The draft financial statements of Rampion, a limited liability company, for the year ended 31 December 2010 included the following figures:

No adjustments have yet been made for the following matters:
i. The company’s inventory count was carried out on 3 January 2011, leading to the figure shown above. Sales between the close of business on 31 December 2010 and the inventory count totalled $36 000. There were no deliveries from suppliers for that period. The company fixes selling prices to produce a 40% gross profit on sales. The $36 000 sales were included in the sales records of January 2011.
ii. $10 000 of goods supplied on sale or return terms in December 2010 have been included as sales and receivables. They had a cost of $6000. On 10 January 2011 the customer returned the goods in good condition.
iii. Goods included in inventory at cost $18 000 were sold in Janua^ 2011 for $13 500. Selling expenses were $500.
iv. $8000 of trade receivables are to be written off.
V. The allowance for receivables is to be adjusted to the equivalent of 5% of the trade receivables after allowing for the above matters, based on past experience.
Required:

(a) Prepare a statement showing the effect of the adjustments on the company’s net profit for the year ended 31 December 2010.

(b) Show how the adjustments affected closing inventory and receivables (showing separately the deduction of the allowance for receivables). [ACCA adapted]

Transcribed Image Text:

Profit $684 000 Closing inventory $116 800 Trade receivables $248 000 Allowance for receivables $10 000