10.10 Ermintrude makes components for the motor industry, buying in plastic and metal raw materials from the UK and overseas. Her factory contains mostly quite old machinery, some of which is fully depreciated. She incurs relatively high labour and maintenance and repair costs. Ermintrude would like to borrow more money from the bank to invest in new plant and machinery so as to bring the production processes up to date and reduce labour costs. The bank manager has told her, however, that she must take steps to reduce her overdraft before he will consider lending any more money.

The following is Ermintrude's list of balances at 31 December 20X8 together with some notes that will help in preparing the accounts. You are required to:

a) Prepare a manufacturing account for Ermintrude for the year ending 31 December 20X8

b) Prepare a profit and loss account for the year ending 31 December 20X8 and a balance sheet at that date.

c) Advise Ermintrude on how she can help to reduce her overdraft and borrow more money for investment in new plant and machinery.
£
Sales 337 570 Capital at 1 January 20X8 114560 Fixed assets at cost:
Land 13 850 Buildings 50 000 Plant and machinery 93 450 Motor vehicles 39 822 Office equipment 13 000 Accumulated depreciation at 1 January 20X8:
Buildings 9 000 Plant and machinery 87 482 Motor vehicles 17 422 Office equipment 2 600 Opening stock:
Raw materials 15 250 Work-in-progress 6440 Finished goods 39451 Purchases of raw materials 97010 Import duties on purchases of raw materials 1 570 Direct labour costs 79 690 Factory supervisor's salary 14771 Factory electricity 7 898 Factory insurance 5 790 Sundry factory expenses 1 770 Machinery repairs and maintenance 8 599 Factory cleaning 5 777 Closing stock:
Raw materials 16 333 Work-in-progress 6 693 Finished goods 39 750 Debtors 46 242 Bank overdraft 28411 Creditors 24459 Bank loans (long term)
10 000 Drawings 3951 1 Secretarial and clerical staff 12 760 Business rates 6 769 Electricity and gas 2819 Office telephone 4644 Delivery van expenses 3 890 Sales staff costs 17231 Sundry administration and selling expenses 1 670 Interest paid 1 830 Note the following:
1. The depreciation charge for 20X8 in respect of plant and machinery has been calculated at £3130.
2. Depreciation is charged on the cost of buildings at 2% per annum on the straight-line basis. The charge is split between the factory (80%) and the administration office (20%).
3. Depreciation is charged on the motor vehicles at the rate of 25% per annum on the reducing balance basis.
4. Depreciation is charged on the cost of the office equipment at 10% on the straight-line basis.
5. A bill for office electricity for the period ending 31 December 20X8 was received after the year-end. The amount of the bill is £917 and it has not been recorded in the balances above.
6. Ermintrude's accountant advises her to include an accrual for his fees of £1300.