You have been provided with the following trial balance as of 31 May 2009 for a limited liability company called Sondaw.

The following notes are relevant:
i. Inventories at 31 May 2009 were valued at $800 000.
ii. Marketing and advertising expenses include $6000 paid in advance for a marketing campaign that will begin in June 2009. Marketing and advertising expenses should be allocated to administrative expenses.
iii. There are wages outstanding of $10 000 for the year ended 31 May 2009.
iv. A customer ceased trading owing the company $38 000; the debt is not expected to be recovered. V. An allowance for doubtful debts is to be established amounting to 5% of trade receivables.
vi. Depreciation is to be provided for as follows:

a. Buildings at 5% per annum on their original cost, allocated 50% to cost of sales, 20% to distribution costs and 30% to administrative expenses.

b. Motor vehicles at 25% per annum of their written-down value, allocated to distribution costs.

c. Plant and equipment at 20% per annum of their written-down value, allocated to cost of sales.
vii. No dividends have been paid or declared.
viii. Income tax of $250 000 is to be provided for the year, ix.The audit fee is estimated to be $20 000.
X. The expenses listed below should be apportioned as follows:

Required:

(a) Prepare the following financial statements for the year ended 31 May 2009: a statement of income and a statement of financial position.

(b) Briefly explain the purpose of providing depreciation and identify the factors to be taken into account when deciding on which depreciation method to use. [ACCA adapted]

Transcribed Image Text:

Cash in bank Inventories at 1 June 2008 General expenses Heating and lighting Marketing and advertising expenses DR $'000 CR $'000 50 1 200 600 90 248