Assessment 1 SECTION B Question 16 The balances below have been extracted from the accounting records of Ferrell Ltd at 31 December 2022: Dr Cr S S Revaluation reserve 55,000 Retained profits at 1.1.22 26,200 Share capital: 200,000 ordinary shares of 10c each 20,000 :10,000 8% cumulative $1 preference shares 10,000 Land and buildings: at valuation 140,000 Land and buildings: accumulated depreciation 18,000 Share premium 22.000 6% Debenture loan: 2029 80,000 Provision for doubtful debts 1,800 Plant & machinery: cost 320,000 Plant & machinery: accumulated depreciation 210,000 Interim dividend paid on ordinary shares 4,000 Interim dividend paid on preference shares 400 Corporation Tax 2,200 Debenture interest 2,400 Inventory at 1.1.22 Trade receivables Bank account 35,000 65,000 14.100 Prepaid insurance at 1.1.22 Accrued electricity at 1.1.22 Trade payables Sales Purchases Wages and salaries Insurance Travel and entertainment 1,400 6,000 17,000 Non-current asset disposal proceeds 1,000 930,000 396,000 367,000 13,200 21,000 Professional fees Electricity 14,500 29,000 1,411,100 1,411,100 You are given the following information: 1. Inventory at 31 December 2022 cost $47,000. Included in this inventory are items which cost $1,400 which are now obsolete and are expected to be sold for $200. 2. The land and buildings, at valuation, comprise: land $80,000, buildings $60,000. The land is to be revalued to $250,000. 3. Prepaid insurance at 31 December 2022 is $1,700 while accrued electricity, at that date, is $5,500. 4. An item of plant and machinery, the cost of which had been $5,000 and whose net book value was $2,300, had been sold in the year for $1,000. No accounting entries relating to the disposal have been made in the company's books of account other than in relation to the disposal proceeds. 5. Depreciation on fixed assets is to be charged as follows: freehold land: no depreciation is charged buildings: 1% per annum on a straight-line basis plant & machinery: 30% per annum on a reducing balance basis 6. A bad debt of $3,000 is to be written off. 7. The provision for bad debts is to be revised to 4% of trade receivables. 8. A final dividend of 3c per ordinary share is to be proposed by the directors. 9. The dividend on the cumulative preference shares, due to be paid on 1 January 2023 is to be provided. 10. Corporation Tax of $20,000 on the current year's profits is to be provided. 11. Interest on the debentures due to be paid on 1 January 2023 is to be provided. Required: (a) Prepare an income statement for the year ended 31 December 2022, a statement of financial position at that date, and a statement of movements in equity note for 2022, all in good style, for the directors. (25 marks) Total 30 marks (b) Accounting Policy is a set of accounting principles, measurement bases, conventions and rules that are used by a particular company to report a particular type of transaction or item in the financial statements. Example, Depreciation: straight-line basis at 1% pa. Unless the user is made aware of which policies are followed, he/she is unable to understand the figures since the results can be altered significantly by the choice of accounting policy.