The trial balance for Adnett, a limited liability company, at 31 May 2011 was as follows: Additional
Question:
The trial balance for Adnett, a limited liability company, at 31 May 2011 was as follows:
Additional information as at 31 May 2011:
(i) Closing inventories has been counted and is valued at $560 000.
(ii) There are wages and salaries to be paid of $42 000.
(iii) Loan note interest has not been paid during the year.
(iv) Plant is depreciated at 25% per annum using the reducing balance method. The entire charge is to be allocated to cost of sales.
(v) Buildings are depreciated at 5% per annum on their original cost, allocated 25% to cost of sales, 50% to distribution costs and 25% to administrative expenses.
(vi) On 1 August 2010 Adnett purchased and absorbed the net assets of another business. Adnett paid $85 000 for goodwill and $35 000 for the business’s inventories. The purchase was paid for by the issue of 100 000 ordinary shares. This transaction has not yet been recorded m the books of Adnett. At 31 March 2011 the fair value of goodwill was $68 000.
(vii)During May 2011 a bonus (or scrip) issue of one for five was made to ordinary shareholders. This has not been entered into the books. The share premium account is to be used for this purpose.
(viii) No dividends have been paid or declared.
(ix) The directors have agreed to a transfer of $35 000 to the general reserve from profits for the period.
(x) Tax has been calculated as $70 000 for the year.
(xi) The expenses listed below should be apportioned as indicated:
Required:
(a) Prepare the following financial statements for Adnett:
(i) the statement of income for the year ended 31 May 2011; and (ii) the statement of financial position as at 31 May 2011.
Notes to the financial statements are not required.
(b) Briefly explain the accounting treatment for purchased goodwill. [ACCA adapted]
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