Given below is the lrial Balance of Derwent at 31 March Year 5:

The following additional information is available:
(1) Depreciation is to be provided at the rate of 10% on both the cost of fixtures and fittings and the cost of the freehold shop, at 31 March Year 5S.
(2) Insurance includes £2 000 paid in respect of the year to 30 September Year 5.
(3) Stock at 31 March Year 5 comprised three categories (I, II and III) .
valued as follows:

(4) Wages owing at 31 March, Year 5 amounted to £2 000.
(5) Debtors include £4 000 regarded by the year-end as irrecoverable and it has been decided to provide for further bad debts at the rate of 2% on the balance. ‘
(6) Derwent has employed an advertising agency to carry out a campaign during the three months to 31 March, Year 5. He has not yet either paid (or recorded) the £10 000 estimated cost of this campaign and expects to benefit from it during the middle part of his next financial year.
(7) Other expenses include £12 000 spent on adapting his shop to satisfy new government fire regulations.
Required:

(a) Prepare Derwent’s Trading and Profit and Loss Account for the year ended 31 March, Year 5 and his Balance Sheet at that date.

(b) Briefly explain your treatment in

(a) above of additional information (3), (6) and (7), justifying the treatment, in each case, by reference to relevant accounting concepts and conventions.

Transcribed Image Text:

000 000 Dr Cr Purchases and Sales 284 354 Drawings and Capital 12 152 Freehold Shop at Cost and accumulated depreciation thereon 78 30 Fixtures, Fittings at Cost and accumulated depreciation thereon 30 11 Debtors and Creditors 54 34 Stock at Cost (1 April Year 4) 64 Wages 37 Insurance Other expenses Bank 3 28 9 590 590