Question
Cabbage White Ltd. has the following trial balance at 31 December 2018. Debit 000 Credit 000 Inventory at 1 January 2018 2,500 Administrative expenses 2,906
Cabbage White Ltd. has the following trial balance at 31 December 2018.
Debit 000 | Credit 000 | |
Inventory at 1 January 2018 | 2,500 | |
Administrative expenses | 2,906 | |
Interest expense | 65 | |
Distribution costs | 585 | |
Non-current assets at cost: | ||
Land | 800 | |
Buildings | 10,000 | |
Plant and equipment | 1,400 | |
Motor vehicles | 320 | |
Accumulated depreciation at 1 January 2018 | ||
Buildings | 4,000 | |
Plant and equipment | 480 | |
Motor vehicles | 120 | |
Suspense* | 1,800 | |
Retained profits at 1 January 2018 | 480 | |
Trade receivables | 886 | |
Purchases | 4,100 | |
Carriage inwards | 100 | |
Carriage outwards | 200 | |
Sales discounts | 268 | |
Dividends paid | 250 | |
Sales revenue | 12,000 | |
5% Bank loan payable (due 2022) | 1,300 | |
Salaries payable | 120 | |
Trade payables | 1,060 | |
Bank overdraft | 20 | |
Share premium | 500 | |
1 ordinary shares | 2,500 | |
24,380 | 24,380 |
* Suspense accounts are opened either to correct errors or when it is not known immediately where to post an amount. A suspense account is temporary and will be closed once it has become clear which account should be correctly posted by the given amount.
The following additional information is relevant:
(a) Inventory as at 31 December 2018 was valued at 1,500,000.
(b) Depreciation has to be provided as follows:
i. Buildings at 5% straight-line, charged to administrative expenses
ii. Plant and equipment at 20% on the reducing balance basis, charged to cost of sales
iii. Motor vehicles at 25% on the reducing balance basis, charged to distribution costs
(c) A customer has gone bankrupt owing 86,000. This debt is not expected to be received and has to be written off. In addition, it has been decided to set up a provision for doubtful debts of 5% of the receivables at the year-end.
(d) 1 million new ordinary shares were issued at 1.80 per share on 1 December 2018. On that date the proceeds were debited to the cash and bank account and credited to the suspense account.
(e) Land was revalued as at 31 December 2018 at 1,400,000.
Required:
1. Prepare the following:
a. Statement of profit or loss and the statement comprehensive income for the year ended 31 December 2018 (you may choose to prepare two separate statements or one statement that combines the two).
b. Statement of changes in equity for the year ended 31 December 2018
c. Statement of financial position as at 31 December 2018 Provide all the financial statements with proper headings. Show all your workings. Ignore taxation.
2. The directors of Cabbage White Ltd have decided to revalue land. They hope that it will make it easier for the company to get another long-term bank loan if needed. Do you agree with this reasoning? Explain why or why not.
3. The directors of Cabbage White Ltd are concerned about their overdraft. Give them some recommendation about what steps they should take to prevent the overdraft from increasing
If there are too many questions in one message then you can answer in several messages. Thank you.
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