: CARBON Carbon is a limited liability entity. A trial balance for the year ended 31 December 20X5 is presented below. Revenue Purchases Administrative expenses Distribution expenses Plant and machinery - cost Plant and machinery - accumulated depreciation at 1 January 20X5 Trade receivables Allowance for receivables - 1 January 20X5 Inventory - 1 January 20X5 Equity share capital Trade payables Retained earnings - 1 January 20X5 8% Loan - repayable 31 December 20X9 Cash Dr S 180,000 140,000 56,000 150,000 36.000 33,000 Cr S 450,000 30.000 2,500 10,000 32,000 25,500 50,000 5,000 600,000 600,000 The following notes are relevant to the preparation of the financial statements for the year ended 31 December 20X5: (i) The current year tax charge has been estimated at $5,000. (il) It has been determined that trade receivables of $1,500 are irrecoverable. In addition, it was decided that the allowance for receivables should be increased by $1,000. Depreciation on plant and machinery is charged at 20% per annum on a reducing balance basis. Depreciation is charged to cost of sales. It has been determined that trade receivables of $1,500 are irrecoverable. In addition, it was decided that the allowance for receivables should be increased by $1,000. (ili) Depreciation on plant and machinery is charged at 20% per annum on a reducing balance basis. Depreciation is charged to cost of sales. (iv) The loan was taken out on 1 October 20X5. No interest has been accrued. (v) Closing inventory has been correctly valued at $27,000. KAPLAN PUBLISHING 175 FA (FFA): FINANCIAL ACCOUNTING (vi) A customer bought goods on credit from Carbon for $1,000 on 5 December 20X5. The customer returned these goods on 28 December 20X5. No entries have been posted for this return. (vi) Carbon is being sued by a customer regarding the sale of goods that the customer believes to be defective. Legal advisers think that it is probable that Carbon will lose the case and that they will have to pay damages of $20,000 in 20X6. Legal expenses are charged to administrative expenses.