motOr vchiclc,⒏ 】
∶
∶i~llarlB al purchascs Of omcc
1t∶ 1∶
$ $
cquipmcnt arc postcd to Offlcc lEquipmcnt accOun1 Apr14 Bank 300
and all purchascs of Ofncc￡ urniturc arc pOstcd tO
Ofncc Furmturc account,You、 ⒎
ⅠⅡcncOuntcr othcr Note,Rcnt rcccN`blC is nOt pOstcd tO thc Rcnt
cxamplcs such as plant and rn^chincrB and丘 xturcs Payablc account,Itis knpOrtant to kccp incOmc and
and fJtongs, cxpcndkurc in scparatc aCcounts.
Transacdon8AprⅡ 11。 T引 △a1cnds thc bu“ncss Transacdon11AprⅡ 15,Abdul pays硒⒓gcs by
$5000.Abdul pays thc moncy into thc busincss bank chcquc,$1200。
account.
Bank

B狙k $ $
Apr1 Abdul-Cap"a110000 Apr2 NIotor Vchic1cs 2000
$ $ Apr4 salcs 800 Apr3 Purchases 3000
Apr1 Abdul~Cap⒒a1 10000 Apr2 Motor`℃ 1Ⅱ dcs 2000 Apr8 Purchascs Rcmrns 100 Apr7 sales Remrns 40
Apr4s址 ∞ 800 Apr3 Purchascs 3000 Apr11Ta血 a-Loan 5000 Apr10 bIotor Vehclcs 4000
Apr8 Purchases Reatrns 100 Apr7 sales RetLlrns 40 Apr14Rcnt Recovab1e 300 Apr12 Rcnt Payable 1000
Apr11Tania-Loan 5000 Apr10 bIotor Vchiclcs 4000 Apr15 `Vages 1200

Tan1aˉ Loan Wages

$ $ $
Apr11 Bank 5000 Apr15Bank 1200
● A"transactions are recorded from the p° int of ⅥeW ofth0business,notfrom those of Ⅱs customers and
suppⅡ ers
● When reoording transac廿 ons,think veγ carefuⅡ y aboutvˇ hiCh aCcount‘ gives’ and WhiCh aCCount‘ receives’ Credit
the accountthat‘ gives’ and debⅡ tho aCCountthat‘ receives’
● Make sure you compIete the doubIe entry for eVery transaction before stading to record the next one
● Date every entry and enterthe name ofthe other aCCountin which the doubIe entγ is c0mpleted in the detaⅡ s
column
● lf you make a mistake in aρ exercise,study the anβ wer giVen atthe end ofthe book and make sure you
understand what you shouId have done and why
● The golden rule ls thatfor every deb t entry there must be an equal cred"entry

1. JoeI Occupies part of Natasha’ s business 3. A trader Wthdraˇ Vs rnoney from his business Bank
preIη ises VVhich entdes in Natasha’ s books accountfor personal eXpenses
record the rent JOeI pays her by cheque? WhiCh entries reoord this in his books?

DebⅡ acooumt CrθdⅡ aooount DebⅡ account Crθ dⅡ aCCou"t

A Bank Rent PayabIe A Bank Cap忆 l

B Bank Rent Rece vable B Bank D路 v“ ngs

C Rent Payab丨 e Bank C CapⅡ al Bank
D Rent Receivable Bank D DraWngs Bank

2. Yasnη ina purchased some o矸 iCe equipmentfor use

in her business The equipment was fau"y and she 4. A trader returns goods to the suppⅡ er and receives
er who refunded the costto
returned itto the supρ Ⅱ a refund
Yasmma VVhiCh entries record the refund in the trader’ s
WhiCh ent"esin Yasmina’ s books reoord the books?
return ofthe equipment?

Deb∶ t accouot Crod△ aooount DebⅡ ∷

account∷ Cfed咖 unt∷

A Bank Purchases Retums A Bank Purchases

B Bank ofice Equipment B Bank Purchases Retums
C Purchase Retums Bank C PurChases Bank
D 0Ⅲ ∞ Equipment Bank D PurChases Retums Bank
Γ10pen the necessary bdger acc° unts and ρ
ost福 ef。 ll。 Whg transactlons to thom

June 1 Farook commenced business by paying$15000into his business Bank aooount

Arnna lentthe business$5000
Fanook then had the fo"owing business transactions
2 Purchased ρremises and paid$8000
3 Bought o钎 iCe furn"uⅡe for$2000and paid by cheque
4 Paid$5000by cheque for g° ° ds for reˉ sa|e
5 sold some goods for$1500and banked the prooeeds
6 Paid insuranoe premium by oheque,$600
7 Bought rnotor van and paid$3000by Cheque
8Drew cheque for$50to pay for petrOIfor motor van
9 Boughtsome g° °ds oosting$2000for re-sa丨 e and ρaid by cheque
丬
O sold g° °ds for$2400and banked the proceeds Dreˇ v cheque for wages,$400
11 Repaid$1200by cheque to customers for goods returned
12 Received a refund of$900from suppⅡ ers for goods returned
13Re∞ Ved a refund ofinsurance of$1∞
Wthdrew$200from business Bank accountfor personaI expenses
闸
4 Retumed some o矸 ice furnⅡ ure that Was damaged and received a refund of$8oo
15Repad$1000ofthe banfrom Amna

2,Comp丨 ote the ent"es forthe fOIIOWing table wⅡ h informa刂 on taken from the accounts of a trade匚

DebⅡ account l Credit acoount

1 Looaltaxes paid by cheque
2 Bank ρays interestto trader
3 sundγ eXpenses ρaId by cheque
4 Postage and statlonery ρaid by cheque

5 Te丨 ephone bⅢ paid by cheque

6 Car"age inˇ ˇ
ards★ ρaid by cheque

7 Carnage oumards★ ☆paId by cheque

8Interest paid by cheque to brotherin respect of a ban received from him

9 Interest paid to bank

Carriage inwards is the deⅡ very cost of bringing the g° °ds from the supρ Ⅱ
ert° the buye∴
Carriage outwards is the cost of deⅡ Vering goods t° a Customer
 DOubIe■ entry bookkeeping:
credit transact∶ ons

hoW to reoord transaotions whioh do notinVoIVe imrnediE玟 e Cash paymentsin ledger

accounts
the di矸 orenCe be铷 veen trade and cash discounts and how to treatthem

21 What are credit transactions? saIcg

△/Iany transac刂 ons takc placc、 $

^thout any money May31 Chin
bcing pzald or rcccivcd at thc omc F° r cxamplc,Lzal
scⅡ s goods to Clm for$500on31M呷 and givcs CⅡ n
Clun und30June t。 pay Thc transaC刂 on is‘ on $
crcdlf The sa1e has taken placc on31May and must May31salcs 500
bc rccorded in the bo° ks° fb° th Lai and Chin at that
datc N° cntncs to rccord paymcnt arc Fnadc1n山 e1r Thc dcbit cntryin Chn、 account sho、
books untJ Chn pays L・ al `s that heis a
dcbtorin Lai、 b° °ks;that is,Chin° 、
`cs Lai$500
un刂 l hc pays forthc goods
22 HOW to reCord credit In C】b1in’ s books Debit thc purchasc to Purchases

transactions account and crcdltit to an account for Lai

In a scⅡ cr’ sb° oks A salc° n credlt is crcdltcd to Purchaθ eθ

Salcs account and dcbitcd t° an acc° unt opcncd in
$
thc name° f dle customcr `沩 hcn伍 c customcr pays, ay31Lat 500
hs or her accountis crcdltcd,and thc Bank acc° unt `Ι

deblted L狂
In a customcr’ s books A purchase° n crcdlt is
$ $
dcbitcd to Purchascs account and crcdtcd to an
May31 Purchascs 500
account opcncd in thc name° f thc supphc‘ Vlhcn
thc suppⅡ cr is pald,hls° r hcr acc° unt is dcbitcd,and
Thc crcdlt cntry in ILalb account sho、 vs that hc is a
thc Bank account credltcd
σedt° rin Clun、 b° oks

Example Goods returned

Lal scus goods t。 c灿 and glx/cs O狃 4June cbin rcmrns s° mc of thc goods cos0ng
CllJn und∞ "or$sO0on31M缈
JuiilC to p钅
1;⒎ $100to L缸 bccausc山 ey arc damagcd
In L缸 ’s books Crcdlt thc salc t° salcs account In L拉 ’
s books Credlt Chn、 account and deblt
and dcbitit to an account tor C~hn Salcs Rcturns account
 Chin supp° se Lai has aⅡ owed Chin a cash(Ⅱ scount of
5%pro访 dcd Chn pays by30Junc,and chln pγ s

$ο

$ο
ay31salcs
⒈Ι Jun4 salcs Rculrns Lal on28JunC Cllln oweo L疝 $400ls500-$100,,
5%of$000=$⒛ Hc w姐 ,thcrctorc,pγ °my$BO
saleg Retutns
In LaPs books Deblt thc dlscountto Discounts
$ Ⅻ owcd account
Jun4 Chin 100

In CⅡ n’ s books Dcbit Lai、 acc° unt and crcdlt

$ $
Purchascs Rcturns account May31salcs 500 Jun4 salcs Rc"ms 100
Jun28 Bank 380
Jun28Disc° unts All° wcd20

洫
$ο
$

B
Jun31Pllrchascs Rcturns 500 May31 Plrchases

ο
Putchage8Re⒒ ,ng Jun28 Cluil

$ $ Di8countg AⅡ owed
Jlln4 Lal 100 $
Jun28Chin 20
2.3 HoW又 o record payments for
goods bought or so!d on credit In Chn’ s books Crcdlt thc dlscount to Disc° unts
RcccⅡ℃d acc° unt
Trade discount
Tradc dlsc° unt!s an alo、 砌ncc made by onc tradcr to 玖
anodlc⒈ In thc abovc cxample,thc goods wb1ch Lal $
sold to Chn mγ have becn sold norma△ y for$625 Jun4 Ptlrcllaqcs Rcturns 100 M呷 31Purchascs
Lal kn° ws山 at Chn,also a竹 adcr,must makc a proflt Jun28 Bank 380
°且thc goods when hc scⅡ sthcm He has all° 、 Jun28Discollnts Recα vcd 20
Ⅴcd
Chn atrade d、 c° unt of$125@0%° f$62sl so
thatif Chn scⅡ thc goods for$625hc v・ l⒒ makc a Bank
proflt of$125 $
Notc村 山c,tlgh山 c normal prlcc ofthe g∞ ds was Jun28 La】
$625,thc tran阴 coon was for$500onIy and° nly
$500is cntercd into thc bo° ks° fb° d△ L疝 and Chin D猛 countθ ReccIved
$⒛

Tradc dlsc° unt o貂 $

'r rccorded in1cdgcr accounts
Jun⒛ 婉
Cash(° r se"Iement)disc° unt
Lal has gi,cn Chn onc month to pay forthe goods
To cnc° uragc Chln t° p呷 by30June,Lal may aⅡ 岬 Example
Clin t° paylcssthan thc amount duc Ths a△ σw⒓ ncc Andrcw had thc fo⒒ oxx・ lng transacjonsin May
ls a cash lor setdemcno dlscount,ObicC dle
May1 purchascd goods from Davld Thc g° °ds cost$1000
dlffcrcncc bc小 vccn cash dlsc° unt and仕 ade山 scount: lcss10V。 oadc discount
“adc(Ⅱ sc° untis n° t dcpcndcnt on paymcnt bcmg 2 Purchascd goods from Rodncy for$1600lcss15%
madc prompt坑 or cvCn aE a△ ) tradc discount

Note Cash dlscounts arc叨 氵 ”缨s rccordcd in lcdgcr 3Purchascd a computcr fot山 c ofEce。 n αcdlt from
Bernard for$2000
accounts
 4 sold goods to Maoo fot$800 ˉ v伍
5 Reurncd goods wl△ lch had cost$100aftcr tradc
$ $
d
discount to Daγ △ lvIay7 salcs 5t ll ay9 Bank
卜Ι 475
Purchased goods from Ludovic for$7001css tradc May9 Discounts AlIc,wcd 25
discount at2漤】 、
7 sold goods to Ra△・
△n for$500
8 lvIa⒒ o rcmrncd goods which had bccn sold to hm f° r Putchasc8
$40
$
Rccc"cd chcquc from Ra△In f° r atnclunt0″ mg,lcss
ay1
⒈Ι David 900
cash discount of5V。
ay2 Rodncy 1360
mm

Pald amount o△ lng to Da△ △d,lcss cash由 scount of5% May6

`Ι Lud灬 560
Pald amount OM lilg to Rodnc乒 lcss cash dlsc° unt of `c
5%Patd Bcmard for c° mpllter
⒓

Rccα vcd chcquc irom Maoo fot amouIlt σ凶

mg,lcss5冫 o putchascg Rctutng
cash dlscount
Pald amount owlng to Llldovic,lcss59o cash discount $ $
Nhy5 Daxld 100

Thcsc transacoons arc rccordcd as foⅡ o、vs:

snleg
David

$⒛
$
MaI,4 Mallo
$ο

∞
ay5 Purchascs Rcttlrns 100
卜Ι Nfay1 Purchascs May7 眩ˇ
谥
May10Bank 760
May10Discounts Rccckcd 40
sales Rcturns

$
Nhy8 Ⅳ1aoo ⑽
Rodney
$ $
May11Bank 1292 May2 Ptrchascs 1360 Discountθ Allo9rcd
May11DiscOuntb Rcccl△ ・
Cd 68
$
May9 Ravln 25
May12Ma⒒ o 38

Betnotd

$ $ r况 gc。 umt Rcceived

May11Bank

$钔
⒛ 00 `Ι ay3 0fncc Computcr 勿aOo
$
sfas/10Das・ ld

⒅⒛
May11Ro曲 cy
M△,12Ludovlc
△u汕 妃

$ $ o伍 ce Computer
Mav12Bank 532 1vIay6 P岫 ascs 560
May12Dlscounts Rccco,Cd 28 $
Ms,3 Bcrnard 2DOo

Bank
M岫
$ $
$ $ 加么y9盹 、
妯 475 加1ay10 Dax,d 760
ay4 salcs
⒈Ι 800 May8 salcs Rcttrns 40 加厶y12Mri。 722 1vIay11 Rodncy 1292
May12Bank 722 M呷 】1 Bcmard 2000
May12Discounts AⅡ °、
ˇcd 38 Ma△ 12 Ludo△・
lc 532
Cakulations
Putchases: Amount bcfotc trade discount Tradc d△ count Cost to Andrew
$ $ $
From; Da钪 d 1000 (1090100 900
Rodncy 1600 (15%)240 1360

Lud。 vic 700 (2090140 560

Cash sctdcmcnts: Amount beFote cash discount Cash discount【 s%) Amount p衬 d
$ $ $

By Ravin 500 25 475

Maoo 760 38 722

Postthe fo"oWing transact ons in the books of Geraud

June 1 Purohased goods from Khor which cost$3000|ess trade disoount of10%
5 so丨 dg° °ds to Laifor$600
10 Returned goods whioh had Cost Geraud$200to Khor
15 Purchased goods from Lim which cost$2800before trade discount of10%
20 so丨 d goods to Chin for$1300
25 Lai returned goods whiCh had cost him$200
m Geraud paid Khor and Lim the amounts due tothem aⅡ erdeduding5o/。 cash discount
Lai and Chin paid Geraud the amounts they owed him a什 er deducting5%cash disCount

● Rememberto record a"transactions from the point of VieW ofthe business,notfrom those of ts customers and
suppⅡ ers
● VVhere trade discounts are given,record aⅡamounts net oftrade discount
● Note carefu"y whether cash discountis to be deduded from se⒒ IeIη ents
● Rememberto complete the entries for cash discounts to the correot DisCount accounts
● Be accurate in a"your oaIculatons

1∶ Davina bought goods on Credkfrom sharon for

Accountto be
$600|ess trade discount of$120 ^CCountto
deb∶ ted bθ credⅡ ed
WhiCh entries reoord this transaction in DaVina’ s
C Purchases sGOo sharon$6∞
books?
D Purchases sGOo sharon Mgo
Accountto be DisCounts Reoeived
^CCountto
deb∶ ted be cred"ed $120
A Purchases s0Bo sharon MBo
B Purchases$480 sharon$sOo K"sta丨 bought go° ds on credkfrom P"sca The
Dis∞ unts AlloWed$120 goods had a Ⅱ st p"ce of$1000but Prisca a"owed
 KHstaltrade disoount of10%and cash discount of Accoumt1o be Accountto be
4% deb"ed credlted
HOw much did KristaI haVe to pay PHsca? Bank$608 shi旧 ey ss0o
DisCounts AlIowed$32
A $860 B sB64 C$900 D$960 Bank ssO8 shiHey$s0o
3. shiHey bought goods from Corrine The goods had DisCounts Received$32
a Ⅱst p"oe of$800Cor"ne allowed shiⅡ ey trade C Bank sso8 shirley$760
d∶ soount of20%and cash disoount of5% DisCounts A"oWed$152
In Corrine’ s books,WhiCh entries record the Bank$608 shi"ey$760
cheque she received from shi"ey? DisCounts ReceiVed$152

1. Fleming had the foⅡ owing transaC刂 ons

JuIy 1 Purchased goods from Adamsfor$50001° ss trade discount of15%Adams alloWed Fleming4%cash
discount
4 Purchased goodsfrom Bond for$25001ess trade discount of10% Bond a刂 owed FIeming4° cash
/。

disCount
5 Returned goods whiCh had oost$600to Adams
7 Purchased goods from Asue for$7oo01ess trade discount of20% As"ea"owed Flenning5%cash
disCount
9 Returned goods WhiCh had Cost$800t° Ast丨 e
10 Purchased goods from Cairns for$42001ess10%trade discount Cairns aⅡ owed F丨 eming5%cash
disCount
14 Fleming se廿 |ed a"accounts o、 Ving to his suppⅡ ers by cheque,taking adVantage ofthe cash discountin
each case
RequIred
Post the transaCtions"sted aboVe in F丨 eming’ s booksin g° °d form

2.streak had the foⅡ owing transactions in March

Mar 1 sold goods to BⅡ gnautfor$25001ess trade discount of10o/。 ,and a"oˇ Ved him cash disCount of4%
4 sold goods to Ebrahim for$40001ess trade discount of15%,and a"owed him cash discount of5%
6 Ebrahirn returned goods whiCh had cost him$200
8 So丨 dg° ° ds to Friend for$3200Iess trade discount of209⒍ and a"owed him cash discount of5%
12 So丨 dg° °ds to FIOWerfor$2000Iess trade discount of10%,and a"oˇved him cash disCount of4%
14 F丨 oWerreturned goods which had Cost him$350
闸5 B"gnaut,Ebrahim,Friend and Flower setled their aooounts by oheque,each taking advantage of cash
disCount

RequIred
Postthe transactions Ⅱsted above in streak’ s booksin g° °df° rm
 Books of prime
(or or∶ ginal)entry

● thθ ρum0se ofb° °ks of p"me entry

● hoW to ontertransactlons∶ n books of pⅡ me entry
● hoW to ρosttransaotions from the books ol pJme entry to ledger a∞ ounts

31 Whatis a book of prime entry? Bookof Mme mq U茈

rcmn$book,or prcParcd flom ctc由 t notcs rcccivcd ftom
A book of pHme entry is uscd to Ⅱsta⒒ rcturns oub△ ards suppⅡ crs
transacjons of a simJar knd彡 g饧 ″thcy arc postcd ioutnall `
to lcdgcr accounts Thcy are somcomcs knovn as Cash book To rccord au cash and bank transacdons
books of Ⅱrst lor oJglnall cnt,but for convc血 cncc 0But sec§ 3+l
urnal lor gCncral %record au oa。 sac。 。 ns fot whch thcrc
伍cy wⅢ be referrcd to as books of pⅡ mc ent呷 in J°
° cntry lA、 o
,° urnall is n° thcr book of pomc
this tcxt Bccausc thcy⒒ st transacjons bcforc thcy scc HINTs)
arc postcd to lcdgcr accounts they arc矽 彡
汤 the
'订
doublctnt呷 m° del r/打 勿 p矽 //z/z'勿 re卿唧 扬
'″
‰″劢 型 32 HOW to Write up books
ˉ
勿 沏 旷 汤 ″彡勿 /rJ切 口虑虑B吵 飓 Therc is, of pFime entry
'p'″
h° wever,onc
'″
cxccp00n to ths rulc,and thatis thc
cash book,as expl疝 ncd latcr in§ 34 Example
Thc names° f山 c books of prmc cntry and thcir Ja卩 铷。ya has scnt and rccclscd thc foⅡ o、 礻
ng
uscs arc: 1nvo1ccs and crcdlt n° tes
Ins・ oiccs scnt t0customcrs Amo心 nt ofinvoicc
Book of pdme en"y Uθ e $
ay1
卜Ι Atapattu 2350
salcs lownal lor sdCs To rccord au salcs madc On crcd1t Thc
day bookl cn。 lCs atc madc from copics ofmvolccs M呷 4 dc sJ△ a 1746
scnt to Customcrs
May6 AmoId 520

saks tctums book To rccotd au g。 。ds rcorncd from Cfcdlt notcs scnt to customcts Amount of crcdit notc
(I:)r salcs tctutns customcrs W△ cn customcrs rctum $
g° °执 that werc bought on crcdlt th叩 May3 Atapattu 350
,clurnal,。 r tctums
inwatds loumaD are“ tlt Crcdlt notcs曲 osvmg thc May5 dc sl△ a 146
atnount crcdlted to thcr account for dhc May7 Atnold 60
rctuJns ⒒ c salcs tetums book is In△ olccs tcCαVcd from suppⅡ crs Arnount ofinvoicc
ptcparcd from thc cop1cs of crcdlt notcs $
scnt to customct$ ay2
加Ι Vaas 5000
Putchascs journal To tccord au purcllascs of哎 ock血 oade May5 Fcrnando 3600
lvIay7 Mubarak 2200
lor purchas“ d呷 lgoods for tcs址 ΘmadC On crcd△ Th邙 c
b° okl arc cntcrcd h thc Purchascs journal Crcdlt notcs rcCcWcd from supphcts Amouilt of crcdIt notc
from suppⅡ crs’ i“ 汩
Dlccs $
PVrchascs rcmms To rccord au g。 。ds tc呶 ncd to supphcr$ ay6
卜Ι Vaas 1000
loumallor pw曲 ascs ∶
l:llc purchascs rcturns joutn狃 芯 ay7 Fctnando
卜Ⅰ 600
Thc transacoons xx・ m bc cntcrcd in thc books of Mubarak
pⅡ mc cnt叩 as foⅡ ow⒌ $ $

$猢
sales journal $ soleg Retutns,ournaI May7 pufch孙 cs 2200

吼ω
May1 Atapattu 2350 1vIay3 Atapattu
step2 Post thc勿 /o/° f cach book of prlmc cntry

一
May4 dc sⅡ va 174‘ ay5
加Ι dc slva

吼
一
Ma9’ 6 Arnold 520 May7 Arnold to the salcs,salcs Rcturns,Purchases or Purchascs
4616 Rcturns accounts,as appropoatc

Putcha8cs i° $ PurchagC:tctⅡ nθ $ sales

"nal jouiinal
$ $
加么y2 Vaas 50∞ M9,6 Vaas 1000
Ma,7 salcs lournal
May5 Fcrnando 3600 ay7
卜讧 Fcrnando 6lXl
total 4616
May7 Mubarak 22ao 1600
10800 sa【 es ReuIrns

$
礻Ⅱ ∴iⅢ
f=叨 t=|冫
← f∶
Ⅱ Ⅱ ∷^ 卜Ι
ay7 Salcs rcttlrns
=? =′
rΥ trJ Ie。 ger dcco岵 r|∶ $
journal tota1 556
prI∶ nθ eⅡ 】

ExampIe Pmchoθ eθ
$
Usc thc inlormaoon in thc books of pomc cntryin
May7 Purchascs
§32 iournal t。 ta1 10800
stcp1.Post cach itcm in the books of prlme entry
t° thc supp△ cr、 °r cust° mcr、 accountin thc lcdgcr Putchagee Re“ ‘nθ
foⅡ o、
^ng thc proccdurc a1ready lcarncd in chaptcr2, $ $
but do″ 口 items to thc Purchascs, May7 Purchascs rculrns
'post thc indhidu赳
Purchascs Rcturns,salcs or Salcs Rcturns accounts journal totaI 1600

Atapattu

$ $
3亻 T蜘 e cash book
May1 salcs 2350 `Ι ay3 salcs RctLlrns 350
A cash book isthc book of pⅡ mc cnt上 y tor aⅡ cash
and bank transacoons;but、
dc sⅡ va `c have aLcady sccn in
chaptcr1thatitis also an account It is thc° nly book
$ $ of prltllc cntry thatis also part of thc doublc-cntry
May4 salcs 1746 May5 sa1cs Rcturns 146
modcl
Thc cash book is als° uscd as thc book of pomc
AFnold cntry for cash dscounts A Column is providcd on
$ $ thc dcbit sidc ofthc Bank account to rccord
May6 salcs 520 1vIay7 salcs Rcturns 60 dlsc° unts aⅡ owcd,and a column on thc crcdit sidc to
rccord discounts rcCc1vcd
Vaaθ
Bank
$ο

$
ο

ay6 plltchascs Rcmms1000

、Ι May2 Purchasos Discounts Bank Disc。 unts Bank
oⅡ owCdl CCcClvCdl
$ $ $ $
Fernando
$ω

$ Thc words‘ aⅡ owed’ and‘ recc1vcd’ arc somcomcs

May7 Purchascs Rculrns 600 May5 Plrchascs on1ittcd bccausc bookkcepers kn0、 ,x,hich
`which is・
35 How to en又 er discounts in丈 he Vaas

Gash hooκ $ $
May6 purchascs May2 Purchascs 5000
Whcn a paymcntis rccclvCd fr0m a customcr who Rcturns 1000
has dcductcd cash disc° unt,cntcr thc amount° fthc ay7
卜Ι Bank 3800
unts
discountin thc discounts allowcd co1umn ncxtt。 thc `1ay7 Disc°
Reccwcd 200
ai△ iount reccivcd in thc bank co1unnn

Entcr discounts rcccivcd fr° m suppⅡ crsin thc

discounts rcceivcd c° 1umn ncxtto thc amount paid
Fcrnando
in thc bank c° lumn

$ω
$
Example Nfay7 Ptrchascs ay5
λ‘ purchascs
Rcturns 600
All paymcnts duc from customcrs and all paymcnts to May7 Bank 2850
suppⅡ ers in§ 32wcrc∝ tded° n7May In cach c灬 c, May7 Discounts
cash dlsc° unt of500、 Rccckcd 150
`as alo、 `cd or rccc1vcd

Ba砥
Discounts Bank
Mubarak
Doc° unts
(al1。 WCdl ecccl・
,cΦ $ $
$ $ $ 2090 ay7
卜Ⅰ Purchascs 2200
ay7 May7 `Iay7
卜 Bank tlnts
Iay7 Disc。
Attapatm
`Ι 10o 1900 Vaas 200 Rcccl△ /cd 110
ay7
卜Ⅰ ay7
λΙ
dc sdva 80 1520 Fcrnando 150 2850
May7 May7
Arnold 23 437 Mubarak 110
|r l+fⅢ V t∩ oo:0~is兮 o1:nts亍 rom Ⅱ k,

203 460 r?sh11ρ ↑V衤 ・)I△ ?p’ s↑ ・

.tΙ n!s

|^|∶ ∷
∵∵∶
Ⅱ ∶∶ ∶
)ii∷ ∴
|’ {冫 ;∷ :11:
=fJ
Atapattu |∶ l子 ce丨 Vcd account巳
$ $ Thc pcrl° dlc totals of thc dlsc° unt allo、 1umnin
May1 salcs 2350 卜Iay3 salcs Rculrns 350 `cd c°
N‘ ay7 Bank 1900
thc cash book arc postcd to thc dcbit of thc
av7 Discounts Discounts Au° wcd acc。 unt;thc pcrlodlc totals of thc
`《
Allo、 vcd 100 dlscounts reccivcd c° lumn arc postcd to thc credit° f
thc Disc° unts Rccc1vcd account Thc discount
dc sⅡ va
c° 1umnsin thc cash book arc not part° f thc d° ublc-
$ $
cntry rn° dcl
lvIay4 SaIcs 1746 `Ι ay5 salcs Rt・ ttlrns 146
ay7
⒈Ⅰ Bank 1520
ay7
ⅣΙ Discounts Discounts Auowcd
°xvcd 80
^出
$
May7 Cash book total 203
hndd
$2

$
May6 sa1cs May7 salcs Rcttlrns 60 D芯 counts Rcce加 :d
May7 Bank 437
$
ay7 Disc° unts
May7 Cash bo° kt° tal
`Ⅰ Allowcd 23
Exercise1 38 HOW to Write up a threeˉ column
卜Ι
urgatrolrd had thc foⅡ °、
^ng transacoons,aⅡ
on cash book
crcdlt,in March
Thc cash c° 1umns arc cntcrcd in cxacdy thc satnc way
Match 1 Purchascd goods from Tlkolo foェ $10000lcss tradc as thc bank columns,cash rccched being dcbltcd,and
dlscount° f209。 Tikolo a⒒ 0丙 cd hm5⒐ o cash
dlscourlt
cash paymcnts crcditcd,in the cash c° lumns uJhcn
4 sold goods to snyman for$1200lcss oadc dlscount cash is bankcd,thc cash c° 1umn must bc crcdltcd and
of100/c Hc aⅡ owcd snvman49o cash discount thc bank column debitcd wlth thc amount `Ⅳhcn
6 Pur0hascd goods from溆 、kcrs for$8000Icss tradc cash is drawn fr° m thc bank,thc bank co1umn rnust
dlscouilt of10%X altcrs allt,wcd Murga讧 0yd5%
bc crcditcd and thc cash column must bc dcbitcd
cash discount
10 sold goods to Karg ior$25001css oadc由 scount of Example
10%Hc auowcd K征g4%cash dlsc° unt
On1May C灬 slus rccckcd$700in cash from a
m⒓

snyman rctllrncd goods which had cost him$200

Rcturncd goods wluch had cost$400to△ kolo cu呲 omcr On3M锣 hc pald sundry cxpcn⒃ s of$40
“

P刂 chascd goods from Burgcr for$70001css tradc

otlt ofCash On4May hstakngs wcrc$20000n
discount of2500 Burgcr auowed him cash discount
of49‘ 5May hc bankcd$1500cash
sold goods to炖 tzc for$30001css tradc dlscount on7May hc paid cash,$70,on sundryitcms On
。f10c/o Hcau° 、
ˇcd K。 tzc59。 cash discount Mav8hc、 注dldress,$500fr° m thc bank to p呷 x△ ages
Purchascd goods fr。 m△1kob fot$60001css oadc
discount of20o/O Tlkolo allowcd him5V。 cash
discount Bank and Cagh
⒛ ” ⒛

c
h

B
Karg rcturned go。 ds,luch had cost him$300

an$
Dlsc Cash Bank

as〓
DIsc
Rcturned to Butger goods whch had cost$1000

Φ
$ $ $ $
sold goods to sn卵 an for$18001ess trade dlscount
NIalr1 May3
of10%Murgatroyd aⅡ clwcd snyman5%ca曲 salcs 700 sllndty
discount
M呷 4 ckps 硐
Rcco妮 d chcqucs from snyman,Karg and砘 tzc salcs 2tKlo May5
tc$pccuvclv h§ m scdcmcnt of山 cir accounts,and
kIav5 Bank ￠ 1500
scnt chcqucs ln§ Ju sctdcmcnt。 fthcr accounts to
cash ￠ 1500 May7
Tikolo,、研 dtcrs and Burgc⒈
Mav8 slln的
Bank ￠ 500 cxps 70
Rcquircd May8
Entcr thc transac0ons for March in Murgatroyd、 Cash ￠ 500
bo° ks° f pⅡ mc cntry and postthcm in good form t°
Max8
XXagcs
the propcr accounts

Notc。 ￠is an abbreviaton for‘ contra’ ,indlcajng

37 Threeˉ COIumn cash book that thc doublc cn“ y is complctcd on thc opposite
Most busincsscs rcccⅡ ℃Cash thatthcy do not bank sidcs of the Bank and Cash accounts
and pay somc of dlcir cxpcnscs out of thc unbankcd
cash An account for dus cash is kcptin thc cash
ExercIse2
book It o usu址 y round comciucntto hasc columns Entcr山 e bⅡ oM・ lng transacoons inJoshua、 thrc←
for cash ncxt t° th° sc f° rthc Bank account for Cash column cash book
rcceipts and paγ tncnts The acc° untis thcn a MBtch1Rccclx cd tahgs from cash salcs,s1100
combincd Bank and Cash account 2P齑 dd∝ 硅o饣 h cash,sl∞
0 Rcccl△・
cd ta妯 hgs from cash salcs,$900
4B盯 屺d cas\$1700
Bnnk nnd Cnoh
k$

5pald sun妁
犰$

cxpcnscs in cash,$25
c
h

c
h

B
an$

an$

6Dtclv$800from bank forthc omcc cash n。

as①
aseΦ

at
●

7 PaId for stock by cash,$750

39 The journaI 2○ n4Mγ J° nah bought offlcc血 r血 mre n。 mA
AⅡ transac刂 ons sh° uld bc rcc° rdcd in° nc° f thc Whalc On crcdlt for$400
bo°ks° fpomc c趾呷 be± orc bcing pⅡ tcd to lcdgcr

ο
n
Λccoun“
accounts Thcj° urnal i阝 thc b° °
k° fp丘mc
cntry for

$伽

$
transacoons f° rs1・hch thcrc is n° °thcr bo° k° f
M呷 4 0fntc F班 血。汇c

娴
prlme cntry Itcms which哂 Ⅲ rcqu⒒ c cntrlcs ih the
A、々△alc
joumal arc
Plrchasc of° fflcc f讧 mmrc from A、 ￠h址 c sccA W%ale、
● corrccoons of posjng err° rs lilVoiCc n0123datcd4蚋~
● a曲 ustmcnts to accounts6vhich arc dcalt x△ lth
1aterl Notc Thc narratlxc⒏ v∞ Jonah伍 cinformaoon hc
● transfcrs bcbvcen accounts nccds to cnablc him t° chcck° n thc dct缸 ls Iatcr if
● purchasc and salc of△ cms° thcr than stock in- needs bc,
tradc Cc∮ machncr另 dc△ c叩 vans,etc,uscd h
:;∶
x・

the bushcsθ °
il crcdlt 3,On13MayJonah bought a d山 ~℃ 轷 van± or$3000
●opcning cntrlcs in a nc、 and pald by chcquc
`sct of lcdgcrs(C,g,
whcn thcrc1sn° rnorc room m thc cxlsung
kThc book° fp止 mc cntry for dus cash tr剔 △
阴c伍 °n
kdgc灬 al,d伍 eb狃 anccs on thc ac∞ Lln“ arc is thc cash book but,by als° cntcong the ptlrchasc
trans± crrcd to ncw lcdgers° rto mak山 c in thcjoum狃 ,J° nah WⅢ bC空 blc to scc morc dctaJ
opc血 ng entrlcs at thc start of a neM/accounong
about dusimp° rtantitem than if hc had entc茈 d it
pcⅡ °dl,
h thc cash bo° k° nˇ )
Each joumal ciltrv血 ows d,c accOLlnt to bc
dcbited,and d△ c acc° unt to bc crcdltcd,It± oⅡ oψ s
Date Acc° llnts Dr Cr
that thc dcblts sh° uld alwa1・ s cqual the crcdlts Thc

$⒅
journal、 rulcd as foⅡ °
w⒌ $
May13 DcL△ c,Van account
Datc Accclunts Di冰 Ct木 Bank 3000
Purchase。 f dch△ ct,van,tegisttaklon no G123们 t)scc
WhccIcr1m△ ・
olcc no 6789datcd13May
壮Dェ ls sh° 丘 fot dcblt and Cris sh° 丘 for crcdlt
ExercIse3
310 How to make journaI entries Preparc j° urn砬 entucs h proper form to∞ rrcct伍 c
AM缈 s state山 c account to bc debltcd bcforo曲 c one ±o⒒)w1r1理 ;
to bc crcditcd Evcry cntfF shodd havc a bricf but 1Crcdlt n° tc no964,for$120,rccαvcd± rom A
hforma刂 ˇ
。cxplanauon of the rcason for thc cn订 y; &Co,a suppⅡ cr,has bccn p° stcd to A,Cottcr、
dis1s ca△cd thc narradv℃ account in crr° ‘
2.Invokc no104,for$400,rccc忡 cd】°m
Examρ le
Hussain,a suppⅡ er,has not bcen cntcrcd in thc
1・
J° nah dlscovercd dlat hc had credltcd$100that pLlrchascs j° urna1,
hc had rccα vcd± rom A,Btlrger on1AprⅡ to an 3 Invoicc no 6789,for$150,scnt t° Δ
压aya,a
accoullt for L,Burgcr h crro⒈ Thcj° urnal cntry to customer,has bccn cntercd ln thc sales j° umal
corrcct thc crror、 vm bc: as$105
Date Acc。 unts Dr Ct 4 Ihc purchasc° fa macb庄 nc for use m thc
business,and cosong$2300,has becn dcbitcd
$ $
丿
、1冫
rl11 L BLlrgcr 100 to Purohascs accountin crror
A Bmgct 1ll【 l 5.Credlt notc no23,for$68,scnt to Hanlfc,a
CoⅡccoon° fan cr± ot A remttancc tom A ButgOr on di$datc Customcr,has been° nuttcd from thc salcs
w彡 s posted iilcortccdy to L B△ 唧 呐 account
retuins journal
● Rememberthat books of p"me ent%eXcepffne cas/,boo氏 are n° t part ofthe doub|e-entγ modeI
● Rθ Cognisθ thθ corrθ d book of prime entlγ for every transadion you reCord in ledger aocounts
● Enterinvoices冖 er orfrade d‘ counrin the b° oks of p"me entry
● POstthe pe"od怆 totals ofthe sales louma1sa es retumsloumd,purchasesloum引 and purchases retums
journalto the sa|es,sa|es Returns,Purohases and Purchases Returns accounts respoctveIy
● Remelη berthatthe discount columnsin the oash book are memorandum columns only and not pa"of the
doubleˉ θntry model
●Prepare cash books in Columnarform忏 possible (see§ 38)
● show the deb"entfy before the credⅡ entry in the joumd
● Add a su"abIe narrath`e with proper detaⅡ to every entγ in thejouma丨
●PⅡ epare journal entries on|y to ledger accounts,nelre'ro° rhe厂 bo0ks oFp″ me enn∝

Tania purchased goods for$10001ess25%trade DeI,Jf Cred饣 Deb″ CredJf

disoount sheˇ vas aⅡ owed oash disoount of10% understated understated
VVhiCh amount should sho onterin hθ r purchases $1600 $1600
loum引 ? understated understated
A $650 B $675 C $750 D$1000 $2000 $2000
Lara purchased goods costing$1800Iess trade understated understated
disCount of30% He was a"owed cash disoount of $2000 $2000
5%
Chθ ung has rece ved a oheque for$1MClfrom Ralu
How muoh should Lara have to pay forthe
g° °ds?
in fuⅡ set‖ ement of a debt of$1700
Hoˇ v should this be reoorded in Cheung’ s books
A $1080 B $1197 C $1260 D $1800
of account?
3. Cora sθ nt an丨 nVoice tO Ma"a for$20001ess20%
tradθ discount Cora has omi⒒ ed to enterthe DeI,″ $ Credlf $
丨
nvoioe in her saIes journaI A Bank 1540 Ralu 1540
What effect wⅡ lthis haVe on her aocounts? B Bank 1700 R句 u 1700
C Bank 1540 Raju 1700
ma"a℃ ac° °umt saIes aocount DisCounts
DeI,jf CredJf De0饣 Credlf
AlloWed 160
D Bank 2000 Raju 1540
A undθ rstatθ d understated
Disoounts
$1600 $1600 ReoeIved 160
1.AdeeFs transactlons forthe rnonth of AprⅡ Wθ ro as fo"ol″s∶

ApJI 1 Bought goods from BⅡ a丨 for$30001ess20%trade discount BⅡ al a"oWed Adee15o/。 oash discount
2sold goods to Imran for$800Iess10%trade disoount He allowed lmran5%cash discount
3 Bought goods from Asad for$1300丨 ess20%trade disoount Asad aⅡ oWed Adθ e15%cash disoount
5 Purchased a deⅡ very van on ored"from syed for$6000 The inVoice forthθ van was no 324
8 Returned goods WhiCh had oost$100t° BⅡ al
tradθ discount He a"owed Raza5%cash discount
10 so|d goods tO Raza for$11001ess20° /。
13Imran retumed goods WhiCh had Cost him$60
15 Purchased g° °dsfrom Asmafor$4o00Iess25%trade discount Asma allowed Adee丨 5%cash
disCount
16 sold goods to Amna for$15001ess20%trade discount He a"oWed Amna5%cash discount
17 sold goods to Raza for$16001ess20%trade discount He a"owed Raza5%cash discount
21 Returned goods whioh had Cost him$600to Asma
24 Amna returned goods which had cost her$300
26 Purchased goods from B"al for$4000丨 ess20%trade discount BⅡ al a"owed AdeeI5%cash discount
30 Adeel sθ 廿led aⅡ accounts hθ oˇ Ved by cheque,and reoeived cheques for a‖ amounts owing by his
customθ rs AⅡ discounts were taken

Required
(a) Enter a"the transadions for Ap"|into the books of p"me entry
(b) P° stthe books of ρrime entry to the ledger accounts

2. Prepare journa丨 entⅡ es wⅡ h suⅡable narratiVes to record the foⅡ oWing∶

(al Received from MumtazinVoice no506dated3March for$1o000This Wasin resped ofthe ρ
urchasθ of a
machinθ on cred"
(b〉
lnv° ice no 495dated6March for$675for g° °
ds sold to Wayne The inVoice has been entered Micein the
saIes journaI
lo) Inv° ice no998dated7March for$4250in resped of a deⅡ very van purchased from Younas and paid for by
cheque
⑹ Cred"n° t no103dated10March for$190sθ nttO BroWnθ but omi廿 ed from the sales retumsjourna|
⑼ hv° ice no854dated15March for$1300f° rgoods purchased from sandra The invoi∞ has bθ θn posted t0
Geeta’ s accountln θrro∴
 Balanc∶ ng accounts

● hoW tof∶ nd and record a baIanoe on aIedger account

● What deb"balances and cred"balanoes mean

41 Why accounts need to be Notes

baIanced ● Thc account has been balanccd at10ApⅡ 1,
● Thc balance was entcrcd on thc crcdlt sidc to
⒒ cc灬h book mu针 bc balalaccd pcⅡ odlca△l,to fmd
makc it balance、 1̌th thc dcbit sidc,and carricd
how・ muoh moncyislcft h thc bank acc° unt° rhow
do、
much cash thc busincss has lcJ(∶ ,⒏m血 rlB thc lcdgcr
(∶ `n to the debit sidc'on thc ncxt day
● The acc° unt has a汤 侈
〃彡 sh° 、江ng ho、 厂rnuch
accounts arc balanccd to丘 nd ho、 '/z//″
`rnuch thc busincss moneyis left h thc Bank acc° unt on10Ap血
四 cs othcr pcopIc,h泖 much itis° 、
`cd,and how ● The t° tals are placcd Ⅱvd xs・ ld1cach° thcr
much has bccn rccc小 /cd fron△ or spcnt on,thc
alth° ugl,thctc arc m° rc⒒ cms on山 c crcdit sldc
x・ arlous ac讧 viocs
d△ an on thc dcbit sidc

42 HOW to baIance an account ExampIe2

Add cach side ofthe acc° unt to fmd ss hich has thc Chadcy is a customcr xs hosc account has bccn
lesser tota⒈Insert on山 at side the am° unt nccdcd to balanccd and is岔 s foⅡ °ws:
make booh sidcs cqual,or,in° Chcr wOrds,balancc
Insert亡hc total° n cach sidc ofthc acc° unt and car, Chotky
η to thc° thcr sidc ofthc acc° unt on
thc balancc do、 刀 $ $
Jun4 s址 Cs 1040 Jun6 salcs Rco"ns 400
thc ncxt day
Jun10salcs 3105 Jun14 Bank 600
ExampIe1 900 Jun14 Disc° unt 40
一

Jun19salcs
郇_姗

Jun30 Balancc c/d 4005

Baik 5045
$ $ Ju11 Balancc b/d
Apr1 Abdul-Capital 10000 Apr2 Vcludcs 2000
lII° t0ェ

Apr4 salcs 800 Apt13 Pwchascs 3000 Notcs

Apr8 Purchascs Rettlms 100 Apr7 salcs Rcturns 40 ● Charlcy、 acc° unt has a debit balancc whch sh° ws
Api11Ta血 a-Loan 5000 Apr10 lvlotor`宀 ehclcs 4000 that hc° 、 css$4005;hc is a‘ dcbtor。 f
Apr14Rcnt Rccα ˇ⒓blC 300 Apt12 Rcnt Payablc 1000 `cs the busn△
thc business
Api÷ 15 熙笈gcs 1200
Apr16 Dtaw,ings 600
● c/d is short for‘ carncd dow△ f and b/d is short f° r
‘brc,ught d∞7n’ Thc⒃ abbrcoa刂 ons^re qm∞
APェ 10 Balancc canicd
down 4360 acceptablc元 αacc° un乜 ng
16200 16200 ● 队c crcdlt cnt,° n14JunC ls dcscrlbcd slmp圩 as
勹
Apェ 11Balancc brought klscount’ bccause】 t1s undcrstood that1t】 s
down 4360 dlscount au。 、
`cd,
Example3 Ifan a∝ °unt has ody° nc cnt饣 on Cach“ dc and
Who:uppks goodθ to由 c bughegg) 伍cy arc of equzal am° unt,thc acc° unt is simply
sat。 【
rulcd off
$ $
May8 Purchascs RcuLns1000 May1 Balancc b/d 1940 Getald
△Ia,29Bank 2005 May12Pulch哆 scs 7330
M呷 29Disc° urlt 125 $ $
M呷 31Ba1钿 ncc 〃d 61钔 ar4
卜Ι Sales 1000 Mar23 Bank 1000
9270
JunC1 BaIancc b/d An acc° unt、 注伍 an cnt叩 °n° nc⒍ dc On圩 o
balanced、 nthout thc inscro° n oft° tals
Notcs
● Thc crcdit balance shows that sara is owcd$6140; paula
shc1s a creditor of由 e buslilcss,

$伽
$
● Whcn Sara、 account was balanccd on thc

~咖
Mar31Balailcc 〃d 1500 1vIar22 DJchascs
prcvious30AprJ,a balancc of$1940was carricd APr1 Balancc b/d
down and appears as an opc血 ng crcdit balancc on
hcr account at1Ma,⒎ A three-column cash book is balanccd as f° ⒒°、
`s:
Ba依 and Cash
珧$

洫$
Β

Dis$
cash$朋

Β
cas$4⑸

an$
h
0ο
珈

l、 ay1
压 salcs sIal,3 sundsr cxps
May4 Salcs Rray5 Bank ↓
May5 A&Cα 100 2080 NIay6 z&sons 50 600
May5 Cash φ 1500 卜Iay7 sundry cxps 70
May7 P Ltd 80 450 May8 Q Blos 40 160

跏唧~一
May8 Bank ￠ 500 ay8 Cash ◆ 500

猁~一
NIay8
`Ι 氓嚣gcs
Mav8 Balancc 〃d
_⒇

伽
180 3200 4030 〓
May9
Balailccs b/d 1090 2770

Notc The discotlnt co1umns arc not balanccd
Thc totals arc carr1cd to thc IDisc° unts AⅡ o、vcd and
Discounts Rccchcd acc° unts rcspccovcly
43 When are accounts baIanced?
The cash bo° k、 ⅤⅢ usu・ auy bc balaiaccd at frequcnt
inter`甙s bccausc it is挝 ways iinportant to kno、 、
Ⅴ Thc statcmcnts狃 s° rclnlnd customcrs that paymcnt
`h°
much m° ncy is in山 c Bank account Itsl,m bc
balaiˉ lccd犹 wccuyintcrvab in sma△ bush∞ scs,d么 1i1y
h largc oncs
Acc° unts f° r customcrs and suppⅡ crs arc b/alanccd
monthl,T bccause of the p仫 cucc。 f⒃ ndlng and
rccciving statcmcnts of account The statcmcnts arc
copies of thc accounts of cust° mcrs in thc scⅡ crs’
books and arc scntto customers so that thcy can
rc∞ ncllc thclr kdgcr accoun“ 诫 th dl∞ c“ thclr
suppⅡ crs 灿 yd± fcrcnccs can bc cnqmrcd into and
agrccmcnt rcachcd bebⅣ ecn suppⅡ cr and customer
°f° utstandmg balanccs is duc
Thc o由 er accounts arc usua△ y balanccd as and
whcn reqLlirc出 dis咖 ⒒豳 、 、bc whcla a ulal balancc
is bchg prcparcd,Tn狃 balanccs arc cxplalncd in
chaptcr6

● Rememberthat balances carried doˇ vn on accounts should always bθ shoWn as brought do、 ″n on the accounts
onthe neXt day Marks may beIostin an exan、 ination ifthis is not done
 The cIass∶ fication of accounts
and d∶ vlsion of the ledger
● that accounts are classifiθ d as θithθ r personal orimpersonal
● aboutthe diV∶ sion ofimpθ rsonal accounts into reaI acoounts and nominal a∞
51 The cIassification of accounts
Ⅻ acc° unts f汕 int° onc of b△ ,o classes:personal° r
hˇ Crson/al,Each of thcsc classcs can be± trthcr
d⒈ 汀dcdinto subgroups
PeFsonal accounts are those for persons
Cnchd【 ng solc traders,partnershps and compa血 cθ
Thc subgroups are as fo⒒ o、
`s:
● Accounts foF debtors,pcrsons who° 、
`e thc
busincss monc9ThCy arc usua△ y dhe customcrs
°f thc busincss,and thcir accounts havc dcbit
b狨 anccs Thcsc accoun“ arc coⅡ cc色 VClXr h° wn
灬current assets(otllCr currcnt assc“ hchdc
cash in hand,cash at bank and st° ck,as
cxpl纽ned bclo、/undcr Impcrs° nal acc° unts)
● Accounts for credtors,pcrsons to whom thc
busincss oves money Thcy arc ⅡuaⅡy dl° sc
who supp圩 go° ds° r sc'钪 ccs to thc bushcss,
and thck acc° unts h孙 K crcdlt balanccs This
group inchdcs Loan acc° unts Crcdttors、 vho
h・axˉct° bc p缸 d widun° nc ycar arc curtcnt
ⅡabⅡ tics Crcdltors、 vh° d° not havc to bc pald
咖山h onc rar G⒏ bra1on⒏ tcrm1oanl are
bngˉ tcrm ⅡabⅡ t1es
● The oxsners capital and Dra硒 ings accounts
Impersonal accounts arc atl accounts odler than
personal acc° unts,Thc subgroups are as f° Ⅱ°环
`s:
● Accounts硒 河th debit ba1anccs Thcsc arc
fLlrthcr山 访dcd into assct accounts lrcal
accounts)and Cxpcnscs accounts(nominal
accounts),
ounts
● Asset accounts lrCal acc° untθ arc things that
thc buslness oxs,ns Thsgr° up may bc ftrdler
subdlv・ lded int°
-Ⅱxed oF n° nˉ current assets,whch are d血 呜s
acqujred±or usc ln tl,c bushcss and notlor re
salc,such as prcnusc、 plant and lnaclmcrB
vcllldcs,° f丘 cc nt・ m。 ,rc and cqmpment,
△hcsc asscts arc1ntcndcd to be used in thc
busincss for a nutnbcr of ycars ExpcndltLlrc
on￡ xcd asscts is capita1expendtllrc
- currcnt asscts,in addidon t° thc dcbtors
rcfcrrcd to above,arc thosc that aosc in伍 c
coursc of tradhg,such as stock in-“ adc,
stocks of stad° ncry,stocks of fucl,cash at
bank and in hand
● Expenses accounts o° nunal accounts)
include rent payablc,wagcs,sala1∶ ics,heaong
and Ⅱghong,postagc and staJonery etc,TlⅡ s
tsTpc of cxpcndlturc is rcvenue expcndituFc
● Accounts、 汶th crcdit balances Thcsc
accoun“ rccord rcvenue(salesl and° thCt
income← cnt rCcCwable,dlscc,Llnts rccc】 J1rcd and
htcrcst rcc创 ǎbl⑶ ThcsC arc狃 s° non△ nal
accounts
Thc dlsmco° n bc汛、cn thc o” cs of acc° unts o
≥
lV impottant,Carc mu吼 alMa1・ s be takcn to cnsurc
``‘
that capltal cxpcndi“ ￠c is not confttscd、 1̌th rc~lcnuc
cxpendlmrc Thc c° st° f purchasing a rnotor9/chc1c
is capit・ al cxpcndlturc and lllust be dcbltcd t° thc
Δ压°t° r Vchclcs acc° unt The cost° f runiung thc
vehclc is rcvcnuc cxpcndlmre and must bc dcbitcd to
NΙ °tor、 石
chclcs Rtln碰 ng Expenscs account
 As a rcsLIl-,you wⅡ alx,ays flnd capltal Exerc∶ se1
cxpcnditurc On dle balancc shcct(statcmcnt of Copy and coinpIete ths tablc,刂 cklng山 eb° xcs
flnancial posi刂 ° l° f a busincss(sCC chaptcr8)
i△
which corrcc” descⅡ bC dlc glx cn accounts in tl,c
Rcx cnue expcndtturc,on thc Othcr hand is always books of a bakery
found in thc Proflt and Loss Account kqncome
s仫 tcmcnD for a b“ incss← CC chapter D

Accoint Pors0nal∷ △“d aoset outtcnt aBset RcvOnue￠ ∷ Expen:e∷

otbε i砥 omo

Capital

sales Rcurns

DcLvcry Vans
p刂 chascs

Rcnt Pavable

Dcbtors

stoc△ 1n-trade

Discounts AⅡ owed

DiawIilgs

Bank
Rcnt Rccclii・ ablC

Crcditors

Complltcr

、￠agcs

Discounts Rccc⒒ cd

52 DiVision of the Iedger atcmcntΦ and Balancc shcc“ ls么 tCmenⅡ of

St・

Financial Posloo⑶ (scc chaptcrs7and gl

Exceptin vcry small busincsses there arc too many
●cash b° °k contaiiung thc Bank and Cash
accounts to bc kcptin a“ ngle lcdgcr It ls usual to
accounts
凼 记c thc ac∞ unts among se⒕ kdgcrs灬 foⅡ ow⒌
=斑
● salcs1cdgcr for the acc° unts of cust° mcrs Tlac dlvlsi°no± thc lcdgcr灬 ・abovc o csscnj址 nl a
● purchasc lcdgcr for thc accounts of suppⅡ crs busihcss x,hCh Cmploys scˇ ℃r/al bookkccpcrs;thc
●gcncral lor n。 minall lCdgCr± or tlle impcrsonal xsork Fnay bc dl△ ,ded bc心 Ⅳccn thcm so that thcy do
accounts for assets,rcvcnuc,othcr incomc,and not a△ ngcd to bc珈∝klng on thc samc lcdgcr at由 c
cxpcnscs samc ome It hclps to dctcct and prcvcnt crro灬
●ptlx・ /atc ledger for acc° unts of a confldential
occurring in thc books。 f acc° unt It may also help
naturc_ˉ 山c°wnc^Capital and Draw1ngs to dctcct and prcvcnt fraud by thc acc° unts staff
accotlnts and Loan accounts;also thc Tradlng This is knoxx,n as intcrnal c° ntrol
and Pro丘 tand L° “Accounts σnc° mc
 。

坏 ∴
c卩

护
μ・
卜阝 纡△∶ 扌
∵畲瞎

—〓
f是

蹁黼勰
`嘁 ● the purpose oftriaI balanoes
● hoW to prepare at"al baIanoe
● the limita刂 ons oftrial ba{anoes
● siX types of θrror Which do not a矸 ed the agreement ofthe tWo sides of a t"al ba|ance

加 count $ $
Rcnt Pavablc 1600
A toal balance is a Lst of aⅡ thc balanccs cxtraCtcd Wagcs and Salaocs 4080
±
rom tlle ledgcrs at a par刂 cular datc Its purposc is to Hcaong and LlgllJng 960
sundrs Expcnscs 1430
check山 at the totaI of the debit baIances equals伍 e Cash 500
toⅢ of伍 e credlt balances The prlnclple of dotlble Bank 12600
entry ensttes that the t、 讶 Loan fr。m LudmiⅡ a 2000
`o totals shoLid agree If t11e Capital-zabinc 13000
t° tals d° n° t agrce dlere must be an err° r somess・ here Drax△・
ings 2705
h thc b∞ 钛 ccⅡ : 117575 117575
半 Thc balanccs on Jtc accounts ln thc$alcs lcdgct arc⒒stcd and

|. ∴ ‘ totaLcd scparatcls,;Jxc tot/al0elltercd ill伍 c“ al baGjlcc as

|∷ ~9j∶
'、 '
tradc rcccw⒓ blcs
Flr哎 balancc al伍 c lcdgcr accounts inc⒗ ding dlc 料 Tllc b斑 anccs on曲 c犯 c【 ,tln灬 lil thc puicllase忆 dgcr atc Ⅱ时cd

cash book Then Ⅱst thc balances`ˇ1th the debit and tota№ d scpatatcˇ ;thC t° t扭 is cntcrcd h伍 c trl狃 b/alance as
峦adc pa驷 ucs
balanccs and credit baIances in separate coIumns The
total of the debit balances sh° Ldd equalthe t° tal° f Exercise1
thc crcdlt balanccs,If thc t° tals arc cqual,tllc tⅡ al
Prcpare a trlal balance fr° m thc foⅡ °、汀ng balanccs
balancc agrccs
伍at haxTe becn extractcd± rom tl,c books° fA山 沮cs,
ExampIe a groce± ,at31Decembc⒈

The foⅡ owing trlal balance has been extracted from Ac￠ ount $
tl△ c books of zabine at31Δ压arch2010 Ptc血 scs 50000
M。 t° r Vans 8000
Dcbk balanccs Ctcdt balanceo 0fkc FurtllCurc 2000
Computcr 3000
Account $ $ saIcs 60000
Pre血 ses 70000 salcs Rcttlms 700
Macm.cry 10000 Purchascs 4000
omcc Fur血 mrc 5000 purchascs R￡ tllrtls 500
SaIcs 100000 RIot° r、 ℃bJclc Running Expcnscs 4200
Salcs Rcmrns 700 、
9/agcs 1800
Purchases 6900 Rcnt 2000
Pllrchas∞ Rcolms 1000 Bank 1650
Tradc rccclVablcsΨ 1100 Capital 20000
Tradc payabIcs汴 1575 Dr神ings 3150
63 Limitations of a triaI balance cntcrcd in thc sales j° umal
as$20,
5 Co艹plcte revetsal of cndcs,Am acc° unt
As stated abovc,if a“ ial balancc docs not agree,
、注ich should haK bccn dcbitcd has bccn
山crc must bc a nustakc somcM・ hcrc1n thc
crcdltcd,and thc account whdh sh° uld haˇ ℃
bookkccping Unfotmnatcly,cv℃ n if a tnal balance
bccn cre(:〗 ljlted has bccn dcbitcd,Example:a
agrccs,it docs not rncan山 at there are n° errors
paymcnt rcccⅡ ℃d from HussaJn1s dcblted t°
bccausc dtctc arc slx轫 r山 at do not affcct
Hussain、 account and crcdi￡ d to Bank acc° unt,
thc agreement of曲 e“"sialofbalancc,Thcy
err° arc as
6 Compcnsa吐 ng errors,‰ or more errors
foⅡ ows:
cancd cach o山 cr out,E劝 muα an mvolcc for
1 Errors of onission A transacuon on⒒ ttcd
$1100h伍 c salcsjoumal h posted to岱 c
∞mplc∞ ly from伍 c bo° ks rcsults h山 crc bcmg
Customcrb account as$1000At dlc satnc omc,
nc漩 r dcblt nor crcd【 t cn订 y￡ or thc廿ansaCuon
thc salcs j° urnal total ls undcrstatcd by$100
Ths could happcn1f a transacoon1s not cntered
Thc dcblt balance° n thc customcr‘ account and
Ⅱ1a bo° k° f prlinc cntry
thc credlt balancc On s扭 cs account niu bod.be
2,Errors of co咖 ssion,A transacoon1s posted
undcrstated by$100
to伍 c wω ng account,but thc accountis of thc
sainc class as thc acc° unt to、 应ich the pos刂 ng Exerc]se2
shoLdd has・ c bccn madc Example:伍 e pavmcnt stntc whch0” C° f Crr° r each° f thc fo△ oM=lng
of a tclcphonc bⅢ o postcd in err° rto Hcaung rcprcscnts, '
and Llghjng account Tdeph° nc account and Cal Paymcnt of rent has bccn dcbitcd to山 c Bad【
Hcaung and hghung account arc both cxpcnsc account and credi￡ d to thc Rcnt Pa9ablc
accounts account
3,Errors of p山 ⅡVle A tran阴 c南 n泌 postcd to a CD ThC purch灬 e° f a computer has bccn deblted
w!ong account whch o n° t° f dtc satnc bpc as to伍 eO± flcc Expcnscs account
伍c correct account,Examplα r铒 ∞uc lcl A suppⅡ cr、 invoicc has bccn o雨 tted from thc
cxpendi钆 吐c trcatcd as capital cxpcndlmrc For purchascs journal,
hstancc,pa卩 mcnt for pctrol br a vchcle has C◇ IhC tot挝 °f Wagcs account h灬 bccn
been dcbitcd to Motor Vd“ clcs account la flKed ∞αstatcd t丬 /$10OO and rent rccc△ Π
、Cd of
血stCad。 f to Motor Vchdes
assct aCCoun◇ $1000has bccn posted hx,lcc to伍 c Rcnt
R-g ExpCnscs acco"△ t lan Cxpense Rcccl,cd account.
accountl, lCl Disc° u"a△ owed to Amna has bccn crcdtcd to
4,Ettors of o蜘 alcntFy A M,r° ng alnount^ Asma愆 acc° unt
cntcrcd in倘 o° k° fp俪 e cn岬 f° ra ⒆ A purchase° f goods f∝ $960has bcen
transacoon Exampl⒍ a sal∞ mvocc for$2001s cntcred h dle pu￡ 汛 “j° urnal as$690

● Learn the six types of error which do not affectthe t"al balance
● Lookforthe cause of a diference on a t"al baIanoe by oarry ng outthθ foloW ng sirnple ohecks before spending a
IOt oftime ohecking aⅡ your postings:
- Check the additions ofthθ trial baIance
- ifthe di矸 erenCe is diVisibl0by2,Iook for a balance equalto haIfthe di矸 erenoe which may have been entered
on the Wrong sidθ
- ifthe di仟 erenCe is diVisible by9,铷 Vo】 gures may have been transposed in a balance;for examρ Ie$269may
have been copied as$296
Whioh ofthe foⅡ oWing aCcounts oormaⅡ y has a A businθ ss has paid rent of$800The payment
cred"balance? has bθ θn θntered in the books as foⅡ oWs∶
A DisCounts A"owed
B DisCounts ReoeIved
C PurChasθ s
D sales Retums
A】 er Whioh error WⅢ a tria!balance stⅢ ba丨 ancθ ? VVhioh typθ of θrroris this?
A An invoioe for$400in the salesjournal not A CommIssIon
ρosted to the0ustomθ s accountin the saIes
r’ B Comρ ensating
ledge巳 C CompIete reversal
B A purchase of goods from Ratna lor$1000 D P"nciple
creditθ d to RaVin’ s accountin thθ purchases Disoounts aⅡ oWed of$160for one rnonth haVe
|edgθ 【 been postθ d to thθ Credit ofthe Discounts
C Paymentof$60tO J° san entered correctly in Reoeived account VVhat effect has this had on
the Bank account and Credited t0J0san’ s the trial baIance?
acCount
D Rent paid$660entered oorrectly in the Cash ^$160too
B $160to°much
Ⅱ廿le ored"
deb"
book but posted tO Rθ nt Payable aooount as C $160to° |e debit and$160t° o much cred"
$600∶ D$320too much
"廿 oredⅡ
The fo"owlng balanoes at31 December2010have 2,An ineXperienced bookkeeper has extraded a tⅡ al
been extracted from Hassan’ sb∞ ks baIance at31Decomber2o1o from Andrea’ s
books "contains some errors and does not
$ balance
sa丨 es 160000
salθ sRetums 2600
Purchases $ $
84000 Premises 刀 000
PurChases Retums 34∞
Wages
Plant and Maohinery sO∞ o
26000 0仟 iCe Equiρ ment 5000
Heating and凵 gh】 ng 3160 VVages 7600
Rent Payable 5000 Rent Payablθ 4000
Rent RecoⅣ able 1000 Heating and Ligh刂 ng 15∞
AdVθ rtising 2900 sundry Expenses 1720
Postage and Telephone 2740 saIθ s 1sg O00
Discount A"owed 61Clo
Purchases 57000
Dlscounts ReceIved 5900 Dls∞ unts Allowθ d 2450
Plant and Maohinery 50000 D0counts ReceIVθ d 1070
Delveγ X/an 9000 Bank
Bank 2910
23∞ Trade RecoⅣ ables 14000
Trade ReceiVables 74∞ Trade Payables 101田 o
Trade Payables 37∞
Drawings
Purchasθ s Returns 24∞
8800
Ca田 hl 0
salθ s Returns 3150
Rθ nt Re∞ iVable 1￡ ￡⒑

RequIred
Cap“ 引 80000
D电 Wngs 28480
Prepare a tⅡ al ba丨 ancθ at31Deoember2010from
the balances extraded from Hassan’ s books and
194400 261220
oaIculate the balanoe on his caρ Ⅱal account
Requred
Re w"te the trial baIance and correotthe errors so
that"balanoθ s
Part II
F∶ nanc∶ al accounting
 for sole traders
http∶ //sIOp60Q5了 810‘ taOuaO,co口

● hoW to prepare丨 n∞ me statements

● whatthe purpose ofthe stook accountis

71 What is an lnCome statement? Putchascs Rc咖 ns 2200

Discotmts Rcccl△ ed 2340
卜Ιost pc° plc car￡ 厂on busincss in° rdcr t° makc a Discclunts Allσvcd 3260
Ⅱ~ing Thcy dcpcnd upon thc ptofit of山 c bushcss 晒吒钋 28000
for thcir incomc to cnablc thcna to buy food, Rcnt 16000
Hca刂 ng and hghdng 30tlll
clothcs and othcr ncccssiocs Thcy comparc thc
Postage and stauone轷 1070
revenue earned by thc busincss、 ″
1th its Cxpcnscs
M° tor Van Expcnscs 9830
【fthc r四 cnuc cxceFds expenses thc busincss has 1ntcicst° n Loan 800
madc a pr° flt,On山 e other hand,if the expcnscs sund叩 Expcnscs 920
CXCCCd thC rcvcnue伍 e business has tnade a loss Prcmiscs “a Ooo
and thc tradcr has n° inc° me.Pr° flt or loss is found 加1ot° r`厂 ans 18000
by thc prcparatl° n ofan Inc° me statement coveⅡ ng omcc Futmtutc 5000
Ttadc Rccclsablcs 7400
a pOⅡ od of omc,usually onc complctc ycar,Und
Tradc p/a9・ ab⒗ s 3420
no兕 doublc-cntty bookkccpmg may havc sccmCd a Ballk 2160
0￡ csomc and largc圩 pohd∞ s CxCrCi∞ ,but it is伍 c I oan佥 °m sIanc lrcpavablc h⒛ 1o 10000
only systcna that cnablcs thc Incomc statcmcnts to Andrcw,~Capital 60tKlo
bc prcparcd D丁a^~1ngs 10920
203960 203960

72 HOW to prepare an lncome

Inc° mc statcmcnts arc part°fthc doublc-cn色 γ
statement for a sOIe trader
modc1,Balanccs on thc n° mhallr四 cnuC,inc° mc
step1 and cxpcnscl accounts arc transfcrrcd to伍 cm by
AⅡ lcdger accounts must bc balanccd and a tⅡ al urnal cntocs
i°
balance prepared at thc datc to、 诉
`hich thc Incomc step2Trading sect∶ on ofthe lnCome
statemcntis to be prcpared
statement
Example
Thc Tradng sccoon of the Income statement
Andt∞
`commcnccd busincss on1Janua,2010 calculatcs the pro丘 t° n thc acu△ ・
l饣 °fbu卩 ng and
Ihc fo⒒ owing trlal balancs has been ex订 aCted at
scⅡ ng goods.The balanccs° n thc salcs,salcs
31Dccember2010from hs b° °ks,
Rcmrns,Purchascs and Purchascs Rcturns accounts
are'叼 ″ J/er们at。 thc Incomc statcmcnt by lournal
Account $ $
salcs 126000 e扯 呷 :

salcs Rcturns 2lKlll

Ptrc腕 scs 55zllll
 $〓
$ a,aJauc±orscⅡ ng h曲 e Trading sccuon。 f伍e

〓 ∞
salcs 126000 In。 。h0s访 tc“ 苔ht t。 枷 ve at山 oc° st0fthC go° d$

⑴
2
Inc。 mc statcmcnt

Inc。 mc statcmcnt 2000

sold,Ihc double cn岬 屮 山s cq・・
lrcsa ρurnd m唧

⒛
to opcn a stock account

ο
ο
sales Rc铷 rils

1nc。 mc statcmcnt 55200 $ $

purchascs 55200 31Decernbcr叨 a10st。 ck 50lKl

Purchascs Rcturns 2200 Inc° mc statcmcnt 5000

Incomc statcmcnt 2200 Transfcr of曲 吡 stock at m Dcc~bcr⒛ 10to Incomc statcmcnt

㈧arra色 vCs h锕 c bccn o血 ttcd)

Notc,Thc dcbit to thc stock account crcates a

These j° urnal cntrlcs producc a Tradmg sccoon of

ncw assct that1s not1n thc tnal balance

dhe Inc° mc statcmcnt as foⅡ o、 vs:

Thc dosing stock厶 cre山tcd to thc Tta山 名
scC0on ofthe Inc° mc statcmcnt Thsis donc by
Andtew 汤扬 ,荡篦 止°n thc dcblt stdc from nct purchascs Thc
Tta山 ng θecdon oF thc In∞ mc stnⅡ mⅡnt fo± thc veat ended Tradlng sccoon of thc Incomc statcmcnt no、 v shows
31Decembet2010 dle cost ofthc goods、 玷ich havc bccn sold Thc
$ $ debit sidc of thc account is thcrcforc hcadcd wlth
salcs rcurns 2000 salcs 126000 the words‘ Cost of go° ds sold’ or‘ Cost of sales’ lln
PuJchascs 55200 purchascs rct-s 2200
this casc$48000l:

Thc Tradlng sccoon of伍 e Income Statementis Andtew

improvcd ifsalcs rcmms are deducted from sales t° Tt谰h唔 scα bn of曲 e1ncome statcmOnt for曲 c year ended
31Decembct2010
sh° w伍 c rcvcnue actua⒒ y earned← a△ ed revenue or
turnoverl simⅡ aⅡ ⒖it $ $
is better t° dcduct purchascs
Cost of salcs salcs 126∞ o
rcmrns from purchascs. Purchascs 55200 Lcss S斑 cs rcu△ rns 20lXl
I css Purchasc$rcturns 22tlll 124000
Andre△ r 53000
‰ d吨 臼ec山 m oF the【 ncomc statement fotthe yent ended Le“ Cbs△ ng stock 5llllll

31Decembcr2010 Cost of salcs 48000

Gross pro丘 t 76000
$ $
124000 1z+lXlo
Purchascs 55200 salcs 126000
I css Purchases remlls 2200 Lcss salcs rctums 2lltlll
Note,Thc balancc on the Trading secdon° f thc
53000’ × 124000
本 Incomc smtcmcntis罗西Jp睇讠 ,° r伍 c pr° nt madc On
$53l× Xlls dlc∞ st of thc goo“ whch wcic as・ alIablc tor scⅡ 鸭
buying and seIⅡ ng goods bef° re any othcr cxpcnscs
arc takcn int° account
Undcr IAs sto扶 Miu bcreferred to asINVENTORY
M/hcn prcscnmng伍 c accα⒑峦of a⒒血洌 c° mpan,, step3
Ho硒 ℃ˇ 0乌 hCrc wc Miu s碰 refer to止 郊 stock h ordcrto The Pr° 丘t and Loss scco° n foⅡ ows thc Trading
shoM,d△ c bookkecpmg entues for t h thc㈣ 蚪 h latcr sccdon w1伍 °ut a brcak Thc Prof,t and Loss secj° n
chaptcrs,thc№ ck ofma函 祧 thc busmcss tradcs h bcgms w,lth thc gross pro且 t,to灬 dich is addcd othcr
、犭Ⅱ °砷 bC referre-to灬 Ⅱ小K丫止o-乒 incomc,if any.Ncx乌 伍e° vCrhcad cxpcnscs
αosing stock,hou碰 k圩 dlat An&泖 has sold inchdcd in山 e tⅡ 址balancc arc dcductcd C「 hc
al hs stock” 31Deccmbct,thcrcforc some rem缸 ns balanccs on the ledger acc° unts arc transfcrrcd t° the
γ℃a‘ Ths‘dosmg stocr mu斑 bc
to bc s° ld ncxt Income statcmcnt by journal cntrlcs)Thc Inc° mc
dcductcd from山 c cost of山 e goods that wcrc statementis no、 v as foⅡ o、vs:
 Andtcw Andtew
Incomc statcment Forthe yeat e负 -cd31Dcccmbet2010 Incomc statcmcnt fot the ycar ei1dcd31Decembet zll10
$ $ $
Cost of salcs Salcs 126000 salcs 126tlC o
Purchascs 55200 Icss salcs rculrns 2000 Lcss sales rctums 20tKl
Lcss Purchascs rcmms 2200 124000 】饵 0∞

硎~铡
53000 Lcss Cost of salcs
Lcss Cl° “ng stock 5llllll Puichascs 55200
Cost of salcs 48000 Lcss purchascs rcttlrtls
Gross pro丘 t 7600o
124000 124000 L虍 ss so° ck at31Decelllbcr 5lltlO 48000
Gross ptont 76000
Ic“ 0⒕ illeads Gross pro丘 t br° ught
Add Discountェ cCcIX cd 23绌 D
V/agcs 28000 do、 ˇn 76000
Rcnt 16000 Di“ 。tlnts rcccivcd 2340 78340
L￡ ss0vcrhcads
Hcadng and llgltdng 3400 78340
p。 stagc and sta谊 oncrs 1070 Xkages 28000
lvIotor v么n cxpcnscs 9830 Rcnt 16000
Discounts all。 、vcd 3260 H凹 由ng and Lghtmg 3400
sllndr,cxpenses Postagc and stadoncl△ / 1070
920
Mot° r van cxpenscs 9830
Intcrcst。 n loan 800
Discounts a⒒ cl,tvcd 3260
Nct pro丘 t 15060
sundrˇ Cxpcnscs 920
78340 78340
Loan Intcrcst 800 63280
Nct pェ o盘 t 15060

Inc° mc statclncn岱 Ⅲ￠ dus havc dcblt a灿 d cred⒒ ● The、 /° rds‘ Gross pr° 且f arc important and
sldcs Lkc kdgcr accotmts/and眦 dcscnbed as bcmg h must bc sh° 、 丘t
乃历 昭″ 砌 Ι浏 F pcople rcadmg d△ csc accoun“ arc `n Thc gross proEtis thc pt°
r∷
earncd on scⅡ ng goods bcfore any oChcr
not ac∞ 'form1ˇ
llllt/an岱 ;山 叩 knoxx・ notlung about dcbits and
cxpcnscs are takcn int° account,
crcdl“and血 m thc acc。 tlilts dllficLit t° tlnderstand It ls ●Tradlng sec刂 ons° f thc Inc° mc statcment
伽ow nclrmalto prcparc thcsc accomts h毗 t斌forms,
sh°uld onl△ ・
bc prcparcd for订 adcrs,that ls,
whch o ca蔹 cr for ncl艹 犯cα n咖 “ to undcrstand,
pcoplc wh° “adc h Ouy and scul g。 。
ds,
ArⅡ t1∝)、 ˇ orm
ac statcmcllt h ver血碰 ± o曲 o`ˇ 1△
PcopIe wh° scⅡ thcir serviccs,such as
`s hcoi△
c,n dle nght
accountants,lawγ ℃rs,dCnosts and gardcncrs,
Notes
ody rcqLllrc Income statcmcnts
● Chvc山 c Income statcmcnt a proper hcadlng
● Any o伍 cr inc° me sh° uld alx△ ays bc addcd t°
inc⒗ cⅡ ng thc namc of thc busincss
thc gross proflt flgllrc
● Thc acc° untis kn° 粼
`as a pcrJod statcmcnt ● Thcrc is n° parucular° rdcr in、 vhch° vcrhcads
bccausc it c° vcrs a perlod° f titnc;it must be
sh° Llld bc sho、 vn in thc Incomc statcmcnt of a
dcscⅡ bcd as‘ for dlc ycar lor othα
pco° Φ solc tradcr,but lt is° ±
tcn best t° placc the
cndcd ldatΘ (m。 nthl⒍ Caθ ∷
largcr amounts bcforc dle smaⅡ cr
● It o part° fdlc doubk cntr,model and dlc balallccs
●It is als° ag° °d plan t° group simⅡ ar knds of
on d△e accounts arc transfcrrcd to△ byjoLuiulcnn,
‘ cxpe灬 cs,for cxamplc,propcr″ e珂 r灬 Cs← ent,
● salcs lcss salcs remrns’ is thc revenuc° r
mrn¨哇 °
f thc b灬 iness Cn ths case$12400Φ head且 g and Ⅱghung,and insuranccl t° gC由 c⒈

● Thc w° rds‘ C° st° f salcs’ or‘ Cost° fgoods s° ld’ ● Net pr° 丘tis the tradcrb incomc aftcr aⅡ
are important and sh° uld a邸邶 s bc sh° wn expcnscs havc becn takcn into account
● A“ ader rnay takc s° mc stock from thc busincss ●A nct loss arlses if thc° vcrheads cxcccd the
fot pcrsonaI use Thc goods taken shoLlld bc gross proflt
dcductcd from purchases at cost prjcc and ● ^小 〃ays dcscⅡ bc thc丘 nal balancc as‘ nct prof|t’
addcd to the tradcr、 dr灬 刀
1ngs (° r‘ nCt l° ss)
 ● E×虿膨讠勿 ”夕 〃 助 ″勿 舀切勿 e锥/J勿 彡矽p睁 〃″ that ycar The debit balancc on山 c st° ck account is
'S钅
勿溺 诩氵
`仃
力 物
`膨
〃磁 J勿叨彳,彡 纟勿J'乙r劢 纠
'彤
pr。p'″'勿
莎 仕ans免 rrcd by journal cntry to伍 c Tr・a娩 sccoon。 f
沏 /9o″ 留 彳沏 //。 //z场 ″ 砀 砑 〃 s纫匆 仂 Pz,'`访c4J扣rPz 伍c Inc° mc statement,
砌咖 1b″ ″/z/9l口 孩 纟刃切唿弘蚴氵
助4'叨犭
扌b拟
'″ Example
Exercise1 Whcn Andrcxx6cc§ 7纷 preparcs hls Tradmg
Corrlnc bcgan trading on1Janua呷 2o10ThC scC0on ofthc Income statcmcnt for thc ycar cndcd
f° Ⅱ.耐 ng trlal balance as at31Deccmbcr2010has 31Dcccmbcr2011曲 e° pcnmg stock、 注Ⅱ bc
bccn cxtracted from her bo° ks, 仕ansfcrrcd from the st° ck accountt° 伍c Tradlng
sccion ofthe Inc° mc statcmcn△
Account $ $
salcs 200000
Jout艹 al
salcs Rcttllils 63l,ll
Pluchascs 86500 $ $
plrchascs Rc铷 ms 5790 31Dec2011 Inc° mc statcmcnt 5000
Rcnt Rcccl△ Cd 3000 stook 5ooo
Discounts Rccchcd 3210
Discounts Al。 wcd 5110
鞔 Cs 61050 stock
Rcnt Pald 12000 $ $
ElcctncIo, 5416 31Dcc2010 Incomc 31Dcc2011 Inc° mc
Inswancc 2290 statcmcnt 5000 statcmcnt5000
b压otoi Van Expcnscs 11400
sund饣 Expcnscs 3760
Loan Intcrcst 1000 In岱 c ycar cndcd31Dcccmbcr2011丿
hnd and BLl11dings 84000 hs pLlrchas∞ `ndrcw、
sales t° taucd$150000and wcrc
Plant alld△ Iachn唧 22000 $62000 stock at31Dcccmbc± 2011、7as$8000,
Motor Van 19000
Tradc Rccov训 i6 12425
Andrcw、 Tradng sccoon° f thc Incomc statcmcnt
Tladc Payablcs 4220 、 bc as f° llows∶
^Ⅱ
Bank 5065
L° an lrcp呷油 lc li1201θ 20000 Andrew
Drawings 25904 1ncome stnⅡ men‘ Fot thc yeat endcd31De∞ ⅡⅡer20il
Capital at1Janua呷 2010 127000
363220 363220 $ $
salcs 150000
Lcss C° st° f saIcs
Cornne had unsold stock° f$10000at31December
0pc乩 ng s∞ ck 5000
2010, Purchascs 62000
67000
Rcquhed Less Cl。 sttlg stock 8000 59000
Prcparc Corrlne、 Income statcmcnt for thc v℃ at Gross pr° nt 910lXl
cndcd31Dcccmber2010in good form
savc your ansM`er;it、 bc rcqmrcd again in Note In ahost g狩 ,casC,stock sh° wη in a uial
`Ⅲ
chaptcr8 balance is opc洫 g stock The cxccpoon° ccurs whcn
the tr1al balancc has been cxtractcd from thc books
73 0pening stock 矽 r a Tradlng sccoon of thc Inc° mc st/utcmcnt has
bccn prcparcd,in x△ ・
hch casc thc ttial ba1ance slm
onc yca^cl° sing stock is岱 e ncxt yca^opcmng
not includc sales,sales Rcturns,Purchases or
stock and itrnust be inchdcd in thc cost° f salcs for
Purchascs Returns accounts
ExercIse2 Rcquhed
Thc foⅡ °、 anccs havc bccn cxtractcd￡ r° m Prcparc Pcrbs’ hc° mcs么 跏 cllt for tllc year ended
^ng b狃 31March2011,
吼 or、 books at31Dcccmbcr2010
savc your answcr;it wⅡ l bc rcquired again in
$ $ chaptcr8
s证 s 48000
salcs Rcturns 1600 74 Carnage Inwards and carHage
Putchascs 21000
Purchascs Rctums 900 outwards
Stock扯 1Janu孙 γ2010 4000 XX hcn goods arc purchascd,thc suppⅡ cr rnay rnakc
an addloonal chargc t° covcr thc cost of dc蚯 ory
stock zat31Dcccmbcr2010w灬 $7500. Ths chargc is car1・ lagc in、 vards and adds to thc cost

Req讧 red of thc goods Caroagcin、

`ards is added to thc cost
P婶 parc X乙 o^Tradmg sccu。 n。 f thc Inc° mc of purchases h the Tradmg secjon° f thc In∞ mc
statcmcnt for thc ycar cndcd31Dcccmbcr2010 statement
The c° st° f dcⅡ vcnng goods to a customcris
ExercIse3 carnagc ouh△ ards and ts dcbltcd h thc Inc° mc
⒒ c fo⒒ owmg tⅡ al balancc has bccn cxtraCtcd from Statcmcnt as an olcrbcad Carnagc mx1・ ards and
thc books of Pcruns,as。 lc tradcr,at31March2011 carnagc ou`链 “ atc bo伍 cxpcnsc itcms b△ lt△ is
mpot勿趾 to trcat d△ cm c° rr∝ dl,h Inc° mc st・atcmciilts,
$ $
plcnllscs 60000 ExampIe
Plant and lvIachhc刂 12000
salcs 104000 A TradeF
salcs Rcmms 3700 1noome statement fotthc,oat ended31December9010
Plrchascs 59000 $ $
Plrcllascs Rettlms 2550 salcs 93000
stock at1细 rd2010 6000 Lcss salcs rctllrlls 2700 903llll
氓久gcs 13000 Lcss C° st。 f salcs

Rε nt Payablc 2000 stock at1Jan畈 呷⒛10 3000

Rcnt Recelx able 1800 IP`J1rcl△ ascs 45200
Hcaong and Llgllong 2700 Lcss Purchascs rco证 ns 3400
Rcpalrs to Maclunc, 4100 41800

伽~蜘 蜘
CarⅡ agc n△ x1・ ards 4000 45800
Interest。 n Loan 750
48800
Discouilts AⅡ o、 Ved 1030
Lcss stock at31Dccembcr aa10 70lltl
Doc创 Jn“ Rccα vcd 770 Gross profIt
Tradc RcccJvablcs 1624 Lc$0⒕ thcads
Trade Pal ablcs 1880 涵蚀Cs 12000
BaIlk 5000 Rcnt 56lXl
~
Dravlngs 10096 Catnagc Oud△ ・
alds 222D
~柳

Long tctm Loan 15000 sund饣 1760

Capltal 55000 NCt profit
181000 181000

Doublc chcck thc trea位 nent of Carrtagc in、/ards

Stock at31Δ 汪arch2011 was$10000, and Caroagc OuoⅣ ards,~Iarks could bc l° st m an
cXan】 ina刂 on if you put thcm in thc w△ °ng placc,
Exerclse4 bc dcbitcd as part of cost of salcsin thc Tradmg
sara、 “ial bahncc at31hIarch2011 mas as foⅡ oWs: sccu。 n。 fthc Incomc statcmcnt
Account $ $ ExampIe
sales 40000
The fo△ owlng balances arc cx仕 aCtCd fr° mat△lal
s∞ ck 5000
purchascs 20500 balancc at30ApⅡ 12011,
VX/agcs 6000 $ $
Rcnt 10000 salcs 80000
mcmcitv 2600 stock at1May2010 5000
Catrlagc血 w钔 s 1320 P哎 d△ 添c$ 35000
Carrlagc【 ,ut∶ s、
`泛
1rds 1080 Wagcs 16000
sund叩 Expcnscs 1250
PIant and llIachnc饣 8000 stock at30Apri12011was$6000,and250/o of
0ffIcc Eqmpmcnt 1000 伍cw呜 cs、 ald to staff Who prcparcd dlc stock
Tradc Rccclx,abl钋 19tKl 'Crc p・
for salc to cust° mcts,
Ttadc Pa卩 u6 800
Bank 820 △△a讪 g secdon of the Income statρ olent fot the yeat ended
Dravmgs 6330 3ll Apm⒛ 11
Capltal 25tlllo
65800 65800 $ $
salcs 80000
Cost of salcs
stock at311NIarch2011、
`as$3000 stotk at1M呷 ⒛ 10 50∞
Req讧 red P匹 chascs 35lXlo
40lXlo
Prcpatc sara、 Incomc statcmcnt丘 × thc ℃狂 cndcd31
γ Lcss stc,ck at sO Ap血 20i1 6000
March2011 34∞ o
惑猊 Cs侈 5%°f$16000l 4000 38000
75 VLJages treated as cos宵 of saIes Gross pro丘 t 42000

Goods purchascd may not bc h a suitablc conaoon
for schng to cust° mcrs Furthcr work tnay bc
rcql11fcd on伍 cm bcforc thcy arc sold Ihc wagcs
pnid to cmpl吓 cs for pcrfor-g Jis M'ork sh° uld
●
The cxamincr、 注ⅡtcⅡ you if any ofthc amounts
pald for Magcs should bc cntcrcd△ n thc Tradmg
scC0on of thc Incomc statcmcnt。 If no mstrucoons
岔rc glxcn thcn dw,ys show硒 叼gcs as an cxpcnsc in
thc Inc° mc statcmcnt,

Marks may be awarded in an examination for good presentat on ofInoome statements

●

G Vea"Income slatements proper headings

●

lncIude in the heading the name ofthe trader or business

●

state the period oovered by the aooount

‘
●

lnolude the words Cost of sales、 Gross ρrofr and Net profr lor‘ Netloss)
●

Copy the Ve"ioallayouts of the acoounts giVen in the eXamples in this chaptθ r as far as possible
●

Make sure you coρ y accuratθ ly a"thθ nominal aooounts includθ d in the trial baIanoe into yourInoome
slatemθ nt
●

DOduct stock takon by thθ traderfor persond use from purohases and add to drawings at oost p"Ce
●

lnoIude α谰叱Ve加 Wards as an addkion to purchases in the Trading sedion ofthe lncomθ statθ mont,but c彐 卿
。umards as an overhead in the lncome slatement
DO not prepareloum引 entⅡ Os lorthe In∞ me statements udess you are specIically askθ d to do sO They have
bθ θn shoWn in this chaρ tθ r s∶ p you undθ rstand hoW balances are transferred from Iedger aocounts to
丨
rnply to hθ
the lnoome statements
 |f you referto opening and c|osing stock as opening and cIosing inventory,the examiner、 V"l st‖ rnark t as being
correct

、 o"oˇ v ng does not appearin lncome Gross prof1 Net profit

^`hiCh ofthe彳
slatement? A understated by$1000 understated by$1o00
A MotorVeh Cles B Car"age ouMards B oVerstated by$1000 °verstated by$1000
C DisCounts a"oWed D DisCounts reCeived C underslated by$1000 not a矸 eded
D Overstaled by$1000 not a矸 eCted
The fo"ow ng info"η at on has been extracted from
the t"al balance of a business∶ 4 DisCounts received a丨 mountto$10500and
$ disoounts a"owed to$13000 The disCounts
sales 100000 reoeiVed have been debted,and the disoounts
PurChases 60000 a"oˇ Ved have been cred ted in the lncome
Wages 21000 statement
What has been the e矸 ect ofthese errors on net
C|osing stock was$3000rnore than opening profit?
stoCk A understated by$2500 B oVerstated by$2500
ages was charged to cost of
one th rd oftheˇ ￠ C understated by$5000 D 0Verstated by$5000
sa|es in the Trading sect on ofthe Income 5. CarHage inˇ vards in a t"aI ba|ance is$2300 "has
statement been entered|n the Trading section ofthe lncome
、 Vas the gross proft? statement as$3200 1n add⒒ ion,motor e× penses
A^`hatˇ
$30000 B $33000 °f$600been posted to the M0t0r、 /ans account
C $36000 D $37000 What effeot has this had on the lnoome
statement?
The Carr age inwards of a business amounted to
Gross pκ咐t Net pfofⅡ
$6000,and the CarHage outWards was$7000
The Carriage outwards was charged in the A understated by$900 understated by$300
Trading section ofthe lncome slatement n error, B overstated by$900 °verstated by$300
and the Carr age inwards vvas deb ted in the C understated by$900 °verstated by$1500
noome statement D oVerstated by$gOO understated by$1500
、 ect of these errors?
^`hat has been the e矸

1 The fo"oWing t"a|ba|ance has been eXtracted彳 nom sa|es Returns 1600
Had|ee’ s books at31 December2010 Purchases Returns 2144
$ Wages 3100
Plant and Machinery 25000 Rent 4000
o矸 ice Furniture 6000 Healing and Light ng 5120
slook at1January2010 11000 Advertising 2400
Trade Receivables 4740 sundry Expenses 2010
Trade Payables 1976 Loan丨 nterest 9so
Bank 3327 Drawings 4833
Loan,repayable in2012 5000 caρ nal 20000
sales 72800 101920 101920
Purohases stook at31 Deoember2o10cost$9000
 Rθ quIred Amount $ $
Prepare Hadlee℃ lnoome statemθ ntforthe year Heatng and Ligh】 ng 6450
ended31 Deoember2010 sundry Expenses 1143
Keep y`our ansWer;it Wl"be needed again in FiXtures and Fi廿 ings 90∞
Chapter8 ofice Furn"ure 2000
Trade Recelvables 1970
2.Thet"aI balance extraoted from Tikolo℃ b∞ ks at Trade Payablos 2130
31March2011is as fo"oWs∶ Bank 2496
DraW ngs 20527
Amount $ $ CapitaI 30000
sales 204000 243730 243730
sales Returns 3600
Purchases 120000 Du"ng the yea1Tikolo had taken goods costing
Purchases Returns $2000for his own use This had not boθ n
stook at1ApoI2010 180∞ recorded in the books
Car"ageinwads 5000 stock at31March2011cost$20000
Ca盯 iage0uwards 3724
Dis∞ unts RecoiVθ d 3160 RequIred
Disoounts AⅡ oWed 5020 Prepore Ⅱko丨 o’ s丨 ncomθ slatementforthe year
VVages 36800 ended31March2011
Rθ nt 8000 Keeρ v`our ansWer;it wⅢ b0needed again in
chapter8
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● what a statement of Finanoia|Position is and、 ″hy statθ ments of FinanCial Position are preρ ared
● hOw to prepare a statement of Financial Pos⒒ ion for a sole trade匚

冖 h;l∷ 灬 ⅡⅡ
l△ ;=” !1c)Vlˇ rⅡ somc of thc hcadings in the statcmcnt of Financial
。 个ⅡI扛 ‘ Posioon环
FⅡ ∵ '∵ |∶
^→ ^ll changc Thc tablc bdo灬 `shows thc
`^ˇ tcrms you may havc comc across beforc and thclr
A statement of Financial Position is a⒒ st of伍 c equivalent tcrms undcr Intcrna刂 onal Accounung
asscts aα d ⅡabJ± ocs of a busincss at a parucl△ ar date A Standards alongsidc;
tradct nccds to knov iflus buslncss Xlu conmuc t。
p⑩Ⅵdc all皿 C0,nC for Che± orcsccable± LRttlrc A
Traditiona1BaIance Hcad匕 ,gs undct the
statcmcnt° f Financial Posijon can prox・ldc a good
shcct hca蚋 s Intetnationat Accoundng
indicao° n ofthc ansss,erto dis ques0on standards
UnⅡke an Incomc s钐 刂cmcn、 a statClncnt of Non-currcnt asscts
F饺 cd assc岱
Fk⒓伽o址 P函tlon ls not哪 △of the doublc≮ n唧 modd Cu止 cnt asscts Currcnt asscts
Alter d△ c nolnm/al accoLmt bahnces havc bccn Currcnt LIabiⅡ 刂cs
Cu珏 ci△ t habJl证 s
ω mc hc。 ine Statcmcnt,thc ofi,balances
tr/ansfcitcd Lon⒏ tcrm⒒ 彷biⅡ oc$ Nonoctlrrcnt ⅡabiⅡ ocs
kR h dle⒗ dgcr狂 c伍 osc for asscⅡ and Lab山 tJcs Thc Capltal Capital
statcillcnt of FIi△ anoal Pos1uon厶 a△ st of伍 csc
balailces
Ⅺ though a st/atement of Fhano狃 Posluon^not an Noticc that not all ofthc hcadings have been
accoun、 伍c Inc° mc statc1ncnt and Statetncnt of changcd In the examinajon you should bccome
famiⅡ ar xxlth thc IAs headings and usc thcm in
Flnano挝 Posluon atc ldlclMn co⒒ cC0vcly as伍 c EnaI
accounts of a bushcss Togcthcr these bvo your answcrs to thc qucs0ons List and gr° up the
asscts and liabilitics of the busincss undcr thcsc
documcnts arc also kn° sR n as thc Ⅱnancial
statements of a busincss This may also includc thc
hcadings
Statcmcnt of cash llo、 v(sec chaptCr2θ ,and is a
term you、 scc inchdcd in cxamnation papcrs
1̌Ⅱ

Y° u wⅢ nnd both terms tlscd throughoutthc book Example

The± oⅡ oM^ng is thc statcmcnt of Fhancial Posioon
Ⅱ- 扩;ξ 广河 1盱 、r它 00好 甘
辶 Jb￥ 饣te,1ie△ 】 o启
for Andr唧 ‘busincss at31Dcccmbct2010 It is
F;n?Ⅱ 虍Ⅱ osrˉ o￠ :
prcparcd from曲 c trial balancc⒏ vCn in§ 72and Ⅱsts
"伊 a△ thc b址 ances remain1ng1n thc1cdgcr aftcr山 e
changes to丘 nal accounts rcsul硅 ng fr° m the
II△ c

htcrnaoonal Accounjng standards CAs)mcan that Incomc statement has been prcparcd
 Andrew ● Thc currcnt assets aFc not addcd t° thc n° n~
statcment of FhanciaI po茹 谊on at31Deocmbct2010 currcnt assets at ths stag⒊
● C1Ⅱ ˇcnt△abⅢ ocs arc dhose that arc duc to be
Non-cllrrent岱 sc“ sctded MIlthn°nc ycar ofthc datc° fthe statcmcnt
Prcmiscs 40000 of Fhancial Posioon Ihcy arc dcducted from仨 hc
°t° r vans 18000
0fscc ftlrillmc tot砬 °f current assc“ to gl△ cthe w° r蚰 g cap1tal
`Ι
5000
63000 h伍 c αampk曲 °【 ,the w° ±hg capital厶
Cu丘 cnt assets $11140Ths ngurc^dso knom灬 thc net
Invcnto呷 lstockl 5000琢 currcnt aθ sets If伍 c currcnt Ⅱab山 oes arc grcatcr
Ttadc Rc∝ 钿a“ “ 7400
Bank
thall d,c current asscts伍 cn伍 c flgLlrc is known as
2160
14560 net current ⅡabⅡ 刂es
、
Less CL△ rtcnt labJIocs ● Worklng capitalis a very importantitcm Thc
Trade Pa9abks 34眨 0 111纠 a Ⅱq讧 d currcnt a§ scts sh° uld cxceed thc currcnt
7410o ⅡabiⅡ oes and sho、 urces
kss Nonˉ cutrcnt Ⅱab山谊cs 'that the busmcss rcs°
adcquatcly c° vct thC paymcnts it rnust rnakc to its
Loan from AIa丘 c 10000
credltors,If thc ctrrent asscts arc hsu± EGkr止 to
64140
RcpⅡ scntcd b, mcct th~:current Ⅱ abⅡ 刂 0s,the trader may bc forccd
Capltal at1Janu唧 2010 60000 to scl血 ed asscts to p呷 hs αcdlto灬 and that cOLJd
Add nct proflt for dlc vear 15060 bc the bcgl-g° f thc eild`of thc bushcss
75060
Dcduct drawmgs 10920
●No肛 currcnt Cor Long-tcrm Ⅱ ablLoc9are伍 osC
‘4△ 40 hch arc not due t° bc scdcd硒 △
s1・ din° nc阝 a￡ °f
冬stocl【 :sce pagc32 thc datc of thc statcmcnt of Finanoal Posio° n
Thcy arc dcductcd from由 c total of non~current
Notes assets and M【 klng capital
,±

● A statcment of Fhanoal Posid° noa‘ posioon’

●Thc asscts lcss the ⅡabiⅡ ucs arc reprcscntcd by
statcmcnt sh° 、汀ng thc posio° n° fa bushcss at a dlc° 、vner、 capita1,Thc capital sho、 vn in thc tⅠ al
parucular m° mcnt h omc Itis n° ta pcⅡ od
balancc is thc balancc On thc Capital account
statcmcnt Ⅱkc an Inc° mc statcmcnt Thc datc at
brought fomard nom伍 c prc说 ous ye狂 Thc nct
which thc statcmcnt of Fhanoal Po蚯 砬on is
proflt shoM'n by thc Incomc statcmcntis addcd
prcparcd rnust bc inchdcd in the hcadlng
to thc opc血 ng caplt・ al,bLlt a¨ doss mu睨 be
statcmcnt of Financial P° sijon at,¨ ’
dcductcd Pr° 丘tincreascs capltal and losses
● Thc statcrnent of FhanciaI Posi刂 °n has bccn
reducc capital 、◇hcn thc dra9ings arc dcductcd,
prcparcd in vcrocal form smdy k carc‘ 111y unil
伍c balance° 且thc Capit挝 acc° unt v△ m bc carrled
l∶

you arc qmtc f"α 丘Ⅱar with it and prcparc al your

statcmcnts° f Flnanoal Poslu° nh茁 mJaF s0dC・
飞
● cn° n-current asscts arc grouped togcthcr and
● Atthe cnd° f thc ycar,dlc balanccs on the hc°
totaⅡ cd,The asscts、 dich arc Ⅱkely to havc thc
Iongcst usc丘 11Ⅱ fe arc placcd flrst
● Currcnt asscts are groupcd ncxt in山 e mcr
●Thc
colulnn and totallcd,Thc° rdcr in thc statchcnt
of Fhanclal Posld° n is:Inx,cntor⒖ Tradc
rccclvablcs,bank and cash Cfan】 A Ⅱq证 d asset
o onc whch“ h thc form° f cash← ash h handl
`)・
or neady so lcash at bankl,Invent。 饣 is not a
Ⅱqtud assct becausc it has not been s° ld and no
moncy has bec且 ,° r sl「 tu bc recα vcd for it unolitis
sold Trade rccc~犭 b1cs shodd s° °n bcc° mca
Ⅱquid assct M,hch thcy pay the busincss
b小 呙叼cd as thc° pc血 ng capltal ncxt v℃ a‘
mc
statcmcnt and lDraxsings aCCount are trans± crrcd to
thc Capltal account Φy i° urnal cn⑻ as sho汛 咀
total ofthc n° n-currcnt and currcnt asscts
$(63000+14560)lCss thc t° tal of thc currcnt
and non《 urrcnt ⅡabⅡ ocs$ls420+10000l
m‘
鼹叶
‘
、扌
褓老 I絮 器贳 搬 赢
jcs=capltaP islmOwn as thc
asscts-Ⅱ abiⅡ
accounting cquation° r statcmcnt of Fhancial
Position cquation If伍 c total of伍 c non-ctlrrcnt
and currcnt asscts is grcatcr than the t° tal° f thc
non-currcnt and currcnt ⅡabiⅡ ues,thsis kn° wn as
伍c net asscts of thc business
 Andtcwˉ Capital Exercise1
2010 $ ⒛10 $ Prcparc a Statement of Fmanclal Pos蚰 n at
Dcc31 Diaxx・ lngs 1o92a Jan1 Balancc brought 31Dcccmber2010for C° trmc± rom thc臼 i△ balamcc
Balancc camcd down 6o ooo in exen⒍ sc1of chap∞ r7lpagC3θ
glx・ cla
d∞Ⅴn 641仞 D∝ 31△ 1cot△ c statCtncnt15060
75060 75o6o ExercIse2
2011 Prcparc a statcment of Fhanci/al Pos1o° n at
Jan1 B斑 ancc brought
31Δ压 arch2011for Pcrkns f± °m也 e竹 ial balancc
down 641翎 D
ghcl,in cxerosc3of chaptcr7Φ age30)

● Marks may be aWardedin an examinaton forg∞ d presentation of slatemθ nts of曰 nanoid POsⅢ on
● GⅣ e every statelη θnt of Financial Position a proper heading which sh° u丨 d inolude the namθ ofthe business and
the date〈 f Finanoi引 POsk on fOIIoWs an丨 no° me statement wh oh。 headed wⅡ h the name of
the businθ "the
ss,themtement。
name need not be rθ peated f° rthe statement of Finanoial P° skion)
● Preρ are Statements of Financial Pos"ion as shown in this ohapte∴ w"h headings foF nonˉ current assets,current
assets,current Ⅱ abⅢ ties and nonˉ current Ⅱ
ab"ities show the totaI Of each group

1, Thθ purChase of an o仟 ce Computer has been The foⅡ oW ng hfomation has been eXtraoted from
dθ bited to office Expenses instead ofto o矸 iCe a statemθ nt of Finanoial Posi刂 on at31December
Equipment 2010
What efeot wⅢ this haVe on the statement of
Financial Pos"ion?
Nomˉ ourrent asset profit CapItaI

The owner of a business has taken g° °ds for his What Was the balanoe on Cap taI aooount at
own use but no entry has been madein the books 31Dθ Cember2010?
to record this VVhatis the e仟 eot of this on the A $300000 B $320000
statement of Finanoial PosⅡ ion? C $340000 D $350000
WhiCh ofthe foⅡ oWing statements is not oorrect?
A assets〓 liabⅡ ities+capital
B cap"aI〓 assets-liabⅢ ties
C capitaI-Ⅱ abi ities〓 assets
D ⅡabⅡ
"ies=assets-cap"al

1. Prepare the statement of FinanCiaI POsition at31 December2o1o for Had丨 ee from the tria丨 balancθ given in
Add"ional Exercise1〈 page37)
2.Prepare the statθ ment of FinanCia丨 Pos"ion at31March2011for11kOIO from the tHal balancθ
g ven in Addlional
EXeroise2(pagθ 38)
 Accounting pr∶ ncipIes
or concepts

● Why itis neoessary to haVe generally aooepted rules for aocounting

● the mostimpo"ant ruIes and whatthey aim to achieve
● Why the rules should be app"ed to ansWers to eXercises and examination quθ stions

91 What are principles or partncr in a E=m The bushcss is not a scparatc

concepts? cnuψ f。 r曲 at purp° se,)

Accounung prmclplcs arc baslc rulcs山 at arc appⅡ cd
in rcc° rdmg订 ansaCoons and ptcp舶 ng nnanci斑
s娩 tcmcnts Thcy arc诫 so bo沩η as conccp‘ Thcsc
rules arc ncccssary to cnsurc tllat accoun0ng rccords
prov1dc rcⅡ ablc informauon Ⅻ buslncsscs should
app圩 伍c rlJcs in山 cir丘 nanoalstatements The most
irnportant of曲 ese rdes are now descⅡbed,and
shodd be learned,understood and appⅡ cd、 7hcn
prepanng fmanc杨 d statcmcnts,
9,2 Business entity
Evcry bushcss is rcgardcd as haˇ 1ng an cx1stence
scparatc from伍 at of its o・ ,lncr Ths has akeady bccn
rc∞ gmscd when an∞洫er愆 Capltal hs bcen dcbkd
1n伍 cb0smess Badk acc° tmt and crcdttcd to thc
owner愆 C。 pital acc° unt,Thc crcdtt in thc Capltal
account sho、 /s that thc Ow咀 cr is a crcditor of thc
business,、 d△ 忆ho、 Ⅴcs hln△ thc moncy Ths can° nly
bc the case if tho bushcssis rcgardcd as bcmg
separate fr° m thc o、 呙
咀cr as no onc can OM,c hlmsclf
money VXllcn thc o、 vncr withd￡ 小vs mon叩 from伍 c
bushcss,thc alnountis dcbltcd to hs Dr孙 ″ 1ngs
account Thc busmcss accounts do not shoss,1f hc
spcnds thc rn° ncy on food,clothes,° rh° Ⅱdays
bccausc thcsc are not bushess仕 ansaCoons,
σt厶 血 portantto rcmcmbcr山 atthsis ody an
accounung conccpt九 nyonc w№ has a gⅡ cvancc
agalnst a b“ 皿∞sm缈 lCga△ mc a solc tradcr or a
v・
93 MOney measur° ment
ody transacoons伍 at can bc cxprcsscd in monet唧
tcrms arc rccorded ln ledge± accounts Goods,n° n
⒎
current asscts,tradc rccci・ 、
ablcs and cxpcnscs etc
m缈 bc rc∞ rdcd in kdger ac∞ unts bccausc伍 叩
have rcsultcd fr° m transac讧 ons that can be
cxprcsscd in rnonctaty terms
Ⅲ thoLlgh伍 crc atc obxious advantages in bcmg
ab1c to rccord tlungsin monct/ary tctms,it has
dsad、 ⒓ntagcs,TbJngs、 vhch cannot be exprcsscd in
monctary terms,such as伍 c sⅡ Ⅱs° f Ns orl遂 rs° r tllclr
saosfaco° n with伍 clr worklng condld°ns,arc not
rccordcd in the acc° unts,somc pcoplc thnk it涵 ould
bc good ifthcsc and somc Other‘ n° n-monc∞ε ￠
ltcms could be includcd in Πnancial statcmcnts
94 HistoriC cost
Trallsactions arc rccorded at thc1r cost to thc
busincss C° st cannot bc dlsputcd as invoices° r
othcr d° cumcnta￡F Cvidencc rnay bc produccd to
suppod lt Thstrcamcnt“ said to bc obiecove
becausc k“ bascd on fact and n° t° n° u血 on
Thc opposite of° 匀Cc。 讧饣0sublcco讧 %whch
is bascd upon pcrson狃 oplillon,F0r cxamplc,
somcbody m缈 斟vc hls f⒒ end a watch that cost$50
Thc mcnd may already havc a good watch ot
perhaps scˇ cral、 泗tohcs,Hc would not havc paid
 ˉ
$50± or an° thcr Hc w° llld probably xaluc thc gIn at
lcss than$50 On the other hand,ifthe tllend had
not alrcady got a、 】 Ⅱfc dcpcndcd on lmll
`atch and his
haxrlng onc,hc rnight valuc thc、
`atch at rnuch morc
than$50 、
1让 ucs bascd on pcrsonaI opliuons arc sald
to bc subjec缸Ve and arc not reⅡ able bases on xvllich
to rcc。 rd tfansact1ons
WhJc dlc princlplc oflccotding tran弘 ctlons at
thclr lllst° rlc cost has obvlous advantagcs,it has oⅣ o
dlsadv么 ntagcs
● It lgl△ or∞ thc chan要 ng、 谢uc。 fm° ncI An itcm
that was purchascd llvc ycars ago for$100
migllt havc bccn sold dlcn lor$200mahng a
prorlt of$100 If in且 ajon sincc thcn has bccn
25V3,today飞 sclling prlcc xxrCluld bc$250glvlng
aia apparcnt pro丘 t of$150A morc rcaⅡ stlc
calculation of thc pro± lt xxrould bc to express dle
orlglnal cost at todas,`pⅡ ces,$125,酗△
ng a
proⅡ t of$125,which w° uld be enough to buy
no m° rc than$100would havc bought6vc
years ago!Historic cost rnay producc n】 islcading
Ⅱlitlitaflons arc undcrstood
results un1css its
● Likc thc conccpt of m° ncy mcasurcmcnt,
hist。 ric cost docs not aⅡ ow things that cann°
bc cxprcsscd in rn° nctary tcrms to bc rcc° rdcd
1n accoun乜 ng
sa1cs $ tr犭 dc Recc加 nblcs
Pcr ui破 b斑 ance 30000 Pcr曲 al balancc
I'css 500 Lcss
T仫 dlIlg Account 29500 statcmcnt° f Financial Posiion
95 ReaⅡ sation
XVhcn accountants spcak of reaⅡ saoon,thcy mcan
that somcthing bccomes an actual fact,° r that
somctlung has been c° nvcrtcd into m° ncy For
cxamplc,if a lnan goesinto a shop and says that hc
wⅡ 1return tomorrow and buy a pair ofsh° cs,thcrc
is no salc yct;butifthc man rcturns thc ncxt day
mc a fact By
and buys thc shocs,thc salc has bcc°
sculng由 c shocs,thC shopkccpcr has convcrtcd
goodsinto moncy Thc salc has bcen re查 Ⅱsed
Transacjons are reaⅡ sed xvl△ en cash or a dcbtor
rcplace goods or scrviccs This prtncip1c is important
as it prcvcnts rcvcnuc fron1being crcditcd in thc
acc° unts bcforc it has been earned
Goods on salc Or return `Ⅳ hen a tradcr scnds
goods on salc Or rcturn to a customcr,no salc takcs
placc untⅡ thc customer inf° rms thc scllcr tbat hc
has declded to buy thcm Thc cu哎 0mcr h灬 thc rξ ht
to retLlrn thc goods to thc订 adcr Thc go° ds remain
the propcrty oftbc scl1cr und thcs/alc actuaⅡ y takcs
p1acc Goods on salc Or rcturn must bc trcatcd as
stock or invcntory whcn thc± lna1acc° unts arc bcing
pfcparcd Ifthcy h岔 vc bccn wrongly trcatcd Ⅱ sold
thc acc° unong trcatmcnt rnust bc reversed sales and
tradc rcccivablcs rnust be reduced by thc sclling
prlcc,and closing invento呷 must bC incrcascd by thc
cost p± lce of the goods
ExampIe
Gc° rgc has scnt goods on salc or reulrn t° Hclcn for
$500and trcatcd thc αansacoon as a sale Hc1cn has
not yct acccptcd thc goods The g° ° ds cost Gcorgc
$350 Thc loⅡ o、 汀 ng ba1ances havc bccn cxtractcd
fr° m Gc° rgc’ s tⅡ al ba1anc⒍ sales$30000;tladc
rcccivablcs$1000 Invent° ry on hand bas bccn
valucd/at$900The following adltlstmcn“ must bc
t
made f° r thc fnal accounts
$ stock ot Invehtory $
1000 As givcn 900
500 Add 35o
500 Inc。 mc statcmcnt alld statement of
Πnancial Posioon 1250
96 Dua"ty
Thc concept of duaⅡ 饣 rcc。 gniscs that thcrc arc b・ |・ o
aspccts for cach transacoon-rcprcscntcd by dcbit
and crcdit cntocs in acc° unts Thc conccptis the
basis ofthc acc° unung cqua刂 。n∶
asscts=capital+⒒ abiⅡ jcs
Thc cquaoon is狃 so cxprcsscd in its° d△ cr f° rlla:
asscts-Ⅱ abilitics=capital Statcmcnts of「 inancial
Positlon are prepared in this form
The acc° un刂ng cqua0on is a vcr厂 usc± lll t° ol for
solving somc accoun0ng pr° blems
97 Consistency no rnorc and no lcss than thc bushcss has camcd in
thc pcrlod c° vered by thc Incomc state钾 cnt・ ThC
Trans湎 ons of a siηⅡ征 naulrc sh° Ljd bc rcc° rdcd in
expcnses h tllc Inc° mc statcmcnt should f砬 圩
thc samc w犭 lthat is,c° ns“ tcnd))in thC samc
rcprescnt thc cxpcnscs incurrcd in carmng that
accounmg pcood and h au fatvJc aCCollnung pcrtods
rcvcnuc Thc diⅡ crcncc be“ 〃een an Inc° mc
For cxamplc,伍 c co欲 of rcdccor/amg prcσ “∞ should
statemcnt prcparcd on a cash basis and° nc prcparcd
惑η s be debi迁 d to an cxpcnse account for伍 e
on an accruals basis xx△ l bc apparcnt from the
redecoraoon o± 阝∞“∞ and cl△ arged to d△ eI∝ °me
foⅡ o、 河ng cxamplc:
statcincnt,It would n° tbe c°rrcct,thc nΦ 止tlinc the
。mccs w∝ c rcdccoratcd,to dcb止 thc cost to伍 c A busincss occupics prclnlscs at an annual rcntal
Prc雨 s∞ ln° Ⅱcurrcnt asscts,ac∞ unt of$2000 In° nc ycar it has paid$2500because it
Consistcncy in thc trcatmcnt of transacoons is has pald onc quartcr‘ rcntin advancc,It has also
llnportant to cnsurc that thc pr° flts or l° sscs0f uscd$2100word△ of clcctⅡ ciψ butit has p狂 d
diffcrcnt pcrlods,and Statcmcnts of Financial onl9$1200because i has not pa,d thc latcst blⅡ
Poslu° n,may bc compared mcanlngfuⅡ y 允r$900,Its gross proflt for thc rar^$10000

98 Materiality Inc° mc st/atcmcn“ prepared° n lal a℃ ash b灬 o’ ,

that is,on the actual paymcnts madc,and o)° n an

sometn△ es a bushess may depart fr° m the gcncraⅡ y accruals b灬 °k as follow⒌
acccptcd prulclplcs for rc∞ rdlng somc tran阴 coons ^,woddl°
Thcy may do d△ s、/hcn thc ainounts m9ˉ olx・ cd arc not 0〉 Cash b邡 。
s (b〉 Accmals bash
considctcd matcHal lor s瑭 血丘can。 h rClao。 n to伍 c $ $ $ $
alnounts of thc o伍 critcms in thor Incomc Gross Pront
驷
~跏 10000 10000
statcmcnts and statcmcnts of Financial P° sio° n, L css Rcnt 2000
Elccmo, 3700 2100 4100
A company may prcparc its statcmcnt of
Net ptont 63t ll 5900
Financial P° siuon sh。 、 unts toundcd to
^ng au am。
d△ c ncarc哎 $000or∽
`cn$m It would trcat the Thc accruals bas1s1s thc correct one as1t records
purohasc of any assct not cxcccding,s9uy,$1000as
thc actual costs1nCtlrred m thc pcnod f° r rcnt and
rcvcnuc cxpcnditure instead of addlng it to its n° n-
clcctrlcity
currcnt asscts,as it、
`oLid not make any nojccablc
dlffcrcncc to the匆ェ re ofn。 n current asscts h thc Incomc statcmcnts should be prepared on thc
Statement° f Financial P° siion It wodd not bc aCCruals,or matchng,basis so that cxpcnscs arc
c° nsidcrcd a matcrial itcm matchcd to也 cr邰
`cnuc carncd;that is,cxpcnses
On thc othcr hand,thc samc am° unt of should bc showη h thc Income statcmcnt as thcy
cxpcn山 mrc止1a smaⅡ busincss rnay bc vc￡ y havc bcen砌 叼 an灬 伍叮 h肿 c bccn
'″
slgnl丘 cant and硒 0dd nccd to bc ttcatcd as cap止 al p缸 d 'rathcr”
expcn山 turc in°rdcr n° t to dlstort pro丘 t and thc
asscts in thc statcmcnt of FinanciaI Posioon 910 PrudenCe
An am° unt may bc considcrcd materla1】 n the
The prudcncc c° nccpt is intended t° prcvcnt pro丘 t
accounts ifits indusion in,or omission n。 in,thc
fr° n1bcing° vcrstatcd If proflt is° vcrstatcd,a
Incomc statcmcnt or statcmeht of Fhancial P° siuon
tradcr tnay bcⅡ cvc that hs inc°mc is rnorc than it
would affcct伍 e wγ people would rcad and ・
rcauv・ l曲 dr狮 t∞ much m° ncy n。 m
x△
intcrprct thosc fma且 ciaI statcmcnts
^,and hc
thc busincss Thatm缈
nc,vdd lcad to山 c capital invcstcd
in thc busincss being dep1ctcd Ifit happcns too
99 ACCruals(matching) oftcn thc business、庄uc。 Ⅱapsc bccausc thctc wⅡ l
Ifthc丘 nal acc° unts ofa bu“ ncss arc to givc rc⒒ ablc not bc cnOLlgh moncy to pγ crcdltors or to rcnov
informaoon,the reˇ ℃nue and othcrinc° mc must bc
asscts whcn thcy arc wOrn out Thc prlncolc o
somc刂 mcs kno评 as thc conccpt of conscrvadon,It
is safcr for ptont t。 bc undcrstatcd ratcr than
overstated
Thc rulc o:
●proflts sh° tud n。t be。 vcrstatcd
△
● 1osses should bc pr° ˇdcd for as soon as they
arc rccogmsed
students oftcn makc thc mistakc ofsa” ng that
dlc prudcncc concept mcans that proflts lnust bc
understated Thatis not so;thc conccptis ineant to
cnsurc that pr° flts arc rcaLsjc、 河th0ut bcing
overstated
trcatmcnt ofsomcding that docs not rc且 cct thc
lcgal posioon,
For cxamplc,a machⅡ bought on Ⅱre purchase
rcmalns Jic pr° pcrψ of伍 c scⅡ cr untn thc flnal
instaLncnt has bccn p缸 d,Ifthc purchaser f破 s to
pay thc instahcnts as d△ cy bccomc duc,Chc scⅡ cr
may rccl砬 rn thc inachlnc,That is the legal posluon,
or山 c‘ form∷
HoⅤ 四 c△ thc machⅡ o beLlg usedin伍 c
purchascr、 bushcss⊥ n伍 c sa11,c、 ~么 y as thc othcr
machnlcs伍 at h灬 狩 not bccn bollgl△ ton h至 purchasc
From an岔 ccollnung pomt of呐 ∞厂・ and for au prac。 cal
purposcs,thc rnac跏 c is no dlffcrcnt fron,thc o血 r

machncs;that is thc‘ substancc’ of伍 c mattc‘

911 GOing concern
A bush∞ so ago饨 concCrn f山 ere ls no htenoon
to dlscon山 ue itin thc forcsccablc fumtc If itis
short ofwOtk呜 cap⒒ aland thc owner厶 unable to
put morc m° ney hto k,orto fnd somcb° d9・ who
Min bc prcparcd to Icnd itin° ney itrnay bc unablc to
pay its credltors and bc forccd to c1osc,
Udcss statcd to thc con仕 arB lkls assumed伍 at伍 c
accounts ofa busncss arc prcparcd on a gong conccrn
basls,r thc busmcss姑 n° t a going concern,the asscts
sh° lJd bc s・ altled h伍 c statcmcnt of Fm・ancial Posluon
at山 cam° unts d△ c,∞ uld bC Cˇ ected to fetch h an
cnforccd sale,whch could bc itluch lcss th・ an thclt rcal
ssyor伍 statcmcnts of Fhan捌 Pos汹 ∞ should抵η s
sk灬 v a rcaLsuc“ mauc,n,bc砘 h mmdthC w汛 c“
Thc pracocal“ ew(d1e substancel ls preferred to
tlle lcgal“ cw(伍 c± orml h thc accounjng
treatmcnt,Thls is kn° 、厂 ℃r forln’
n as‘ substance° ˇ
Example '
AntoⅡ o bought a machnc on hrc purchasc on
1Janua叮 2o10ThC cash pocc ofthc machnc was
$50000 Antonio pald$10000on1Janua￡ Γ2010
The balance was to be setded by four payments of
$10100Cndudlng intcrcst of$100l on1AprJ
2010,1July2010,10∝ obct2010and1Janu唧
2011,Thc f° Ⅱowlng cn伍 cs should appcar h
Anto血 °、fmal acc° unts at31Dcccmbcr2010
Inc° mc statcmcnt Intcrcst on lWc putchasc$400
statcmcnt。 f Fmanoal Pos“ ° n:Non~cwtent assets$50000(thc
ca曲 p1∶ ∶
c/although oli9・
i〈

of由 cb“ hcss, $40000has bccn pald9

ⅡabJltlcs$101tKl
Cl△ rrcnt

912 substance over form Chc每 nallnstalmcno not patd

und1JaIlu唧 2011
Thcsc words arc uscd to dcscrlbc thc accounung

Leam a"the concepts and rnake sure you understand them

VVatoh forthe app{ication ofthe concepts when you answer examinaⅡ on questions
Make sure you identify the oorreCt Conoept when asked which one has been applied to a pa"iou丨 ar s仕 uation
(Prudθ ncθ is not alWays the"ght ansWed)
Read questlons carefuⅡ y Ques刂 ons rnay require you to give a definition,orto eXplain,orto disCuss Each of
those requirements must be met w"h an appropriate responsθ
When askedfora de】 n"ion,do not glve an exam叫 e instθ ad"asked to deⅡ ne‘ substanoe overform’ ,an answer
such as‘ substanoe overform is when an assetis bought on hire purchase’ is un"keIy to gain any rnarks beoause
 ‘
the de衙 n tion is missing The fo"owing is better∶ subled oVerform is the treatment accorded to a transaction so
thatthe rea|effect on the business is recorded in the accounts,rather than the strictly legal positi° n FOr
exampIe∶ an asset bought on hire purchase is treated as though it already be|ongs to the purchaser a"hough it
lega"y re丨 ηains the prope"y ofthe seⅡ er untⅡ the finaIinsta|lη ent hes been paid’ This ansWer giVes a definition as
requ red(The example deve|opsthe answerfurther and may ga n an addⅡ iona mark)
‘ ’
ExpIain¨ requires an expIanation ofthe、 ″ay a conceptis appⅡ ed and an explanation as to why tis necessary
orimρ ortant
‘ ’
ElisCuss¨ inV"es an ansWerVVhiCh ino|udes a discussion ofthe advantages and disadvantages of a concept
ExamJners choose fhe″ “ords carefuJJy and eXpecf candldares fo rake nofe ofrhe〃 °rdlng° F qves″o冖 s

1. A traderˇ vho se"s food does notinc|ude food that A trader has included rent which is due but not
is past"s‘ se"by’ date in his inVentoγ in the paid in his lncome Statement Ⅵ
statement of FinanciaI Pos"ion Which concept ooncept has been appⅡ ed? `hich aCCounting
has he applied in valuing his inventory? A histo"C Cost B matching
A matching B prudence C money measurement D prudence
C reaIisajon D goIng concern The baIances in a saIes Iedgertota|$16000 A
debtor who owes$800is knoWn to be in financia丨
A businessis aboutto be closed down asit has
di仟 iCuky The figure of debtors shoˇ Vn in the
insu矸 icientfunds to pay its creditors The ovvner
places a very|ow value on his inventory in the statement of Financia|Position is$152o0 、
ⅣhiCh
concept has been appⅡ ed?
statement of FinanciaI Pos"ion Which conceptis
being appⅡ ed?
A matching B prudence
C reaIisation
A g° ing c° ncern B mate"aI"y
D substance overfor丨 η
C money measurement D sublectˇ ity
A trader sends goods° n sale orreturn to a
3. The oˇ vner of a business paid his private telephone customer When the trader prepares his Statement
b"Ifrom the business bank account The amount of FinanciaI Position at31 RlarCh2010,the
was deb"ed to his DraWings account VVhich Customer has st"I notindicated that he has
conoept was app"ed? accepted the goods Which concept shou|d the
A business ent"y B matChing trader app|y when he prepares his accounts at
C prudence D reaIisation 31March2010?
A consistency B match ng
C pnJdence D re刨 ⒗aton
 Ac
payments
ncept)

● the pradiCal appl℃ a刂 on ofthe aooru引 s(mat。 hing)p亻 nciple

● hoW to reoord accruaIs and prepayments in ledger aCCounts
● hoW to adlustt"aI baIances for aocruals and ρrepayments
● hoW to shoˇ V aCCruals and prepayments in statemθ nt of FinanciaI Pos"ion

101 What are accruaIs and Eloc“ -饣

prepayments? 2010 $ 2010
Jan-N° v Sundtv paymcnts9QO DCc3】 Inc。 mc

⑶~一
Accruals arc cxpcnscs that have been hctlrrcd but not Dcc31 mccmclt, s仫 tcment 1030
p缸 d for For cxamplc,an unpald eIectrlo〃 bm is an ov,lng c/d

⒁
1030
accrucd cxpcnsc;thc clcctrlci〃 has been consumcd 2011 ~
(d,Cc° st has bccn incurreΦ ,but n。 t pald br, Jan1 Balancc b/d 130
Prcpayments are payments madc in advancc of
tllc bcneflts to be denved fr° ln thcm Rcntis an l心 otes
c靶mple bccatl∞ ⒒Ⅱu龃 y hasto bc p砬 d h adsancc ● ⊙nly$900h灬 bccn pald but d△ e Inc° mc
statcmcnt has bccn dcbited with thc fuⅡ cost of
102 HOW to treat an accrued clcct丘 ots,fot thc year,$1030,
expense in an account ●A crcdlt° r for thc anl° unt o、
^ng for clcctrlci中
has bccn crcatcd on the acc° unt by a crcdlt
An accrued expense is an amount thatis° 、
`cd t° balancc carricd do、 讶
7n,
somebody;that somcb° dy o a crcdltor,Thc crcdltor
● Ihc crcdltor w姐 bc shox△ ・
nhd‘ statclncnt of
must bc rcprcscntcd in伍 c cxpcnsc account by a
Fmanoal Posluon Llndcr currcnt Ⅱ
钊汕 ocs as all
crcdtt balancc carricd dovn on thc account
玩 crued e】 ‘
∶,cnsC’ ,as
l∶
an℃ 狎 Cnsc crcdltor or other
Examρ Ie trade pγ 曲l邙 to dismgulsh止 from tradc py亦 I邙
℃ar of a busincss cndcd on
Thc acc° un讧 ng γ
31IDcccmbcr2010,In thc11mondls ended 103 HOW to treat a prepaid
30Novcmbcr2010paymcnts亿 r elec竹 lCi〃 expense in an account
amountcd to$900At31Decembcr2010伍 crc w小
an unpald clc∝ rlo饣 biⅡ for$130,Th纰 am° unt^ Ihc pcrs° n to x△・
h° n1a paymcnt has been rnadc in
carricd d° M7n° n thc account as a crcdlt balancc Thc adˇancc is a dcbt° r° f thc business Thc dcbt° r is

clcctrlciy account is prcparcd as f° Ⅱ°ws: rcprescntcd on伍 c cxpcnsc account by a dcbit

balancc carⅡ cd do、 Ⅴn
禚鞲F黼槭啁黩 Ι
弘槲槲髁群搛
Yousif p缸 d thc rcnt on cach of thosc datcs,b讧 t on °f unuscd stauonc,w・ hch had cost$400
i酝
31Dcccmber he pa1d dhe rent due on1Jantlary
2011 At31Dcccmbcr,thc1・ andlord is a dcbtor for st3‘ i0neF,

the ain° unt° fthc prcpaymcnt, 2010 $ 2010 $

Jan1 D∝ 31 Incomc
Rent payable D∝ 3i Bank 1200 statcmcnt 1070

⒛
Dcc31 Amount o、 v△ ng

一蜊
2010 $ 2010 $
c/d Dec31 Invcnt° 印 c阳 000

~娴
Jan1 Bank 500 Dcc31 Incomc
Apr1 Bank 500 statcmcnt 2000 1470
Bailk 500 Dcc31 Rcnt pald in 2011 2011 ~
Ju11
adˇ ancc c/d 500 Jan1 Invcnt° , b/d Jan1 Balancc b/d 270
Β

kk

0ct1
n

500
B
n

Dcc31 500 Note,C1函 ng balances arc thc opc-gb俪 ccs ofthe

2500 2500
2011 ncxt丘 n劾noaI perlod In thc statcmcnt of Fhancial
Jan1 Balance b/d 500 Posioon at31IDecembcr2010伍 c st° ck0f Llllused
Ⅱbc
stauoncry$400,、 讨 shoxx・ n undcr currcnt assets
Notcs
● P闷mCn“ durnlg thc rar am° unt to$2500,but 105HoW to adiustincome for
dhc Incomc statcmcnt has bccn dcbitcd、汀th accruaIs and prepayments
thc rcnt f° r°nc ycar onl平
● Thc dcbtor(thc landl。 rdl“ rCprcscntcd by the somc1ncome accounts such as rcnts° r1ntcrcst
dcbit balancc on thc account rcccⅣ 茄le m绊 nccd to bc adjustcd forin∞ me

● Ihc dcblt balancc wⅢ beincluded in岱 c
statcmcnt of Fhanoal P° slo° n undcr currcl△ t
asscts as a prepayment or o伍 cr tradc rcccix,ablcs
to dlsongmsh lt fr° 血 tradc rccα ˇ
么blcs
104 HOW to record inventory(stock)
of stores on expense accounts
somc expensc accounts rcprcscnt stocks of
consumabk storcs Exatnplcs arc s么 谊°ncry,hcatmg
血cl and fue1± or rnotor v℃ hclcs st° cks of
consumable storcs rnay bc unLIscd at thc v℃ ar-cnd
Accordlng to伍 c matchng pnnclplc,山 csc stoCks
shotJd n° t bc chargcd agalnst thc proflt for the year;
曲ey arc an assct and not an cxpcnsc atthc yea⒈ cnd,
Carry thcm do、 unt
`n as a dcbit balancc On the acc°
Ths rnay rcsultin an cxpcnsc account haˇ η g dcblt
and crcdit balanccs at the year-cnd,
In thc statement° f Finanoal Po“ o° n thc st°
recc⒒ ed in ad△ ancc or in arrcars Incorne recclx,cd in
advancc° fits duc datc indicates the existcncc of a
crcdltor CradC pa洌 icl and reqLures a crcdlt b・ alancc
cql1al to伍 c prcp呷 mcnt to be carr】 cd do§、°n tlic
account,Inc° mc accrucd at亡 hc datc itis duc
in(lic犹 cs thc cXl斑 cnce of a dcbtor Cradc rccci、 厂
茄lcl
and a dcblt balance equal to thc am° unt should bc
carr1cd down° n thc account
Example
In thc ycar ended31Janua,2011,E⒒ zabe曲 had
rccovcd$500+or rcnt n° m a tcnant and$160for
intcrest° n aloan Atthat datc,the rcnt prcpald
amountcd t° $100,and$40intcrcst was duc仔 om
thc borr° 、
vcr Thc cntⅡ esin thc Rcnt RcccⅡ ablc and
Intcrcst Rcccivablc acc° un“ at31Janua,2011are
as foⅡ °ws;
cks° f Rcnt Rece加 nblc
$跏

unused consulnablc砀 iⅡ appcar undcr curtcnt asscts 2011 $ 2011

Ihey sh° Llld bc shown under伍 clr° w“ hcadmgs of Jan31Inc。 mc statcmc纽 t400 Jan31 Bank
_跏

s、、st° cks° f unuscd statIOnqry Thcy should彳 rbc Jan31 RCnt prcp/ald c/d 型
一
伽

`刃 500
hchdcd xx,lth山 c clo⒍ ng ttadmg stock ori仆 nl Fcb1 Balancc b/d
`ento呷
thc statcmcnt of Fhanoal Posi刂 on
 1tltetest Reco~⒓ ue Example

$钔
2011 $ 2011 The f° Ⅱ°、汀ng is an extract from a trlal balancc at
Jan31Inc。 mc statcmcllt200 Jan31 Bank 31Dcccmbcr2010

们_一
Jan31 Intcrcst accruOd
c/d $ $

⒛
200 Rcnt pas/able 2400
Fcb1 Ba胲 ncc b/d 40 Hcamlg and Llghdng 18ω
stat】 o唧 1100
Iiltcrcst Rccc】 ablC
x・ 600
Exercise1 Rcl△ t Rcccl△ ablc 1200

In the year cndcd31Dcccmbcr2010,Alcx made dle
f° 1l° wing paγ ..Ι Cnts:rcnt$1000;cIcctrici″ $630;
sta砬 oncry$420 In addl刂 on hc had rcccⅣ cd$300rcnt
trom a tcn细 ⒒
At31Dcccmber2010,Alcx had prcpaid rcnt of
$200Accrucd expenscs wcrc clcctrlci,$180and
statloncry$130 The stock CnvCnt。 r诊 of sta。
was$140Thc tcnant owed rent of$100
Rcquircd
show how thc accounts conccrned、 注l1appcar in
Alcx、 b° °ks aftcr thc adlustmCnts± or accruals
Thc± oⅡ owing amoulits wCrc oX△ ,△
lg at
31Decembcr2010:hcaong and Ⅱghting$290;
stati° ncp`$100 Rent recels・ ab1e of$200had bccn
rccc1vcd in advancc
At31Dcccmbcr2010,rcnt payablc of$400had
bccn paid in advancc;intcrcst rcccivablc of$120
nc,
° was duc but had n° t bccn rcccwcd
Thcrc was an unuscd stock ClnvCntor⑺ of
敬ationcr⒖ $230,at31pcccmb。 r2010
Mc曲 od1划 just伍 c ttcms h thc trlzal b・alancc h伍 c
qLlc血 on Mal【 c usts。 fd.c dcbtors(tradc rccclxrablCs)

and prcpaymcnts havc bccn madc show clearly alid crcdltors(“ adC payablcΘ )ou crCatc In⒃ rt针 ocl【
thc am° unts to bc transfcrrcd to the Incomc CnvCnto⑴ of sta。 。 nc,h曲
C伍 al balancc lTl△ c
Statcmcnt adiustlnents arc shown h捃幽
肪cs~)

show γour w0rkngs xwldl γ

our ans、 犯r
106 HoW to adiust a triaI balance
for accruaIs and prepayments Dcbtots Cjicdltors
$ $ $ $
Exatlllnaoon qucs0ons o± tcn ll,dudc tJal ba杨咀ccs Rcnt Payablc 2400-彳 ∞ 彳00

that rcqllirc to bc a曲 “tCd± or accru狨 s ajid Heaong alid Llghmlg18ω +刀 o 290

prcp呷 mcnts A rcⅡ ablc cxaminaj° n tcchniquc lor staoonc〃 1100+ ′00-230 100
J勿 6隐 ε /,″ o
″勿,,,旷 磁 勿切″召
me伍 odl
r9,J丿
to dCal xx・ l曲 this simaoon is lil△ p° rtant br
Intcrcst Rcccl,ablc 600+`20 `刃
success Adju吱 meilts may bc madc on伍 c qucs0on Rcnt RccclvablC 1200-200 刀o
papcr but伍 e worⅡ L返 ∮shodd bC shomn on your 520 90
⒌
cxan1inaoon scr1pt TM・ o good mcthods arc suggcstcd
hcrc You should try bodlrnedlods,dccidc whch Mcthod2 Dclctc thc itcms on thc trial balancc
onc you prcfcr,and sock to itin yottt preparauons aftcr cr° ss~rcfcrcncing thcm to calc△ iaoons shown as
f° r thc cxain 、orkngs with your answcr σ B T⒒ ・
al Bzalancc,Inc
st Incomc statcmcntl
$猢

W1 Rcnt P呷 ablc W2 Hcat&Ligllt $ W3 Staoon唧 $

鲫~一

Por TB pcji tB 1860 Pcr I B 1100

Lcss picpa1d Add owing 290十 Add owil△ g 100十
驷$觎

Inc st Inc st 2150 Lc$stock ΦvCi・ tcl⑼ O30l

1nc s仁 970
、￠4 Intcrcst RcccIsyablc V75 Rcnt Rccq△ abIc $
哪~一

Pcr tB Pcr TB 1200

Add duc Lcss prcpatd O00l十
钥

lnc st Inc st
n mcth。 d1
tcms matkcd汴 x,il bc Ⅱstcd as deb⒒ balanccs as lil mcd△ od1Itcms marlvcd十 柄111bc⒒ stcd岱 crcdit balanccs灬 △
】
 HoW muCh WⅢ be debⅡ edinthe lncome statement accounts?
forInsurance In Υear3? Net profⅡ Cu'rent assets Current
A $2000 B $2100 C $2300 D $2400 ⅡabⅡ ities

4 The aocounts of a business have been prepared, A OVerstated no e仟 eCt understated

but no adjustments have been made lor accrued B understated no e矸 eCt oVerstated
expenses atthe end ofthe year C oVerslated understated no e矸 eCt

VVhat effedˇvⅢ these omissions haVe on the D understated overstated no e仟 eCt

1.Antonia’ st"a|baIanoe at31 DeCember2010was 2. Desmond’ s tr a|balance at31 March2011ˇ Vas as

as folloWs: fo"oWs∶
$ $ $ $
sales 120000 PIant and Machinery 36000
Purohases 62400 Motor Vehides 17000
sales Returns 7300 lnventory 9000
Purohases Returns 4190 Trade Rece|vables 7060
VVages 17310 Bank 5400
Rent 32∞ Trade Payab|es 3950
Hea1ng and Lighting 2772 CapitaI zO∞ o
Motor EXpenses 1284 Drawings 22088
lnterest on Loan 5∞ sa|es 219740
丨nVentoγ 5660 Purchases 100100
Trade Reoeivables 12440 sa|es Returns 17420
Trade Payables 6167 PurChases Returns
Bank 5055 Ⅵ 67000
LOan 10000 `ages
Rent Payable 8000
Premises 24000 Rent Receivable 2600
Motor Vehioles 7400 lnterest Receˇ abIe B0o
DraWhgs 7036 DisCounts AlloWed 2826
Cap"a| 16000 1040
DisCounts ReceiVed
156357 156357
Carrage lnwards 5170
Funherin亻 °rma刂 on CarHage OuMards 7920
1 Inventory at31 December2010was valued at sundry Expenses 19ss
$8000 306947 306947
2 The|oan was received on1Apr"2010and is
repayable in2013 Interestis charged at10% Fu"her information
per annum 11nVentoγ at si March2011Was valued at$11000
3 Expenses oW ng at31December2010Were as 2 Expenses owing at31 March2011were∶ rent
payab|e$2000;car"age inWards$330∶ car冖 age
folloWs∶
ouMards$280
$猢

3 sundry eXpenses of$200had been paid in

叨

VVages
advance;interest rece Vable of$160had
Hea】 ing and Light ng
accrued
4 Rentin the sum of$800Was prepaid at 4 At31 March2011,rent receivabIe of$200had
31Deoember2010 been receIved in advance

Required RequIred
⑶ Prepare the Income slatementforthe year la〉 Prepare Desmonds InCome slatementfor

ended31 December2010 the year ended31 March2011

(bl Prepare the slatement of Finanoial Pos"ion b) Prepare the Statement of FinanciaI POsition
〈
at31 December2010 at31March2011
 Provis∶ ons for the depreciat∶ on
of nonˉ current assets
● what depreciation∶ s and why it must be provided forin accounts
● hoW to ca!CuIate Ⅱby the stralgh△ Ⅱne and reduoing-balancθ methods
● hoW to aoCountforthe disρ osal of nonˉ current assets
11 1 What is deprec∶ ation?
Depreciadon is thc part of thc cost° fan0n-
nsumcd扯r白 呜 thC
currcnt asset山 at“ c° pcⅡ od⒒
uscd by a busincss,F° r cxamplc,a tnotor pur。 hascd
for$10000may bc wor曲 °dy$gO00onc ycar
13tcr becausc it is n° tas good as new a± tcr a
℃at、 usc,The asset has suffcrcd dcprcoao° n° f
γ
$(10000-8000)=$2000,
Asscts may dcprcoatc f° r a number° f rcasons,
● Wear and tear:asscts bccomc worn out
山r° ugh usc
● obsoIesccnce灬 scts haxe ω bc tcplaccd bccause
∝兕 motc efficlenk咖 ol°gy bas bcen devdop咄
or m勿 dhlFs9/hch v,ere acqurcd for thc
producuon° fpa“i△ iar g° °ds are° fno f川 氏
hcr
bccausc the go° ds arc no longcr producea
● Passage oftime:an assct aCquircd for a
⒒ nuted pcⅡ d of。 m%such灬 a lca⒃ of
prcmiscs for a适 乒 vCn numbcr of years,loscs
valuc as dmc passes Accountants rcfcr t° dis
asemω吐。n。 f tLne and speak° f amc,Fdo1qg
rad△ cr than‘ deprcoaong’ thcsc assets。
● Using up,or e义 hausdon:俪 cs,quarJes and
oⅡ wcⅡ s dcprcoatc as the nuncrals ctc,arc
cxfractcd fr° rn dhcm,
11 2 HOW does depreciation of
nonˉ current assets affect
accounts?
The acc° un乜 ng trCa位 nent of capital cxpcnditurc,
w・ hoh is cxpcn由 mre° nn° n-currcnt asscts,is
dln%rent fr° md△ c trea⒃ cnt ofrcvenuc cxpcndlmrc
Revenuc cxpcndiu址 e is dcbitcd to the Inc° mc
statemcnt as it is incutrcd Capital expcndlturc,on
o
thc Othcr hand,ls° n asscts that are htcndcd for use
hab灬 hcss for morc than one rar,usua⒒ y for
ma叩 yCars It wotd-bc wω ng to dcblt伍 c whole° f
Chc cost° fa n° n¨ currcnt assct to thc Incomc
statcmcnt in山 c ycar it、 丬
`as acql11rcd;it wOuld be
ag缸 nst the matd山 名 pⅡ nclple,N‘ :l1`CrthClcss,dac
Cost of″ 澎笃 non~currcnt asscts to carn rcvenuc must
bc charged m thc Income statcmcnt伍 at c° st is伍 c
dcprcoao° n suffcrcd in thc acc° unung pcⅡ od,
113 HoW to account for
usc depreciation
There arc scvcral rne曲 °ds uscd t° calculatc
depreoao° n The吣o Ι
nost comrnon atc:
● stralght Ⅱne
● rcducing balancc
stra:ghtˉ Iine deprecia刂 on
、忱th dis rncth° d thc tot狃 amount° f dcprcciad° n
dlat an assct wⅢ suffcr is csdmatcd as thc山 ffercncc
bc小 vccn M,hat1tc° st and the cstlmatcd盯 n° unt that
wⅡ bc rccel△cd whcn itis s° ki or scrapped at thc
cnd oflts uscful Ⅱfc.The total dcprcoaj° n“ 伍cn
sprcad∽ 狩Ⅲy° vcrthc numbcr° fy∞ rs° fits
cxpcctcd Ⅱfc
Caladatlon:lc° st-Cs刂 maⅡ d procccds° n φsposall÷
csumatcd uscm Ⅱfc1n yCats
Example1 Non-currcnt asset aCCounts s° mc0mcs includc
A machinc cost$20000 Itis cxpcctcd to havc a thc words‘ at cosf in their titlcs to cmphasisc
uscfuI Ⅱfic of flx・ c ycars at thc cnd ofvx,hich omc itis ths point
cxpccted to be sold for$5000Cts residua1vaIue) si° n for Dcprcciauon
Thc ba1ance on thc Proˇ△
Thc t° tal dcprcciajon° vcr丘 ve years is of卫 Ǐachinery account incrcascs cach ycar

$(20000-$5000)=$15000Thc annLlal A provision in acc° unt1ngis an am° unt sct

dcprcciaoon is$15000÷ 5=$3000 asidc for a paroctJar purposc

LedgcF cntrics for depreciation Dcblt thc A scparatc Pro说 si° n for Dcprccl/du° n accolllit
Inc° mc Statcmcnt and crcdlt a Pr° 说si° nf° r must bc opcncd￡ or cach凵 灰盯ofnon~currcnt assct
Dcprcciation account Ⅻ△
th thc annual dcprcciauon 飞 eb佥hrcc° n thc Pro・ |tsiC,n lor Dcprcoauon
cach ycar acccDLlnt is dcductcd丘 om d△ c cost ofdlc non-

In thc abovc cxampIc,thc bookkccping cntrlcs in nlr± cilt a“ ct h d△ c statement of Fii△ ・

ailoal Po“ o° 豇

cach of the five years wⅢ be as foⅡ ovx/s:

Cost Dcpteciaoon Nct book valtlc
$ $ $
Inc。 mcstatcmcnt $
Yca11∶ MacloL△ cjiy 20000 3000 17000
0vcrhcads
Ycar⒉ Maclmcls/ 20000 6000 14000
Ycaji1
Year3; lvIacl△ ulcry 20000 9000 11000
Provtsion for dcprccia谊 on of machinc 3000
Ycar4∶ Macamlc, 20000 12000 8000
Ycar2
Year5: Machn△ cry 20000’ 15000 5000
Provlsion f° r dcprccla谊 on。 f maclulc 3000
Ycat3
pt。 9.Isi。 n for dcprcciaoon of maclllnc 3000 Thc balancc rcmaimng a± tcr dcprcclau° n has bccn
Yε at4 dcductcd lrom costis kil° 、 a1uc
`n asthc nct book bˉ
Pjiov1si° nf° r
Yca15
dcprcoauon。 f maclmlc 3000
㈧ Bη or9nttcn do咖 mhc⒅ Dη of dlC灬 ⒃t It

Prox,lsion fot dcprcciadon oflnachinc 3000 is thc am° unt of d△ cc° st of thc assct wluch has not
yct bccn chargcd against prolltin thc Inc° me
Mach“ cry at Cost Statcmcnt Thc nct book vahes° f asscts at which
$ $ d△ c asscts arc‘ carried’ in thc statcmcnt of Financial
Ycar1 Bank 20000 P。 siu。 n arc kiloxvlil as carr莎 ng amounts
P跏 咬sion fot Dcprcciation of MacⅡ nery Note:The n° n-currcnt asscts at Cos1thc balanccs
$ $ on the Pr° 访sions f° r Dcprcciaj° n acc° unts,and nct
dd

Y田 r1 Balancc 3000 Yc征 1 hconlc sL斌 clllcl△ t3000

bo°k valucs should n° bc shc,wn in statcmcnt
YtAar2 Balancc 6000 Year2 Balancc b/d 3000 `厂
hcolllc s幺洄σK￡ 吱 3000 Financia1Posijon 11ndcr hcadings as shovx n in thc
6000 exampIc abovc
Ycar3 Batal△ ce c/d Yeaji3 Balancc b/d 6000
△lcolIlc statcmcl△ t3000 Exercise1
9000
Year4 Balancc c/d Ycar4 B/alailce b/d 9000 A mot° r vcl△ iclc cost$180θ 0It瓜 cxpcctcd to havc a
ko,llc statcmcllt3000
useflll Lfc of scvcn ycars and to bc sold or$4000at
Ⅰ
Ycar5 Balailcc c/d Year5 Balancc b/d12000 dlc cnd° f that unlc
hcol△c Statgllcilt3000
15000 Incomc Statcillcilt15000 Rcquircd
⑶ PrCparc tllc PrⅡ islon lor DcpKciaoon of
Notes 加[otor、 石
elllc1es account for cach ycar
● Thc n° n_currcnt assct account contlnucs to o)P± Cpare a⒌ atcmcnt of Flnancia1P° sluon
show thc machinc at c° st caCh ycar° fits Ⅱfc extract to shoW thc cos△ dCprccia刂 °n and nct
book valuc of thc M° t° r Vcl△ lc1cs atthc cnd
°f cach ycar
Reducing baIance depreciation
In this rnc伍 od,dcpreoajon is calcdated as a￡ xcd
pcrcentagc of thc xxrltten down vahc ofthc assct
cach ycar
Example2
A machnle cost$20000Itls cxpcctcd to h/axˉ c a uscm
Ⅱfc of Esˉ e ycars Dcprccla乜 on is to bc calculatcd
Examplc:A machinc co吱 $50000It ls
cxpcctcd to havc a uscful△ fc of10ycars at thc
cnd of、 矿hich tlmc it、 注Ⅱhavc no rcsidua1
valuc Thc annual dcprcoaoon for cach ycaris
comparcd in the fo⒒ ow⊥ng tablc,
Annual chatge fot dⅡ te-a刂 。n
Red证 Ⅱg balance
s“ 扭ght Ⅱnc
at J△ c lO%〉
【 (00°/o〉

妞fc of25%pcr钔 △11mn on dlc rcducmg balailcc

$ $
Year 1 50tlll 20000
Cakulatlon∶ $ 2 5000 12llllo
Cost 20000 3 5000 7200
Ycar1⒓5%× 20000l ls O00l 4 5000 4320
15000 5 5000 2592
Ycar1O5%× 15000l (3750l
6 5000 1555
11250 7 5000 933
Ycar1⒓ 5%× 11250 @81sl 8 5000 560
8437 9 5000 336
Ycar1O5%× 843D @10助 10 5000 202
6328
Ymr1O5%× 632Sl C58纷
470F, A much lughcr ratc of dcprcciaoon has had to bc
uscd for the reducing-balancc rnethod,aα d山 c annual
Thc bookkccping cntrles for thc rcduon⒏ balancc dcprcoaoon for thc flrst thrcc years is vcry Fnuch
mcdiod are“ mⅡar to those仍 rs钌 algh仁 h%ody d△ c hghcr than undcr伍 c stranght-lu△ c meJ△ od.In fact,
ˉ
amounts dl± fcr u血 名 J’ C rcduong balanccs mcthod,sO%of cost is
providcd for、 c first18】 nonths but thc
ExercIse2 ^thn伍
machnc has not bcen complctcl,,dcprcciatcd at thc
A machnc costmg$40000and辆 i伍 an cxpcctcd
end of10ycars-thcre is soll a rcsidual ba1ance of
usc± LJ lfe of丘 Ⅱ rarsls to bc dcprcoa∞ d by thc
$302
rcducmg balancc mcd,od Thc annualratc of
● The nct book valucs of asscts攵 nay bc rcduccd
dcprcoa色 on is30Vo,
to zero if stialght-Ⅱ nc deprcciaion is uscd,
Rcquked They wi⒒ n小、t bc wrlttcn down to zcr° 、
诫th
lal PrCparc the ProⅥ slon for Dcprcoa0on of thc reduc1ng-balancc tncthod udcss a sma△
ⅣIachncry account for yca± s1to5 rc“ dual valuc ls dcⅡ bcratc圩 transferrcd to伍 c
(b)PrCparc a statcmcnt of Financial Posiuon Incomc statcmcnt,
cxtract to shoW thc cos△ dCpreciajon and nct ●Provision for dcprccia硅 on of an asset shollld
book valLlc of thc Fnachnc￡ ccasc ko bc madc Oncc⒒ h灬 bccn complctc圩
cach of伍 c Ⅱvc ycars, `atthc cnd of tittCn0正 Assets that h锕 c bccn∞ nlplete圩
Xs・

wrlttcn offin thc books rnay s0⒒ bc of usc to

Notes
thc busincss,but no furthcr deprcciaoon x△ m bc
● AlM叼 ys calctllatc dcprcci狂 lon to thc ncarcst$
pros,lded for thcm
● Thc perccntagc uscd for the rcducmg-balancc
mcth° d“ much hghcrthan岱 at uscd仍 r 】1 4 tA/hiCh assets should be
stralgllt-linc
depreciated?
● In thc carl,,yca邙 °f an assct愆 Ⅱtc,thc annual
chargc for dcpreciaion for thc reducing-balancc 灿 assets伍at h孙 厂C fmtC uscRll&龟 s should bc
mctliod o hghcr than br stralght△ nc dcprcoatcd,mlcrct。 rc dcprcoauon shodd bc pr° ˇ
1dcd
on a△ assets cxccpt⒔ ℃chold land,whch d° cs not havc Thc小 vo posslbⅡ ocs arc:
a饷 te t1scil Ⅱfc Frcchold btddmgs珈 Ⅲ 四 ci△ ttla△ lr ●a fuⅡ yeafs dcprcciaj° n is takcn in dle year of
need to bc rcplaccd and shodd be dcp± coatcd Laild acqui“ 0on,but n° nc in thc ycar of dlsposa1
伍at厶 uscd h an cxtrac包 Ve hdust%such as quarⅡ cs ● depreoad° n元 calcti狨 cd from伍 c date° f
and lirlmcs,wⅡ losc laluc as thc且 unCral ctc is acqmsj0on;h伍 c ycar of dlsposal,deprcoa刂 on is
cx仕ac∞ d at,d sholid bc dcprcclatcd calculatcd fr° ln thc coi△ 111△ CnCCment ofthc ycar to
thc datc° fdl冲 osal,山 at厶 ,odl,a proportlon of
115 ChoiCe of depreciation method dlc alnual dcprcoa乜 on砀姐 be p￡碱 dcd
Providlng± or depreoa刂 °n is an apphcaoon ofthc In an cxaminauon,f。 Ⅱ。w dle instructtons卦龟n
mzatchng ponctplc,and山 c mcdl° d choscn for any in thc qucstion Ifthc quesj° n givcs thc datcs° f
parjctJat饣 pC of assct shotdd dcpcnd upon thc acquisi0on and dlsposal,calculatc dcprccia讧 on on a
jmc basis for the ycars of acquisiti° n and disposal
con白obutlon thc assct tnakcs t° 硒叼tds carmtg rcVcnuc
somc gencral pⅡ nclplcs m呷 bc cxplaincd as允 Ⅱow⒌ Oth‘ ∶
`lise,calculatc dcprcciaoon for a fuⅡ year in
1∶ l诉

● Thc soalghtˉ Ⅱne meth° d shollld bc uscd for thc year° f acquisijon,but not for the year° f
灬⒃ts dlat arc c珂 rctCd to carn rcvcnuc cvcnl,r dlsposal
ovcr山 曲 uscfLi№ 曲 名 llxˉ C⒌ It厶 祧 o gener狮 Consistency
uscd x△ hcrc d△ c pattcrn° f an assct飞 carmlg
Thc choscn±ncdlod° f dcprcciaung an aβ sct should
po、 Frls unccrtam It should砬 w勿ys be used t°
bc uscd collsistclldy to cn611rc伍 at thc pro血 s or
m∞ risc伍 c cost of asscts LxIl伍 fLxed Lx,es such
losscs of tu± ferent pcrtods of acc° unt can bc
as lcascs
comparcd on a Ⅱke-± o仁 Ⅱkc basis
● Thc rcducingˉ balancc method sh° uld bc uscd
A change in dle mctllod° fc・alcluaong dCpreoatlon
x△ hcn1t1s cons1dcrcd that an asset、 carillng
sh° uld oill9zbe madcif止 wil rcsult in dlc fmancial
powcr w姐 dllmiush as tlle assct gcts oldcr Tlus
rcsults and posiu。 n。 f thc busincss belng statcd rnorc
mcdlod is also used M严 hcn thc assctloscs morc
f西 d犭△A changc sh° dd n邻 /cr bc nlade in ordcr to
ofits va1ue in the early ycars ofits Ⅱfc,for
mailiptiatc pr° Ⅱt .
cxamplc3ca厶
A comm° n excusc亿 r using伍 c rcdu山 呜 乇alancc ExcepⅡ onaI depreciation
meth° d ratllcr than吼 ralgl△ t hlc mcth° d厶 伍at伍 c so,llcunlcs an cvcnt may occur dlat causcs thc
rcducing chargcs for dcprcciajon compcnsatc± or ainount that rnay bc rccovcrcd on dle dsposal of
incrcascs in dlc c° 呲 °f maintainmg and rcpalrnlg non-cutrcnt assct to± al bclow its nct book valuc
asscts as thcy gct oldcr It^lugliv・ mpr° bable that Carrvlng amoLlnD In d瓜 吻se伍 c as⒃ tis sald to bc
山c bv° c° sts、河⒒balancc cach o伍 er° ut Thc propcr mpa● rcd,、 ￠hcn dus happcns,dlc assct shoLlld
ay of dcaLng with d砬 s situao° nw°dd
ˇ厂 bcto ltllmcdlatdy bc wnttcn do刀m to thc amotlntx△,hch
dcprcciatc tl△ c assct on伍 c stralgllt Ⅱnc mcthod and colld bc rcccⅣ cd if it、 η asi“
to C± catC a Provision for RepaJrs and Malntcnancc by `as soId Tlusis kn0″
rccoˇ ℃rablc amount Thcloss sh° lid bc chargcd as
cqual transfcrs annuaⅡ y fr° n△ dlc Incomc statcmcnt an cxpcnsc in dle Incomc statcmcnt
Thc c° sts of rcpalrs are debitcd to this proⅣ △ ˉ
si° n as Thcrema± llng usc± d Ⅱfc ρf thc assct should n唧
and whcn thcy arlsc bc rcxtewcd,in♀ rdcr t° calctJate thc dcprcciauon t°
bc ohargcd forthc rcmamder of伍 c assct、 uscfLll Ⅱfc
116 MOre important points about Ths`calcdatcd by dlxidlng伍 c nov carr” ng
depreciation amount by thc nllmbcr of ycars of use丘 i⒒ ±
c
provision for depreciation in the year of rem咖 ⒏
acquisition of an asset ExampIe
Busincsscs Va饣 n△ thC way thcy dcpreoatc non- A mac0inc was purchascd in2005at a cost of
currcilt灬 sc“ h tllc ycarin whch tll叮 alc旎 qu1rcd $30000 It had an csumatcd usefu1Ⅱ ±c° f10ycars
 f$2000Str加 宫ht⒒ nc
and a re“ dual value° MacⅡ nery mop。 sal
depreciau° n。 f$2800、 2010
`as provided each ycar unul $ 2010 $
31Dcccinbcr2009whcn the machone had a、 vnttcn Dcc1 Machnlcrv at Dcc1 Pto呐 sIOn fof
down valuc of$16000At31Dcccmbcr20101t Cost 20000 Dcprcclauon 18000
Bank 500
was thcn found that thc rccovcrablC am° unt ofthc
31 Inc° mc statcmcnt
machinc was only$9000and thatit had° nˇ 伍rcc ll。 ss on
years’ use± Li Ⅱ灸 lctt and no rcsidual valuc disposa9 1500
20000 2a Ooo
In thc ycar cndcd311Dcccmbcr2010,thc
Incomc statcmcnt should bc dcbitcd with$7000,
Notes
$l16000-9000l,and thC annu・ al dcprcciaoon for
● The c° st° fthe maclnlc exceeds thc
thc ncxt thrcc ycars should bc$9000÷ 3=$3000 accumulatcd dcprccJaoon+thc salc procccds;
山crc is a loss on山 sposa1,
11 7 HOW to aCCount forthe
● Thc dcblt cn岬 in伍 c Inc° mc statcmcnt“
disposaIs of nonˉ current assets stmcnt to prc钪 oⅡ rars’
rca△ y an zad”

、￠hcn a n° n~currcnt asset is s° ld,the(Ⅱ fference
be小 ″een its net b° ok valuc and thc procccds ofsa1c
represents a proflt or loss on disp° sal,M・ hch is
transferred to曲 e Incomc statcmcnt Thc pro丘 t or
loss is calculated in a IDisposal account,Thc
b° °kkccpmg cnt⒒ cs arc灬 foⅡ oW⒌
Dc"t dlc DIsposal accclllnt and ctc讧 t thc Non cwrcnt assct
dcprcchoon ohargcs,、 扌ich havc provcd to be
hsuf丘 cicnt
Pa"exchange
A ncw asset may0e acq111fed in part c犯 hangc± or° nc
dlatis belng dlsposed of Thc part cxohangc xaluc° f
伍e asset bemg dlsposed° fis dcb⒒ cd to山 c non-
currcnt asset account and crcditcd to thc Disp° al
s・

account s△ ldl伍 co,igl△ al c。 st ofd△c assct

account as the proceeds of山 sposal
De“ t山 c ProⅥ sion for Dcptcoatloil acccltlnt at△ d cre汪 td△ e
unt咖 伍 thc
Disposal acc°
assct
dep攵 edauon provˉ lded to datc on thc
Example2
Dcb“ thc Baok account ai△ d cre乩 t tl△ c Dlsposal account vld△ dlc On5March2011a motor vchclc X100、 泅s
pェ occcds Cfanvl° f山 cd1sposal purch灬 cd for$15000Thc cost was seded by a
A deblt balalicc rcm征 m匝gon d,e Dlsposal accollntls a loss on
paγ Ⅱ .cnt of$13000and伍 e part exchangc of motor
d叩 osal A ctcdlt balancc ls a profit on山 ” os尉 Thc balancc瓜
vchidc Z23tor thc balance
讧ansfcrrcd t° thc Incomc statcl△ lcnt
Motor vehcle Z23c° st$11000and had a nct
Example1 book value° f$800at51压 arch2011
At1IDcccmbcr2010,a machinc、 vhich had cost Motot V田山deg at Cost
$20000was sold for$500 A total° f$18000had
2011 $ 2011 $
△
bccn pr° ˇdcd for dcprcciau° n。 n thc machnc Thc M时 5
Jan1 B扭 ancc b/d `江 otot Vcluclcs
boo钛 ∞pmg ls as允 Ⅱows; (z23) 11000 Disp∞ 亦 A加 】1llllo

MacⅡ ncty at Co8t

驷~

卜
‘ht5 Bank σ100l 13000
2010 $ 2010 $ Motot Vchclcs
一蛔

Jan1 Balallcc b/d 垄ˉ000

ˉˉˉ DCc1 么chnc饣
卜Ⅰ Disposal A/c
Disposa1 20000
~

Pro访 sion for Deprecia谊 on of MacⅡ nety p.l。 v「 isi。 n forthe Deptcdation of Motor Ve1】 ic1es
$咖

$⒁

2010 2010 2011 $ 2011

Dcc1 MacloL△ 唧 Jan1 Balance b/d Mar5 Motot`足 士iclcs Jan1 Balancc b/d
Disposal 18000 Disposal A/c 10200
 Moto士 VeⅡ clcs Disposal Ihc am° untthat has to bc dcblted in thc Incomc
2011 $ 2011
statcmcnt shollld bc inscrtcd in the debit column° f
$
Mar5 `Ⅰ otor Vc缸 clcs Mar5 Prooision for thc tri挝 balancc and added to the cre山 t sidc。
at Cost 11000 Dcpicciadon of
Inc。 mc Motor``clllcles Example

驷
statcmcnt (see note beloxv/l10200 Thc f° Ⅱ°wing cxtract is takcn fron1a tna1balancc

~
eェ o丘 t on 、1otor Vehicles

~硎
disposaD 1200 at Cost $ $
12200 Lcasch。 ld Pェ clllisCs 30000
Pto△-lsion foi Dcprcoatlon° f
Notes Lcaschold Ptclmscs 60tKl
● No dcprccia0on has bccn chargcd in thc ycar of Plant atld`Ι achmc〃 00000
pr。 .,lsl。 n for Dcprcoauon of Hant
disposal
and MacImlc, 23120
● The proflt of$1200is credited in dle Income
statcment and ls,in ef± ect,an adlustment of Further hfoFmad° n
over-depreoao° n ofthe motor velucle in 1 Lcasch° ld prcmiscs arc to bc amoruscd。 vcr thc
prevolous years tcrm of伍 c lcasc° f10rars on伍 cs付 algllt乩 nc
basェ s
ExercIse3
2 Plant and maclmcr/atc to bC dcprcciatcd at
Thc foⅡ o环 anccs haˇ ℃bccn cxtractcd from thc ratc of25o/o pcr annun1on thc rcducing-
^ng bal・
J° Cl、books at31Dcccmbcr2010Machncry at Cost balancc rncthod,
$1800α Provlslon for Dcpreoa0on of卜 Ι achnery Adlust thc trlal balzancc as foⅡ ows ladlusunents
$9600 曲own in扬 劾)
J° Cl愆 transac刂 ons in2011includcd伍 c± ollowln⒏
$ $
May7 SoId ma山 hc No11or$1500Tlus maclllnc cost LcaschoId Prcmscs 30000
$6000、 ȟcn purchascd in2007 PnDˇ △
si。 n for Dcprcciatlon
JunC3 Purchascd mac乩 nc N。 3which w玄 s piccd at$10000 of Lcaschold Prcn】 scs 乡000 6000+3000
J。 Cl pald$7000atld gaˇ εmacllInc No2in part Plant and Machnc, 纠DO00
cxchangc Mackc No2c。 st$12000whcn purch孙 cd Pェ 0△/lslon for Dcprcciaoon
in2005 of Plant and⒈ Ι
achinc印 亻22臼 咪 23120+彳 220
衤25%of←0000-2312Φ
JoCI depreciat∞ his machlnery ushg由 e吱 nξh-
Ⅱnc rned△ °d and the rate of10o/o pc± ainum,Hc Thc rcsult ofthls w⒒ l bc to charge the
provides± or a fuⅡ ycar、 dcprcciaoon in thc ycar of
dcprcciajon° n山 c prcmiscs ls3000)and山 e
purchasc,but n° nc in thc ycar of dlsposal
dcprcoao° n on thc p1・ ant and machine叮 64220l as
Rcquircd expcnscs in thc Inc° mc Statcmcnt
Prcparc伍 cf° Ⅱ°珈1ng accounts to shoW thc Thc accumulatcd dcprccia刂 on丘 gllrcs of$9000
transacuons。 n71江 ay and3JunC: 66000+300Φ for prcmi∞ s and$27340
(0Machnclv at C∞ t 623120+$4220l± or plant and machnc,M・ ill be
o)Pr° 讧si° n for Dcprcoaoon° f Machinc叩 shown in thc statcmcnt° f Financi狃 Posi刂 on They
(c)Machincfy Dispos狨 踟ill be dcductcd l=om thc c° st0f thcir rOspecu△・
e
asscts to sh° 灬
11 8 HOW to adjust a trial baIance 'thc nct book valuc
for depreciation 11 9 Provisions for depreciation
Examinajon quesoons± requendy pros,ldc a trial and the accounting concepts
balance山 at h小 to be adl灬 tcd to pro呐 dc bra Pros,lslons br dcprccho° n arc madcto comp圩 x△
,lth

furthcr ycar、 dcprcciaoon of dlc non-currcnt asscts, 伍e± oⅡ °

、西ng conccpts∶
 Matc吣 g The cost of usmg non-current asscts Prudencc If thc c° st° f using n° n-current asscts
to carn rcvcnue sh° tdd bc matchcd m the Inc° mc was not hclLldcd in thc Inc° mc statcmcn、 proflt
statcmcnt to伍 e± ∽/cnuc carncd. 、 vcrstatcd.
`ould bc°

● Read quθ stlons carefu"y to rnake sure vou understand which rnethod° f depreciation you shouId use
● lf required t° prepare ledger accounts for deprecia】
ion or disposals of nonˉ ourrent assets,be sure to inolude in
θach pos】 ng the name ofthe other accountin whioh the doublθ entryis o° mpleted The examiner needs to see
that you understand the double entry involved
● When caIoulating straightˉ Ⅱne depreciati° n,inolude any residuaI value in y`our ca|culation
● Be sure to complθ tθ the doubIe entry for each adjustment on the廿 ia丨 balance
Vorkings on your answer paper
● shoW aⅡ 、
● As you makθ the adjustments to the tria丨 balanoe,tiok the instructions on the question papeⅡ Check that a"
instruct ons are tioked before oopying out your answer
● shoW nonˉ cu`rent assets in statement of Financial Pos"ion W"h cost,depreoiε 刂ion and net bo° k valuo presented
in ooIumnarfo″ n

1. VVhy is depreoiation on non-current assets Depreciation is ca丨 cu丨 ε

刂ed on the reduoing balanc0
charged in the aocounts of a business? basis atthe rate of3o% What wasthe net book
A to ensure that assets are repIaoed、 vhen they va丨 uθ ofthe assets that Were disposed ofin tho
are worn out V′
θar ended31March2011?
B to make sure that cash is aVai|able to replace A$114∞ B$16800
assets when they are worn out C $18400 D $25400
C to shoW What assets are wo衬 h in the statement The folowing informaion o eXtracted from the
of FinanciaI Position books of a business
D to spread the cost of assets oVθ rthe|usefullves
2. A business purchased a cranθ for$40000on Ad31DeC200θ At31Deo201o
1January2o08 The crane was depreoiated atthe $ $
rate of3oo/。 per annum using the reduoingˉ Nonˉ current assets
ba丨 anoemethod Thθ Crane was sold on (at∞ stl 2sO0∞ ⒉50∞
31 Deoembθ r2010for$7750 A fuⅡ yθ ar’ s Less a∞ umu∶ ated
depreciation was oharged in the yθ ar of oisposa| deprec at on 85ooo 98ooo
What Wasthe pr° fit° rloss on disposal?
A $3750Ioss B $3750prof" Fu"herinformation forthe year ended
C$5970Ioss D $5970pro】 t 31Deoember2010is as fOIOws∶
3. The following lnfomaton rolates to the noⅡ current
assets of a business $
Depreoaton charged in thO Inoome
$
Cost at1ApH1201o
statemθ nt 25000
32000
Acoumulatod depreciation at1ApⅡ 12o1o 13600
Add"ions to n° nˉ ourrent assets〈 at c°st) 60000
Non-current assets purchased in year ended
Loss on sale° f nonˉ current assets 1000
31March2011 7000 How muoh was rθ ceived from thθ saIes of nonˉ
Depreciation chargθ d forthe year ended
current assets?
31March2011 42oo
A $2000 B$8000 C $4000 D$5000
1.The foⅡ oWing t"al ba ance was extracted from the
$ $
books of PiCColo at31 May2011 LeasehoId Prope"y at cost 45000
ProvlsIon for Deprec旧 Ⅲon
$ of Leasehold Proρ e"y 13500
Freehold Land and Bu"dings Plant and Machinery at cost 21000
at cost 100000 P“ 》犭sion for Depreciation
Provision for Depreoiation of Plant and Machinery 9200
of FreehoId BuⅡ dings 40000 Offioe Equipment at° ost 7000
Plant and Maohinery at cost 76000 ProVision for Depreoiaton
Provision for Deρ reciatbn of0矸 iCe Equipment 2400
of Phnt and Machineγ 32000 Trade receivables 1526
Trade rece vables 14000 Trade payables 973
Trade payables 6300 InVθ ntory 130∞
Bank 5500 Bank 1964
salθ s 300000 Wages 13017
Purchases 190000 EIed"c"y 1012
Inventory 30000 Repa″ s to Machinery ⑷
VVages 56000 sundry Expenses 1234
Hea】 ing and Lighting 17600 lnterest on Loan 1000
Reρ引rs to Plant and Maohineγ 5100 sales BO sOO
Adve"‘ ing 7tX,o sales Retums 1590
Drawings 27100 Purchases sO914
Caρ 150000 Purchases Retums 蹈
"d 528300 528300 LOngˉ tern LOan 20000
DmMngs 185gg
Fu"her lnformation
Capital 50000
1 1nVentory at31 May2011:$42000
1774gB 177498
2 Freehold land and bu"dings at Costis made up
as fo"ows∶ Iand$20000;buⅡ dings$80000 Fu"her InformatIon
3 Freehold bu引 dings are depreoiated at4%per
11nVθ ntory at31Maroh2011cost$16000
annum on the straightˉ Ⅱne basis
2 The IOan Was receiVed in2008and is repayablθ
4 Plant and rnachinery are depreoiated at25%
in2013 1nterest on the loan is atthe rate ol
per annu丨 η on the reducingˉ balance basis
10%per annum
5 At31 May2011,$1800was owing for hθ aling
and"gh刂 ng $6000ofthe cost of adVenising 3 Plant and maohineγ at costinoIude$6000
related to the y`ear beginning1June2011 for a rnachine bought on hire purchase on

6 In the year ended31May2011,PiCColo had taken
nventoγ ∞ sting M∞ 0for his person割 use No
entγ had been rnade丨 n the books forthis
Rθ quIred
⑶ Prepare P忆 co盯s hComθ statemθ ntfortho
year ended31May2011
⑼ Prepare the slatement of FinanCiaI PosⅡ ion at
31May2011
1Januaγ 2011 Tho cash price ofthe machine
丨
s$30000 The balanoe is payable in four
quarte"y instalments of$6200,including
interest,on1Ap"I2011,1July2011,1odober
2011and1Januafy2012
4 The leasehold propedy、 ″as acquired on
1October2009for a peHod of15years "is
being amo"ised on the straightˉ Ⅱne basis

2.W"heImina is a trador、 Vhose financia|year ends 5 Plant and rnaohineγ are depreciated on the
on31Maroh HertHal balancθ at31March2011 reduclngˉ balance rnethod using the annua|rate
was as folloWs∶ of25%
6 OfiCe equipmentis dθ prociated a】 15%per RequIred
annum on tⅡ e straight丬 ine basis ⑶ Prepare WⅡ helminds lncome slatθ mθ ntfor
7At31March2011,ssOO Was owingf° r the year θndθ d31MarCh2011
eledrici” %and sundγ expenses of$180had ⑼ Prepare thθ statement of Financl引 Pos"0n
been prepaid at31March2011
 Bad and doubtfuI debts

● the differenoe beMeen bad debts and doubfuldebts

● hoW to aCCountfor bad debts and bad debks recovered
●hoW⒗ proVdebrdouofudebts

121 Bad debts Genetalledgec Bad debt8

2010 $ 2010
厂
XXJhcn somcbody σ丙es monqy btIt“ ui△ auct。 p⒏ 乃
Nov1 H Ardup 1200
dle dcbt1s a bad onc As soon as dcbts arc knc,wnt° Tony Brokc 850
bc bad,they should bc clcarcd fr° m thc salcs lcdgcr
by traiasfcrⅡ ng them byjournal cntry to a Bad Dcb“ Ⅺ0%cn Samucl prcparcs lis annual accounts,hc砀 诅
account transfcr thc balancc on the Bad Dcbts account to the
Example Incomc Statcmcnt as an cxpcnsc

Smuclis c,wcd$1200by H Ardup and$850by Tony

122 Bad debts recovered
Brokc Both of tbcsc dcbtors havc bccomc bankrupt
on1Novelnbcr2010and arc unab1c to pay dlcir A dcbt dlat has bccn wottcn oftˉ as bad may be
dcbts samuel wrltes thc dcbts off as bad rcco~℃ rcd at a la∞ r dattˉ if dlc dcbtor bccomcs able to

J。 tlrnal cntrles∶ pay Thc dcbt rnust bc rccordcd oncc lllorc On the
salcs lcdgcr account by a iournal cn让 y Thc dcbtor、
2010 $ $ account xs,m bc dcbltcd alld a Bad Debts RtScovcrCd
Nov1 Bad Dcbts accclunt 1zOo account crcdltcd xx,lth thc amount rcco、 ℃rcd Thc
H Ardllp 1200
H.qrdtlP has bCc° mc bⅡ kuptand unabk to p呷 amc,unt duc
amount recelved frolll the dcbtor tnay thcn bc
N∝ 1 Bad Dcbts account 850 credltcd to his acc° unt and debited in dlc cash book
Tony Br° kc 850
TBェ okc has bccomc bankFupt and unable to pay afnt,unt duc Example
On6January2011,Tony Broke had sufflcicnt funds
salcs lcdgcr accounts: to cnablc luin to pay samucl and scntlin】 a ohequc
允r$850
H.kdup
J° urnal cntry
2010 $ 2010 $
Nov1 Balancc b/d 1200 Nclv1 Bad Dcb‘ 1200
$∞

2011

Tony Broke
Jan6 △洫y Btokc
Bad Dcbts RccoⅥ yed
$汕

$锄

ˉ An am° u且 t of$850tccαvcd ftom Tony Brokc T“ s dcbt was

~

2010 Ia1o
Nov1Bad Dcbt$ ptc△ lously wtl仗 cn off a$a bad dcbt on1Nov¤ mbci2010
一

Nov1 Balancc b/d

 On8Janu唧 2o11,samucl rccclvCd a Chcquc for 124 HOW to Create and maintain a
$300bcing a dlx・ldcnd lor part p绅 】
.lcno of25%° f provis∶ on for doubtfuI debts
H ^吐 dup、 dcbt,
Journal cntrr
WhCn” C pr。 说son^丘 俗t creatcd,dcbit由 c
Incomc statcmcnt and crcdlt a Pr° v△ sion for

$
$∞
2011
Doubtful Dcbts account柄 △th thc fuⅡ amount of
Jan8 H斑 dup

∞
Bad Dcb锈 Rccovcred thc prov1sion,
ssOO tcccwcd h respect of a dlxidend of⒛ %of H Ardup、 dcbt In thc ycars that foⅡ o、 亏thc cntncs in the accounts
of$12tKl,whch、 汔s v rltcn off as a bad dcbt on1Novtmbcr wⅡ odybc仍 r incrcascs or dccrcascs in曲 e amounts
2uD1o
rcq呲 cd for thc prosision:
salcs lcdgcr accounts: DcbIt the Inc。 mc statcmcnt and crcdlt thc ProvIsIOn lot
DoubtfiJ Debts咖 伍 illcrcascs in thc Provision
H.hdup Dcblt山 c prox,ision%rD。 ubtuJ Dcbts and crcdlt thc Inc。 mc
$跏
2010 $ 2010 statcmcnt・ lth decreases in thc proˇ 】
sion
~蛐
t△

Nov1 Balancc b/d 1200 Nov1 Bad Debts

2011 2011 The PⅡ °
ˇ1“ on for Doubtful Debtsis doductcd from
一
Jan8 Bad Dcb灬 Jan8 Bank ttadc rccclx/ables h伍 e statcmcnt of Fhanoal P° ⒍uon,
Rccα crcd 300
Example
%oy Broke Thc± oⅡ oxxing hbrmaoon“ 'cxtractcd± romJonall、
2010 $ 2010 $ accounts,
Nov1 Balance b/d 850
ˉ
Nov1 Bad Dcbts 850 Total of au rcccl.・ ablCs Doubtlul dcbts
2011 2011 _ $ $
Jan6 Bad Dcbts Jan6 Bank 塑
ˉ
ˉˉ At31Dcccn△bcr;2008 12000 900
Rccα crcd 850 2009 14000 1100
2010 10t llO 800
Gcncrallcdgcr accounts:
Jonah had n° t prcvious圩 madc a proxˉ lsion for
Bad Dcb悔 Rect9vered doubtful dcbts,Thc fo⒒ owing cnt口 cs・ lⅡ be madein ,△

2011 $ 2011 $ hs accounts,

Jan6 To呷 Brokc sso Incomc s:atement【extBα g,
8 H Ardup 300 fot thc ycar cnded31Decembet
The balancc° n Bad Dcbts Rccovcrcd account、 l Dcbit C± cdit
`Ⅱ
be crc山 tcd t° thc Incomc statcmcnt $ $
2008pt° 、
isIon foェ Doubtful Deb岱 900
somcom∞ ,od,・ thc d【 ∏orcncc beb″ een the 2009Pto访 slon for Doubt白 i Dcbts 2llll
balanccs° n c Bad Dcbts account and the Bad
tl△ 2010Ptov△ sion for D。 ubtful Dcbts 300
Dcbts Rccovcrcd account x△ i△ be1nchdcd i△ thc
Inc° mc statcmcnt 助⒀吐
妯n fot Doubtf△ d Debtg【J yeatg endcd
si Dcccmbct2008/9llll9/20IO)
$焖

123 Provisions for doubtfuI debts 2008 2008 $

~硎 ~~

Dec31Balancc c/d Dcc31Incomc st/atemcnt 900

~uth。Llgh a dcbt m幺 y nc,t acoJ钊 圩 has’ C bCcomc bad, 2009 2009
thcrc mal bc doubtas tO w・ hethcr止 w诅 bc p蔚d;it may
Dcc31B讪 mcc c/d Jan1 Balancc b/d 900
Dcc31Inc。 mc statcmcnt 200
mm° cnmall to be a bad dcbt R Modd bc
⑾伽

Llt cs。
1100
an灬 sct h thc
nuslcamg to hcludc tllat dcbt灬 2010 ⒉a1o
汹~一

statcmcilt茳 № 猁 血 Posluon prctcndmg由 狂the D∝ 31 Inc。 mc statcmcnt Jan1 B宓 ancc b/d 1100
Balance c/d
atnotmt o not h doub△ 0n证 o伍cr hand,shce止 has
唧

1100
n° t rtbCc° mcb碱 i硒°dd be wr° ng ko xsntc丘 o篮 A 2011
proxislon。 madcto coˇ er山 at and° thcr dollb嗣 dcbt⒍ Jan1 Balancc b/d 800
 Jonah’ s statcmcnt ρF F“ anciat p。 sidon at calculatcd,In thc abovc cxample:
31Dccembcr【 cxtractΦ lcohmn(al~c° lumn oll× 4%=colutlln“ )
$ $ ● Never rctcr to a Prov1sion for Bad dcbts,Bad
2008Ttadc rccelvablcs 12tlllo ・
debts arc ncvcr providcd for;thcy should als△ avs
I css Pェ o访 slon for Doubt钆 l Dcb‘ 900 11100 bc Wri仗 en offas soon as they becomc bad,
2aO9Trade reccll,abIcs 14000
Lcss Pro△ -lslon fot Doubtful Debts 1100 12900
Exercise1
201011adc t∝ cix・ablcs 10000
Less provIsion for Dt,△ lbtftll Dcbts 800 9200 Saul rna【 ntains a provision for doubtful dcbts in hs
books,Itis rnadc up of a spco￡ t proⅥ sion for
doubtld debts and a gcncral pro说 sion cqual to5⒐ s
125HoVV to CaICuIate the amount of tbc rcmalndc⒈ Thc foⅡ °、
of a provision for doubtfuI ^ng informauon is
cxtractcd lrom Satl、 books
debts
At31March Total tradc Doubtllll dcbts◇ nchded lil
Thc calctJa刂 on of a proˇ △
sion for doubt± tll dcbts ・
ables
rcccl△ total tradc rccci、
`able9
dcpcnds upon thc0pC° f pro,・ islon rcql【 lrcd Thcrc $ $
arc three klnds of proˇ △
son: 2007 27000 4000
2008 33900 6400
● spcciflc 2009 30000 7500
● gcncral 2010 28000 3000
・
● spcciflc and gcncral 2011 36700 8300

speci丘 c Ccrt/ajn dcbts are selcctcd nom伍 c szales

lcdger as doubtflll Thc prox「lslon wⅢ bc cqu狃 to the

Requhed
t° ta1° f thosc dcbts
(Φ CalcLj・ atc thc tot狃 pr∞ i⒍ on for doubtftll debts

General Thc pro,・ lsion1s calctJatcd as a

±
or cach of thc abovc years
o)Preparc曲 c Ptox・ lsion lor D° Llbt血 l Dcb“
pcrccntage of thc total tladc rcccls,ables Thc
accotlnt for ca山 of山 c rars・ αsstlmc that
aVcragc pcrcentagc of dcbts by amount that provc to
Saul had notrnadc a prov】 sion± or d° ubtful
bc bad is usuaⅡ y takcn for this purposc,
speci丘 c and genet缸 Thc prost“ onis madc up dcb岱 bcfore31March2007)
of伍 c dcbts伍at are dloughtto bc doubtm plus a
pcrccntagc of tlic remalndcr
126HOW to adjust a trial balanCe
for bad and doubtful debts
Example
Thc adjusmcnts to a tJcial balancc br bad么 111d
b mamu讪ns a spcclflc and gcnσ al pro、i⒍ on br
J°
doubtful dcbts arc dcmonstrated in山 c fo⒒ ow1ng
doubtfti dcbts Thc general proˇ △ “on is bascd on4Vo
cxainplc
of tradc rcccⅡ 么blcs aftcr deduc0ng doubtfLll dcbts
Example
廴 %tal Doubtm h巅 砧 n %tal At⒒ aI balancc includes:Tradc rcccivablcs$40650
s1Decembct ⅡcclvablCs dcb‘ spcdac Gcncral
⑷ Φ) lcl αncludlng$400whlch atc bad dcbts),and a
$ $ $ $ $ Proxision tor Doubtfd Dcbts of$1900A pr° 钪sion
2007 310llll 450o 4500 1060 5560 of8%o to bc madc br doubt± Lll dcb“ lThC
2008 37lXlO 5000 5000 1280 6280 adlustmcnⅡ are shown in=钅 ￠访￠
s.)

2009 34200 3700 3700 1220 4920

2010 35600 4090 0090 1262 5352 Tml balancc
$ $
Notc Tnde reccl△ ablcs 40650-彳 tlo
′
● speo丘 c proˇ △
sions must bc deductcd from B''汤 D/J '00
Pto访 sion foE DoubtIill Dcbts `32@ 1900+`乡 ⒛
trade receivablcs bcforc伍 c gcneral pro呐 sion is
 step1Dcduct山 c bad debts,$4o0,ftom Trade foⅡ oxxmg accoun娅 1g conccp“
recclvab1cs,Inscrt‘ Bad dcbts400’ as a ncw dcbit
ba1ancc;this w1Ⅱ be dcbitcd in伍 c Inc° mc Prudcnce,Amounts expcctcd t° bc rcccⅣ ed
statcmcnt from tradc rcccls’ ablCs should not bc Ovcrstatcd in
step2 Calculatc thc ncw proˇ △sion for d° ubtful Statcment° f Fhancial Posijon Thc Inc° mc
dcbts and dcductthc pr° 说sion brougllt± om,ara statcmcnt should pr° vidc f° r the l° ss ofrcvcnuc and
$e0650-4ool× 8%_$1900=$1320Add thc not ovcrstatc pro丘 t
result t° b° th sidcs of the¤ oal balancc

l江 atchng Thc possiblc l° ss° f rcvenue should bc

127 Provisions for doubtful debts providcd f° r in由 c pcood in whch thc revenuc was
and the concepts Car且 Cd,notin a latcr pcⅡ °d、
`hcn thc debt bccomcs
A provisi° n tor d° ubt丘 ⒒dcbts compⅡ cs、 bad
^th thc

● Read questions oarefully and rnake sure you kn° w exaot|y whaty° u are required to do
● Make sure you ca|oulate doubfu丨 debt provisi° ns on trade receiVabIes a△ er you haVe deduded any bad debts
● Dθ bit an increase,but credit a decrease,in a provision to the Incolη e Statement
● Be sure to oomplete the douue entry for eaoh adjustmθ nt
● show your workings vvⅡ h your answer
● T℃ k the adlustments on the question pape【 This WⅢ ensure you do not oveHookthem
● Dedud the new balance on the Prov sion for DoubfuI Debts aocountfrom the trade receivab丨 es in the slatement
of FinanCial Position

1. Kap"has decided to maintain a ProVision for Which perCentage was used to caIOuIate the
DOubtlu|Debts ProVision for DOubfu丨 Debts at31March2011?
Which ofthe fo"owing c° ncepts shou|d he apply A68 B7 C 925 D 95
ln his aocounts? 3, At31 Deoember2009a business had a ProV sion
1 going° °ncern 2 matohing for Doubful Debts of$1200At31Decembθ r2010
3 prudence 4real心 aton △he provison Was adlusted to$900
B 1and4 HOW did this a矸 eCt the final accounts?
^C 2and3
1and3 D2and4
The foⅡ owing informaton is avaⅡ ab|e about a Net ρrof∶ t Net trade reco1VabIes
businθ ss
B dθ crease by$3oo increase by$30o
$ `decreaso by ssOO decrease by sBOo
C tncrease by$3oo decrease by$8oo
Provision for Doubful Debts at D Increase by$300 inorease by$300
1Ap"12o1o 1100
Trade reoeivables at 4, Before any end-ofˉyear adlustments had bθ en
31March2011 made,the trial balanoe of a business at31 May
24800
Bad debtinoluded in trade“ xx萌 VabIes
2011 incIuded the foⅡ owing
at31March20ii 600 DebⅡ Credit
Charge to h∞ mθ statementfor $ $
bad and doubfuI debts,inoluding Trade recelVables 134∞
bad debt of$600 ProVlsion for DOubful Debts sOo
 At31^田 ay2o11 it was found thattrade receiVables What、 Ⅳasthe e仟 eCt ofthesθ events on the Income
incIuded a bad debt of$650 "was decided to Statementforthe year ended31May2011
adjustthe ProVsion for DoubfuI Debts to4%of A Deb"$384 B Debk$410
trade reoeivables A debt of$420,whioh had been C Cred"$'‘ 30 D Cred"$456
WH廿en off as bad in January2010vˇ as reCovered in
January2011

1.DaVid’ st"al balance at31Maroh2011、 vas as Prov sion for Doubful Debts BOo
fOIIoWs∶
Trade payables 72∞
Drawings 20446
Account $ $ CapⅡ al 50000
sales 210000 285692 285692
sales Returns 9240
Purohases B0∞ o
Fu"her∶
Purchases Returns 5112 "formation
1 Inventory at31March201⒈ $5000
VVages 夕 000
2 saIes inc|ude g° ods sent on saIe orreturn to a
Rent 7sCX,
customer who has not yetindicated aoceptance
EledricⅡ y 1α 7
gOo ofthe goods The goods cost$3000and the
Telephone
Customer has been invoiced for$4000
POstage and stationθ ry 359
3 Trade rece Vables indudes debts totaⅡ ng$1700
CarHage inwards 1840
V̌hiCh are knoˇ vnto be bad The Prov sion for
Carriage oumards 1220 Doubful Debtsis to be a四 usted to indude a
D⒗ counts AI丨 owed 6015 speoⅡ ic prov sion of$3100and a general
DisCounts ReCe ved 2480 prov sion of5%
LOasehoId Premises at cost ⒛ ∞o
4 The follow ng eXpenses are to be accrlled∶ Wages
ProV sion for Depreoiatbn
$400,eIectricity$360and teIephones$100
of Leasehold Prem⒗ es 5000 5 Rent of$1600has been prepaid
Delivery Vans at oost 180∞
6 Depreciau° n is to be provided on the foⅡ oVVing
ProV son for Depreoaton
bases∶ Ieasehold premises at598stra ght"ne:
of Delivθ ry Vans 3600 de"very vans at25° /。 reduCihg balance;o仟 ice
offioe Furn"ure at cost 3000 furniture at10%straight Ⅱne
ProVision for Deprecia刂 on
of O矸 ioe Funnituro 15∞ RequIred
(al Prepare Davd’ s Income Statementforthe year
lnventory 4000
ended31 March2011
Bank 12犸
(lDl Prepare the statement of Financial Pos"ion at
Trade receivables 19sOo
31March2011
2,sauIis a trader and his trial baIance at31 May CarHage inWards 4240
2011Was as folbWs: Car"agθ ouMards 1819
Inventoγ 40000
Account $ Drawings 28797
FreehoId Prope^y at oost 180000 Capital 200000
Pro⒒ son for Deprec atbn 1038994 1038994
of Freθ hold Prope”
Plant and Machinθ ry at cost 97000
Further infofmation
ProVision for Deprθ ciation
1 1nventory at31 May2011oost$58000
of Plant and MaChinery
2 Depreo ation is to be cacuIated as follows∶ freehold
Motor Vehio|es at cost 41000
propθ Ⅱ/at4%per annum,stra ght Ⅱ
ne;ρlant and
P“ 》osionfor Depredaton
machinΘ ry at15%per annum;mdorVeholes at
of MOtor Vehides 27000
30%per annum on thθ red∝ 炯g balanoθ
Tradθ receⅣ ables
3 Inc{uded in trade reoeiVabIes is a bad debt of
ProV sion for Doubπ uI Debts 1200
$1800∶ the provis|on for doubfu{debts is to be
Tradθ payables 5720
5°/。 oftrade rece丨 vables
Bank 11374
4 $400、 ˇ
as o、 Ving for hea】 ing and"ghting,and
sales 700000
$220for statonefy The inVentoγ of unused
sales Retums 6670
stationery at31May20ii had cost$450
Purchase 410890
5 Rent paid in adVancθ Was$2oo0;rent recθ iVable
PurChases Returns 3112
was owhg m the sum of$280
Wages 137652
6 sauI had taken goods for his ovVn usθ Thθ
Rent Payable 10000
goods had oost$2400 NO entries forthis had
Rent ReceVab|e 1020
been madein the books
Hθ aⅡ ng and Light ng 4720
TeIθ phonθ and POstage 3217
RequIred
stationery 6195
⑶ Preparo sau℃ lncome statementlorthe year
Reρ a rs to Maohinery 176∞
ended31 May2011
Disoounts Al丨 oWed 3220
⑹ Prepare the statement of FinanohI PosⅢ on at
DisCounts Recelved
31May2011
 Bank reconc∶ l∶ at∶ on statements

● what a bank reconc"iation statementis

● how to ensure thatthe bank balancein the cash book equa1s the correct ba丨 ance ofcash at bank
● hoW to adlust a t"al baIancθ aftθ rthe cash book has been reooncⅡ ed to the bank statement

131 Whatis a bank reconci丨 iat;on
statement?
A bank rcconcⅢ at1on statemcnt shows thc c°
b/alancc° n a bank accc|unt The balancc on thc bank
accountin a cash book may not agrcc x△ ・
ith thc
balancc on d△ c bank statcment at any par刂 cdar datc,
Ths m饵 bc bccausc of
● onung diffcrcnccs lthC dClay bcbvccn itcms
bcnag entered in thc cash book and伍 clr cntrsT
on伍 c bank statemcn9
● ltcms on thc bank statcmcnt that havc n° t bccn
cntcrcd j∶ 1the cash book(tor cxamplc,bank
t∶
XXlhcn the balanccsin thc cash book and bank
statcmcnt do not agree,the co± rect balancc tnust bc
found by prcparn△ g a bank reconcJJa刂 on statcmcnt
rrcct
13￡ HOw to prepare a bank
reconciliation statement
FoⅡ °、
`these thrcc stcps
1 Compare the en碰 esin thc cash book、 注th thc
ba丘 k statemeΩ ts Tick items that appcarin bodl
thc cash book历 侈dthc bank statcment Be surc to
ock thcm i1bod△ placcs
2Entcr h thc cash book anyitcms th狨 rcmaln
un乜 Ckcd in thc bank statcmcnt Thcn tlck thosc

ohargcs and htcrest,dlrect deblts and od△ cr

in bod1placcs,Calclllatc thc n邻 Ⅴ cash book
itcm⒐
balancc
3 Prepare thc rcconciⅡ ajon s忱 tcmcnt Bcgm w1伍
Notc A bank statcmcntis a copy of a customc± 、
d△ c丘nal balancc sho″ n on由 c banlc st/atcmcnt
accountin thc books of a bank Conscqucndy items
and ad"蛀 扭for any ltems dlat rcm洫 un刂 次cd
debited in thc customcr、 o、
`n cash book appear as in thc cash book The resLit should cqu狨 thc
credlts in thc bank statcmcnt,and itcms crcdltcd in
b狃 ancc in thc cash b° °k,
dle cash book arc dcbitcd in山 c bank statcmcnt,A
Thc cash book balancc xxm no、 v bc thc corrcct
debit balancc in山 c cash book环 注Ⅱappcar as a crcdlt
balancc of cash at bank
balance in the bank statcmcnt If a bank acc° unt is
n,the customcr owcs thc bank m°
overdra、厂 ncy,Thc ExampIe1
bank is n° 、 ARcr队 cp1h灬 bccn c° mplctcd,AJ Bclstr。 dc愆 c灬 h
`a credltor rcprcscntcd by a crcdt balancc
in dic cash boo圮 the customeris thc bank、 dcbtor b° °k and bank statcmcnt appcar as f° Ⅱo、vs at
and is shoM n as a dcbit balance° n曲 e bank 31Mar山 ⒛11,㈧ otc伍 citcms wh山 h锕c bccn
statcmcnt ockcd)
 ω侣”
//
ο
Cash book 15 Cash bankcd 151026晒饨β +00'

ο
Bank“ ccount 20 T Baggc 281027A Capc 120

4
31 TC钛 e 29 1028E Goodc 96
2011 $ 2011 Cheque No $
31 1029H 0pc 300
Mar1B狃 ancc brougllt Mar8 1021⒉ EIcctncltv 300/
31 Balancc c/d 598
fo3〃 ard 1250 10 1023hagcs 600/
3774 3774
7 Cash bankcd 700/ 11 1024Rcilt 400/
12P XX/tttc 200/ 14 1025T Bonc 9⒛ / AprJ1Balal△ cc b/d 598

Bank θtntemcnt
THE REDI,YPAY BANK
Accoun△ AJ BClstrodc
卜Ⅰoncy out oncy in
$ `Ι $ $
M岫 1 B址 ance brotlgltt fo钾 ard 1250Ci
7 PaId itl 700/ 1950Cr
10 Patd by chcquc1023 600/ 1350Cr
11 pald b7chcquc10zz 300/ 1050Cr
12 Pald血 200/ 1250Cr
14 DIrcct dcb,t∶ I Talkc址 227 1023Ci
15 Patd in 600/ 1623Cr
锕 ⑽ 叻
///

Patd by cllcquc1026 1183Cr

6 pald by cheque1024 783G
PnId by cllcquc1025 137Cr
20 Pald in 430/ 293Cr
25 Bank Giro crcdlt-Invcst dlv1dcnd 200 493Cr
°‘

31 Banl【 chmgcs 381Cr

step2,Thc unuckcd itcms⊥ n thc bank statcmcnt Baik feconcⅡadon statemcnt at31Matoh9⒑ 11
are entcrcd in thc cash book and uckcd

$猢
$

铆_哪
B狨 ancc pcr bank statement
Caθ h book 胴 d∶ Itcm not crcditcd in bank statcmcnt
Bank aocount
2011 2010 $
Dcduct chcqucs nclt prcscntcd: 1027 120
ancc b/d 598 M盯 14D/d I Tajkclt 227/ 1028
1029
96
300
弼~一
'"pr1B扭
Mat25Invcst-dl△ ldcnd200/ Ⅳ呔 31Bail1● chargcs 112/
一

B囡 血nce pcr cash b° ok

朋一

sIar31Balancc c/d 459

栩

798
Thc correct bank balancc,$459,has bccn
Apol1 Balance b/d
calculated and,if a statcmcnt of Financial PosIuon
at31March2011厶 prcparcd,$459wⅡ bethc
Note Do notre△ Ⅳr1te山 c ss/h° lc cash book t°
alnountinCludcd in it as thc bank balancc
cntcr t11c new1tems,
step3A bahk rcconriⅡ 9o° n statctncnt is p± cparcd ExampIe2
commencmg、 伍c bank st/atcmcnt balancc M/hch At30Junc2o11EⅡ za’ s bank statement sho、 泠a
^d△
h adjustcd for伍 c itcms rcma-g uno抵 d in伍 e balance at bank of$1000,Whcn EⅡ za chcd灬 hcr
cash book, cash book shc丘 nds thc foⅡ oMing:
 ●A paγ 咂cnt of$200int° thc bank on30Junc Exercise1
docs no七 appcarin thc bank statcment Thc balance on a bank st・ atcmcnt at31Janua呷 2011
●Chcqucs totall● ng$325scntto customers on w灬 $1220Crcdlt Thc fo△ owmg止 ems h挝 bccn
29JunC d° n° t appear h thc bank statement cntcrcd in the cash book hJa泅 扭呷but dld not
●Thc bank statcmcnt sho、 vs that Elza、 account appcar on tl△ e bank statcmcnts:
has been dcbltcd、 江 th bank chargcs of$40 ll) am° unt paid into thc bank$300
Thcsc h灬 厂e not bccn rccorded in thc cash book ⑾ chCqucs scnt to customcrs$10H5
Required RequLed
⑶ PrCparc EⅡ za、 bank rcconcⅡ auon狨 ~sOJunc Calculatc伍 c cash b° °
k balancc at31January2011
2011,
Exerclse2
⑴ Calculatc E⒒ za、 cash book balance at30Junc
2011bcforc lt was corrcctcd Thc bank balancc h a cash book at31Jdy2011was
$310ldCbiD ThC foⅡ o、 注 ng itcms did not appear h
Answer 山e bank statcmcnt at that date:
Θ chequcstotaMg$1340whch had bccn p砬 d
⑷ Bat・ k jie∞ n扯砬on statcmcnt at30JLlllC2011
into thc bank on31Jdy2011
$
Balancc pcr b砥 s嗷 cmcIlt 1000 ⑾ clleqLlCs scnt to customcⅡ h加虹 totakg
Add atnount paid in not cj÷ cdltcd 2ao $490
1200
Dcduct chcqucs n。 t prcscntcd 325 Rcquhcd
875
Balancc at30Julle2011 Calculate dhe bank statcmcnt balance at3】 Jdy
lb) Cash b° ok balancc bcfotc cotrccdon 2011,
Cm∝ t balancc at bank at∞ Junc⒛ 11 875
Add bank chargcs not dcbitcd血 cash book 0o ExercIse3
犰 h book balancc bcfoェ c近 was CorrcCtcd 915
At31ˇ1aroh2011a cash book sho、
`ed a balancc of
$80at bank,On山 c satnc datc thc bank st/atcmcnt
133 Uses of bank recOncⅡ iation balancc was$650lcredltl Whcn伍 c cash book qras
statement comparcd、 the bank statctncnt thc± o△ oMmg珈 ℃rc
^d△
found:
● Thcy r四 cal伍 c correct amount ofthc cash at
bank W1thout a rccono山 aoon,thc cash book and Θa chCquc scntto a$uppⅡ cr fot$1000had not
bccn prcscntcd fo± payrncnt
b碰 吱atcmcnt bal/anccs m⒓ 15`be mislca山 培
lnl a chCquc for sz⒛ pald hto thc bank腕 d not
● Thcy cnsurc that thc corrcct bank b岔 lancc is
been crcdltcd on thc bank statcmcnt
shown h the Statcmcnt of Finano亦 Po“ jon
lml bank chargcs of$210were o血 ttcd fr° m伍 e
● Thcy arc an imp° rtant systcn1of contro⒈
cash book
● utmtcnded ovcrdravlng on the bank account
can bc a、 qo1dcd Req血 cd
● a surphs of cash/at bank can bc hghLghtcd and ⑶ Calculatc thc correctcd cash book b・alance at
mvcstcd to earn】 ntcrcst 31March2011
●if rcc° nc伍aoons are prcpatcd rc⒏ △ar坑 errors ⑴ PrCparc a bank rc∞ ncⅡaoon statcmcnt at
arc dlscov∝ Cd earl,, 31Δ 压arch2011,
● if伍c tcconcJiaoon o prepa止 Cd by somcbody
othcr than thc cashcr,dle五 sk of ftaud or ExercIse4
cmbezzlemcnt of fLlnds is rcduccd Ths dislsion Thc foⅡ o、 沌ng b衬 狙 ccs wcre extractcd ftom伍 e勹oal
of duJcs is ca△ cd internal check balance of a busincss at31Decembcr2010
 $∞
$ $
Tradc rccoγ 么u邰 1055 Pa” Cnt

3423
to a suppⅡ cr b,・ drcct dcbt

⒛ο
Tradc pay哆 blcs 976 Λm。 unt tcccl△・cd from a customcr by bank glro

ο⒛
Rcnt 800 Rent pald by standing otdcェ
Bank 1245 Customct、 chcquc rcturned,dishon° urcd

XX hcn伍 c bank statemcnt for Dcccmbcr1,las RequiFed

rccchcd it was(Ⅱ sc° vcrcd that thc foⅡ o・,x,ng itcms Prcpare伍 c adlustcd tJiial balat,cc to hdudc thc
had n° t bccn entcrcd in thc cash book itcms omt仗 cd丘 om thc cash b° °k

● Rememberthe three steρ s required to reconcⅡ e a bank account

● NOte carefuⅡ y rthe balances given forthe cash book or bank statement are overdrans
● Complete thθ doubIe entry for a"itθ ms entered in the cash book Arnend the othor baIances in the trial baIance
● shoˇˇbank oVθ rdrafts as current ⅡabⅡ ties in statements of Finanoial P° sition,nover as ourrent assθ ts

—
At30Ap"I2o11the balance in X’ s cash book、 Vas (i0 a cheque for$1015sentto a suρ pⅡ er had not
$1740 Atthe samθ date the balance on his bank been presented for payment
statement was$2240 Compa冖 son ofthe cash ("i) a cheque for$600paid into the bank had not
book and bank statθ ment showed the fo"owing∶ been oredited in the bank statemθ nt
(i) a dividend,$200,oredited to X in the bank What was the cash book balance at31 May2011
statemθ nt had not been entered in the cash A$1455 B $20ss C $2285 D$2885
book 4. A bank statement at31January2011showed a
C0cheques tota"hg ssOO sentto suppⅡ ers in ApHl balance of$1000D∴ Thθ foⅡ owing did not appear
had not been entered in the bank statemθ nt on the statemen⒈
VVhich arrlount should bθ shoWn in the statement 巾)cheques not presented for payment,$230
of FinanCial Position at30AprⅡ 2o11? (O a cheque for“ ∞ banked on31January2o"
A$1C彳o B $1z0O C$1g啐 O D$2240 (i") bank charges of$200had not been entered in
2. A cash book balance at31October2010was the cash book
$1600 When the bank statθ ment was reoeived tho VVhat Was the original balance in the cash book at
foⅡ oWing were d泠 0overed 31Januaγ 2011before it was amended?
(∶
) a oheque for$425sθ ntto a supp"erhad been A$630Cr B$ssO Dr
entered in the cash book as$452 C$970Cr D$970Dr
(Ⅱ
) a cheque for$375sentto a suppⅡ er had not A bank statement showed an overdran of$360at
been presentθ d for payment 31Ju|y2011 The fo"owing discoveries were
(Ⅱ i) a chequθ for$400paid into the bank had not made∶
been cred"ed in the bank statement (i) chθ ques totaⅡ ing$2100banked in July had
What was the baIance on thθ bank statement at not been cred"θ d in the bank statement
310dober201o? (◆ 。
heques draWn for$875in thθ cash bookin
A$1548 B $1575 C $1602 D$1652 Ju|y had not been entered on the bank
3. Y’ s bank statement showed a Credit ba丨 ance of statθ ment
$2170at31May2o11 An eXanη ina刂 on ofthe VVhat Was the balanoe in thθ cash book at31July
statement showed the fo"owing∶ 2011?
(i) a direot debit for$300had been debited twice A$865Cr 日 $865Dr
in the bank s隹 ⒋θment C$1585Cr D$1585Dr
1.The fo"owing balances have been extracted from a $
trial baIance at30June2011 Bank interest recelvabIe crodⅡ θd to
aocount 10
%nk Charges 130
standing order paymentto supp"er zgB
Amount reCeived from customer by
direct debit 78
Rent receiVed by bank glro 1so
RequIred
A】 erthe preparation ofthe tⅡ al baIanoe a bank Prepare an amended tⅡ 创 balancθ θxtract at
statement、 ψas reoeived and reVθ aled thatthe 30June2011to take aoCount ofthe amounts not
fo"oWing had not been entered in the cash book entered in the cash book
 ControI accounts

● what Contro丨 a∞ ounts aFe βndhow to ρrepare thθ m

● hoW to re∞ ncilθ ContrOI a∞ ounts ahd ledgers
● hoW to CalCuIate reVised net profit perdratacCounts aRerthe Control and ledger accounts havθ been reconcⅡ ed
● hoW to reVise the current assets and currentIlabⅡ ion.
"ies in a drat statement of FlnanoaI PosⅡ

141 What is a Control account? account山 cc际 the ao由mcocal accurac9of a血 呜k

A Contrd account c° nu讧 ns the totals° f aⅡ p° songs
madc to山 c accounts h a parocular lcdger
Control acc° unts are usuaⅡ y mam切 oncd for thc
sa始 s and purchasc kdgcrs,The totaIs arc thc pc西
totals of mc b。。ks of pomc cntry from whch
posm箩 arc madc to伍 c kdg∝
Thc balance° n a Contr° l account should cqual thc
total° f Jlc balanccs h血 lcdgcr⒒ controls Bccausc
山c cn缸 es in thc C° n钌 ol aCC° unts arc thc tota1s of
thc bo° ks° f prnnc cn饪 y thcy are als° knovn as Total
accounts,Con廿 0l(or Totdl acc° u砒 s arc kcpt h thc
nomln尉 lor gCncrall lcdgCr
Just灬 a trlal balancc ac“ as a check on thc
arl伍 mc吱 狃 accuraq of o//山 c lcdgcrs,a Cc,n“ d balanccs on thc a∝ °un“
lcdgc⒈ A dl± ±
crence bch・ ccn a Contrd acco1nt
b狃 ancc and伍 et° tal of thc b屮 nc6h thC kdg∝ k
controls sh° ws M・ hCrC a causc of a dffcrcncc° na
t1∶ i么 11balance may bc found 蚰 y cⅡ ffcrcncc bc嘟 Ocn
odc unt and伍 c total of thc balanccs in
thc C° ntrol acc°
thc kdgcr m灬 t bc found咖 伍°ut dcl铞 Thc s挝 cs
kdgcr Con廿 d aC∞ unt厶 dso knOMn灬 thc Debtors’
or Trade Rcccls/ablcs Contr° l accom1t,and the
Purchasc Lcdgcr Control account“ also knclMn as伍 c
Credltors’ or Trade P匆 泗blcs c° n订 0l aCC° unt,
The foloMing examplcs sh° w how postln爹 arc
madc fr° m the b° °ks of prlmc cn也 γt° d,c lcdgcrs
and伍 c Contr° l acc° un、 and how thc b・alanccs° n
thc Control acc° unts sh° uId equal thc t° tals° f thc
h山 e lcdgcrs.

142 The purChase Iedger and its

ContrOI account
Bo°ks of pⅡ “F en“ y
ˉ
「百届五瓦乐石而 l
臣
瓦展】晶瓦而品
叫 Cash book
$8∞
旭

$
PQⅫ

100
PQⅫ

50
两 〓

240
390
ˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉˉ J L~ˉ ˉˉ ˉˉ ˉˉˉˉ ˉˉ ˉˉ ˉˉ ˉ J
 PWchnse ledge‘ 143 HoW to prepare a Purchase
AB
Ledger Control account

$⒛

$伽
Entcr ltcms in thc C° ntrol account as foⅡ ows:

胪~一
Cash book Purchascs

一
⑾
Balancc c/d

一
伽

⒛
Dcut side Cte山 ts1de
Balance b/d %tal of plrcllasc kdgcr dcblt Balancc cln thc account brought
b扭anccs llf ans,l brought forward fom,ard flom thc/Ⅱ 1ous
PQ lrom thc""0as pcood pcrlod

$∞
$ Total of goods tcmrncd to To饧 lof p"cllascs on crcdlt
Purchascs rcturns 8 hdhascs κttlrns
supphcrs lftom purchascs lfrom p讧 山Ⅱcs louinaJ)
Cash book 40 jclLlr⑾
Bmilce c/d 2职

_∞
〓2
50 Total° f cash pald to suppⅡ c灬 Rc6△ nds ftom sllpplcrs lfrom
B祉 ancc b/d (各 om cash b° okl cash boo→

XY Cash dlscounts tc∝ wcd c∞ m I】 ltcrcst chargcd b,铷 ppⅡ crs

dlscount colunlil lil cash b0o⑸ on o△ ctdllc mⅥ ,ccs(iom
$ $ P"山 asCs loutnall
Purohascsェ cmrns 10 P、 吐dlascs 240
Cash book 2ao 叱 山 ase kdger b艋 nces sct %tal of dcbIt b缸 anccs σ勿
n力

cc c/d agamst balance h s址 es ledget

_⒛

at cnd of pcriod iil purchasc

Balat△ 」0本
m lown⒆ 忆dger,catj÷ led fomatd
~⒛

240 lfr°

b/d B狨 ancc carncd fo1o・ ard(to agtec

ˉ total° f crcdlt balanccs h
X△ ltl△

N咖 血 a【 Cgene。 ⒆ ledgCr
purchascs lcdgctl
Purcha⒃ 】
∶Ⅱ:dgcr Con迁 o1acct,utlt
$驷

$ Notc Dcbit balanccs h thc purchasc lcdgcr must

p岫 灬cs rcurns iourna118 Purchascs jo"nal ″饣
″
Cash bo。 k 320 'bc ncttcd agamst ldCductcd ftoml thc crcdt
_驷

balanccs
BaIancc c/d 52冰 = 汴20+2+30
一
9

390
b/d +Watmqr° nlv crcdlt purcllases are cntetcd h由 c Purchasc
木
Balanclng flgurc Lcdgct Conool acc。 unt Do notcntcr cash p"chascs h it

144 The saIes Iedger and its

ContrOI account

Books of pⅡ me entry
ˉˉˉ
面汛
「 石 晶面 l 飞屁品岳石珏币元瓦aˉ 1
$ $ $
Ba△ 300 B碰 180
∞ ⑷ _~
疝
BP

Carla 520 Cada 480

au
a

Paula 140 Paula 100

ω

960 760
L~ˉ ˉˉˉ冖ˉˉˉˉˉˉˉˉ— 」 L~ˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉˉ ˉ J
 s

爹
CgB
1caˉ

Ju
.a.
Deb缶 茹de Ctc诬 t欲 证

・
1
Bad debts prc访 oⅡ 灯 w・ ttCn o砥 salCs lCdgcr balailccs sct缙 ⒒ 蜮

$猢

$∞
now tcCCVcrcd Cclurn⒆ b址
anccs h p四 rchasc ledger

⑻邪_一
Salcs salcs tcttlrns 0o・ rll⒆

~蛐 Cash book %t祉 of crcdlt balallccs σ ailyl

BalancC canlcd fomatd to
Balatlcc c/d u△ salcs lcdgcr at cnd of pcjod agrcc、 菏th total of dcbit
一
carocd fosvard balanccs h salcs kdgcr

珈
⒛

Balaacc b/d Note,D° not‘ net’ credlt balanccs in thc salcs

lcdger against thc dcbit balanccs,
Catla
屮w:rm呜 Do not cntciI伍 c folo洱
$朔

$翎
^ng m a salcs Lcdgα
Control accclunu

舻~一
salcs Cash book
● cash salcs
~塑

Balailcc c/d
丽

● proˇ △sions for doubtftJ debts

Balancc b/d 叨
146 ContrOI accounts and the
$⑷
$⑷

Pada
doubIeˉ entry In° deI
⑾狎_一

salcs saIcs rco"ns Control acc° unt dupⅡ catc thc in± ormaoon contaJncd
Cash book h the purcha⒃ and sal邙 ωcrsonall lcdgCrs con饪 d
~⑷

Balallce c/d
丽

accoLlnts咖apcrs。 nal lcdgcrs cai△ not bo伍 bc part of

⑷

Balancc b/d the doublc~cntry rn° dcl It is usual to trcat thc

+B亦 allα llg flgu屺 Con让 ol aCC° unts as part of thc d° ublc cntry and to
rcgard d,c pcrson砬 kdgc灬 灬 mcmorandmn rccords
No洫 at【 gcnetal,1Cdgct contalnlng thc dctaJs v・ hch support thc Control
sa1cs kdg"Conttol aco【 ,unt
aCCounts,
$ω

$
salcs journal salcs rcmils,otr¤ 址60
Cash book 760 Example
B疵 nce c/d 140=Ⅱ 70
+0o Thc foⅡ oxxtng informa刂 on has bccn cxtractcd from
+30
唰

thc books of Usc± li Controb Ltd

一⑷

960 $
Balarlcc b/d A1JunC2011PLlrchasc kdgct b址 洫∝s
“ ollgllt fomard ~dcblt 9lXJ

145 HOw to prepare a saIes ledger s诫 cs lcdgcr bala】 lccs bfollght fo弼 征d
-crcdlt
ˉdcbt
163纠 a
30580
Contro刂 account ˉcrcdlt 620
Month to30June2o11
Entcritcms in thc C° ntrol account as fo⒒ ows: Pmchascs lollrnal total 65tKlo
hchascs ilcurns journal total 3】 50
Deb吐 t side CtedEt8ide
salcs joutnal t° tal 96000
B址 aacc btollght fom・ ald丘 c,m %tal of salcs kdgσ c歪 dlt
salcs tculrns lollrnal total 1980
prc△・
lcus pcⅡ od baIanccs◇ f ail9,l brought Cash b。 。k:Paymcnts to supp⒒ crs 59540
fomatd from pi毓 ous pcjod Chcqucs rcccWcd from customcrs
CtcdIt salcs for pcrlod Salcs rc自 止ns for d⒑ pcnod 103900
6CC ncl∞ bdow,l
ltotal salcs” uri・ all ltotal of salcs rcturils汩 tlrnaIl Disco△ 、
atsェccclVCd 2670
Rcqldst。 ctcdlt CtlstomciIs Cash icccwcd from crc由 t Dlscounts allov,ed 4520
⑻ m cash b° okl cⅡ tomC灬 ln。 m cash b° 。匈 Dohon° urcd chcqucs 3300
Dishonourcd chOqus(fl° m C灬 h dl“ o山 吣auowcd J° uma⒈
Bad dcbts xlrltten off 1220
cash b∞ kl (由 sco・ ults col-s h Cash s铋 cs kdgct b狃 anccs sct ap△ n欲
bookl purchasc kdgcr balaIlces 48tXl
Bad dcbts△ tlttcn off oourn⑾ AtJtlnc∞ Dcbit b械 anccs on pwcha∞ 怡 dgct acc【 ,tu△ ts ωo
Intcrc$t chargcd to σⅡ tomct$ Cash fr。 m bad dcbts Crcdlt b址 ances on sa1es lcdgei accoun‘ 325
on ovcrdllc accounts6alCs rccovcrcd,prcvlously xl rI仕 cn Note Tllc cash rcccl△ cd丘 om customcts hcludcs$8oo rclaong to
joumal or cash boo→ °ff lcash b° okl a bad debt pr"o小 ˇ w・ ttCn om
Rcquircd ExercIse2
Prcparc a Purchasc Ledger Control account and a Informaoon cxtractcd from thc books of Soldlt Ltd
s/alcs Lcdgcr Control acc° unt for Usc± tIl Controls,for js as fo⒒ o、

thc m° ilth° fJunc2011

`s:

$
Ans,⒘cr Λt1卜 Ιay2011salcs lcdgcr balanccs
blollght foRvald ￠Cb⒆ 刀 “o
Purch灬 e kdgα Co“ tolaccomt CrCdlθ 545
In tllc month to31May2011
2011 $ 2011
Total of iilsolccs sCnt to customcrs 109650
Jun 1Balancc b/d 900 Jun1Balancc b/d 16340 Goods rcttrncd by cllst0mers 2220
30Purchascs rcmtns 30Purchas邵 joumal65000
Chcqtlcs reCC加 ℃d丘 om customcrs 98770
urna1 315o 30BalaIlcc C/d 600
i°
Discounts auox△ cd 3150
Cash book 59540
Chcquc fcccls’ Cd in rcspcct of bad dcbt
D芯 gDunts rcccl,cd2670
prc访 ous灯 w狃 ttCn° 仃 oot includcd abosycl 490
s址 cs lcdgc⒈ contra4800
salcs lcdgcr balancc sct a驷 【
l哎 baJancc in
Batailce c/d
pttrdlasc忆 dgcr 2624
oBalanclIlg fIgurcl10880
81940 819+o
At31M呷 201t ciCdlt balanccs ln Ralcs kdgcr 800
Dcblt balancc catncd dClx△・
n )
July1Balancc b/d 600 Ju灯 1Balancc b/d 10880

s疝 Cg Ⅱdget cρ nttol ac∞ unt Rcqukcd

2011 $ 2011 $ Prcparc thc Salcs Lcdgcr Contrc,l acc° unt± c,r thc
Jun 1 Balancc b/d 30580 Jun 1Balancc b/d 620 mondl of Δ岖ay2011
30 salcsjmm址 964llll 30saIcs rcttrlls
urna1 】98o
Bad dcbt
rccovcrcd 800
i°

Cash book 103900

147 Uses and Iimitations of
Bank-ˉ Disc【 ,uns auowcd452o ContrOI accounts
dlshon。 urcd Bad dcbts wˉ 仗cn
chcquc$ 3300 off 1220 Uses
Balancc c/d 325 Ptr山 a弪 ⒗dg∝ -
●l△△cy arc an imp° rtant systcm of contr° l° n thc
conua 4800
30Balancc c/d ⅡⅡabl⒒ 〃 c,± kdgcr accolln‘
oalancmg flgutcl14365 吼 clT、 |`laj:rl ofposslb1c crlors iil dlc kdgcrs dKy
∞ n乜 d ifdlc totals Jdlc balallccs h dlosc l耐箩 rs do
Ju1 1 Bala】 lcc b/d Ju11Balancc b/d ilClt agJcc xxntll dlc balanccs on tllc Control accoun“

Exercise1 Thcy may tdcno印 tl,C lCdgcr or lcdgcrs ltl which

Thc± oⅡ ovxnng informaoon has bccn° btalncd from crrors havc bccn madc whcn thcrc is a diffcrcncc
dle books of Bvlt Ltd on a olal balancc

$
They pr° xTlde totals of仕 ade recelvab1es and tradc
赶 1Marcl12011Purchasc Icdgcr b亦 anccs pa】 】
bl∞ qt△ lcⅡ y when a trial balancc^bclng
brougllt fo小 凶
谰 (clCdltl 10000 `彡

prepared
lddo谊θ 16 If a busincss cmploys several acc° unjng stafs the
In thc m° nd△ to31Match2011
To诅 of nvoiccs rcccⅣ cd from supphcrs 33700 Contro1accounts shodd be malntalned by
Goodsilcurncd to mppucrs 824 ⑽mebodlr who^n° t inv°lxTcd in m/aint缸 nii△ g tl△ c
Chcqllcs scnt to supp⒒ crs 27500
salcs ulr ptlrcl△ asc ledgers Ths increa⒃ s dle
Discounts rcccWcd 1300
At al Marth20l1Dcbt balatlccs h ptlrcha$!cdgcr 156 lkcⅡ hood of crrors benlg cⅡ scovcred and reduces
Crcdit b破 atlccs m ptlrclla跪 怡dgcr p thc Jsk of indlxldllals acong dlshoncsdy Tlus
Rcquircd dhi⒍ on of du刂 cs is ca⒒ cd intcrnd chcck For dis
Prcparc thc Purcˉ llasc Lcdgcr Control acc° unt lor thc rcason Con仕 o1aCCounts arc lccpt h d△c gcncr狃
mond1of1江 arch2011 lcdgcr and notin thc sa1cs and purchasc lcdgcrs
Lim"ations Thc foⅡ °、注ng crrors havc bcen dlsc° vcrcd
● Control acc°unts may thc狃 scls cs contaJn errors, 1,A sal∞ invocc for$100has been° m血 tcd fr° m
lsee ll)and lzl h§ 14・ 8∶ thc salcs journ・a1.
● Contr° l aqcounts do not guarantee the accuracy of 2A credt balancc° f$35in the sales lcdgcr has
lndhidual lcdgcr accounts,whch mγ c° ntaln becn cxtractcd as a dcbit balancc1n thc Ⅱst° f
compcnsaong crrors,± or example itcms postcd t° anccs
salcs lcdgcr ba1・
wkong accounts 3Thc salcs j°urnaltotal for Dcccmbcr has bccn
℃rstatcd by$1000
oˇ

148 HOW to reconc"e ContrOI 4A balancc of$250on a customcr、 accountin

accounts with ledgers 伍cs狃 cs lcdgcr has bccn sct agamst thc arnount
lng to hm h thc purchasclcdgcr but n°
△Vhcn thcrc is a dlffercncc bc心 Ⅳccn thc balancc° na oX△

Control account and thc tot扯 of山 c balanccs in thc cntnes haVc bccn madc for thsin dae salcs and
lcdgcr止 ∞nttds,伍 c causc Or causes mⅡ t bc found Pllrchasc Lcdg∝ Con“ ol acc° un麻
and thc ncccssary correcoons madc Tlis is kno砀 咀 as 5A suppⅡ cr、 m△ˉ
olcc for$940h灬 bccn cntcrcd h
reconc血 名 也cC° nttd accounts the purchascs j° urnal as$490,
It o hclpm to remcmbcrthc fo△ o△smg, 6灿 itcm of$340in曲 e pu】 汛 scs rcturns journal
1,If a transacuon is。 n.ttcd fronl a book of pⅡ mc has bccn crc山 tcd in山 c supplcr、 acc° 1⒑ tin the
cntry it M・ Jl bc On矶 tcd from伍 c pcrsonal purchasc lcdgc‘ Therc was a crcdlt balancc of
accountin thc sales or purch灬 c lcdgcr'″ 丿 nom $800on thc supp△ account at31Dccembe⒈
er、
dle C0n讧 0laCCount Bo山 rcc° rds、 Ⅱbc wrong 7,Disc° unts rccαved in Dcccmbcr atn° unong to
`Ⅰ
and thc ControI account、 犭Ⅱ notr∞cal thc crr° r,
$360havc bccn credltcd to伍 c Purchasc Ledgcr
2 If a transacoon is cntcrcd incorrccdy in a book
C° ntr° 1account
of prmc cnα y山 e crror驷 诅 bc rcpcatcd h thc
personal ac∞ unt h thc salcs or purchase ledgcr Fur伍 er hformadon
啷&in the Control acc° unt Bodh rcc° rds砀iⅡ bc Duprcy、 draft acc° unts for thc ycar endcd31
w△ ong aα d thc C° ntrol account wi△ not rcvcal Dcccmber2010sh° w a nct proflt° f$36000Hc
thc crro‘ makcs a proˇ △
si° nf° td°ubt丘 △dcbts of6o/0,
3If an itcm^c° plcd mcorrecdy fr° m ab° °k of
Requkcd
p丘 mc entry to a pctsonal acc° unt h thc sales° r
purch灬 c lcdgc厶 c Contrd account9/m幽
d△
⑶ C扯 datc thc foⅡ o碱吧 at31Dcccmbcr⒛ 1⒐
`bc
affccted,and抚 wⅢ 邸 cal山 at an crror has bccn Θ thCtC・ isCd姒 es kdgcr b狃 狙 CCs
madc ⑾ thC rC访 sed purchasc kdgcr b砬 ances
4 If at° talin a book of prmc cnt叩 is inc° rrcct, ⑶ PrCparc伍 e amcndcd s狃 cs Lcdger and
d△ c ControI acc° unt ss,u bcinc。 rrcct彡彳 c Purchase Ledgcr Con讧 ol accounts
salcs° r purchasc lcdgcrs、 汀 '伍
Ⅱnot be affcctcd (cl PrCpare a s钐 啶cmcnt of thc rcxˉ lsed nCt pro丘 t
Thc Control acc° unt wⅢ rcvcal Chat an crror has for山 ev℃ ar cndCd31Dccember2010
been madc (Φ Pteparc an cxtract from伍 c statcmcnt of
ExampIe Fhancial P° sio° n at31Dcccmbcr2010to
sh°、
v thc tradc recelsˉ ablcs and tradc pa,叼 blcs
Thc foⅡ o、 ang informaoon has bccn cxtracted from
Dupt”b bo° ks at31IDcccmbcr2010. Answcr

$ ⑶ ΘRCx,lsCd sales kdgα balanc∞

To破 of salcs kdgct b泌 anccs ldebltl 176仞 DOblt α Odt
lcredltl 】
】o $ $
Ba1oncc t,n salcs Lcdgcr Con± ol acct,unt ldcbltl 18710 Bcfotc喇 us血 cnt 17CWO 1 0
To诳 of purchasc kdgct b址 anccs lctediO 6120 In△ olcc clnutcd fr° m salcs,° ㈦cilal 100
ldebltl 80 CrcdIt balance Ⅱstcd as a dcbit (3sl 3。
BaOncc On Putchasc kdgcr Coiltrolac∞ lmt lctcditl ‘330 Rc△ iscd balances 17705 1+5
 0D RCvisCd purchasc lcdgcr balanccs Notcs
m

⒁ $⒀
Deb$⒛
● Tradc receh么 bles shodd nex・er be deducted fr°
tradc pa,么 b1cs,or tradc pauyablcs fr° m tradc
Bcforc adlusullcilt
rcccixablcs in a statcmcnt。 f Financial P° sitl° n

镧
Error Iil purchascs iotlrllal$p40~49,
AdlusⅡ cnt of rcttl± li ctedltcd
● Do not providc lor doubttlll dcbts on dcbit
to suppⅡ cr$o40× 勾衤 _ @⒚ bal洫 ccs nl dlc pLlr山 a∞ kdgcr
Rcxˉ lscd balanccs 80 5890
衤An a曲 ustmcnt for an itcm p1accd on tllc wrong sidc of an
ExercIse3
1cc dlC atnount of u△ c1tcm
acccltlnt must bc△ 丙 The f° ll°、诳ng informaoon has becn cxtractcd lrom
⑶ thc books of R° rrc Ltd at31December2010
Amendcd sa【 cs Lcdget Control account $
%tal oi purchaⅡ ⒗dg/∝ balaFlcc 64ldCbltl
2010 $ 2010
7217 Crcd19
Dcc31Balancc brotlght Dcc引 Corrccoon of salcs
Total of salcs lcdgct balaIlccs ⒛ 佗5(dCbi9
foo″ ard 18710 jolrnal tota1 1000
390 lcrcdl◇
1nN Olcc Ol△0ttCd Contra to puKhasc
Ptrchasc Lcdgcr Control acccltlnt 7847lcrc山 ◆
fiom sJ 100 lcdgcr ￠ 250
salcs Lcdgcr Cclntr° l account 22909 (debitl
Balancc c/d 145 Balancc c/d 17705
18955 18955 Dra± t accoun“ show a nt・ t
prollt of$31000允 r
2011 2011 ng
thc ycar cndcd31Dcccinbcr2θ 10 Thc foⅡ oⅥ △
Jan 1Balancc b/d 17705 Jan 1BaIancc b/d 145 crrors havc bccn dlscovCrCd
Amcndcd n呶 chase kdger Conool account 1An inv° icc± c,r$100has bccn cntcrcd钿 icc h
2010 $ 2010
山c purch灬 ∞ j° rnal l△

Dcc31Contra to salcs Dcc31Balatlcc brought 2A total of$84has bccn omittcd± r° m both thc
lcdgcr ￠ 250 1orvard 6330 Discounts Rccα、 ℃d aCCount and thc Purchasc
Coirccoon of Elrol in p闸 刂chasc
Lcdgcr Control account
dtsc【 ,lln“ jl,llrnal 450
$侈 60× 720 Balatlcc c/d 80 3 Λ deblt balance of$50has been entered in dle
勾
B破 狙cc c/d 5890 Ⅱst of purchasc lcdgcr balanccs as a crcdit
6860 6860 balancc
2011 2011
4An amollnt of$710oxxnlg to Traz° m,a
Ja众 1Balancc b/d 80 Jan 1Balatlcc b/d 5890
suppⅡcr,has bccn offsct agalnst thc△ accountin
←)Rexˉi⒃ d nct pro丘t for thc ycar cndcd
thc saks lcdgcr,but n° cntry h灬 bccn madc h
31Dcccmber2010 thc Control accounts
Dccrcasc Incicasc
5An invc,icc in thc sal∞ journal for$326hⅡ bccn
$ $ $
Nct proflt pcr dra彘 accounts 36000 cntcrcd in thc salcs lcdgcr as$362
sal∞ mⅥ αcc oimttcd丘 om s址 cs iol△ rl・ al 100 6Thc sal∝ iotrnal total for Dcccmbcr h灬 bccn
0ˇ αcast of salcs jc,lrn狃 1000 understated by$800
Pllrchasc丘 小“冫cc tlndcrst肘 cd 450
hcrcasc h prov△ si。 n for doub凵 6i dcbts
6%of C7705-17640l 4 _~ Requkcd
1454 100 (135纷 (al PrCparc a斑 atcmcntto show dlc c° rrc∝ cd
Rcmscd nct pio丘 t purcha∝ and salcs kdgcr balancc⒌
ld)statcmcnt of Financial Posi刂 on cxtlacts・at lbl PrCparc co〃 cc∞d Ptlrcha跹 al△ d sales Ledger
31Dccclllbcr2010 Contro1accounts
$ or山 cr狂
⑹ Calculatc thc amcnded net pro血 ±
Iladc tccctVabl钋
17705
cndcd31Dcccmber2010
Salcs kdgσ
Dcduct prov1sion for doubtftll dcbts 1062 (Φ Prepare a Statement° f Financi/al P° siti° 血
16643 extract at31Deccnnbcr2010to sho、 Ⅴ thc
Pulchasc lcdgcr@Cblt balancc9 80 16723
Traclc pa卩 blcs tradc receⅡ,blcs and tradc payablcs
Purchasc lcdger 5890
salcs lct埝 ∝ (α Cdlt balancc9 145 6035
 ● Give the Control accounts their correottitle and hθ ad the money° °丨
umns W|th$signs
● Check oarefuⅡ y thatthe entries are on the corrθ ct sides ofthe acoounts
● Enterthe dates forthe entries,dis忄 inguishing between the sta^and end ofthe period
● Makθ sure that y`ou enterthe total of any ored"ba丨 anoes in the sales Iedgerint° the sales Ledger control
account and the total of any deb"balanoes in the purchase ledgerint° the Purchase Ledger ContrOI account
● CaIoulate the other c|osing balanoes if necessary
● B"ng down the closing baIanoes on the first day ofthe next pe"od
● Assume that Control Acoounts,when they are keρ t,are pa"ofthe double entry and thatthe pers° nallθ dgers
oontain memorandum accounts,unless the quθ stion indicates othemise If ControI ac° °unts are not
maintained,the double entγ is complθ tθ d in the pers° nalledger accounts
● Entor bad debts recovered on the dob丨 t side ofthe sales Ledger ControI account as、 ″eⅡ as showing the cash
recθ iˇ ed forthem on the cred"side
● Enter℃ °ntra’ items(balances in the sales|edger set off against balanoes in thθ purchase ledgerl in borh c° ntro|
accounts The ent"es wⅡ l a丨 Ways be oredited in the salθ s Ledger Contro|account and debited in thθ Purchase
Ledger c° ntrol aocount

The deb"balance on a sales Ledger Control

310dober not car"ed down in thθ Purchase
Acoount at30seρ telmber201o is$104000 The
Ledger Control aocount 3oo
fo"oWing errors have been discoveⅡ ed
A refund to a cash customer debited in
$ Purchase Ledger c° ntrol aocount 15o
TOtaI Of sales loumal overstated 1300
DisCounts a"owod omi廿 ed from sa丨 es
VVhatis the total ofthe oredit balances in the
Ledger Control aocount 870 purchase ledger?
Bad debts w"廿 en of not reoorded in
A$26450 B $26750
sales Lθ dger Control a∞ ount 24o
C$27050 D $28950
Increase in provision for doubfuI debts 6oo
3. A Purchase Ledger Control aooount has been
reconc"ed with the purChase丨 edger balancθ s as
Whatis the total ofthe balanoes in the sales
shoWn
ledger?
A $100990 B $101590
C $102070 D $103330 $
Balanoe ρer Control account 76000
TOtal of purchases journalfor one month
2. The credit balance on a Purchase Ledger Control
not posted to genera丨 ledgθ r 4o00
aocount at31Octoberis$28oo0 The fo"owing
Cash paid to trade payables nd posted to
errors have been found
purohase ledger 5000
$ TOtal of balances in purchase ledger 85000
Amounttransferred from Ca‖ ℃ a° °°unt in
the sales丨 edgθ rto his accountin the purchase Which figure f° rtrade payab丨 es sh° uld be shown
ledger not rθ corded in the c° ntrOI accounts 14oo in the slatement° f FinanciaI Pos tion?
A debit balance∶ n the purchase lodger at A$75000 B $77000
C $80000 D$Bs O00
1,The fdlowing informa刂 on was taken from Peters $101490,whi0hd0os not agree wⅡ h the
books Closing balanoe in the Control account The
fo"oVˇ Ing errors Were then disoovered
2011 $ 1 The total of discount received had been
March 1 sales Ledger ControI aooount overstatθ d by$1500
balance 55650Dr 2 A purChase invoice for$3060had bθ en
PurChase Ledger Control completely omitted from the books
aocount balanoe 34020Cr 3 A cred"balance in the purchase ledger
31 sales for March 47700 account had been understated by$150
Purchases for Maroh 21840 4 A Oredit balance of$1275in the purchase
Cheques reCeivod from
ledger had been sθ t off against a oontra
crodit oustomers 36900
edge1but no entry had
entry in the sa|es丨
Payments to trade payables 24300
been madein e"hθ r Control account
Customers’ cheques
5 A payment of$2175had bθ θn deb"ed to
returned unpaid 1920
the oreditor’ s account but Was0mittθ d from
Bad dθ bts W"tten o仟 2250
the bank account
Disoounts received 600
6 A0redit balance of$4815had been
Dis∞ unts aⅡ oWed 930
580 on1i廿 ed ρayabIes
from the"st oftrade
Returns inwards
(bl 巾) Extractthe necessary informa】 on from
Returns outwards 330
the aboVθ Ⅱst and draw up an amended
Cred"baIanoθ in purchase
PurChase Ledgθ r ContrOI accountforthe
lθ dger transferred from
year ended30AprⅡ 2011
saIes ledger 810
U0 Beginning W"hthe g丨 ven total of$101490,
shoW the Changes to be made in the
RequIred
purchasθ ledgerto recono"e it With the
Prepare the saIes Ledger ControI account and
new Control a∞ ount balanoe
the Purchase Ledger Control accountforthe
3,At31 December2010the balanCe on seⅡ s
month of Mafoh2011
it’

2.The folloWing information Was extracted from the

sales Ledger Control account was$17584
books of Colombo forthe year ended30Apr" ldeb")k dd notagree W"h the tota|ol balances
extraoted from thθ sales Iedgen The fo"oWing
2011
errors have been found
$ 1 The total ofthe disoount allowed column in the
Purchase ledger balances cash book has been oVerstated by$210
at1May2010 64680 2 A reoeipt of$900from P FOrd,a oustomer,has
Cred"ρ urchases 1236210 been treated as a refund from B FOrd,a
Credk purchases retums 18600 supp"eⅡ
Chequθ s paid to trade payables 1118970 ams,a
3 An inVoioe for$1200senttO P WⅡ Ⅱ
Cash purchases 13410 oustomer,has been entered in the salesjourna|
Disoount received on ored"purchasos 47100 as$1020
Cred"baIanoes transfeπ ed to 4 The tota丨 ofthe sales journa|for December has
sales丨 edger accounts 7815 been understated by$600
5 Goodsˇ vith a se"ing price of$578were sentto
Requ1red WⅢ D"he1a oustomer,in Decembe1and he
la) Prepare the Purchase Ledger Contr创 acoount has been invoioed forthat amount "has novV
been discoVered thatthe goodsˇ vθ re sent on
forthe year ended30Apr"2011
The totaI ofthe balanoes extraded from sa|e orretufn and the customer has not yet
Colombo℃ purchase ledger amounts to indicated whether he wⅡ l purchase the goods
 6 An inVoicθ for$3160sentto W Yeo,a
$
custome1has been entered correotly in the Purchase Ledger Balance at
sa|θ sjournaI but has been entered in the 1May⒛ 10 43120
oustomer’ s acoount as$3610 Credt purchasos forthe year 824140
Required CredⅡ purchases returns 12400
la)Prepare the s引 es Lθ dger Contro丨 account Chθ ques paid tO Trade ρayables z0s9Bo
shoWing clearIy the amendments to the Cash purchases 8gzIo
D∶ soount receiVed on credit
originaI baIance
(b) CalcuIate the total of the baIanoes extracted
purchases 314oo
from the sales ledger beforθ thθ sted
θrrors Ⅱ
Credl b引 ances transforred to sales
above had been correctod Iedger aocounts 521o
lc) Prepare the hum引 ent"θ s to Correctthe
sales ledgθ r accounts Narratives are
DraW up the Purchase Ledger c° ntrol

required
4.At31May2011the deb"baIance on a sa|es
Ledgθ r ContrOI aocount、 ″as$18640 This
balance did not agree w"h the total of balancθ s
eXtraded from the sales ledger The foⅡ o、V丨 ng
errors have now been found
1 Cash reCeived from trade recθ iVables entered in
the Control accountinc|udθ d$400in respect of
a debt which had preViousIy been w"廿 en off
This faCt had not boθ n reoognised in the
Control account
2 A dθ b"balanoe of$325in the salesledger had
beθ n set o仟 against an accountin the purchase
丨
edgeⅡ This transfer had been debitθ d in the
sales Ledger Control account and ored"ed in
the Purchase Ledger Control aooount
3Cash sales d si760had been recorded h扪 e cash
book as cash received from trade reCe灯 ables
4 Cash recθ iVed from K BaⅡ ,$244,had been
entened in the aCCount of B KaⅡ in the salθ s
ledgeⅡ
5 Cred1balanoes in the sales lθ dgθ rtota扪 ed$436
〈
c) C)Extractthe necessary informatbn from
accountforthe year ended30Ap"12011
The total ofthe balancθ s in、ⅣⅡ
Ⅱam NOel’ s
purchase ledger amounts to$67660,whioh
does not agⅡ ee、 ″
Control a∞ ount "h the oIosing balanoe in the
The foⅡ oWingθrro阝 were then dis∞ vered
1 Discount received had been overstatθ d by
$1000
2 A cred"purchases invoice for$2040had
been completely onη i廿 ed from the books
3 A purchasesledgθ r account had been
understated by$100 ,
4 A oredk balanco of$850in the ρurohases
ledgθ r had been set off against a contra
θntry in the sales ledge1but no θntry had
been made in either Control account
5 A payment of$1450had been deb"ed to
s account but was omi廿 ed from
the creditor’
the bank aocount
6 A credit ba|ance of$3210had been
st° f Trade payables
omi廿 ed from the Ⅱ

RequIred the above"st and dra、 ˇup an amended

Prepare the co汀 eCted sa丨 es Ledger Control PurChase Ledger Control accountforthe
acoount at31 May2011 y`ear ended30Apri12o11
5・ a)0uⅢ ne
〈 rnree roas° ns for keeping c° ntrol
(Ⅱ
) Beginning、 ″ith the given total of$67660,
sho、 Vthochanges t° be madein thθ
accounts
foⅡ oWing
information was eXtracted from Purchase Ledgerto reooncⅡ θit With the
lb)Thθ
thθ books of Wi"iam Noe|forthe yθ ar ended
new Control account balanoe
30ApⅡ 12011
 Suspe se酾 nt
http∶ //shO96θ 057810,taObaO,cm

● whatthe puⅡ pose of suspense accounts is,and hoˇ ˇto prepare thθ m
● hoW to prepareloum引 ent"es to correct errors
● hoWto reVise the net profit perdra△ β∞ ounts a△ θr θrrors haVθ been corrected
● hoW to reVise the working capitaIin a draI statement of Financial Pos"ion

151 Whatis a suspense account? balancc whcrc dlglts masr havc bccn rcvcrscd
C]xampl⒍ a dlfferencc° f$18m呷 bc causcd by
suspcnsc accounts are someui△ les used、
`hcn
transacoons are recordcd in thc books bcforc any
$5辊 oalancC灬 $5⒛ )
entered in trl狃
4Check tlle t° tds of s狨 cs kdgcr b狃 anccs and
decisi° n
has bccn madc aboutthcir propct accoun0ng
pLlrchase ledger balanccs to thc Contr° l
treatment,For cxamplc,an Ⅱ小
`oicc may contain a account%if thesc havc bccn prcparcd,
n】 xmre° f capltal and rcvcnuc cxpcndimrc Thc
5 Chcck thc cx讧 acoon of balanccs丘 om thc lcdgcr⒌
expen山 mrc may bc rccordcd in a suspcnsc account
Ifthe causc ofthc diffcrcncc has soⅡ not bccn
und lt`dcodcd hov much“ capltal cxpcndlmrc
found,and an Inc° mc statcmcnt and a statement° f
and ho吓
`mLlch rcvcnuc Financial P° slj° n arC rcqulrcd urgendy a Suspcnsc
Ths chaptcr is conccrncd硒 △
th suspcnsc accounts
account may bc opcncd
伍at arc opcncd whcn thc causcs of dl± ±
crences on
硅al balanccs cannot immcdlatc圩 be bund and
153 HOW to open a suspense
corrcctcd
account
152 When a suspense aCcount A sLlspcnsc acc° unt厶 opened h thc gci△ cral kdgcr
shouId be opened w1tb a balancc On x1・ hchcvcr s1dc ofohc acc° vnts,JJ
makc the trlal balance agrcc Ml△ cn thc balancc is
A suspcnse account shouId be° pened ol△ v・ x△
,l△
cn
hscrtcd in止 For exai△ lplc,if thc total° f thc crcdlt sidc
attcmpts to flnd the cause° f a dlffcrcncc on a tⅡ 狃
。fa ual balance o$1001css伍 an thc total of thc dcbit
balancc have been unsuccessfd,Thc foⅡ o,^ng chccks
虹de,the suspcnsc account柄 iⅡ bc° pcncd xsldl a credlt
should bc caroed° ut be± orc° pcnu△ g a suspgnsc
balalacc° f$100、 ￠ hcn thc Suspcnsc account balancc
account
is nlscttcd h thc trlal balance,曲 e la钍 er w诅 balancc A
1 Check J△ e addlo° ns of thc trlal balancc
statcmcnt of Fhanoal Po“ 洫 may让 Kn bc prcparcd
2 If山 c dlmcrcncc is dlsisiblc by2,look bra
balancc of h・alf thc dlEkrcncc whch rnay be on
dlc wrong sidc of tl,c tⅡ /al balancc C巳 xanlplα a
154 When a suspense account
dlffcrcncc of$1084mPly be caused by‘ dlscounts has been opened
alo、 being entered° n thc crcdt sidc° f Thc causc° r causcs of thc(tffcrcncc on thc trlal
`cd$542’
山e trl灶 b狃 ance) balancc must bc inˇ osugatcd at thc carⅡ cst
crcncc is d小 犭sblc by9,1o° kf° ra
3 If thc d± ± opportllm饣 and伍 c crr° rs corrc∝ cd
 Ⅱfc,if a thc transacoon bcc且 rccordcdP
蕊谪插
In rc/al there ls sti⒒
suspcnsc account aftcr al
bccn lnade to flnd伍 c dlffcrcncc,a
deode that thc aFnountinvols・ ed is
mve furthcr刂 mc and cxpcn陂 h⒃arc晚 for Crr。 rs
by`″ △】ng thc balancc offto thc Incomc statcmcnt,
Howcvcr,0hcrc may be a dangc± that a smaⅡ
di“ orcncc hdcs large errors x△ ,hich do not qmte
cancd cach other out
The ts,pes of crror whch xvn△ reqlurc suspcn∞
account to bc opcncd、 耐山hchde:
●飞 Ⅳhcn° n圩 h狃 f° f dle transacoon h灬 bccn
postcd For examplc,thc paymcnt of晒 么ges has
bccn cntered as a crcditin thc bank accoun、 but
no o伍 cr cn讧 y has bccn made on thc dcbits1dc
of an account,
● Whcn bod1cntrles havc bccn madc on伍 c same
s⒙ c of bvo scparatc accounts For cxample,
M,hen the paγ tncnt° f WagCs has been crcdltcd to
bod△ thc bank account and the w么 gcs accovnt,
● XX hen thc cntrlcs have bccn madc on thc
corrcct side ofthc account,but thc flgures
dffe⒈ For cxarnplc thc paytncnt of wages has
bccn corrccdy cntcrcd h the bank account灬 a
crc山 t of$230Howcver,伍 c dcutin thc驷 么gcs
accoVnt is$320
Thcrc arc° ther instanccs,as you Xxd sCCin somc
of dhc cxcrc1scs,
155 HOW to CorreCt errors
Thc corrcctIOn of crrors wⅢ rcqulrc journal cntnes
M・ hch、 注
Ⅱbc posted to thc suspcnsc⑺ nd othco
accounts,r″ aJJ dhcy are crrors that do〃 口
'affcct thc
trial balancc,whch ate as foⅡ ows:
● crrors of onllssion
● crro灬 of coinmssion
● crrors of pⅡ noplc
● crrors of orlgn/al cnt叮
● crrors causcd by tl,c complctc reversal of
cntrlcs
● compcnsa包 ng crrors,
C「 0Cse tvpes of crrors h肛 c bccn cxpla」 ncd morc
Rmy h§ 6⒊ )
To dccldc hov to correCt an error,ask thc
fo⒒ oxxing thrcc qucs0ons.
伍 c tnnsacoon haVe been
I:、
J镒 iIˉ 虹’
0,ustmcnts arc rcq11Ircd to correct伍 e
errorP
Rememberthc fo⒒ oMing
● An itcm° n the wtong sidc of an accountrnust
bc corrcctcd by an adlu陡 mcnt cqualto/,w″ thc
amount of the orlglnal crror loncc to Cancd thc
crror and once t° place the itcm on伍 c corrcct
sldc of伍 c accoun9,
●somc crrors do not affcct thc d° uble ent、、an
cx钮 nplc would bc a b狃 ancc on a剑 跃 kdger
account copicd incorrccdy onto a sumn1ary of
balances for inch血 on h thc malb狃狃 ccThc
summary of ba1anccs shodd bc amcndcd and a
one-豇 ded entry in thc jollrnal prcpa△ cd to
corrcct the suspcnsc acqount such crr° rs do
not rcqn1rc to bc corrcctcd by dcbit镏 ‘
,r crcdlt
cntocs
Example
Kadnye ex廿 aCtcd a trlal balancc n° m hcrlcdgcrs on
31Dcccmbcr2010Thc伍 al balancc totals Were
$23884@cb19a±ld$24856← rcdl)she placcd thc
dlffcrcncc in a Suspensc account so that shc could
preparc a dra± tIncomc statcmcnt for thc9℃ ar cndcd
31Dcccmbcr2010,and a statcment of Financia1
Pos1t1on at that date
Kad匆 C thCn tound thc foⅡ .丙恤 g crro邙
1, Thc dcblt sidc of伍 c dcphonc account had
tΓ
bccn ovcrstated by$200
2蚯 ms・ oicc scnt to s山彗h for$240had bccn
complctclv omtttcd丘 0m伍 e books.
3,A chcquc± ot$124receⅣed from X and Co,
had bccn postcd to thc dcbit of thclr account,
4,Thc purchasc of s° mc off1cc cqrupmcnt for
$1180had bccn dcbltcd to Ofnce ExpCnscs
account,
5 Dlscounts rccdvcd,$90,had bccn postcd to
thc purchasc lcdgcr but notto thc Discounts
Rccα vcd account
6 Rent paid,$800,had bccn crcdltcd to Rcnt
Rccclsablc account
7,A rc细 nd ofan hsurance prenuum,$60,had
been rccordcd in伍 c cash b° ok but no° 山er
cntp严 had bccn madc,
 8, A purchase of olˉ flcc staooncry,$220,had 10㈧ arratIs・ ∞arc∞ qu● rcd)
bccn dcbited to PLlrchascs account1n crror CD PrCpare thc suspcn∞ account shoMing伍 c
9 A crcdlt balancc of$30in the purchasc lcdgcr opcnn△ g ba1ancc and山 c corrccong cnt丘 cs,
had bccn onu仗 Cd from the△ st of balanccs Thc draR Incomc statcmcntshowcd a nct pr° flt
cx“ actcd丘 om thc lcdgcr,The total of伍 c Ⅱst for thc ycar cndcd31Dcccmbcr2010of$8400and
had bccn inchdcd h伍 c toal balancc,Kadrll,e thc statcmcnt of Financial Posi刂 on at that datc
does not kecp c。 n“o1acc° unts in thc nonlmal showed worklng capltal(‘ :urrent asscts lcss Currcnt
kdg∝ ⅡabⅡ ities)° f$1250
10 CToods reulrned to Spccdscl had bccn crcdltcd
to spccdscl’ s account and dcbltcd to Purchascs Rcqukcd
Rcmrns account The goods had cost$400, (0Calculatc tlic rc访 scd nct proⅡ t± or伍 c year
Requircd cndcd31Dcccmbcr2010
⑶ PrCparc j。 urnal cnto∞ to correct errors1to (dl C挝 cula∞ 伍cr6吣 cd聊 ∝蚰呜 capital at
31Dcccmbcr2010
Answer
(a)

JounalCndeg

1 pσ夕眩 T汤 召洳 汤″ 砌 勿
∝ 砌 △ 坶 bO”e伽 黝咿 订 o伙】跏 d勿 $2@α &砌 ″嬷 f勿 丫〖
帆 //夕 口拗 胗沥 飓 //,o
'Ⅱ ``″ '汤
S弼殄秭sc刃″拗″9,,历 $⒛
suspcnsc acCount 200
Tclcphonc account 200
Cotrecoon of thc owtcast of$200of由 c Tclcphonc acc【 ,un△
r田 。么 T/,Jf畅衤s痂 o″ 乃哆J莎″ 氵
蹦 加 /9///Je冫 矽矽烫‘ ε
钌痴呦 J/乃叼‘,,。 /彳犭饧膨 杨 功喵″/b￠铷 cε /I,J/砌 J幺 驴 仍″″ 婀 印″
',昭 '
赤″″沏刃/fF0
snlgh 2翎 0

salcs 2部 D

Rccot山 吧 红J汉 ,cc for$2+O scntto smgh but o血 住cd ftom b° olis
p￠ ″么
$`2亻 肠 ￡乡″″p°s劲d匆 /,e” 勿 绍 rJ//e旷 X″ 夕〃″ ″ /rF砌 ″ 滋 荡鬯 汤 勿冫 咖 树”艹乃访乃扬 ″勿殄
'箔 ^T,zJ订
//,F/‘ 乃
″ 'C泌 `勿
`'硼
sJspcnsc acCount
X aild Co account 248
Cotrccdon° f$124tccclVCd from X aild Co dcbitcd to thc△ account h ciiro⒈
№ 幺 T/9,f订 劭γv'旷 ″叻 讶 汤 ,,o/Fzy//,/`拓 功 咖 //,FJ″ 妒 御 ″ 硐 胛 Ⅱ
'″
0f陡 c Eq谊 pmcm `″ ossc9acc。 unt 1180
0lflcc Expcnscs accotult 1180
Purchasc of。 fflcc cqmpmcnt trcatcd as⒀ onuc cxpcnsc h erro⒈
№ 仫 rb;s订 ,,。 掰 ″ ∝ 锡 炉 滋勿 仍仫玎踟 ,z,刃 阡岫 砌 叨 物 s“,铆 ￡ FrrOJr,r/
suspense '勿
acCount 90
Discounts RccclvCd aCCount 90
Discounts rcccwcd,$90,olm。 cd from Discounts RcCCR・ cd Account
N夕 胲 FV〃 Vr″ 冫 滋 /,,/陬“切 汤勿勿 /F,,re/帅;FV″ 劢勿洚铋峦切 历勿勿 ″仞磙p窍咖酚 ⒃呐 `
№ ″
`Ⅰ
畅 饧 ″ 洳 忱 钅″
'厶 `r″
/,,PJ馏狄茹 切 锣 艮 `勿 `物 '勿
叼
'丬
Rcnt Rccclvabk aCcount 800
Rcnt Pav・ abk acco洫 t 8lltl

suspcnsc account 1600

Corrccoon of rcnt patd hcorrcc” 仗CatCd as攵 cntrccα wd
7 Nv幺 r纺 伪 铴 ″ 乃四 /t,'切 够 v罅 扬切b饧 ″砌 勹‰ 勿 珈 b伽黥 切 叼 妒 肠 s“锣 锣贸 rrrl r,,/

suspcnsc account '犭 `历 60

Insurancc account 60
Rc6Jnd ofinsurancc prci△ llum onlittcd fiom thc Insurancc account
 $
rf口 /FT/。 。
,订 纟rror cF刃 J,J,,JD矽 ″夕
/,//’ /●钌s∮ 劢貂馏 侈奶纟s〃 ￡
p″ J饣 夕cε0劣″
'″ `'句 ^
ortlcc statlon唧 account ⒛o
Pllrchases account 220
Pllrchasc of olflcc staoonc饣 trcatcd as nlx cntory f° r rc-saIc in crror
9 公J夕 眩 T杨 j亦 ″″ 〃乡诳 纟饬秽 掰 vr砌 /″ 肠 c蚀d肠 /r/。 /扬砌 ″馅 T/,e/z。 r旷 b。枷 洒 栳″ o切 :∝蛐 a″ ″ ,JF讠 ″
'洳 `咖 '口
侈勿 扬 //9es″够 膨″ 咖 仍侈扌订 田q钚珈 茯 T彷 订 叼豺氵
ε 招 〃历 姊
钞 多/P,/″ ′″纟勿 氵
昭JJ仍 ″纟 r呻 切″砒 o幺 P/9P,///9纟 /zJ/旷
冫枥 侈
'`
饧以励 rFs,,nf粥 哟〃丿勿/9///,Fp助 钌妇西ε‰ 妒 弼 旷 砌 纫 勿″ 饬 唧 o“m拓 勿 彭 口 ,zFf励 砌 //,/T幼 j切 勿″钐
`″ 鬯
^饧 0西 '/,,r////eZ沏 `
勿勿/劢饪 9/Pz,,J砌 ″该/汤 勿〃。
e,钌 //lF,・/z0/〕 洫 ″ ⒓o妣ld″ ″ 扬 /z,Jre勿 匆 ,Ze/勿 ″r/F″ 汤″ r,u巧 弘 0〃 〃∫
/
'ref///J/J口
切 汤勿″ J彤劭 嘟 “彳⒏ T/,e;o玄aI旷 //,召 FJf姒硒￠ 勿切″留JJ,J劢 哆功 ″ 解劣s,'肠 切 初粥 $乡 α
`/o瀛
/’

`货 '厶 '贸
H咖 ⒚吧 `|,,砌
99,劭 匕 油 功 勿 ″劢 口
〃砌 粥 历 切
`,r,。 铆 ￠ 肠 汤′ “r沏 砌 冫 枥 淝 饧 妒 汤￠
纟″'勿
脚 ‘
・
〃 '″ `西 御 Ⅱ '昭 妙
诩ded勿 d,/,・ e刃`〃
功″r初 砀 勿F/f
r・
`山 '犭
suspcnsc acCount 30
10 spccdsc1 800
P△rchascs Rettlms account 800
Goods rctumed to speedsel,$400,credltcd to dlclL account and dcbitcd to Purchases Rettlms account ln crrclr
公扬″ T/,zJ订 ///p勿 ″ ″昭/fF/旷 历 瓦 T/9e″ rrF,访飓 e,/r/,订 彻 i‘c沥 //'″ ″//9召 s改 p留 J纟
馏 ″″ 勿〃膨 ’ 矽〃,Jr订 〃磁 扬 溯 ,c泷
'忉 `″ '口 '″

kbl Notc Sct thc calcu1aoon° ut as shown abovc

su8pen$e acoount Unod阝 ‘ straggll’ calculations do not commend
thcmsclx,cs t° cxam【 nCrs Dcblt cntr1cs to nom1nal
$⒛

$
Diffcrcncc on tdal balancc 972 Rcnt rccα vablc aCCounts in山 c joumal dccrcasc pro丘 t,and credlt
⑽

Tc牦pllonc 200 Rcnt pa,ablc cntrlcs to no,nina1accounts increase pront

X and Co 248
Dlscoun灬 reCcll/Cd 90
Insurance 60 Ca【 cdadon of Work山ng capltal at31Dcccmbcr
Corrccoon of tradc I)ccrcasc Incrcasc
crcdItors 30 0θ 凹D
1600 1600 $ $ $
牺Thcsc o,|・ 0Cntrics should bc shown scParatcly as tllc doublc vblug capital pcr draft statemel△ t

enuγ is c° mplctcd△ ld】 ffcrcnt accounts 。f Financial Posioon 】250

(1)⒏ ngll invocc omlttCd 2如
Note Thc Suspense accountis opcncd with the (3) X and c。 $124chcquc nlIspostcd 248
difference on the饪 △
al balai△ ce and then posted from ρ) CrCdlt b亦 ancc° lnt讧 cd 30
(1lll G° °ds rcturncd t° spccdsc1 800 ~ˉ ˉ
d・ C|° urnal eiltⅡ ∞in⑶
10+0 278
(Θ 侈7Sl 762
Rcx/iscd w° rklng capital 2012
Calcdadon of cotrected net ptoEt fotthe
yeat endcd31December
I)ccrcasc Incrcasc Note Thc杨 ”0ut of thc answcr gu℃ n abovcis a g° °d
0◇ lCrl one and should bc foⅡ o、vcd x1・ hcncvcr p° ssiblc
$ $ $
Net proflt pcr dra丘 Incomc Adlust驷 orlsmg capltal by journal posongs to personal
statcmcnt 840o accounts and by pcrsonal accounts onlltted from thc
(1)DCcrcasc血 tckphonc cxpcnsc 200
侈)Incrcasc lIl salcs 240 trlal balancc
(O DCctcasc h ofnCc cxpcns6 1180
(5)】 nctCasc h dlscounts jIcCC如 Cd 90 Exercise1
lC,)RCduc刂 on ln rcnt rccα ǎblc 800
Incrcasc h rcnt pav・ ablc 800 Leeb t⒒ al b/alancc at30Junc2011± ads to agrec and
DΦ

Rcduc刂 on in insurance prenllLlm 60 hc pIaccs thc dlffcrcncc in a Suspense account,Lcc

No cffect° n nct proilt
Φ

Incrc签c li10urChasCs rc"rns 800 mcn dlsc。 srCrs dhc foⅡ owlng errors
咖~一

1600 2570 1Thct° al of dlc sales joLrnal for° nc m° ntll was

t・

(ibO0l
$5430Ths had bccn postcd to thc salcs
唰

Rcxiscd nct pro丘 t for tllc ycar

account as$5340
 2 细 invoicc f° r$150± or thc purchasc° f goods at31Dcccmbcr2010hc found thatit<Ⅱ d n° t
±or resale from BⅡ dcr had bccn cnurc圩 omktCd balancc Hc cntcrcd thc c⒒ ffcrcncc in a suspcnsc
“ m thc books, account and伍 cn prcparcd a draR Inc° mc statcmcnt
3A chcqLlc br$75丘 om D° which showcd a nct pro丘 t of$2500,JayCsh latcr
bccn ctcd侄 d to hs account灬 found the foⅡ o、 汕ng crrors
`C,a$57,
customer,had
4A dcbt of$50h thc salcs lcdgcr had been 1 The balance of opc血 ng inˇ ℃ntory$8500had
w“ttcn off as bad but no cntry had bccn inadc bccn cntered in the trlal balancc as$5800
止1thc Bad dcbts account 2,Thc hventory at31Decelnbcr2010had bccn
5,An imptovcmc卩 tto a machnlc at a co斑 of$400 undcrstated by$2000
had bccn deblted to卜 Iachtncry Rcp91fs account, 3 Rcpalrs to a ma汕 c,$3500,had bccn postcd to
Machncry at Cost account as$5300
GCC dCprcciatcs machmcry by曲 cs位 aJght乩 nc
method ovcr10ycars;a ful ycaJ|愆 dcprcoaoon is 4An inxr。 icc h thc㈨ m of$800for thc s挝 c° f
calculatcd fot伍 e year of pur(J11灬 c,) goods to Banc had bccn postcd to Bancb
account but had not bccn cntcrcd in thc s狃 cs
Requked Account
⑻ PrCparc伍 c suspc灬 c ac∞ untin Lcc、 lcdgcr 5A cred1t balancc of$63in thc阢 lcs lcdgcr had
shΦ泖mg cleady thc diltcrcncc on thc mal been extractcd as a dcbit balancc JayCsh docs
balancc at30Junc as thC ELst entry and thc not rna△ ntaln Control accounts
entⅡ es rcq△ orcd to adju吱 thc crro灬
2and5 Reqmred
α
D PrCparci° tlrnal entrlcs for crro阝

㈦时rau・ Cs arc彻 ◇9Prepare the journal ent⒒ es to corrcct tl△ c crrors

'rcql"red)
Lee、 draft Incomc statcmcnt for thc ycar cndcd ㈧ar蚋es are″ ″∞q“ red)
30JunC2011showcd a nct pro丘 t of$3775, α分PtCparc the s灬 pcnsc account sho晒 恤g dlc tnal
b/alancc dlffcrcncc and thc correc乜 ng entrles
Requhed J⒏ yCsrs dra丘 atcmcnt of Flnal△ ci械 PosⅡ on at
st・

lcl Calcdate伍 c corrcctcd nct ptoⅡ t for dlc rar 31Dcccmbcr2010showcd workng caplt狃 of$3200
cndcd30June2011
Rcquhcd
ExerCIse2 (Θ C狃 cllla∞ 凼 卟际 corrcctcd w∝ 血名capital at
、￠hcnJavcsh extractcd a trlal balancc fr° m lus b° °
ks 31Deccmbcr2010

● Rememberthe dx types of errorthat do not affectthe tr al b引 an° e These are not oorreded through the
suspense account
●Prepare correct ng journaI ent"es in propθ rforrn (Revise§ 310)NOte whether narratiVes are required
● The first entry in a suspense acoountis the differencθ on the trial balance Enterit on the samθ sidθ ofthθ

aooount as it wⅡ l be entered in the t"al baIanoe

● POstthe suspense aooountfrom journal ent"es f these have not been required by the question"may be helpful
to prOpare thθ m in rough
●Thθ suspθ nse account should not haVe a baIance onit when you haVe posted thejourna|entrles to it
● CaIouIate revised prof"orloss from the nominal account ent"es in the joumal
● Calculate reVised working oap"aIfrom the joumal ent"θ s affec刂 ng current assets and current ⅡabⅡ Ⅱ
ies
●Do not make journal ent"esto other books of p"me entry Pos】 ngs from the journ引 shouId alWays be to named
accounts in the ledgers
 (ln each° fthe fo"ovˇ ing cases,a trial baIance has B Repairs to Machinery Machinery at
fa"ed to agree and the difference has been aocount $500 Cost account $500
entered in a suspense account) C Repairs tO MaChinory suspense
1. A credit balance in the sum of$93has been aooount $5o0 aooount $500
omitted from the|ist of balances extracted from D suspense Machinery at Cost
the sales Iedger account $500 account $500
VVhatis the e矸 ect on the tria|baIance?
A The credit side is understated by$93 5. WhiCh ofthe fo"owing w"|cause a di仟 erenCe on a
B The ored"side is overstated by$93 triaI balance?
C The deb"side is understated by$93 A AninVoioe omi廿 ed from the saIesjournaI
D The debⅡ side is overstated by$93
B An inVoice for$415entered in the sales journa|
A credit note for$46senttO A MOses has been
as$451
deb"edto A Mason’ s accountin the saIes Iedger
C An inVoice for$600entered in the saIes journa|
What e帘 eCt WⅢ this haVe on the trial balance?
notincluded in the丨 ηonthIy total
D A cred"note entered in the sales journal
Deb瓦 totaI Cred∶ t tota!
A none none
6. After which error VV"l a trial balance stⅢ balance?
B $46overstated $46understated
A Ⅵ
C none $92understated `ages
the bankpaid,$1500,was entered
acoount but debited correct|y
to the vvages in
D $92° verstated none
account as$2500
B Rent receiVabIe of$200was debited to the
3. The tota|ofthe sa丨 es journalfor one month is
Rent Payab|e account
$9160 "has been entered in the Sa丨 es account
C Goods returned to suρ plie1$150,were entered
as$9610 WhiCh entries are required to correCt
the error?
in purchases returns journal as$105
D The salesjourna丨 was undercast by$200
Debit Credit
犸犸

7
0ο
$$

A saIes account $450 saIes joumal A tria|balance fa"ed to agree and a suspense
$$

B sales journal $450 saIes account accountˇvas opened "was then found that rent
C sales account $450 suspense reoeived of$500had been debited to the Rent
犸犸
ο

account Payab|e account 、

Ⅳhich entries are required to
ο

D suspense sales aooount correct this error?

aocount $450
Rent ROnt susρ ense
4, An inVoioe for repairs to lη aChinery,$500,has Rece∶ Ved payabIe aocount
been entered in the MaChinery at Cost account account aooouht
WhiCh entries are required to oorrect the error? $ $ $
A credk 500 Cred" 500 debk 1000
Debit Cred" B cred" 500 debit 500 no entry
A Machinery at Reρ airs tO Mach∶ nery C debk 500 credit 500 debit 1o00
Cost account $500 account $500 D debk 500 credit 500 no entry
1.Bastien does not rnaintain Control accounts His
trial balanoe does not ba丨 ance and he has opened
a suspense aooount The foⅡ owing errors have
no、 V been discoVered
1 DlsCount recθ iVed from Veeral,amoun】 ng to
$70,has been included in the disoount co|umn
ofthe cash book but has not beθ n postθd to
Vee钅刂’
s account
2 Goods have been sold on credittO Bernard for
$1400丨 ess25%trade discount Correct
θntriθ s haVe been made in the sales journal
but$1000has been posted tO Bernard’ s
Iedger account
3 A oheque for$4oo received from ROdnθ y has
been debited in the cash book and also deb"ed
in Rodney’ s Iedger account
4 A motor VehioIe oosting$12000has been
bought on credⅡ from Nedof Motors The
Purohases account has been deb"ed and
NOdof^刀 dor’ s account oredited
5 $60spent by Bastien on his personal expenses
has been posted to the sundry Expenses
acoount
RequIred
Prepare the entHes in BasⅠ en’ sjoumal,w"h
suitable narratiVes,to correctthe aboVe errors
2.BOuIder’ s trlaI baIanoe at31 March2011 did not
balance and the dlπ erence was entered in a
suspense aooount Boulder does not rnaintain
Control aocounts The foⅡ owing information was
later discoVered
1 A receipt of$313from Hθ ad,a custome1has
been entered correctly in the cash book but
has been debked to Head’ s accountin the
sales ledger as$331
2 Goods sold to Joey for$100have been
returned by him and entened correctly in the
sales Returns aocount NO entry has been
made forthe return in Joey’ s accountin the
sales Iedge∴
3 Thθ purohaso of a secondˉ hand motor vehio|e
Costing$3o00has been deb"ed to the Motor
VehioIe Expenses aooount
4 The total ofthe Disoount AⅡ oˇ ved oolumn in the
cash book has been oVercast by$300
5 A dishonest empIoyee has stOIen$700from the
business and the oash wⅡ l not be reoovered No
entγ to reoord the the仕 has been made in the
accounts
RequIred
⑶ Preparej° urn引 ent"es to corroct orrors
1to5NarratiVes are roquired
lb) Prepare a suspense account oommenoing
″ith the triaI balanoe di仟 enenCe
、
The Workng oap"al shown in the statement of
Finanoial Position at31March2011bofore the
errors Were corrected Was$2400
RequIred
(c) Calcu|ate the workng cap"al a】 er the errors
have been° °rrected
3.Amber’ s trial baIance at31 Decemberfa"ed to
agree and the differenoe was entered in a
suspense acoount The total ofthe purchase
ledger balances had been ontered as cred∶ tors
in the trial balance butit d∶ d not agreθ VV"h the
ored"balance of$5419on thθ Purchase Ledger
Control account Tho fo"oWing errors were
found
1 No entry had been made丨 n the books to reCord
a refund by cheque of$90from Vidor,a
suppⅡ er
2 A Oheque for$420sentto shah,a suppⅡ er,
had been entered corrΘ ctly in the oash book
but debtθ d to General Expenses account as
$240
3Goods retumed,$900,by Am",a oustome1
had been credⅡ ed in Am"’ s aCCount and
debited in the Purohases aocount
4 Goods which oost$350had been returned to
Hussein,a suppⅡ o∴ No θntry had been madein
the books forthis
5 Tho disCount reoeived column in the cash book
had been undercast by$600
RequIred
(al Prepareloum引 ent门 θ
s to oorreCt errors
1to5 Narra刂 ves are冖 or required
(b) Preparo the suspense account
commencing with the difference on the trial
baIance
4. Logan has preparod the foⅡ owing tHal balance at 3A oheque for$400from a oustomer has been
31March20ii dishonoured,but no reCord has beθ n mado of
$ $ this丨 n the accounts There is no reason to
salθ s 131gzIo belleve that paymθ nt wⅢ not bo made in Ap"I
Purchases 33000 2011
sales returns 260 4 Equipment bought duHng the yearfor$4400
PurChase returns 315 has been deb"ed to Purchases account
0pening inVentoγ 6gOo 5 pu"ng the year Logan had taken goods forres钊 e
Debtors Contmlc「 fade JeOevables) 14125 wVhiCh Cost$800for his own personal use
Credtors Co汛 rol C「 rade payaues) 16070 6 $90ofthe general exρ enses related to an
Disoount a"oˇ ved 佃 amount paid out ofthe business bank aooount
D‘ ∞ unt reoeived 614 for one of Logan’ s private expenses In his
VVages and sa丨 aries 20600 a廿 emptto oorreotthe acoounts,Logan made
Adverlising 1000 another deb"entry° f$90in the GeneraI
GeneraI θXpenses 2340 Expenses account,with no other entry being
Bank 13710 made
Premoes ⒛ 000
Motor Vehicles 5000 RequIred
Equ∶ pment 3500 (a) Prepare joum引 entHes to correCt errors1to6
Cap"d 25000 (narra刂 ves are not required)
Drawhgs 3000 b) Prepare the suspense aocountto show the
〈
suspense 1gs CorreC廿 ng entHes
’
174135 174135
lc) Prepare a oorrected t"aI balanoe at31March
Logan is unabIe to find the di仟 erenoe on the trial 2011
balance and has entered the di仟 erenoe in thθ Thθ net pr° 】t perthe draft aooounts,prepared

suspense Account The fo"oWing errors haVe before the above errors were corrected,was
been made in the accounts $25000
1 D丨 soount aⅡ owed of$55has bθ en posted to
the credit of Disoount received
RequIred
2 Purohase returns of$108have been posted t° ld)Prepare a statement° fo° rreded net prof"
shoWing the e仟 eCt of eaoh error on the net
the deb"of sales returns
prof"perthθ draft accounts
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 Incomplete records
●

how Ⅱ calcu ato prof"orloss from statements of a矸 airs

●

hoW to prθ pare ln0ome slatements and statements of Flnanoial Poskion from in∞ mplete records
●

the re!atbnshiρ between mark up and margh

●

hoW t0CalCulate the cost° finventory lost by fire orthe付

161 What are incomplete records? intr° duccd and thc● l-er、 dravmgsin thc peood,
wⅡ rcvcal dlc pro丘 t orl° ss Cap⒒ al^calcLdatcd by
Thctcrm hcomp1ctc rcc° tds dcscnbcs any method
Ⅱsong thc asscts and Ⅱzab山 jcsin a statcment of
°f rccordmg trans犯 oons山 at^not based° nd△c
aff赤 s
doublc cnt叩 modC1Oftcn,oii,ra cash book,c,rody
rcc° rds of dcbtors and crcdltors,are kept,so d△ at o￡ dy ExampIe
°nc aspcct of cach transacoon is rec° rdcd Tl△ ls is
Faoma ls a halr sbrLst wh° has bccn h bushcss br
s⒒ 逶乒Cˉ Cn"y bookkeepmg Inc° mplctc rccords also
somc tunc She has n∞ ℃r lkcpt rccords° f hcrt・a晚 s
dcscⅡ bc“ tuaoons where dlc oⅢ y rcc° rds kcpt m呷
and paγ Ι..ents shc、 、厂h° 、
bc ii△ x oices± or purchascs,copics of salcs inⅥ °
iccs, ^shcs to kn° `inuch proflt
or loss shc has rnadc Ⅱ △thc ycar cndcd31Dcccmber
oheque c° untcrtoⅡ s and bank statcmcnts In a⒒ thcsc
⒛ 10Hcr asscts al△ d Ⅱabmucs at1Jai△ tIarsr and
cases,Incomc Statcmcnts and statcmci△ ts of Finanoal
31Dcccnnbcr2010wcrc as loⅡ o凡 /s:
Po“ 刂on cailnot bc prcparcd in thc normal硒 么y

1Janu盯 y2010 31Deccmbcr2010

162 HOw to CaIcuIate profit or IOss $ $
from statements of affairs Eqlupmρ nt 800 1000
sto&of hatr sWhng sllndn6 ⒛ 45
、7hcn rcc° rds of transacuons arc insufscicnt t° 山止soxmg佥 。m chcI△ ts
Tκ 》 50 70
cnablc an Incomc Statcmcnt to bc prcpared,the
'ˇ
Rci△ t pald h adsail∞ 100 120
Balal△ cc at bailk 15o 160
pro丘 t orl° ss of a busincss for a⒏ vcn peⅡ °d丘fay bc
C伦 dtl° 牮 for stlppll∞ 25 30
calcu1atcd if thc asscts and ⅡabiⅡ ocs of the busincss Ekcttl。 ″ oxxmg 如 50
at both thc start and cnd of thc perl° d arc known
Thc mctl△ °d o bascd upon bⅣ °prmclplc⒌ Fannla has drawm$100pcr聊 ∞k± rom伍 c bushess
1 thc accounong cquaj° n, for pers° na1cxpcnscs
capital=asscts-Ⅱ abⅡ iocs
2 proflt increases capItal;losscs rCduCc capital Req讧 rcd
Thc dlffcrencc bch△ ccn dlc opc血ng and closing Calculatc Fa刂 m^pro血 f° r伍e rarcndCd
capitals,ancr makng adlustmcn“ for ncxs,capital 31Dccclllbcr201o
Answcr Requircd
Calculatc I扫 rs pr。 血 。r loss for伍e year cndcd
statcmcnts of affars at
1Jailtla,2010 31Dcccmbcr2010 31Dcccmber2010
$ $
Fqmpmcllt 8lXl 1l× lo 163 HOW to prepare an Income
stock of har ss/hlg suildt16 70 45
Amounts Ow△ °mc⒒ cnts 50 70 statement and a statement of Financial

⑹
。
^g岔 100 120 Pos"ion from incompIete records

一
Rcnt pald h ad△ aflcc

铡
Bzalancc at b么 1r11ζ 150
1170 Most bushcsscs kccp rccords o± rccclpts and pa,tncnts,
Lcss Ihc rccords rnay con⒍ st ofbank pa,咀 泛,m~b° °k
Crcdltors for supphcs 25 30 countc¤ Rms,chcqtlc-book countcr炙 诅s and bank
恤g
Elcc缸 otv σ丙 四 ω 50 80
。 stakcmcnts in址 ktoon to suppⅡ crs’ invoiccs and copies
Nct as跹 灬← capt⒆ 1105 1315
Add dfaw灿 爹ln,Cat to s1Dcccmbcr2010 of salcs ns,oices Fr0m these records lt Fnay be poss11c
ls2× $100l 5200木 to prcpare an Income statemcnt and a statcncnt of
6515 Fhanclal Posloon The steps arc as folloMs:
Dcdtlct caPltal at bOgln-g oflear 110s
Pr。 nt f。 r uac rar cndCd31Dcccmbcr2010 5010 step1 PrcParC an oPcilIng statcmcnt of affatrs f° r dis
木DraW lilgs haˇ t bccn addcd back as曲 c capltal at31Deccmbcr buslilcss 1△ is is,in cffcct the pteparatlon° f a balancc
shcct and w波 auos△,dlc。 pcillng capit时 to be calctuatcd
2010vodd havc bccn gtcatcrif Fatlma had not takcn dis
step2prcparc a rcccipts and paymcnt account Ths ls snlmar to
moncy out° f thc buslncss
prcparlng a banli acc° unt and a cash acc° unt for ulc
bushcss You mav nccd d诋 to calculatc伍 c do曲 名
Notc ,Vhcn an assctis~诅 ucd at tnorc or lcss than b勰|cash balanccs for thc cbsmg balancc shcct
C0st,lt sh0uld bc inchdcd in a statcmcnt of aff加 Ls at stcp3 Ptcpare Control ac∞ Lults foi dcbtors← adC rccclvablc9
and ctcdltors ltradC p绅 ablc9,if n∝ cs弘 $to calculatc
saluauon
salcs and purchascs Thcsc涮 be the am° u红 ts icqufcd
Exercise1 to rn抵 thc Control accounts balance
stcp4 A曲 ust dlC rcccIp$and pavmcll灬 for acctuals al△ d
han has run a bushcss rcpai负 ng m0tor vcluclcs for prcpa9mcnts at bcguu△ ulg atld cnd of dtc penod
some ycars but has not kcpt propcr accounung stcp5 Calctuatc pt。 .-l“ σ ⒗ for doubtill dcb岱 ,dcprcoaoon and
records,Howcvcr,thc foⅡ o、 注ng h允 rmauon o 灬 y othcr ma仗 cts not mcntlclncd abc~℃
step‘ PrcpaJic伍 c Incomc statcmcnt and statcmcnt of
a~叼 Ⅱablc
Fiilancial Posiu。 n fr。 m thc informaJon n∞ ˇa△ aⅡ abIc
at at
1Jaauas⒛ 1o31Dcccmbcf⒛ 10 Example
$ $ It,c ody tcc° rds that Aasim has kcpt for hs bushcss
Pr∞ mscs at cost 4000 4000
arc bank pa卩 ng-m~book counterfoⅡ s,chcquc-book
Δ冱ol0ェ van at cost 5llllo 5000
lvIotot cat at Cost 3000 countcr± oⅡ s and rccords of debt° rs ltradC rcc。 、
⒓blcs,
Plant and equlpment 1100 1300 and crcditors ltrade payables)Fr° m thCsc itis
stock of parts 400 200 possiblc to summaⅡ se Ⅱs transacoons wi伍 伍c bank
Dcbt。 jis f° t9clrk donc 700 800
Balancc at bat△ k 1300 900
in thc year ended31Dcccmbcr2010as foⅡ ows:
0wnlg to suppLcrs fot par岱 170 340 Takln箩 pald into thc bank$8000
Chcqucs dt孙vn palmcn‘ to supphcrs$243α rcnt$60⒐
The prcniscs wcrc bought s° mc ycars ago and clcctno饣 $32α postagc and statlonc轷 $8⒐
were△ alucd at$9000狂 31Dcccmbcr2010At thc hoP flmlgs$48α dlcqucs drax△
putdlasc of ρ u
samc datc,伍 c mot° rw咀 w郇 叼hcd at$4000The fot pcrs° nal cxpcnscs$27llCl

hch hc brought hto

motor car X△ as Ll钅 1`sc,Mn car,xx・
1‘ Aaslm bankcd au11Lis talungs after pa,恤 g thc
thc busincss durlng山 e year4"s°Ⅱ酗 al c∞ t Ⅱan、 fo⒒°吡 hc灬 h crcotors%r suppⅡ ∞$400and
WCC脚 dra、注ngs眦 re$12o, sundr/Cxpcnscs$115
 Aasiln cs刂 matcd hs assets and ⅡabⅡ ocs at Answcr
1January2010to be:shop Ⅱ tungs$1600;invcnto〃 stcp1 ()pcmng statcment of a± tairs
$1960;tradc recα vab1es$240;rcnt prcpald$80;bank
balance$1500;cash in hand$50;crcditors(tradC $ $
Asscts
payablcs)± or goods$42臼 cIcctrlciy° 、注ng s130.
shop丘 吣 1600
At31Dccclnbcr2010Aasim Ⅱstcd hs asscts I忑迅 to轷 1960
and Ⅱabiliocs as foⅡ ows:shop丘 tjngs$1800; Tradc rccclx,ablcs 240
invcntory$1520;tradc rccclvablcs$380;rcnt Rcnt prepatd 80
Bailk 1500
prcpa1d$50;bank balancc$2640;cash in hand$50;
Cash in hand 50
crcdltors± or goods(“ ade payableΘ $39⒐ dcctrlo岬 5430
o砀 ing$225 Icss IJabⅡ dcs

铷~
Ckcdltots lor go° 酞 Crradc p叼 ablcΘ 420
Required

_猢
g
Ekctt,ti呼 σ砌△ 130
Preparc Aaslrrl、 Incomc statcmcnt for thc yCar Capital at1Jantl团 γ
cnded31Dccembcr2010and his Statcmcnt° f
Financia1P° slti° n at that datc
stcp2Rccclp“ and Paymcnts account Tlllsindudes° l△ y thosc am° un“ acttlauy rccclvcd and spent It is a
cash book sumina呷 、
^th colllmns for cash and bank

cas$⒃
Cash Bank

h
Ballk
$ $ $

ο
Jan 1 B狃 ancc b/f 50 1500 Tradc crcdttois 2430
Talmgs侈 00+400+11劲 8515 Rent 600
Cash 仁 8000 Elccmc,s 320
Pootage and sta谊 onc〃 80
shop丘 tongs 480
sundr/Cxpcnscs

跏№~
ings@700+25oD
Dr孙 丙 2950

猁~一
Bank ‘

~睨
Bah△cc c/f

唧
8565 9500
十$250is m0血 ey not accountcd%t and is￠ catcd as A岱 im愆 d⒓ w血 gs

stcp3 Dcbt° rs and Crcdltors Control accounts

Dcbtot8Coi△ tro1 Cre扭 tots Control
$猢

$仞
灿

$ $
k
驷

Jan 1 B斑 ancc b/f 2纠 0 Dcc31 Tau.gs1 猢_一

一

8515 阮 31 Batk and cash2 1 B址 ancc b/f

~跏

Dcc31 salc∮ 8655 Ba1vⅡ cc c/f 380 Balancc c/f 31 Putchascs3

铆

8895 8895
1From Rcccipts and paγ1nacnts account
2From Rccclpts and Paymcn‘ acct,llnt
3B斑 ancn△ g臼 碧”lcs

step4Adlust for prcpaymci÷ lt and accruals stcp5 Calclllatc deprecia刂 on of sh° p6tongs
$钔

$ $
⒆钙_仍

Rcnt pald 600 mcctrl。 ,p缸 d 弘op fltungs at xalilatlon荻 1Jail 1600
Add picp械 d at1Jan go Ie$α ″mg砬 1Jan Add fltongs p班 chascd血 lcar 480
Dcduct prcpald at31Dcc⒇ Add o、 ″ng at31Dcc ⒉080
Rel△ t palab始 fordlc rar m Elcct△icitV p呷 ab怡 tor Shop fltmlgs at、 叼如,aoon at31Dcc 1800
一

thc ycal Dcprcoao° n for伍 c ycar 280

 ・

step6. Thc margin ls pront/seⅢ hg pocc× 100

Aaom =2三 ×100

Inc叼 “e statenle11t
fot the严 狂 0ndcd3I Decembet⒛ lo
=20%〓

$“
$ 昔
salcs Markup is gross proflt cxpresscd as a pcrccntagc
Lcss cost of sales
or fracoon° f cost of salcs,
Invcilto,at刂 anuarv 1960
Pwchascs 2800 In thc abovc cxamplc,matk up^pro丘 t/cost p。 cC
4760
Icss invcnto呷 at31DCcCmbct 1520 3240 ofgoods× 100=丝 ×100=25%=⊥ .

Gross pr° 丘t 5415

Lcss
Rcl△ t 630 Thcrc is a closc rclaoonshp bc啪 △cn rnaJip and
Elccmcltv 415 mark up In thc abovc cxamplcs:

咖
Postage and statlone轷 80
阴_一

1_5
@盅 》
m
sundty cxpcnscs 115
mark up=扣 (宀 )

〓
a
Dcptcclaoon ofshop n缸 ngs 280
娜

Nct pro丘 t
From dis,a ge neraIrdc wⅢ bc〈 )bscrvcd:

A臼 8血 吼cn marp“
号,matk Ⅱ。-乞 and’ W・ h∞
s仑 atement of FinBno虫 up。 茹d° tl at31Deoembet2010
mark・ up o钅 ,m么 1r￡ ;irl o7争-.
$ $ $
Non-currcnt asscts:sbop n缸 ngs 1800
Currcnt asscts
In△ cntojiy 1520 Examples
380
±
T:t1dc tccclVablcs
Rcnt prcpald 50 If marp“
:,mark up⒗ 5「 Ⅱ=告 ;fm碱 up
灬1 +aˉ
Badf 2640
marpls J
Cash 50
4640 T’ T
驷钙

CurrOnt Ⅱabnltles
仍
_

⒒ adc p呷 aues
一螂

Elccmot)`0~mg If matgin饴 ,叩 酿 =丢 ;r mark叩

一

615 叩
镧娜_麴

鲁 毛
Capital at1J刨 a△ 么呷
⒗ˉ’2
margm$f
争
乙ˉ
Profit for thc rar
∶ T
铘
一

:iˉ
铋

Lc“ Dta9mgs
一

odons
Convers】 on of pcrccntage to fra:thc Enter山 e
frac色

164 Margin and markˉ up 茄

石
〃夕 pcrccntagcasinat。
}山 c numcrator oJ on and
r,and reducⅡ e to a comlnon
川°
Ⅲ饣 to calculatc ma】 1g∶
1t【 and m缸 kup may bc
necessary to solvc somc incomplctc rccord problcms
毁￡
扌∶Ⅰ
:luⅡ 儡=T 5%〓 ˉ1

Ⅱ压arg卩 n1s gross proflt cxprcsscd as a pcrccntage or

Conversion of ftacdon to a petcentage,△ fult刂
刂
frac曲 n of scMg prlcc, F9ly
thc nuincrator of thc frac刂 on by100,canccl top and
Example bottom ofdlc fracdon and add Ver ccnt’ or%slgn,
$伽

for cxatnplc
Ⅰ
「
⒛_钙

Cost pocc of g。 °ds

=z:2 =40o/0・
Pi・ oflt
sclLng p⒒ cc
 Most usefu1exampIes to remembef ExercIse2

%
%
俪 ar prosldcs the f° Ⅱ°、

1_3
1一

1~4
2
5

3
3
3

〓
〓
12%%=⊥ ;20%= ^ng informatlon for thc

5
ycar cndcd30Junc2011・

40o/o=ξ
|50v。
〓
丿←
;667o/0=±
L;75。/o= Ⅰ L; 0pcnmg mvm∞ rv 4000
$

Cl。 smg ns・cnt唧 7000

Cost° f goods sold 28000
80o/o=昔
Ammarb marp ona△ salcs ls20%.

Examples Rcquhcd
1Co阢 of salc⒌ $300,Mar要 n′ 25%Calcdatc thc Prcparc伍 c Trading scc刂 on° f Ammar愆 Incomc
sales revcnuc statcmcnt for thc ycar cndcd30Junc2011in as

'吻
Matgn k÷ ,mark up o÷ 灬跏∞×
÷=铷 lllxl
much dctaⅡ as posslblc,dcarll,sho驷 ing thc sal∞
℃ar
C0st of sales and gross pro丘 t for thc γ
,

ηkrcforc salcs rc∝ 加uc=$olXlO+1000l=$0llllo

165 1nVentory Iost in fire or by the仳
2,salcs rc△ cnuα $7000,Matk up ls40%Calculatc
伍c gross pr° flt Ihc mc伍 ods uscd for prcp砘 accOLlnts from

'彻
硎 VIark up o÷ ;margn、
号
inc° mplctc￡ ccords arc also uscd to calcdate the
s・ aluc° finvcnt° 锣 lostln a f△ c or by theft when
Tk的 forc gto弱 proⅡ t=号 × $7llll【 l=$20∞ dctaJcd invcnt° 饣 rCc° rds havc not bccn kep、 or
havc bccn dcs“ ℃d by f△ c.
oγ

3,Mahecn pr∞ 记 cs dlc fo△ o眦 hform岔d° n for thc solx,c dus ptoblcm” ptcpanng a℃ ro form犷
夕℃ar Cndcd31Dcccmbcr2010 Tradmg scc0on of thc I卩 c° mc statcmcnt σ tis
des“ kdas伊 o forma’ bccausc"厶 not ptcparcd”
$
Ifro(‘ ltorv1J狈 Ⅱ砰 ⒛10 9000 ±ansfcrrulg baBnces from山 e ledgcr accomts)
InvcntoF`at31DCccmbcr2010 11000
salcs ln thc ycat cndcd31Dcccmbct zO10 84000 ExampIe
s焖m〃 sw凼 housc was burglcd on10Apd⒛ 11侃
ˉ
NIahccn sclls hc± goods ata mark up o± 33丁 %・ 曲oKs stole m° st of山 e goods butlcftgpods M・hch cost
$1250,shaM suppⅡ ∞山e foloMmg hfo.Ι .Ι a乜 on,

Prcparc伍 c Ttadmg scc钇 n of△ Iaheen怎 Incomc EX讧 aCts ftom shah洫 、sutcmcnt of Finanual p。 sioon
statc攵 ncnt for thc ycar cndcd31Dcccmbcr2010in at31Dcccmbcr2010∶
as much dcta△ as posstblc,clcarl,/showmg thc sal邙 ,
$
1nvcnto〃 30000
Cost of sa1es and gross proflt for thc9咛 a‘
Tiadc± ccmables 40000
彳卿 润 脉 a卯 泅 exˉplC of probl-th狂 o$olvcd by Tradc pa,ables 20lXlo
w。 tmg backwards E珈 狂 ts lrom cash boo圮 3t Decembcェ ⒛ 10to10,Apt1201⒈
Mahc啷 Ttadmg account fot thc ycaJI cndcd3i Dccˉ 田 $
zll10 Recelpts ft° mc灬 to” σs 176llllo
$ $ Paymcnts to suppⅡ crs 120000
salc$(纟 切
) 84000
0thcr infoimadon:
Lcss `v腥

$
Invcntory at1Janua± ,Q`枷 ″ D 9000 O
Tradc fcccIVablCs诳 】 Aprl⒛ 11 ⒛ 0llll
p'Ptltchascs Φ砼allcmg npe匀
J/。 “ ollC
Ttadc pa驷 blcs at10Apd20t】 260l×
74000
l
s/op乡 Φalanculg nguic纷
1nx/cnto呷 at31December够 拗D 11tlllo shahn“ i scⅡ s lis goods at a rnark-up of25o/o
p2C° stofsatcs
s/。 C,dance母 g吐 e1) 63000

姒〃Gro$pω 犰÷× $:4lll× l 21000 Required

Calculatc of thc cost of thc stolcn goods,
Answcr ExercIse3
shBh匆 dr
Pro Fotm宙 △ 汨 仙 妒 ecd。 h oF the IⅡ ome statcmentfot Ncha、 xvarchousc M,as damagcd by缸 c On5Novembcr
the per山 od1Janu征 9忆 2010and m° st of山 c go° ds was dcstroycd Tho
"Ap扭 $ goods tbat was salvagcd was vahed at$12000
$
salcs6cc、 v1Dt螭 1bCb⒄ 1600llll Neha has prox,ldcd伍 c bⅡ ox,ing攵 nforma刂 on t°
Cost of salc⒌ Invent。 rv at1Jaau岬 2o11 3000o enabk thc c° st° fthc g° °ds lost t° bc calculated,
purchascs6CC WOrhg2bdovl 】26000
156000
厶Lacts from statcmcnt。 f Finan0狃 P。 “uon at3oJunC2010;
Iwcnto叩 砬1o・AptJ⒛ 11Φ 钔ancnlg flwcl⒛ 00o1⒛ 000
Gro$s pro丘 t lmafk up芯 25%so matgIn ls20%; $
Invc众 to, 47llllo
$160000× 2o9o 32000
TFadc tccα ˇ⒓blCs 16000
Tradc payablcs 23000
Cost° fgoods 斑d¤Ⅱ$@β 000-1250l=$26750 F吱由 cr血 formaoon fot thc pciod30JunC2010to
%磁 亥
冫1g` Dcbtors C° ntroI acc。 unt 5Nov⑾ bct2o10
$ $ $
1January Ttadc k)00010Apm
‘ Cash 176000 Rcccipts som dcbtors 122llllll
tCCCI△ ablcs Cash sales 17000
10~Ap血 s砒 s PalIncllts lo suppLcrs 138000
Tradc rcccl1・ ablcs 24ol,ll
Λt5N° vembct Tladc rccα vablcs
Φ狃ancIng flwθ 1600Qo 37000
200000 2o0000 Tvdc pa肛 bles 28llC o
饧 磁仫 2 Credtors C。 ntrol accomt

10ApiJ Cash
$
1⒛ lXlO1J颂 唧 Tradc
$ Ncha‘ m狂 k-up° n go° ds sdd is33丁 %
p屮 0les 20000
Traclc pa洌 DlCs 26000 1o.Kprl Purch岱 cs Rε quhed

Φalancmg fIwel 126000 Calculatcd thc cost° f thc mscnt°rylost h Ncha、 酿

1俑 0llll 146∞ o

A questi° n that gives only assets and Ⅱ

abⅡ Ⅱies requires the preparation of statemθ nts of afairs to find the prof"° r
loss ofthe business The‘ nequirθ menr usuaⅡ y begins vv"h‘ caloulε
me statement and slatement of HnanoiaI
"e’ P° sⅡ ion,prepare thom in as much dθ taⅡ
"required
as possibleto prepare an ln∞
Be carefu丨 to distinguish bemeen‘ mark-up’ and‘ margin`Leam howt° conVert markˉ uρ to margin,and vice versa
丨ncIude a"your woH犭 ngs wlh your ans、 ″e【 lf your Workings are not qu"e right,y° u may sJⅡ
gain s° me marks;
but‘ no w° rkings-no marks’ for a wrong answe∴
Tiok each item in the questi° n as you oeal w th i1cheok that eVe3汶 hing has been ticked before wr1ing your
answerto ensure you haVe not missed anything
Incomp丨 etθ records questions test a wh° le rangθ of oandidates’ aooounting knowledge and skⅡ
ls FOrthat reason
they are frequentIy setin examinat ons s° me candidates fearthese questions unneoessaⅡ
ly Keeρ calm and
foⅡ oW the steps taughtin this chapter carefu"y If your statement of FinanoiaI Pos∶
tion does not balance first
tirne,don1panio Do not spend valuablθ time look氵 ng forthe di矸 erenCe r this time is beter spent answering the
next question You haVe probab丨 y done enough to gain usefulrnarks,anyway

1. Jackson commenced businθ ss wⅡ h$10000that used s° me ofthis rnoney to ρurChase a rnachine

he had roceived as a gi命 from his aunt and$8000 f° r$15000 He obtalned a m°
that he had reoeived as a Ioan from his fathe匚 He to purchasθ a worksh° ρ "gage for$2o ooo
 Hoˇ V muChˇ Vas JaCkson’ s cap⒒al? 4. At1March2010A len’ s trade receivables amounted
A $3000 B $10000 to $12100 In the year ended28FebnJary2011he
C $18000 D $38000 received sss stlO f丨 om trade receivab|es and a"° v̌ed
2. At1Januaγ 2010RObe"’ s business assets vˇ ere them cash discounts of ss426At28February2011
vaued at$ss O00and h怎 Ⅱ
abⅡ mes am° unted to his trade receivabIes tota led$14625
彤⒛∞ At31December2010RoberFs assets How much were AⅡ en’ s saIes forthe year ended
amounted to$57000and mduded Ⅲs pnvate car 28February2011?
WhiCh he had broughtinto the business on A$62599 B $64401
1NOvember2a10when"was va△ ed at sgO00H。 C $66025 D $69451
trade payables at31December2010totaⅡ ed$17000 5. At1 0Ctober2010MaHa’ s trade receiVables
and h⒗ draMngs dunng une yearˇ Vere$190∞ amounted to$7440 0fthis amount$384is
What was Robe"’ s profitforthe year ended known to be bad In the yearto30seρ tember
31December2010? 2011she reoeived$61080from trade re∞ vables
A$6000 B $16000
Hertrade receivab|es at30september2011were
C $24000 D $33000
At1Apr"2010Tonkin’ s business assets vVere∶
$8163H° w much were Ma"rs sal° s for year
ended30september2011?
motor van VaIued at$5000(cost$8000〉 ,tooIs
A $sO741 B$61419
$1600,inventory$700,trade receivabIes$168,cash
C $61803 D $62187
$400 His trade payab|es tota"ed$1120Ad31
6, A"of Graysons’ s inventory Was stoIen When his
March2011 his assets were∶ Workshop which had
business Was burgled on4March2011 His
°°st$20000and on which a rnongage of
inVenton/at31December2010Was$23000 From
$16000was s刂 Ⅱoutstanding,motor van$4000,
tooIs$1900,inventolγ $1000,trade receivables
1Januaγ to4March2011saIes totalled$42000

撒瓢罹茁
擀搡唰愆
$240(of whiCh$70were knoWn to be bad),cash
$500 His trade payables amounted to$800 DuHng j?
the year tonkin’ s draw ngs amounted to$5200
VVhat Was TOnkin’ s profit f° rthe year ended A$28000 B $29500
31^刀 arCh2011? C$33000 D $40000
A$6222 B$6292
C$9222 D $9292

1.seng conη ηenced business on1January2010 ⑴ 1January2010and巾 o31December2010

when he pa∶ d$40000into the bank togetherˇ vith (b)C创 culate seng’ s prof"orloss forthe year
$20000ˇ vhiCh he had received as a丨 oan fro丨 ηhis ended31 December2010
brothen At31 Dece丨 ηber2010seng’ s assets and saeed does not keep proper books of accountfor
Ⅱ
ab"ities were as fo"ows∶ his business but he has ρrovided the fo"oWing
deta"s of his assets and liab""ies
$
shop premiso 20000 At1July At30June
Motor van 8000 2010 2011
shop fiⅡ ings 3000 $ $
InVentory 4000 Land and buⅡ dings at cost 60000 60000
Trade ReceiVabIes 1000 F∶ xtures and fiⅡ ings 10000 12000
Bank balance 5000 office machinery 8000 7000
Trade Payables 6000 lnVentory 17000 21000
Loan from brother 16000 Trade reCeiVables 4000 5000
ROnt ρreρ aid 1000 600
seng℃ drawings were$100per week Bank balanoe 14000 16000
RequIred 1}ade payables 3000 1600
Wagos owlng 2000 1000
la) Prepare senσ s statoments of a矸 钊rs at
 Fu"herinforma】 on Cash summary
1 Land and bu"dings haVe been revalued at $
Reoeipts
$90000at3o Junθ 2011
2 0fice machinθ ry at30June2011 included a
es
Cash sa丨 21750
Payments
comρutor costing$14oo,which saeed had
ρaid f0rfrom his ρersonaI bank aooount
Goods for resaIe 3140
3saeed had wkhdraWn$200per weekfrom thθ statbneγ 300
business in cash,and a total of$2000of enses
Motor van exρ 600
g° °ds f° r his own use durlng the yθ arto sundγ expenses 400
30Junθ 2011

Rθ quIred Fu"her information

Calculate saeed’ s profit or丨 oss forthe year ended 1 The balance of oash in hand has been
30June2011 maintained at$5o
3,Ahmed oarⅡ es on business as a generaltradeⅡ 2 At3o september2011,the Closing inventory
He has not kθ pt ρroρ er aooounting rθ cords and was$8000Tradθ reoeivabIes Were$1600
he asks you to heIp him ρrepare his Income and trade payables for supp"es Were$130o
statementforthe year ended30september2o11 3 Bad debts Wri廿 en o矸 in the year Were$250
and his statement of FinanCial Position at that 4 Discounts reoeived from suppⅡ ers in the yθ ar
date Ahmed’ s assets and Iiabi丨 ities at were$420
30sθ ρtember2o1o were asfo"oWs∶ 5 At30september空 o11θ 丨
eCt"ciˇ owing was
$ $320and rent° f$450'had been ρreρ aid
Prem⒗ es 60000 6At30ser沈 ember2o11the motorvan Was
MobrVan 8000 VaIued at$6000
InVentory 6250 7 FiXtures and fi⒒ ings are to be depreciated on
Trade recewabIes 3200 the reduoing balan° e rneth° d using the rate of
Rent paid in advanoe 000 25%perannum AfuⅡ year’ s doprec ation is to
Balance at bank 9450 be takθ nin the year ended3o septernber2011
Cash∶ n hand ∞
8 Ahmed does not prov ded for depreo ation on
Trade payablθ s 18∞
the premises
EleotJ创 ty owing ⑾
Interest on Ioan owing 9 Ahmed hastakθ n goods° os】 ng$800from
1stl
LOan from brother the busin0ss for his own use du"ng the yean
2llOo
10 Ahmed statθ s that he paid s° me private bⅢ s
per annum
Thθ loan oa"ies intorest at10o/。
payabIe in arrears annua"y on31Decθ mber eaoh out ofthe cash takings,but cannotremembθ r
ho、 ″rnuch is involved
year
Ahnned’ s transact丨 ons in the yθ ar ended
RequIred
30september2o11were as fo"oWs:
la) Prepare Ahmeds h∞ me statementforthe
Bank summary $ year ended30september2o11
Rece:pts Prepare Ahmθ
⑼ d’ s slatement of日 nanoiaI
Rθ oelpts from trade reCeivables 29400 Pos"ion at30september2011
Cash banked 17CX,o 4.NurV‘ h,who does not keep properrec° rds for hls
Payments
businθ ss,suppⅡ es the following information
sup口 。rs 23000
EbCtⅡ clty 2200 1July2010 30June2011
Rent 4000 $ $
M° !orˇ an expensθ s 1800 lnVentory of goods 16oo0 11ooo
Interest on loan 200 Trade Payables lor g° °ds 36oo 520o
Wages 7400
Telθ phone and stationθ ry 1650 ln the year ended30June2011,NurVsh paid
Purchase of】 xtures and fi廿 ings 3000 suρ pⅡ ers$54000
DraWings 11800 Nunnsh sel0his goods at a gross pmflt margin ol00° /。
 On17January2011,NurVish’ s premises Were Balancθ at 30AprⅡ 2010 3o ApⅡ 12o11
fIooded and inventoγ that C0st$5oo0was
damaged and could only be so丨 d at haIf cost prioe Wages and saIaries $ $
|n the year ended30June2011,NurVish took oW ng BOO sOo
goods Ⅵ ρersonal use InVentory 22400 21923
`hich Cost$1300for his Bank 39000 to be Ca丨 culated
RequIred
Prepare the Trading sedion of Nurvish’ sIncome Korn’ s bank accounttransact ons forthe year
statement forthe year ended30June2011,Clearly ended30Apr"2011Were as fo"oˇ vs∶
showing the sales,cost of sales and gross proⅡ tfor
Re∞ ipts $
the yean
Trade recdvab丨 es 170430
5. Nadia Was Ⅱ Iˇvhen herinventoγ sh0u丨 d haVe been
Cash sales 103000
Counted on31 December2010 The stoCk count sales of n° nˉ current assets 2400
did nottake pIace unt"8January2011ˇ vhen it Was
lsee note← )b引 °wI
carred out by an inexpo"enced rnember of sta矸 payments
The丨 nVentory was VaIued at$62040at8Januaγ Trade payabIes 227668
2011 Wages 17200
Nadia Was sure thatthe inventory had been Rent 8000
overva|ued and discoVered the foⅡ owing errors EIedHoty 9670
1 The inVentory had been valued at se"ing p"ce GeneraI expenses 5150
instead of at cost The gross profit margin on Purchases of fixed assets
a"goods so丨 d is20% (see p° int4be|ow) 27000
2 Goods had been sent on sale orreturn to a
customer who had not yet accepted the g° °ds
Further information
1 KOrn banks h:s receipts from cash saI0s after
The customer had been sent an invoice for
taking$300eachˇ veek as draˇ Vings
$2000 This had been treated as a saIe
2 During the year ended30Apr"2011,KOrn had
3 Goods so|d to a Customer on3January2011
taken goods c° sting$1350for his oˇ Vn use
had been overcharged by$24o
3 Korn norma"y valued his inventory at cost but
4 The fo"oWing transaCtions had taken pIace
on the advice of a friend he decided to Va|ue his
botWeen1January and8January2011 but had
inVentoγ at30Apr"2011at se"ing price His
not been laken into accountin the stock taking∶
normal mark up° n inVentory was30%
(i) go° ds cost ng$4400had been received
4 Korn had borrowed$3oo00fr° m his brother
from supρ
on a longˉ term basis on1 May2o10 He had
"ers for$12000(n° t including
(") saIes of goods
not recorded this transadion Interest on the
goods sent on sale orreturn)
IOan at10%per annum is payable on1May
Required each yean
CaIcu|ate the vaIue of herinventory at cost at During the financial year ended30AprⅡ 2011the
fo"oˇ ving transadions had taken p|ace
31December2010
6.Korn,a reta"e1does not keep proper books of $
account but he has provided the fo"oWing Purchases
information about his business Freehold land and bu"dings 10000
MOtor VehiCles 10000
Balance at 30Apr"2o1o 30Apr"2011 FiXtures and fi廿 ings 7000
$ $ sa丨 es
Land and buⅡ dings
Motor VehiCles 2000(net b° ok
at cost 6o ooo 70000 vaIue at
FiXtures and fittings 8ooo 10000 3o Ap"I2o1o
MOtor Vehic|es 10000 8000 $3500)
Trade payabIes 75oo 6900 Fi× tures and fi廿 ings 400(net bo° k
Trade receiVables 20400 32000 VaIue at
Rent owing BOo 1000 30Ap"I2010
sg∞ )
 Requ:rθ d (O From1Apd2009to31March2010,
⑶ Prepare KOrds lncome slatementforthe year Cornelius dreW$400pθ r wθ θkfrom takings
ended30ApriI2o11 for his personal oXpθ nsθ s
From1AprⅡ
(b) Prepare the statement of Financial Pos"ion at 2010the Weeky amounts drawn were
30Ap"12011 inoreased to$500
(°
〉Comment on the suggestion by Korn’ s fHend (i) on1JuIy2010,CorneⅡ us ρ aid$5000out
thatinVentory shou|d be Valued at seⅡ ing prioe, oftakings to pay for a famⅡ y hoⅡ day
and referto any rθ leVant accounting principle C")Cornelius has taken vaⅡ ous other amounts
7,CorneⅡ us oomrnenced business on1Apr"2oo9 He from takings for personal expenses,but he
has not kept comρ ete reoords of his transadions has not kept a record ofthese
btm he suρ pⅡ es the loIlowing information 4 Corne"us purchasθ d thθ businoss prelη ises on
10Ctober2009 He paid$40000forthese
1ApⅢ 31March 31Maroh from his oWn prlVate bank account The
zOOg ⒉D10 ztl11 balance was obtained as a bankloan on which
$ $ $ interestis payable at15%per annum on
BaIance at bank 3o000 116000 111110 31 Decembereach yθ a∴
Equiρ ment 15000 28000 45900 5 CornoⅡ us’ father has agreed that his loan to the
lnventory of bus丨 nθ ss WⅡ l bθ frθ e ofinterest forthe first
g° ods at cost 37500 52000 74250 yean A什 er that,in1erest w"I be atthe rate of8%
Longˉ term loan per annum,payable annua"y on31Maroh
from father 20000 20000 20000 6 Corne"us purchased additional equip|η ent
Premisθ s 80000 80000 oosting$24000in the year ended31Maroh
Trade receivablθ s 22400 34200 2011
Trade payablθ s 56000 67410 7 sundry expenses paid in the year ended
sundry expenses In arroars 2280 875 31March2011amounted to$27000
sundγ eXpensesIn advance 700 4050
Requred
Fu"her∶ nformat∶ on (a〉
CalcuIate Comel us’ pro】 t or|oss forthe year
1 Cornelius lη ade payments of$371340to ended31 March2010
supp"ers in the year ended31March2011 (⑵ Prepare in as muoh deta"as possible an
2 Complete records oftakings are not aVaⅡ able lncome statementforthe year θndθ d
but g° °ds are so|d ata markˉ up of30% 31hl arch2011
3 Taking were banked aRer deduc忄 ion ofthe (°
) Prepare a statemont of Financial PosⅡ ion as
fOIOW ng at31March2011
 NOh亠 笞
t|F自Ⅱ
号 ε
Ⅱ∶
n organ∶ sations
(cIu 'o】 s)

● neWterms usedfornon-profⅡ ˉ making organisa刂 ons

● newforfns offinancial statements for nonˉ profitˉ making° rganisations
● hoW to app!y the techniques used forincomplete records to preρ are aCCounts for non-profi△ mak∶ ng organisatlons

171 What are nonˉ profitˉ making The泓 Π

。rds surplus of income over expenditurc
organisations? are uscd in placc of‘ nct pront’
⒒ c words cxcess of cxpcnditure over incomc
Non巾 roEt nlaknlg明 羿 亦・
aur,ns囟 欲to proxidc are uscd h place° f‰ ct loss’
/acdltlcs lor由 clr mclllbcrs Exala△ plcs arc:spor‘
± d
9J】
Thc tcrms Accum讧 ated fund is uscd in placc of
⑽clal chbs,dral△ laoc sooeoes,mu立 c山 abs,ctc Makl● △
g ‘
Capital acc° tlnt’
a prOJ:i1to nc,td△ clr nulil pllrposs altlao咖 tllans⑾ ,on A Receipts and Payments Account takcs thc
±
Lmd-ratsmg acuˇ 1乜 cs to proxidc rn° rc or bc仗 cr laCmocs placc ofa Bank Accou卩 t
lor d△ c mc血 bc灬 Ihcc,rganJsa色 onls b⒄ Ⅱd’ by aⅡ °fi“ subscF” tons take dlc placc of Salcs as thc main
mt・ l△ 1bcrs and not bv,j峪 tc,nc pclson or par扯 ⅡlⅡ sourcc ofincome in thc Incomc and Expcnditurc
Rccords o± mon∈ 丬 alc usu钥 J1y kcpt b1・
a dub mcrrlbcr、 胚`recels
o ls noteda and spc碰bookkcqpcr or
tralilcd from dances or thc sale° f ockcts f°
accoun△ mt ut.au,/∞ 。
thcr Ⅱcords狃 lxcpt Ilus touc
^ccount Othcr b,pcs ofchb incomcr amay
parjculat
comc
act1v1ty
is,伍 crcforc,an cxtcnsion ofthc、 Itcms arc groupcd togcthcr,or rnatched in thc
`ork ofthe p“ ^nous
cllaptcξ vx/lucll de热 诫 dl△lcorllplctc rccords Inc° mc and Expcndln△ rc Account,s° 伍at it is
It foⅡ °、
vs fr° m the ab° vc that a busincss x△ 【
llch is pos盂 blc t° scc、
绍C砑″彦to inakc pro丘 ts is n° ta non~proflt-maklllg `hcdlcr a particu1ar acuvltv,say a
dancc has lnadc a surplus or dcflcit
orgalllsaj° n,cvcn if it kccps rnakng losses A Trading Accountis only prcparcd for an
Non巾 roⅡ t malmlg oη 各visa。ons arc a山 跖crcnt activity that is in the naturc of trading and is
o「 pc of ellterprlse】 ° mo删 Lng orgaiusaoons As a carricd on to increasc thc c1ub、 ±
llnds,for
resdt,they havc thcir own tcrrns for s° mc° f山 c cxamplc a ca炙 Any pro丘 t° r loss calculated xxlll
items you wⅢ comc across6cc17④ bc transferrcd to thc Inc° mc and Expenditurc
account Ifitis a ptofltit wiⅡ bc addcd t° th。
172 speCial features of the inc° mc Ifitis a loss it Ⅻ注1l bc addcd to thc
accounts of non冖 profitˉ making expcnditurc A loss sh° uld ncvcr bc shown as a
organisations ncgativc undcr thc inc° mc column° fthc
Inc° mc and Expcnditurc account
●丿 unt takcs thc
`n Incomc
placc of thc and
Inc°Expcnditure
mc statcmcnt Acc°
173 The treatment of inc and cxpcndlmre° n it dcbltcd to thc
~cd for spcclal purposcs sh° uld
Inc° mc° fachb m。 h o thc tcrm
bank acc° unt to cnsure that1t
in thc rcst of this chaptcr to covcr au n
伽 ng⒌
makng orga血 阴oonθ sh° uld bc trca
accounts as foⅡ ows:

subsc"ptions AnoⅡ ary ac色 V1色 es are inodcntal to a club、 main

purposc,Thcy raisc money to supplcmcntincomc
Thc atnount crcdtcd to dtc Incomc贫 nd Expcn山 mrc
丘om subscr1poons If thcy1nˇ ol9・ es° mes° rt of
Account曲 °dd cqualthc annual mbscrIpoon pcr
伍admg,a Tradlng Account should bc prcpared for
mcmbcr mLllup△ cd” 山c numbcr of mcmbcⅡ ,R
曲em as part° f thc alnual acc° unts,and thc proflt or
m缈 be helpful ω prcpare a subscrlpuons account as
loss should bc transfcrrcd to thc Inc° mc and
驷orklngs to deodc how much shodd be credlted to
Expcndlure Acc° unt
d△ c Incomc and Expcndlmrc丿
Non-tradlng acux・ locs,suCh as socials,ou乜 ngs and
subscopdons in arrears and `ccount
subsc艹 pdons h
dlnnc⒈ danccs,may bc dealt w1伍 h thc Incomc and
advance sh° Ldd mt,rwz//,be trcatcd as accru・ als and
E即 endlturc AccoLlnt咖 曲 thcincome and∞ sts
prcpaymcnts Ho、 vever,each chb hasits σwn poⅡcy
bcmg groupcd togcthcr as± oⅡ ow⒌
for廿 catmg subscⅡ ions h arrcars orin adx・ ance The
$ $
bvo poss山 lc poⅡ ocs arc as foⅡ ows;
A山 mJal d-c⒈ dancc
● Cash bas泌 Thc amount acma△ rcccls/cd in sˉ salc of dckc‘ 600
thc year is crcdltcd to thc Incomc and I ess: Hirc° f band llO0l
Expcnditurc Account Ths may include Catcmg 鲫
Nct rccclpts/n￠ s匝 uus。 n dtnnc⒈ dancc 260
subscripoons for a prc呐 ous ycar or paid in
adˇ mcc f° r dhc ncxt ycar,
174 HOW to prepare cIub accounts
● Accruals basis,Ⅻ subscnpoons duc f° r thc
9℃ ar,inchKⅡ ng d△osc n° ty℃ t rccαˇ
℃d,arC Thc prcp狂 ao° n° f chJb accounts foⅡ ow thc samc
crcdlted to伍 e Income and Expendl血 tc procedu± cs as thosc uscd for busincsses灬
`hosc
Ac∞ unt,L wⅢ usm灯 bC thC cM脉 poh叮 to rccords arc jn∞ mpIc∞ 6cC chaptcr16)toge伍 Cr M,lth
wntc o砥 as bad dCb“ ,subsα Puons tll狨 arc not 伍c princlplcs cxplalilcd in§ §172and173
rccα vcd h dlc,℃ ar aftCr thcy wcrc duc
ExampIe
Life subscript∶ ons and entry fees Thc star sports and Soclal Chb prov1dcs rccrcauonal
Llfc sLIbscⅡ puon.s and cntry fccs arc rcccⅡ ℃d灬 丨 ump ac“ 、
△ucs,rcfrcshments and social cvcnts for ks
ˉ
sums but shoLlld not bc crcdltcd in± d to伍 c Incomc mcmbcrs,It sc⒒ s sports cq△ upment to its tncmbcrs at
and Expcndlo亚 e Account when recewed Thc chb rcduccd pⅡ ccs Its asscts and ⅡabⅢ 刂es at
shodd h脚 c a poⅡ cy of sprcadmg dus hcomc° ˇ
cr a 31Deccmbcr2010、 ows∶
`crc as fo⒒
pcrlod oξ m另 flx C ycars Thc amounts recelsed
$
shoLJd bc crcdltcd to a IDcfcrrcd Incomc account and FRcd or N。 n~currcnt asscts
crcdltcd to thc Incomc and ExpendltLue Account h pa..lL。 n
1￡ J0000
cqual afnual instaLncnts oˇ °ra pc。 od dctcrmncd by Club spots eqtupmcnt 纠0000
ˇ⒗tor roucr 2000
tllc club comnu伍 CC,
Currcnt asscts
Invcnt° ,° f Cqtupment foi sa1c to mcmbcts 4000
DOnations Annual sub$copuons。 xvlng 1200
D°naoons alld lcgaocs to a dub狂 c LlsuaⅡ y made± or Bank balance 6730
Cu【 ent hablL刂 cs
parocular putposc岛 for cxamplc to、 刀吐ds the c° st° fa Crcdltors fot cqupmc趾 fot salc t° mcmbcrs 1300
ncw p汴 on° r a piccc ofcquipment Such Amual subscrlP芯 onsilecα ved h ad△ ancc 800
`Ⅱ
dona刂 °ns shotJd be credlted to an account opcncd LlIc subscop谊 ons fund 1750
 In thc ycar cndcd31Dcccmbcr2011thc chb、 that w° r饣 you・ KCCp calm,Rcad thc qucsjon
cash rcceipts and paylncnts、 阝 ows: car已哂 tss,o or dlrcc刂 mcs,mahng surc四 u
`crc as foⅡ undcrstand it,and undcr⒒ nc important points
$
Dccidc what・ .vorklngs arc rcqturcd and whch must
Rcccipts
be sho、 ur answer Then procccd as lo⒒ ows:
Annual subscrlpoons 18000 `nin y°
Pr° cccds from sale of cqtlipmcnt 12000 step1Prcparc an° pc-g statcmcnt of at± airs
salc of ockct$for dlnncr-dancc 4000 Ths vslⅡ gls・ e tllc balancc On tllc Accumulatcd负 nd
Rcfrcshmcnt bat taklngs 2660 at1Janua呼 2011and wˉ l⒒ bc thc st征 ong polnt± or
1ifc member subsc⒒ pJons 400 recordmg thc伍 anmC0ons durmg山 c yca⒈
pa.mcnts
Carc忸 kcr、 △agcs 8000 statcment of aⅢ 砬 θat31December2010
RCPa】 rs to c⒗ b cq讧 pmcnt 1700 $
Purchasc of sp° rts club cquipmcnt 2000 Flxcd or N° n‘ wjIent assc灬
Equipmcnt foΙ salc to mcmbcrs 4000 pa.iL。 n 12Ja Ooo
Hcaong and hghdng 1800 Clllb sports cqlupmcnt 00000
Dinncr-dancc cxpcnscs Motor roncr 20lXl
Hlre of band 200 Currcnt assc‘
Catc俪g 1000 1nvcnto玎 of Cqllipmcnt for salc to mcmbcrs 40Clll
Food for rcfrcshmcnt bar 1000 Annual subsc⒒ poons owing 1200
sccrctary、 cxpcnscs 840 Bank balancc 6730
Total assc‘ 173930
Further informadon Cllrrcnt habi⒒ ucs
Crcdlt。 rs ror cqulpmcnt for salc to mcmbcrs
1 At31Dcccmber2011 Annual subsc⒒ ptlons recclved lIl ad△,ancc
13llll

800
annual subsc⒒ p刂 on h arrcats wcrc$1400 1ifc subscoptions lllnd 1750 3850
annual subscopoons rccc小 Accumlllatcd fund at1Janua〃 2011 170080
`cd ih adsrancc环 `crc
$900
2ImKnkyy ofcqtllplneilt for salc to mcmbcrs:$2CXlCl step2 Prcparc Rcccipts and Paymcnt account
3 Crcdhors for cquipmcnt for szalc to members: Ths wⅡ 1summarlse all the transacoons affccung thc
$900 Incomc alld Expcndlturc Account and statcmcnt of
4A membcrdon/atcd$5000to a± Llnd t° Financial P° sioon and calculatc thc bank balance at
cncouragc yolmg people to traJn for sport Ths 31Dcccmbcr2011
dona刂 on was螂、stcd immcdlatclv・ hs外 汕ngs Rccclpts atld Paymcntg犭 ccount fo:thc
bonds ,eat ended31Decembcr2011
5The dub trans佗 rs Ⅱfc subscr1pu° ns to thc $ $
Inc° mc and Expcn山 mrc Accountin equal 1Jan B诫 狙 cC brought 贸 Dcc Carctakc^
fo小 vard 6730 vagcs 8000
instalmcnts° s,er“eyears
31Dec Afultlal Rcpat⒌ dub
6 Dcprcciaj° n is to bc proxidcd on Exed assets by subsc⒒ poons 18000 cqmpmcnt 1700
thc rcducing-baIancc Fncthod as foⅡ ows: salcs of Purchasc:c⒗ b
Pa呐山on 6Vo cquipmcnt 12000 cquipmcnt 2000
sa1cs of ockcts Purchasc of
sports eq△ ipmcnt 20% D血 nc⒈ dancc 4000 cqmpmcnt for
Motor roⅡ cr 20V。 Ta妯“gs- rcsalc 4000
rcftcshmcn岱 2660 Hcaung and
Rcquircd hfc mcmbcrshlp Ⅱgh刂 ng 1800
stlbsc⒒ ptlons 400 Dinnerˉ dancc
⑶ PrCparc thc star sports and soo狃 ClLlb、
hirc of band 200
Incomc and Expendlmre Account for thc year catcmg 1000
cnded31IDcccmbcr2011 Food fof
tcftcshmcnt bar 1400
o)PrCparc伍 c dub、 statcmcnt° f Flnancial sccrctarsPs
P° sio° n as at31Dcccmbcr2011 cxpctlscs 840
Notc Ottcn thc amount° f inf° rmaoon glxcn in Balatlcc c/f 23250
铒 190 44190
qucs0ons such as dis looks terrlfvlng but don’ t lct
 step3 Preparc w° rkngs t° ad丨 ust f° r accruals, Y° u mγ show y° ur w° rklngs灬 lcdgcr(t9
prcpayments,dcprcciao° n and any othcrltcms show accounts or as calculatl° ns,Dcc1de whch mcth° d is
thcsc worungs环 汀th your ansM`er bcst for you and pract1sc itin a⒒ yot1r cxcrciscs Both
mcth° ds wⅢ besh° wn hcrc
‘ accounts
T’ Calcu1ations
1 Purchasc° f cqulpmcnt fot tcsalc
$ $ $
Cash paud 4000 Clcditors b/f 1300 Cash paid 4000
Ctcditors c/f 900 I&EA/c 3600 lcss crcdltors b/f l1300l
4900 4900 2700
add αcd1∞1尽 c/f 900
Tradn△ gA//c 3600
Annllal subsciipuons $ $ $
0v・lag扯 1Jan 1200 Ptcpatd at1Jan 800 RcccⅣ cd m汐 ar 18000
Prcpatd at31Dec 900 Cash 18000 怡“ovilag1Jan l1200l
I&EA/c 18100 0△ lg at31Dcc
l● 1400 piepald31Dcc (900l
20200 20200 15900
add prepatd1Jan 800
σv。 呜 31DCc 1400
1&EA/c
$钔

181rk,
hfc subscipdons
⑺

$ $
×
~

A/c岩 2150 B/f 1750 B赤 ancc b/f 1750

~刈

1%尸 Cash tccα vcd 400 Cash lccclxCd 400

2150 2150
I&EA/c(诺
4 C1ub sports cq△ upmcnt $ $ ρ 430
$
B/f 40000 I&E侈 0%) 8400 Balancc b/f 40000
Cash 20t ll c/d 33600 Cash 2000
42000 42000 42tKlo
I&EA/c@0⒐o 8纠ao
Nct bo。 k valuc 33600

stcp⒋ ‰hcomc and Expcndlmre qccountand stot spoftg and sodai C1ub
犰迁m∞t of FMnclzal P∞ 血⒛ may n∞ plcd out
Income and Expeo曲 tute Aocount￡ or the ycat
'bc∞o
flom stcps1,2and3As thc salc ofeqmpmcnt
endcd31Decembcr⒛ 11
mcmbm ot硎 崾 ,a Tmdulgkcountshould bc prepared
$ $ $
Annual subsc⒒ ptlons臼 。rklng纷 18100
四鲴 dlough onc o not灬 kcd for h thc qucsuon Lu佗 subscⅡ 刂o众 s lSv。 rktng Φ 430
pr。 flt。 n salc° f
If steps1,2and3h孙 carc, cquipmcnt 6000
`e bccn cartlcd out wi伍 Dinncr/dapcc水
prcpaog thc Incc,me and Expcndlmrc AccOLlnk and
salc° f ockets 44∞
statcmcnt of Fmanoal Po“ o° non°、 tde m° tc daan Lcss hitc。 f band 2tlll
`Ⅱ
a copyη g cxcrosc and can bc c° mplctcd m Ⅱdc omc catulg 1000 1200 3200
Rcfrcshmcnt bar艹
(al Ta炻“gs 2660
Lcss cost of f° °d 1400 126o
snlcg ofeqmpmcnt 29390
$ $ Less expcnscs
sales Carctaker、 wag∞ 8000
12000
Less c° st。 f salcs Rcpars t° cltlb cq△ upmcnt 1700
Invento,at1Jantla92oi1 Hcamlg删 Lgh吨 1800
4000
Pu攵 hasc lx△ ・
ot岘 0 3600
sccrctary怎cxpcnscs 840
鲫

Dcprcoadoil Paxa。 n阝 %。 f$120000l 7200

~

7600 Eqt10ment l。 ・
⑾

orkng θ 8000
Less m△ cnto〃 at31DCcCmbcr2011 2ooo 56oo M° tor ro⒒ cr⒓ 0%of$200lll dlXl
Pr。 nt讧 ansfcrrcd tO Incomc&Expcndiure Acc° unt 6000 su,plus° fincome° vcr cxpcnditurc
 尜Expcnscs of dmncr-dancc and rcftcshmcnt b么 r atc gro△ lpcd subscr,pdon for dlc ycar cndlng31Dcccmbcr2012 360
钫 dl山 c inc。 mc from thosc acdvioes to五 clp mcmbcrs scc how Paymcnts
伍 osc毵 灬 fiuds Hirc of hal1 2600
`uCs havc contrlbuted to thc club、
P⒒ nong of Postcrs,谊 ckcts and programmes 180
(l)) Hlェ c° fc° stumes 4700
Cos攵 °f ic丘 eshments 22lXl
statement of Finandal posi山 oi at31Dcccmbc● 12011
Paymellts for copsrrigll岱 14"Do
$ $ $
Fixcd oェ Non-currcnt asscts
at nct book valuc
At31Deccmbcr2010,mcmbcrs subscr1p乜 0ns0f
Pa△ Jlon 112800 $280were oxxlng
Club cqmpmcl△ t 33600
lvIotor roⅡ cr 1600 Requkcd
148000 ⑶ PrCparc Thc We山 呜0n Dralna Club、 h∞ mc
Cut△ ent assets
and Expcndlturc Account for thc sear ended
1nvcnto饣 of cqulpmcnt fot salc to
mclnbcrs 2000 31Dcccmbcr2011,
sllbscrlp讧 0ns σ凶 mg 1400 o)PrCparc a statcmcnt° f Fmanoal P° sluon cx“ act
Bank 23250 at31Dcccn△ bcr2011to sho、
26650 `thc itcnns fo￡
subsc⒒ p谊 ons
Icss C△ lrrcnt ⅡabⅡ oes
Tlade recelvablcs 900
subsctlptlons prcpatd 900 Exerclse2
hfc subscΦ o° Ⅱ 1720 3520 23130 Thc Hutt RlxTcr D血 ng Chb is± Llndcd pardy by the
171130
Rcprcscntcd by
mcmbcr、 annllal subscopoons ls20pCr mcmbcD,
Acclu△ △da弪 d仙 耐 扯 1J锏 △钿
呼 ⒛
11 1700go p姻圩 b9,rcstalranttabgs and Pmy阢 m pr。 n“ 。m f1・

Add sutPIus° f inc° me° ver

eXpendkurc 1050 thc szalc J b∞ ks on山 讪 喝 hc疝 旬 camagand ω oug,
AccLlinulatcd ftlnd at31Decembcr2011 171130
At31Dcccmbcr2010,thc club、 statcmcnt of
Ft△ nd to cncourage y° ung Pcoplc to train for sport… 000

Rcpェ cscntcd by sai|ings bonds 5000 Financial Posioon showcd tlic foⅡ o、 河ng;

尜scc Notc4in rurthcr1nforma色

$ $
0n
Catcェ mg cquipment at c。 st 11000
Dcprcclao° n of catc⒒ ng cqmpmcnt 3000 8000
Exercise1 1nvcntors of food 2llll

Thc讯艮Ⅱngton Dratlla Club has120mcmbcrs,The Invcnto叩 of b° oks 1100

subsc⒒poons ow1ng 180
annual sllbscnpoon^$20pcr mcmbcr subscnpoons
Cash at bank 1520
not paJd lit onc yc时 arc wnttcn off if not p砬 d by thc
Am° unt ox1・ lng for suppⅡ es of food 40
end of山 e ncxt yca‘ subsc⒒ poons m ad△ ancc 60
The C1ub presents slio plays a ycar,cach play bci且 g
pcrformcd° ver ten days Thc Club hrcs alocal hau Rccclp“ and p呷mcn“ for thc9Tear ended
±or d△ c pcrforrnance and the dress rchcarsals,wlioh 31Dcccrnbcr2011、
`crc as follows:
takc p1・acc° ˇ℃r three days beforc thc prcscntaoon of
cach play Thc Chb donates half° f lts net surpluses Rccelpts $
艋 ual subscriptlons 50l× l
t° thc Actors Bcn∞ 0lcnt Fund,
Restau± an“ 蚀血莎 73760
Thc rcccipts and pa,咂 cnts° f thc ClLlb in thc ycar 12150
salcs of books
cndcd31Dcccmbcr2011wcrc as foⅡ o、 Pa9,ncnts
`s:
Rcstaurant staffwagcs 39000
RcccIpts $ Cost° ff° 。d 24980
salcs of tlckcts 2000o
Puiichasc of b° °ks 4840
salcs of programmcs 3000
Ncw catcnng cquipmcnt 3750
salcs of rcftcshmcnts 3500
Hcatlng and Ⅱgh0ng 8390
subscop谊 ons fot thc ycar cndcd31Dcccmbcr2011 2000
sundF`cxpcnscs 2270
Subscopjons for thc rar cndcd31Dcccmbcr2010 280
 Furthcr hformadon o)Preparc a Rccelp“ and Payments Account for
1 subscrlpoons° 、 the ycar cndcd31Dccclnbcr2011
2 subscnp刂 ons p痂^ng at31Decembcr2011:$40
d in advance at31Dcccmber ⑹ PrCparc thc Membcrs subscrlpo° ns Accou砹
2011:$140 for dhc ycar cnded31Dccembcr2011
3Invcntoocs at31Dcccmbcr201⒈ b° d$270; (dl PrCparc a Tradmg Account± or thc ycar endcd
books$965 31IDcccmber2011f° r the s狃 c° f books,
4Credltors at31Deccmbcr2011∶ for凡 °d$360; (el PlCpare a Rcs切 urant Acc° unt for the year
for bo° ks$200 cndcd31Dcccmbcr2011,
5Annual dcpreoaoon of catcrIng eqtupmcntis ⒆ PtCpare Thc Hutt Rlser Di-g Chb、 h∞ mc
10V。 on cost and Expcndlturc Acc° unt for thc year cndcd
Rcquked 31Dcccmbcr20】 1
al Calculate thc Accumliated± und at1Janua】 1`
沙 Preparc thc statemcnt of Flnanoal Posioon as
亿
(・

2011 at31Dcccrnber2011

● Club acoounts o仕 en look diffiCuIt,butthey need not be so Keep oalm and foⅡ oˇ V carofu"y the steρ s taughtin this
and the previous chapte∴
● A waysfo"ow carefu"y whateVerinstruc忄 ions are given in an examinaⅡ °n question
● Even if your answeris not petfect,you oan earn many usefulrnarksif you show the eXaminerˇ vhal you oan do
● Ensure you aIways use tho corred terms lor a non-prof"ˉ makng organisation
● lnclude aⅡ y`our workings w"h your ansvveⅡ
● Tiok eaCh itelη in1he question as you deal With it;chθ ok that eVen^hing has been ticked to ensure you haVe not
missθ d anything

1. VVhich ofthe fo"owing wⅡ l n° f be found in the

Numberof mθ mbers Go
accounts of a cIub?
Annual subscHption ⑿
B Drawings account
^C Roceipts
AccumuIated fund subscriptions oWing at beginning of year $1oo
and Payments account
subsc"p】 ° ns owing at end of year sso
D statement° f Finanoial P° sition
2.The foIbwing information for a yearis extracted
HoW muoh shou丨 d be cred"ed to the oIub’ s
from a spons OIub’ s aocounts
lnoome and Expend"ure Accountfor annual
$ subsoriptions forthe year9
subsoⅡ ptions reCeived 10000 A$11Qo B $1160
sa|es of θquipmentto members 7o∞ C $1200 D $1260
oρ ening inventory ol θquipment 1300 4 Ac丨 ub’ s records provide the f° ll° wing information
cl° smg inventory of equipment BOo for a yea【
Purchases of equipment 5000
$
What was the club’ s suq丬 us ofincome over Annual subscriptlons recθ ived in the year 4ooo
θxpend"urθ forthe year? Annual subsoriρ tions recθ ived in advance at
A$10000 B $11500 end of year 50
C$12500 Balance° n Lfe subscriptions account at
D $17000
The foⅡ owing information relates to a c|ub for a Ⅱ 创n两 ng d year stlo
Lre subs° riptions receIved during the yoar 1oo
yea“
 The club’ s poⅡ cy is t° cred t Ⅱ
fe subscriptions to Expendkure Accountfor subscriptions forthe
thelncome and E× pend"ure Account oVerfive year?
years A$4050 B $4070
HoW much shouId be credited to the Income and C $4150 D $4170

1.The Civic AthletiCs C|ub’ s Receipts and Payments (c) Prepare the Income and Expend沈 ure ACcount
Accountforthe year ended31 May2o11 is as forthe year ended31May2011
foⅡ oˇ Vs∶ (dl Prepare the c|ub’ s statement of Financia
Position as at31May2011
Recdpts $ Payments $ 2.The members ofThe Hoˇ vzidun Magic CIub meet
Balance at bank Refreshment
to demonstrate their conjur ng skⅡ ls and to
1June2010 4650 suppⅡ es bought 2654 entedain Vis"ors,ˇ Vho ρay an entrance fee atthe
subscriptions Wages 4000 door The cIub aIso has a shop forthe sale of
reoelved 7970 Rent ofrooms 540
oonju"ng trcks and props
sales of tiokets Purchase of new
The c|ub’ s Bank accountforthe year ended
for dance 1897 equipment 1778 30June2011was asfo"ows∶
Rofroshment Teams’ traVe"ing
bartakings 4112 eXpenses 995
$
sa丨 e of old Balanoe at bank
BaIance at Purchases of
equ:pment 骈 at31 May2011 8846
1Ju丨 y2010 16800 tricks and ρrops 8220
DOnation 90
subscriptions shoρ wages 6000
18813 18813
roceIved 10730 Cost of annual
Cash taken dance 2600
Fu"her information
at door 9456 Purchase of
1 Refreshment barinVento"es were va ued at$150
shop takings 12348 equ;pment 5o0o
at1June2010,and at$180at31 May2011
Annual dance secretary℃
2 Trade payabIes for refreshment barinventories
recoipts 3720 exρ enses 2125
were∶ at1June2010$15;at31Rl ay2011$40
Grantfrom Transferto
3 At1 June2010,subsc冖 ρti0ns oˇ ving were
Ioca;councⅡ 4000 Deρ osit account 20000
$330,of whiCh$310was paid in the yearto
Donations to the Balance at30
31May2011 "is c|ub’ s poⅡ cyto wote o矸
Disappeared June2011 13775
subscr ptions ifthey have not been received by
Wizards
the end ofthe yearfo"oWing their due date
Memoda丨 Fund 666
subsc"p刂 ons owing at31May2011were
57720
$275
4 0fthe Wages paid,$9oo was ρaid to sta矸
The club has200members The annual
sen`ng refresh丨 ηents
subscription was$30untⅡ 1July2o10When it
5 On1June2010the club’ s equipment was
Was ncreased to$40
VaIued at$4700 The equip丨 ηent s° Id during the
year had a book VaIue of$70atthe date of sale
At1Ju丨 y201o,2o members had not paid their
At31May2o11,the equ pment was valued at
subscriptions forthe year ended30June2010
$6000
but,ofthese,15had paid their arrears of
RequIred subscriptions by3o June2011 By3o June2011,
(a)Ca cuIate the Aocumulated fund as at犭 June a"rne丨ηbers had paid their subscriptions forthe
2010 year uρ to date and solη e had paid their
(b)Prepare the refreshments Trading Accountfor subscriptions forthe year to30June2012
the year ended31 V ay2011
 othθ r assets and Ⅱ
abⅡ ities were∶ C沈 her"ems
Members’ subsc^ptbn⒐
At1Ju|y At30June
2010 2011
In arrears 30∞
In adˇ an° e 60∞
$ $
shop hVentoγ 1600 1850
Balanoe at bank 94000
lnventories of refreshments 12sCl
Trade payabIes for shop
Trade payables for refreshments 10sCl
purchases 0o0 210
Equiρ ment at oost 7000 12000 The fo"owing finan。 IaI information relates to the
Deposit account 10000 30000 yθ ar ended31Maroh2011
Dlsappθ arod W zards
Memo"引 Fund GGs
Rece;ptg $ Payme"ts $
Hire of yaChts Repairs and
The equipment at1July2010had been and boats maintθ nanoe
deρ reoiated for1Ve years by$1400pθ rannum The to members 4300o of yac"s 23400
new equipmentis to be depreciatod atthe sa丨 me lo nonˉ PuⅡ ohase of
annua|percentage rate members 34ooo new boats
The grantfrom the∶ ocal counc"was the Ⅱrst Reoeipls from and yaohts 61000
instalment of an annuaI grant of$8o00 training sohoo1 34500 VVages of trainingˉ
The transferto the Dep° sit a∞ ount was made on Membθ rs’ sohooI sta饣 165oo
1Januan/2011 Interest at4%per annum is subso"ptions 186ooo Ⅱ′ages° f
payabIe on30June each yean Refreshments refreshmθ n⒈
and sooial bar sta矸 140oo
RequIred eˇ ents 77ooo Purohase of
⑶ Cdcuate the A∞ umuIated fund at1Juy2o1o Receipts from rθfrθ shmen⒈ bar
⑼ Preρ are the Chb shop Trading AOcountforthe yaoht racing food 53000
year ended30June2011 oompθ tition 2890o Expenses of
(cl Preρ are the Club subso"ptons ACcountlor yaoht raoing
the year ended30June2011 oompe刂 Ⅱon 13ooo
(d) Prepare the Club丨 ncome and Expend"ure sundγ
Accountforthe year ended30June2011 expθ nsθ s 26000
lel Prepare the CIub statement of日 nanchl Fu"her Information
POsition at30June2011 1 At31MarCh2011,members’ subsc"pⅡ ons
3.The Taupo saiⅡ ng C|ub prov desits members W"h oWing amounted to$2000;membθ rs’
a number of activities∶
subscHpt° ns in adVancθ for next year were
o) h“ e° fb° ats for members;nonˉ members are $3400
oharged an e× tra20%for boat hire 2 The club’ s depreciation p° Ⅱoy is as fo"oWs∶
CO yacht racing∞ mpe刂 刂
ons ● Freehold premises,boatyard and launch
C")ac|ubh° use w"h a refreshment bar wh oh治 facⅡ
a丨 so used for sociaIfunc刂 ons
"ies,and
annum on net boats and yaohts:5%per
book va|ue
v) a sa"ing training schoolfor a"age groups
〈 ● FiXtures and fi廿 ings,and yacht rnaintenance
The fo"owing financialinformation relates to
shop∶ 1o%per annum on net book Value
1ApHI2o1o 3 11ade payab丨 es at31March2011were aslo"oˇ ˇ
s∶
$跏

$
FiXed or Non-ourrent assθ ts at
⒇猢们

Repairs and rnaintenance of yaohts

net book value
Refreshments
Freehold premises 350000 Ⅵ s∶ trainingˉ school sta仟
Yacht maintenance shop 42000 `agθ refreshment bar sta仟
BOatyard and launoh faciⅡ 】es 74000
Fixtures and fi廿 ings 28000 Refreshment barinventory at31March2011Was
Boats and yachts 465000 Valued at$1600
 RequIred year ended sO septembθ r2011
ng C灿 Us
⑶ Preρ are Tauρ o s引 Ⅱ hoome and By30september2011,a"mθ mbers had paid their
Expenditure Accountforthe year ended due subscHp刂 ons,and somθ had paid in advanoe for
31March20ii in g° od format A Trading the year ending3o september2012,but the
ACoount should be prepared forthe Treasurer had not yet CaIcuIated how many
refreshment ba【 other baIanoes were as fo"oWs∶
(bl Prepare the oluσ s statement of日 nanda|
POsition as at31March2011 At10dober At BO september
4.The Abracamagic Cluus Bank Current aooount 2010 2011
forthe year ended30septθ mber2011Was as $ $
foⅡ oWs: shop inVentoγ sOO Bso
Cash】 oatfor shop sO zo
$ $ Trade payables
Ba丨 ance at Purohases for shop 1450 1260
10ctober⒛ 10 8zIOo for shop 3745 Depos"aCoount 150∞ 31000
subscriptions shoρ Wages 4000 Equipment at cost 80∞ 10000
recen/ed 6485 General
DOnaⅡ ons sClo eXpenses 1500 Thθ equipmθ nt at10Otober2010had been
Cash taken Cost of Annu引 depreciated by$1600per annum forⅡ ve years
at door 3500 DanCe 1田90 The new equipmentis to be depreoiated atthe same
Grantfrom Transferto annual percentage rate
looal oounc∶ I 6000 Dep° sit aooount 16000 ’
The local oounoⅡ s grant was for$10000and thθ
Annua∶ Dance New equiρ ment 2000 remainder ofthis has yetto be receiVed This WⅢ bθ
receipts 1zIOO Rent 8000 treated as revenue income in the fina丨 accounts
shop takings 71sg lnterest of$800is duθ °n the dep° sit aooount forthe
Balancθ at yθ ar θndθ d30september2011

sO sept2011 3232 At30september2o11,general eXpenses of$65

36735 36735 Were due and unρ aId

RequIred
ln orderto increase funds the club has a shoρ
(a) Cal° ulate the Accumulatθ d fund at10ctober
which se"s magio tⅡ oks ln addition to an annual
2010
membership subscHpton,members pay$1each
Ⅰme they visⅡ the club This is referred to as‘ Cash lb)Prepare the CIub shop Trading Accountfor
the year ended30september2011
taken at door
The annu引 membership subsc"ption was$40unⅢ lc) Prepare the Club subsoHptons Accountlor
the year ended30seρtember2011
30seρ tember2011When"Was raised to$45
There were150members at10ctober2010 ld)Prepare the C丨 ub lncome and EXpend"ure
Accountfortho yθ ar θnded30september
Atthat date15ofthem had not paid their
2011
subsoHp】 ons forthe year ended30september2010
and12had aIready paid thθ ir subsc"ptions for the
 Depart:η ental accounts

● hoW to a"oCate or apportion eXpenses to the depa"ments of a businθ ss

● hoW to prepare depa砣 menta"ncome statementsln columnarform

181 What are departmental bc prcparcd Ⅱ△c° lulnnar forln,曲 at is,w1th a scparatc
accounts? colunln f° r cach dcpar缸 ncn、 and° nc± or tot狃 s

DCpar钌 nCntal accounts are Income statements for ExampIe1

busincsscs that have more than° ne deparmlcnt,A On,血 tnart scⅡ s￡ irntmrc,cl° thng and clectrlcal
business inay scⅡ furillturc,clcctⅡ cal app⒒ anccs and goods Thq f° Ⅱ0刃r鬯 inf° rmaoon has bccn ex仕 aCtcd
cIothing It inay/also providc a rcstaurant f° r its ℃ar
fr° m lts books for thc γ Cndcd31December2010
customers Each° f thcsc acuˇ △ ucs、 注Ⅱbc carr1cd on
$
in a separatc dcpartmcnt and硒 △ ⒒makc its o燃 Fui血 iuc
`
contrlbujon to thc proflt of thc bushcss T° 丘nd thc
sale⒌
Clotlmg
2720l× l
1380l× l
Elcc山 cal 110000
pro且 t of cach dcpartmcnt,scparatc Incomc
P匹 chasc⒌ Fur血 ulrc 112000
statcmcnts arc prcparcd,IIlis v^⒒ rcquirc cntrlcs in α 。uung 76000
thc b° °ks of primc cn“ y to bc analyscd bcRs,een the Ekctncal 50000
dCpar包 ncnts,or scparatc books to bc kcpt for each In△ ,cnω ”at15洫ary2010:
P逑mtLre 28000
dcpartmcnt
Clod△ nlg 190t ll
Elcc山 cal 220t ll
182 HOW to prepare departmental Invtntory at31Dcccmbcr2010∶

Income statements Furfuo‘ c 35000

孔 岘 23000
The Trading sections of the Elcc“ c破 260lll,

lncome state:nent
Thc Tradlng scco° n of thc Incomc statementis
Thc Tradmg scco° ns of thc Incomc s勿 tcmcnt should prepared in cohmnar f° rm as foⅡ ows:

0mnIinatt
Tt蜘 。C茁oi of山 010comc statcment foJth0Ⅱ at。 nded sI Dec0mbct2mo
Fur血 turc Cbthng ncctrlcal Total
$ $ $ $ $
salcs 272000 138000 110000 520000
Lcss Cost of salcs
0pc-g lilvcnt唧 28t tlo 19000 22000 69000
purchascs 112000 76000 500l,ll 238000
140000 95000 72000 307000
Closing invcntotv 35000 105000 23000 72000 26000 46000 84000 223000
Gross pro丘 t 167000 66000 640llll 297000
Income statements Thc c° mnllss1on1s

Ovcrhcads arc a⒒ ocatcd to dcpartmcnts ifthc actual

amounts to bc dcbitcd to thcm arc kno灬 氓 $(84000×
`n `gcs lOs)=$4000
and sa1・arlcs can bc aⅡ ocatcd to dcpartments if the
paγ吁oll ls ana圩 scd ElCctrlcitv can bc chargcd to Prof1t aftcr co洫 s⒍ °n=$80000
each department if scparatc Fnctcrs arc providcd for Notc lvIakc aⅡ calclllaoons of app° roonmcnt to tlic

cach dcpartmcnt, ncarest doⅡ ar

ovcrhcads xxhch cannot bc aⅡ ocatcd to Example3

dcpartmcnts tnust bc apporo° ned to伍 cn1° n sLlltablc (C°n。 nulngOm血 mart灬 show△ ・
aboVc)
么ys in`ˇ hch ovcrhcads rnay
bascs,Examplcs of thc、 ″
In伍 c ycar cndcd31Dcccmbcr2010,Om血 inar“
bc apporo° ncd arc:
cxpcnscs wcrC as foⅡ o、
`s:

$
Exponse Basis of appor甘 onment salarlcs and x△ age⒊ Fl△ rIllture 35000
HcatuRg and ughung⒅ cn not nl propordon to thc respccuvc Clo由 i喀 28000
茳paratcly mctctcΘ n。 。t aLcas。 f dlc dcparuncnts ElcctrIcal 25000
Rcilt Rcnt 60000
Ins△ rancc。 f buⅡ dillgs Hcaop.g ai△ d hghung 150llll
AdX・ cr位 slllg,dlstlbuoon in prop。 rtlon t° dcpartnicntal Adx,crusmg 6000
salcs DcL△ /cry cxpCnscs 4000
Inslrance of plant,machnc叩 on thc rcphccmcnt△ al△ lcs of Dcprccia吐 on° f fLxcd asscts 10llllo
and otllcr asscts assCts ln caoh tlcpar位 ncnt Adil-straoon 30000
Dcprcciauon 。n dlc cost of asscts lIl caCh
dcpartlnent
Adl-s讧 atlon costs on nulnbcii of cmployccs ln Futtherinfotmadon
cach dcpartillcnt,or on 1 DeLvery and advcr刂 sing costs arc to bc
dcparttncntal mtnt,△ /cr apporooned in proporoon to dcpartmcntal salcs
2 `dnMtstra0on costs arc to be dlsˉ lded equa△y

Conv“ ission p时 dto an emp1ov℃ e,based on prof】 t

bc雨ccn thc ducc dcpar讧 ncnts
ulc c。 inmssion is usua△ y calculatcd as a pcrccntagc 3Dcparuncn吻 l st/aosocs ar⒍
of山 c pro且 ta± tcr ch狂 glng the comn△ s蓟 on Calculatc
Fllrmurc Clokg E怡 ctuc破
thc comilllssion using the f° ⅡoM・ lng± ormula:
Aca° ccupIcd h mcocs2 150 90 60
pcrccntagc of comⅡ ⒒ss10n N。 n~currcnt asscts at cost $50000 $30000 $20llllo

100+pcrccntagc ofcomms,ion
4 Thc lnanagcr° f cach dcp狂 tlncntis cnodcd to a
Example2 commssion of5V。 °f hs dcpartmcnt/al nct proflt
aftcr cha、 ∮ng thc conlnllssi° n,
A maJaagcris cnodcd to5Vo comrrussion calculatcd
on proflt aftcr charpg the c° mlmssion Thc pront Req讧 rcd
bc± orc charglng comnisson^$84000Ⅺ ￠hat h伍 e Prcpare a Departmcntal Income statemcnt for thc
pro丘 t ancr c。 mtmssionP yc1r endcd31Decembcr2010in as inuch dctaJ as
posslblc,clcady sho、 注ng thc gross pro丘 t madc by
cach dcpar付 nCnt
Answct
omn:man
Dcpa-entn11tlcomc statement for tbε year eodcd31Deccmbor2010
Furmturc Clothilig Elcctu诅 TotaI
$ $ $ $ $ $ $ $
t
Giloss pro丘 167o00 66000 64000 297000
salaocs and wagcs 35000 28000 25000 88000
Rent1 3o ooo 18000 12000 60lltlo
Hcamg1 75oo 4500 3000 15000
Ad△ crosif嬗 ′ 3139 1592 1269 60l,ll
DcLvc旷 2o92 1062 846 40lXl
Dcprcciaoon3 5000 3000 2000 10000
AdministraJon 10000 92731 10000 6‘ 154 10000 54115 30000 213000

雨
°n慌 )
(15θ 9885 84000
471 4008
:苷 ::黥 :;::∶ ;∫ 遄 (150l 9414 79992
1Apporo° ncd on basis。 f arca occupied
2Apporooncd on ba缸 s of salcs
3.Apporioncd° n basls of c° st。 f tlxcd asscts

Exerc∶ se1 Adx cr刂 smg“ to bc apportloned on dlc bas^of

Geeta° wns ash° c sh° p The shop has drcc dcpartmcnt・ al s么 11cs.

dcpar位 11cnts:ladlcs’ ,rnCn、 and chⅡ drcn、 Adnuostraoon is t° bc app° ro° ncd in thc ra乜 o of
Informaoon cxtractcd from Gee么 飞b° oks f°r thc dcpartlncnt狃 staff nutnbcrs
year cndcd31IvIarch20111s gl,c廴 lˇ ranagCrs arc cnidcd to a c° mnussi°n of5V。 °f
thelr dcparuncntal pro￡Ⅰ
t a± tcr chargJng thc

L日 沁ucs9 Mcn’ s 咖 dten’ s comnissi° n

$ $ $
salcs 1oo oo0 120000 80000 Rcquired
In⒕ nt° ry at1,Ap讯 ⒛ 10 14000 170oo 5o00 Prcparc Gceta、 Dcparmcnt/alIncomc st/atcmcnt for
Plrohascs 50000 63000 42000
thc ycar ended31March2011in as rnuch dct缸 l as
Inxcnto△ y at31`Ι arch2011 18000 22000 4o00
、0‰ gcs 2o oo0 2000O 12ooo possiblc,dcady sh° Lxing tllc gr° ss pro血 madc by
cach dcpa± tmcnt
^kc a△
Odhcr baIanccs at31⒈ 饪arch2010: Note ⅨⅠ calcllla住 ons t° thc ncarcst doⅡ ar,

$ 183 A IOssˉ making department

Rcnt 28000
Hcatnlg and hgl△ tulg 6000 If a dcpartmcntis unpro丘 tablc,thcrc arc courscs of
Advcrosing 5000
Aclll-strajon
acjon that may bc taken t° makc it pro丘 tabIc Thcsc
27000
Dcprcα auon 7200 inchdc:
incrcasc p⒒ ccs,pr° 说dcd tlus d° cs n° t advclsels,
FLlrd,cr in± ormaion affcct sales v° hmc
碰ˉ
疏

ncgo0atc chcapcr prlces xslth suppⅡ crs,or丘 nd

c

Mcn℃ altcrna包 Vc supplcrs

2_5乃
2_5⒛

adverJsc伍 c dcpartmen“ products in order t°

_5屿

Arca° ccupicd
incrcasc its sa1cs
Cost of fLxed asscts($00Φ
4

2
3

offcr dlsc° unts or othcr inccnuvcs to incrcasc

Numbcr of staff
ulrn° vcr,proˇ 1ded thcsc d° n° t cancel out thc
addio° nal rcvcnue
 ● offcr rnorc attrac色 vc products paid cvcn ifthc busincss d° cs nottradc Examp1cs
● tcducc thc dcpartmcnt、 ovcrhcads, arc:rcnt and insurancc of prcnllscs,dcprcciauon of
non-cLrrcnt asscts and somc othc￡ adn"nls“ a乜 on
If thc loss-maklng dcpartmcnt cannot bc madc
cxpcnscs Thc fixcd ovcrhcads of a dcp时 tmcnt攵 nay
pro丘 table,closurc may ha、 ℃to bc considcrcd Tw,o
stJⅡ havc to bc paid cvcn iflt is closcd;thc
fact° rs sh° uld be cons1dcrcd bcforc thc dcpartmcnt
rcmal血 ng dcpartmcnts xx・ m havct。 bcar addioonal
is closcd:
Costs,WluCh wⅢ a± fect岱 elr prontabⅡ Ⅱ
Θ 伍c cⅡ cct ofthc closurc° f a departmcnt on
thc ixcd ovcrhcads Example
⑾ any° thCr c限 ct of dosurc on伍 e rema△ nhg
△Ⅱams is a rctall storc w⒒ h thrcc dcpar“ ncnts:A,B
dcpar甘 nCnts
and C Its Incomc statcmcnt for thc ycar cndcd
Fixed overheads 31January2011k as foll° w⒏
somc ovcrhcads arc Excd;that is,they】 nust s0Ⅱ bc

Dcpaitment A Dcpanillcnt B Depattmcnt C

$ $ $ $
Gtoss pio丘 t 80000 48000 30000
kVages 24000 18000 13tlllo
Rcnt 5000 6000 4lXlo

硎
铡

Elcc血 ci, 1500 1800 1200

~
~

鲫
Advcr刂 slng 5000 3000 4000
~柳

Admii△ lstration 16000 1600o 44800 16000

3200

、7ages havc bccn allocatcd on an actual basis
Rcnt and clcctrlc⒒ y haVc bccn apporooncd on thc
basis of n° °r arcas occupicd Advcrosing has been
apporooncd on thc basis of rclatlsc sales
qucstioned The costs have been spread cvcnly ovcr
the曲 rce dcpartmcnts,but cxaminao° n ofthc
apporoonmcnt of thc o伍 cr cxpcnscs suggcsts that
deparuncnt C is sma⒒ cr than thc° thcrs,It硒Π
° 1d bC l△

Each dcpartmentis debited x△ lth onc-third of thc morc rcasonablc to rc±lcct thc dlffcrcnccs in thc sizcs

adnllmstraoon cxpcnscs No adα ⒒ms讧 atI0n cxpcnscs of thc dcpartrncnts in d△ c appor刂 ontncnt of

MJll bc s钅 11`Cd if dcpart⊥ ∶

rlcnt C is cbscd adtlm△ straoon costs

At prcscnt,thc busincss is lnaklng a pr° flt of Thc“ mao。 n nught bc dl± fcrcnt if adnu血 straoon
C0sts COLld be rcduced” 曲e dosLlre of depar山 ent C
$@8500+3200-8200l=$23500
Cbsurc of depaJ・ ment C wotld rcducc thc total
proflt of thc busincss as dcpar伍 ncnts A and B w° dd 0ther factors
haˇt addlo° nal adlm血 straoon cxpcnsc⒌ $⑿ 8500+ hm钥 刂 zabk to kccp a loss-malj山 n砭
当
3200-16000l=$15700The bushess wⅡ be worse `somctJmcs
departmcnt bc dcs虹of thc cffcct that cl° surc
opcn rcgardlcss
off by$7800Thsls dcpartmcnt C愆 contrlbuoon to cd° ˇ
驷ouk1havc on thc￡ 凶 crhcads Dcpartmcnt C in
thc° 败raⅡ pro血 bcforc it has bccn chalgcd凡 △
伍 d△ c abo~c cxamplc may bc neccssary for dhe
ad洫 s仕 a刂 on ls30000-$2220⑵ It W° dd bC opCra乜 ons of thc odlcr deparunents,Orit rnay a仗 raCt
bcttcr to lkccp dcpartmcnt C opcn and to bcnc丘 t Customcrs iξ ±or examplc,"“ a rc茳 aurant⒍ matcd
fr° m△ sc° ntribujon t° 亡
he overa△ profltabⅡ 妙 whcrc cLlstomers ha⒕ to pass through thc od△ cr
The、 ~叼 y in whch adlrlmstraoon costs havc bccn dcparments t° get to it,Thc s狃 cs of thosc
apporooned to the dcpartl△ tcnts should bc dcparmlcnts rnay bcncflt as a rcsult
● Ac刂 ust°verhead eXpenses for aCorua|s and ρrepayments,if necessary,before apportioning them to
departments
● Appo"∶ on e× pθ nses as direded by the question lftho question does not give dirθ ctions,choose suitab丨 θ bases
for appo"i° n丨ment and state whatthey are
●CalouIate depa"menta丨 expenses to tho nearest$or$000(depending on the ques刂 on)
● shoW a"workings
● Prepare the accounts in columnarform and include a tota丨 co|umn

WhICh basis is suitab|e for apportioning

昱
advedising cost betWeθ n depa"ments?
A departmenta|cost of goods so丨 d
B depa"menta|gross prof"
∶
耧 漱:揣 Ⅰ:品 帚 Ⅰ
:bm⑷ :Ⅰ :吃 :l;Ii∶
6
C deρ artmentalturnover deρ a"ment B詈 ,depa"丨 ment C吉
lt has been
D number of sta仟 in eaCh depadment
decided to c|ose depa"ment C butthere wiⅡ not be
Which basis shouId be used to appo"i° n the cost
any reduction in adlη inistration costs
ofinsuring pIant and丨 ηaohinery betWeen
Ho、V WⅡ l the adlη inistratioh e× pθ nses be
depa^ments?
appo汁 ioned to depa"ments A and B a仕 er
A netbook va|ue
depa"ment C has been cIOsed?
B o"ginal cost
C present disposable Va丨 ue
Dept A Dept B
D replacelη ent cost
$ $
A manageris paid a conn丨 ηission of5%based on
10000
net profit after oharging the oommission The ^B ,5000
18∞ o 12000
proⅡ t before oomm‘ sion o$157500
C 21000 14000
HOw muoh commission is paid to the manager?
0 22200 148∞
A $1500 B $1575 C $7500 D $7875

1,Mason is a reta"er se"ing furnishings,k"chen

Furn∶ sh∶ ngs κⅡohen Cloth∶ ng
θquipment and clothing The fo"owing information
equ;pme"t
has been extraded from his books forthe year
salaries forthe O00
$000 $000
ended3o Apr"2011
year ended
Furn∶ sh∶ ngs Kitohen CIoth∶ ng
30Apr"2o11 58 42 6o
Fixturθ s and
equiρ ment
fi廿 ings at cost
$000 $000 $000 at30AprⅡ 2011 3oo 200 200
saIes 912 696 Fu"her∶ nformat∶ on
Inventory 1 Mason incurred the fo"owing expenses forthe
at1May2010 35o 306 94 year ended30AprⅡ 2011
Purchasos 491 406 402 $
lnVentoγ Rent 94000
at30ApH;2o11 394 222 65 gh刂 ng
Heating and Ⅱ 75000
General expenses 62000
 2The premises cost$800000
3 FIoor spaoe occupied:Furnishings
KitChen equipment35%
C|othing 25%
4 Deρ reciation is to be calculated as fo"o、 ″s∶
Premises4%per annum on cost
FiXtures and fittings15° /。 per annum on cost
5 GoneraI expenses are to be apρ o"ioned
between the depanmentsin propo"ion to their
respective turnovers
Requlred
4o% Prepare depa"menta"ncome statements forthe
y`ear ended30Aρ r"2011in as much deta"as
possibIe,CleaHy showing the gross prof"rnade by
each depa^ment(Where neoessa%o引 cu|atbns
should be made to the nearest$000)
2.spicer seⅡ s e丨 ectricaI goods from three
departments∶ KitChen Equipment,Radios and
TVs,and Homρ Computers The fo"oWing is the
summarised Income statementforthe year
ended30AprⅡ 2011

KⅡ Chen Equipment Radios&TVs Home Computθ Is

sO∞ sO00 sO∞ sO00 sO00 sO00
sales pOo go ∞
Less Cost of saIes 110 40 ss

⒛
∞ω

⒙
Gross proft go so

~
⒛

~
⒛~一

绍~7一
侣

⒓
VariabIe expenses
一

Fixed eXpenses 30
⒛

Net profk
ls)

4 AⅡ otherfixed exρ enses have been a"ocated as

Further information Who"ya廿 ributable to the departments
1 Yea卜 end inventolγ taking reVeaIs that damaged concerned
stock has been incIuded in cost of saIes as
folbWs∶ RequIred
(a) CaIcu|ate reVised net profit figures for
$伽

0)K"chen Equipment
跏

Kitohen Equipment 0O Radios and TVs

Radios and TVs 巾Ⅱ) H° me c° mρ uters
Cv) spiceⅡ
The goods have no disposable Value (b)Calculate the oont"bu】 on which Home
2 Computer equipment sales incIudes goods Computers has made to spicer’ s pro】 t
WhiCh haVe been sentto a custo丨 ηer on sale or
spicer has decided to oIOse the Ho丨 ηe Computer
return for$3000 The equipment oost$2000 It
department This w"I not resuⅡ in any reduction of
is not knoWn"the Customeris going to buy the
equipment administration expenses
3 Administration expenses of$30000have been Requ1red
diVided equa"y betWeen the three depa"ments (c) Ca℃ uIate spioers’ proⅡ tforthe year ended
and inOIuded in fiXed exρ enses 3o Ap"12o11亻 the Home Connputers
depa"ment had been cIosed at30Apr"2o1o
 Manufacturing Accounts

● hoW to preρ are a ManufactuHng Acoount

● hoW to CalCulate manufaotu"ng pro】 tin the lncome statθ mθ nt
● hoW to proVide for unreaⅡ sed prof;t∶ nVentorles offinished goods

191 What is a Manufacturing 192 HOW to prepare a

ACCount?
M/anu勤 ctunng kcOLnts arc preparcd” manufactLlmg
∞ 叫驷 血 s to血 ∞ /thc∞ st° f produdng goods,
Thc~1aα ufacmrmg丿 unts arc prcparcd bc± ore
thc Inc° mc statements `oc°
The c° st of goods
manufacturcd ls transferred to thc11a娩 sCc。 °n of
thc Incomc statcmcnt and rcplaces dle Ewc± or
Purchases、 vhch would bc found ifthc business is
bu” ng and seⅡ ng whoⅡy complctcd goods
Manufacturing Account
sclcct± r° m thc trlal-alancc tb° sc cxpcnscs that
rdatc to thc c° mpany、 manifacturmg opcr血 on
Thc cxpcnscs arc either dircct lc,g・ 伍c cost of
matcoals from which the g° °ds arc rnadc,and the
wag∞ ofthc wOrkers who actuaⅡ y makc thc go° ds)
or ln山 rcct laⅡ other manufacmong cxpcnse9
Thc fo⒒ oM,lng ou山 nc sh° ws h° w expen山 mtc^
alocatcd t° Manu缸 ctunng Acc° unts

Tradlng compa血 es plrchasc且 oshcd goods,but a

manufacmⅡ ng c° mpany、 purchases c° nslst of
M击 碱 Acc嚣 毖

铡 朋猢逦卸
呲 黜 盅茄 蕊 bα zOIl
matcⅡ 狃s"uscs in lts manufactu丘 ng pr° ccss,A largc

∞
$

ο
part of a manufactLlrlllg c° mpany‘ wagcs wiⅡ m° st Drcct c。 sts
probab圩 bc paJd to cinplorCs CngagCd on maklng Drcct matc画 Ⅱ1
goods,and somc ofthe overhcads环 砬Ⅱrclatc t° thc Dtcctlabα
0thcr drect `
cxpcnscs3
manufacturmg p=° ccss A lvIanufactunng Account Pdme cost4
groups a△ tbc manufactuong cxpcnscs toge伍 cr灬 Facto印 ovcrhCads
factory expcΩ scs,If thc goods arc produced more Indrcct matcoalss 95
Indltcct w留 s6 1￡ua
chcapˇ than they can be purchascd from an out“ dc
0thcr ovcrhcads7 330 545
suppⅡ cr,thc fact° rF rnay bC c° nsidcrcd to havc madc 1185
a pro丘 t and wⅡ bc crcdltcd硒 △
th factory prof● t W∝ k h progrc$at1January201】 : 78
Manufacturmg compamcs’ hvcntorles inchdc r灬 v tXrotk h pζ 0卧 s at31DCc。 mbcr20】 1’ rssl 25
Facto,cost° f丘 rushcd goods
matcⅡ als,M,c,rk in progress and fmshcd go° ds 疝 y fproduc甘 o⑶ 10
lor cost。 1210
±actop/pro￡tinchded in thc invcntorr0f丘 血shed Facto〃 ptont11 ⒛
goods must bc cxcludcd from thc xˉ aluc° finvcnto, Cost of goods oansfcrtcd to Tradng Acc。 untt2 1452

sh° 、 si硅 on
`n in thc statcmcnt of Financial P° 1 D△ Fct matedal:matc⒒ alftom whch goods atc madc Thc
cost mcllldcs cat0agc mw・ atds on mw matc谊 al
 2 Ditcctlabour dlc w鸭 Ⅱ ofthC wα kcrs who actuau9,makc Furthcr informadon
thc goods 1 Invcntor,r at31Dccctnbcr2011was as follows:
3 D虹 cct cxpense⒏ ro,・ al刂 cs,Lccncc fc6,ctc vlliCh havc to bc
p肘 d to otllcr pcrso且 s for伍 c ngllt to pi。 d・ lce thc△ prodtlα s
$000
proccsscs TllC p呷 mentis a丘 xcd sum for
Dlrcct mate0als 18
or to usc伍 c△
kXork in progtcss 20
Cˇ C9ulut of goods produccd
Finishcd goods 69
4 Pˉ lc cos“ thc total ofthe dlrect costs This dcsc,ipoon
mllst夕J唧sbcshσ洫 2 Dcprcciaoon is to bc pro呐 dcd on Ⅱxed assets
5 Ind【 rcct matcdals:au matcilals plrchascd for thc fafto,but
・ as f° Ⅱ°、厂
s∶
x△ hch do not form part ofthc goods bcing produccd,fot

α alllplc dcamng ma∞ ⒒als,⒗ bncatulg on lor thc mac跏 csr $000
6Ind△ ect wagc⒌ 山 c wagcs of au fact。 rv workcrs who do Factory buddmg 20
not actu岔 ul,makc伍 c goods,fot cxamplc lacto,managcrs, Factory mach△ ery 36
0fε cc eqmpmcnt 24
,storCs sta珉 clCanels,cK
RtlpcjIl`iscl烬

70tllcr t,vctllcad⒐ ovclllcads tcla魄 cxcllLslvcˇ Φ the阮 tOry

3 Factory pr° 丘tis to bc ca1ct△ latcd at15Vo on cost
and prodllc茄 n,亿 r呕 aI△,p把 砀tto玎 rcn△ hCatu△ g and hghtn△ g,
d∞ rcci痫 on⒍ dlc钪 tos,bunalg aild iIlacl△ ul吗 etc of producoon
8XX,ork h ptogress:goods ill dlc PtocCss0f be± lg l,adc at由 e cl△ d
or thc prcli∞ s,⒎ e征 but xvllith,cF not血 岫 ed are b± otlght iilto
Required
dle ctrrq△ t哪 亦 an nlpllt to曲 s vca/s plodtlcuon Prepare也 e ManufactuⅡ ng pkccount and Incomc
9 Goods that arc not complctclv f△ nishcd at tl,c cnd ofthc statement f° r the year ended31December2011
Clrtcnt VCar must bc dcdtlctcd仕 om thc ycat`costs in ordcf
to arnvc at thc Cost of a△ lsllcd goods Answcr
10 Factoty cost of丘 dsllcd goods:cIthcr thcsc words0r dic Mak虹 &Co.
altctnativc,cost oF ptoductoiI,shotlld bc shα vn at dus Manufac自 △ing Account and Ih00血 c st0tcmcnt
polllt lll tllC aCcount for thc ycat cndcd31pcccmbct2011
11 FactoiIy profit:the pcrcentagc to bc addcd to cost of
productIOn as pront Thc am。 unti$dccidcd by $000 $000
managcmcnt and wⅢ always bc g1ocn in qucsu。 ns if Drcct matc“ a、 Invci△ to〃 at1Janu臼 γ2011 10
ncccssary Itis dcbitcd h d△ c Manu缸 curtng Account and Ptlicll孙 ∞ 1+o
cェ cdltcd lll伍 c Proflt and L0ss Account(scc bCb⒄ Car⒒ agc vⅡ vatds 24

搦勿钇
12 Thc total of山 c`Ι anufactu⒒ng Accountis dcbitcd in thc 174
Tradhg scc0on of tllc Incomc Statcmcllt under tbe hcadiilg Lcss Invcnto,at31DccCmbcr20l】 18
‘

一
Cost of salcs’ Dircct labour

似
Dicct cxpcnscs
ExampIe P菹 me oost
The fc,Ⅱ oxvlng balanccs havc bccn cxtractcd± rom IndLect materlals 45
Indlrect labour 72
Ⅳrakclt&c。 、h・ l/al balancc at31IDcccmbcr2011 Rcnt of lacto饣 100
Hcaung,Ⅱ ghong and p° wcr 45
$llllO $000
Inv℃ nto谊 cs at1Janu缸 y2011: Dcprcciadon∶ facto呼 20
Dlrcct matcnals 10 ma汕 cry 36 318
V/ork h progrcss 38 742
Fmshcd goods 40 WDrk lIl piogr∞ s1Janua印 2011 38
Purchases⒀ 屺αmatcn址 s) 1+o VXork nl progrcss31Dcccrnbcr2011 ⒓Ox 18
Carnagc mva=ds 24 Fact° 饣 cost of nnishcd goods 760
D订 cct w么 签 s 222 Facto,pront(15⒃ 114
Dircct cxpenscs 46 Transfcrrcd to Trading Accclunt 874
1ndircct matcnals 45 salcs 1300
1ndrcct labour 72 Cost° f salcs
Rcnt∶ Inventojiy of血 Ⅱshcd goods at1January2011 40
f犯 to, 100 Tratlsfcrtcd ftom骇 cto印 874
邮~销

。mccs 90 914
Hcat● l⒏ Lgll刂 ng and povejl: Invcnto轷 of丘 iushcd goods at31Dcccmbcr20tt 69
lacto叩 45 Gross Pro‘ t
。￡
nccs 35 Wagcs and salancs 173
salcs 1300 Rcnt° f。 fllccs 90
Adllunistraoon sa1aocs and wages 173
Hcaung and Lgl△ ong 35 An incrcasc m thc provlsion is rccordcd as foⅡ °ws:
Dcpェ cciaoon of° fflcc cqulpmcnt 24 322
Debit Income statcmcnt
Nct profit on tradlng1 133
ctetut Pr。 slslon fot U豇 caⅡ scd Ptoftt
Md lacto,pron` i14
w△ dl dbc amount of die il△ crcasc
Less Ul△ rc碰 scd pro各 t on clostng stock
of且 nishsd goods⒊ ~ˉ 9 105 A dccrcase止 △the prov△ sion is rccordcd as fo⒒ ows:
Nct profit 绁
Dcb⒒ Proxislon for Unrc汕 sed Ptont
1 Nct prof,t° n tradlng is thc proflt that has bccn madc】 om
ctedut Inc。 mc Statcmeilt
thc trading actI△・
l,and d° Cs not incllldc facto〃 俨 o丘 t
s△th thc amount。 f thc dccrcasc
2 Fact。 ,pro丘 t laftCt dCduc恤g unlc汕 scd pro丘 o o addCd to
thc nct pro丘 t on tradng to show Makcit&C。 、total 丘t
3 sCC§ 193
pt。
(][11e acc。 mM缸 a IP吁(a卩 t1forLlmcallscdPloEto
》
【
`is山
曲md时 to让吼 ofa PK为 “⒗n forDollbm D曲 鸟 scc§ 12⑶
Note Ihe Inc° mc statcmcnt fo△ ov,s° n from thc
NIanu± ac-g Account鼬 out a brcak It o山 d嗣 h 194 Manufacturing statement of
d△ eh凹 娩 to mc M如 u幺∞吐咄vkcoun△ Financial position
193 Vnrealised profit inCluded in Thc Statcmcnt of Fmanoal Poslo° n° fa
the:nventories of fin;shed goods manufackutmg busincss includes thc invcnt° Ⅱcs°f
matcoals,硒 n° ±
k in ptogress and壬 △ishcd goods at cost,
Thc flglrc of dos△ lg m玖 nto呷 m~Ⅲ 0t&Cob Thc h【 ntorlcs appear h NIakclt&Co、 ⒊atcmcnt
Income statcmcnt hcludcs facto饣 pro￡ △TbJs pro血
°f Fmanclal Po“ oon at31Dcccmbcr2011as fo1oMs:
wJl n° tbcr臼 “cd un碰 thc goods arc sold and must bc
excluded t0匆 mvc at dic tcauscd facto,pr° 血 Crhc Currcnt asscts $000 $000
Invcnto呷 : 卜Ⅰatcoals 18
concept° f rc碰 sa谊 on mustbc appkd)NⅢ 0t&C° 、

⒆
.
NXork in progrcss 20
ulre洫 cd proEtis calcLiatcd as foⅡ °晒咚,Thc m,cnto轷

∞~兜
Finishcd goods

9~
of$69000is115%ofthc c° 阱°f manufacturc Lcss unrcauscd profit

and thc unrcaⅡ sed pro丘 t is$69000×

Ihe doublc cnt￡ 厂for unrcaⅡ scd pro丘 、$9000,

丿
甘
:=$9000 Exercise1
Thc Fab五 caung Company carocs on a manufacmong
deb⒒ cd in thc Pront and Loss Account o complctcd
busincss In± ormauon cxtractcd from lts tnal balancc
by a crcdlt to a Pr° 讧si° n for UnrcaLscd Pront
at31March2011is as foⅡ °w⒌
In futurc ycars,tt珈 iⅡ bc ncccssa饣 only to adjust
tho Provision for Unrc峦 Ⅱscd Proflt for hcreascs or $000 $000
sales 7oo
dccrcascs in the closing inventorles of flnishcd Inven唧 at1Apm2o1o
goods For example,if Δ压akcit dt Cα 、n血 shcd Rax9・ matc⒒ 址s 10
goods invento叩 °ne year latcr,at31IDcccmbcr Xl ork in Progrcss 12
Fi众 1shcd goods 24
2012,⊥ s$92000,thc pr° vision rcquircd
Purchasc ofraw mateoals 130
for urlrc尉 、cd profit晒 碰 bc$92000× 上 =$12000 Carnagc⒑ wards 14
Dicd hbour 170
Ody伍 e hcrca∞ °f$3000h thc prosislon WⅢ bC 0由 cr drcct cxpcnscs 16
Facto,ovcthCads 128
dcblted in山 c Proflt and Loss Account and credited
0ff,cc Ovcrhcads 96
to the Pr° visi° n for U豇 caⅡ scd Proflt
Thc f° Ⅱ°、注ng furthcr informad° n is glxcn
Ihc Room for UnluLscd PbEtaccountls灬 R趾硒s:
P嗣 斑on fot unreoⅡ 8ed Pto盘 t Account In1・ cnto呷 at31March2011
$llllo

2012 R孙″Ilutcoals 20
$ 2012 $
耐s
氓ork in pi÷ 。grcss 22
Dcc 31Bakce c/f 12000 Jan 1Balancc b/f 9000 笳
l92000×
15/11sl
Doc 31 Incomc
statcmcnt 3000
Dcprcoatlon曲 argcs亿 r挟
Facto〃
背
12000 12000 omcc
 Completed prodllcoon is transfcrrcd to the 2 Thc lo⒒ oioszlng expcnses must bc accrucd at
warch° usc at a rnark-up° n± ・
actor厂 cost° f20冫 o 30AprⅡ 2011,

$乃
Rcquircd
Rcnt

⒛
Prcp时 ca Manu饧 cmⅡ ng Accountand Incomc
Hcaong and Ⅱghdng
statcmcnt± or thc ycar ended31March2011

Exerclse2 3 Thc± oⅡ ow⊥ ng cxpcnscs havc bccn prepaid at

Thc foⅡ oⅠ 刀mg balances h孙 Ⅱ bccn cx讧 aCtt・ d from d△ e 3,Apri2011
books of Ghpcrsoo at30AprⅡ 2011 $
Insurat△ cc 900
$ Lη g 3500
salcs 800000 '1dvcro⒏
purtllasc of t孙 v ll,atetlals 132000 4 Expcnscs arc to bc apporjoncd as follo、 vs:
DIrcct wagcs 146250
Indrcct wagcs 19500 Rc众 t:Facto呷 75%;。 fEcC25%
Rcilt
Hcat,llg al△ d hghm△ g
45tlllo
42300
呔碰ng and hghung Factos号 9ofn∞ s÷
Instuallcc 3150
otncc saIa.lcs 51450 IⅡ urancc Facto印
斋 ,° lnc“
斋
c时⒒a爹 ltlx△ ards 11505
2520
°
t。 r costs:Fa∶ ∞
’ 509白
Cat⒒ agc Otlbvards `Ι

Adx・ crtlsmg 7000

M° tor 6000 5 Provision for depreciaoon is to bc rnadc as
v・all cXpcnscs
lnvcnto⒒ cs at】 M呷 ⒛ 1ll tollow⒌
RaM,matc⒒ als 11250
W/ork in Pr° grcss 18000 $
Finishcd goods 27000 Facto〃 bLulding 3llllo
Factorv mad血 唧 10000
0fllcc machillclT and Cqlupmcnt 4000
Furthct information 卜Ι
ot。 r vans 8000
1 Invcntorlcs at30ApⅡ 12011:
6 CompIctcd pr° ducuon is trans± rrcd to ulc
c・

$
Rav△ matc0als 13125 、厂
archousc at a mark up on± actorΓ c° st° f20V。
V/ork iIl progrcss 15750
Finishcd goods 24000 Rcqorcd
Prcparc a Manufacmring Account and Inc° mc
statemeilt for thc rar cndCd3O泸 屮d2011
αhke aⅡ calculaoons Ⅱ 伍c ncarcst$)

● Adjustfor aCCruaIs and prepayments,where necessary,before apportioning oVeHhead eXpenses between the
Manufaoturing AcCount and the lncome slatement
● Take care to caIcuIate the provision for unneaⅡ sed profit‘ based on closing inventory corredIy The fradion to be
used is
percentage of malk-up
1oo+percentage of rnarkˉ uρ

(see§ 164)
● The entγ in the Income statementfor unreaⅡ sed profitis the inCrease or decrease in the amount ofthe proVision
broughtfomard from the preVious year
● EnsuⅡe thatthe closing inventory offinished goods is shoWn in the statement of FinanCia|Pos"ion at cost by
deducting the baIance on the Prov sion for UnreaⅡ sed Prof"Account
 Goods are transferred from the Manufaotu"ng UⅡ )depreciation of warehouse machineγ
ACCountto the Income statement atfactoγ cost ov)proⅥ 。on for unre引 lsed prof"
of produdion pIus a mark up of20% Which itθ ms WⅡ 丨bθ inCIuded in the Manufaduring
The transfer p"ces ol the closing inVentories of Aocount?
finished goods Wθ re as foⅡ oWs∶ A()and(i◇ B (◇ and(Ⅲ )
Year1 ssg soo C CO and0Ⅱ ) D C◆ and(iv)
Year2 $42000 A manufactuⅡ ng company adds a faotory profit of
Year3 $犸 6∞ 25%to"s Cost of produotion The fo"owing
What was the provision for unrealisθ d pro】 t informaiion is aVa"able∶
oharged againstthe ρrof"for Year3? $
A $400 B $600 C $720 D $1200 Inventory of fin∶ shed goods at1ApH12o1o
(ρ er slatement of FinanciaI Position
Goods are transferred from the fadory to the
1
at that date) 30000
warehouse at a markˉ up of33Ⅰ %At1Ap"I Cost of goods produced lpθ r

Manufacturing Accountforthe year

2010,the baIance on the Provision for UnreaⅡ sed
endod31March2011) 300000
ProⅢ Was$17000At31March2011,the dosing
inventoγ of】 nished goods(ρ er
C丨 os∶ ng
inventory offinished goods was$60000
Inoome staternentforthe yoar end
VVhat was the e仟 eCt on profit ofthe entry in the
ProV sion for Unrealised Profit on31March2011?
31March2011) 60∞ o
A decrease of$2000 B decrease of$3000 How muoh WⅢ be ored"ed as factory profⅡ in the
C increase of$2000 D increase ol$3000 lncomθ statemθ ntforthe year ended31March
Thθ fo"oVVing items appearin the accounts of a 2011?
manufadu"ng company:
巾)car"age inwards
A$67500 B $69000
⑾ car漉 ge ou枷 ards
C$70500 D $71500

1.The fo"oWing balances haVe been eXtracted from Fu"herI"forma刂 on

the books of spinners&Co at31Decembθ r 1 Invent°
2010 "es at31 Deoember2010:
Raw mate"a!s 1
$ Work in ρrogress
lnVentories at1January2010
RaW matedals 8000 2 Expθ nsos owing at31 December2010:
VVork in ρrogress 12000
$⑾

Faotory expenses
们⑾

□ red wages
口 rect Wages 40000
Indirect Wages
lndirect Wages 28000
General eXpensθ s
Patentfees paid to patent hoIder 16000
Heating and Ilgh】 ng 5000
3 Expenses prepaid at31Deoember2010:
Generalfactory exρ enses 14000
$娴

Insurance of plant and machineγ 6000

悯

Purchasθs ofraW matθ “als 140000 Insunanoe

Plant and machinθ ry at Cost 70000 Heating and Iighting
 4 Plant and rnachinelγ are to be depreciated at 3 The folloW ng balanoes have been extracted from
the rate of10%on Cost Yendor’ s books at31March2011
5 A factory profit of10%is added to the faCtoγ
$000 $000

钿粥铷 咖∞ ⒛犸姒邓
Cost of g° °ds produced
Invento"es at1Apr"2010∶
Raw ma1e"a|s
RequIred
Work ln progress
Prepare the Manufactur ng Accountforthe year
FinIshed goods
ended31 December2010 Facto〃 Wages
2.The fo"owing ba丨 ances have been extracted from Direot
the books ofthe UggIe BOx Manufacturing Indirθ ct

Company at30Ap"I2011 PurChases

口recl mate"aIs
$
IndireCt mate"钊 s
Premises at Cost 250000
CarⅡ age inWards
PIant and maohinery(net book Vauel 70000
othθ rfaotoγ overheads
Motor vehlcles at cost 40000
sales
lnvento"es at1 May2010
ofioe sala"es 3θ 1
Raw mate"aIs 42000
WOrk in progress 50000 other administrat|on expenses 675
Provision for Vnrealised ProⅡ
FinIshed goods 48000 t

Factoγ wages〈 dired) 280000 Freeho|d premises at cost 1000

40000 Prov sion for Depreciation
Roya"ies based on product;on
Fadoγ 20000 of FreehoId Premises
expθ nsos
seⅢ ng expenses 42000 Manufactu"ng Plant and
Admlnistrauve eXpenses 62000 Maohinery at oost
sales 1240000 Provision for Depreoiation of
Purchases of raw matedaIs 390000 ManufactuHng PIant and
car"age inwards 26000 Machinery at31 March2o10 350
o矸 ioe equipmen1at oost 300
Fu"her information Providon for Depr∞ iation of0钎 i∞
1 |nventories at30AprⅡ 2011∶ Equipment at31March2010 100
$
Raw mate"aIs 36000 Fu"her information
Workin prog丫 ess 46000 1 Inventories at31 March2011 Were as fo"oˇ Vs
Finished goods 62400 0n$000s》 raw mate"aIs$440;work in
progress$562;finished goods$594
2 Finished goods are transferred to the Trading
2 Car"age inwards relates WhoⅡ y to the purchase
Account atfactory cost pIus a markˉ up of2o%
of raw mate"引 s
3 Depreoia刂 on is to oe provided as foⅡ oWs:
3 Finished goods are transferred from the factolγ
Premisθ s:5%ρ er annum on cost to the vˇ arehouse at a markˉ up of20%
Plant and maohinθ γ∶2o%per annum onthe w"⒒ en 4 Tho faCtory occupie§ ofthe freehoId
down value 昙
Motor vehic|es:20%per annum on oost premises;the adnη inistratiVe offices occupy the
remaInder
4 DepreCiation charges are to be apportio卩 ed as 5 Depreciation should be proVided as fo"oWs∶
foⅡ oWed∶
Freehold ρrenises4%per annum on oost
Premisos∶ FaCtoγ 50%
Admh‘ tratbn 50% Plant and machinery30%ρ er annum on net
PIant and丨 ηachineγ ∶ Faotory 80% book Value
Administration 20% CX1ce equipment15°/o perannum on net book
Motor vehic1es: Fadory 90% va丨 ue
Adnninistration 10%
RequIred
RequIred Prepare Yendor’ s Manufactu"ng Account and
Prepare a ManufactuHng Account and Income lncome stε 吐ementforthe year ended31MarCh
statementforthe year ended30Apr"2011 2011
 Valuation of inventory

● theimp° rtance(f vaIuing inventory in accordanoeˇ ˇith reoognised accoun刂 ng princ∶ ples
● VaIuation of hVθ n” ry on the FirstIn,Hrst out〈 FIFo)basIs
● valuatbn of hventory on VVeightedAvθ ragθ Cost〈 AVC0)basis
● the meHts and defeds of eaoh method
● What oon刂 nuous and periodicinVento"es are
● theimponancθ oHAs2and inventory valuation

201 The importance of vaIuing If thcsc w∝ c内队b0urn由 。dy± ansac谊 ons,山 c tradmg
inventory in aCCordance w"h scC0on ofhsIhc° mc statement forthc yc创 玲cndcd
31Dcccmbcr2011and2012、
recognised accounting v° uld bc as fo△ osx s:

princIpIes Ycar cnded31Dcccmbcii2011 YcaJi cndcd31Dccembcェ 2012

$ $ $ $
Opc-gand cbsmg m、 '创atorlcs arc induded h曲 c salcs
ο迦跏 o sa【 cs 1000
Cost of salcs Cost of salcs
tradlng secdon° f thc Inc° mc statcmcnt to calculatc
0pcimg mκ nto印 0pcmlg m哞 ntorv1o00
C0st ofsalcs and gross pro丘 t.Closntg m、 is Purdlascs purchaocs o
`cnto呷
hcluded as a currcnt assctin statcmcnts of Finanoa1 1000
P° slo° n as part of砀 0Jong capltal The s,aluc placcd Ic$dosng
cntory
m△・ 1000 ‘
20lll o(100lll
upon invento轷 is thCrcforc of vc呷 grCat Ⅱnportancc Nct ptont Nct ptoflt
型 o
‰ cc posslblc、 滋呷s h Whch stock may be valucd arc:
Thls exatnplc shows Aykb° urne mak1ng a proft° f
●at1ts cost pr1Cc
●atlts selⅡ ng pⅡ ce $200h thc yCar cndcd31Dcccmber2011although
he had not∞ ld thc goods,but n° tm硒 吨 aαy pr。 nt
●at xL,hat1t1sc° ns1dcrcd to bc、 vorth
The th虹 d驷 么弘at thc in,cnt° rlcs劝 ord△ should be
h山 c ncxt rar whCn hc s【 ,ld thcm,V沮 umg伍 c
hvcnto饣 at∞Ⅱng pJcc h灬 °ffcndcd agamst dlrcc
rulcd outimmc山 atc圩 bccause s⒆ rJ△ ’ is a src叮
iinportant accounong pⅡ nciplcs:
su凵 ecu.c tcr矶 止can mcan dlffcrcnt thngs to
● rcaⅡ saoon-no profit was rcaLscd in thc year
dlffcrcnt pcople,and‘ 为℃n dffcrcnt dings t° thc
cndcd31Deccmbcr2011bccausc no salc had
samc pcrs° n at dlffcrcnt缸 ncs aild nl dlffercnt
t荻cn placc
clrcu,nstances.Ths aspcct h灬 akcady bccn dlscus⒃ d
● matchmg~伍 cp￡ont has n° t bccn mat山 cd to
h§ 9.4.Ob・ ious圩 Vro血 ’and`评°rlmg capital’
dlc tknc dlc salc took placc
shouId n° t mcan(Ⅱ ffcrcnt dungs at dlfferent tlmcs
● prudcncc~thc proflt was° vcrstatcd in2011;it
scⅡ ng prlcc is also an unsatlsfactory way of
、叼s not cvcn ccrtaln thcn that thc go° ds could
v汕血培 mvcntory as thc foⅡ o・,llng examplc sh.泖 s bc sdd ata pr° Et
Aykb。 Llrne m砝 邙 tlp佻 acc° unts
to31Dcccmbcr L厶 an蚰 por咖 tp血 Ⅱ lc thatms。 cntory should
cach vc时 and△ alucs脉 closng m`mtory纰 s剐 瑰 ncˇ ℃r bc△。
alucd at rn° rc than c° st.、 %△ ing inventory
pncc,Hc purchascd goods for$BO0on3ON° s,cmbcr at hstoⅡ c∞ st obser【 s thc prmclplcs of rcahsao° n,
2011Hc⑽Ⅱ dle goods on30J恤 ∞叮 2012for$1000 matcl[∶ 1∶ ing and prudcncc,
 丿
、nothcr important principlc is that thc mc伍 od consistcd° f80kⅡ °grams which had cost$060per
uscd to valuc invcnto呷 should bc uscd consistcndy k1° gram Thc rcccipts and issucs ofthc tnatcⅡ alin
from onc accoun0ng pcrlod to thc ncxt Thc mcdlods JunC wcrc as toⅡ ow⒌
arc considcrcd ncxt
RccctPts PocC Issuc$
9and, pcrkg Quand饣
202 TWo methods of Valuing
(V。

kg $ kg
inventory at cost JunC1I:lv1:ntorv brouglit
fois・ ard nom M呷 31 80 060
In a vcry fcw cascs,it may bc possible to v狃 ue 3 100 100
goods at thc pricc actuaⅡ y p狂 d lorthcm For 7 70
16 200 120
cxamplc,the o、
`ncr of an art gallcry may bc ablc to 23 2lXl
say fr° m whoin shc b° ught qach° f thc picturcs in 25 50 140
hcr gal1cry and h° w much shc pald forthcm 30 80

bccausc thcrc would pr° bab1y bc a liinitcd numbcr

of palntings and shc、 Rcqored
`ould bc ablc to rccal1ho、 `
Calcliatc thc xraluc of nlxlcilto,at30ltule b灬 cd on
much shc paid f° r them
A manufacttircr of computcrs.hoxvcvc1.WolJd not
FIFO
flild it easy t° say ho、 c,r the parts he
`lnuch he pald± Ans、⒘cr

ˉ
needed for the c°mputers Purohascs of hard drl,・ es,

跏~⒛
or cxamplc,、 Π
± DuId bc in bulk and rnadc at diffcrcnt
Jllne 3 16 25
flmcs洫 d at dlffcrcnt prlccs It wolJd bc impossiblc Pncc pct kg $100$120$140
to say at亡 hc yca⒈ cnd h灬 v muoh had been p疝 d for Invcnto轷 ⑷
any parocular hald drlvc rcmaliung at thc ycar cnd Rccclpts(o 100
7 Issucd Co
Thc problcm is solx/cd by assulinlg that Ⅱ
灬狩nt° ry 10
movcmcnts° ccur J△ a parocliar pattcrn,cvcn if that 23 Issucs (10 rlOol (90
is n° t stocdy so Tlusis o± tcn ca△ cd a convcnjon: 110
30 Issucd (80l
somednlg that“ asstlmed t【 ,h卩 ppen∞ ℃n llˉ 止o not CIosing invcnto轷 30 50
嗷Ⅱcdy truc,atlcast all dlc jmc Thc砌 o mcthods Valuadon at cost s36 $70%tal$1∝
considcrcd hcrc arc∶
● Fh⒐ In,Fir吱 Out(FIFo),wluch灬 sumcs
that goods are uscd or so1d in the same order h Tllls cxamp1cshoⅤ s how FIFo、 0rks Thc samc
、座ich they wcre recekd result can bc quicldy calculatcd as foⅡ ows:
●W⒍ ghtcd average co豇 【AVCo),whch
i狮 oh∞ calcdau吧 伍c wclgl△ ∞d狃 c龅 gc co吱 ot U血 adablc侈 0+100+⒛ 0+50l 奶o
mvcntory altcr cvcry dcⅡ vcry to dlc bushcss ^ax。
Units厶 sucd CO+200+80l 350
Closli△ g1nvcnt° ,at any glxfcn utnc,and lils,CntorV
Balancc of u血 ts 型
Valuaoon:50at latcst ptlcc$1纠 a $7o
sold oriⅡ ucd,o valucd at wc1沙 ∞d涤吱agc
・ co敲
30狂 ptcx/lcltls plicc$120 $2鱼 鱼匹

203 HoⅥ
`to VaIue inventory
FIFo Exercise1
Goods arc assumcd to bc uscd in dlc Ordcr1n xx,luch At30Scptcmbcr Fiford Ltd had an invcnt° ry of
伍cy arc rccclved froln the suppⅡ er 100kg ol丘 foLu△a,x1。 luch llad∞ 阱 “ pcrldogram
Example1 In October,it rnade dle fo△ oxx・ lng purchascs and salcs

丿 ay thc invcntorv of a ccrtain matc丘 al

of丘 foⅡ um
`t31NΙ
 咖
炖⒃ ⒛

证蛞
Datc rccelvcd s。 1d
pncc per kg Pncc pct
Quanu〃 Quanu饣
$ hammcji(sl

硐
0ctobcr 3
JunC4 100 520
10 520

钙∞
10 75
12 13 100 535
m
14 20 150

4
2
15

犸
伽 540

82
23
26 80
17
30 90
”
29
Required
30 70
Calculatc thc d° sing invcnto,of d碹 乒tal hammcrs狨
Req证 Ⅱd 30JunC sho、 注
ng quano饣 and t° tal valuc bascd on
Calculatc山 e quan0″ and△・
alue° f the hventory of wc1ghtcd狙 cragc∞ st,
丘foⅡ um at31Octobcr usmg伍 c FIF○ mcthod.
204 PeFpetuaI and periodic
AVCo inventories
△⒃ wc1ghtcd average cost oflnvent° rv必 calculatcd
A gtock inventory厶 a rccord of goods rccci△ cd bB
cvc叩 umc new goods are receN、 d,
and uscd or s° ld by a bushcss,A perpetual
insrcntofy malntalns a ru-g balancc of inventor「
Example2
on-hand after cach transacu° n,Thc cxatnplc⒏ven
Oata灬 for examplc1,FIFol above± or sXrC○ ls a帅 kal pCrpctualinventory

Junc Units Prlcc$ XXcightcd Balancc A peⅡ °dc hˇ ℃ntory sho、 ck

`s thc balancc of st°
average ls) °ˉhand° dy at lntcrxˉals,for cxample at山 e end° f
cost(s,
cad△ rn° n伍 Thct° tal of itcms used in thc pcnod is
1 Balallcc b/f 80 0∶ 60 o60 48
3 Rcccl△ ・
cd 100 100 100 dcductcd fr° md△ c total of ltems recclvcd to gvc伍 c
B/alancc 180 o822 148 balancc of ltcmsin stook Thc‘ quloC mc伍 od,sho硒 u
7 Issued C彐 1D 58 abovc,of calclla乜 ng thc△,alLlc of closmg stock on山 c
Balalcc 110 90
16 Reccl△ cd 200 120 240 FIFO ba“ sis an example of a pcⅡ odlc吣 /cntory
Balancc 310 1065 330
23 Issucd ⒓0o 213 205 The effect of the methods of
Balatltc 110
25 Rccclvcd 50 140
117
70
inVentory vaIuation on profits
Ba1ancc 160 1∶ 169 187 over the whoIe life of a business
30 Issucd ⒆ ⒁
Balancc 80 1163汴 93 Thc pro丘t madc ovσ 伍e wholc Ⅱfc° fa bushcss灬
汴 Roundcd calctdad。 ns mal rcsult h an adlustmcnt bcn△ g madc n° t affcctcd by thc ch° ice° f rncthod° f val1ung
to the犭 p`etagc pticc of closir、 gm1.C卟 - invcntory Ths is dem° nstratcd in伍 cf° ⒒°w△ ng
cxamplcs
The wc1雪 htcd狎 Cragc cost at3Junc。 c沮 culated”
・ Quad Ltd bCgan bushcss m r狂 1and stoppcd
lding
dl△ thc t° tal c° st° f stock atthat poht($148)
讧adlng atthc cnd of rar4The%Ⅱ 。驷讧名
by thc total numbcr ofitcms h stock l180)Ths
hf° rmaoon is gkvcn for cach° f thc four ycars,
calcu1・auonis madc cach ome a ne、 vcp`° f
`dcⅡ
goods】 s rccc1vcd Ycat1 Ycat2 Ycar3 Ycat4
$ $ $ $
Exerc∶ se2 salcs 10t ll 1⑽ 0 16ll【 l 800
A V Co,had a“ ock of⒛ 0dlgtal hammcrs at Purch灬 cs 600 800 700 000
Closing mvcnt° 〃
31May Thc hammers werε alucd at$5cach
:
ο

FIF0
,・
0

Transacoonsin dlgld hammcrs h伍 c mon伍 of

9

AVC0
JunC Were灬 foⅡ °w⒌
 T泫曲 鬯 Account(u汛 gF1FO fo‘ va"姥 inventotD
YcaJ1 Year2 Ycar3 Ycat4

$
$咖

$啊

$伽

$跏
$
⑾跏⒇
⒃鼬㈣

⒇伽 〓
sales
0pemig mvcntorv

.觎

㈣知
㈣
plrchascs

~
镧

⑼
IFol
Closing lll砘 ntoi1`(【 卩
Gtoss pro丘 t

Total gtoss pro丘 t$23t tl

$
Tr狄 血 g Accoutlt【 AVCo)

Year1 Year2 Ycat4

$
YcaJi3

$
$咖

$跏

$伽

$汹
⒛跏⒇

鲴仙㈣

⒛伽 〓
salcs
0pcmg mv顿 o叩
.觎

㈣卸

㈣
⒆

Pulchascs∫

_
伽

_
跏

朔
Closhg invcntoty佟 ˇ
℃0)

一
Gross pront

%tal gtoss proflt拟 300

乞06 HF0and厶 ˇC(.9◆ om口 ↑Fe¤ 2,Idcn刂 cal kems of st° ck fr° m batchcs bought at
differcnt oLncs m叩 bc uscd fo攵 simiarjobs w・ lth
Itis important to comparc thc advantagcs and
山c rcsult伍 atjob A m钉 bc chargCd for thc itcm
dlsadxantages of FIFO and亦
at a山 ±
fcrcnt pⅡ cc nom j° bB,Thc cu吼 omer for
hch me曲 od厶 the rlght one `CO
xx・
in inorderto
to use deode
pardcular
job B may bc unfaidy trcatcd as a rcsult,
clrcurnstanccs,
Qu° ta。 ons仍 rjobs Mˉ hcn matcJals are based° n
FIFo FIFO may be-cⅡ ablc
Adszantagcs 3.In omcs of rlsmg pnccs,山 c clo“ ng stock止 △thC

1It ls a rclaovc圩 simplc s,stcm to usc, 丘n狃 cial acc° unts M山 bc pⅡ ccd at伍 c latcst mghl

2It o genera△ y rea△ soc Materlals arc norma△j uscd

pr⊥ ccs Ths rcsults iσ l° 、
`crmg cost of salcs and
h FIFo ordcr,and goods、 讨Ⅱbc sold in that ordcr, incrcasmg gross profit It mγ bc co灬 ldCrCd that

C” C0碰 y if th叩 arc pcnsh疝 lc disis n° tc° nsistcnt、 由c concept of prudcncc

^伍
3,Poccs uscd arc山 osc伍 at havc actua△ y bccn pa● d Ho、
`ever,as statcd abovc,thc mcdhod is acccptablc
for goods, undcr ssAP9and L人 s2∶

4 Cl° sing invcnt° ry is△ alucd on currcnt p讧 cc lcMds

5,FIFO is an acccptablc mc山 od of hvcnto叩 ^VC0
Advantages
valuaj° nf° rthc purposcs ofthc Compan1cs丿
2006,Accoun血 g standatds(statCmcnt of `ct 1 Thc usc° f avcragc prlccs av° ids thc incqu碰 ,of
standard Accounong Prac谊 cc,ssAP⑵ and Ⅱcnocal止 cms bcmg charged to dlffcrcntjobs at
dlffe± cnt poccs
Intcrnaoonal Accounong standard(L人 S)2
2,§CO rec° gmscs that Ⅱcnocalitcms purchased at
Disadvantagcs dlffcrcnt1∶ 】
rles and pⅡ ccs havc idcnic/al x alues.
1】

1,Manu幺 cmnng busincsscs usualv prc± cr to chargc Aˇ℃ragcd prlccs盯 C truer to th§ c° ncCpt than
mateⅡ als t° pr° ducdon at currcnt purchasc poccs actual pⅡ ccs uscd for FIFo
°r sc⒒ ng pⅡ ccs,but usc FIFO to valuc 3 Aˇ ℃ragng costs rnay smooth vaⅡ aoons in
mvcntoⅠ cs for thor flnanclal acc° unts producj° n costs,and Comparisons bco评 ccn thC
 results of dlffc± cnt pcⅡ ods morc mca-gfd,
4 Ax cragcd prlccs uscd to x aluc closhg stock may
bc f荭 dy closc to tho latest pⅡ ces
5 丿⒖厂
cO is acccptable for the purposcs of ssAP9
and thc Compa血 es Act2006and L人 s2
Disadvantages
1.Thc avcrage prlcc rnust bc rc-calculatcd aacr
eve￡ /purchasc of stock
2 Thc avcragc pncc docs not represent any prlcc
actLl碰 yp缸 d for stock
207 Net rea"sabIe vaIue
Nct rcaⅡ sablc sˉ aluc is thc pⅡ cc that rnay bc cxpcctcd
to bc rccα vcd from thc sale° f goods,less伍 c cost0f
puttmg thcm hto a salcablc∞ 删血on The costs
ms ols。 cd hcludc∞mplcoon° f the goods Cf伍 Cy arc
怔mg manu幺 cmrcdl,and markctmg,se山 呜 and
dlstrlbuoon costs
=xampIe1
somc balcs° f faboc that c° st$800havc bccomc
damagcd” no。 dw勰 cntcrmg伍 c Mrch° use If
伍cy arc clcancd and仕 eated for thc dalnagc at a cost
of$300,伍 cy can bc sdd for$1000Thc nct
rcaLsable s・ alue is what伍 c tradcr☆ m bc lcft M,l伍
aftcr thcy haˇ 。been sold,whch^$lI000-300l=
$700
Valuation of inventory at the lower of cost
and net reaⅡ sabIe vaIue
As wcsa、v h chaptcr19,fIrms haˇ ℃mscntorlcs h
vanous form⒌
-RaM・ materlals for usc in a manuf・ acturmg
proccss
~Work h progrcss,pard,・ manufacmred goods
-Fmshcd goods,complctcd goods rcady for salc
to customcrs
-F血 shcd goods x△ ,hch曲 e bushess has boLlght
for rcsalc to customers
Thc prmclpk of h⒕ ntory△ aluaoon o⒃ t out h
Intcmaoon砬 A∝ ounong standard2lIAs0・ s° far
wc haˇ℃sccn that1nventory can bc△ alucd using onc
ˉ
of内o or Ⅲ CO,These are
dl± fcrcnt mc伍 ods,FIFo
thc On圩 匆 o血 cd△ ods of stock salua0on whch V喝
2a⒒ c,svs to be used XVc havc also sccn that
wlichcvc± mcthod is choscn can affcct thc gr° ss
pro丘 t whch thc company tnakcs
Thc standard statcs伍 at mventones sho讧 d be
valued at the1owct of cost and nct tcausablc
value.犰 s is the pⅡ ce that may be expected to be
￡ccchcd from thc salc ofthc goods,lcss thc c° st0f
p渊颐 g伍 cm ht° a salcablc∞ ndloon Thc∞ sts
involxˉ c includc thc costs° f complcong thc goods if
daey are manufacmrcd,plus thc matkcing,sclIjjr亠 ￡
;
and山 stnbuu。 nc。 sts,
Noocc伍 c cxact w∝ 山 培 It is thC lo、 vcr of∞ st
and nct rcaⅡ sab1c△ 。
aluc,not thc lowcr of cost or nct
reahsable△ ・
alue
Thc tcrm nct rcaⅡ sablc xˉ aluc can bc comparcd to
伍c sc⒒ ng pⅡcc ofthc pr° duct,If thc cxpcctcd
sckg ptlcc厶 bwerthan伍 c cost priC龟 伍cn
invcnto呷 shodd bC、钛ued at their se⒒ ng pⅡ ce
Invent° 饣 is never valucd at seⅢ ng pⅡ ce、 vhen dle
scⅢ ng pⅡ cc is grcatcr than伍 c cost,By uslng thc
l° wcst pocc posslblc to valuc stock it mcans that
invcntory xˉ aluaoon f° Ⅱ°ws thc prudence conccpt,
⒏mⅡ ady m`cnto0cs whCh arc s涮 ar h naturc
and usc t° thc c° mpany M・ m usc thc sainc△ aluadon
mcth° d,ody whcrc邱 Ⅱnto“ cs arc山 ffcrcnt h
namrc or usc can a dlffcrcnt x・ aluaoon rnc伍 od bc
used
once a slutable rne伍 od° f saluao° n has been
匆doptcd by a company伍 cn it should conunuc to usc
伍at mc伍°d Lldcss dacrc arc good rcasons why a
changc曲 °uld bc madc Thsis h h∝ wll伍 伍c
consistcncy conccpt
ExampIe2
G° ods wcrc boughtat a c° st of$1300,Thcy h灬犯
bccomc damagcd and Mil cost$400to be put hto a
salcablc c° ndluon.Thcy can thcn bc sold for$1900
Nct rc碰 sablc xˉ aluc is$(1900-400l=$1500,As dus
is rn° rc than c° s1thC goods should bc valucd
hvento:y at cρ st61300l
ExampIe3
DctaJs as h examp1e2bu、 after rep” ‘ f,thc g° °ds
can be sold for ody$1sO0The net rcah阴 blc s・ alllc o
$(1500-400l=$1100・ Thls“ lcss than c° st and“
the saluc t° bc placcd upon thc g° °ds。
208 The VaIuauon of individuaI Valuing work in progress
items of inventory or groups and finished goods
of sinnilar items IAs2rcqturcs that thc valua刂 on ofthese bvo itcms
inchd∞ not ody thclr raw or dlrcct matcrl/al content,
Individualitcms or grρ ups° fitcms ofinvento锣 but械 so indudcs an c1cment for dlrcct labour.dlrcct
shol△ d bc considcred scparatcll,whcn dcci〈 iLing expenses and productlon osrcrhcads
whcthcr thcy should bC valtlcd at cost or nct Thc cost ofthesc sx/o itcms,thcrcforc,consists
reaⅡ sablc valuc This is to ensutc that1osscs on 0f
indhidualitcms or gtoups ofltems arc n° t‘ hddcn’
- direct matcrials
ExampIe - dlrcct labour
A company sc⒒ s sLx dlfferent gradcs of compact dlscs - dlrcct cxpcnscs
for computcrs Thc foⅡ oxsing alc山 c cost to thC -producjon oVcrhcads.thcsc arc c° sts to bring
d△ c product to its prcscntlocaoon and condluon
company and thc nctrca1isable v,alll∞ ㈧ RVΘ of tllC
invcntorics of thc six grades of dlscs - °ther ovcrhcads、
`hch may bC app1icable to
brnlg ulc pr。 dtlct to its prcscnt locatton and
Co鸵 NRV X alllc to bc uscd
for mvcnto,valuatlon
condloon
$ $ $ Thc c° st of山 csc ⅡⅣo itcms cxcl△ ldcs:
Gradc】 2000 2400 2000 - abnormal waste in dle producoon proccss
Gradc2 4500 3800 3800 _ storagc costs
Gradc3 3000 3100 3000
~ sclling costs
C,radc4 5750 5000 5000
Gradc5 1250 2000 1250 - adlirllms“ atlon Costs not rclatcd to productlon
Gradc6 25llll 2200 2200
19000 18500 17250 ExampIe1
Thc XYZ Manufacttlrlng Company Fnanu± acmrcs
Ifthc invcntoⅡ cs wcrc valucd as a M`holc x,|lthout
、汛
oodcn d° °rs for thc btu1dlng ttadc For thc pcrlod
taklng the indlxndu・ al itcms into consideraoon,it
undcr r、、cw it rnanufacmrcd and sold10,000doors
珈0uld be vahcd at NRV ls1850Ol as thls^lcss At thc cnd of dlc tradljlg pc丘 od therc、 ″crc1000
than c° st;but thc itcms x△ ,hcrc NRV is rn° re than
complctcd dooⅡ ℃ady允 r dcspaⅡ h to cu蚯 omcrs and
cost are hidlng伍 c losscs rnadc On gradcs2,4and6 200dooⅡ wll】 cla wcrc h狃 f complctcd as regards
Thc itcms must bc valucd scpar/atc圩 at$17250灬 dlrect n1aterlal,dlrcctlabour and producoon
tllls rccogniscs the1osscs
°vcrhcads
Cost for山 c peⅡ od undcrrc诫 cw、
209 Closing inventories for a `crc
$
manufacturing organisation Dircct materIal uscd 20000
Drcct labl,lr 5000
In ohapter19、 v that a ll△ anufacultcr rnay hold
`cs孙 Prodllcoon ovcrhcads 8300
thrcc catcgorlcs of ms,cnt° ry: Non-producdotl ovcrhcads 10000
-raw mateⅡ als Total Costs for thc peo。 d +a3oo
~ 硒0rk in progrcss
Czalculatc thc valuc of work in progrcss and
一 丘血shcd goods
Ⅱiushcd goods
Valuing raw mateⅡ als Total u血 ts sold 10000
A comparison is rnade beb″ ccn thc cost ofthc raw lshcd goods un1t$
Fil△ 1t tlo
Halfcomp1ctcd unl灬 O00× O sl 100
mateⅡ 狃s(applvlng o伍 cr∏ FO or灬 ℃ ⑵ and dlck ptoductIon for thc pc“ °d 11100
rcaLsablc vaIuc 、7hchever is thc lowcr、 v1Ⅱ bc uscd Attnbutablc costs $33300
to valuc thc inˇ ℃ntory for thc ann△ lal accounts Cost pcr u砧 t 33300/111lXl=$3
Valuc of work in ptogtess:
200× 0,5× $3=$300
Value of fmished goods:
1000× 3=$3000
Note that non-pr° du。 o° n ovcrhcads arc
excluded fr° m thc calculaoons
The△・ aluc° f氏山shcd goods vo△ bc compared Ⅵ
伍eir nct rcaⅡ sablc valuc、 厂
hcn prcpanng the annual
accovnts W1ichcˇ ℃tis thc lowcr Mol be used,
2010 RepIaCement cost
Rcplaccment cost is也 c pⅡ cc伍 atwm
to rcpIacc goods uscd or sold.Thc rcplaccmcnt∞ st
may be thc latcst pⅡ cc ofthe good,or an cs血 atc of
what thc pocc、 注Ⅱ bc atsome血 mrc datc,
Replaccmc血 t costis not acccptablc as a basis for
,almng in,cnto锣 under IAs2.H涤铼龟r,
rcplaccmcnt cost tnay bc uscd to cstImatc thc cost of
a parocularjob when qu° ung for an° tdcr
注伍
Ushg a pⅡ ce based on hst° Jc c° st m盯 lcad to an
undcrcstmate° f thc pⅡ cc for伍 c,ob and alc,wer
proEt Replaccmcnt cost“ usu碰 y morc reahsuc for
dis pufposc,
Replaccmcnt cost should狃 so be Ⅱ cd whcn
h锕 ct。 be pa1d prepanng budgcts(scc chaptcr3+l,

● Rθ ad questions carefulˇ to see which method or methods of∶ nVentory va丨 uation are required
●some ques】 ons are aboutthθ Value of oIosing invento%but othors are Concerned w"h|he cost° f goods issued
to ρroduc忄 ion or soId Make sure you understand the point ofthθ questlon or y° u may providθ tho Wrong answeⅡ
● Perform a"calcuIations With the utmost care
● Be ρrepared to ansWer questions on the prlnciples goVeming inVentory valua刂 on and thθ adVantages and
disadˇ antagθ s of each method
● Questlons on inventofy valuation rnay require you to use techniques and knoVVledgθ gained frolη your studies on
any pad ofthe sy"abus

HOW shouId inVentory be vaIued in a slatement of Whatis the vatue ofthθ inventoγ at6March
Finanoial Position? based on FlF0?
A atthθ IOWer of net realbable value and sθ lⅡ ng A$44 Bs0s C$65 D sC6
p"ce
B atthe IOwer ofreplacemθ nt cost and net A company had the following inVθ ntory
rea"sable value transaotions in June
C atIower of cost and repIacement oost
D atlower of cost and net reaⅡ sable vaIue June1Purchasθ o50unts at ss ρeru毗
A company bought and sold goods as foⅡ ows∶ 闸
4 Purchasθ d100uh"s at$4∶ 5o perun"
23 sold70units
BOught s° ld CO Purchased62units at ss per un"

Units Vnit pri∞ ($) Un"s

March 1 20 200 VVhatis thθ Value ofinventory at30Junθ based
3 10 250 on AVC0?
4 12 A $4292 B $4437 C $450 D $500
5
6 16
4 Atthe end ofits financial year a company provides Whatis the totalinventory value to be inOIuded丨 n
the foⅡ oWing information in respeCt ofits inVentory∶ the final accounts?

A $3900 B $4200
Cost Net seⅢ ng D $5400
C $4700
Pnce ReaⅡ sable Price
Va△ e lwhen new)
$ $ $
NeW dresses 1000 1500 2000
Ch"dren’ s clothes 2000 3000 3000
Bargain Fashions 1200 900 2000

1. DisCuss how the ooncept of prudence might be Was not completed untⅡ 7Apr"2o11,andˇ vas
re|eVantˇ vhen consideHng the Va|uation of unde"aken by aninexpe"enced member ofthe
lnventory staf Achmed fe"thatthe inventory figure of

2,Janice Jersey’ s竹 rst6rnonths oftrading sholAled $92050was too|ow and ordered an investigat on
It Was discoVered thatthe fo"oˇ v ng had oCCurred
the fo"oˇ v ng purchases and sales ofinVentory
during theˇ veek ended7Apr"2o11and had not
been accounted forin the oIOsing inventory
2011 PurChases sales
calculation∶
January 280@$65each
140@$82each 1 Goods w th a seⅢ ng price of$1o40had been
February
sentto a customer on approVal
Maroh 100@$69each
Ap"I 190@$85each 2 Goods costing$9400ˇ vere received and
InVOIced
May 220@$72each
June 200@$90each 3 saIes of$18760had been made and invoiced
to customers
These sales ino|uded
Ca|cuIate Janice’ s profit for the6months ended
(i) an° vercharge of$160∶
30June2011 using the fo"oˇ ving丨 ηethods of
(i) sales° f$6000on spec丨 a丨 0矸 er at a margin
inVentoγ valua刂 on∶
of10%;
(a)F1F0(First n First Out)
(b) AVCO lW° ghted Average Costl Ca oulate to ) damaged goods which ha¤ cost$2500and
0Ⅱ
Were so d for$2800
2decirnaI pIaces
Achmed’ s standard rate of gross pro】 t is25%of
3, Because of"|ness,Achmed’ s annua丨 stocktaking, saIes CaIculε ue the。°rreCt value of cIosing
ˇ inventory at31 March2011
`hich shouId have taken p|ace on31 March2011,
 Partnership accounts
● whata pa"nership is
● hoW profts are shared whθ n thereis a pa"nershiρ agreement
● hoW to appIythe Pa"nership Act of1890When there is no partnership agreement
● hoW to prepare pa"nership ao∞ unts
● 扪e advantages and d恰 灬 amages d partneⅡ Ⅲps
21 1 What are partnerships?
A parmcr曲 、ls formcd whcn h,o° r more pe° pk
caJry on busmcss togcthcr、 汀山 thc intcnoon of
n`a娩 pr。 nt
Partncrs must agrcc on hσ v伍 c parmershp o to bc
carrlcd on,tndudlng ho~⒘ rnuch cap⒈ 么1cach partncr is
to C0n缸 ibutC t° the Erm and h° w pronts and l。 sses
arc to bc shared,Ihcsc,and° d,cr止np°rtant ma仗 Crs,
arc dec妯 耐 h a patmers吣 agtCCment,Thc
agrccmcnt wⅢ usu碰 y bc h xBrlong,posslb圩 by dCCd
la fo⊥ ・
ΙIal Iegal doculncnD,° r verb￡ ””If血 partncrs
do n° t makc an agreement and a dlsputc aoscs
rcgardmg伍 elr ogh“ and dutJcs as partne灬 ,dtc Coun
may assumc山 at past pracicc c° nsumtcs an‘ mpⅡ cd’
agtccmcn△ and res° lvc thc aoputc accordlng to sshat
thc p狂 mers ha△ cd° 负c pr∞ ⒑us、「
Thc PartnctshⅡ Act1890g° vcrns partncrships
and statcs thc rlghts and du硅 cs of partncrs Ihe Act
includcs thc f° Ⅱ°、注ng
prov1sions,whch arc
important and app圩 t° partnerships'彳 饧JJ thc
partners havc agrccd to va-y thc tcrms
● AⅡ partncrs atc cnodcd to con硅 butc cqu碰 y
tbc capital° f thc partnctshⅡ
● Partncts arc not cnuucd t。 1ntcrcst° n thc
caplt扭 伍cy havc c°ntributcd.
● Partncrs arc not cn色 dcd to salatics
●Partncrs arc not t° bc chargcd intcrcst on thclr
dra、 砬ngs
● Partncrs wⅢ sharc pr° nts and loss∞ cqu9⒒ y
● Partners arc cn乜 dcd to onterest at5Vo pcr annutn
on bansth叮 makc t° thc paru△ cr曲 V
The Appropriation Account
Thc Appropriaoon Acc° untis a continuaoon of
thc Inc° me statcmcnt It bc要 ns xslth thc nct pr° 丘t
or loss br° ught d° wn fr° m the Inc° mc statcmcnt
Thc follo、 犭ng mcthods of d⒈ 汀山ng prof】 ts bco评 ccn
partners must bc trcatcd as appropⅡ aoons of pro丘 t
in the Appr° pria刂 on Acc° unt
Partnerθ ’sal狙 ks.A parmcrship agrcement m叩
cnodc onc° rm° re parmcrs t° bc p缸 d a sala卩 「 Ths
may bc pald in add刂 on t° a血 rthcr share° f pr° flt,
A sala,guarantccs a parmct an income,四 cn if thc
fltm docs n° trnakc a pro丘 t Parmers’ salaocs arc
never debltcd in伍 c Profit and L° ss Account,
Interest on capital and dta硒 ings Intcrcst on
capkal rcc° g“ cs山 at l± paJimcrs do not晒卟t thc1r
capitalin thc parmcrsh匀 宀岱clr m° nc9could∞ rn
hterest m s° mc ρthcr form of mˇ ℃stmcnt The
partncrshp agrccment shρ uld statc thc狃 te of
htcrcst t° be paJd,Intcrcst° n capltalis pa,叼 blc cvcn
to
if thc Erm d° cs notrnakc a pr° 丘t.
Intcrcst chargcd to pa± mers on th血 dra钪 s厶
吧
htcnded t° cnc° uragc thc partncrs to1cavc由 e1f
shares° f pr° 丘t in thc buoncss as addloonal
tempor纽 y capltal,rather than takc thcm as dranmgs,
lnterest on partners’ loans to the firm
Interest° n a loan made by a partncr to a firm is
彳口 ont-itis an cxpcnse t°
'an appropoation of p±
be debited in thc Incomc statcmcnt,″ 夕 ″劢矽 Howcvcr,k^Ⅱ kc圩 in y° ur cxamnadon that
'丿
/pp犸 沙″ OP9彳 ″/o/, partners xs・ m havc b。 th capital and currcnt accounts
'” ''口
Fa红 iⅡ arlse yoursclf、 n cach
ProfIVloss sharing ^th thc informao°
contains,
=Anv balance o± proflt or b$ola伍 c~qppropoauon
赶 ∞ unt aftcr ch・arg● △ gh∞ ∞斑 on capitals and partncrs’ ExampIe1
salancs is shared bc雨 龟cn thc partncts in their agrccd ㈦ o parmcrshp agⅡ cmcnt rcgardlng intcrc斑 ,

proⅡ ←shamg rauos If山 crc is n° partlacrshp orsharmg of pron“ /bss∞ )

paru△ erζ salan邙

agreemcnt,d△ c pto血 or b$Ⅵ Ⅲ bcsh/arcd cqu汕 y 姒Ⅱ

chacl and Chadcs bcgan to tradc as partners on
It“ mportant to rcmcmbcr th/at mtcrest on cap⒒ 狨s 1January2010ˇ Ⅱ
chac1in“ oduccd$60000into伍 e
and palmcr旷 salancs is a mc伍 od of曲 anng proIlt⑩ bu⒍ ncss as capltal,and Chadcs conmbutcd$40000,
伍at a pamtcfs tot・ alsharc ofproⅡ t mdudcs dlcsc itcms on1Jul12010,Charles lent$10000to伍 c
Rcad qucsti° ns carcful1y and notc whatthe bushcss Thc parmcr曲 Φ olal balancc at
pat恤 Crs havc agrccd If a qucs0on docs n° t statc 31Dcccmbcr2010was as foⅡ o、
`s;
xx,hat thc partncrs havc agrced about any of thc
mattcrs h the Parmcr曲 o Act“ tCd aboxc,apply曲 e $ $
sales 3l× lO00
tcrms of thc Actin your ans、 Putchascs 120000
`cr to thc qucsoon
sta竹 wagcs 42000
212 HOW to prepare partnership Rcnt 100l× l
7t tlo
accounts
Elcctrlcit)`
sundty cxpcnscs 5000
Ptcilliscs at Cost 60tlllo
Opcn伍 c亿 Ⅱowmg accounts for each parmc⒈
FLxlucs and￡ -gs at∞ st 28000
Capital Trade rccclx・ ablcs 5460
Draxlings Tradc pavablcs 2860
Currcnt Bank baIancc 94000
Capital accounts:sLchac1 60000
Thc capital account xx,m rccord the capltal Cllatlcs 00000
introduced by thc partncr and any capital、 犭thdra、 /n Dravmgs ⒈Ⅱchad 24000
by them Ths may bcin thc丘 ×m ofcash° r asscts Cbarlcs 17000
Loan fr。 m Chatlcs 10000
such as a car or cquipmcnt Capitalintr° duced is
412860 412860
crcdlted in the account Capital、 dra・ tx n is debited
^山
in thc account,There arc Othcrltcms of a spcoal Furtherinfotmadon
naturc whch arc cntered in thc capital account,such 1 Invcntory at31Dcccmbcr2010:$18000
as goodxxm and pr。 丘t on revalua刂 on of asscts Thcsc 2 Dcprcciaion is t° bc proˇ △
dcd as foⅡ o、 厂
s:

are dealt xx,lth± u灯 h chap哞 r” , Prcmscs∶ 5Vo pcr annuln on cost

The Current accountis uscd to comp1ctc the Fkttrcs and丘 tongs:121/zo/O pcr ninum on cost,
doublc cntrF f‘ °m伍 e partncrship Proftt and Loss 3 The partncrs had not madc aα y agrccmcnt
and AppropⅡ aion Account for thc partner’ s sharc rcgarding interest on capital and dra、 vings,
of pronts,l。 sses,intcrcst and sala,It is also crcdltcd salarics or shaⅡ ng。 f proflts and losscs
M,lth intcrcst on a partner’ s loan to thc flm,if any, Required
flom thc Pro丘 t and Loss Account Atthc cnd° fthe (⑷ PrCparc thc Incomc statcmcnt a血 d
Vcar,thc balance on thc partncrs D攵 al91.ings account Appropriation Account for thc ycar cndcd
is transfcrrcd t° thc dcbit of hs Current account 31Dcccmbcr2010
Note If partncrs do n° t lnaintain Current (b)Preparc thc partncrs’ Cutrcnt accounts at
accounts,thc doublc cntrF f° r intcrcst,thcir 31December2010
salancs and sharcs of pront must be comp1ctcd in (c)PrCparc the statement of Financial Posiuon
thcir Capital accounts at31December2010
Answcr
(/al

Michae1and Chatlc8
Income statement臼 0d Approptiathn Accoun‘ fot the year ended31Decembei12010
$ $ $
salcs 3l× l OCKl

Lcss Cost of salcs

Purchascs 120000
Lcss Invcnto刂 γ at31DCccmbcr2010 18000 1陇 0∞
Gross pェ o丘 t 198000
staffwagcs 42000
Rcnt 10000
Elcc耐 ot,` 7000
sund叩 Cxpenscs 5400
Dcpieoaoon:Prcmises 3000
F猿 mrcs and fl缸 ngs 3500 6500
Intcrc哎 °n loan(6m° ndls at5%pa)佧 250 71150
Nct pront
shatcs of Pto丘 t sIIch征 l(-|:∶ ˉ) 63425
126850

Charlcs(ˉ |〉
63425 126850
|:∶

衤 unt,h卿
Notc山 at由 c血 tcrcst on Chadcs’ loan芯 chargcd as an cxpcnsc h thc pro丘 t aIld loss acc° spLttulg thc nct pj÷ ofit be雨 ccn
the partllc阝 1to,h°w⑶ ℃r,cntcrcd nl Charlcs’ Cuoc且 t ACCount as Charlcs ls cnodcd t。 v・lrlloL孙 ″it fEom dlc busncss As no
Parulershp Agreement exists,tlle rate of nlteiest on the loan is5c/o

rL9ic Appr。 pJatlon Λccount b啮 ns at the polnt whcre tbe net prc,且 t of$126850芯 shown

(b)
Pattnerg’ Cutrent acoounts
△Iichacl Chailcs 卜压ichacl Charlcs
2010 $ $ 2010 $ $
Dcc31 Dtawings 24tKlo 17tlC o Dcc31 Intcrcst° n loan忄 250
BaIanccs c/d 39425 46675 share of pro丘 t 63425 63425
63425 63675 63425 63675
2011
Jan 1 Balancc b/d 39425 46675

⑹ shα 讪鸭 thC Partncrs’ Currcnt Accolln“ 茁dc by

NoⅡ cllrrcnt⒒ ab⒒ 〃:Loan from Charlcs 100llll
sidc Ⅱkc uusis kn。 wn as sho、 河ng thcm in 1861tl,
CoJ拓 ″招曰仂 ″勿 o± tCn,qucs刂 ons踟iⅡ ask for伍 c Capltal acc° unt⒌ NI●Chacl 60t tlO ~
par恤 Crs’ Currcnt acculunts land some。 m6thek Charlcs
Currcnt acc° unt⒌ VⅡ chaeI
40C llO
39425
100000

capltal ac∞ un⑸ in ths format Evcn l± the qu∞ d° n Charles 46675 86100
docs not ask for thc accountsin cohmnar f° rn、 it is 1861l× l

sjⅡ a g° °dw⒓ y to sho、 v伍 em Example2

statement oF Financia1Position at31Deoembct2010 kqP时 恤er曲Ⅱ agrccmcnt h placcl
Cost Dcp NBV Data as in examplc1aboˇ ℃,、 thc fo⒒ o、 沁ng
Non-currcnt asscts $ $ $ ^d△
addo° nalinformauon.
Prcmiscs 600llll 3000 57000
Fkilrcs and丘 tongs 28000 3500 ⒛ 500
The parmcr曲 o agrcCmcntinchdes曲 e foⅡ oMmg
88000 6500 81500 tcrrns
Cuiircnt asscts;InVcntory 18000 ● Intcrcst on capitals and annuaI dr小 ″
1ngs:5o/o
Tradc ilccciVablcs 5460
Bat△r 94000 pcr annum
117460 ●Partnership salarles Φcr annunD:△ Ilchacl
Currcnt△ abmuc⒏ Tradc p呷 油 圮s 2860 114600
196100
$20000;Charles$10000,
 ・
麝 rk漩
d Ekculcl饣 7000
:;jjjt∶ :吾 :l:i茗
窖
● Claarles is to be credtcd砀 i山 htcrc呲 °nl△ls1° an to
sundF/cxpcnscs
Dcptec该 oo豇
Prcllllscs 3000
5000

dle卩 曲⒃r曲 V at aratc of8%pcr alnLltn FLxtLlics aad敏 血 莎 3soo 6500

Intcrcst on1oan(6m。 nth9 400 71300
Rcqu⒒ cd Nct pェ of,t 126700
(al Prcparc thc Inc°mc Statcmcnt and 本Add Intcrcst on dravnngs:

aoon Account for山 e year ended chacl 12JDo

=tpprop五
`Ⅱ
Charlcs 850 2050
31Dccclnbcr2010
128750
o)PrCparc dlc partnσ ζCuⅡ cnt accou且 “at 艹Less Intc=cst° il Capitals:

31Decernber2010 chacl 3t tlo

`Ⅱ
Chatlcs 2000
Answer 5000
ΨParmcrs’ salatlcs:
(么
|)
AIlchacl 20lltlo

Michae13nd Chatlcs Charles 10000 35000

Incomc statcmcnt and Apptopiiauon Acc。 unt 9375o
fot the ycar end0d31Deoember2010 shatcs° fpェ o丘 t

$ $ $ lsIic犰 d(号 ) 62500

Sa1cs 300000
Lcss C° st° f salcs Chadcs(÷ ) 31250 93750
Purchascs 120000 衤Adjustmcnts aic madc for lntcrcst on dtawlngs,intc± cst
Lcss Invcntorl at31Dccc,nbcii2010 18000 102000 on capital and pajItncr’ s salarics沙 ￠%'`thc rcmaining nct
Gross pr° 臼t 198000 pr。 nt is spⅡ tin thc pr。 丘t sharing tati。 s
staff wagcs 42000 Thls is an important o。 int ThC nct ptofit is″ 夕
″r spⅡ t
Rcnt 10000 until thcsc adjustmcl△ ts havc bccn madc

(l))

PattⅡ ci8’ Cuttcnt accounts

Mcllacl Cl△ atlcs lIIlcllad Charlcs

2010 $ $ 2010 $ $
DOc31 Dr孙 v1ngs 24000 17000 Dec31 Intcre鸵 。n capita1 3000 2000
Intcrcst。 n drawings 1200 850 Intcrcst on l° an ~ 000
sal动 γ 20000 10000
BalallcOd c/d 60300 25800 shaic° f pront 62500 31250
85500 43650 85500 43650
2011
Jan 1 Balancc b/d 60300 25800
Notg Thc statclncl△ t of Fli△ 狙 cial Posltlon wⅢ bc dlc samc as ExamPlC1Cxccpt Ⅱr曲 cd溺∝ cl△ tb破 ancc On山 c pattncrs’ curicilt
aCCounts∶ B沮 ohael$6o300and Chades$25800

Exercise1 Plrchascs 84000

Invcnt° ty at1ApJ12010 16000
(N° partncrship agrccmcn◇
Schlg cxpcnscs 30000
Tcc and Lccf arc tradlng iil partilcrship Tht・ △tJaI straoon eXpenscs
Admil△】 42000
balancc at311汪 arch2011is as toⅡ o、 Fixulrcs and f1ttings at c。 st 48000
`s:
Pro访 sion ior dcprcoao。 n° f εxmrcs and nttlllgs 8000
$ $
Capital accounts at1ApJ12010:Tcc orncc cqtllpmcnt at cost 27ooo
100000
Lccf 50000
Plo△ Isi° nf°r dcprcciaoon° f° fJlcc cqlupmcnt 5000
Currcnt accounts犹 1蜘 d201ll Tcc Tiadc rcceivablcs 24000
5000
Lccf 10000 Ttadc payablcs 11000
Drawing accounts; Tce 29000 Bank balancc 85000
Lccf 31000 ban丘 om Lccf 12000
salcs 215000 416000 416000
 Further LⅡormadon Tee÷ ;Leef鲁
1,Invcnt° r「 at31March2011:$20000
2,sc⒒吧 c冲 cnsCs prcp洒 at31March201⒈ Requhed
(al PrCparc the partnership Income statement
$6000,
and Approprlation Acc° unt f° r the year
3,Adn山 Ⅱs仕 /auon cxpcnses accrucd at31March
2011:$4000
cndcd31March2011
4.Dcprcoaoon is to be pro△ lded as fo△ ows:on ⑴ PrCparc伍 c partncrs’ Currcnt accoun“ at
31March2011in col-nar form,
Exmrcs and缸 吣 10%ofcost on ofEcc
(c) PrCparc thc partncrship statcmcnt of
cqmpmcnt200/o of cost
Financial Position at311呸 arch2011,
5Lccf madc the ban to曲 c bushcss on1Apd
2010,
6,Thc parmers had not tnadc aα y agrccmcnt
21 3 AdVantages and disadvantages
regardmg htcrcst,s・ alarlcs or proflt shanng,
of partnerships

Requhed Advantages
(al PrCpa± c thc partncrship Income statement The cautalins∞ tcd by parmcrsls oftcn m° re
and Appr° priati° 且Account for thc ycar dhan can bc ralscd by a sdc tradcr,
cndcd31⒈ 忱 oh2011。 A grcatcr hnd of kno哂 1cdgc,cxpeocnce and
⑴ PrCparc par恤 Cts’ Current Account at31March cxpcrosc in ru丽 ng a busincss is a碰 blc to a
2011蔽 du-ar f∝ m. parmcrshp
(cl PrCparc the partncrship statcmcnt of A partncr血 o may bC abk to offcr a grcatct rangc
Fhancial Position at31Ⅸ Ι arch2011 °
f scr访 ccs to its cu呲 omcrs lor chCntΘ
Thc bushcss docs not havc t° cl° sc down or bc
ExercIse2 run by incxpc五 cnccd staff in thc abscncc of onc
CarmC± shlp agrccmcntin placcl of伍 e partner⒏ thc othcr parmcr(s)wⅢ pro说 dc
Thc facts arc as in cxcrcisc1,but Tee and Leaf cover
haˇ c a parmcrshp agrccmcnt whch hchdcs thc Losses a± c shared by a△ partners
fo△ ovmgtcrms,
Disadvantages
1 Lecfis to bc crcdicd、
^th htcrcst on lis loan to A pattncr has not ohc samc frccdon△ to act
the paJimcr曲 o at thC tatc° f10%pcr atmum,
indcpendendy as a sole trader has.
2.Thc pat恤 crs arc auoss,cd htcre呲 at10%per A partncr m缈 be frⅡ tratcd by dae other parmerlsl
annum on capltals and a± c charged intcrest at h hs° r hcr plans for the dkecj° n and
10V。 pcr annuln on drawmgs. dcvclopmcnt of thc bushcss,
3Lccf ls en刂 dcd to a salaty of$硐 00pcr annum,
●

Profits hav/c to bc sharcd by au partncrs.

●

4.Thc balancc of pro丘 t/l° ss is to bc sharcd as A parmcr mγ bc k眇 灯 ⅡablC for ac“ ofthc
fo△ oM/s: o伍 cr patmcr⑸ ,

Learn the provisions oftho Partnership Ad1890as they a矸 eCt pa"neⅡ y rights to salaries,intθ rest and sharing of
profits and Iosses
Read each question CarefuⅡ y to see if you have to apply the terms of a pa^nership agreθ mθ nt orthθ proVisions of
the Partnership Ad189o
Debitinterest on a pa"ner’ s loan to the firm in the Income statement and credit"to the padner’ s Current
account
●

Do not dθ bⅡ pa"ners’ draWings to the Approp1ation Acoount

●

CompIete the doublρ ent"es from the Approρ Hati0n Aooountto the ρa付 ners’ Curent aocounts
●

Tnansferthe endˉ ofˉ year balances on the partners’ Dravˇ ings accounts to their Current aooounts
●

lf partners do nd maintain current accounts,the ent"es to Current aoCounts referred to aboˇ e rnust be rnade in
their Capita!a∞ ounts instead
T丨ck eVeγ oked before ooρ ying out your
answe∴ "em in the queston as you give efectto" CheCk that a"items are t丨

Cue and Rest are padners sharlng profits and the partnership$10000on Whioh he is entitIed to
losses in the ratio of2∶ 1 They arθ a"oWed interest at10% Hθ is also en】 ed to a salary of
t丨

interest at10°/o perannum on oap"als and loans $12000per annum Prof"s and lossθ s are shared
to the partnership equally The pa"nership has made a net profⅡ of

otherinfomation o as follows: $25000

HoW muohis stum￠ s share ofthe net prof"?

GohI and Poast are pa"ners sharlng prof"s and

Iosses equally Gohl has lθ ntthe ρartnership
$8000° n which he is entitled to interest at10%
Thθ partnership has made a net prof"forthe year
ρerannum The pa"ners are entit ed to annual
°f$40000 saIaHes as foⅡ oW∶ GohI$6000;Poast$4000 The
How muohis Cuθ ’
s total share ofthe net pro】 t? pa"nershiρ has made a pro】 t of$17000 HOw
A $24800 B $25100 much is Gohl’ s share ofthe profit?
C $26800 D $27100
2, stump and Ba"are in ρadnership stump haslent

1.The folloWing tria|balanco has been eXtraoted Motor Vehic丨es at oost 410∞
from the books of BeⅡ and Binn at30ApⅡ 12o11 ProVdon for Dθ prec∶ ation

of MOtor Vehicles 22000

$ $ Trade reoeivabIes and payabIθ s 45750 18000
salθ s 425000 ProVision for Doubful Debts 1000
Purchasθ s 200000 Bank balance 15724
InVθ ntory a】 1 May2010 30000 Loan from BeⅡ GO∞ o
Wages 98000 Cap1al accounts:
Rent 25000 BeⅡ 50000
ghting
Heating and Ⅱ 16000 Binn 40000
ofioe expenses 12600 Current accounts∶
VehiOIe expenses 5510 Be" 7000
AdVertising 3500 Binn 3000
Bad dθ bts WrI⒒ θn o仟 416 Drawing accounts∶
PIant and machinory at Cost 125000 BeⅡ 30000
Provision for Depreciation of Binn 13500
Plant and Maohinery 662000 662000
 伽
~
蛔
一
咖一
Fu"herinformat∶ on sundry exρ enses
1 Inventory at3o Aρ r"2011is Va丨 uθ d at$27000
Net pro铱
2 BeⅡ is to be cred"ed vˇ ith interest on the loan at
a ratθ of1oo/。 per ahnum MⅡ Fs net profits forthe prevlous tWo years were
3 Thθ bank reconoⅡ iatlon shows that bank as fo"ows∶
丨
nterest of$314and bank charges of$86o
have been debited in the bank statθ ments $
These amounts haVe not been θntered in the Year ended: 31Deoembθ r2oo8 stl∞ o
cash book 31Dθ oembθ r2oo9 24000
4 At30AprⅡ 2o11,rent of$1500and adve"ising
of$2000have been paId in adVanoe Mm卩 sf"end,G"st,has also been trading for some
5 Depreciaton is to be prov ded as foⅡ ows∶ years repai"ng and servioing motor vθ hicIes

巾) Plant and machineγ :1o%perannum on Grist’ s net profits f° rthe pastthrθ o years have

o0st been as foⅡ oWs∶

币◆ M° tor vehides∶ 20%per annum on their

Wri仗 on doWn va丨 ues $
6 The pa"nθ rs are to be chargθ d interest° n Year ended:31December2oo8 11600
draWings and allowed interest on cap"als at a 31Decθ mber2oo9 14500
rate of10°/。 per annum 31December2o1o 18000
7 Partnership sa|aries are to be allowed as
folloWs:Be"$10o00per annum;Binn$800o Thθ lease on G"st’ s pre耐 ises is about to eXρ ire,
per annum and G"st has suggθ sted to MⅡ |thatthe two
8 The balance of profits and Iosses is to be businesses should be oombinθ d and that he and

蚰蹿 d as folloW⒏ 吲詈泅m鲁 M"Ishould become pa^ners

MⅡ l est nnates that oombining the businθ sses wilI
immediate丨y improvo his net pro仳 by1o%and
卩equlred thatthe improvement wⅡ 丨be maintained in future
⑶ Prepare the pa"nθ rship hcome statement and yθ ars Grist estimates that his net profit wⅡ 丨be
AppropⅡ ation Ac∞untforthe year θnded increased by20%and thatthis inCrease wⅡ l aIs°
sO Apd12o11 be maintained in the future
(Dl Prepare thθ pa"ners’ current a∞ ounts forthe
The proposed pa"nθ rship agreemθ nt would
year ended30AprⅡ 2011
provided as foⅡ ows∶
lo)Prepare the statement of Finand引 PosⅡ on at
30Aρ ri12011
Caplta丨 s:MⅢ $20000;GⅡ st$30000
2.M"lhas been a secondˉ hand car dealθ rfor some owed at10%per
Interest on capitals to be aⅡ

years Hls lnoome statmentforthe yθ ar ended annum

31De∞ mber2o1o was asfo"ows: The balance of prof"s an-losses to bθ shared
equaⅡ y

$ $
sales Requ〗 red
160000
Less Cost of saIes 95000 ⑶ Prep。 re a foreoastln∞ me statemθ nt
Gross p∞ 咐 and Appropriation Account ofthe pa"nership
ss∞ o
Wages forthe year ending31December2011,
31000
Rent assun∩ ing the pa"nership is formed on
7000
Hθ a】 ng and Ⅱ
ghtlng 4000 1January2o11
Adve"is∶ ng 10∞ ⑼ state,w"h reasons,whether MⅢ should agree
to Grist becoming a pa"nerin the combined
busInesses
 fu"her entries had been made in the books for
3,senter and Ha亻 have prepared thθ ir draR statement
this sale
of Finanoia|Posit丨 on as at30June2011as fo"oˇ ˇs∶
(The pa"nership ρ“
》Jdes for deρ redation on the
straight・ Ⅱ
ne basis at a ratθ of10%on the
Nonˉ ourrent assθ ts ba|ance on the FiXtures and Fi⒒ ings aocount at
Fi冫 dures and fi廿 ings at cost 45000 the end of each financial year)
Less Depreoiatlon to datθ 34500 10500 2 Interest atthe rate of10%por annum isto be
Cu"ent assets providθ d on the longˉ term loan from senterfor
lnVentoγ 28500 the year ended30June2011
Tradθ payables 24000 3 The aooounts forthe year θnded30June2010
Bank 9000 includθ d inVentory at30June2010in the su丨 η
61500 °f$20000 The correot value ofthe stock
Less Current ⅡabⅡ Ⅲes should haVe been$30000 The partners haVθ
Trade re∞ vaues 12000 49500 agreed thatthis error should be Corrθ dθ d丨 n
60000 the pa"nθ rship a∞ ounts
Less Non钅 urrent ⅡabⅢ ty 4 The pa"ners have deoided that a provision for
senter 15000 doubfu|debts equalto4%ofthe debtors
45000 shouId be provided in the accounts
Capital accounts∶ 5An adlustment should be made forthe ρrep钊 d
senter 22000 rent at30June2011inthe sum of$750
Ha亻 14000 36000 6 During the year ended30June2011,Ha"had
Current aocounts∶ taken goods oosting$1o75f° r his persona|
senter 7500 use
Ha亻 1500 9000
45000 Further informa】 on
ln add"ion to the interest aIIOwed on senter’ s
Ioan,the pa"ners are a"oWod interest at10%per
lt has noW been d丨 scoVered thatthe fo"owing
annum on their capⅡ al account balancθ s The
errors and omissions haVe been made
balance of profits and Iosses are divided betˇ Vθ θn
1 some1Xtures and fi仗 ings were sold for$35Qo
senter and Ha亻 in the ratio of3:2
in Januaγ 2011 Theseitems had oost$15000
and thθ ir net book Value at30June2010Was RequIred
$4500 The sale proceeds were credited to the Prepare a correded statement of FinanCial
FiXtures and Fi廿 ings at Cost aCcount No POsition as at30June2011fortho partnership
 Partnership changes
● hoW to pnepare ρ
artnership acc° unts when a pa"nerjoins orleaVosthe】
● hoW to aCCountforthe reva丨 uatlon ofassots when thereis padnership change
● hoWto a∞ ountforpartnershiρ GoodWⅡ l
● hoW to aoCountforthθ reaⅡ sa】 ion of a parlnership
221 What is a partnership change?
Atˉhange in a parulcrslup c,cclr⒏
●when parulcrs agcc to change thc way in、 dich
prosts and losscs arC to bc sharcd
●whcn a ncw partncrjohs a nrm,。 ran c妯 song
partncr lcavcs
● dcath° r rcorcment of a partncr
222 HOW to aCcount for changes in
the aⅡ ocation of profits or
losses between partners
Parulcrs may changc thc wayin whch pro丘 ts and
l° sscs arc to bc sharcd Thc change may occur at any
datc,and thc parulcrship cononucs whcdlcl d,c
change takcs p1・ acc at ohc start° f a ncw± nlancial ycar
or durlng the ycar
丿
Ⅲ pr° flts that hax,e bccn calncd aold losscs that
have bccn incurred beforc thc changc must be sharcd
hd△ c old pro丘 t/loss-sha⒒ ng raoo Subscquent proflts
and bsscs must be sharcd h thc ncw proⅡ t/1oss
sharlng ratlo In each casc,pr° flts and Iosses inchdc
reaⅡ scd o⒕扌urlrc挝iscd pr° ±
lts and losscs
Rc￡ uscd pr。 丘ts and1osses arc thosc that arc
rccogniscd in thc Inc° mc Statemcnt Thcy arc
usual1y apporti° ncd° n a timc basis,but thcre
may be exccpjonal circumstanccs For cxamp1e,
thc ncw partncrship agrccmcnt rnay prosrldc for
thc ratc° finterest on a partncr’ s loan t°
m
changcd;or f° r a parulcr t° rnake a l° an to ulc丘 rn1;
or f° r thc repaγ mcnt of a l° an The intercst on thc
loan,in thcsc cases,must bc apporooned° n an
aCtual and not on a tlmo basio
UnrcaⅡ scd prof】 ts and losses arc gains and
l°sses arising froin the revaluaoon° f asscts and
ⅡabiⅡ jcs at thc datc ofthe qhangc in thc proflt/
loss-sharing agrccmcnt and、 v△ ll rcsult in
adjustmcnts to thc partncrs’ capitals
Assets and liabilitics rnay havc diffcrcnt values
at thc datc° f a changc in thc pro丘 t/Ioss-sharing
ratio from thc valucs shown in thc last avaⅡ able
Statcment of Financial Positi° n s° mc asscts may
not cvcn bc sho、 vn in thc Statemcnt of Financial
P° siti° n;an cxamplcis Goodwi116cC§ 22θ
Thc partners’ Capita1accounts xxill not sh° w
thcir actual intcrcst in thc± lrm unless thcy arc
adjustcd to re± lect thc rcal nct assct va1ue ofthc
bus1ncss This1s a mattcr° fimportance whcn
thc partncrship is dissolvcd(ccasCs tradingl or
thcrc is a change in thc c° mp° sition° f thc
partncrship
Unrc・aLscd pr° 丘ts and l° sscs tnust be attrlbutcd t°
d△ c sc(matclllng conccp)In
pco° d h vxlllch d△ cy ar°
what foⅡ °ws,山 e acc° unong proccdtres砀 刂Ⅱbc
cxplaincd for:
●adius。 ng partncrs’ Capital accounts f° r
bc unrcaⅡ scd proflts and losscs
 ● apporoolung rcaltscd pronts and losscs h paru△ crs c° tdd dra、 v cash from thc busincss cqualto
Inc° mc statcmcnts 岱eam° unt° fa呷 pro血 ,As伍 ca曲 Ⅱ unCnt。
smpls an cntrVin thc b° °ks xx,ith no cash conmg
223 HoVV to account foF the int° °r going out of thc busincss,au。 w1ng thcm to
revaIuauon of assets in a dra、严any proflt would rcsult in cash lcaˇ △
ng thc
partnership bu“ncss whch codd rcsultin thc busincss suffcⅡ ng
丘nancial di伍 cd,
At ccrt砬 n omcs throughoutthe Ⅱfe of伍 c
partnclshp,dlc partncrs ma5′ rc,・ alue山 e asscts and
ExampIe
⒒abiⅡ ocs of thc bus1ncss Thcy may do出 is because Abdul and Bashir arc in busincss sharing thc
d△ cy rca⒒ sc that s° mc of thc asscts,probably land is pr。 nts and losscs Cqual圩Thclr summariscd
now wc⒒ bclow thc inarkct v狃uc Thc partncrs WⅡ statcmcnt of Financial Position at310ctobcr
also rcvaluc thc assc“ just bcbrc dlc admisson ofa 2011is as follows:
ncw parmcr This1s donc to rcward伍 c cⅪ s包 ng
sO00 sOllll
partncrs for thcir cfforts in buⅡ dmg up thc bushcss Non~currcnt asscts
ovcrits Ⅱfc XWhcn onc ofthc parmcrs rcorcs thcn it ptoperty 60
ˉ Plant and maclmc轷 30
“ onl1・ ±air that thcy too arc r唧 ardcd fo￡ thclr c± fotts
90
in buⅡ ding up the busincss ovcr thC9cars Thc asscts
Cuticnt asscts
°fthc pamlership may be revalucd at that omc and Invcnt。 ty 7
tI△ c rcor1ng partner credited、讶 Tradc tcccivablcs 6
`1th thc1r sharc ofthc Bank accouat 2
proⅡ t on rcvaltlajon This wiⅡ increasc thc amount
15
thcy can takc tr° m the bushess° n dlclr reurcmcnt
Curtent liabilities
Thc prmciplc o that an,revahaoons are passed Tradc pal/abIes 4 11
through a Rcvaluation acc° unt, 101
Capita】 accounts
step1~dcbit thc Rcvaluation account with thc Abdul 佃
book valuc any asscts bcing rcvalucd Thc Bashir 00 80
oppositc cnt饣 is t° credit the assct account Cutjicnt accounts

~
勿_迎
"⑷
Abdul
step2_crcdit thc rcvaluauon acc。 unt with thc Bas血
book valuc of any liabilitlcs bcing rcvalucd,Thc
opposite entry is to dcbit thc liability account
Thcy dccidc to rcvaluc thcir asscts t0bⅡ ng
step3~credit the revaluaoon account M`ith thc thcm in linc with thcir latcst valucs Thc rcviscd
ncw valuc ofthc assets The° pposite entry is to valucs arc;
d・cbit thc assct account, -Propcrty$90000
stcp4_dcbit thc rcvaluaoon account、 砬th thc ~P1ant and machincry$24000
ncw valuc of thc liabⅡitics,Thc oppositc cntry is -Invcntory$6000and Tradc rcccivablcs
to crcdit thc1iabiⅡ ty account $5000
Thc rcmaining balancc° n thc rcvaluao° n
Requhed
account will rcprcscnt a proflt or loss° n
(a)PrCparc thc Rcvaluati° n acc° unt to tcnCCt
rcvaluauon,Thts is sharcd bcbⅣ ccn thc partncrs in
thc changc in valucs,
thcir ptof1t sharing ratio Any pro丘 t or loss
(b)PrCparc thc partnc￡ s’Capital accounts aftcr
should be entered in the Parmcr、 Capltal accounts
thc changcs havc takcn placc,
Ifit was cntcrcd in thcir currcnt account thcn thc
 (cl PrCparc a rcslscd statcmcnt ofFhancial Exercise1
Posioon show1ngthc ncw Ⅵ址ucs of thc asscts Ann andJohn arcin parmcr曲 Ⅱ 曲a。 ng the proflts
and ⅡabⅡ jcs, and losscs in thc raoo of2:1 Their summarised
R0vo1uation a0count statcmcnt of Financial Posijon at310ct° ber2011
is as fo⒒ ows:

ο
$000

ο
Propcrty(old yaluc) 60 Pr° PCrty〈 nCW valuc) sO∞ $CKlo

46
Plant and machincry PIant and machincry Non-cutrcnt asscts
ο

(oId valuc) (nCw valucl Property 120

76

Invcntor/(° ld valuc) Invcnt。 ty(nC`v vaIuc) Plant and maclunc叩 60

Tradc rccclsabks lold valucl T△ adcrcccivablcs 180
(nCw valucl Curtcnt asscts
Plofit c,n丘 为诅u峦妇n-Abdul 11 Invcnt° ry 20
Pro缸 on rcsalmuon Basl,jr11 Ttadc rcccivablcs 30
126 126 Bank account 1

51

刀~一
CapitoI accounts Cuェ tcnt liabⅡ itics
Tradc邺蕊 lcs 24
$000 $000 $llllll $0lltl

朋⒃ ⒛
Abdu1Bashit Abdul Bashir
Capltal accoullts: Ann 120
Balancc c/f 51 51 0peMlg balanccs 40 40
ProfIt on J° hn 60
unts: Ann
"一"_

一
"一“

Currcnt acc° 17

~
on

缅
rcs・ alua刂
_⒌一

_“

hn 10
_

J。

statcmcnt° f Financial Posiu。 n at31Octobcr They dccidc to rcvaluc thcir asscts to brlng
2011fo11owing rcvaluati° n, thcm in line、 汀th their latest valucs,Thc rcviscd
valucs arc:
∞tlll sOllll
⒇饵~“

Nonˉ cuttcnt asscts ●Pr° pe唧 $150000

Propctty ●Plant and machnc,$51000
plant and mac“ ∝
妙 ●Invcntory$17000and Tradc rccclsablCs
Curkcnt asscts
$28000
●Tradc payablcs$22000
652~“

Inventoiy
Trade teceivab1es
Required
Bank account
(al PrCparc thc Rcvaluati° n account to rcncct
Cutrcnt liab⒒ itics thc changes in valuc° f thc asscts,
~
4~

9~⑵

Tradc pavabks (b)PrCparc thc partncrs’ Capltal accounts after

thc changes have takon placc,
Capital accounts:
Abdul 51
(Θ PrCparc a rcsˉ iscd statcmcnt of Flnancial
Bashr 51 102 Posioon showing thc ncw valucs ofthe
Currcnt accounts: asscts and habi⒒ t1cs
⒉~

AbduI 11
In somc cascs,thc partners may dccidc to changc
~切

Bashr
Noticc that thc balancc at the bank has
tcmaincd unchanged.If the partncrs had dra、
thc proflt on rcvaluadon ftom thc busincss it
wOuld hax c rcsultcd in an ovcrdrafk,
10
thcir proΠ t sharing rados part of thc、 〃ay thr° ugh
thc trading year,At that伍 mc thcy】 nay also
rcvaluc thc pa± tncrship asscts,As wc havc scen,
`n any incrcasc or dccrcasc is adjustcd through a
Revaluation account with any pront。 rl。 ss
trans炙 rrcd to thc parmcrs’ Capital accounts If thc (b)PrCparc a redraftcd statcmcnt of Financi/al
cllang∞ talcc placc pa仗 wal「 thro△ lgll the ycar thc Position as at30Junc2o11aftcr thc assets
pr° ttt° rloss on rcvaluajon must bc sharcd in thc havc bccn reva1ucd
old pro丘t sharing rajos becausc any gain or l° ss Answcr
in vaIues has° ccurred bcforc thc ratios wcrc (al
changcd
Joutna1 $ $
EXample Frcchold pjicmises 40000
Plant and machincjiy 5000
Gracc and Grant arc in partncrship,sharing M。 tor vchiclcs 3000
pro丘 ts and losscs in thc ratio of2:1 ○n1July Illvcnt0攵 y 4000
Dcbtors c° ntr。 l 1000
2011thcy agrcc to changc thc pro丘 t-sharing ratl°
Rcvaluation account 27000
s° that thcy wⅡ l sharc pro± lts and losses equal1y in R￠ 沏 ///'/f,″ 旷 四 c・ ,订 ″ 丿@J″ 〃召20′ r
llturc Thc partncrship statement of Financial
± Rex・ aL△ aiaon accc,llnt 27000
・
Posio° n at31Dcccmbcr2010灬 厂
as as f° llows: Capital accolll△ ts:C,△ acc 18000
Grant 9000
p・
$ $ 眵 扌四 ″训 /J'//o″ ∝ 召
沁 ″ 滋″ 劢 rf’ Cdpz/F/'幽 ″″订
'J∫ `夕 'r/F〃
Non-currcnt asscts at nct b。 °k valucs `勿
砌 Ⅱ r/FFr'咖 砀砌 衫脑 C囫
Frcdlold prcmscs 60000 ;CrFPJ/;
plant and maclmlc,iy 35000 (b)
⒈Ι
ot° r vcluclcs 23000
118000 Grace and Ctant
statement of Fi众 ancia1positi。 n at30June2011
Currcllt asscts
Invcnton, 29000 $ $
Tiadc rccclsablcs 13000 N° n~currcnt asscts at nct b° ok valucs
Bank 8000 Frcchold prα 血scs(次 9@∞ +亻 ε@a3 100llC o
50lXlo Plaat and maclmcrlr σ歹∞0-夕 负 nD 30000
Ⅱab血谊cs
CujIjlent M。 tor彳 lucl钋 ￠乡∞0~乡 @0o 20000
Iradc payablcs 7000 43000 150000
161000 Curtcnt assc‘
Cap证 als I眦 ilto” 四 ⒄ 彳@⒆ 25000
Gracc 900llll Tradc rcco、 妯⒗s(`乡 ∞汐~`∞ o 12000
CTrant 71000 Bank 8000
161000 45000
Currcnt ⅡabⅢ oes
Thc partncrs agrcc dlat thc assets shall bc Tradc pa,⒓ blcs 7000 38000
rcvalucd at30JunC2011灬 ±
oll°ws:
188000
Capitals
Gracc(卯 0@0+馏 0口 0 108000
$
C沽 ant(7`9∞ +夕 ∞0 80000
Frcchold prcl△ nscs 100000
、 188000
Plant and machincjiy 30000
otor vehiclcs 20000
Invcntoily
`啖
25000 Exerc]se2
Tradc tcccivab1cs 12000 T° l and Tilly sharcd proflts and losses cqua1ly
l△

unti11§ cptCmbcr2011whcn they agrccd that

Requkcd Til1y、 uld bc cntitlcd to a sa1ary of$10000pcr
(a) PrCparc thc journal cntⅡ cs to give effc。 t to `°
annun1from that datc Pr° flts and l° sscs wOuld
thc rcva1uati° n ofthc assets in thc
continuc t° bc sharcd equally
partncrship books
 Thc parmer曲V statCmcnt of Financlal PosⅡ on at its asscts thcn the(Ⅱ ffcrcncc is g° odwiⅡ ,Ihc
31March2011w⒓ s as f° Ⅱ°ws: intcrnao° n狃 accounmg standards a△ °w th1s

卯 C° fgo° d硒iⅡ to bc血 °脚n asan h衫 u、 乒blc

Non~currcnt asscts at nct book values non-currcnt asset in thc statcmcnt of Financial
Frcch。 ld prclIuscs 40000 Posltl° n Itis usuallv・ dcprcciated cach ycar
F应 mcs alld丘 ttn眇 18llll0
unilitis wiittcn off This is deaIt、 礻th m° rc
ofac° cqulpmcnt 7000
65000 ±
ully in chaptcr26
Currcnt asse岱 ● Inherent g° od涮 ,Ths has n° t bccn pald for
Invcotoiy 17000 and so d° cs not havc an obiecuvC valuc,This is
Tradc reccivablcs 4000 ˉ
immcdiatc圩 x,rlttcn o± f血 dlc accounts whcn a
Bank 6tlllo
27000 ChangC止 1thC partncrship occurs and、 砬Ⅱbe
Cuェ rcnt liabnitics deak晒 ith in§ 225
Tradc u肛 u∝ 30llll 24000
89000 ExampIe
Capitals accoun灬
wm alld wcndy arc partners who havc sharcd pr° ￡“
Tom
龟
48000
TⅢ y 41000 and bsscs h thc raoo° f、Vm:|alld氓 ndy|;,
89000
On1Janua饣 2011伍 叮agree to sharc profits and
Thc partncrs agreed岱 at伍ca“ c“ shodd be l°sscs cqu碰 y1n futurc,At that datc伍 c parmerslup
rcvalucd at1Septeinbcr2011as f° Ⅱows: asscts and ⅡabⅡucs arc rccordcd in伍 cb°。ks at thc
f° Ⅱovlng s aluati° ns,
$
Frcchold ptcmiscs 65000 $
Fixturcs and fitungs 15000 premiscs 100000
0fficc cquipment 5000 Fixturcs and nttings 48000
1nvcnt° ry 14000 s压 otoil vchiclcs 35000
Tradc rcccivablcs 3lXlo y
Invcnt° ェ 12000
Tradc teccl△ ablcs 6lXl0
Required
201000
⑶ PrCpare jc,urnal cntrl∞ to gI△ c cffcct to thc 1c“ Trade pa,・ ablcs 3250
rc△ aluad° n° f dac partncrshp assets at Nct asscts 197750
1septembcr2011,
(b)Preparc thc partncrship Statemcnt of
WⅢ and w啦 灯 hasˉe reccn山 bCCn lnformcd伍 at
Financial P° sio° n as at1scptcmbcr2011to
they can cxpcct to reCelvc$230000for伍 clr buslncss
includc thc cffccts of rcvaluaoon° f thc assets
if伍 ey dccldc to scⅡ it,Thcy0a`狩 agreed to rccord
224 HoW to aCcountfor Goodwi" Good涮 h thc parmcrs吣 °
b° ks as n。 m1Janu呷
20】 】
,and∞ value thc bush∞ s at$230000for thc
GoodwⅢ o thcam° untby whch山 c9aluc of a
pwposc° f、 诫吡 G° °dwⅢ G° °dwⅢ ls xalued at
busincss as a gomg conccrn cxceeds thc x,aluc its nct
$⑿ 30000-197750l=$32250,Ihc journal cn呷 t°
asscts、 oLdd rcaLsc if thcy werc s° ld scpatatd孓 It“
rccord the Go° d泓iⅡ is:
an htanglblc assc△ that^,lt calnot bc touchcd and
α$ 娴

炙k &
Dr$硒

as buJ山 卺,plant and ma山 洫c,and° 伍

Ⅷ
‘
tanglblc’ 灬sc“ can bc t° uchcd and免 It Goo小 凶凵u acc。 unt
Thcrc arc Ⅱ″o tlpcs of goodwillto c° n“ dcr∶ capital⑾ lults (杠
0乙

● PuFchased goodⅥ 诅 Ths arlses whcn onc

) 10750
business buys anothcr If the purchascr pays
G矽 溯 v刀 ″ 刃 r//o'〃 龈 I“溅 0〃 刃 〃 彬 滋 勿 p″ 勿 Prf切 扬 fzr口 〃 p勿 钅”
m° rc for thc busincss than thc nct b° ok、戚uc of J/9彡 l眩 g饣拥oェ '勿
`彳
 沪咀 account lc,r()oo小 ⅣⅡ is opcncd in thc step1Credlt thc parmcrs’ Capltal accolll△ ts XXim thcir
partncrslup books 血缸eof Goo小凶
诎 砌仍e玄ro谚醣 sb械飓 石
″勿o
step2 Deblt dlc partncrs’ Capltal acoounts、 thClr
ExercIse3 ^tl△
c彻
share° f die Good、 注Ⅱ勿 劢勿 勿″ 夕睇 扛sb4惦//。 切
Vcra and I【cn arc parulcrs、 诉
/ho h孙 严
c shared pro丘 ts `″
stcps1and2can be comblncd in a⒍ nglc
and losses equa⒒y On1Ju1y2011thcy dccide to
opcration,as shown in thc fo1lovslng cxamplc
cllangc tllc proflt sllalnlg r洫 otα Ⅵra旦 aild ExampIe1
Noat and ICoyn havc sharcd prolits and losscs in thc
Kcˉ il垒 Thc parmerslup灬 延 s and habⅡ ocs at book
raoo of2:1but havc now agrccd伍 cy、 注Ⅱ sharc
valucs at1Jllly2011a迎 as foⅡ ow⒌ pro￡ ts and losses equa△ l/h ltlmrc Goodxxill^△ raltlcd
at$30000,and thc partncrs’ Capital accounts wi1l
$
Prcmiscs 140000 be adJus∞ d as仍 Ⅱows:
Fixturcs and丘 ttings 65000 ∥ o磁 瓦 : Column A Co1umn B
鸭
Motor vchiclcs 35000 Good9Iu sllarcd Goo小 诩姐 sharcd Kdlust± llCnt to
offlcc equipmcnt 15000 h,/r/ lIl″ eJJ C咖 tal accotlnts
Invcntoiy 6500
11800
proll⒈ sham△ g raoo ptorlt sharlIlg rado ←olumn A-
Ttadc rccciˇ ablcs
3620 lcrCdlt CaPltul ΘCbIt Capltal colt-D
Bank
T攵 adc payablcs 5830
acccltln⑸ acc° tutsl
$ ′ $ $
Noat 20lltlO 15000 5000CrcdIt
Thc parmcrs havc bccn informcd thatthe xalue of Κoyn 10000 15000 5000Dcblt
山e btlshcss as a go△ lg conccrn^$300000and have 30000 30000

decldcd to x/aluc GoodwⅢ on士洮 魄 urc The Caplta1account of a partncr xxllo loscs a

Required share° fG° °dxl,Ⅱ lis creditcd with thc amount of

(ω CalcLi扯 C dle xalllc of Goodwm
the l° ss The Capital account of a partncr who
o)Calclllatc伍 e amOLtn“ to bc crcdltcd tc,伍 c gains a share of Goodwillis dcbitcd、 伍
`ith thc
palu△ crs’ capital accoun“ for Goodwm amount ofthe gain
Thus,a parulcr who loscs a sharc of(3oodxvil is
225 HOW to account for GoodWil丨 compcnsatcd by a partncr、 /ho galns a sharc
when no GoodⅥ account is In thc cxalnplc,Kc,ll,has‘ purchascd’ lus△ lcrcascd
opened ':Ⅱ
sharc of G° °dxvm fr。 mN。 at A Go° dx△ rm account
Partncrs o± tcn do not牺 △
sh to rec° rd Goodxx・ m in has not bccn opcncd
d△ cir books for h△ro rcasons: At± lrst匪 ancC dlis∝ cms strangc It sccms that
●thc valuc p1accd on Good、 y vcrv I【oyn is bclilg pcnaⅡ scd by dcbiung his caplta1
^ll is usuaⅡ
dlnEclit t。 juso⒋ bCing a ma仪 cr of opilllos⒒ account,cvcn though hc wⅡ l bc partly responsib1e
may not cvcn c玉 △st for buⅡ ding up thc busincss
● if Goodxxll1is sh° wn in a Statcmcnt of It is donc to cnsurc that if thc partncrship is
Financial Positi° n at,say, $20000it wOuld sold immcdlatcly aftcr thc adiustmCn“ takc placc
bc vcry(Ⅱ fε cuk to pctsuadc a prospccovc thcn,pr° viding al1the assets and liabⅡ ities
pllrchascr of thc busincss to pay rnorc,cvcn if inc1udcd goodx△ 11l arc old at thcir valucs thcn n°
thc value had incrcascd sincc Goodxx/m was丘 rst partner wi111ose out
1ntroduccd int° the b° °ks
Example2
Whcn thcrc is a parulcrslllp qhangc and thc
,lu acc。 unt,thc ~【 lan and Bluail arc m pamcrslup sha11i1泛 g pro丘 ts and
partncrs dccidc notto open a Goodx△
loss6equ碰 y Thc△ Statcmcnt of Fhanclal Posluon i⒌
pr° ccdtlrc to bc follo、 /cd is as foⅡ ows∶
 $tltlo Required
Non~cut△ cnt asscts 50 (al Calculatc thc a山 ustmCn“ to bc madc to thc
Cu贸 cnt asscts 30
Capital accounts
CLlncnt血 bⅢ dcs ②
60 (b)PrCparc thc partners’ Capital acc° unts to
CapitaI~A 30 sh° w thc a山 ustmcnts for G° ° dxx・ ill
CapItal~B 30
60
22。 Apportionment of prof∶ t
Thcy admit C° Ⅱn int° thc partncrship and a11
Partncrship changcs of1cn occurin the middlc° fa
thtcc no、 ￠sharc thc pronts and l。 sscs cqually
nrn1,s snancial ycar If an Income statcmcntis n° t
GoodwⅡ lis valucd at$30000 No good、 汀Ⅱ
prcparcd at thc timc ofthe changc,thc pr° 丘t or
account is t° bc kcptin thc books
l° ss for thc financiaI year must bc apporooncd
Immcdiatcly aftcr thc changc thc partncrs dccide
bcbⅣ ccn the peⅡ °ds bcforc and aftcr thc change
to seⅡ thc busincss,Al1thc asscts and1iabiⅡ ues
If thc proⅡ t is灬 m细 cd to havc bccn carned e露 呐
reaⅡ sc thcir b° °k valucs,including Good、 讨11
throughout thc rar,k sh° uld bc dlx,lded bα wccn山 c
Shc,w thc partncrs’ Capital accounts to refIect
old and nes,,partllcrshps° n a tⅡ nc basis H° 、/cvcr,
these transacuons,
somc cxpcnscs rnay not havc bcen incLrrOd on a tⅡ nc
Capital Accountg basis and thcsc tnust bc alocatcd t° the pcrlod t°

A B C A B C wlⅡ ch thcy bclong,such cxpcnscs wⅢ bc spco丘 cd in

($000) ($000) a quesdon Apporu° nmcnt of pro且 t° rl° ss is sh° 、/n
0pcinlg B/alance 30 30 ~ in an Inc° mc statcmcnt prcpared in cdunlnar f° rm as
Goodv・ iⅡ 10 10 10 Go° dw⒒ 1 15 15 ~ m Ehe foⅡ °
Balailce pa,么 blc Pr° f】 t。 n salc 10 10 10 `^ng cxamplc
妈一“_

妈一“一

二⑷一

to cach partlle△ ExampIe

55 55 10
Old and Nc、 flts and
`arc partncrs sharlng pr°
Thc pro丘 t on the sale is thc valuc° fthc nct Iosses equa⒒ y aftcr allo、 汀ng old as挝 a轷 of
asscts$60000phs thc vahc° fthc G° °dxvtll $10000pcrannum On1Janu唧 2011伍 clr Capital
$30000= $90000minus thc valuc° fthc nct and Currcnt account balances werc as fo△ °ws:
asscts$60000,Each partncr rccckcs a onc-third
sharc of th“ proflt610000Cachl 0ld N cw
Nojce khat on圩 川an and B⒒ an rcccivc any $ $
Capital acc° unts 25000 20llllo
money fr° m thc salc,Thc bvo partners who buⅡ t Currcnt acc。 unts 75tKl 5000
up thc Good环 汀Ⅱarc rcwardcd for their eff° rts
Thc ncw partncr gains no bcneflt,as CoⅡ n docs
on1July2011,thc partncrs agrcc t° thc
not rccc1vc any paymcnt
tollo、反ng rcviscd tcrms° f partnersⅡ p,
ExercIse4 1 01d to transfcr$5000from hls Caph/al
Punch andJu曲 h印 ∝ sharcd pto丘 ts and bsses h thc account to a Loan acc° unt on which hc would
ra刂 o of2:1,On10ctobcr2011thcy agree t° sharc bc cnudcd t。 interest at10V3pcr annum
2 Nc、 bring his privatc car into the flrm at a

犭赢r蚤⒊患∶
∶
`t°

鞯犭
va1uation of$12000
f找:盘 1∶ 3,Ncw to recclvc a sa1ary of$5000pcr annum

on thcir Capital accounts bcforc thc changc in thc 4 Pro丘 ts and losscs t° bc sharcd:Old|争 ,Nc、 /-=・
pro丘 t/loss-sharing ratio arc:Punch$36000;Judy
$14000 A GoodwiⅡ accountis″ 谚t° bc opcned in Furthcr informa刂 °n for thc rar Cnded
thc bo° “ ,
31Dcccmber2011is as f° ⅡoM,s:
 $
山e stralght-Ⅱ nc bas1s and is assumcd to have no
salcs(sprcad CvCnl9・ dlroughotlt dlc ycaθ 200000 vaIuc at thc cnd of亡 hat ttmc,
Cost of saIcs 87500 Ⅻ s狨 cs producc a umform ratc of gross pro丘 t.
Rcnt 25000
Wagcs 35000 Rcquired
Gcncra1cxpcnscs 15000 (al PrCparc thc Inc° mc statcmcnt and
Appropriation Accounts for the year cndcd
ofthc gcncral cxpcnscs,$5000、 31Dcccmbcr2011
`as incurred in
伍c slx months to30Junc2o11, (b)PrCparc thc partners’ Current accounts for thc
N咖 、car is to bc dcprcciatcd ovcr four ycars on ycar endcd31Deccmbcr2011,

Answer

old and New

1n∞ ” e state” cnt and ApptopⅡ aton
Accomt fot the yeat ended31Deocmbct2011

$
saIcs 20000
Lcss Cost of salcs 87500
Gross pェ oflt carrlcd do″ n 112500

6months to 6months to Ycar to

30Jui・c 31Dcccmbcr 31Dcccnobcr
2011 2011 2011
$ $ $ $ $ $
Gross proflt
brought down 56250 56250 112500
Rcnt 12500 12500 25000
、￠agcs 175t ll 17500 35000
Gcnc,ial cxpcllscs 5000 10000 15lll,o
Intcrost on loan 250 250
Dcprcclauon-car 1500 15tKl
35000 41750 76750
Nct proflt 21250 14500 35750
Less
Salarv・ :old 5000 5000
New 2500 2500 7500
16250 12000 28250
sharc of pront:

°
ld(古 ):1⒛ (:)7200 15325
N1cW(告 )8⒓ 5 16250 (号 )4:Oo 12000 12925 28250

(b)

Partners’ Current Accounts

0ld Ncw 0ld Ncw
2011 $ $ 2011 $ $
Dcc 31 Bal c/d 28075 20425 Jan 1 Bal b/d 7500 5000
Dcc 31 salary 5000 2500
Loan intcrcst 250
sharc of pto丘 t 15325 12925
28075 20425 28075 20425
2012
Jan 1 B破 b/d 28075 20425
ExercIse5 Ifa parmer血 ΦchzangC∝ curs on山 cf诋 td叩 ofa
Hoo廴 Lmc and⒌ 酞cr haxrc sharcd proflts and bsscs h 血m、 fmanclal vcar,伍 c pr∝ cdure is s° str砘 办面J。 ard
the ra山 3∶ 2:1for a numbcr of years,On1Jdy2011, that it is涮 kcIy to f∝ m thc basls° f an cxa-atlon
抵 pamc灬 agrccd that,from伍 at datc, qu∞ 0on飞 crc、 no rc灬 °
n仂 Ι
w parmcrs sh° uld jom
1 H° °k、讨l1bc cnjded t° a salary of$6000pcr on thc Er吼 浼 yo± a壬 1rm、 fnano狃 犭 冂car,or、 丙 严c,nc
annum should lcaˇ ℃°n thc1・ ast day of thc fmanoal yca‘ In
'h闸

2 pro丘 ts and losscs、 bc sharcd cqua11y'

/iⅡ pracucc,山 angcs usllal,occt△ r dtlrmg a血 ano斑 rar
Informao° n cxtractcd froln thcir books for the and thc acc° unung rcc° rds arc c° nunuOd、注thout
ycar endcd31Dcccnα bc￡ 2011was as foⅡ oM`s; htcrrupuon;fmal acc° Luts arc not prodllccd und the
ˉ
cnd o± 山cr狂

salcs
$
129500
Example1
Cost of salcs 66500 ′dn△ ssl° n ofa nov pa△ tncrl
◇
、7agcs 14l× lo Grcy and Grccn have sharcd pr° nts and l。 sscs in thc
Gcncral cxpenses 5250
Dcprcc1at1on of丘 xcd assets 1750
ra刂 o of3:2 On10ct° bcr2011thcy dccidcd t°
adl△ l】 tB1uc
as a partnc厶 N° cntrlcs to record Bhc、

小vo d△⊥ds° f thc Gcneral expcnscs、vCrC incurrcd admtttancc as a parmcr wcrc rnadc in d,cb° o“ bcforc
in thc six months cnded31Dcccmbcr2011, 伍c cnd° fthe丘 nai△ cial ycar on31Deccmbcr2011
on1Apri12011,H° 。k madc al° an° f$8000 Inf° rmajon cxtractcd from the b° °ks f° r thc

to thc partnership Intcrcst on thc l° an is at a rate

ycar cndcd31Dcccmbcr2011includcd dhc
of10V。 pcr annum f° Ⅱ°Ⅵ ing
s狃 cs havc accrued cx cnly伍 roughout thc year and
$
a△ salcs have earned a utllfonn ratc ofgross pro丘 t
Tuェ nover 400000
Required Cost of sales 240000
Wagcs “a Ooo
Ptcpare an Incomc statcmcnt for the year endcd Rcnt 8000
31IDeccmbcr2011in c° ll1lnnar form to sh° 闷 GcncraI cxpenscs 9600
`thc
appropnaoon° fpro丘 t bcforc and after thc changc, Dcpェ cciation of丘 xcd assct$:
1Januaty to30scptcmbci2o11 6000
10ctobcr to31Dccembcr2o11 4350Φ
227 How to aGcountfor the asCd° n assct
re△ aluauon as
introduGtion of a ne、 v,or the shown bclox△ ,l

retirement of an existing。
At31Dcccmbcr2010thc balanccs° n Grq” and
partner
Grcα d Current accα m峦 x△ crc as± olc^,ˇ s:
When a partncr lcavcs a flrn△ or a ncw part卩 cr ^Capltd ai△
joins,⒒ marks伍 c cnd° f onc partnershlp and thc Capital accounts Curicnt acc。 unts
bcgInning ofa ncw onc Asin the casc ofa“ mpIc $ $
Gェ ey 50llllo 2000
change in pro丘 ←shatlng rao° s,a changc in partncrs Green 30000 3000
may occur at any titnc in a丘 rm’ s flnancial ycar,and
no entrics tnay bc made in thc bo° ks t° rccord thc On1 Oct° bcr2011,thc partncrship asscts WcrC
changc untJ thc cnd° f thc ycar, revalucd as foⅡ o、
Thc proccdures arc similar t° th° sc already ^`s:

dcscr】 bcd in§ 222 Account must be takcn° f $

● asset rcvaluaoon Frcchold prcmises 50000 1ncrcasc
● GoodMm
0dIct n° n-cLlttcnt asscts 14000 dccrcasc
Cturcnt asscts 3000 dcα g淤 c
● changcs h曲 c pront/l。 ss shaⅡ ng rau。 s,
 Thc partners agreed thc va1uc° fC】 °odwiⅡ at (◇ IntCrcst was aⅡ owed° n thc balanccs° n
10ctober2011at$40000and dccidcd that no Capital accounts at31Dcccmbcr cach year at
Goodx△ m五 cc。 unt should bc opcncd in thc b° oks a ratc of5Vo per annum
On1Octobcr2011Bluc paid$20000into thc lli)Grccn was entit1cd to a salary of$12000
±
lrlm’ s bank acc° unt as capital on thc samc day, per annum
Grcy lcnt thc partncrship$20000 Hc is cntldcd 臼i)ThC balancc of pr° 丘ts and losscs WCrC to bc
to intcrcst at a ratc of10oo pcr annum on the loan
sharcd∶ C】 rcy:2L;Green|:|;:luc::Γ
Thc balances on thc partners’ Dra、
`ings
account at31Decennber2011、 、 Requircd
`ere as foll° `s:
(O PrCparc thc Capltal acc° un“ of Grcy,
$ Grecn and Blue at31Dcccmbcr2011
Grcy 23000
Grccn 17000 (b)Preparc thc Partncrship Incomc statcmcnt
Bluc 3000 and Appropriati° n Acc° unt for thc ycar
cndcd31Dcccmbcr2011
Thc nc、/partncrship agrccmcnt proxrlded± 【
Jr thc (c)PrCparc由 c par恤 crs’ Currcnt accounts at
f° Ⅱ° w1ng as from1○ ctobcr2011 31Dccclnbcr2011

Answer

肠 硖 茄留 C口 o扬玄
【I B吵 ″ ′0〃 20′ / 脚 饣 2@∥ ′ C妒 杨 /'FFu//,,汀
'/@″
$ $ 参
c/P,‘
手丿 2亻 0llo r|;|丿
`‘
@0o Bt,00r'￠ ″
``

C″ F,Jr〓 望
L丿 00@ r号 丿 /歹 000 劢 g'
'口 '昭
`‘

B/9/ε
r手 丿 孑@0口 幽 0@汤 多″

(a)

Pottnets’ Caphal accountg

Grcy Grccn Blu0 Grcy Grccn Bluc
2011 $ $ $ 2011 $ $ $
Dcc 1 Grcen-GoolsNvil 8000 Jan 1Balancc b/d 50000 30000
Dcc3】 Balancc c/d 77800 43200 12000 0tt1Bat△ k 20000
Pr。 nt。 n rcvalua0on 19800 13200
Goodx△ lⅡ 8000
77800 43200 20000 77800 43200 20000
2012
Jan 1Balailcc b/d 77800 43200 12000
Cbl

Ctc扔 Gteen and Bluc

】nco炯 c statcment and Appropdauo众 AC∞ unts for thc,ear ended31D∞ cmber⒛ 11
$
Tutn° vcr ‘
I()0l,llo
Lcss Cost of salcs ￡
⒉zIO llllll

Gtoss pt° fit carncd down 160CKlo

9months to 3m。 nths t° Ycat t。
30JunC2011 31Dcccmbct2011 31Dcccmbcr2011
$ $ $ $ $
Gross pro丘 tbェ 。ught down 120000 邵0000 160000
、￠agcs 30000 100l× l 部a Ooo
Rcnt 6000 20tKl 8000
Gcnctal cxpenses 7200 2“ ⒊a 9600
Intcrcst° n Ioan 500 500
Dcprcciauon 6llllo 49200 4350 19250 10350 68450
Nct Pro丘 t 70800 2D750 91550
Intctcst° n capitaIs:
Grcy 973
Grccn 5纠 D
BIuc 150
1663
s诫 岬 Grccn 30C ll 4663 4663
16087 86887
Proflt shatcs;
2~52_51~5

Gtcy (:)佗
4

4:0 48915
4
2

Grccn (÷ )2:320 34755

Bluc 70800 16087 3217 86887

(c)

Pattners’ CuFtent accounts

Grcy Grccn B1uc Grcy Gェ ccn Bluc
2011 $ $ $ 2011 $ $ $
Dcc31 Diawi血 gs ⒛ lXlo 17000 3000 Jan 1 Balancc b/d 20llll 3t tlo
Dcc31Balance c/d 29388 24295 367 Dec31 L° an intcrcst 500
Intctcst° n capitaI 973 50o 150
salaェy - 3llllo
pt。 flt 48915 34755 3217
52388 41295 3367 52388 41295 3367
2012
Jan 1 Balance b/d 29388 24295 367
Not⒍ Ihc hterest° n capital k° dy payablc for dlree mcln伍 s,,no曲cr woids from山 c datc it was sct up by thc partnershp
agrccmcnt

ExercIse6
●

htcrcst M,as anowcd。 n cap谰 s at10o/o alnuln,

●

Bc△ and Bo° kcr havc bccn partncrs for some ycars,
Booker was cnodcd to a sala呷 of$15000pcr
mah卩 g up thor acc° unts annua△,to31Dcccmbcr
annum
Thc partnc灬 hp agrccmcnt contalncd thc foⅡ
pro`〖 11slons,
oxs・ ing
∶
:i;j∶ fi:l°
ssCs werc to bc sharcd:Bc⒒
泛|;
`・
3
 At31Dcccmbcr2010thc partncrs’ Capital and On1scptcmbcr2011,Candcl pald$50000lnto
Current account ba1anccs wcrc as fouows: ulc Ⅱrm、 bank account as cap1tal,and狃 so br° u莒ht
lus pnv狨 c car,valucd at$7000,into伍 cb“ in∞ s On
Capitals Currcllt accounts 山c samc dal/,BeⅡ trans± crrcd$20000± r° m hs
$ $
Capital account to a1oan account on which
Bell 100000 16000
Booket 60000 12000 intcrest is t° bc paid at a ratc of12V。 pcr annum
Thc f° Ⅱowing inlormati° n“ availablc仔 om thc
on1scptcmbcr2011,Bcll and βookCr partilcrship books for thc yCar cndcd
admittcd their inanagcr,CandcⅡ ,as a partncr 31Dcccillbcr2011
Candcll had bccn rccciving a salary° f$24000
Thc r∞△
scd pattncrshp agrccmcnt pr° 说dcd as $
Turnovct 600000
f° Ⅱo、
`s:
Cost of salcs 330000
●Pnrtncr、 salary:Bookcr$18000pcr annum Wagcs and salatics 106000
●Intcrcst on capitals at10V3pcr annum Rcnt 42000

・ °kCr鲁
Hcating and lighting 6000

∶∶
∶
∶∶
∫
ssCs sharcd:BdⅡ ,B° ,
sundry cxpcnses 12000
|争
:il°
5 Note sa1es werc sprcad cvcnly throughout thc
The parulershp、 non~currcnt asscts at cost at ycar and carncd a uniform ratc of gross pro丘 t

31Deccmbcr2010wcrc as f° lloⅥ /s: Drawings in thc ycar endcd31Dcccmbcr2011

were:Bc11$30000;Bo°kcr$40000;CandcⅡ $4000
At cost Dcprcciadon Nct book
to date valuc Rcquircd
$ $ $ (o PrCparc an Inc° mc Statcmcnt and
crniscs
F攵 cch° ld pェ 180000 45000 135000 Appropriation AcCount for the ycar cndcd
Plant and machincty 90000 60tKlO 30000
Motor cars 30000 25000 5000
31Dcccmbcr2011
offlcc cquip血 cnt 21ll【 lO 14000 7000 (b)PrCparc thc partncrs’ Capital and Currcnt
accounts for thc ycar cndcd31 Dcccnα bcr
2011
No addluons t。 ,。 r dlsposals oξ non钅
"rent asse“
had takcn placc bcbvccn31Dcccmbcr2010and Examp∶ e2
31'`ugust2011 (Partncr rctircs)
Thc assets、 vere revalued at1scptcl△abcr as Norman,Beard and D汛
foⅡ ows: `d havc tradcd in
partnership for so卩 c ycars Norman dccidcd to
rctirc On30Scptcmbcr2011but no扌 cc° unts wcrc
$
prcpared f° r thc partncrship untⅡ thc cnd ofthe
Frcchold PrCmiscs 210000
Plant and machincry 27000 nnan△ al yCar on31Dcccmbcr2011
jVIotot ca灬 5000 汀ng balanccs havc been extraCtcd
Thc f° 1l° 环
0fiIcc cquipmcnt 6000 fr0红 1thC trial ba1ancc at31 Dcccnnbcr2011

Dcprcciation of nxcd asscts is calculatcd° n cost $ $

a且 d is proˇ △
dcd as± o1lo、ld prcmiscs4⒐。 salcs 720000
`s:freeh° purchascs 400000
pcr annunl;plant and lmachncD`20Vo pcr annun△
ImcⅡ tory at1January20】 1 20000
motor ca灬 25%pcr annum;omcc cqtupmcilt10% Ⅲ冫
agcs 100000
per annum Rcnt 26000
Goodx△ 111was valucd at$60000,but no Hcating and lighting 21000
Goodwi11account was to bc opcncd in the books sundry expenses 120000
 F讧thCtinformadon 8Norman lcR$F,0000of hs caplt/alin dhe
1 h△ cnto,at3】 DCccmbcr2011cost$24000 busincss as a loan wi伍 htcrcst狨 10o/O per
^blc on30June
2.At31Dcccmbcr2011rcnt of$2000had annum,Thc htcrcst was p叩
bccn prcpaid and$1200had accrucd for and31Dcccmbcr cad△ ycat
heajng and Ⅱghung 9, Thc parmcrshp agrccmcnt up to
3 No肛 currcnt assc“ 扯1Januarv2011at cost 30scptcmbcr2011albwcd for山 e± oⅡ °wL呜 :

Wcrc as foⅡ ows:

Intcrcst° n capital⒏ 8%per aflnum kn,ascd。 n bajanccs on

$ Caplta1accα 迎‘at1Januarv2ll1o
Plant and machincry 80000
ofncc cqulpmcnt 10000 驾雀弼 蚋 (护 翮 咕λ
Additiona1】 nachincp`、 n
蝥Ⅳ驽卩
'as purchascd°
10ctobcr2011for$12000, The ag± ccmcnt was amcndcd on10ctobct
4, Dcprcciaoon of non-currcnt asscts is to be 2011as foⅡ ows∶
pro△ˉ
ldcd at10o/O pcr annun】 on cost
5, GoodwⅡ l was valucd at$45000,but no Intcrc欲 0n capltal⒌ 10%pcr annum OasCd° n
balanccs° n CapitaI accounts at10Ctobcr2011)
Good、 讨ll、
`as to bc rccordcd in the books
6, Thc partncrs’ Capital and Current account :}∶ {∶ l:ll∶ 丑
甜烈挠眢盂
箔苜骂(÷ λDasld(÷ )
balanccs at1Janua叮 2011were灬 foⅡ °
w⒌

Capital accounts Currcnt acc° unts 10 Thc asscts wcrc not tcv挝 ucd at
$ $ 30scptcmbcr2011,
Norrnan 50000 8000(Cil 11 Itis assumcd that gr° ss profit has been earned
Bcard “DO00 9000(Ctl
四cn圩 伍r° ughout thc yca‘
David 20000 3000(CD
Rcquired
7 Thc partncrs’ draw1ngs wcrc as fo⒒ ows: (al PrCparc thc partners’ Capkal accounts,
$
(b)PrCpare the partncrship’ s Inc° mc statcmcnt
Nonnatl ltlp to30scptcmbcr2011l 30000 and Appr° prlation Acc° unts fo=thc ycar
Up to31Dcccmbcr2011 cnded31Dcccmbcr2011,
Bcard 50000
(c/x Preparc thc partncr旷 Cuttcnt accounts for伍 e
Da诅 d 32000
year cndcd31Dcccmbcr2011

Answer
(a)

ParmcreⅡ Cap⒒ 缸 accountg

NoJ・ man Bcard Das・ ld N° rman Bcard Da△,ld

2011 $ $ $ 2011 $ $ $
scp30 Goo由 vⅡ l 27000 18000 Jan 1 Balancc b/d 50000 翎a Ooo 20000
蜘~

Ioan a/c 60000 scp 30 Goodv・ lll 22500 15C llll 7500
Bank 46750 Current a/c 34250半
一铡

DOc31 Balancc c/d 9500

106750 27500 106750 550lltl 27500
2012
Jan 1 Balancc b/d 28000 9500
#Thc balancc° n thc Outgoing partncr’ s Cuェtcnt acc° u红 t is transfcttcd to CapitaI account
⑼
No:man,Beatd and Da￠ d
Incomc statcmcⅡ t and Appropdation Accounts fotthc ycat ended3】 Dcccmbct⒛ 11
$ $
salcs 720000
Lcss Cost of salcs
Iwcnto〃 荻刂an⒛ 01 20000
Purchascs 邵00000
420000
Lcss Invcntofy at31Dcc2011 24000 396000
Gross pr。 llt 324000

9mond△ s to30scp2011 3months to3】 Dcc2011 Total

$ $ $ $ $ $
Gtoss pront 243000 81llC o 324000
、￠agcs 75000 25000 100000
Rcnt侈 6000-200o 18000 6000 24000
Hcating and lighting
5550 22200
侈1000+120lll 16‘ 50
sundry cxpcnscs 9000 3000 12000
Deprcciadon:
d machnct, 6000
Plant ai△ 2300 8300
0f丘 cc cquipmcnt 750 250 1000
Intcrcst on loan 125400 1500 43600 1500 169000
117600 37000 1550CKl
Nct pro丘 t

Intcrcst on capita⒈
Norman 3000 3000
Beard 2400 700珞 31l,ll

Davld 1200 238冰 1438

‘600 938 7538
sa1ary
Dav1d 4500 11 100 2500 3438 7000 14538
106500 33962 1纠 a462

sharcs of pront
Norman 53250 53250
Bcard 35500 20377 55877
DaNˉ ld 17750 106500 13585 33962 31335 140462

杯0n capitals of$280tlll and$9500rcspecu△ c廴

(c)

Parmers’ Cwtcnt aocounts

Norman Bcard David Noェman Bcard Davld
・
2011 $ $ $ 2011 $ $ $
sep30 Dr孙 凶ings 300llll Jan 1 Balancc b/d 8000 9000 3000
Capltal a/c 34250衤 sep30ht on Capltal 3000
Proflt 53250
Dcc31 Drax△ ings 50000 32000 Dcc31 Int on Capi仫 l 31α D 1438
B・ulancc c/d 17977 10773 Sa该 呷 7000
Pr。 丘t 55877 31335
64250 67977 42773 64250 67977 42773
2012
Jan 1 Balatlce b/d 17977 10773
衤Thc balancc On tllc outgomg par恤 er℃ Currcp.t account is transfclrcd to Caplt斑 accoullt
ExercIse7 2At30Junc2012,rcnt° f$2000had becn pald
WⅡ fnd,Hdc and、 码汪C wCrc partncrs shaJng pro丘 “ in advancc,and clccolc⒈ y in thc amount° f
and l° sscsin thc rajo of3:2:1a± ter charglng $14000had accrucd.
intcrcst° n capltals at100/。 pcr annum Thelr Capital
Rcquired
and Currcnt account balanccs at1Jdy⒛ 11M,crc as (al PrCparc thc paFmersⅡ p Inc° mc statcmcnt and
foⅡ o、
's: ~Appropoaoon Ar° unt f。 r伍 c rar cndCd
30June2o12,
Capital a/cs Currcnt a//cs
$ $ ⑸ PrCpare dle Capital and Currcnt accoun灬 of
W△ ftld 80000 120lXl the partncrshp for伍 c rat cndCd30June
Hldc 50000 30lXl 2012,
Wytc 30000 40l× l
somc cxaiMadon quesd° n,讨Ⅱ combhc thc
WⅡfrld dcodcd to rcurc On31Dcccmbcr2011 Hc rcsalua刂 on of asse飞 、注th山 c intr° ducoon of a new
lcft$75000of伍 c balancc on hs Capltal acc° unt as par恤 cr In士诋 c灬 c,wOrk drough d△ c rcx/al诩 包on
al° an t°伍c ffm,9zl伍 htcrcst at10o/o pcr annum accoun1transfernng anl pro丘 t or Ioss on res aluatton
Thc balancc° n hs Capltal account、 泗s paid to hm to thc old par恤 crs h由 cir old proflt sh狃 吧 助∞ s,

” chCquc, IhCn h廿 oduCc thc ncv,partncr恤 d adjust thc

At31Dcccmbcr2011,G° °d、 注Ⅱ、泗s△ˉalucd at Capltal ac∞ m“ for go° 凼 汕 in Lne漩 山 sc沅 on
$60000but GoodwⅡ l、 bc sh° wn in thc 227
`as nott°
books.It was als° agrced that thc partncrship
asscts should be revalued at$210001css than thcir 228 How to aCcount forthe
currcnt book valucs, rea"sation of a partnership
Hidc and Wytc continucd in partncrship fr° m Thcrcrnay comc a omc Ⅱ 1thc Ⅱ fc of aα y bu血 css
1January2012,、 oth intcrcst a11owcd on capitals whcn伍 c OMzner or owncrs no bngcr咖 sh to run thc
at10o/o pcr annum and灬 血 mm叮 m°rc△ ￠hcn dus dccis亠 on^madc,onc of
'id1proflts and losses
being sharcd cqual圩 , bⅣ o J1L喀 s can happcn Au dtc bushess assc“ and
△
The partncrs’ dn小 丙。gs h thc rar ended30Junc ⅡabiⅡ tics can bc sold to a nc9z busincss,This is a
2012wcrc as foⅡ ows: busincss purchasc and is dcalt with in chaptcr26
Altcrnauvcly,thc assets may bc so1dt° scveral
$ pcopIc and thc moncy raiscd used t° pay offthc
WⅡ frld“ m。 nths to31Decembcr2011) 23000 腕 b山 ocs,such as tradc payablcs,Thc Owncr or
HidC(12m。 nⅡ st° 30Junc201纷 28000
WytC C2m。 nths to30Junc201纷 18000
o、 n thc busihcss
`ncrs thcn rctirc and thc balance°
bank account transfcrrcd t° thcm
FuF曲 cr hformadon 、σhcn thc busincss is s° ld the acc° unting
1
饪catment is t° °pcn an account ca△ eda Rc犭 ⒒gadon
account,hkc thc Rc△ aluad° n acc° un‘ a△ thc asscts
$ to be sold arc dcbltcd t。 thc Rcahsao° n account at
Gross pto敏 fot d△ c厂 aJi
cndcd⒛ J△ulC2012 187∞ 0lasstlmcd to haxc
thc△ bo° kˇ犭lucs灿 thc Ⅱa碰 ocs to bc pald arc
bccn carncd x吣 crcdkcd t° d△ e ReaLsa谊 on account at thelr book
droughout山 c x/nlucs,九 叮 mon(:)∶ ,`・
rCcCM耐 or p碰 d k crc(:lljltcd or
yc犯 )
dcbltcd to dlc rcaLsaoon account九 叮 cxpcn⒃ s
Expcn由 mrc for thc r征 endCd3叼 u nC201⒉
W饨 卟 91【 lllo
arlsmg丘 om thc tc碰 sajon arc also debkd to thc
Rcnt paJd 14【 lllo RcaⅡ sao° n account
E1cctticity paid 7000 Thsh° pcfu△ wm rcsultin a pront on rca底 ad° n
I・

sund,cxpcnscs 9000 In曲 e casc of a partncr吣,d“ pr。 flt佤 sp⒒

bcbvccn thc partilcrs h thelr proⅡ t sharing Fados
● The expenses of reaⅡ sing thc partncrship
aiild crcdltcd to thcir Capita1acc° tlnts If it res△ its in amountto$2000
a loss on rcaⅡ saoon thcn this loss is dcbitcd to thcir
Capltal acc° unts in thclr proⅡ t sharhg rados Required
Thc balanccs on由 c parulcrs’ currcnt accounts arc ⑶ PrCpatc d.c parmcrslllp RcaLsauon accoullt
transfcrrcd to thcir capltzal accounts Fina⒒ y,thcir (l>)Prcparc thc parmcrs’ Capltal accounts

capital acc° unts arc thcn closcd by dcbiting thcm (c) PrCparc thc partncrship bank acc° unt,
with thc rn° ney fr° m thc busincss bank account sh° wing thc closing cntⅡ cs to cl° se thc

Somct1rncs one ofthc paru△ crs may dcc1dc to takc account

onc ofthc asscts° f the partnership rathcr than scl1 RcaⅡ sadon account
it In this casc,thc RcaⅡ satlon account is crcdltcd $000 $000
kxlth thc agrccd valuc ofthc assct to be taken by the Propcity(b。 °k va1uc) 40 Bank-ˉ salc of propcrsr 70
partnc‘ Thc° pp° sitc cntry is to dcbit thc Capk狃 Motor vchdcs Φook va⒗ cl 20 Co狂 汀s Capital accollnt
Invcnto轷 rb。 。k valuΘ 16 valuc of car takcn 5
aCcount of thc partncr taking thc assct
Tradc rccclvablcs Φook vallJcl14 Bank~s狨 c ofvchclcs12
Example Bank~pay℃ s to tradc Bank-salc ofinvcntorv 13
payables 12 Bank-from trade
CoⅡ n andJohn are in busincss sharing thc proflts Bank-cxpcnscs ofsalc 2 rct cI△・
ablcs 11
and1osses cqua1ly Thcir sum1nariscd Statcmcnt of Pr° 丘t° n rca△ saoon: Tradc p呷 ab16Φ ookvalll⑶ 13
Cohl△ 10
Financial P° si刂 °n at31Deccmber2011is as± oⅡoM,s:
J° hn 10
$000 $000 124 124
l“ o】 currcnt asscts
⑽⒛

Propcr〃 Capital accou0tg

Motot vchdes
_ω

CoLn Iobn Cohn Jolu.

CuⅡ cnt灬 sc“ $000 $000 $000 $000
“⒕ △贸

I谀龟ntory Vehcle ta虬 n 5 - 0pcˉ g balanccs 30 30

Tiadc iecciVablcs Bank 45 48 Cvcrcnt accounts 10 8
Bank accolmt Pro丘 t on rcaⅡ satlon10 10
50 48 50 48
Cllricnt uabmtles
“一

怊 _鸭_

Trade pa,ablcs Bank a0couno

ο
ο
ο
$

$000
Capital accoutlts:
⒛ ⒛一 ⑽

1⒛

0pcning balancc Tradc payablcs 12

Co⒒ n
∞

矽仍

hn salc of propcrty Expcnscs° f salc 2

J。
Currcnt accounts: salc ofvchcIcs CoLn-Capital accollnt 45
Cohn salc ofinvcnto叩 J° hn-Capital account 48
焖一

"~胛
8一

John Froln tradc rccclvablcs

祀一

107

Thc partncrs arc unablc to work togcthcr any

ExercIse8
more and dec1dc to scⅡ thc bus1ncss Rad alld Sallillr arc in bushcss shaⅡ ng thc proⅡ ts and

● The pr° per饣 ls§ old for$70000 bsscs lil dle raj° of3:2Thcir smnmarlscd statcmcilt
●CoⅡ n agrces to take onc° fthc vchiclcs at a of助 硒Ⅱ 破Po“ uon处 31Augtlst⒛ 11o灬 ±
猁α略
x,altle° f$5000Thercma△ Ⅱ ng vchd邙 atc sold $000 $0tlll $∞ o
⒛⒛一

for$12000 Non~cuⅡ cnt asscts

Propcrtv
● Thc invcntory ls sold允 r$13000and thc
朋

M。 tor vchclcs
par恤 crs Co⒒ cct$11000trom thc tradc
Cu±rent asscts
rcccivablcs
⒆ “一

Invcntoiv
●They pay their tradc suppⅡ crs$12000 Tradc rcco、 训。lcs
笳
 $000 $000 $000 ● Thc invchtory o∞ ld tor$18000and山 c
Current Ⅱab血dcs parmcrs coⅡ ect$130001rom也 c tradc

⒛~
1△ adc payablcs 10
rcccivables

~
Bank ovcrdra丘 4 14

叨
●They pay dleir tradc suppⅡ crs thc fl【 ll amount
Capital accclllnts: o、 ved

“
Raul 60
Samir 55 ●Thc cxpcnscs of rcaLsing伍 c partncrship
Cu仃 cnt accounts: amount to$3000

6一
Raul 10

叨
~
samijI ⒈
Requkcd
(∠
)

(al PrCparc dlc partil∝ shJp Rc汕 s扪 on accottl△ t,

Thc partncrs dccidc to scll thc busincss o)PrCparc thc partncrs’ Capital acc° unts
● Thc propertv玉 sold± or$106000 ⑹ PrCparc伍 c parmcrslup bank account,sh° xslng
thc closing entries t° c1osc thc acc° unt
● Samir agrees to take one ofthe vehic1es at a
va1uc of$7000 The remaining vehicles are
so1d for$9000

Read quθ stions inVo丨 Ving partnership changes ven/0arefuⅡ y two° rthree times before starting to answerthe丨 η
High"ght or under"ne importantinformat on and instruct ons Tick eVery item as you giVe o矸 ectto itin your
ansˇ ver
●

TⅡ eatpa"nersh丨 p changes asthe end|ng of one pa砣 nership and the co|η moncθ ment of a nevv one
●

A pa"nership change requires separate lncome statements to be ρrepared forthe o|d and new】 rms "WⅢ
normaⅡ y be assumed thatreVenue has beon earned evenly oVerthe who|e period before and a贺 θrthe ohange
Apportion expenses in the Income statθ ment on a tirne basis un|ess any expense hasto bo apportioned on
some other basis Pe亻 orm your arithmetica|calcuIations oarefu"y and show your Workings
●

Adlustf0r accrued and prepaid expenses before apportioning them

●

Padners’ sa|aries,interest on draw ngs and capital wⅢ be stated in the question on an annual bas|s These must
be appo"ioned on a time basis
Read partnership questions very carefu"yto seeˇ Vhether or not a GoodwⅡ l accountis to be opened、 ″hen there is
a partnership ohange
lf a Goodˇ vⅢ aooount丨 s notto be opened,Good、 V"lis Creditθ d to the partners‘ Capital accounts before the
change in the r old profitˉ sharing rat o,and deb"ed afterthe ohange to the partners’ Cap"a|aocounts丨 n their
neW prof"ˉ shaHng ra刂 o
VVhen assets are reValuod on a partnership change,they are reta|ned in the books ofthe neˇ v partnership attheir
neˇ V Va|ues
The ba|anoe on an° utgoing partner’ s Current and DraW ngs accounts must be transferred to his Capital aooount
hlake suⅡe you treat1he final balanoe on his Capital account e× actIy as required by the quest on
If panners do not rna丨 ntain Current accounts in their books,the entr es thatˇ ou|d norma"y be posted to the
ˇ
Current acCounts must be posted to the CapitaI aocounts
Before beginning to copy° ut your answe1make sure that you have t丨 cked eVery piece ofinformation and eVery
instruclion on the question paper
1. The summaⅡ sed statθ mθ nt of Financia丨 Pos tlon
forF and G in pa"nθ rship is givθ n Ca0taI。 ocounts、
L M N
$ $
GoodWⅢ 12000 Caρ $ $ $
Net assets 28800 "aI acoounts
Partner F 24000 Cred116000 CredⅡ 16000 CredⅡ BO00
Pa"ner G 16BOo B Debn16ooo DebⅡ 16000 Dobk8000
硐 BOo 仞 BOo
C Credl⒉ 000 Credk16000 -
F and G have ρreviousIy shared profits and lossθ s D Deb124000 Debk16000 -
in the ratio of2:1but have now decided to
change the ratio to3:2
4. 只 Q and R wθ re pa"nors,sha"ng proⅡ ts and
GoodWⅢ is to be reVa|ued and shown in the
Iosses equa"y P retired and Q and R continued in
slatement of Financial PosⅡ ion at$30000
pa"nership sharing profits and Iosses equa|ly
Whatisthθ nθ W balance on F’ s Capital aooount?
GoodWⅢ Was VaIued at$60000but was not
A $23800 B $24000
shown in the books
C $34800 D $36000
2. J and K are partners sharing prof"s and lossθ s Wh忆 h entres wⅢ reoord the adlustments for Ps
equa"y They do notrecord Goodw"Iin the】 rms’ retirementin the books?
books
L joins the pannershiρ ,payIng$24000for his CapⅡaI accou"ts
share ofthe GoodwⅢ Pκ蹄ts and丨 osses are to be
P Q R
shared θqua"y between J,K and L
$ $ $
VVh丨 Ch ofthθ fo"owing,shoWs the increases in the A - Cred"10000 Credk10000
pa"ne“ ζ acoounts on thθ adnη ission of L as a B Cred艮 20000 Dθ b"10000 Dθ b110000
partner? C Dθ b"20000 CredⅡ 10000 Cred"10∞ o
D - Cred⒅ ⑾ Cred1sCl O00
J K L
$ $ $ 5. s and T are pa"nθ rs sharing prof"s and Iosses in
A 12000 12000 ˉ the ratio of1:2 They adnη it V as a pa"ner and
B
C
12000
ss O00
12000
36∞ 0
24000
ˉ
mⅥ ∞枷proft sha呐 溺o¤ 蟾Ⅱ 9咭 T{拿

D 36000 36000 24000 GoodwⅢ is valued at$60000but no GoodWⅢ is

to be recorded in the books
Which entries WⅡ l be made in the pa"ners’ Capital
3. L and M arein pa"nership sharing profits and accounts?
IOsses in the ratio of3:2 They admit N as a
CapitaI臼 ∞ 0unts
partner on1January0nthe same date the
partnθ rship net assets are reValued and shoW a s T V
loss on reValuatbn of$400∞ Thθ neW $ $ $
A Deb"4000 CrodⅡ 16∞ o Deb"120∞
profⅣ IOssˉ shaⅡ ng陀 刂o⒗ :L鲁 ,M鲁 ,N告 B CredⅡ ⒉ ∞ O Credt24000 Deb"480∞
HoVV W llthe revaluat on ofthe net assets be
C Credk4000 Deb116000 Cred112000
reoorded in the ρartners’ Cap"al aocounts?
D DebⅡ 24000 DebⅡ 24000 Cred148000
1.AⅡ and siH are in ρartnership sha"ng the profts 2 VVⅡ son,Keρ pel and Bθ 廿y werein pa"nership and
and losses equaIIy Their staternent of FinanCial shared prof"s and lossθ s equaIIy They did not
PosⅡ ion at310dober2011is as foⅡ ows: operate Curront accounts and on30ApⅡ 1201o
thθ irCaplal accounts shoWed the fo"owing
stateme"of FInaochI PosⅢ on
balances
at310otober2o11
sO00 sO00 sO00 Wilson $40000
Non℃ urrent assets KeppeI $30000

钔 ⒛ 一∞
Proρ edy
Be△ y $15000
Motor Vehic丨 es

⑶ Kθ ppe|retred from the pa"ners"p on1May

Current assets
⒓ ⒑2

2010and atthat刂 me G∞ dwⅢ was Valued at

InVentory
$24000Nonˉ ourrent assets Wore revalued as
一

Trade receivables
fo"oWs∶

abⅢ 犭es
Current Ⅱ
Trade payables 8 Premises increased in vaIue by$10000
⒓ ~ν

Bank oVerdrat 2 FiXtures increasθ d in vaIue by$4000

Vθ hiCles deoreased in vaIue by$2000
~ ∞一″_

Cap"al accounts:A"
siri Ⅱ was agreed that ne"hera Goodw"I account
nor a RevaIua】 ion acoount Would bθ shoWn in
the pa"nership b° oks Kepρ el rθ cθ ivθ d oash
On1NOvember2011they admk BⅡ as a pa"ne1 for his share ofthe pa"nership and WiIs° n
taking an equal share ofthe orofits BⅡ l Will pay and Be‖y continuθ d to run the pa"nershiρ stⅢ
$30000into the bank as his caρ l sharing thθ prof"s equally DraWings duⅡ ng the
is Va|ued at$24000 N° go° dwⅡ "al
I a∞The goodwⅡ
ountis to yθ ar ended30Ap"I2o11were WⅡ son M60∞
appearin thθ books and Beuy$45ooo Net prof"forthat year was
AⅡ and siri aIso reValue the assets atthθ same $120000
date The propeny is revalued at$60000and thθ Requ1red
inventory reValued at$10000 DraW up the pa砣 ners’ CapitaI accounts forthe
y`ear ended30Ap"12o11in oolumnarfo"n
Required
(b) lmogθ njoinθ d the pa"nership° n8oN° vember
⑶ Preρ are tⅡ e Revaluation a∞ ountforthe
2011,b"nging in GapⅡ al of$12000and$8000
partnership
as hershare of GoodwⅡ L No GoodWⅡ lac∞ unt
ll,l Prepare pa砣 ners Cap"al accounts a贫 erthe was opened Profits were noW to bθ shared on
reva丨 uation and the introduction of BⅡ l as a
the foⅡ owing basis:
paftne【
(cl Prepare the statement of Financi引 Pos"on wi心 。n旦
immediately aftθ rthe ab0ve transadions haVe 7
taken place BeW旱
(d) AⅡ the a"ners
ρ then agree thatthθ balanoes
lmogen号
on their Capital aooounts shouId be equa|
CaIouIate how muoh addi刂 onal oap"al BⅢ
mustintroduce to achieVe this
 During the year ended30Apri12012proflts
amounted to$1四 000ul and padners’ drawings TdeVis∶ on $17000
were Wilson$52000,Beuy$48o00and Compu刂 ng ⒁ ∞o
Imogen$20000 Profits accumulated at a tb!θ ρhones ss O∞
yea∴ The
regular rate throughoutthθ
pa衬 nershiρ was sold on1May2012for lnVentoγ is reCorded on a c0mputθ r and is based
$126000 The partnership、 ″as dissolVθ d and sole丨 y on saIes and purohases NO physi° al check
a"ofthθ pa"ners tookthe money due to ofthe inVentory has been taken
them A∞ rua丨 s at30Ap"12o11∶
Draw upthe pa"nθ d Capta丨 a∞ ounts forthe
0eneral expenses $2000
peHod1 May2011to1 May2012,in Columnar
EbCt"City $10∞
lom Rent 弪⑾
3. DellOw and Couoom are in partnθ rship in a
business Whioh has three retaⅡ dθ pa"mθ nts,
Number of sales staff emρ loyed∶
TeleV s∶ on,Compu刂 ng and Telephones Thθ
foⅡ oWing b引 ances were extracted from the
TeleVision
businθ ss accounts at30AprⅡ 2011
Computhg
Dr$

Cr$

Tolθ phonθ s

Commission is paid t° salθ s sta矸 at1o/。 of sales

PurChases and sales
Depreciation is charged to Motor Vehiclθ s and
TeleVision 120000 214000
Furniture&Fi廿 ings at20。 /o perannum on cost
Comρ u】 ng 220000 428000
Floor spaCe lsquare metres)∶
Telephones 40000 107000
Wages 56000
币eleVision 2000
lnventory at1May2010
Compu】 ng 2500
tbIevision 8000
Telθ phonθ s 500
Compu刂 ng 19000
Telephones 3000
Expenses are appo^∶ oned asfo"ows:
sales staff sala"es 147000
General eXpenses 50∞
Exponse Basis of aρ ρo"】 onment
ofioe sala"es 35000
Wagθ s sales
AdVortoing 1zI O∞
Gθ nθ ral θxpenses sales
Rent 40000
office saIaries sales
E怡 CtHCity 9000
saIes staf salaries Number of sales staf
lnsurance 50∞
AdvertisIng saIes
Motor Vehicles at cost 45000
Rent and rates FIoor area
Furniture&Fi廿 ings at cost so000
E怡 ct"c"y Foor area
NOtes Insurance F丨oor area
Deprecia】 on EquaⅡ y bOMθθn
Tho foⅡ oWing must now be taken into
considθ ration InVentories at30Apri12o11: depa"ments
Dθ lloW and Cou∞ m share proflts in the ratio of
thθ l Caplal accounts,which at1May2010were:
De"ow$60000,Cou∞ m弘 0000
lnterest on caρ itaIis payabIe at1o/。 of oρ ening
∞ pⅡ al Cash draWings forthe year were DelIo叽
$15000and coucom,$4000
Interestis chargeable on drawings at2° /。 of total
drawings forthe year
Couoom is paid a Pa"nθ rship saIaγ of$76oo
During the year Coucom took from stock for her
own use a Tolθ Vision Costing$1000 No entries
Wero rnade forthis in the aooounts
Req"Ired
(al Prepare,in oolumnarformat,Depa"mental
Trading Aco° unts and h∞ me statements for
the year ended3o AprⅡ 2011
〈
bl Prepare the Pa"nership Aρ prop"at0n Acoount
uthe yearended sOApⅢ ⒛ii
(ol "has been suggested that any depa"ment
thatis making a loss sh° uld bθ closed
Comment° n this suggestion
 An introdu Io砰 IeIne a counts
of ⅡInited

● WhatⅡ mⅡ ed oompanies are and how thoy d ferfrom pa付 nerships

● the Compan妗 s^ds1985,198ρ and2QO0and sρ mρ ofthe bg引 requ订 ements for c0mpani∞
●the forrnat off;na丨 acoounts:lnoome slatement and statemeht of Financial PosⅡ i0n in"ne W1h IAs1
● ˇρes of share capk引 and reserVes
● WhiCh profits are distributable∶ n oash as div∶ dends and hoW the diVidends are ca丨 cuIatθ d
● What debθnturos are and hoWthey diferfrom shares

231 What is a Iin1ited company? cightccnth ccntury bccausc of thc Industrial

Rcvoluoon Bcforc that,pcoplc carncd thcir Ⅱving
A hnltcd company(Ⅱ ffcrs± r° m othcr° rgaillsajohs
by± arming,or fron△ cottage indLIstries that did not
bccausc△ 悠aJ巴沙 v'够氵 勿少 ⒒s睬 istcncc is
'/〃 '″ requirc largc sums of capita1 With thc invcntion of
scpatatc ttom that° fi“ sharcholdcrs(伍 c pC° ple
machincry powcrcd by stcam cnglncs,incrc灬 cd
、 vn itl Itis important to dlsonguish bc^vccn
`ho o、 product小 lCd t° manufactLlring bcing
thc'''口 ″″姒笃 彳 幽 /'乡 ” which,灬 cxplalncd in ^〃
'口 '妒 '“ conccntrated in factories Larger amoonts of capital
§92,appⅡ cs to cvc,bushCss for dhc purposcs of
wcrc needed to construct thc fact° rles and eqop
bookkeeping and accounong,and the concept of
thcm wlth macluncry This capital c° uld bc raiscd
馋 I幽万勃 hJch appⅡ ∞ oⅢ y to Ⅱnited c° mpa血 es
x△
by in△ ,iting pcoplc to buy sharcs(or invcst)in thC
If Mrs Oss1dgc,a so1e tradc乌 1s a butchcr,a
busincss without takng partin its managcmcnt.
Customcr呐 o寸 注shCs to suc him for tood poisontng
These invcst° rs wcrc thc sharcho1dcrs° r mcmbcrs
咖 ll bc ablc to suc hm as a pcrso马 曲c夕 衫
119囫 谝
ξ of thc c° mpanics By thc middlc of thc ninctccnth
″讠cΦ钅wⅡ not protcct Mr Os⒌ dgc丘 om a lcgal
ccntur⒖ ⅡmltCd companics had bccon1c vcry
acjon But,1f Mr(Dss1dgc has formcd hs busincss
imp° rtant as busincss organisauons
int°ab=nitcd company,s Ossldgc Iimi∞ d,thc
Llni∶ Cd companics atc somcumcs kn。 wn as
conccpt ofJ妒 勿 魂 〃 彻 ″秒 appⅡ Cs and伍 c
'彻 Ⅱmitcd ⅡabⅡ ⒈y companies bccausc thc hab△ lty
customcr mustsuc thc company and not Mr Ossidgc
°f thcir sharcholdcrs is Ⅱn1itcd to thc amounts thcy
bccausc山 c goods werc purchased froln the company
havc pald,or have agreed to pa,,for their sharcs
and not from RIt Ossldge!
For examplc,a shareh° ldcro、 /ning100sharcs of

232 The groWth of Ii【 η $1cach cann° t bc compcucd t。 pay morc伍 an伍 c
companles "ed $100hc has alrcady paid for his sharcs if the
company cannot pay its crcditors;thc crcditors may
Thc concept of Ⅱmlted ⅡabⅡ i饣 g° Cs back to thc be thc losc邙 (It“ p° sslblc to hav℃ Ⅱmitcd
s1xteenth ccntu轷 but1t bccamc1mportant1n dlc partnershlps in which thc ⅡablL″ ofsomc,but not

all,of thc partncrs for thc flrm、 dcbts is Ⅱmitcd
Ⅱmitcd partnershos a和 outsldC 山9s四 pC
book,)
233The Com ACts Vf1985,
1989and 2006
Two charactcrls乜Cs of山 ∝血cd compamcs have now
bccn idcnoflcd:
1,crcd血ors⒒ sk nρ t belng p缸 d if a company has
hsulˉflclcnt funds,that is,thc company is
1ns° l,ent
2.sharcholdcrs arc not cndded to hclp managc a
companysmp圩 bccau∞ they own sharcs in】
th叩 rCl,yon山 rccto灬 to manage山 c∞ mpa叩
for山 cm,
Thc Companics Act1985,as amended by thc
Companics Act1989,is dcslgncd to protect thc
htcrcst$° f credltors and sharcholdcrs,ix△ u血 g
th° se who nught h futurc b∝ omc αcdttors or
sharcholders。 somc of thc prov1slons0fJ△ c
Compames Act1985arc as fo△ ows:
Formation.A company is formcd whcn ccrt缸 n
documcnts arc rc空 stered by pcoplc,known asi“
‘foundcr旷 ,sv】 th thc Rcgstrar。 fc。 mpa血 cs and
Vaoous fccs and duocs arc p扛 d to the Rcglstrar,
Memorandum and Ar刂 c1es of Associadon
Thcsc arc bvo of the documcnts、 砬ioh must bc f△cd
、
砬Ch thc Rc匪 s订 ar。 f Compatllcs,
The Memotandum dc丘 ncs伍 c rclaoon曲 V° f伍 e
company to the rest ofthc world。 It contalns
hformauon about
1,伍 c nainc° fd△ e comp邺,whch must cnd with
伍c words PubⅡ c ⅡⅡited company or P1c if k
is a pub⒒ c compan另 or Iin““ed or Ld ifitis a
primtc company(dle dfferen∝ bc小 评 ccn thc
啷、帅 ∞ ofc° mpany wm bc explaincd latco
2 a statemcnt that thc Ⅱab止 〃ofthC c° mpany is
Ⅱnutcd
3.what acuv1ucs thc company caα ca¤ 呷 out
Thcsc arc rcfcrrcd to as ifs ouects
Νη
ote:B诒 f° rc伍 c Companics Act of2006,a
一
company uscd to havc to statC its
;—
authorised share capi臼 1,Howcvcr,the
△
2006Compaocs Act has abo⒒ shcd the need
〓
f° F a company to havc an autboⅡ scd share
capital Thus thcrc is no longcr any卩 CCd t°
sho、 7dus in any answcrs in your∵
cxaminajons and qucsJons should not
hcludc it an胛 o￡ c,
The Arocles of Associa】 on is a document伍 at
dcfmcs thc吨 h“ and duucs of a comp蝴 、
sharcholdcrs and dlrcctors,It contams remaoons for
c钊 Ⅱng rncc缸ngs° f shareholders,rncmbcrs’ vo乜ng
t; oghts,伍 c forfeltuK of shar∞ ” membe邙 xvho锏
t° pay the atnounts ca⒒ cd upon thcm,and thc
appo止 1kmCnt of dlrcctors to manage thc company
Ano伍 cr clausc缸 cs thc oLcctors’ qu础 山叻Jon,伍 犹
is me nulnber ofsharcs that dkcctors must hold,
11is cnsurcs that thc dlrect° rs have a flnanc1al stakc
in thc compan≯ g脚 △
ng somc sort of insLtancc that
dhey wiⅡ manage thc company NvcⅡ for dhc
sharcholdcrs,Itis knportant to remcmbcr that thc
d1rcctors rnanagc thc company bccause山 ey arc
votcd hto offlce by伍 e sharcholdcrs,and not“ mpˇ
bccausc thcy own sharcs
PubⅡ c and p汛 es,Compamcs
`te compa“
rC要 针Cr as ciJacr pubⅡ c comp如 ks or pnvatc
compa± lles
PubⅡ c compalues may offer山 or sharcs to thc
pubⅡ c and thc shatcs mγ bc boughtand sdd on thc
stock Exchangc,
PHvate companies arc n° ta△ owcd to offer山 elr
sharcs t° 伍c pubⅡ c and shares ca± n° t,dictcfore,bc
bought and sold on伍 c stock CXChangc,
Thc dlsuncoon bc小 Ⅳccn pubⅡ c and priv么 tc
comparues appⅡ cs in伍 cU血 tcd承△ngdom,but m呷
not app圩 h au。 山cr∞ un伍 cs.%ca臼 r for dus
situauon,c。 mpa血 cs w刂 1be descrlbcd as‘ Ii红 itCd’ or
‘
∶'td’ in d1is tcx△ but wⅡ bC assumcd to bc pubⅡ c
I∶
compa血 cs1u△css they are speoncaⅡ y statcd to bc
pr小 泗tc compa血 cs o± thc contcxtimpⅡ cs that they
arc pr⊥ vatc
∷l rI pjr1nf:rε h。 os璃 n。 ∶
In;ted
cOmpanIes compared
PattnctsⅡ ps Iinitcd conRpamcg

Numbcr of partncis/ Notlc$s than2 Notc lcss tl△ an2

sharcholdcrs Nol morc thai120CxcCpt h ccttaln professlonal a妊 mum
⒈Ι numbcェ dcpcnds on the numbcr of
俪 s sⅡ h as acccluatⅡ 灬,laxv△ ・
crs,Ctc) sha± cs pcrmttcd by dlc atldlo⒒ scd capital

hab山 tv ofpartl△ cts/ Un⒒ mtcd Thc pnsatc assc佟 of paiulers may bc sharcholdcェ s’ ⅡabⅢ ″ is Ⅱmitcd to由 cam° unt dlcy
sharcholdcrs selzed to p呷 thc fr“s crcditots lexcCpt in山 c havc pajd,oi agteed to pay on山 c讧 shatcs
casc of Ⅱ
洫tcd parmcrs u△ a Ⅱ
nited partncrsh⑵

Capital Dctcrmlncd by由 c paru△ cji曲 Ⅱ agrcCmcnt Thc sharc capltal for a PubⅡ c Ⅱn山 tcd comp灬 y
芯 岫 mtcd The sharc caplta f。 r a pilvatc
⒒mitcd company wⅡ l dcpond on ho、 v much
moncy the sharcholdcrs havc to mvcst血 thc
busiiless

anagcmcnt
⒈Ι Al pamcts lexcCPt tΙ 10sc咖 th hmltcd Ⅱ
abikω 咖 oldCrs atc not cntldc【 lto α 疵 嗲 thc affas
may managc dhc丘rrnb atfatrs Ths must bc怡 t to thc drcctors CrbC di± cct。 ts aCt
bccausc th叩 havc bccn appomtcd ditcctois,n0t
bccallsc thcy arc sharcholdcrs)

Taxa谊 on Flrms arc not Ⅱablc to pay tax on thclr pto丘 ts Coinp痂 cs atc lablc ω 唧 咖 on山 elr pPnts Illc
Tlle Ⅱabi⒒ 饣 to p呷 tax on thc讧 sharcs of pro亘 t 咖 pa,ablc is trcatcd as an apptopilla乜 on of proflt
rcs^o,lth thc patmcrs mdlvldtl狃 y
Dis茁 bution of pェ o丘 t Parmcts sharc pro息 ts and losses Pt。 nts atc dl涮 Ⅱ侄d as div,dcn【 ls
t1ndtsolbutcd ptotlts maV bc rctauncd in山 c
company

235 Income statement for a Iimited Example1

company E钔 陆bit Co。 Ⅱ n茳 ted
+Income statement
Illc、 aCCounts ofⅡ nuted compan1cs arc For the yeat ended
`aythcfmalinthcIntcrnadonalAccountLng
prep时 cd is sct o△ 木Ths ycar 佧Last ycat

1),Thc statcmcn∶∶aJ0ws1ncomc
standard1【 IAs1c。 $l× lo $000
Rcs・ cnuc1 100lltlll 80000
and expenses of么 mpany to bc p rcscntcd h one Cost of sales2 lF,0000l l+500Φ
of小 vo ways: Gtoss pェ o丘 t 40000 35000
(O has讧 I∮ c Incomc statcmcnt coVc饨 曲c 0thct ncomc3 20lXl 1500
Distrlbu乜 on Costs4 lB O00l CO00l
accounung pe⒒ od,or 丿、il△ mts讧 a岬弓cxpcnscs5
κ (11000l llO000l
o)in bv° 瓦
sCp】 rate statemcnts, () a sCparatc 0thcr cxpcnscs6 ll O00l (500l
Pro丘 t/Goss)fr° m0pctaoons 22000 19000
1ncomc sta cment and llil a‘ ;tatcmcnt of othcr
Fmancc C。 s灬 7 (3l× lo 侈000l
lsWc mcome.
comprchcIi:。 Pto￡ t/ktos9BcforC tax 19000 17llllll

For khc rcmam【 ncome a△

f thc∞ xt an I)ntalns statement Tax8 ΦlXlo ←00Φ
Proflt/kqLos9for由 c ycat ambutablc
Mll bc uscd,Thc cxatnplc珈 cn∝ that is
to equltv HoldcrP 14ooo 13000
rcqn】 fcd for thc CIE cxatmnaoons,
衤In pjiacdcc and h exaα unatlons datcs s・ollld bc血 cludcd
Thc format of 伍 c Inc° mc statcmc仗 0CX讧 Cm曲
Ths芯 an examue ofthc cxpcnscs bctng classi丘 cd by
importnnt and招ould n an
bc lcajIncd I as far cxamma色 on
as possiblc, 俪 coon,Distnbu乜 on,Ad1Iumstrativc and so on and is thc
s臼 △
dCnts should f .。 M.汛 hmat 。nc most hkc灯 to appCar△ n thc cxanmladon
ε
1Rcsciluc o dlc Incomc￡ 寥刂
〕:ta峦 d盱
〈 t1】 c company from lts
tadulg actlN,ucs In othct v/oids,lts sales for dtc vc狂
 Cost ofsalcs Thc det/ad d。 cs not havc to bc shσ刀
η 虹crc, EXample2
but shclo,as a wotklng:ope-g mvcntory+putchascs-
clo曲 呜 ms・ cntor乒
E*Ⅱ⒍ t Co.Ⅱ mii】 ,‘ :d

0thcr lnc° mc Ⅵ Duld lildudc such mlgs as proBt on Ιncome statcIncnt

dlsposal of nclnˉ currcnt as鸵 ts,or tental血 co” c,whcrc forthc ycat Ⅱ 啤o。 …¨¨・
¨
rcn恤 g ptopci〃 ot cqulpmcntis not the maIn。 blcct of $l× lO $000
山 c comp盯 吵 Rc△ ・
cnue 100000
4 Dlstrlbuo°nc。 $ts hdudc cxpcnscs such as salcspets° n、 opc血 ng mvcnto⒒ cs 200t ll
salarlcs or cxpcnscs,watChousmg costs,Ca血 age ouwards, Pllrchascs 55000
dcptcoaoon° fvatcb° uscs° t dcLvc:yˇ ans or any other 75000
cxpcnscs assoclatcd Vlth thc讧 ansfct ofgoods丘om thc Clo$mg mvcntoics (1500lll
company to lts customcts Cost of salcs mo oool
Ad-ils钍 auVc cxpcnscs wOuld血 Cludc° fncc salancs° r Gross proflt 40000
Costs,seklg costs not trcatcd as patt ofthc dls缸 bu讧 on Rcntal inc° mc 2000
cxpcnscs,gener/al deptedau。 n。 fcars oii omcc cqmpmcnt 42000
It m呷 also hdude dlscount auow・ cd,ptoˇ 1sl0n fot ox cthc记 ⒊
doubtful dcbts and bad debt$ 0fLcc酰 囱如s 4100
0thcii cxpcnscs wOulCllndudc itcms not hcludcd undcr sekg cxpcnscs 4000
clthct3° r4abovc It mayindudc,say lcasmg c。 sts ot b§ s DcL△ c饣 c【 ,sts 800
on dlsposal of non-cu豇 Cnt asscts salcsman、 salary 4300
Flnance costs wodd hcludc bank° vcrdraft or loan Prov△ sion for bad dcbts 900
intcrcst,debcntutc“ tcrcst ot“ tcrcst° n loatls from odlcr Loss on salc of n。 n~currcnt asscts 1llllo
companies lt also lndudcs dt△ ・
ldcnds patd on tcdccmablc DcptcclatloⅡ
pⅡ 免rcn∞ 曲 are⒌ thcsc鸟巾c° f蚰 arcs arc tcgardcd孙 a DcL△・ crv,clllclcs 2900
1° ng tctm loan ofthe bushcss ofncc cqulpmcnt 2000
8 Thc锿 x is payablc On thc pro丘 ts thc c。 mp狙 y cams In an
O0000l
cxamlila0on thts ngurc w刂Ⅱ bc沁啦“ thC qu邙 don pR。 FIT FROlNI0PERATI0Ns 22lXlo
9 Pioflt atmbutablc to cq"饣 holdCrs Ihc e印 △〃 h° ldCrs arc Fnance c° sts ΦankmtCrcso o lXlo
the° wncts° fthc c° mpany:thc sharcholdcils Au thc PR0FIT BEFORE TtX 19lXlo
Pro丘 t earncd by thc c。 mpany bclongs to dlcm Tax (:;000l
PR0FIT F0R THE YEAR ATm电 Buη
In an cxat-ajon⒒ o Ⅱk曲 d△ at y° u wⅡ lbc珈 en T0EQUⅡ Y H0LDERs `BLE 14000
figurcs for thc total ds仕 buoon and adml血 stra色VC
cxpenscs。 You may also bc askcd to makc In dus Ⅲustratlon ody onc ycar o shown I冫 ates

a曲 ustmen“ for accru扭 s and prcpa” Ⅱnts of ccrtam sh° uld also be inchdcd ln伍 ch吻 岘
indi访 dual cxpcnscs Y° u may bctold M・ hcthcr thcy
are admmstra乜 Vcot CⅡ strlbuj° n cxpcnscs,but you 236 DiViding up the profit
may have to makc ajudgcmcnt Asin aⅡ c灬 cs,sh0W for the year
ohc cx俪 ner a△ thc w0rklngs,
Rcrncmbcr also that the layout ab° vc is for Ha△mg gencratcd a pront f。 r由 c rarand pay怔 g kax on

accounts x1・ htch w・ m bc pubⅡ shcd by伍 ec° mpany 止,what d° cs thc company do、 泣伍 kP UnⅡ ke a solc
and avˉ aJablc for the gcncral pubⅡ c to look at Itis tradcr ψhctc al伍 c pr° Et bcbngs to the° wn叱 a

ⅡkC圩 that thc c° mpany wⅢ pr° ducc intcrnal
accounts、 ch arc much m° rc dctaJled伍 an thc
`Ⅱ
statcmcnt shown ab° vc,It ma⒖ f° r instance,Ⅱ st
cach indi呐 dual cxpcnsc血 伍er than group山 cm
undcr h,o or伍 rcc hcadmg⒌ Ths“ to au咖
managcrs t° lo° k m morc dctan atthc pcrformancc
of thc c° mpa”~Itis possblc that thc cxamnation
may rcqulrc aⅡ 山c cxpcnses Ⅱstcd仫 thcr than put
Ⅱ1to funco° n If dusis thc case,Chcn a format
slmilar t° thc° nc bd° wq,m be acceptablc,
kted∞ mp狙 y can ha△rc a largc n~bcr ofow,ncrs h
山c form° f sharcholders凡 呼 Ⅵ姐 bc rCv・ardcd for
thoL ms/cs位 ncnt bythc c° mpany p￠ 卩ng thcn△ a
dhidcnd It、01⒒ d bc unM,lsc for a company to pay out
au its pr。 fit t° thc sharcholdcr⒏ Indeed,m° st
compatlles ancr pa卩 ng s° mc ofthe proEt as dhidcnd
kccp J△ e balancc as rctamcd caJi-gs△ △isis addcd to
士⒑retamcd ca唧 爹 from pr四 1ous rarsand shown as
a scpatatc Egurc c|n由 c statemcnt ofFh狙 o砬
Po“ 洫
 In o伍 cr hstanccs,after p叩 mg thc dl访 dcnd thc Dl△ ・
ldcnds pald ls O00l ls O00l
company may transfer part of the ren1aJmng proflt to Ngv sharc
capital × ×
a rcscrvc,Ths could bc a rcvenue reserve Ths勺 巾c Balanoc at cnd
of rcscrvc may bc a gcncralrcsc± ˇ ℃or a speci丘 c oFthe year 52000 呛 0∞ × 104llllo

tcscrˇ ℃,suCh as,a rcscrVc for thc rcplaccmcnt of

machnery
、σhat o inportant to notc is that proflt and IAs1also rcquircs a statcmcnt showing
rcscrvcs arc not cash funds as thc ncxt chaptcr xs・ m dctans。 f dividcnds paid du￡ ing thc ycar,An
Ⅱustratc Thc△ arc representcd by asscts shown in cxamplc of this is sh° wn bclo硒 1Thc important
thc statcmcnt of Fhancial Posioon Thcy tccord thc thing t° n° tc hctc is that only dividcnds paid
fact that thc asscts bclong to the o环 c during thc ycar arc includcd in thc statcmcnt
'ncrs of d△
busincss:thc sharcholdcrs, This mcais that thc statcmcnt of changcs in
In IAs1伍 c ∞m in a
sp△ ttmg of thc proflts is曲 cquity could includc thc paymcnt° f thc flnal
statcmcnt knOwtl as a statcmcnt of Changes in dividcnd in rcspcct of thc prcvious ycar,
Eq蚋 、This is shown bclov Proposcd dividcnds arc usualIy votcd on by thc
shareh° ldcrs at thc annual gcncral mccting and
ExampIe3
approved by them at that timc,This± csults in
thcm belng pald some m° nths after the end of
Ex“ b讧 Co.L缸 nited thc llnancial ycar
statement of Chaoges“ Eq讧饣 for the yeat ended
Proposcd do讨dcnds arc ncvcr shown1n thc
屮Ths ycar 屮
血 anod s该 tcmcnts Thcy arc rcfcrrcd to by驷 叼yof a
Rctaltlcd Ea俪 ngs Last y℃ 盯
$0l× l $OtKl notc to thc publshcd accounts.
一

Balance at stan ofvcar 430tKl 340llll

Example4
铡

Pro丘 t for thc ycar 14000 13000

⒆一

TraIlsfcrs for odlcr rcsc四 cs

47llllo
÷D△ 注dends fot the yeat ended
Dividcnds Patd l+000
㈧ otC for the pu斑 shed acω mts)
TtaⅡ fcis to othcr tcscrvcs
承
Tllls ycar Ⅱ
Last阼 ar
Balancc at cnd ofycar 52000 43000 $000 $000
尜 Notc also that no dates are illcluded Ths wOlJd not bc thc Amounts rccognlscd as distrlbut1ons to
casc h pェ atucc whcre ule ac。 J丑 l date of Jtc rar cnd and Equl9holdCrs dlrmg thc9car:
prcxˉ lous ℃ai,my31December,would bc statcd
γ Fnlal dhidcnd fot last,℃ ar of$0075
pcr share 3000 2200
驷

伽
一

一
蚯 alterna色 Vc and rnorc comprchcnshc Intcom dlxldcnd fot this ycar of$0050
~
~
跏

棚
pcr share
presenta色 on is shc,M,n bclo、 泓

Proposcd flnal dlvˉ ldend for dus

statement ofChanges“ Eq讧 0
rar of$0095pcr sharc 3800 30tKl
fo￡ the yeat ended ¨¨¨¨¨……¨¨¨¨
汴N。 tc also that no datcs atc includcd This、 ˇould not
share capital Ret疝 ned Rcva【 uadon Tota1
be thc casc in ptacticc whcrc thc actual datc of thc ycar
and Rcsctvcs Ear讪 呜 g RcgCtvC Eq证 饣
end and pェ cvious ycar,say31Dcoembct,would bC
$lXlO $000 $000 $000
statcd
Balance at statt
oF ycat 52000 43000 x 950llll
Total Pro丘 t Thc statc血 cnt of Changcs tn cqm″ can bC
foェ dlc
expandcd nrthcr t° includc transfcrs to and from
y∝ 刂 14lltlo × 140lXl
±
ese± vcs and thc issuc or rcdcmpjon of sharcs,
Example5 ExampIe6
Ⅱstatcmcnt oF￡nancial posidon as at ¨¨¨¨.¨
Ushg tlae hforma谊 on fr° m aboˇ c,howevcr:

卿ο
砥$
叮

唧 oo

ο
ο
1 During thc ycar Exhiblt Co Llmited

st°
ο

ο
issucd10000ordinar/sharcs of$1 each
Asscts
at$1,20 Non-cuttcnt assets1
2 At thc cnd of the ycar thc dircctors Pェ opcji“ plant and cqtupmcnt 1tlll O00 921t ll
transfcrrcd $6 000to thc gcncral rcscrvc, Goodw刂 Ⅱ 7700 80lXl
As a rcsult of thcsc acions thc statcmcnt of 107700 100100
Curtcnt a8scts2
Changes in Equity would appcar as shown bclo、 ″ Invcnto⒒ cs 1000 800
statcmcnt of Changc卩 h Eqm饣 for山 e Tradc rcccix・ ablcs atld odlcr 5000 4000

枷蛳铡
yeat ended。 ¨¨,¨ . Cash and cash cqm△ aIcnts 500 300
6500 5100
ordina】 ∶
,` slurc Gencral Rctatncd Tota【 asoots3 1142l× l 105200
sharc pェ cmium rcscrvc carn:ngs Equ灯 and Ⅱ ab扭 t始 s
capltal CapitaI and rcse~es4
$000 $000 $000 $000 sharc CapⅡ al 部a Ooo 4o ooo
B狃 anoe at share Prel△lium 2000 2lltlo
start of ycar 40t llO 2000 10000 43000 95000 Gcncral Rcscrvc 10000 10000
Piollt for dlc rar 14000 14000 Rctalncd Earnings 52000 43000
Divldcnds paid o000l o000 104000 95000
Issuc of Non式 urtent ⅡabⅡ 甘cs。
ordInal, sharcs 10000 2000 12000 Bank Loan 55l× l 5200
Transfcr to CuiItent ⅡabⅢ ties‘
—
gcncral rcscrˇ c 6000 Φ000l Tradc and° 伍 eェ payablcs 12llll 1000
Balance at Tax ⅡabⅢ谊es 3500 40lXl
cnd of ycar 50000 4000 16000 46000 116000 4700 5000
Total LiabiⅡ tics7 114200 105zOo
IAs1alows仍 r/altcrnaove w叮 s° f sCttmg out 木Notc that no datcs arc incltldcd Ihis、 Rodd not bc thc cascin
thc statcmcnt of Changcs in Eq△ i⒋ OnC such pfacoce wllcrc dlc acttlal datc of thc rat Cnd and pt∞ △Dus
alterna色 Vc is to prcparc a statcment of rar,say31Dcccmber,w。 uld bc statcd
1 Non-currcnt asscts
Recognised Income and Expcnses Ths is much
η诋 lncllldcs botll tanglbk灬 scts suCh as plant and
lcss detaJed,as it inc1udcs such t11jLrlgs as dlc profIt mach伍 c=阽 ni【 ’tor∝ llclcs and omcc cqtupmcl△ t as weⅡ as
f° r thc year and galns on rcvalLIaoon of non-currcnt noⅡ tanglblc assc“ such灬 Go。 小丙姐 In由 凼 casc,Goo由 丙姐
asscts It docs n° t includc dlx,idcnds p/ald or issue shollld otus bc s吣 诩△ ifitls purchased Goodvt⒒ in othcr
、邳o记 s,hckdcd h the pl△ rchase poce of an【 ,thcr busnlcss
°f sharcs For cxanlmauon purposc岛 bc avarc of
acqLurcd by dle comp征 ,0Jier iiltangblc孙 scts could
1ts C》 △stCncc and x△ ,hat1t docs and docs not1nchdc, iIlclude・Jle∞ st of dc浓 bpnlg dlc compaa必 pr。 ducts aild
Thc statcmcnt of C~hanges h Equ止 y∞ t OLlt abo~c acqunlng patcilts and tadc m盯 “ Nooccthat σψ d△ c nCt
ls an⊥ mp° rtant part of the± nal accounts Icarn让 F book valtlc ofthc non-curtcnt asscts is$hovn lvIost

lasOut and l△ ox△ ・0硝 ust血 sgarcs灬 a rc〔 ,11jj1of血 conlpaiucs prov1dc a scrlcs of ncltc$to accompany thc丘 n狨
accounts rllcsc w0lud havc tl△ c dc钐 dcd btcakdox△ n of dlc
d咧呜6,锱 △M,l bc rcqlurcd仍 r surc cxzammzatlons, Cost of thc asscts,any addltions or dlspos址 s madc durIng
tl△ c yc盯 al△ d thc dcprcmoc,n cl△ atgc fot d△ cr狂
It is als。 possiblc to show thc non-cutrcnt asscts as
237 statement of FinanCiaI POsition intangiblc and tanglblc For cxamplc∶
Nonˉcu"cnt a8scts $000
for a Iimited company Intangib1c
L、 S1speo丘 es thc n△ lllmum hforma乜 0nX△ ’
hch must Good狲刂 Ⅱ 7700
Tangib1e
bc shox,|nin d1e statcmcnt of Fhanoal Po⒍ oon f° ra p文 opejI0,plaIlt and cqmpmcnt 100000
Ⅱmtcd company The examplc whch fo△ ows^d,c 2 Current asscts
form smdcnts shoL△ ld use for exal-aoon purposcs il△ s includcs狃 vcn∞ ⅡCs,oadc rccomblcs and bank balatltcs
 ldcnoEcd as cash and cash cq.us alcnts Thc igrc foInlvcntoncs
olJd iod△ Kic raxx matcHnls x△ ・
orkh ploglcs$肛 记 ￡山咸Fd
x△
goods h dlc伍 sc oftradc tc由 谰 阢 s止 芯also acccPtablc to sl△ ox△
血 tradc α 钿 哆bh孙 onc fglltc,bgng d△ c atllolult rCcmablc
±olll° 泌¨ atld odlcr仰 洄跪跽 ,stlcll孙 ptpa,mciluq孙 a
唧 侄 Eg・cG曲 征d cash cqtusalcnts n△ dtidc山 处
dcposlts孙 wcu as bank α血咂 accounts
3Total asscts芯 “”ˇdlc stlll,of llCln ctlrrcllt a耐 α伽哑 asses
4 Eqtutv
Tllc e〈 lr∶ li1;,`or capltal ofulc c。 mpanv is anall,scd,晶 o丙 顿 g
scparatcl1・ dlc scpara∞ classcs ofp疝 d tlp c缚 汶
喊 曲 atc
PrCllllulll aild犯 scr⒕ ⒏Noucc dlat ulc figlrc for Rctaj|△ cd
Earnttlgs芯 dlc d∞ △lg ngllrc fr° m dlc stafcmcnt ofCbnqg卩
h Fntntv Uijc$d△ s芯 calctllatcd thcn thc⒏ atci△
Fh缸 凼 铋Posiuon w姐
5 Non-currcnt habⅢ 吐cs
not b斑 ancc
Thcsc arc amounts whCh fa⒒ duc for paymcnt morc dlan
小vcke months aitet dlc cnd of the ilnancial year 犰
、冖
Duld covciisuch itcms as long tcrm loans which thc
company clwcs It、 ˇould also includc Dcbcnttlrcs and
Rcdccmablc Picfcrcncc弘 arcs
Althollgll not乩 own hcrc it芯 also p∝ slbk fot a compa呷
to havc non-currcnt asscts t1止 s may bc somctbing such as
a dcbt whch is duc to bc tcccw℃ d morc than bvcl△
months aftcr thc datc of thc st^tcmcnt such itcms would
be曲 own as a scpaiatc hcadmg ll△ the丈 atcmel△ t
6 Currcnt ⅡabJlocs
This wollld includc tradc payablcs(amounts duc to
suppⅡ crsl and o伍cr p呷浏olcs such as accrtlals It wollld
also ncludc o伍 cr short-tcjIm boⅡ ⑶ 咂 gs such as a bank
loan and thc currcnt p。 roon。 fl。 ng-tcrm borji° wmgs
such as tl△ at part of a l。 ng tcnn loan xv・ hich is rcpa,ablc
w△ thiil嘟 cl△・ c months缸 om thc datc ofthc statcmcnt of
rli△ ancial p。 s1oon
7 Total Ⅱab山 tles is dlc sum。 f dlc cqtut” n。 n-currcnt
currcnt ⅡabJiocs
238 share Cap;ta丨
Issued capita1is the t° tal° fthc sharcs which havc
bcen issucd走 o thc sharch° 1dcrs
caued~up capitalis m。 ncy rcqturcd to bc pald by
shareh° 1dcrs immcdiatc1y A ncwly formcd company
may not rcquirc all thc rnoncy duc frolll sharCh° 1dcrs
immcdiatcly If it has to havc a± act° ry btult and d△ cn
equip it、 ncy could Ⅱc idlc in
^th rnachincry,thc rn°
thc c。 mpany、 bank account unulth。 sc itcms havc
to bc paid± o‘ It rnay rcquirc thc sharcholdcrs to pay
only part° fthc amount duc On thcir shares un刂
urthcr汕 ms arc rcqturcd,when⒒ wⅢ
± caⅡ
shareho1ders t° make furd△ cr palTincnts
Unca△ cd capitalis any amount ofthc sharc
capital not yct caⅡ cd up by dlc compan乒
P叼 od-up capitalis thc m° ney rccchcd from
shareholdcrs on thc caⅡ cd~up capital S° mc
sharcholdcrs may bc latc in pq、ng thcir caⅡ s,or rnay
fail t° pay thctn at aⅡ
tcm CaⅡs in advancc is money received llom
sharcholdcrs who havc p・a【 d caⅡ s bcforc thcy arc duc
CaIls in arrear is m° ncy duc from sharcholdcrs
wh° arc latc in pa” ng thc,lr calh
Forfeited shares are shares xx,llich sharcholdcrs
havc for± cltcd bcca△ lsc thcy havc± aJcd to pay刂 acr ca⒒ s
s
The sharcs may bc rc4ssucd t° °thcr sharch。 ldcrs
cm of
△
239 CIasses of shares
Sharcs rnay bc preference sharcs° r ordLnary sharcs
s
Preference shares
Prcfcrcncc sharcs arc cal1cd so because thcy cntldc
hoIdcrs ofthcm to ccrtaln rights which ordinary
sharcholders do not enjoy∷ Γ
hcsc sharcho1dcrs are
/c
cntit1ed to rcccivc dividcnds at a丘 xcd ratc Out of
pr。 nts bcf。 rc thc° rdinarv sharcholdcrs bccome
cntidcd t° dhidcnds Thc ratc° f the dlvldcnd is
cxprcsscd as a pcrccntagc of the n° n1inal valuc(scc
§2310)in the description of thc sharcs Ⅺ7hcn a
companyls wOund up cc灬 cs t° Cxlstl,prcfcrcncc
sharch° 1dcrs arc cntjdcd to havc their capita1rcpaid
bcforc any rcpaymentis madc to thc Ordinary
sharcholders If thcrc arc insu± flcicnt funds aftcr
and
dlc prefcrcncc sharcholdcrs havc bccn rcpaid,the
ordinary sharch° 1dcrs wi111osc somC,if n° ta11,of
thcir moncy
Nonˉ cumu1ative prcfcrcncc shaFes Ths class
of pre± crcncc sharc is n° t cnodcd t° havc any arrears
of div1dcnd carr1cd f° 唧 ard to futurc years⊥ fthe
proflt of any ycar is insuf丘 cicnt to pay thc dividcnd
in ftlⅡ
Cumda汛 、prcfcrcnce sharcs This class of
pre± crcncc sharc is cnodcd to have arrears of d小 odcnd
少订ard to± Llulre ycars whcn suf且 ocnt pro丘 ts
carrlcd f°
may bccome邻 厂 钮lablc to pay伍 c arrcars
The f° Ⅱowing cxamplc sh。 ws thc cffect of
l
lucmaong proflts° n non-cun1△ △
± 1auve prcfcrcncc
°n thc
sharcs and ordlnalv shareholders,and also shows the
diffcrcncc bcoⅣ ccn cun】 da乜Vc and non-cunuiaω 7c
prcfcrcncc sharcs
Example 伍c company can approaoh thc prcfcrcncc sharcholdcrs
and buy back thc sharcs丘 om thcm,Ifprcfcrcnce
Upandown Ltd was formed晒 刂 th a sharc capttal of
sharcs are redeemablc thcn thcy、 访Ⅱ appcar undcr non~
100008%non-cumulauVc preferencc sharcs of$1
curtcnt ⅡabⅡ ocs h伍 c statcmcnt of Fm・anclal Po血on,
cach and20000ordlna-y sharcs° f$1each
The proflts avaⅡ ablc for dlx・ ldcnd、 o、vs:
玑 °n tbC° 伍Cr hnd,th叩 arc nc,n redeemable,ho伍 cr
'ere as fo⒒ 、 mpany xliu n。 t buythcm backin d,c
2006$1200;2007$900;2008$600;2009$1000; `ords thc c°
rua.rc,thcn山 叩 appcar h thc cqLu″ sccuon° fthc
2010$700;2011$1300
statcmcn1t° gc伍 cr x△ Ilth d℃ ordhary shares,rcservcs
Ihc dlxrldcnds paid to thc prcfcrcncc sharcholdcrs
and retamed ear-gs∷ k洳 dcnds pal,ablc on non-
and thc balanccs of pro丘 t avaⅡ ablc to pay dlx・ ldcnds
redccmablc ptcfctcncc sharcs xs・ m bc dlscloscd h the
thc° rdlnalir sharcholders werc as foⅡ ow⒌
of山 angcs h c豳、as s・・
t°
s囱 tcmcnt m dler par xaluc

2009 2010 2011

Thc cxamuilcr shodd hdlcate h山 c qucs刂 on if thc
Yea1 2006 2007 2008
$ $ $ $ $ $ prcfcrcnce sharcs arc rcdccmablc or othcm・ lsc
Proflt 1200 900 600 1000 700 1300
0rd∶ nan`shares
Prcicrcncc
divldcnd paid 800 800 600 800 700 800 Thc o“ Ⅱna呷 sh时 c capital ls kn° wn灬 thc cq证 ty ofa
Pro征 left iot company Thc proflt伍 狨 rcmalns aftcr any dMdcnd
ordina饣 sharCholdcrs纠 ao 100 ni1 200 血 500
has been pald on prc± crcncc sharcs bclongs to Chc
加1aximum ordina,
dlvldcnd pavablc 29乇 o59o 09乞 1Vo 096 25o/o ordma轷 sharCholdcrs,and thc ordlna,dlxˉ ldCnd M・ 1ll
bc p钮d oLlt of伍 at,Ⅻ 伍c± cscr⒕ s lmchdulg
Ifthc prcfcrcncc sharcs in Upand° wn Ltd had retaJned prof【 tl also bclong to dlc or山 n匆γ

bccn cumulauvc prcfcrcncc shares,thc posi刂 on sharchddcⅡ 、

￠hcn a companyls wound up,after a△
wollld havc bccn as foⅡ ows: 洫 名 伍c dcbcnulre hdder9and ulC
crcdltors Cn山 ・
朋

prc± crcnce sharcholdcrs havc bccn pald,thc asscts

Year 2006 2ao8 2oo9 2o10 2011 rcmalmng bclong to thc ordm纽 γ sharcholdcrs,and伍 c
$蛐

$ $$$$ procccds from thc salc ofthc asscts X1。 m bc pald to

Pr。 nt 12oo 600 1000 700 1300 theln %c shareh° lders may recelse more伍 an thcir
泗

Plcfcicncc
orlglnal inv℃ stmcnt in thc c° lnpany but may rccc脚 ℃
dlx・ ldcnd for ycar 800 600 800 700 800
Aircars。 f dl△ idcnd lcss d△ an刂】cy pald for thcr sharcs It aⅡ dcpcnds upon
brought fo^vard 200 100 thc circumstanccs h x△ hch thc c° mpanyis MOund up
pro丘 tlct for
ordina,sharcholders400
Maximum。 rdina,
100 n⒒ nⅡ n⒒ 4C ll
?310shares|ssued at a prenli1】 m
dlstdcnd payable 29o o5Vo o9o 09o 09o 29o shares has・ ea non血 缸 @par,value For cxalnplc,
shares° f$1have a nonunal valLle of$1,and sharcs of
Exercise1
$050havc a nonlll△ al△,alue° f$050 Ihe dlrectors of
sccsa、v Ltd、 sharc capital consists of6000010冫 o a∞ mp颂 ymγ 1ssuc曲 盯∞缸 a pncc cxcCCdmg thelr
prcfcrcncc shar∞ of$1and100000ordlna叩 sharcs nomnalx・ altlc if thqy bclcvc that thc issuc硒刂I atoact a
of$1,Pr° 丘ts± or six rars wCrc灬 bⅡ ow:2006 bt of subscnbcrs,or thc血 绁cs arc aLcady bcmg
$10000;2007$5000;2008$7000;2009$4000; bought alld sold on山 c stock血 changc at a pocc
2010$7000;2011$12000 hghcr伍 an伍 cn【 ,洫 砬x,altle lXllen shares are issLlcd
ata pr1ce above thelr nolnlnal xˉ alLle th叩 aJie sa1d to be
Requ1red
issued at a prenuum IfsharessX,ldl a n° mlnal valLle
Prcparc tablcs shoM△ ng伍 cd证 hds palable to the
h呷 sharcholdcrs ifthc of$1arc i“ ucd at,阴 B$125伍 e prennum on each
pre± erence sharcholdcrs and o旧
p妤 fcrcnce shar∞ arc⑶ no艹 cutnda0X/c⑾ ∝m讪耐 C x・
sharc`$025Thc prcmuFn on cach sharc mu吱 be
Prc± ercncc sharcs masralso bc rcdccmablc or nonˉ crcdltcd to a叩 ccial ium
acc【 ,unt Callcd sharc P1Ⅱ c1rΥ】

Fedeemable,If th叮 arc rCdCCmable dis tncans that aCCount Ody伍 cn° -al x/aluc° f$1唧 be credlted
to dlc Sllare Capital account Ihc balalaccs on thc sh狂 c exPan妯 n ofdlc bLlslilcs9or姿 Cral9Tto stfcilm・ ei・ the
i・

Capital acc° unt and thc sharc Prcilllun,account arc ￡n钔 nclal poojon of thc company Illc crca乜 on of
shown scparately h伍 e Statemcnt of Financial gcn¤ 叼d rcscbrcs rcduccs thc狈 °unt° f proht avaJablc
PosⅡ on to palr dlxidcilds If伍 c rcs∝ ￠s/arc latcr congdcrcd bv
d△ c drccto“ to bc cxccsslX C and∞ b呷阝 reqtllred,Jlcy
Example 血 y be crcdlted back to Retauled car-gs and bccomc
Thc dircctors of The Ⅴcry
Good Comp狲 y Ltd asadablc for dle uymcnt of dlXˉ ldcnd蜘 山 s
issued60000Ordinarv shares of$1at$130pcr ˉ
adj“ tl△lcnt厶 madc ul伍 c statcmc血 o± Changcs lil cqtli艹
shatc AⅡ thc sharcs环/crc subscribed for and issucd Rct扛ned earnings sbown in thc statement of

Rcqukcd Financia1P° sioon is onc of thc rcvcnue reservcs

Prcp【clournal m伽 ∞to rc∞ d dlc osuc of dlc slntes Capital Reserves

Answer Capltal rcscb cs arc″ ″幼/w。//Jl(腔 atCd by trailsformlg
proⅡtlrom d△ c Incomc st/atcm【 ・
ilt ThCy lcprcscnt gali△ s
$ $
d△at arl∞ ±
rolll parucd狂 cllclllnstanc∞ ai△ d ustla△ v
Bank 78000
0rdman sharc Captal 60000 rep屺 scnt gams xv・ icll啷龟nclt yet beeiil至 aL⒃ d
l△ Capld
sharc Prcllllllm aCCount 18000 reser⒕ s are part o± the c・ aplt/m qtr.lcttlre olˉ a culmp洫γ
1
Issue° f60000ordlnaε /sharcs of$1at$130pcr shatc d△ cy rnay ncvcr bc crcdltcd back to thc Inc° mc
Statclllc・ ilt洫 d can ngKt bc uscd to pay cash dixqdcnds
σ hC acc° un刂ng cntocs for thc issue of sharcs arc to曲 时clloldcrs
acm/a△vm° rc complcx than thosc sh° wn in tlus Thc rnost c° inmon caplt狃 reser⒕ s,/aild oncs驷 1伍
journal cn让 y Thc C1E ss,llabus docs not reqture xvl△ ℃nbd∞泓
tch lTOu sholJd bccomc± allmat,alc⒏ 、
candidatcs to kn° w thc± tJl accoun刂 ng entries,and sharc PrcnⅡ um account This has狃 rcady bccn
tl・ Ci° umal ciluii glvcn llcrc^stImocilt f。 r thc cxpI/alncd in§ 2310 °
sy⒒ ablls Thc± llⅡ acc° un刂 ng proccdtuc produccs Thc Compatilcs Act1985pcrmits伍 c sh/are Preil△ tlllrl
cxacdv曲 c samc rcsultin thc cnd,h any casc) accotlllt to怔 tlqm± or ccェ t么 凵
J△ spcofic ptrposcs orⅡ
)△

ExercIse2 ● to pay up unissucd sharcs to cXlstlng° rdularl/

Thc dircct°rs of PrctnltInl Sharcs Ltd offcrcd
10000010Vo prcfcrcncc sharcs of$1at$120pcr
sharc A⒒ thc sharcs wcrc subscribcd and paid for
Rcqukcd
Prepare journ殂 entrlcs to rc∞ rd曲 cismc oltl△ c
preference shares
shareh° ldcrs as± tJljT pzald-up bonus sharcs
(tllCsC arc dcalt wi伍 h chaptcr2Φ
●to write offpmⅡ minarv expenses C c CxpCnscs
incurred in the formaoon of thc companD
● to wntc off cxpcnscs incurrcd in dlc issuc of
血arcs or dcbctlu△ rcs° fd△ cc°mpany αis
hchd∞ my∞ mtlllssi0np・ abk on dlc osuc9ay・

● to providc any commission payable on thC

2311 ReserVes redempjon of shares and debenturcs
Thcrc arc bvo classcs of rcscrvcs∶ rcvcnuc rcscrvcs ● to proxrldc± or any p伦 mium pa,「 ablc on thc

and capita1reserves Thc(Ⅱ fcrcnccs bch△ ccn thcm

lˉ
rcdcmpoon of debenmres
^cs arc Covcrcd latct,an-lt wm be⒃ en
arc1mp° rtant CΓ hesC t°
dlat thcrc arc ccrtali△ imp° rtant rcstric刂 ons° n thc
Revenue reserves usc of thc sharc Prcnll△ ln】 aCcount to provldc± or thc
Rcvcilllc rcscrvcs arc crcatcd bl,trai△ stcrrolg an amOL△ nt prcvlllutn pal,ablc° nd△ crcdcmpjon° f shar∞ )
犰 m伍 e pr° ±
lt ambutable to tlle equ止 yhddαs The Capita1Rcdcmption Rcscrvc This rcscrvc is
ˉ
trails± cr“ 曲o刀n h dlcstamcnto± cllangcs h cqtu铋 crcatcd by transfcrong proflt from thc Inc° me
Resrelltle reserves mali be created for spc洫 ptlrposcs statcmcnt It wiⅡ bc cxplaincd morc fully in an° thcr
CCplacCmcnt ofnon currcnt asscts,or plalmcd chaptcr,but suf± lcc it to say at this point that this
rcscrve must bc crcatcd when a c° mpany rcdccms Rcq“ red
any ofits sharcs° thcp″ ise than out ofthc procceds Prcparc由 c joumal cntrl,br thc re△ ・
aluauon° f dlc
of a ncw i。 suc° f shares prcnllscs in the c° mpany‘ b° °ks
Thc Capital Rcdempj° n Rcscrvc l△●ay bc used t°
pay up umssued sharcs t° c蛀 s乜 ng° rdn呷 2312CalcuIation of the value of
曲archoldcrs灬 血Ⅱy p砬 汪up b° laLls shares ordinary shares
Rcvaluation Rcserves A company may rcvahc
its non-currcnt asscts and any gain on thc rcvaluaoon Thc~alue of sharcs dcpcnds upon rnany factors,
must bc crcdltcd to a Rcxaluao° n Rcscrvc;it is an mm° docs,山 c
sharcs are no dimcrcnt fr° n】 othcr c°

unrcaⅡ scd profit and may n° t bc crcdltcd to thc lljch dcpcnd upon suppl,and dcmand
prlccs of ss・

Inc° mc statcmcnt Thc past pcrformancc and,morc mportan山 1tl・ C

Thc Rcxralua刂 on Reservc rnay bc uscd to pay up
future prospccts of thc company,ccon° n⒒ c,poⅡ ucal

urussucd sharcs to1ncinbcrs ofthc c° mpany as bonus

and s° ci° l° gtc诫佤ctors at homc and・ abroad mγ all
in±lucncc thc dcmand,and thc p± ・ lcc whch hasto bc
sharcq,
patd,f° r sharcs on thc stock Exchange ⒒ c aspcct
ExampIe of sharc prices is° utsidc d,c scope ofdis b° °k,
An cxtract± r° n1Prcmiscs Ltd、 statcmcnt of Thc value° f° r山 narv sharcs,h° wcvcr,may bc of
Finanoal Po“ uon is as f。 Ⅱoss s: somc importancc Itis bascd on the f/act dlat a⒒ thc
$ rcscrˇ ℃sofac° lnpany bc1° ng t° d△ c° rdlnary
Ftcch° ld buildings:c° st 60000 sharcholdcrs
Provlsion lor dcptcciatlon 18000
Net book valuc 42000 ExampIe
⒒ c± oⅡ o、 ″ng is the summaⅡ scd stateme且 t of
The btddings ha、 狩 bccn pr° fcsslona△ s rcv碰 ucd at Fin岔 no・al Poslo° n of.Kppog要 amra Ltd,
$100000and thc dircctors haVc dccidcd t° rcvalue
thc b山 ldings in thc b° °ks,Thc cntrlcs in thc b° °ks $000
Total asscts less currcnt Ⅱabmucs 1400
are sh° wn bythc f° Ⅱ
°wmg journal cntry abmdc⒏ 1o%dcbcnulrcs2020
No⒈ cwrcnt Ⅱ 0o0
1100
Joumal $ $ Equi饣 ^
Frcchold buⅡ dings at c° st 40o00 1000000ordIn征 y shar6of$050cach 500
pr。 s.isi。 n foェ
dcpreoatlon° f lrcch。 ld btuldlngs 18000 share prcnlium 180
Frcchold B讧 kⅡ ngs Rcs,ahadon Rcsctsc 58o00 Capitalェ cdcmpo。 n rcscfvc 100
Gcncral rcscwc 2llll
Rctaulcd canungs 120
Note△lle bluldln箩 arc oCjng hcreascd from a nct
1100
bo° k value$42000t° $100000,an inc=casc of
$58000Thc amount挝 rcadv pr° Ⅵdcd br Requircd
dcprcciaoon must bc transferred t° thc Rcsˉ aluaoon Calculatc thc value° f夕 ″矽°rdharsr share
Rcscrvc Thc Frcch° 1d Prcnllscs at Cost account踟 iⅡ
Answer
now bccomc Frcch° ld Prclmscs at、 %山 aaoon account
Thc t° tal° f thc° rdlnary share capltal and rcscrves
witlt a debit balancc of$100000
=$1100000
ExercIse3 The valuc° f° nc Ordlna饣 sharc is
Freehold prclirllses arc shown in the statcmcnt of $1100000
Finan0al Posid° n of a company as follows:C° st 1000000 =$1,10
$60000,Nct Bo° k、 1刂 uc$42000It has bccn
dccidcd to rcx aluc伍 c prcn】 iscs in thc books° f thc Exerclse4
company at$80000 Ihc foⅡ ow吐 ng is an cxtract frona thc statcmcnt° f
Financ1a1P° “uon。 f Graccnote Ltd

share capit・ al and rcscrvcs
200000ordln岬 sharcs of$1
Long Tcrm Loan
sharc PrcinlRl,n account
Gcncral Rcsc¨
Rctamcd catrungs
Rcquircd
CalcLllatc thc valuc° f100ordinaty sharcs,
2313Liab""ies,provisions
and reserves
Ihe dl∏ orences bc小vccn⒒ abJlocs,proˇ △
sions and
rcscrvcs,inchdlng ho、
`they arc crcatcd,arc
11npottant and atc sun1marlscd hcrc,
Ⅱ abⅡdes arc arnotlnts OMing by a company to
tradc Or° 伍cr crα Ⅱors Ns・ hen the amounts can bc
dctcrnuncd・ ,sith substanoal accuracy Thcy arc
crcatcd h tllc books by ca¤,ing dc’wn crcdlt balanccs
on pc“ onal or cxpcnsc accounts6cc chapter10)
PFt,msions are crc狨 cd to prov1de f° r Ⅱab山 硅cs
伍atarc hown to c蛀 st but° fwhch山 c amounts
cannot bc dctctmlncd、 f° r
^th substanual
example d° ubtfLll debt pro呐 accurac品
sions Prov△ sions arc also
madc for thc dcprcoaoon of flxcd assets and
unreahsed proflt on stocks of rnanufac“ 止Cd g° °ds
Pr° Ⅵs1° ns arc crcatcd by dcbijng the amounts to
d△ c In∞ mc statcmcnt and ctcdltmg thcm to
Proˇ △
s⊥ on accounts
ReseFves arc any othcr amounts that arc set aside
and notincluded in thc dcfl血 oon of proˇ △ sions
abovc Thcy rnay bc crcatcd by dcbiong the
approp丘 ao° n sccjon of a company、 Incomc
statcnlcnt and crcdiong rcscrvc accounts Thcy rnay
狃so bc crcatcd by rcs/aluJng non-currcnt asscts
2314DistributabIe profits and
div】 dends
DistⅡ butable profit
Thc dlstrlbutablc pro丘 ts of a company consist of
● its accumulated rea⒒ sed pro丘 ts、
akcad,bccn dls缸 butcd or uscd仍`hch have not
r any othcr
purpose/eJJ
● its accumulatcd rcaLscd losscs、 放ich havc not
pres,lously been wr【 tten o正
For our purposcs,dlstributablc proflts arc thc
pr。 nts attrlbutable to thc cqulty holdcrs plus any
rctaJncd carnln箩 brOLlght fopward fr° m lastl/ear
$ ○ncc thc dircctors havc dccidcd how much,if any
°f dis sh° dd be ttansferred to rescrvcs thc balancc
200000
can bc uscd to pay dlx1dcnds to thc sharchdders
150000
50000 DiVIdends
100000
Di呐 dends arc thc1ncans by xshch sharch° ldcrs
←0000
460000 sharc in伍 c proflts of a c° mpany IDircctors rnay not
pay dividcnds to shatcholdcrs cxccpt out of
dlstrlbutablc proflts as denned abovc
Inteom山 ˇidcnds mav bc pald to shareholdcrs
durlng a company、 ￡nanci/al ycar providcd thc
dlrcctors arc saos且 cd that proⅡ ts for thc purposc
havc been earncd and thc cash rcsourccs ofthc
company arc sufflcicnt t° pay the dividend
A Ⅱna1dividend is paid aftcr thc cnd of thc
丘nancial ycar,However,the directors lnay only
rccommcnd thc amount° f dividcnd to bc paid,
Bef° re it can be paid,the sharcholdcrs must
approvc paymcnt by passing a rcsolution at thc
company’ s annual gcncral mcctings
IntcⅡ m d小犭dcnds pa】 d durmg thc ycar arc shown
in thc statcmcnt° f Changcsin Eqm0l Final
山v,dends approvcd a± tcr thc cnd ofthc finanoal
ycar appcar as a notc to伍 c accounts
DMdcnds arc usu钅 111y dcclarcd灬 ⑽ ma叮 ccn“ per
sharc° r as a pcrcentage ofthe no血 nal xˉ aluc of也 c
sh征 ∞
ExampIe
Ac° nipany has issued100000ordinar`sharCs° f$1
pcr sharc
(al ThC dlrectors have rccommcndcd a doidcnd
of$0,7pcr sharc Thc company硒 殂 pay a
total dividcnd of100000× $007=$7000,
α
9Ihe dlrc∝ oⅡ haxˉ c∞ conVηCndcd a dls,ldcnd of
5冫 3 Ihc company、 泣 Ⅱpay a to钐 址dhidcnd of5o/o
of$100000=$5000(or$o05pcr sharcl
Di砬dend poⅡ cy Be± ore p绅 mg orrccommcn山 呜
dlmdcnds,dlrcctors of a company tnust considcr thc
△ng
loⅡ o、丙 important rnattcrs:
● whc伍 cr m狂 凼mt dlsmbLltablc profits arc as・ aoble
● whcthcr thc company、 funds、 aⅡ bc sufflcient
to pay thc dhidcnd;a cash forccastis needed
● hctlicr伍 crc is anl nccd to transfer pro丘 ts
x△ into
rc⒕nuc± cscrWs to s竹 eilgthen山 e busincss
●whcthcr thcre is a pr° per balancc bcbⅣ ccn
dl、 idend gro、 ;udcss
`d`and capital growd△
山vidends and share valucs incrcasc,
 sharcholders’ wcalth is din△ nished by in且 aoon
A Worked eXample
h thc cc° n° my lun山 sttibutcd pro丘 t incrcascs
Thc trial balancc° fE)i⒒ ydally Ltd at30Apo12011
thc company‘ rcscrˇ℃s and thc statement° f is as f° Ⅱ°ws:
Flnancia1P∞ i山 n△ˉ
aluc of thc° rdlnary sharcs)
●a gcncrous cⅡ vⅡcnd poⅡ cy】 nay incrcase the $ $
Rcs/cnuc 756000
valuc of shares° n thc stock Exchangc,and a
ˉ Purchascs 446000
廴ncan’ p° hcy ssJ△ havc thc° ppositc e± fect, Invcnto饣 at】 ay2010
⒈Ι 32lXlo
l sala⒒ cs
salcs s诲 ± and commission 83000
2315Debentures Ad血 nistrau。 n salaocs 57llllo
Cartiagc° u“ 〃ards 24000
A dcbcnture is a document g⒃ n byac° mpany to Gcncral cxpcnscs 45000
somconc who haslcntlt moncy Itstatcs伍eam° tuat Intcrcst on dcbcnturcs 50l,【 l

ofloan,thc annual atnount ofintcrcst pa卩 blc,and Goo小〃Ⅱl at cost 1000tlll

tllc datcs on whch htcrcstls to bc pald It also Ficchold prcnvscs at cost 240000
Pi。 访si° n for dep±coadon of
mdudes the datc On M址 ich thc loan is t° bc rcp砬 d by
frcchold prcnliscs 71llllo
the c° mpan1,Usu浏 山 乃rcpγ mcnt厶 sprcad ovcr a DcLvcrv vans at cost 75000
pcⅡod and the dates° fc° nllncnccmcnt and cnd° f R汛 loil for dcprcciauon° f妯 、
唧 vans 300llll
伍c pcrlod arc includcd in thc descnpuon of thc 0fiice maclunc呷 at c° st 35000
dcbcnmrc, ‰ 妯 m FOr dcpremtlon of° lEcc maclmc。 10000
Dcbenmrcs arc“ ua⒒ y sccLlred° na△ orsomc of Tradcェ cccls・ ablcs 60000
Tiade pavablcs 42000
伍ec° mpany‘ assets If山 cc° mpany gcts hto Cash and Cash cqmvalcnt 66llllo
nnan。 al dlfflcdocs,tllc asscts on which thc 100000° rdIna饣 shares of$1 100000
dcbcnturcs arc scctIrcd,讨 Ⅱbes° ld and thc procccds 80000696non-tcdccmablc
uscd to rcpay thc loans to thc dcbcnmrc holders prctcrence sharcs° f$1 80000
109b dcbcntutcs2018/2020 100000
Ths gl△ cs由 c dcbcnmrc holdcrs an at⒒ ant・agc ovcr
sharc Prcnllum acc° unt 30000
other crcd止 °rs° f thc company GcncjIal Rcscrvc +0000
Rc诲 incd pω flt brought foblard at1M缈 ⒛ 10 13900
The difference between shares and Intc⒒ m dt△ ldcnds paid:
prcfcrencc
debentures oェ dnarl
20lltl
2500
12729001272900
shatcs Debentutcs
sharcholdcrs arc mcmbcrs of Dcbcntutc holdcェ s arc not Further information
thc c° mpany mcmbers of伍 c compan乒 1.Invcnt° ,at30Aprl12011:$54000
sharc capital ls shl,~in thc Dcbcntuiics arc sh咖 n ln the
2Dcprcoad° n lor伍 c ycar cnded30如 r12011
statcmcnt of Fmanoal s垓 血引
mcnt ofFk⒓ no破 Po欲 oon is to bc pr° s,ldcd as foⅡ °、
`s:
PosiJon u红 dcr E纟 ″ 疚 as公 J夕 ″ˉ
rf/厂 //o勿万砌∫ Frcch° ld wareh° usc$4000
uiess伍叩'仍 `′
atc duc fot Frceh° ld offlccs$12000
'哆
rcdcmpoon、 研thnl onc ycar,
DcⅡvc￡ 厂vchicles∶ 200/0on c° st
whcn thcy must bc shown as
rJr/re″ 多,/,/zF‘ of丘 ce machncr卩 209白 on c° st
`/,。
sllarch° ldcrs arc thc last pcoplc Debcnturc holdc,is arc cntlded
3Dcbcnturc jntcrest o pa,⒓ b1ch・al孓 ycarl1・ °n
to bc rcpatd whcn a c° mpany is to bc tcpald bcfotc shatcholdcrs 1May and1N° vcmbcr
wcluld up whcn a companyis w° und up 4 P± °ˇ
△si° n isto belnadc f° r taxauon° n thc

Di访 dends m缈 。n圩 be pald if Intcrc蚯 。n debcnmcs m灬 t bc ycar’ s pr° 丘ts h伍 csum of$25000
dls山 butablc pt° nts arc avadablc pald cvcn ifthc company h,s 5A廿 ans凡 r of$20000isto bc madc to Gencral
not madc a pto丘 t Rcscrvc
犰 憾 疝 ‘atc an appmpiIatlon Dcbcnolic mtcrcst恣 an 6th汕 cc咄 haxˉ c rcco-endcd a咖 dlvidc± ld
of pr° nt Gvensc whch is sh° wn on d△ c° rdma叩 sh匆 ∞s of$0,05pcr share
undcr Fm・ancc c【 ,sts m thc
Incomc statcmcnt
 Rcquircd Prollt bcforc Tax 75000
(a/x Prcparc DⅢ yda△ ,z Ltd愆 Incomc statcmclit for Tax @5000
Pr。 丘t for thc ycaji a仗 0butablc
the year ended30丿 、prⅡ 2011in as rnuch to cqui,holdCrs 50000
dctaⅡ s as possib1c

0)PrCparc DⅢ yda△ l/Ltd‘ Inc° mc⒌ atcmcnt允 r

(c)

the year cndcd30AprⅡ 2011,in Ⅱnc with D蚋 dauy Ltd

IAS1,dassising thC Cxpc灬 cs by血 ncj° n stotement° fChangcs h Eq“ 呼 fot thC ycat
(cl PrCparc Di⒒ l,da△ l,Ltd、 statcmcnt of Changcs cnded30^pt△ 2011
in Eqtu″ lor thC ycar cndcd30Apri12011 洫 sharc Gc,lcral Rctalilcd Total
㈦)PtCparc DⅢ ydaJ1y Ltd、 statellrlcnt of Fmai△clal caplt斑 ptcmium re跹 钾 c ca± -gs 叫 m〃
Posijon at30虾 Ⅱl⒛ 11・・Ⅱnc xxith⒒ s1 $ $ $ $ $
Batancc at
Ans、 ˇer statt of ycat 180000 30000 40000 13900 263900
Pro丘 t for
(a)
thc vcar 50000 50000
D狮 da” Ltd Di访 dcnds pald ←900 l+900l
In￠ ome stateme“ For the汐 at ended30Apm⒛ ⒒ Transtcr t°
genclal rcs⒄ c 20000 O000o -
$ $ $ Balance at
Rcvcnuc 756000 c妞 d ofyeat 180000 30000 60000 39000 309000
Cost。 fsa1c⒌ Invcnto,at1M呷 2010 32000
Ptlrchascs 446000
478000 (dl
Invcnto” at30Apo12011 54000 424000
G攵 oss ptont 332000 D蚋
selⅡ ng and dis± ibu刂 on s此tcmcot oF Finan0iaI`a1Iy on
Posi讧Ltd at30Ap血 ⒛ 11
sa忆 s sta仃 salai,cs and coI】 l【 l,ssions83000 In Ⅱne钪th⒒ sl,∷
【
Calliagc out 24000
Dcprcoadoα warchouse 4000 $
dcL△ crv∝ hdcs 150001“ 000 Asscts
Administtati。 n Nonˉ cu"cnt asscts
Adi△oiustauvc s狨 盯ies 57000 Intangiblc-GoodwⅡ l 100000
Gcncral cxpcnscs 45000 Tanglblc-Pr。 per⒐ plant and cquipmcnt 201000
Dcprcclauon: 。fllcc prcnllscs 12000 301000
of丘 cc maclun唧 7000 121000 247000 Cuoent岔 gsets
Pr。 flt fr。 m° pcra谊 ons 85000 Iavcnto⒒ es 54000
Dcbcntlrc htcrcst 10000 Tradc rcccIvab1cs 60000
Proflt bcloie taxauon 75000 Cash aild cash cqtu△ ・
alcn岱 66000
Taxadon 25000 180000
pt。 丘tf。 i dlc rat attrlbl"ablc to cqtu,hold“ s 50000
△otal asscts 481000
(1)) Equi″ and Liab止 tieg
Capita1and rcscFves
灬 心狮 Ltd shatc caPltal 180000
Incomc statcmcnt
sharc picmium 30000
for the year ended30Ap¤ Ⅱ2011
Rcscrvcs 60000
Cn】ne访 由 IAs9 Rctalncd eat血 ngs 39000
$ 309000
Rcvcnuc 756000 Non~cuocnt芯 abⅡ it1cs
Cost of salcs ←2400Φ Dcbcnttlェ cs 100000
Gtoss pェ 。nt 332000 Cu“ cnt ⅡabⅡ tieθ
0thct lilcomc
Tradc payablcs 42000
ο

Q°
0乙

Distributlon costs
0dlcr p呷 ablcs 5000
ο
0乙

Adi△ llilistrauVc cxpcnscs

。th甲 Cxpcnscs
Cmtcnt tax payablc 25000
720llll
Pro臼 t fr° m0Pctau° ns 85000
Financc Costs (10000l 481000
ExercIse5 $000 $0l× l
Frcchold ptc∏】scs at C0st 1000
Molly Coddlc Ltd、 tⅡ al balancc at30AprⅡ 2011 Proxlsion f° ェdcPrcciaoon° f丘 cch° ld prcmiscs 60
was as tollows: Dascrv vchlc1cs at c° st 80
PnDv1slon fot dcprcoatIon of dehx・ eil vcluClcs 28
$000 $000 ()fscc maclmery at cost 70
Rc△ cnllc 300 Prol,lsion foil depieclatlon of offIcc mac隘 c〃 21
ay2010
Invcnto饣 at1、 Ι Tradc reccis,ablcs 82
Pur山 scs Tradc payablcs 33
Salcs ofllcc salatlcs BalaIlcc at bank 67
sc洳 g cxpcnscs 12%dcbcnttlres2019/20 100
Gcncral ofncc wagcs 800000ordina,sharcs of$1 800
od△et general expenses 100llt O8%NoⅡ rcdccmablc prcfcrcncc sharcs of$1 100
VVarchousc mac隘 cry at cost Gcncral Rcscrvc 5o
Pro~ision for dcptcciau°n ofwatch。 usc machinc, ∞ Rctaincd carnings 7
orflcc madun唧 at c。 st 42 Rc△ ,cnuc 1o00
ProsIslon for dcprcmilon ofoFEcc nlaclwlc轷 20 Invento饣 荻sOJunc2010 46
ables
Tradc rccci△ 38 Pwchascs 630
Bal・ance at ballk 28 salcs staff salaⅡ cs 79
"5⒃

Trade payablcs Admintstraoon wages 36

10%dcbcnmrcs2017/18 Dchsc轷 vellldC CxPcrscs 38
⑩“乃 一

50000ordlna邱 sharCs° f$1 Adveruslng 34

100l× l60c Non rcdccinable plcku丫 re sbates of$1
omcc cxpcnscs ⒉
Sharc Prc伽 um account Dcbcnturc intcrcst pald 6
Genα al Rcsc脚 c IntciⅡ n dlvˉ ldcnds paId:prcfc窒 encc 4
8_镏

Rctalncd cat-gs ordlna, 3

474 2199 2199

Further ⅡJormat1on
Further infotmadon
1 Invcntory at30AprⅡ 2011、
`as valued at 1Invento± y・at30Junc2011was valucd at
$31000,
2 Dcprcoai° nf° r thc ycaris to bc pro访 dcd as
$38000
2 Acc° untis to bc takcn° f thc follow・ lng at
f° ⒒°wcd
、⒘archouse lnachinery$8000; 30JunC2011
o± flcc machnc呷 $10000 Accrucd cxpcnscs:dcLxrcry vchicle expenses
3,$100001s to bc trans炙 rrcd to thc Gcncral $2000
Rcscrvc, ○∏kc cxpcnses$3000
3Frcch° ld prcmiscs werc rcvalucd to$1200000
Rcquired
at30Junc2o11,
(al PrCparc MoⅡ y Coddlc Ltd、 Inc° mc statcmcnt
4 Dcprcciatlon is to be proˇ △
dcd as f° Ⅱ°、 r
℃ar Cndcd30ApⅡ 12011in as rnuch
f° rthe γ `sf°
the ycar cndcd30Junc2o11
dcta⒒ as possiblc
(l))Prcpare MoⅡ y Coddle Ltd‘ statcmcnt of DcⅡ vcry vchicles: 25V。 on thc rcducing
Changes in equi呼 for thc ycar cndcd30AprⅡ balancc
2011 offlce rnachiner” 109oon c° st
(c)PrCparc MoⅡ y Coddlc Ltd、 Statement of 5 Dcbcnturc intcrcstis payablc h・ al孓 ycady on
Financial Posluon at30=Kpr△ 2011in as much 1July and1Jant1ary
dctaⅡ as possibIc, 6,Taxaoon is to bc providcd± orin thc sun1of

ExercIse6 $16000
7,$50000is to bc trans± errcd to thc Gcncr挝
The trial balancc of⒊ J圩 shal1y Ltd at30JunC2011
Rcserve,
⊥s as f° Ⅱ°ws:
8 Thc dlrcctors have recommcndcd a丘 nal
dlx-ldend° f3⒐ o on dlc ordinary sharcs
Requhed Changcsin Eq△ 吐
饣for thC ycar cndcd~sOJunc
(al Prepare shm阝 ha11Ltd℃ ⒌atcinci△ t of Fmanoal 2011
PosⅡ °
n for the rar Cndcd30JLllac2o11 (cl PrCparc ShⅢ 阝ha△ y Ltds Incomc statcmcnt
Φ)PrCparc shl圩 shalˇ Ltd、 statcmcnt of for the year endcd30JunC2011

● Learn the di矸 erenoes between ordinary shares and ρreference shares
● Learn the differenoes between Ⅱ abⅢ 犭es,prov丨 sions and resen`es
● Learn the di仟 erenoes be`Ⅳ een cap tal reserves and reVenue resorVes
● Learn the di矸 erenoes betˇ Veen debentures and shares
● Rememberthat only the nomina|account ofthe share oap"aIis cred"ed to the share Capita丨 account Any
ρrelη ∶
um on the issue of shares must be oredⅡ ed to the share Premiu丨η aooount
● Learn the restric忄 ions on the uses ofthe share Premium,ReValuaUon Resen`e and the CapitaI Redemption
Rese~e
● Learn hOw to reoord the revaluaⅡ on of nonˉ current assets and hoW to ca|cu|ε ue the amount ofthe Revalua】 ion
Reserve
● Rememberthat aⅡ the reserves of a oompany belong to the ordinary shareho|ders
● Learn the diferenoes between partnersh丨 ps and Ⅱlη ited Companies
● Prepare oompany hcome slatements and statements of Finanoial Pos"ion in the forms required by thθ Companies
Act as far as possib丨 o Thisis Whatthe examinerrneans when he asksforthem to be prepared in good fo″ η∷

1. A Company has ordinary shares of$005eaoh " 1Januaγ 2012-the direotors proposed a Ⅱnal
has issued70000shares The direotors d vdend of$8000in respect olthe yoar enoed
recommend a dⅣ idend of$006per sharθ 31Deoember2011
VVhat wⅢ bethe am° unt ofthe diVidend? HOw much WⅡ |be inCluded as dividends in the
A$2100 B $3000 C $4200 D $6000 statement o亻 changes in equity forthe year ended
2. A Company has100000ordinaγ shares of$1 31Dθ oθ mbθ r2011?
each "also has$1000006%debentures The A$5000 B$12000
profit for the year bef° re finance costs is$20000 C$15000 D$22000
The directors propose to transfer$10000to the 4・ The foⅡ owing is a o° mpany’ ssumma"sed
genera resen/e statement of Financial POs"ion
Ⅵ
be`hatis the maximum dividend per share that can
ρaid on the ordinary shares? sO00
A$002 B $004 C $005 D $007 share cap№ I and reserves
3. A oompany’ s year end is31 Deoember2011 The 1200000ordinary shares of sO50 ⑾
foloWing infomatbn reIates to dMdends pod and LOng tern loan 100
proposed∶ share ρrem仙 m ⒛
6Apr"2o11-paid final dividend of$7000in General ReserVe go
resped ofthe year ended31December2010 Retained eamlngs 20
10ctober2011-ρ aid interim dividend$5000in 1000
respect ofthe year ended31December2011
 VVhatis the value of eaoh ordinary share? VVhatis the maximum amountthat AⅡ can now be
A $075 B $150 C $083 D $167 required to pay on his shares?
5.The foⅡ ow∶ ng are eXtracts from a Company’ s A$75 B $250 C $325 D $600
statement of Finanoial POs1ion 7, Which ofthe folloWing wⅢ not be shown as equlty
in the statement° f Financial POsition?
Non℃ urren丨 FreohOId prom⒗ θs at cost$奴 ⒑000 A debentures
Prov sbn for depreoation offreehold β retained earnings
prem‘ es$1sO000 C reVa uatbn reserve
Equlty $ 0share premium
0rdhary shares of$1 500000 VVhioh is the safest form ofinvest丨 ηentin a Ⅱ
mited
Long Tern LOan 100000 company?
share prem△ m 80000 A long term debentures
Retainθ d earnIngs 40000 B ordinary shares
720000 C ρreleren∞ shares
D sho"ˉterm debentures
It has been decided to reva|ue the freehold 9, A sharehoIder so|d1000ordinary shares of$1for
prem‘ es to$5000∞ $1500What e矸 ed WⅢ this haVθ on the share
VVhat w"l be the statement of Finanoial POs"ion capitaI Ofthe company?
Va|ue ofthe ordinaγ shares anerthe reVa|uat on? A Ⅱw‖ decrease by$1000
A $144 B $164 C $176 D $196 B"wⅢ decrease by$150o
6.Ali holds5∞ ordinaγ sharos of sO50in RiskI ud He C It wⅢ increase by$1500
has paid h fuⅡ the amount of$0ss caIIed up on each D"WⅡ lremain unchanged
sharO The∞ mpany‘ unabIe to pay Ⅱs creditors

1.The foⅡ owing is the sum丨 ηa"sed statement of

sO00 sO00 sO00
Financial Pos"ion of Braoket&Raoket Ltd,a Ret引 ned eamings 910
ⅡmⅡ ed company wholly owned by its tWo

似∞
Loan a∞ ounts∶

诏~
shareho|ders,Bracket and Rackθ t
Braoket

~
~Ⅷ
Racket
stateInent of F:nancIaI Post:om as at
31Ⅲarch2o11
The oompany accountant resignθ d atthe
$000 $000 $000
Nonˉ ourrent assets at not beginning of Aρ Ⅱ12011and proρ θrrec0rds were

book vaIue not keptforthe引 xˉ month peHOd1Ap"丨 t°

Bu"dings 30september2011
F Xtures and fi廿 ings The fo"owing information is available forthat
siXˉ months pθ riod
Current assets
sO00
Im`entofy 1⒌ 屮0 Payments by oheque for purchases 1ggs
Trade receivables szo Payments by ohequθ for expenses n,n
Cash 3 2363 Interest changθ d on overdra△ ⒛
Current"ab""ies Cash and chθ ques banked 2784
Trade ρayablθ s 1210
猢~~

AccruaIs 1鸵
lncluded in the amount banked Was$53000forthe
Bank 203 1605
sa丨 e of an unused bu"d氵 ng,book va丨 ue$70000
硼⒛

share capml ordinary shares

 Priorto banking the takings, sO∞ sO00
u)钐 ⒖txxl was used to pay wagesforthe s汉 monll⒐ Provision for deprecia犭 on of
U◆ Bracket and RaCket each reduced theirloans freehold bu"dings 1go
to the fir丨 η by$45000 Motor vehicles at cost 246
Deprec ε uion° na"nonˉ current assetsˇ vhiCh ProVision for depreciation of
re丨 ηain in the company’ s books atthe end of an motor Vehic|es 1⒍ 2
accounting period is caIcuIated at25%per annum Trade receivables gs
on the net book Value Bank baIance 51
At30september2011the foⅡ owing Ⅱgures were hventoγ at1Ap"12010 Bs
aVaⅡ able Trade ρayab丨 es so
Retained earnings sg
$000
saIes 2683
Trade payabIes 510
Purchases 11塑
Accruals 1α 3
se"ing and distribution ㈨
Trade receivables 420
InVentoγ 704 Administra刂 on ⑷
Debenture interest 18
Cash 8
Bank oVerdraR 195 4285 4285
Unpresented cheques ss
Fu"her information
Doubtfu|debts are estimated at5%at
1 Inventoγ at31March201⒈ $105000
2 The freehold buⅡ dings are to be reVaIued to
stl september2011and a pro呐 sion for doubtfuI
debts atthat date is to be Created
$2000000at31March20ii
3 The motor VehicIes are to be deprec ated atthe
Requ1red rate of25%using the reducing ba|anoe rnethod
la) An|nc° me statementfor Bracket and Racket 4 $10000is to be transferred to General Reserve
Ltd forthe six months ended30september 5 The directors have recomlmended a dividend of
2011 $025per share
(b) A statement of FinanciaI POs"ion for Bracket
RequIred
and Racket Ltd at30september2011
(al Prepare Pecnut ud’ s Income stalementfor
2Pecnut ud’ stHa balance at31March2011Was the year ended31 March2011
as fo"ows∶ (b) Prepare the statement of FinanciaI POs"ion as
at31March20ii
$000 $00Cl (c) C° mpanies shouId prepare their annua|
Issued share capIta⒈ ordinaIγ acoounts on the basis thatthey are going
shares of$1 each sOo concerns EXplainˇ Vhatthis means and hoˇV
GeneraI ReserVe 120 their annuaI accountsˇ v"lbe a仟 eded ifthey
10%debentures2017`2018 sso are not going c° ncerns
FreehoId bu"dings at Cost 1500
 statements of Cash FIOws

● what a statement of Cash f!oWsis andˇ Vhy itis an impo"ant addition to the annualfinanoial statements of a
business
● hoW and why companies are required to inoIude a statement of cash flovvsin their annuaI acoounts
● hoVVto propare a statemθ nt of cash】 oWs∶ n"ne WthlAs7
● hoW to prepare a statement of】 nanoial posⅡ ion WⅡ h thθ dd of a statement of cash】 ow
● hoW to prepare a statement ofcash f!owsforso!e traders and partnθ rships

241 Whatis a statement of cash
fIOWs?
A statcmcnt of cash± lows is one that Ⅱsts the cash
nα邓 。f a businc“ ovcra pcⅡ od of ome,tlsuauv山
money in a busincss cxccCds its immcdlatc ⅡabiⅡ jcs
“ its Ⅱq“ 山ty Thcrc o a big dlfferencc bct阝诉
`ccn
proflt atld ⅡqLudl艹 A business m缈 makC a largc
proflt but丘 血sh up w1th less m° ncy in its bank
c account at thc cnd oflts year than it startcd kxld△ !

samc pcⅡ od as that covcrcd by曲 e Income ovcr a pcood。 f omc a busJoacss nccds to gcncratc
statcmcnt cash inno9,s that atleast match its cash outaows
A cash nc,w is any increase or dccrcasc lil Cash in a
Cash innows hchdc:
bushcss Cash includes cash h hand and dcposl“
● money recchcd frona thc salc of shares° r
rcpayable on dcmand,lcss o~℃ rdrafts伍 at arc capltal putinto thc buslncss by the o・vs ncrs
rcpayable on dcmand For OLlr ptlrposc,deposits and
● lll0ncy rCcchcd fr° n△ thc salc of surpIus
c,ver山 aRs珈 Ⅲ gcncra△ v bc balailccs at,and non-currcnt asscts
dl,banks
overdrafts Ⅵ△ Thc牺 0rds on dema众 d mCan ● paymcnts n。 ln its customers± or goods rccc小 /cd
eltl△ erimmcdlatc圩 ←⒏ currcnt accollntθ °r、 注tllln24
●intcrcst rccc卜 cd on dcp° sits、 vith banks and
h° urs° f glx,ng n° 0cc of rcpaγ mcnt o山 cr c° mparucs

242 Why statements of cash floWs Cash° ut±l° ws includc:

●paymcnt° fcrcdltors las already mcnooncdl
are important?
and thc run血 ng c° sts of carr冫吐
ng on busincss
WhⅡ e ltis ncccss狂 yt0know ho、 (Cg硒 叼 gCs ctc)
`tnuch proflt a
busincss has lnadc,profitis not cash in dle bank.Thc ●rcncMal oξ and addlo° ns t° ,non-Currcnt asscts
busincss d° cs n° t pay its crcdltors from伍 e balatlcc ●htcrcst on loans and dcbcnmrcs
°n tbc rctalncd carl△ ngs account Crc山 tors arc pald ●paγ 咂ent° f tax° n pro丘 “lcompa血 Cs)
fr° m thc m° ncy thc busincss has in its bank acc° unt, ● Costs inVolx cd in thc growth° fthc bushcss
No busincss has cver been f° rccd t° closc do、 Ⅴn by its expallsion and d四 clopmcnD
crcdltors bccause it rnadc an opcra位 ng loss,But a ● d热 ldcts,or draw△ ngs
`dcnds payablc to shareh°
business can bc forccd to closc d° 硒,n bccausc it has of solc tradcrs alld parmers
ˉ
hsu± flocnt rn° ncy in its bank account to pay its debts ● rcpaymcnt ofloans or rcdcmpoon° f sharcs by
whcn dFy%Ⅱ duc Thc atnount by whlch the ready 山cc° mpany
243 statements of cash fIOws and calculatcd as:
Iirn"ed companies ●Pr° 丘 t fr° m° pcraj° ns
Φr° Ⅱ
t bcforc dcducoon
° ftax and intcrcstl
Thc Intcrnauonal Acc。 untmg standard whch c° vcrs
●Add:1)cprcciatlon chargc for thc ycar
thc structurc and layout of thc statement of cash
● Add:L° ss on sale° fn° n-currcnt assc“ (or
±
l° 、 Ⅱnl【 tcd companyis IAs7.△ △is statcmcnt dcduct gain on salc of non-currcnt asscts)
's for a
rcqmrcs that Ⅱ nited compamcs pr° ducc a statcrncnt
●Add or deduct changcs in invcnt° Ⅱcs,tradc and
of cash±l° xs,s as part of thc annual flnancia1 other rece~abIcs or payablcs
statements,
● Less:Intercst paId
Tl△c dcs guldchncs f° rthc f° rmat
statcmcnt proˇ △
● Les⒌ Taxcs pald on hc° mc lusu碰y corporajon
of statcmcnts of Cash Fl° ws,Thc statcmcntis t叼Cκ
)
dlvldcd into thrcc catcgorlcs:
1 0pcFadng acd、刂des~thc rnaln rcvcnuc 2 Invcsdng acd说 刂es
gCncra乜ng aCtlxl0cs of thc business,toge岱 er Tlis is c斑 culated by inclu山 g:
w1刂 △thc pay...cnt of intcrcst and tax ● In±lows fr° m:
2 Invcsdng actiˇ ides一 伍c acqmsijon and - procccds frojn salc of non~current asscts,
dtsposal° fl° ng-tcrln asscts and o曲 er invesong b° d△ta咫山k and ht锕 、 垂blc,together M,lth
acux・ iocs °thcr long-tcrn1non-currcnt assets,
3,Fhanchg acd讧 des-recelp“ from tllc“ suc ● Out±l° 、
vs from:
of ncw sh时 cs,payments f°r thc rcdcmp谊 °n° f - cash uscd to purchasc non-current assct岛
sharcs and cllangcs in long-tern1borrOMmgs both么 ngiblc and intanglble,toged△ cr x△nth
At thc cnd ofthe statement the nctincrcasc h o伍 cr long-tcrm non-current assets,
cash and cash cq讧v殂 ents is sh° 、
vn,botb at thc start ● Intcrcst rccckcd
and cnd of d△ e peJod undcr r邻 ● Dlvldcnds rcc⒅ cd
^c、 ^For dis plrposc,
cash is de丘 ned as:cash° n hand and bank currcnt
accounts,
3 Financing acd~idcs
Tl吐 s is calculated by inc1u山 ng:
Cash eq山v狃 cnts arc short~tcrm mvcs色 ncnts that
can easⅡ y bc convcrtcd into cash,such as rnoney hcId
● In且 ows fr° m;
h a tcrm dcposit acc° unt that Can bc・ ,xidldrawn
-Φ sh rcc∝∝d ftom曲 e issuc° f sharc capltal
- ralshg orincrcasmg loans
widin thrcc rn° nths from thc datc of depo⒍ t,Bank
凼吐drafts_usu/a△ y rcp、诋 le on demand~arc als° 。 Outn。 ws from:
includcd as part of thc cash and cash c印 iv狃 Cnts
-rcp叩 mcnt of sharc caplt・ al
- rcpaymcnt of Ioans and financc lcasc
Format of the statement ⒒ab△ i住 cs
1 0peradng acd~ides ● Dividends pald
Thc cash n° 、/丘 。m。 pcraong acuvlues is
 Exhi晚 Co Ltd 244 HOW to prepare a statement of
艹statement of Cash FIowg fot the year ended
cash flows from statements of
Cash a。 w:Ⅱ 。na operathg acdviues
FinanciaI POsition
$
Pi。 丘t from opcraoons ΦCfolC tax and illteiIes9 50000 statements of cash tlo、 vs arc prcparcd by comparnlg
Adlustmcnts for
thc ainounts for itcms in thc latcst statement° f
Dcprcctatloil cllargc for dlc raJ| 12000
IncJicasc in1nvcntoncs Financi狃 Posio。 nv・ lth thc amounts for the satnc
l300Φ
Dccrcasc iil tradc rcccls,ablcs 2000 itcms in thc pr、
Incicasc h tradc payablcs 4000 `ous yca^statement of Financial
P° “位°n,s° mc addiional calcdao° ns f° rn° n-
Cash llIsCd lnl/丘 。m。 pctaoons 65000
cutrcnt assct dctals M・ m be req。 rcd,Thc foⅡ oqing
Intcrcst pald⒀ urmg thc ycarl Φ000l
%xp亦 d〈 d"炖 dlC,而 e⒆ lB O00l
cxamplc,M^d△ exp1anat° 呷 n° tCs,dCmonstratcs thc
Nct cash l△ lsed hˇ △o“ oper时 hg acthidcs 52000 proccdure
Cash Ⅱows Ⅱom invesJng acdw1皎
Ptrchasc of noⅡ clrrellt assets
s:

00o
Example
⑷
Pr。 cccds丘 °m dlc salc of non-ctrrcnt assets 1000 Hanmbal Ltd‘ statemen“ of Fhanoal P° slo° n at
1ntcrcst rccclx/Cd 2000 30JunC2010and2011and an cxtract fr° mi“
Dlx1dcnds rccclvcd 500
Net cash/uscd inl/fr。 m mxcs△ ng 1650Ol
In∞ mc statement± o± thc yc绁 cndcd30Junc2011
actix・ ltics 〈
arc sh° wn on page177,
cash n。 ws△ 。m丑 nanc“ g activitics:
Pioceeds丘 om issuc of shaJc capita1 80000
Fur曲 er information
⒄添WOtlld nlcludc bo伍 thc曲 atc aild晶 缸c
prc,lllmll amollll⒆ 1Durmg thc ycar cndcd30Junc2011thC
Rcpaynlcnt of Iong tcrm borro,n卧 (30000) ±o⒒ σwk喀 “ansacoolls kook placc
Dl△・
ldcnds pajd (4000
Nct cash【 lIOCd in,/丘 om丘 nancing
Θ Plantand machα c〃 whch had c0斑
actMdcs 46000 $105000,and on whoh dcpreoaoon of
Net“ ctease/(dccrCa:c)h cash and $85000had bccn pros,lded,驷 ηs sdd for
casb eq“ 、
砥 nts 81500 $24000
Cash and cash eq诬 乃
⑾ Motor砥 hcles whch腕 d∞ 敲“ 0000,龃
bcginning ofthe"ents
yearat thc 1o000
Cash and ca8h eq山 valents at dle
、礻ich had a net b° °k x aluc° f$15000at
end oFthc,℃ at 91500 dle date° f salc,wcrc s° ld for$28000
沐N。 tc also dlat no datcs atc indudcd Thls甾 0uld not bc山 c ⑾ Ab° ntls厶 suc of sharcs、 泗s madc On山 e
casc血 pracucc、 vhcrc dlc acttlal datc of the veat end and prcxious basis° f° nc b°nus sharc f° rc~℃ r/心Ⅳo
rar,say31Dcccmbcr,w° uld bc statcd ordinary sharcs akcady hcld Thsˇ 叼sd° nc
by u血 呜 part of thc balance on dle sharc
IAs7alows s° mc±lc蛀 bⅡ 〃 in thc way somc Prcmuln account
informaoon can bc shown,F° r cxamplc,c灬 h旦 ows CO Fo△ oxs。 ng thc bonus osue h(0,thC
f± °m1ntcrcst and dlNˉ ldcnds rcccwOd and pald can be company issucd a± Llr岱 er300000ordma,
shc,M n asabovc° r in thc first scc刂 on rclaong to cash sharcs at$150per sharc
Ⅱows from° pcratmg aco、i0cs In伍 e exarFunadon, ⑺ $50000of10%dcbcnturcs2015/2016
cithcr・ °uld bc acqcptablc
,△
were issucd on1Jdy2010
Thc abovc rnay sccn1a lot to undcrstand and ←◇ThC dlrcctors trans± crrcd$100000to山 c
rcmcmbcr atths stagc,but exatnplcs and pracucc gcncr砬 rcscrvc fron△ the pr° Ⅱt for thc yca⒈
with toc cxcr0ses that f° Ⅱ°、 uld takc团 way a lot 2 Ihcrc had bccn no addlo° ns t° frcchold
`sh°
ofthc pah and suffcrlng x△ ,lth dis t° pic-ˉ a propcr饣 h thC ycar to30June2o11
fas,ourltc xs・ l山 cxanuncrs, Rcquhcd
Prcparc a statcmcnt of cash且 °wsf° r thc ycar cndcd
30JunC2011
 statcmcnts of F血 anc△娃Posi刂 on

跏 则跏伽~一

跏NBv
as at30JlInC20Io aI,at allJllnc⒛ 11
$000 $000 $000 $000

c。
Dcpn NBV Dcpn

st
Non-ctrrcnt asscts Cost

觎伽⒛~㈨
⑾绷⑻~一
orˇ a1uaoon
Frcchdd propcih・ 】000 1000

.蛐
⒛~一
PIant and maclunc叮 800 400
Motot vchIclcs 500 300

觎
2300 1700
Currcnt asscts
Inˇ cntorics 200 300
△radc tccctVablCs 260 215
shor← tertn1nvcstmcnts 500 800
Cash al△d cash cqlu△ alcnts 98 200
1058 1515
缅⒇ ~

馏“ ~
Cuilcnt ha1碰 ucs
Tladc payablcs
T眍 atton

吼~狁朋~一
426 z49
Net cmrcnt assets

⑻~一
Non-ctlrreilt Ⅱabmtles
10%dcbcnttlrcs2015/2016

缅硎猢伽跏砥~
Equi饣
0rdln唧 shalCs° f$1 觎蛔 姒~一
Shauic prc,l uttrn
Frccllold Ptopcr饣 Rcvaltlauon Rcsc囚 ℃
.跏

Gcncral Rcsc± 诉

一腼
Rctaulcd carnlngs
⒆

Incoonc statcmcnt【 cxttact》 Answer

跏仞翅蛐⒆~~

fot the yeat∷ cndOd BllJmC2011 stcp1 Prcparc硒 orktngs:thc f° Ⅱ°、 n

^ng informau。
ⅥiⅡ bc rcqulrcd but Mi△ probablv,not bc gIxcn in a
PR0FIT FR0M0PERAm0Ns ques包 on
Fil△ aElcc costs@cbCn。 rc llltctcs9
● Non-currcnt asscts:cash pald for nOw assets or
PR0FIT BEF0RE叻
Tax `X rcccN、d frol△ ˉ
lthc salc of old assets;amounts
朔

PR0FIT F0RTmE YEAR Aπ R1BUη prov△ dcd f° r dcprcciajon in dae Incomc

EQU1qY H0LDERs `BLE T0 Statcmcnt;proflts and1osscs° n thc disposal of
Notc:Dumg thc ycat伍 c comp狙 y pald dlsidcnds of$156000 non-current assets
This w0uld bc△ ndudcd in the statcment。 f changcs in cqul吼
● D小 河dends,intcrcst and taxaoon pald
not shovn hcrc

Tl△ ls informa刂 on ls bcst d1scovcrcd by prcpaⅡ ng rollgll‘ T’ accounts as worlungs and calc△ iaong thc nlissing
informadon as balancing fgwcs
plallt and mac隘
唧 卩&⒆ A几 PⅡ Dˇ η for dcpn p&MA/c Disposal of P&MΛ /c
Dcpn 85
钙伽_

Bal b/f 300

奶

Bal b/f 700 Disposa1 105

c°
绷一

龇一

邯_

Cash 24
st喻

Additlons Disposal Ch征 爹 for raj・

~
贴

啷
~

Φ咸 兔)
4~⑼
_锱
~锱

Bal c/f Bal c/f ,al q吵

109

Motor田 h△ clcs o脚)A人 Pt0顽 for dCpn⒈ 小/A/c Disposal° fbrV A/c
Bal b/f 450 Disposal Dlsposal 45 Bal b/f 180 Cost 60 Dcpn
⑷~

跏~

⒛一

“一

朗~

Addiu。 ns Chargc fo± ycaJ|

P

c
h
每
6~邓
邪一

Φal免)
乃
~

_
~锏

~蛔

_仍

Bal c/f Bal c/f Φal q叻

 Thc crcadon of伍 e Frcchold Pr° per印 during thc ycar Check thc cl° sing statcmcnt of
IR‘
:、 冂
aIuaoon Reserve shows that the1ncreasc1n thc flnancial posi刂 on to see if thcrc is any accrual
f± cehold propet饣 svas enureˇ duc t。 rcs aluauon, in thc currcnt ⅡabJ1oes,
and no cash且 o、 v was involscd. ● Tax p砬 d dwlng伍 e,℃ a‘ Ths、耐Ⅱ comc from
thc w° rkings above
Taxauotl
助d Φal㈦ 84 Bal b/f 90 Part2_Idenj匆 山citcms whch form thc cash
Bal c/f 86 hc st 80 nc,ws± r。 m ms,cs徂 ng aC0、 i谊 c⒌ purchasc and salc of
170 170 non-current asscts,intcrcst and dlsidcnds tccα vcd.
Part3-idcno卸 伍c cash a。 w・ s from invcsong
stcp2Prcparc a statcmcnt of Cash Flows f° r thc aoMdc⒌ rccclpts from伍 c issuc of shares,cash” ent
ycar cndcd30Junc2011 on rcdcmpu° n of sharcs or tcp犁卩nent° fl° ans and
Patt1~Cash I△ ∞〃s fr° m° pcratmg actlviucs start dlvldcnds paid
w1d△ thc pr° 丘t from opcraoons bcforc ux and
htcrcst,ˉ cn adjust fo‘ H如 汕 bal Ltd
Non-cash itcms"】 thc incomc s狻 tcmcnt That1s 犰atemcnt of Cash m。 wg fof thc ycat ended sllⅡ mc2011
伍oscltcms whch do not mvolxc thc movcmcnt of cash n。 w ft。 m opeFa谊 ng acti△ ・
ideg
aα y cas亠 suth as dcprcoaion and pro丘 “°r bsses on $000
thc dlspos/al° f no⒈ c"rcnt asscts These flglres wiⅡ
Pro￡ t from opctadons Φcforc恸 x aad mtcrcs9 420
A叶 usuncn‘ for
∞ mc from由 e worhgsabove Dcprcclatlon chargc for thc rar c“ +6sl 玛o
● Increases or decreases in mvent° oes,tradc Pェ o丘 t° n dlsposaI of noⅡ ct△rrent asset ll’ l
rccelvables and trade pa,⒓ u∞ Thsls d° nc by Inctc灬 cln nvcnto茁 cs OCtl-300 llO0l
compamg伍 e flWes for cach on dlc mo Dccrcasc h tadc tecα mbl∞ lzω -⒉ 助 zIs
Dccrcase血 ±adc pavablcs ls笳 ~16al (173l
statemcnts of Ⅱnanod p° sioon,Rcmcmbcr伍 at Cash luscd ml/from° pctaoons 425
if the h砜 nt° ry has hcrcascd bc悯、cn伍 ch,o Intc± cst pald@umgthC uatl (20l
ldllnng thc yca◇ from wotkngs
【p疝 d lg。 l
rars伍Cn伍 c company rnust h匆 c spcnt cash Ta氵

acqurmg thc cxtra stook,11is rncans thatit、 讨Ⅱ Net cagh【 used⑾ /from opeilat△ og act加 ideg 321
cash n。 ws Ⅱ。 mh△ ℃sd呜 ao】 h汶tiC⒏ sOlltl
havc a ncga乜 Vc cffcct° n thc cash now。 f chc
Ptrchasc of non-currcn1a$“ ts@05+110l 01sl
busmcss and劝刂l appcar m brackctsin the P攵 occcds ft° m曲 c salc of non-curtcnt asscts 52
s切 tcmcnt,Iikcwisc,if tr么 v(ic rccclvablcs have cd
Intcrc歇 tcccl△ ・ nil
hcrcascd bch・ ccn伍 c bⅣ o ycars J△ s rneans daat short tcrln Invcstment lsρ ol
Nct cash lusCd△ nl/丘 om mxcsung acuMtlcs ls6sl
伍c company has notrecα ved cash h from its
cash n。 w:丘 om至 nancng a¤ 【讧des:
Customers,Ths,t° °wJl haˇ ℃a ncgauvc cffcct Procccds佥 °m jssuc° fsharc capiti 450
on the cash且 ow・ °f thc c° mpany and w・Jl lssuc ofdcbcnttlrcs 5o
appear h btackts h伍 c statcmcnt吒 on thc D,l,idcnds pald l150
Nctoash Osed⑷ /△ om iinancing acd讧 dcg 344
odaer hand thc讧 adC pa,。 ablCs h孙 聍 hcrcascd
Net hcteage/(dcα Casc)h。 灬h and cash eq证 v斑ents・ 102
bebleen thc ycars thcn thc c° mpany M・ m havc Cash atld caθ h eq咖
ntg at the beg-g ofthc yeat 98
saved△ s cash by not pa,咀 g its supp⒒ crs In dis Caθ h and caθ h cq讧 valents atthe eod ofthc yeat 2∞
case thc changc svm n° tappcar h brackts h the
statcmcnt,as thc cash flov、 。iⅡ havc bcne且 ∞d
i⒎
Notc:Thc rcconciⅡ ao° n of thc flgurc for Rctalned
】om dis acuon,If thcsc s止 ua0ons are rcvcrscd carmngs at30June2011i⒌
thcn trcatthcm thc opposite way r° und in thc
$000
statcmcnt Balancc at30Junc2010 102
● Intcrest pa胛 cnts madc d山 ng thc γ ℃ai,Tak Add:pront f。 r thc ycar 320
carc as it may bc that a loan、 讯 422
'as takcn out I cs⒏ dtmdcnds pa1d h thc ycar l15‘ )
part w呷 thrOLlgh伍 c rar.AltCmatlsˉ c玩 Itansfcr to gcncral rcsc眦 llO0l
pcrhaps n° t au伍 c htc± c呲 wⅢ h狎 c bccn p缸 d Balancc at30Julle2011 166
Exercise1 Incomc statcmcnt for thc ycar cndcd31Dcccmbcr
C° ntra且 °Ltd、 st・ atcmcnt of Flilanclal Posiuon at 2011wcrc as foⅡ ows:
31Dccclnbcr2010and2011and an cxtract from its
statc” c艹 t of Finandal Position

铆〓 ∞~一
as at31I)cccmbct2010 as at31Dcccmbct2011

跏 帅
$000 $000 $000 $000
Non-curicnt asscts Cost NBV Cost NBV
Frcchold pr。 p⒐ tv 400 400 364 364

.筠

.∞
Plant and mac"nc, 80 45 150 111

呖_御
M° t0ェ vchclcs 120 30 160 65

钙⑾
600 475 674 540

一
Current assets

硐“~仍

甾 陇 笳_⑺
Invcnto〃
Tradc rccclxablcs
Cash and cash cqtuvaIcnts
ω” ~

刀粥 ~
C△lfcnt⒒ abi⒒ dcs

Tiadc pas,abl6
Taxation

垫朔 伽~~

夕~钾 ⒛~一
99 116
Nct cllrrcnt尔 sc‘

Non-cufrcnt Ⅱabi⒒ ucs

10⒐ o dcbcnturcs2017/2018
佃 ⒛⒛⑾朋

钾 驷犭伽姒~一
Equl饣
0rdli△ ary shar∞ 。f$1
sharc preIiliuln
Gcncral Rcscrvc
一
佣
_

Rctauncd catillngs

叨
I。 ρ”0statem。 nt【 cx女
ρ a0o 2 Plant and mach1ncrv x△ hch had cost$20000,
跏

fot the year cnde031Decomb0f2010 and on wla1ch dcprcciaion of$16000had been

providcd,硒 叼s sold for$1000Ncw plant and
%n汐

Pto丘 t fi° m。 peratlon mac血 csr had bccn purchased

Intcrcst patd
3 Mot° r vchclc§ xs,hch had c° st$30000,and
型
_

、玷ich had a nct book△ ˉ

狎

al△le of$5000at thc datc

Tax
Pェ 。nt atti,butablc to cq△ ut,`lloldcrs of saIc,wcrc sold for$4000Ncw motor
vcl△ clcs had been purchascd
Notc Durlng the year thc company paid dividcnds 4 50000ordnary sharcs° f$1cach wcrc issucd at
of$46000 a prcmium of$o,1o pcr sharc On1JLdy2011
Further informadon 5 $30000of10%dcbcnturcs2017/2018wcrc
Durlng thc ycar cndcd31Dcccnα bcr2011thc rcdecmcd at par on1Januzary2011
±
oⅡ oM・ tng transacjons took placc
Rcquhcd
1 Frcch° ld buⅡ dlngs、 dich had cost$36000 Prcparc a statcmcnt of cash ll° wsf° r thc ycar cndcd
wcrc sold for$50000 Tl△ e preⅡ Ⅱses had n° t 31Dcccmber2011
bcen depreciated
245 HOlv to prepare a statement of Note:Thc dtrcctors deodcd to transfcr$100000to
Financial POsition from a the Gencral Rcscrvc
Statement of Cash F∶ O ⅥJs
HengIgt Ltd
Exa“inaoon qucsoons someumes rcqmrc statcmcnt statemcnt ofCa8hI△ t9ws for the ycat ended310c-ρ -er2"1
of Fhancial Posioon to be prcparcd fron1a ca:hn。 ws from opeta甘 ng actlmties
statcmcnt of cash fLosls and thc tcch血 quc for doing $000
Pr。 at ft。 m。pc甲 d° ns Φefore tax and mtcrcso 214
this k sh° wn in thc ncxt cxamp|,
A内 u哎menls for:

Example1 Dcpicoat1on chrgc for dlc阼

pBnt&mamlcry
at:

50
Hcnglst Ltd、 statement of Flnancial Posm。 n at Ptopcr饣 10
310ctober2010、 Ⅱ°ws: Pro丘 t。 n salc On non-cllrrent as腚 ts llzI)
`as as f°
I)ccreasc nl Ⅱ 。ncs
nˇ咂 Ⅱ 15
Nonˉ cutjicJ△ t assc灬
Inctcasc h eadc rcccls・ ablCs (18)
At cost Dcpn Nct Book V址 ue
$000 $000 Decrca∝ h tradc pavablcs 〉
$000 ((・

Frcchold prcnη scs 9l× l 饵o 660 C猕 h lusCd inl/from° pα auons 251

Plant and machnc〃 750 ~222 530 In的 △
cst p缸 d ldurmg dlC rarl
llsl
1650 460 1190 Tax paJd 侈Θ
C证 tcnt asscts Nct oash tusCd血 )/ftom opetaun吕 acd・ i缶 g 210
Inv‘ 狁唧 95
Trade Rcccllablcs 77 caθ h n。 wsiiom Lncs甘 ng ac让讧讧cs: $000
Cash and cash cqulvalcn^ 0o P`刂 chasc of n° Ⅱcurrcnt asⅡ ts elano (130
212 Pェocccds ftom thc salc of plant 迎
Curtcnt Ⅱab⒒ tlcs Nct cash← scd ml/from△ nx csdng ac乜 V1ucs 侈0l
Tradc卩 卿 ucs 0+

狮⒇⒇
Cash¤ bws】om￡ nanchg acd访 des:
Tax % ’0 1'仔 2
pr。 ceeds from issuc of sharc capital
1332
Rcpay丫 ncnt。 f dcbcntutcs

一
Non-cllrrcnt ⅡabⅡ ucs
缅

1§∮§dcbcl△ turc D血 dcnds paId

一⒂

stock 2016/2017 Nct cash【 uBCd h)/Ftom助 mnchg acd、 戊

dcs 94
一

Nct hctea8c/(deα eagΘ h cash nnd cash eq“ v斑 eilts 224

Equi饣 Cash and cash eq山 valcnts at the bc妒 m山 名 ofthC yea: 40
shatc capItal and i÷ eses。 cs
Cash狂d caBh eq讧 △
讯cnts atthc end of由 0yeat 264
°谰隘 唧 sharcs of$1 830
sh朗 钅 picnuunl 110 Note:150000ordlnar/sharcs wcrc issucd duⅡ ng
Gcncral Rcs⒅ c 100 dhc ycar
Rctalncd catMgs 咙
1132
Notc,Thc plant and machnc饣 wl〕 1jich was sold had
cost$96000
An extract fr° m Hc且 gist Ltd’ s Inc° mes么 tcmcnt Rcquired
℃ar
for the γ Cndcd31(Dctobcr2011and thc Prcp犭 rc Hengl趾 Ltd、 statcmcnt of Flnancial
statement of cash n° ws f。 r the year as fo1lows:
PosiCton at310ctobcr2011in as much dctaJ as
Ex± aotfiom H⑷ 崆:t Ltd’ βIncoⅡ e statcment fot由 O yeat possibIe
。¤dcd310“ obet20m

$000
Pto￡t ftom opcra谊 ons 214
Flnancc c° sts (1sl
Pr。 nt bcf。 rc仂 ˇ 199
Tax o0l
pr。 nt f。 ェdtc rar amlbutablc to eq△ u〃 holdCrs 169
 帅跏
岬跏
c°
Answcr

st跏
He。 g,gt Ltd Non-cutjIcnt⒒ ablh呼
10%Dcbeniltcs2016/2017

帅跏 ⒛⒛~~
statcmcnt of F血ancial POgition at310ctobcr2011

c°
NBV

st跏
Equity
$000 sllatc capttal侈 sO+150 980

蛔脚

㈤弘_叨
Non≮ ulrcnt asscts shatc prcmlllm C10+50 160
Frcchold picilnscs Gcnclal tc腚 四cα 00+100

~
200

~獬
Plant&machnc印 Rctatncd cal-gs 105

镧⒛
1445
Currcnt Asscts Ⅲ kings
Invcnto,l95-1sl Calctllaoon°
`o△ f dlc fIglllc fot rctatncd cariatngs $00o

%獬
Trade iccclVablCs σ7+1Bl Rctamcd ca± lmlgs at sta止 of ycar 92
Cash and cas五 eqtuvalcn‘ ~仞 Pro丘 t for dlc ycat 169
261
Cwient⒒ ab由 dcs Tratlsfcr to± cscr~℃ s CO0lˉ
Ttadc payablos← 4-Cll 38 Dlvldcnds p菹 d ls‘ )
Tax 30 68 Rctancd caiimlgs at310ctobct2011 105

Wor蚰 gs

⒛∞_

ω∞_
Plant and maclmc叩 at c。 st Dcpn plant and machncrv Disposal

c。
%棚

B/f 750 Disposal Disposa1 60 b/f 96Dtcpn【 bal⑷

st喻
130c/dΦ 械 c/dΦ 扯 免 ) ~Ξ 2 Inc st
~一

Cash

~⒛

~⑷
flgN 1」 14 Cash
汕

880 270 110

Exerclse2
An extract from Horsa Ltd愆 Income s仫 temcnt f° r
Horsa Ld愆 statement of Financial Posio° n at
thc year cndcd31J・dy2011 and the statclmcnts of
31Julv2010w灬 as foⅡ ows:
Cash F1ows for that ycar arc as foⅡ o、 /s:
Non~currcnt asscts
At cOst Dcpn Nct Book Vahc Hotsa Ltd’ s
$000 $000 $000 Extract flom the【 nco” e st/atcmcnt fot the yearendcd
Fェ cchold ptci△ nscs 300 130 170 31Ju吐 y2011

唧 ⒆ ⒆面 ㈣亘
Plaot and machll△ e, 125 75 50
Currcnt asscts 220
Pt。 nt fr。 m。 pcraoons
Invcnt° 叩 36
Flilai△ cc costs
Trade rcccix・ ablcs 79
Pro缸 bclorc t狐
Cash and cash cqluvalcnts 业
Tax
157 pro丘 t lor tllc ycaji a曲 butablc to cqtlltv holdcls
Cu△ lcnt⒒ abIⅡtlcs
Tladc payablcs 妇
Tax 18 ‘1 96 N° tc:Thc directors dcodcd to trans± cr$30000
316 t° thc Genera1Rcscrvc
Non~cw± cilt ⅡabJlucs
m~缅

10%dcbcnturc st° Ck2017/2018

一⑷⒛佃“~一

Equi,
0rdllla,sharcs of$1
sharc Prcmium
Gcncral Rcscwc
Rctahcd carl△ iilgs
缅
 HOrga Ltd, 丘nancial acc° unts for thc ycar cndcd31Dcccmbcr
statement ofCosh mo,rg f。 r the year ended310ctober2011
2011and2010:
Cash n。 ws△ 。m opcra晚 臼Cthit始 s
$000
Pro盘 t from opcradons Φcfo△ C lax at△ d htctesθ 69 statcmcntg of FinandaI Pos⒒ ion at
AdlⅡ 】∶lCnts for
31I)cc2010 31I)cc2011
j∶
l∶

ω⒓
Dcprcmtton cbargc for the哪
$ $
~Plant&mad血 cry
Asscts
~Frcchdd p△ cmoses
Non curtcnt assc、

7⑷
Loss on s/ale on nonocllrrcnt asscts Cost$30000l
nt&mad血 25l× lO 35000

⑿玉吲⑶⒆丽
茈 唧 at cost
Increasc in⒑ ventoocs
Deprcoaoon (12∞ o (14000
Incrcasc血 tradc rcccls・ablCs
Incrcasc h讧 adc pasablcs
13llllo 21000
Clltrcnt asscts
Cash← sCd⒆ /from。 pcraoons
Intcrcst pald ldurmg由 c yca◇ Invcntoocs 6000 8000
Tax pald T踟品 tecoˇ ,bks 7000 10000
Net cash← sed h)/from oper猛 ng acd~i廿 es Cash and cash eq△ u△ alents 500
cash n。 ws from invest“ g act加 i刂￡8: $000 13500 18000
Pwchasc of non currcnt灬 scts ehn9 egl Tot扭 Asscts 26500 39000
Procccds from thc salc of Plant 5
Equi~y臼 nd ⅡabⅡ dcs
Nct cash← scd ml/fr。 m inv∞ ong actix・ l讧 邵 ←劲 Capltal at statt 15000 10000
cash n。 9rs ftom丘 nancing acd、 idcs:
硐⒇ ⒆

pr。 cccds Net ptoflt 10000 20000

from lssuc of20000shatcs of$1cach
Rcpa,mcnt of dcbcnurcs
Dr孙 丙
杠ngs (5000l (4000l
~

Dl△ ・
ldonds pald 10000 26000
⒛矽~
5一

Net cash(used h)/fr。 m fmancing actⅡ讨tks Non-cLrrcnt ⅡabiⅡ dcs

Nct hcrcasc/(decrCasθ h cash and cagh cq证 valcn‘ s Long-tcrm loan 10000 8000
~〓

Cash and cash cqul△ alcnt8at(hc bcg-g ofthe year Cu△ lcnt⒒ abJldcs

Cash aⅡd cash cq讧 va1ents atthc cnd o￡ thc vcaf Tiadc p呷 abks 65lXl 4lXlo
Bai.r。 vc± draft 1000
Rcq血 cd 65lXl 5000
265tKl 39000
Prcparc1△ °rsa Ltd、 statcmcnt of Finallci狃 Posi硅 on hcomc statcmctlt◇ Xtrac9for
at31Ju圩 2o11in灬 much dctaJ as posslblc dlc ycat ctldcd31Dcccinbcr2011

^J6 s~a`e卩 $
、en:sk、 f GasⅡ 「iov丿 s:oi Nct pio丘 t bcforc intcfcst 21000
nGo∵ 忄
,y・ ∶ oˇ 广
I|,∴ Ⅱ Intcrcst paid (1000l
ts。
`,rs产 : Nct ptont for thc ycar 20000
Ⅲ 伍°ugh sdc“ adcrs and parmct曲 osd° n。 t havc to
prcpatc statcmcnts of cash nows,thcy may wcⅡ 丘nd JaydCC tCⅡ s you that duⅡ ng the year he scrappcd
山c statcmcnts uscfLll UnⅡ kc thc statcmcnts that somc plant whoh had cost$3000and had a nct book
must bc prcpatcd for compa血 cs,伍 cy m叮 bc aluc of$500
x・

prcparcd in an,fotmat,and thc‘ proflt from Hc carn° t understand ψhy hc has an os。 crdraR at31

opcrao° ns’ is the net proflt± or the yea‘
Example
JaydCC,as。 lc tradcr prcscnts you w・ lth thc
f° Ⅱ°wing nnancial informa刂 on in rcspcct of his
Decembcr2011,dcsutC makjng aproEt for伍 c rar
and灬 ks for pur hclp to cxplam thc simauon
To hclp hm thc accountant preparcs thc fo⒒ onˉlng
statcmcnt:
 Jaydee JaydCC
RcconcⅡ iation of pro丘 t from operauons t。 net cash now statcmcnt of Cash Flows For thc ycar
什om opcrathg ac{w`tics for thc ycar cnded310ctober2011 cndcd31December2011
$ $ $
Nct prolit f° r thc ycar(p工 °丘t fl° m opcraoonsl 21000 Net cash← scd illl/丘 om° pcla111△ g aCuxiocs 175O0
Ad"stmcnts fo⒈ Cash n。 ws什 oin invcsdng actll/△ dcs:
Dcprcciatlon chalsc f° r thc ycar 4500 Purchasc° f non curlcnt assc灬 cRantl (13000
Loss on salc on n° n-CurrCnt asscts 500 Nct cash(吣 cd in)/ti° m invcs刂 ng acox/l讧 cs C3000)
Incrcasc in invcnt。 ⒒cs (2000) cash n。 ws丘 on△ 丘nanc1ng actw1tics:
1ncrcasc in tladc rccclV。db1cs o000 Rtpa,mcnt of loan O000)
Dccrcasc in tradc payablcs (2500) Dra、vings l+00ll
Cash← scd ii△ l/from。 pcrati。 ns 185O0 Nct cash(usCd in)/fFOm
Intcrcst paid(du⒒ng thc ycao 侧 丘nancing ac讧 vitics rc,oo i,
Nct cash(usCd in)/Ftom operating actlvities 17500 Nct increasc/(dccrcasc)in cash
and cash equl△ ・
atcnts (150ll
Cash and cash cqul△ atcnts at thc
Notc・ thc dl跖 ∝cnccs hclc ΛsJavdCC^a sole tradcr,
beginning ofthc ycar 500
itis pcrfccdy acccptablc to prcparc a reconciⅡ a刂 °n Cash and cash cqul△ /alcnts at伍 c
statcmcnt° fpro丘 tf± om opcraoons Cradin⒆ t° nct cnd ofthc ycar (1o00
cash±lc,w fro,ll opcraoons The opelung posi刂 on is
“mply rc± crrcd to Ⅱ nct pro丘 t± cDr山 e year AsJγ dcc Agaln,nojce thc diffcrcnccs fr° m thc statcmcnt
is a s。 lc讧 adCr al dlc pro± It belongs(o him Thcrcis 钇r Ⅱmitcd c° mpany AsJaydCc ls a sc,lc tradcr,dlcn
a

also no ad” stment± or忱 x,孙 J呷 dCC wⅡ l pay thk no divldends arc paid Instcad,hc、 ˇ △Ⅱtakc draxxrlngs
pcrsona△ y Ifhe p呷 s lt fr° m thc busincss lt WⅢ bC ttom the busincss
nlcllldcd as part of his drawings ngurc H^accountantis now ablc to adxrlsc JaydcC Why
The calcu1ati° n° floss on thc salc ofthc p1ant hc has a bank overdraft at thc cnd° fthc ycar,cvcn
and rnachincrli and thc purchasc of nc、 th° ugll he has madc a pro± lt Itis bccausc:
`rnachinc,is
as f° ll° ws:
● 【Ic has purchascd ncw pIant and rnachincry

Plant and卜 Ιachulcry at cost aCCount

● Hc has rcpaid part of hi$1° an
● I1c has incrcascd his invcntorI Hc has als°
$ $
opcning balancc 25000 Closing balancc 35000 aⅡ °、vcd his tradc payab1es t° incrcasc and
Bank~purcbascs 13000 Assct disp° sal 3000 rcduccd his tradc recei、 1ablcs
38000 38000
● A11ofthcsc havc lcd t° cash lcaving thc
nan】 and ⅣIaclincry丿 、
uccumu1atCd dcprcciation accoun钅 bus1ncss and rcstJtcd in thc bank becom1ng
ovcrdraxvn at31DccctllbCr2011,despitc
$ $
Assct disposal accΘ uΠ t 2500 C)pci△ lng ba1ancc 12000 JftvdCC makng a pr° 6t ror thc year
Closing ba1ance 14000 Chatgc lor thc ycar 4500
16500
ExercIse
16500
JaninC,as。 le tradcr prcscnts you诫 山山c± t,Ⅱ °
xx lng
Λssct disposal account
丘nancial inf° rmao° n in rcspcct of her fnancial
$硎

$ accounts f° r thc vcar cndcd31 0ctobcr2011

咖~

Cost()fp1ant scrappcd 3000 Dcprccia刂 on and2010∶

~硎

Loss on disposal
3000
 statemeilts ofF血andal Pos⒒ ion at Required
310ct2010 310ct2011 Prcpatc a statcmcnt of Cash Flows± o刂 amnc for thc
Asscts sO∞ $l× lo yc/ar cndcd31Octobcr2011.Idcn刂 卸 why she has
NoⅡ ctlrrcnt asscts Cost Dcpn NBV Cost Dcpn NBV madc a proflt for thc ycar,yet hcr bank accountis
F± cchold Iand 30 60 ovcrdrawn.
Plant&ma山 血 呷 扯∞哎 翌 丝 堡 匹 匹 卫
39 21 48 55 25 90
247 AdVantages of producing a

“⒓
Currcnt asscts

"“
Invcntojcs statement of Cash Flows
Tiadc rccclxablcs 3_⒛

Cash and cash eqtu△ aknts The吱 atement of cash且 ows i

.~⒛
ls an eXtremel,/use丘

~迎
~
~″

addljon t° thc annual acc° unts。 △bc advantages to a

Totat As8ets
Eq证 ty and ⅡabⅡ ities
bushcss produong onc arc:
caPItal at start 50 61 ● It shows thc rno△ cmcnt of ca⒍ hf° rthc ra‘ It
Capital inttoduccd ~ 10 als° shc爪 vs thc bushcss’ abⅡ ⒈y to gcncratc cash
52 71 丘°m止 s tradmg acd、 i0cs Thc abⅡ ky to gcncra∞
Net pto丘 t 20 50
cash is说 tal to thc￡ △urc sup讨谰 of thc busmess
Dlasmgs l9l ⑷
61 100 ● Cash且 ow is casicr± or a non-accounung person
Nonˉ cuttcnt Ⅱabi⒒ dc8 to understand 、Vc au look cl。 sely at our cash
Long-tcrm l° an - 8 and bank posioon!Ths△ neans it is easier to
“ ・_“~

Curtent ⅡabⅢ deθ

understand than an1ncome statement and
82~⑩

Ttadc payablcs
B洫 k ovcrdralt statement of flnancial p° “d° nx△,hch re圩 °n
~
~蝴

tcchocal howledge and are prcparcd us吨

~ ″

accoundng convenuons、 dich do n° t appl,・ to

cash,
e阝 。
Iuome staF叩 en∶ 【 ac◆ foF the ● Crcdltors arc morc1ntcrcstcd in a busmcss’
yeat ended3100tober2011 abⅡ 叩 to p缈 dlcm伍 an hcw much pro丘 t⒒
$〓

makcs Rcmcmbcr,cash and ptoflt arc dlffcrcnt

Nct pro丘
Θ

t
岘 s
Dcptcciadon of Plant&machinc呷
● It proⅥ dcs usc± ulinformao° n as a backvp to
1⒛

Pェ 。nt。 n disposaI of PIant

Pr。 丘t on rcvaluauon° f1and thc incomc statcmcnt and statement of
Θ亚

Intcrcst pa1d flnanc1al pos⊥ oon

Nct plo丘 t fot thc yc征
Ja血 nC tC“ ” u that dLlrMg由 c rar shC scrappcd
somc plant M,hich had cost$6000
shc cam° t undcrstand why shc has an ovcrdraft
at thc31Octobcr2011,dcspitc makng a pr° flt for
The° nls,± ca1dlsadvantagc ofproducing a
statemcnt ls伍 at"ignorcs山 c accruals and matchng
concepts,Tlis rncans that thc cash co雨 ng in° r
gomg outrnay rdatc to a prcˇ △ous accoun刂 ng pcriod,
Ho、vcvcr,thc adVantagcs of producing a statcmcnt

伍c ycar and asks for y° ur hclp to c攵plain thc °f cash nows arc far morc beneflcial to伍 e business
It a⒒ ows anothcr clcmcnt t° asscss thc oVc± a⒒
situao° n.
pcrtorrnance° f dhe Er￡ n,
● Memo"se the formatin Which statements of Cash Flows should be prepared f° r companies,and the Ⅱems Which
should be incIuded under each hθ ad∶ ng
● TiCk θaCh itθ m∶ n thθ quθ stion as you give e仟 eot to it,and show your Workings
● A"non℃ ash Ⅱems in the Income statement must be adlusted in the reconc"o】 on of opΘ rating prof"to net cash
】ow from operat ng act Vi扌 es
● Make sure V`ou understand the e矸 eot of ohanges in inVentory trade recθ iVablθ s and trade ρayabIes on cash flow
● Be prepared to dran a statement of Cash FloWs for a sole trader or a pa改 nership
● Get as much practicθ as you can at prepaHng statement of Cash FIows
● Good examinaⅡ on technique sta"s to earn rnarks as quickly as p° ssibIe Prepare the statement of Cash F丨 ows
in outⅡ ne,Ieaving pIenty of spaoe bemeen the headings for detaⅡ s to be inserted start by f"Ⅱ ng in thθ θasy
s and redemptions of
"ems suoh as payments rnade to purchase non-current assets,proceeds of disposal,issuθ
shares and debentures,rnovements in inventory,trade receivables and trade payables,etc Then pr° ceed to the

"ems requiring
● lfthe more
oash flow in y°deta"ed
ur ansvˇcalou|ations
erin the eXamination doθ s not equaIthe ohange in the cash balanoe in the question,
do not spend刂 me tγ ing to trace the errorls)fthis Ⅰ mθ is bθ 廿
er spenttackⅡ ng the next ques刂 on r you have
studied thθ topic thoroughly bθ foro thθ eXam|naⅡ on,you w"I probably have done enough to earn usefulrnarks
anyWay

1. An eXaminatiρ n of a company’ s aooounts atthe 3.The folloWing relates to the plant and machinery for
end ofthe year revealed the foIIowing∶ a Ⅱnnited Company∶
$ At31DeC2011 At31Dec2010
Cash from operatons 50000 $ $
lnorease in trade payables 30∞ Cost 80000 50000
Decrease m trade re∞ Ⅳablθ s 40∞ Depreciatlon lsO000) O8000)
Increase in inVento"es 20∞
During the year plant costing$10000was sold at
Dθ predatlon charge forthe year 140∞
a loss of$2000
VVhat was the profit from operations before interest
VVhatfigure w"I appear as purchase of non-
and tax fofthe year9 current assets in statement of oash f丨 oWs forthθ
A$31000 B $41000 year?
C$69000 D $73000 A$20000 B $30000
The fo"owing infonnation has bθ θn θXtracted from
C$38000 D $40000
thθ books of a Ⅱmitθ d comρ any∶ 4.The fo丨 loWing们 gures haVe been extracted from
thθ books of a Ⅱnnited company∶
At31DeC2011At31 D∞ 2010
sO00 sO00 At31Doc2011 At31Dθo2010
Profl from operat ons ⒐ sO00 sO00
LOss on disposal of 0rdina冂/share oapita1 2o0 150
nonˉ ourrent assets share premlum ∞ 1o
nventories
丨 ss
3 41 Debenture201BlzO19 ∞ ⒛
Trade receiVablθ s 47 49 DiV,dends paId duⅡ ng
Trade payables 16 ⒛ the year 12 8
What was the oash from° ρerating aotivi刂 es forthe VVhatis the oash from financial actlvⅡ ies forthe
year? year9
A$93000 B $97000 A$28000 B$32000
C$101tXlo D$115000 C $88000 D $92000
5.Thθ foⅡ oWing relates to the motor vehides for a A$6000 B $10000
led company∶ C$14000 D $18000
"lη 6,A Company purchased a motor Vehic丨 e for
At31Dec2011 Ad31DeC2010 $25000 se廿 |θ mθ nt Was made by a paymentof
$ $ $22000and thθ part exohange of one ofthe
Cost 75000 40000 company’ s own vehioIes for$3000 The Vehio丨 e
Dθ preciatbn (ss O00l (250⒆ g丨 ven in pa付 eXChange had a wri廿 en doWn Value

During the year a car costing$8000、 ″as soId for °f$7000,but had a reˉ sale va|ue of$2000
VVhioh amount should be shown in the statemθ nt
$3000 This resu"ed in a IOss of$1000
Whatfigure wⅢ appear as depreoiation in of Cash f oWs forthe aoquisition ofthe Vehicle?

statement of cash flows forthe year? A$22000 B $24000

C $25000 D $29000

1,The foⅡ oWing is Winston plc’ s Statθ ment of The company’ s aooountant has prepared a
Ⅱnancial poskion at310ctober2011 budgeted statement of cash flows forthe year
statement of Financi创 PosⅡ ion at ended310ctober2012∶
310Ctober2011
stateme"t of Cash Flows forthθ yθar θndod
Cost Depn NBV 310Ctober2012
sO00 sO00 sO00
Cash fIows from operat1ng aCtiˇ :ties sO0o
Nonˉ current assets
Prof1from opera刂 ons lbefore tax
Freehold premises 850 90 760
and interest)
P丨 ant&machinery 1197 zIs9 V8 Adlustments for
2047 ss9 1488
Depreciation charge forthe year-
Current Assets Plant&machinery 猢
Inventory 191 ProfI on sa丨 e of plant (彡 20l
Trade ro∞ Nablθ s 望 Decroasθ m mvento"es zs
Cash and cash equivalents ⒛ lnorease in trade receNab|es lisl
298 Decnease in trade payablos lzsl
召~

Curront1IabⅡ lnterost paid(during the year) (o20l

细
迎
慨 唧~

Trade payables
"Ies
Tax paid lol
Tax Net cash(used hlrfrom
Non-ourrent丨 iabⅡ opera】 ng act:vit;os sgB
龆

"y
10%Debentures2010/9015 Cash】oWs from
∶
nVestIng act∶ l刂
l“ : sO00
`i‖

Equ" Purchase of nonˉ current

ordinary shares of$1each gso assets(Plant) ￡

〈2gsl

Procθ eds from the saIe of

share prem泗 m 1so
PIant 41
Generalrosθ rVe 100
Net oash(used iny
Rd刽 ned eamings 173 from investing
1szs actˇ kies (泛 ⒉ 2(;泛 )
Cash flows from】 nancing act∶ vities: 3 The directorsintended to revaIue the Freθ hoId
pren1ises to$1000000du"ng the yθ ar
Pro0eeds from issue of150000
shares of$1eaoh 210 The company aooountant a|so provided the fo"owing
eXtraotfrom thθ company’ s budgeted income
Rθ paymθ ntofdebentures li⑾
statementforthθ year ended31Ootober2012:
DiⅥ dends pald lml
NOt cash(used m)丿 from sO00
nancIng actiV"ies
f【
Prof∶ tfrom opera刂 ons 243
Netimoreaser【 dθ crease, Debenture interest 剿
In cash 99n
Profit before taX
and oash equ;va!e"ts 叨
TaX (sOl
Cash and cash equivaIents
at the bθ ginning ofthe year ⒛
1ss

Cash and cash equiValents 图

~ Requ1red
atthe end of the yθ ar
al Prepare Winston p c’ s budgeted statement of
Addit∶ onal i"formation: Financial Position at310otober2012
1 The plant sold during the year had oost$110000 bl Prepare W nston田 ds budgeted statement of
when ρurchased Changesin equ ty forthe year θndθ d310ctober

2 The diredors intended to transfer$80000t° the 2012

genefalresen`es at310ctobθ r2012
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≡
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一
一

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氵〓

一
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〓

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滁 谗隅$莛 酽

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●

the efed on the statement of FinanCiaI Pos"ion of an issue of shares

●

more about bonus shares and rights issuos

●

hoW to aCCountforthe redemption of shares

●

the efed on the statement of FinanCi创 Pos"bn ofthe redemption ol shares,cap"al reductions and
reconstruct ons
●

the diπ erences betWeen shares and debentures

●

What convertible loan stock is

●

hoW to aooountforthe redempu° n of debentures

sharc capital of10000° rdinar`sharCs° f$1,

止can c° nxrcrt伍 cm
into6aD2000sharcs of
$5or1000sharcs° f$10)
In chaptcr23it was notcd that undcr thc2006 dhidc its sharcs int° sharcs of a1owcr
Compal△ cs Act thcrc is no longcr any rcquirement for dcnonmauon(cgc° nvCrt its ordlnary share
a company to havc an autho⒒ sed share caplta1, cap1tal of10000° rdinary shares° f$1int°
Ho、 Ⅱ°ss/△ lg pr0v・ lsi° ns° f the1985 20000sharcs of$050or40000sharcs of
`ever,dle f°
Companies Act sjⅡ app1犭 严to tltc sharc cap1t尉 of a
$025,ctc)
Ⅱmited c° mpanv convcrt its pald-up sharcs into st° Ck(st° ck
● PLlbⅡ c Ⅱnmted compaⅡ es must have a lYllmmum may be descobed as‘ bundlcs° f sharcs’ Thc
capital of￡ 500006t孜 ed d・ tls in thc C° mpao∞ advantage° f stock is thatitrnax bc bought
Ac)At lC灬 t° nc quartcr° f伍 c nom【 n/al andsdd h± racoonal amo1mts,cg$3550or
arllount and thc xxholc of any prcrruLlm must $4180 If thc sha△cs had not bccn converted
havc bccn p砬 d up on thc sharcs,Thc sharcs may hto stock由 cy could on圩 bC b° llght in
bc tradcd° n thc Stock Exchangc inLlloplcs of$1)
● PⅡ vate Ⅱmited c° nnpa血 cs may havc capital of rc-convcrt stock back into shares° f any
less than￡ 50000,Thc sharcs rnay not bc offcrcd non"nzal x/aluc,c g shares° f$1m叩 bc
to the pubⅡ c gcncrally A prlvatc company rnay convcrtcd into stock thcn,latcr,rc-convcrtcd
re-teglstcr as a pub⒒ c company1fit fi丘 ls thc back into sharcs° ξsa≯ $025,$0,50,$5,$10
ncccssary rcqu止 cmcnts, or any othcr amount
● A company nny ⊥
ssuc bonus sharcs
■incrcasc its sharc capital by伍 c issuc° f ncw rcducc its capital by rcdccming or purchasing
sharcs its sharcs proxidcd it compⅡ es、
^th strlct
■ conso⒒ datc its sharcs into sharcs of a Iarger vn undcr dle C° mpaiucs
condloons lald d° 、
amount伍 an i“ cxls刂 ng shares leg l± lt h郊 a Act
252 Share lssues
studcnts x△ m rcca⒒ that a coinpany issues its sharcs
to pcoplc who xs・ ish to m,cst h⒒ ,Ctis mc。 rrect to
s锣 that k“ /订 its sharcs)ThC dCtalcd pr° ccdure and
accoun刂 ng cntrlcs for thc issuc° f sharcs arc n°
reqLured b,,山 c CIE s泄 ・
abLls
sharc prcn⒒ uln A company m呷 issuc lts sharcs
at a prcnllum if it bc△ eves that伍 crc、 ⒘
Ⅲ bca good
dcnland f° r伍 cm Ths could be thc cascif dhc
company h灬 akcadv・ osucd shares xs・ hch arc bcmg
ttadcd on山 c stock Exchangc at a poce abovc伍 clr
nonllnal xˉ aluc
Ⅺσhcn shaKs arcissucd at a prcmLlm,onlsT thc
amountrc∝ 师cd for thc non,lnal叼 血c of山 c shares
issucd may bc crcdltcd to伍 c sharc Cap⒈ 幺 1account,
Thc amount rccc小 厂 Cd for thc prcnuun△ rnust bc
crcdltcd to a sharc Prcmum account Ths topk has
akeady been covcrcd h§ 2310,aiˉ ld sttldcn“ may
Ⅵ△sh t° rcⅥ se that sec色 on
253 BOnus shares
Thc Compamcs Act梦 、sc° mpalucs the power to
usc tl,clr rcscrvcs to1ssuCs sharcs to thc° rdhary
sharcholdcrs as fⅢ y pal扯 up shar∞ ,Thcsc sh狂 cs arc
known as bonus shares bccausc thc sharch° ldcrs do
not havc to pay亿 r thcm;thcy o硒na⒒ 山c rcscrvc岛
an卜η 、and are not bong⒏ ⒕ n狃/hng曲 叮 do not
akeady o、 vn!
Thc m血 re灬 °n诫 v compa血 cs lssuc bonus
血 arcs is bccaLlsc伍 c issucd share capl切 l does not
adcquatcly rcprcscnt thc long-tcrin capltal of the
company Considcrthc foⅡ owmg summanscd
statcmcnt°f Fhanoal Po“ o° n
Ncln cur± cnt asscts
Nct ctlrrcnt asscts
Eq△o饣
0rdmarv sharcs of$1
sharc prcnllLlln
Gcncral rcscn・ c
Rctamcd catnmgs
Thc dlrcctors∞ uld,tl,∞ rco硎 烁 dlsttibutc thc
rc⒕ nuc rcsc四 cs of$ω 0000lgcnCr狃 rcscr⒕
rctalned earnmgsl as a cash dlvidcnd to thc
shareh° Iders Thc problcm、 汶曲 dus suggcs0on is
曲atthe n° n-current assets are1ong-tcrln asscts
w・ hch sh° uld be￡ nanced by long tcrn△ capital,but
they cxcccd thc share capital ofthc col△ ipany by
t
$300000 In° rdcrto makc thel° ng-term cap1tal of
山cc° mpany adcquatc圩 supp° rt thc long term
灬sCts,thC dlrcctors m呷 transfcr$300000of曲 e
rcscrvcs to thC sharc Capital account,ma妯 呜 伍e
balancc on that account$1000000,cqual to the
non-currcnt asscts Thc dircctors could usc any of
the resers,es± or thc purposc,but、 访Ⅱ no doubt prcfcr
to usc thc Share Prenuum account,$200000,and
$100000of thc Gcncral B℃ serve Tlus would lc岔 vc
thc rcvcnuc rcscrVcs・ almost1ntact and these lnay bc
uscd f° r° dlcr purposcs in山△
ding thc payment° f
cash dl△ ldcnds Thc rcscrvcs havc bccn lc± t in由 e
m。 st nc斑 blc form6CC§ 2311)
Re记 θed statcmcnt of F“ anoi狃 Poθ ⒒ion afte:the
capitaⅡ sa妯 n° fthc sh・Bte premhm account
$tKlo
Non~ctlˉcnt asscts 1000
Nct currcllt assets 500
1500
Equl饣
0rdIn唧 sharCs of$1 1000
Gcncral rcscⅡ c 300
Rcta,ncd carmngs 200
1500
Thc balancc° n dlc sharc Caplt处 account has
hcrcascd by$300000,but thc sharcholdcrs haˇ ℃
sharc ccroflcatcs for700000sharcs Thcy must bc
issucd M^dl ccr刂 flcatcs for anod,cr300000bonus
sharcs on the basis of thtec sharcs for￡ ~ory scvcn
shares伍 ey a1ready hold
跏咖蛔~~
蚯 °thcr rcason for capltaLsmg rcscⅡ 钋 o
conccrncd、 讨也 thc pa卩 ncnt of dl△・ ldends to thc
ordmary sharcholdcrs If dlc dlrcctors嘟 叹c to
伽跏
rcconlmcnd paγ 咂g thc、 严 h° lc° f thc rctamcd profit
猢娴朋~一
of$200000as a doidcnd on a sharc capital of
$700000,thc sharcholdcrs would rcccⅡ℃a dl△idcnd
of more伍 an28o/o Thsc° uld cause problcms、 汀d△
⑶ the硒°rk允rce,wh° mγ h盯C had Ⅱdc Or n°
咖
incrcasc in thclr Ⅵ叼gcs
αD由 C comp弑、cust。 mcrs,who uunk thatthc
+ company should rcducc⒒ s pr1ces rathcr than
 pay exccsshc dl△ ,ldcnds to dle sharch° ldcrs Ifa c° mpany rcstrlcts伍 c in,Itau° nt。 subsc⒒ bc
⑹ the cash rcscr【 s of thc∞ mpany for sharcs to cxˉls0ng sharch° ldcrs,thc rcqmrcments
In± act,tl△ cd⒈讨dcnd docs not rcprcscnt28Vs° f thc arc less strlngcnt and lcss c° sdy In any ca⒃ ,lf tlle
alnount thc sharch° ldcrs ha【 invcstcd in伍 c companvis a p¤ vatc company,it is n° t pcrmitted t°
company;thcir inˇ￡stmentinchdcs thc sharc capltal ms,tc thc gcncral pubⅡ c to subscⅡ bc for sharcs;it
and aJ由 c rcserves and amounts to$1500000The mⅡ t tcst⒒ ct thc inx,ltajon to止 sc蛀 stmg shareh° ldcrs
truc rcurn t° thc sharchddcrs is thcrcforc13V3on sucll an issuc of sharcs is kn° 、
vn as a Hghts issuc
dlc amountinvcstcd If曲 cb° nus shares were issucd, bccaLlsc thc ngl△ tto app炒 ±
or山 c曲 arcs o restrlctcd
a dls・ ldcnd pa卩 ncnt° f$200000M`oddl° ° ka⒒ dc t0CXls刂 ng shareh° ldcrs
morc rcasonablc@0%° n tl△ c issued cap⒒ ⒆ A rlgll“ osuc cnjdcs cxl呲 mg shareholders to appl犭
`
for a speo丘 cd且 umbCr° f sharcs,dependlng on hΦ v
Exercise1 ma叮 thCXT・ akca曲 hold For exampk,伍 clr m砰
即 p圩
The f° llowing is thc summarlsed statcmcnt of for onc sharc Ot anlr。 山er numbcr of sh征 cθ lor
Financi狃 P° sluon of otago o° us O± fcrΦ Ltd,
i・ cˇ℃ry sharc thcy alrcady h° ld Thc。 ffcr prlcc sl’ Jl bC
bclow伍 cp⒒ cc at wl△ ch sharcs arc currcndy chai△ gtng
$000 hands° n thc stock Exchangc,or thcir ctlrrent
Non~cultcnt asscts 1400
x・ aluao° n1n dlc case° f pnvatc compan1es
Nct cuⅡ cnt asscts 350
1750 sharch° lders vs h° d° not xxlsh to cXercise thcir
Eqlli″ ngh“ mγ 跹Ⅱ伍e冉典灬 to№mc。 thσ per⑽ n wh°
0tdna,sharCs° f$1 800 mghtbc w』血g to buy伍 cm,1fthc cost° f thc rlgh“
sharc prcnuuln 200
p1us thc share° ±
±cr pocc is lcss than the prlcc at
Rc△・altlatl° n rcservc 600
Gcnct尉 rcsc冖c 100 xxl△ lch
bCing⒄ dcd For
dle sharcs arc alrcaψ
Rctauncd carrungs 50 c狃 mple,a Ⅱgh“ lssuc m缈 be o跪 rcd缸 sl⒛ pcr
1750 sharc Thc currcnt pocc at whch sharcs狙 c changlng
han凼 m锣 bc$1ω If伍 e rights can bc boLlgl△ t tor
Thc dLcct° ￡ s haVc declded t° makc a bonus1ssue le“ than$0,40,dlc per⒃ n bLlymg thc Ⅱgll灬 wiⅡ bc
of 7曲 arcs for es,ery four ahcad,hdd They
thrcc n(;、 丙 ablc to acquirc thc ne、 /sharcs at a prlcc belo、
'that at
v・lsh to lcavc thc rcserves h tbc m° st nc蛀 blc亿rm. x△ hch thcy are belng oadcd
Thc acc° unong cnt⒒ cs for a Ⅰghts issuc arc no
Req伍 red
dlffcrcnt&om d△ °sc± or an ordlnary lssuc of sharcs
Rcdlaft O么 g° o° nus offCrθ Ltd、 statcment of
In any case,smdcnts arc not reql11fed to kno、 /thc
Financi/al P° 蚯o° n to sh° 、
vh°、 m appear
`it xx・ bookkeeping cntncs for share issucs,but it is
fo⒒ oxxing thc bonus issuc
important to notc山 c dllˉferences bcRx,ccn rlgh“
issues and b° nus issucs
254 Rights issues `
日
0宫 htg and bonus isθ ueθ compared
Ⅺ￠hen a c° mpany needs to r缸 sc ln° rc capltal,lt may
do so by issong ln° rc sharcs,An mˇ 1ta刂 on t° thc Ⅲ gh“ 、suc Bonus Issue
sJbscobcrs pay for sh钿￡s sllarcholdets do not pay for
gcncr/al pubⅡ c to subsc住 bc f° r sharcs is an cxpcnsⅡ ⒑ shalcs
proccss bccause thc c° n,pany mustissuc a prospccms The c。 mpan” nCt assc‘ are Ihc nct孙 scts of the c° mpanI
xxhch要 v∞ 山cp灬 th呲 ∝y mpan≯ ⒒s
of the c° 血 rcased” thC m乩 rccclvcd atC tlnchaqgcd
prcscnt sltuadon and much odler hf° rmao° n in grcat shatcholdcrs d° not havc to Au the。 rdiilas sh征 choldcrs
CXCtCi跹 dlcr nght to㈨ 肽 山 bc ssd t∝ α叱 伍cr bonus sha￠ ⒏
dctaⅡ Prcparaj° n ofa pr° spccuJs isˇ℃ ,tlmC for dlc nθ v shares
consunung,rcqmrlng pcrhaps hundrcds oflab° ur
shareh。 ldct$mav sc1dlcr ngl△ ts sharcholdcrs m呷 缒⒒dlClr
h。 urs In addloon,thc company tnust cmpl° y la砀γcrs, lf thcy do not w1sh to cxcrClsc bonus sharcs1f thcy do not
accountants and audlt° rs t° adˇ △
sc and oheck° n thc 曲cm vlsh to kccP d△ cm
prcpara乜 on of thc pr° spccms
255 HOW to record issues of bonus Ans、 ˇeF
⑶

跏~
shares and rights issues

明 ⑹乃伽~一
Example Nct asscts
Eqlllty
Handout Ltd、 Statcmcnt of Financial Posiuon at
sh征c capital狙 d rcscbcs
1Aprl12011is summariscd as foⅡ ox,。 /s: 0ldll△ ary shatcs of$1

跏~
shatc ptcl△ nLlln

伽 硼伽朋
Rctancd carnings

铋
Nct asscts
Equity
sllarc capltal and rcsc澉 s

0rdm唧 shar$of$1 ExercIse2

The summaⅡ sed statcmcnt of Financial P° siuon of

一
sharc prcrIuum

伽一
Rctaincd carrungs
Bonarltc Iˇ td at30June⒛ 11was as lo11ow⒏

跏~
驷
On1Aprl12011,thc dlrcctors madc a bonus^sue Nct a$sct$
of sharcs° n the basis of onc ncw sharc f° r cvcry slio Eqtlltv

alrcadlT l△ cⅡ ,kaxTlng tllc rcscr砜 s lii d△ em° st Ⅱcx儿 lc shatc capltal and rcscr鸸 s

0ldm唧 sllatcs of$1 1000

orm
±
shatc prclmtlm 500
Rc△・alLaoon rcscRc 300
Rcquked 120
Gcnclal tcscs・ c
(al Rcsdr/aR HandolIt Ltd、 statement of Flj△ ancial Rctalilcd carlungs 80
Po虹 刂on at1虾 rl12011after thc issuc of thc 2000
bonus sh/arcs
On1Ju灯 2011,bClorc any o伍 er tran陋 cjons had
Answet akcn placc,thc company lnadc a bonusissue of
t・

(么
9)
sharcs on伍 c basis of tour new sharcs for cvcry Ⅱ、
℃
跏伽

alrcady hcld Thc dtrcctors、 河shcd to1cavc thc

一

rcscrvcs in dlc most±lc蛀 blc form

Nct asscts
Eqlll〃 Req山 ed
shatc capltal and tcscn・ cs (a) sh° wh° narlte Ltd、 Statcmcnt of Financial
0tdu⒓ ,sharCs of$1 15llll `vB°
Rctancd car-gs 1lXl
Posluon wm appCar狨 1Jtdy2011immcdlatc圩
1600 ancr thc issuc of thc bonus shares
FoⅡ o、 c bonus shares,thc
^ng thc issuc of d△
「oⅡ ox△ △lg thc bonus issuc,Handout Ltd lnadc a company madc a rlglltsissuc of onc n邻 v share for
rlgh“ issuc On7Apri12011of150000ordln⒋y cvcrlr1∶ lflrcc sh时 cs aLe冰 圩 hCld Thc shar∞ ・C∞t,|’

sharcs° f$1at a prlcc of$150All the sh征 es wcrc o± fcrcd at$125pcl sharc and au伍 c shar∞ wcrc
sllbscⅡ bcd± or by dlc sllarcholdcrs takcn up

Rcqukcd Req讧 rcd

α◇RCdra丘 Handout Ltd‘ statt・ mcnt of Fmanoal o)shulw0ow BonaⅡ tc Ltd愆 statcmcnt of Finanoal
Posioon at7AprⅡ 2011a± tcr thc comp1cjon° f Posi刂 olrl x△ il appcar immcdlacclv attcr d△ c Ⅱgllts
thc rlghts issue issuc has bccn c° lnp1ctcd
256 Redempt∶ on and purchase of ordlnary shares Thc rcdcmpoon x△ il be madc fr° m
oWn shares by a company thc issuc of200000ordln唧 sharcs of$1cach at a
prlcc of$150A± tcr thc rcdcmpoon ofthc sharcs,
Thc Companics Act1985pcrmits a company to 伍c statcment of Ftnanoal Posioon wⅢ bc as
issuc redeemab1c shares provided it has issucd bⅡow⒌
other sharcs which arc n° t rcdeemablc,
Rcdccmablc sharcs rnay later bc b° ught back
$000
(rCdCemcdl by the c° mpany Thc Acta“ o pcrmi“ Nonˉ cutjicnt asscts 1000
co卩panics to purchasc thcir own sharcs akhough Nct ctlrilent asscts 700
1700
thcy、 /crc notissucd as rcdccmablc sharcs The
Eqllltx
trcatmcnt of such sharcs,`vhcthcr rcdccmed° r 0tdnu叩 sll/ares of$1 1200
purchased by thc compan⒖ is thc samc and no sharc prcnllllm 100
distinco° n bcbvccn rcdcmption and purchasc wi1l Gcncral rcscboe 250
Rctamcd carIungs 150
bc madein what f° 11° ws Thc shares arc canccl1cd
1700
on rcdempuon。 r purchasc s° that thc issucd
capital is rcduccd Thc sharc capital has bccn rcplaccd by ordhary
The C° mpanics Actis concerncd、 注th thc shatcs and thc Share Prcm血 m accoullt Th查 htctcsts
protection° f ctcdit° rs,、 of thc crcdltors h小℃bccn protc∝ cd The$300000
`ho may suffcr if thc
capita1ofc° mpanics is deplctcd Thc Act rcquircs rcccⅣcd from the issuc of ordlnary shares has bccn
companics t° rcplace redccmcd capital by: pald to thc prefcrcncc sharch° ldcrs,and thc nct
(al ClthCr uslng曲 e procccds ofa n∞ossuc of currcnt assets has,c rcmamcd unchanged,
sh时 ∞
αD° r Cnsurmg thatr∽ Knuc r∞ crˇ ∞ (whch couId Example2
bc dlstrlbuted as cash dlx,idcnds to
DctaⅡ s as in cxamplc1,Thc c° mpany decidcd that
sharch° ldctsl arC c° n.crtcd into a capital
shatcsin spⅡ t Coggs Ltd should be rcdccmcd,but
d△ c
rcservc,kn0、 vn as a Capi诫 RedemptJOn 山at no ness ordln唧 sharcs sholJd bc issucd
Reser、 :,mahg也 cm unas,aJabk for ca曲
dls“ buoons
`飞

$000
lcl ora c° mblnao。 n of boJ△ °f thc ab° vc, Non-curtc众 t asscts 1000
Nct cllrrent assc岱 400
Examρ Ie1 1400
E印
spⅡ t Coggs Ltd‘ sllmmarl⒃ d statcment of Fhanci狃
",
0d血 shar6° f$1
唧 10llll

P° sltJ° n at30JunC“ 灬foⅡ ows: Capltal Rcdelllpdon Rcscn・ c 3lXl

跏咖跏_一

Rctalncd carillngs 100

1400

Non clatrent asscts

卜
辽ct cuocilt asscts Thc intcrcsts of dle crcdt° rs havc bccn protcctcd
㈨钔

by thc transfcr of rcvcnuc rcscrvcs to a Capit・ al

Eqlu饣
Rcdcmp刂 on Rcscrvc sx・ hch cannot bc uscd to pay
⒛⑷~

0rcltl⒕ 叩 sharcs° f$1

Gcneral rcsc钟 c cash山 vⅡ cnds t° thc sharch° ldcrs Nct asscts have
_伽

RctaIncd cai-gs bccn reduccd by thc cash pald to thc sharcholders

ExercIse3
Thc c° ntpan,has dccidcd to redeem30000o Choppcrs Ltd、 summansed statcmcnt of Fmlanoal
Po“ oon is as foⅡ ows:
 Prcn】 ium account must be the lcsscr of
$000 ■ thc amount of premiums recel△ ・
ed on thc nOⅣ
Non-currcnt asscts 1300
Nct currcnt assc小 550 issuc of sharcs
1850 ■ thc balancc On曲 e share Prcnnum account
Eq讧 ,
Cncludlng the prenuums recclscd on thc ncw
0rd1na叩 sharcs of$1 1300
i“ uc° f sharcθ ;让 吣“to pr∞cnt a dcblt
sharc prcmium 200
Gcncral tcscrvc 200 balancc on thc sharc Prcmlun1account
Rctalllcd car~gs 150 Ifthc prcnuum bchg p・ald on thc rcdcmpoon of
1850 sharcs cxccCds thc atnount pcrnuttcd to bc dcbitcd to
thc sharc Prcmmm a∝ ount Os cxplalncd ab`§ ,thC
Thc company has dccidcd to rcdccm300000 dl旺crcncc rnust bc chargcd t° thc Rctaincd Earmngs
ordlnary shares out of thc procccds of an issuc of Account
new ordlnarv shares of$1each at a prlcc of$200 If thc sharcs bcing redeemed were n° tissucd at a
Requhed prcmun、 or are not being rcdccmcd out ofthc
proceeds of a ngw issue madc for thc purposc,thc
o)Prepare choppers Ltd、 statcment of Financial
Poslj° n mlmedately atter伍 e redempdon of the 环/hole° f the p±emum onrcdcmp刂 °n must bc
shar∞ ,
charged t° the Rctamcd Eamings Acc° unt,
Thc company has dccldcd to rcdccm thc sharcs Example3
thc issuc of a灬 厂ncw sharcs
xx ld△ out
Spin Ltdls summarlscd statement of Finanoal
Rcqu1rcd P° slo° n is as follows:

o)PrCparc choppcrs Ltd、 statcmcnt of Fmano狃 $000

Pos【 ti° n immcdlatcl,,aftcr thc rcdcmp0on of dlc No豇 culrcnt asscts 1100
sharcs Nct cutrcnt asscts 600
1700
Pren,ium paid on the redemption of shares Eqllt印
0ldm唧 sharcs of$1 1200
Colmpm屺 s rnay pay a prcnuLIm on sharcs xx hcn伍 cy
shalc PtcⅡ uum Accouilt 150
rcdccm伍 cln As an cxamplc,a cornpany may rcdccrn Rctancd car-gs 350
$1shar∞ at$1,2⒐ sharch° ldcrs wm rcccⅣ c$1,20for 1700
c砥 ry曲 arc tl△cy hold,由 c sO,⒛ bcn△ g由 c prcmiutn,
Thc c° mpany has dccidcd to rcdccm200000
Thc accounung trcatnlcnt of thc prc玎 山am rcqulrcs
ordlna,sharCs at a prcmium° f$020No ncwi“ uc
grcat carc
of sh狂 cs is t° bc madc for thc pllrposc
In some clrcumstances,the pretruiJm pald on
redempd° n znay be debited to the share Prenuum RcquLed
account◇ ce§ 2311)Hα 爬 er,the credlkors must be
s’ show h° w Spin Ltd、 statcmcnt of Fmanoal P° ⒍j° n
protected agalilst any mlpr° per reduco° n ofa 晒△Ⅱ appcarimmcdlatcly aner the redcmpoon ofthc
company、 capltal The C° mpamcs Act placcs thc ordlnary sharcs
fo△oxslng rcs0monsc,i△ tllc nght of a∞ mpa叩 to Answer
debit thc prcmiuin to sharc Prcnllum account:
$000
● dlc sharcs bcing rcdccmcd lnust havc bccn N。 ˉ currcnt assc‘ 1100
issucd at a prcmiLltn Net cu0crt岱 sc‘ 侈00-240 360
1460
● thc sharcs arc bcing rcdccmcd out ofthc
咖钔⒛⑾

Eqlu饣
procccds of a frcsh issuc of sharcs rnade for thc 0tdma饣 shar凼 °f$1
purpose sharc Prcmum accclunt
Capltal Rcdcmpdc,n Rcscrvc
一

● thc ain° unt ofthc prcmLlm dcbitcd to sharc

蜊

Rctamcd carmngs(350-240l
一
EXample4 %cc° mpany rcdccn1250000
has dccidcd t°
Gl△・
en thc summaoscd statcment of Financial ordln唧 sharCs at$120pcr share、 ￠hcn thc sharcs
Posioon° f spin Ltd bcfore the rcdcmpoon° f thc wcrc Orlglnau11ssucd th叩 werc issucd at a prcn△ um
sharcs as giscn in example3abovc,in dis casc由 c of$020No ncw i“ uc° f shar∞ “to bc madc for
sharcs wcrc redeemcd par曲 oLlt° f伍 c procccds of a the purposc° f伍 c rcdcmpo° n,
n∽v issuc of100000ordhnry sharcs° f$1issued at
Req讧 rcd
a pre血 um° f$015Thc prcmium pald on伍 e
Cal show hoM,thc statcmcnt of Financ么 刂Po“ j° n° f
redempoon of dlc prcfcrcncc sharcs w郇 $020, Tss・lst Ltd wⅢ appcar aftcr伍 c rcdcmpdon of thc

Req血 cd shat∞
sho、 w thc statcmcnt of Fhanoal P° slti0n of Thc sharcs arc to be redecmcd aftcr a n饰 issue of
`h° 200000° rdmary shar∞ of$1h灬 bccn madc at$110
sph Ltd wⅢ appcarlmmcdlately a± tcr thc rcdcmpu。 n
of thc°rdmary sharcs pcr sharc,

AnsweF Requhed
$000 ⑴ sh° w hσv dle statcmcnt of Finanoal P° sⅡ °n° f
Non-currcnt asscts 1100 Tw“ t Ltd b・ Jl appcar aftcr c° mple刂 on° fd。 cn铷/
Nct ctlrrcnt asscts“ 00+115-240l 475 issuc° f° rdlnary shares and thc rcdcmptlon° f
1575 伍c sha± cs
Equib,
0rdm征 y shatcs of$1
Thc shares arc to bc rcdcc血 ed after a ncw issuc° f
1100
sharc Prcmmu account C50+15-1sl1 150 250000ordlnary shaics° f$1has bccn madc at
Capltal RcdcmPilon Rcsci妮 2
100 $1.25
Rctalned catl△ Ings l350-(100+2Φ 】
3
225
1575 Req血 cd
1 Thc sharc Prciillum acc° unt has bccn血 creascd by dtc Cc)show h° w thc statcmcnt of∏ nallcial Po⒍ o° n
amount。 f thc prcmluin rccc讦 cd on山 c issue of thc of Twist Ltd w・ lⅡ appcar aftcr止 e ncw issuc° f
ordIm,shatCs($15000l,but山 c∞ lllpanV h/as becn a△ olvcd
ordinary sharcs and thc rcdcmp位 °n ofthc
to appIy ths am° unt towards thc ptc叩 ltlm payab1c。 n thc
tcdcmpoon° fthc p± cfcrcncc sharcs△ hc comp狙y callnot sha女 Cs
dcbit thc wholc ofthe prc血 um pald on tcdcmp-on($纠 D
lXlOl to伍 c Sharc Premtlm account as血 s cxcccds$15∞ o 257 The redemption or purchase° f
2Ihc b址 ancc of d,c share capital nclt c° Ⅱrcd” 伍cn∞ 汽ssuc
ofthc ordh狙 y sharcs must be covcrcd by a transfct of own shares by a private
siOo ollll from山 c Rctajncd Earmlg.s Account to a Capltal company
Redcmp刂 °n Rc$crvc
3 The amount ofthc ptcmium paid on the tcdcmpdon ofthc The C° mpa血 cs Act rccogmscs that thc rulcs、 玷ich
shares ls40000l lC“ thc am。unt of thc ptenllum cllargcd to apply to pubⅡ c compa血 es rnay bc to° stlCt for
sll征 cp犯 Il.um acc【 ,Lltlt Φ15000峦 $25000atld mⅡ tbc pnˇ 么tc c° mpa血 cs for伍 e foⅡ °
dch妃 d to the Retamcd Earnmgs Account 、注ng rcasons
●As sharcs in p邯 adCd
ExercIse4 `atc compamcs cannot be订
on thc st° ck Exchangc,such c° mpamcs arc
Thc summarlscd statement of Financial Posioon° f rcstrlcted h thcr abm″ t。 raJsc capm,P。 tcno衬
跏咖泗_一

TMlst Ltd is as f° Ⅱo、

`s:
mvcst° rs m绊 hCs"atc to buy sharcs m pnvate
compamcs udcssthey can bc ccr△ un伍 at thcy
Nonˉ cujitcnt asscts
Nct cutrcnt assets can dsposc of thclr sharcs m an cmcrge羽、
猢猢

●Ι压any pnˇ atc compantcs arc‘ famJy’ c° nccrns,

Equi饣
If° nc° f也 c shareh° ldcrs山 cs,his or hcr famⅡ y
棚铷~一

0rdlnaiIy sharcs of$1

shatc Ptcni△ rn acc。 llnt may nccd tllc moncy invcstcd Ⅱ 1the sharcs
Rctancd carnngs urgcnd另 cspeo碰 y if dcath dutles or么 聍s ha⒕
猢

to bc paJd out° f thc dcccascd、 estatc,

 If a pnvatc company、 dlstrlbutabIc rcserves are credltors arc prcscrvcd,Lρ sscs by thc company can
insufflcient to create the Capital Redempjon lead t° a rcducoon of capital and,if thc situajon
Rescrvc,thc丿 °ws the c° mpany to usc its appcars t° bc pcrmancnt,itˇ￠
m bc ncccssary to
`ct to
capital rcscrvcs aⅡmakc up thc sho± tfa△ ,If thc rccogmsc伍 c fact by undc幽 kng a scheme of capltal
company、 total rcscrvcs C c rcvCnuc and∞ utal rcducj° n,A Capital Rcducoon accountis opened in
r∞ cr⒕ Θ arc insu伍 ocnt to crcatc伍 cf跳 amount° f 伍c books for ths purpose
thc Capital Rcdcmpoon Rcscrvc,thc Act aⅡ o、 厂
s thc
Example
Capital Redempjon Rcscrvc to bc lcss than thc
n° lirlmal am° unt of thc sharcs bcing rcdccmcd
D,Plcct Ltd、 summa⒒ scd st/atcmcnt of Finanoal
Posi刂 °n at31scptcmbct is as follo・ ,△ s:

258 Redemption of debentures $000

⑾ ⑾⒛∞ ㈤_一
Nonˉ currcnt asscts
A dcbcnttlrc is a loan to a company and rcdcmpuon Intanglblc-Goodv,m
%nglble
of dcbcntulcs by a∞ mpany`“ mp圩 伍crcPymCnt Land and buⅡ dings
of a loan,Thc rulcs app、 汶 ng to tbc rcdcmpoon of Plant and machncr,
sharcs do not app圩 to山 c rcdcmp0on of dcbcnturcs M° tor vcluclcs
but thc foⅡ °M^ng should bc notcd:
Nct cllrrcnt a$scts
● any prclmLlln pay吻 blc to thc dcbcnturc holdcrs

钿
on± cdcmpoon inay bc chargcd to sharc Equl,
Prctluun△ accountifthcrc is onc 16000∞ σ打 wy sharcs of$1 1600
Rcta】 ncd ear-gs“ bit b祉 ancθ (250l
● it is not ncccssa叮 to crCatc a Rcdcmpoon
1350
Rcscrv‘ for dcbcnoatcs;if thc dlrcctors considcr
it w】sc to crcatc a rcscrvc,lt wiⅡ bC madc by a Furthef informadon
tr钔 Ⅱfcr from thc Rctalncd Earnings Account, 1 GoodMm is n。 、 nsidCrcd to havc no~谢uc.
but曲 °dd probabl,,not be ca△ ed a C冫 夕拗 `c。
2 Ihc n° n-currcnt asscts arc cons1dcrcd to bc
Redempuon Reserˇ ℃ oVcrx/alucd and havc bccn valucd more
rcaLsucaⅡ y灬 foⅡ °w⒌
259 Convertible loan stock

⒅钥⑾∞
$
ConVcrublc loan stock is s妲 nⅡ ar to dcbcnmrcs,but lt
Land and buldIngs
glxrcs thc holdcr of thc stock thc opoon t° con、℃rt Plant and machnlcty
thc st° ck int° sharcs in thc c° mpany on a prc- M° t° rs,chdcs
dctcrniicd datc at a prc-dctcrn△ ncd pⅡ cc Iξ 环
/hcn
thc血 c ar1olx・ cs,thC prc-dctcrn△ ncd pocc is lcss than 3,hxˉcnto轷 has bccn° ~(r△・
alucd by$125O00Am苟 or
山c markct pⅠ cc of thc sharcs,k could oc Customcr Owing$25lXlll h灬 become b血 kup△
adxˉ antagcous to cxcrCisc thc op谊 on If岱 e pre- Ihcc° napany has notpald any dhidbnds for somc
dctcrtmncd pocc“ hghcr伍 an the market pⅡ cc,伍 c ycars but mc d1rccto$bcLcx c血 tthc company can
opoon wiⅡ not bc cxcrc1sed bccomc prc,￡ table agam and start pa卩 ng山 呐山百ds oncc
more1△1叩 proposc to c钊 ∝y outas山 町Ⅱ ofcapltal
2510 CapitaI reduction and rcducoon Ⅵith thc agrccrncnt° fd⒑ sharel△ oldc⒖
The schcmc° f capital rcduction:
reconstruction
The st/atcmcnt of Fhancial Posi刂 °ns・ aluc° f thc
Thc Compa血 cs Act1985pcrnnts compa血 cs to sharcs is$0,84375阝 (1600000-250000l÷
rcduce thelr share capital providcd thc intcrcsts of 1‘ 00000l,AftCr该 klng曲 eo欢 rvalLlad° n° f伍 c
asscts into account,the vahc° f thc sharcs is$050,
 $000 $0llll $tKlO $flllo
No-lal va⒗ c of sharc capital 1600 G。 odw吐 1l 100 ~100 ~
Lcss∶ Dcbk balancc on Ret・ aiilcd cariungs @50l Nonˉ currcnt a$set$
Rcducuons ln.altle of GoodwiⅡ (100 Land and buⅡ dings 600 -180 420
Land and buⅡ dlngs (180l PIant and machincrv 250 -100 150
Plantand machnc〃 CO0l 卜Ι
otot vcluclcs 50 -20 30
卜饪
otor vcluclcs OΦ Nct ctlr,icnt asscts 350ˉ (125+25) 200
Invcnt° , l12sl 1350 800

塑
Tradcェ cccll ablCs (2劲 Eqtu〃

ο
o5
8佗
1600000ortlnaF/sharcs° f$1 1600

一
Real valuc of sharc capital 800

.
ο
6800000÷ 1600000=$05o Rctalncd c缸 血 gs⒀ cblt b狃 anccl (250
型
Exalnmao° n candldates may bc rcq111`cd to prcparc
j° urnal cntr崆 s for a c即 ital reconstruc刂 on but wⅢ not Thc statcmcnt of Fi鱼 ancizal Posi刂 on can no、
bc rcquircd to prcparc thc Capital Reducoon or othcr
`be
copicd out as thc ansM,cr
lcdgcr accounts

D Plcct Ltd
JoutnaI enmcθ statcment of Fhanoal p。 欲钪 n“白Ⅱdatcly
$000 $000 aFtcr thc山 咖诫 tCdu讪 Ⅱ
Capital ROduc谊 on accollnt 800 $000
Rctalilcd ca碰 n捏 ”

仞⑻⒛猢一
250 Non-cllrrcnt asscts
Goodwil1 100 Land aild bml由 n莎
Land and buⅡ dings 180 Plant and mach“ cry
plant and machnc, 100
Moto攵 vcl△ lclcs
Motor s cllldcs 20

跏÷
Nct cu【 cnt assc灬
InventoFy 125
Bad dcbt wr】 ttcn otf 25 Eqlu饣
R磁沏翩 切 曰sse`叼 /〃 西 膨 饣荡唿 醒 C∞ 功″〃 1600000ordlnarv sharcs of$050衤 800
0rdn缸 y `脚
slaarc Capltal accolllit 800
木Altcrnaovdy800000ordlnary sharcs of$1
Capltal Rcducjon accollnt 8l× l

蚰栩碱卿 旷 劢 砷 扌
沏′
'″

Exerclse5
Thc b/al岔 ncc on thc share Capltal account has no、 v
bccn rcduccd from$1600000to$800000,but thc Thc sumtna⒒ scd statcmcnt of Fhancial Posiuon° f
sharch° ldcrs soⅡ hold sharc ccroⅡ cates for1600000 Do驷 ηslzc Ltd is as foⅡ oMs:
sharcs of$1Thc dlrcctors mγ ∞rrcct ths s止 uauon
$t llo
in various砀 么 ys,but dic b″ om° st lkc△ ar⒍
Non currcnt asscts
● to glvc thc sharcholdcrs ccro丘 catcs± or one Frcehold piopc螂 扪o
or山 nary sharc of$050for c⒕ ry sharc of$1 弘 u△res ai△ dⅡ 血 喾 100
thcy already hold offlcc mllltllrc 80
580
●to gl△ c thc sharchoIdcrs a ccr0flcatc for° nc
NCt Cu丘 Cnt asscts 230
share of$1± or cvc饣 h・ o sharcs伍 叮 alrcady 810
hold Eqlll饣

F° △osx,any adx,lce gl△ cn in the qucsoon Thc 1000000ordlna叩 sharcs of$1 1000
RctaIncd Earltngs Account (190
or伍 e
sttldcnt o ads,scd to show dle胂 α灶 呜 ±
810
rcconstrucjon as foⅡ oM,s:
 Thc dircctors proposc tO Mrltc off伍 c dcbit Customer oⅥ 注ng± or$5000h灬 bccomc bankupt
balancc On血 Rctalncd Ear-gs Account and tO w狃 te Thc shareholders have agrccd to a schcmc of capital
the asscts dclMn to more reaLsoc x・ alues as to△ ows∶ rcductl° n° n condjon that thcy rcccivc onc nc、
`
sllaⅡ lor(:、 曲a∞ th叩 汕Caψ hold

ω口
oο
ο
`c呷

狃
ο
Frcchold ptopσ ″ Requircd

ο
87
Fixmrcs and fitongs
Rc-dran thc statcmcnt° f Fmancial P° “oon of

ο
0fflcc nrmurc
Downslzc Ltd灬 appcarimmcdiatc圩 altcr伍 c
Invcntory has bccn ovcrvalucd by$15000and a complcoon ofthc "wⅢ
capital rcducoom

● Melη oⅡ se the differences be⑾ een bonus shares and a Hghtsissue

● Read questions carefuⅡ y to see Whetherthey are about bonus shares,a rights issue or both
● Make bonus issues out of capitaI rese~es ratherthan out of reVenue reserves to leaVe the reserves in the rnost
】ex bIe fo"η
● In a queston based on the redemption of shares a co丨 ηpany should be assumed to be a public company unless
the quest on c|ear y states that"is a pHvate comρ any
● A Cap"aI Redennp刂 on Resen`e must be created when shares are not Wholly redeen∩ θd out ofthe prooeθ ds of a
neW issue
● Make sure Vou knoW Whentho prθ m;um onthe redΘ mpΙ on ofshares may be charged tothe share Prem um
account and thθ Ⅱmitations placed on this
● Make sure you know how oapitalreduc忄 ions work,and sho、 Ⅳ the number ofthe shares issued and their nominaI
value of fOIIOWing the redudion
● Remembertha大 Companies may oonsoⅡ date their shares into shares of a h丨 gher amount or diVide them into
shares ofloWer amount

1. A Company redeems60000$1shares at a A |t WⅡ linCrease the rnanagement of Ⅱ

quid
premium of sO25pershare The shares were resources
oⅡ gina"y丨 ssued at pa【 NO new issue of shares B "WⅡ l丨 nCrease financing
was rnade to finanoe the redemp犭 on C "W"linCrease cash Ⅱow from operating
VVhat effect does the redemptlon haVe on the activ"ies
Retained θarnings and the Capital Redemption D ItWi||not appearin the cash f丨 ow statement
ReserVe? 3.A Comρ any has Issued300000ordinary shares of
$050eaoh "makes a bonusissue oftWo shares
Retainθ d θarnIngs Cap∶ taI Redemption
for eVery thⅡ ee alrθ ady held k foⅡ o、 Vs that w"ha
ReserVe
rights issue of one share for every tWo aIready
A deorease by$60000 in° rease by$60000
heId at$075per share The rights issueˇ Vas fuⅡ y
B deorease by$60000 |n° rease by$75000
taken uρ
C deorease by$75000 increase by$6o000
VVhat was the increase in the sharo Capka丨
D decrease by$75000 increase by$75000
aooount as a resu"ofthe bonus and rights
2.A companyissues bonus shares HoW doesthis issues?
affectthe statement of oash】 ows? A$150000 B $175000
C $225000 D $275000
4.A Company redeemsits debentures at a premium 5 A oompanb which has already issued ordinary
HoW maythe∞ mpany treatthe premium on the shares of$1 each,issues200000bonus shares
redemption? and folloˇ ˇs this、 ˇ
A debit Bank aocount "h a rights
ordinary shares at$15o issue of10000o
per share
B debt captal Redθ mp】 °n Reserve VVhatis the ihorease in the share oapital and
C deb"share Cap"al aoCount reserves ofthe oompany a】 erthese transactions?
D deb"share Premium aooount A$100000 B $150000
C铷 00000 D$350000

1.The summarised statement of FinanciaI Pos"ion

ordhary sharos of$1 1⒌ )0
of0micron Ltd at31December2010was as share Premium aCcount zOo
fo"oWs:
Retained Ea"η ings Ac° °unt 340
sO00 驷
Nonˉ current assets 1gOo 0n1May2011,before any fu"hertransact ons
Net current assots 1￡K1⒊
had taken place,"was de0ided to redeem
mOo 300000ordinary shares at a premlum of$030
10%debθntures20112o12 400 The sharos had origina"y beenissued at$120ρ er
sO00 share ln orderto prov de funds forthθ redemption,
share cap"aI and rese~es the oompany issued a further100000ordinary
0rdhary shares of$1 1BOo shares at a premium of$o25
share Premium aooount 1go
Retained Eamings A∞ ount 1胆 o Requ"ed
sO00 Prepare Istaimy plc’ s statement of Financial
0n1January2011 before any othθ rtransadions Pos"ion as itvˇ i"apρ earimmediately afterthe
had taken place the fo"owing had occurred: issue ofthe add"ional ordinary sharθ s and the
1 redθ mpt0n of aⅡ the dθ bentures at a premium rodempti° n° fth° ordinary share capⅡ al
of5% 3,The foⅡ owing is the statement of Finanoial Pos"ion
2 redemp】 on of8oo00o ordinary shares at$125 of Joloss plc at30AprⅡ 2011
per share
The shares had originaⅡ y been issued at$1 10 sO00 sO00
per share Intangiblθ nonˉ ourrent asset-GoodwⅡ I ∞
Tangjb丨 e nonˉ cuⅡ ent assets 65o
Required 钔
A revisθ d statement of FinanoiaI Pos"ion at
望∞

Current assets
1January2o11as it appeared a△ erthe lnVentoγ
redemption° fthe debentures and thθ ordinaγ Trade receivables
shares Bank
6_悃

2,lstaimy ρlc’ s summarised statement of Finan°

胆
_

ial

Pos"ion at30AprⅡ 2o11was asfo"ows: Curent"abⅡ 76

"ies 弼
$000
share capital and reserves
Nonˉ current assθ ts 1sOo
Net ourrent assets 0rdinaγ shares of$1 1000
740
Retained Eam∶ ngs Ac∞ unt
铡 ㈣
776
OVerthe pastfeVV years Joloss plc has traded at a
loss and no diVidends have been paid to the
sharehoIders du"ng thattime
The directors are ofthe opinion that Goodvv"l
noVˇ has no vaIue The tangiblo non-Current
assets are ove⌒ me
`aIued by$150000 s°
inventory Which oost$10000noW has no vaIue
InCluded in trade reoeivabIes is an amount of
$16000from a oustomer who has now become
insoIvent
The directors are confidentthat,as a resu⒒ of
irnproVed e矸 ioienCy and the introduction of neW
products,the oompany can Iook fonˇ ard to annual
ne1prof"s of$50000 They haVe proposed to the
sharehoIders a scheme of Capital reduction
wheroby each shareholder w"IreceiVe one
ordinaγ share w"h a nominal Value of$055for
eveγ $1share presen刂 y held This wⅢ eneble the
debit baIance on the Retalned Earnings Accountto
be eIiminated and adlustments to be made to the
oompany’ s assets to take account ofthe rnatters
mentioned above
The diredors’ po"cy in future wⅢ be to pay
diVidends WhiCh w"{be Covered twice by earnings
The sharehOIders have agreρ d to the dlrectors’
pnoposaIs and the oapital reduc】 on was e仟eoted
on1 May2011
Requ1red
(0 Prepare the slatement of FinanCial POs"ion as
l appearimmediateIy a鼠 erthe cap"al
"wⅡ
reducⅡ on
(O Exp丨 ain the reasons why the shareholders
agreed to the reduction in the non1inal Value
of their shares
 BusIness purchase

● thθ difference bemeen thθ purchase of a business and the ρurchase ofthθ assets of a business
● GoodWⅢ arising on the ρurchaso of a business
● hoWto prepare ajournaI entryto record the purchase of a businessin the b° oks ofthθ purohasing oompany
●the preρ ara刂 on of a statement of FinanCia丨 Poskion following the purchase of a business
● hoW to oaIouIate the return on an investmentin a new business

261 Whatis the d∶ fference between ExampIe

the purchase of a business and sha has“ adcd± or s° mc ycars as a s° lc tradcr,C)n
the purchase ofthe assets of a ^Ⅱ
10ctobcr201n she dc。 dcd to f° rm a△nitcd ⅡabⅢ 饣
busIness? company to take° vcr hcr busincss Shc wⅢ h° ld
odhary sharcs° f$1in由 cc° llipany as hcr capital
It^important to di酞‘
砭夕卫sh betss,ccn a Company 灿 sha、 summ勿刂iscd statcmcnt of Fhan0al
buymg thc assets° f alloulcr business,and thc P。 “u。 n at1octobcr2011was as壬 o1lows:
purchasc by thc company of ulat。 thcr bushcss
somc smdcnts gct con血 sed bc雨§cn thc b△ o $
dl跖 crcnt血 ds°f purchase A c° mpany rnay buy thc No艹 ctrrcnt asscts 1 20000
Nct currcnt asscts 14000
asscts of ail° thcr busincss、 扌ich may then ccasc to
34000
订adc,Thatts ve,dlrˉ fCrcnt from a c° mpany bu卩 ng Capltal acc° unt 3400O
another bushcss;the c° mpany takcs over thc assets
砧 iⅡ ocs ofthat business togc伍 cr w1th its Thc summarlscd statcmcnt of Fhancial P° ⒍oon
'″
c△`Ⅱ
st0mcrs and carrlcs° n the tradc of thc business °fthc ncw c° mpany Ⅵ△⒒appcar as± oⅡ °ws:
takcn° vcr Thc disuncuon1s1rnp° rtant,Thc
purchasc° n圩 of assC“ sho Ltd
d° cs n° tinⅥolvc any pa卩 mcnt ^丘
±
or G° °dxx・ lu;the purchasc° fan cnjre bu⒍ ncss $
NoⅡ clrrcnt asscts 20000
usuauy d° Cs inv° hc palnlcnt for CT° odwiⅡ
Nct current asscts 14000
9￠ hcn a Ⅱnitcd company purchascs anothcr 34000
bushcss k硒 租邯uaⅡ y pγ forit par” ” Qsh and Sharc capital
0ェ dlila” sharcs of$1 34000
pardy by sharcs Thc sharcs may beissucd at a
prcimum,H° wcvcr,曲 c sc⒒ crs° f tlle bosin∞ sw° tlld
且ot pay for thc sharcs gl△ en t° 伍cm 262Goodw"
somctlm∞ a solc tradcr or a partncr曲 Φ mγ 、σhcn a c° mpany purchases a bushcss,it、 注Ⅱusua△ y
dec1dc t° c° nVcrt thclr bu⒌ ncss1nto a Ⅱnitcd buy dle asscts lcss thc ⅡabⅢ ocs at an agrccd valuao° n,
compa".Thsis donc by fornnng a ncw company In addl刂 on,止 usualy p缈 s± or thc adxantage of
v1・ hoh putchases thc parmcrslllp busulcss acqn1rmg an cstabⅡ shed trade,Thc company docs n° t
havc t° buⅡ d up a ncw bushcss fr° mn° d△ ing;thc
Non-currcnt asscts
busincss has bcen buⅡ t up by the pre访 ous0、 Vnct who
Land and buⅡ dings 60000
wⅡl norma△ y cxpcctto bc rc、 vardcd for thcir cibrts PIant aIld maclm△ c叮 35000
GoodmiⅡ is thc amotlnt pald lor the acqtusitlon° f M。 t° r vcluclcs 21000
a busincss in cxccss of thc± an valuc of its scparablc 116000
nct asscts Thc tcrrn‘ scparab1c nct asscts’ is uscd to Currcnt asscts
Invcntory 7000
describc thc salc ofindividual asscts and using thc
Tradc rece11`ablcs 4000
moncy to sctdc thc ⅡabⅡ刂cs of thc busincss Cash and cash cqlu,i/alcnts 5000
It is important to disonguish bebveen purchased 16000
Good硒诅 灬 d inherent Good硒诅 Ptrchascd Lcss Cur,ictlt kabJlocs

GoodwⅡ I has bccn pald for Inherent Goodxli△ has Tradc P呷 汕 lcs 2000 14000
130000
not been paid for and、 allsc,for instailcc,if a
Eqllt,,
^Ⅱ
tradcr dccidcs that hc wants to show伍 c Goodxxd of 0rdun呼 sharC capial 130000
llIs busincss in llls s忱 tement of Finanoal P° sitl° n;hc
deblts a C】 oo小ⅣⅡ l accountin his books and crcdlts lis 吼 e assets were takcn ovcr at thc f° Ⅱ°x1|ing x・ alucs:

Capltal acc° unt硒 id△ any amount曲 at hcx△・ lshcs to $

shoM`as Goo小 评Ⅲ Internationa1Acc° unong Land and buⅡ dings 80000
standard IAs38scts out how goodx△ m sh。 dd bc Plant and machincq 28000
M° t° r vclllclcs 16000
trcatcd in thc books This was cⅡ scusscd in chapter
Invcnto” 5000
22,when i攵 was sccn that on圩 purchascd goodwⅢ Tradc Rcccivablcs 3000
sho,|vn in thc statcment° f Financial Posi刂 on ^ Tradc Payablcs 2000
Inhcrcnt goodxs。 m is ncvcr sho、 vn in the± lnal
Borut Ltd did n° ttakc Ovcr Sc⒒ unt
accounts ^Bankup灬
acc°±
Borjt Ltd pald A scht$150000,made ollow⒌
If tllc am° unt p缸 d± or a busincss is lcss tha± l thc
cash$20000and100000ordInaFF sharCs。 f$1cach
fatr xralllc of its scparable net assets,the(Ⅱ ffcrcncc is
callcd ncga“ vc Good硒 iⅡ ◇
1° t BadⅥ iⅡ 9and sh。 uld Requircd
bc w⒒ ttcn oll agalnst dlc rcserves in the equi饣 Prcparc the i° urnal Cntltcs in B° r刂 t Ltd、 books to
scC0on of thc Statcmcnt of Financial Posioon rccor-dle purchasc of A scⅢ t、 bushcss
Anstˇ er
263 HOw to make journaI entries in Dr Cr
the books of a company to $ $
Land and buⅡ
record the purchase of a dlIlgs
Plant and machincry
80lltlo
28000
busIness Motorˇ ℃hclcs 16000
Invcntory 5000
Bef° rc any cnuics f° r tllc purohasc° f a busincss arc Tradc RcccN训 *s 3000
madc nl a companyt lcdger acc° un“ ,tl△ e“ ansac刂 on Goodxvtu 200001
must be rec° rdcd in tllc journal Thc cntrlcs sh° uld Tradc Payablcs 2000
includc thc Bank and Cash accounts if dlcsc are taken Cash and cash cqlll△ alcn灬 20000
0rdm唧 sharc capltal 100000
0VC丘 HoWCVcr,山 c bank aα d cash balanccs of伍 c
Share Prcm1um account 300002
business bcing acqlurcd alc n° t usuaⅡ y takcn ovcr 152000 152000
unlcss a s° lc tradcr or a par血 ersllip c° nverts thcir %召 夕〃,r/,z,e cF//9诊 b″s讠衤纟￡ qF'4J朗 饣 o,J`o。 /,切 %`劢 ′
'2ε
bus1ncss1nto a ⅡnⅡ tcd compan犭⒎ J/r9o∝ $`歹 0000p。 ,汕 伤洒ヵ 仰 町 Fd,/9S29000',9z勿``丿
//,纟 订膨
`旷
000口 砌9〃 ″o,∝ $/〃 $′
刃 p″ 助
Example 1Goo小 凶
`0σ 'v助 'r艮
姐 =plrchase c° nsldciaoon ls15000o lcss・ aluc° f nct
Bor刂 t Ltd purchascd山 c buslilcss of A seⅡ △as° lc 孙$ts acqlurcd6130000
2Thc sharcs wcrc△ ,aJucd at$(150000-2000o=$130000
仕adcr,on1October2011 seⅡ t、 Statemcnt of
$30000is thc sharc prciluum
Financial P° sitl° n at that datc was:
B。 rut Ltd、 statcmcnt of Fhancial Posiion at Exerc∶ se1
1Octobcr2011bcforc it acquired thc busincss of Hanul Ltd purchascd thc busincss ofAbdu1as° lC
A scⅢ t、 ows: tradcr,° n30Junc2011Thc statcmcnts of
`as as foⅡ
$ $ Financial Posltion of both busi殂 csscs at that datc
Nonˉ curfcnt asscts wcrc as± ollows:
Land aild b诫 岫 2llll O00
pl/antand machncry 75000
“0000
川odli HamJ Ltd
M° toji vchcks
315000 $$$$
Ctrjicnt asscts NoⅡ currcnt asscts

Iiiventory 21llllo Freeh° ld propejlty 00lXlll 100llllll

Ttadc Rcccl△ ・
ablcs 16000 Plant alld macbincry 15000 60000
Cash and cash cqtllsalcnts 32000 0fEcc cqmpmcnt 140llll

69000 0fflcc丘血山wc 7000

Cutrcnt ⅡabⅡ ocs 62000 174000
Tradc P纠 叼 Dks 7000 62000 Currcnt asscts
377000 I灬、n唧 4lllXl 100lXl
Eqtuq Tradc Rcco丙 嗲blcs 6000 7000
0tdilu,sharC capital 3000t ll Cash龃 ca曲 cqm△,alcn‘ 1llllo 25lXlo
Rctalncd pront 77000 11000 42llllo
377000 Current Ⅱab山 dcs
Tradc Pa,ables 3t llll 8tl,ll 6000 36000
Required 70000 210000
Prcparc Borut Ltd‘ statcment of Fmiloal Posluon Capital acc【 ,llnt 70000
响∝血呐 f吐 thC purmse。 f血 busmcss om scll△ Equi″
0rdnas,sharcs of$1 150000
Answer sharc Ptcl△ llllm 20tKlll

Add thc journal cntrlcs to BortIt Ltd、 assc“ , Rctancd pto丘 t dO lXlo
210000
Ⅱ
abJloc⒍ sharc capital a⒍ d rcscrˇos,
%9・t痴
笃∮ sb°咖 勿 彡吼 勘 /J,
'″ It、 泗s agrccd that Abdd、 assets shodd be△ alucd
`彡 Bot饫 t Ltd as foⅡ ows:
state1nentof Fh濒 po山妯n at10ctobet⒛ 1i
aftcr thc acq试 o佰 on of人 陕Ⅲ C8bⅡ曲 egg
$
$ $
Ftccll。 ld pjIopct饣 70000
Non-currcnt asscts
Plant and mac斑 Ⅱ ” 12000
1ntanglblc-Goodwm 20000
ofncc缸 血臼证c 40tKl
Tailglblc
Invcnto锣 25∞
Laild and b诅 dmgs O00000+80000l 280000
Tr记 c Rccclx’ ablCs 5500
Pl/ant and machnc〃 lˉ 50lXl+2800o 103000
△Iotor vc⒒ cks⑷ 0lXl+16∝ ⑼ 56lltlo
459000 Hm诅 Ltd dld not acq△ ore Abdul‘ bank account
Currcnt asscts The con⒍ dcrauon for the s刽 ε驷么s$120000and was
I灬 钅n¤γ O1000+500o ?6000 阴osⅡ cd by tbc p珥mcnt to Abdtll of$20000h cash
Tradc Rcco~训 i钋 lt6tKlO+3000l 190Qo
Cash and cash eqmvalents l32000-20000l12000
and伍 c issuc t° hm of80000or山 narl sharcs in
57000 Ham山 Ltd
Curjicnt habⅡ dcs
Ttadc Payablcs CO00+2llllOl 9000 48000 Requhcd
507000 ⑶ PrCpare the JournaI cntoes in H盯 碰 Ltd、 books
Equi, to record the purchase of yⅥ Ddul怂 busincss
0tdn呷 sh缸 “ lsO0llllO+100000l 400000
Ltd、 statement of Fmanclal
shatc prcilullm 30000 o)PrCparc Ha刷
Rctatncd car-gs 77llllo Posi砬 on itlmcdlatc圩 a± tCr the acqmsltlon of
507000 Abdurs busincss,
264 Purchase of a partnership ExercIse3
busIness Spaid and shuvcⅡ arc paruacrs in a business and thcir
statemcnt° f Πnancial Position at31Dcccmbcr
Thc pL△ rch灬 e° f a partilclshtp busin∞ s by a
2011is as foIlows:
co￡npany foⅡ ows a simⅡ ar pr° ccdurc to d△ at for thc
purchasc of a solc tradcr、 busincss、 Ψ
hcn onc of the
$ $
parulcrs has rnadc a loan to伍c丘 rn△ and dlc Non~ctrrcnt asscts
company takcs thc loan ovcr,it is usual for the L龃 alid buJ娩 s 50000
company to issuc a dcbcnttlre to the pa± tner Fkttlrcs and nmlgq 18000
0fficc maclulc轷 12000
conccrncd If thc ratc ofinterest° n thc dcbcnturc is
80000
diffcrcnt± rom dle rate pre说 ousls,rcccivcd by tllc Cu△ tcnt asscts
partncr on the1oan,thc amount ofthc dcbcntLlrc Inˇ °ntoty 17llflo
Tradc Rcccl△ ・
ablcs 8l,tlo
wⅡ l usualˇ cnsurc that thc parmcr c° ntulucs to
Cash and cash cqtos・ alcn‘ 4000
rece小 ,o?nt ofintcrcst each ycar as
`e thc samc al△ 29000
prcviously T° calculatc thc aln° unt of thc Ct△rtci△t⒒ ab山 ocs

dcbentLlrc,flnd thc capital sun】、

下冫ich,atthc ncM`
1△
Tradc Payablcs 12000 17000
rate,xvill producc thc samc amount° f intcrcst 97000
Non《 luilent ⅡabJi轷
MLll刂 plv thc amount ofthc l° an by thc ratc pald by Loan from spald at10%Pc~annum 12000
thc partncrslllp and〈 Ⅱvidc by thc ratc ofinterest° n 85000
thc dcbcnturc,as sh° wn in thc loⅡ oxs/lng exalnplc Capital acc° un灬

(D PartilCr‘ 1oai△ to partncr“ up:$100000at8%

Spald 50000
shu。 c⒒ 35000
intcrc吼 pcr annum Annual htere呲 =$8000 85000
A10%dcbcnturc producing annualintcrcst° f
Thc parmcrs havc acceptcd an offcr丘 °nn Diggcr
$8000xxtl bc$100000× 里 =$:0000
Ltd to purcllasc the busincss允 r$118000Thc
CD Ifh Θ 由e rate ofintcrcst on thc dcbenturc o company xI・ m take。 vcr aⅡ dlc asscts and ⅡabⅢoes° f
c parulcrshp exccptthc bank account The
5%由 e ain° unt $100000× 里
d△
of dcbcnttuc i⒌
partnershp asscts arc to bc valucd as foⅡ °、/s:

=$160000σ ntCrcst on$160000at5%pcl

aimLlm=$8000) $
Laild aIld b诅 洫 净 60000
ExercIse2 队 逦 6洫 d丘 m△gs 14000
ofncc maclune印 10000
Carol has1ent$60000at5%△ ltcrcst pcr annum to Invcnto” 15000
”e ilrm in w"ch shcls a pa± tnc‘ Ac° mpany h灬 Tradc Rccc咚扎 lcs 6000
of± ered t° buy thc parulcrslup busincss Part of dle
ptrchasc p⒒ cc consists of a dcbcnmrc t。 bc issued t° D龟 gCr Ltd`~刂J1scdc dlc ptlr山 asc pncc as± oⅡ ov⒌
Car° 1t° cnsurc that shc c° nonucs to rcccⅣe the samc
● a paymcnt of cash,$28000
atnouilt of htc变 阱 ainlla△ y as shc had been rccc&吧
● an8o/o debenturcェ ssucd to spald to ensurc that
±
rom tllc p・ a± ulcrshlp
he c° nonucs to rcccivc thc same amount of
Rcquircd 1ntercst annua△ y as hc has receWcd from thc
partl,crslup
⑶ Calculatc伍 c amomt oftlac dcbcnmt tc,bc
issucd to Carolif dlc dcbcnttlrc carrlcs intcrcst at ● thc balancc t° bc sctdcd by an issuc of° rdlnaσ
8冫 o pcr annum sharcs° f$1in Digger Ltd at$125pcr sharc

CD C列 cluatc dlc am° unt° f山 c dcbcnture l± i Dlggcr Ltd、 Statcment° f Finanoal P° sioon at
carrics intcrcst at4V。 pcr anntlln 31Dcccinbcr2011is as f° llows:
 Rcquired
Non~cuⅡ cnt asscts
(al PrCpare the ReaLsaoon accountin thc
Land and buildings 90000
FixtLrcs and丘 tungs 30000 parolershp books
c)fncc mach山 ncry 15000 (l))Prcparc dic parmcrs’ Capltal and Bank accounto,
135000 △
sho、 匆ng thc closurc of thc busincss
Currcnt assc‘
1nvcnto〃 20000
RcoⅡ sadon acooumt
Traclc rccci△ ablcs 5000

$
∞
Cash and cash cquivalcnts 60000 $000
85000

35⑽
Non-c"rcnt asscts 80 Current Ⅱab山 tlcs
CutiIcnt Ⅱabi刂tlcs Currcnt asscts Bank-cash pald
Tradc payablcs 16000 69000 ←0000-600Φ 0fdlin饣 sharCs
204000

“∞~
Pro丘 t。 n rcahsaoon:
Eqtll饣 Alan
ordLlars,sharcs° f$1 200000 Boan

~卸

~
~钔
Rctaincd proilt 4000
204000

Rcq洫 cd

铆腼⒛ ∞
跏蚰⒛ ∞・
Cap钥 臼CCt|unts
Prcparc Diggcr Ltd、 S仫tcmcnt of Financi/al Posioon $000 $000
ltnmcd处 c圩 aRCr thc∞ mpa卿 llas acqLurcd thc 川 an Boan
partncrshp busincss 0pe血 ng bals 45 45

・
Pro丘 t on

鹈_

∞
somcomcs cxal△ 1matlon qLlcs谊 ons requ世 e that the
rcaLsatlon

_招
_招

_鸦一
cntrlcs血 o炳 ing dlc clostrc ofthc partilerslup boo芯 arc

_
shΦ 丙
η In tlus casc,a△ dlc doslng en伍 es are shc,xsn h
a RcaⅡ sauon account Ilae procedure is exacdy thc
ˉ Bank仓 0Ct|unt
samc as曲 c dlssoluoon o± a partnershp△ l aptcr”
ch・

$
ο
o2⒛
$000
0pcnn△ g balancc 6 AlaIl
Example From Bs,it Ltd 型 B⒒ an

_笳
_
56
沪dan and Br【 串 n arcin bu⒍ ncss shaJng the pro且 ts and
I° sscs cquaⅡ y Thcir summarlsed Statemcnt of Noucc dlat郯弧 thoLlgll the bⅡ hc$o sold at a咿
Finano/al Posluon at31Ju灯 2011“ as toⅡ ows: hghcr than tl△ c nct b∞ k valtle of thc assc岱 takcn∞ α ,

ltis trcatcd as a pro￡ ton re狃oao° n and notgpod砀 iⅡ h

Non~currcnt asscts
$000 $000 血 p缸 t△crshp boo虬 h血 s吣 c血 sh邺 arc dlxided
80
Currcnt asscts lnlchdnlg thc
bc心 vccn thc parulers h tl,c pro血 shamgrauos Thq may
硐而 ㈧画

bank balance。 f$6000l not bc thc c灬 ein the qucs0on⒏ 、

0α
Thc questlon maXT・also mclLldc partncrs’ Cllrrent
Cutrcnt ⅡabiⅡ ocs
acCOLlnts Ihc bzalallccs on thcsc accountq sllOLlld bc

Capltal accounⅡ transferred to dlc rcspcctlvˉ C parmerb C即 幽hc∞ Lut,

妈 妈玩_

斑 an Ihcrc Ⅱny犭 ‘o bcan灬 s皎 takcl△ ox/cr by a parmcr clll也 c

Boan cb9△ ∞ofthc btl蛀 ncss,say a Car at a salu/au° n In dis
casc,α cdlt thc RcaLsa乜 on aCCount ai△ d dcb止 dlc p匆 吐n¤ 硌’

Ih〈 :)`acccpt
Capld accoult晒 i伍 thc~刽b呛 °f thc assct uken o△ c‘
an o岷 r∫ lr()m Bvit Ltd to purclla∞ thc1r
busmcss The C° mpany、犭Ⅱ akc ovcr aⅡ thc asscts and
t・ Exerclse4
LabJi谊cs ol tl,C parmcrshp,x△ ith tl,c cxcCpu0n of伍 e Lcc and△ Ilck arc in bushess shaⅡ ng thc pro丘 ts and
tlac partncrs$50000h
b/ank accoLlnt Bsrlt sxitl p锣 l° sscs cqua1ly Thcir summarlscd statcmcnt of
cash and100000ordnaFy shares of$1each Financial Posioon at31Oct° bcr2011is as foll° ws:
 ⒁ ⑩⒛ _⒛
∞
$
$000 mcasurcd by cxprcssing pro丘 t as a percentage of
Non-cuttcnt asscts capit狨 invcstcd If a company has purchased a
Propcru, busincss f° r$100000and the business has rnade a
Plant and macl△ lnc轷
pr。 nt。 f$12000in曲 e￡L吱 yea乌 tl△ e profltabⅡ 〃玉
Curicnt asscts 12Vo Thsis dle return on cap⒈ a1】 nvested If k ls

8⒚
Inˇ tnto轷 cqual to,or rnorc伍 an,thc rcmrn° n capltal thc

一
Tradc rccclvablcs
company was carmng on its c虹 s0ng buslncss,tllc

⒛
n、℃stmcntrnay bc cons1dcrcd to havc bccn
Currcnt ⅡabⅢ ucs
Tradc pasables 6 哂0rtllxxlJc If k“ lcss,oⅣ tr碰 pro丘 切bJl″ of山 C
Bank ovej÷ draft 2 8 busincss硒 姐 bc dhtcd lor dCcrc灬 cdl H咖 钾 C乌 k。
bcttcr to mcasurc thc profltabⅡ ty oˇ ℃ran咖bcr° f
Non-clricnt Ⅱab山 tlcs

⒀两
Loan
ycars to gct a rcⅡ ablc picmrc

_
Capltal acc。 unt⒊ Thc nc、 诉
⒛ ⒛

Lcc
`busincss rnay h孙 `e becn merged xl,lth tbe
cXls0ng business so dose圩 dlat separate results for
ω
△Lck
_

tllc neⅫ aJablc In such a casc,thc

86_

Ctl丘 ent a∝ otlnts: 'business are not as・

Lcc incremental(dlat。 ,thc addtoon・ all proflt ls mc灬 urcd
⒕ _卫

ⅣⅡck agalnst仁he addloonal capit・ alinvcstcd in thc busincss

ExampIe
Thc p缸 mcrs acccpt an° n眙 r仔 。m Tas,k四 α Ltd X Ltd had a capital of$300000 Its avcrage annua1
允rthor b“ h∞ s Thcc° mpany wⅢ 钐诋c ovcr a△ tlac pr° flt was$54鲫
asscts and ⅡabⅢ ocs ofthc bushcss w1伍 thc :i∶ :1c∶:;lwas
cxccp0on ofthc bank oˇ ℃rdra丘 and l° an,Thcy xsiu
pay thc par恤 Crs$20000m cash and100000 X Ltd purchascd anothcr busincss on1Janua叩
ordlnary sharcs of$1cach at a prcltllum of$020 2011± or$100000which was setded by dhe lssue to
thc vendor of shares h X Ltd,X Ltd、 proflt f° r tl△ c
Required ycar ended31Dcccmbcr2011was$84000Thc
(al Prepare曲 e Reahsaoon account nl tlle partnσ slup profltabⅡ i饣 of X Ltd has incrcascd by3V。 to21V3
boo芯
Φ)PrCparc thc partilers’ caplta1and oank acc。 un“
(宇 ×1ρ
斋甘若品
0l・
,

sho、
^ng thc closurc of山
c busincss, Am° rc rcⅡ ablc p1cnlrc is obtamcd ifthc addluonal
pro丘 t of$30000is calculatcd as a pcrccntagc of由 c
265 Ret1Irn on inVestlη ent p⒒cc paid forthc nc・ ,△ busincss:

× 100=30oo
Itis imp° rtant that a company purchasnlg ano山 er 甘;淠甘:若志
bushess succeeds in mahlg the new business as X Ltd has ben茳 屺 d fr° m thc purohasc of伍 c nov
pro丘tablc as lts exoung business Pr° ±
ltabⅢ ty is bus1ness

Goodw"l丨 s the diferenoe bemeen the values ofthe net assets acqu red and the purchase pⅡ ce paid
VVhen a debenture丨 sissued to a pa^ner,and the pa"neris to receive1he same amount of annualinterest as
ho/she rocθ Ved before thθ sab ofthθ Ⅱrm;Check that you have oa ouIated the amount ofthe debenture oorredly
If you are required to prepare journa|entries in a oolη pany’ s books to record the purchase of a business,do nof
shoW the entries in the books ofthe business being taken over
0nly purohased g° odw"lis shoWn|n the books of aooount ofthe company buying thθ businθ ss
●

Make sure you ρrepare thelourn引 entⅡ es in good form

●

shoW a"workings when preρ aring the oompany’ s slatement of Financial Position anerthe new business has
been acqulred

The fo"owing is information aboutthe assets and Curront Ⅱ

abiⅡ 刂θs 50000
Ⅱ
abⅡ Ⅱies of a business NOnˉ current llablllV 1∞ 0∞

Book Value Market vaIue How much Was paid for GoodwⅢ ?
$ $ A $650000 B $750000
Non℃ urrent assets 90000 101000 C $850000 D $950000
Current assets 32000 29000 3, The statemθ nt of Financial Position of a sOIe
122000 tradθ ris as foⅡ oWs:
abⅡ itiθ s
Current Ⅱ (14000) 14000
$
10gO∞ Nonˉ current assets
Goodw"l 30000
Goodw"Iis valued at$50000 Plant and machinθ ry 100000
What should be paid forthe net assets ofthe Net current assets 50000
business? 1BO∞ o
A$116000 B $119000
C $166000 0 $169000 A company purOhased the business,paying for
the p|ant and machinery and the net ourrent
A company paid$18mⅡ Ⅱ
°n to acquire the assets atthe valuations shown aboVθ
business of a so丨 e tradθ r The sOIe trader’ s assets The company se廿 |ed the purchasθ price by
and ⅡabⅡ ities Were vaIued as foIlows: ‘sulng200000ordinary shares of$1at$150
per share
$ HOW muoh did the oompany payfor Goodw"l?
NOnˉ cu"ent assets 700000
A$30000 B $50000
Current assets 300000
C $120000 D $150000

⑽
~
1.The foⅡ owing is the statement of Financial Position NOn℃ urrent ⅡabⅢ ty
~
ofthe Erchetai pa"nership at30Ap"12011 Loan lcarrying interest
~鲫

at8阢 per annum)

NOnˉ current assets $ $
GoodWⅢ 50000
⑽

lntangibleˉ Padners’ capitals

Tangible 928000
978000
Current assets 0n30ApH12011,lstaimy plo acquired the
InVentofy 00000 business ofthe Erchetai pa"hership The fo"owing
Trade receh`引 Jes 孔 000 ma廿 ers Were taken into considerat∶ on in fiXing thθ
Ca$h and cash equiVa丨 ρnts 800ClCl terms ofthe aoquisition
196000 1 No depreciation had been provided on freehold
Curent Ⅱ
abⅡ i11ies:Trade payables 29000 167000 bu|Idings "was agreed that a proVision of
ii娟 000 $128000should haVe been made
 2 0n1AprⅡ 2011 Erchetai had ρurchased a $000 $000
machine The cost Was$60000 $20000 Nonˉ current assots
Was paid immediateIy The ba|ance is Land and bu"dings 1so
ρayable by four equalinstalments on1 May, PIant and machinery zso
1June,1July and1August,together w"h 翎
interest at the rate of12%per annum Only Current assets
the in"ial payment of$20000had been lnventory 15o
recorded in the partnership’ s books "ˇ Vas Trade Rece;Vables 141
ErchetaFs ρoⅡ cy t° depreciate machinery at Cash and cash equiValents 69
360

猢
the rate of15%per annum on cost,and to
Current"ab"kies

一⑻ 们~~
provide for a fu"year’ s depreciation in the
Trade Payables 1∞
year of purchase
3 A customer oˇ ˇ ∶ng$5000at3o AprⅡ 2011has Non讠 urrent Ⅱ
abⅢ ˇ
since beoo丨 ηe bankrupt Erchetai has been
Loan from Kay at12%o/。 per annum
adVised tha1kW‖ receiVe$020for every$1the

猢⒛猢~
Customer oˇ Ves Financed by capital aooounts:Kay
4 1nventory has been VaIued at cost InVestigat on Ola

一 猢
shoWs thatifinventory had been valued at net
rea"sable vaIue"vvou丨 d haVe been Valued at$28
000 1f separate valua刂 on atthe IoWer of cost Fu"her informat∶ on
and net reaⅡ sabIe vaIue had been apρ Ⅱ
ed to 1 The assets(nc|uding the bank account)and
each item ofinventoγ it Wou丨 d haVe been、 current Ⅱab""ies were taken oVer atthe
`aIued
at$30000 fo"oWing va|uations
The purchase considerationˇ Vas satisfied as
foⅡ oWs∶ $000
● The IOngˉ term loanˇVas saⅡ sfied by the issue of Land and bu"dings 220
$80of10%debenture stock20祀 眨020for eVeγ P丨 ant and machinery 170
$1000fthe loan lnVentory 128
● The pa"ners Were issued,for eVery$5000of Trade Receivables 105
cap"aI,with∶ Trade Payables 138
3× 8percent n0nˉ redeemable preference
shares at$120per share,and3ordinary 2 Kay received su矸 iCient10%Convedible Loan
shares of$1000each at$1250 StoCk to ensure that she continued to receive
the same a丨 ηount ofinterest annua"y as she
Requred
had reoeived as a partner The terms ofthis
Prepare thejournal entγ to record the purchase
issue give Kay the option t° have the debenture
ofthe padnership business in the books of
stoCk ConVe砣 ed to ordinary shares in Joel Ltd
lstaimy pI° Your answer shou|d inClude cash
transaCtions
on1June2013at$125ρ er share
3 The balance ofthe purohase price was sett ed
2 0n1Apr"2011Joel ud acquired the pa"nership
bythe a"ocation of300000shares in JOeI Ltd
business of Kay and OIa The pa"nership
to Kay and Ola at$150per share
statement of FinanciaI Pos"ion at31 March2011
was as foIbws∶ JOeI ud9s statement of FinanciaI POsition at
31 R/arch2011ˇ vas as fo"oˇ Vs∶
 sO00 sO00 sO00 preserve the cap"aI structure ofthe company,a

蹈龇~叨
NOnˉ current assets reserve equa丨 to the amount ofthe debentures
Land and bu"dings redeemed was created
PIant and machinery
Required
(a) Preρ are JoeI Ltd’ s statelη ent of FinanciaI
Cufrent assets POs"ion as it appeared immediateIy aRer"
Inventory 381 had acquired the pa砣 nership of Kay and O|a
Trade Roceivables 519 and redeemed the8%debentures (show a"
Cash and cash equivaIents 420 Workings)
1￡ 吃
⒉a
(b) Ca|cuIate the prof"required on JOeI Ltd’ s
Current Ⅱ
abⅡ
investmentin the partnership business to
"ies
Trade Payables 500
~
~ produce a return of25%on the investment
佃
⑻
8%debentures
㈤~一
0n1June2013the market price of Joel Ltd’ s
2011`2012 猢 shares was$137

RequIred
Equ"y (c) (◆ state,w"h reason,Whether Kay shouId
0rdinaγ shares of$1 1350 ConVe叶 her10%conVertib{e|oan stock
Retained eamings 1⒉ ⒋8
into ordinary shares in Joel Ltd
2598
C◆ state the e矸 eCtthatthe converson° f

|mmediately fo"owing the acquisition ofthe Kay’ s10%conVertibIe Ioan stock|nto

partnership,JOe|ud redeemed ts8%debentures sharesˇ vou|d have on Joel Ltd’ s
2011/2012at a premiu丨 η of4% 丨
n orderto Statement of Financial Position
 PubⅡ shed company accounts

● the finanoiaI statements and repo"s that must bo pub"shed and sentto shareholders
● repo汛 ng standards relating tO In∞ me statement
● roport∶ ng standards reIalng to statement of Financial Position
● the contonts of dirθ dors’ repons
● theimportanoe of aud∶ to“ y reports

271 Introduction to pubⅡ shed ● 血 nd managcrs managlng cⅡ cilt愆 inxrcstmcilts

company accounts ● dlc stock Exchanges

Sharcl△ olders d° ilot usua△ l,mai,agc tllclr company 272 The Companies Act1985
tullcss dlcy/alc also dlrccto￡ s of伍 c col△ lpany口 k
Thc OveraⅡ ° bjcctlvcs ofa sct of ft,lancia1
dlrcctors act as stc、 ds of dlc sharcholdcrs’
`盯 statcmen“ is that tllcy pr° 讧dc a″ 囫 i加氵汤勿°f
lils/esttYlcnts Jil tllc∞ mpany1d△ cy arc h a posi0on of '彳
dlc pro丘 t orloss ofthc company for the year and
trust Thc C° mpalucs Act1985cn“ 止cs that dlc
山at thc Statcmcnt° f Fi,,ancial Posio° n1ikcwisc
dlrect° 灬 accoul,tto dlc sl1・ arcl△ oldcrs Ⅱ繁歹iady for d△ cir
欲cXX°ardslup of dle compai△ v Thc doctlfncnts xxllltˉl△ alc ⒏、 ℃s a truc and± air、 icw of the statc of aff蛀 rs° f
thc company atthc cnd of d△ c￡ nanciaI ycar Thc
reqmFCd to bc prcparcd alld pubttshcd aiullla△ v盯 e∶
xvclrd r//w`rnay bc cxplalncd in stillplc tcrms as
● Inc° mc Statcmcnt
mcaning that,if tlnancial statcmcnts indicatc that a
● statcmcnt of Finano/al Po虹 u。 n
transacoon has taken p1acc,thcn it has act△ laⅡ y
● statcmcnt of Cash Fl° ws
takcn pIacc If a statcmcnt of「 inancial Posioon
● Dlrcct° rs’ rcport
rccords the cxistcncc of an assct,thcn thc connpany
● Audltors’ rcp。 rt
has tll/at assct Thc w° rd弘;rimpⅡ Cs tlaat
Ihc・ sc doclllncn“ must be sentt° sharcholdcrs1n
transacoons,or asscts,arC§ ho、 rdancc with
adx・ ance° f cvcr/annual gcncra1rnccjng Thcy rnust `n in acc°
acceptcd accounong rulcs of cost or v/aluaj° n
also bc scnt to dcbcnturc holders Thc dircctors lllust
Whdo环 /drcsshg dcscrlbes a仗 cmpts by dlrcct° rs
丘lc an annual return,which inchdcs thc annual
°fa colnpany to m^kc a state血 cnt of Financia1
accounts,x△ lth thc Rcglstrar of Compail屺 s,and dlc
Poslo° n to sho、 v the mlan0al po⒍ oon° fc° mpany to
rcturns rnay be inspcctcd by any rncmbcr of thc bc bc仗cr dlan△ rcally^For cx钔 叩 lc,伍 c dlrcctors
pubhc Apart troill sharcholders and dcbcntLlrc may cause chcqucs to bc drawn and cntered in dlc
ho1dcrs,o伍 er persons wbo lnay bc intcrcstcd in a books° f account° nd△ c last day° fthc丘 nancial ycar
company’ s accounts arc: but not scnd thc chcqucs to dle credltors unul dlc
● tradc and° thcr crcdltors next flnancial yca‘ Tbjs woldd have d△ c cffcct of
● prov△ dcrs of long-term flnancc such as banks artl丘 oaⅡ y
rcducing a company`Ⅱ abiⅡ 刂cs in thc
and丘 nance h° uses Statcmcnt° f Finanoal Po立 o° n,butit wc,tdd not glvc
● trade uilions,rcprcscnjng d△ ec° mpany飞 a truc and± alr、 △
cM厂 bccausc d△ c crcdit° rs had not,in

w° rkf° rcc fact,bccn paJd An attcrnptt° inllatc thc rctalncd

● En洫 o甜 anall,sts Clllplovcd by thc丘 nano时 p至 $ pro血 f愆 址ch伍 c stateinent of Fo△ anoal Posio。 n by
includhg Llntcallscd pronts in thc Incomc statcmcnt 伍c Unltcd垦 Ⅱngdom Intcrnau° nal acc° untulg
、 uc and falr呐 cw Thc Compa1ues standards have been devcI° pcd in thc f° rm° f
`ould not gjs c a“
Act1985吼 atcs that ody profits whcll h盯 e been Internad° na1Accoundng standards(IAss)and
rc・ aLscd at thc Statcmcnt of Fmanoal Posiu° n datc Intcrnadonal Fhancial Rcporthg standards
shaⅡ be included lil the Income statement, (IFRsΦ “nce⒛ Os诫 伍 伍c缸m of harm° Ⅱ血s° r
The ac∞ ui△ tli△ g pⅡ ncolC° f substancc OKr form standardtsing丘 nancial rcp° r刂 ng Itis only a1na仗 cr of
lsCC§ 91a is onc accoun色 ng pⅡ nclplc intcndcd t° omc bcbrc由 c Vssarc adopted by aⅡ c。 mpamcsin
gIx c a truc and fair说 郯 ` d△ c Ulutcd承 乙ngdom.Indccd,many ofthc
schcdulc ΓV of tl△ c Compa血 cs Act1985scts out mIdunaoon/al comparllcs arc now using dlem
ru1cs f° r thc prcscntaoon of company accounts If Thc CIE syⅡ abus idcntlfles a nutnbcr of
accounts prcparcd in accordancc泓 △ dh thosc rulcs do intcrnau° nal accounong standards,山 c contcnts of
not pr郯 ficicnt informa刂 on to rncct the 、丬砬ch smdcnts nccd to bc a、 〃re of Thc fouoxv・ mg
`dc sulˉ
rcquircmcnt to present a true and± alr v△ esx/, tablc idcnjfles these,S° mc haˇ c/akcady bccn coˇ ℃rcd
● any ne∞ ssary lil幻 rnla。 on mustbc prΦ 耐cd h thc h° 山er chaptcrs Thc rcmalmng ones and s° mc
Flnancial statcments,or in notes to山 e acc° unts aspccts ofthc Othcr not pr∞ious圩 mcn。°ncd硒 iⅡ bc
● if nccessarB because of special circumstanccs, covcrcd here The ftJl dcta吐 °f thc stalldards is± ar
thc dlrect° rs shau depart fr。 m伍 cn° rm・al rulcs more than o rcqulrcd b￡ thc αa而 nadon,0】 r〗 1jly tllc
in order t° prescnt a truc and falrˇ △
cw and statc rclevant parts ofthc standard wiⅡ be covcrcd,
why伍 叮 havc dCpartcd± rom thc normal rulcs,
ηhesc rlllcs arc犯 so± lcludCd h d随 Compamcs Act2006, IAs Topic Cααcd h
1 Prcscntaoon of nnancial statcmcn“ Chaptcr23
273 GeneraⅡ y accepted accounting 2
7
In・ vcntoncs
statcmcnt。 f cash no〃
Chaptcr20
s Cbaptcr zzI
pr∶ ncipIes(GAAP) 8 Accounung pohucs This chaptci275
10 Evcnts aftct thc statcmcnt of
Acc° unong standards havc bccn pubⅡ shcd as Fhanclaj Posiuon datc Ths chaptct276
sta∞ mcn“ °f standard Accounong Prac0cc6sAPsl 16 propcr0讶 plant and cqmpmcnt 1△Ⅱs chaptcr277
but,shcc1991,as Financial Rcporung standards 18 Re△ cntlc Ths cllaptcr278
23 BotⅡ o、 汀ng c。 sts Tbis ohaptet279
(FRss),by thC rcc° gmsed pr° fcssional accounong
33 E征 血η∮ pei shatc Ths cllaptet刀 10
bodics in山 cU血 tcd晌 ngdom Thc purposc ofthe 36 ImpaIrmcnt of asscts Ths chaptct27ii
standards1s to cnsurc compⅡ ancc、 37 Pro△ Isions,con臼 ngent Ⅱabdlt1cs and
^th thctme and Ths chaptcr2713
falr~△ c、vc0nCCpt,and thcy are of丘 cia△ y rec° g0scd Con位 ngcnt asscts
38 1ntMglblc a$cts Ths chaptcr2714
in thc Companics丿 Ⅻ c° mpaⅡ cs arc
`ct1985
rcquircd to comply``又 1dh the standards,or to pubⅡ sh
As wc hasc∞ cn througllOLlt thc sccuons° n Ⅱnitcd
rcasons for depa± dng from thcm,
`∶

∞ mpalues,Compan△ axx h山 cU血 cd Ⅺ llgdom热 °

1・

Company auditors arc rcquircd to cnsurc that

plays an iyPorunt patt h thc wPty血 anoal accounts
company accOLlnts a± e preparcd in accordancc初 1伍
arc prcscntcd In pam洫,止 m艇 s it a rcqllircmcnt
thc standards and to rcport a” 唤驷 丘cant dCparmrc
凡r compantcs to stΞ 西
tc that their acc【 ltln‘ haXˉ c bccn
from伍 e吱 狙】 d脚无 to tbc sharcholdcrs,Thc standards
prcparcd in accordance with appⅡ cablc accounjng
hclp t° incrcasc uniformity in thc prcscntation of
standards Ifthis has n° t bccn the casc thcn dctaⅡ s
company accounts and to rcducc thc subjective
must bc glvcn as to why not
elcmcnt in thc disclosurc ofinformajon
smdm“ arc not rcqlured to knosx d△c hsto丘 cal 274 FRs18ACcounting po"cies
⒌R
backgrotmd to mc° ngn。 f thc accounmg s△ rx弦 山且
Although n°t an accounjng呲 andard,a
′≮饣 mp“匆‘ hossese乌 for smdcnts to lcatn dlc
F%饧吻
饣钞夕k has bccn dcvel°
P・ pcd by thc body
rcqtwenlcilts o± 山c出洳血ds rcfcrrcd to h ths chapt∝
whch scts thc Intcrna刂 onal Acc° unm△ g
since1991Financial Rcporong Standards have
standa± ds,Thssc“ out thc prmclples wljch
bccn issued by thc rccogiJscd accounjng bodlcs in
undcrⅡ c thc prcparation and prcscnta刂 on of that wcrc thc casc,thcn thc dlrect° rs wOuld
丘nanc1al statcmcnts Thc「 ralncwrj,rk idcn乜 丘cs thc havc to prcparc the± lnancial statcments on a
main uscrs of Ⅱnancial statcmcnts as: diffcrcnt basis
Thc framcwork surroundlng I~As idcnj± lcs thc Thcre are a nLItnber of odlcr acc°un讧ng conccpts
勹pical uscr groups of accotliil0ng s忱 tcmcn“ Thc xv・l△ tch shoLJd/also be con⒍ dcrcd whcn prcpartng thc
tablc bclow idcniΠ cs thcsc uscr groups(stakch° 1dcrs) llnanoal statements~Thesc havc also bccn dlscusscd
Ⅱ
and gts℃ skc灯 rcasons Oy n。 mca灬 cxl△ ausovo for clsc灬
`hcrc in dlc text Thcy arc:
伍em rcfcrong t° Ⅱnancial statcmcnts∶ ●Busincss cnuty(sce§ 92)
M亦 n uscts Reasons fot。 se ●Matcrla1ity(scC§ 98)
Invcst° rs ● To asscss past pcrformancc as a basis ior
●Consistcncy(scC§ 97)
fuulrc lnvcstmcnt ●Prudcncc(sCC§ 910)
Ernployecs ● T° asscss pcrlormancc as a basis of ftlttlrc ●Moncy m吻 sLlrcmcnt(⒃ c§ 9Φ
wagc and sal缸 γ ncgouauons
庐d ofthesc arc dc⒍ gncd to cnsurc that thc
● To asscss perf° rmancc as a ba“ s for cononul,
of cmpl叻 mcnt and iob⒃ ctlJs, hforma刂 °n providcd in thc± lnancial statcmcnts is
Lcndcrs ● To asscss pcrIOrmancc in rcIaoon to the usc± Li to uscfs with允 ur° blcct卜 csin min山
sccun,of dlClr I。 an to dlc company
● rclcvancc
suppllc小 ● To asscss pcrformancc lil rclaJon to曲 cm
Inf° rmatlon shotid havc thc abⅢ ty to inllucncc
rccclvlng Paymcnt of dlc△ ⅡabⅡ 艹
Cust。 mcrs ● To asscss pcrformancc in rclaooIl to伍 c thc cc° nomic dcclsions ofthc uscrs ofthc
ⅢcⅡ h° °d of cononlll,of tlamg statcmcnts,and bc prox,ldcdin ome t° influcncc
Govcrnmcnt ● To assCss pcェ formancc in rclauon to thosc dccls1ons
comP⒒ ancc to rcgldaoons and assessmcnt of
taxatlon habillocs ● reⅡ abiⅡ 饣
PubⅡ c ● To asscss pc攵 formancc nl rdaoon to cdical Inf° rmaoon is rcⅡ ab1c if it± ai伍 Rdly represents
tladmg thc facts and is trcc from bias and material crro⒈
、7hen prcparing Πnancial statcmcnts it is It must bc c° mplctc‘ vsitlun the b° unds of
assumcd that thcy arc prcparcd on an accrua1s matcri碰 tv’ and prudent1y prcparcd
bas1s and thatthe bus1ness1sa go1ng conccrn ● comparabⅡ i〃
Thcsc havc bccn mentioncd ptcviously in thc tcxt It shotid be possiblc to comparc intc,rmaoon
with sirnⅡ ar inf° rmaoon aboutthc companyin
●Accrua1s(sCC§ 99)
C° mpanicsmust compⅡ e their flnancial a prexn° us pc⒒ od← cˉ ild analv斑 s_scc c11apter2Φ
and xsylth sltnJar hlorⅡ ⒓乜on about odler
statcmcn“ lCxcCpt statemen“ of cash且 owΘ
on an accruals basis This lneans that
compatllcs0△ ℃
⒈trm c。 mpatlson-see cllaptcr2Sl

transact1ons arc rccordcd in the acc° unt1ng ● undcrstandabⅡ ity

pcriod in which thcy occur and to、 vhich
thcy rclatc,n° t whcn cash is rcccivcd or paid
pk good cxamplc hcrc is a salc rnadc On crcdit
The salc is rccordcd in thc m° nth it takcs
place The cash may bc rcccivcd forit some
months aftepⅣ ards,pcrhaps cvcn in anothcr
account1ng year
● Going concern(sCC§ 911)
Flnanclal statcmcnts arc prcparcd on thc basis
and asmmp刂 on that伍 c bus1ncss wiⅡ c° nonuc
让adlng tor thc forcsccablc fuulrc Thcrc is no
htcnjon that thc busincss is to ccasc tradlng If
Information sh° uld bc ablc t° bc undcrstood
by users wh° havc a rcas° nablc kn° w】 cdgc of
business and accounting,and、 诉 诉
厂iⅡ ing
`ho arc、
to study thc inf° rmation rcasonab1y
dⅡ igcndy
275IAs8
ACCounting po"cies,changes in
accounting estimates and errors
Tlus statcment deals x△ ith thc trcatmcnt° f changcs in
accounjng csjmatcs,cha璁 ng in acc。 un刂ng poⅡ cics
and errors1n thc丘 nan(;1al statcmcnts
ACCounting PoⅡ cies
Thcsc arc the prlnclples,bases,conventions,rules
hcn
and practiccs appⅡ cd by a busincss灬 厂
prcpaⅡ ng and prcscnting its f【 nancial statcmcnts
These pohcies are seIectcd by the directors of the
busincss In sclccting thcin thcn thcy must rnakc
surc that whcrc an accoun0ng policy is givcn in an
accountlng standard then the poⅡ cy they select
must comply x△ ,lth thC standard
XVncrc thcrc is n° accoun乜 ng p° lcy prov1dcd to
glse gtudancc tl△ cn伍 e dlrectors must Llse the⒒
llldgcmcnt to⒏ ⒕ hformatIon th狨 ant and
^rcl∞
rchablc Thc dlrcctors must rcfcr to ally o伍 cr
standards or interpretatlons or to othcr standard
scting bodlcs to assist dlcm Ho、 K为℃r,thCy Fm△ st
ensure that thor subscquent interprctaoon or
rccommcndcd mcthod oftrca讧 nCnt for thc
transac刂 on docs not rcsultin conⅡ ct、没d,
internau° nal standatds or hterpretao° ns
ACcounting Principles
Thcsc arc covered in thc statcmcnt,although no
jon is⒏ vcn f° r thcm,伍 cy arc rcgardcd
forinal dcf△Ⅱ
as the broad c° ncepts伍 at app圩 to aLn° st a△
丘nanci犭 11statcmcnts Thcsc would indudc such dungs
as going conccrn,matco/ah、 1prudcncc and
cons1stcnc⒖ mentloned car⒒ e‘
Accounting Bases
Thcsc arc thc mctho水 dcvclopcd for app与 注 ng the
accounong pr止 10plcs to丘 nancial statcmcnts Thcy
arc intcndcd to rcducc subjccuvl饣 by idCnofl/【 ng and
appl】
`ing acceptable methods
Thc gcncral rulc is that° ncc an cno″ ad° pts an
accounting poⅡ cy thcn it must bc appⅡ cd
consistcndy for⒍ milar transacJons Changcs ln
accounong poⅡ cies can° nly occur if thc changc is
rcquired by a standard or intcrprctation,° r if thc
change resu1ts in thc丘 nancial statcmcnts
providing rnorc rcliablc and rclcvant information
oncc any changcs arc adoptcd thcn thcy must bc
appⅡ cd rctrospcctlxrc圩 to nnan。 /al st狨 cmcnts TⅡ s
mcans that the presˉ lous丘 驷 e for eqm-y and othcr
f1grcsin dle hc° mc statcmcnt and statcmcnt of
丘nancial p° sition must bc・ altcrcd,subjcct to thC
prac砬caltics° f calctiaong thc rclcˇ 么nt amounts,
DeaⅡ ng w:th errors
If an crror in the丘 nancid statcmcnts is discovcrCd
伍cn thc business must corrcct matc茁 al crrors from
prlor pco° dsin dle next set of fmano狃 statcmcn“
Comparauvc aln° tlnts± rom prc说 ous pcr1° ds must bc
restated,wbjcct to thc pracocahocs ofcalculaong thc
rclcvant amounts
In this instancc crrors arc Omissions from or
misstatcmcnts in thc busincss nnancial statcmcnts
covcring onc° r rnorc prior pcriods Thcy could
bc somcthing as sirnp1casa m^thcmatical mistake
madc whcn preparing the acc° unts,Thcy may
卩lso include the faⅡ urc by dircctors to usc rcⅡ ablc
informati° n which、 /as avaⅡ ablc whcn thc
丘nancial statcmcnts wcrc prcparcd,
2761As10
Events a“ er the statement of FinanciaI
POsition date
Thcsc are events,elther favourablc or un± ax,ourable,
which occur beb〃 een thc statcmcnt of Finanoal
Posijon datc and thc datc on、 1ich thc￡ nancial
statements arc aLlthoⅡ scd f° r issuc,hav1ng bccn
approvcd by thc sharch° ldcrs at thc Annual General
N1ccong such itcms】 nay occur as a resdt of
informao° n环dich bccomcs ax・ aJable a± ter thc cnd
°fthc ycar and,thcrcforc need to bc山 scloscd in由 c
accounts If they occur then am° unts inClLldcd in伍 c
丘nanoal statcments must bc adjustc山 thcy may
indcatc dlat the gohg conccrn is not appr° prlatc to
dlc丘 nanclal statcmcnts
The kcy必 thc pont h tmcat、 注ich challgcs to thc
Enanclal statcmcnts can bc rnadc,Oncc thc且 nanclal
stateinciilts ha、 ℃bccn approvcd fori“ uc bythe b° aJid
of dircctors伍 cy cannot bc狃 tcrcd For exan△ plc,thc
accOLmts atc prcparcd up to31Dcccmbc‘ 犰 cy arc
appro△ cd凡 r isstle” thc b° 龃 drcctors c,n30.Kprl
olˉ
h伍 e勤 Ⅱ°wmg,℃ 绁 Bc嘟、cn these№odates,changcs
rcsd缸 鬯 &° m四 ∞ “ a丘 cr31Dcccmbcr can bc
山sdoscd h山 e acc° m‘ Aftcr30.KprJ nothmg can bc
challgcd und thc ncxt a|uLlal acc° un“ arc prcparcd
Thc statcmcnt dlsungLushcs bcⅡ 评ccn灬 V0bpCs of
cvcnts:
1,Adjusting events
Iξ atthc date ofthc s仫 tcmcnt of Fhancial
 Posioon,cvidcncc of condto° ns cxlstcd that h伍 c flnal accounts,Thcy arc non-adjusung
wOLlld mateⅡ auy a± fcct thc fmancial cvcnts and arc n° w to bc sho、
`n by、`ay of
statcmcnts thcn thc丘 nancia1statcmcnts should a notc to thc acc° unts,
be changed to rcΠect thesc condloons o)Iξ anct thc datc oftl△ c statcmcnt of
Examp1cs of ad,usdng Cvcnts codd inchdc: Fhanc1al Posluon,tbc dlrcctors dctcrn△ nc
● thc sctdcmcnt aftcr thc datc of thc statcmcnt that thc bus】 ncss1ntcnds to ccasc trading
。f nnan。 aI posloon of a Court casc、 △ich and that thcrc is no altcrna刂 ve to this
∞ nftms that an° bLgauon e蛀 哎cd缸 thc datc coursc of acoon,dlen the丘 nancial
°f thc st・atcmcnt of flnanoal p° s⒒ ion, statcmcnts cannot be prepared on a gomg
● thc purchasc pⅡ cc or procccds￡ rom thc salc concern bas1s
of a non亻 urrcnt郎 sct bc,ugl,t or sold bcbrc ⑶ Ab灬 hCss must disdosc thc d狂 C WhCn thc
thc ycar end but are not kno、 诉 fmancial statcmcnts wcrc au伍 °Ⅱscd for
`n about at the
datc of thc statcmcnt of flnancial posijon issuc and who gavt that au伍 orlsaion If
● mvcntorlcs xx hcrc thc nct rcalsablc valuc anVonc had伍 c powcrto amcnd thc fln狮 cial

falls bcl° w山 cc° st pⅡ Cc statcmcnts a丘 cr thc1r authonsa刂 on曲 en dus

● asscts whcrc a valuaoon shows that fact must also bc dlsclosed
imp钔 伊mem h reqmred
● tradc rcccivablcs、 277IAs16
`hcrc a customer has
bccomc1nsolscnt Prope"y,pIant and equipment
● thc dlscovC呷 0f naud。 r crr° rs xs・ hch sh° w
thc accounung trcatmcnt
Tl吐 s statcmcnt dcals svld△
thc flnancial statcmcnts to bc inc° rrcct,
of thc non-currcnt assc“ of propcrb,plant and
2Nonˉ A叫 us刂 ng Events
cqulpmcnt,Thc osucs c° ˇ 饣rcd by thc s切 tcmcnt ar⒍
No adlusmcnt厶 madc to伍 c fn△ ancial
● thc rcc° gmuon ofthc assct⒌ whcn is the item
statcmcnts for such cvcnts If matcrlal,thcy arc
rccordcd in thc accounts
dlscloscd by way of n° tcs t° thc flnancial
●the deter± lllna0on of thcir carr,ing atnount⒌
statcnlents
w・ hat valuc is pIaccd on itin thc丘 nancial
Exan△ ples inc1ude:
statcincnts
● m钔 °r purch灬 c of灬 scts
● thcir dcprcoaoon chargcs
● l° sscs° f producuon capacit9I causCd by flrc,
● thclr impalrmcnt losscs:、 严 hat happcns whcn thc
n。 。
击。rs缸 kc acoon” cmployCCs
alLIc° f thc assctis bclow than伍 at shown in
xˉ

● announcemei△ t or co血 mcncemcilt of a malor

d△ c acc° unts
rcconstruc砬 on of thc bu“ ncss,
● thc∞ mpa叩 cntcrmg hto晚 1Proper饣 ,plant and cquⅡ mcnt
commitments or contingcnt⒒"kailt
abⅡ itics These are tan要 blc assCts hdd for usc in thc
● colnmencmg Ⅱugaj° n based° n events production or supply of goods and sc四 △
ccs,
ar1smg aftcr thc datc ofthc statcmcnt of f° r rcntalto othcrs and for adn1inistrativc
flnancial posio° n purposcs,Thcy arc cxpcctcd to be uscd by
● m苟 °r sharc transacoons,such as thc issuc of thc busincss for rn° re than a pcriod ofrnorc
ncw sharcs and dcbcnturcs or capital than onc year
rcducu° ns° r rcc° nstruct1ons, For cxample,an c° mpany may buy somc
Thcrc arc山 rcc s1臼 aa00ns1n addl刂 on to dlc plant and rnachncp`at a cost of$15000 It
ab∞℃M・ hch rcqmrc cons⒙ cra刂 o⒍ cxpccts thc plant to be used for10ycars and at
⑶ Dl,ˉldends dcclared or pr° posed after the 伍c cnd ofthat omc t° bc sdd for$1000Thc
datc ofthc statemcnt of Ⅱnancial p° sioon dcprcciablc amount x1・ Jl be$14000 Asstlining
arc no longcr rc∞ g诋 cd as a currcnt Ⅱabd灯 d△ c compa” uscs伍 c stralght Ⅱ nc mcd△ od of
dcprcciauon,thcn each year$1400sstu be
recordcd as an cxpcn∞ nl thc Inc° mc in cffcct the nct book valuc of thc asset
statcmcnt,Ths cxamplc allows re± erence to be sho、
`n in thc statcmcnt of flnancial
made to thc dc且 nloons includcd in山 c pos1t1on
standard Thcy arc: At what polnt docs an cno″ reco⒏ isC diC assctP
1,Dcprccia刂 o爪 orput m° rc simp玩 at what p° int^伍 c assct t° bC
Tlils1s thc aⅡ oca刂 on of dlc cost of an assct rccordcd in伍 e fmancial statcmcntsP Tlus lnLlst be
ovcr its usc± td Ⅱ免 Ths wⅢ bcthc$1400 donc when itis pr° bablc that thc busincss wⅢ be able
wrlttcn off cach ycar to use1tto gcncratc rcvcnuc and a cost can be
2 Dcpreciable amount ass1gi△ cd t° it Oncc an ltcm of proper” ;pl/ant aiad
Tlus is dac cost or v・aIuao° n° f dlc assct,lCss cqmpmcnt quaLfles br recogiu乜 0n灬 an灬 sct by
any rcsidual am° unt Tlusx△ △lbc伍 c丘 gurc of mccong thcsc cntc红a,thCn1t1s brought1nto the
$14000⒃ 15000-$1000l accottnts and initia⒒ y△zalued at cost
3 1Jscful Ⅱfe Additional costs assoCiated w:th the asset
Tl△ ls is llsualv・ thc leilgth of ume± 。r whch ajl
The statcmcntrccogmscs thatin addoon to thc
assetis cxpcctcd to bc uscd,Ths、 注Ⅱbc tllc
initial purchasc pricc of thc assct,othcr am° unts
pcriod of10γ ℃ars f° r wluch dle company
may also bc spent° n it,Thc statcmcnt provides
htends to hold alld usc thc plant Thcrc is an
thc follo、 汀ng guidc⒒ ncs t° assist、礻th the
altcrnaoˇ c If thc assctis dcpreoated on the
treatment of such cxpcndit0rc:
basis of dlc numbcr of uⅡ tsit produccs thcn
1 Dayˉ t° ~day costs of scrvicnlg or rcp^Ling伍 c
伍c csomatcd output of thc ltcm over its
assct should bc charged as cxpcnditu=c in thc
useft△ △fe can be uscd
Inc° mc statcment
4 Rcsidual,/alue 2 Ⅴ7hcre parts rcqukc rcplaccmcnt at rcgtllar
Thc net伽 °unt thc bus△ △
css cxpccts to
inters als,say thc scats in an aeroplanc,thcn
obt・alia f° r an assct at thc cnd of its uscftj Ⅱ±
e,
thcsc c° sts Can bc added to thc cost° f thc assct
atter deducong thc cxpcctcd costs° f<Lsposal 1n thc Statcmcnt of Financ1al Pos1o° n and
Thsxsu bc山 c flgurc of$1OO0,whicl△ 伍e dcpreciated acc° rdL逶 沙y
company hopes to scⅡ thc assct for at thc cnd 3Wherc伍 c assct rcquircs rcgliar inspccoons h
of its usc丘 △Ⅱfc, ordcr f° r thc assct to con0nuc opcraong,伍 cn
Thc standard als° uses somc othcr tcrms whch 伍cc° sts0f such inspccoons can also bc addcd
Vou nccd to bc aw叼 吐c of to thc cost° f亡 hc assctin thc statcmcnt of
1 Fair va1ue Finanoal Posio° n and dcprcciatcd acc° rdln匪y
This is thc am° unt for which an asset XNllen tlac灬 sctis purch灬 c-,apart】 om"s orlglnal
could be cxchangcd bc小 Ⅳccn cost a busincss may also pay othcr c° sts as part of
knowlcdgcablc,xLllling partics in an arnl’ s thc purchasc pⅡ ce Thc standard pr° v△ dcs
lcngth transaco° n,I乌 f° r cxamplc,aacr informaoon as to what can bc included as part of
fivc ycars thc company dccidcd to se1l the the cost in thc statcmcnt of± lnancial positi° n:
plant,it lllay offer it t° a buycr at$5000 ●any imp° rt du刂 cs,taxcs dlrcctˇ attrlbu么 ble t°
This would bc rcgardcd as a fair value f° r bⅡ ng d△ c assct to its prcscnt l° caoon and
thc itcm bcing sold condit1on
2C缸 r,tng amount ● dlc c° sts° f sitc prcparation
This1s thc am° unt at which an asset1s ● ln1ual dcⅡ vcrsi and handltng c° sts
rccogniscd in the statcmcnt of± lnancial ●instaⅡ auon and asscmbly costs
position,aftcr dcducting any accumulatcd ● C0st of tesjng thc assct
dcprcciati° n and impairmcntloss This is, ● pro亿 s“ °nal± ccs;say archtcc“ °r lcgal炙cs
Valuation of the asset DisClosure in the financiaI statements
oncc thc assctis acquircd thc busincss rnust adopt For cach class° f propcr”;p1ant and cqmpmcntthc
onc° fo评 °Fnodcls tor its valuation: 丘nancial statcmcnts Fnust sho、 v:
1,Co针 lc“ accumtJated depreoaoon ●thc b灬 ng amount
2Rcx,aluauon~伍 c灬 sctis hCludcd Ca血 cdl at a ^br dctcrmining
● thc dcprcciauon tllc
rncthod carr”
uscd
rcvalucd amollnt,RcxraltIadons arc to bc madc ● thc uscful Ⅱfc or dcpreciation rate
rcguhrlv by s讧 t/abl1・ qL】 aLflcd people to enstre ● thc gross car9△ ng am° unt at伍 e beglnning and
dlat thc cars,tlg amount docs not dl± fcr cnd ofthc accounong per1od
/alLlc of dlc ass∝ 狨 tl|c
1rld)7f勹:()m thc f血 △
slgnl舵 么 ● the accumulated depreciation and impairment
datc ofthc statcmc趾 0fFh狙 oal Po血 on l°sscs at thc bcglnmng and cnd ofthc
RexalLlaoons should bc undcrtakcn by thc accoun刂 ng pcri° d
buslncss cvC呷 tlrCC t° hc ycars,m△ css asscts绁 c ● addlu° ns durmg thc pcllod
boLlgl△ t and sold丘 ccltlcnd,r,Ifan灬 set is res/alLled
●dlsposals dl1rmg thc pcrlod
dlen、、,asset h伍 at dass mustbc r∈ valucd ● deprcciao° nf° r thc pcrlod
Tbus,if onc paJ・ ccl ofhnd aiad bLld山呜s is
Thcsc arc Ⅱkcly to bc sho、 n-
rexalucd then au land and bLuldulgs inLlst be `n by way ofa n°
currcnt assct schcdu1c and included as a n° tc t° thC
∞valucd颇 y surphs on rcv・ aluao° n^
accounts
trails庀 rrcd to thc cqLu,scc0° n° fChc St/atcmcnt

of Flilanoal Posltlon as a Revalllaoon Reserve,dis Example

may not bc uscd to pay dhidcnds to thc Non-cwjIcnt asscts
sharch° ldcrs Anyl° ss° n rcvaltlatl° h is Cost prcnllscs plant and 小江otor %tal

跏蛐⒛
rccogused as an cxpcnsc L】 dlc Incomc Statcnlcnt Macb注 ncry Vchiclcs
$000 $000 $000
Deρ reciation Cost at start of ycar沐 400 230 1430

绱⒆饰
Rc△ alua刂 on 200
Thc cxpcctcd lifc and rcsidual valuc of thc assct
Addltl。 ns duong dlc uar 170 416
..~咖
arc to bc rcvicM/cd at lcast annuaⅡ y If thcrc is a Disposals duⅡ ng thc ycar
~ (90 (17Θ

~缅
dl± ±
ercncc± rom pr^`° us csomates dis must be Cost at cnd。 f ycar 304 1870

跏㈣啷⒆~
“ ⑿~
iCc° ⒏小 Cd灬 a changc in an∞ omatc undcr IAs8 Deptcciation
Ba1ancc at start of ycar衤 40o
◇′cc° un乜ng p° Ⅱocs,changcs in acc° untlng csulnatcs
R四 aluaoon ←

.⒛
.邮

0()〉
and error9 Depreciajon must also con刂 nue to be
m猢

Chargc during year

.〓

chargcd cxrcn if thc fairˇ 么luc of an assct cxcccds its Disposals

臼
一销
一确

carrvlng amount Howcwr,dcprcciau。 n nccd not bc

._~

Nct Book Valuc

charged whcn thc rcsidual valuc is grcater than由 c
At cnd° f ycai衤 1000 150 1415
carrγ 咀g arnount Dcprccia刂 °nisto bcinchdcd as an 衤Dates at thc staェ t and cnd ofthc ycar、 vould bc providcd in
cxpcnsc in thc Inc° mc statcmcnt pract】 cc
The business must choose a method of
dcprcciati° n which rcnccts thC pattcrn ofits usagc Notc A rcvaIuaoon rcscrˇ c of$600000
ovcr its uscful cC° nomic1ifc Idcally,oncc it has (200000+400000)、 砬l havc bccn crcatcd at thc
dccidcd on thc mcth° d this should not bc cnd° fthc ycar and rcc° rdcd in thc cqLli饣 sCc。 on of
changcd Itis possiblc though to rcvicw thc ule statcmcnt of Fmancial Posklon The± lnal ⅡgLlrcs
mcth° d and if a changc in thc pattcrn of usage° f f° r nct b° °kv狃 uc wiⅡ bc rccordcd in the statcmcnt
thc assct has occurred then the rnethod of of Financial P° siion
dcprcciati° n sh° uld bc changcd to rc± lcct this
such a changc、/ould Comc undcr IAs8 ⒉:81As18
、￠hcn thc assctis s° k1° rn° f△ dhcr futurc cc。 n。 llc l△
Reˇ enue
bcnc丘 “时cc洱pCctCd丘 om"su∞ AnI p⑩ fit or lo“ on
Rcvcnue is deⅡ ned± l the statcmcnt as‘ lrlc gross h且 .v
1∶

dlspos缸 is sho丙 n h tl△ c Inc° mc st狨 cmcnt

of ccon° lilllc beneEts aⅡ sl±△
g from dlc ordmallracdv】 乜cs
of an cllu勺 /Ths means sales,clthcr° f goods or
scpnces It als° △lcltldcs inc° mc fr° m liltcrcsξ
△lterest,山羽 cnds rcccl△,cd atad ro】 11ucs rccchcd aild
驷 s fron1non-rcvcnuc actlxˉ lucs,such as thc procccds
`彡
from伍 c dlsposal of n° n-currcnt assc“ , borrowing funds This c° vcrs such things as bank
It docs n° tinchdc
moncy coⅡ cctcd by a busincss
on bchaIf of anothcr par%say、 ′ hCrc thc business
acts as an agent However,any comlnission earned
±
or coⅡ ecting m° ney as an agentis included as
revenuc,
、￠hcn a transacuon takcs placc thc alla° unt of
re⒕ nLlc o llsLlaly dccidcd by山 c agrccmcnt bc钿 ccn
thc b呷cr and thc scⅡ c⒈ Thc aln° unt of rcvcnuc
mcasurcd xwm takc int。 acc° unt any tradc dlscounts,
xsluch wⅢ n° t bc includcd as part of thc rcvenuc,
Thc salc of g° odsis to bc accountcd for whcn au
of dic foⅡ o、 ″ng crltcria havc bccn mct;
(⊙ thC sCⅡ Cr° f山 c goods has trans佗 rrcd to thc
buycr thc sIglliflcant rc灬 泗rds of owncrshlp
This is usualˇ whcn thC lcgal刂 dc to the goods
transfcr or posscssion ofthc goods passes
n。 m sc⒒ cr t。 buycr This covcrs goods s° ld on
a salc Or rcturn basis,、
`here the ude has n°
passcd froln se⒒ cr to buyer
(b)the se1ler retains n° c° ntinua1managcrial
Ⅱ小 lxcmcnt m and no cffccuvc control ovcr
`°
the goods Thc am° unt of rcvcnuc can bc
rcⅡ ab圩 mcasurcd
(c)it is probab1c that thc cc° n° mlc bcnc丘 ts wⅡ l
n°w rl° wt° thc scⅡ cr
(Φ thCc° sts hCurrcd,° r to bc incurrcd in respect
°f thc tJ・ ansacoon can bc rcⅡ ably‘ ncasured
Whcn thc incomc is intcrcst,the amountt°
rccogniscd is calculatcd using a tkne basis
(accruals conccptl If the inc° me is dividcnds,
thcsc arc broughtinto the Income statcmcnt whcn
thc sharcholder飞 right to reccivc paymcnt is
cstabhshcd Dividends rcccivcd arc broughtint°
thc accounts xx hen thc sharcholdcr’ s right to
rcccivc paymcnt is cstabⅡ shcd,
279IAs23
Borrow【 ng costs
This covers such itcms lil thc accounts as intcrcst
on bank° vcrdrafts and ho、
`thcy shou1d bc
rccogmscd in thc Income Statcmcnt° fthc pcⅡ od for
say b赧 wlich thcy arc incurrcd
A borr。 、 sts
^ng costis interest and othcr c°
incurrcd by a business in c° nnccuon with
loan or overdraft intcrcst Thc statcmcnt providcs
that borr° x△,lng costs arC to bc rccogniscd as an
expense in thc Inc° mc statcmcntin thc pcrlod in
which thcy arc incurrcd,
An altcrnativc to this is whcn thc borrOM犭 ng
rclatcs t° thc aCquisiu。 n,c。 nstrucjon or
producuon ofa quahⅡ廴ng asset In this instancc
thc borrox△ lng costs can bc capitaliscd as part of
thc cost ofthe asset F° r cxamplc,if an assct is
bc1ng constructed and is ftnanccd by usc of
borrowed funds thcn any intcrcst payablc On the
borroM讨 ngs can als° bc capitaⅡ scd supposc a
coinpany borr° 、
`s$10000to construct a nc灬 `
building Whilst thc buⅡ ding is bcing constructed
any intercst pa9ablc° n thc$10000can be
capitaⅡ scd as part of thc c° st0fthc building once
the bui1ding is c° mplctcd thcn any intcrest
t pa卩blc on thc$10000“ cntc∞ d ln曲 e Inc° mc
statcmcnt undcr Financc C° sts
ra” 。±thc fLlnds borroxled arc tcmporardl
hvcstcd in the short term and gcncratc intc￡ cst,thcn
tbls intcrcst rnust be offsct aganast thc b° rro、 沦ng
C0sts CapitaLsed,
主7101As33
Earnings per share(Eps)
This is a rau。 、 rs and ana1ysts
be ^de1y uscd by invcst°
to mcasure the performancc° f a busulcss and M^Ⅱ
bc considcrcd again in chaptcr28 Thc carnings of a
company arc thc pro血 s Φrl° ssC9± or the rar that
are attrlbutablc to thc cquj,holders° f thc busincss,
I2、 s33scts out a basic me伍 °d° f calcdaong
carnings pcr sharc,Ⅺ
`hich is:
Nct pront att丘 butablc to thc° rdinary sharch° ldcrs
Number° f ordinary sharcs issued
Example
℃ar Cndcd311Decembcr thc Inc°
For刂hc γ mc
Statcmcnt ofa company shows thc f° Ⅱ°M^ng:

Pr。 nt fl。 m。 pcraoons bcforc tax
Tax
Pr。 nt f。 t thc ycar at山 butablc to cq△ uo/holdcrs
c ycarthc cnoty had2mⅢ °n
At tlic start of伍
ordinary sharcs of$1cach
Thc carnings pcr sharc arc∶
Proflt for thc rar attⅡ butablc to cqLlltv h0ldCr⒌
$1000000
=$050pcr sharc
2000000
In pubⅡ shcd accounts cariungs pcr sharc arc
always sh° wn in thc Incomc Statcmcnt for both
thc currcnt ycar and thc pcrvious ycar Thcy arc
狃ways cxprcsscd in ccnts pcr sharc
Dlxidcnds on non~rcdccm/ablc prc】 icrcncc sharcs
should bc dcductcd from伍 c pr° 血 attributablc to
cquity ho1dcrs beforc calculaong thc carimgs pcr
ordinarv sharc
27^11IAs36
lrnpairment of assets
Thc purpose ofthis standard is to ensure that
assets are sho、
`n in the Statcmcnt°
Positi° n at n° m° rc than thcir va1uc°
recoverab1cam° unt,Thc tcrm rccovc=ab1c
amountlncans thc am° unt for xs,hich thc assct can
bc sold on thc opcn markct(h° wCvCr,scc bcl°
`D
If thc rcc° vcrablc am° unt is lcss than thc am° unt,
thc assct is sh° wn in thc acc° unts Cts carrying
amount,in cffcctits nct book valuc)thcn thC
carl” ng am。 unt must bc rcduccd Thlsis an
impairment1oss and must bc rccogniscd as an
cxpcnsc in thc Incomc Statcmcnt
Thc standard apphcs to most non-current asscts
such as land and buildings,plant and machincry.
motor vehicles and s° °n,It als° applics to
intanglble assets such as goodwill and
1nvestmcnts
It docs n° t apply to mvcntorics,w・ luch arc thc
subjcct ofthcir own standard,IAs2
somc of山 c tcrms in this standard havc alrcady
bccn covered in the sccoon on IAs16 However,
$000 thcrc arc somc othcr tcrms uscd in this standard
1500 whch rcquirc cxpl/anaion
(500l Amorthation-ˉ dus usuaⅡ y rcfcrs to the wnte
1000
down of an intangiblc assct,suCh as goodwⅢ
I】 npakmcntloss~_the amount by M・ hch山 e
carr” ng am。 unt of an as∞ t cxcee“ △s rccovc± ablC
atnount
F衬 r value1ess costs t0scⅡ -ˉ thc atn° unt
obtalnablc丘 om the salc° f an assct in an arrn、 lcng山
transacoon bcbⅣ ecn knOMlcdgcablc,砀 刂Ⅱng par刂 cs,
lcss thc c° sts ofthc disposa1,
Rccoverable nlnount-~In rcspcct of thc assct,
△hc hghcr ofi“ falr valuc lcss costs to sel and i“
ˇ⒓luc in usc’
Value h use-ˉ the present value° f thc血 mrc
cash flo灬
`s obtahable as a rcsdt of an assct、
cononucd use,inclLldlng cash fr° m its ulomatc
dIsposal
Useful Ⅱfe-— dⅡ s can bc cithcrthc pcjod of omc
xs,hch an a卟 etis cxpcctcd to bc uscd oy thc busin∞ s,
orthe number of ui△ ts° f output cxpcctcd to bc
obtalned from thc assct
The Impairment Review
Busincsses are expected to undcrtakc an
f Financial impalrment rcs,lcw of thclr assc灬 In° thcr w° rds,
r asscss xx hcthcr or not thc assct’ s nct book va1uc in
the flnancial statcmcnt is a fair rcprcscntation of
their truc valuc t° tho busincss Thc impairmcnt
resrlcw involx,cs c° mpa⒒ ng thc assct’ s carr,/lng
amount xxlth伍 c rccovcrablc amount It is carried
outin thrcc stagcs:
1Calclllatc thc asset’ s car± ”ng amount~⒒ s nct
book valuc
2 Comparc this M・ lth thc assct’ s rcCovcrab1c
alnount The rec° ~℃ rablc amount wⅢ bc thc
higher° f
(al the asset’ s± air valuc lcss c° sts to sc11,and
(b)thC assct’ s valuc in usc This is the
prcscnt valuc° f futurc cash± lo・ st° the
,△
busincss gcncratcd as a rcsult° f using thc
ass ct
ExampIe
A company is rcvicii△ ,lng its asscts at thc cnd° f jts
丘nanoal ycar,It idcnu丘 cs that
 1 thc nct b° °k va1uc° f thc assct is$30000(cost
As$ct Valuc h statcment of Rcason
mlilus accumu1atcd dcprcoajo⑶ Fmanclal Posltlon
2Jle c° mpany cotJd scⅡ thc灬 sct± or$25000bLlt $
、
7ould hcn scⅡ ng
havc t° pay costs、 厂 of$2000 1 30000 珏 carsmlg amount Is lcss
3 Thc company csomatcs thc nct futurc cash than dle tecoVcrablc amoun△

且°、
7s° fthc assct as:
its sallle in usc
2 14000 Thc carrymg atn。 uI△ t o grcatcr
Year Fuu止 cC灬 hn。 ws Discount Prcscnt心诋 $ clable狈 。un1
thaIl thc rcco△
△o血 tho asset facto± s at lO0/o of∵ futurc thc hghc改 0t whch is its vallle
cash n。 w-s n usc
$ ∷
$ 3 15000 Thc carsmg ana° unt is grcatcr
1 15000 0909 13635 伍 an thc rccovcrablc atn° un1
2 18000 0826 14868 ulc hIghC呲 of x△ hch o its far
3 30000 0751 22530 x・ altlc lcss costs to scⅡ

4 20000 0682 13640

The diffcrcncc bcR△ /ccn the Carr” ng valuc and thc
Total prcsent valuc° f fau1rc cash Πows= 么lue
ˇ t° include d△ c asscts in dle statcmcnt of
$(13635+14868+22530+13640)=$64673 Financial P° siion wⅡ bc、 ,△ 仗Cn off in thc Incomc
Thc Impairment rcvicw xx,tⅡ bc carricd out by statcmcnt Thcir rcviscd valucs x,ll1bC hcludcd in
compa1・ lng$30000with kllc lll睡 K上 °f$23000 thc Statcmcnt of Financia1Posioon
O5000-200⑵ and$64673
As thc nct b° ok value is l° wcr than hig11cst of 27.12IAs37
the° thcrtwo am° un“ ($64673l thCn it wiⅡ sj1l
Provisions,contingent assets and
be shown in thc statcmcnt° f Financial Posijon at
contingent"ab"ities
$30000
These itcms rcprcscnt uncertaintics at thc tirnc thc
If thc carrying valuc is grcatcr than the
ftnal acc° u鱼 ts arc prcpared Thcy nccd t° bc fu11y
rccovcrablc amount thcn the asset is impaircd It
accountcd for on a consistcnt basis s° that rcaders
must bc writtcn down to its rcc° vcrablc am° unt
and uscr ofthe accounts can havc a bcttcr
in thc Statcmcnt of Financial position Thc
understandlng of山 cir cffcct on thc accounts
amount° f the impairmentis rccogniscd as an
A pro讧 sion can bc dc± lncd as a ⅡabⅡ ity of
cxpcnsc in the Inc° mc statcmcnt as additional
unccrtaln amount or o咖 g An examplc hcrc Ⅵ0tid
dcprcciation,° r undcrits own hcading of
bc provlsion f° r bad° r doubtftlI debts Provisi° ns arc
Impairment loss
°nly sh° wn in thc accounts x△ llen thcrc arc vaⅡ d
Example g=ounds± or thcm Thcy shotJd ncvcr bc uscd as a
An bus1ncss has three n° n-currcnt asscts1n usC wη °f珈 ind° w drcssing the丘 gl【 rcs If it is ⅡkcIy that
at its ycar cnd Dctails of thcir carrying va1ucs a frm、 havc to makc a paymcnt fors° mcdung
`Ⅲ
and rccovcrablc amounts are set out bclo、 v: and thc amountlt wⅢ havc to pay can bc rcasonabl,r
cs刂 matcd,thcn it can rcasonab1y bring a prox/lsion
→砬名atnc,unt Fat△ ,aluc lcss V斑 Ⅱ h usc 1nt° 伍 c accounts
^ssct C征 0os岱 to scu
On伍e° d△cr haild,a ⅡabⅡ 饣 血on
$ $ $
a bu(;jt:∶1ess has as a rcsult of past邻^a/cnts,xxhcrC
prcscilt obl愆
its
1 30l× lo 10000 50000 sedemeilt厶 cxpcctcd to rcsdtin a paymcnt bc△ △
g
2 15l× lo 12000 14000
3 20000 15000 9000
made For cxatnplc,a btls△ lcss ha~s a Ⅱab止 ,to p呷 止s
suppⅡ crs lor goods and se卸 △
ccs thcy haˇ c prox,lded
In thc statcmcnt of Financi狃 P° si刂 °n thcy sh° tdd Thcrc is also ano山 cr clzass° fⅡ ablL〃 knc,wn as a
bc sh° 、 o、 汀ngˇ alucs: contingcnt ⅡabⅡ 0阝 Thsis a p° sslblc ⅡablL0tc,dle
`n at thc foⅡ
bus△ lcss xxl△ iCh arlscs± rom some past o`ent Hc,wcvcr, flnancia1statemcnts,but a notc to the aCc° unts
k may° dy rcslllt in伍 c bushcss h灬恤 gto pγ +or it ungcnt ⅡablⅡ ,
whci△ a dccision厶 madc xsrluch厶 otltsldc dlc compan)`1s 3 ^glvcn aboutthe
Condngcnt ⅡabⅡc0且
hies which are remotc,in
control For exazllple,some° ne may bc slung thc other№￡ ds mo哎 u砥 ˇto happen
compmy for fad饣 goods sllppl沮 △ lclc is a In ths casc no nglrcs are shown in thc acc° unts,
posslbⅡ 饣 that thC company xxil l△ zavc t° pay damagcs nclulcr is any n° tc to the accounts includcd
Π
to dlc Othcr partv lIΦ 丙cvor,that dcclsion xsJ bc rnade 4 Condngcnt asscts Mth1norc than a500/o
” dlC c° Llrts Tl△ s dcosion and dlc arllount of伍 e chance of occurnng(1Probab1e)
paymcntis° utsidc thc compan、 飞 control In this casc no amountis included in thc
Ac° nongcnt ⅡabⅡitliis not rccogiused in thc accounts Ho、 丙
Πc、 冂
Cr,a notc to dlc acc° tlnts is

accounts,butis dlscloscd by砀 么yofan° te to thcm proˇ1dcd about thc c° n刂 ngcnt assct
Tl△ ls wⅢ dcscllbc thc nature of the c° njngcnt 5Cc,n血1姿 nt灬 sC峦 耐 伍 kssthan a sO%chancc
△ab山 ⒐ an csuillate° f hov muchit“ Ⅱkclli to c° 斑 ofoccw血 g(Both P° s曲 le and Rcmo⑹
and an indlcaoon of dle unccrtain刂 cs rclajng to d△ c In bodl cascs no arnountis△△
cltlded in thc
am° unt or oilllllg of any outllo、 /of funds accounts,ncidlcr^a notc to dlc accounts ltlcludcd
Thcrcis aIso a condngent assct、
`luch Fnay affcct
a company Tlllsis a p° ssiblc assct arlsing lr° n1past 2713IAs38
cvcnts xvhich wi1l matcrialisc whcn s° mcthing
Intangible assets
happens、 7hich is not cntircly within thc
An intanglble asset is a,lon-monctasr assct xR・ lthout
company’ s control
physical substance Thc bcst cxamplc of an
Ac° njngcnt assct sholJd nevcr bc rccog,1iscd in
intanglble assetis GoodwⅢ H° wcvcr patcnts and
the accotlnts,as to do so may bc to bllng in rcvenue
tradc ma1Ⅰ lis arc also lcgardcd孙 intanglble asscts In
dlat may ncvcr bc rc/aLscd HowcvcJ,XVllCn thc profit
othcr w° rds,itis somcthing whch has valuc but,
most ccrtaln to/arlsc lt^no bngcr a conmlgent
^狃 unⅡ ke,say plant and rnachincry,cann° t bc touchcd
assctand it sh° lid thcn bc rccogmsed in d△ c accounts
In tcrms of thc dcflnitI° 且givcn ab° vc,in ordcr
In° thcr环/ords thc accounts、 河Ⅱ inc1udc an
for it to be identifiablc thc assct rnust bc capablc
amount、 厂 hich、
`ill bc rcccived of bcing sold separatcly fr° m othcr parts ofthc
Thc IAS uscs thrcc、 厂hcn it talks about
`ords环 business Thus,fo± instancc,a customcr list could
provisions,contingcnt assets and con⒒ ngcnt
be an intangibIc assct as it can bc soId scparatcly
liabiⅡ ocs Thcy arc:
by thc cntity In an instancc such as this,thc enjty
● ProbabIc-rnorc dlan a50V3chancc that thc
has contr° l° f thc assct and its usc The assct will
cvcnt wⅡ l occur
also bring futurc cc° nomiq bcne丘 ts to thc
● Possiblc~lcss than50⒐ 。chance that thc cvcnt
wi11° ccur
organ1sat1on
Intajlglblc灬 sc“ Can Come±rom sxlo⑽ urccs
● Rcmotc~Ⅱ tdc Or no chance ofthe evcnt
Firsdy,thcy rnay bc pt△ rchascd F° r instancc a busnless
occurnng
The lollowing provldcs guidancc of ho、 v ltems may buy the patcnts ofa pa血 cular product from
±
au【 ng xvld△ ln伍 csc hcadnlgs should bc trcated anotllcr cno⒐ AltCrnaovc虹 whCn a bushcss buys
1Pro吣 ons morc that50%Ⅱ kˇ to happen anothcr at a fgure in exccss oftl△ c迫 ct book valuc of
thc asscts taken ovcr thcn it ptuchases CJo。 dwiⅡ
卩robab1el
In this casc thc amount sh° uld bc cntered in thc A1tcrnat小厂
cly,thcy arc gcncrated intcrnaⅡ y、v1dun
丘nancial statcmcnts Thcrc inllst also bc a notc thc busincss Forinstancc,the G° od、 vi⒒ wl△ lch is

to由 e accounts2,ˇ △
ng dctajls of th∞ c壬 u△ res v艺 11ucd whcn a partncrle小 疋s a parmcrshp or a ncw
2Contingcnt ⅡabⅡ tks Icss than50%Ⅱ ke灯 to partncr is introduced In bod△ cascs thc Good、 has
`Ⅲ
happen(PossiblC) bccil intern狃 1y gcncratcd by thc cfforts° f dlc
In tllls case n。 amountis includcd in thc cⅪ sung partncrs
 Thc gcncral lLllc^tl△ at only puⅡ h灬 cd htanglblc
assets are recoglused in thc accounts Thc intan匪
assct is sho、
`n at cost lcss any acculnulated
am。 ru阳 。。n@Cprcciai° nl and impaJrmcntlosscs It
g its Ω
ma,T时 s° be sllown at a rcvalucd amcltlnt,bcn△ 菹r
cIAs36,Impalrment of AssetΘ ,lCss any
x/aluc,(⒃
狈 orosajon orimpalrmcntlosscs In dis case any
loss in valuc is shown as an cxpcnsc in thc Income
Statement Any surplus is crcditcd to a
Rcvaluation Rcscrvc on the Statcmcnt of Financial
P° sio° n
In cvcry casc thc busincss mustidcno灯 dac usCfL11
Ⅱ±c of tllc intanglblc assct In thc∞ sc° f th° sc
intanglblc灬 sets hax1ng a ni,ltc Ⅱ± c tl△ cy血 °uld be
伽 ordsed Llslilg tl△e stral掣 ⒒Ⅱnc mcthod In tl△ s ca⒃
thc rcsidualˇ 么bac shou1d be assumed as zero and the
amount ofthc am° rtisation should bc chargcd as
an cxpcnsc in thc Incomc Statcmcnt Thc
amortisajon pcriod should bc rcvlcwcd at1cast
annually and any changcs to thc amounts chargcd
madc in linc with such a reviexv
XVhcrc thc assctis dccmcd to havc an inΠ
⒒fc thcn it will not bc amortised Instcad,it wiⅡ
undergo an annuaIimpairmcnt rcvicw Part ofthc
reslexw must also c° nsider xx hedlcr or not an in丘 nitc
Ⅱfe is stiⅡ vaⅡ d in rcspect of the asset Any loss in
valuc arlsing fr° na such a resrle、 v is charged as an
cxpcnsc in thc Incomc statcmcnt It shotid be n° ted
that strlcdy spcaklng n° assct has an in丘 血te Ⅱ±
c
Thus intanglblc灬 scⅡ should always bc wr】
ovcr a peⅡ od of ome
Thc statcmcnt also pro、 △dcs guidancc to busnlcsscs
xvl△ ich undcrtakc Rcscarch and Dcvclopmcnt In
doing so,it providcs dclli△ t0ons of cach
Rcscatch is thcOrcjcal xvork undcrtakcn to gain
nc、 v knoxx,lcdgc Tlis rnay orrnay not havc somc
commercial bcneⅡ t in the ftlture,In tllls caso
cxpcndlullc° n rcscarch is to bc、 vrlttcn off as an
cxpcnsc in thc Incomc Statcmcnt Any non-
current asscts、 7hiCh arc purchascd as a rcsult of
曲c rcsca± ch can bc capitaLscd and w“ ttcn° ff ovcr
dleir cxpcctcd uscful Ⅱvcs,
Developmentis m° vlng on a stagc Itis,pcrhaps
uslilg research t° deveIop a product which thc
busincss can usc to gcncratc salcs at somc pointin
the saturc A g° °d cxamplc hcrc is thc automoovc
blc industrb where thc rescarch into green technology
may rcsultin thc dcvclopmcnt of an ct111ssi0n-frcc
car
In ths casc,dcvclopmcnt cxpcndimrc can bc
writtcn off as an cxpcnse in the Income Statement
in the pcⅡ °d in which it is incurred Alternajvely,
the expcnditure can be rec° gnised as an intangibIc
asset in thc statement° f Financial P° sition of the
bus1ncss
27.14DireCtors’ report
The direct° rs ofthe c° mpany arc requircd by the
compaillcs aCt t0prepare a rcport for cach f△ lanci/al
yca⒈ Thc purposc of thc rcportis to supplcmcnt thc
in±ormaoon glvcn by thc丘 nancial statcmcnts
Thc dlrcctors’ rcport cont狨 ns thc fo⒒ ° lng vx・
hformaj° n:
● A rcvicw° f thcsc activitics° vcr the past ycar,
togethcr with likcly dcvc1opmcnts in thc
futurc inc1uding any rcscarch and
nitc
dcvc1opmcnt activitics Thc financial
accounts only providc information which is
expressed in m° netary tcrms(thC c° ncept of
moncy mcasurcmcn)Thcy cann° t dcscrlbc,
for cxamplc thc cconolllic conditions under
、 mpany has tradcd
`hich thc c°
● A statcmcnt of thc principal activitics of thc
company and any signi丘 cant changes in伍 ose
ttcn o± f
ac灬 thcr w° rds,what
`ucs durlng dlc ycar In°
trading ac色 V1ucs thc company has carrled out
durlng伍 e year
● Thc namcs ofthc dircct° rs,togcdlcr vxIidl dlcir
sharcholdings in thc company The shareholders
are cnjt1cd to knoxl,`厂 h0haVc bccn stcwards of
thcir intcrcsts dur【 ng thc ycar
● Proposcd(Ⅱ vidcnds payablc by thc c° mpanv,
Thcsc wiⅡ bc votcd on forrccommcnda刂 on by
tIac sharcholders at the c° mpany、 annual gcncral
mCC色 ng
● slgiu丘 cant d1Btrcl△ ccs bc小 评ccn tlac bool【 跑 luc
and markct value of land and buⅡ dlngs,
。 P。 △ucal and charltable d° naoons Fnadc by thc
companI sharcholdcrs rnay not want thcir
 moncy to bc uscd for poⅡ ocal purposes Or
XN・ lsh thatthcir moncy is uscd m° rc for
charltablc purposcs
● Company poⅡ cy on thc cmploymcnt° f disablc
pcoplc Lcglsh0on dlctates tllat compaiucs mu斑
not dlscrln1inatc against cmplolrccs on grounds
of any disabili吵
● Heakh and sa± ct,at WOrk of employccs The
sharcholdcrs are cnjdcd to bc rc-assurcd that
company0abldlng b,j ctlrrclit k红 s1a。 。n on
ˉ
health and M炙 饣 aJ△ d is ta⒗ ng die wel± arc of lts
cmployccs into account
● Ⅺ7hat acti° n山 c company has takcn on
cmployec involx・ cmcnt in thc rutullng of thc
busincss and consulta刂 on which has takcn placc
bc钿 ccn rnanagcmcnt and workcrs on thc
managemcnt and running of thc business
● Company poⅡ cy on paymcnt of suppⅡ crs This
rcqLlircmcnt ar° sc from the pracocc ofrnany
l/arge c° mpaillcs dcla” ng p纱 mCnts to credltoⅡ
←”Ccia△ lr tl△ ose less powcrlllD,wh° sC cash
llows suffcrcd as a consequence Thcrc is an
cthc/al dimcnsion to thc rcquircmcnt to disclosc
this informajon
2715Auditors’ report
Dircct° rs arc stcwards of the colllpany in xvt△ lch
shareholdcrs havc investcd thcir capit・al The
sharch°1dcrs arc unab1c to inspcct thc company、
books but thcy arc,along xx,lth伍 c dcbcnmrc holders,
cnidcd to rccchc copics of thc annual accounts Itis
knportant that sharcholdcrs and dcbcnt△ lrc holders
● Make sure you are fam"iar with the oontents ofthe aCCoun刂 ng standards oovered|n this chapter They underpin
and Ⅱnk丨 nˇ ˇith eVeη
Which W"|be oovered in^hing
the you
nexthave learned so far and W th the understand丨
chapter
● Mu tipleˉ cho丨 ce questions are o扛en based on a knowvledge on this topio
● Pracuse ansˇ vering disoursiveˉ tyρ e ques】 ons based on pubⅡ shed accounts AnsWers shouId be Clea1conc丨
and re|evant
can bc surc that thc dircctors can bc trustcd to
c° nduct the company‘ busincss wcll and that thc
tlnancial statcmcnts and dircctors’ report are reⅡ ablc
The shareholdcrs appoint auditors to rcport at
cach annua1gcncral rnccting whether
● proper bo。 ks of account havc bccn kcpt
● thc alnnua1丘 nancial statcmcnts are in agrccmcnt
with the books of account
● in thc audltors’ opinion,the Statemcnt of
严of
Financial Position givcs a truc and fair vic、
thc positJon of thc c° mpany atthe end ofthc
tlnancia1year and thc Incomc Statcmcnt givcs
a truc and lalr vtcw of the pront。 rl。 ss for dic
pcriod covcrcd by thc account
● the accounts havc bccn prcparcd in accordancc
w⒒h伍 c Comparnes Acts al△ d all currcnt,
rclcvant accounting standards
If auditors arc of thc° p|tllon that thc continuance
°fac° mpanyis dcpcndcnt on a bank loan or
overdra丘 ,they havc a dutlrt。 men刂 on that昆 ct in
thcir rcport as itis rclcvant to thc g° nlg conccrn
conccpt
Thc alldltors’ rcsponslb山 sr cxtCnds to reporong on
thc dircctors’ rcport and staong、 厂hcdlcr the
statcments in it arc consistcnt xvlth dlc丘 nancial
statemcnts They must also rcport whcthcl,in thcir
opiiuon,the report contains mislcading statcmcnts
Auditors must be qua⒒ ±led accountants and
indcpcndcnt of thc company、 dircctors and thcir
associatcs Thcy rcport to the sharehoIdcrs and not
t° thc dircctors;as a rcsult,auditors enioy
protcc刂 on from wrongful dismissal from° ±
llce by
thc dircctors
ng and|nterpretation of accounts
se
 0n Whioh amount are eamings per share Cost when ρurchased 妲0000
oalou|ated? Carrylng a” ouⅡ 000
$12∷
A profit aIerinterest,taX and preference Recoverable a nount $140∞
diVidend VaIue in usθ $100∞
B ρrofⅡ a什 er interest,taX,preferenoe dividend
and transferto generaI reserve Whatfigure should it be shown as in thθ
c ρrofit before interes1tax and preferencθ slatement° f Financla丨 PosⅡ ion?

diVidθ nd A $10000 日 $12000

D prof"before interest,tax,ρ reference dⅣ dend C $14000 D $20000
and transferto general rθ sθ rVe 5 A businθ ss oarries out an impairment reView of"s
2. WhiCh ofthe folloWing does"ot haVe to be shoˇ Vn assets The foⅡ ovving information is discoVened
in the direotors’ report? about an item:
A Charitab|ρ donations made bythe company
B Directors’ salaⅡ es
costⅡ eopurchased $25000
C Dreotors’ shareholdings
Carrying amount $14Ⅱ 000
D Donations to p° I;tical pa"ies
Reooverablo amount $8000
3. A Companyis undedaking a roViΘ W of"s nonˉ
Value in use si2000
ourrent assets "disoovers that some items of
plant end rnachinery should be shown at a Va丨 ue
below theircarrying amount Others are valuθ d Whatfigure should it be shown as in the
above their carγ ing amount statement of FinanoiaI P° sΙ ion?
VVh∶ oh ofthe fo"owing statements is true about A$8000 B $12000
the adions it shouId take as a resu"of this? C$14000 D $25000
A lt mnust rθValue a"its non-° urrent assets 6. VVhich of the folloˇ ˇ
ing is a nonˉ adjusting
eVent?
B "must rθ value a""s non-currθ nt assets in that A Anon-current asset which b the sublθ ct of an
c|ass irnpairment reviθ w Ioss
C It onIy needs to reValue those"ems which are B A malorcustomerbe∞ ming msolventthree
above their oarrying amount weeks a△ erthe end ofthe fihanoial year
D It only needs to reVaIue those items whioh are C A discovery thatthe Valuθ of Ⅱems ofinventory
below their carrylng amount haVe fa"en below thθ ir cost
4. A business carHes out an impairmθ nt review of"s D The purchase of a new rnachine oostlng
assets The fo"owing information is discoVered $500000made one month aⅡ erthθ θnd ofthe
about an"em: finanoial year

1.EXρ laln wha"s meant by an adlus刂 ng eVent DescHbe the ac刂 on that needs to be taken when one ooours and
θxplain why the adion is neoessaΓ u
Part IH
Financial interpretatiOn
 I∶ fI rpEQ=ahojn a d analysis
http∶ //shOp60057810,taObB仇 oo■
●

the Ⅱnη itations of finanoial statements

●

hoW to anaIyse and inte叩 retfinanoial statements

●

hoW to oalCulate ratios

●

hoW to use ratios

●

hoW to eXplain(and h° w notto eXplain)ratl° s

281 The Iin1itauons of financial ● Thc informao° n thcy⒏ vC is n° tc° mplete

statements for sharehoIders LC匪 da。 on and aCCounung standards Fc° 田 泌 C
that compaiues arc cnodcd t° kccp ccrtaln
and other interested parties
in± ormaoon con丘 dcnoal bccausc pubⅡ caj° n
Thc purp° se flnan0al statcmcn“ such as Inc° mc
oξ wOuld glse compc砬 t° rs an unfair advantagc,
statcmcnt and statcmcnt of Financial Posii° n is to ● Thc reⅡ abⅢ ,of丘 nancial s仂 tcments ls ody
presentinlormaoon in a mcamng± uI w灬~That k why rcla乜Ve beCausc compamcs arc per血 仗cd to
itcms in丘 nancial statcmcnts arc placed in gr° ups of exercisc a仇 r dcgrcc of sublec色 n饣 in sClCα mg
sirnⅡ ar itcms: non-current asscts,Currcnt asscts, thcL acc° unung p° Ⅱoes Deprcoaoon,
currcnt LabⅡ o∞ ,ctc,It also cxplahs why y° u proˇ △
si° ns for doubtful dcbts,invcnt°
,
shodd c° mpⅡ c flnanclal statcmcnts、 河th cvcry item valuau° n and trcatment of Go° dxx・ m arc
in its c° rrcct placc cxamplcs of arcas w・ hcrc thcrc is n° umfor血 私
Accounong standards arc intended to cnsurc that ● Companlcs are a△ °wcd to dcpart from
ltcms includcd in丘 nanclal statcmcnts and dcscrlbcd accountlng standards if suoh dcparture is
in sknⅡ ar七 erms arc calcLiatcd,as far as posslblc,on juso丘 cd by伍 e namrc° f thcit bushcss and s△ iu
曲e sarnc bascs Thc C° mpa血 cs Act and the improve dle quaL″ °f thC informa刂 °n prc,sidcd
accounung standards tcqu1rc compa血 es t° add by the acc° unong statcmcnts
I1umcrous n° tcs to dlcir flnancial statcmcnts to伍 幻 w ● By their verv naturc,pubⅡ shcd acc° unts arc of
morc Ⅱght on伍 eitcms h d,ca∝ oLln“ , hstooc htcrcst△ △ cy mauy not be pubⅡ shcd for
To be usefLtL in± ormao° n mu敲 bc dcar,colnplete, many mon伍 s aftcr thc end° f thc丘nancial ycar
rchablc and血 c虹 In spltc of伍 cc∏orts° fd△ c thcy c° vc‘ In thc mean刂 mc,rnany
Compalucs Act and thc numerous accoun0ng orcumstanccs rnay haVc changcd;thc cc° nomy
standards to cnsurc some sort of u血
fornutv h thc may h孙/cimprσ 厂
cd or牺 Π
°rscncd;the poⅡ oc彡 a∶ l

prcparaoon of丘 nancial statcmcnts,山 c pubⅡ shcd sccnc m缈 h脚℃altCrc出 ncw technd° 要cs m缈
accounts of Lnutcd compa血 cs h孙 havc been dcˇ clopcd;￡ ashons rnay havc
`c a number of
Ⅱlmtao° ns as commllmcators of informaoon changed,丿 k company‘ pcrformancc may hasc
● Thcy arc not clcar to peopIc sx ho havc an improved° r、 een thc datc° f thc
`orscncd bcoⅣ
hadcquatc kn° xsledgc of ac∞ LInung and Statemcnt of Financial Po“ uon and its
flnancc pubⅡ caoon
 Thc dlrcctors’ report may help tO【 ,vercome⒃ me
of the Ⅱnutao° ns° f dle flnanoal statements,but n° t
严
conlpletcV 埚 。 器 “ 血 m。 珏 s钮 tcmcnts吻 s cC,Vered h
ody pcopk、 汀th somc knox△ ・
lcdgc of accountL电 ' thC∮ 婉 Ⅱ chap缸 -
arc ablc to m艇 muco⒃ nsc° f伍 c mass of赵or。 ζ h
a compaα y、 血 anoal statcmcnts,Evcn acc° untants
282 A pyramid of ratios
nccd to intcrprct thc丘 gLlrcs bcforc山 cy arc ablc to
undcrstand伍 clr si胛洎 cancC As a uscnlt。 d for Thc raoos that accountants use may be rcprcscntcd as
interpreong accounts,accountants c狨 culatc rauos that a pγtanud,、 fles the ra色 os hto uscful0pcs
`lich clas“
rdate cerka△ n items m the accounts to o岱 cr1tems and shows h° 、 nc anothc⒈
`they rdate to°

lnoome statement amd statement of F∶ nanoiaI ρosⅡ ion

ρrof:tabⅡ FinancIaI ratIos lnvestmo"t ratios

"y ratios

Gea"ng

(鲫
Rθ turn on oaρ Current raio
emp|oyθ d(ROCE)
"al
ourrent assets l)
lthe pHmaγ ratio)
ourrent"ab""ies
cap"aI empIoyed
lse° °ndary ra刂 os)

profit before interest and tax

Liquidity ratio Dθ bVθ quIty ratio
cap"al employod

totaI assθ ts (-望

卫
碍晷暴
芹
是盂是
是
:-Er)
:i帚 +罕
(坦 竺
墁嚣荠
胃Ⅱ型 )

net ρroflt
saIes
lnventory turnoVer lnterest oover

gⅡ°ss profIt
nonˉ ourrent
assets
(黼 )
EarnIngs per share

sales

Trade Receivables oo"eotion pe"od P"oe earnings ratio(PER)

eivabIes× 365)
ourrent assets (Trade re。
|

DiVldθ nd Cover

Trade Payables payment pe"od DiVidend yield

(二
渭
畀垦
品昂磊
暑宇
￡ f紧 F旦 )
283 HOW to CaIcu∶ ate and analyse uadnat Ltd
statemcntθ ofFinanoi扭 p。 “J。 n at31Decembet
ratios
2011 2010
All thc raoos shoWn in thc pvtanud are explaJncd in $000 $000 $000 $000 $000 $000
§§284-287and Ⅲustratcd wlth thc ald° fthe Asscts
Non-currcnt asscts 924 670
following丘 nancial statcmcnts of Lladnar Ltd,

““娴_⒛~一
C△lrrcnt asscts
Ths chapter wm covcr d,c raoos“ u碰y askd lor Invcnt。 印 100
in dlc CIE cxa-atlons Thcy arc contalncd in伍 c T△ adcェccclX’ ables 200
Cash&cash cq△ u△ alcnts 29
W朊b“ ,togC山 cr xlith dlc b灬
^on xxzhch
sh° uld bc calculatcd other ratlos thq
not on thc
329

⒀
TotaI asscts 1253
sy△ abus arc祧 o inchded h dus chaptcr and can bc L1abiliocs
uscd nl an cxatluaaoon, CurJcnt⒒ ab△tlcs
Notc that d△ csc丘 nai△ cia1statcments contaln morc Tradc p绀 ablcs 194

伽 伽勿
N°nˉ cllrrcnt uab扭 ucs
dcta1than that rcquircd undcr IAs1 This is donc
10%DcbcnmⅡ 2018/2019 150

伽⒛叨~一
snnplv to hclp硫 dl dcno印ng whereinformaoon Equi饣
comcs from in° rdcr to carry out thc rao° analysls 0fdm唧 sharcs
Gencral rescΠ e

m_瑚
Ⅱ adnat L‘ d
Rctalned eam1ngs

⒇
⒅

~呦
一
ncomc s‘ atcmcnt

一
】
Total⒒ abiⅡ ocs
fot the ycats cndcd31December
2011 2010 Most raoos arc appropriatc for both inc° 屮 °ratcd
$000 $000 $000 $000
and unincorporatcd busincsscs
Rcvcnuc 1600 1200
Cost of Salcs Thc ra刂 os cxplalncd and anal1・ scd in§ § 284_
op-lg岬 ntory 54 42 287arc c狃 culatcd to thrcc dccitnal placcs but
Purchascs 1166 800 rounded t° o评 o dec虹 nal placcs This is thc usual
1220 842
rcq山 rcmcnt in cxarrllnations,but thc paroculat
Less:closilag invcntorV 100 1120 54 788
Gross pront 480 412 rcq111fement of any quesoon rnust be observed
Dis血 bu讧 on costs (18θ (16Φ
AdministraJ。 nc。 sts CⅠ 丛
|) CZ2) 28亻 Profi9ab∶ ilty ratios
Pro丘 t flom opcraoons 216 182
Flnancc costs C」 」
Σ) C± 旦) The pri:nary ratio:return on capital
Pro丘 t attnbutablc to employed(R0CE)
cq讧 b/holdcrs 201 172
Ihe tcst° fag° °d mxcsmcntis is proⅡ 忸bⅡ饬 that o,
thc rcxsard iⅡ d岙 ondlC ainountmWstcdhh eroflt
and pro￡ 俐。 ⅡW should not bc colul跹 d,%血 。
Ⅱ adnar Ltd ckprc“ cd灬 an aluclunt ofmonq阝 $172000± or2010
statcmcnt of Changcsin Eq讧 饣
and$⒛ 1000for⒛ 11h Iladnar Ltd、 cas⒐ pro⒔ 么M灯
fot thc ycars ended31December
o a ratlo tll狨 rclatcs pro血 to t11c arnount m、
2011 2010 `ested)Ihe
$000 $000
Erst Φrp山m时 Dr耐 o br hκ sto灬 h a bLlslncss is thc

Retamed earlllligs at1Janua轷 118 11

remn onc即 ital Cmplo〗 ,d L rcla∞ s pro血 丬
bcⅠ lε rc

Φro血 fr。 m opcr脏 on9to dlC

htcrc呲 and tax caplDl
`‘
Pf。 nt attnbutablc to cquits,holdcrs 201 172
Transfcr to gencral rcsc四 c 阝0 ←o enPl° ycd h伍 c bu蚯 山css thc± ormul/a ls:
D⒒ idcnds paId @) ∈ )
Balailcc at31Dccclllbcr 229 118 pr。 nt bcf。 rc htrcM and tax
~ 、
'灬
× 100^
capital cmploycd
pR° BIT
ⅡmCF,bCr止 msls,亦 capital cmploycd ×100l

CR0BIT=pr。 flt bcfo。 c intcrc时 and taxl

Ⅱadnar Ltd愆 return on capital einploycd is: 2011 2010

2011 2010 216 182

% × 1tKl:1517%
21‘ 18⒉ 1600 100=13∞ 碥
× 100=20⑽ % ×100=2172%
1059 838 Conlrncnt Proflt bcf° rc intcrcst and tax has
C50+909 (100+738) f汕 cn by167o/o 、￠hen the gr° ss proflt pcrccntagc is
Note Debenmres and otherlong-term loans are caIculatcd,that raoo、 bc sccn to havc± aⅡ cn cven
^Ⅱ
includcd in capit挝 cmploycd morC Φy433%)It^not surpⅡ sing,也crcforc,to
Commcnt In2010,$21,72° f cvcry$100of flnd that thc pr° 丘t bcforc intcrcst and tax has± a△ en
turnovcr、 厂 as lcft on thc b。 仇°n】 ⒒nc as nct proflt al由 ough k should not fa△ by thc samc amount灬

lThC nCt pr。 丘tis kno环 m灬 thc%ottom⒒ nc∷ Itcms

most ovcrhcads arc m° rc or lcss￡xcd atld do not
in accounts rnay bc dcscribcd as‘ abovc thc Ⅱnc’ or vary、 砬dl mrn° ver,
‘belo``the Ⅱnc’ ,)In2011,thc rcturn has dccrcascd Net pro们 t perCentage
by iust° vCr1%,to zO硐%Although on圩 asma△
Nct pro丘 t can bc rclatcd t° salcs by thc fo⒒ ow1ng
change,tlus contrasts`ˇ 1th thc prcfcrrcd rcsult M`hch
forrnula:
would havc bccn t° scc an incrcasc° vcr thc prcvious
nct proⅡ t attributablc
yca‘ 、￠hedler° r not a rate of rcoarn is saisfactory
t° e望
dcpcnds upon tl,c rcmrn thatrnay bc cxpcctcd on ±苎≡L— × 10⒍ F。 r IJad且 ar Ltd this k
宅昙忐罗
suitable alterna乜 Ve inVesmlents,
2011 2010
Return on Equity 201 172
— × 100=12569汔
△】Ⅱs 丘cs thc rcmrn madc by thc busmess
ratIc,idcn乜 1600 1200 100=14339o
for thc Ordlilary sharch° ldcrs,Thc dco缸on、 /hc山 cr
Comment,Thc nct pro丘 t pcrcentage has fa11cn
thcy shodd rcn1aln as o1・ dlllafF sh征 Ch° ldcrs in thc
by1,77V3fron11433Vs in2010to12,56o/o in
company or look± or a bc优 Cr rCmrn clscxxhcrc can bc
bascd on dis raoo Thc fornul・ a is:

Pro± lt aftcr tax and prcfcrcncc dlx,ldcnds

擀 J瓦 瀚 ∵ 絮r茁 宥 眶 抄
dlc changc in thc nct pro丘 t perccntagc may bc
Protlt attⅡ butab1e to eqtuty holdcrs × 100
ana1ysed by cxaimining gr° ss pro丘 t pcrcentage and
Eqlu″ Cssucd° rdlnarv sharcs+resersre9 thc° vcrhcads as a perccntagc of salcs,
Ⅱadnar Ltd‘ rcnlrn on cqm〃 k Ths仫 o° can bc calculatcd by u由 鸭 el山 er山 c nct
2011 2010 proⅡ t aftcr intcrcs↑ and beforc恸 Y Or thc nct pro丘 t

201 172
aftcr t② 。
K Φro血 犹trlbutabk to cq诬 〃holdCrsl,In an
cXarMaoon伍 e exanllilc± 峦 ⅡkC圩 to rcqMC°dy
909 100=2211% 738 100=2331%
°ne° fthcm t° bc calculatcd Look at the qucs0on
Cc,nunent In2010山 c company madc a rcturn of
t0sCC what hf° r臼no° n is⒏ 、
℃n and chCck x△ ,h/at ls
$023on esye叩 $1o、″ mcd by dic ordn,arv
asked for in伍 c qlIcs0on.
sharch° ldcls,In2011 dis dccrcascd,or bccame
sllghtl△ wor⒃ to sO2,or” 铷 ,01Tl△ s′ od,a Gross profit perCentage
small山 ailgc and狃 伍ougl,thc ordlna,sllareh° ldc邙
Thc formula± or gross pro丘 t pcrccn狻 gc o
woLlld have h° pcd to scc an inCrcasc,thcy sh° dd
not bc、
`orncd Ihcy should,ho、 `cver compare dis × 1oo F° rI.adnar Ltd dlJs is:
、河d1thc rcalrn山 cy c° lJd cxpcct on a sinⅡ ar 粲
invcsuncnt in a sotablc altcrna刂 ve
2011 2010
Prof∶ tbefore interest and tax as a 480 412
l=30009白
percentage of saIes(or Pr° fit from 1‘ 00 1l× 1200 100=34339o
operations as a percentage of sales) ConⅡ ncnt Gr° ss pro丘 t pcrccntagc has dccrcascd
pr。 flt bcf。 rc intcrcst and tax is calculatcd as a
by433V。 from3433V。 t° 3000冫 。In thc° r弘 thc
pcrcentage of salcs For Lladnar Ltd dis is: gross pr° flt pcrccntagc should攵 natch the marp d△ c
busincss cxpCCts to make on a△ its s・alcs In prac刂 ce, such as rent,do not vary as a rcsult of an incrcase in
itis not as simplc as that bccausc m° st busincsscs sa1es Other ovcrhcads tnay varB but notin
scll morc than onc klnd of good and a dlffcrcnt rnark proportl°n to salcs salcspcoplc、 rcmuncra刂 on,for
up may bc;ddcd to cach kind Thc gr° ss pro丘 t cxamplc,rnay consist of a丘 xcd sa1ary plus a bon△ ls

perccntagc is affcctcd by changcs in thc mix of thc bascd on salcs

dlf± rcnt productsinakng up thc mrn° ver
It is possIblc to anals,se ovcrhcads± ttthcr by
c・

Thc rcduc刂 on in thc gross pro丘 t pcrcentagc rnay tagcs of

cxprcssing thc individualitems as pcrcc鱼
bc cxpl缸 ncd by a numbcr oftactors∶
salcs but this“ usuallv° f ve△ y△ mitcd vahc bccause
● ar,sc in thc price of goods purchascd may not
ofthc abscncc of any direct Ⅱnk bct下 诉
havc bccn passcd on to customcrs `ccn thc
indlxIidual ovcrhcads and sa1es
● itlnay havc bccn necessarsito purchasc the
goods from a diffcrcilt supp⒒ cr at a hghcr price 285 Ra"os shoWing the utiⅡ sauon
● the inarg1n on salcs tnay havc bccn cut of resources
■ to incrcasc thc volumc of salcs
The profltabⅡ ″ of a busincss dcpcnds on how
■ to Ⅱgbt compc刂 jon仔 om odlcr buslrl∞ ∞s
emclcntly it uscs lts rcsourc∞ ,and tllc ncxt group of
■ as an inttoducto叩 o;qcr for a ncNx product
ra刂 os is desibcncd to tcst d△ ts aspcct of thc business
■as a rcsult of scasonal saJes
■t° dlsposc of out-o孓 datc Or dainagcd stocks saIes as a perCentage of capital employed
■ to1ncreasc cash且 ow x,・ llCn the bus1ncss1s Capita1investcd in a buoincss rnust bc utlⅡ sed
short of cash cfncicntly ifitis to producc a good ROCE Capital
● thc cost ofsalcs may havc bccn increased by of$100pr° ducing salcs of$300is bcing used morc
thc thcft of stock cfΠ cicntly than thc samc capital producing sa1es of
only$200 Salcs are cxprcsscd as a pcrccntagc of
overheads(operating expenses)expresed
capital cmploycd For L1adnar Ltd,this is;
as a percentage of sales
Ovcrhcads expresscd as pcrccntagc of sales arc 2011 2010
glvcn as follows for IJadnar Ltd: 1600 1200
× 100=15109Vo × 100=14320⒐ o
1059 838
2011 2010
279(184+ 240(160+ Comment In2010,salcs wcrc oi△ lr1%刂 mes伍 c
80+1sl
× lO0=抑 %勰 剐 00zll溉 am° unt of capital cmploycd Tl△ ls o vCry low,but
1600
+Lrdlcr comment wo△ id bc tdlclptLi xxnthout knoxx/ing
Thc ovcthcad pcrccntage is calcliatcd m° rc 山c1ind° fbu盅 ncss bcing carricd on by Lladnar I△ d
qLuckly by丘 ndmg thc diffcrence bc内 c gross A low perccntagc mγ bc normal± or somc busincsscs
`ccn d△
and nct pro丘 t pcrccntagcs Thc pcrccn饶 gc lor2011h灬 oi△ ,iinprc,vcd扯 glldy
凡 c rauo ofpro丘 t bcforc tax and intcrcst pcrccntagc,

∶
∶
∶∶苫品 :i∶ :廴
r茧
IIJ夸 :季 :;I荃 ii;2011
decrease in ovcthcads as a pcrccntagc of s狃
⒈ es has
and salcs灬 a pcrccn龈 gc of capi饶 lcmplord,arc
lulOwn as seCond缸 y Fad【 ,s bccausc dlcy hclp to
exp1疝 nd△ e prinarv raoo3○ CEl Ifd・ C细 o laoos are

not been enougl,to covcr thC dccrcasc in gtoss pro丘 t muluplcd togcd△ cr,伍 e,,⒏w thC prllnarv raj()∶
margin Illis,in turn,has lcd to a dccrcasc in thc nct nct pr。 丘t s斑 cs nct ptont
×
pro丘 t margln Nojce hoM,dllsls a good cxamplc of s址 cs capital CmPloycd
cml capital cmpb严 d
h° w rao。 s arc Ⅱnkcd togedler and a dccrcasc in onc
can lcad to a dccrcasc in othcrs somcomcs oalcs in山 c dcnominator ofthe Ⅱrst trac刂 on cancc1
out salcs in thc numcrator ofthe second fracoon to
overheads nlay incrcasc as a pcrccntage of salcs,but
thc increase rnay not matCh thc incrcase in gross ⒏vC thC dird fracu。 n)F。 r IⅡ ladnar Ltd:
proΠ t pcrcentagc Thc rcason is that most ovcrhcads,
 2011 2010 Nonˉ current asset turnover
1359o× 15109o/0=2040冫 o 15179o× 143209b=2172Vs A bushcss ptl± chascs n° n-cllrrcnt asscts x△ iJl thc
some textbooks statc that the net proflt mtcnu° n dlat thcv xx・ m carn rcvenuc,Non-c吐 rcnt asset
pcrcentagc is onc° fthc sccondary raoos,but dis is
salcs
only订 uC if n° intcrcst is inv° lvcd mrnovcr厶 alculatcd as
c・

totaI of n° n~curcnt asscts

Ihc rau° °f salcs to capital cmpl° ycd may be
The raoos for I1adnar Ltd arc:
furdlcr rcflned by rclaong salcs to t° tal assets,dlcn
to non-current asscts alld currcnt asscts 2011 2010
1600 1200
uti"sation of totaI assets
臼了 =179umcs
s
924 173洫
Thc numbcr oftlmes sales covcr the Capitalinvcsted
in thc asscts of a busincss is calculatcd as± oⅡ °ws: Conuncnt Thcrc has not bccn a s则 丘cant change
in伍 c rao° in2011,Asscts that arc n° t owncd for a
sales
￡」I year M・ mn。 t carn a fuⅡ v℃ ar、 rcˇ cnuc and,u△ css
total asscts=xtltlles
hf° rmao° n is gl△ cn ab° ut thc datcs thc assets、 vcrc
I1adnar Ltd、 uuLsa色 on oft° tal asscts is as f° Ⅱ°硒咚 :
pur山 ascd,血 nhcr∞ mmclatis mpossibk,
2011 2010 Current asset turnover
1‘ 00 1200
=128血 ncs =128omcs Ctlrrent aqscts hcludc ms・ ento】 l,;tradc rccclv・ abIes ai△ d
924+329 670+269 ca曲 and ca曲 cqLux,lcnts Tbc rchoonshp of dle∞ to
Conunent,Thcsc rao° s arc On the1ow sidc but sales1s° fmtcrcst becausc mvcntory and订 ade
ftIrthcr commcnt is Ⅱrrutcd by lack° f informaoon reco叨 ucsI∞ ℃ls may M e△ bc dctctmmcd by thc lcxcl° f
about the nan△ rc of thc bus1ncss salcs Currcnt asset arn()、 :r$Calcliatcd as
Nooce山 at d“ ℃aoo’ “ Cxpres∞ d asa‰ ulnbcr of sales
`飞

omcs’ 山e total asscts arc‘ turncd ovcr Ihc ra刂 os f° r IJadnar Ltd
total° f currcnt asscts
Return on total assets arc: 腼⒇~⒛
Ths ratlo ldenoflcs h° 、 Ⅱt from opcrations 2011
'much pr°
h灬 bccn genc偬tcd by伍 c compmy lor巾 c孑 $1of 1600
asscts The c钊 Lula刂 °n is: 329 4:6Jmcs =446omcs

Pro丘 t± r° m° pcraoons Convnent Thcrc w° uld appear to bc vc饣 Ⅱtdc

×100
Total assct$(Non cLlrrent灬 s∝ s+cLlrrcnt asseto changc but° thcr rau° s,invcnt° 呷 mrnovcr and trade
For I△ adnar Ltd伍 cse ra妯 s arc:
rcccb,ables coⅡ ccu° n pcrI。 d(scc bCI° MD,WiⅡ show
if thc situao° n is as sa讧 sfact° ry as it appcars
2011 2010
216 182
Net current assets(or working capital)to
× 100=1938o/o sales
1253 1lltl=17249。 939
Ths】 s an° thcr rau° that rnay bc uscd t° mcasure
Comment In2010c⒕ ry$1of thc c° mpany、 t0乜 刂
asscts gcncrated$0,19h pro￡ kt1is fcl,or mrn° vcr
pcrformancc,Itis c‘ ,1]lCdatcd as
d铷血oratcd h⒛ 11to sO,17XVh△ st ths^山 吵曲 nct currcnt assets
Wc’ 臼s饪 ng"厶 not s° mckg aboutxs・ hch For Ⅱadnar Ltd:
咖跏~蝴

sharchddcrs and managcmcnt should be c° nccrncd,

Ro,曲 oLlgh,somcthmg whch managcmcnt sllodd 2011
k№ rlmg c,n It∞ lid朊 a rcsdt J thc c° inpany 1600
=11gs umcs =714tol,cs
mxcsmlg h morc assets h20】 】,whch havc yet to 13歹
gciacratc伍 el四 cl° f proflt rcqturcd Managcmcnt
shodd bc tl△ n△ g to correct ai△ d mprovc ths sittlau° n,
 Commcnt Thcincrcasc n° m714jmes to1185 Comment Thcra刂 os sho、
`that,akhough thc
tlmcs tnay appear to bc a good rcsul△ but c° mmcnt currcnt asscts comf0rtably cxceed thc currcnt
sh° uld bc rcscrved untll tradc payablcs payment Ⅱab山 ucs,tl.c叼 ±ctv margin has becn rcduccd in2011
pcri° d(scc bCl° xx/l havC bCCn calcu1atcd Tcxtbooks o± tcn statc that the current rauo sholid
bc bcbsiccn15:1and2:1to take account ofs1ow
Net working assets to saIes
moxˉ lng invcntorΓ and slow-paγ 1ng customcrs,but
Ths is a raoo xx/lll<h mcasurcs ho、 much depends upon thc klnd of business XIlJlulc a
`cifcctlve
managcmcnt has bcen Ⅱ1gcncratmg salcs ttoim its low ra乜 o Could signal dangcr,a high ratlo may
g’ currcnt asscts J`ccruals and prcpayments 1ndicatc that a bus1ncss has rcsourccs that arc not
`vorlm△
狂 e excltldcd as dlγ arc⒍ mpls,accounm△ g bcing tIscd cl± lcicntV Higll lcvc1s of invcnt° ry仕 adc
adjustrllcnts Cash“ 破so cxc1uded&om thc rcccivablcs and cash mcan that capital is lying idle h
calculation thc bu“ ncss instcad of belllg uscd pro丘 tab艹
The lor1nda is: %c currcnt ra钰 o is s0mcmnes dcscnbcd as an
Nct worhng as⒃ “ lInvcntor1cs+ indlcaoon of uqtlldltv but山 at ls lnCorrect凡 c⒒ quldl△
ofa bushcss dcpcnds upon thc tqm山 ty oflts currcnt
tradc rccchablcs_ttadc payablcs)
× 100 assc“ /kⅡ q诫 d assct“ onc thatls in thc￡ orm of cash
salcs rcvcnuc
Cash and bank balanccs)clr itl a form伍 at may becomc
F。 r uadilar Ltd thc c/alcdauon1s cash nl dle short tcrm ltradc rccclxablCs)Inˇ entory厶
2011 2010 n° t a Ⅱ
qLud assct-no buycL has vct bccn± ound forid
106(100+ 68(54+ Thc currcnt raoo calctllauon inchdtˉ s invcntorv,so is
2tlll-19⑼
× tO0=“ 弘 × Itxl=搁 % not a mcamre of Ⅱqtudltlr IJq1idl饣
1600 墚 Ⅱ
qlJ1i峋 ￡
俪 (-)r acld tc斑 ,qluclkiato or Ⅱ
^mCasllrcd
qllldbyrajΦ
dlc

Comcnt Thcra刂 o has improved h2011, quidity ratio(acid test,quick ratio or

L∶
nldlcakulg曲 at rnanagcmcnt has been morc acuvc
l咱 uid ratio)
and succⅡ sfd in gcncraung salcs lr° mi“ worlmg
asscts
Thc Ⅱquidl刂 ra刂 °cxcludcs
invcntory仔 om tllc
calcdaj° n and shows thc pr° por0on of Ⅱqmd asscts

286 FinanCiaI rauos CradC rccchablcs and c猫D that。 availablc to pay
thc currcnt ⅡabiⅡ oes Thc raoo is czalculatcd as
Current ratio
Currcnt asscts are the ltlnd out ofwlich a buslncss clurent asscts-mvcnto叩 :currCnt Ⅱab讪ocs

sholid pay lts currcnt LabJlucs;lt sh0llld n∽ havc to

`c△
scl non~currcnt asscts t0pay止 s crcdltors It fo△ oxx s Thc Ⅱqtudlty raoos of Lladnar Ltd arc:
由at伍 crc sh° lid bc a margna of匦 fc饣 bC∞厅Cn dlc
currcnt asscts and thc currcnt Ⅱa岫 jcs Thc cllrrcnt 2011 2010

rauo cⅪ 丫cssCs dlC margna m tlle± orm of a仕 uc raur,; o29-100):194=229:194 侈69:5θ :101=215;101
=181:1 =213:1
currcnt asscts:currCnt LabⅢ ocs
Commcnt ThcⅡ q△udlty ra0o has f皿 cn h2011
△℃xtboo际 oRcn st・atc伍 at thc Lqludl〃 raoo shodd
Ⅱ adnar Ltd、 c△ trcnt ra刂 os arc:
not faⅡ bclow1:1,or pcrhaps09:1 This is
2011 2010
general1y a good guidc,but supcrmarkcts’ salcs are

329:194=170∶ 1 269∶ 101 =266∶ 1

on a cash bask wh△ cd△cy cnloy a pCrlod of credlt
bcforc thcy haˇ ℃to pay for thclr suppⅡ cs In thc
Thc ogl△ t△ and∮ ∶
哓:lrC in tlle⒓
:卩
oo曲 ould alx△,ays bc mcanomc,thcy have a constantin±lo、 v ofcasb ffom
cxprcsscd as ulu饣 CC1);dl访 de thc currcnt salcs Thclr△ qllid止 y rajo may not cxcced04:1
Ⅱabm。 cs1nto thc Currcnt asscts
 Wlthout knoxlmg rnorc about IJadnar Ltd怂 bushcss, obsolctc° r sp° Ⅱed st° cks incrcascs Largc
血 hcr conllllcnt mav not be hclp壬 、ll Howc、 厂
c‘ it quanu。 cs。 f slow~m° ving stocks rncan that
s△ ouⅡ not appcart° bc supcrn】 arkct
capital is l° ckcd up in thc busincss and is n° t
Trade rccclx,ablcs,invent° ry and tradc payabIcs carmng rcvcnue
may bc cxamhcd in a Ⅱtdc m° rc detaⅡ Howe⒕ r,dl炙 rcnt tradcs h锕 e dlclr° wη cxpectcd
ratcs of mˇ mω ,uri△ oxc‘ Food shops、 犭 Ⅱcxl’ Cct to
Trade receivables coⅡ ection period(Trade hax・ ca± ast mvcntos,a辽n° v∝ ifdioL fo° d厶 n° tto
receivabIes turnover) dctcrloratc bc± ore i。 ∞诅,On thc° 由cr han叱 曲ops
s should l△a9c
sctalmt° n thc aln° unt of血 c schg hrmmrc,rcfrlgcrators,radlos and tcles,lsi° n∞ ts,
^bush∞
it a△ °ws is custonlc邙 to pay Manycu“ °mcⅡ take ctc w姐 havc slosxcr mˇ ∞ to呷 讧刂novCts,Wl9L11c
Iongcr than the flmc a△ ox△ cd and thc cust° mcrs’ rauo rrlanllΩcmrers° flargc itcms° fplant al,d sl△ pbLlIdcrs
c狃 cdatcs tllc ascragc tllnc cLlstomcrs arc切 蚰
鸭 to p绊 wm havc srerylong mvcntos t△ lrnClXcr pc。 od Gcn蚋 〕
tradc rcccivab1cs× 365 /asHnoxmg mvξ 为
± △)rles (×
h/ax c loxs・ cr pro血 margns d1・an
Thc允 rml△ a ls 山丙 ˉmosing h败 ntorlcs c° mparc d,cp⑩ 血 lnarg△ 1t°
credit salcs
bc Φζ pcctcd° n thc salc° ffo° d xl,lth曲 at cxPectCd° n
Thc accounts rcccivable c° llcco° n period f° r
dlc sale° fm° tor c剑s)
Ⅱ adnar Ltd is:
Thc f° rmula for calcula刂 ng invcnt° ry turnovcr
2011 2010 pc⒒ od is:
200× 365 115× 365
1600 =4563ot46days =3498° r35da,s C0st of saICs
avcragc± lventorv
As thcrc is n° inf° rmaoon about any of I△ adnar whcfc avctagc⒑ vcnto,=Φ pc血 ng lil・ ・
cnto,+closulg
invcnt° rO÷ 2
Ltdb salcs bcmg on a cash basis,1t has bccn assumcd
Ⅵ
that all salcs r° und aⅡ Itis imp° rtant to takc avcrage invcnt° rv bccausc
`erc On crcdlt Itis scnsiblc t°
±
raco° ns of days up t° thc ncxt d`~ cl° smg1nvcnt°
饣 may not bc reprcscnta包 Ve ofthe
Conment,Ihc c灬 tome± s arc例 趾名 11morc dal,sh norn1al⊥ 小冖Cntory leˇ cl If° peinlg1nvcntory is not
2011t° p缈 d,cr bⅢ s It`usual h many busmc“ cs to glvcn,usc doslng i灬 、nto叩 for thC caJcuho° n
刽山少″customcrs 30day%or1m° ndl,t° pay IItc It is usual to cxprcss the calcu1ation ao thc
coinpany sccms to bcI° sⅡ 名 control ovcrits cⅡ tomers’ numbcr° f tirncs a ycar thc invcntory is turncd
pa,,l△ acnⅡ and to have a dctcnorat1r1g ca血 蕊 ` oVcr,but it is also acccptablc t° cxpress it as the
Customcrζ u,mcl,Ⅱ m刁刂 tectcd by・ a dctcnoranon aVcragc numbcr° f days or rn° nths iα vcnt°
rF relllalns
h伍 e na乜 0nalcconclmy or `bC a± bus± ,css scCto‘
m dlc A in thc busincss bcfore it is s° ld
busltlc$masr呷 t。 a缸a∝ “ 抑Customcrs” of± Ctulg Thc invcnt° ry turnovcr in timcs pcr year for
morc幺 、 α幽扯 pa卩 rKr比 tcrms,W/hcn cust° m邙 arc Ⅱ adnar Ltd is∶
业w to p呷 dlerC0an Jllcrcascd Ⅱsk° fhctmng bad
debts 2011 2010
1120 788
lnventory turnover =1455omes 4mllcs
ls4+100l÷ 2 a yq疋
(42+5θ ÷2 =1⒍
Invcnt° ry turnover is thc rate° fwhch theinvcnt° a烬 ar
叩
is turncd° vcr,° r thc omc that clapscs be± orc
365
mvcnt° 〃 is °r1455=26davs °r⒗
s° ld・ Tlus raoo is imp° rtant± or thc
4=23d邴
foⅡ o晒 ing rcas° ns
Comment Thc ratc ofinvcnt° ry tLtrnovcr has
● Thc m° rc qulcⅡ y in、 Knto锣 ls sdd,thc sooncr
slowed a⒒ de h2o11wltll° ut more ki△ °、讨cdge
tl,c pr° 丘t° n it is rc/a△ scd and thc m° rc omcs
about thc company、 busincss fw伍 cr c° mmcnt vs ould
the pr° fit is earncd in thc且 nanciaI ycar
only bc speculao° n
● As1° w invent° ,turnovcr tnay indicatc that
CXCCsshe stocks arc he1d and thc rlsk° f
The cash at bank business may bccomc hs° lxˉ cnt and unable to pay its
Itis not ncccssary to make up a formLJa for a cash crcd【 tors as thcy fall due The resdt may bc伍 at thc
ra刂 °;lt is sufncicnt t。 rcfcr to dlc balanccs and,in business is f° rccd t° closc,

thc casc ofIJadnar Ltd,to draw attenjon to thc fact

that dlc bank balancc has f汕 cn nom$1oo ooo to 20予 丨
l号 :犁 :聪 ;1。∶1Ι∶筲:生 :扩 ;;`Ⅰ ::若 J嚏 鸳:lt
$29000 、￠hen a balance at bank is convcrtcd into rccclvablc co⒒ cction pcⅡ °d has incrcascd from35t°
an oVctdraft,it may bc appropriatc to recognise the 46da,sl319b)suggCs。 ng poor crcdit control by thc
fact、 r cxamplc,亡 hc compan平 Inˇ ℃ntory turnover has i且 crcascd,but only
^th a suitablc commcnt F° slighdy Ⅱadnar Ltd may bc ovcrtradlng
changc hcrc could bc a rcsult ofthc incrcasc in the
accounts rcccivablc coⅡ cc刂 on pc⒒od incrcasing and The cash operating cycIe(Work:ng capitaI
a rcducoon in the number of ulnes the invcnt° , cycle)
turns ovcr Both of thcsc fact° rs xx,m causc cash t°
飞 c cash° pcratmg qclc mcasures the omc It takcs
n。 w。 ut。 f the busincss,resdong in a dccrcasc in
for cash t° orculatc ar° und tl△ c worlung capltal
c bank balancc° vcr thc小 Ⅴo ycars
tl△
systcm It ca1culatcs thc inter△ althat occurs bc小 vccn
Thc st/atcmcnt of cash且 o・ vs,s硒 Ⅲ proⅥ dc a flgllrc
伍c ome a busincss hasto p锣 体 crcdltors(tradc
允r cash rccdvcd from opcraung acuˇ 1ucs It is
p缈 ablcθ and thC。 me止 rccchcs cash fr° m its
Ⅱgt△rc,br
posslblc to calculatc raoos usnlg dus
Customers It o calcul/atcd ushg thc b⒒ oxxlng formtJa
i灬 钿Ⅱc伍 c ca曲 margm on sal∞ ,由 c ca曲 ⒒ q讧 dl″
raoo or thc1ntcrcst and dlx「 ldend cover° n a cash mvcnt° 印 ttlrnovcr pctlod in days+tradc rccc⒖⒓blcs Collccuon
pcⅡ od in days-讧 adc pa卿 bIcs paymcnt pcriod in days
basis矶 ∞c rao° s xx・ m ldcn谊 饣 h。 w nluch cash悠
a△
ˉza1lablc to pay currcnt lab山 oes or ho、 v many0mcs
Thc cash opcraong cyclc for Lladnar Ltd is tound
the htcrcst or dlx・ ldcnds arc c° vcrcd by thc cash as f° Ⅱ°ws:

胴咖乃“
猢岣
gcncratcd from tradlng

Trade payables payment period tTrade

%竺
payabIes turnover) Invcnt° ,ttlrn° vcr pcriod

一骆柙
Tradcェ ecclV,ablc coucc。 。n pciiod

ヵ皿丝
T1心 s is calculatcd by using thc formula
Tradc pavablcs paymcnt pcood

_"〓
Tradc payablcs× 365 C孙 h opcra山 名 cvcle
Purchascs on credit
In bod1ycars tl△ cc° mpany rece⒒ ed its inoncy
Assunmlg伍 at a△ uadla绁 Ld℃ purchascs驷 ℃rc madc
trom salcs,on avcragc,11days aftcr it had paid its
on credl;thc讧 adC pa彡 山lcs paymcnt pcⅡ od arc∶
suppⅡ ers,Durmg ths0mc,thc c° mpany、
`as
2011 2010 血 ancing its cust° mcrs out° f its° M厂 nm0nCy!
194× 365 101 × 365
1166 =61d印 阝
800 =47d呷
s
287 1nvestment(stock exchange)
Commcnt Thcc° mpany is takng14days l° ngcr ratios
to pay its credit° rs and扌 is is bcnc丘 cial t° its cash Invcsoncnt rauos arc° f parjcdar intcrcst to peoplc
n。 wH∞ m缈 bc dangcrous if it“ grcady wh° havc investcd,or arc intcnding to invest,in a
`cvcr,⒒
CXCCCdlng the peⅡ °d° f crcdit a△ °wcd by suppⅡ crs company Thcse peoplc inchdc sharch° ldcrs and
as thcy may、 x`thC1r crcdlt facⅡ ocs and
1、
lendcrs such as dcbcntLlrc h° ldcrs and banks
^thdr彡
rcquirc Ⅱadnar Ltd t° pay cash、 rdcrs in funlre,
^th° Gea"ng ratio
ove"rading
Gcartng is fLxcd-cost caplt・ al exprcsscd as a
Ovcrtrading fnay occur x△ ,hcn a busincss incrcascs its
pcrccntagc oftotal capital Fked-cost cap“ al is伍 c
turnovcr rapidly with thc rcsult曲 at its invcntorlcs,
moncy that丘 nanccs a companyin remrn for a nxcd
trade receivab1cs and tradc payablcs als° incrcasc,
rcmrn and inchdcs dcbcnmrcs and prcfcrcncc share
but t° a lcvcl that thrcatcns its Ⅱqtud⒒ y Thc
caplt尉 Total capltal inchdcs thc cq讧 〃intCrc斑 s Year2
Orclinarv sharc capltal and r∞ crvc9phs dlC ⅡxC扯 Pro每 t bclorc liltercst 150000 150000
Dcbcno顶 c Intcrcst ⒓0000l (8000Cn
Cost Capital
°rdlna〃
Pr。 nt1cft foェ
Thc lormtda i⒏ sharcholders 130000 70000
Proflt as a pcrccntagc
dcbcnmⅡ +prc托 rcncc sharc capital ofoェ dnla饣 sharc capital

ordlila〃 sharc capital+rcscrvcs 130000 1625% 70000

359o
Ycar3 800000 200000
Ⅱ adnar Ltd、 gcarlng is:
pr。 nt bcf。 re mterest 50000 50000
2011 Dcbcilturc lntcrcst ⒓0000 (80000)
Pr。 nt Icft for ordinary
× lOO1。 l鳊 sharch° ldcrs 30000 (30000l
襦 Pro￡ t as a pctccntagc
2010 of ordlna叩 sharc capitaI

粽 仰 羿 仰
$100000
100=1193%
$738000×
A company is dcscnbcd as highly gcarcd ifthc
The abovc cxatnplc sh° ws that if proflt varies by
gea1・ lng is morc than509s Ifitis lcss than50V。 ,it is ±$50000(50′卣 in thC lr,w gcarcd company,伍 e
1° w gcarcd 50V。 is flcutral gcarlng Ⅱ adnar Ltd is
proⅡ t lc± t for thc° rdlna呷 sharCholdcrs varies by
low gcarcd
±625%In伍 c hghˇ gCarcd compan另 the mrh刂 on
Conlrnent Thc kcy、 认
`ord in undcrstanding thc is± 25V。 Thc sw△ ngs in thc forttlnes of ordina叮
li△ lportancc of gcaring is⒒ sk Lcnders° fm° ncy to a
sharch° ldc灬 arc grcatcr CnorC rlsk⑺ nl a highly
compai△ v may bc conccrncd ll△ o high圩 gcarCd;ths
gcarcd company than in a low geared colnpa珥 ~
may indicatc that a largc shcc of proRtis appⅡ cd in
the paymcnt ofintctcst Bjsk arlscs if pro± its fall and DebVequity ratio
fail to covcr thC intcrcst paymcnts Banks Thc lormda仍 r thc dcb√ cqtu饣 rajo k
approachcd by a lugl△ y gcarcd company xsylⅡ ques0on
dcbcl△ urcs+PrcfCtcncc sharc capltal
w蜕 whCn thc company ls alrcady h∞Ⅳily dcpcndcnt
ordlI,a,sharc capItal+rcscⅡ ℃s
upon loans,山 c sharchoIdcrs arc unwⅡ Ⅱng to invest
morc of thcir° wn moncyin thcir c° mpany Pcrhaps L1adnar Ltd△ debt/eqtuty raoo is
thcy lack confldcncc in thc oompany、 futurc
2011
Ihc Ⅱsk t° °rd△ las sh征choldcrs is incrcascd in a $150000
hglisT geared company as dls± oⅡ °踟△
ng cxaⅡ Iic shΦ ″
s $909000 × 1tX’ =16509。

Lo,gcarcd H冶my gcatcd 2010

company company $100000
$738000 × 1llll=1355o/o
Gcaong 20Vo 809o
$ $
0rdm唧 sharc caPital 8llll O00 200000 Comment△ 诋 rauo o ρftcn t・at1ght as an衬 ∞mau△ e
109白 debenolrcs 200000 8llll O00
mcthod o± calcdaui|g伍 c gcarmg ratlo,bLlt it厶 arguablc
1000000 1000000
Ycar 1 M,hether cxprcssnlg axc汪 cc,欲 capltd as a阝巩 cntagc o±
Pt。 nt bcf。 Fc intcrcst 100000 100000 tod capital cnlplcDycd In con臼 彡
⒖tto thc dcbt/cqLll″
Dcbcnilrc1ntcrcst (20000) f8000llN rauo.伍 c gcaiing rauo ls consistcilt XXi伍 dlc亿 rm山 ±
or
Pt。 nt Icft f° r otdinary
rco△m on capltalcmpq△d
$harch。 ldcrs 80000 20000
ProBt as a pcrccntagc
Ifthc dcbt/cquity rau° is1css than100V⒍ thC
of ordlnaF`sharc capita⒈ company is low gcared;ifit cxcccds100V。 thc
80000 20000 coinpany is hgbI,r geared;1009吒 is ncutral gcaFlng
10q'o 109'o
800000 200000
Interest cover Coment In dlls casein2011 thc intcrcst Ⅻ扌ich
Dcbcnulrc holders and° thcr lcndcrs t° a company Iladnar Ltd h灬 to pay“ a hlghcr pcrccntaboc of
need t° bc surc that thc proflt bcf° rc intcrcst pro丘 t
than2010H涧 昏哎 ,扯 。 not vc,hgla and
adcquatcly c° vcrs tl△ c intcrcst payments Intercst unLk的 to c纰 ⒃ 曲e∞ mp狃 y山 mcd吵
must bc paid cvcn if a company makcs aloss,but it
EarnIngs per share
is reassurlng if thc pro丘 t bcf° rc intcrcst covcrs thc
intcrcst pa,Tnlcnts sCvcral omcs;a good cover Ear-gs arc tl,c pro丘 t le± tf° r thc° rdinarv

pro说 dcs a safc,margln against a± a△ h pr° 丘ts in
thc future Shareh° Iders arc a1so conccrncd to scc a
good intcrcst covcr as thc△ dls,ldcnds can only bc
pald if pr° ￡t is1cn aftcr charglng thc interest in thc
Inc° mc statcmcnt
Thc f° rn1daf° r calcu1aong intcrcst covcr is∶
pro丘 t bcforc intcrcst Φr° 丘t flom° pc￡ aoor,9
lntcrcst payauc
sharch°ldcrs aftcr intcrest,tax and prcfcrcncc
dlxrldcnds havc bccn prox・ lded for in dlc Inc° mc
Statcmcnt Ordinarv disldcnds arc pa1d out of
carmngs,and any earillngs not dlstrlbutcd incrcasc
thc rcserves and thc statcment of Financial P° sij° n
ˇ
么luc° f tllc sharcs Eariungs pcr share are cxprcsscd
in cents($000)pcr sharc,and are calculatcd using
the f° rmula∶

Il△ c intcrcst covcr for I」 andar Ltd is Proflt at山 butablc to equit△
,holdcrs

thc numbcr of° rdina叩 sharcs issucd

2011 2010
216衤 182衤 uadnar Ltd、 car血 ngs por sharc arc∶
ncs
T=144tmcs 10 =1:2t・
珠201+15 木172+10 2011 2o1o

』 至
=抛 50pσ 血 狃 =$⒍ 妇 pα sllatc
Comment Lladnar Ltd愆 intcrcst covcr has 景:⒊ 罟芊÷ ÷景;骷黹÷
dccrcascd by3,8tirncs in2011,butis sjⅡ vc, 沐Nct pr° fIt lcss dlc prcfcrcncc dividcnd× 100

saosfactory
C° mmcnt,Earnings per sharc havc incrcascd by
Income gearing $007in2o11and rcsLJted in an incrcasc in thc
Incomc gearlng is曲 c htcrcst cxprcsscd as a rct威ncd car± ungs for the ycar

pcrcentagc of d,c pront fr。 m。 pcraj° ns It sho、 玲 t° Price earnings ratio(PER)

what cxtcnt a company can pay± or its borr° sxlngs or
The pricc carmngs ratio calcdates thc numbcr° f
wh狂 dlc htere针 ls as a pcrccntagc of tIic proflt± rom
0mcs Chc prlcc bcing pald± or thc sharcs° n伍 c
opcrat【 ons
markct cxcccds thc cariungs pcr sharc;it is
Thc formula i⒌ calcdatcd using the f° rrnula:

× l llll markct pjcc pcr sharc

糨
ca血 ngs per sharc

For Lladnar Ltd the calculaoon is:

Thc market prlcc of IJadnar Ltd、 ordinary sharcs
2011 2010 at31Decembcr2010ψ as$180,and at31

萧× %
lO0=⒍ 叨
姑×
ar,0=⒌ o9%
Dcccmbcr20111t was$210Thc prlcc carmngs
rau。 s atc:

Thc samc answcr could havc bccn obt匆 ncd by 2011 2010
dls・ lclng100by thc number° f umcs for intcrcst
covcr calculated ab° vc: :台 ::=420 ::号 :=“ 9
2011 2010 Conunent Thc pⅡ cc car血ngs raio has rcmaii△ ed
蛐_嘭

100 stcady over bodl ycars sharch° ldcrs havc bcen

ˉˉˉˉ =69490
144
=5+9%
prcpared to pay just ovcr40mcs thc cariungs pcr pro丘 ts± or± llturc cxpanslon radler than pa” ng lt out
sharc Thsis a mcasurc ofc° nndcncc in tlle ab山 , as dividcnd This xx,lll be of benellt to sharcholdcrs
°f Lladnar I'td to lnalntain its carlllngs in fumre A in thc longcr tcrm
PER of4“ not parjc△ llalˇ good± or a loi△ g△ crm An・altcrnativc to thc abovc form△ ia is:

invcstmcntlll a company PER is an important ra刂 o eari△ lngs pcr sharc

for invcstors as it gvcs a quick and casⅡ y dllrtdcnds pcr share

understandablc indicator of the rnarkct、 asscssmcnt 2011 2010

of a coiYlpany、 prospccts $050 =571。 ∞妇
mcs =6贸 tnncs
$00875 $00675
DiVIdend Cover
Thc2011丘 gurc is sⅡ ghtly diffcrcnt as a rcsuk of
Thc fortnula for dhidcnd covcr is
r° unding
pr。 nt attributablc to cqlli饣 ho1ders DiVIdend per share
dl△ ldcnd on or山 nail,sharcs
Co狃 paillcs usua△ h dcdarc dis,ldcnds灬 a ccrtaln
Dividcnd c° veris thc numbcr of0mcs the proflt numbcr of ccnts per sharc,rcprcscnong a ccrtaln
out ofwhich div1dcnds rnay be p・aid covcrs the pcrccntagc rctR1rn based on the nominal valllc ofthc
dlvidcnd If thc cover is too1ow,a dcc⒒ nc in pro± lts sharc For cxamp1c,a dlxrldend of$003pcr sharc
may lcad to thc dlxridend bcing rcstrictcd or n° t paid pald on a sharc xvlth a nomin狃 valuc of$050is a
狨 al Ond△ c otllcr hand,Ⅰ 伍c∞ vcr is lllgh, dlvˉ ldcnd° f6V。 on the share sharcholdcrs、 vho havc
sharcholdcrs rnay dccide that thc dircctors arc paid山 c rnarkct pⅡ cc for thcir shares nccd to know
adopong a mcan dividend poⅡ cy thc rcturn bascd on thc pricc they have pald Illc
Ths plcscnts a shgllt prt,blem xx,ldl伍 cw呷 accollli“ dIvldcnd ylcld is calcLllatcd ustng thc fc,Ⅱ owing
arc prcscntcd犰 c Statclllellt t,l Changcs1i△ EqLubi fornmJh
血 ovs dlxndcnds卿 Vdtlmlg伍 e ye么 Wb llax c⒃ cn that
11、
dixldcnd,,icld=
dlls△gtllc lllay mdlldc dlxndcFlds pald h rcspcct of a nominal va1uc of shatc
prⅡious accotulung pcⅡ od Thc calcda乜 0n of dlc ratlo dcclarcd ratc of dlvldcnd×
markct pocc ofshatc
must be bascd on dlvldendsin rcspcct ofthe veat h
quesjon In thc cxa仃⊥nau0n,dlc cxanuncr踟 iⅡ △ldlcatc 凵钲h征 Ltd愆 dccBrcd ratcs of dlx,ldcnd pcr sharc盯 ⒍
d△ c dlvldends for thc ycar△ l qucs乜 on to cnable dle ra乜 o 2011 2010
to bc calcdatcd
$35000 $27000
Assumc thatin the ycars Ⅱ qucsj° ns伍 c =$00875 =$00675
$钥 00000 $400000
dl“ dcnds ior Lladncr Ltd wcrc:
Commcnt Thcrc ls a shglltincrcasc in the
2011-tota1dividcnd paid$35000
amount ofthc divldcnd pcr sharc lr12011 This is
2010-total dlxridcnd pald$27000
positl,・ c for thc sharch° ldcrs,c§ pccla△v as thc
No刂 cc that thcsc arc n° t the flgurcs in thc
markct pocc ofthc sharc has also nlcrcascd
Statcmcnt° f Changcsin Equi,
孙 cc钊 kdaj° n of dix。 ldcnd cover for I」 adnar Ltd is: DiVidend yieId
This is calculatcd as:
2011 2010
si^2000=⒍ dlvldcnd pcr sharc
=w+dmcs 37tllncs × 1009o
鞣 $27000 majikct p⒒ cc of a sharc

CommcntIn both ycars thc1cvcl of covcr is The markct price of each share is$210for2011
good It rnay indicatc that the company is rctaliung and$180for2010
 Thc dlvidcnd” clds arc: somc usclL】 linformaoon rnav not bc dlsc1oscd in
thc acc° unts and somc account hcadings lnay not
2011 2010
indicate the contents clearly
$00875×
100=417% $00675× 100=375% ● Informaoon rnust bc omcly to bc of usc Itrnay
$210 $180
not be avaⅡ ablc unol somc long tlmc altcr thc cnd
ConⅡ ncnt The smallincrcasc in thc d⒈ idcnd
°fac° mpany、 flnancial ycar
vlcld】 n2011is thc resLit of thc sharc prlcc
● Raoos do n° t explaln dle cause ofthc changcs in
incrcasing fracu。 naⅡ y less than thc incrcasc in thc
thc rcsults but rnay indicate areas of conccrn;
砬dcnd Thcrc rnav bc a connecjon bc小 vccn thc
山、
lLlrdlcr hvcstiga0on o umaⅡ y ncccssa,to
incrcasc in thc markct prlcc and the smaⅡ incrcascs
discovcr causcs ofthc Conccrn
in thc cariungs pcr sharc and the dlsidend covcr
● Raoos usuaⅡ y do not rccognisc scasonal tact° rs in
bus1ncss:
288 Trend ana!ysis and interˉ firm
■pr。 nt margins xx,1Ⅱ bc lc,x・ |cr than n° rnaal during
comparIson perlods of scasonaI salcs
Indl“ dual rauos arc usual圩 of vCry Ⅱmitcd valuc ■inventoFy and trade recc仟 ablcs arc unLkcly to
Thc ra0os of a busincss f° r past ycars arc ncccssarV rcmain at c° nstant levels throughout thc yca‘
if trcnds in progrcss or dctcrlora刂 on of perf° rmancc ■Companies,even in the same tradc,xxlll havc
arc to bc sccn,The examplcs ofI△ adnar Ltd havc di± fcrcnt poⅡ 0“ ±
o-such matte阝 as provldlng
gi△ cn thc rcslllts for2010and2011and somc Ⅱn△ tcd for dcprcoa0on,doubt± Lll debts,pront
仕ends havc bccn obscrvcd,Glxrcn thc rcsults for, rccogi△ 0on,transfcrring prollts to reservcs,
sPty,four,丘vc or six ycars,rnorc rcⅡ ablc trcnds may d卜 idcnd poⅡ cy,ctc
bc dlsc∝ ncd, such lmita刂 ons sh° dd bc bornc in illlnd when
Trends rnay signal to invcstors XXlllcthcr thcy malklng compa⒒ sons be小 veen businesses
sh° Llld stay xx,th thcir investmcnt,or sc⒒ it and rc-
1nvcst1n a rnorc pronus1ng vcnture Exercise1
Inter丘 rm comparlson lIFC)“ posslblc whcn oasCd° n the acc° unts of a s° le tradcrl
in± ormajon aboutthc pcr± ormance of othcr sirn⒒ ar N幻 im wantsto an狃 ysc thc results° f llls tradlng for
busincsscs is aVaⅡ ab1c Tradc associa0ons coⅡ ect thc ycar cndcd31Dcccmbcr2011and has prepared
hformaoon fr° na their rnembcrs and pubLlsh the hs Financial statcmcnts Hc comparcs thcsc、
statis刂 cs as avcragcs for thc tradc or industry Itis
^th
the fm/al acc° unts for the previous year
thus posslbIe to comparc thc rcsults of onc company
1ncome statement
XX・ ith thC avcragcs for businesses of thc samc brpc
Comparlsons,hoM`cvcl,must bc±nadc xx,ith care,It is fot the yeaF for thc ycat
cndcd cndcd
not rcalsoc to compare thc sta刂 stics of a smaⅡ
31Dcc2011 31Dcc2010
tradcr M/lth rcsults achicvcd by1arge companics $$$$
CompaⅡ son should alxxays bc on a Ⅱkc-for4ikc basis Salcs 187500 172308
as± ar as possible Lcss c。 st。 f salcs

Inter~丘 rn△ c° mpa⒒ son can inform shareholders

0pcnihg invcnt。 , 16000 12000
PLlrchascs 125500 116000
、vhethcr thcy havc invcstcd thcir rnoncy in thc】 n° st
141500 128000
pro丘 tablc and stab1c instlmti° ns Closing invcnto, 14000 127500 16000 112000
Gross proflt 60000 60308
289 T卜 Ie l:mitat:ons of rat;os I css cxpcnscs 32678 38769
Net pェ o丘 t 27322 21539
●To bc uscf△ ll and rcⅡ ablc,raoos rnust bc
rcasonabl1・ accuratc Thcy should bc bascd on
inf° rmati° n in accounts and notes to thc accounts
 statement of Financial PogⅡ on Exttact fo夕 Fhandal state血 cnt

31Dcc2011 forthc yoat cnⅡ d3i De∞ mbct2om

31Dec2010
$ $ $ $ Dune由n Ltd Wemngt。 n Ltd
Non-cuircnt asscts $000 $ollll
lnCt b。 。k valucsl 93750 78322 0pcrating pjiotlt 300 42o
Currcnt assc‘ Dcbcnturc intcrcst C鱼 o) (120)
Invcnto, 14000 16000 240 300
Ttadc tcccl△ ・
ablcs 12511 9914 Tlansfcr t° Gcncral Rcsctvc α00l Φo
Cash and cash cqtu、 ⒓lcnts 7185 4851 Prcfcrcnce dis・ ldcild pald (0 lF,o
33696 30765 0rdina” dlx・ ldend paid c沮 ) (150)
CuⅡ cnt Ⅱab山 ocs Rctalncd car-gs ~兰 荃 型
Trade payabIcs 17192 16504 13984 16781
110254 95103
statcmcnt of Financial posi讧 on exttoctB at31Decembcr9ll11
0pc血 ng capltal 95103 81 176
Add pront 27322 21539 Duncdh Ltd Wc旺 ngton Ltd
122425 102715 $000 $000

伽~猢
Dcduct drawings 12171 7612 Long tcnⅡ ⅡabiⅡ Jcs I ong tcrm Ⅱabihocs
110254 951o3 100o dcbentuェ cs2014/15 12%dcbcnturcs2o13/141000
0rdina印 sharCs° f$1 0iIdln征 y sharcs of$2 1500
Further inf° rmation 69o prcfcrcncc sharcs 89o prcfercncc sharcs

160%of N时 im、 of$1 100 of$1 75o

salcs arc° n crcd1t
Gcncral rcs狎 龟 120 Gcncral rcscrve 200
2 Na” m purchascs aⅡ his st° ck° f goods on crcdit Retaillcd proFlt 80 Rctalncd ptont 35o
3 Thc° nly current asscts arc invcntor⒖ trade 500 28oo
reccivablcs and a bank balance
Thc markct values° fthc° rdinar/sharcs at
Requited
31Deccmbcr2011were as f° Ⅱ°ws:
(⊙ C・alctll犹 c山c允 ⅡΦ洒ng rao° s to扬v dccimal
placcs f° r each° f dic ycars cndcd
Dune血 Ltd$270 、/ekgton Ltd$360
31Dcccmbcr2010and2011 Requhcd
0) gr° ss pr。 fJt pcrccntagc la)CalcLJatc thc foⅡ ° Ⅵ砬ng raoos t0彻 V dccimal
llll nCt pr° 丘t pcrcentagc placcs f° r each company
(⒒ ll n° n~currcnt assct oarnovcr Θ gCa。 ng
C⑺ hvCnt。 ,ttlrnover ltD intCrcst cover
(v) 仕adC rccchablcs c° Ⅱcc刂 on peⅡ °d mD car血 n眇 pCr shar∞ GPΦ
(vll tradc payables paymcnt pcⅡ od C→ dx/ldCnd pα sh狂 e
←ii)cu止 cnt rauo ⑺ dMdCnd c。 vcr
d廴ill lquid(acid testl rati。 ←9pricC ear血 n箩 rau° eERl
o)C° mparc thc pcrformance of N句 im、 busin∞ s ⑺9dl说 dCnd” eld
in2011Ⅵ ith its performancc in2010,using o)C° mparc and commcnt° n thc pcrtormancc of
thc偬 o° sc狃 culatcd h(ω ,and c。 mmcnt on thc^v° c° mpa血 cs in2011using thc ra刂 os
thc c° mpanson calculatcd in(al,

ExercIse2
2810HoⅥ
Ⅱ `to prepare
and an Income
oasCd on thc a∝ oun邙 of mited c° mpamcΦ
A丘nancial c° nsultant has bccn askcd by ois cⅡ Cnt
,

statement
f° r Vc pcrtormancc of bxo
adxylce on thc rcla乜 statement of FinanciaI
compa血 cs,Dunedlil Ltd and飞 泓c⒒ ngton Ltd, POsition from given ratios
Extracts fr° m tlac丘 nancial statcmcn“ for thc year Thc丘αal acc° unts of a bushess rnay bc prcpared fr° m
cndcd31Deccnnbcr2011and thc Statement of a Ⅱst of accounong rau° s pr。 vided at lcast° nc itcm is
Financial P° si刂 on at that datc of伍 cR1|o Compaiucs gˇ ℃n灬 a nLlmeⅡ caltcrm Thc mcthod bc酗 s咖 th tllC
arc as foⅡ ows: glxen nuincncaltcrm and progrc$cs by stcps± r° m dlat
Example Pro丘t from opera刂 ons(17%%° f468750l 82031

pp
^`ˇ
C氵
Intcrcst on1ong-tcrm loan
Ncllra愆 lilvcilfory at31Dcccmbcr2010was$35000,
at10%侈 2031十 12纷 6724
ich xvas$sOOO kss dlan hcr hvcilko仃 at1Janllarv stcp 13 ProfIt ato,butablc to cquiψ h° ldCrs 75307
vxrl△

⒛10Fllmcr h± 。rma0on/about hcr buslilcss br dlc ycal 衤

G± oss proE〃 salcs=斡【 crcforc c° st ofsalcs=56%ofsalcs
`,山
cndcd31Dccc,nbcr2010is as± c,Ⅱ oxvs∶

Invcnto饣 tum。vCr 7刂 mcs statement ofF1nancial Poddon at31Decembet2010

Gross pront/salcs44%
$ $
NCt Pr° 丘t/salcs】 7%% Stcp14浒 2:)
Distribudon cost to adlrllnis讧 atlon cXpcllscs 1:3
Tradc￡ cc,xabl钋 Coucco。 n pc。 od32d纡 s CO%° f sal“ arc° n
l∶
stcp 15 Invcnto|y
⒒
;]I层
ssC^← 68750÷

35000
187500

crc山9
stcp16 Tradc rccclsablcs
Tradc palrablcs pal mc,lt pcⅡ od65days仫 Ⅱpurchaqes x cic madc
on crcd19 (468750× × ) 2:767
Non-currcnt assct turnoVcr 2冫 0tlmcs 盂 j:∶

Currcnt raoo 18∶ 1 ⒏cp20Bank balancc【 balancmg flgllrθ 18774

stcp19 ←5856× 】缈 65
Intcrcst coVCr 122tlmcs
・
狃 刁
82541
∠
亘
』垄
鱼36685
栝 甘售
e:∶
Thc currcnt asscts consist of invcntor、
baik balancc Onll,
tladc rcccⅣ ablcs and
溜
stcp21
l扌 :∶ :骨 ;i号;×
224185
Pulchra has rcccⅣ cd a long-tcェ ml° an on whch shc pays liltcrcst
at10oc pcr annum
stcp22Lcss lon⒏ tCrm loan at10%阝 724× 1Φ 67240
Pu1chra has dra、 vn$1000fiom thc busn△ css cach x/cck
stcp23 156945
Stcp28Capltal at1Jan2011Φ alanclrlg flgtlrΘ 133638
Rcquircd stcp24 Ploflt for thc,℃ ar 75307
Prcparc Pulchra’ s Inc° me Statemcnt for thc ycar
Stcp 27 208945
⒌cp26Dra、 汀ngs(1000× 5◎ 520lXl
cndcd31Dcccmber2010and her Statemcnt of Stcp25 156945
Financial Position at that date in as rnuch detaⅡ as
possiblc R/Iakc al1calculations to the ncarcst$
Notc Thc stcps sho、 rdcr in which thc itcms
Answcr `thc°
should be tacⅡ ed butthc stcp numbcrs do not form
Thc invcnt° ly at31Dcccmbcr2010is thc starong part of thc ansxl/cr and should n° t bc shown in
pc,lnt PlcDcccd灬 ±
oⅡ ows,in d△ c° rdcr glvcn by thc answcrs to qucs0ons Itisimp° rtant in cxan1inations
numbcrcd stcps to gain as many marks as p° ssiblc as quickly as
Pukhra possiblc Itis a good idca to start、 诃th an outⅡ nc for
Incomc statcmcnt thc llnancial statcmcnts(lcaving spaccs to inscrt
fot dhc ycat cndcd3】 Dcccmbet2010 addlj° nal itcms ifncccssasil,and to fll nl山 c itcms as
狲 蜘獭№獭

$ $ soon as thc丘 gurcs arc known For examp1e,inventory

6Rcvcnuc(100/56衤 ×26250l 468750 in thc Statcmcnt of F【 naicial Posijon can be inserted
Cost of salcs
2Invei△ tos at1Jan⒛ 1005Ot×l+sO0o zIO0lDo
immcdiatcIy it has been cntered in thc Inc° mc
5purchascs ub狃 anong flgtlrθ 257500 Statcment Slmilar\net pr。 丘 t can bc inscrtcd in tllc
4侈 62500+3500o 297500 Statement° f Financial Posioon as soon as it has bccn
1Invcntory at31Dcc10@vCr◇ 35000 calculatcd in thc Incornc Statcmcnt
stcp 3ω “ of s泌 6±2222讠
)至
旦
￡
望2=× D 262500
ExercIse3
Stcp 7 Gross pェ oflt← 68750-26250o 206250 Pa刂 cnce has rnis1aid hcr Ⅱna1acc° unts tcDr thc ycar
1 cnded31IDcccmbct2011but has lc,und thc rcpor1
∞
pp

9× 31055
:盅 找照圣 T) osrlllch hcr accountant has prcparcd,bascd on由osc
佼

accounts Shc has dcc1dcd to rcconstruct thc accounts

Stcp 9
"嚣(124219×
T)
ΦaIancu.g figll⒆
93164
124219
±
rom thc informajon c° ntalilcd in thc rcport
 Ihc acc° Lliatan“ rcport cc,ntam耐 d△ c folloxx△ ng dat⒋ cndcd31Dcccmber2011and the statcmcnt of
Financi挝 P° si刂 on atthat datc Makc aⅡ
Λt31Dcccmbct2011
ca1culajons to the ncarcst$
Invcnto〃 $54000σ‰sW孙 20%morc dlan thc lnvcilt0lT at
1Janua〃 2o11◆ ar bushess to that of
``irtuc carrlcs on a simⅡ
Fofthe ycar ended3】 Dccembct2011 Paoencc aild has thc f° Ⅱo、 r thc ycar
^ng data f°
Invcnt。 叩 turnovcr 10omcs cndcd31Dccembcr2011
Gloss ptollt marp△ 359o Invcnto叮 ulrnover 12timcs
Nct pro佞 t margln 22o/o Gross Pront margin 409o
Non-curjIcnt assct uun° vcr 4刂 mcs Nct pioflt marg,n 20c/o
Tradc rccclx,ablcs coⅡ ecoon pcriod 34davs ODased。 n365days Non-currcnt assct ulril° vcr 5omcs
lIl山 c uarl Tradc rccclxablcs colccdon pe蛀 od 31days
Tiade p绅 么blcs p呷 mcnt pcnod 42d叩 s,asCd on365days Tradc payablcs paymcnt pcood 36days
ln thc r⒆
CuJEcnt rao。 25∶ 1 Requircd
⑴ Compare Ⅵ rtLlc、
Thc currcnt asscts consist of invcntor弘tradc rcccl△ ablCs and pcrformancc N△ iu.dlat of
bank balancc
Pajcncc and indlcatc the rajos that sho、 厂which
蒯 sa1cs and purchascs xx/crC madc。 n crcdit
Pauencc drcw$1纠 a Ooo from ulc busincss duilng thc,rcar bushcss is thc tn° rc c± flocnt

You shou1d、 阝
`rltc your answcr in scntcncc form
Requhed and hclude sLlpporung llgt1rcs
(Φ P【 parc,in灬 much d∝ aJ as posslblc,
Paticnce、 Incomc statcmcnt f° r thc ycar

Learn the headings under VVhich ratios are shoˇ vn in the pyramid ofra】 ios and which raios are included under
each heading
●

Rememberh° w each ratio is caIcu丨 ated lthe modeo

●

Take care to oaIculate rat os on the Correotfigures and check your aHthmetic
●

EXpress eVer/rauo in the oorrectterms,for examp|e as a percentage,a number oftirnes or days,a true ratio,
etc Marks WⅡ l not be awarded in an examina】 ion ifthe oorrectterms are omi廿 ed
●

Make sure you understand、 ″hat each ratio is intended to expIain

●

Your comlη ents on ratios shou丨 d bθ based on the information you are given and justified by the ratios you have
caIcu|ated Do not assume facts you are not given
AVoid making definite statements that cannot be suppo"ed by the information given Y° u may suggesfreasons
forthe comments you Iη ake
YOur comments should be ooncise and reIevant;avoid repe】 tion ofthe same p° int L° ng rarnbⅡ ng answers that
stray from the ρoint do notirnpress the examinen
When you are asked by the examinerto comment on the raⅡ os you haVe CaIculε 刂ed,theˇVording of your answer
is veryimpodant statements such as the gross pr° fit ρercentage is higherthis yearthan last year aro not
su仟 tient The eXaminer wants you t° te"them thatthis meansthe s"uaton has n” prol/e龟
orthe company’ s
trading was I,efferthis year Sim"a"y,tlγ t° use words"ke worse,"thatis Whatthe resuIts show 8uⅡ et points
in the answers are perfedIy acceptabIe and w"I save yourtime
A丨 ways use the reIevant sign or w° rding with the raⅡ o FOr example,a%sign aⅡ erthe calcu丨
a刂 on of gross ρrof1
orthe number oftimes for dividend oover
1. lnformat on about a business is given丨 n the 4, The quick ratio(acid test)of a bus丨 nθ ss has fal丨 en

fo‖ o、″ing table Whatis the rθ ason forthe fa"?

Year1 Year2 A a decrease in trade payabIes
$ $ B a decrease in inventory
Tum⑶ er 200000 250000 C anInoreaseln cash
Cost of sales 125000 140000 D an inorease in the bank overdraft
75000 110000
5 The closing inventoIγ of a business was$30000
0ρ erating expenses 32000 64000
Pro仳 from
and the cost of goods soldˇ Vas$600000
lnventory turnoVeris based on the aVerage Va丨 ue
operations 43000 46000
ofthe opening and closing inVento"es
NonⅡ urrent assets 140000 120000
Net current assets 60000 80000 Ifthe inventory turnoVer was15umes,what was
LOn0ˉ terFn loans lgO000) l00000) the open丨 ng inventory?
VVhioh ofthe fo"owing is true in year2? A$10000 B $40000
C $50000 D $80000
Gross proflt margin Return on 6. The fo‖ owing|nforma刂 on is eXtracted from the
cap"aI empIoyed fna|aocoun1s of a business
A decreased decreased
B increased decreased $
C dθ croased Inoreased oρ ening inVentoγ 6000
D Increasθ d inoreased Purchases la"on credltl 220000
Closing hvontory 28000
Extrads from the|ncome statementfortwo years
Trade payabIes at end° f year 21096
for a business are g ven in this table∶

VVhatis the per od taken to pay the$upp"ers?

Year1 Year2
A 31days B 32days
$ $
C 34days D 35days
sa|es 100000 200000
7,The fo"ow ngis an extrad from the lncome
Gross prof⒒ 30000 70000
statement of a oompany

What might exp|ain the change in the gross profit

$
margin in year2?
Prof"from opem廿 ons 360000
A anincreasein sa{es Debenture interest 24000
B an inorease in the sales price Profk a廿 o
C a redudionin丨 nventoγ "butaue
Preferen∞ dⅥdendtop西 d
equty holders (16∞
sss∞ 0l
D supp"ers oπ ering h丨 gher cash discounts 0rdlnary dlvuend p丬 d l900∞ 0l
Retdned eamlngs 12o∞ o
Whatis the e矸 ed on the ourrent ratio and quick
ratio of a business∶ f t uses cash to buy
The company’ s share capitalis as foⅡ oˇVs
Inventory?

lssued:2000008%preference shares of$1

Current ra】 o Quick ratio
800000ordhary shares of$1
A decrease decrease
B decreasθ increase
Ⅵ s earnings per share?
C no ohange decreasθ
A`hatis
$032the company’
B $040 C $042 D $045
D no ohange increase
8, /\Co丨 ηpany has share capital of$1each500000 Profk a廿 ders 340000
shares The fo"owing is an extractfrom"s lncome "butable
Transferto to equity ho∶
generaIreseNe U∞ 0∞ )
statement 0rdinan/dividend paid 鲰
Retained eamings 40000
$
Prof"from operatons 400000 The ourrent market pHoe ofthe shares o$360
Debenture interest (60000) Whatis the pr ce earnings ratio?
A 529 B75 C8 D 1125

1.On10ctober2010Manny Kyoor and his Wfe FiXtures and

formed a Ⅱm"ed company,Kyoor ud,to run a fi廿 ing$ 48000 12000 36000
beautician’ s business,and each paid in$37500 1″ 0∞ 12000 160000
as share cap许 aI The bank丨 oaned the company Current assets
a fudher$80000at9%interest per annum Inventory 66500
At30september2011the business’ s finaI Trade receivab丨 es 215∞ 88000
accountsˇvere draWn up as foⅡ ows∶ ab引 i刂 es
Current Ⅱ
Cred tors 210∞
Income statementfor?he year ended30 lnterest due 7200
september20i, Bank 18950 47150 40850
200850
$ Nonˉ current Ⅱ
ab"Ⅱ ies
Longˉ term Ioan 80000
sa丨 es and fees 350000 120850
Less Cost of sa丨 es Equity
lnventoγ 31500 75000ordlnary shares of$1 75000
PurChases 280000 Retained profl 45850
311500 1208so
Inventofy at
30september2011 66500 245000 Industγ average ratios and other re|eVant data

Gross ProⅡ t 105000 concerning businesses sim"arto Kyoor ud were

Less EXpenses as fo"ows
Rent and Ratos 3950 C)Gross ProⅡ t percentage 3000%
AdvertisIng 1750 U◇ Net Pr0仂 t ρercentage 1807%
Wages 29000 C")Current ra犭 o 221∶ 1

Heal and Light 5250 (⒄ L咱 uid(Quckl rat。 102:1

lnterest due 7200 nventoγ Tumoverrato
lvl丨 8u丨 ηes

Deprec atlon 12000 59150 ~) N° nˉ current Assets to sales 5018%

Net Prof;t 45850 lviO Retum tO TOtaI Assets 2537%
(v"O Return on Net Assets ⒊ 93%
statememt of Hnamc1aI PosⅡ ion
〈
ix) Trade receiVabIes coⅡ ection pe"od 25days
as at sO september2011 (x〉
Trade payabIes ρayment pe"ρ d 30days
Cost DeprecIaton NBV
lal Calcu ate eaoh ofthe aboVe rauos,t° 2
Nonˇ current assets $ $ $
docirna|pIaces,for Kyoor Ltd
PremIses 124000 124000 b)C° mment on the business’ s pe亻 ormance in
〈
ght ofthe data forthe industry
the Ⅱ
 Note "is not sufficient to say that a ratio is Dl Compare the performance of VVorky Tout&Co
〈
‘
higher’ or1oˇ Ver’ than the industlγ average-Ⅱ V̌ith that of Zenapod 丨
ndicate the raⅡ osˇvhich
must be丨 ηade clear whether you think itis beⅡ er shoˇ vthat one business is more e矸 icient than
or Morse than the industry aVerage and y`ou must the otheⅡ YOur answer should be in sentence
give reasons for your comments form W"h suppo"ing Ⅱgures

3.An eXtrad from O"ar plc’ s Financia statementfor

2 The fo"oWing information sum丨 ηarises the latest
the year ended30Apr"2011was asfo"ows∶
na|accounts of VVorky Tout&Co,a

蛳硼⒛
set of】
partnership
sO∞
0perating profit

一
At30ApriI2011

徇
Debenturo interest(12%%)
hVentory$45000(This was50%more than the
inVentory at30Ap"I2010)
0rdinary dividend paid and
Forthe year ended30AprⅡ 2o11
proposed forthe year ssCl
Inventoγ tum0Ver12tirnes
Preference diVldend ρaId and
Gross pro】 t margin40%

㈤~
proρ osod forthe year 12o
Net pro】 t margin18%

~⒛
NOnˉ current asset turnover3刂 mes
Transferto Genera丨 Roselve 900
Retahod prom forthe year
Avenage tirne taken by customers to pay:36days
(based on a year of365days)
Averagθ 】me taken to pay suppliers:40days Oitar pIc’ s issued share capita|and reserves at

(bas° d° n a year of365days)
The current ratio is3:1
The onIy current assets ofthe firm consist of
inventory,trade roceivab|es and ba{anoe at
bank
Partners’ drawings forthe year$125000
All sales and purchases were on a oredit
basis
Required
⑶ Prepa哞 ,in as much deta"as p° soue,the
lnoome stalement of Worky TOut&Co forthe
year ended30ApH|2011and a statement of
F nanci引 PosⅢ on as atthat date(A"oa丨
跏伽钔汹
3o AprⅡ 2o11Consisted of:
0rdinary shares of$10
8%ρ referen∞ shares of$5
Capital and revenue reselves
The market p"ce ofthe ordinaγ shares at30Ap"|
2011was$30
Note
The information given is from the accounts
prepared forinternaI use by the managers and is,
therefore,d矸 erentfrom the IAs format
cu丨 ations

shouId be made to the nearest$000) RequIred

(a)CaIculate the folbwing ratios for o"ar plc
The fo"oWing info"mation is ava"able for
(◆ interest coVer
zenapod,a sinni|ar business,forthe year ended
(ii) dividend cover
30ApH12011 ("i) earnings per share
(iv) price earnings rat o
lnVentory tumoVer 10times v) dividend yield
〈
Gross prof"margin 45% (vi) gearing
Net proft ma陶 in 2o%
〈
b) E× p{ain Why each ofthe rat os n〈 a)is
Non℃urrent assettumover 3%】 mes irnportant forinvestors in ordinary shares in the
Ⅱme taken by custome阝 to pay SOdays lbased on
oompany
a year of365days) oi1ar plc’ s acc° unt ng raⅡ °s at30AprⅡ 2o10were
Time taken to pay suppIiers 28days(based on
as foⅡ ows∶
a year of365days)
interest cover 55刂 mes
RequIred
(cl C° mρ are the ratios for2010W"hthe same
dMdend ooVer 25tirnes
ratbs in2011as c引 culated in〈 a),and
ρH0e ea冂 η
ings ratio 2
gea"ng lcahuIated as a oercentag0oflong-term comment on the ohanges thatV`ou find
(d)state,with reasons,any fudherinforma】 on
dθ bentures and preference share capⅡ aIto totaI
you mightrequire and what other documents
long忄 erm cap"aI)
you might、 vish to see to enable you to
assess the Ⅱkθ {y future pe亻 ormance of
o"ar pIC
 Co 骊 d助
eh￡
h1t,∶
∶
∫
∫ iQ,s心 Q51810,taob巳
● the sources of oompany financing
● princip丨 esthat are impo"antforthe financing of companies
● the bases and"mⅡ ations of moderh financialreρ o"ing
● the Crltical app“ △sal of accounting repo叶 s
● what Window dressing is
● the nature of company foreoasts
291 source of company finance
As wc havc sccn,evcrv Colnpany must havc sharc
capita1 A company may issuc rcdccmable sharcs,but
°n圩 ifit has akcady issucd sharcs which are not
rcdccmablc This ensurcs that somc part° fa
company‘ 丘nancing rnust bc prox,idcd by the
mcmbcrs ofthc coinpany as an insurancc for the
creditors if thc company gets into ftnancial
dlfflctl刂 cs
Besides sharc capit・al,othcr sourccs of ftnancc arc
●l° ans-dcbcnturcs,bank loans,othcr1oans
● bank ovcrdrafts
● hirc purchasc and lcasing of assets
● tradc and° thcr crcdltors
Somc forms of flnancc arc rnorc sultable than
othcrs;it dcpcnds upon thc purposc for、 dich thc
flnancc is rcqLllrcd,It、 注Ⅱbc uscfti to rccza△ the main
±
camrcs of cach source
292 share Capital
ord山naFy shates,togcthcr with a company、
rcscrvcs,are known as thc equ“ y of thc company
Ordlnary shareholdcrs can bc paid dl△ tdcnds only if
tl△ crc arc pro血 s avalIable aftcr aⅡ °伍cr clairns by
dcbcntLlrc holdcrs and prefercncc sharcholdcrs havc
been met XX hcn a company ceases tradlng,thc
ordnarv sharcholdcrs arc cnuded t。 thc± Llnds that
豇
0,GOⅡ
rcmalll aftcr aⅡ credlto“ Cnchdlng dcbcnturc
holdcrs ai△ d other lenders)and prcfcrcncc
sharch°ldcrs have bee且 rcpald %us° r山 na呼
sharch° ldcrs rnay recc⒒ e back tnorc than thcy
origlnaⅡ y paid lor d△ eir sllarcs,or thcy ma9r rCc‘ :)iVe
nodung at aⅡ Thc CompaⅡ cs Act allows compail,cs
to convcrt thcir血 ⒒y paid tlp sharcs into stock stock
may bc thought of as‘ bundlcs of sharcs’ x△・hiCh rnay
bc bougllt and sold in frac0onal amounts For
example,sharos xxlth a nomhalx・ sa:$1may
alLlc oξ
on1y bc traded in mulopl∞ of$1Θ omin狃 value)It
is not posslble to bu⒖ sBuy,100冫 1sharcs stock,
ho、 严
cvcr,may traded in any alnounts and itis
posslblc to tradc h,sal/,$94586of吼 ock,C° mpa血 cs
may rc-convcrt stoc冬 back into ftlⅡ y p缸 d-up sharcs of
any nolmnal vahc
Prcfcrence shafcs cnodc the holdcrs to a fLxcd
ratc of dlx,ldcnd cach ycar provided the company has
made sLl￡ Eocnt pro丘 tP・ardc幻 patLng preferencc
shares enodc thc holdcrs to havc any arrcars of
dlx,ldcnd made good in latcr ycars、 沽Kn pro丘 ts arc
suf】 1clcnt Prc±crcncc shares arc par刂 clpaing ud∞ s
thcy arc spcciflca△ y dcscⅡ bcd as non-par刂 clpaing
Prc炙 rcncc dlxTldcnds arc payablc bc± ore any dlxldcnds
arc pavablc to thc° rdmary sharcholders,and holdcrs
of伍 c prcfcrcncc shalcs arc cnudcd to have thcir
capltal rcturncd in prlorltv to thc ordlna,
sharcho1dcrs x△,hcn thc company cc‘1scs trading, when dlc血 nⅡ oc° nvert arnvcs,伍 c markct
Iξ

subjcct t° fands bcing avaⅡ able pocc of曲 c sharcs o hghcr d△ an thc prc dctcrmincd
Bughts issucs arc shares° ± fcrcd to cxisting pⅡ cc,it wi11bc advantagcOus to convcrt thc stock
sharch° ldcrs of a company at a pricc bcloxs thc int°sharcs Thc h° lder° fthc st° ck cxchanges the
currcnt rnarket pⅡ cc,sharcs rnay ncvcr bc issucd at a Ⅱghtto a nxcd hc。 mc palablc° n sctdcd dat∞ for
discoun△ that is,at a pⅡ cc bclow thcir non1inal thc unccrtaln饣 of rCcClx・lng dividends whkh may bc
v尉 Llc A⒒ gll“ “sllc cnsur∞ ttl狂 cxls色 ng more or lcss than the intcrest on thc st° ck,Thc
sharch° ldcrs d° notlosc control of the c° mpanv,as compallv,° n thC0thcr hand,is rcⅡ cvcd° f ha△・ lng to
could bc山 c casc ifthc sharcs were o± ±
cred to thc pay1oan htcrcst rcgardless° f dlc pro丘 tab山 y̌ of the
gcnc± al publc A povatc companv may oiixTincrc灬 c compan另 and nccd ody pDy dlx,ldcn凼 l± pr° flts arc
its capital by a nghts issuc becausc it is prcvcntcd avaJable C° nvcrsion of thc stock dccrcascs thc
fron】 °ftcring shares to the pubⅡ c company飞 gcaring
ˉ
Bonus issues are not a ncw sourcc of± tlndlng as
伍cy do not crcate any add1】 on砬 cash for thc
Bank loans
companI B° nus shares are crcatcd by transfcrrmg thc Bank loans arc avaⅡ able t° ac° lnpany proˇ △
ded it can
balancc noln a c。 mpany、 rcscrvcs to thc(Drdinary 陋。s印 thC bank that thc血 nds arc rcqLured lor a
sharc Cap】 tal acc° unt and issmng ccr0flcatcs for the sound purpose such as capit狃 invcs讧 nent or
ncw sharcs to d,e ordlnary sharch° ldcrs in proporuon cxpanslon,and thatthc c° mpany s1・ m bc ablc t。 pay
to thclr e妊 sjng sharcholdmgs dae intercst° n伍 c duc dates,扌 殂d rcp缈 thc ban in
duc coursc Thcloan rnay bc for a sh° rt tcrlll suoh as
293 0ther sources of finance tbrcc m° nths or for a l° ngcr tcrm° f a numbcr of
ycars dcpcndlng on dic pLlrposc for whch itis
Debentures
rcqⅡ 1rcd A bank w姐 ust1・auy be uns,△ Lng to lcnd to a
Dcbcnturcs arc loans t° a company Dcbcnnlrc company that has gotinto dl∫ l￡ lcLiucs througl△ bad
holdcrs arc cnoded t° a fLxcd ratc° f liltcrCst on thelr managcmcnt Loans wⅡ usu^Ⅱ y bc sccLlrCd0n thc
loan rcgardless° fx△ l,c伍 cr° rn° t thc colltpany has asscts of山 ec° mpany Thc ratc of n△ tcrcst chargcd
madc a profit If a c° llapany lacks thc cash to pay may bc Excd° r vaoablc The nltcrcstis chargcd on
dcbcnttlre intcrcst、 阝 thc fu1amount° fthc l° an x1・ hc伍 cr it is uscd° r not
`hcn itis duc,and thc loan is
sccurcd on thc asscts° fd△ cc° mpan阝 dle debcnn,rc
holders arc cnudcd t。 havc thc assets sold t° pay thc
Bank overdrafts
interc哎 and to rcp锣 tllc loan immcdlatcllr Bank ovcrdrafts arc tcmporaty± ac山 jcs that a△ ow
Dcbcnturcs arc usuaⅡ y rcpayablc on a datc or xxlthn a compamcs t° bccome° x crdraX,n° n dlclr bank
pcrlod° f omc spcci丘 ed at thc刂 mc thcy arc issucd ac∞ unts Interest o c/alculatcd on the° 【 r血 ght
Thcy arc a long-tcrm,but n° t a pcrmancnt,form of amc,l【 llt of tlic凼 吐draft№ dlat htcrcst^° dy pald

丘nancc by a company on thc amount of thc facⅢ 〃 it usCs

day by day Banks tnay canccl° vcrdraft nc山 tles at
Convertible loan stock
any0mc`^dlout n° occ,cXp° sing the borro、vcr to tlac
Converoblc l° an st° ck cnodcs the h° ldcrs t° a丘 xcd
osk of flnanoal cmbarrassment
rate of intcrcst p呷 ablc On de丘ncd datcs,and thc ngllt
to conˇ ℃rt Chc st° ck into shares at a prc-dctcrmincd H∶ re purchase
pⅡ cc on a sct datc Becausc of伍 c° pjon to conve叱 Hirc ptrchasc cnablcs a purchascr to havc the
∞ mα ubk loal,stock Ⅱu碰 y carrl∞ a lo、 潞 r rate of bene丘 oal“ c° fanassd wmc伍 c。 wncrslup° f山 c
intc∞ st伍 an° rdmary dcbcntLr∞ and厶 ustla△ not 1・
assct rcmalns with the lmc purchasc c° mpanI At由 c
sccurcd on d,c asscts of thc busincss cnd of thc h△ c purchasc agrccmcnt亡 hc purohascr
may bccomc thc o环
`ncr ofthc assct on paymcnt of a
rllsuallxrl nominal sum Undcr tlic principlc of
substance° ver forn△ ,thc purchascr shows thc
assct as a non-currcnt assct in the statement of
Financial Posioon at its n° rmal cash prlcc and shows
thc outstanding Ⅱabi⒒ ″ t° thC hrc purchasc
colnpany as a creditor
Leaslng
Lcasing a11ows a company1caslng an assct Chc
lcssccl to usC thC灬 sct MhLlC tlic owncrship of thc
assct rcmalns xx・ l山 thc company from whkh itls
leased(the less。 rl Thc assCt踟 ill ncvcr bccomc thc
properψ ofthe lessee and thc rcntal is sho§、 in thc
lcsscc、 Incomc statcmcnt as an cxpcnsc
A company rnay raisc rnoncy by sclⅡ ng somc oflts
non-ctlrrent assets to a leasing company alld lcasing
them bac廴 s° reta△△ng their use Ths1s kilown as
‘ assets of a Company should bc adcquatc圩
salc and lcasc back’ ,It recelxres a capital suin for dle
salc and chargcs thc1casing rcntal in its Inc° me
statcmcnt
Factoring
crcdltors lnay insist that futurc dcaLngs are°n a cash
basis,or rnay cvcn withdra、 厂suppⅡ cs or scr呐 ccs
altogcthc⒈
294 1rnportant principles that
shouId deCide how companies
are financed
Thc main prlnciples thε 1tshould dcodc how a
company厶 fhanced are bⅡ e且y explaJned bcIow
LOngˉ term capitaI
Lon⒏ tcrm rc叩 J虹 cmCnts shodd bc丘 nanccd by lon⒏
tcrm sources Fhancing the acquisiti° n° fn° n-
current assets,f° r examplc by short-tcrm1oans,runs
thc ver/grcat rlsk that thc l° ans、 河ll havc to bc
repald bcforc thc asscts in qucs刂 °n havc gcncratcd
sufⅡ cicnt3inds for thc rcpaI迅 cnt Tllc non-currcnt
covCrcd
by sharc capital and rcscrvcs,and possib圩 by long-
datcd dcbcnturcs
An acqulsioon° fa n° n~currcnt assct may bc
丘
nanccd” a bank ban br an agrccd tcrm to/alo・ v△

Somc compamcs sc⒒ 山c1r book dcbts to a factor1ng thc assct t°gCncratc伍 c funds for rcpγ mcnt by thc
company either灬
^th or ssldhout Fccoursc Thc umc thc tcrm has cxpircd Ntcmauxcˇ the±Lulds
fact° Ⅱng company lnakes a charge for co⒒ ectlng the
may bc raiscd by an issue° f debenmrcs、 /Ⅱ ch、注Ⅱ
dcbts and dis is dcducted± r° in the book sralue° f伍 e bc rcpayable、 vhen由 e asset has startcd to carn
油 ″矽
dcbts sold If thc dcbts wcrc s° ld”氵 夕刃仃色the
rcvcnue This c且 abIcs thc sharch° ldcrs to cnjoy a⒒
fact° rmg company、 rcquirc tlic company that sold
^Ⅱ the bencfits accruing fron△ ng
thc assct xxlth0ut haˇ △
山c dcbts t° mak good any loss rcsulong fron1bad to sharc thcm、
dcbts If thc dcbts、 吻叻潴 ″ ″ 囫/JF,dlc ^th thc providcr ofthc capital uscd
`crc sold勿 to purchasc thc assct
负ctor1ng company、 vⅢ hcrcasc thc chargc for
coⅡ ccong thc dcbts to aⅡ o环 Working capitaI
'for thc rlsk of bad dcbts
Thc advantagc of factoonbo is伍 ata compa叩 A posiove current raoo钜 ≠Catcr than1:1)sho`vs
rcccivcs the moncy osx・ lng by dcbtors cady and厶 that thc currcnt asscts arC n0t、/hoⅡ y丘 nanccd by thc
rcⅡ cvcd of曲 c cxpcnsc of crcdlt control and dcbt currcnt Ⅱ
ab山 tlcs(血 ort tctm“ adc payablc⒐ ThC
rccovcry possibdlt,r伍 atinvcntory tumovcr m呷 bCl°w61o矿
mo呐 ng goodθ ,and that cu吱 omcrs may take al° ng
Trade payab∶ es
omc to pay mcans that some ofthe currcnt ⅡabiⅡ ocs
somc of a con△ pany、 丘nancc is pro~△ dcd by its tradc
could bc funded by n° n-currcnt fttlancc F° r
and cxpcnsc crcdltors Ths1s ashorttcrm brm of
cxample,the c° mpany may takc aloan t° pay its
financc Howcvcr,a company that abuses dus source
crcditors° r use it t° buy stock
・
o± 血 ance血 ks bsmg the goodx△ m。 f its汕 pp△ e灬
Thc casicst、 w a bushcss flnanccs
and sacri丘 cing advantagcous crcdlt tcrms Thc `ay to shoM`h°
ksclf佰 、注th the fo△ oxxliag dlagram oo fgurCs arc
include① ∶

Finance by longˉ ⒗ n⒒ abIti‘ tes
f‘
sVCh as|oon$ or share Caρ 又
al
This shows thatlong tcrm asscts】 nust bc pzald for
by long-term且 nancc such as sharc capitaI,loans or
dcbcnmrcs,The`vorkng capital of current asscts
and current ⅡabⅡ 0cs arc sclf丘 nancing,Undcr no
circumstances should thc arr° xxs changc For
cxamplc,long-term nnancc rnust ncvcr bc used to
buy invcntory or pay crcditors
share and debenture issues compared
● Issues ofsharcs to thc pubⅡ c arc c。 sdy bccausc
°fthe need to mcct thc rcquircments ofthc
Companies Act R△ ghts issucs are less cosdy
bccausc山 ey arc Ⅱmitcd to cxls0ng shareholdcrs A
蛀ghts issuc・ ,viⅡ ±
aⅡ if cxisting sharcholders arc
n° t ablc to subscribc thc additiona1§ △ nds
tcquircd Issucs of debcnturcs arc1css cost1y
than issucs of shares
● An issuc of° rdinary shares to thc pub△ c may
rcsultin a loss of control by exis0ng sh征 choldcrs
Thc sharcho1dcrs’ conool、 汀⒒not bc affcctcd if
the issuc is onc of prcfcrcncc shares or dcbcno江
ncl曲 er of whlch car叮 thc rlgllt to vote h Company
mccmlgs
● sharc dhldends may bc p缸 d onl,rl± proⅡ ts arc
ava⒒ablc± or the purposc DcbcntLlrc intcrcst rnust
bc paid rcg时 dless of xxl△ cthcr a c° nα pany rnakes a
pr。 nt。ral。 ss,
● Issucs of prcfcrcnce shares and dcbcnturcs
hcrca∞ gcanng ILgll gearllag⒗ assooatcd漩 d△
hcrcascd risk to thc ordlnary sharcho1dcrs
Howcvcr.vcry lo、 v ora‘ 血 gcaring is not
1’
nccessa⒒ lygood Wl△ cn intcrcst ratcs gencraⅡ y arc
b吧 tl,c cost of sCr钪 cu△ g dcbcntLlrc intciIc哎 maxi bc
lcss than伍 c rate° f dlxldcnd thc company is
pa,Tlng on its sharcs A company wⅢ faⅡ lts
sharch° ldcrs ifit docs not take advantagc of
ralsing somc of its capital cheapIy
● 、￠Ⅱlc sharcho1dcrs rnay Ⅱke t° havc a sllbstanoal
amollnt of l° ng tcrm cap△ 狃纽ised by borrov^ng处
chcap ratcs,banks al1do伍 cr pros,lders of丘 nancc
may bc un、 ng to providc furthcr funds to
^Ⅱ
compa血 es in、 应ich thc shalcholdcrs seem
ui△ s1・ △Lng to Jsk rnorc of d△ clr o、 /n lnoney
295 the Critica∶ appraisaI Of
accounting reports
The basis of modern financiaI reporting
and its li",itations
The annuaI accounting rcports ofⅡ mitcd compalues
c° nsist° fan Incomc statcmcnt,Statcmcnt of
Financial Posioon,Statcmcnt of Cash Flo飞 Ⅴs and the
Dire∝ ors’ Report Thcsc rcports arc prcparcd xslthn
an accounung framc、
`ork madc up ofthc
rcquircmcnts ofthe Companics Act and thc varlous
pubkshcd accounong standards Thcsc rcquircmcnts
arc intcndcd to ensure a degrcc of uniformity that
wⅡl cnablc thc uscrs of the reports to intcrprct
thcm in a gcncrally acccptcd context Thc
tramcwork has bccn considcrcd in chapter27
Litnltauons。 fintcrprcong丘 nallcial rcports lnay
be summariscd as± oⅡ ows∶
● 、￠hⅡ e the accouning fram∞ rk is intcndcd to
`°
ensure that in狮 clal rcports pro、 刂dc伍 c
hf° rmad° n ncccssary f° r an undcrstand1ng of a
cs, company、 performance,thc rulcs do not rcquirc
con丘 dcnual iil± 。rmatlon wluch lmgllt prΦ 菏dc an
unE血 adˇ么ntagc to compeotors to bc dlscloscd
Thc undlsdoscd inbrmatlon lmght,h郯 昏叹、
conta【 n止np°rtant chcs to the better
undcrstan扯 鸭 of thC c° mpally愆 pcr± ormance
● Companics arc rcqllircd to supplcmcnt thc
Inc° me Statement and thc statcmcnt of
Fhancial Posioon vslth addloonal notcs to
cxplain ho、7thc itcms in those flnancial
ever,coinpanics
statcmcnts arc madc up Ho、 严
di± fcr in thcir classi丘 caoon of manyitcms of
incomc and cxpcndlturc,and the notes nlay not
bcin sulˉ flclcnt dcta11to ldcntisr tllC dl± ±
erenccs
This tnay cast doubt on dlc usc± Llhess ofsomc
accoun0ng ra刂 os ca1culatcd from山 e± lnancial
statcmcnts
、σhcrc accountlng standards do not ft a
par0cular bus△ lcss,thc dlrcctors rnay adapt
thcm,or cvcn ignorc d△ cm,pr° v△ dcd thcy havc
good rcason for doing so
Companies havc dlffcrcnt poⅡ cics for thc
trcatmcnt of expendlttlre on non-currcnt asscts;
somc wⅡ l capitaⅡ se aⅡ such cxpcnditurc whⅡ c
°thcrs xxrm tlcat thc cxpcnditure as rcvcnuc
cxpcnditurc ifit is not inaterial compared with
thc sizc° fthc amounts shoxvn in its Statement
°f「 inancizal P° sioon For cxamplc,a
mul刂natlona1Company rnay not capita⒒ sc any
cxpcndlturc on a立 nglc止 cm,say cqlltpmci△
bcbw$500O Howcv∝ ,to a small solc tiadc a
ncw plccc of cq△ ipmcnt costing$5000would
alm° st ccrtaii△ li bc tlca∞ d asa n° ⒈ curlcilt
assct1n thc± lnanc1狃 statcmcnts
A company mav own its cxtcnskc propcrocs°
k may opcratc solc圩 n° m rcntcd
accon】 modation Thc Onc will pay no rcnt,
whilc thc othcr may bc burdcncd with vcry
high rental paymcnts Onc、 讴
`ill show thc itcm
in the statement of Financial Position,Ⅵ 厂 hist
thc Othcr will sh° 、
`itin their Income
statcmcnt This may makc thc c° mparison
bct、
`ccn thc txvo Companics using somc
fati° s° f littlc rclcvancc
Thcrc arc Ⅱm1ts to tbc cXtcnt to ivvhich
compaiucs° f considcrab1y(Ⅱ ± ±rcnt sizcs can bc
t・
comparcd For cxamp1c,it w° ld hardly bc t△
hclp± tll to cornparc伍 c pcrformancc of a
company with an tssucd capltal of$50000with
thc pcrformancc of a company、 nth an issucd
capltal of$5mⅢ ion Thcrc may also bc
dil± lcL△ lty in makng a scnsiblc comparison
bctxvcen a colnpai△ y wl由 nⅡ gearmg and one
山at玉 very△ 吵灯 g吻 red
Compailles in the samc Ⅱnc of busincss arc
°ftcn not comparablc For cxamplc,somc may
sirnply rctaⅡ thcir goods wllJc Othcrs
manulactllrc and rctaⅡ d△ cm somcc° mpai△lcs
may act as mailu± acttlrcrs and wholcsalcrs on,
Financial reports‘ nay bc too lllstorlcal to bc
use± t△l by dle omc thcy arc pubⅡ shcd Thcrc kxrm
bc a tirnc dclay of scvcral months bcbvccn thc
cnd ofthc￡ nancial ycar and datc On which thc
accounts arc prcscntcd to sharcholdcrs at thc
annual gcncral mccun⒏
● Thc intcrprctajon of flnancial rcp° rts rnay bC
subjc∝ to cxt∝ nal± /acto邙 mch灬 dcvclopmcn“
in tllc industry,gcncral po⒒ ucal and cc。 nomic
condloons at homc and ovcrscas,changcs in
fashon,rnarkt dcmand and so on
● Thc llnanciaI accounts and rcports of
compaiucs h countⅡ es whcrc dlcre^lugll
in±la刂 °n hc
can be seriouslv mis1cading llˉ 攵
accounts havc bccn bascd on histoncal costs
Ⅵ
t,
'indowdlrecto灬
dressIng
Compansi namr碰 y deslre ainu狃 flilai△ claI
rcports to prescnt the c° mpany pcrformancc in as
laxrou血 ble a Ⅱght灬 possiblc Indccd thcir
rcmunerati° n may、 厂 eⅡ dcpcnd on thc proRtthc
company rnakes This inay lcad to‘ window drcssing’
r
v△ rlllch may takc vari° us f° rms,including:
● rcducing tladc payablcs in thc statcmcnt of
Finanoal Posltion by dra、 v1ng chcqucs at thc
cnd of thc flnancial pcriod to pay thc crcditors
but n° t postlng thc chcqllcs untⅡ thc start of
thc ncxt± lnancial ycar,or cvcn cancclⅡ ng them
on thc丘 rst day of thc ncxt flnancial ycar
● rcducing thc tradc rcceivab1es in the Statement
of Financial Posijon by pressing thcm to pay
bcforc thc cnd ofthc flnancial pcr,od
○dler rnethods° fw1ndow drcssing,such as
chan红 ng thC bascs of calculaong dcprcciatl° n° f
non-currcnt asscts and thc provisi° nf° rd° ubt± lll
debts,ofinvcntory valuajon,ctc arc not
pcri△ alssiblc and contravcnc accounong standards
Thcy rnay Cvcn amountto fraud
lncome smoothing teChniques
Incomc shoLdd bc rcc° giu⒃ d as soon灬 ⒒“ rca△ scd
and n° t bcf° rc A company carrlnlg out wo￡ k undcr
a contract、 /lich spans sx・ o or more flnancial pcrlods
is rcquircd tO sprcad thc antlcipated pront on thc
contract ovcr thc tlnancia1pei・ lods conccrncd Thc
amount of proflt to bc credlted in cach ycaris
calculatcd on a formt△ la、 厂
hich apporttons thc pro丘 t
accordlng to the amount decmcd to havc bccn
carncd in each period lcss a prudcnt prosrlsion for
any futurc unanjopatcd losscs,lA m° rc dctaJed asscssmcnt of the血 mrc± LIndmg rcqLIlrements of thc
cxplanau° n。 fc。 ntract accounts is outsidc the sc° pc busincss
of this text as studcnts arc n° t rcquircd to have a
Company budgets
kno、 讨cdgc ofthc t° pic,)
Every c° mpany cxccptsome vcry sma△ prlsˉ atc
、￠hcn thc dircctors of a company anoopatc that a
good tradlng ycar Mil bc± oⅡ oM`ed by a poor onc, companlcs,prcparcs budgets,Budgcts arc b灬 cd on
thcy may dccidc to delay inv° iong somc customcrs forccasts and cxprcss in m° ncy tcrms山 c plans and

in thc good year und山 ef° Ⅱoxxmg onc for thc sakc poⅡcics thc dircctors intcnd to implcmcnt t°

of appcarances Tlis c° ntravcncs thc c° nccpt° f
rcaLsaoon and,if thc丑 nanc谢 statcmcn“ arc subjcct
to audlt,sh° tlld not bc a⒒ ob,cd t° happcn、
^thout
bcing reportcd
sllmiat玩 lf customcrs arc alowcd to pγ by
achlcvc a company`long△ crm° bjcc讧 vcs The
budgcts usuaⅡ y cover pc⒒ °ds° f丘 vc,tcn or,for
largc c° mpanies,cvcn morc ycars ahcad separatc
budgcts are prcparcd f° r cach ofthe c° inpany’ s
activi刂 es:salcs,pr° ducuon,pjrchasing,st° ck

instaknents f° r wOrk d°nc ot scrx,lccs rendercd,and

holding,ctc Cash budgcts arc prcparcd frolll thcsc
somc of山 c instalmcnts aiic pay砧 lc in a subscqucnt
budgets to show ll and when thc company is hkellz
finanoal pcJod,any attcmptto smoo曲 hcomc by to need addljonal cash Δ压astcr budgcts,whiCh takc
pard1・ de± cr茁 ng
k und thcinstalmcn迕 s are rcccwcd 伍ef° rm° ff° rccast Incomc statcmcnts and
△ould bc a contravcnu。 n。 f thc reahsa刂 °n prlnoplc,
,△
Statemcnts of Financial P° sioon,wiⅡ indicate whcn
additlona11° ng-tcrm丘 nancc is rcquircd
296 The nature of company Tl,c budgcts arc± or htctJl/al usc w⒒ hht11e comp狙 y
and arq n° t publshed,but thcy arc an csscnoaI
forecasts
mallagcmcnttoolifthc drcct° rs arc to a、 lmd山 c
Directors’ rep° rts and future deveIopments cmbarrassmcnt,and p° sslbl,/thc c狂 astrophe,of
Dircct° rs’ rcp。 rts arc rcquired t° includc an sLldd∝ 灯 fm山呜 山纰 thc comp狃 yhas hm± fi血nt
indicati° n° flikCly future dcvclopmcnts in thc f迥 “ to conuntlc h b“ hcss Bm虬 and o伍 crs
busincss° fthc company 1Γ hcsc statcmcnts arc approached to pro,ldc addloo且 al Capit・al xx,m rcql11rc to
ˉ scc伍 e budgc灬 bcb四 dccld△ lg ψkthα or notto knd
usua1ly quitc brief and lack su± flcicnt dctaⅡ to
cnablc sharchoIders and o伍 crs t° f° rm an accurate to thc b灬 mcssBudgcmgis c° vcrcd h chaptcr34

Exp丨 ain the diffθ renCe between stocks and shares

ExpIain the di仟 erenCe botWeen debentures and oonve"iblθ loan stook

Learn the rnain sho砣 ˉ

,medium-and longˉ term sources ol company finanoing and thθ ir advantages and
disadvantages
●

Rememberthatlong忄 erm requi冖 ements forfunds should be1nanced by longˉ torm sources
●

Learn the limitations of Ⅱnancial reports and their θffect up° n interpretauon
●

Be prepared t° describeˇ vindow dressing and inoome smoothing techniques

●

NOte the impodance offoreoasting and budgeting as regards businoss finanoing

1. !nfo"η at on extraoted frolη the statemonts of B Overstatng G∞ dwⅢ
Financia|Position of Company P and c° mpany Q C transfe″ ing a large amountto Genθ raI Reserve
is as fOIlows D W"刂 ng off dθ bts before they bθ come bad
VVhiCh ofthθ fo"oWing may be used to smooth
P Q
earnings per share from one yθ arto an°ther?
$000 A nonˉ current asset reVa|ua廿 on reserve
0rdinary share capitaI 5oo B capitaI redemption rθ serve
12%debentures 4oo C GeneraI Reserve
D preferen∞ sharo dlvidend
VVhiCh ofthe fo"oWing would eXpeHenoe the A oompany proposes to ρurChase an expensive
gneatest degree of risk in tilη es of dec"ning machine whichˇˇ
profits? "I pay aro
foritself in five
Generalinterest rates low and the years
oompany
A debenture hoIders in¤ ompany P Wishθ s to aVoid a ohange in the c° ntrol From
B debθ nture hoIdersin oompany Q which souroe offinance should it obtain the
C ordinaγ shareholders in c° mpany P necessary funds?
D Ordinary shareholders in company Q A anissuo of bonus shares
2, Ⅵ owing is a meth° d of windo、 ″ B an issue of convertible loan stock
`hioh ofthe
dressing’ foⅡ
finanoial statθ ments? C an issue of debentures
A omi廿 ing a non curront asset acquired on hire D an Issue of ordinary shares
purchase

Explain why the nonˉ current assets of a
company should be funded by丨 ong-term finance
ExpIain why long△ erm finance sh° u丨 d not
exceed the amount of a company’ s longˉ t0rm
assets
state rjVe Ⅱmitations that rnay be rθ levantto the
appraisa丨 of company financiaI repo"s
4.EXplain whatis meant by‘ window drossing’ and
Why direotors may woh t° use Ⅱ
5 What mθ ans are availablθ to enable directors to
foreseθ future needs for add"iona丨 funds?
 Costing principles and systems:
total(or absorption)cost∶ ng

● the nature and pu口 p° se of cost accounting

● hoW to analyse costs into djreCt and indirect oosts
● hoW to reCord mate"als and labour
● hoW to a"ooate and apportion oVerheads
● hoW to calcuIate overhead abso吓 川0n ratos(OARs)
● the causes of oˇ er`unde卜 absorption ofoverheads

301 The purpose and nature of totaI accounong,as inf° rmaoon coⅡ cctcd,par刂 cularly in
(absorption)costing rc1ati° nt° thc c° st of part complctcd units of
product、 犭Ⅱ/allow止 to accuratc圩 valuc invento叩 in
Cost accounung“ onc ofthc maJaagement t° o、 d△c畹 o讪 statcmcnts Conslder the fo1oM・ mg ex征1PlC
included in a nLlmbcr of systcrns of accounong
kn∞ 咀 as management accoundng N饧 nagcmcnt M舳 t&Co,
accounong prOMdcs rnanagcmc卩 tw1th informa刂 on M狙 诎 心 凵岫 Ac∞ unt for the yent ended3llJunc⒛ I1
、7hch is n° t° btaJnablc from伍c fm颂 cial acc° unts $000 $000
of a bushcss D止 cct na/atc谊 als Invent。 叩 at1】呐 2010 10
As a rcsult,thc way data is coⅡ cctcd and,rnore Ptrchascs 140
Camagc inwards 2
cspcciaⅡ y ptcscnted in di6sccu° n“ c。 muCtcl1・

“励“~镏
174
dlffcrcnt to曲 c、 vay itis coⅡ cctcd an prcscntcd h I css Invcnto刀 at30Junc2011 迎
fnanclal accounon⒏ somC largcr busincsscs xsm havc DIrcct labout
Dlrcct cxpcnscs
spccinc dcpar扭 1ents in伍 c organlsaoon dcdlcatcd to
钙”伽妈⒛笳~ 狁⒇

Prmcc。 st
cost and Fnanagemcnt accounong Thcy provldc a Indrect materlals
ˇ么hablc addij° n to thc° rgarusaoon So far h Indlrcct labour
丘nancial acc。 ull0ng、 °klng at a hstory Rcnt of fac唧
`c havc bcen l° Hc扯 mg,ltghdng and Powcr
book Thc Ehanoalsta∞ mcnts arc prcparcd aftcr thc
猢~诩 怊~一

Dcprcoatto⒍ factorv
cnd° f thc凡 Ⅵnoal yca⒈ Thcrc is nodung伍 c lIlachulc〃
orga0sauon can d。 to changc thc rcsults thcy
dlsclosc V`∝ k lil progrc$s1Jdy2010
、
“oェ k in ptogrcss30Junc2011
W△th cost and managcmcnt acc° untlng thc
徇

Factoq c° st of fmishcd goods

orgamsa刂 on o bobgfo内 碰 d It“ ga伍 c⒒ ng and
ana圩 sing informao° n wluch wm bc uscd as a b灬 r
mak±lg ftlmre dccisions狂 f∝ tmg thc perbrmancc^允 Tlis rnanuracmⅡ ng account has bccn prcparcd as
and pro丘 tabⅢ 〃 °f thC flrm ThrOLlgllout dus sccoon part of亡 hc company’ s丘 nanoal accoun刂 ng systcm It
how” eh±orma刂 °
n an挝 yscd can be ttscd as a bas飞 pro呐 dcs us驷1伍 inf° ma刂 °n about primc co盹
for dcosion makjng in dlc orga血 sao° nx△i△ bc °vcrhcads and伍 cc° st0f producmg goods Ifo砷
consldered Thcrc is als° s° me ovedap、 °
nC b’ pc ofgoods has bccn producα 1d△C umt cost can
^th flnancial
邮 灯 bC bund” dlxidmg山 c facto呷 ∞st” 山C
n-bcr of而 ts produccd Tbc scⅢ ng prlcc for the
good`血 cd bv・ addmg伍 c￡ cqui∞ d amount° f proflt
pcr tlint so f盯 ,so good,but lt do∞ not go far cnough
t° hclp managcmcnt makc inaportant deosions,
A“ umhg tllat M蚀0t&Co manu± acmrcs od9,
303 The behaviour of Costs
Dkcct costs arC dCcmcd to va呷 h ptoportlon to山 c
nmnber ofuntts prodtlced If1k1当 of matcnalis
rC印 趾ed for ollc umt ofproducuon,2kg涮 be
rcqu止 cd for心 vo um“ prodLlced,10kg fortcn muts,
锏d so on,R xx・ m bc钍 uc f。 rr丬诋 s and o伍 cr dlrect

褶器拉:器碾棠〖
苏揣絮霹冱
to producc Ifthe咖 agc俗 xxantto End d,c cost of
;‰
cxpcns喁
l∶ lJr]∶
亻a rol,al〃 of⒃ Os
payablc wm抵η sbe
it produccd,dlc r吖 狃0cs
hasto bc pⅡ d for e⒕ ‘
∶ )⒎

cqual to伍 ct△ -bcr血 lms produccd× sO Os虹 onc

producmg1001un山 s,thc ans、K丫 、注Ⅱnot bc
tunc,1t mghth・ as,e bccn comlnon± or drc∝ xx・ orkcts to

$760000× 山at o$σ ‘

0000+760l,
Π石5=$760760’
The addiional unit M,△ not￡ csult in addiional costs
of$760bccausc not aⅡ costs lrCnt and dcprcciaoon,
fot examplcl w姐 bc a跖 ∝tCd by伍 c addloon of onc
血t of outpu△ thcy are Exed costs,whch do n° t
vary M・ lth thc numbcr of unks produccd Thc c±
on costs ofincrcas1ng numbcrs of units produccd is
covcrcd in chaptcr33on marglnal cos硅 n⒏
Thc problem is cvcn m° re complcatcd if ⅨΙ
akcit
&Co manu± acmrcs morc than onc tVpc of product,
and cach,pe rCqulrcs山 ftcrent Ⅱ cs and quan刂 0cs
°f rnatcrials,<Ⅱ ffcrcnt numbcrs oflabour hours and
diffcrcnt processcs Managcmcnt must know hoⅥ
` cxpensc Howcvcr,it is important t° rcmembcrtl△ at
much h cos“ t0makc a“ nglc u血 t of cach product
if thcy arc to丘 x seⅡ ng p⒒ ccs Ths problcm is
considcrcd n淄~
302 DireCt and indirect costs
be p铋 d accordmg to伍 c atnount th叩 prodLlccd so that
dtrect jd bc proporoonatc to oLltput N叫
Ⅵ么签 sW° 。
c wagc
d止 cct晒orkcrs/arc usuaus,pald a fLxcd or ba“
is哂⒓g may or may notbc
q彐
rcgardless o± 伍ctr outPut・
说
supplcmcnted by a prodLlc谊 〃 bonus In pracucc,
ˉ ges p・ald to dlrcct labollr xx,lll n° t bcin
thcrcforc,轴 叼
fcct
rclaoon to oLltput,but xx c s谊 u tcnd t。 trcat伍 cm ha
伍corc色 Cal Way as bchg propo血 onatc to producoon
and dlus dltcct and x anablc costs
Indkcct cxpenscs rnay bc Ⅱxcd or vaⅡ ablc Thcy
arc丘 xcd if d,cy arc notlmcd dlrecdy to thc lCvCl of
xed by a lcasc
aC包
agrccmcnt,stralght Lnc dcprcciaoon厶 anothcr ΠKd
"ty Rcntis an examplc;it is￡
・
cvcn fLxed cxpcnscs arc oi△ ly flxcd、
^thin certaln
lmits For examplc,it rnay be possiblc to increasc thc
numbcr° f units produccd only if addioon・ al
machincs arc purchascd,and that wi⒒ incrc岔 sc the
t° tal dcprcciation chargc If pr° ducjon is incrcased

In chaPtcr19we Mw伍 at a dis乜 nC刂 0n“ ma-ch sjⅡ f时 thcr and morc machincs have to bc
manufacu△ nng accounts bch,ccn dlrcct costs and purchascd,it rnay bc ncccssary to lcasc morc facto呼
mdlrc∝ cos“ spacc and thc rcnt M^⒒ incrcasc Flxcd costs thcn
Dhect costs inCludc dlrcct m狂 cⅡ als ltho∞ becomc‘ stcppcd costs’ and rnay bc reprcscntcd by a
matcrlals from whch goods arc madc,and caroagc chart as foⅡ o、 /s:
inwards p/aId on thc matcoalΦ ,dlrcct labour(伍 c
晒呢gcs of xvodk班 s who actLl^Ⅱy m艇 goods)and
Cost$
dlrect cxpcnscs(ro,aldes,Ⅱ ccncc fccs,ctc)
In(J1ircct costs arC mdlrect matcoals lpurchased for
曲e factory,c g dcamng materlals,lubⅡ caung oⅡ for

thc machnerD,hdirCct bagcs lthe w%呓 cs of atl

±actory聊 o± kers who do notacma△ △makc thc goods
lfacto叩 managc灬 ,supcrx・ lso灬 ,stotCs sta珥 dCanCs,
Ctc)and° 伍cr° ⒕rhcads← cnt,hCa。 ng and Ⅱ gh0q5
deprecla刂 on,ctc,)Th`dls。 ncoon^vc呷 imp° 仗ant
m the± oⅡ owing ohaptcrs,Itis important that you arc
ablc to class伪 cos“ in ths w妙
 At A it has bccn ncccssa呷 t° buy an addijonal A"ocation and apportionment of costs to
maclm△ c in oldcr to hcrcasc plodLlcuon,aild tllc production cost centres
deprecia刂 on ofrnaclunc± lT charbcc has incrcascd At B, Dircct cxpcnscs and somc Ovcrhcad cxpcnscs can be
a凡 rtllcr mac11Line h灬 bccn bought,and it has bccn idcno且 cd x△ rlth spccinc c。 st Ccntrcs and arc
ncccssarx to rcnt addl0onal facto,spacc so d△ at boul aⅡ ocatcd t° thcm
d△ c dcprcciaoon chargc and d△ e rcnt h孙 Ovcrhcads、扌ich may bcidcnollcd widl,and
`c incrcascd
a⒒ ocatcd to,spcci± ic cost ccntrcs indudc∶
304 Record∶ ng materiaIs,labour ●、 mponcnts,
`o0d,mCtal,plastlc,chCn1icals,c°
and overheads Ctc(【)r。 ducoon dcpartmcn“ )
Cost accoun吨 rcqulrcs matcri/als purchascd and ●p/alnt Φalnts shoΘ
vs,agcs pald to bc classi丘 cd as dircct or indlrect If ●packing materhb Φacklng dCpaltmcn◇
cxpcndlttlrc has bccn incurrcd for paricu1ar ●lubricaong oil(thC macbJne sh° pl
depaltmcilts诫 tl△ ln d△ e btlsin∞ s,止 m“ t bc狃 al】 d ●malntcnancc of handLng cqtupmcnt(tllc“ °
rcs
`⒃
by dcpar也 ncnts Inv° iccs for goods and scr、 △
ccs lnLlst or warchousθ
bc codcd by dlc putchasnlg dcparullcntto show tl△ c ●±r,od Chc Cantccnl
srpe of cxpcndiulrc that has bccn incurrcd Thc ○d△ cr ovcrhcads arc incurrcd for thc bus△ lcss
purchase jour且 al must havc addioon/al∞ lullllls so gcncralv and arc appordoncd to cost Ccnttcs on
tl△ at thc cxlDei△ dltLuc call bc mallTscd ac∞rdlng to thc slljtablc bascs '
codcs shown° n the invoiccs Anallscd pt△ rchasc
・
ethcad
C,△ Basis of appordonmcnt
journals havc a1ready bccn cncountcrcd in
dcpartmcntal acc° unts△ l chaptcr18
Wagcs arc a,aa圩 ⒃d int【 ,dll± crcnt dcpartmcnts and In proportlon to theェ cspccux,e
dlcn classillcd into dlrect and indlrcct xxragcs on n。 。r areas。 fd△c depattillents

payroⅡ summarlcs
If thc systcms of analysis oudincd above h岔 vc becn Pox△ cr of mctCiICd scpalatcl,z Acttlal consutnpo°n(dis is
carrlcd out,aⅡ cxpcnscs can bc postcd in d△ e ledger t° to C∞ t Centre9 /au。 cau。 n radlcl than

appropoatc accounts to cn/ablc thc allocatlon and apportlonmcilo

Instltancc of plant,macllmcry 0n cost or,icplaccmcnt、 岙ucs of
appropllaoon of cxpcnscs to cost CCn0Cs as
and otl△ cr asscts asscts n△ cach dcpartl△ △
cnt
dcscrlbcd bclo、 Dcprccia刂 on ofnon-cl△ lrc且 t 0n tt△ c cost or book△ aluc of
`
asscts asscts In cach dcparuncnt
305 HOw to apportion overheads to
Cost Centres ExampIe1
Cost centres ⊙ar卫ˇ
】anu± acttLrcrs&Co h灬 four producoon cost
ccnt1fes:mou1dlng,macluilln⒏ pallljng and packln⒏
A cost ccntre is any locaoon in a busincss to、 dich
The f° lloxxnng informajon is avaⅡablc
Costs tnay bc attⅠ buted /k cost Ccntrc is usua⒒ ya
dcpartmcnt or proccss,butrnay be an itcm of
cquipmcnt(a machin⑶ or CvCn a pcrson(eg a Cost centtcs Mouldhg Machiing pahdng Packa酗 g
Floor arca
markcong managc)Pr。 ducton co酞 ccntrcs arc
“CtrCs◇ 1000 700 500 300
dlrcctlli involx,cd in pr° ducing goods,± or cxamplc Plant and
moulding or shaping raw rnatcrial,asscmbⅡ ng maclnlcry
componcnts,paln刂 ng,ctc scr,Jcc c0st CCntrcs arc at Cost Φ00l 50 40
notinvolxrcd in the producj° n ofgpods,but providc
sClsriCCs f° r thc productlon cost cen钍 Cs,for cxamplc DctaⅡ s° f cxpcndlulrc tc,r thc ycar cndcd
欲C,ics,bld〈 ∶ ~{:;洫 d plant m钉 ntm洫 ce,c洫 tccl△ ,Cˉ
lj∶ t∶ 31Dcccinbcr2011arc as foⅡ ows:
 $ $
Dircct matcⅡ al⒊ Molllding 50000 Panung 4000
Mach血 ng 7000 Packapg 1000
Paindng 9000 Facto,rcnt 45000
Packagng 6000 Rep宜 ks and malntcn・ ancc° f facto呷 5000
D△ cct labour Mou1ding 96000 Fact∝ y dcptcoatlon 6000
Mach讧ing 80llllo Instlrancc of fact° 叩 25llll
palnung 40000 Hcaollg and Ⅱghong 55lXl
pacGglng 18000 Dcpfccia刂 on of plant and macl△ ulc饣 12000
IndLcct labou‘ lvIoulding 11000 Matntcnancc° f plant and machnc, 18000
Machiimg 9000 Insllrancc of pIant 3000

吼 c° vcrhcad apporo° nmcnt M・ lu bc as f。 Ⅱ。ws:

Expcnsc Ba“ s Tota1 MouIding Mach血 g paln刂 ng Packagng
$ $ $ $ $
IndIrcct labour a⒒ °catlon 25000 9000 4000
11llllo 10∞
Fack×y:tcnt aoor arca 45000 18000 12600 9000 50tlll
rcpars and maIiltcnalicc n° or arca 5000 2000 1400 1000 600
dcprcoao° n noor arca 6000 2400 1680 12tC 720
inslrancc n。 。r arca 2500 1000 700 500 300
hcaJng and Ⅱgh讧 ng Ⅱ。°r arca 5500 2200 1540 1100 660
plant and macllln唧 :

depicoauon cost 12000 5000 4000 2000 1000

multenancc cost 180llll 7500 6000 3llllo 1500
hsurancc C【 ,st 3000 1250 1000 sOo 250
Total。 vcrhcad 122000 50350 3792D 22300 11430

Note that dircct cxpcnscs lmatCrlals and labouθ arc n° t Cntcrcd in thc° ˇ
crhcad an狃 ysis In an cxalmnaoon,
you may挝 s° bc glxcn o山 cr wavs h which Indlrcct costs C0uld bc app° r刂 oned to c° st ccn“ es,
Thc t° tal cost per cost centrc includcs(Ⅱ rcct cxpcndlturc:

Expcnsc Total Moulding Machmng Pain刂 ng Packagng

$ $ $ $ $
破 斑
m
ac征

D虹℃ct c° sts:matcnals 72000 50000 7000 9000 60tlfl

m

Iabouji 234000 96000 80000 40l,ll0 18000

Total drcct c° st 306000 146000 87000 ⒆ ∞o 24000
Appord° nmcnt of° veェ hcad 122000 50350 37920 223lll, 11430
Total cost pcr c° st ccntre 428000 196350 124920 71300 35430

In ajlcMmhajon鼠、 s叩 Cnd a ⅡdC tlnc maklng Exercise1

surc that thc totals aCr° ss thc b° tt° m° f any tablc
alxxals add up For cxampIc in thc apporo° nment
chart abovc$50350+$37920+$22300+
$11430=$122000,This is Llv° rtant,as a nistakc
at this sh爹 wⅡ probab圩 齑fect thc rcst ofthe
ans、
`cr
Tccpops Ltd manu%cmrcs a“ nglc product whch
pass∞ thr° ugl1允 ur stages ofproduco° ⒒ machhing,
painong,asscnlbly and packng Thc foⅡ oxx/Jng
cxpcnditurc has bccn incurrcd by thc c° mpany in thc
ycar cndcd31March2011,
 $Otlll servlce cost cc众 “c Appot甘oncd on
Dlrect matclilals∶ Mac⒒ 血ng 80 stotcs numbcr or valuc of storcs
Pallltjilg 20 rcqulsluons ralscd by
Assembly 5 prodLlcdon cost ccntrc
pac凼 12 Cantccn n△ unbcr° f pcrs° ns ln cach
名
Drcα hbol△ r: Machimg 136 productlon Cost Ccnoc
Palnong 74 Buddmg ma111∞ nancc area occupied by caoh
Asscmbly 68 Producdon cost cen讧 c汴

Pac乜 j喀 45 Platlt and mackcry malntcnancc ntllnbcr or s・ alue of maclmes

IndIrcct labour Macluiung 51 血 cach cost ccntrc#
Palnong 32 冬H∝ˇ
cvcr,rccords of actLlal matiltcnancc亡 osts may bc kcpt and
Asscmbly 28 thc c° sts au。 catcd accoralgl,
Pack“ g 14
Factors/cxpcnscs∶ Rcnt 90 Thcrc arc a numbcr of`~η ys° f app° rool△ ng
Hcadng and l瑭 hong 70 scrˇ △
cc cost Centre ovcrhcads to producoon c° st
Mau△ tcnancc 30 ccntres and th叩 aⅡ usu碰y producc vc饣 “milar
】nsurance 20
Plant and macllulc叩 : DcptCαatlon 80
rcsdts Thc蛀 mplcst,and qulckcst,w饵 is thc
Rcpa】 rs 32 c⒒ m1naoon mcthod
Insurancc 16
Example2
Further inf° rmadon ◇′ppor。 。nment of ser说 ∞ co哎 ccntrc o⒕ rhcads by
1 Tl△ c且°°r arcas of thc dcpartn1cnts arc: cLmna刂 onl
EⅡ ninator Ltd has山 【cc produco° n and小 vo
mctres2 scrv1cc deparunents for whch thc foⅡ o,king
盹 chmg 500 informa刂 °n is a、 叨Ⅱablc
Pamur,g 200
凡 scmb灯 200 Found锣 Finishing Asscmbly storcs Cantccn
甄 cug 100 No of storcs

ο
rcqmsli° ns 200

一
ο
5ο

7筠
No of staff 40
2 Plant and machhery at costis:

ο
0rrllcads(sO00l 110

$000 Thc ovcrhcads arc flrst tabulated undcr thc cost

△Iaclnmg 90 ccntrcs,Thc ovcrhcad of° ne servicc dcpar伍 ncnt is
‰ tulg 40 伍cn appor刂 oncd ovcr the° thcr c° st cCntrCs and that
柢sclnbˇ 10
scrvicc dcpartment is eⅡ 血 natcd from fLltLlrc
Pachg 20
apporjonments If thcrc arc tnorc th灬 小评°sc卸 △ Cc
Rcq证 red C0st Ccntres,there wⅢ bc inorc steps untJlthc last
(al Calcul狨 c thc totaI ovcrhead cost for each scr讷 ce c° st cen仕 c is apporo° ncd ovcr thc

dcpartnicnt producdon c° st ccntrCs

α9Calculatc thc total cost of pr° duc刂 on for cach Found印 Finishing Asscmbly storcs Cantccn
dcpartmcnt $000 $000 $000 $000 $000
0vcrhca“ Φ000t】 000 ω 00 sO00 ∞ 00 sO00
Flrst
Apportionment of service Cost centre appor△ °nlncnt+ 1667 833 417 la5ool 583
overheads to ρroduction cost centres second
appoェ dc,nmcnt十 1911 717 9ss -rs58ω
Thc total cost° f goods produced inchdcs aⅡ 14578 7550 6372
ovcrhcad cxpendltLre,inchdmg thc oˇtrhcads of 屮 Based°
n佗 O rcqmsltlons 十 B孙 Cd。 n75staff
scrˇ △
cc deparuncnts;thcsc must bc apporjoncd to
Thc storcs costs ccn钌 C has bccn aⅡ ocated ftst
山e produco° n dcPar讧 nCnts on sultablc bascs Thc
becausc it does、 严
ork for thc Canteen,、 vhercas thc
bases usuaⅡ y adoptcd arc:
Cantccn d° cs n° t do any work for the storcs,
Exerclse2 mc岔 surcd clthcr in direct labour hours° r machnc
b△vⅡ bix Foods has dvee producoon dcparmcn“ :
hours
mixing,bake叩 and packzaging It狃 so h灬 ⅡⅣ°scr呐 cc Direct Iabour overhead absorption rate
dcpartlncn灬 :storcs and cantccn Thc f° Ⅱo・ vx,lng
A proccss is lab° ur htcns加 c when itreq111fcs thc usc
informaoon is prov1dcd
oflabour rathcr dlan rnacl△ nes,and thc labour costis
grcatcr dhan山 c cost0f usmg macb山αcry Thc tlmc is
加哂 B扭￠ry Packagol△ g stoFcs Can∞ cn mcasurcd in dlrcct labour hotlrs,
ovcrhcads(sO00 165 124 87 80 90
No° f staff 60 80 00 15 18 Example1
No of storcs
rcqLIl“ dons 300 80 20 - 40 Manhour Ltd makcs h/o products,P and Q,Thc
output for scptcmbcr^budgetcd as toⅡ ow⒌
Requ1rcd
Product P 10000-ts
=tpporo° n thc scrvicc dcpar缸 ncnt C,x crhcads to the Product Q 8000雨 ts
produc刂 on dcpartmcnts on approprlatc bascs

Eaoh tImt of P req△ 吐

res1%dlrcct lab° ut hours to
306 HOW to CalcuIate overhead mak,and cach uⅡ t of Q rcqmrcs%dlrcct labollr
absorption rates h° u‘
Thc total number° f dlrcct laboLlr h° urs rcqlured
once° ˇ
crhcads havc bccn apporooncd to cost
centres,thc ncxt stcp is to calculatc° vcrhCad
to produce10000u血 ts of P and8000unlts ofQ is
absorpoon r绂 cs loˉAR9・ ThC o幻 辶 时c伍 cn tlscd to
calculatc dlc am° unt of° xcrhcad to bc a⒒ rlbuted to
(10000× 1冫 ○ +(8000× %)=21000
eaoh cost umt1n caoh cost ccntrc
If R/Ianh。 ur Ltd、 【
,vcrhcads for septembcr arc
Cost units arc u血ts of producjon,f° r exampIc:
a computcr G° mpLltcr manu幺 ctureo °rhcad abso屮 j° n
$131250,thc°ˇ ratc is

a garmcnt ldrCss makeo

a伍 ousand clec茁 danlps⑴ antlfacmrcr
hmp9
a barrcl of oiΦⅡ wco
passenge⒈ nik(± rC兔 宀t transportl
au。 at← hour(clCctⅡ c止 y
ss・
total budgcted ovcrhcad cxpcndlmrc ~$131250
of clcctrlc
totaI budgetcd no of d△ cct labour hours 2】 000
=$625pcr dlrcctlabour hour
Thc am° unt° f ov℃ rhcad abs° rbcd by cach unlt° f
gcncraooo
P^$625× 1%=$9375and thc amount absorbcd

ovcrhcad/abs° rp刂 on ratcs arc calculatcd for血 ture

by Q“ %× $625=$46875Thc tot衬 °vcrhcad“
peJods bccausc thc c° st0f pr0ductlon tnust be
山crcf° rc f』y absorbed as foⅡ °
ws:
kn° wn in adxancc to cnablc sc⒒ ng pⅡ cesto bc凡￠d
CalctJaoons arc b郇 cd on planncd vohmes of° utput
$
and budgctcd oxcrllcad cxpcndi钆 re pr。 duct P:】 0000×
$9375 93750
Thc am° unt of oˇ 饣rhcad abs° rbed by a cost Lliut1s Product Q;8000× $4F,s玛 37500
usuaⅡ y cakulatcd by reference to dhc tmc takcn t° TotaI ovcrhcad absorbcd 131250
producc it,Thcrc arc odler mcthods but thcy arc
gcncrauy consldered t° be lcss saosfactory for rcasons
that、 汀Ⅱbe dlscusscd latcr,Thc hvo mcth° ds aboutt° ExercIse3
bc desc⒒ bcd assumc that a wut of producoon Tomblc Ltd manufac臼 △rcs h・ o produc“ ,Dimbles
ab№ rbs o⒕ rhca“ ←cnt,hCat and Ⅱ
gll0ng,± or and CJmblcs
cxa,nplcl pr° po口 吐
onatcˇ to the。 me spcnt on Ihc number° f dlrcct l砧 °ur h° urs rcqmred br
proccssing itin thc cost centres Ths omc is cach u血 t is:Dimblcs13;Glmblcs07
 InJdy伍 e compmy pla灬 to producc5000 Example2
Dimblcs and7000Ginblcs, JCnx Ltd manufacmrcs小 Ⅳo products,L and B Cach° f
T血blc Ltd愆 es洫 atcd ovcrhcad c阝 pcndlturc for 、vhoh req山 Les proccsshg in thc company‘ drcc
Ju圩 is$129276, producoon deparmcnts,I,II and III
Thc f° l1° wing information is availablc from thc
Requhed ∞mp狃￠s budgct± or thc nextsLx mon伍 s
lal C砬 cdatc thc dtrcct l砧 our ow血 ead absorpu。 负

P∞
L娴
pt。 duct

ο
⒏弘
^υ
Nσ of-ts to bc produccd
Θ pCr umt。 f
Dimblc⑴ pcr u碰 t° f Gimblc

m$
,`
^υ

68213234
Cost。 f drcct matcrlals pct umt
⑴ sh∞ `h° w伍 eo⒕ 血cad fo刂 ul9,is ab∞ rbed” Dtcct△ 郐荃s PCr umt

’J 亻 l °● 亻 l °一
thc planned pr。 ducoon for thc tnonth, M油 血 hours pcr-t Dept1
Dept II
Ⅲachine hour overhead absorption rate DeptI1I
Dii∝ dabout ho破 s per uFllt Dcpt I
A cost centrc ls capital intcn吣 吒 whcn山 e° pera乜 ons Dcpt II

,氵
carned out1n thc ccntrc么 rc rnccha“ sed and the Dcpt Ⅱ1
maclunery run-g cost is grcatcr than thc dlrect Ptoduc甘 on dcpatmcntg I II III
Budgctcd os・ crhcads s95叼 o $86250 $96000
labour cost Ovcrhcad shoLlld thcn bc absorbcd on a
Budgc∝ d mackc哂 灬 ￡
⒉。
⒉llllo 90llll 230llll
machnc h° Llr rate llnachmc h° ur α V Budgc侄 d labout houts 14l× lo 23000 32000

Example Rcq“ tcd

JlgsawLtd has sk machncs讪 ch atc uscd9hours ⑶ C狃 culatc an approp⒒ atc四erhead absorp刂 on ratc
cach day in a fls・ e-day、 fo￡ cach dcpar讧 nCnt
`orkng wcck,Thc numbcr of
mad"山c hours m a sLx-mond△ pc± lod厶 6× 9× 5× 26 ⑶ Calcdatc伍 c°⒕血cad absorpoon for cach uiut
or7020machnc hours of L and η h cach° f thc dcparmcnts,and h
IfJigsaM Ltd、 o~erheads for伍 e“ x months atc total
$114075,thc tnac血 c hour absorpjon ratc is (cl Prepare a statcmcnt to曲 ow how thc oˇ ℃rhcad of
$1;营
::卩
旦
° 25pcr rnachnc hotr
r$16・
each depar讧 nentis absorbed by producion,
C◇ Calculatc thc total c° 茳°f each u血 tof L and P

ExerCIse4
Answer
Makclt-by-Robot Ltd uscs10rnachncs to producc its
Depa± tmentI厶 machne htens1s,e and Dcpartmcnts
goods Thc inachncs are used7hours a day for6
II and III arc labour htcns小
days pcr M`cck In a peⅡ °d of13、 vccks it is plarlncd `e
to produce1200u血 ts,and山 e overhcads arc
csmnatcd to amountto$141960 ⑶
$95920
DcptI lvIachnc hour =$436
RequⅡ ed 22000
⑶ Calculatc伍 c machnc hour o⒕ rhcad ab⑩ rpoon DcptII Dtcctlabouf⒒ clurs
$86250〓
$375
ratc 23000
CalcdaⅡ 伍c atnount of o⒕ 血cad absorbcd b9, $96000=$300
⑴ Dcpt ⅡI Dltcctlabc,ur houts
32000
eaoh utllt of pr0ducoon
(l))

C,AR pcr u“ t Dcpt I II III TotaI

Product L β彳乡 ‘x,l $1308 侈乡乃 ×″ $750 侈彡×刀 $900 $2958
pr。 duct p rJ/乡 ‘×″ $872 移乡乃 ×9, $1125 侈乡×纠 $1200 $3197

(Θ

%tal()氵 s`crhCad rcc∞ 唧 Dcpt I Ⅱ ⅡI %tal

$ $ $ $
Product L 〃0@矽 ×$/乡 ⒆ 52320 〃0矽 0× s7歹 0/ 30000 〃@00× $匆 36000 118320
ptoduct P r,@oo× $召 /9, 43600 r9@00× $″ 2, 56250 r,00@x$`″ 60000 】59850
959团 a 86250 96000 278170

(<l)
o)Calculatc thc° vcrhcad absorptlon for each
unit of sovrln and Ginny,in each° f thc
Total cost pcr uiut Ptoduct L Product P dcpartmcnts,and in total
$ $ (c) PrCparc a statcmcnt to sho、 、
v tllc Ovcrhcad
Drcct matcⅡ al 1700 1600 `h°
Dlrcct lab° ur 1000 800 of cach dcparullcnt is abs° rbcd by produco° n
0vcrhcad 2958 3197 CD C・alclllatc tbc total cost° f cach uillt of sovrm
Total cost 5658 5597 and Glnny

Exerclse5 307 0ther bases for caIculating

Egbcrt Ltd manu佤 cturcs prodtlcts wh山 k
Rx・ o
oARs
markcts undcr thc brand names‘ Soˇ △Ⅱf and‘ Ginny’ Thc foⅡ o、
Thc foⅡ o、 n is av么 Ⅱablc for a six-mondl ^ng bascs for c/alculaong ovcrhcad
^ng informao° ab⑽ rp刂 on rates狂 e gcncralv・ u“ aosfzactorB± or dlC
pcⅡ od rcasons statcd,and arc scld° n】 uscd
Direct matcHal cost Ovcrhcad absorpoon is n° t
Nα of tulIts sovrm6000 Cynmy3000
rdated t° dlc cost of matcrlal A product x△ ・
lllch is
Producoon cost ccntrc⒌ Mouldn,g Machlc, Pault shop
Dkcct mateⅡ als pcr utlto
made° f cxpcnsⅣ c rnatcrlal M`ould bc ch改 gcd xvttll a
sovtli△ $80 $10 $12 greater sharc° f°vcrhcads than one wlllch is rnadc of
G】 my $65 $5 $15 cllcap lnatcrlal but whch reqmrcs thc samc omc t°
D△ cctlabout pcr uI△ △
makc
so△ - $120 ⒁ $30
GInn, $96 $40 $15 Dkcct labour cost Thc labour costincurrcd in
卜∫
acklc hours pcr uillt: maklng a product depcnds pardy on dlc ratc paJd to
%2

勹∠

sox- 1
伍c workers engaged on rna血 g it丿 duct rnade
0乙

G血 y % `pr°
Drcctlabolr hollts pcr umt:
bl,hghl,TsⅢ cd wo抵 Ⅱ№ lid bc山 arg耐 1:i曲 a l氵

鼬 妯 4 1 1 greater sharc of oˇ crhcads than onc、 /lllch is rnadc by

Ginny 3% 1%1 unsⅡ Ⅱcd w° rkcrs but whch takes thc samc omc to
Budgc“ d ovcthcad cxpcndltuⅡ $⒛ 1g,5 $115⒛ 0 $狎 z~so makc
Budgetcd machnc h° urs 21000 18000 7500 Pomc cost.Tllls medi° d combhcsthc
Budgetcd drcctIab° ur h° uts 34500 9750 9lltlo
挝 cost and thc
dlsadvantages of dle dlrcct rnatcⅡ
dlrcct labov刂 c° st
Requlred Cost unit This rncthod is rcst丘 ctcd to thc
(al Calculatc an approprlatc Ovcrhcad absorption producjon of onc0PC° f gp° d which is made by a
ratc f° r cach dcpartmcnt comェnon proccss
3o8 Under亻 overˉ absorption of Blldg⒍ 蔽oAR宀戟器=$⒉ 50
$240000
=$240
overheads 100000
⒍ crhcad recovcrcd 76000× $250 106llllO× $20o
As cxplalncd above,overhcad absorp0on ratcs arc =$】 90000 =$254000
calcdatcd on planncd les,els of producjon and CJndCtl/° vCr
budgctcd o・ 氵
rhCad cxpcndlttlre It is most lkc1y ulat absorPtlon $侈 15000-190000l $O30000-254000l
=Φ 乃 000 =$⒛ +00
7飞

dle acmal ⅥDhmc of goods pr° duced and thc actLlal

°vcrhead cxpcndlttlrc、 tLlrn out to dlffer from thc
`Ⅲ
forccasts The rcsldt、 注Ⅱbc dlat ovcrhead expcndlulrc ExercIse6
wⅢ bcc1thcr under-absorbcd or ovc← absorbed Upandown Ltd has providcd thc fo1lowing
Undc⒈ absorption occurs whcn aculal cxpendlttlrc lilf° rmaoon aboutits oˇ ℃rhead expendlttlrc for± oL△ r

o morc than budget and/or pr° duc0on is lcss dlan quartcrly pcriods cndcd31Dcccmbcr
thc planncd lcvcl I卩 tlus casc not cnough ovcrhcads
havc becn chargcd to producoo且
3mcln诋 to3months to 3months to 3months to
overˉ absorption occurs whcn acmal cxpcndlt△ lrc
31Match 3llJllnc ∞ sCptcmber31D∝ cmbcr
o lc“ 由an budgct and/or actLlal produc刂 on“ molc Budgctcd
than thc p1anncd1cvcl In tllls case too FnuCh ovcrhcad $124000 $128000 $130000 $131000
dgctcd
°vcrhcad has bccn chargcd to producuon Bl△

macMnc
Example h。 urs 1000 1000 1000 1000
Aculal
A company calcu1ated its ovcrhcad absorpoon ratcs ovcrhcad $128000 $125000 $129500 $132800
f。 r 30Jtuc and dhc nextsk months
ulc six months t° Acmal
to31Dcccrnbcr as foⅡ ows: mac"nc
hou岱 900 1050 1100 980
6months to 6months to
30JunC 31Dcccmbcr
Budgctcd ovcthcad Rcquited
cxpcndlulrc $200000 $2翎 a Ooo
Calcdate thc undcr-absorp0on or° vcr-absorp0°n。 f
Budgctcd drcct
labour hours 80000 100000 overhead in cach of thc four qllartcdy pcⅡ ods state
Act。 al cxpcndlⅡ te $9l5000 $230000 dearlv in cach吻 se whcd△ cr伍 cc,vcrhCad硒 ⒓s undc⒈
Acmal dttcctlabour or ovcr-absorbed
h。 ui÷ s 76000 06000
】

● Learn the definⅡ ions of cost oentre and cost unit and be prepared to eXplain them in exanninations
● Be ρrepared to appo"ion° verheads to oost Centres and to reˉ appo"ion service oost centre overheads to
produotion cost centres
● Prac刂 se calculaⅡ ng overhead absorption rates
● Be prepared to state When direotlabour OARs and maohine hour(冫 ARs should be used and to expIain why other
methods of calcu|ating OARs are normaIˇ unsu"able
● Learn hoˇ v to caIculε 刂e underˉ absorption and overˉ absoq,tion of overheads
● Check a"caIcuIations carefu"y;arithmetical rnistakes cost rnarks
● Make sure you understand the causes of undeⅡ abso吓 川on and ove「 absorρ tion This is a weak spotforrnany
candidates in examinations
1, A Company prov des the fo丨 loWing inf° rmaⅡ on∶ 4 overhead expenditure eXceeding budget
A 1and2 B 1 and3
ActuaI dired labour hours w° rked 13000 C 2and4 D 3and4
Actual overhead expend"ure $520000
Budgeted diⅡ ed labour hours 14ooo
Budgeted overhead expenditure $532000
Adual directlabour hours 12400
What丨 s the oVerhead absorption rate based on ActuaI OVθ rhead expend"ure $198400
dired Iabour hours? Budgetθ d direotIabor hours 11000
A $3714 Budgeted overhead expendkure $170500
C $40
Which ofthe fo"owing c° uld cause an underˉ
absorpti° n° f° verhead θXpend"ure?
1 absorpt on rate calcuIated on aotua|production
and actual number of units produced
2 units produced exceeding the budgeted
production
3 units produced being less than the pIanned
production

1・ (a)Expla nthe fdbw ngterms: depa"ments-ˉ M° ulding,sanding and

(O C° st Centre Painting and two serViCe depa"ments-ˉ
oO C° st Un" Canteen and Maintenanoe Estimated indireot
lb)Ju e and c|eary ud manufadures toy overheds forthe year ended30Apr"2o11are
soldiers The company has three production as fo"ows∶

OVo由 ead Cost or Calcula廿 on Basis of Apportionment or A"oca刂 on

Administrat on $104000 Number of employees
EIectⅡ o"y $70000 KⅡ oWa廿 hours used
Deρ reciaton 10% Cost of non℃ urrent asset
lndired wages $360000 AlIocated
Rent $80500 FIoor area lsquare metresl
ReIeVantinformation on the five departments is as follows:
Mould∶ ng sanding Painting Canteen Maintenance
No of employees 40 50 40 38 40
Power(kW hours) 1400 1600 150 160 190
Cost of nonˉ current asset $1鸵 0∞ $175000 szIO0∞ $43000 $80000
FIoor area(metre勹 szs 475 a∞ sOo 们
Indired Wages $6000 $11250 $6375 $18750 $36190
Dirod Labour hours 8000 7800 7500
Direct Machinθ hours 77so 5625 1250
Canteen° °sts are shared among a"the other
depanments on the bas丨 s of number of
employees Maintenance costs are shared among
the three production depa"lments on the basis of
floor area
(0 Prepare an overhead ana|ysis sheet forthe
year end丨 ng30AprⅡ 2o11detaⅡ ing the total
oVerheads for Moulding,sanding and
Painting
Calcu|ate the OVθ rhθ ad absorption rate for
each ofthe three production departments for
tho year ending3o Apr"2o11 ca|culations
shou|d be shown totwo deci丨 ηal ρIaces
Auokand(Manufadurers)Ltd has tw°
manufadu"ng depa"ments∶ ()Machining and
o◆ AssembIy"aIso has two service depa"ments:

〈 uIding and sanding depa"mθ nt oVerhead (O Maintenanoe and(i)POwerhouse The

") M°
rates are caICuIated on a Direct Maohine hour information in the tabIe be丨 oW is aVaⅡ able forthe
basis Painting depa砣 ment overhead rate is comlng year
oaloulated on a Direct Labour hour basis

训蛳俚孵
achinIng Assembly M西 ntenan∞ Power house
^田
sO00 sO00 sO00 sO00
IndireCt mate"aIs 酗 娌 132 1α ⒊4
Indirod∶ abour 蹋 918 282 ⒛ zB
Rent and looa|taxes 1426
superVoion sal
Phnt depreciatbn 1650
7378

FurtherinformaⅡ on is avaⅡ able as fo"ows:

MachinIng Assembly Maintenance Power house

$000 $000 $000 $000
No ofemp丨 oyees 40 80 20 10
Area(metre卩 ) 3000 o00 1000 200
Plant Valua】 ion($000s) 13000 sO∞ 2400 1eOo
Dred labour hours 3200 4800
Maohine hours 11080 2320
Maintenance hours 1800 600
Vnits of p° wer used 4200 1200 600

Requ1red ⑾ Explain the meaning ofthe foⅡ o、Ving terms as

(a) Analyse the above indireot oosts betWeen the they re丨 ate to oVρ rh° ad eXpend"ure∶
four depa"ments showing the bases of 巾)aⅡ °caton
appo"ionment you haVe used C0app° nment
(b) Reˉ apρ o砣 ion the costs ofthθ serVice 〈
c) ExpIain "i°
the丨 ηeaning° fthe terms:
dopa"mθ nts oVθ rthe tWo produdion ()° verhead absorpΙ on
depa"丨ments using appropⅡ ate bases (Ⅱ
) overhead underˉ absorption
〈
c) CaI。 uIate an overhead absorption rate forthe (Ⅱ
) °verhead overˉ absorption
machining depa"ment based on maohine (d) state reasons why a company might re° over
h° urs and an overhead absorption rate forthe more in overheads than the amount spent on
assemb丨 y deρ artment based on dlrectlabour oVerheads in the period
hours (e) Explain why estimated figures are used to
(a) De】 ne the term‘ overhead expenses’ calculate oVerhead absorption ratθ s
 Unit,iob and batch cost∶ ng

● the differencθ be心 Ⅳeen Continuous and specifio order operations

● What un∶ t oos刂 ng is
● What冖 b cos】 ng⒗
● what batoh cos刂 ng is

31 1 Continuous and speoif∶ C order producoon° f batchcs ofidcndcal u血 ts for a

operations Customcr,

Cosong systcms inay bc apphcd to cvc呷 mC° f 312 Continuous cosung

buslncss hdudmg
For a bushess w1th cononuous opcra0on讠
● pubⅡ c or pnvatcly owncd orgamsajons
Con色 nuous tos0ng is uscd to丘 nd thc cost of a singlc
● manufacturcrs of goods such as rn° tor cars,
u血 t° f pr° ducdon or scr呐 cc Cm汛 c° stmgl.A欲 nglC
brcali壬 讠
1吱 ccrcals,ctc ˉ
mut m叮 bC a血 ue item;but a manll幺 cmrcr o± largc
● prox,dcrs of scrv1ce△ for examplc hospit/als,
vohmcs of a血 gc pr° duct mγ fmdit morc
hotcls,rcstaurants,h晒 γc灬 ,accoun切 n“ ,ctc,
convc血 cntto rcgard a ntmbcr of itcms as a shglc
Each h,pc of busincss must oho° se a cosing
unit,For cxamplc,for a company producmg hundreds
sγ stCm that sLuts止 s par刂 cular opcrajon;no onc
of thousands of packcts° f brc/ak幺 st ccrc砒d△ cu血 t
s阝 tCm M・ m seⅡ ℃邻狩叩 9pc of bush∞ s
may bc,say,1000packts,o伍 cr cxalnplcs of cost
Ihc operaoons of a bushcss rnay bc classifled as
血 ts aJc a pa△ ct of bocksin bock m泳 血g la pa△ ct is
clthcr con血 uous or speC血 c ordcr
a wooden platforn1on灬 玷ich a gl,cn n咖 bcr of
Cononuous operajons arc typicaⅡ y thosc ln ss・ hch
bⅡ cks厶 stacked after manufacmrcl,and barrcls for
a smglc叨 凹 of g° °d ls produccd and伍 c cost u血 ts
山C° utput° f
arc idcnuca1,Producoon tnay invol△ˉ
oⅡ M,e△ s
c a scqucncc of
conunuous or rcpco缸 vc operatlons Examplcs arc: Example
● manufaco豇 c of computers Thc foⅡ oM・ lng informaoon is glscn f° ra bu“ ncss
● produc硅 on ofn1incral s△ ,ater produchg a smglc勹 pC ofproduct br a pc⒒ od of
● oⅡ rcflnmg onc ycar
● producuon。 f tncdicincs
● passcngcr and frclght饪 ansport, Numbcii of untts produccd∶ 30000
Contlnuous opcrauons wm aLn。 st ccr钐 山Ⅱy⒒ wolxˉ e Expc汕 亚 α Dlrccdabout $108000
a product passmg伍 rough a nunbcr of proccsscs,
Drcct matcnals $54000
1ndtcct cxpcnscs $66000
Proccss cosung、 vⅢ bc covcrcd i1chaptcr32
spcclflc ordcr opctaoons arc伍 osc、 扌ith arc
Thc cost pcrlmt o
pcrformcd in responsc to spcoal orders rccα ˇ℃d fr° m
customcrs and may bc classiflcd accordlng to xli hc伍 ct
$(108000+54000+66000)
30000 =$760
the opera刂 ons consist of hdhidualjobs,or dlc
Exercise1 0Ⅱ rhcad⒓ 00%of labou◇ 3钥 aO 384o
Luxhbrek manu± acmrcs brcak幺 st ccrcal Its c° 哎 uint Total c° st 8100 8500
Add profIt侈5%of costl 2025 1625
is1000packcts of tl,c ccrcal Thc foⅡ °晒△ng
Amount。 f quotauon 10125 10125
n△ ±
ormauon ls gIx cn Ψ
A⒒ the matetlals ai△d labour arc drcct cos“ of thc iob

N-bcr of packcts of ccfcal ptoduccd 425000

XX hcn thciob has been c° mplctcd,thc acmal cosⅡ
Expclldlturc:D止 ∝ t matcnals $398000
DIrcct labclur $996000 hav℃ bccn entered on伍 ei° b card,wlllch sh° ws th/at
os・ crhcads $1687250 acul狃 cost cXCceded thc csomatcd co“ by$400and
thc pro丘 t made o ody$1625h欲 cad of$2025Thc
Rcquired mc
iob card Mil pr° Ⅵdc llscfLllinlormaoon thc nc对 刂
CalcLllatc thc c° st of onc costllmt ofbrc￠ 汰fast ccrcal
Jobbmgs Ltd quo∝ s± or a“ lml・ar” b

313 specific order cosung ExercIse2

GcoΠ△ey PanncⅡ is a pr° fcs⒍ onal rcscarchcr He has
Job Costing bccn c° mn、 ssioncd t° c° nduct rcscarch int°
For a c° mpany xx・ lth spconc° rdcr。 pcrauons,that is。 alegao° ns that tn° bⅡ c phoncs arc bad for pubⅡ c
th° sc vsˉ hch arc pcr± ormcd in rcsponsc to spcoal health Gc° ffr叮 ∞omat∞ that tllc proiectwⅢ rcqmtc
ordcrs rcccⅣ cd fr° m customcⅡ ,job Cosdng can bc 200hours of hs umc,wlu￠ h hc charges at$100pct
carncd out,Each ordcr bccomcs a cost umt and can h° u‘ Hcwm d⑽ rc心cdlC serx,1ces of stlsan,hls
bc c° stcd as a scpa偬 tciob Examples ofiobs are: rcscarch as“ 哎ant,for100hoLlrs at$60pcr hou⒈
● rc-pamung a housc ovcrllcads arc rccoˇ crcd at the rate° f$40pcr hbour
● rcp缸 rlng a tclc访 sion sct h° u‘
●scrv△ c1ng a Fnotor car
Rcquked
ExampIe1 Prcparc a statement to sho、 v thc aln° unt Gcof仔cy
J° bbings Ltd is askcd to quotc a pocc to insta△ 、汶Ⅱ chargc for carrylng out ths rcscarch
ccntral hcaong in a housc Thc quotaoon is bascd on
Batch costing
csomated costs as follo环
`s: Batcl△ c° s刂 ng is very slmlar to iob c° sung and is
Es也 matcd c° sts appⅡ cd when an order n° m a customcr山Ⅱ/ol△・
cs thc
$ produco° n° f a nltrnbcr of idcnocalitcms 剡 thc
MatcoaIs承 3000
C0sts inCu± rcd arc chargcd to thc batch and伍 e cost
Labour“ 1700
owrhcad O00%ofIabou◆ 3+00 pcr u血 tis found by dlsidlng thc cost of the batch by
Total c。 st 8100 曲c nurnbcr of uluts in山 c batch
Add profit@5%。 fcⅡ o 2025
Am° unt° f quotatlon 10125 ExampIe2
屮
AⅡ thc matc⒒ als and labour arc drcct c° sts of thcj。 b Exrocaoon Ltd scⅡ s rcproducoons° f anuqLlc
furmtLlrc It p1・ accs an ordcr w1th Fakr砀 JDs Ltd fo￡
If thc quotajon is acccptcd,thc c° sts x△ zlU bc
500(△ 血ng chairs at an agrced pncc of$30000for
rc∞ rdcd° naj° b card as伍 印arc hcurrcd by thc batch,
J° bblngs Ltd, Fakcrf・abs Ltd has f° ur producu° n dcparuncnts for
℃n
b,hch thc foⅡ oxlmg1nf° rmauoh is⒏ 、
Job N° 10ˉ hstauatl。 n。 f ccntral hcamlg at螂 醯
Es缸 natcd Actual △Iadh“ 山q⒊ ◎嗷 “ 5pcr ma。 陆￡hour
$ $ F血 血 呜 oAR$20pcr dlrcct labclur hollr
MatcJals木 30lltl 27+o Frcnch poⅡ shlg: oAR$10pcr dlrcct labclur llour
Labour咔 1700 1920 A$cmbls C》
`R$15pcr dlrcct labout how
 Thc costsincurrcd in thc producoon of500dliung Add adm1n1strat1on c° sts
cha1rs wcrc: rccovcrcd ls24210× 15%◇ 3632
Total cost of batCh of500chars 27842
D△ cct matcⅡ als $5000 Pro丘 t 2158
Dkectlabo△lr Mac响 125hc,llrs at$10pcr hout 30000
n血slmg 180hours at$9per hour
Frcnch poⅡ shng 220hours at$12per houェ $27842
c。 st PCr char= =$55684
Asscillblv 100hρ llrs at$8pcr hour 500
$30000
160mac血 ch° urs Ⅺ Pro旬 t pcr chair= -$55684=$4316
`crc booked agamst thc batch
of dh/alrs in thc tnacluiung dcpartrnent
「akcrtabs Ltd rccovcrs its adiYlinistration cxpcnscs
Exerclse3
at15V。 on thc total cost of pr° duction
Thc batch cos1cost per chair and pro丘 t pcr chalr XVlpup Ltd hⅡ rcceⅣ ed an ordcr for1000packs of
paper t° wcls Each pack contams six roⅡ s of t° 、7cls
arc calculated as f° ll° ws:
Thc± r,Ⅱ oxx/ing informa刂 °n is glxrcn
Costs fo￡ batch of500oha△ s

$ $ $
Dircct rnatcrla1s 5000 RaⅣ mateials Pcrlol of toxo・ cls o08
Dlrect labou⒈ Mach血 ng(125× $1o 1250 Labo哎 houny ratc 600
Finislung(180× $9) 162o Cost of sctm△ g up maclulcry 3000
Frcnch poⅡ shing O20× $12) 2640 0,i/crhcad absorp刂 °n ratc pcr labollr/ho△ r 935
Asscmbly CO0× $助 800 6310
PrImc cost 11310 100packs of to、 vcls are rnanufactLrcd pcr hotr
Produco° n ovcrhcad rec。 vcrcd
lvIacluimg(160× $3劲 5600
Fiillslung◇ 80× $2Φ 3600 Rcquェ red
Frcnch p。 Ls灿 ng O20× $1cll 2200
⑶ Calculatc dle c° 跌of manutaculrmg thc batch° f
Asscmb灯 (100× $1s, 1500 12900
1000packs° f papcr to、 7cls
Cost。 f producti。 n 24210
gO calctd.atc tllc c0阱 °f onc roⅡ °f papcrtowds

● Make sure you understand the di矸 erence beMeen con刂 nuous operations and specifio° rder oρ erations
● Leam the charadero刂 cs ofjob CosⅡ ng and be prepared to give exampIes
●Be pnepared to expIain the difference beMeen job costing and batch costing
● Make sure you can caIcuIate oon刂 nuous costs,job Costs and batch oosts set al|ca丨 cuIations ouHn a neat and
orderIy form

Which ofthe fo"owing operations wouId involve a Which ofthe fo"owing statements is true?
system of continuous Costing? A Rentofthe machine WⅢ be charged as a
A painting wa"s of houses direct expense to job160
B generating electricity B Rentofthe maohine wⅢ be charged as an
C hiring° ut boats in a fun park indirect eXpense to job160
D pub"shing newspapers C Rent and depreciati° n ofthe rnachine wⅢ be
oharged as a direct expense to job160
Retep Ltd hired a drⅡ Ⅱ
ng丨ηachine for use on job D Rent and depreciation ofthe machine w"I be
160 The rnaChine was not used on any otherjob Charged as an indired eXpense to job160
1.BOr|iX Ltd makes a number of products,one of P"n刂 ng Markoting
WhiCh is super Bo"ix,wh|oh passes through three and
produdion departments,A,B and C The Promotbn
folloWing detaⅡ s are releVantto the produdion of Materials $1aOo $1sOo
super Bo"ix Direot labour 120hours sOO hours

Monthly production 4000units Curepipe successful PromoHons Ltd oharges to

ureot mate"引 per unk $8 o"ents are based on cost pIus4o%
D∶ reCtlabour per un" Dept A 1%hours
Dept B 1hour Requlred
Dept C %hour Calculato the amount Whioh Curepipe su∞ essful
Promo刂 ons ud w"lcha口 gθ ent forthe
0thorinforma刂 on is as foⅡ o、Vs∶ pr° m° ti° n "s Your
of Port Louis ChoX cⅡ ans、 Ver
should be ρrepared in the form of a fu"y itemised
Direot labour rate〈 a"depts) $875 finanoial statement
Departmenta丨 oVemead Dept A $36000 3.The Kelang Gum Boots Company has reoeived a
Dept B $26000 contract to manufacture2000pa rs of ch"dren’ s
Dept C $24000 boots The boots pass through three depanments∶
TOtaI directlabour hours Dept A 24000 MOulding,L丨 ning and Finishing The fo"owing
Dept B 20000 informat on is g丨 ven
Dept C 8000
Mou丨 ding Lining Finishing
Depadmental overhead absorption is based on D″ ed mate"al
direct!abour hours per pair of boots $2 $3
D∶ rectlabour rate
Requlred per hour $7 $6 $6
CalouIate thθ cost of one month’ s production of Budgeted
supper BOHix overhead
expenditure $21840 $11375 $4368
2.Cu哞 piρ e sucoessful Promotions ud has tWo Budgeted
depa"ments:〈 i)P"nting and〈 maohine hours 7280 -
")Marketing
Promo】 on The following information is avaⅡand
able Budgeted dlrect
forthe nθ ×t siX months labour hours - 4550 1820
Directlabour hours
PⅡ nting Marketing per pair of boots O25 05 025
and Machine hours
Promotbn per pai旷 of boots O5 - ˉ
Elred wage rate per hour $8 $12
Budgeted overheads $127400 $267540 0、
Budgeted labour hours 3640 6370 `erhead absorpt on is calculated as folloWs:

Deρ a"mentaI overhead is reooVerθ d on the basis
ofthe number of direotIabour hours
Thθ Company has been asked to promote a new
product undorthe brand name‘ Po"Louis ChoX’
The cost ofthejob is based on the fo"owing
estimates
Moulding:rnachine hours
Lining and finishing:directlabour hours
Requ1red
〈a) Ca|cu|ate the total cost of producing the batoh
of2000pairs of chⅡ dren’ s boots
(b)C引 culate the cost of eaCh pdr of boots
 Process cost∶ ng

● When process oosting is used

● hoW to preρ are process accounts
● hoW to CaIouIate the oost of work in progross
● Whatloint products,b圹 products and Waste produds are

321 Process costing eXpIained

C° nunuous producuon usuaⅡ y involxcs a product producjon transterred fr° m也 c prcxˉlous proccs,s,
pas“ ng through a scrlcs of proccsscs EaCh proccss Fu汕 cr costs、 注Ⅱ be addcd in cach pr° ccss m thc
is a cost ccntrc to which costs arC al1ocatcd Thc ra、 form of addcd matcrlal,labour and° vcrhcads Thc
`
matcrlal of cach proccss consists of thc cost ofthc fo⒒ o、 agram Ⅲustratcs thc proccdurc.
^ng cⅡ

Added mate门 a|$800

茗 №cess i¨ 瞄 ⒀ 闷
i丨 i蟛
莲犊 l丨 卜 箍
∷ y龆 F№
l尻1;∵ :叩 >

垭 accountis prcparcd for cach proccss to sho、 pF。 ceθ g1

`
thc cost of the output from伍 e pr° cess
$
ExampIe Dircct matcnal
Dircct labour
15000 CompIctcd units
23000 traasfcrrcd to
铡
~~铡
1000u血 ts of a product p灬 scd through thrcc ovcrhcad 19000 Ptoccss2
proccsscs for whch伍 c fo⒒ o、刀
1ng informa谊 on is 57000
avaⅡ ablc.
Proces82
Proccss1 Ptoccss2 Ptoccss3
$ $ $ $ $
D订 cct matcnal 15000 8000 2000 Matctla tansfcrrcd Complctcd u血 ts

Drcctlabour 23000 11000 5000 ftom pr° ccss1 57000 transfctrcd to

o△ crl△ cad 19000 16llllO 12ll【 lo Addcd matc⒒ al 8000 Pioccss3 92000
Drcctlabour 11000
∫dl ofthc u血 ts° fthc pr° duct wcrc complctcd os crhcad 16000
92000 92000
Thc proccss aCC0unts arc as foⅡ o、vs:
 Ptc|ceg83 cxprcssed as cqmvalcnt units of producuon and
$ $
valucd accordlng to thc cost that has been incurred
Matcoal trailsfcrrcd Complctcd units in proccssing thcm so far For cxample,if100u血 ts
frorn Pr° ccss2 92000 uansfcrrcd to arc60%complctc,th“ k eqtuvalem to60± Ll灯
Addcd matcial 2000 flnishcd goods 111000
complctcd units
Dlrcct labour 5t rlo
0vcrl△ cad 12000 Example
111llllo 111000
Thc budgctcd cost of proccssing1000units of
Thc cffcct ofthis is to incrcasc thc cost pcr unit product X is rnadc up as f° ⒒ows;

of product as it passcs throVgh cach proccss At thc

$
cnd of proccss1thc1000u血 ts、 havc a cost of
Matcrlal traIlsfctrcd fr。 map± cs・IOus
^Ⅱ
$57000/1000=$57 pェ occss CO00u血 tθ 15000
/kt the end° f pr° cess2that c° st、 increase by Addcd matc⒒ al 4500
^Ⅱ D△ ectlabour in uis ptoccss 20000
dle amount of addijona1expendltLlre in process2
0vcrllead CCcoxC,b狙 Cd on200%
$92000/1000=$92 of dlrcct labourl 40000
By the end° f the process thc cost、
^ll havc rlscn
to$111per u血 t6111000/100Ol ollly900ulll“ havc bccn compl∝ c圩 pr。 ccsscd
This buⅡ d up of cost、注Ⅱalloxxy a nrm t。 The° thcr100arc comp1ote as to80V。 rnatcriaI and
accuratclv vaIuc its invcntory at thc cnd of an 50oo labour
accounong pcⅡ od It、 vⅢ also glvc thcm thc abⅡ 饣 Thc cost° f thc900complctcd units is90V。 of
to quotc a prlcc to a Customcr、 Ⅵ么nts to buy $(15000+4500+20000+40000l=$71550
`ho,say
thc product at thc cnd° f pr° ccss2rathcr than d△ c Thc c° st° f100incomplctc uiuts is:
company comp1ctc it

$⒃
Exercise1
M肘 crj破 tans佗 rrcd TJJJ× $150tll,
Thc sitrah Proccssing Company,sxrluch passcs its
pr° duct through thrcc rclll△ ng proccsscs,pr0ˇ△
des Addcd matc犭 al tO00× $4500× 80% 360
thc foⅡ o、 注ng inf° rmatlon± or onc rnonth
Dircct labour
亻
甘
吉$20000× 500/o 】000

删_一
;×
Proccss I Proccss II Proccss III 0⒕ rllc记 ⒛0%× $1000

蜘
$000 $000 $000
Drcct matcoal 10000 4000 7000
Dlrecdabour 400 350 275
0vctllcad 900 864 423 The inc° mpletc units arc carllcd do、 n thc
`n°
Proccss account as work in progrcss
AⅡ thc1natcoal which was input to proccss I
completcd proccsscs II and1II
The Ptt,ccss aCCount
Requircd
$ $
⑶ PrCparc d.cc∞ taccom“ for proccs⒃ sI,Ⅱ alld ⅡI Matenal transfclicd Transfcrrcd to ncxt
αD Calculatc曲 cc° st pcr unit at thc cnd of proccss fiom prc访 °
us ProcCss 15000 pェ occss(or nnished
III if2000uillts arc produccd Addcd matcⅡ al pO% goods) 71550
of$4500+$36o 4410 W/ork h progrcss c/d 48‘ o
Docctlabour l90%
322 Work in progress
铡

of$20000+$1000l 19000
~
一

0vcrhcad田 0%of
硎

It is usua1that at any parjcular umc s。 mc uluts of

$40000+$200o
produco° nx,・ dl not havc bccn complctcly proccsscd; 76410
thcsc arc wOrk in progrcss and rnust bc vaIucd for opcillng work in
progrcss b/d 48‘ o
accounuilg purposcs Thc incomplete uiuts are
 吼 c proccss yicldcd oⅣ o products:
A17000kilograms,B9000ktlograms
Aftcr scparaion,A inclllrcd furthcr processing
Costs of$3400,and B incurrcd ftlrthcr processing
Costs0f$13500
Thc cost of17000kg of A up to thc point of
scparaoon is$130000× 17000 =$:5000
Thc cost of1complctc k△ ogram of A is
85000+3400
=$5,20
17000
Thc cost of9000kg of B up to thc point of
by-products arc rcmnants of matcⅡ al nl garmcnt
manuf/acturc,and、
`ood offcuts and sa、`dLlst in dic
tlnlbcr industry
Anyincomc fr° m thc salc° fby-products sh° u1d
bc crcditcd to thc Pr° ccss account to rcducc thc cost
of dle main orjoht products
Waste/scrap dcscribcs rnatcllal、 dich has no
ccss
value and dlcrcforc has no cffcct upon thc Pr°
accounts;nor willit bc includcd in invcntory
In sornc cases dhc、vastc product is sold for scrap
Thc doub1c cntr/f° r tlus transacoon is to dcb1t thc
bank acc° unt and crcdit thc appr° pr1ate proccss
account Tlus has thc cffcct of rcducing thc overaⅡ

scparation is$130000× 9000 =$45000 cost pcr urut ofthc good pr° ducoon
26000
Thc cost of1c° mplctc klogram of B is
Example
oundLy0soId灬 ∝rap for
Slag pr° duccd by an iron±
45000+13500_ $6,50, $⒛ 00to a flrm of cMlcn红 nCCrs R“ rec° rded h
9000 dlc f° undry愆 Proccss accounts as foⅡ °ws:

ExercIse2 $
MatcrlaI input t。 ptoccss 50000
Thc Tmabago Rc血 血名 Companv produccs b〃 o Dkcct wagcs 76000
subst狃 CCs kn∞ 颐 as俪 °and Lacjno In onc wcck, 0vc△ hcad 94000
3400Ⅱ trcs of Almno and5100Ⅱ 讧Cs0fLacono wcrc 220000
Lcss saIc of scrap 2000粘
produccd Tllc uaput to dlc proccss、 叼s as± o△ oss s∶
Cost attrlbutcd to malil product 218000
$ 水Thc procccds trom thc salc° f dlc scrap、 vctc Icss than19o of
lvjatcJa⒈ 蚰 acto 21000 thc pェ ocess Cost
Direct labolr 1】 000
0verhcads 23000
325 NOrmal losses in processing
A± tcr scparaion,furthcr pr° ccssing costs to
complej° n wcrc:All1mo$462⒋ Lacono$13362 Losscs of rnatcrlal arc unavoidablc in many
proccsses and thc qLlano印 ofthc product produced
Rcqukcd is lcss than d△ c quanotv of thc rnatcrialinput to the
Calculatc thc cost of cach complctc Ⅱtrc° f
proccss.If thc loss is w1tlun伍 c rangc cxpcctcd for
⑷ Anim° and⑼ Lac。 n。
thc proccss itis rccogmscd as a norma11oss Thc
unspoⅡ cd produc刂 on、汀ll bcar thc cost of thc l° ss
324 Byˉ products and waste
A byˉproduct is simⅡ ar t° aj° int product cxccpt ExampIe
that its salcs va1ucislow comparcd、 In a ccrtain proccss,1000kg of rnatcrial cosung
^th thc salcs
valuc ofthc lnain product Thc cocoa and chocolatc $4000was uscd Thc dlrect wagcs pald wcrc
industp`provides a good cxamplc of a byˉ product: $16000ai△ d overhead expenditure amounted to
about8-10V。 of
thc shclls° f cocoa beans constitLltc・ $24100,The output± r° m the process was980螅
伍c wcight oftllc bcans and hwe to be rcmowd Thc norm斑 loss cxPCctCd for dle pr° ccss怂 2V3Thc
Thcy arc of no usc in thc chocolatc industry but arc oLltput pcr lslogram``Ⅰ bc valtlcd at
used as fcr刂 Ⅱscr,and ftlcl ○伍 cr cxamp1cs of $(4000+16000+24100)÷ 980=$45
`1iⅡ
 Thc effect° f this is to incrcasc thc cost pcr uillt
Data PCji umt Ptocess1 Proccss2
of dle good producjon in d△ c proccss lvIatcial 4kg 25kg
Cost of mate⒒ al $12pcr kg 朗 乃 pcr kg
ExercIse3 Lab°刂 h。 urs pct unit 3 5
Labour houdy ratc $14 $ll
Okara QuaⅡ ,Carpcts Ltd makcs a pr° duct which Producoon° Vcrhcad
involves Rvo proccsscs Pr0CCss1rcsults in thc absorpoon $36pcr $27pcr
producoon° fa1o、 Ⅴ_priccd by product wluch the lab° ur hour labour hour
s舶 procccds of
company sCⅡ s 2000units of thc product、
`ere madc sC血 p $1630 ~
in proccss1and transfcrrcd to proccss2 XVork in
progrcss at thc cnd of proccss2Consisted of800 Required
ulllts complctc as to75V。 rnaterial and50° nlabour
Preparc Pr° ccss accounts1and2to show thc cost
Furthcr producoon dctaⅡ s are as f° llo・ vvs:
of producing2000u卩 its Sho、 ˇdct/aJcd workngs f° r
thc valuati° n of± lnished units and work in progrcss
iiil proccss2

● Re丨 ηemberthatthe totaI cost of pr° duction in one process is the cost of materiaIinputto the next process
● Make sure you can eXpress ρa砣 |yo° 丨 ηpIeted w° rkin terms of equiva丨 ent un"s
●Learn how to apport丨 on cost betˇ Veen joint produds
● Rememberthatthe proceeds from the saIe of byˉ ρroduots and scraps are credited in the Process accounts
●AlI° wf° r waste when vduing completed product on

Ⅵ o、″ing industries wouId use VVhatis the prime cost of production?

`hiCh
rocessofthe foⅡ
costing?
ρ A $133000 B $142000
A bu"ding c° nstruotion
C $145000 D $148000
B chemical
C hote| The rnonth|y producJ° n cost of a process Vvas
D road hau丨 age $156400 Finished outρ ut was160oo oompIeted
un"s There Were4000un"s of workin progress
The fo"ovving informat on is given about a process
l″ hiChˇ vere60%complete
in which normalˇ Vaste of10%is incurred
What Was the cost per equiva|ent unit?
A $782
B $850
C $889
D$978

1.The Taranaki M"k Produds Company Process1 Prooess2

manufactures products Which pass through three MatoⅡ als ρer unit 21itros 1Ⅱ tres
processes The cosung rec° rds for processes1 Cost of mateHals
and2give the foⅡ owing information per kg/I1re $125 $15
Mate"als used in
pn° cess at cost $60000
AdditionaI matθ rials pass through ρrocθ sses1and2as a single
used in process to be produot and separate into product X and product Y
oalcu:ated in process3
Directlabour ρer The folbWing information has been extraded from
unit 30minutes 15minutes the cost records
Labour cost per
hour $12 $12 Process1 Procθ ss2
X/a"able oVeHlead MateriaIs ρer unit 7kg ⒋5kg
per unⅡ $5per d⒈ ect $4per drect Cost of mateⅡ a丨
labour hour labour hour per"re $150 靼
F|Xed oVeHlead Cost of mate"aIs
absoqDt on rate $9per d″ect $6per drect used in process1 $42000
Iabour hour labour hour COst of mate冖 als
used in process2 - to bθ
Fu"hef information calculated
Pro∞ ss1 There were no opening or olosing Direot labour
inventoHes of workin progress A"produCtion from hours per unⅡ 4 35
this proCessˇ Vas passed to process2 Hou"y丨 abour oost $8 $6
Process21here Was no oρ ening inVentory of workin Va"ab|e overhead
progross There Was a dosing inventory of workin per un" $16per dired $15per dirod
progress Consisting of2000units which Were labour hour labour hour
oomplete as to80%mate"aIs and60%丨 abouⅡ 日Xed ovemead
absorption rate $30per diroct $29per dred
Requ】 red
labour hour 1abour hour
lal Pnepare the accounts for prooesses1 and2
(b)Calculate the cost o⒈
s引 e of brprodud $1000 -
0ρening inVentory of
Θ° ne∞ m创 eted unk of produdon h process1
Work in progress nil n"
)° ne colnpeted unk of produdon h process2
巾 Closing inventoγ of
ll)° no un"of Workin progress in prooess2
work in progress n" 1000units
10000un"s from process2were used in ρrocess
3as a resu"of whioh钿 ojdnt produds X and Y
The dosing inVentory of workin progressin process2
were produced lhe costs ofth⒗ process were as
is comp ete asto100%丨 materiaIs and75%labouⅡ
folloWs:mate"a‘ $Ⅸ⒖⒐labour$18sOO vaHaue
ovemeads MO0;】 xed oVemeads$10gOo Requ1red
(al Prepare the ledgor ac∞ untfor prooess1
10%of production丨 n process3Was spo"ed X
represented75°/。 oftho g° °d produc忄 ion,and Y (b) Prepare the lθ dger acc°untfor process2
the remainde∴ There were no opening or The completed un"s in process2are
CIosing inVento"es of workin progress transferred to process3whene they separate
nto joint products,X and Y70%of the】 nished
RequIred units are X and30%are Y Tho costsin
〈°
)CaIcuIate the quantⅢ es of C)X and0OY process3are as foⅡ oWs∶
produoed in prooess3
Added mate"als∶ 35kg per unt at$3per kg
ld)Cal。 ulate the oost of eaCh unit of output of
process3 Drectlabour2hours pθ r un"at$7per hour
VaJab:e overheads:$18per direCtIabour hour
⑼ Calculate the Values of the】 nished inventodes
Fixed overhead absom刂 0n rate∶ $27ρ er dired
Θ X and⑾ Y
of
labour ratθ
Θ Θ ExpIain whatis meantby a by-pr° dud
09 state h° w byˉ produds are accounted for n
process cost a0Counting 10%of the production∶ n process3was spoⅡ ed

The Harare Metal A"oy Company manufaotures Required

汕 o products WhiCh inVOIve three processes They (。
) Prepare the ledger accountfor proooss3
 Marginal costing

● What marginaI oostis and hoW tis used

● the importance of contribution and the C/s ratio
● what break-evenis and hoW to CalCulato breakˉ even point
● hoWto preρ are a breakˉ even cha叶
● hoW marginaI oosts are used to decide on a prioing policy
● when ordersfrom customers may be aocepted be丨 ow normalseⅢ ng p"ce
● the use of rnarginal oosts for rnake or buy decisi° ns
● hoW to rnake the rn°st profitable use of soarce resources
● the valuation ofinVontory using marginal and absorption costlng
● the use of sensitivity analysis

331 Marginal cost dlc ovcrllcads洫 d pr° 呐dmga u° flt The∞ lltlIbu0on
per u血 t is calculated as foⅡ °ws:sculng p⒒ ce pcr unlt
In chaptcr30、 、 ta1Cosing can be used
`c sa``h° `t°
to detern△ 血c pocc and pro丘 t but,bcyond tha、 its
Icss tl,c total° f thc varlablc costs pcr uiut° C
r sP~、 厂
ωCr u血 )In tl△ls casc$240-$150=$90
uses arcⅡmitcd F° r rnany rnanagcmcnt deosi° ns it
“ cssary to know tllc matJnal cost° fau血 t of
n∝
C凼 of1000u血 “ C° st pcr-t
produco° n Margnal cost can be descⅡ bcd as thc $ $
C0st0frnaklng onc cxtra uot of an itcm Itis bascd V狂 oable c° sts

on thc prlnciplc that an addld° nal unit° f pr° ducoon Dilcct matcrIal 30000 3o
DIrcct labour 100lXlO 1oo
wⅡ l onll rcsult an increase in thc varl/ublc c° sts and Drcct cxpcn$es 5000 5
伍at thc丘 xcd costs ssm not bc affcctcd VIarginal Pnmcc。 st 135000 135
Cost of production is thc total ofthc va西 刻冫
lc costs 砀 oablc Ovcrlleads 15000 15
of naanufacturc Marglnal c。 st° f pioducuon 150000 150
Fkcd ovcjihcads 50000
Example1 Total cost。 f produc刂 on 200000
Prclfit⒓ 0%° f total cos9 +0000
Thc c° sts° f producing1000units of a pr° duct arc Contobuti° n 90
shown in thc table on ths pagc臼 ⒒h曲 c uiljt Cost sc⒒ ng pocc 240000 240
shown in tlac sccond C01umi△ l

Thc rnarglnal cost° f produco° nf°r1000uiuts is Thc cost° f maklng1001unlts wⅢ bc

$150000lor$150± or a singlc uiutl ThC dlf± erencc $⑿ 00000+150l=$200150,not
bcbⅤ ccn tllc total cost° f pr° duc刂 on Cc hdudmg $⑿ 00000÷ 1000× 1001)=$200200as lt mlght
瓜 cd ovc山 eadΘ and伍 c∞⒒ng pocc gves thc pro血 seem if wc° nly had a total cost statcmcnt
of$40000(or$40pcr unit-not shoxR・ ill,FLxCd Thc rau° °fthc c。 ntrlbuo° n to thc sc⒒ ng pⅡ cc is

°vcrhcads+pront=$9oo00,or$90pcr umt,Thls is kn° wn as tl,cC/s rado,In dus cxamplc曲 eC/S

caucd the c。 ntnbut1on becausc1t1s thc ContnbutJOn 90
rauo o丽 × 1oO=夕 5%Thso a【 rv“ cfd姐 屺
that cach uiut of producoon makcs to、 厂
ards covcrlng
that can bc uscd to calcLJatc thc answcrs to many
problcms Thc usc of tlic C/S ratlo can avoid thc $
nccd to spcnd valuablc ome calcdaong margln/al Margln龃 co呲 178750
ContJbution 146250
Cost
salcs 325000
For examplc,if thc salcs incrcase to$300000thcn
thc t° tal c° ntnbu刂 on wⅡ bc$112500o00000×
Fixcd costs amount to$82000
375%)Assu血 ng弧 cd cos“ rcmaln伍 c mme attlus
Ⅱ bc$62500
1cvcl° f output then the proflt、 礻 Requhed
($112500-$50000) CalcLJate the pro丘 t orloss± rom d,cs斑 c of⊙ 3000
u06C94000u血“ Co1200u血 “of product Q
ExampIe2
Thc foⅡ o、 注ng is a summarlscd statcmcnt of 332 The breakˉ even point
producing2000units of productI【
Thc point at M・ hJch a bushcss or a pr° duct makes
$ ncither a proflt nor a loss is thc brcakˉ cvcn point
Malglnal cost 81900 lˇ ￡
anagers nccd to knclw thc brcak-cvcn pomt of a
Conmbuoon 44100 product when makIng dccisions about plloilg,
sales 126000
producoon levels and o伍 cr rna讧 crs
Flxcd costs am0unt to$26000
Proflt=contnbuoon-lLXcd Cos“ ;$(44100-26000,=$18100 Break-even occurs、
`hcn contrlbuion cquals fxcd
Costs Itis f° u血 d by dlxlding thc tot狃 Excd costs by
%哆 tx△ m thc pr。 丘t
、Ψ orl° ss be if productJon is thc c° ntttblloon per unit Thc calculaoon glscs thc

Θ inc姆 灬Cd to2400uo“ numbcr° f uillts that have to bc produccd and sold
⑾ ∞ducCd to1800uillts beforc thc Ⅱxed c° sts are cOvcrcd

←◇rCduccd to1100uilitsp Example

The foⅡ owing informaoon rclatcs to山 c pr° duc刂 on
Answcr
of a chcnllcal
Θ The contrlbuuon fr。 m1unJt“ $44100÷ 2000=
$2205 $
Therelorc dlc contrlbuoon fr° na2400uiuts is 卜赅rglnal co“ pcr Ⅱ讧c 26
2400× $2205=$52920 ScⅢng p⒒ cc pcr htrc 50
To臼破of flxcd costs 72000
Pr。 flt =con⒄ buoon-tLxcd Costs
=$(52920-2600Φ =$26920 The c° ntrlbuoon pcr Ⅱtrc is$(50-26)=$24
$72000
Ci)ThC contrlbu0on仔 om1800units wⅢ bc
Brc狃ccxrcn point= =3000Ⅱ tres
$24
1800× $22,05=$39690
The sales rcvcnuc at which thc product wⅢ brcak
even is3000× $50=$150000This may also bc
pro臼 t=$o9690-2‘ 000l=$13690
±
ound as foⅡ °、
`s:
total丘 xcd costs $72000
(Ⅱ 9ThC c° ntⅡ bu硅 on丘 °m1100units w・ lll bc
contrtbuoon pcr$ofscⅢ ng pnce $o48
1100× $2205=$24255,
=$150000
Loss=$(26000-24255)=$1745
(c° ntrlbutlon per$of sel△ ng pⅡ ce=$24÷ 50=
$0,48)
Exercise1 Thc C/s ra砬 o in tlus casc is$24÷ 50× 100=48V。
The± oⅡ ox△ing1s伍 c rnarglnal co哎 statCmcnt± or曲 e This can a1so providc thc calculajon ofthe brcak
producoon of3000u血 ts of product Q
cvcn pointin tcrms of salcs rcvenuc by d小 ″dlng thc
flxcd costs by thc C/s rat1o In dus casc itvxi△ bc 250
$7200÷ 48V。 =$150000 225 sa|es rθ venue
、7hen thc calculation of break-cvcn p° 200
int rcsults 卜Prof"

∞ 伽∞ ∞
in a fraco°n of a unit of producti° n,tl,c answer |Tola∞ “们xed∞ ⒍+
should bc r° undcd up to thc ncxt c° mplctc unit,for marg naI Cost〉

cxalnplc∶
Marg n of safety
Contrlbu刂 °n pcr u血 t° f product$23;tot赳 丘xcd
Fixed oost
Costs$32000,

∮
u扌:Cak^evcn=赵 ;亭 ;p=1391304,shown as1392
o 2000 4ooo 60008000 10000
outputin un"s
The f° rmula in§ 331of selⅡ ng pⅡ cc-varlablc Breakˉ even ohartfor produot X
Costs Can破 s° bc cxtcndcd to ca1cdatc hoxv many
unlts need to bc s° 1dt° carn a reqmrcd1cvcl° f product against the t° t狃c° st° f produco° n m△ c

pro丘 t brcak-cvcn point° ccurs xs hcrc the salcs lnc cuts the
tota1cost Ⅱne and thcrc is nclther pro丘 tn° r1° ss
Example
Thc brcak~cven pointis3000Ⅱ trcs H° wcvcl,h0`V
ExampIe
many Ⅱtrcs necd to bc s° ld to carn a pro且 t of The marglnal co哎 of pr° duct X ls$10p∝ Ⅱtrc It ls

$12000P sold for$2250pcr⒒ tre Fixcd costs are$50000

This can be calcLllatcd by adding the rcquircd proflt The Ⅱnc'彡 shows the rcvcnuc at brcak-evcn p° int
to thc丘 xed c° sts and dlvlding the answcr by thc ($90000)ThC Ⅱ
nc纺 sh° ws thc° utput in units at
contnbujon pcr u血 t,
brcak-cvcn point(4000) At10000units,thc sa1cs
Fixcd c° sts$72000+rcqLured pr° flt$12000= rcvcnuc is$225000and t° tal cost is$150000 Thc
$84000, distancc bc小″ecn thosc b1|° lines shows d△ c proflt of

$84000/$24=3500Ⅱ trcs $75000

This can bc provcd as f° Ⅱows: Thc area bcⅡ Ⅳccn thc salcs rcvcnuc Ⅱnc and d△ c
tot・al cost Ⅱnc彡 夕 彬山c brcatc叱 n polnt rcpr∞ en“
$ thc loss that、 utput fa△ s be1∞ v
salcs rcvcnuc O500× $50l 175000 'm bc rnadc if thc°
4000unlts Thc arca彡 缨夕
″
Lcss malglilal costs O500× $20 91000
Total contnbll刂 °n represents pro丘 t 'thc brcak-邻 `cn polnt
84000
Less nxcd c。 sLs 72000 The dtffcrcncc bc呐 Ocn=Jlc brcak~even point and
pt。 nt
12l× lo 10000u血 tsis the margIn of safe饣 ,or thC am° unt
ThC C/s rao。 can als° bc uscd t° c狨 culate thc
by wⅡ ch° utput can fall sh° rt° f100o0u血 “ bcforc
revenuc rcqlurcd to earn a targct proft In ths casc it thc busincss rlsks rnaklng a loss on product X It rnay

wiⅡ bc$84000÷ 48%=$175000o500unit× $50 bc cxprcsscd as a nuinbcr of tllllts,6000,° r as a

eac⑴ pcrccntagc, 6000 × 100=60V。

Thc brcak-cvcn charts° f bⅣ °products,A andI廴

333 Breakˉ even charts x△tⅡ no・,s bcc° mparcd Bod1products havc sin11ar
A break~cvcn chartis a dlagramma刂 c total∞ sts and rcvenue岛 bLlt produd A杨 s hgh弧 ed
rcprescntaoon of the proflt or l° ss t° be expcctcd Costs M,hlc product B has l° w flxcd c° sts

fr° m thc salc of a product at various levcIs° f

actlvlⅡ Thc chartis prcparcd by plotong thc
rcvcnuc￡ rom thc salc° fvarious v° lumcs° fa
 Rcquhed
(a)Calculatc:
⊙ 伍c brcak c⒕ n polnt° f product Q in tCrms
of u血 ts and reˇ。nuc
⑴ thC ma¤ n。 ±阴灸 ,
⑴ Dra・ ・
s a break cxTcn山 art晰 product Q

0utput 0utput ProfiVˇ oIume Charts

Produot A Product B Brcak~cvcn charts nlay also bc dr孙 vn t° sh° w° nly
In cach casc,lnc'彡 rcprcscnts丘 xcd c° sts,lnc〃 thc profit or Ioss at each lcvcl° f° u巾ut Thc cost
'
reprcscnts total c° s△ and Ⅱnc石夕rcprcscnts salcs and rcvcnue Ⅱnes arc° m1ttcd Thc brcak-cven chart
rcvcnuc 飞 c brcak~cvcn point X for product A TOr product X gtxcn h伍 c cxamplc above∞ uld bc
occurs furthcr t° thc rlght° fthc chart C e lateo dr贫 wn as a pro丘 t/v° lumc chart:

than that br pr° du∝ B Thls shows dlat lllgll flxcd $000
C0sts tCnd t° rcslJt in high brcak-cvcn points
100
Product B、 汀d】 a loxv flxcd cost has a Io、
'er brcak- Prof" 75
四cn polnt c⒕ n伍 ough tllc malglnal cost is grcatcr
Thc anglcp at which thc rcvenue Ⅱne洳 lntc邙 ccts
thc t° tal cost Ⅱnc弼 for product A is grcatcr than伍 c
anglc哆 tor product B The slze° f thc anglc of o
intcrscco° n is an indicatlon of the sensiti~itv ofa
product to varla刂 ons in the levcl° f acov止y It can
Loss 50
bc sccn that,as outputincreascs for thc bvo
products,thc profltabⅢ ψ °f pr° duct A incrcascs at a
ProfiVvoIume Chartfor product X
astcl late than dlc pro丘 ublⅡ 印 °f pr° duct
f・ B On thc
othcr hand,if output dccrcascs for b° d1products, At zer° output,thc l° ss cquals thc t° tal of thc
thc pro且 tabⅡ ty of A dCcrcascs at a fastcr ratc than flxed c° sts,$50000 At10000u血 ts,thc pr° 丘t is
for B Pr° duct A is morc scnsi郯 、 to changcs in cqLl时 to ψ 5000,As饪 侈
Ⅱght hejomu,g dlc R,|op0n‘
output than product B XXJl△ cn thc proporoon of flxcd intersccts thc output⒒ ne at thc brcak-cvcn point
Co“ to tot狃 Cost“ hlgh,tlac Ⅱsk t° profltab血 y1s
also high Pr° 丘t and brcak-cven points arc s・ ald to bc
j4 The lim;tations of breakˉ even
=∶
scnsiuvc t° changcs in priccs and c° st,TlLts aspcct Gharts
、 bc considcrcd latcr in§ 339, Break cvcn charts arc use± td访 su・alalds br thc smdy
^Ⅱ
Note,Thc CIE syⅡ abus reqturcs candtdatcs to bc of thc cffcct° f changcs in° utput,c° sts and rcvcnucs

ablc t° prcparc break-cven charts from g1vcn on thc brcakc砥 n point,c叩 coa△,i± or mailagcls、 礻dl
inf° rmaoon Ⅱttlc accounong knoxxrlcdgc Thc charts,ho`vevcr,
havc thcir Ⅱnutajons
ExercIse2 ● Some c° sts arc not casⅡ y classiEcd as￡ xcd or
Production° f5000units of Pr° duct Q is planncd varlablc
Thc toⅡ oxx,lng lnlormaoon“ 梦 、n ● Maily nxcd∞ sts are丘 致d on圩 xx/lthn ccrtaln
Ⅱnuts and Fnay increasc w1th山 c lcvcl of ac乜 V1o”
$ tlacy arc、 tcppcJ costs6cc§ 30~sl,
Va⒒ able c。 st pcr ui△ t 65 ●If salcs rcvcnuc and costs are rcprcscntcd by
scⅢ ng p⒒ cc pcr ui△ lt 95
stralght⒒ nes dlcy may bc mislcadin⒏ ⒈ 压axlmum
Total of tlxcd costs 75000
salcs rcvcnuc may only be achicvcd if
 CustomcⅡ c glvcn attracuvc discounts,wluIc
a± 0utput Costs
variablc costs may bc affcctcd by quanosr 8000 $60000
dlscoun“ whcn outplltis incrcascd Th∝ c 6000 $48000
Changc 2000 $12000
lactorsˇ ˇould bc morc accuratcly rcprcscntcd
on charts by curvcs than stralght Ⅱncs
An incrcasc in output by2000units has causcd
● Somc costs may bc scmi vallablc In odlcr
the costs t° Changc by$12000 Thc Only tvpe of
xvords,there is bodl an element° f± lxed cost
Cost whiCh C° uld causc this changc is a variab1ec° st
and an clcmcnt of variablc cOst includcd in thc
So the vailab1c clcmcnt ofthc costs=$12000/
total 丿 ne
`n example 2000=$6pcr uiut
Thc l± xcd clcmcntofmay
thisbcrnay
thcbeⅡnc
teleph°
rcntal,which
「or an° utput of6000u血 ts,dis rncans that thc
must bc paid、 vhcthcr any calls arc madc Or not
t° tal varlablc costs arc$36000(6000× $Φ
TbC
Thc variab1c clcmcnt w° uld bc thc caⅡ chargcs
which、 砬llincrcasc cach tirnc a callis madc 1n 丘
xcd clcmcnt must bc$12000648000-$3600Ol
Tl△ls can be proved by carr,/lng out thc samc
ordcr for brcak cvcn tO work thcn thc fixcd and
vaⅡ able e1ement rnust be calculatcd and addcd proccdure± c,r an output of800θ urllts

in witll thc appr° prlatc巳 黜 rcs Varlab1ec° sts=8000× $6=$48000

● Thc charts rnay rnis1ead pcoplc xvhosc Fixcd c° sts arc$60000-$48000=$12000
acco un0ng know1cdgc is Ⅱn1itcd,but tratncd kn can nc,wN△ ,ork out hs brcak-cvcn po⊥ nt
accountants、 河Ⅱ know、 厂 hen t0inake
aⅡ °wanccs for thc charts’ Ⅱmita位 ons $ $

跏珈~
Sc⒒ ng pⅡce pα tllllt 2100
EXample Drcct matcials pei tmt

硎
御

~
Kcn has coⅡ ected the± toⅡ ow△ ng data in rc1atl° n to D止 cct lab° tu

~伽
0thcr va⒒ ablc costs pcr unit
his。 utput and c° sts and salcs rcvcnuc
Contrlbuo° n pcr un1t

0utptlt 6000uruts 8000u血 ts

Brcak~cvcn point=flxed costs($37000+
salcs jicvcnuC $126000 $1‘ 8000
Dircct m肘 cnal $30000 $40000 $1200Ol/$700=7000uill“
Dlrcct1abour $18000 $24000 Unlcss I《 cn had spLt out hs° thcr ovcrhcads int°
odler。 vcrhcads $48000 $60000 thcir flxcd and vallablc c1emcnt hc、 vodd havc bccn
FLxcd cos佟 $37000 $37000
unab1ct° calculatc the break~cvcn point

At both lcvcls° f° utput thc cost pcr unit for

dl± cct m/ateriab and dlicct labour arc tllc samc($5
335 Margina1cosung and pricing
and$3rcspcctkclD Tllls mcans dhat thev狂 e who11y The pricc at灬 厂
lich a good rnay be sold is usuauy
variab1e costs dccidcd by a numbcr of factors∶
ⅠIowcvc￡ ,thc Cost pcr unit for othcr ovcrhcads is ● thc nccd to makc a proflt
dillcrcnt at the bⅣ °lcvcls° f output For6000uillts ● markct dcmand
of° utput thc o由 cr° vcrhcads arc$8pcr uiut、7hen ● a rcquircmcnt to incrcasc markct sharc for a
8000uiuts are produccd thc cost pcr unitis$750 product
This rncans that thcsc costs arc not varlable costs ● ma蛀 rnum uttⅡ satl° n of rcsourccs
Ncithcr arc they flxed costs,as thc total am° unt ● compcjoon fron】 °thcr± lrms
、7ould bc thc samc at both lcvcls of output,cithcr ● econonuc condl刂 ons
$48000or$60000 This tllcans that thc Othcr ●poⅡ ocal勤 ct° 灬ΦⅡcC rcgti/at【 on ctc)
ovcrhcads arc scrni varlablc costs Beforc thc brcak-
Margyln破 cosong can l△ clp managcmmtto dccldc
evcn point can bc ca1culatcd,thc amount of varlab1c
on pricing poⅡ cy but丘 rst it is ncccssary to
and± lxed c° sts includcd in cach must bc calcu1atcd
undcrstand that s° mc cxpcnscs,such as sc⒒ ng
This is d° nc by lookng atthc changc in costs and
cxpcnscs,rnay bc varlablc An cxamplc is
thc changein output
sa1cspcop1c、 commission based on the numbcr of 6000units 8000units 11000units
$ $ $
units s° ld XXhcn varlablc sclling expenscs arc
Total cOntrlbu刂 °n 54oo0 56000 44000
indudcd in marglnal cost,the r∞ Lllt ls thc margin狃 Fixcd cxpcnses 48000 48000 48000
Cost of sales: Pェ 。flt/α 。s9 60llll 8000 (400o

$000 Thc Larabcc Gamebustcrs Company shouId

Dicct matcoals 100 rcducc thc prlce ofthe gamc to$28,
Dilcct xvagcs 80
D】 cct cxpcnscs 30 ExercIse3
arglnal cost of producoon 210
Vecoch Ards° n Ltd makcs and seⅡ sin° bⅡ c phoncs
Vatlablc scⅢ ng cxpcnscs
`Ι
15
Marglllal cost of sales 225 Thc f° Ⅱ。・
丙ing informaoon is glscn
0dlcr丘 xcd expenses 175
TotaI cost 400 Pcr phone∶ $
sc山 呜 prlce so
It^li△ △
portant to usc tl△ c co“ cct margll,al cost Dlrcct mateoals 18
whcn using marglnal costmg br dccislon makng Drcct1abclllr 2o
Varlablc scⅢ ng cxpcn$cs 3
Example
CncrCa⒍ ng markct sharo Fkd ovcrhcads atn。 unt to$70000
Thc Larabcc Gamcbustcrs Company produccs and
Requircd
scⅡ s a computcr game that scⅡ s at$30pcr galnc

Each year6000of the gamcs arc sold Thc

C・alculatc
Θ 10000
thc pro丘 t orloss n。m thc salc of
phoncs at$50cach,CD15000phoncs at$48cach,
markcong dircctor suggests伍 a△ if thc prlcc is
rcduccd to$28,sales wⅢ nlcrcasc to8000gamcs Thc ◇020000ph° ncs at$42cach
salcs rnanager th山 nks that salcs xxm incrcasc t° 11000
gamesif thc pⅡ cc is rcduccd t° $25
336 ACceptance of orders beiow
The± oⅡ °、爪ng informao° nis aˇ么Ⅱablc for6000 狃Grma茸 se钳 ing price
computcr gamcs Thcrc arc Occasions环 rdcrs may be acceptcd
`hcn°
bcl° M`thc normalsc血 ng prlcc Thcsc rnay bc
$
Dllcct matc⒒ als 48000 g
considereo、 7hCn thcrc is sparc rnanu± actLlr△△
Drcct labotlr 66000 capacitv and in d△ c foⅡ °硒△
ng circumstanccs:
Varlablc scⅢ 飓 cxpcns钋 Comtlll$⒗ ⑶ 12000
●sxllcn thc Ordcr x△ iu rcsLit m± tlrd△ cr c° nmbuo° n
Flxcd cxpcnscs 48000
t0CoVCr ⅡXcd cxpcnses and add to pr° Ⅱt
Required ●to malntaln produco。 n and avoid la” ng offa
c pront orl。 ss丘 °
CalcLiatc tl△ m伍 c salc of⊙ 6000 slulcd w° rkforcc dumlg a pc⒒ od° f poor

8000Θ )11000ulu“ and∞ commcnd whch tradlng

C◇
op0on should bc adoptcd ● to promotc a ne∽ /product
●to dispose of slo、 v~m° vmg or rcdundant stock
Answcr Thc sel蛀 ng p⒒ cc must cxcccd the marglnal c° st
Everxr unit s° ld incurs a varlable seⅢ ng cxpcnsc of production
←。mmissi° O and thc marbglnal c° st° fs・alcs ls uscd
ExampIe
$⒛

$乃

Pcr uniu $ 龟 Al刂 meters Ltd makcs alomcters thatit scⅡ s at

sclung prlcc 30
_

DIlcα mate⒒ al 8 $80cach It h灬 rccc⒒ cd° rdcrs± o‘

DIlcct labc,tlr 11 O1000alomctcrs f° r which dle buycr o
砀 iabk scⅢ ilg Ⅸ pense ⒓ prcparcd t° pay$60pcr aItimetcr
⒛ _7_

勿_4

Malgln扭 co丈 ol s扭 es 丝
Contrlbution 9
CD2000al。 mctcrs狨 $48each
 Thc foⅡ°、 rmao° n is aVaⅡ ablc, Thc dcoslon wⅢ be bascd pom狂 灯 °n whCthcr伍 c
^ng inf°
C0st0f buVlng the goods&on1anothcr suppⅡ cr is
$
Dlrcct matc⒒ nl pcr altmctcr 21 morc orless than伍 e marp缸 cost of pr° ducoon,
Drcct labollr pc± altunctcr 32 No刂 cc thatthe margmal cost ofs狨 cs is n° t rclcvant
to dis bipc of dco“ on as any varlable scⅡ ng costs
FLxcd expcnscs xsi△ n0t bc affcctcd by thc
ssdl havc to bc incurrcd、
addiu。 nal producoon `hcthcr thc goods arc
mantlfacmrcd or pLlrchascd,
Required
ExampIe
statc x△ hcthcr I(2p刂 。mctcrs Ltd shodd acccpt cithcr
Ugglc B° xeq Ltd makes and⒃ “ ugglc boxcs“ r
°f thc° rdcrs
whch山 cf° Ⅱ°wmgin±ormaoon is ax,aJablc,
Answcr

$⒛
Pcr box
ordcr for1000al刂 mctc邙 at$60cach:
sclLng pocc

967
Contnbutlon pct alumctcr$侈 0-5匀 =$7 Dircct matcnal
Λ妃ttlonal c° n谊buuon fr。 m。 rdcr:$7000 Dkecdabour
Varlab怡 sc血吧 cxpcnscs

趁 沪dtlnctcrs Ltd should acccpt thc ordcr

Ugglc Bc,xcs Ltd、 丘xcd° vcrhcads amoullt to
ordct for2000・al刂 mctcrs缸 $48cach
$60500
Con血 buoon pet altlmeter$← 8~5sl=$5 Thc s/aⅡ ablc scⅡ ng cxpcnocs arc ignored as they
wⅢ haˇ ℃ t° bc incLlrrcd勿 lrW⒓ y ThC illa阝 壬nal c° 欲 °f
Κ2Almactcrs Ld woLlld makc a bss of$10000 produco° n is$(9+F,l=$15ThC contrlbuoon pcr
°n thc° rdcr and should not acccptit umtis($@5-2⑷ =$3ThC current breatescn polnt
ExercIse4
is$60500 =20167boxes
El Dugar Peach Ltd∞ Ⅱs ca】 lncd± r讧t for wlilch山 c
foⅡ ovxmg liaforma刂 ° ℃n
n is⒏、
Uggle boxes mγ bc bought fr° m Ocklc Cocldc
$
Pc=1000cans of flllIt∶ Boxcs Ltd± or$13pcr b° x,and fromJlgglC Boxcs Ltd
Dlrcct matcr姒 址s 5500 for$16pcr box
Diectlabc,tlr 8750 Purchasc of dlc boxcs丘 ° Ⅱ
mJlgglC Boxes Ltd、 注
Thc c° mpany has rcccNOd ordcrs for: $23and reduce由 e
hcreasc thc margmal cost t°
contrlbu0ont° $2 Pr° 丘t、 犭
Ⅱbc reduced and thc
Θ 5000ca ns° f± rult狨 $16000pcr1000cans
⑾ 3000cans。 f丘 ot at$14100per1O00can⒌ brcalc cˇ ℃n Ⅱincrcase to$60500。 r30250
poht、 注
Thc addloonal producjon sxiu n。 t reqLllrc any
addl刂 onal nxed expenses boxcs,Tlus op0on should n° tbc c° nsidcrcd,
Requhcd r thc b。 xcs are boLlght from⊙ cldc C° cⅡ c B° xcs

statc which of the m,o° rdcrs,if any,El IDugaJi Ltd,thc m班箩nal c° st wⅡ bc$20and thc
Pcach Ltd sh° uld acccpt, contrlbu乜 onX△ lu inCrcasc to$5 ProfIt、 注Ⅱbe
increascd and thc brcak-cvcn point wm rcducc t。
337 Make or buy decIsIOns ￡;;20°r12100boxcs Tlis appcars to bc a good
-碍

Wc ha,。 c犭 Lcad9/sccia h§ 192dlat a NIanufacmrmg

opuon
Accollllt may suggest dlat止 w° tJd bc lnclrc pro￡ 悦比 ±
or
a bus△ △
ess to buy goods from anotbcr sLlppLcr dla1a makc Thc poncΦ lc is tllatl± 伍c matglnal cost° f
山e goods isc⒕ Ths m・/olx cs a‘ maue or机 旷 productJ° n is bcloxs,the pⅡ cc qtlotcd by thc suppⅡ cr
山血炳 n Itm呷 bc rclex,ant for goods th犯 atc aLc么utly thcn d,co伍 cr shoL△ d-er苟 cctcd

bcuag produccd,or to thc htroducuon ofa ncM,product

Notc Thcrc arc° 伍cr matfe“ whch UggIc B° Ks Θ Nor伍 Island Tool C°
Ltd should consider bcforc丘 na⒒ y dcciding to buy CD s° uth Idand T° ol C° ,

山cb° xcs fr° n1anothcr suppⅡ cr: if cithcr、 ˇ

as a、 varded thc c° ntract to supply
● H° w ccrtaln^ltthat Ocklc CocHe B° xcs Ltd thc to° ls t° CanterbLlrv Pla且 Cs Ltd,
wⅢ n° tincrcasc the pⅡ cc abovc$13P If thc
⑸ statC whCd,cr Cai△ terbu饣 Plancs hd should
pocc o incrca∞ d to morc伍 an$15止 maxT n° t cononuc to producc thc t° ols or whcther it
bc ca叩 凡r Ugglc Boxcs Ltd to rccommence should buy them,and if s° ,fr° n1、
manufactuⅡ ng thc boxcs ifit has± id itsclf of its `hom
support your answcr w1伍 figurcs
workers and o伍 cr rcsourccs,
● WⅢ ocklc Cocldc Boxes Ltd supp圩 b° xCs° f 338 Mak:ng the most pro"tabIe
山c proper qLlaⅡ 呷 p use of limited resources
Ⅺ
● /Ⅲ ocklc C° du怡 B。xes Ltd d引 b巛 江dlc b° xcs
Anvthng whch Ⅱmits u△ c quan位 饣 °f go° ds that a
prompd`tlgcB。 cs Ltd calnota± ±
ord to kccp lts
bush∞ sm叩 pr° duceis known as a Ⅱ诫 山呜 fact【 ’
r,
Cllstomcrq xxalung bccause止 峦out of stock,
Ⅱnuong factors inchdc:
● Has Uggle Boxes Ltd an altcrnauvc use for伍 c
rcsourccs xxˉ hich、 汀ll bec° mc frcc、 vhcn it ccascs ● shortagc of matcⅡ als
to makc山 e boxesp1Jnlcss it can u刂 Ⅱse the ● shortage oflabour
resourccs pro丘 tabl,/to make anothcr produ∝ 止 ● shortage° fdcmand f° r a partlcular product,
咖ll cldler h独 c to shcd伍 c rcsources α
abour, 、￠hcn faccd x△ ・
ld△ Ⅱn1itod res° urccs,a company
machincs,ctc)or incrcase its unproductIvc mahng scvcraJ di￡krcnt pr° ducts sh° uld usc the
C0sts Ⅱmitcd rcs° urccs in a xxay that produccs thc rnost
● Can Ugglc Boxcs Ltd afford t° losc thc scrx・ lccs proflt Thc products rnust bc rankcd according to山 c
°f a skllcd and l° lal wOrlkforcc which k may bc amount° fc° ntobujon thcy makc from cach umt° f
hcn thc nccd
dif丘 cult t° replacc at a later datc、 厂
thc sca△ cc rcsource Produco° n、衽ll thcn be planncd
a砬 scsP
to cnsurc that the scarcc rcsourcc1sc° nccntratcd on
As、 scc agaln in chapter36on capital
`c shaⅡ thc hghcst radomg pr° ducts
invcstmcnt apprais狃 ,rnanagcrs° ftcn need to takc
non-丘 nancial fact° rs into account bcf° rc dccidlng Example1
which course of acoon t° takc a9
lsh° rtagC of mateⅡ
ExercIse5 HⅢ bⅢ y Ltd makcsthrcc produc‘ HJL∞ ,BJLcs and
RIlulcs Al伍 rcc products arc made from a matcⅡ al
Cantcrbu:y Plancs Ltd suppLcs the f° Ⅱ°xxlng
caⅡ cd D蚺.Planncd producu° n is as f。 Ⅱ °、v⒌ HⅡ Ⅱ cs
hformao° nf° rthc pr° ducoon of15000t° °ls
2000units;BⅡ Ⅱcs3000units;~Ⅱ ⒒ics4000units
$
Dkct matcoals 45000 Thc foⅡ °柄△ng⊥ nf° rma刂 on is glxcn for thc products
Dlrcct labt,lll 37500 HiⅢ es BJLcs sIlLcs
0ther dllcct cxpcnscs 15000 sch△ g pⅡ cc per u血 t $“ $50 $105
Vallabk schlg cxpcn⒃ 30000
s
Dkct matcll狃 pei÷ u血 t 2kg 4kg 5kg
Dircct labour hours pcr uiut 3 2 6
Fixcd cxpcnscs t° tal$74000 Thc tools scⅡ for
$16cach Dircct matcoal∞ s“ $6pcr l【g;direct lab° ur“
Cantcrbury Plancs Ltd has rcccived thc foⅡ ng
°牺△ pald at$10pcr hour,
quotaoons for thc supply ofthc to° ls:
FLxcd cxpcnscs amount to$72000To makc Chc
Notth Island T° ol Co $6o00pc11000tools planncd producd° n HⅢ bmy Ltd砀 iⅡ rcq11lre
south Island T° °
lC。 $6800pct1000tools ⑿000× 2kgl+0000× 4kgl+← 000× 5蛔吵 =
36000kg ofmatcrlal r au山 e plam△ cd producoonwas
Rcquhed mad%Hmb姆 Ltd聊。uld make a pro缸 of$300lXl
(a)Calculate岱 c effcct° n pr° 丘t and thc brcak-
cvcn point° fthc quotau。 ns。 f 、
 HⅡ bⅡ ly Ltd has disc° vered that thc matcrlal DiⅡ y Rc・ |Iscd plan of producuon:
o in short supPly and onl,,30000kg can bc
obtalncd Units DLectlabour hours C。 nt⒒ budon
$
Rcquircd Hlu,cs 2000 6000 24000
Prcparc a producoon plan that wⅡ rnakc山 c rnost BJLcs 3000 6000 18000
NIiuics 3500 21000 52500
pro丘 t tr° m thc汹破 ablc matcoal 33000 94500
Dcduct fLxcd cxpcnscs 72000
Ans耽 r
Pro丘 t 22500
CaIctJauon° fc° ntrlbuoons per kg o± DⅡ y

H曲 6 B,1hcs `皿 cs
ExercIse6
$ $ $ CastⅡ cs Ltd rnakcs山 rcc products:Glnuc,Gros and
Dircct mate⒒ al per ulllt 12 24 30 Pcut Illc budgctcd producoon勤 r three m° nths o
Dircct labour per濒 t 30 20 60
as foⅡ ows:

狁咖泌仍“

喻泗跏
⒈Ⅰargiilal cost pcr Lltut 42 44 90
sckg pncc p∝ ulit “ sO 105 Glrluc
Con“buoon pct llrut 12 6 15 No ofu血 ts 1000
Col△ tnbutlon Pcr kg of matcoal 6 15 3 弘⒗ gp¤ cc pcr u砬 t $14
Ral△ lmlg 1 3 2
25

4“
Dircct matmal pcr llilIt qltrcs〉
D止 cct hbolr pcr tuut uhclurΘ 05
ReⅥ sed plan of pr° duc刂 °n:
Dlrc∝ matcrlal cos“ $2pα Ltrc Dircctlabourls
Uillts Dlrcct matcnal Contrlbution p钮 d at$10pcr hou⒈
kg $
Fixcd cxpcnscs arc$10000
H△ Lcs 2000 4000 24000
N△ ⒒cs 0000 20000 60000 CastⅡ cs Ltd has bccn△ lformcd dlat ody10575
B血 cs 1500 6000 9000 Ⅱtrcs° f matcrl/al arc aˇ 哑lable
30000 93000
Dcdtlct iLxcd cXpcnscs 72000 Req诫 rcd
Pto丘 t 21000 Prcparc a re△ˉ
lsed producoon budgct that砀 iⅡ
producc
dlc most pr° 丘t fr° m thc as/aJablc matctlals,

ExampIe2 Exerclse7
(shortage。 f dlrect labour h° ursl Castrics Ltd has been inf° rmcd that suppⅡ cs of
The da忱 lor伍 c manu幺cmrc of HJhcs,BiLcs and matcrial are not Ⅱmitcd,but ody3395dircct labotlr
RIlulcs is as glvcn for cxamplc1butthc numbcr° f hours are aˇ aⅡ able Ⅻ thc Othcrinf° rma0on is as in
dircct labour hours avaⅡ ablc is Ⅱ utcd to33000,
l△
cxcrc1sc6,
Thcrc is n° sh° rtagc° f matcⅡ al
Requhed
Requhcd Preparc a rcx・ lsed pr° ducoon budgctthat wⅡ
Prcparc a producoon plan that w△ ⒒tnakc thc lnost producc thc most proflt from the avaJablc dlrcct
pro丘 t fr° m thc/ai/allablc labour hours labour h° llrs

Answer
339 sensitivity analys∶ s
Calculaoon of contrlbuoons per dlrect lab° ur hour:
°fproⅡ t and brcak even po△ lts
Β
皿

In§ 333thc scnsltlx・ l印

HilLcs RIihcs
to cllangcs h cos灬 and r四 cnuc、 汔s mcntloncd Illls
$632

$ $
Contribu谊 on pct unit(as ab° vΘ 12 15 toplc牺 姐 nOw bc cox,crcd h morc dctal as crrc,灬 h
Conulbuo。 n pcr dlrcct1abour hour 4 25 cstlnlatcs ofrevcnuc and costs x△ ・ma∏ △Ct pr。 丘t By
Ranking 1 3
dc晌 non,cstlnlatcs征 c￡狃曲 血曲 to be acctlrate洫 d
alow,ances sl△ ould bc madc h btldgets允 rp∞ slblc
dltfcrcnccs bcm,een estmatcs and actl【 al costs and ExercIse8
rciocllLlc IhC pomt ss・ m be mtlstratcd” 例碰呜伍c Thc foⅡ o、
amplc o± a hlgh1isk“ ttlauon ^ng budgct has bccn prcparcd for thc
co《
produco° n and salcs of20000units of a product
ExampIe $
Thc foloMng m壬 k)rmauc,n rdatcs to thc budg∝ ±
or a Fixcd cOsts 80000
60000
ccrt拉 n product ``ariablc costs
Total costs 140000
salcs 175000
No of uillts prodllccd and sold:10000 Pr。 fit 35000

° ￡
$
S狨 cs邸cnuc 180000
=13914umts
∶∶
∶
∶∶
ccurs at
Vatiabk cos杏 50000 ::;:♀
Fhcd costs 100000 I;::∶

。 ∶
。s at$100000 =7‘
rci:∶ ;∶ ccu± 92iulltsl 300llll
CalcLllatc dlc pront and thc brcak-cvcn poi且
Θ 瓜 Cd c° sts hcrcasc by15%and arc n° t passcd
t if

on to customcrs
If nxed c。 sts osc by10Vo and thc incrcasc is not
passed on to customcrs,pro丘 t wⅢ bcrcduccd bx・ Θ variablc costs incrcasc by15%and atc not
passcd on to customcrs ChCrc is no incrcasc
$10000to$20000 Brcak cvcn w・ lu bc incrcascd to
in flxcd costΦ
$110000 C⒆ fkCd and vanable costs incrcasc by15%and
=8462tmts
$13 伍e increases are passed on to the customcrs
If nxcd c。 sts do notincreasc butˇ 么rlablc costs rlsC Exerclse9
by10V。 ,and thc mcrease is not passcd on to Cohon Ltd mzakcs d亻 cc p± kglon,Ccntun° n and
oduct⒌
c“tomcrs,thc proflt wⅡ be reduced bv$sO00to Prac± cct AⅡ thrcc products arc madc丘 om thc samc
$25000,and thc brcak cvcn p° ht xl,m be incrcascd to m狨 cn址 Ihe prodllcuon budgct torJunCis as fol∞ 淹
$100000 Lcglon Ccnoln° n P蹦 ∝t
=8000u血 ts, Budgctcd produc谊 on lunitsl 1000 2000 +000
$125
M狨 clials pct ufllt lk吵 2 4 5
r∞ sts d。 nc,t hcrcase but dlc scMg pncc pcr unlt“ Ditcct labour pct unit(hours) 3 5 6
odl,90%ofcxpecuuon,profit xs,l bc rcdLlccd by scl1ing Pocc pcr unit $go $130 $150
$18ulclO t。 $120ulcl,and break even溺 汀
Ⅱbe hcrcascd to 、
Ιatcrial c° st:$10pcr kg Labour ratc of pay:$12per hour
Total flxcd cxpcnscs for Junc:$115000
$100000
=8929units Requifed
$11,2
If axed c。 sts increasc by10V。 and arc not passcd on
(a)Calcdate the budgeted proflt± orJune Show
your、
to CⅡ tome灬 ,and血 sekgp丘 ce pcr umt o ody90% `orklngs
ARcr thc budgct lorJunc Was prcparcd,Cohort
of expectaoon,pro￡ m be rcduccd by$(10000+
ts,・
Ltd lcarncd that伍 crc was a shortagc of tbc matcⅡ al
18000,ω $2000,and break even w・ m be hcreascd to
and thatit wodd n° t bc ablc to obtaln morc伍 an
$110000 28000kg inJunc
=9822units
$11,2 Required
Ifau c。 s“ hcrcasc by10%and时 c not p灬 scd on to (b)PrCparc a rO四 scd produc砬 on budgct、 dich
Ctlstomers,aJld曲 e sc山 鸡 prlce pcr ufllt k o山90%of 、注
Ⅱcnsurc that Coh° rt Ltd obta【 ns thc
expectaj° n,a loss° f$3000($30000-$15000- m灬αmum proflt丘 om山 c avaⅡ ablc matcⅡ al,
$1800Φ wⅡ bcincurrcd,and brcak-cvcn wⅡ be (c) PrCparc a calculaoon t° cxplaln thc山 ffcrcncc
hcrcascd bcyond thc budgctcd pr° ducoon狨 bc雨、cn d△ c° oglnal budgctcd pro丘 t you hax/c
$110000 ca1culatcd in CD and thC rcviscd pr° flt you
=10281units h沂 c
$107 calculatcd in(l))
Exercise1o Calculaoon° f pr° fit using cach:ncth° d° f
Thc C° cl【 pit Country IndustFlal Co Ltd has a invcntory valuattρ n
maxImum producoon capaotv of20000unlts Each
DetaⅡ s Marglnal costulg Absoェ po° n cosong
unit seⅡ s f° r$25
The foⅡ °咖 ng arc山 c∞ sts for a singlc u血 t of $ $ $ $
producoon Sales Rc△ cnuc 36000 36000
s arIablc c° sts 24000 24000
Dlrcct matcrlals 4klograins at$410pc,i kⅡ ogram Lcss:Closlng stock 2000
DLccdabotlr $12Pcr h° ut311mts arc pr° dllccd ln onc 21600
h0止 Fkcd0veihcads 2000 2000
VarIablc cxpcnses $180pcr ulut lor thc仓 st160001u△ l‘ 26000

铡
$170pet mut fot au uill岱 ln c【 灬s of Cost of SaIcs 23600

~
16000u】 llts Lcss∶ Cl。 slng stock 2600

F△xcd cxpcns舔 $150pcr lllut at ftJl producoon
Req△山℃d
(al Usmg margnalcosung,calculate曲
ll) 15000u血 ts arc produced and s° ld
C◇ 18000umts arc produced and sold
(b)Calculatc thc number° f units rcquircd to
brcak cvcn
(c) CalcuIate the pr° Ⅱt at full production
capacity if aⅡ production is sold at thc
rcduccd price° f$24
(dl statc山 e possiblc advantagcs and disa凼 antagcs
of rcduong thc norm狃 scⅡ ng pocc
lCl state丿 饧
叼assumpo° ns whtch arc madc in山 e
prepara谊 on of brcak-cvcn charts,and statc口
Ⅱnutao° n of cach assump0on
~硎
Cost of salcs
Gross Pr° 丘t 12400
Thc reas° n for dus dlffcrcncc h gross profitis
e net pr° ht正
purcly duc to tl△ c wayin、 vhch fLxed。ˇ
℃rhcads arc
trcatcd In marpal costJng they arc trc狂 cd灬 pctlod
Costs and W珏ttcn° ff in血 Ⅱin the na° nth No part of
tllem o inchdcd in thc dosing nlxcntory flgLrc
Under tllls mctli° d山 c closnlg mvcnto,^s/alucd at
$60pcr u血 tt° 狎 ca value° f40× $60=$2400
H°wcvcr,w】 tll absorp乜 on Cosung somc° fthc nxcd
°⒕rhcads时 c hcluded h由 c dosmg m/cntorv Undα
dals mcth° d to铡 produco° n co锬 of$26000are dlsldcd
by亡hc total produco° n of400u血 ts to arnxre at an
心 叭 to叮 valuc pcr Lllllt° f$65pcr uⅡ t飞 c cl° smg
″
纟 nx・ cnto呷 o,thCrc± orc,xalucd at胡 ×$65=$2600,

3310 Marginal costing vs Exercise11

absorption costing and A company produccs a slngle produ⒍ ,伍 cJ° n平
inventory valuation DetaJs °f its c° sts arc as foⅡ o、 7s:

Ⅺ￠hcn M`cl° °kcd at FIFC)and Avcragc Cost wc sa、 $

` Uillt scmlg pncc 50
d△ at any‘ Ⅱffcrcncc in valuing cl° sing invcnt° q、 河 Ⅱ Unlt vaⅡ ablc costs 30
producc dlffcrcnt pro丘 t凡艹rcs ThC由0mcth° ds° f Flxcd costs per mon伍 15000
cosong,FnargInal and abs° qPoon xxm also pr。 ducc
Prolcctcd sa16arc1000u血 ts for m° n伍 1and
tota⒒ y(Ⅱ ffcrcnt pro± lts,as thc closing invcnt°
叮 、^Ⅱ 1300umts for m° nth2 Thc c° mpany xsm pr。 ducc
bc valucd in bl,o dlf± crcnt Ⅴ
`ays, 1500u血 ts cach m° nd△ ,

ExampIe Required
A company produccs a“ ngle p± oduct Thc rcsults (al Calculatc伍 c nct pro血 each m° n伍 if thc
for thc last m° nth arc as foⅡ ows: clo“ ng stock is xalued usmg rnarg△ lal cos刂 ng
Quan乜 叩producCd 400 ⑴ C挝culatc伍 c nct pro丘 t each mondlifthc d° smg
Quan。 ″s。 ld 360 stock is△ alucd ushg± uu abs。 rpo° n cos⒃ g
sclLilg pncc pcr u血 t $100
Variable c° sts pcf unit
(c) PrCparc a statement rcconciⅡ ng thc nct pro￡ Ⅰ
t
$60
Fixcd ovethcads fot thc pcⅡ °d $2llllo 1n cach case
● Make sure you are ab|e to dis扪 nguish bemeen variab丨 e and fixed costs
● Learn the definition of‘ marginal cosr
● The C/s ratio is mostimpodant and is cedain to be requ red in margina丨 Cost questions Make sure you know
hoˇ vto oaICulate the ratio and when to use"

● Learn hoW to CaIculate the breakˉ even point and the rnargin of safety Breakˉ even pointis calcu丨 ated by dividing
the totalfixed costs by the contribution per un" lf you are given the fiXed Cost per un t,muⅡ ip|yit by the numbef
of un"s to find the totalfixed oosts
● Practise draWing break-eVen chads Choose asIarge a scaIe as possibIe forthe oha仗 to aCh丨 eve a good degree
of accuraCy GiVe every chart a ρroper heading and labe|the xand yaxes c|early IndiCate the breakˉ even po|nt
and otherfeatures Take a rule1pencⅡ and rubberto the eXam
● ^刀 ake sure you knoˇ v hoW to use Ⅱmited resources rnost profitably Product should be ranked acoording to the
contribution ρer unit of the|in∩ ited resource

1 Information about a productis given 3. A company makesthree products,X,Y and Z,a"

per un" ofˇ ˇhiCh require the use ofthe same materia|
lnfor丨 ηaⅡ on aboutthe produotsis as fo"oˇ Vs∶
$
seⅢ ng p"ce 110 Produot X PfoduCt Υ Produot z
Direot mate"引 s so
$ $ $
Dired hbour 如
Per un":
se"ing p"oe 260 200 240
Fixed costs tota丨 $50000and pIanned produc1ion
Direot mate"a1 96 80 90
is2000un"s VVhich aCt on is necessary to bⅡ eak
0irect|abour 50 40 50
even?Decrease cost of∶
/adabIe
、 overhead 40 30 36
A directIabour by20% B d red Iabour by25% Fixed overhead 54 36 36
C direct mater al by10%D direot mate"al by20% Profit 12 14 27
2, The annuaI resu"s of a co丨 ηpany wvith three
departments are as fo"ovˇ s∶ The materia|is in shon suρ ply Which order of
priorty shouId the Company give to the products
Department X Υ z to rnaximise prof"?
$ $ $ 0rder of pⅡ oⅡ ty
sa丨 es 210000 100000 140000 1 2 3
Less:variable costs 100000 80000 90000 A Y X z
head o仟 iCe B Y Z X
fixed costs 75000 35000 50000 C X Y Z
Net profit uoss) 35000 (15000) 0 D X z Y
Head office fiXed costs haVe been appo^ioned on 4, The fo"oWing informauon re ates to produd Q
the basis ofthe respective saIes ofthe
$
departments and W"I not be reduced if any
saIes reVenue at break-eVen point 72000
deρ a仗 mentiscIosed Which action shou|d1he
Vnit sales ρriCe 24
company take,based on these resuⅡ s?
FiXed costs 18000
A Close depadment Y
B Close departlη ents Y and z VVhatis the lη arginal oost of each un t of product
C C|ose depa仗 ment Z Q?
D keep aⅡ the departments open A$400 B $600 C$1000 D$1800
1.Barkis&co ud manulaotures speciaⅡ sed Industrial The company’ s resu"s forthe year
containers for use under water The business usθ s ended31March2011Were as fo"ows∶
Mo machines These machines have di仟 erent
leVels of e仟 iCienoy The foⅡ owing informaton Domeslo CommeroiaI IndustⅡ al TOtal
appⅡ es to production and costs sales
lunits) 1200∞ 45000 56250 221250
Machine X Υ $000 sO∞ $000 $000
HouHy rate of produo刂 °n 160 250 sa丨 es
Material cost per un" $500 $460 (totaI
HouHy labour rate $10 $10 valuel ⒛ 1gO ostl 钔
Number° f° peratives 4 5 TOtaI oosts
Fixed costs per order $200 $500 Dired
Va"able costs per order $240 $260 mate"al 108 66 258
D″ eot
0rders have been re∞ Ⅳed from different labour 60 30 150 240
oustomers for〈 a)800and(b)1000° ° ntainers Vaoable
VVhioh丨 ηaChinoshouId be used for each orde1in overheads 24 54 120 198
orderto minimise oost?Orders may not be spⅡ t FiXed

W~⒛
betWeθ n rnachines,butthe same lη achine may be

环
ovemeads 33 42 129

凹
used forrnore than one ordθ 【 1Bs sgs 泌
⑶ Order12s/P for800contdners Profk u0ss) ⑶ ⒌ 眄
(b)0rder38γ Q for1000cont引 ners
(°
)Ca丨 culate the contHbu刂 on to be made for° rder
Fi× od°verheads are absorbed on the basis of50%
12s/P to make a profit of25%on tota丨 cost,
of direCt materia丨 s
uslng each machine
(d)Barks&co ud requires more funds lo Requ1red
ρurchase an additional machine to oomρ |ete la) F° rthe year ended31 March2011 calCulate,
further orders for each type of|ock,
Three丨ηethods of dolng so have been (i) the oontribution ρ
er unit;
disCussed: (Ⅱ
) the c° ntribution as a percθ ntage of sa丨 es
〈
I) a rights issuo; GiVe ansWers to a maximum of fhree decimal
(") an issue of shares to the pubⅡ o∶ p|aces show a〃 workings
0O an‘ sue of debentures b)CaIculate the breakˉ even ρ
〈 ointfor each type of
G丨 Ve o冖 e adVantage and one disadvantage of
Iook in both units and do"ars
eaoh rnethod (c)Advise whether AngeIious should oease
Ang引 ℃us and Co manufaotures three diferent produc】 on of DOmes】 c and Commercia"ooks
qua丨 Ⅱies oflook,Domost沧 ,Commeroial and Give your reasons
 帅
黼
dw

JⅡ
uttp

ι υ

c
a

Ⅱ
ο
ο
● hoW budgots diffθ rfrom forecasts
● how budgets help managementto p丨 an and control
● factors to be considered in the preparation of budgets
● hoW to prepare saIes,produdion,purchasing,eXpense and cash budgets
● hoW to prepare mastor budgets
● what】 exb|e budgets are

341 The difference between a An altcrnauvc t° this is using last year、 budgctcd

forecast and a budget or acnlal flgLlrcs and adding to it or subtracong from

A busin∞ s forccast is an cstimate of由 e Ⅱkcll,
pos1刂 on° f a buslncss1n thc ftlare,based° n past or
prescnt c° ndl谊 ons For cxample,Chdy△ salcs ov。 r
thc past flx,c ycars havc been$100000,$105000,
$110250,$115750and$121500;thc s狃 cs havc bccn
Bascd
incrcasing at the ratc° f about50/O cach yca⒈
on dis informaoon,and assLl-g that tradlng
condioons、 访Ⅱcon伍 nuC unchangcd,thc forccast salcs
for dle ncxt rar nught bC abollt$127600
A budgctls a哎 atcmcnt ofp/。 //貂 umrc rcsdts
whch arc cxpcctcd to foⅡ °w仔 °m ac刂
'± ons taken by
it t° rcncct changcs For cxalllple,fr° in its acc° unts a
company kn° ws that its salaⅡ es flgurc last ycar η么s
$50000,It dcctdcs h诫 Ⅱbudget± or a5%lncrca∞
this ycar s° scts its salaJes budgct at$52500,Ths
is kn° wn asincrementa1budgcong
Thcrc1s an argumcnt as to・ 谓 ich is thc bcst
`1】
mcthod Usmg mcrcmcnt狃 budgcting mPly resLllt h
past ine± ficicnocs b血 g buⅡ t int。 ± umre plans,、 ȟⅡ st
othcr聊 。 △△ld arguc that usmg zcro bascd budgcongls
alrnost lmposslblc x△ ・
lth° ut lo° klng back t° prcv1ous
years,

managcmcnt to changc thc prcscnt clrcu± nstanccs, 342 Budgets as tools for pIannIng
Chdy may wants狃 cs oo grow by10V。 each冫 ℃ar Jn
and contrOI
fuu止 c by introduclng nc、 v pr° ducts,° r by incrca⒍ ng
adsˉ crosing,or by of± c丘 ngimpr°vcd tcrms of tradln⒏ Plann∶ ng
Hcr budgctcd sales for next rar wⅢ 伍cn bc Δ压anagcrs arc rcsponslblc for planlung and controⅡ ng
$133650($121500× 1109b),and$147000and a busincss± or the bcncftt of its OMncrs,and budgets
$1⒍ 7OO for曲 e fo⒒ °wmg R△ o vc缸 ⒌A budgct arc cssen刂 al to° ls for pla-g删 con“ 曲 ⒏Ⅷ -

cxprcsscs lllanagelnent、 plans for thc fumrc of a managcd bushcsscs havc shor← ternl budgcts f° r,s日 b
busincss in m° ney tcrms 曲e ycar ahcad smau businesses may funco° n踟℃Ⅱ
A∞ mpan,m缈 set i“ btldgct盱 an狮 smgC妊 sung enough咖 th thcsc,butlarger bushcs⒃ s nccd to plan
opcr・au° ns and jusj母 。ng Jacm on thc basts of dlcir ±urtlncr ahcad and m勿 刂
/preparc bng tcrm blldgcts,In
usc Or need to thc Orga血 sajon,Tlis is kno、 vn as zero addl硅 °nt° thc short terln oncs,tor thc ncxt fi△ c,tcn
ba∞d budgc血 ⒙ In cffCct山 c company star“ 诫伍 a or cvcn morc yc时 s allead,Thcsc plans a± c oncll
ˉ
blank plccc o± p即 crand buJds up ew叮 ∞歇丘°m kn° 牺u灬 roⅡ 山ng budgets bccausc,as cacll rar
n° dung passcs,虻 厶deleted fr° m thc budgct and a budgct for
ano伍 cr raris耐dCd A budget仍 r onc rar/all∞ d
Mil bc dctaded,but budgets for thc± o⒒ o硒△ng ycars
m叩 bC less preosc bccausc of unccrtaln岬 ab° ut
血mre trad呜 condo° 灬 , daclr b△魄 吣 ,伍 eyare c濒 ttCd to mccmg thcm
Thc managcr of caoh dcparuncnt° r func刂 onin
bushcss is rcsponslblc for thc pcrformancc of hs or
hcr dcpartnlcnt or funcuon scparate opera色 onal,° r
fllnco° nal,budgcts mu哎 bc prcpared允 r each
dcpartnacnt or acjvi″ detakg伍 e deparmcnt、
r灬 聍 nLlc Cf anD and expenses f° ra少 龟n pC0° d Thc
budgcts、 荫Ⅱ be prepared for salcs,produc硅 on,
pllrchasing,per⑽ nl△el,adlm血 s讧 岔吱°n,仕 ca stl轷
Gash
and bank△ 、穸,Ctc・ opinions dlf± cr灬 to wh° 曲°dd
prcpare th∞ e bLldgcts
Topˉdc,wn budgcts arc prcparcd by top
management and haΩ dcd dovn t° dcpar讧 ncntal
managers,slyl△ o arc rcsponslblc for putung thcm int°
cffcct such budgcts usua△ y hasc山 c mc五 t of bcing
c° -° rdlnatcd so that dlcy all flt togcthcr as a
``eⅡ
l°
空cal and c° nsistcnt plan for thc wholc bushess
H° wcvcr,dcpartmcntal managcrs mγ n° t± Ccl
co洫 ttcd t° kccping to伍 csc budgcts as thcy have
had Ⅱtdc° r no say止 1thClr prcparaoon and may be° f
the op蛔 c,n伍 狄 thc bLldgcts狂 c un∞ aL血 c
Bottomˉ up budgcts arc prcpared bv departmcnta1
managcrs and may bc unsa刂 s± act° ry bccausc:
● thcy上 nay not flt togcther sxl伍 aⅡ thc°thcr
dcpa攵恤 cntal budgcts t° makC al° gical and
consistcnt ovcra△ plan for thc bushcss
● managers tcnd to b灬 c thclr° wn budgcts on
casⅡ y achcˇ么blc targcts to aˇ oid bclng cⅡ doscd
±or fakg to mcct伍 cm;ths w・ m rcsLJt h
dcpar“ncnts pcrfornnng belσw thcir rnaxlmurn
lcvcl of efflciency and bc bad±or thc busincss as
a whde
A budg￠ com雨 仗cc,Whch sh° dd indude thc
accountan、 sh° lJd c° ~° rdnate the depar钌 ncntal
budgc“ to cnsurc1∶ lr1at】∶1ey achl∞ c
l∶ top managcmcnt、
plans for thc business
Thc bcne丘 ts° f budgcts rnay bc summaⅡ sed as
fo△ov・ s.
1 Thcy arc± orn1al statements in quanota乜 Vc and
fmancialtcrms of managc卩 cnt plans
2,Thclr prcparaoon cnsurcs the co-ordmaoon° f
al thc acu、 △ucs° f a business
3,Budgcts ldcno卸 Ⅱ minng factors Oh° rtagcs of
dcmaild or rcksol△ rCCs-平 c§ 33sl
4、 7hen managcrs arc mxˉ ols,cd h d△ c prcparatlon of
a 5Budgcts arc a form° f rcsp° nsibⅡ ″ acc° untmg
灬 thcy ldcno匆 thc managers who arc
responsiblc for implcmcnong thc vaⅡ ous aspects
of thc° ˇ
℃rau plan f。 r thc busincss
6,β udge灬 脚0d‘ managcmc趾 ” C“ ,wh山 is’
dcscribcs s止 uaionsin whch managcrs havc n° t
forcsccn problcms bcfore thcy aosc and
prcp犭 11fcd for伍cm in ad△ ,ance
Th邙 c managc灬
spmd thck山 Ⅱ grappLng碰 dl problα灬 that
sh° tdd ncvcr havc arlscn had thcy been forcsccn
Thc managers are somcomcs dcscribcd as‘ flre
丘ghters’ ss,hcn th叩 shoLdd bC咀 rc prcvcnters’ ,
ContrOI
ControlinⅥ Dkes measurmg汶 tual pcrbrmance,
∞ mpanng1t xvlth thc btldgct and切 妯呜 c° rrccux c
ac0on to brmg actu挝 pcrformance int° Ⅱnc M^th thc
budgct Itis mpρ rtant伍 at dcvlauons fr° m budgct
arc disco⒕ red earll,bcforc∞ Ⅱ°us⒍ tL1a讧 ons arlse.
Annll赳 dcpart1rrlental budgc灬 arc brokcn d∞ m into
fow・ Ⅳccny or m。 n岫,or∞ ℃n wcckl为 pcⅡ ods,and
dcpar“ ncntal managcmcnt accounts arc prcparcd for
d△°se pcⅠ °ds,Thcsc management accounts comparc
acm尉 per± ormancc M,ikh budgct and m灬 t bc
prcparcd pr° mpdy aftcr伍 c cnd of cach peood if
狃rcvcnuc and
dlcy arc t° be use± tJ If acu△
cxpcndlturc arc bc住 cr伍 an budgct,伍 cd“∝cnccs lor
仫 丘 anccs)arC dCsc五 bcd as favourablc b∝ 狙 ⒃ 山 叩
increase proflt○ n thc° dlcr hand,if‘ acoaal’ is w° rsc
than budge1thc va⒒ ancc is d志 scribcd as adverse,
Dcpartmcntal managemcnt ac∞ un“ us此灯 conta.n
many itcms ofr四 cnue and c冲 cndltllrc w1山 am宓 alre
°f± asˉourablc and adxrcrseˇ auaαccs Ⅸ咖 agc阝 should
conccntratc thcr attcnoon on items、 d、 ℃rsc
va±lances
^d1勿
and,to hclp managerq focus1∶ lf1cr attclltlon on
thcsc,managcmc± lt a∝ olln“ mγ report α灯 thC itCms
、犭伍 adx・ crse vananccs Ths“ kn°wn as“ anagcmcnt
盱 Cxcep钇 n。 r excep刂 on tepor吨
F口 ble budgets ExpeⅡ cncc sh° 、
`s that salcs
and costs rarc圩 ∞ nform to thc pat∞ rns anucipa∞ d”
managcmcnt whcn伍 叮 prcparc a・ 岷 J budgct,伍 at
is,onc that docs not aⅡ °、 ffcrcnt lcvcls of
'for cⅡ
 ugc° ndl。 o灬
acux,lty aild cha血 ε Fkcd blldgets may arc prcpared If thc⒒ inlong factor is° nc of dcmand
l° sc thclr uscfuhcss as rnanagcmcnt tools as a rssult ±or thc pr° duc△ a salCs budgctxlm be prc。arCd丘 rst
r budgctcd。 utPllt^dlf± crcnt from acmal° utput、 狩 Thc othcr budgcts wⅢ d△ cn be preparcd to血 in w1伍
arc not comparnlg△ kc硫 th Ⅱke Inv⒓ Ⅱab坑 thc dlc salcs budgct If dlc Ⅱnimlg幺 ct° ro伍 c
numbcr° f umts pr° duced and s° 1d is rnorc Or lcss axyalIabⅡ tv of matcJ狨 s orlabour,thc producuon
dlan the numbcrin a nxcd bLldgct To ox。 clc0mC血 s, budgct wⅢ be prepared ⅡⅡt and伍 c Mlcs budgct wⅢ
budgcts rnay bc‘ Ⅱcxcd’ t° rc且 cct varlous Icvcls of thcn bc based° n the pr° ducoon budgct
acuvitv and costs FlcXlilg budgcts rnakc usc° f
marg△ lzal c° sung and o an importaiilt proccss whCn 344 HoW to prepare a sales budget
敲andard cosong tcch血 qucs lchaptcr3sl arc
salcs budgc“ arc bascd on伍 c budgctcd vohmc° f
⑾ p1° ycd Flc珀 ng budgcts arc dcscnbcd h chapter3s
salcs Thc vo1umcls d△ cn muI乜 pⅡ cd by thc sc⒒ ng
prlcc pcr umt of pr° ducoon t° producc thc s・ alcs
343 L∶ miung(or principaI budget) rcvcnue For the sakc° f sllnpⅡ o够 thc Cxatnplcs
factors whch foⅡ °w asmmc伍 at oiiv° nc hpc of produck元
Ⅱ耐 血 g%ct¨ ,⑽ mcomcs ca△ cd ponⅡ al bcnlg s°ld

budgct factors,arc circumstailccs、 厂

hch rcst茁 ct dlc Example
aC灬 cs of a busincss Examplcs arc∶
`色 Xsd Ltd愆 salcs± or ule slx m。 nd△ s ttomJanuzary to
● Ⅱnutcd dcmand f° ra pr° duct
JunC arc budgctcd h tlillts灬 foⅡ ow⒏
● sh° rtagc of tnatcⅡ als,which ll,llits producoon
Jat・ llary1000;Fcbrtlary gO⒐ March110O;J、 rJl
● shor仫ge of1・abour,灬池ich狃 so Ⅱmi“ 1300;Mav1500;June14oo
producoon Thc current prlce pcr uiut ls$15butthc c° mpany
Lnaliung勤 ctors must bc idcno丘 cd in ordcr to plans to increasc thc p茁 cc by5V3° n1卜Ι
ay
dcodc由 c° rder in which thc dcpartmcntal budgcts The s狃 cs budgct wⅢ bc prcpatcd as f° ⒒
ows∶

∷ ∷ |△ Ⅱ
Xsd Ltd’ s sate8Budget fot‘ month m娩 aOJme `=
Janua叩 Fcbr唧 △fatch Ap五 l △Ial JunC Total
Units洫

1000 800 1100 1300 1500 1400 7100

洫

$15 $15 $15 $15 $1575 $1575

$15000 $12000 $16500 $19500 $23625 $22050 $108675

EXercise1 345 HOW to prepare a production

Flanncl and Floundcr Ltd、 salcs budgct in uiuts for budget
slx months endmg30Junc is as± o⒒ ow⒌
Δ压aiatlfacaIrlng c° mp删 cs rcqtllrc pr°
ducoon budgcts
JantIar,/100⒐ RbrLlary1⒛ α March130O⒐ =FtpⅢ
to曲 ow thc v° hmc of producjon rcqulrcd m° ndⅡ y
1500;Δ 汪ay1700;Junc1800
to mcctthc dcmand± or s狃 cs Itisimp° rtant to chcck
Thc pⅡ cc pcr u血 t wiu bc$2o br dle d△ rcc moilths
dlat producoon is al° catcd t° thc c° rrcct mon山 s
fo31March bllt踟 iⅡ bc increascd to$22± rom1=qpri

Requkcd Example
Prcparc Flaimel and Floul△ dcr Ltd愆 salcs budgct± or Xscl Ltd6cc thC Cxamplc in§ 34θ manufacturcs its
伍c new pr° duct亿rthcsk m° nths cndmg30Junc goods onc m° nth bctorc d△ cy are sold Mond△ y
C《 CCp your answcr;it砀 姐 bc nccdcd latcr) produco°n is105%of the f° Ⅱoxxlng rnon伍 愆s斑 cs t°
pr°ˇ
△dc goods for stock and for frce satnplcs to be Rcquired
斟 、n aWPly to promotc salcs Budgctcd salcs± orJul1・ Prcparc Xsd Ltd、 montⅡ y pr° ducoon budgct tor thc
arc for1800tullts pcⅡ od丘 om DcccmbcrtoJtmC

Answcil

炯咖乃~
伽
Ⅳhy

ω
Dcccnlbcr Janua’ Fcbruasr JunC

~
Piioducoon fot salcs◇ 血 t9 1000 800 1】 00 1400 1800

_狁

_邮
Add59谷 for stock aitd samplcs 50 40 55 70 90
M° nthll pioduc刂 。n 1050 840 1155 1470 1890

ExercIse2 Nooce that producoon is gr° ssed up to achcve

Flanncl and Floundcr Ltd(scc CxCrcisc1,§ 344) thc requircd production If5V。 of950was takcn as
manufacturcs thcir goods onc i△ ilond△ bcforc thc thc amount of cxtra producu° n thc l。 ss in proccss
goo“ arc sold Mon山 圩 produc。 on⒗ 110%ofthc 飞
^/ould not havc bccn covcrcd
亿Ⅱ
owmg moilth、 saIcs Budgctcd salcs± orJlj,arc
2000u血 ts 346 HoVV to prepare a purchases
budget
Reqored
Prcparc Flanncl and F1° under Ltd、 producoon A purohascs budgct rnay bc prcparcd for othcr
°ur
budget(Keep γ answer,lt wⅢ be needcd later) 1 raw rnatcrlals pt△ rchascd by a rnanufacmrcl,or

Itis pos“ b1c that there rnay be some loss in dle
producjon proscss It is irnportant that tllls is buⅡ
ˉ
int° thc produc刂 on budgct,as tt砀刂Ia± fect h° 、7nvach
matcⅡ al nccds t° bc purchascd
Example
Garden Ornamcnts Ltd manufacmres day a洫 als
Its budgcfcd s狃 cs for ncxt m° nd△ are900u血 ts
2 goods purohascd by a tradc⒈
t A manu± ・acmrnlg∞ mpany、 pl△rcl△ ascs budgct玉
prcparcd from thc producuon budgCt wldc a“ adcr、
purchascs budgctls prcparcd from d△ e sales budget
Thc ptrch灬 cs budgct元 calctiated灬 foⅡ ow⒌
Uru、 produccd pcr producdon budgct× qllanJ″ of matc犭 al pcr
u泣t produccd× p⒒ cc pct汛 tof m征 coal

Thcrc is an opciung invcntory of100uFllts and thc

company rcqlurcs a dosing invcntory of150uiu“ Takc care t° enst△re dlat thc purchascs arc rnadc in
How many ul△ ts nccd to bc pr° duccdP d△ c correct imondl
蛔⑽⑾_

Budgctcd salcs llIuts Example

0pcnIng mvcnto刂
Xscl Ltd6cc thC Cxamplc h§ 34劲 pLLrch灬 6its raxx/
~蜘

Closing invcnt° , matcrlals onc mond】 bcfore producoon Each ul△ t of

pr。 duc。 。n req-ed
prodLlc刂 on req11lres3kg of m狨 coal,x△ hlcll cc,s“ $2
H° wcver,5Vo ofthc pr° duction is1° st duc to per夂 ⒏
damagein伍 c pr° duc刂 on pr° ccss This loss w姐 mcan
thatrnorc umts havc to bc produccd to covcr thCl° ss Rcquircd
Prcparc thc purchascs budgct for the mateⅡ /als to bc
ζ

Produc讧 on from abovc

J

uscd in tbc produc刂 on of goods forthe pcⅠ °d from

^υ

Prodllcoon to covcr bss ρ50/9590

DccembcrtoJunc
Answcr

Novcmbcr Dcccmbcr Jan诩轷 Fcbru唧 Mrch .Apd M呷

No oflmts 1050 80o 1155 1365 1575 1470 1890
Matco缸 rcqu丘 cd◇θ 3150 2520 3465 ⒃ 95 4725 4410 5670
Putchascs($2pcr Ⅱ
ocl 6300 50纠 D 6930 8190 9450 8820 11340

Exerclse3 Example
Flannel and Flounder Ltd(scc CxCrcisc2,§ 345)usCs Xscl Ltd pays± or its raw matellals tl∽ s after
`o mon山
2,5Ⅱ 仕cs of matcⅡ al n△ each Lltlit of thclt product tIlc mondl of purchase◇ ee§ 34.F,lI“ °d・ er expen∞ s
Thc pⅡ cc of thc mateⅡ al“ currend,$410per Ⅱtre, arc as foⅡ o、
^`s:
but thc company has lcarncd伍 atthc pⅡ cc m bc s・ 1Mon由ˇwagcs° f$4000arc paJd in the month
incrcascd to$425h March Thc mw matcrials arc m、△ioh tllcy arc duc
purchascd onc tnonth bc±orc produc刂 on;2100u血 ts
2 The staff are pald a commssion of5V乞 on a△
atc budgctcd to bc produccd inJLllv
mondiy salcs cxccCdlng$15000Thc
Rcq“ rcd ∞inmlssion is pald in the month± oⅡ ow灿乒hat
Prcparc Flanncl and Fl° undcr Ltd、 pur。 hascs budgct in whch止 厶carncd6cc§ 34θ
bascd on its pr° duc刂 on budgct for thc scvcn m0n山 s 3 Gcncral cxpcnscs arc pald in the month in xshlch
f1・ om DcccmbcrtoJunc αIakc al calo△ a刂 ons to由 c they are incurrcd and arc to bc budgctcd as
ncarcst$) ±oⅡ ∞奄January$660α Fobruary$710α March

$699⒐ Apd$70O⒐ M缈 $^30α June$75OO

347 HOW to prepare an expenditure
budget
An cxpcndlmrc budgctindudcs p叮 mcnts for
purchascd matcJals(± rom the purchascs budge◇
a⒒ othcr cxpcndiuarc in伍 e peo° d covered by the
budgct Takc care to cnstre that
● purchased mateoa1s arc p・ ald± orin thc c° rrcct
m° ntl△
●・all othcr cxpcnscs arc includcd in thc budgctin
accordancc ss・ l伍 伍c⒏vcn hf° rmauon,
4 Xsd Ld paysintcrcst° f80/0on aloan of
$20000in four annual hstaloncnts°n31Maroh,
30JunC,30scptcmbcr and31Dcccmbcr
phs 5 A丘 nal dlvldcnd of$2000for thc ycar cndcd
31Dcccmbcr is payablc in March
Rcqored
Prcparc an cxpcndlure budget for Xsd Ltd brthc
slX rnonths ending30JunC Ⅻ am° unts should bc
shown to the nearcst$,

AnsweF

Jm诩轷 Fcbtuary M/ardl Apm May JunC

$ $ $ $ $ $
P讧 chascs 6300 5040 6930 8190 9450 8820
涵昏 s 4000 4000 4000 4000 4000 4000
Commsslon 75 225 +s1
General cxpcnscs 6600 7100 6900 7000 7300 75tlll
Loan mtcrcst 400 H【 ×l
Di△,ldcnd 2000
Total cxpcildlmrc 16900 16140 20230 19265 20975 21151
ExercIse4 348 HOW to prepare a cash budget
Fl岔 nncland Flounder Ltd、 °vcrhcads and other
cxpcnscs for sk m° ndls to30JunC arc budgctcd as
Cash budgcts arc prepatcd fr° m山 c salcs and
cxpc灬 cs budgcts Speoal carc mllst bc talζ (:n咖 山
fol咖、 :

rcspcct t° thc foⅡ osl,lng:

1 Purchascs arc pald for h dle fo△ °Ⅵ△
ng mond1,
2W℃ Cs° f$4000pcr mondl arc paid in thc samc
mond】 as thcy are earned,
3 staf arc p钮 dab° nus cqualto4%° f thc
arnount by whch m° nthl1・ sal∞ cxcccd$20000
Thc bonusis p缸 din thc m° nd】 f° Ⅱoxxing that h
・salcs revenuc rnust bc allocated to thc c° rrcct
mon伍 s Rccclp“ from credlt cu阱 °mcrs who arc
峦Ⅱo、 unts tnust be sho、 Ⅴn at thc
`ed cash dlsc°
amounts aftcr dcduc刂 on of thc(Ⅱ scounts,Thc
dlsc° unts shollld not be sho″ η scpar狄 cly as an

v・ hch it1s earncd expcnsc,

4,Elcctlo,bⅢ s arc cxpcctcd to bc rece臼 ℃d li△
●Paymcnts to supp⒒ crs(purchascs)must bc
Jailuar为 l。 r$2400,and in=tprJ br$1800Thc
sh° 、
丙η in thc c° rrcct rnonths;read thc qucs0on
bⅢ s牺 姐 bc pald h thc mon伍 foⅡ °wmg thcir
carc± u△ y
rccelpt.
5,O伍 er cxpcnscs arc cxpcctcd t° arnount to
$6000pcr m° n山 ,From~Kpd伍 cy arc cxpcctcd
ExampIe
to hcrca∝ b,10%They arc p缸 dh伍 c montll Xsd Ltd、 salcs in Nos・ cmbcr wcrc$18000,and in

dhcy arc incurrcd Dcccmbcr wcre$17600

6,FlanncI and Flounder Ltd has a l° an° f$20000
Oft° tal sales,40⒐ o arc° n a cash basis;50Vs are t°
on whch intcrcst at10V。 is pa,么 b1c in± our
crcdlt customers、 vho pay xx,din oneln° n刂
quartcdy ln虹 alments° n31March,30June,30 `and
rcccl△ c a cash dlscount of2V。 The rcm・allllng10V3of
scptembcr and31Dcccmbcr, Customcrs pay、 mond△ s
7,Thc c° mpany、 purchasc a rnacⅡ ncin Δ
压ay "din tw°
`Ⅲ
for$15000, $10000was rccchcd fr° m thc s狃 c° fa non~
8,A flnal d⒈ 讨dcnd° f$4000for伍 e ycar cndcd currcnt assct in卜 [arch Thc balancc at bank on
31Decembcr wⅢ bc pald in~qpⅢ ,
31Deccmbcr v/as$12400
Req“ red Requkcd
Ptcpare Flarnd and Fl° undcr Ltd、 cxpcndlturc Prcparc Xscl Ltd、 cash budgct brthe sk m° n伍 s
budget for伍 csk m° n山 s endmg30Junc,sax・ c your cndlng30June川Ιainounts shodd bc shown to tl,c
answct;it脶 础 bc nccded latcr ncarc“ $
Answcr
(⑴

哟$
Jantlall, Fcbn山vy 卜恹 h AprJ JunC
$ $ $ $ $
Rcccipts
Cash sales1 6000 4800 ‘600 7800 9450 8820
Cicdit
Customcrs-1month2 8624 7350 5880 8085 9555 11576
Cred⒒
customcrs-2m。 nths3 1800 1760 1500 1200 1650 1950
salcs of non-curtcnt asset ~ 】0000
Totalェ evenue 16424 13910 23980 17085 20655 2234‘

Expendituie Janua, Fcbru缸 γ March AprⅡ Ma, JunC

$ $ $ $ $ $
Purchascs 6300 5040 6930 8190 9450 8820
、σages 4000 4000 4000 4000 4000 4000
C° mon1sslo n - 75 225 431
General cxpenses 6600 7100 6900 7000 7300 7500
L° an htcrcst - 400 400
Dkldcnd - 2000
Total pa,rlncnts 169tlll 16140 20230 19265 勿0975 21151
Nct recopts/(Pa,mCnts) (钾 Θ 侈 230l 3750 侈 18Φ o2Φ 1195
Balancc br° ught fo3vard 12400 11924 9694 13444 11264 10944
Balancc carrlcd forsvard 11924 9694 13444 11264 10944 12139
1 Cash saIcs=409o of salcs f° ji m° nth
2 Cash rcccs、 d fr。 m crcdlt customcrs aftcr onc m° nth=sales for PrC访 °us month× 509o× 989o
3 Cash rccc小 cd flom crcdit cllstomcrs aftcr h,o months=109o of salcs f° ts△ o mon伍 $prc△ ・
lousl乒

of2冫0Vois auowcd t。 customcrs who pay x△ ,ltliΩ °ne

Note At30Jun⒍ m° nd△ 10V。 °f salcs rcvcnuc is rccckcd txs,o months
aRcr salc
Tradc rccclvablcs@cbtor9f。 r$ale⒌ $
10%ofMay sales Φ23625× 109o 2363C° undcdl Thc company intcnds to scⅡplant and cqtupmcnt
50%ofJunc salCs Φ22050× 50%) l】 025 for$12000in Fcbruary Thc balancc at bank on
10%ofJunc sa1Cs Φ22050× 10%) 2205 31December was$31750
15593
Requ1rcd
Tradc pa,叼 blcs br铷 ppLc⒌ May
lCˉ rcdltorθ ⑶ PrCparc Flani△ c1and Floundcr Ltd、 casl△ budget
purcha⒃ s ωaid forinJdD=$11340+Jllnc for thc sLx mon伍 scndmgJunc M・ akc al
purchases for produc刂 on inJul,T c/alculaoons to dlc ncarcst$
Accrued expensc⒌ 欲aff comm泌 slon,4%of$2050 CO StatC thC am° unt of Flanncl and Floundcr Ltd、
=$82 ttadc rccclN。 ablcs and payab1cs,and cxpcnsc
Inventorr r in± 。rmajon± orJdy and Aug沁 t had pPlyablcs/at30JLlnc
been avaⅡ able the f° Ⅱowing would be kn° M`n:
r小 v matc⒒ als-ˉ purchascd in Junc 349 HoΨ V to prepare a master
flnishcd goods-ˉ madc in Junc budget
Exerclse5 A mastcr budgctis a budgctcd Incomc
Flanncl and Floundcr Ltd愆 salcsin Novcmbcr wcrc statcmcnt and statcmcnt of Financial Posijon
$18000and in December were$17600 preparcd from salcs,purchascs,expense and cash
of total salcs rcvcnuc,50V。 is on a cash basis, budgcts Thc purposc of thc inastcr budgetis to
40ψ o is rccc1vcd onc month aacrs狃 c,Cash discount rcvcal to managcmcnt thc proEt orl° ss t° bc
cxpectcd if Fnanagcmcnt、 p1ans for the busincss arc 3,卜 Ι
cado灬丬ands Ltd recehcs° nc rnonth、 crcdit
imp1cmcntcd,and the state° f thc busincss at the on aⅡ purchascs and a△ o、 nc tnonthb crcdit
`s°
cnd ofthc budgct pc丘 °d on aⅡ salcs
Itis important to rcmcnabcr that the Inc° mc 4 Thc± oⅡ owing expenscs、 bc incurrcd in the
statcmcntlnust bc prcparcd° n an accruals basis, `Ⅲ
ycar cnding31Deccmbcr2012,
and thc inf° rmaoon in thc func刂 onal budgets must
bc adjustcd for accruals and prcpaymcnts;“ o (ll rCnt。 f$1600pcr quarter pald in advancc
ad说 sablc to ldcno匆 dlcsC whCn prcparing thc cash °n1Januar另 1ApⅢ ,1J△ 吨 and10ctobcr
budgct Much informajon addloonal to tllat rcqL11rcd ˉ
lnl vsages。 ±$7200pγ ablc cach month
lor tllc血 ncj° nal budgcts mcnooncd扌 bovc wⅡ
usuaⅡ y bc g1vcn,Dctails of non-currcnt asscts`VhiCh CⅡ )an hsLtrancc prcmiuin of$3000for15
arc to bc sold or purchased wⅢ °ftcn bc suppⅡ cd;
months to31M时 ch⒛ 13p缸 d° n1Janua,
thls informaj° n wm usualx bcinchdcd in a caphal
2012
budget Cs・ l °thCr cxpcnscs of$20000pald quattcdy

Example 5Thc c° mpany wm purchase ad山 oonal

⒈Ιcadoxvlands Ltd、 statcmcnt of Financi・ al Position
eqmpmcntc° song$15000on1AprⅡ 2012,
at31Decelnbcr2011环 Ⅱ°ws: 6A ncw mot° r vcludc晒 吐
u bc purc・ llascd on
`as as f°
1Apl△ 2012亿r$12000,
Non-clrjIcnt asscts Cost Dcprcoauon Nct
$ $ $ 7Am° t° r vchclc whch c° st$6000and has a
Eqtupmcnt 13000 6000 7000 M’ri哎 Cn doWnx・ alLle° f$3000at31Dcccmbcr
Motor vcludcs 11000 7000 4000
24000 13000 11000
2011、 注Ⅱbc sold± or$2000on1July2012
Currcnt asscts
8 Thc company dcprcoatcs cquipmcnt at10Vs pcr
Invcnto, 9600
Ttadc rcccwablcs 33600 annum on cost It dcprcciatcs rnotor vchlclcs at
Cash and cash cqluvalents 1500o 12冫红
Vo pcr annun△ on cost
铡

58200
~

Currcnt ⅡabJlocs 9 Thc c° mpany、 invcntory at31Dccclnbcr2012

~铡

Tradc pa,ablcs 6200 wiⅡ bc valucd at$32000

Equi饣
0rdlnary sllarcs of$1 400llll
Rcq“ rcd
Rctaned earmn莎 23000
63000
(ε
0)Prcparc a c灬 h budgct torthe ye时 cndlng
31Dcccmbcr2012
Futther informadon
(b)PtCparc Δ江cadowlands Ltd’ s budgctcd
1 Goods arc purohased° nc tnond△ bcforc thc
Income statemcnt f° r thc ycar cnded31
m° nth° f sale
Decembcr2012in as tnuch detall as
2Budgctcd quartcdy purchascs and s/alcs for khe
possiblc
ycar cndlng31Dcccnlbcr2012arc as foⅡ o、
`s:
(c) PrCpare NΙ eadow1ands Ltd’ s budgeted
Rlrcllases salcs
statcment° f Finanoal Po“ oon at
$ $
31Deccmbcr2012in as much detaⅡ s as
J猁妞邱-March 72000 132000
Ap⒒ l-Junc 96000 156000 possiblc
Ju9-septcmbcr 84000 168000
0ctobcr-Dcccmbcr 96C llO 144000
Answer Lcss cxpcndltlre
熙饪gcs 86000
Meadox1・ landθ Ltd
Rcnt 6000
Cash budget for the yeat cnd山 呜 sl Decembcf2012 12
1nsurancc(瓦 ×ssO00l 2400
Jan/Mar Apr/Jun Jul/sCpt 0c√ Dcc
$$$$ 0山 cil cxpenscs 80000
Rccclp‘ I oss on saIe of motor vchclc 1000
salcs 1216001 1480002 1640002 1520002 Dcprcciaoon∶
Procccds ftom cqlupmcnt 28oo6
s尉 c of~彡 n ~ ˉ 2000 ~ motor vchclcs 2125‘ 4925 181125
Pr。 nt at讧 lbutablc to
121600 1480llll 166000 152000
Cq△ u印 h° ldCrs 93275
Pa,,inen‘
PLlrcliascs 542003 88ClllO4 880004 920004 5 Goods plrchascd lil Dcccmbcr2012for salc血 Janu唧 2o13
Rcnt 16oo 1600 1600 1600
VVagcs 21F,00 21600 21600 216oo (忘 of$96000l
Insurancc 3000 6 scc non-clrrcnt asscts h statcmcnt of Flnancial Posioon
0由 cr cxpenses 20000 20000 20000 200llll
Ptrchasc of
cqulpmcnt ~ 15000 ~ ~ Budgetcd statemcnt of F】 △伍‘0疝 PoQ蚰 。
Purchasc。 f at31Deoembct2012
motor vchclc ~ 12000 ~ ~
N° 】 clrrcnt asse‘ Cost Dcpicoaoon Nct
100400 158200 131200 135200
$ $ $
Nct rccclpts/ Eqll,pmcnt 28000 8800 19200
Φa,・nCntΘ 21200 CO20Φ 34800 16800 M° tor vchclcs 17000 6125 10875
B斑 ancc brougllt 45000 14925 30075
foAs arcl 15000 36200 26000 60800 Currcnt as腚 ts
Balancc car⒒ cd Invcntorv 320lXl
fo小 vard 36200 26o00 6o800 77600 Tradc recei△ ,ablcs 480007
Prcpald h$ur・ancc

1 Tradc tccα V犭 blCq at31Dcccmbct2o11+2° f salcs for

ΦthCr rcccls・ ablc9 6lXl
3 Cash and cash eqtuvalcn灬 77600
January/sIatcll
1 2 158200
2亏 °
f prcvl。 us qll狂 弪 t、 salcs+ f currcnt quartciI、 salcs Currcnt ⅡabⅢ dcs
3° Tradc p呷 abks 32000: 126200
156275
3品 Clllbσ 猢 1+ξ Jp诬 腕 ⒃s幻 r Equi饣
F蛮J%宏 袋 T31D“ 0rdnlas/sl△ arcs° f$1 40000
Rct缸 ncd c征颇 轳
4 °f prcvl。 us qtlartcr、 plrchascs+ξ ofcurrcntquartct、
咭 O3000+9327sl 116275
purchascs 156275
7Dcccmber salcs
Budgetcd Income statcmcnt 8Dcccmbcr purchascs
fot the yeat eild白 ¤g31Decembct2012
$ $ $ ExercIse6
Rcvcnuc 600000
I ess C° st。 f salcs:
△hc dlrcct° rs of Grccn￡ dds Ltd have prcparcd
0pc-g Invcntory 9600 imcuoltal budgcts for伍 c kour months cndmg30=tpd
Purchascs 348000 ⒛ 12%dlsc° vCr thC cffcct伍 at thc budgc6wⅢ h肿 e
357600 on thc company么 吐thc cnd ofdle± ow m°nths,th叩
Cl° sing Invcnt。 , 320005 325600
rcqI1lre伍 c accountant to preparc mastcr bu吱 “ IhC
Gross proflt 274400 羿
accotultant is prosidcd wi曲 dF± ou。 vxmg data
 GreenEeIds Ltd’ s statement of Fhancial Posidon 4 sc血 g and distribuu° n cxpCnscs amountto10冫 s
at31Dccembet2011 ofsalcs and arc paid in thc month in which they
Non-cl△ rrcnt asscts Cost Dcplcciatlon Nct are hcurrcd
$ $ $
Frcchold Prcnvscs 50000 10000 40000
5 Admlnistraj° n cxpcnscs amount to$20000pcr
Plant and macV吐ncry 37500 22500 15000 mon伍 and arc p/ald in thc mon伍 Ⅱ△x△・
luCh th叩
87500 32500 55000 arc incurrcd
Currcnt asscts
Invent。ty 30000 6 Invcntorv at thc30AprⅡ 2012is csomatcd to bc
Tradc recclx・ ables 42500 xalucd at$22500
Cash and cash cqtus alcnts 20750
7 AddIjonal plant and macl△ inc锣 c° s。 ng$60000
93250
Curtcnt uabl⒒ 。cs 、讨Ⅱ be purchased° n1March2012
Tradc pa卩 blcs 22500 70750 8 Annual dcprcciaoon° fn° n~currcnt asscts is
125750
Non-curtcnt Ⅱabmtv
bascd°nc° st as fo⒒ °ws:Frcchold pren△ scs3⒐ 。 ;

12%debenotrcs2019/2020 25000 plant andェ nacluncry20V。 50Vo of aⅡ

100750 dcprcciauon is t。 bc charged to scⅢ ng and
Equi叩
disttlbuoon cxpcnscs,and thc balancc t°
0idna叩 shatCs of$1 65000
Gcncral rcscwc 30000 admi血 straoon cxpenses,
Rctaincd car血 ngs 5750 9 Dcbcnturc intctcst is payablc hd孓 ycady° n
100750
30JunC and31Decembc⒈
10A dlxidcnd of$010pcr sh狂 cs△,m bc pald。 n thc
Furthcr hformation
ordlnary shares° n30.KprJ2012,
1 salcs and pLlrchascs f° rthc f° ur m° nths from
11 $25000ssll bc trans炙 rrcd to山 c Gcncr/al
January to AplJ2012arc budgctcd to b⒍
Rcservc° n30~Kpd2012
sales Purchascs
$ $ Req讧 rcd
Janua, 62500 25000
Fcbruary 70000 20000 ⑶ PrCparc a cash budget%r cach of伍 c four
Marth 75000 30000 m° nths fromJanuary2012to30Apr12012
Ap血 82500 37500 CD PrCparc a budgc∞ d Inc° mc statcmcnt缸 thc
follr mon伍 s end山 qg30Apd2012h as much
2 409坞 of s狃 cs atc to cash cust° mcrs;onc rnonth、 dc切Ⅱas posslblc,
c± cdlt1s alowcd on山 c rcmalndcr (○ Prepare a budgctcd stzatcmcnt of Financial
3, Thc company pays for its purchascs in thc tnondl Posio° n as at30丿 2012in as rnuch detaⅡ as
foⅡ owing purohasc, posslbIc `prⅡ

Praotise the preρ aration° fthe functional and rnaster budgets They are nottoo di什 iou"provided you read
questions carefu"y to asoe"ain eXadlyˇ vhen transactions ane to tako place Fa"uⅡ e to aⅡ ooate sa丨 θs,
purchases,reoeiρ ts and payments to the correot periods is a common cause ofthe loss of va丨 uabIe marks
Preρaration of budgets is° Ⅱen an exercise in arithmetic,so be a∞ urate;but note ifthe quθ stion states the
degree of accuracy required〈 e g to nearest$or nearest$000)
1 A bedside tabIe is made fr° m4kg ofraw The cost ofthe raW丨 ηaterial used in the goods is
mate"al Production for siX months is based on 40%of sa|es The materialis purchased one
the fol}oWing data month before the goods are|η ade,and
manufacture takes p丨 ace one month bθ fore sale
Budgeted saIes 5000 tables 50%ofthe lη aterialis paid for one month after
Budgeted decrease in stook purchase and the ba|anoe is paid fortWo months
ofraW mateHa1 1200 kg after purchase
Budgeted increase in stock
How much wⅢ be ρaidforraW mate"als in
oftables 800 tables
Maroh?
HoW many k"ograms ofraW mate"d WⅢ be A $40000 B $42000
purchased forthe six months? C $46000 D $48000
A 18000kg B 18800kg
C 22000kg D 23200kg 4, A oo丨ηpany plans to ρurchase a neW machine

Trade rece vabIes atthe yea卜 end are$40000 "is oosting$4o000 k、 ψ

Ⅱl ρa"e× change one of"s
pIanned to double turnover∶ n the next year and to eXisting machines forthe new one The existing
reduoe the trade receivables’ coⅡ edion pe"od fro丨 η machino has a net book vaIue of$4000and the
45days to30days pa"exchange wⅡ l resultin a Ioss on disp° saI Of
What WⅢ the trade receiVables be atthe end ofthe the maohine of$1000 The companyˇ vⅢ pay the
neXt yθ ar? baIance due on the new machine by cheque
A $26667 B $53334 Hoˇ V、″

C $60000 D $80000 budget?"Ithe transadion be recorded in the oash

3. The sales budgetforfour months from January to A paymentfor new machine$37000
Aρ oWs B paymentfor neW machine$40000
January$800000
"lis as foⅡ C paymentfor new machine$40000;oash
February$100000 received for oId machine$3000
March$110000 D paymentfor new machine$40000;oash
AprⅡ $130000 received for old maohine$4000

1.The saIes budgetfor Roh Ltd forthe six months to 2 Month|y production ofthe units is θqualto the
30NOVember2012is as foIIOws∶ fo"oWing rnonth’ s sales ρlus109乞 forinVentory
3 Costs per un"are as fo"o、 ″s:
Units
MateⅡ al 3 kⅡ ograms
June ⑾
Cost of mate"aI $400 per k"°
July BOo
Labour 2 hours
August 1000
september glx, Labour rate of pay $800 per hour
gao AbsoqD刂 on rates
Odober
Variable overhead $1400
NOvember 10zo
Fixed oVemead $35o

Fu"herinformation is as foIbWs∶ 4 Materials are purchased one rnonth before they

1 A"un付 s are sold for$60Customers are are needed for ρroduotion and are paid fortWo
a"owed1 month’ s credit months a付 er purchase
 5 VVages and Variable oVerheads are ρaid in the 2 0nθ ˉ
third of sales revenue is reCeived one
current丨 ηonth month anθ r sale and the remainderis reoe ved
6 Fixed oVerheads are paid in the fo"oWing tWo rnonths aRer sale The saIes in the preVious
month November$6o00∞
two months were∶ ;

7 The fo"owing information is to bθ takθ n into December$540000

aooount
3 0nθ quartθ r of purchases of materia|s are ρaid
)cash b° ok balance at30June201⒉
巾 forin the month of purchase The remainder
$16000;
are paid for Mo monthslateⅡ Purohasesin the
⑾ invent° γ of】 nished goods at31July2012;
NOvember
preVious tWo months were∶
$56420
$108000;Deoember$106000
Required
The fOII° wing budgets forthe month of August
4TWo忄 hirds ofthe Wages are paid in the month in
⑶
Whioh they are earned,and the ba丨 ance is paid
2012onJy
in the foⅡ oWing month The wagesforthe
C) Produc】 °n budget un un"s° nly)
previous Deoember amountθ d to$30000
oO Purohases budget
〈 5 0ne haIf ofthe overhead expenditure is paid in
"O sales the
(b) Calculate budget
cash book balanoe at31July the Imonth inˇ vhich"is incurred,and thθ
2012 baIance is paid in the foⅡ owing month Thθ
lc)A cash budgetforthe month of August2012 oVerheads forthe preVious Dθ cember were
on″ $380000
(d) (i) Explain the advantages and uses of
60ld maohinθ ry w"I be sOId for$4000in Aρ
budgets
New machinery wⅢ be purChased∶ n March "lfor
C) ExpIain how p"ndpal budgetfadors
a矸 ed the preparation of budgets $90000but only one ha"ofthe price WⅢ bθ
paid in that month The balance WⅢ bθ paid in

2.Banner Ltd’ s budgetforthe four months from

August
January to ApHIinc丨 udes thθ foⅡ o、Ving data 7 Banner Ltd has an overdra△ $63000at the
1 bank at31 December
MOnth sabs MateHals Wages Overheads
RequIred
$000 $000 $000 $000 (a) Prepare Banner uds cash budgetfor each of
January 615 1144 30 360
the four months from January to Ap"L The
Februa,y 636 1188 33 390
budgθt shou|d be prepared in columnarform
March 6gO 1320 36 412
(b) Prepare a statementto shoW the aocruals in
Ap11 6Bo 128o 39 420
part(a)whi。 hw° u丨 d appearin a statement of
Financial PosⅡ ion at 0ApHL
β
 standard costing

● what standard costing∶ s and how standards are set

● hoW to】 eX budgets
● hoW to CalCulate salos,materials and!abour va"anoes
● hoW to reConci丨 e the actual and budgeted prof浅 s
● hoW to reCognise the possible oauses of varianoes

351 What is standard costing? reconcⅡ ajon statcmcnt behxTeen the standard pro± lt
or loss and thc actual pro± lt or1oss
Standard c° song is钿 n acc° un刂 ng systcm that
Thc(Ⅱ ±
tcrcnccs bcbⅣ cen acttlal c° sts and budgctcd
rccords thc cost of opcraoons at prc-dcternⅡ ned
Costs arc knc,wn as勿 汛镪 ￡
standards If thc standards are rcaⅡ soc,the system '夕

infc,rms mallagcrs of dlc lnatcrlal,labour and 352 The adVantages of standard

°vcrhcad costs that sholJd be1ncurred if the Costing
busincss is rnanagcd cfllcicndy standard costs arc an
Thc prcparaoon° f budgcts is rnadc casicr if thcy
∞scn0狃 tool± or reaLsoc budgeung Ho、 潞 vcr,tllc
are based° n standard c° st⒊ and d△ c budgcts are
Costs aCmaⅡ y incurrcd rnay ditfcr trom thc standards
ⅡkelJr t。 bc morc rcahsoc Thc standards arc thc
±
or a varlc0of rcasons:
buⅡ ding blocks of thc budgct
● thc quan刂 br of goods produccd rnay bc m° rc or
Di± ±
crcnccs bc小 Ⅳccn actual and budgctcd resuks
k“ than blldg⒍
● dlc quanj饣 °f rnatcria1uscd in cach unit of
←a五 ancCθ arC ca“ cr to ldcnoll/l± standard co“ s
arc uscd
producoon rnay bc rn° rc Orlcss than budgct
Thc acoviocs that arc rcsponsiblc for varianccs
● dlc cost ofrnatcrlal many bc rnorc Or1es§ than
a夂 h【gl△ Ⅱ ghtcd
budgct bccausc ulc prlce paid may haˇ ℃
Bccausc it highⅡ ghts acthitics that glvc rlsc to
nlcr吻 sed c,r decrcased“ nce the btl魄 ∝ was
varlanccs,standard c° s刂 ng is an csscnoal part of
preparcd,° r dle mateⅡ 狃 has bccn° btaincd trom
lcsponslbⅡ 叩acc° un刂 ng(⒃ c§ 34④
alter鱼 a乜 Ve suppⅡ ers
Calculated standards facⅡ tatc thc prcparaoon of
● M/orkers rnay have bccn morc orlcss clˉ flcicnt
cstlmatcs for thc c° sts of ncW products and
dlan expcctcd in伍 c budgct
quota0ons for° rdcrs
● the ratcs of pay for、
`orlkcrs rnay bc morc Or lcss 沪dth° ugh standard cos刂 ng is usuaⅡ y ass° ciatcd in
than dlosc On WluCh ulc budgct was bascd
pcoplc、 n△ nds xxldl manufacullmg industrlc宀 it is
standards arc also sct± or sa1cs rcvcnuc,and causes
of cqual usc in al血 ds of busnlcsscs,inCluding
for diffcrcnccs bc唧 艮cn actual rcvcnuc and the
scrˇ△cc indus匝 es such as hotcls and hospltals
staildard mauy bc hghLglltcd
Thc Ⅱnk be颐龟en dle pr° ±
it ca1culatcd on standard 353 setting standards
cost and thc pr° 丘t sho、 mc standalds in△ lst be re汕 s谊 c if dlc,,arC t° bC uscfu1and
`n in a tradioonal Inc°
Statcn△ cntis providcd by thc prcparaoon of a not iliuskadln⒏ UnrcaⅡ suc standards rcs△ith d△ cl° ss
ofthc advantagco Lsted above in§ 352 Thc varl° us ofwork that can bc doncin a statcd numbcr of
types of standards rnay bc dcscribed,as foⅡ °ws: standard nunutcs,
● IdeaI standards arc standards that can on圩 bc
mct undcr1de灶 condld° ns sincc thc condltJons 354 HOW to fleX budgets
undcr、 Thc actual v° Iumc° f goods produccd is scld° m thc
`lich busincss work are vcry ratc1y idcal,
thcsc standards aiic unrc/atlsoc and arc ncs/er 弘mc as dle vdumc° nM・hch a budget has bccn
Ⅱke圩 ω bC att・ ancd As a rcsLdt,tl△ cy m叩 ba⒃d,scnsble comparlsons can ody bc made if制 k
acm碰 y dcmou△ ate manage“ and callsc” cm to is comparcd w1th⒒ d,and the budgctis bascd° n伍 c
p吖 form lc“ ,ra由 crthan morc,c伍 oenψ IdCal acmal v° Iumc° f° utput TⅡ sls done by Ⅱexhg thc
standards should not bc uscd budg∝
● Currcnt standards are bascd on prcscnt lcvcls Thcxˉanablc cxpcnscs in thc budgct rnust bc
of pcrforrnancc,、 vhch may bc qlutc adlustcd t° takc acc° unt of thc acmal v° hmc of
inappr° prlatc tor thc a.tLuc,Thcy do not offcr goods produced,
managcmcnt or workcrs any inccn伍 VC to
per± orm morc c￡ εocndxr Currcnt standards
ExampIe1
shodd onl1・ bc uscd when prcscnt c° ndl讧 ons arc l/anablc Grommets Ltd pr° duccd thc fo△ ox△・
lng
too unccrtam to cnablc more appr° prlatc budget f° r thc pr° ducoon and salc of10000
standards to bc sct grommcts brtl△ c sLx mondls cndlngJunc
● Att拉 nab1e standards rcc° g血 sc that thcrc is Budgρ t臼ot10l,0① gtoiIlnIlet0
norm灰 Ⅱy⑽ mc、 泗stagC° f mateo尉 s and not al 弘 凹 nths sρ d炖 Junc
thc hoLlrs Mclrkcd arc produc小 /c IⅠ mc spcnt $
unproducuvcly by w【 ,rkers is caⅡ cd idlc dme
`/aoablc cxpcnscs
and rnay occur whcn nilachncr`breaks d° 、
Dlrcct matcnals 50000
vn° r DIrcct lab。 ur 100000
thc rnacluncry has to bc‘ sct up’ for a p￡ oduc刂 on Producdon。 crhcads
x・ 40000
run Ihc standards shoLJd狻 kc rcasonab1c se瓯 g and disttlbu谊 on 8000
account of伍 csc fact° rs and￡乒vc the聊 ∝kcrs an 198000
Fixed expcnscs
inccnjve t° usc thctr omc and rnatcrlals
pr。 duc刂 。noˇ trhcads
78000
c± flcicndy Thc standards set sh° uld,thcref° rc, on
scuulg aild dlstrlbu让 43000
be a仗 衬nablc° ncs, Administtao。 n 91000
standard houFs of production arc rncasurcs of Total c° st 410lXl0
quan0小 t bc con± Llscd硒 ,d1a
Thc output forthe sk months cndcd30Junc was
`ofomc
pcood of Mclrk
Iξandundcr
shotJd n°
n° rmal,or standard, 12000gr° mme‘ Thc budg∝
worklng condlu° ns,20unlts° f output can be ^ncxcd by inultlpllmg
produccd in° nc hour,the standard hour is20uluts, thc variablc cxpcnscs by120Q0,thatis by1,2
ˉ
Tlus c° nccpt of stand钳 耐 hours is use± d xsllcn
btldgc“ arc bcing prepared± or dcpajiuncnts tllat Budget for12lNlO gto~ct8
producc小 vo or rnorc dlffcrent pr° ducts For cxan,plc, 耻 呷 nths end蚝 Jmc
$
in one ln° nth a dcpartmcnt、 output may consot of ablc cxpcnscs
``a山
Drcct matcnals 60lXlo
Standard hours D缶 cct lab。 ur 120000
200Xs。 luch takc1hclllr cach to makc∶ 200 Producuoll o。 ctlleads 48000
400Ys whch takc1V$h° urs cach to makc 600 sc⒒ ng and dist⒒ bud° n 9600
327zs whch takc4o mLOutcs cach to makc 218 237600
Total standard hours° f producoon 1018 Fkcd cxpcnses
Producdon。 vcrhcads 78000
The° utput° fthc dcpartmcnt can convcnicndy bc scuulg and dlstrlbuoon 43000
e却 rCssCd灬 1018standard hoLlts± or bLldgcung Administrau° n 91000
purposcs,simⅡ ad另 standard inlnutcs arc a quan0饣 T° ta1cost 449600
 Nojce that itis the variablc costs M’ hCh Changc as Answcr
a result of flc虹 ng thc budgct, As wc sa・ ,△ in chapter33,somc cxpcnscs va叮
Thc nxcd cxpcnscs havc n° t changcd Ihc flcxcd dlrcctˇ x△
・
ltll c,lltptlt・ 〈 matcrl祧 arc拟 pcr p洫
i[irc∝

budgct`thc onc tbat wOLlld havc bccn prcparcd ap of spcctacles,and dlrcct labour ls$3per pal⒈ Thc
伍c onglnal blldgctif it had bccn howm that tlic co吱 ofthese items± or8000pa1灬 of gl灬 scs、 泣ll b⒍
output would bc12000grommcts dircct matcⅡ als$16000;dircct Iabour$24000
Producoon ovcrhcads and scⅡ ng atld dlstrlbuoon
Exercise1
cKpens∞ h孙 浓 not hcrcascd proporuoΩ atclv・ 、注dl thc
Brc蛐 fo° ds Ltd、 budgct仍 rthc producjon of hcrcascd producoon Each° f伍 csc itcms contains a
100000packcts of Badchrnuts in tl△ c ycar cndlng
Ⅱxcd clcmcnt To flnd thc varlablc clcmcnts of these
31Dcccli● bcr was as foⅡ °ws:
C0sts,dcduct thc c° sts for5000units￡ r° in thc c° sts
$ for6000units to丘 nd the variablc c° sts tor1000
Vanablc cxpcnscs units,using thc rneth° d dcscribcd in chaptcr33,
Dircct matc茁 铋s 20000
DIrcct labour 150t ll
Producuon cxpCnscs 6000 Production overheads
41000 ts=
Produco° n° vcrhcads for1000u血
Flxcd cxpcnses
Produc刂 on cxpcnscs 13000 $C8000-1600Ol=$2000,or$2pcr uiut
AdmlnIstrauon 29000 Flxcd producoon costs arc n【 lxx found by
83000 dcducm△ g dle vaⅡ ablc cost br5000u血 ts± rom tllc
Thc actual° utput br thc ycar cndcd31Dcccmbcr total producoon cost:$(16000-10000l=$6000
、砌s110000packcts° f Bar1cγmuts Produco° n cost for8000paJrs of spectadcs is
$6000+⒅ 000× $④ =$22000
Rcqu虹 ed
Plcparc a nα cd budgct± or tllc produc刂 on of se"ing and distribution
110000packcts of Badcynuts
sc⒒ 山gand dlstrlbujon br1000u血 “ =
Flexing budgets with semiˉ var∶ abIe $@2000— 】900o=$3000,or$3pcr洫 t
expenses F饫cd scⅡ ng and dlsu・ lbuoon costls foLlnd by
Budgc“ m缈 not曲 °W a dl雨 nctlon bc小 Ⅳcen fLxed deducong thcˇanab1cc° st f° r5000uiuts fr° m thc
andˇ 叼Ⅱablc cxpcnscs In thcsc cascs,dlc distlilco° n t° tal sclLng and dlstrlbuoon cost$l19000-1500o

must bc found by inspccjon =$4000

Example2 sc⒒ ng and(Ⅱ s钍 buu0nc。 st f° r8000pairs of
spcctacles ls$4000+(8000× $Φ =$28000
Obskure Ltd has prcparcd且 cxcd budgcts for thc
producoon° fΘ 5000and CD6000pairs of sun Tllc±lcxcd blldg⒍ ±
or8000palrs of spcct蒯 ∞ i⒏
glasscs,
$
5000pats 60llll pars D涣 ct matc⒒ als 16tlllll
of glasses °fg1asscs Drcctlabo匹 24000
$ $ Producoon ovcrheads 22000
Drcct matc⒒ als 10000 12lXlo scnu.g and dIs山 bu硅 on 28000
Dlrccdabclllr 15000 18000 Ad山 nistrau。 n 12000
P± oductlon ovcrhcads 16000 18000
102000
sek,g and酞 trlbu曲 n 19000 22000
Adm1mstrat1on 12000 12000
72000 82llllo Exerclse2
8000palrs° f glasscs wcrC pr0duccd md a ncxcd Flα c“ Ltd h/as prcparcd伍 e bⅡ owll△ g budgcts for
budgct for th狂 output厶 rcqtulcd, thc pr° ducjon° f omcl° cks
N⒍ of locks 6000 8000 Proclucoon ovcrhcad:
$ $ fLxcd $30000
Dlrcct matcnals 15000 20000 xaoblc pcr uillt $7
Dircct labotr 36000 48000 sC⒗ 名 and dtstnblluoˉ
Producuon ovcrhcad 25000 31tlllo nxcd $16000
scⅢ ng and disttibuoon 240lXl 28000 △aflablc Pcf ufut $4
Admln1sttat】 on 80000 80000 丿
、 dd1nnJ】 li嗵 atlon(fLkCΦ $75000
180000 207000
The rnastcr budgct bascd on thc abovc informaoon
Rcquhed
h as roll° w⒌
Prcpare a±lcxcd budgct for thc productlon of9000
uille locks
Mastet budget Flexed budget
20000Cape:s 23000Caperθ
355 VaHances $ $
Salcs rcvcnllc 640000 736000
A△,aoance is thc dlffcrcnce bebⅤ een a standard cost Dircct matcflals 100000 115000
and an actLlal c。 st。 r,in the case° f revenue,be岫 een Dllcct labotr 160000 184000
′】 Producoon ovethead 170000 191000
budgeted rcvcnuc and acula1rcvenue riances rnay
1I么

scl⒒ ng and distribution 96000 108000

be c/alculatcd lor:
Administfation 75000 75000
● salcs 601000 673000
● dircct rnatcⅡ als Pro丘 t 39000 63000
● dlrcct labour
The actual numbcr of Capcrs sold was23000and
● ovcrhcads
Πe昶 d budgck lor this numbcris曲 own ncxtt° d△ C
砀 Ⅱmc∞ l△ 砂山典t acj说 ucs d△ at may nccd
master budgct
managcmcntintcrvcnoon if tbc budgctcd prontis t。
Furthcr1nforma乜 0n about thc acu,al rcvcnuc and
bc aclucvcd° r,at1cast,to Ⅱllllt any advcrsc c± lcct on
Costs1s as f° Ⅱ°、7s
pro血 Thc va⒒ anccs mali bc hrthcr an狃yscd nlto
Thc incrcascd salcs rcstlltcd frona a rcducoon in d△ e
sub-varlanccs to indlCatc thc acu、 △色cs° r opcrao° ns
s创 ung prlcc丘 om$2to s30sCl
山at alc pcrforll△ ng adx crscˇ 蚯 adxrcrsc叼 旧ancc
Thc actual cost of由 c mateⅡ al was$415and cach
dccrcascs prollt M`hⅡ c a favourablc va丘 ancc incrcascs
Capcl u∞ d110kg oftlle matcoal
pro丘 t Evcry xTarl洫 cc must bc dcscribcd as cithcr
Thc houdy rate p扭 d to fl△ c wo浓 crs w灬 $10but
fa、 nDurablc CD or adverse⑶ Any va。 ancc not so
each Caper took45inlnutcs to makc
dcsc1・ lbed厶 mcaninglcss and of n° help to
丿
kcmal varlablc producoon° vcrhcad xvas$720pcr
managcmcnt NO/,/oε 虑J9,///彡 矽 抵 az//勿叼召×汤勿
',9oΓ '/,J// Capc△ and由 c varlab1c scⅡ ng and dlstrlbuooll
彡 勿″磁 ″″ 肋 ″夕/抵s晚彡幽∥夕t rF,夕 rr/d,,''〃 //″'仫
侈夕t
'〃 ''方 ovcrhcad was$390pcr capcr
惦访饨;搦ed″ r/l,t//ll
扬彻 σ
Thc actual° utc° mc lr,r thc prodllcjon and salc of
23000Capcrs was thcrcforc:
356 ACrobat Ltd
Acrobat Ltd makc,sa pr° duct、 △ich it rnarlkcts undcr $
salcs rcvcnuc 701500
dlc namc° f‘ Capcrs’ Thc bu魄 ct± or。 nc mon曲 Dicct matc0廒 s 104995
bascd° n thc f° ⒒o、 爪ng standards ^ Dircct lab。 ur 172500
Producuon overhead 195600
No of Capcrs prodllccd and solcl:20000
schng and distribu谊 on 105700
沏仍弘仞沏

Pcf Capet:
Admln1stェ at〗 on 75000
sch△ g picc pcェ Capcr
653795
DLcct matc谊 al Ggl Pro丘 t 47705
Cost or ma侄 oal pcr kg
D丘 ccdabotlr ll-utCΘ AⅡ thcinf° rmation is nc,w avaJablc to cnablc
Labolr ratc pcr h。 ur
varlanccs t° bc calculatcd
357 HoW to CaIculate saIes Notc Ⅻ7hcn calculaong cost varianccs,alx△ ・
ays
var刂 ances start、 v1th thc standard and deduct thc‘ actuaΓ A
positkc rcmaindcr xx・ lll indicatc that thc variancc is
XX△ len a buslncss scⅡ s morc thall° nc tl pc of product,
fav° urablc,and a ncgaove remaindcr xxm indlcatc
sales vajanccs wm。 ccur whcn伍 c lyllX0f pr° ducts
that thc variancc is adverse,A⒈ vays dcscribc
sold dl±lcrs± rom伍 c budgctcd m必 ai,d glvcs osc to a
vaⅡ anccs as favourablc(F)or advCrsc(A)
nllx vaⅡ ancc H° wcvcr,止 is onllr ncc∞ sarv nl dus te趾
犭0anCe
Total co“ ˇ Ths厶 由c dl跖 吖cncc be内 钅cn
to considcr situa刂 onsinv° lx「 lng a siilgle pr° d△lct,
thc t° tal costs pcr thc rnaster budgct and thc aculal
Thc s狨 cs varianccs凡 ra蛀 ngle product ar⒍
tot/al costs hcurrcd In the casc° fAcrobat Ltd thc total
● voIume varian0e,灬 crcncc
`hch equals thc d饭 Cost Va0anCc is$(601000-653795)=$52795α V
behs,een dle rnaster budgct and d,c且 cxcd
budget Quand饣 v缸hncC Ths厶 thc amount of tllc total
C0st Varlancc`vhich is duc to dlc actLlal lcvcl of

Acr。 bat Ltd、 salcs volurnc vanancc is$(刀 6000-64000Φ acuvi,belng in° rc orlcss than budgct Itis± ound by
=$96000cD dcduc刂 ng dle ncxcd budget∞ sts from dae mastcr
budget c° sts,ACrobat Ltd、 quano0vaⅡ alrlcc is
● ptice variance,、 vhch is thc ditˉ fcrcncc $⒃ 01000-67300⑴ =$72000l.ql
bcb,i/een the±lexed budgct salcs and actual salcs Notc O且 ce Lhe qtlanuty mⅡ ancc has bcen
calculatcd,the m灬 tcr bu佗 ct^not uscd to calcul・atc
Acr° bat Ltd`salcs pllcc varlancc is$C3600O-70150o= 伍c rcn△ almng varlanccs;x,|rc shall calculate dle aⅡ 伍c
$34500⑶
va⒒ ances whch± oⅡ ow using thc flcxcd btldgct

CbP漉f Acmal sales-budgctcd s狃 cs=

Total逍 rect mateo缸 s vaHance Ths“ dlc
dlffcrcncc betss een伍 c ncKd bu吨 ct dlrcct mateⅡ als
$σ 01500-64000⑵ =$61500CD
Cost and the actLlal dlrcct matcrlals cost Acrobat Ltd、

s扌邵Ⅵ iumc⒕ ⒒
ancc-qalcs pncc v%nancc=$p6000~犰 sO0l
tota1dlrect matcoals varlancc is$(115000-10499劲
=$61500CD =$10005(D
Total dkect1abour vaoancc Thisis伍 c
dlt± crencc bc诋龟cn伍 c ncxcd budgctlabour cost and
358 HOW to CalcuIate total cost thc acn1allabour c° st Acrobat Ltd、 total labour c° st
varIances 吻Ⅱancc必 $(184000-17250Ol=$11500CD
Cost varianccs rnay be summaⅡ scd as foⅡ °、厂
s∶
Thc quano定 ”dircct maferlals and dlrcct lab° ut
,arlanccs can bc rcconcⅡ ed to thc total c° st、 么nancc
T0`迂 C0ST、 0`RIANCE if thc° vcrhcad cxpendltLlrc varlancc is/also takcn into
xTotal cost per m灬 tcr bttdg砹 Γtotal co歇 pcr ncKd blldg⑴ account:

$
⑶ΘΘ㈧㈧

Quan。 刂 Total dIrcct matcnals Total fllrcct labour

ˇanancc
Quan。 ,varlancc 72000
vanancc varlancc
Dllcct materlalsˇ anancc 10005

Drcα matc也 诋 Drcct matcnals

亠
Dlrccdabolr Diccdabour
Dircct labourˇ 征 ancc
0vcrllcad expcndlⅡ rc vaoancc+
11500
2sOo
Total c° st varlanCe 52795
Usage Pocc Em。 cncs/ Ratc
vaiance s・ arlatlcc ~z谊 ancc vanancc 十Pr。 ducoon overhcad$(191000-195600l=$4600O◇
scl△ n△ g aild dls± lblluon$(108000-10570o=$2300CD
Nct v狃 ancc=$2300￠ 9
Thc CIE syⅡ abus does n° t rcquirc thc calculaion
°f°vcrhcad va⒒ anccs and thcsc wⅢ n° tbc c° vcrcd
in ths text c》 ‘cpt as an ovcrhcad cxpcndimrc ExercIse3
variance Enigma Ltd has prcparcd a budgct bascd on standatd
Costs Itis shoss n bcl° w togctllcr、
^dl thc actu・
al 359 HOW to CaIcuIate materiaI and
res△ dts
labour subˉ variances
Budg欲 Ac“ al T° tal rnatcrl砬 and labour costˇ 叼rlanccs rcvcal the
No of umts 4000 4250 mall△ componcnts of thc dl± fcrcncc bcbvccn llexed
$ $ budgct total∞ 阱and acm破 total co吱 H咖 灬 d,tll【 s
Dlrcct matcnal 20000 23400
nltorma刂 on1s° f hnltcd usc to management as1t± a△ s
Dlrccdabollt 46000 47236
Varlablc∝ crhcad 10000 10500 sh° rt° f rc挝 rcsponslb山 9accoun刂 ng A matcrlal
Fkcd ovcrhcad 50000 50000 xarlancc may bc caLlscd by dle poce pald for rnatcⅡ al
126000 131136
Tota1c° sts bcing rnorc Or lcss than standard,° r by伍 c quan硅 ,
of matcrlal used for each u血 trnadc bcmg rnorc° r
Rcquked lcss than standard,Thc purchasnag managcris
(a) PrCparc a nexcd budgct for4250units responsib1c for pocc,alld岱 c fact° ry rnanagcr is
(1))CalcLJate: rcsponsiblc for usagc Thc totzal matcrlals varlance can
Θcotal c° st vanance bc brokcn down ht° prlcc and usage vanances for
⑾ expmdlttlre s,aoance 、扌ich thc pwcha⒐ ng and factory rnanagcrs rnust⒏ 、
℃
⑾ dlred maten狃 s,arlancc cxplanao° ns,
CD dlrC∝ ab° ur vaⅡ ancc
1・
simⅡ ar蜕 a to忱 llabour vaoance masz bc caLlscd by
(Θ RCc° ncⅡ c tllc acm・ al co哎 incurrcd、 注th thc 伍ch° tlr9ratC bCing pald to Workcrs bcmg morc Or
budgctcd costs,usmg thc vananccs calcLllatcd in less than standard,or by伍 e jmc takcn in produco° n
⑶ bC吨 m° rc。 r lcss曲 an stalldard,Thc pcrsonncl
ExercIse4 managcr k rcsponsible± or fLmg ratcs of pay,and thc
t/actory manager is resp° Ωsiblc for thc山 ne takcn in
Undcrpart Ltd h灬 prepared a budget based° n
standard costs It is sh° 、 gcthcr、
produc0on At° tal labour vallancc is,tl,crcforc,
`n belo灬 't° ^tli thc brokcn d° $,n int° ratc and cfncicncy varianccs
acttla1restJts
Direct matcoa1usage vanancc Thc formulais
Budg欲 Acmal 6M-AⅣ D s只 WhCrc sM话 thc standard qtlano呼 of
No ofu血 s 7000 6300 mateⅡ 挝 s Φcr thC±lcxcd budge9,却 v[。 thc acm械
$ $ quai△ 0σ ofmatC⒒ 狨s uscd,and sP is thc standard
Direct matetlal 23800 20890
p“ cc of matco械 s ωcrd・ e master budgc)
Dlrcct labotr 47250 44065
Vanablc ovcrhead 3500 3250 Examp∶ e
Fixcd ovcfhcad 62000 62llllo
Total costs 136550 130205 Thc c∞ t° f dlrcct matcr1・alin Acrobat Ltd’ s635Φ
ncxcd budgCt for23000Capcrs`陷 s$115000b・ascd
Req凼 ed on a哎 andard灬 c of1z~s kg° f matcⅡ 狃pcr Capcr/at
ˉ
(Φ P∞ parc a且 c【 d budgct for ω0O uln“ a cost o± $4pcr螅 Oliy1,10kg of matco砬 、 κrc
(l))CalcLllatα “cd br cach Capcr and伍 c cost pCr坨 Was解 15
Θ total c0吱 sa△ lance Thc usage varlancc is calculatcd as fo⒒ ows:

⑴ e冲 Cndlmrc跑mllcc standard m征 crla、 o卜 9≡ ⒛ 000× 1药 zB’ sO kg

⑾ drCd matcri狃 varlancc Aculal matco斑 s“ cd㈧ ⒆ =23000× 110l【 g 乃 sOO kg
Co drCctlabourˇ arlancc V血 ance(fas・ourablcl 30sO kg Θ
(cl RCconc△ e dle aculal c∞ t incurrcd碱 th thc tlsagc洌 n狙 cc at standatd ptlcc pct kg Φθ $13800lp,
btldg⒍ cd∞ sts,u⒌ ng thc vaoanccs c钮 culatcd in Dhect mateⅡ 缸pHcc vaⅡ ance,Thc± ormula ls
⑴ 6P-APl AMwhCrc sP ls由 e stzandard pJcc and AP
is dlc pricc actuaⅡ y paId In the examplc of Acr° bat C/矽 浃 f Elflcicncv varlancc_rate variancc=
Ltd tl△ c standard pⅡ cc was$4pα l【 g,and tllc pⅡ cc total labour varlancc:$23000O9-34500CD=
actuaⅡ y pald was$415per kg Thc pocc variancc is $11500σ ,Th^is cqual to total standard dircct
calcuIatcd^s foⅡ ows: labour c°st of$184000minus the t° tal actual direct
labour cost of$172500
$
&mdard picc Φcr⑷ 400 ExercIse6
Acttlal pocc 415
Va⒒洫cc(adii/Crscl o15← Dande△ °n Ltd has a standard dircctlabour c° st lor
)

Actual qllalltl,of makcrlal 25300 kg thc production of onc packct of Pickup based on
Prlcc vaflancc⒓ 5300× $01sl $3795 (A) 1Iab° ur hour at$10pcr hour Thc producjon of
12000packcts of Pickup rcqturcd125hours paid
C汤 :Usagc vailancc-pllcc varlancc=total
`浃 at$850pcr hour
matcria1variancα $13800CD-$3795灬 )=
$10005σD This ls Cqualto tot/al s忱 ndard dtlcct Rcqu虹 cd
matcria1c° st of$ll5000minus tl△ et° tal actual Calculatc the dlrect labour c± ±
lcicncy and rate
dlrcct mzatcllal c0哎 °f$104995 varlanccs± t● r12000packcts° f Pickup
ExercIse5
3510 HoW to com1η ent on variances
DandeⅡ on I'td manufacturcs a hcalth food kn° wn as
‘Pickllp’ Thc stand缸 d matcrlal cost of a packct° f Qu∞ 。ons mPty rcqluK cai△ dldatcs to Commcnt on

Pickup is as foⅡ f,ws:3Ⅱ trcs at$5per Ⅱtre In onc varlances thcy havc calculatcd Tllls is not a difnclJt

month DandcⅡ on Ltd produccd12000packcts of task if thc foⅡ oxxtnbc ad、 icc is heeded

Pickup uslilg28Ⅱ trcs of rnaterial per packct at a total ● VaⅡ ances highllgllt° p∝ aooⅡ dlat do n° t
Cost of$480pcr Ⅱtrc match standards Thcy do not cxp1aln thc
causes of diffcrcnccs but sho、 严rnanagcmcnt
Rcquired whcrc Furthcr invcsoga0on is rcqlurcd if
Calculatc thc dlrect materlal usagc and plicc var,anccs
cffcctlvc corrcCjvc acjon is to bc takcn
f° r12000packets° f Pickup
● Without thc± Llrthcr invcstidcao° n mcnooncd
D△ cct1abour e￡ Ⅱciency variance This v猢 ance
abovc,itis n° t pos⒍ blc to d° illorc than suggcst
厶calcLllated tlsing tllc允 rmula6H-Aθ sRwhere possib1c rcasOns for、 ananccs somc chccks to
SH is the standard hours,AH is thc actual hours
support c° mmcnts are suggcstcd bc1ow
takcn and sR is thc standard ratc of pay
● A favorablc matcriaI usage variancc may rcsult
lrom∶
Acrobat Ltd、 standard hollls WCrc40illlnlltcs Pcr Capcr,or a tota1
1 usc° f inatcrial of a bcttcr quaⅡ ty than thc
f盂 ×
° 23000=1533333hours
5 standard:chcck l【 ,r an advcrsc rnatcrlal prlcc
Thc aculal jmc takcn was45nlullltcs per Capc‘ or a total of vartailcc,or for a favotLrablc labour c± ±
lciency
45 iancc⑴ ateJ挝
×勿 000=17乃 000llotrs xra攵 casicr tO wclrk`、 s`∶ it⑴
面 2 thc lab° ur bcing° f a lughcr skl△ than thc
Variancc =1916臼 h° tus￠ 、 standard skJ1c g sⅢ cdlab° ur uscd instcad
191667h° 匹s× standard rate at$12=$23000◇ ⑴
of scn△ -sk± llcd;chcck f° ran a抵qrsc labour
ratc、 ari助ncc
Direct1abour ratc vaoancc Thsis calculatcd
● An advcrsc mateⅡ al vari佥 ncc may indlcate:
u∮ ng d△ c formu1a6R-ARl AH whclc AR0伍 c
ˉ 1 山c usc of substandard matcrlal-chcck for a
actLl缸 hoLlr圩 ratC o± p缈
fax ourable rnaterial pⅡ cc varlancc Or for洫
Acr° bat Ltd1actLlal h° urly ratc of pali was$10and
advcrsc1abour cfscicncy vaoancc
d,c ratc vaⅡ ance is$G2~1017250=$34500C)
2 thc cmploymcnt oflowcr skllcd labour- 1 1ocal compc讧 u° n has ncccssitated a pricc
chcck for a± /ax・
ourablc1・ abour ratc varlance rCdLlC色 0n
A favourablc1abour ratc varlancc lnay restJt 2 sdⅡ ng prlccs havc bccn rcduccd in seasonal
from thc cmploymcnt of alo、 f s狃 cs
`cr grade°
1abour than standard-check f° r an 3 s° me fa,,ourcd customers haˇ ℃been￡ 乒vcn
unfav° urablc1abour cfⅡ cicncy variancc Or an pocc conccss1ons to mcreasc s/clhmc of
advcrsc matcⅡ al usagc variancc ordcrs
An unfav° urablc l引 oour ratc variancc rnay rcsult 4priccs h锕 c been reduccd gci△ cratly to incrcasc
m:
fl° salcs volume
1,cmploymcnt° f a hlghσ slklⅡ oflabour tl,an ● AⅡ commentsshou1d bc consistcnt and not
standard-chcck for a± ax our创 ic cfflcicncy contra山 ct cach o伍 cr Explam posslblc Ⅱnks
v么 ⒒ancc bebⅣ ccn vaⅡ anccs Bc cIcar and concisc
2 a wagc incrcasc(山 C standard shoLlld be
rcvi⒃ Φ
ExercIse7
A favourablc salcs volume varlance may occur Larabcc Ltd prcparcd a budgct for thc producoon of
bccausc: 300units in丿 as foⅡ °ws;

1 sc⒒ ng poce has been reduccd to incrcasc `prⅡ

$⒛
volume
Drect ma∞ na、 ←kgpα u血 9

ω
2 seas° n/al s挝 cs havc incrcascd volumc D△ ecdabour Φ11pcr ho⑾
3 speci/al dlscounts h岔 VC bCCn g、 ℃n to sclcctcd
customcrs to1ncrcasc ordcrs Thc producu。 nt。 r thc rn° nth was400umts and
4,l° cal compcioon from° 伍cr nrms has thc costs、 oM`s:
dlsappcarcd `ere as foⅡ

An advcrsc salcs v° lumc va五 ancc rnay occur $

bccausc: Drcct ma峦 rlals Φ625pcr ligl 9000
1 sc⒒ ng prlcc has bccn incrcascd to pass D△ ccdabour O25hours pcr u血 ◇ 10890
1ncrcascd costs onto Customcrs
2 tltc goods havc bccome unfash° nab1c or Rcq“ red
obsolctc ⑶ Calcuhtc thc loⅡ .Ⅳmg moanccs凡 r Apr△ ,

3 customcrs has,e heard that ncx△ ,improvcd Θ dlrCα mateⅡ 挝灬agc

products xNm bc a、 叼Ⅱablc soon and arc waltJng ⑾ 洫 Cct m狨 cri狃 pncc
for tll° sc ⑾ dlrCct labot】 r clˉfloenq
4 1° cal compcuoon fr。 m。 山cr丘 rmsrn锣 havC C⑺ dlrC∝ labour rate.
o)C° mmcnt。 n thc△・
arlanccs in◇ D al,d扯 ggcst
hcrcascd
Af・ax ourablc salcs prlcc vaoancc tnay occur
possiblc causes

becausc:
1,incrcascd costs havc bccn passed ont°
3511 ReConC"iation of budgeted
Customcrs h thc scⅡ ng pⅡce profit and actuaI profit
2 p丘 ces havc bccn increased in Ⅱnc w1山 Actual pro丘 t sh° tlld bc rcc° ncⅡ cd to tllc budgeted
hⅡ a刂 °n pro丘 t by summarising thc varianccs
3,f灬丙
℃r dlscounts h孙 o、
`cd to
fax・ oured customcrs
`c bccn a⒒ Example
4 1i△ lprovcd pr° ducts haˇ ca⒒ o、vcd prlces to be The acmal pr° flt madc by Acrobat Ltd is rcc° ncⅡ cd
】
ncrcascd, to伍 c budgctcd prof鸟 using thc vaoanccs that havc
灿 advˉcrsc s/alcs pnccˇ么nance may occtlr bccallsα bccn c狃 culatcd abovc,as foⅡ osszs:
 $ $ o)calcLllatc tlle dircct labour ratc and c∫ lflcic且 cy

Pr。 ilt pcr mastcr budgct 39000 var1ances

Add∶ favotrable varlanccs (Θ prepare a statemcnt rcconoling thc actual
salcs volLlmc 96000
direct rnateri/al and dircctlabour cost of
Matcrials usagc 13800
Labo豇 ratc 34500 producing10000units with thc standard cost
183300
(a)Calculation of dircct matcrlal varianccs
Dcduct:advcrsc varianccs
Quanutv 72000 Bc± orc d△ c varlanccs can bc calct△ latcd,sornc basc
sc⒒ng pⅡ ce 34500 data must bc prcparcd:
Matcrlal pl,cc 3795 Aculal c° qt° fd丘 cct matcrlal=$80000-$6200
Labour elilCicnCy 23000
0vcrhcad cxpcndlturc岱 35Bl 2300 135595 =$73800
Actual pr° flt(§ 35Θ 47705 Actual cost pcr kⅡ ogram of dLcct mateⅡ al=
$73800/18000=$410
EXerclse8 Standard rnatclial rcqlurcd to producc1000011illts
Cantab Ltd、 standard c° sjng records pr° xTide the =10000× 2=20000kⅡ ograms
f° llowing information f° r thrcc rnonth’ s Thc dircct matc⒒ aI pllcc v△ rlancc can n° w bc
productlon and salcs calculatcd∶

$ 6400-$41⑵ ×18000=$1800A
lvIastcr budgct pront 98970 Tbc dlrcct matcrla1usagc varlancc is
Varianccs (20000-18θ 00)× $4=$8000F
Qu⒛乜轷 1u::胃 Ca1cL△laj° n of dircct labour varlanccs
salcs,|t,lllmc cb) tl△ c sTaoanccs can bc calctllatcd
salcs p谊 cc 3730O9 a△ l,bc・ brc
ζ
N1atcrlal usage 6280￠ 9 somc basc data nccds to bc prcpared∶
`、 `￡

Matcnal pⅡ cc 9635Θ Actual cOst of dircctlabour=$300000+

Labclut crflocncy 10500Θ
Labour ratc 7840⑶ $18400=$318400
os/crllcad cxpciltlltlrc 5760⑶ Acilal dl1・ ect lab° ur hours workcd=
$318400/$995=32ooo
Requircd
Tota1standard dircct lab° ur h° urs f° r
Prcparc a statcmcnt to shoW thc actual pr° Πt rnadc by
10000units=10000× 3=30000hours
Cantab Ltd in dlc由 rcc months covcrcd by thc glvcn
Thc dircctlabour ratc varlancc can no、
nlforma刂 °n `bc
calcu1atcd∶
It is possiblc to环 Π
ork backw⒓ rds fron△ thc vatlanccs
($10O0- $995)× 32000=$1600F
to arrhc at thc acttlal and standard costs
Thc dtrcct labour cf丘 cicncy v么 rlance is
EXample o0000-3200lJl× $10=$20000Λ
氓诋 ston Ltd produccs a“ nglc produ∝ Dc・ taJs ofthc (〈
∶statcmcnt
)
rcconcⅢ ng the acmal dircct rnatcrlal
producoon and budgct for rnonth5arc: and dlrcctlabour c° st。 f producing10000u血 ts
晒△
th the standard cost
Acmal outpllt 10000Ⅲ i‘
阢狃 dard matc⒒ al cost2kg× $4 $80000
Actual usagc of matcrial 18000kg $ $
Acttlal d止 cct matcnal and
Total matcnal vatlancc $6200favourablc
Standard1abolu co哽 3l△ rs× slo $300000
Iabol△ l cos“ $刀 g,0+阳 18+0o 392200
Actlldl labclur rate $995pcr houi
Docct matcrlal p。 cc x arlancc 1800A
TotaI labour variancc $18400advcrsc
Diェ cct matcria1usagc variancc 8000F
Dlrect labolr ratc va⒒ ancc 1600F
Requircd Dllcct lab° uェ cffIocnq「 vaoancC 20000A 12200A
standard dltcct rnatcJal and
⑶ caktdatc tllc dircct matcrlal prlcc and usagc labour costs($80000+$30000Φ 380000
var1anccs
 ●

Learn the fo"η ulae for ca丨 ouIat ng the variances

●

DescHbe every vaⅡ anoe as favourabIe(Fl or adv° rse〈 A)

●

EVery va"ance must be shown w"ha$sign,othem se"is meaningIess and wⅢ

gain no marksin an exam
●

Use colη mon sense、 Vhen co丨 ηmenting on Varianoes;rememberthat varianoes only indicate opθ rations that
requ re furthe'inVestigaIon t° reVealthe causes

1. A company manufactures a product whioh 4. The fo"o、 ˇing information is avaⅡ able about a
requires2hours of direotlabour pθ r un"Normal ρrodud
outputis1400units and the standard Iabour rate
is$650per h° un standard seⅡ ing price per unit $17
ln one month the company lη anufactured13oo Budgeted s引 es lun"sl 45000
units ofthe pr° ductin250o direotlabour hours Actu引 sales lunⅡ sl 48000
Costing$17550 T0tal sales revonue $744000
Whatis the direotIabour e矸 iciency variance? Ⅵ
A $650(fav° urable) B $675(fav° urable) A `hatis
$51000(A)
the sales prioe varianoe?
B $51000〈 F)
C $1300(fav° urable) D $1350(fav° urable) C $72000(A) D $72000(F)
2. A company makes a s丨 ngle product whioh 5. DetaⅡ s of direCt rnateriaI oosts are as fo"ows
requ″ es tWo types° fraW mate"al"onium and
zetonium The standard cost of丨 mateHaIs to Budget Actual
produce one un"ofthe produd is sho、 Vn∶ 41500kg at$12per kg 44ooo kg at$132o
per kg
Matθ rial kg standard oost Ⅵ
($per kg) A `hatis
$49500(A)
the dired material prioe variance?
B $49500(F)
IOnium 30 2 C $52800(A) D $52800(F)
zetonium 45 3 6. A company’ s cost° f producti° n is丨 ηade up ofthe
oost of direct丨 ηateria丨 s and the cost of direot
100un"s ofthe product have bθ en made using
Iabour The foⅡ owing variances have been
3100kg° fi° nium and44o0kg° f zetonium
calcuIated atthe end ofthree month’ s produCtion:
Whatis the total material usage Va"ance?
A $100(adverse) B $100(favourable)
C $500(adverse) $
D$500(favourabb) Direot mate"ab usage 1600 adverse
3, The foⅡ owing∶ nformation is available for the sales
D″ ed mate"als ρ 1300 faVourabIe
of a product
"ce
Direct Iabour e秆 iciθ noy 820 favourab丨 e
Budgeted salθ s 400oo units at$5each DireotIabour rate 900 adverse
Adualsa丨 es 42ooo at a totaI revenue
°f$189000 The aotual cost of production was$23440
Whatis the sales vo丨 ume variance? What Was the standard o° st° f produotion?
A $10000favourable B $11000faVourable A $22220 B $23020
C $11000adverse D $21000adverse C $23060 D $24580
1. Kings凵 d makes an eIedronic device forfinding RequIred
lost keys,which it has patented underthe (c)Prepare|edger accounts for processes1and
trademark‘ Gonkeys’ The produot passes through 2based on actual exρ end ture
t、v° proCesses and the budgetforthe production (d)CaIcuIate the fo"owing va"ances for process1
of10000Gonkeysis as fo"ows∶ C)mate"引 ρ
"ce
UO mate"d usage
Process1 Process2 and the fo"oWing vaⅡ ances for process2
Costs per Gonkey Iab° ur e仟 i0iency
(Ⅱ )

Mate"d 2kg 4Ⅱ tres Uv)lab° ur rate

Cost of mate"aI (e)State fov'advantages of using a system of
per kg/lⅡ re $8 $6 standard costs
Labour hours 2. Pembroke ud makes an item offurn⒒ ure known as
per Gonkey 2 4 a Tripos The standard oost per Tripos|s as
Labourrate per hour $10 $12 foⅡ oWs∶
Production overhead
absorption $20per $23ρ er Drect mateHaⅡ 2kg at$7per kg
abour/hour labour/hour
∶ Directlabour3hours at$10per hour
Produdion overhead:d1ectlVaHaue)$14per
Roqu"ed directlabour hour
(al Prepare budgeted accounts for processes
indirect lfxedl based on
1 and2to shoW the Cost of producing10000 overhead abso币 ti0n rate of
Gonkeys $30per directlabour hour
The actuaI production for process1ˇˇas
10000Gonkeys In process2,comp|eted Funherinformat on forthe three months ending
production Vˇ as9000Gonkeys,and1000 30June
Gonkeys were compIeted asto50%of 1 The budgeted a丨ηount for dired Iabour∶
materiaI and Wages
$120000
2 Adnninistration and se"ing overheads forthrθ e
RequIred months ending3o June∶ $32000
(b)Prepare a fIexed budgetfor process2based 3 Factory profⅡ is20%of cost of producti° n
on actuaI production 4 The budgeted seⅢ ng pHce per Tripos∶ $25o
Actua|costs per Gonkey、 ″ere as fo"o、 vs∶ 5 NO stoCks of raˇ V rnateriaIs,work in progress
orfinished goods are held
PⅡoCess1 Process3
Mate"al 222kg 3751Ⅱ res Requ】 red
Cost of mate"aI
la)Prepare a budgeted Manufactu"ng account
per kg/IⅡ re $825 $62 and lnoome statementforthe three months
Labour hours ending3o June to show the budgeted net
per Gonkey 225 45 profit or|oss
Labou￠ rate per hour $1150 $1150 〈
b)CaIcuIale,using the information in(a),the
Production oVerhead breakˉ even point and margin of safety The
absorptlon $20per $23per margin of safety shouId be shoˇ Vn as a
Iabour/hour labou〃 hour percentage
The actual production of Tripos and the reIated U◇ a Ⅱ
nan。al statement based on actuaI
revenue and costs forthe three rnonths ended resu"s
30June were asfoⅡ ows
(d)CaIcuIate the fo"oWing vaHanoes:
No ofT"pos produoed 4180
Materia|s used 8990kg (◆ quan】 ty(the addⅢ ona profⅡ a"sing from
Cost of mate"a丨 s $61132 inoreased production)
Direot abour hours 14630 0O saesv° ume
Dired|abour cost $138985 (Ⅱ i) sa|es p"ce
FiXed oVerhead eXρ endⅡ ure: v)dire° t mateHaIs usage
〈
Produc犭 on $372000 (v)direct mate"als p"oe
Administra】on and seⅢ ng $42000 (v) direct|abour θ
π丨cienCy
se"ing ρHce per Tripos $248
(v O dired labour rate
The overhead absorption rate for var|able
production overhead was not a矸 eoted A"Tripos (e)Ca|° ulate the breakˉ eVen point based on
produced wvere soId aotua|revenue and eXpond"ure show your
〈
Required workings)
(cl Prepare
〈
i) a flexed budget based on the aotual (f) Prepare a finanoial state丨 ηentto reoonc"e the
number of Tripos produoed and sold and original budgeted ρrofit with the actua丨 profit
 Invest:η ent appraisaI
● whatinVestment aρ ρraisalis
● hoW to CalCuIate accoun】 ng rate of retum(ARR)
● hoW to ca|cuIatθ payback period
●hoW to oaloulate net ρresent valuθ 〈 NPV)
● hoWto oaICulate intemalrate of return uRR)
● hoW to CalCulate t|e sensⅢ viˇ investmentto errors in es】
361 What is investment appraisaI?
Invcst:nent appraisalis a process of asscs⒍
x1ˉ hc伍 cr k ls・
,c,rmW・ h△ et。
,△ mw哎 fLlnds
Thc project m呷 bc tcpl/accment of an c妊 song asset,
acqmnng an addl0on挝 assct,in付 oduCkg a n唧
product,opc血 ng a new branoh° f a busincss,ctc
Funds inˇ℃stcd h a projcct mγ hcludc addloonal
W° rk鸭 caplt挝 as wc⒒ as expendlmrc On n° n~
cu± rcllt assets Th∞ e pr丬 ccts alx1・ γs in、
cholces,inc⒈ 1dng xshcthcr or not to proceed xNith
thc proⅡ ct,Whlch asscts to buy、 扌
ich ncw products
t° introduce,and s° °n,
Acc° unong tcckqucs arc csscnoalto° ls whcn
伍∞c dccislons hase to be madc Hσ 鸭vc△ prolcc“
must someomcs bc undcrtakcn c⒕ n whcn伍 e
accoun砬 ng tcch血 qucs appear to ad~isc agatnst thcm,
c$d△ at^cau血 名 an
For cx/alnple,a busⅡ △
cnv丘 onmental nulsancc may facc bcing cbsed do、
Ⅱ hCalth and safc″ hspcctors匹屺 ss it spcnds a
c° 血sidcrablc suln° fm° ncy to abatc山 c nLllsance It
is wcⅡ to remcmbcr that mvˉ csuncnt deosi° ns sh° uld
ody bc madca丘 cr a△ rclc仫 nt mattcrs,∝ onα mc,
poⅡ 刂cal,cllxironmcntaL sooal,ctc ha、 K been
cons1dercd,
Ths chaptcr o concerncd pnncipa△ y牺ith thc
nnancial tcch血 qucs of appraJsa⒈
● accOLlnong狃 tc of rcturn◇
●payback pcr1° d `RRl
mates
●net prescnt valLlc O`P~9
●internal r敛 c ofrctLlm cⅡ )
ng
These tc山血qucs arc dcs心 Ⅱdt0灬 sc$thc qLla△ 中
h a prolcct
of pr。 ccts,bCnC丘 ts汕 sing】 om伍 em,and dcgrccs
of J酞 h、d⒕ d Odyacc° un刂ng rate of rcturn o
conccrned x△ ,lth pro丘 tab山 〃;thc o伍 ers arc bascd° n
cash且°、/s,ThC nCt prcscnt xalue and htcrnal ratc° f
rctLlrn takc伍 c血 csˉ aluc of m° ncy1nto account
Th叩 arc aⅡ bascd on add庄 °nal bcnc丘 ts and costs
DhC makng
“ ・
x△ bJch wⅢ arlsc from a prolcct ThC∞ arc rcferred to
hcrcmental proflts and cash n。 xb s,E蛀 s刂 ng pr° flt
and cash且 oM尢 are lgn° rcd as bcJng1rrclevant bccausc
tb叩 wⅢ contulue whcthcr thc n锕 ect is
`pr叼
undcrtalccn° rn° t,Thcrc arc h△ o ncw termsto lc狂 n,
● sunk costs Consist° f cxpcnditurc that has
been hcurrcd bcbrc a n∞ bccn
`prolcct h郎
∞ nsidcrcd For愀 amplc,a compa叩 plans to
htroducc a nOw product that xLttl rcqLllrc thc usc
~n of a machncit acqLured somc ycars ago and has
uscd in thc produc刂 °n of an cxtsing pr° duct,
Thc c° st of伍 e machncis a sunk c° st bccausc
it has akeady bccn incurrcd and is not'`哆 物 栩
Its costis a hlst° Ⅱcal fact and cain° t havc any `
bearmg on血 mrc dc0slons,
● opportuni饣 costs are the xalucs° f bcne丘 ts
伍at、注Ⅱbc sac⒒ 丘ccd if res° urccs arc cⅡ vcrtcd
from伍 clr prcscm Llses ω othcr app△ca刂 ons For
cxatnplc,if a machne that has becn car血 ng
annual nct rcvcnue of$50000is t° bc used
 cxclus⒒ clv lor anothcr opcra0on,it wⅡ ccasc
to car且 thc$50000 Thc Iost rcvcnuc is an
opporuIillσ cost If the maclulc xxm carn nct
rcvcnue of$70000in its nex△ capaci“ thc
dccidc whcthcr thc pr° iCct、 汕1be w° r山 wⅢ e Ifit玉
currcndv catnhg a retLlm on capital emplord
CROCEl of lCss伍 an2375%,fhe project shodd
imprc,vc lts oVcrall pro丘 abⅡ 06if d△ e prescnt ROCE
t・

incrcmcnta1nct rcvcnuc、 注Ⅱ be$20000 an2375%,d△ c projcct wⅡ 山htc丘 s

($70000-$5000Ol ^morc u△
profltab山 ,

Notcs
36.2 HOW to CaICuIate the
● ARR ls thc on圩 tcch血quc bclng con“ dcrcd
accounting rate of return(ARR) that takcs dcprCciao° n of thc invcs“ ncnt into
The accoundng tatc of return cxprcsscs aˇ oragc account
proⅡ t lrom dle Ⅱ
avcstmcnt as a pcrccntagc of flie ● A prolcct m缈 reql1ire an incrcasc in worl【 lng

aˇ℃ragc of伍 c capit狃 mˇ cstmcnt: capital bccausc dns rnay result m increascd stock
and dcbtoⅡ Anylncrcasc in worⅡ ng capltal wⅢ
旦二2竺萑￡」E竺」LL~ˉ × 100
=ˉ
avcragc1nvsstmcnt bc assulncd to rcmaln constant throughol1t the

A、 ℃ragc pro丘 tis thc average of thc incrcmcntal Ⅱ±c° fthc prolcct and n° calcdauon ls rcqu1tcd

pro丘 t C c dlc pr。 g丘 om d△ en△vcstnlcno

st arlsii△
to丘 nd伍 c脚 αagc incrcasc F° r cxalllplc,if a
or伍 c Ⅱfe° f dle pr㈣ Cct For prolcct involxrcs dlc pu∞ h灬 e° f a machncata
cxpcctcd to bc carncd oˇ
cxamplc,jf伍 c cxpcctcd pro血 ovcr a peⅡ od of丘 、 ℃ co敬 of$60000and an△ lcrca∞ h硒 0rklng
ycars is:ycar1 $26000;ycar2$30000;year3 caplt诫 of$40000,thc avcragc invcsuncnt is
$33000;ycar4$34000;ycar5$35000,the average ($60000+$40000l=$70000
proflt for thc purposc of calcdatlng ARR is;

$倡 6000+30000+33000+34000+35l,llOl÷ 5=$31600 Advantages of ARR

1Thc expected pro丘 tabⅡ 饣 of a prolcct can bc
Non o浏 △ent asscts XXJll bc dcprcα a∝ d ovcr dlc comparcd、 注th the presellt pro丘 tabⅡ ,of dlC
peⅡ od nl wkh thcyxxil bc ci△ 1p1r,,cd° n a proicct and busli△ css

Jle average mves乜 ncnt is thcrcforc thc aⅥ cra箩 book 2∮d《R^compara乜 VCˇ C灬 yto c・alcdatc
x・alLlc° f thc灬 se“ dLlnng d△ at pcood Unforimzatc玩
Disadvantages of ARR
thcrc arc diflcrcilt op△ llons as to hoxi|thc avcragc
1 Thc average annual proflt uscd to calcliatc ARR is
mVcs乜 ncnt should bc c尉 cdated studcnts± or dlc CIE
t△i△ Lkll,to be dle pr° flt吻 rned h any ycar of伍 c
cx盯 Ⅱ nccd ody bc湘 镟c of jle s止 oplcst mculod,
Ⅱfc ofthc projcct
st° f thc asscts aCquired
whch is thC c° 2 ‘Proflf is a subjccuvc conccpt It dcpcnds upon a
2
nllmbcr ofˇ ⒓ nablc po刂 cics such as proˇ1sions± or
Example
dcprcoao° n and dollbtfd debts,vallIa刂 on of
Bagglns Ltd rcqtttrcs a n邰 v maclllne that wⅢ co吱
st° ck,and othcr rnattcrs
$160000and havc a usctul tIfc of￡ vc years The 3 Thc rncthod docs nottakc⊥ nto account of thc
maclnlc is cxpcctcd to carn pro丘 ts in thosc丘 vc ycars
0mng of cash Πows Thei血 oal ouday on the
of$15000,$18000,$21000,$21000and$20 project is at rlsk unuI thc且 ow of cash int° thc
000Thc avcragc pro± lt is$95000÷ 5=$19000 bus1ncss has c° vcrCd thc1m硅 al cost
Thc avcragc invcstmcnt is$160000÷ 2=$80000 4Λ RR f moncy Evc呷 $
lgj,orcs d△ c umc valuc。

×100=2375Vo rc∞ wcd now is morc usc± ulto a bushcss伍 an a$

Aˇ cragc ratc of rcturn is:畲
::詈: rccαvcd at a latcr datc
Bagglns Ltd is able to coinparc2375⒐ 乞x△ ith d△ c 5 No account1s takcn of thc Ⅱfc cxpcctancy of a
ratc of rcturn dlatit cxpects to earn on capital to pro丿 cct
Exercise1 Examρ Ie
Bascbal Ld htcnds to introducc a ncw productthat Dumbe△ s Ltd“ proposhg to markct a n内 严product
is cxpcctcd to produce the foⅡ owing incrcmcntal wlich、 荫 ⅡinⅥ △△ ・e thc putchasc of n曰 w plant cosong
proflts os cr a pc⒒ od of sL《 years $100000,口 k nct rccopts from伍cn∽ v product arc
cxpcctcd to bc as foⅡ ov⒌ ycar1$3000⒐ ycaJi2
$ $
Year1 23000 、℃ar4 26llllo $40000;ycar3$50000;year4$45000,
Year2 24000 Ycar5 29000 Thc pa丿 Dack pCrl。 d ls calcdatcd as foⅡ ows In山 c
Ycar3 25000 Year6 23000 丘r针 小v° ycars,nct recclp“ wiⅡ amountto$70000
Thc prolcct M・ m rcql"fe the usc of a machnc伍 at Thc ba1ancc of$30000M・ m be recc小

×
`cd h thC dJLd
w灬 purchascd somc ycars ago at a cost of$16000 ycar::∶ 12=72months Thc paybaok pcrlod
and thc usc of a scCond machnc thatxxm havc t。 bc :::
purchascd for$120000It^cs0matcd that “,伍 crcforc,2years8mon曲 s σtw° llld bc
invcnto孑 hcld WlⅡ incrcasc by$10000,and tradc unrcaⅡ soc to bc morc prccise由 an也 is)
rcccivablcs、 犭Ⅱ incrcasc by$15000
Advantages of payback
Rcquhed 1 It is rcladvely slmplc to calculatc
Calcdatc dae accoun刂 ng ratc of rcmrn that ⅥiⅡ be 2Pa灿 ack can compare伍 c rclatlx c⒒ sks of dlffcrcnt
carncd from thc ncw pr° duct proJccts,
3,Cash且 ow o less subjecus・ e伍 an pro丘tabⅡ 9
;t33 HoⅥ
∶ 4・ Pa珈 岔
ck hghLghts dae oning and sizc of cash
`to CalCuIate payback
peHQd n。 、
vs
5sh° rt pa” ack pc。 ods resdt h increascd Ⅱquudi〃
Und曲 eiⅡ 0al cxpcndlturc on a project has been
and cnablc bushcsscs to grOw more qul吐ly
co【 red by nct rccclpts lcash in且 ow-c灬 h0ut且 ox△ l

fr° m dae venturc,a bushcssis at osk° f bemgM`orsc Disadvantages of payback

°
ff than lf止 had notlaunchcd d△ c pr° ject 1Thc lfc cxpcctancy of由 e prolcct^lgnorcd oncc
Calculaoon of d1c payback pcood indcates thc0mc 伍cp幼 朽ack pcⅡ od h灬 bcen esaluated伍 e nct吻sh
⒀σ wluch伍 c busincss厶 at nsk short pavback hnσws aftcr d"s山 mc arc蝗 p° rcd Thslsa
peJo曲 arc prcfctrcd∞ pcci碰 yh刂 mes of hgh ptoblcm w1th dis rnc伍 od of cs。 aluaj°n,as later in
nn/au。 n dtc Ⅱfc of thc prol∝ t nct cash n。 xvs mγ be
Thc payback mcd,od o concerned Mith cash n。 ws, ncgauvc
not、放Jl profltabⅡ iy;dcprcoajon docq not cntcr into 2Projects xx・ lth d,c samc pa” ack pCⅡ od m纡 has,c
thc calculauons dlfferent cash且 ovs For cxamplc:
In ordcr to carry out the e,aluauon thc nct cash
n∞ /s aⅡ smg n。 m thc pr° ject must bc calculatcd, Projcct】 Ptolcct2
Tlis is thc cⅡ fference bc№ ccn thc cash co洫 g in $ $
Year O Immlcost
±rom thc projcct Chs c° uld bc伍 c salcs r四cnuc Or lgO000l lsO000l
Year1Nct cash li△ ao9r 15000 30000
savmg91css the cash pa” mcnts ansing丘 om thc Ye狂 2 25000 00000
project ProfltabⅢ ″and dCprcclau° nd。 n。 t cntcr Ycar3 4k)000 10lXlll
into thc calcula包 0ns,Itis mportant to considCr、 严hcn
曲e cash c° mesin and gocs out,not whcn salcs or Bo伍 projccts h小 is
`c a payback pcood of thrcc ra●
purchases are rnadc It rnay also bc ncccssary t0 and siMar atnounts of c岔 sh inn。 v,s,but projcct2
∞nsidcr a buJd up of№ rkmgcapm Th⑾ ccds to 厶m° re attracu△ c灬 伍c cash no9z`bcttcr“ thc
bc血 own at伍 e start of thc proicct as岔 cash out且 ∞⒎ earll,yca6
At伍 c cnd° f伍 c projcctitis brought back hto the Notc,The m刂 al ouday is sho、 vn as rnadc in ycar0

bushcss as a cash inΠ ∞乙 bccausc it“ assumed,slmpl,・ as a mattct of

 convcnicnce,that cash且 ows° cCur0n伍 e last day The dmcv赳 uc of m° ncy is important、 vhcn f△ulrc
of tbe yea⒈ The iiuoal ouday sh° dd be shΦ vn as cash n。 ws arc comparcd、 讨th prcscnt cash n。 ws
occtrrnlg on tl△ c flrst day of ycar1,and伍 c last bccausc‘ Ⅱkc should bc comparcd、 ,Fumrc
^th hko’
dal of ycar O is thc iˉ lcarc“ wc can gctto d,c fir哎 cash且° ,s arC dlscountcd to prcscnt day vahcs so
x△

day of ycar1 Thc usc of伍 c tcrm‘ ycar’ shou1d 伍at thcy∞ n bc conlparcd诫 吐1thcimual ouday on
not bc conhscd witl△ 伍c accounong ycar start° r a rcaⅡ s刂 c bas1s,
cnd It rclatcs solc圩 to thC s仫 rt ofthc prolcct In addloon,山 c fuu⒒ fc。 fd,c projcct^
σCar Ol,thC yCar at wlfl∶ ich tllc proJcct针 arts Tllls c° nsidcrcd Tlis is a posi缸 VC adXyantagc of using net
△’lll bC at any point durlng thc accounong pcⅡ od
,△ prc⒃ nt x。aluc ovcr pa’ back
3Tlle snnpk payback method lgnor∞ the ume xalue Fuoarc cash flo、 鸬arc the esomated cash recelpts
of m° nev,but lt o posslble t° app灯 dlsc° un乜 ng lcss ohc es血 ated cash pa,..】 cnts attrlbutablc to an
tech△ qucs to ltto oVerCome ths± aiLng h⒕ stlnentand WⅢ Ⅱu庄 Ⅱ
y bc known as netreceⅡ ts
or net paynncnts,If assc灬 purchascd fot thc projcct
Exerclse2
arc sold atthc cnd of thcˇ ℃
nmrc,thc procccds of
Δ汪aplcduck Ltd is plan血 ng to rcplacc onc ofits
s/alc sh° uld bc inchdcd in thc nct rcccipts in the last
machmcs It has bvo choiccs of rcplaccmcnts:
yc狂
◇Ⅳak,cach cos刂 ng$90000
DuckbⅢ and Ι
Thc tLsc° untJng ratc takcn for nct present,alucs is
飞 c foⅡ o、 on is avaⅡ able for the
^ng informa乜 thc cost° f capital,For cxatnplc,if rn° ney has to bc
machncs
borro、狩d at8V3intcrcst pcr aiinum to丘 nancc d△ c
Duckbdl K丙 钛 i砷邻uncntin a projc∝ ,tlle cost of capital o8%and
Cash innov, cash。 utaoxv casⅡ 血now Cash。 uttq。 xs d△ c fLImrc cash Πows、 犭
Ⅱbe dlscounted usmg d△ c
$ $ $ $
Ⅵ

factors for that ratc A table° f dsc°untlng tactors

盯
ο

- 90000 - 90000
can bc仍 undin Appendh1・although伍 c
123

80000 50000 60000 20000

900lltl 54000 68000 28000 ncccssary ratcs arc alXs叼ys glvcn in cxanllna0on
100000 60000 72000 32000 ques色 ons

Rcquhcd Notcs
C狃 ctllatc伍 c palb犯 k pcⅡ o“ for DLIckbⅢ and孓 乙么k
凶 ● It k xx,ldc圩 伍ought that cash且 ows are
and st/atc,、 犭th rcas° ns,whch tnac凵 hc Maplcduck dlsc° untcd to nct prcscnt salLle t° auo环 /± 。r
Ltd sh° Llld purchasc, nlna刂 。n,but that“ not so The ratc uscd for
dlscoun刂 ng is thc cost° f Capital,not thc ratc of
364 HOW to CaIcuIate net present hnatl。 n
value(NPV) ● The p⑴ 叱ack peⅡ °d“ somcomcs calculafcd
using the net prescnt x・ ・
alucs of dac cash noxx,s,
Nct present valuc rccog血 scs thc omc xaluc of
moncy$1rccclvcd now k morc usc± Lll than$1 ExampIe
rcccⅡ℃d somc omc1n thc futurc bccausc1t can be Nctprcs Ltd o undcr么 娩 a projCctwhch mx・ olxˉ cs
u⒃ d now Iξ for cxamplc,$1001s invested nov at an moal ouday° f$100000Its nct rccclpts丘 om伍 c
10o/o compound interestit wⅢ be w° rth proiCct for thc nc菠 丘vc ycats arc∞ omatcd to bc as
$1OO× 型 ,or$110,in onc rar,s tim%and in bⅣ o bⅡow⒌
100 Ye狙 1 $40000
ycars lt wⅢ bc M clrtb$121To putlt ano由 cr w够 Ycat2 $42000
$90,91invcstcd at10Vo compound intcrcst noit△ 、 Ycar3 $48000
^ll 、饴ar4 $46000
bc wOr伍 $9091× 112,。 r$100,h oncy∞ r、 umc, Ycar5 $38000

and$100rccc小 omc has a prcscnt

'ablc in onc ycar‘
valuc° f$90,91whcn discountcd at1096
 Nctprcs Ltd、 co斑 of capltahs10%Thc Requircd
山scoundng factors for thc prcscnt valuc of$1狄 Calculatc thc nct prcscnt x・ aluc ofcach opoon and
】0V。 arc:ycar10909;ycar20,826;ycar30751; statc xx hch tnachnc N° mcn Ltd should choosc
ycar40683;ycar50621
365 HoW to CaIcuIate initial rate of
Reqored
Calculatc thc nct pre∞ m vahe° f tlle pr叼 ect
return(lRR)
Nct prcscnt valuc c° mpatcs fumrc cash in且 ows with
AnsweF
prcscnt cash outn。 、 hCn伍 C
厂、严 nmrc cash晒 s arc

Year Net cash inno^v/ Factor Nct prcscnt x,alllc

vc
dlscountcd to prcscnt day xaluc黾 butlt docs not礓 ∮

l。 utn。 邛
D 伍c rate of攵 eturn on investmcnt bascd on
$ $ dlscounted valucs The internaI rate° f retlr且 enables
o COO tKlO 10llll (100000)
managcrs t° calculate thc rcttlrn° n an intcndcd
1 纠DO00 0909 36360
ms’ Cs钌nCnt d△ thc c° mpany‘
and to comparcit泓 刂
2 42000 0826 34692
3 48000 0751 36048 prcscnt rcturn on capita1,
4 46000 0683 31418 Thc intcrnal ratc° f rcmrn is thc pcrccntagc
5 38000 0621 23598
rcquircd t° discount cash noM`st。 斟vC a ml nct
Nct prcscnt vaIuc 62116
prcscnt v挝 哌 Thc pcrccn妞 爹 厶± ound bl’ sdccmlg m,o
disc° unung ratcs sufflcicndy widc apart to⒏ vc
Thc nct prcscnt v・ aluc is posi色 VC,sho、 ″ng that thc
p∞ luvc and nc沁cnct prcscm x・ alucs Thc rcsul“ arc
projcct may bc undcrtakcn,A ncga刂 vc Nh厂 would
then interpo1atcd to flnd the percentage tⅠ 1at wⅡ l
mcan山 at thc nct rcccipts in prcscnt day tcrms御 α让d
not covcr thc i血 oal outla9and thc prolcct sh° uld n° t
glvc a n⒒ nct prcscnt value σnterpoladon means
nndlng an intcrmed1ate vahe be小 Ⅳeen the bv° dis-
bc undcrtal【cn Thc hghcrthc nct prcscnt△ ,aluc,thc
bc仗 cr thc projcct r心 Ⅳo or m。 rc projccts arc bcmg
∞unmg rates)hterpd疝 ∞ msols・ cs u血 名thc forintJa

consldered,伍 e° ne咖 th山 e hghcr or hlghcst NPV

wαJd bc prcfcrred to山 e° ther(s)
P+[;ˉ 0× 公氵
亻]=1RR :”

ExercIse3 x1・ hcrc P is thc ratc⒏vmg a posiuvc nct prcscnt

ˉ
△aluc
Nomcn Ltdis con⒍ dcong b唧
`ng atnachnc and has Nis thc ratc⒏ 、
△ng a ncga】vc nct prcscnt
thrcc opjons,machnc A,B or C,odv onc of whch
lt wⅢ buy Each machne c° sts$135000and xsil havc valuc
a fl△ e-l,ear Ⅱfe M,lth n° residual△。alLle at曲 e end° f p is thc po“ 色Ve net present value

that血 c ″is the nega乜Ve net p± esent s,alue

Thc nct rccclpts for cach machnc oˇ ℃r thc汛O- For cxamplc,ll NPV at10%ls$14000and at
ycar pcrl° d arc as foⅡ ows:
18%厶 $lF,000l,伍 en
Machmc A M犯 hlnc B M钒hhc C IRR=10%+lB%×
$ $ $ 14000+6000)=10%+56%=156%
Ycar 1 50000 38000 26000
2 50000 38000 26000 Thcrcfore,dlscounted at15,69乇 ,thc invcstmcnt
3 38000 38000 38000 would have nⅡ net prcscnt valLlc
4 26000 38000 50000
5 26000 38000 50000 Example
Netprcs Ltd6cc§ 36/◇ has a nct prcscnt vahc of
Nome且 Ltd、 cost of capltal is12V。 ,
$62116whcn dlscountcd at10%To obtain a
Thc dlscounong± actors at12V。 arc:ycar10893; ncgajvc nct prcscnt valuc it rnay bc dlscountcd at
ycar20797;ycar30,712;ycar40636;ycar50567 40Vo as follo、 /s:
 $ at409o $ Furthet informadon
Ycar o (100000l 1000 (100000l
Blg Gcc lvIaxi-Shadbolt
1 40000 o714 28560
Cost of machinc $140000 $1800t ll
2 42000 o510 21420
3 48000 o364 17472 $ $
4 46000 o260 11960
Addl刂 onal rccclpts Ycar 1 98000 101000
5 38000 o186 7068 2 112000 118000
Nct prcscnt△ aluc (13520 3 126000 126000
62116
4 126000 140000
1RR=10%+l30%×
62116+13520 )=346%
5 1ll【 lO00 110000

EXerc1se4 Addio° nal costs llncludlng dcprcciaoon and bank

Thc inf° rmao° n is gl△ cn as for N° mcn Ltd h
intcrcsI∶ ):∶
cxerclsc3h§ 364,M・ ld・ thc addloon of the $ $
℃ar10833;ycar2
dlsc° unong fact° rs f° r20V⒍ γ Ycar 1 70000 84000
2 84000 980llll
0694;ycar30579;ycar40482;year50,402 3 91000 105000
4 98000 112000
ReqoFed 95000
5 100000
Calcdatc thc mtcrnal ratc of return± or machncs A
and B, Uscftll Ⅱtc° f machne 59cars 5v℃ ars
Esdmatcd procccds ofdlsposal
Notes aftcr5烬 ars $20ooo $30000
● IRR can be calcLJatcd from b″ op° siuvc nct
prcscnt values but M。 m bc lcss acc刂 atc,Thc Prc⒃ nt valuc of$1 10ε /o 00%
ξr1 o909 o714
dcnon△ nator of thc trac色 on1n thc fotmula must l‘ x廴

2 o826 o510
3 o751 o364
4 o683 o260
Ⅰ菇 黹 秽 点 fi吣 虫翻 cc 5 o621 o186
ody po蚯 漩 nct prcsent sˉ alucs,d° 彳″try to丘 nd
ano伍 cr dlscounong ratc;thc cxanⅡ ncr cxpccts Rcqored
you to usc thc Ones supp⒒ cd in dlc qucsdon ⑶ C斑 culate fo± cach macⅡ n⒍
● V￠hcn the recelp、 arc constant for a number of Θ Ⅱ acc° un。 ng ratc of retum◇
consccu色 Ve years,thc nct prcscntˇ ⒓luc of伍 °sc 由c salc procccds of伍 e machinΦ
`RRl Cgnorc
rccclp灬 m缈 bc calculatcd qulckly if伍 e annual C◆ thC pγ back pcood
atnOLlnt`muⅡ phed by thc surn of the幺 ct° Ⅱ lnll thC nct prcscnt valuc
±or曲 c ycars conccrncd For examplc,if nct (⑺ 伍c htcrn・al rate° frcmm cRRl
recC0“ are$25000h cach of thc ntst flxˉ c Φ)statC,M・idl rCasons,M・ hch machnc Baxtcr Ltd
γ℃ars and thc cost0f Capltal is100/o,thc NW shodd purchase
br thc丘 w rarsis跎 5000× ⑩ 909+0,孩 6+
0751+0683+0621)=$25000× ⒊790= 366 sensitivity anaIysis
$94750,
扣 pr缸 sal。 f futurc cap止 al CXpcndtmrc“ b灬ed° n
ExercIse5 csomatcd fumre pro丘 该bⅡ 饣 and cash汛、・
v ma山血ct° usc h thc
Baxtcr Ltd rcql11fcs a n∽ Inaccuracics in thc csimatcs rnay be vc轷 iyuslcading,
manufacturc of a ncw product,Ts・o ma山 cs arc and acccptable matglns of crr° r rnust bc rcco叩 sCd
axaJabI⒍ B唿 GCC and Ma虹 -shadbolt,Baxtcr Ltd sen⒍ ti碱 饣 anaˇ ⒍s hdicatcs伍 e maⅪ mum
dcprcciatcs machnc呷 uslng伍 c stralght△ ne method acccp么 blc margln of crro‘ a greater margln mght
Baxtcr Ltd wⅢ °bt疝 n a bank loan atintercst of10V。 produce dlsastrous rcsults espeoa△ ,as vc锣 largC
pct annum to-Lly伍 c machine sums ofrnoncy arc invokcd,
 Thc pcrccntagcs of crror that could pr° duce at thc samc omc It must raoon its capltalin such a
unacccptablc rcsu1ts must be dctcrmincd and w呷 伍c projccts k lnvests in ma血 ses伍 c nct
comparcd xx・ lth thc Ⅱkcly rnarglns of crr° r as sho、 prcscnt valLlc of亡 hc company ovcr a pcrlod oftline
`n
by p^st forccasong cxperlence
Example
Example Gemma has cx・ al△l/ated four prolccts xw・ ltb thc

A prolcα nccds$100000to buy a machnc Nct folloxL,ilg rCsu1ts

recelpts in each of thc± otlr rars。 fdle projcct arc PioiCct Capltal c【 ,st Nct prcscn1X・ aluc
cxpcctcd to bc$35000The cost of∞ ∮tal。 10% $ $
The nct prcscnt va1uc A 3000llll 80000
B 500000 250000
=$100000-$(35000× 3169)=$10915Thc C 200000 180000
nct present valuc・ ,slⅡ bc ncgauvc if D 300000 100tl,o

● thc cost ofthc rnachine cxcccds$110915,that H咖 饣乌she

eˇ ody has a maxlmum of$500000to
is an incrcasc of11⒐ 旬 or spcnd、 √
hich pr° jec“ sh° uld shc Ⅱ
小
`cstin to
● thc annual nct rccelpts are lcss dlan maximisc thc nct prcsent x altleP
$100000÷ 3169=$31555,that is a decreasc She sll° uld inwstin proiccts C and η as伍 csc
of98V。 wⅢ ”C1dat° taI nct prcscnt valuc of$280000Λ ny
凡 e company shollld compatc its past dcgrccs of odlcr combina刂 on wⅡ not achicvcths am° unt
accllra叮 iil∞ ulna色 ng c刽 丬 al e冲 endlurc and lorcc灬 “
t・
An zaltcrna0vc is to caloulatc a‘ profltabⅡ itv indcx

°fF∝ nue踟ith伍 c pctccn该 gⅡ calcldafcd abo冶 for each pr° ,ect Thsls donc by dlv・ lding d△ cn∝
prcscnt valuc ofthc proicct by its capltal cost Thc
ExercIse6 prole∝ 咖 tll伍 c lllghc陕 匆 亚 C“ tl・ c mⅡ t‘ pr洎 么 bF
Thc company proposcs to replacc an c蛀 s刂 ng rnac血 c and shollld bc cons1dcrcd flrst Tllcn thc sccond
咖 由 an唧 onc cos0ng$150000It“ cs刂matcd tli・at most‘ profl忱 ble’ ,and so on Ifthsis donc xxith thc
thc usc ofthc ncxx,rnaChinc xxlⅡ resu1tin nct s添 丘gurcs abovc,pr叫 C∝ C^thc Ⅱgl△ c哎 处 ∞ %
`ngs
ovcr thc next four ycars of$50000pcrarnum Thc 6180000÷ $20000Ol,thcn pr。 ject C at50%
c° mpany xvm b。 rr。 、
'$150000at an interest ratc of
10V3pcr arnt【 tn to pay for dhc maclunc
ExercIse7
A Co Ltd is° pcratJJlg undcr capltal rau° iung It can
Rcquircd oiiy invcstin a叮 c’ nc of dac lo△ ox△ lng dlrcc pr叻 ccts
Calculatc d△ c dcgrccs of sensiuxl饣 as rcgards thc cost at onc omc DctaJs of山 c prolcc“ arc⒃ t oLlt bClow
of thc machnc and the annual opcra刂 onal savings, Pr丬 ect cap1tal co“ Nct prcscnt X・ aluc
$ $
367 Cap"al ra"oning A 0ttl O00 70000
B 5llll O00 60000
In somc cascs a company may cvaluatc a numbcr° f C 6lXl O00 120000
projccts Ho、 c atnount of capitaI
`ever,bccausc of伍 Whch ordcrsholJd thc companyim'cst in伍 c
⒒has,伍 c company cannotinvcstin all thc proic∝ s
prolccts to m狙 血灬 c伍co砥 ra△ nct prcscnt s al△ leP

● Learn the methods of calculating ARR,payback pe"ods,NPV andIRR

● Rememberthat only ARR is Ca|culated on pro】 tab"Ⅱ y;payback,NPV andIRR are ca℃ ulated on cash】 ows
Depreciation must be inoluded for ARR but notforthe other methods
● Understand the impo^ance of prof"ab"ity and"sk in inVestment,and whythe刂 me vaIue of moneyisimpo^ant
● Be prepared to desoribe,explain or discuss the adVantages and disadvantages ofthe Various methods of
invostment appraisal
● Take the utmost oare to pe亻 orm aⅡ caIcuIations acourateIy
● Look outfor sunk cost and oppo"unio/oosts in problems
 The net present value of a proleot has been based° n either adual cash f丨 oVVs oⅡ dis° °untod
calcuIated as fo"oWs: Cash floˇ vs?
A acoounting rate° f return
NPV〈 $) B internal rate of return
at10% 30000 C net presentva{ue
at20% (8000) D payback
4. A Company has$4m"Ⅱ on t° invest ks invest丨ηent
Whatis the internal rate of return° n thθ proleot? opp° rtun"ies are as fo丨 |ows:
A 10% B 121% C 179% D 20%
Amount ofinVestmentf° r NPV($)
Why are cash fIoˇ ˇs dis° ountθ d forinvestment
a period° f5years
aρ praisa丨 ?
A $1now s more usefu"hat$1rece vable at a 1 $3mⅢ 600000
futune time 2 $25mⅢ 350000
B Itis ρrudentto state future cash f丨 ows at a 3$15mⅢ 280000
rθ aⅡ sJo value
4 $1mⅢ 50000
C MOney|oses its vaIue be° ause ofinⅡ ation
ln Which° ppo"un"ies sh° u丨 d the oolη pany
D The risk of not receiving money increasesˇ vith
invest?
刂me
A 1and3 B 1and4
3. Which method ofinVestmθ nt appraisa|may be C 2and3 D 2and4

1,The directors of Jo丨 oss pI。 intend to purchase an Note Thθ se oosts inoludo the oharges for
additional rnachine to manufacture one oftheir depreciation and interest° n the loans
new products Two machines are being
gan and Bentine The company
oonsidered:MⅡ Ⅱ fe
Usθ ful Ⅱ ofthe machine 4years 4years
depreoiates its machineIγ using the straight丬 ine Value at θnd of usefuI Ⅱ
fe nⅡ n引
method Present v引 ue of$1 10% 2o%
″Ⅱ|b° rroW
Joloss pl° 、 the money required to Year 1 o9o9 o833
purchase the rnachine and pay interest of10% 2 0826 0694
per annum on the Ioan 3 0751 0579
Estimates forthe machines arθ as fo"ows∶ 4 0683 0482
MⅡ Iigan Bentine RequIred
$ $ (i) Ca丨 °
ulatθ the net present vaIue of each
Cost of machine 100000 130000 machine (Base your calou丨 a刂 ons on the cost
Add tlonaI receipts Year 1 7000o 72ooo of oap"al)
2 80ooo 84ooo 0O state,w"h your reason,which machine
3 9o ooo 9o ooo Joloss plc sh° uId purchasθ
4 90000 100000 The diredors require the maohine to produce a
AddⅢ onal Costs Υear 1 50000 60000 return on out丨 ay of notless than25%
see note)
〈 2 60000 70000
RequIrθ d
3 65000 75ooo
4 7o ooo 8o ooo oⅡ )C引 cuIate the intemd rate ofretum on the
machine you have seIected in〈 Ⅱ
)t° see if"
丨
meets the required return on outlay
 10o/o 15%
2. Jane Panne"Ltd prop° ses to purchase a new Year 1 09o9 o870
machine costing$120000 "WⅡ be sold atthe 2 0826 o756
θnd offour years for$2o000 The oompany 3 0751 o,658
depreolates maohinery using the straight1inθ 4 0sgB o572
method
而 e machine wl"eam reVenuθ of$BO0∞ per Rθ qulred
annum and inVolVθ add"ionaI expendⅡ ure of CalcuIate∶

$46000θ ach yθ aⅡ The oompany’ s cost of Cap"al la)the aoooun刂 ng rate of return(ignore thθ salθ

is10% proceeds ofthe machinθ )

The present V创 ue of$1b as folIoWs∶ ⑼ the net present value

〈
c)the intema丨 rate of retum

Y∞ rs 5V3 6Vo 70/o 8o/o
1 0,952 0,943 0,935 0926
2 o,907 0890 0873 0857
3 0864 0,840 0.816 0794
4 0823 0792 0763 0,735
5 o784 0,747 0,713 0681
6 0,746 0,705 0666 0,630
7 0711 0665 0623 0.583
8 0677 0627 0,582 0.540
9 0645 0592 0,544 0,500
10 0,614 0558 0508 0,463
Present vaIue of$1
9% 10% 11% 12% 13%
0,917 0,909 0,901 0893 0,885
0,842 0826 0812 0,797 0783
0772 0751 0731 0,712 0693
0708 0683 0659 0636 0,613
0650 0,621 0,593 0,567 0,543
0,596 0,564 0535 0,507 0,480
0547 0513 0482 0452 0425
0502 0467 0434 0404 0,376
0.460 0,424 0,391 0361 0,333
0,422 0386 0352 0322 0295
14% 15% 16% 17%
0877 0.870 0862 0.855
0769 0,756 0,743 0,731
0,675 0658 0,641 0,624
0592 0,572 0552 0,534
0519 0,497 0476 0,456
o,456 0,432 0410 0.390
0400 0376 0,354 0333
0351 0327 0,305 0285
0308 0,284 0263 0.243
0,270 0247 0227 0.208

18V3 19Vo 20⒐ o 210/o 22o/o 239乇 24V。 25o/o

1 0,847 0840 0833 0826 0820 0813 0806 0800
2 0,718 0706 0694 0683 0672 0661 0650 0640
3 0609 0593 0,579 0564 0,551 0,537 0524 0,512
4 0516 0499 0482 0,466 0451 0437 0423 0410
5 0437 0419 0,402 o386 0370 0.355 0,341 0328
6 0370 0352 0,335 0319 0303 0,289 0275 0262
7 0314 0,296 0279 0263 0,249 0.235 0222 0210
8 0,266 0,249 0233 0,218 0204 0191 0,179 0168
9 0225 0209 0,194 0180 0167 0.155 0144 0134
10 0191 0,176 0162 0149 0137 0,126 0.116 0,107
 蛊n$ 璁 簸释酽啦暑 翕醮 镪聃鹾
QQ: 4【 4q5229姓
隅 蝌锐 噼$巍 酴鹞鑫

亠r礻
Gh氵 IJ)扌 《 shop F⒒ 刂ngs
$
Excrcise1.Mardnc sIay 4 Bank +00

Putchascg
$⑾

$伽

$∞
呐哟哟哟吻

伽蛐ω⑾
lˇ Lay 1 0Iar也 ℃ Capltal 3 Rcnt Pa,,ablc Mav4Bank
oο
o⒛

Max 2 Charhne Loan 4 shop∏ 曲 gs

May5Purchascs Rcdrlls 4 PLvchascs Putohaβ eg Returns
⑽

$⒛
May 6 salcs 7hages $
8Dravmgs Max 5Bank
$铡

$硐
Mat山 cC刑 taI salcg
$ $
▲
压ay 1 Bank 6Bank

卿
NIa9・

Loan
Char血 岭ˉ

$ω
$ $
May 2 Bank 10llll
May7Bank
Rent Payable Dra诩 Ⅱgs
$ $ $
sIay 3 Bank 100 May8Bank 100

Exercise2Noe1

De⒍ t account cfetut acc。 uot

1 Nocl pavs hs chcclue hto hls bus血 ess Bank accoant Bank Nocl Caplt址
2 Purchascs g° 。d$fot rcsalc and p狎s by chcquc Plrdlascs Banl【

3 seⅡ s goods and banks山 c taklngs Bank salcs

4 Pays rent by chcquc Rcnt P洌 alc BaI△ k

5 Putchascs s五 op amngs shop∏ 曲 gs Bank

6 Cashcs chcque for pcrsonal cxpcnscs Dr∞ 诩”铃 Bank
7Paxrs vagcs Wagcs Bank
8 Rculrns goods to suppucr apd banks rcfund Bank pur山 a⒃ s Retlrns
9 Rcccls・ cs rCnt from tcnant Bank Rcllt R“ ⅡlI。 able
10Refunds m。 ncy to customcr” chCqtlc for go° ds rcmlled salcs Rcurns Bal△ k

11 Motor veluclc purcbascd and pald fot by chcque M。 t。 r Vehlcles Bank

12 Pa9,s for pctrol for motorˇ ℃hclc Motor Evenses衤 Bank
玎 hc costs of rlln-g motors・ chcles← trol,Ⅱ ccncc,hsuFancc,rcPars Ctc)atC not debitcd to the Motor Vehcles acc【 ,un△ A ncw,accotlnt,
lvIotor Expenscs,Is opcncd to rccord出 崆m

Multi【 ,leˉ choice questions

1B 2B 3D 4B
Chapter2 sdeo Reorng

$⒛
ExeFo8e1.Getaud
Jη nC25L械

$
Bank
$

$阝
JunC】 O Pur。hascs Rctutns ztlll June1Purchases 2700 $

22
30 Bank 2375 3gO Junc3o Kht,r

%
JunC30L址
30 Disc。 unts JunC30chh 1⒛ 5 Junc3ohm
Rcceivcd 125

瑜
Dh∞ unte Rccdved

●ψ ●‘ °白
$猢
$
$
Jme30 Bank 239I Junc15P、 σ
ch猫 cs JunC30Khot
JunC30Dlsct,m灬 Junc30LIm
Reccl△ ・
cd 126
$朋
Dk∞ untg Au。 9・ ed
u

小丶ˇ
。乙
$ JunC30L斑
猢

κυ
JunC5sales dtlll Junc乃 salcs Rcmns JunC30Chn
JunC∞ Bank
June∞ D,scounts
Au。 wcd M讧 Φ 1eˉ choicc quesdon
犰
1,A 2B 3,A
$药

$
JunC20salcs 1300 JuncsO Bad【 Chapter3
JunC30DlscouIlts
Alowcd・ Exercise1.M"gatroyd
PutchogeB
PurchasesJoumal salcsJournal
$
2700 $ $
JunC1r【 h。r △Iatch 1 Tlkob 8∞ O March 4snp灬 1080
JmC15蚰 2520
March 6XValtcrs 7⒛ 0 ˇ阮 ch10otg 2250
March13 Burgct 5250 △fatch 17 Ko磁 c 2700
PmchageB Reorng
Mtch18 △ k° l° 48∞ Match⒛ snyman 1‘ 20
$猢

$ 25250 7650
JunC10Khoi÷
Putchases RctutnsJoutnal alCs RCurnsJ。 urnal
snleθ
§ $⒛
$
跏
$伽

$ March12 Tlkolo 0lXl lIGtch11 sn聊

~
一跏
Match” Butger 1凹 Δ
在h扭 dh20IOg
Jmc5I彡 讧
娴

Jme⒛ Chn 1'扭 ao

嘛 彬狁

Bε nk

Dlscounts Disc° unts Bank

$绷

$ $ $
△Iatch 31 svtnan Mrch 31 11kolo
1lXl 620 11780
Mtch si otg 78 △Iatch 31 waltcts 360 6B0o
Mtch 31 Kotzc 135 加Ι
洫 31Burgcr 170 4080
313 1150
 Putchoge8 Tik° 1°

$ο
$ $

ο⒛
84
△Iarch31 Putchascs △Iarch12Pu〖诋 ∞ March 1 Purchascs
Rcturns 400 △Iatch 18 Purchascs
loutnal total 犭 药 o
NIatch31 Bank 】1780
March31 Discounts 620
PutchaBe8Reurng
Waltetθ
$

$朋
aJoh31 Purchasc$
⒈Ι $
￡tut众 sjoWnal △Iatch31 Bank 68纠D atoh 6 Purchascs
山Ι
total 1彳 κ)o ˇ哑 ch31Dlscounts 3ω

Butger

$玛
saleg
$
$ $ bIarch” Purchascs NIaroh 13 Pwchases
卜
血 ch31 salcs jclurnal Rcuarns 1000
total 7650 March31 Bank 4080
△Iarch31 Discom灬 170

saleo Rcmtog snpn

$ $ $
加饧:ch31 salcs rcurns △Iatoh 4 salcs 1080 ⒈△rch11 salcs Rcturns ztlll
lourn址 to诅 500 lvIat曲 25 salcs 1620 Match31 Bank 勿 00
March31 Discounts 100

Discountg A△ o9Ied Katg

$ $ $
arch31Cash
⒈Ι book △Iatch10 salcs 2250 Match2D salcs Rctu,・ ns 3lKl
total 313 Matd△ 31 Bank 1872
△Inrch31 Discclunts 78

DiBcoun‘ g Re‘ 碰 e
"eiv1ed

$“
$ $ $

2
March31 Cash book March17 salcs 27llll △Iarch31 Baok

“
total 1150 Match31D、 counts

Exetosc2,Joshua

Bank and Cagh

弘$
呒$

cash$伽

Bank C^sh Bank

$ $
Match 1 salcs ltIarch 2 Elcctricity 130
卿

△Iatch 3salcs lyIatch 4 Bank 1700

卜蚯 h 4 Cash 1700 1vIatch 5s凹 d,・ cxpcnscs 25
⒁

△Inrch 6 Bank lvIarch 6 Cash 8llll

Match 7 Putchascs 750

Excrche3
$ $

α$
n$仞
ale$Rcturns
s・
700
Purchasc$ 4000
Purchascs Rcturns 500
1A aIld C。 Ltd
卜压otor`厂 chiclc Running Expcnscs 4200
AC° ttcr
Wagcs 1800
Cooccoon of crcdlt n。 tc no964tcccll’ Cd flom A and C° Ltd h
thc sum of$120dcblted to A C°
Rcnt 2000
ttciI血 αⅡD‘
2Purcha$cs Bank 1650
钥Do
Capital 20000
Hussam 400
Cotrccuon of ln△ ・
Dravmgs 3150
olcc no104h伍 c suln° f$0lXl rcccived△ om
Hussatn ollllttcd from thc purchascs i° urnal 80500 80500
3△I/ava 45
sales 45
Exerosc2,⑻ Complctc婶 wrsal of cntrl∞
CorrcctIOn of p° smlg ciIr° tmvα ccn。 6789hd△ csum of$150 o)Err° r。 f pⅡ nop1c lcl ErI° r of° 血s“ on
scntto Mava entcrcd h thc salcsj° urnal a.s$105
ldl C° mpcnsamg crro$lcl Err。 ro± comrolssion
4△Iachncs・ 23llll
Pllrchascs 23llll Θ Error。 f。 」
喧oα al Cnt-乒

Cα rect on of purchasc of machltlc postcd ln ctrot t° I`rcha$cs

acc【 ,unt M讧 t” le~ch。 icc quesd° ns
5 salcs Rcmrns
Hafufe
68
68
1B 2B 3,C 4,C
Cortcc刂 on of。 血 ssl° n° f crcdlt notc nα 23for$68and sentt°
Hamfs o血 ttcd nom thc salcs rctumsi。 urnal
Chapter7
vIult灯 艹Cˉ choice quesJon
Exercise1
1,C 2B 3,B 4,C
Condne Income statement
Chapter5 foI|the yeat ended31Dccembet2QIo
Exetc必 e1.Capital_persoρ al;salcs Rcmrns~ $ $
rcvmue;E)cL9ˉ c± y Vans-fuxcd assct;Purchascs_ salcs 200000
Lc$s salcs remrns 6300
c阝 pcnsc;Rcnt P臼 阳ble~cxpcnsc;Dcbtors~pcrsonal
1937llll
land cltrrcnt assct9;sto山 h△ radc-currcnt assc△ Cost of salcs
Disc° unts Auowed~cxpcns⒐ I冫 r孙 朋ngs-pcrsonal; purchascs
86500
Bank-currcnt assc△ Rcnt Rcccl,ˉablc~° thcr hc° me; Lcss9班chascs tctums 5790
Crcdlt° ts~personal;C° mputer~凡￠d as∞ △w饨
80710
Fs~ Lcs$stock at31Dccembcr201o 10000 70710
cxpcnsc;Disc° unts Rccclxabk~° thcr inc° me Gross pto￡ t 122990
Add RcntrcccⅣ cd 3000
Chapter6 D,scoun灬 tccdvcd 3210
129200
Exetosc1,Acl△ les’ toal balancc at31Dcccmbct Lcss
XVagcs 61050
2010.
Rcnt payzbIc 12tKlo
Elcc缸 o〃 5416
$ $ In$utancc 2290
Ptcnllscs 50000 加Ιoω r van cxpenscs 11400
△Iot° r Vaas 8tlllo Dlscouil灬 atow・ cd 5110
0fficc Furfuure 2lXlo sundrv cxpcnscs 37‘ o
Computcr 30lXl Loan mtcj・ cst 1000 102o26
salcs 600llll Nct pto￡ t 27174
 Khor Tr日 汛 g gec刂 on of ihe Income statcInent MultⅡ le~choice question
forthe year endcd31Dcccmbct20】 o 1A 2,C 3.C 4D 5A
$
salcs 48lXlo ;hap肀 er8
≤
Icss salcs rctutns 1600
4‘ 400 Exercise1
Lcss Cost of salc$
c。 mne statcmcnt of Financial Pos⒒ ion at
0pc-g stock 4lXlo
Pui曲 灬cs 21000 31Deccmbct⒛ lo

硎~
Lcss Purchascs rcurns 9llll 20100 $ $
24100 N° n-currcnt asscts

一蜘
Lcss Cbsing stock 7500 LaIld and b血 岫 84llllll
Cyross ptofit P囱 22l× lo
"aiid macbnc,
otor vans
⒈Ι 19000
ng1ncome
Petl白 臼 statemcnt 125000
fot dhe year endcd31Match2011 Curtcnt assc岱
$ $ $ stock 10000
sales 104000 Trade Rcccls・ 么
1blcs 12425
Lcss salcs rcturns 3700 Bank 5065
100300 27490
Lcss Cost of saIcs Currcnt⒒ ab山 tIcs
0pcnulg stock 600o Tradc Pa9引 o始 s 4220 23270
Purchascs 59000 148270
Lcss P、cchasc$tctutils 2550 56450 No廴 currcnt ⅡabJl,
62450 Loan 20000
Less Closmg st。 ck 10000 52450 128270
Gross pto丘 t 47850 Rcptescl△ tcd by

Rcnt rccclsablC 1800 Capital at1Jallu唧 2010 127000

Dkcounts rccc⒒ ablc 770 Add】 lct pro丘 t 27174
50420 154174
I css0wrhcads Dcduct Dr孙 ″mgs 25904
Wagcs 13000 128270
Rcilt p珥蕊 lc 2000 Exerc“ c2
Hcauilg and hghtLlg 2700
Rcp“添 to mam.c, 4100 Pαkns stote,nent of F血 ancial PogⅡ on at
DkcOLlllts auσ Ved 1030 i,lM彳1tc11mll
Loan:ntcrcst 750 23580 $ $
Nct pro丘 t 26840 Non-cutrcilt asscts
Ptcmscs 60∞ o
sata Income statement Plant and macMc〃 12000
fotthe yeat cnded31Match?011 72000
$ $ $ Cutrcnt asscts
sales 40000 stock 10000
Lcss Cost of salcs Tradc RccciNablcs 16zzI
stock at1.KptI2010 5000 Bank 50lXl
Plrchascs 20500 16624
Carriage niwards 1320 21820 Cutiient ⅡabⅢ dcs
26820 Trade p屮blcs 1880 14744
arch2D11
Lcss stock at31‘ ‘ 3000 23820 86744
Gross pr° ftt 16180 Non-current kabiLtv
Less 1oan 15000
Wagcs 6000 71744
Rcnt 100l,【 l Rcprcscntcd by
王⒒ccmci印 2600 Capital at1Aprd2010 55000
Carnagc cluN ards 1080 Nct ptont 26840
sund锣 expenses 1250 20930 81840
Nct Ioss 4750 DraM・ lngs 10096
71744
Mu1dpIeˉ choice quesdons Exerc1se2
1D 2A 3A 4C (a)

Chapter9 Dcwam【 ncome statement

fot dhe yeat ended31Deoembct2010
MultΦ 1e~cho妃 e questons
$ $
1B 2.A 3A ⒋B 5,B 6,D Gr。 ss pront b/d 30l× lo
RCnt⒓ 600-300l 2300
Chapter10 Electiici″ 田26+24劭 1168
stadonc轷 l005+84-100l 389
Exerose1.沪 刂cx Mot° 父cxpcnscs lz25+160l 885
Intctcst on loan 1000 5742
Rent Payable Net pilof,t 24258

$跏
2010 $ 2D10
Dcc 31 Bank 1tKlO Dcc 31 Pro丘 tand Loss
Dcc 31 Rcnt 朋
~~伽 Notc Unp砬 d intercst on thc loan rnust bc accrued
prcpald c/d
alth° ugh i o not mcnuoncd h thc quesoon
1000
2011
Jan 1 BaIancc b/d 200 ⑴
Elecdcψ statement of Fhanc立 Ⅱp。 搠 如 n ot31D∞embct2010
2ua1o $ 2010 $ $ $ $
Dcc31B砥 630 Dcc 31 Pio丘 t and Loss 810 Non-cuttcnt asscts 40000
Dcc 31 铷 ouIlt
Currcnt assets
o,lng c/d
~一

180
stoCk“ 廿adc 7000
⑾钔

810
2011 stock of statl。 唧 100 7100
TIadc rccclxlables 16∞
Jan 1 B址 ance b/d
Piepald rcnt 3tKl

sta讯 nety Bank 25⒉

$钿

11524
2010 $ 2010
Current Ⅱabmucs
⑷

Dcc 31 Bank 420 Dcc 31 Pr。 ntand L。 ss

⑹~一

Dcc 31 Amount Tradc payablcs

Dcc 31 stock c/d 1叫

Expcnsc crcdltors "Do

986 2386 9138
_⑾

owlng c/d
一⑾
蜘⑷

49138
2011 2011 Less L° ng-tcnn loan 10000
Jan 31 Balancc b/d Jan 31 Balancc b/d 39138
Capltal扯 刂 anuary⒛ 10 20000
$跏

Rent Payable Nct pront 24258

￡
J010 $ 2010 44258
D∝ 31proEt and Loss 400 Dec 31 Badi Dtaw1ngs 5120
⑾丽一

Dec 31 Rent 39138

owlng b/d
~一
伽朋

2011
M111dp1eˉ choice questions
Jan 1Balancc b/d
1,D 2B 3,B 4A
Ch搿 FDter1` $ $
Ycar3B洫 c/d 26280 Year3 Balancc b/d 20纠 Do
Exerc】 se1, pt。 Ⅱt and Loss 58Bo

(al 26280
Ycar4Balancc c/d Ycar4 Balancc b/d 26280
p碱 ion fot Dcptcdadon of Motor\泥 垂iohg
Pto丘 t and Loss 4116
30396
$ $ Ycat5B证 ance c/d Year5B斑ancc b/d 30396
Ycar1Balallcc c/d 2000 Ycar1 Pr。 ntand L。 ss 2000 Profit and Loss 2881
Ycar2Balancc c/d 4000 Ycat2 Balancc b/d 2000 33277
~伽
一

ss2000 Ycar6
仰

Pr。 nt and I。 Yeat‘ Balancc b/d

4000
Ycar3Balancc c/d Ycar3 Balancc b/d 4000
Prof1ta众 d Loss 2000
6000
⑴
Ycar4Batatlcc c/d Ycar4 Balancc b/d 6000
statcment of F“ 8ndal Po茹 乩 n cxtactg
Pr。 ntand L。 ss 2000
8l,llll 80Cltl Cost Dcptcoaoon Nct book
Ycar5Balailcc c/d 10000 Year5 Balancc b/d 8000 仫 luc
pr。 flt and Loss 2000 $ $ $
10000 Year1Mackcq 40000 12000 28000
Ycar6Bauncc c/d YcaJi6 Balancc b/d 10000 Year2Machncry 40000 20400 19600
Pr。 ntand L。 ss 20llll Ycar3Machn唧 40000 26280 13720
12000 Ycar4Maclmcr, 40000 30396 9‘ 04
Ycar7Bauncc c//d Ycar7 Balancc b/d 12000 Ycar5Mach山 nery 40000 33277 6723
Proflt and Los$ 2000
14000 ExcFcisc3Jod
Ycar8 Ycar8B斑 ancc b/d
⑶

(l9) MⅡ Ⅱ∝ ,at Coθ t

2011 $ 201】 $
statetnent of Fhancial Pos⒒ ion extractg Jan 1B娅 钲eb/d 18000 May 7 Dlsposal of
b^么 chncry 6000
Cost Dcpreciauon Nct book
・ Jlln 3B砥 70∞ Jun 3 Disposal of
△aluc
lvta岫 y 12tlllo
$ $ $ D哧 posal of
Ycat1△ Iotor vchclcs 18000 2000 160lltl
厶淫ach山o唧 Balancc c/d 10000
Ycat2M。 to△ ˇchcks 3000 Dec 31
18000 4000 140CKl
28000 28000
铆~

Ycar3Motot vchiclcs 18000 6000 12000 2012

YcaJ・ 41vIotoil vehiClcs 18000 8000 100lXl
~~

Ycat5M。 totˇ chclcs Jan 1 Balancc b/d 10000

18000 10000
伽伽

Year6M。 torˇ cl,iclcs 18000 12000

Ycar7Motot vcll,clcs 18000 14000 ⑶

Excrc1sc2 k觚 ion:"Deptec山 曲nof MⅡ ⅡⅡ忡

(al 2011 $ ⒛11 $
Mas 7 D吒 po$al° f Jan 1 Balancc b/d
2+00
翎

k岫 Ion fot0epte乩 dt,nof MⅡ洫 唧

Mackc轷 侈匍0+” 00l 9ω o
伽

Jtln 3 Dlsposal° f Dcc 31 pt。 ntand L。 ss 10∞

一咖

$ $ ⒈Ⅰ
钌1i彐 cty
Ycat1B疝 洫∝ c/d 】2llllO Ycar1 Pr° 丘t and Loss120lXl DOc 31 B扭 allce c/d
Ycat2Balancc c/d 10“00 Yeat2 Balance b/d 120∞ 10600
pr。 fit and Loss 8"00 2012 $
20000 204tlll
Jan 1 Balancc b/d 1000
(c)
MultV1e~choice qucsd° ns
Diθpogal of MacⅡ hety
2011 $ 2011
1D 2,C 3A 4,A
$
May 7 Machincry at May 7 pt。 visi。 n for
Cost 6l× lo Dcpicoaoon
of△Iach汛 ry 20llll Chapter12
Bank 15llll
Profit and1oss Exctcise1 sad
ll° ss) 2100
6000 6000 (al2007 $(4000+1150) =$5150
Jun 3Machnc,at Jun 3 Provisi。 n for
2008 $(6400+137o) =$7775
Cost 12000 Dcpreoatlon
ach山ncry
of卜 Ι 7200 2009 $(7500+1125) =$8625
Pa止 cXChange 3000
2010 $(3000+1250) =$4250
Pr。 nt and L。 $s
ll。 ss) 1800 2011 $(8300+1420) =$9720
12000 12000

(l))

吣 1glon fot Doub锏 Debtg

$猢~邢 ~邪

$跏~跏~邢
31加 Ι
狂 2α 沂 Balancc c/d

A
Mar2007 pro且 t and Loss

硒一
A
31Mar2008 BaIancc c/d Apr2007 BaIancc b/d
~

Mar2008 Pront and L。 ss

邢涮~鸱~鸱 一
31Mat2009 Apr2008 Balancc b/d
Mar2∞ 9Proflt an L郇 sA/c
8625
31Mat2010P△ o丘 t and Loss A/c 4375 Apr2009 BaIance b/d
Balance c/d 4250

~
伽 鸱硎
8625
31Mar2011 Balancc c/d 9720 Apr2010 Bal负 ncc b/d

一吻
Iar⒛ 1】 profit and Loss A/c
△

丽
9720
.Apr2011 Balancc b/d

MulJp1eˉ choice quesdons $1000=$130ovcrdrawn lpCr cash

1C 2,B 3,D 4B booo
Exerc始 e4
Chapter13
Excrcise1$475DR Tradc rcccl△ ablcs llO55-420+32sl
$
958
$

Excrc泌 e2$540Dr losCrdraxsnl Tradc pa卿 b屺 sl976-360l 616

Exercisc3(al RC・ ,sCd cash b° ok balanc⒍
Rent￠ 00+200l iO∞
Bank(1245-360+‘ ⒓0~2o0~32缈 782
$80-$210=$130ovcrdraw,n
o)Bank rec。 ncⅡ au。 n:Balancc pcr Multil,1c.・ choice quegJons
bank statcmcnts$⒃ 50+220l Cr~ 1C 2,C 3,B 4A 5,B
Chapter勹 4 Exetc1se2

Exercise1 &灿 曲t Ltd saIe81￡ dget Conttol

2011 $ 2011 $
B莎 tL记 Putchage kdgct Con"d lvI ay 1 Balance b/d 27640 ⒈Ιay 1 Balancc b/d 545
31 sales journa1109650 31 salcs rctutns 2220
⒛ 11 $ 2011 $
10000 Bad dcbt Bank 98770
△Iar 1 Balancc b/d 16 Mar 1 Balancc b/d
rccovcrcd 490 Disc° unts
△Iar 31 Purchascs Mat 31 Purmscs
BalaIlcc c/d 800 auα~td 315o
tcorns 824 ,°
urnal 337tlll
Bank bad dcbt
Bank 275∞ Balancc c/d 156
rcCC,Vered 490
Di$counts
Purchases⒗ dgcr
d 1300
咖~戕

rccα ∝
conoa 2624
B斑 ancc c/d 14⒉ 6
Balance c/d 30781
43856 138580 138580
A
p

Apt 1 Balancc b/d Balance b/d 14216 Jun 1 Balancc b/d 30781 Jun 1 Balancc b/d 800

Excrc】 se3
⑶
Rorrc Ltd purcha8cs Icdgct b濒 ocs salcs Iedget b扭 ances
Dcblt Cjicdlt Dcblt ∝ dlt
$“

$ $ $
Bcfotc alncndment 7217 Bcfore alnendment 23425 390
DOductlnvα ce enterod b丙 △
cc llOΦ Correcoon of ulvoicc$32‘ cntcrcd as$362 ls⑨ -
m一
“
~

Deblt balance mcorrccdy妹 tcd a$crcdit balancc rsOl Corrccted baIanccs 23389 39o
Corrcctcd balanccs 7067

⑴ (cl (dl

Amended net proⅡ t statement of Fhancial

Co‘ :cctcd Putchoθ eg kdgσ Conttd pos1谊 on exttact
2010 2010 $ at31Decembet
DOc 31 Canccuauon。 f Dec 31 Balancc b/d 7847 F吁 。nt pcr draR Pront $ $
n△・
olcc 100 Balancc c/d 114 and Loss Acccluilt 31000 Tr淀 c Rccc,△ ・
ablCs
Discounts Md rcductl。 nh sales ledget 23389
RcccIs・cd 84
putchascs 100 P"山 孙cs lcdgcr 11423503
㈨腼

dlscoui,ts rcCα Vcd △ adc Payaucs

sal6Icdgα
omttcd 84 F、 rch灬 cs kdgct 70‘ 7
contra Tozom
一

390 7457
栅

1IlC± CasC h salcs sOO salcs kdger

一“

Balance c/d Amcndcd nct

7961 pr° 丘t 31984
2011 2011
Jan 1Balancc b/d Jan 1 Balancc b/d 7067 Mult0le~choce queθ donθ
1B 2 C 3C

Ct,ttccted sa1eg kdget Conttol Chapter15

2010 $ 2010 $
Dcc31B狃 ancc b/d 22909 Dcc 31 purchases Ledgcr Exctcise1,⑶
salesjownal 800 Contra Trazom 710 he suθ pense account
$聍

Balancc c/d 390 Balancc c/d 23389

$
∞一

24099 24099 salcs 90 Dlffercncc on tnal balancc

娴一

2011 2011 Do1・ le 18 Bad dcbt

Jan 1 Balancc b/d 23389 Jan 1 Balancc b/d 390 108
坫 址anmg细 止c
o)J° umal cnttlcs

㈨$
洫
D
suspenge ao∞ unt

$∞
1

$“
nm山 邡 es
$
⒗ 濒 n呷 at cost 1sOO Ttlal balancc dlgctcnce

猢~一
B△ dcr
Involcc from BJdcr onnttcd flom dle books
sale$ 800 Adjustmcnt° f opcning
AdlⅡ mcntto ctcdltots 126 stock
△Iamcty at cost H【 Xl

鄹
△Iachncry Rcpars
2726
H【 lll

Capltal cxpcildlmtc mcorrccds pos饺 d to

△fa汕 唧 Rcpalrs犯 ∞ unt (cl Calcda。 °n° fc° rrcctcd nct wclrkg capltal at
Income statcmcnt 40 31Deccmbcr2010,
Promsion foi dcprcclatlon of machh唧 40
Adddonaldepteoaoon on ma⒈ C刂 ⒈
11f!cr乒
$
Nct worlmg capltal pcr dtaft statcmcnt of
⑹ Calculau° n of∞ rrectcd nct profit for dtc yca± Fmnclal p。 ⒍uon 3200
cndcd30JunC2011 Add Incrcasc血 d郇 mg stock ⒛ oo
∝
咖

⒁⑼ $

&袋
D

f掖 r俪
⑼$

思 糨 课 摞 宽 盥
n

$
△E证Φ kˉ ch0ce qucstonq
Nct pro丘 t pcr dtaft accounts 3775 1A 2,B 3,C 4B 5,C
(1)Incrcasc h salcs 6C 7,A
ο

Θ Inσ Ca∞ h pu± chascs

ο

l09Increasc h bad dcbts

lsl DCcrease h mamc呷 rcp猕
Chapter16
钔一

〈
一

(助 1rlcrcasc h provls刂 )n for

Exetdsc1Ⅱ an
锎
⒛

dcptcoatlon of mach△ c,
一

⒛
⒇

一
一
慨
一

statcmentg of钊 r玄 Lg
Co讧 CCt nCt pt° 丘t
at1J洫m呷 at31Dcccmbcr
$ $
Prcmscs at cost 4000 9000
Excnoθ e2 M。 tot van at cost 5000 4000
⑶J° "nal cn血 cs ⒈压
otot car at cost 3000
泌

Plant and cqmpmcnt 1100 1300

stock of parts 000
h

zllll
D$

cr$跏
r

Dcbtc,rs fot wOrk d° nc 7llll 800

Balancc at batli 13llll 900
】 su$pcnsc 12500 19200
pσ眈
№ 汤纺 铴u亦 亿夕
砌饣洼 kss
2N口 仫 T/,o功以幺 切 ″ J,,d,″ 砑 矽 吻 形 e刃 膨 owmg to supphets 170 340
功 `助
嗯 咖 廴 刃洒 ″″ 助饧叼 扬 拓
Cap,tal 12330 1886o
`9俪
3 RcParst。 lIla洫 , 3500 kss cap1tal htroduce由 mt,tor cat o000l衤
suspcnse 1800 15860
Machnei|y at cost Add&狮 m眇 ls1⒛ ×5砂 6240
4 suspcnsc 8llll 22100
sales Dcduct capital at1Jmψ 饣 12330
5 suspcn6c 126 Pro丘 t for thc阼 at cndcd31Dc∝ mbct 977o
N眈 .NJ粥 励 劭叼,订 ″哆砌饣以 ⅡIhc cost° fthc c峦 is dCducted bccause it was capld htr°
duccd
durmg thc yca【
Exctosc2Ammar $ $
Lcss Cost of rcfrcshmcnts 2200 1300
1ilcome statemcnt Foi|the yeaF ended30June 26700
Lcss
$ $ HLc of costuincs 4700
salcs Φalanclng flgurcl 35000
Hltc of haⅡ 2600
Lcss
Cop,,rlght fccs 1400
0pcntng"vc“ o呼 4000
Printlng 180 8880
Pwch孙 cs Φalan山名 fIgllrcl 31000
sui÷ plus。 finc° me over cxpenditurc 17820
Φalan山圯Egllrcl 35000
Donaoon to Actots BCnCVolcnt Fuild lsO9o 8910
Clostlg invcnto叩 7lXlo
Balailcc carr1cd to Accllmdatcd Fuild 8910
Cost of salcs 28000
Gross pro息 tO怃 rgm20%,so mark up o25%D 70tKl
(l))

Exercise3 Ncha subβ 岣 d° ng Account

2011 2011
Ptofotmo Inco” c statcmcnt for the period 1Jan sub“ rlptlons
30June2o1o to5Nt,Vember2010 owngb〃 280 31Dcc Bank 26+o
31Dcc Incclmc& sllbs clxv,ng√ f 000
$ $
salcs li2200-16000+37000+1700o 160000 Expendlttlrc
a/c

蛔
24lltl
Lcss Cost of salcs

~
47000 slIbs prcp茵 d
Invcntoε /at30JunC2010

~硎
Purc⒒ ascs lt38000-23000+28000l 143000 c/f
190000 3040
Lcss stock at5Novcmbct2010
ΦaIancmg flNcl 70000 120000
Gtos$ptoflt@5%of160000l 邵0000 statement of FinanciB1Po8ition extracts at31
December2011
in丘 rc:$σ 0000-12000l

⑽笳
Co吼 of sω ckl° st

$$

ο
Currcnt asset subscoptions Owing
=$58000

ο
Cwrcnt Ⅱ钔DⅢ 〃 stlbscnptlons血 adI atlcc

Mdtipleˉ choicc qucstions

1B 2B 3C 4.D 5 D Exerosc2
6B (⑴

The Htttt蚰er D洫 g(△ ub

Chapter17 Ⅱ缸“ at l January⒛ 】
statement of 1

Exerc1se1 $
Catcnng cqmpmcnt 8000
⑻ stock of food 200
stock of books 1100
thc W洫 gton D‘ anla α ub1ncome and ExpeFd虫比刂C subsctlpuons osmg 180
Ac∞ unt fo:the yeat ended si Dcccmbcr⒛ 狃
Bank 15zo
$ $ 11000
sub“ npuons 20t ll Lcss
salcs of dckcts ao olXl CrcdItors fot suppⅡ cs of food 40
salcs of programmcs 3000 subscrlp刂 t,ns h advancc 60 llO0l
salcs of rc佥 cshmcnts 3500 Acctlmulated filnd at1Jantla。 2011 10900
 (e)

Reθ taumtlt accoum‘

RCcC” ts and pav1n.ent8account fot tLc

●口
ycat ended31Decembct2011

^cρ

ο
7`
Takings
2011 $ 2011 $ Less
Jan 1 Balancc brought Dcc 31 staff、 ˇagcs 39000 Cost of f° 。d
forward 1520 purchasc of
Invcnt° ,at1January2011 2Cltl
I)cc 31 subscnpoclns 5tlllo 24980

钢~啷
food
Purchascs侈 4980+360-40l 25300
Rcstaurant Purthasc of
255tKl
tah△gs 73760 books 4840 Inx/cnto,at31DCccmbcr2011 270
salc$° f Catcrmg

蜘
Gross pro丘 t

一
books 1215o eqlupment 3750

鸱
staff wagcs 39000

一
Hc/amg and
Dcprcciadon of catenng cqulpmcnt 1475
hghtulg 8390 Transfcrrcd to Income and Expcndlturc Accclunt
s△uldr9,

cxpcnscs 2270
Balancc carocd (￡
)
fo3vard 92ao
The Hutt Ⅱ ˇor D而 叱 Club Income atld Exp¨ 山tute
92430 92430
2012 Account￡ ot the ycat cndε d31Dccember2011

J⒛ 1Balancc $
brought dα ~n 92llll subscopoons 4780
pro丘 t° n salcs° fb° °ks
6975
Pro丘 t on rcstalIrant 8055

铆
(cl

~
19810

硎
Hcaung and hglltn△ g
subscopdons sund9Cxpcnses 10660
2011 $ 2011 $ surplus。 fincome ovct cXpcndlturc 9150
Jan 1 Balancc b/f 1BO Jan 1 Balancc b/f 60
Dcc 31 Incomc and DOc 31 Ba】 lk 5000
lgl
Expcnditurc 4780 sllbscnpuons
PtcpaId ovmg〃 d do statcment of Financia1Position at31Dccembet2011
subscnptlons
c/d 1“D
$ $ $
C衤 tcting cquipmcnt (800+3750) 11750
5100 5100
2012
I css Dcprcciauon 1475 10275
2012
Cutェ cnt asscts
Jan 1 Balancc b/d 40Jan 1Balance b/d 1+o
stocks: B° ° s l【 965
F° 。d 270
⑷ 1235
subscripd° ns ow1ng 40
Book Ttad山 Ⅱg gec妯 n of the Income statemcnt Bank 9200
10475
$ $ Currcnt⒒ abⅡ ocs
salcs 12150 CiicdItOEs:Food 360
Lcss Books 200
Co$t。 f salcs subsc犁 p刂 ons in adx・ ancc 140 70o 9775
Invcnt。 iiy at1Janua,2011 1100
purchascs← 8钔 +200l
20050
50“ D Accumul缸 cd fund at1Janua,2o1i 10900
6140 su屮 lus° f lIlc° mc over cxpcndlmrc 9150
Invcl△ to,at31DCccmbcr2011 965 5175 20050
Transfei÷ tcd to lnc。 mc and
Expenditurc Acc° llnt 6975 MuhiIPIeˉ ch⒍ cc questons
1.B 2B 3C 4C
Chapter18
Exctcise1

Gee‘ a
Income statement Fot thc year endcd31march2011
Ladies’ Mcn’ s Chndrcn,s Total
$ $ $ $ $ $ $ $
salcs 100000 120000 8000o 300000
Lcss Cost of salcs
stock at1灬 攵Ⅱ2010 14000 17000 5000 36000

伽~铡
P讧 chascs 50000 63000 42000 155000
64l,llo 80000 47000 191000
Stock at31Match2011 18llllo 46000 22000 58000 4000 44000 147000
Gェ oss pront 54000 62000 153000
Wagcs 20000 20000 12000 52000
Rcnt 11200 11200 560o 28000
Hcadng&Lglltlng 2000 2400 1200 6000
Advet刂 sing 1667 2000 1333 5000
Admlilis± auon 12000 9000 6000 270lltl
Dcprcoatlon 3086 50353 2571 47171 1543 27676 7200 125200
3647 14829 9324 27800
Managcrs’ commissi° n (170 ( 700 (佴 o (132⑸
Nct pro丘 t 3473 14123 8880 26476

跏佣⒓
Mult灯 艹Cˉ choice quesdons
$000
1C 2,D 3C 4,B Factory ovcrhcads

一
Dcpkcciauon° f maclunc饣 140
460

灬
SXork lil progrcss:1Apr12010

嘤锎卯~一
Chapter19 31March⒛ 11
12
Oa
Facto饣 c。 st° fgoods ptoduccd
Exercise1
Facto,pront Oo⒃

朋
⒁
Transfcrrcd to TraMg scco° n° f dlc Income statcmcnt
The Fobticating Company salcs
Manufactu△ ng Account and In0ome stnteincnt fot the Lcss Cost of saIcs
ycar eoded31March2011 Invcnto〃 。f nnished goods at1AprⅡ 2010 24
Transfcircd lrom Manufacmong Acc° unt 54o
$0lXl $000
⑽⑶ ~

Raw matcrials
1nvent° 轷 °f fmshcd goods at31March2011
564
36
朔~仞∞~刀 豳~
Inven唧 at1Apm2o1o
Gtoss pェ °丘t
Plrchases
%3~

0血 e。vcthcads
m~Ⅲ

Carnagc h
⒛
α㈤“~钥

0f丘 cc dcprcα a乜 on
⒇

Nct pto丑 t° n tadIng

arch2011
Invcnt。 〃 at31卜 压
Facto印 proⅡ t
妯n允 mmc汕 Ⅱ
dpω 鼠 ×
Dlrcct labolr
Dlrcct cxpcnscs
忿勰 “㈨篙Ω
_吲

P⒒ me cost
Exerosc2 MultⅡ le~ch° icc qucstions
1B 2,C 3,B 4.C
G1upetBoo
M曰 nu锿 ctu“ ng Accoont atld Incomc statcment
fot the year ended30Apti】 2011
Chapter20
$
Ditcct matcrials: Exercise1 Fiford Ltd
Invcnton,at1May2010 11250
Purchascs 132000 1nventoty of Ⅱfo1ium at310ctobet

⑷钥~⒃
“叨_∞
刀钥一
Carrlagc mx,atds 11505
154755 0ctobcr 1 29
500

⒛
Invcnto,at30AP工 Ⅱ2011 13125 141630 Piicc⑼ 532
Diccdabour 146250
Quan。 ,Cdo9 100 100
Prmec° st 287880

⒆雨 ⒆τ
saIcs
Ind1rect、 辔 s 19500
RCnt了
3
㈨∞+贸 P
← 36563
230012700l 30000
∶
∶
(15)

∶
∶
∶
∶∶
∶
∶ 眢冤
各 j∶
2025
14
65
ls())

∶
:;lI∶ 1t:甘 [CxpCn“
sΦ 000×
Ξ
) 3000
17
15
(15) o0l
Factorv 3000 20
Machncq 1 10000
Motor vehdes lBO00× 4000 108088
30 @Φ lsOl -
Ξ )
395968
31 - 20 100
氓、rk in progtcss: Valuc $10560 $53200
at1May2u010 18000 %tal“ 3’ 60
sO Ap-2011 15750 2250
Fackxy cost。 f goods produccd 398218
Facto,proε t O09o 79644
Excrcise2A、 I Co Ltd
Transfcrtcd to Tradlng sccoon of thc Inc° mc statclncnt狎 7862
sales 800000
Lcss Cost of salc$ Inventory of digita1hammetθ ot30June
Invcnto〃 of fliushed goods1、 Ⅰay2010 27000 Datc Balancc
Quantity pticc pct Avcragc
Transfc丘 Cd from Mantlfact-g ac∞ unt 477862 unit(⑼ pricC(sl $
504862
Lc$Invcn唧 of nmshcd goods30,AprJ20ai 24000 480862 Jun 1Balancc b/f 200 5llll 5000 1000
Gross pront 319138 4 Purchascd 100 520 5⒉a

ofncc salatics 514so Balance 300 1520

RCnt÷ 12187 10 sold (75) (380l
(45000+375♀ B脑 cc 225 1140
15000
l∶ ∶
∶
∶帚l嚣 i昆 /300+2700)
:∶ 225
13 Purchascd
Balancc
100
325
535
5154
535
1675
Cartiagc outwatd$ 2520 20 s° ld (150l (″ 匀
Advc础 sing CO00-3500l 1 3500
α产№“000×
Ξ 3000
Balancc 175 902

鄂:J麓 步
狒⒆

)
26 Purchascd 80 540 432

×) ∠ Balance 5231 1334

~

抵硭点 ∶∶
∶嬲 Ξ
8tlllO 95882
~奶

222 30 sold (471)

:∶ 223256
Add Facto,ptont 79644 Balancc 5231 863
Rcducdon血 Proˇ △
si。 n for UnrcaⅡscd

pro丘 t :l97llllO-24000l 500 80144

MuItiI,1eˉ ch0ce quesdons
o⒕ tau nct pro丘 t 303400 1,D 2C 3,B 4A
Chap。 er氵 1 Cost DCP NBv
$ $ $
Exercise1,⑶ Capital acc° unts: Tcc 100000
kcf 50000 150000
Tcc and王 εef Currcnt accounts: Tec 3100
Inco”c statcmcnt and Appropn缸 on Lccf 6700 9800
Account fot the yeat ctlded31Motch zO11 159800
$ $ $
salcs 215000 Exctoθ e2,⑶
Lcss Cost of salcs:
Invcnto印 at1Ap⒒ 12010 16000 Tec and Leef
ptlrchascs 840tlo Income βtatCmcnt and J屮 pmpHa谊on
100000
Account fot‘ he ycat cndcd31Match⒛ 11
Lcss mvcnt° ,at31Mardh2011 20000 80000
Gross pto丘 t 135000 $ $ $
scIⅡ ng
expenses 24000 salcs 215000
侧

Adlii血 stradon cxpcnscs 46000 Lcss Cost of salcs:

~

Invcno呷 at1灬 d2010 16000

铆

DePtcciatlon
FLxmcs and丘 啷
咖一 Purthascs 840tKl
100000
10200
~硎
0fttcc cqtllpmcnt
Intcrcst on loan 600 arch2011
Lcss Invcntorv at31⒈ 压 20llllO 80000
Net pto丘 t Gross pront 135000
sharc of pro丘 t 叫加 27100 scⅢ ng cxpcnscs
Ad-lIstrao° n cxpcnscs
24000
460lXl
Dcprcclauon:

⒁~铡
1Ccf(:) 27100 54200 F厶 ttlrcs aild丘 mlgs 48lltl
0fflce eqmpmcl△ t 5400 102lltl
⑴ Interest on Ioan 1zllll
Nct pェ o丘 t
PBrω ers’ Current accountg Intcrcst° n draXl/mgs:
k$

呔$
胴扭

Tcc Lccf Tcc 2900

2011 $ $ Leef 3100 6C tKl

Mar31D⑾ 汕 嗲 ⒛ 000si∞ o 1B旧 danccs

59000
Intcrc欲 °n capitals
b/d 5000 100llll
Tcc 10000
⒛ 11
Lcf 5000
Balance Mar 31Intcrc哎
15000
c/d 3100 6700 °n loan 6∞ salarv
sharc of △ cf 40llll 19000
proflt 27100 2710o 冲06tKl
3210037700
— ˉˉˉˉ 32100 37700 shate of pto丘 t
Apr 1:alancc~~
b/d 3100 6700 Tcc2 24360
52
kcf: 16240 40600
(cl
咖$⒁

Patttlcre’ Cuttent BocountB

h$
of Financia1Positi° n at31March201】
飞$

st臼 tCmCnt
Tcc Lccf
Co$t NBV 2011 $ $ 2010
硎

Non-current asscts $
~

$ Drawngs⒛
卜怃 引 0∞ 310lXl Apr 1Balallces
Fixtuェ cs and st刂 ngs 480t【 35200
~枷

Intcrcst on b/d 5000 10lXlo

ofncc cqulpmcnt 27000 16600
75000 51800 d臼 小洱L珏 夯 29l× ’ 3100 2011
Cutrcnt assets Balances △Iat31h∞ rcst on
stock 20000 c/d 7460 2340 capItal 10000 5tlllo
Ttadc rccclxabks 24000 Intcrcst
Prcpaymcnt 6000 on loan 1z【 Xl

Bank 85000 sal/n, 4tllXl

135000
咖~

shate of
Curtcnt Ⅱablhocs proflt 24360 16240
11000 39360 36440
铡

Ttadc pavablcs 393‘ 03‘ 440

~

Expcnsc crcd,toii 4000 150llll .tpt 1Balance

⒁
~咖

b/d 7"‘ 0 23“ a

Nonˉ cllrrcnt ⅡabⅢ -`Loan-Lccf
 statcment of Finanoa【 POsition at31March2011 statcmcnt of FhanciaI position
at3i octobct⒛ 1nf。 ⅡⅡ 曲 培 Ⅱ mluation
Cost Dcp NBV
Non-ctuilent asscts $ $ $ $000 $000
Fixtuェ cs and fltongs 48000 12800 35200 Non~currcnt asscts
omcc cqlllpmcnt 27000 10400 16600 Propcrty 150
75000 23200 51 800 Plant and mac隘 crv 51
Cuェ rcnt asscts
201
stock 20000
Currcnt assets
Tradc rcccls,ablcs 24000
Invcnt° ty 17
Prcpa,mcilt 6000

ˉ一
Ballk 85000 Tjiadc rcccivables 28

屺
135000 Bal△ k acccunt
Currcnt ⅡabiⅡ jcs
Tradc pa,⒓ blcs 11000 Currcnt Ⅱabilitics
Expcnsc credltoェ 4000 15000 120000 Tladc payzblcs 22 24
171800
225
N° n currcnt Ⅱabll〃 ;I oan-LCCf 12000

姒“
Capital acc° unts
159800
-Ann

朋
Capital acc° uilt⒌ Tee 100000
1ccf 50000 150000 -J。 hn

_
Cmlcnt acc° Tcc 7460 Currcnt acc。 unts

"⑽
unts∶
230o 9800 -Ann

刀 ~~
1ccf

~
159800 -J° hn

锡
M证 tΦ 1cˉ ch⒍ ce qucstions
1C 2D 3A Excrcisc2 T° m and Ti1ly
⑷
Chapter22
ExcFcisc1,Ann andJohn Journa1cntties Dr Cr
$ $
(o Frcchold prcmises 25llllo
Fixtuics and丘 ttings 3000
Rcva1uation account 0fflcc cquipmcnt 2000
∞ ⒛

Invcntoiy
^`Ψ

3000
o

Propcrty(old value) Propcrty lnC、 盂 Debt° rs C。 ntr° l 1000

`valuel
Plant& machincry Plant&machincry Rcvaluation acc° unt 16000
(old valuc) (nCw valucl 51 勘 勿///'切 ″￠ 砑sjc打 ″ 磁 ″ 2o″
Invcnt° 卯 (° ld valuc) Invcntoty(nCW valuc) 17 洒 馏reF″ 勿冫 砌 e/J `Jep砌
△radc rccα vablcs Tradc rccclx,ablcs Rcvaluati。 n account 16000
Old valuΘ lnCW v破 uΘ 28 Tom Capita1account 80lXl
Tiade pavablcs T血 dc payablcs Tilly Capital acc° unt 8000
06ˇ ・
alucl lold、 诅uΘ 24 zPp矽 枥 。,,,,,F,,/旷 p睇 氵 9,,″ ″ 助 ″旷
'切
Pr。 nt。 n reva⒗ a谊 on 刎 ‘ 助 ″纟/J,,,pro/,/-饧 〃g彻 /,oJ
`打 '砬
勹乙

-Ann `'″
(b)
Pr。 nt。n rcs aluauon
_ 6~⒛

-John Tom and TⅡ y

270 statcment of Financi曰 1Poθ ition as at1septcnlbet2011

⑴ $
Non~cutrcnt asscts at nct bo° k vaIucs
c叩 id accom的
Frceh° ld prcmiscs 65000
Fixtuics and nttings 15000
$llllO $000 $ooo $000
Ann J° hn Ann J。 hn
0f丘 ce cqulpmcnt 5000
Balancc c/f 132 66 0pcning ba1anccs120 60 85000
”~

Currcnt ⅡabⅢ ucs

Pr。 nt。 n
~

Invcnto饣 14000
~姒

6_“

rcvaluaoon
132 66
Tradc rccc1oablcs 3000
share of pr。 flt:

Ho° k(:) 10838 (:)5575 16413

2
Llilc〈 7225 (:)5575 12800

L~塑
:)
shkt(:) 3612 璺 (:)=:L」
ˉ
￡IⅠ
9187 38000

Excrc、 c6
(al

BcⅡ ,Booket atld CandeⅡ

Incotne statcmcnt a众 d AppⅡ p丘 atbn
Aocount￡ bf the ye色 t ended31Dcccmbet2011

$
Tu文 novct 600000
Lcss Cost of salcs 330500
Gross pr。 丘t carocd dσ ψ△ 270000
8months to 4months t° Ycar t。
August2011 31Dcccmbct2011 31Dccc1obcr2011
$ $ $ $ $ $
Gross pto丘 t

brought down 180000 90000 270000

VVages and salatics1 76000 30000 106000
Rcnt 28000 14000 42000
Hcating and】 ighting 4000 2000 600o
sundry cxpcnscs 8000 4000 12000
Intctcst on l。 an-BcⅡ 800 800
Dcprcoad° n
Frcchold prcnuscs 4800 2800 7600
Plant&Maduncrv 12000 1800 13800
b压 otor cats 5000 10002 6000
0ffl￠ eqtupment 1400 139200 200 56600 1600 195800
Nct pro丘 t 40800 33400 74200
Intctcst。 n capItaIs
BcⅡ 6667 5444 12111
Bookcr 4000 3322 7322
CandcⅡ 1567 1567
10667 10333 21000
sal钿 9Ⅲ Bookcr 10llllo 20667 6000 16333 16000 37000
20133 17067 372ao
Pr。 nt:

:C⒒ (:) 13422 (:)6:27 20249

Bookcr(:) 6711 (2)6827 13538

5
Candc⒒ - 20133
咭)坐 17067 3413 37200

1Wa箩 s and salaic⒌ Pald$106000,16s pald to Candcn for8m。 n曲 s$16000=$90000

Janua〃 to Kllgust(ξ ×
$90000+$16000l=$76000

2 Dcpilcciau。 n。 f motor∶ 予
〖
∶∶∶ i↓ IjⅠ :∶ :l;:i;扌 :l::1000+700ox259白 ˉ
×L =$1000
(l))

Pattnerg’ C色 ptat accouiltθ

Bc⒒ Bookcr BcⅡ Bookcr

2011 $ $ 2011 $ $
Aug31Balancc c/d 187333 103667 Jan 1 Balancc b/d 100000 60000
Aug31 pront。 n revaIua硅 °n3 47333 23667
Goodw1ll 40000 20000
187333 103667 187333 103667
3 Profit on rc△ ,aluaoon:$O10000+27000+5000+600Φ -$(135000+30000+50t ll+700Φ =$71000

Pattnets’ CapitfI1accountg
Bcll Bookct Candcll Bcll Bookcr Candcll
2011 $ $ $ 2011 $ $ $
scp 1Good、 vⅡ 14 4lXlO 12000 scp 1Blancc b/d 187333 103667 -
Loan a/c 20000 Bank 50lXlo
Dcc 31BaIancc c/d 183333 99667 45000 △Iotor cars 7000
Goodwvill。 16000
203333 103667 57000 203333 103667 57l,【 lo
2012
Jan1Balancc Vd 183333 99667 45000

⒋ Goodwm∶ Bd(:)钐 4∞ Oc ℃
ducoon of$16000l;BookCr(:)$24000(ncrCasc of$4㈣ ;Cal.dcu cnudcd t。 (:)($12000l

Partncr8’ Cuttent accounts

Bcll Bookct Candcl1 Bcll B° °kcr Candcll

2011 $ $ $ 2011 $ $ $
Dcc31Dra、 ˇings 30000 40000 40llll Jan 1Blancc b/d 16000 12000
Bahncc c/d 19160 8860 980 Dec 31Int °n caps 12111 7322 1567
Int on Loan 800
salz1】|,` 16l,【 lo
pr。 nt 20249 13538 3413
49160 48860 4980 49160 48860 4980
2012
Jan 1Balancc b/d 】9160 8860 980
Excrc1sc7
(al

WⅡ ftⅡ ,Hkcand W^tq

【
ncomc statcmcnt and Apptoptiation Account For the yeat ended30June2012
6months cndcd31Dcc2011 6mondls cndcd30Junc2o12
$ $ $ $
Gtoss pro丘 t 93500 93500
Ⅲ 45500 45500
`agcs
Rcnt 6000 6000
Elcctricity 4200 4200
Intcrcst。 n loan 3750
sundr/Cxpcnscs 4500 60200 4500 63950
Nct proflt 33300 29550
Intcrcst on capita⒈ Wiltrid 4000
Hidc 2500 1F,sOT
珉 即 tC 1500 80tKl 325十 1975
25300 27575
shatc of pront Wilfrid2 12650
6

1一
2一

Hidc 8433 13788

21一
61一

4217 25300 13787 27575

6

2
XX ltc
十

$33tKlO× 10c/o× 1/2= 1650

十

$6500× 1§△ 、× 1/2=325

(b)

Pa"nctB’ Capital accountg

WⅡ fJid Hidc 〃ytc

、 V`ilrlid Hidc 、￠ytc
2011 $ $ $ 2011 $ $ $
Dcc31Goodwil1 10000 20000 Ju1 1Blancc b/d 80000 50000 30000
Rcx//aluaoon of asscts 10500 7000 3500 Dec31G° odwill 30000
Loan a/c 75000 Currcnt a/c 5650
Bank 30150
2012
Jun 30BaBncc c/d ~ 33000 6500
115650 50000 30000 115650 50000 30000
2012
Ju1 1Balancc b/d 33000 6500
 鄹$
Pattn0tg’ Cuttent accounts

Hid$
WⅡ frld Ⅵ△fod hdc 聊 C
2011 $ 2011 $ $ $
Dcc31Drawings 23000 Ju1 1Blancc b/d 12000 3000 4000
Capital a/c 5650 Dcc 31Intcrcst 4000
Pr。 nt 12650

悯
啷
2012

物~
鲫
Jun30Drawings 28000 18000 2012

丽
1371 5829

一
Balance c/d Jun 30】 ntcrcst

~田
Pi。 缸

⒅
卿
28650 29371 23829 28650
2012
Jul 1Balancc b/d

somc cxanunaoon qucs0ons wiⅡ c° mbhcthc

斓铡
Capital acc° unt9
rcvaluajon of assets widh the intr° ducd° n° fa
ncw

samir跏
RaLll sami
partncr In dus case,work山 rough伍 c rcs,aluao° n
$000 $000
accoun、 transferrmg any pr° Ⅱt orl° ss° n rcxaluaoon

7.乃
0pcning balanccs60 55

.4笳
``chiclc takcnunt
to dae old partncrs in thck old pro丘 t sharmg raoos Current acc° Cuェ rcnt accounts10 -

~
Bank pr。 Ⅱt。 nェ cahsatl。 n10 5

_⑽

~一
Then introducc thc n∽ v partncr and a曲 ust伍 c

ω
80 60
capital acc° unts for good、 注Ⅱ11Ⅱ nc、 汀伍 sccjon
227,
Bank account
Exercise8,Raul and samir
$t tlo $000
Rcausat1。 n account salc of pr° pcrty 106 0pcning ba1ancc 4
sale of vchiclcs 9 Tradc payab1es 1o
$000 $000
sale of invcnt° ry 18 Expcnscs of sale 3
Propejity(b° ok valuc) 80 Bank-salc° f piopct饣 106
From ttadc rcccivablcs 13 CapitaI account-Rau1 73
加
Ιotoil vehic1cs(b° 。 k va1uc)20samiii’ s capital acc。 unt
Invcntotv Φ。 ok・ al△ lcl 19 mltlc of car takcn 7 叻 斓 acc° un¨ sa- 鱼
146 146
Tradc rccclx・ ablcs Bank~salc° f,汛clcs 9
Φ°°
k△ altlcl 16 Bank-salc。 f illx/cl△ toty 18
Bal△ k~pa/ts to tradc B・ank-Eω m trade
10 rcccivablcs 13
MultΦ le~ch⒍ ce quesJons
PayablCs
Tradc payablcs 1D 2,A 3D 4,B 5A
Bai△ i-cxpcnscs of sa1c 3 k叮诋 Cl
Φ°° 10
pr。 ⒔t。 n rcaLsaoon
-R幻 △ 10
-salmt 5
163 163
Chapter23 Excrc】 se4,Gtaccnotc Ltd
Tot狃 °f° rdmary sharc capltal and rcscrv℃ s:
Exercise1.sccsaM,Ltd
$@00000+50000+100000-40000l=$310000
(al N° n乇 umulatl△,e preference shares
$310000
2006 2007 2008 2009 2010 2011
Valuc of100ordina叩 shares= =$155
Ycar 200000
$$$$ $ $
Pェ oΠ t 10lKlO 5000 7000 4000 70llll 12000 ExeFc1se5
Picfctcncc
dividcnd paid 6000 5000 6000 4000 60llll 6000
⑶
Pto丘 t left fot Mo11y Coddle Ltd
ordin唧 1ncome st色 tement
sharc-holdcts 4000 nn 1ooo t△ l 1lltlO 6000 fo‘ the yeat ended0O Apri120i1
V咖 mum otdlna,
dlx・ ldcIld payablc 40/o - 1% - 1% 6% $000 $000
Rcvcnue 300
0pcning inventoi÷ ie$ 20
⑼ Puichascs 113
133
Ycat 2006 2007 2008 2009 2010 2011 Clo盂 ng invcntojcs (31)
$ $ $ $ $ $ Cost of salcs (10纷
Pro丘 t 100tKl 5000 7000 4000 7000120tlll G± oss pront 198
Prcfeiencc 0vcilhcads:
dl△・
ldend for year ‘000 5000 6000 4000 6000 6000 Salcs ofncc sala.ics 57
Arrcars of dividcnd sclIing cxpenses 39
catrlcd fom・ ard - 1000 - 1000 1CNao Gcncェ al of丘 cc wagcs 32
Pr。 nt lc丘 f。 r 0thct gcnc~仫 l cxpcnscs 35
ordn唧 Dcprcciati° n
shatc~holdcrs 40lXl 血l nⅡ nⅡ ni1 5000 -、 %tchotlsc mach△ cty 8
a妯 um。 tdin唧
⒈Ι -officc machhcty 10 llsll
dl△ ・
Idend uvη b怡 4⒐ o - ˉ ˉ - 59钅
PROF玎 F0RTHE Ⅵ 盗 R
ATrRIBunuL汜 To EQUIIY H0LDERs ⒓
Exerose2 Pren⒒ um shares Ltd
lbl
JoutnaI
$ $ Mo△ y Coddle Ltd
Bank 12JD O00 statemcnt of Ch狂 喀∞ h Eq讧 ty Fot the
10%prcfcrcl△ cc shatc Capltal 100000 yeat cndcd30如 咄 ⒛ i1
share Prenn△ ltn accom△ t zO000 sharc shatc Gcncral Rctamcd Total
Thc lssuc of10000010c/o preference capltal prcm血 m Rcscm Eat-gs 胁 ”
shatcs of$1at$120pcr shaJic $000 $000 $000 $000 $000
Balance at
Exetosc3 sO灬 m
2010 60 25 108
Pto丘 t
Journat attJIlbutable
$ $ to cqlu饣
Frcchold prcn△ scs at Cost 2DO00 holdcrs 17 17
Pro。・lslon for Dcptcclaoon° f Ttansfcr to
Ftcchold prcmoscs 18llC o gcnctal iicsc钾 c 10 (10) -
Frcchold prcmsc$Rc△ aluatlon Rcscn c 38000 Balancc at30
Rcvaha刂 on。 f ftcchold prcm怎 cs仔 om nct Apm⒛ 1i ω 15 35 15 125
book valuc of$42000to$80000
 $000 $000
Tax ltΘ
Mo11y Codd1e Ltd PR0FIT F0R THE YEAR
statcmcnt of Financial po“ tion。 t30Apti120iI ATTRIBUTABLE T0
$000 $000 $0llll
EQU唧 H0LDERs 104

⒃⒛仫~
Asscts

NΒ
⑶

v夕
Non¨ cWtcnt agsets Dcph

ρ_~
Watchousc machnery 38
ofncc mamcrv sh山 ˇshany Ltd

~〓
30
stntemc众 tofChangeg h EqⅡ ty

狃⒊
68
Cut± cnt aθ getg forthe yeot ended30June娅 1

篼⒛
h△ cntotlcs
sl△ arc Gcncral Retaned %tal
Tradc rccow钔 讪∞
Equ饣

一
capltal Rcsc四 c Eat血 n⒏

”
Cash and cash cq由 谰 cnts
$000 $000 $000 $000
Ba1ancc at30Ap⒒ 12010 9llll 50 7

_m~
957
Total agsets pェ 。nt attributable t。

姒 ⒇ Ο“

姒
Equi〃 and Ⅱ ab血 ies ω‘“‘_ cquity hoIdcrs
Capita1and tcscrvcg

5
Ttansfct t° gcncェ aI rcsetve

.⑺
sharc capltal Dividcnd$paid

⒄
ο
sllarc prcnllutn Balancc at30Ap⒒ 12011 900
Genctal rcscⅡ c
_钙

Retaincd carnlilgs
(〈
|)

Nonˉ cutrent1iabi1ities
shⅡ l,,8hally Ltd
10%Dcbcn灿 ⒑s201〃 2018 5
stotcment oF Financia1Position at30June2011
Cuttcnt ⅡabⅡ tic8
Ttadc阏扎 lcs 11 $000 $000 $000

弧跏⒛⒛~㈨

渊绷”核~姗
T° ta1Ⅱ abiⅡ tieε 141 Asscts
Noi1ˉ cwtent asθ etg Dcph
Frcehold ptcnscs
Exercisc6 I>cLvety vchclcs 41
(al 0fEce mac・ k(:J;,` 28
69
shiⅡ yshaⅡ y Ltd Cuti|cnt。 gsct8
Income statement Invcnt° ocs 38
fot the ycat cnded30June2011 Tradc jiccciVablcs 82
$000 $000 C)thcr rcccivab】 cs 6
Rcvcnuc 1000 Cash and cash cqm△ ・
alcnts 67
钇 塑“ ⒅

0pcning invento⒒ cs 193

Putohascs Total assets 1474
Equi” and Lia⒍ Ⅱdcs
~

Closulg ml,cntorics Capital and reseweg

Cost of salcs 0tdinary shaie capital 800
Gros$pェ 。nt 896Prcfcrcnce sh色 tcs 100
0vciIheads: Gcncral rcscrvc 100
Rcv衬 uation tcsc夕 e(200+60)
i`

salcs of△ ce sala攵ics 260

,J
'△

AdminIstration wagcs Rctancd carmngs 54

DcⅡ vc呷 vchiclC expcnscs O8+2) 1314
0一

Advctosing(34~6) Nonˉ cuttcnt1iabiIities

0一

0ff,cc cxpcnscs lz0+劲 12%Dcbcntttcs2019/2020 100

Dcprcciation Cutrent ⅡabⅡ t1c8
-Dcl加 cry vchic】 cs 13 Ttadc payablcs 33
-0fflcc machincry 7 0山 er pa” u6@+3) 5
侈30l Dcbcnmre htcrc呲 6
pROFIT FR° M0PEm`TIoNs 132 Taxa谊 on 16
Flnancc c° sts甾 +Θ C砂 60
PR0FIT BEFoRE TAX 120 t。 t扭 uabⅢ dcs 1474
 Notcs to thc an钋 vcr Adlu歇 mcilts fo⒈

m⒆
1 矶 Dcprccntlon chargc for thc卿
c Prc± crcncc sharcs arc non-rcdeemablc,

“⑿⒆丽⑺⒇丽
Pto￡ t lcss losscs on sale on n° n~currcnt asscts
Thcrcforc thcy arc part° f the equity, Dccrcasc in mvcntoocs(100-8sl
2Thc rccomincndcd fmal dl△idend° n thc Or蛔 Incrcasc in ttadc rcccivables(40~5劭
sharcs is shoMn by硒 么y ofa n° tc to thc acc° unts, Inctcasc in tradc p纱 该blcs阝 0~73l

3,slmilar圩 ,the unpald prcfcrcncc dhidcnd ls

Cash luscd inl/fr° m° pcェ ations
Intcrcst paid(during thc ycarl
notincludcd in thc accounts and is sho、 7n by %x pald ldutmg山 crarl fr。 m脚 ∝hlgs
way ofa n° tc, Nct cagh(used in)/from opcradng日 ctlvidcs
4 H° 、K~cr,dlc dcbcnmrcs atc a long tc± m loan
and thc unpald intcrcst on thcm1s讧 CatCd as an
Cash Ⅱows Ftom hw℃s击呜acd讧 击⒍ $000
Plrcha“ of n。 n-currcnt asscts (16ol
accrual Pr° cccds ft。 m山 c salc of non~currcnt asscts 55
5,Amounts prcpaid arc sho、 Nct cas扛 ←scd△nl/ftom ln△ ・
es饭 g acuvldcs llO助
`n as other
rcccivab1cs,
Cash跏 s△ om Enancmg∝ 砬讧怔 s:

“⒇迎
6,similarly,thc amounts OM注 ng are show且 as
Procceds f° rtn issuc° f shatc capltal
°thcr payablcs, Rcpayment of dcbcntutcs
Di△ ,ldcnds paid

1ˇ 讧 Jp1cˉ choice questions

Ι Nct oash【 tIsed in,/Ⅱom￡ nan山 g ac甘 vitks Oll
Nct inctc3sC/(decrease〉 in cash and cash
1C 2B 3B 4,A 5,C equiva1entg
6,A 7A 8,D 9D ll”

〓_
Cash and caθ h equiva【 ents at the bcginning
ofthe ycar

~笳
Cash and cash cq诬 △ s atthe end oFthc ycat
钔 eⅡ ‘
Chapter24
Excrcisc1 氓、±
kjngs
Contranb Ltd 1,Fixed asscts
跏伽⒇獬

跏⒇⑩⒕
st3tcment of Ca8h Flow fotthe
yeat cnded31Decembei|201父 Ftcchold buldmgs时 co呲 Ftcch。 ld buⅡ dnlg disposal

cash n。 w丘 om opcta血 g actmdes

At31Dccclnbcr2010 Cost
Disposal Procccds
$000
Pro丘 t丘 °
At31Dccc1nbcr2011 pt° 丘ton dop° sal
in oPCraoons ΦcfotC tax and htcilcsO 94
跏⒛⒇ ∞~⑻~ 跏钔⒇ ⒛

Phntand m犯 址 ⒃ 饣 PIoot and m犯 血 呷

∞ ∞ ⒃
depn“Jadon
eψ
臼t Cost $000 Dispoθ al $tKlo Taxa乩n
At31Dcccrnbcr2010 At31Dcccmbcr2010 35 Cost 20 At31Dccctnbcr201o
Disposals 0n disp。 $als (1⑨ DCptcoatlon (10 From1nc stat
AddidoⅡ Φ狃an。 ng Pro访 dcd h rar
⒆堑
DI

fIgl± el balancmg
【 flgurel 20 procccds At31Dcccrnbcr2011
Θ

At31Dccembet2011 At Dcccmbcr2010 39 Loss。 n dispos址 Tax pald

Motor vehicIcs Motof veⅡ des

ο
oο

at cost deptcciation $llllO D珀 posal

∞⒇

At31Dcccmbct2010 At31Dcccmbct2010 90 Cost

Disposals 0n dlsposaIs @sl Deprccuao° n
Λddlti° ns ΦalancIng pr。 .~ldcd h)Π eat
D⊥
~~峋

flgurel Φal/allcnlg馋 ⒆ 30 Proceeds

Ω

At31Dcccmbcr2011 At31Decernbct2011 95 Loss on disposal

Excrcisc2 Thc pro且 t on thc rcvaluaj° n° fland is n° t
includcd as this increascs thc v/alue° fthe land and is
Hotga Ltd

帅铆
statement of Finatlcial p。 sidon at31Jd,・ 2011 includcd inJaninC‘ capita1on thc Statement of
Cost NBV Financial Posljon
$000 $000 Thc ca1cL△lajon ofloss on thc sa1c ofthc plant
Non-cwrcnt asscts and machincrv and thc pt△ rchasc of ncw i△ ilaChinc叮 is
Frcchold prcnl,scs 300 142 】58
as follo・ ,ss:
Plant&△ Iachilc, 143 117 26
1684 460 184
p1ant and Machincty3t oogt臼 0Count
Currcnt Asscts
Invcnto轷 l36++l 40
$000 $000
△adc rcccI△ ・
ablCs C9+1o 98
0pcning ba1ancc 39 Closing balancc 55
Cash and cash cquwalcnts 112
Baflk-putchascs 22 Assct disposal ~6
250
61 61
⒆~

CuiIrcnt ⅡabⅡ tlcs

乃

Tl/adc payablcs l+3+⑨

Plant and Mac洫 cty Accumdoted depteciadon account

鲰⒛
⒁ˉ⒛一
Tax 74 176

$
型卸一㈨⑽⒛∞_
Non-currcnt⒒ ablL饣
10%Dcbcnturcs2017/1800-2Φ Assct dlsposal account 0pelmlg balance

5_%_
Closn△ g balancc Chargc fot thc ycar

%~
Equi轷
sllate capltal αsO+20
shale preimtlm O0+20l Asget扯 叩 os诅 acc° unt

铆ˉ
Genctal rcscⅡ ℃(钥 D+30l
$000
~卸

Rctalncd carl,lngs
Cost of plant sα appcd 6 Dcptcoatlon

6.7_
Pro丘 t on dispos址 1 salc procccds
Workings 7
Calc。 ulatloil of dlc Bgtre for rctaIIlcd car砬 ngs $000
Rco△ ncd earmlgs at start of v℃ ar 56
Pio扯 foi tllc rar 39 J痂 he
95 statement of Cash F1t,ws for曲 c
Transfcr to rcsct屺 s oo yeat ended310ctober2011
Dis・ Idcnds paid (15)
$000
RctaJncd carmgs 50
Nct cash← scd i⑶ /ftom。 pcraung aco△i1ocs 14
Exerc1se3 Cash且 owθ ftom mvesdng aod△ ities: $000
Pluch孙 c。 fnon~currcnt asscts elan9 O勿
Ja山 Ⅱ s址 c ofn° n-currcnt asscts 6
⒗ 獭 龇 碱 ¨ f prOJit± om叩 Ⅱ 汕 ms to nct caghflo9r△ ~ Nct ca$h lusCd山 ◇ ・
/from ln△ cs△ ng acux-locs (10
opmoog猁 由诎 ∞ 勤dhe year endcd3i octobct⒛ 11 Cash O。 ws ft° m flnancng acu△ ,ucs:
Capital introduccd
e四

10

Nct prof1t for thc ycar bcforc intcrcst Ncw l。 an 8

Drav・ ings O1)
Adlu蚯 mcnts fo‘
DcprcclatlOIl Cllargc for dlc ycar 5 Nct cash(usCd in)/from fmancing act加 1tics (3)

ProfIt on salc on non~cturcnt asscts Nct⒒ crcasc/【dcctCa° cl h cash and cash

C)
Incrcasc血 mvmω rles eq讧△ 钔cnt8 (5)
lsl
Dcα ease h± adc rcccll abks 3 Cash and ca8h cq“″alcnts at thc bc驴0洫 g
Decrcase h tradc pa,/ablcs (8) of thc ycaf 旦
Cash luscd i⑶ /from。 pcraoons 15 Cash and cash cq诫 、呲 nts atthc cnd
Intcrcst patd@u疝 ng山 c rarl (1) ofthe ycBt (ol)
Net ca$h(used h)/Ftom opetaung ac廿 ~1证 s 14
Wotkingθ ql.ep。 s蕊 t北 rc缌 ons砀 hyJaim.c has an ovcrdra± t are:
跏乃Θˉ_

Thc nct pェ oflt for thc ycar bcforc intcrcst is∶

・Thc purchascs of non-currcnt asscts$22000
Nct profit lrom thc Inc。 mc statcmcnt cx讧 aCt
have bcen丘 nanccd from dlc loan($8000),c⒎ pital
Lcss-Dcprcciation intr° duced($1000⑵ and the procccds ofthc salc
~勿

Add-Pr° flt° n dlsposal of n° n-current assets($6000)

Nct proflt fot thc ycaJ bcforc illtcrcst
・Ihc hgh dra、 ~ings flgu仰 6⒉ 00Φ “hgh∝ than (1))

跏~
伍c cash gcncrated fr° m° pcra谊 ons Ths could be

猢 婀⑷⑵⒛_一
as a rcsult of the m1stakcn bcⅡ cf that thc
Nct asscts
rcvaluaj° n ofthc land is a cash pro丘 t rathcr than
Equity
a bo° k adjusα ncnt,
shate capital and tcscwcs
・Ald△ oughJa血 nc h灬 rcduccd hcr oade rccchablcs 0rdlna叩 sharcs of$1
sharc prcmium
shc has1ncrcascd hcr1nvcntorΓ and rCduccd hcr
Gcncral Rcscrvc
tradc payablcs,Thc nct effect° f仕丘s has bccn t° Rctalncd carnm爹
rcducc伍 c cash in the bus1ncss.

猢
・ 沪刂1thcsc factors combhcd havc rcsukcd L△ rnorc
cash lca、 △ng伍 e busincss由 an co血 ng h, Excrose3 Choppers Ltd
⑶
MulΦ 1e~ch。 ice qucsdons

跏跏蛔~一
stotc‘ ncntoF FhanoaI Po9i刂 on
1.A 2C 3,D 4.C 5.C 6A
Non-currcnt asscts
Net currcnt asscts

Chapter25

踟
Equi饣
Exctcise10tago CB° nus offcrs)Ltd 0rdn⒕ ,sllarCs° f$1 1150
sharc Premuln
泖咖蛔

350
Gcncral rcsei÷ △e 200
Rctalncd car-gs 150
No艹 cutrcnt asscts
~

1850
_蜊

Nct current asscts

Equl″ ⑴
°tdn唧 sharcs of$1

跏铡俐~
1‘uao
statetncnt of Fh俪 al p。 θ迁b讧
shate p± cml~ 200
Gcnctal RGs引 γ℃ 100
Rctalncd cat-gs Non-cuttent asscts
50

_唧
Nct currcnt asscts
1750

Eq讧 ″
Notc,Thc shatc Prcmum accountcodd h灬 K 0rdm唧 shaJcs of$1 1llllo
shatc ptcmium 200
bccn uscd、 河th$400000° fd1c Rc△ aluao° n RcscO图 己 Capital Rcdcmpdon Reservc 300
butthe share Prennum account can bc uscd for Rctamcd catmgs 50
purp° scs not avallablc to thc Rcvaluajon Reserˇ c, 1550

lsCC chapter23l
Exerc泌 e4.Twi锐 Ltd
Exerose2.B° narltc Ltd ⑶
跏猢蛐~一

statement of Fh螂 斓 Po茁 洫

⑶
跏猢

Non curient asscts

一 跏⑵⒛

Nct currcnt a$scts侈 00~300l

Net asscts
驷狲朋豹~

Equl″ Equity
sharc capital and rescrvcs 0rdinary sharcs of$1
ordin唧 shatC$° f$1 shatc ptcm】 um account
Gcncral rcservc CapitaI Rcdcmpdon Rcservc
一~
硎

m一
驷

Retamcd carmgs Retamcd catmgs1

1 Ihc balancc On thc Rcta1ilcd cariungs has bccn rcduccd by thc 3Ihc Sl△ arc Prcmunl acco・Jnt has bccn⒗ ctcascd bx,d△ c prcnuvm cln
transfer of$250000to Cap1tal RcdcmpJ° n Rcsα vc and a dcbit dle nc,,s脑 cs6Fl9500l and reduced bvdle pIenu-on dle
of$50000fot thc prcfIlIum paid on rcdcmpoon redemptlon Φ50000l,au。 fwh虫 Jh益 au。x.cd bccausc itis忆 ss dlan
dtc premllln on tbc ncw lssuc

(b) 4 Thc cost of￡ cdccming thc sharcs has bccn complctcly
covcrcd by thc procccds of thc nc、 v issuc;it has not bccn
ncCcssary to crcatc a Capita1Rcdcmpuon RcsctvC,or t0
statcmcnt of Financial Position chargc any ofthc p攵 clluum° n tcdcmpton to thc Rctaincd
$000 carnings

Non-cuj÷ rent asscts 2000

Net gJrilent asscts1 720 Excrc始 c5
2720

刎朋⑩⒛
Equi轷
Do,ms汤 c Ltd
0诩血唧 shatcs° f$12
sharc PrcfIllum accounP
statcmcnt of F“ anci扭 Pt,s“ 吐on a众 et cop吐 taI reduc亡 k助 n

~
Capital Rcdcmptlon Rcscr△ ・
e+ $000
~彻
RctaIncd car-gs5 Non-currcnt asscts
Fェ cchold propcrt, 3却 a
FLxturcs and nmgs 80
1NctcwⅡ nt孙 sct hax・ c bccn hα cascd t∷ /thc atnount￡ cel△ ed c)fnce§Ⅱ血。Je 70
on thc ncw is$uc ls2⒛ 000l butrCduccd by thc cost0f 490
rcdcc-g thc PiclcrCncc止 狂 6⒁ 0000 Nct cwrcnt as∞ ts 210
20rdm呷 shatC capltal has bcen iilcreascd by dtc nclllullal1・ al.lc 700
of dlc ncw ordmary shares Equity
3Thc sharc Prem血 m account has bccn crcdltcd诫 伍 $20000 1000000。 tdma饣 sharcs of$0701 700
premum teceⅣ cd on山 c nsvi$uc and dcbltcd vjdl$20000
1 Ito mp° rtaIlt ,thc no溺血址△aluc ofthc ngv shaJics
lthC max1mu叩 amoui△ t pcrmlssibk◇ of thC prcmlum paid on llle to$hoX△

rcdcmptlc n
4A Capital Rcdcmpuon Rcsc四 c of$50000mⅡ t be cteated to
Muldp1eˉ choice quesdons
CtlVCr thc dlffctcncc b咖 ccn dlc n° -,al、众uc of thc
rcdccmcd$harcs atld thc i△ omtllal△ ・
aluc° f thc n6v lssuc
1C 2D 3C 4D 5,B
5 Thc Rctaincd carnings have been teduccd by thc transfcr
to Capltal Rcdcmptlon Res咖 e and thc amollnt of山 c prcn寸 uin
。n redempuon dtat was not∞ 陌 cd b,・ 伍c prcl【 uuln on tl△ c
ne,,lssue
Exercise1,HamⅡ Ltd
(c)
⑶

s‘ otement of Fhancial Pos⒒ ion Journal

$000 $ $
Non-cutrcnt aδ scts 20000 Goodwill 29000
Nct cuttcnt asscts1 8155 Frcchold prope唧 7o αao
28125 Plant and machinery 12000
Equity 0fflcc furniturc 4000
0rdlin呷 sharCs of$12 22500 Invcntory 2500
Sharc Prcnllllm account3 2125 Tladc rcccI△ ,ablcs 5500
Rcta】 ncd camings4 350o Tradc payablcs 3000
28125 Cash and cash cquivaIcnts 20000
0rdinary sharc capital 80000
1Nct curicnt assct hax・ c bccn mcrcascd b9・ 山c ptocccds ofthc sharc ptcfInutn accollnt 20000
n6v ls$uc($31250o but havC bCcn rcduccd by thc cost of 123000 123000
rcdcc血 ng thc shatc$ls300000l
2 0rdinary sharc capital has bccn inctcascd by thc n° minal P//枥 洫 旷 砌打 肠‘
′″弼 ヵ r$`2矽 000勿 ″″ 纟 ″ 距 0000
amount ofthc ncw issc 初 洒 莎 '莎0‘λ9矽 磁 ″缨
幽 `‘ '″ `勿
扬 ref扩 $′ 沏 HF,,,z/L/z〃 $`犭
'材
 $
HⅡ 湖 Ltd Equl〃
statement of Fhan-al p。 g△ ion at allJune20i1 ordlila饣 shares侈 00000+600001) 260000
after the曰 0qui“ 刂on° fAbduP8busheθ g sharc prc血 utn@0o00+20lltlOl 15000
Rctaincd cariungs 4tKlo
$ $
NoIlˉ currcnt assets
279000
Intangiblc
Goodo・lⅡ 29000 $ $
1 sharcs issucd:Purchasc collsidcration 118000
Tangiblc
Lcss cash 28000
Frcch° 1d propcrty 170000
Plant and machincty
dcbcni△ rc 15000 43000
72000
V斑 uc° f sharcs 75000
0fflcc cquipmcnt 14000
ofncc furmturc 4000 No of sharcs at$125pet sharc=60ooo
289000 sharc prcmium60000× $025=$15000
Curtcnt asscts
Invcnto,llO000+250【 ll 12500 Exerc、 c4
Tradc rcceivablcs(7000+5500) 12500 Lcc&Mick
C么 sl△ al△ d cash cq△ v址 cn、 O5llllO-2DO00l 5000 Re众 Ⅱga∞ n account

岫
30000

°ρ
Curtent liabilitics sO∞

m⒛
T.alae p钾 ablcs6000+300o 9000 2100o Pfopeny Tradc payablcs 6
310000 Plant&ma洫 , Bank-cash pald 20
′

8佗
Equity Invcnto, 0rdn狎 sh盯 cs 120
0rdlna,shatCs(150000+8000Φ Tradc rcceis・ ablcs

⒛⒛
230llllo
pr。 f1t。 n
sharc premlum O0000+20000l 40000 rcaLsadon
-kc

一
Rctatllcd car-gs 40000

~
吼
$3100tlll -AIlck
146
Excrcise2 Car° l
(a) $60000×
跏衄 ∞_
CapitaI a∝ ouiltg
{⒊ =$37500
$0lXl $000 $OtKl
(b)$60000× kc
:| =$75000 kc △Ilck
4

Bank 6 0pcfung bals 3o 3o

Exerc、 c3 Cu筮 cnt aCcounts 8 6
shatcs 6o
~“

Digger Ltd Pro丘 t。 n jicaLsatlon 28 28

statemcnt of Financia1Position i血 mediatcly 66 66 64
aftet thc acquisition of spaid and shuve11

$ $ Bank ac∞ mt
Non~currcnt asscts
$llllo $000
L匆 曰d and buⅡ ngs(90000+6000Φ 150000
d】
From Tal,kox er Ltd 2o 0pe-g balancc 2
Fixturcs and丘 tungs l3o oo0+14000) 440llll Loan 8
0fflce m^chincry(15000+10000l 25000 Icc 6
Goodwlll 25000 Mck 4
244000 20 20
Curェ cnt asscts
Invcnto〃 lzO000+15000l 35ooo
Tradc tcccivablcs(5000+6000) 11oClll
N。 ucc thatin ths casc thc partners takc thc
Cash and cash c印iv斑 ∞‘侈o0∞ -⒛ 000l32000
78000 sharesin hnc M,【 th thelr pr° 丘t shanng ra⒒ o
Current liabi1itics Howcvcr,bccause of thc dlffcrcnce in thc△ currcnt
Ttadc payablcs C6000+12000l 28000 500oo account balances thc spⅡ t ofthc rem疝 ning cash is
294000
not cquaI
Non~cutrcnt habⅡ ity
8%Dcbcnoltc(12000× 8/1Cl 150llll Wh址 dp1eˉ choice qucsdong
2790llll
1C 2D 3D
Chapter27
MlIlti】 Pleˉ choice questons
1B 2A 3B 4B 5B 6D

Chapter28
Exctosc1Najim
(a)

gross pto丘 t 60308

⑴ Gi。 $pr。 flt pctccntagc 2010 × 100 × 100 =35⒐o
salcs 172308
60000
2011 × 100 =329o
187500
nct pro丘 t
NCt pto丘 t pcilcentagc 2010 × 100 纟∠∶Z± L× 100 =1259b
⑾
sales 172308
27322
2011 × 100 =14570/o
187500
salcs 172308
⑷ Non currcnt assct ttrn四 cr 2010
non-culrcnt asscts 78322
=22讧 mcs
187500
2011 =2umcs
93750
・ Cost of salcs 112000
ll・ l Invcnto叮 Ⅱm【 ’
vCr 2010 =8umcs
avcragc lnvcilto轷 lt2000+16000,÷ 2
127500
201】 =85刂 mcs
(16000+14000l ÷2

tradc rccclx ablcs 9914

l・ l TmdCrccco・ ablcs coucctl。 n pCnod 2010 × 365 = × 365 =35d钾 s
crcdlt salcs 609b of172308
12511
2011 × 365 =4059days oii41d叩 s
60Vo of187500
°adc pa△,ablcs 13984
lxIl Tradc pay疝 lc.sp呷 mcn← pcJod 2010 × 狁 5= × 365 =44da△ s
crcdlt putclla跹 s 1160lXl
17192
2011 × 365 =50days
125500

←η CurjiCntェ a0o 2010 ctlrrent assets:currcnt ⅡablLdcs =30765:13984=22:1

2011 =33696∶ 17192=196:1
/lul Lq・ nd
l・
rauo0cld tCs9 2010 ctltrcnt asscts-stoC△ Cutrent ltabJIucs =14765:13984=106:1
2011 =19696:17192=115∶ 1

an incrcasc in thc cost of salcs n° t passcd

⑴
on to customcrs
⊙ Sa1Cs havc incrcascd by over$15000or ncarly salcs rnade at lcss than thc n° rmaI tnark-up
9⒐ 。but gross pro丘 t perccntabcc has dccrcascd
6easonal salcs° r dlsposal° f° ld or damaged
from35V。 in2010to32V。 in2011,a rcduc刂 °n st° ckl
of3oo Thisrnay bc duc t° somc stock va1ucd at lcss than cost because
・a rcduction in sc1Ⅱ ng priccs t° incrcasc itis old or has detcΙ °ratcd
turnovcr stock which has bccn stolcn
 Whe山 cr° r not thc gross pro丘 t pcrccntage is that血 mrc orders wm° dy bc acccpted on a
acceptablc dcpcnds upon thC n° rmal lnargin cash basis and ths w° uld grcady harm Najim‘
expcctcd on salcs,but information about this cash n。 、
泓
is not givcn in thc qucstion ← i◇ ThC currcnt rado has dccrc郇 cd sLghdy from
⑴ NCt pr。 丘t pcrccntagc h灬 improved± r° m 22:1in2010to1,96:1h2011.It remalns
12,5Vo in2010to1457冫 s in2011,1△ is is in 阴jsfacto呷 by normal出 洫dards
spltc of a rcduco° n° f3V3in thc gross pr° Ⅱt ⑺⒆ The Ⅱ叩idr血 oh灬 rcmalncd almost“ ca曲 at
margln Ths h灬 bccn acⅡ 四 cd by刂 ghtcr 106;1i12010and1,15:1h2011 As60V。 of
control on ovcrhcad cxpcnditurc,do驷 η from salcs arc On crcdlt,伍 c vc,low ra刂 °s° n
whch
$38769in2o10to$32678in2011,a rcducoon bushcsscs su0h as supcrmaJikets M,ork arc not
°f15,7%although salcs h独 c hcrcascd by88% appr° poatc for N犭 im、 bushcss and hs prcscnt
llii)N° n~currcnt assct turnovcr has rcmained raoos rnay bc considercd saosf・ act° ry
alm° st stcady,Without furthcr information Gcneral comunents Thcrc arc no1ndlca色 ons that
about thc naturc° f thc busincss,it is n° t thc bushcssis not a going conccrn Its cash p° sⅡ °n
possiblc to commcnt on this raoo Therc has is posiu△ ˉ
c and there arc no bankloans or N、 rdtafts
bccn a considcrablc incrcasc in the valuc° f 伍at c° uld
cause cmbarrassmcntin由 e ncar血 turc
non-currcnt asscts cmploycd in the bushcss in Thcrc【 s no slgn of ovcr“ ad“ g
as st° ck and
2011and thc addloonal assets、 vodd appcart° dcbtors are n° t cxccssl△ C OVCr缸 admg placcs
havc bccn broLlght into“ e ca约 h thC ycar for busincsses at grcat risk,
thc fu△ cffcct to have been fclt, Note Part CD∞ qurcs moK than^sinplc rcpc刂 oon
llv)Invcntory turnovcrs has incrcascd shghdy ofthc raj∞ akca曲 c砬 culatcd h part⑶ fmarks arc to
fr° m8刂 mcs in2010t° 8,5omcsin2011,Ihc bc camed,It抵 ncccssIa1】 ‘
o`'t0砌
∶ 勿励 dle rauos and to
avcragc刂 mc that go° ds rcmain in stock is65 rccogmsc鼬执and uclrs砻血 c洫 ￠ 凡讪i lrrclcx。 ant
wccks whch may seem rcasonablc,but as commcnts and rcpcouon statcmcnts w・ hch cannot bc
nothng“ kn° w】 aboutthc typc ofbu“ ncss, supportcd by infonmaoon glx cn in thc qucsion shodd
further c° mmcntis not possiblc bc a,ˉ oldcd,butp矽 ss而 扬rcas° ns壬 。r an Ⅱnprovemcnt or
⑺ Trade rcccls ablcs coⅡ cco° n pcood has dctcⅡ oraion h a trend may bc龈
increascd by6days,fr° m35i12010t° 41in
2011,Ths dctcrl° raoon may bc duet° °nc° r Exercise2 Duncdin Ltd and WcⅡ ington Ltd
morc ofthc f° Ⅱ°M,lng factors: ⑶
・rnorc1cⅡ cnttcrms for debt° r△ t° prom° tc Θ Gearmg
salcs,
600+100
・a dchbcratc poⅡ cy to au± act customcrs fr° m Duncdln Ltd × 100=63,64o/o
compc】 tors 400+600+100
・gcncral ccononⅡ c con山 oons
. poot crcdit control 1000+750
A dctcnorauon1n山 c Wc⒒ 吧∞ nLd × 100
dcbtors’ raoo1ncurs the 2050+1000+750
Ⅱsk ofan increase h bad dcbts as old debts
=4605Vo
um碰 y become bad,N匆 血 sh° uld m。 血tor thc
r型
⑴
stmaoon carc删 y
←i)Trade pav⒓ blcs pa卩 mcnt pcood hasincrcascd by
蹁 :鞯 60
=5血 ∞
6days,from44days in2010to50days in Wdhgton Ltd嬲 =⒊ 5om邙
⒛ 11.WⅢ c this may help曲 c cash n° w ata
sh鞔
4v

血 c、
^9

悬∶
∶
∶∶
∶∶
∶
`hcn dcbtors are taki1g6days longcr to
pay carc rnust be takcn t° rctaln thc g° °dwⅢ
l【 = 117ccnts
of suppⅡ ers,o曲 en″1sc thc suppⅡ crs may insist
 Ltd色 g支 o,75刂 incg⒈ Ths suggcs“ that Duncdn“
迅龟
△nlgton
fp=32cCnts
干 potcnjaⅡ y thc bcttcr compaα y for dls,ldcnd/
capit狃 grOMth,
Csl Di`⒎ idCnd pcr sharc
Cx’ l Di`厂 idcnd pcr sharc Duncdln o pa” ng an
ordinary d0汀 dcnd of$045pcr$1sharc,cqual
Dunedln Ltd 翌 =铷 钙 e5冫o
to45o/o ofthc nominal valuc of thc sharcs

趿Ⅱ
嗯°n Ltd:旱 =$° ・
斋 0o蝻
WC岘 t° n。 pa” ng$010pcr$2share,equal
to50/o of thc n° n"nal x,aluc of its shares 1△ is
makcs Duncdln‘ sharcs sccm the rn° re
(`厂
)Di、`ldCnd covcr attracuvc,but thc莎 eld on伍 e amountinv∞ tcd

Duncdin Ltd240ˉ
6 =26umcs is a bc仗 cr rajo

90 ⑺ Dividend covcr,DunCdin Ltd’ s dlxˉ ldcnd

氓
△⒒ ngto且 Ltd:匹
;:亏
p =16tmcs
阝
coVcr ls27timcs,whch“ gcncral圩
cohsidcrcd to bc satisfactory Wcl1ington
Ltd’ s
dlvidcnd is covcrcd16times and may
ls・
ll Prlcc car血 ngs ratlo bc at risk if pr° ￡ts dccⅡ nc in the futurc,

← D PⅡ cC Car血 ngs ra0o Duncdin Ltd’ s PER“

Dunc山 n Ltd azp =231刂 mcs 231jm∞ and Wcl1Ⅱ gton Ltd’ sPER“ 1125
117
umcs Ths sccms strangc when dlc山 说dcnd
W汕 n胼 on Ltd 色-p=11⒛ jm∞
C0VC± s0f thc小 Ⅳo compames are comparcd
Thc sharc priccs tnay be innucnccd by
←⒆ Dls・ ldend” dd factors not mcnjoned in thc qucstion
WcⅡ ington Ltd’ s futurc trading prospccts
Duncdm Ltd⒐ 竺 ×100=16臼 % may be affected by various favourablc factos
270
not ment】 oncd in thc qucsoon
Wcllington Ltd Ⅱ四 ×100=556%
←lll DhⅡ Cnd”dd DunCdirs di“ dcnd” cld
bascd on thc cur￡ cnt markct prico is1667V。
0⊙

comparcd with thc y1cld of556o/o on

GcaⅡ ng,Duncdln o hξ Ⅱy gCarcd⒃ 364%)and WclⅡ ngton’ s sharcs This makes Duncdin’ s
W矶嗅”n islov gcarcd e60s9o》 Ths makcs sharcs m° rc attrac色 Vc from an inc° mc-carm狃 g
Dtlllc血 】aⅡ dc morc Ⅱs灯 from伍 c pomt ofs・l内 ˇ △∽汊point Ho、 vcver,it sh° dd bc considcrcd
`
of shareholders and credltors,but nelmer ・
along、犭th thc potendal for capi切 l grow刊 h and,
company ls far fr° m ncutral gcarlng ls0%)and as h灬 alrcady been st・ atcd,Duncdrs car血 ngs
th叩 arc° dy separateo by ab° llt17%% pcr share has pernllttcd adCquatc prof1ts t° bc
⑴ Interest c° ver,Duncdifs intcrcst is cov∝ cd5 rctalned for capital grow伍 cspcoa⒒ y if a
血 es by thc opcra刂 ng pr° flt but WcⅡ ngton’ s is conserˇa色 Vc d小 注dcnd poⅡ cyis c° nunucd in
°砷 c° vCrcd3%tml邙 Bo伍 r岔 oos arc futurc
sa刂 sfacto饣 Duncd上 fs° rdm呷 sharch° ldcrs arc
atlcss at Ⅱsk ofhavnlg khclr dlvidcnd cu¤ 吻dcd if Conduslon,Evc叩 raj° exccpt gcaong is
profJts fa△ than Wc血 gton’ s sharchddcrs favourabIc to Dunedin Ltd and cvcn the gcaong
‘v
^ν

EarniΩ gs pcr sharc,Duncdin’ s EPsis much sh° uld h° t givc rise to scrious conccrn,Although
highcr at117ccnts than We1lington’ s at32 Dunc山 n’ s dividend poⅡ cy is rnorc c° nsc四 athc
ccnts This is maln圩 due to、 7ClⅡ ngton than WclⅡ ngton’ s,it stil1° ffers a-cttcr rcturn on
having issucd m° rc shatcs than Duncdin capital invested
Excfcise3 (iii) Ⅵrmc、 net proftt margln@0%)is2%l° w∝
(a) 伍an Pajenceb@2%),Ths shows that
Pa硅 cnce’ s os,c血 cads arc compara刂 vc圩 l°wCr
Padence 山an Ⅵ rmc、 .N° tal o⒕ 血eads arc cas灯
1艹 comc∷ sta‘ ement
,dcd oi oe。 embct20i-
for the ye击 。
∞ntro△ablc,and Ⅵ rmc mγ h锕 ct° pγ hghcr
rcnt,for cXamplc,bccause° f thc situauon。 r
$
sizc° f hs prcn⒒ scs
J/ep‘ Rcvcnuc(彳 夕 丿0l90× `00/6o 761538
Co$t° f saIcs Cs’ l turnos cr is5山 mcs hs non~clIrrcnt
J珀 92 Invento,at1Jan2011 σ亻@9口 ×〃o 45000 ``mc、
asscts but Padcncc、 mrn° vcr is only4omes
J/。p歹 Purcha$cs (b￠ 枷泷馏彻 ⑺ 5∝ o00 、1rtuc1s us1ng lis n° n~currcnt asscts tnore
s印 … 。/z,,f沥 唿 g″ rFl s+9000
刀
at31Dec2011rgvcnl
s/ep` In△ cnto叩 54000 c伍cicn匆 and makng伍 cm morc pr° 丘tablc,
J/。p乡
“歹%旷 J'勿 ◇ 495000 ⑺ Vlrmc愆 Tradc rccc小 么blcs coⅡ eco° n pc“ od is
s/ep7 Gro“ ptoflt (” %旷 石 Θ 266538 31days,which is3days lcss伍 an伍 at of
J/fp夕 Expcnscs (汤 ',’ 99000
'切
″拓馏 彡姒
ˉ
PFl
Pauencc O4d呷 s)This indlcatcs that、 qrtuc
J/ep8 Net pront 田2%旷 歹彡θ
,F′
167538
controh hs dcbtors more c± ftocn刂 y and hs
cash n。 w is Ⅱ
nproved as a rcsult,
stotement ofF“ ano白dp。 o丘 ion Bt31Deocmber zll11 ←o 啜廴tuc pays hs crcd1t° rs6days car⒒ cr than
Paocncc pays hcrs O6.days c° mpatcd to42
$
’ d呷 sl N° hformao° n o prov1dcd rcgardlng山 c
s/ep`O Nonturrent assc佟 (ˉ J′ 歹
乡召÷ o 190385
Currcnt asscts crcdlt tcrms cach recα vcs If Virmc obt疝ns lis
J/ep// lnvcnt° 叩 54000 goods tn° rc chcaply than Paucncc,as suggcstcd
J夂p′ 2 Ttadc Kccl△ 9blCs (/’ J`丿 绍 × 冫 /多夕 938
D⒛
J/ep“ Bank 冫
〈￠该竹
吻丿恕
ln⑴ ,thC pcrlod° f crcdk hc“ alowed m呷 bc
钫
句
JΓ少 (b舀肪衤访唿 彻 'rel
奶 1铒 20050
988 lcss than Paoencc rcccⅣ cs,On the° 伍cr h岔 nd,
JΓ ′ 彡 Tradc pay叼 blcs
勿 `,ˉ §饼 α刀 ×亻2/乡 夕D57995 if、 △rmcis n° t tak1ng thc± uⅡ peⅡ od of crcdlt
J″ ″ 86993
s印 ′7 277378
hc厶 wed,hc^n° t managmg hsc灬 h noM,
a△ °

s炉 ″ Capltal at1Jan20】 1(彡 ″该留J兔 矽Θ 2498+o to the bcst advantagc

'勿
s印 ′汐 Nct pront 1‘ 7538
s/ep2/ (肠 勿″ 忽〃
馏丿 ⑺ 417378
c痴
Conclusi° n 、 fthc nct pro丘 t
s/ep'夕 Draxmg.s σ″砂 140000
"th thc exccpo°
margln and thc possiblc exccpuon。
n° f hs paymcnt° f
Jrep2o 泅 仞 J`钞 ′
乃 2773^B
crcd1t° ±
s,、 1rtuc appcars t° bc run血 ng1is bushcss

more c伍 cicndy than Paocncc,

o)V± tue and Pajcncc
Θ V△mC‘ invcntory mrnovcr ls12c° mparcd、 注th
10tor Paocncc Ⅵrme eams hs pro血 at a M△ △Jp1eˉ choice quesJons
fastcr ratc than Paoencc,His cash n。 w is 1,D 2B 3,C 4,D 5,C
血 pr° vcd by thc hgher st° ckmrn, 6D 7B 8A
C9s「 trmcb gross pro丘 t margln of40%^more
than Padcncc、 35o/Ow・ hich indlcatcs that hc
carns alughcr margm on hs salcs He may h孙 Chapter29
`c
chcapcr sources of supp圩 than Pa。 encc,or Excrche1Sec§ 292
Paicncc、 mark up may bclower dlan、 △rtuc、 Exctcise2scc§ 293
W廴thout m°rc informaoon about thclr
indllldual orcumstanccs,fur伍 cr commcntis MultV1e ch。 icc quesd° ns
not possiblc, 1,C 2B 3C 4,C
Chapter30
Excrcisc1Tccpops Ltd
(a)

Expcnsc Ba“ s %tal Macl-g pain。 ng Asscmbˇ Pac蚰 呜

sOlXl $000 $000 $000 $000
Indrcctlabour ac澜 125 51 32 28 14
昆∞ 叮 Rcnt a。 。i arca 90 45 18 18 9
Hcaung&hghung n。 。r arca 70 35 14 14 7
Mamtcnancc Ⅱoor atca 30 15 6 6 3
Insurancc a。 。r arca 20 10 4 4 2

妈⒙
⒛

⑩
plant&machncrv:

52ˉ
Dcprcciatlon C【 ,st

2“

42_“
84一
Rcp砬 s C0$t

吼一
9~叨
~悃

_鸭
Illswancc Cost

一
Total ovcrhcad

(1))

汕
跏⒛⒎脶~
P

g
ExPCnsC Bas,s Total lvfachming A$cmb灯 Packmg
$000 $000 $000 $000
Dltcct matcnals au。 catl。 n 117 80 5 12
Drcctlabout au。 ca。 。n 323 136 68 45
apporooncd 463 228

~缅
ovcrhcad 78 51
Total co“ 903 444 151 108

Excrcisc2 LuvⅡ bix Foods

Mi虹 ng B抵 呷 Packagng storcs CaIltccn

$000 $llllo $000 sO∞ $000
0vαhe龃 s 16500 12400 8700 8000 9000
Rc-appoェ uon st。 rcs 5455 1454 364 (8000l 727
Rc-apporuon cantccn 3242 4323 2162 l972D
251∶ 97 18177 11226

Exctc飞 c3Trnnblc Ltd

ol O⒕ rhead absorbc山

(al No of dlrcctlabour hours rcquJrcd・

$
Dimblcs:5000× 13=6500 Dimbles5000× $14742= 73710
4900 Gimblcs7000× $7,938= 55566
Gmbles:7000× 07 =
11400 Total ovcrhcad 129276
$129276 Exercise4
α R= =$1134pcr hour Δ汪akeit-by-Robot Ltd
11400
la)T° taI number of machine hours in a13wcck
C)oAR pCr unlu Dimblc$1134× 13 pcJod=10× 7× 6× 13=5460
=$14742pcr unit
CD OAR pCr unit Gimblc$1134× 07 Machinc hour OAR= $141960 =$26
=$7938pcr unit 5460
 Exercise6 Upand° 臻、 Ltd
⑼ Each1血trcqwes墅 皿 maclmlc hoLrs to m钛 c

=455rnachnc h° urs 3m。 nths t° 3mon由 st° 3months t° 3m。 nths to

Thcrcforc cach u血 t absorbs$26× 455,or 311skrch 30Junc 30 31
scptclnbcr Dcccmbcr
$11830overhcad 哏 $124 $128
C》 $130 $131
(Pro° f$11830× 1200=$141960) o△ cthcad
rcc° vcrcd $1116llll $134+00 $143lltlO $128380
Exercise5Egbc攻 Ltd kmal
ovcrhcad $128000 $125o00 $129000 $132000
lal oARs (UndCtˉ )/
Mouldlng Dircctlab°
$301 875
ur h° url,/ratc oVcr-

=$875 34500 rcc。 vcrv 61640o $9。 00 $13500 64420

比c-gr找 谕咖e、摞 Mult” le￡ h。 icc qu∞ d° ns
1,B 2D 3A
P血 tlng E)1ff:∶ ab。 ur h。 urly ratc黧
Chapter31
Exercisc1 LuvⅡ brck
(l))ovCrhc耐 absorbed pcr tulit
$

蛳~钙
sowrlil Cj△△
ns, 1,iiect matcェ iaIs 398000
$ $ Dircct lab° ur 996000
Moulding(4× $875) 3500 o%× $87sl 30625 0⒕ rlleads 1687250
Machinlng(2x$640l1280 ⒓ ×$64Φ 12800 3081250
pamung(1× $525) 525 5250 Cost pct unit° f1000packcts=
(1× $525) =$7250
5305 48675
咖 硎铡

砌 蜘

(0Tot狃 ∞钌hcad rc∞ vc叩 Excrcisc2 Gc° ffrcy PanncⅡ

G-v
$铡

$咖

$
$ Labollt∶ Gcoffr呼 侈00× $100l 20000
Moulding susan(100× $60 6000
侈000× $3500l o000× $3062助 91875 os/cthcad rcco△ ci,000× $40l 12lXlo
~

Machinitlg
⒀
~

380llll
阝lltlO× $128o lsO00x$12800l 38400
Palnung
~蜘

15750
Excrcise3 XX lpup Ltd
mllllO× ss2劲 o000x$5250l
14‘ 025 464325 No of rolls=6000(1000× Φ
No oflab° ur h° urs=10(6000/[100× 6])

(dl T° tal c。 st pcr unlt (a)

so、 蚰 鲕 y $
$ $ Rax△ ,matc⒒ als
Φ000× $00Φ 480
Direct matcrial 10200 85000 Labour(10× $⑨ 60
Dircct lab。 ut 19000 151000 sc血 g up macll1nc印 30
0vcrhcad 5305 48675 Maclm△ eh° ur° vcthcad rec。 、
¤γ 9350
34505 284∶ 675 Cost of batch of1ooo roⅡ s 66350
 66350/6000=$01106 Costto complctlon of1⒒ trc of Lacjno:
o)C° 哎°
f onc rol⒈

Mdt0l← ch0cc qucsdons $ 33000+13362 =$9091

1B 2A
Excrosc30kara Quali9Carpcts Ltd
Ptocess1(2000u珏 its)
Chapter32 $ $
salC° f scrap 1630
Exercisc1Thc Sitrah Proccs“ ng Company 卜Ιatcrial
(2000× 4× $12) 960° O Pr::瑟
F:transfcrte:94370
Ptoces6【 84000
侈000× 4× $1θ
$000 $000 0verhcad
Drcctl△ latcoal 10000 0utput transfcrtcd 甾000× $3Cll 2】 6000
400 to pェ ocess11 113l,ll 396000 396000
Dircct labouf
0vcrhcad 900
1】 300 11300 unitg;sOO incomplctc tndts)
Pilooeθ s2【1200complete

Process【 I $
⒈Ιatctial from Finishcd goods 474372
$000 sO00 394370
proccss1
加Ⅰatcrial transfcrrcd 0utput ttansfc￡ rcd
Addcd matcrials
ftom pr° ccss I 11300 ∞ ptoccs$1II 16514 14625
(9750+4875)
Addcd matc⒒ al 4000 Labour
350
侈6000+22000 88000
Dircct labotlr
C)ˇ crhead 864 0vcrhcad
16514 16514 c/d 238623
α62000+5400o 216000 XVork h progress
712995 712995
Ptoces8【 【I

$000 Notc FI,△ lshCd goods kXotk h progtcss

$000
0utput transfcrtcd $ $
1ˇ Ιatcria1tiiansfcrrcd
from pFoccss n 16514 to nnishcd stock zzI212 Matcrial frorn
Addcd matcrial 7llllo P工
°cCss1

Φ394370× ∠
苎苎
Ditcct labour 275 L) 15774:
($394370× 1Ξ ♀♀ ) 236622
ovcrhcad 核3
24212 24212 Added m孜 c⒒ al o00× 25×
C200× 25× $32sl 9750 o75× $325) 4875
(Θ C° st pCr uillt=$12106⑿ 4212/2000l Labour
(1200× 5× $11) 66000 lgO0× 5xO5× $11) 22000
Excrcise2 ・
C,△ crhcad

C200× 5× $2D 162000 lsO0× 5× 05× $2D 54000

Total pr° ccssing costs to separaoon: 238623
474372
$(21000+11000+23000)=$55000
(/a,Jolnt co吱 of3400Ⅱ trcs of Animo: MultVlCˉ ch⒍ ce qucstons
1B 2B 3B
$55000×
:。 o =$22000
恿
Costto complcjon of1Ⅱ trc of`k血 mo: Chapter33
$
Excrcisc1
糸 =$7:31 ll) Contribution nom1unit=$146250÷ 3000
o)Joint c° st of5100Ⅱ trcs of Lacono: =$4875
Con±lbtluon fr° m3000ulllts=$e875× 300Ql
$55000× =$146250
:。 o =$33000
恿
 Pr° flt&° m300ou血 “=$l146250~8200⑴ Exercise4El Dugar Pcach Ltd
=$6425o
n from4000-ts=$← 875× 400⑺ Mar妒nal c。 st
per1000cans° f frult$14250
Cll C° ntrJbutl°
=$195000, C)Addl刂 °naI c° ntribu刂 on from° rder for5000cans
Pr。 nt fr。 m40oo u血 灬=$l195000~82oo0l
at$16000pcr1000cans:
5× $(16000-1425o)=$8750pr° st
=$113000
Thc Ordcr$h° uld be acccptcd
⑾ Con仕 ibu刂 。
n from1200u血 ts=$← 8,75× 120Φ
=$58500 C◇ L° ss if° rdcr壬 or3000cans at$14100is
Loss fr° m1200u血 ts=$ls2000-58500l
acceptcd:

=$23500 3× $(14100-1425ol=$4501oss
Thc Ordcr should not bc acceptcd udcssitx△ m
Exercise2Prodtlct Q prcvcnt the c° mpany from ha、 咂 g to lay off

(a)
valuablc sklⅡ cd staff bccausc of a tempora叩
slump in tradc
n pcr umt=$(95-65)=$3o
Θ C° ntⅡ bu。 。

Brcak even point=

$75000 Excrcise5,Cantcrbury Plancs Ltd
=2,500u血 ts;
$30
P±egcnt po⒍ 曲n【 toob ptoduccd by Cantctbw nanes Lt。
brcakcven rcvcnuc=
$75000
=$237500
o,31579 $
schlg pncc pcjitool 160
(° r2500× $95=$2375oo) D△cct c° s“ ∶Matcrlal 30
Lab° ur 25
othcr cxpcnscs 10
CD MargIn。 f safc,=耦 ×100=509。 Marginal cost。 f Pr。 duction 65
V砬 abk茳 山 呜 expCtlscs 20
(b) sfarg△ lal c。 st° f salcs 85
ContJbuuon 75
Conttibui° n from salc。 f15oo0t° °ls=$112500
郇獭伽蛔 烟知脚驷⑾伽∞°

Pro且 t。 n salc。 f15000toⅡ s=$C12500-74000l=$385t ll

Brcak敌 蛳 Ψ 抑濒 s

⑶
⊙ North`land%° lc°
Cost pcr tool$6,Thsls$050lcss tban thc
prcscnt c° st° f produco° n
Ef6cct on profit Incrcasc by(15000× $0sl
$7500to$46000
Effect° n brcak~evcn poht: $74000
=9250t° °ls $8
Breakˉ evem oha"for prod"ct Q
CD s° uth Island To° l co
Cost pcr t° °l$680This is$03om° rc
Excrcise3 VccⅡ ch Ards° n Ltd than the prcscnt cost of production,
Effcct° n pr° n△ Dccrcasc by l15000×

羿虾搀留‰羿
No of plloncs Θ 1oo∞ Cnl15∞ o ⑾ 20000
$ $ $
Contt1but】 °n i吵
Φ0-41l 90000 l+8-41)105000 ←2-41)20000
Fixcd° vcrhcads 70000 7o ooo 70000
Pt。 nt/0。 s9
(l)) To° ls sh° uld bc purchascd from N° r山ctn Island
20000 35ooo lsO000l
Tool C° bccausc
 ・thc c° stxs m bc$05o1ess than thc c° st° f Re△ lscd producoon budgct:
producoon
。pr。 nt w1Ⅱ incrcase by$7500to$46000. U血 ts Labout hour$C° nt⒒ buo° n

. thc brcak-even p° int、

^l1bc rcduccd fr°
m Peot
$
800 480 480000
9867tools t° 9250tools, Gimic 1000 500 40000o
Tools sh°uld not bc purohascd fron】 Soud△ Island Gros 1725 2415 776250
Tool Co bccausc 3395 1656250
Lcss flxed cxpctlscs 100llll Oo
・ thc c° st wⅢ bc$030m° re than thc c° st° f Pioflt 656250
producuon
・pro丘 t、讨1l dccrcase by$4500to$34000, Exerc“ e8
・thc brcak-cven point、 犭1l incrcasc from9867 ⊙ Fixed c° sts incrcasc by$12000and proflt is
tools to10278 reduccd to$23000

Exercisc6Casmes Ltd
Bre空 k-cvcn=袢
=16000units;
冰contrlbuu。 n=$(875-3)
Rc诮 sed producti° n bodge(to maximise pro丘 t
C◇ va。 able c° sts incrcasc by$9000and prontis
Gimlc Gr° ss Pcot rcduced to$26000.
Pcr unit $ $ $ $80000
scu山 ⒐ g PrlcC 14 25 20 Brcak-cven= =15095units,
Dircct matcria1 5 650 8 $53冰
Dircct labout 5 1400 6 冰contribution=$(875-3,45)

喇
Marginal c° st 1o 2050 14 sts and rcvenuc incrcasc by$21000and
llnl C°

一
Contt1but:on 4

趼
450 6
pro丘 t is maintaincd at$35000
Contribudon pcr litrc。 f matcria1 1‘ 138 15
Ranking 1

〓
3 2
Brcak~cvcn= 14489units
Rc△ˉ
lscd produco°n budgc△ 艹Costs havc increascd by$21000;sales
rcvcnuc bccomcs$196000($980per unitl
Uiuts hocs Contr,budon Unit marginal cost is$3,45;contribuo° n
$
G-c 1000 2500 4000 =$(980-⒊ 45)=$⒍ 35
Pc刂 t 800 3200 4800 Excrcisc9 c° h° rt Ltd
Gros 1500 4875 6750
(al
10575 15550
Lcss fL,,cd cxPenses 10000 Products Lcgion Ccnturi° n Praefect
Pi。 nt 5550
扪ω_⑾

Pcr unlt $ $ $ ∞”_⒓

MatcⅡ al 20
Exercisc7,CastⅡ cs Ltd Labour 36
⑻⒛⒁

⑷⒛ο

卜ⅠarginaI cost 56
Re讧 8cd prt,ou￠ bn bu。getto maxim△ e pto珏 t sc1ling pricc 80
Contr1butlon
ο
ο

24
郇 $钿 a3

Pct$6⑷
G

Gimic ntobuuon
0‘

Budgctcd c° 240llll
43

$ $
C。 ntr⊥ but1。 n 4 TotaI c。 ntribution 196000
Conttibuti° n pct dircct lab° ut h° ur 8 Lcss flxcd cxpcnscs 115000
ˉ

Ranking 2 Pto￡ t 81000

D R铞 札Cd
α pr。 duco° n budgct Proflt=(18000× $2,8】 】
)-$30000=
$506000← ounde,~$300000=$206000
Products rankcd ConolbuJon Unlts lIIatcoals Total
1Lcglon 120 1000 2000 24000 (l))Brcak四 ∞ pont
2 Cciltuti° n 75 2000 8000 600l,【 l

3Ptacfcct 56 3600 18000 100800

$64
28000 184800

4ο
Lcs$ Fixcd lvIatctiaI pcr unit

expenses 115α ao Labour pcr unit

Pro丘 t 69BOo Va⒒ ablc° vcrhcad
16000× $18 28000
4000× $17 6800
lc)RCc° 血ciⅡ ajon of pro丘 t pcr rcviscd oudgCt 35600
wkh profltin° riglnal budgct PCt ufut 179
MargmalcⅡ t 2219
Sc⒒ 鸭 pncc 2500
$
蛳伽~伽
Contribution pcr unit 281
Pr° 丘t pct° ⒒ginal budgct 81000
Budgctcd pェ oducdon of Pracfcct lunits)
Rc△ ˉ
l阳 d budgct fot P吻 cfcα
Brcak-cvcn point=
$30000
Reducoon in pi÷ oduction =10677u血 ts;
Loss of contrlbuuons 400× 28 1120o $281
Rc访 scd pro丘 t 69800 (c)

Exercise10 Cockpit Country Industrlal Co Ltd 20000units sold at$24pcr uiut $ $

(al salcsェ cvcnuc 480000
lvIatcoa1(20000× 4× $41) 3280lXl
li)
Labout(20000× $θ 80000
Vatiablc ovcthcad
15000units
1‘ 000x$18 28800
Pcr unit $
4000× $17 6800 35600 443600
Dircct matcrlal l+× $410l 164
36⒃ o
Dtcct labclur(:× 铷
° 40 Lcss Flxcd α crllcads
Proflt
30000
6400
"一
勿豹~一

Vatlauc ovcthcad
Matginal cost
smlgpJ△ c ⑷ A seⅡ ng pnce mav be loxsered咖 山ad△・
antagc tα
. increase demand for thc good,
细

Contrlbuoon
・undcrcut thc priccs of compctitors
Profit:$(】 5000× 2・ 8)-$30000冰 =$(42000- ・maintain fu1l production
30000)=$12000 ・scⅡ slow-mo“ ng stock
C$15× 20000= $30000) ・introducc a ncw product
Possiblc dlsadvantagcs arc:
CD . thc start of a prlcc war q/Jth compeot° rs
・flxcd ovcrhcads rnay not be c° vered
1Ro001!nifs ・thc product tnay bc sold bclow thc cost of
Pct unit $
producjon lfthc marglnal co吱 ls n° t knOM n,
Matcrial 164
Labour 40 (Φ ThC following assumpuons arc madc whcn
Vatiablc Ovcrhcad 17889衤 brcak-cvcn charts arc prcparcd.
Maェ gina1cost 221889 ・Fixcd costs rcmah f1xcd at a⒒ lcvcls of
sclling pricc 250000
activ⒒yB彳 xcd within
Contnbut1on 28111 'costs arC0nIy丘
汴 ccrtain Ⅱmts° f acu、 i″ and arc morc Ⅱkcly to
(16l× lO× $18+2000× $19l÷ 18000
bc‘ stcppcd’ as aco访 饣 incrcascs
 ・ A⒒ costs inay bc classi丘 cd as cithcr fixcd or (l9)

variablc B″ Mondiy ptoEt uomg殳 m abg。 Fpdon cogdng

'rnany costs cannot casily bc
classcd as丘 xcd or vaJ・ iablc
oilth1
⒈压 s压 on曲 2
.砀 Ⅱablc costs vaty dlrcctlv诫 伍 伍c Output h $ $
units B″ 勿riablc costs rnay dccrcasc with thc salcs icvcnllc 50000 65000
'ˇ
level of acovlty bccausc quanti评 discou卩 ts 0pc-g stock - 20000
Cost of pioducJon∶
arc rcccWcd on purchases of matcrlals,or oab1c costs:1500uillts x$30 45000 45000
l钊 冫
our costs increase because overome has to Flxcd cc sts
``钔
15000 15000
bc pald to workcrs t° aclucve the level° f 600tKl 80000
ck @凵 ⒛纷

蛔
acuv1ty kss dosn△ gs∞ 侈⒏∝⑼

~
⑽

铡
.sal∞ rcxcnuc wⅡ hcrcasc proporoonatc圩 to

一
Cost of$alc$
dhc volumc° f salcs B/z/it rnay bc ncccssary to Mon血y nct ptoflt
discount prlccs t0aChCvc thc dcsircd voh】 nc
Notel QosuB shckis习 碱 d峦 跏 p∝ lmt⒁ l× Xl÷ 1跏 =⒆
of salcs Note⒉ Closnlg stock at thc cnd of m° nth1is500u△ lts
・A⒒ thc rcsoutccs rcquircd for pr° ducoon、 〈1500-100Φ At thC cnd of mclndi2dtc dⅡ nlg$tock o
^⒒
bc ava止 ablc B〃 Ⅱmlong幺 ctors ls00+1500-130o=700u血 ts
'thcrc may bc
affccung rnatc⒒ als,labour or dcmand for thc (c)
product
Reconc止 a谊 on of pto且 t ushg each method
lvIond1 1 sⅠ onth2
$ $
Exercise11 N⒍ co血 鸭 11000
pjiofit using margIn狃 5000
Add∶ fLxcd ovcrhcads in
(a)
closng$t。 沃 5000 7000
Mon山 岬 ptoet“ 由呜 m钲咖 al cog山 培 I css:fhcd ovcrhcads lIl

M。 nth 1 M° nth2
closmg sto& ~ LQO0l
【
Nct proEt Llsnlg nlu
$ $ absorpuon c。 smg 10000 13000
salcs r四 elluc 50000 65000
Lcss: ``钿 oablc costs 30000 39000 Note:m△ c scd。 x,cJ△ cads mdudcd nlthc dcs吧 sbck。 s15lX× l÷
F△xcd costs 15000 15000 15∞ =$10pcrˉ t Ihc total碘 漩 砥 mdudcd h thc dosulg
Mon诅y nct ploflt 5000 11000 sω 次 at dlc cnd ofcach nlonth atc,由 ∞妓鸥 漩 :Mond11KKl uillts
× $10=$5lXKl h lnontl12△ 7∞ ums× $10=$7α 冫 ⒊

Chapter34 Mdti1’ 1Cˉ choicc questions

1C 2,D 3D 4D
Exercisc1 Fhnncl and Floundcr Ltd
吻汤
晌跏

咖跏

sates b△ ldget for6mon山 sek山 鬯sO Junc

March Apd
$伽

$跏

JunC
$伽
~
~
~

$ $ $
~咖

~铡

Unit sold
~跏

1300 】500 1800

‰ $20 $22 $22
salcs t四 muc $26000 $33000 $39600

Exercise2,Flanncl and Floundcr Ltd

Ptoducdon budget for the7mon曲 g△ om Decemberto30June
Dcccmb∝ January Fcbrtlary △Iart・h Aprll M呷 JunC
salcs〈 foⅡ 。
Wmg m。 nth ln uni“ ) 1000 1200 1300 1500 1700 1800 2000
Add109。 100 120 130 150 170 180 200
MoiltⅡ y producoon 1100 1320 1430 1650 1870 1980 2200
Exercise3,Flannd and Floundcr Ltd
Putchnseg budgct fotthc pcdod Novemberto May

Novcmbcr Dcccmbcr Janua叩 Fcbnlarv NIatch AprJ Mav JunC

U血 ts of p父 oducuon 11oo 1320 1430 1650 1870 1980 2200 2100
Matcrlal rcqu,tcd σtrcΘ 刀so 3300 3575 4125 4675 4950 5500 5250
Pncc pct htrc $410 $410 $410 $410 $425 $425 $425 $425
purchascs $11275 $13530 $14658 $16913 $19869 $21038 $23375 $22313

Excrcisc4.Flanncl and Floundcr Ltd

Expeodtutc budget fot s叔 months cndhgJune

Janua’ Fcbnlan sIarch Apm May JunC

$ $ $ $ $ $
n止 chases 13530 14658 16913 19869 21038 23375
VX/agcs 4000 4000 4llllo 4000 4ttK 4000
B° nus 160 饵o 520 696
Ilccmcl饣 2纠 ao 1800
0thcr cxpcnsc$ 6lXlo 6ll【 lo 6000 6000 6600 6600
Intcrcst on loan 500 500
Dividend
一

4000
Purchase of machnc ~
一

15llllo

23530 27058 27573 34709 48958 35171

Exercisc5 Flanncl and n。 undcr Ltd

(al

Caθ h budget fotthc凼 month8en山 嗯 ⒛ June

驷$

呐$
Ianua, Fcbn唧

un$
March
$ $ $
Re∝ lpt.s
Cash sales 10000 12000 13000 16500 18700 19800
Dcbtots~1months 6864 7800 9360 10140 12870 14586
Dcbtors-2months 1800 1760 2000 2400 2600 3300
pr。 cccds缶 。ms铋 c

of plant 12000
18664 33560 24360 2900o 34170 37686
Expenditurc
Purchascs 13530 14658 16913 19869 21038 23375
鞔 Cs 40∞ 4000 4000 4000 4000 4000
B。 nus 160 2“ D 520 696
n湘 。呼 2400 1800
0thcr cxpcnscs 60llll 6000 6000 6600 6600 6000
Intcrcst1nl° an 500 500
Dlvldcnd
一

4t tKl
一

Purchase of machnc 15llllll

23530 27058 27573 34709 48958 35171

Nct rc峦 Ⅲ s/lpa,mcntsl l+860 6502 ls21缈 ls66⑺ l1478Bl 2515
Brought fo铆 ard 31750 26884 33386 30173 24504 9716
Carncd fQsvatd 26884 33386 30173 24504 9716 12231
o)TradC rccc湃钆 lc⒌ $l19800+3740l (c)

=$23540 Greemeldθ Ltd

Tradc payablcs$22313 Budgeted statement① fF元namκ 垃al Pt|si山 n at30灬 d2012
Accrucd commiss【 on on salcs($19600× 0.04) Non-currcnt asscts Cost Dcprcoatlon Nct
=$784 $ $ $
Frcchold prcmiscs 50000 10500 39500
Exercise6 Grccn丘 c1ds Ltd Plant and machncb 97500 29000 68500
(a) 147500 39500 108000
Currcnt asscts
Invcnt° 〃 22sOo
CaBh budget for the fout
Ttadc rcccivablcs 49500
months ending30AprⅡ 2012
Casll and cash c(】 liˇ
诅ents 30750
Janu刨 γ FCbn汨 , △
iarch Ap⒒ I 102750
$ $ $ $ Currcnt liabihties
Cash salcs 25000 28000 30000 33000 Tradc payablcs 375l× l
Dcbtors 42500 37500 42000 45000 Dcbcnurc mtcrcst accmcd 10tC 38500 64250

驷
~
172250
67500 65500 72tlC o 78000

~⒁
N° n-curェ cnt liability
129o dcbcnmcs2019/2020
supplicts 22500 25000 20000 30000
sclⅡ ng and Equity
dls± lbudon 6250 7lltlo 75lltl 8250 0rdina:/sharcs。 f$1 65000
LnLⅡ soadon 20000 20tlllo 20000 20000 Gcnei÷ al rcserve 55000
Purchasc
^“ of plant 60000 Rctalncd ear-gs 27250
Dividcnd 6500 147250
48750 52000 107500 64750
MuItⅡ lCˉ chocc qucsdons
Nct rcccipts/ 1,C 2B 3B 4A
【paxIncnt9 18750 13500 o5500l 13250
Balancc b/s△ d 20750 39500 53000 17500
Balancc c/№忒 39500 53000 17500 30750 Chapter35
Exercise1Breuof。 。ds Ltd
(b)
FIexed卩 udget fot the ptoduc曲 n
Gteen丘 dd9Ltd
of110000packetg ofBatleynots
Budgeted Income statement forthe fout mon曲 sc“ 地 名
30^ptⅡ 2012 $
``anable expenses
Difcct mateilials 22000
$ Dircct labour 16500
salcs 290000 Productlon cxpcnscs 6600
Cost of sa1e$ 45100
0pcning Invcntory 30000 Fixcd cxpcnscs
Purchascs 112500 Producti° n cxpcnscs 13000
142500 AdmΙ nlsttatlon 29llllo
Closing Invcnto锣 22500 120000 87100
Gross pro丘 t 170000
sclling and di$tェ ibudon cxpcnscs 32500 Exercisc2,Flcxcrs Ltd
Admi血 straoon expenses 835tlll 116000
Pt。 nt ft。 m。 pcrations 54000 No oflocks 9000
Intcrcst° n dcbcnturcs 1000 $
Pro丘t atulbutablc to cqtuo,holdcts 53000 Dtcct matctlals 22500
0tdinaty dividcnd 6500 Direct labour 54000
Transfcr to Gcncral Rcsc澉 25l,llO 315CKl
Producd° n。 vcihcad 34000
Rctalncd c-gs for thc涔 ar 21500
sclling and di$t⒒ bution 30∞ o
Admiiustratlon 80000
Note:Although this is not thc corrcct layout for pubⅡ shcd 220500
accounts,it is pcrfcctly acccptab1c for managcmcnt
accounts and fot an answcr t。 an cxam1natlon qucstlon
ExcFc沁 e3Eni卵 a Ltd Actual rnatcrial usagc= 12000× 28=3360o
(a, litrcs
Dircct matcoal usage叼 oancc=ls6000-
Flcxcd budgct 33600l$5=$12000(D
No ofu血 ts 4250
$
Di± cct matcoal pⅡ ce vaⅡ ancc=65_$4.8Φ
Dircct matctials 21250 33600=$6720(F),
Ditcct Iab° ut 48875 (ChCck:Actual c° st was281itres× $4,8htrcs
Variablc ovcrhcads 10625 ×12000=$161280;t° tal matcriaI vaⅡ ancc=
FRcd ovcrhcad 50000
Total c° st 130750
$18720(Fl:$(12000+6720l las ab。 vcl)

(b) Exetcise6,DandcⅡ °n Ltd

Thc standard t° tal dlrcct labour cost for thc
Θ %tal c。 哎vanancc $5136O9
Θ Qu洫 。 producion° f12000packcts° f Plckup=
″v狙 ancC $4750㈧
lml Dlrect matcn・aI△ atlatlcc $2150lAl $10× 12000=$120000
lixl Drcctlab。 ur va¤ ancc $1639CD Acmal h° urs taken12ooo× 125=1500o
$5261㈧ Thc(Ⅱ rcct labour cfficiency vaJance=
(c)
(12000-15000l$10〓 $30000⑶
Thc dircct labour ratc、 ηrlancc=$(10-850l
l1Ⅰ
2刂 riablc l,vcthCad I anance $125Θ 15000=$22500(Fl
$5136O9 (ChCck:Actual labour c° st° f pr° ducti° n° f
12000packcts° f Pickup=125h° urs× $850×
Exercise4 Undcrpar Ltd 12000=$127500;Total labourˇ ηoancc=$7500
(a) ⑶ =$30000⑶ -$22500CD(as ab。 vcl)

F1cxcd budget Exercise7,Larabcc Ltd

No of units 6300 (a) :〖

Dijicct materials
$
21420 Ι
炭⊥。
l:∶ al standard c° st pcr kg $7200 =$6
Dircct labour 42525
Variablc° vctheads standard usagc for400umts:
3150
FLxcd ovcrhcad 62000 4× 400kg=1600、 ⒏
Total cost 129095 actual matcoal pcr u血 t

(b) =⒊ 6kg・
畿
Total c° st vananCc $6345σ , actual usagc400× 36kg=
Q皿 nd饣 △arlancc $7455CD
Drcct matenal~狈 伽 :c
Ditcctlabo"vadancc
$ 530C)
$1540㈧
Dkα 妯our s乒 ⑴
阝呷 辄 300
un止
1×
;:1:∶ 1°
“铒5Θ
standard h° urs for400血 ts
(c) =800
actual hours for400~ts:
V⒊ o幺 blc° vcrhcadˇ 征 mcc $100Θ 400× 225=900
$6345㈧
actual cost pcr h° ur
$10890
Exctc泌 e5Dandeh° n Ltd 400× 225
=$1210,
standard total matcrial c° st° f12000packcts° f Θ DkCct matcriaI usagc vaⅡ ancα l1600-
Pickup=3Ⅱ 讧Cs× $5× 12000=$180000, 1440)$6=$960(Fl,
 Dkcct matcⅡ ・
^ν

al pricc varlancc: $ $
$(600-625)1440=$360灬 `
⒈Ι
atenals usage 6280
″v
^ν

Dircct labour cfflcicncy varlancc∶ Labour tatc 78绌 D

0vcェ hcad cxpcndiⅡ rc 5760 00619
lB00-900$11=$1100α D, Actual Proflt 84696
llv) Direct Iabour ratc varlancc:$(1100-1210)
900=$990lzA) Multi1,leˉ ch0ce quesdons
Φ)ThC faxˉ 。Llrablc matcⅡ al Ⅱage varlance ma刂
1A 2B 3,C 4,C 5,C
`be
duc to a bcttcr quaⅡ 〃of natC。 al belng used 6C
rcsdtJng1n lcss M泗 stagc durmg pr° ducoon,Ths
ˇ△cw may bc supportcd by thc advcrsc prlcc Chapter36
叨⒒ancc whch suggcs“ d】 at a bcttcr quali饣 of
matcⅡ al踟 叨s rnotc cxpcnsivc than standard Exerc至 se1 Bascball Ltd
1gnorc dlc machinc that svas acqLurcd somc ycars
Both ofohc labour vaⅡ anccs arc adVcrsc Ihc carⅡ er as1t1s a sunk cost,
lughcr hour圩 ratc° f pay has notrcs△ dtcd h a 抵 erage p± o± lt=$150000÷ 6=$25000

骂型+⒛ ∞
fax ourzablc cmcicnq varlancc,四 ∞ 伍ough thc
workc“ m缈 havc bccn w∝ 血 呜 碱 伍 a bcttcr qu碰 ″
线了
宇帑
stment=议 Φ
ofrnatcrial Thc advcrsc cfscicncy varlancc docs not
suggest曲 at dle hghcrratc of pγ was duc to thc
emplopmcnt ofa morc s圮 山ed work forcc It厶 ARR=25000 × 100=29,4%
85000
possible that a pay increase glx en to the、
^`orkers was
bel° w由 clr α pectaoon and山 ey are poorl,mouv・ atcd Exercise2 R/Iapleduck Ltd
as a rcstdt,Thc reason for the adverse vaoances can Calculaj° n° f pal,back pcriods
ody bc d灬 co⒕ rcd by fu“ her Ⅱ小爬s乜 gat】 on
DuckbⅢ B乙vak
k

$ $
ο

Excrcisc8 Cantab Ltd po oool (・ ’

0000l
123

30000 40000
Calcula氏 n oFacⅡ al ptoEt m缸 k h athcc month pσ bd 36000 40llllo
24000 10lXlo
$ $
Ptoflt per mastcェ budget 98970 Pa9back 2:薷 rats 2铠 yCats
Add favourablc v例 △
a nccs
salcs volllmc 6210 2+(瓦 ×1纷 rats
△fateoals pilce 9635
abou cfhocn呷 10500 2ycars72months
125315 2γ cars8montlls 2γ ℃n63m【 lnths
Dcduct advcrsc vananccs
Quanu, 17009 B3丙 叼k sh° uld bc chosen because it has thc shortcr
s址 cs p谊 cc 3730 pa,back pcood ai,d its pattcm of cash且 ows咖 Ⅱ
bcnc丘 t the⒒ q△ 谊dlψ °fMaplcduck Ltd
Exerc^sc3,Nomcn Ltd

Ycat ˇ陔chhc A
Discounmg factot NpV NPV NPV
129o $ $ $ $ $ $
o 1000 C3s llllo l135000l (135000l l135000 (135000l l135000
1 0893 50llllll 44650 38000 33934 260lXl 23218
2 0797 50000 39850 38000 30286 260llll 20722
3 07】 2 38000 27056 380C tl 27056 38000 27056
4 0636 26000 16536 38000 24168 50000 31800
5 0567 26000 14742 38000 2154‘ 50000 28350
Nct prcscnt△ alucs 7834 1990 l385⑶

Nomen Ltd should choo⒃ machnc A asit has dle hghcst NPV Machne C sh° uld not bc c° ns记ered
becausc it has a ncgauvc NP、 I

Exerc1se4,Nomcn Ld

Year ac血 e
⒈Ι
Dlscount△ ng factoェ NpV NPV
20Vo $ $ $ $
o 1000 (135000l l135000l l135000 (135000l
1 o833 50000 41650 38lKlo 31654
2 o694 50000 34700 38000 26372
3 o579 38000 22002 38000 22002
4 o482 26000 12532 38000 18316
5 o002 26l,llo 10452 38000 15276
Nct ptcscnt△ alucs (1366+l O1380l

7834
IRR钇r machnc A:12%+lg%×
7834+13664 )=149%
1990
IRR for machnc B"2%+lS%× )干 12・ 7%
1990+21380
Exerc心 c5Baxtct Ltd
饧 磁苈
笃∫

B忽 C锣 arFv s肠 幽矽 //

$`亻 Oa“ l~$2,∞ 口 $`汐 l,a9σ ~$夕o ooo

翔 眇″沅潞 o″
,9,ffF`丬
=$绑 0∞ =$乡 0⒄
C￠sb o“脚 珈 9 B忽 C″ 9
a犭裙 J乃 夕db,//
$ $
】勿
'' `
$r刀 0‘ v-zO0o 亻矽90田 $俨 亻0∞ -乡 0@09 冫 ∞o
2 $猡 彳∞0-z90口 丿 ‘矽900 $ρ 召0σ0-乡 0口 0o 铝 ∞,
丿 $″ ′r9,0-″ 00” ‘7000 $rro歹 @oo-乡 00σ g /,ˉ ‘
k9@
彳 $″ 汐0矽 0-'0⒆ 7亻 0@o 矽r/`2口 ∞ -乡 0口 口
钐 ″ ∞o
,ˉ $″ 歹@00-冫 aα ” 7/900 $r/00矽 0o-乡 @a@O 刀 ∞σ
Ne/″ /f B忽 C″ 畹 J乃 h
◇
'叻 '洳
$ $
l勿
'' `
$卿 9∞ -彳 ‘矽00 夕 ∞@ 0O
$r/o`oo矽 ~,亻 口 亻76V口
2 2∞ 0-朗 0∞ 丿
$〃 ′ 520∞ $r/`召 oo@-‘ 占009 ,ˉ 0∞ o
乡 $/l2‘ ∞0-矽 70α桫 59口 00 $r/2‘ o@o-7歹 00砂 歹
彳 $//2‘ ∞矽-7〃 90g 52@∞ $r/亻 @ooo~召 200o 躬`000
幽
歹 $r/00000-7`oρ o`/r。 $200∞ 彳夕000 $〃 矽0,0-刀 0⒆ p/zJ澎 矽口
′ ∞ 刀 Ot,@

召p呻t
刀 昭绍纟 B瘛 C锣 a‰ “ 涩b。″
$ 's彻
$
yeFr / $″ 汐∞0-刀 0ε 缈 280α 9 $//汐 t9-孑 亻00砂
2 $//`2@0@-召 〃0汐 o 28矽 @o $r/`汐`0汐
ε汐0-夕 召0ε 缈 `7@00
20@00
乡 9JO∞ -夕 ′0@O
$〃 ˉ 乡丿0@Cl $r/2‘ 09
@o@~`0歹 口 2`@∞
∶
彳 $r/2矽 @O
0∞ -夕 孑汐 28@@o $r/亻 o矽 o@~``200o 280l,o
歹 $//0,,口 口-夕歹a@O 丿∞ σ $r/`000@-`Otl矽 l,缈
/刀 ∞ σ `0000
9‘ @@o
÷岁 $'召 口 l9 ÷歹 $`夕 2∞

⑷ Θ C⑺ IRR← 090

B熔 GCC a茹 -shadbolt
⒈压 Blg Gcc 勿oˉ shadbdt
卜Ⅰ
Factor Nct NPV Net NPV
:00× 19200
ARR=绑 100=35锔 × 100=213% 0PaymCn9/ ΦaymCnO/
70000 90000 tCCClpt rccclpt
$ $ $ $
o 1000 (140000l (140000l l18000lll (180000l
⑾ Pa珈 ack pcⅡ od 1 o714 52000 37128 47000 33558
2 o510 52000 26520 500lltl 25500
$ $
3 o364 590l,ll 2147‘ 51000 18564
Ycar o C如 000
4 o260 52000 13520 580llll 15080
α80000l
1 520llll 47000 5 o186 4900o 9114 700tlll 13020
2 520l× l 50000 Net pscnts-alucs O2绑 9l σ427gl
36000 、℃ar3 51000
32000
60474
12=8months Ycat4纶 000× 12=7m。 nths
Otlcl×
Ycar3宽 IRR Blg GCC10%+o0%×
59000 58000
=296Vo 60474+32242
Pavback=2y钧 灬 8m° n伍 s 3,zcar$7m。 nths
25408
苎 北dt10%+o隅 、
∈◇NCt prc⒃ ilt valu∞ at10%
吁l。
=176V。 2540s +7427 0)

Big Gcc Maxi shadbo⒒ (b)BaxtCr Ltd sh° uld purchasc Big Gee bccausc
Ycar Factor Nct Np`` Nct NPV ・it has a higher acc° unting ratc of rcturn:
lpaymCntl/ lpaymCntl/
rccclpt rccclpt 354%lNIaxi Slladb° l△ 2139o
$ $ $ $ . it has thc sh° rtcr payback pcrlod:2years
o 1000 (140000l li40000l l180000l α80000
1 0909 52000 47268 47000
8mon山 s,lowcr axi shadbol亡 3ycars7
osk αΙ
42723
2 0826 52ooo 42952 50000 41300 mondlql
3 0751 59000 44309 51000 38301 . it has higher net prcscnt valuc:$60474oΙ a蛀 ~
4 0683 52000 35516 58000 39614 shadbolt:$25408)
5 0621 49000 30429 70000 43470
Nct prcsctlt Values 60474 25008
・ △h灬 highcr intemzal吻 tc of rcturⅡ 296%
kaIaxi shadbolt$1769ω
Exerche6 Exetc、 e7
Nct prcscnt Valuα $150000-$Φ 0000× 3,169l= R sh°dd msˉ c针 h thc Ordcr C,A and B.By dls「 ldmg
$8450. the nct prcscnt s,aluc by thc∞ utal cost C〗
`iclds an
Thc nct prcscnt△ raluc ⅥiⅡ bccomc ncga焱、if net prcscnt x aluc of20%⒏ mⅡ 蚋 ,A莎 dds17・ 5%
1,伍c cost0f伍 c machnc Ⅱscs by$8450,ic an and C120/o.Thus C,A,B wm bc伍 e most
incrcasc of5.60/0,or advantagcous for伍 cc° mpany
2 d△ e annual sav1ngsin opc仫 donal costs fa⒒
below$47333,i e they fa1l short by5,3%, Mult、le~choke quesdons
1,C 2,A 3D 4B
 IndeX

Acc° unung ponctplcs li△ △Cilt0,6toc9° f stores° n mastcr budg∝ ,⒛ 5习 %

accruals basis,44 cxpcnsc accounts,48 pnnclpk budgct factors,291
busmess enu” 佗 prcpald expense,trcatmcnt oξ producoon budgct,291-292
conscrvauon,conccpt oξ 45 47-48 p吖chasC budgct,292-293
conslstenc扔 44 uial b・ al・ancc么 1<ijustmcnt fo△ ⒆ rokg budgcts,289-290
defl血 o° n,42 扣 p° rtlonincnt of costs,257,259 salcs budget,291
dualJ″ goncCpt,43 虾 ptopⅡ a刂 。n acc° un△ 128 踟ith semj vaoablc expcnscs,303
going concc￡ n,45 Atta1nabIe stan-ards,302 as tools for pl猢 洫 呜 ・
and control,
for g° °ds° ns/alc Or rcmn,43 289-291
hstorlc cost0,卿 3 Bad dcb“ top妃 ∞ m bLldgcts,290
matetJaⅡ ˇ dcfnlldon,61 zcro-bascd,289
% 44
in monctarv tcrms,42 rccovcrcd,61~62 Buslness enj、 1核
moncy measl△ rcmcnt,43 Balancmg accounts Bushess pLlrchasc
prudcncc c。 nccpt,44~45 examp1es,21~22 d± fcrcncc bcbvccn thc purohase
rcausau。 n。 f accounts,43 丘cqucnq oξ ” of a busmcss and purchasc
substancc° ˇ
℃r forim,45 meth° d,21 of the asscts
Ac∞ unung ra∞ “ rcturn CtKRRl, nccd for,21 fot bushcss,200
314-315 Bank rcconc山 aoon statcmcnt Goo小 vⅢ ,20ll z01
Acc° un“ dC6“ jon,67 joumal cn茁 ∞,⒛ 1
assct,23 notcs,67 of a partnershp bushcss,203
capltal and dtax△ tngs,⒛ prcparaoon oξ 67 rcaril° n invcs仪 ncnt,205
砀ith crcdlt balanccs,23 uscs oξ 69

for crcdit° rs,23 Book of p洫 c en位y Capltal cxpendlmrc,23

w・l伍 dcb△ balanccs,23 ±or cash dlscounts,15 CarⅡ 岵 aFn。 unts,⒓
or debtors,23
± dc血 oon, 14 C9sh account,3
dl,・ lsion of dlc lcdgc‘ 24 mamg cntrles h,14~15 Cash book
1tnpcrs° nal,23 posung L【 kdgα acc【 ,unts,15 de腼 jon,15
l°an,23 Budgcjng cntcrmg dlscounts i、 16
Motor Ⅴchclcs Runnng botto皿up budgcts,290 posung h Discounts Jdk》 评cd
Expcnscs,23 cash budgct,294 accoun△ 16
no洫 al,23 dlf± crcncc vll伍 f° rcca盹 289 po呲 mgh D“ counts Rcccls’ ed
Accruals cxpc,,山 mre blldgct,293 account,16
as accoun乜 ng pnnclp1c,44 Ⅱc虹blc budgc“ ,29Cl z91, thrcc-c° lunln, 17

accrucd cxpcnsc, 302-304 Cash° pcraung cydc,232

trcatmcnt oξ 47 hcrcmcntal,289 Cash lor sscdcmcnt9dlscount,10
hcomq a内 ustment± o△ 鲳 Lnuung factors,291 Cash rauo,232
Cash仕 ansaCoons,rccordmg oξ
⒊6
Compa血 “ Act1985,20⒐ 910
Company Enancc
appraJsal of accounung rcports,
248-250
bank loans,246
bank ovcrdrafts,246
ba“ s of modem fm刁mα al
rcportmg,248-249
∞ mp狃y budgc“ ,⒛ 0
convc± oblc ban stock,246
dcbcnmrcs,246
dlrectors’ rep° rts,250
factor△ 8247
hrc purchasc,246-247
mcomc sm∞ 伽 鸭 ∞chmqucs,
249-250
leasmg,247
p± mclplcs deodmg,24⒎ 248
sharc and dcbcnture1s$ues
comparcd,248
sharc capltal,245-246
source oξ 245
trade payabks,247
wˉlndov,drcssi鸭 ⒉ 9
w° rklng capltal,247-248
Compcnsamg crrors,26
Consen`auon,concept oξ 45
Control accounts
dcfLioon,72
doublc-cn唧 m° dcl and,7仁 75
purchase kdgcr and,7⒉ 乃
tc∞ n碰 a山 n咖 伍 kdger%76
s挝cs kdgcr勰 ,’ 3⒕
uscs and腼 ta色 ons oξ 75-76
Co歇 ac∞ unung
appropJauon of cxpcnscs to
Cost Cen仕 es,257-259
bcha钪 our of costs,256-257
dltcct and mdircc△ 256
ovcrhead absorpoon rates
(C、 ′
Rsl,260,262
putposc and naturc oξ 25E￠256
rcco血 g matcrlals,hbour and
°vcrheads,257
undcr-/ovcr-absorpuon。 f
°verheads,263
Cost ccn“ cs,257
Cosung systcms
batch, 267
for Con乜nuous opcrauons,
266-268
for Con乜 nuous or spcoⅡ c ordcr
opcrauons,266
for speciflc order opcrauons,
266-267
Cost u血 ts,260,262
Crcdlt⒍ dc of account boo△ 3
Crcdlt仕 ansaC色 ons
cash lor setdemen9dlscount,10
dc￡Lioon,9
goods rcmrncd,9-10
rccordmg oξ 9-10
tradc dlscount, 10
Current assets,23
Currcnt assct钆 刂noVcr,230
Currcnt ⅡabⅡ ucs,23
Currcnt rauo,231
Current standards,302
G,stomcr、 book%9
Dcblt sldc of account book,3
Dcb√ c印 i,rau° ,234
Departmental acc° mts
commission, 109
dcfmu。 n,1o8
￡xcd ovcrhcads。 f a dcpartmcn1
111
hc° mc statcmc咬 ,109
of loss-ma血 g dcpartmcn1
11CL111
prcpaJaoon oξ 108-109
仕admg sccuons of the Inc° mc
statcmcnt, 108
Dcprcciauon
adlus自 le趾 h trlal balance,夕
cons1stcncy and, 55
dcn血 砬on,52
for dlsposals of n° n~currcnt
asscts,56
cxccpjonal,55
idcnd帆 asscts 敞 、54-55
of non-currcnt asscts,52
part cxohangc valuc of伍 c assc1
56
pro说 sion h山 c γ
car of
acquisdon° f assct,55
・
pro△ lsions and accounung
concepts,57-58
reasons for,52
rc山 ×洫 g balancc mcd,od of
calculaung,54~55
s讧 aJght△nc mc山 od of
calcdaung,52,55
Dltcct labo!r cost,262
Dkcct labour ovcrhcad absorp】 on
ratc,260
Dkcct matcⅡ al cost,262
Discounts~A△ ow,ed account, 10
Discounts Rcccwcd aCCount, 10
Dls/ldcnd covcr,236
Dl△idcnd pcr sharc,236
Dlsidend” dd,23⒍ 237
D⒈砬sion ol thc lcdgcr,24
Doublc c砒 呷 booldccpL1;3
Dc,ubtfi dcbts
ac∞ unung concepts fo乌 64
adjusuncnts to a t濒 balancc fo毛
63-64
calculaoon of a proⅥ sion fo± ,63
crcaong and mamtalMg
proˇ 1son oξ 62
proˇ △敏ons fot,62,64
Duah〃 c° nccpt prmclplc,43
Errors
of co-lssl° n,26
of onus⒍ on,26
of o鸟 gnal entr⒖ 26
of pnnctplc,26
Fi△ 破accounts of a busincss,39
FhanoaI st狂cmcnts,lnutaoons oξ L人 s 10,212~213 kdgcr account△ 3
225-226 L`S16,213915 Ii“ itcd companl

Finanoal statcmcnts of a bushcss, L人 s 18,215-216 auth° Ⅱscd sharc capit挝 ,158

39
Fkst h,Er敲 out σIFOl,1⒉
advantagcs and dlsadvantagcs,
123-124
Ftxcd asscts,23
FRs 18A￡ coun乜ng poⅡ cics,
210-211
Gearmg ra0o,233-234
Gcnc硎圩 acccptCd accountmg
p血 Ⅱ ks(C。 A丿、
r)and,21o
Gomg conccm pmα uC,45
G∞ ds tcmrncd,tccordmg oξ %10
Gross proflt pcrccntagc,228-229
Idcal standatds,302
Incomc gcarmg,235-236
Inc° mc statcmcn△ for a solc tradcr
carriagc m、
`ards and carrlagc
ou内
⒙ s・ 23,216 bonus sharcs,189-190
IAs33,216-217 calculaoon of valuc of ordln肘 γ
L`s 36, 217-218 sharcs, 166
IAs37,218-219 ca⒒ cd-up capi酞,163
IAs38,219-220 cans h adxancc, 163
Interpolau。 n,317 cals in arrca岛 163
Inx cnt° 呷 turn° ver,232
Capital RedcmpJon Reservc,
Invcnto￡ n 165-166
advantagcs and山 sadvantagcs of
`,raluao° capital rcducoon and
FIFO and^凸 ⒎ CC、 123-124 rcconstrucoon, 195-196
closhg h⒕ nto0cs bra capital rcscrvcs, 165-166
manufacmⅡ ng orga血 sa谊 °n, Compamcs Acts °f1985, 1989
125-126 and2006, 158, 166, 188
ˉ
c± fccts° f lnc伍 °ds° n proflts,122 convcrtlblc loan stock,195
irnportant pJnciplc,120~121 cumLlla谊 ve preference shares,163
of lndlx,ldual ltems or groups of debentures, 168
ltcms of mvent° ry,125 dc丘 血oon,157
Intcrnaoon狃 Accoun乜 ng dlffcrcnccs bcbvccn⒒ abⅢ ocs,
standard2σ As④ proⅥ sions and rcscrvcs,
,

`ards,35 124-125 167

def△ i刂 on,31
at the lo、 山strlbutablc prof1ts,167
opc碰 ng sto砥 3仁 3s `er of cost and net
rca⒒ sablc valuc, 124 dlxidcnds,167-168
prcparauon,31~34
mcth° ds° ξ 121-122 dl呐 dlng of pro丑 ts,160-161
xxagcs as an cxpcnsc,36
nct rcaLsablc v狃 uc, 124 forfcltcd shares, 163
Incomc statement,using flnancial
of pcrpcmal and pcrlodlc groslth oξ 157-158
ra刂 os,238-239
invent° rles, 122 incomc statcmcnts,159-160
Incomplctc rccords
matcⅡ als,125 R/Icmoranduln and AJ刂 clcs of
calcdatc pro丘 t/loss n° m rax△

Associajon, 158
rcplaccmcnt cost, 126
statements of affalrs,
Investmcnt appraisal non-cumulatls c prcfcrcncc
89-90
accounung rate of rctt】 m, sharcs, 163
dcni吐 。。n,89
314-315 notcs, 158
margn and m狂 kup h,9z93
capltal rao° 血ng,319 ordma￡ 、164
prcparmg hcomc s切 tcmcnt and勿 `sharc capi太
dcf1血 oon,313 pald~up capltal,163
statement of f1nancial
i血 tlal rate° f σR㈦ ,317
return partncrshps,159
posluon fr° m,90-92
nct prcscnt v狃 uc㈧ I、 9,316 pubⅡ c and pnvate, 158
valuc° f mvcntoF/lost h a
payback pctlod,315-316 rccormg of b。 nus血 arcs and
缸 c Or by thcf193
I血 刂al r狨 C0f rCturn cRRl,317
∞nslu说 b/ana圩 sls,318-319 rlghts issucs, 191
rcdccmablc sharcs, 192-194
Interest c° ver,235
JoL・rnal rcdcmpoon of dcbcnmrcs,195
Intcrnal c° ntrol° f acc° unts,24
dcflntoon,18 vn
rcdcmptlon or purchase° f°、
1ntcmaoonal Accounung standard ma妯 呜 cntrlcs u△ ,18 shares by a pnxratc
L`s8,211-212
company,194-195
 rcscrvcs, 165-166
Rcvahaoon Rcserves,166
tcˇ ℃nuc rescrvcs, 165
rlghts issucs, 190
sharc capltal,163
sharc issues, 189
share Premltlm accoun1 165
sharcs at a prcnllum,164-165
statcmc趾 0f Changcs h
cqulq% 161
statcment of fmancial pos1u° n
for, 162~163
unca⒒ cd capi太、163
Ⅱqtlld灬 ∞t,40,231
h印 id止 y rau0,231~232
Long-tcrm kabJ【 des,23
Machne h° ur C冫 、廴 261
Managcmcnt account△ng,乃 5
Manu± acmrmg accounts
dcfl血 o° n,114
faco呷 pro丘 1114
prcparlng oξ 114-116
statemcnt of flnanoal
posidon,11o
unrcaLscd proflt,116
Margmal cosung
brcak~even ohart,278~279
break cvcn pomt° fa pr° duc1
277-278
hnltao° ns° f brcak郯、n charts,
279-280
血 id吧 幺∝ors,2ss-284
廴nakc Or buy’ dcosions,282~283
marp of safc%278
ordcrs bd岬 normal s铡 吨 pnc⒐
281-282 oppo¤ vn1〃 costs,313-314
and pncmg,280-281 oxˉ crhcad ab∞ rp刂 on ratcs lo=qR9,
pro丘 t/vdumc chart,279
rado ofthc c° n讧 Ι
bu色on to thc OVcr廿 adlng,232
scⅡ ng pocc,27Ω 77
∞nsiu△・
l岬 an郇 is° f pr。 丘t and
br吻 k∞ cn poh“ , ・
284-285
sCn“ 蛳 °f a produc1279
泌 ab∞ 屮 oon∞ smg and
mvcnto呷 valuad° n,286
Nct book sˉ aluc Nσ η °f伍 q
assct, 52
Nct currcnt asscts lor w° r妯鸭
capiall t° salCs,23Cl z31
Nct payments, 316
N∝ prcscnt s aluc㈦ PVl,316
Nct profit pcrccntagc,” 8
Nct rccclpts,316
Nct bc,r妯 鸭 asscts to saks,231
Non-cu± rcnt assct tumoVcr,230
NoⅡ proE← mahg organlsaoons
accumulatcd fund, 99
ancma呷 ac色V1ties, 100
dcfmoon,99
excess of cxpcndlturc Ovcr
hc° mc, 99
Incomc and Expcn山 mre
Account, 99
Ⅱfc subscnp乜 ons and cn位 y fccs,
treatmcnt oξ 100
noⅡ tradmg acuxio∞ ,100
prcpataoon of dub acc° unts,
100-102
Rccclp“ and Pa胛 cnts Accoun厶
99
spcoal免 aturcs° ξ 99
mb阢 np乜 0ns h arrears and
subscr1ptlons h adx,ancc,
99-100
smplu。s of hcomc oⅣ cr
cxpcndmrc, 99
trcatmcnt of incomc, 100
260
Parme灬 吣 Act1890,128
Pamcrsh|p agrccmcn△ 128
Partncrs吣 s
account for changcs m au。 can。 n
of pro且ts or bsscs
bctsl,ccn parmcrs,
136-137
account for Go° dw吐 ⒒,140
account for G° °d驷 诅 ψhcn n°
Goods△ ・
m acc。 unt1s
opcncd, 141-142
account for i∽v° r re臼 吐emcnt of
c斑 sjng parmcr,1件 145
account± or rcxˉ nlua0on° f asscts
h,137~138
account br thc reah阴 u¨ oξ
150-151
advantagcs, 132
appo血 onlncnt of pro￡ 、 142
approprlau。 n accoun、 128
changcs,】 36
dc血 oon,128
dlsadvantagcs, 132
hterest° n a baα ,128~129
htcrcst° n capltal and dra牺 恤箩,
128
partncrs’ s钊 hocs,128
prcparauon° f acc° unts for,
129-131
proⅡ t/l° ss shanng,129
Pa1・ back peⅡ ° d,315~316
PcⅡ odlc灬、ntoq亏 122
Perpcmal mvcnt° ry,122
Prcpaymcnts,47
血 omc adlⅡ tmcnt br,48
PⅡ cc car-gs raoo卩 ERl,235钙 6
P茁 me c° st,26z
Pr° ccss c° s乜 ng
b,・ products and、 泗stc,273
cxplained,270~271
j(int products,272-273
normal Iosses,273矽 74
、厂ork h pr° grcss,271-272
P女 0duC0° nc° st ccntrcs,257
PubⅡ shcd c° mpany acc° unts
accounung bascs,212
accounung po△ c诒 s,212
 aCCoun乜ng prlnciplcs,212 Rca△ saoon° f accounts,43 from statement of cash
挝 di刂 onal costs associated x△ l曲 ℃rablc amoun△ 55
Rec° ˇ 且°ws,180
assets,214 Rcphccmcnt cos‘ 126 usmg fmanch1raios,238-239
’
audito灬 rcport,221 Rcturn on caplt挝cmplord Wh山 w dtcssi呜 ⒛ 9
b0rr0W血 gc° sts,216 CROCE),227928 stodk mx,cntory, 122
conmgent assets and conmgent Rc扯 n° n cquJˇ 另228 ℃r form,accoun乜 ng
substance° ˇ
ⅡabⅡ dcs,218-219 Rcarn on total asscts,230 prmclplc oξ 45,210
dcahng M,ld△ crrc,rs,212 Resˉ crsal of cntncs,26 sunk c° sts,313
dcprcciaion,214-215 suspcnsc accounts
dlrcctors’ repor1220~221 salcs as a pcrcentagc of capital causc/causcs of dlfference
dlsdosurc h thc￡ hanoal employcd, 229930 on thc仕杨I balancc,
salcs RctLlrns accoun、 9
statctncnts,215 81-82
doculncnts rcq111fcd to bc salcs varlanccs, 305 chccks for opcmng,81
prcparcd and pubⅡ shcd sccondap`raoos,229 cotrcctlon of e“ ors,82-83
annu破 ≯ ⒛ 9 sc⒒ cr‘ books,9
de丘 血d° n,81
catMgs pcr share βPsl, ser说 ce c° st ccntrcs, 257 notcs,84
216-217 standard cosung proccdurc fo止 opcmng,81
cvcnts aftcr thc statcrncnt of adxantagcs oξ 301
卯 Cs° f Crror and,82
fmanc1al po⒍ uon datc, dcnru。 。n,301

212-213 matcJal and labour c° st Tradc discount,10

mpalrmcnt rcvig″ 0f assets, vaⅡ ances,306-307 Tradc payaues pa卩 mcnt
217-218 rccono山 aoon of budgctcd pcrlod,232
htanglblc灬 sct,219z20 pro负 and actual pro丘 、 Tradc rcccivablcs coⅡ ccoon
prOMsi° ns,218 308-309 pcrlod,232
rcvcnuc, 215-216 saleζ vaoanccs,305 To尉 balancc
trcatmcnt of changes h setdng standards,301~302 defm刂 °n,25
accoundng es扭 ylatcs,211 total cost va0anCcs,305 Ⅱnita谊 °ns,26
treauncnt° f non-currcnt asscts Varlanccs,304 prcpamg oξ 25
of propcr饥 plant and standard hours of producoon,302
ˉ Undc⒈ /over absorptLOn° f
cquJpmcnt,213-214 statement° fa± falrs, 89-90
statcmcnt of cash Ⅱo、 /s 0VCrhC岔 ds,263
xaluaion of asscts,215
advan么 gcs oξ 184 U刂 Ⅱsau° n oft° tal assets,230
Rate of rcurn on mvcs讧 nCn△ 317 dcn血 。。n,174
⒉oanccs,304
、Ⅰ
Rao° s imp°rtance, 174
commcnts,307-308
calcula刂 °n and匆 α衬ysls° ξ227 °fⅡ mtcd c° mp・alucs, 175~176
matcoal and labour cost,
丘nanc杨叱 231矽 33 fr° m statcmcn“ of fnanoal
306-307
inVCs伍 nent(stock exchangcl, posio° n, 176-178
salcs,305
233-237 f0rl江 △nCorporated bushcsscs,
total c° st,305
Ⅱ雨 ta山ns° ξ 237 182-183
profitabⅡ ty227-229 statcmcnt of丘 nanc1al p° sl色 on 鼠埝 tCd avcragc cost of m△ cntor≯
shoM,ng u刂 Ⅱsa色 on of res° urccs, dc血 u。 n,39 121
229-231 notcs,40 ads antages and〈 J1isadvantages,
trcnd an侈 J.`sis and mtcr-f1rm objcC包Vcs,211 123-124
comparlson,237 prcparatlon oξ 3⒐ 丬0 WⅡ 屺n down△ aluc⑿ ,of the
usc丘△,226
assct,52