Joe Holden owns a small publishing company. The business is incorporated under t

Question

Joe Holden owns a small publishing company. The business is incorporated under the name of Holden Publishing Ltd, and Joe and his friend, Wayne, are the directors. As the business is small, a local accounting firm is employed to prepare its accounts after the end of the accounting period from information Joe supplies. You work for this firm as an intern and have been asked to prepare a first draft of the accounts for Holden Publishing Ltd for the year ending 31st December 2016. Joe has provided you with a list of closing balances as at 31st December 2015, the previous accounting period end Printing machine: cost Printing machine: accumulated depreciation Bank loan repayable in 2020 Fixtures and fittings: cost Fixtures and fittings: accumulated depreciation Inventories Trade receivables Trade payables Allowance for trade receivables Share capital: £1 ordinary shares Accrued expenses (accountant's fees) Bank overdraft Prepaid expenses (rent) Retained profits 53,273 36,417 27,000 40,000 10,000 29,360 30,600 5,211 765 40,000 1,500 5,000 1,050 28,390 Notes: 1. The printing machine was acquired on 1st January 2012 and is being depreciated at a rate of 25% each year using the reducing balance depreciation method 2. The fixtures and fittings were bought on 1st January 2014. The company's policy is to depreciate fixtures & fittings over 8 years to a zero residual value using the straight-line depreciation method

Explanation / Answer

Income Statement for the year ending 31 Dec 2016

Dr. Cr.

To Loss on sale of Furniture

(2250-1400)

To Acc.fees

To Dep Exp (5625+4214)

2100

9839

Balance Sheet as at 31st Dec 2016

Working Notes:

1.Calculation of dep on Machine

Cost 2012: 53273

(-) Dep @ 25% 13318

WDV 2013. 39955

(-)Dep@25%.   9989

WDV 2014. 29966

(-) Dep@25%.   7492

WDV 2015. 22474

(-) Dep@25%.   5618

WDV 2016. 16856

Dep for 2016@25%. 4214

2.Dep of Furniture based on SLM

40000/8=£5000p.a

Dep on purchases made during the year

=5000/8=£625p.a

Thus, total dep for the year= £5625

3.Calculation of loss on sale of Furniture

Cost. 3000

(-) Dep.(3000*2/8) 750

WDV after 2 yrs of purchase= 2250

Sale= 1400

Loss= 850

4.Calculation of Prepaid Exp

Opening Bal: 1050

Paid during the year: 400*4*3 =4800

Prepaid exp 400*3= 1200

Thus, Exp for the year= 4950

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Particulars £ Particulars £ To Opening Stock 29360 By sales To Purchase 62850 Cash 48400 Credit 50300 To Gross Profit 34290 By Closing Stock(28500-700) 27800 126500 126500 To Insurance 320 By Gross Profit 34290 To General Exp 830 To Intt 600 To Salary 9600

To Loss on sale of Furniture

(2250-1400)

850 To Trade Rec. Written off 2000 To Provision on Trade Rec @3% (924-765) 159 To Rent Exp 4950

To Acc.fees

To Dep Exp (5625+4214)

2100

9839

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