(Adapted from Hui, W.F., and Ng, P.H. (2008). Accounting in Hong Kong. SCOPE. CityU.)

You have been provided with the following trial balance as at 31 December 2005 for a limited

liability company called Sand Ltd.

Debit Credit

$000 $000

1,000,000 Ordinary shares of $1 each 1,000

Other reserve 700

Revaluation reserve, at 1 January 2005 500

General reserve, at 1 January 2005 100

Retained profit, at 1 January 2008 1,890

8% Debentures, repayable on 31 March 2008 1,000

Freehold land, at 1 January 2005 (at valuation) 6,450

Fixtures and fittings, at 1 January 2005 (cost $600,000) 480

Motor vehicles, at 1 January 2005 (cost $800,000) 600

Inventory 600

Trade receivable and payables 800 400

Allowances for doubtful debts, at 1 January 2005 40

Bank overdraft 200

Purchases and sales 6,725 12,090

Debenture interest (half-year paid) 40

Interim dividends on ordinary shares 200

Directors' remuneration 300

Rent and rates 600

Heating and lighting 340

Administrative salaries 400

Selling expenses 200

Discounts allowed and received 170 55

Bad Debts 70

17,975 17,975

The following additional information is relevant:

(1) Inventory at 31 December 2005 was valued at $800,000.

(2) Depreciation is to be provided as follows:

(i) Fixtures and fittings at 20% per annum on the straight-line method, allocated to

administrative expenses;

(ii) Motor vehicles at 25% per annum on the straight-line method, allocated to distribution

costs.

(3) Rates include a prepayment of $12,000.

(4) Allowances for doubtful debts are to be adjusted to $48,000 at the year end. Bad and

doubtful debts are allocated to cost of sales.

(5) There are administrative salaries outstanding of $10,000 for the year ended 31 December

2005.

(6) The audit fee is estimated to be $20,000.

(7) Income tax of $100,000 is to be provided for the year.

(8) Discounts allowed and received are allocated to distribution costs and administrative

expenses respectively.

(9) Directors' remuneration is to be analysed amongst cost of sales, distribution costs and

administrative expenses as follows:

$000

-Cost of sales 100

- Distribution costs 60

- Administrative expenses 140

(10) Half-year interest on debentures has not yet been paid and recorded.

(11) At 31 December 2005, land was revalued to $8,000,000.

(12) At 31 December 2005, the board of directors declared to pay a final dividend on the

ordinary shares of 10 cents each and resolved to transfer $50,000 from retained profit to the

general reserve. The liability to pay a dividend is recognized when the dividend is declared.

Sand Ltd is in the jurisdiction when declaration of the dividend dos not require further

approval by the relevant authority.

(13) There are no changes in share capital during the year.

Required:

Prepare the followings for Sand Ltd.:

(a) a statement of profit or loss; and a statement of profit or loss and other comprehensive

income for the year ended 31 December 20X5;

(b) a statement of changes in equity for the year ended 31 December 20X5.

Hints:

(a) Sand Ltd.

Statement of profit or loss for the year ended 31

December 20X5

$000

Revenue

Cost of sales (W1) _________

Gross profit 5,387

Distribution costs (W2)

Administrative expenses (W3)

Finance costs (W4) _________

Profit before tax 3,114

Income tax expense _________

Profit for the year _________

Sand Ltd.

Statement of profit or loss and other comprehensive income for the year

ended 31 December 20X5

$000

Profit for the year

Other comprehensive income for the year:

Gain on revaluation of land _________

Total comprehensive income for the year 4,564

_________

(b) Sand Ltd.

Statement of Changes in Equity for the year ended 31 December 20X5

Share Other Retained Proposed General Revaluation

capital reserve profit dividends reserve reserve Total

$000 $000 $000 $000 $000 $000 $000

At 1 January 20X5 4,190

Changes in equity for the year:

Dividends paid / proposed (W5) (200)

Total comprehensive income for the year 4,564

Transfer to general reserve _____________________________________________________________________________________________

At 31 December 20X5 1,000 700 4,554 100 150 2,050 8,554

_____________________________________________________________________________________________