Question
Latema Ltd. was incorporated and commenced business in 1995 specializing in the import and export of a variety of goods throughout the East, Central and
Latema Ltd. was incorporated and commenced business in 1995 specializing in the import and export of a variety of goods throughout the East, Central and South Africa region.
Due to sustained inflationary conditions under which the company has operated since inception, management has always considered that the traditional financial statements based on historical cost basis are more informative and relevant if supplemented with corresponding current cost accounts.
You have been approached to prepare the current cost accounts for the year ended 31 December 2001 and have been provided with the following information in respect of the company.
Latema Ltd. Balance Sheet as at 31 December 2000 Current Cost Accounting Basis | ||
| Sh.000 | Sh.000 |
Assets Non-current assets Current assets Stock Trade debtors
Equity and liabilities Capital and reserves Ordinary shares Share premium Current cost reserve Retained earnings
Non-current liability Loan
Current liabilities Taxation Trade creditors Proposed dividends Bank overdraft |
4,848 3,852
6,000 2,000 1,900 1,850
2,000 2,800 300 1,500 |
13,650
8,700 22,350
11,750
4,000
6,600 22,350 |
Profit and loss account for the year ended 31 December 2001 Historical cost accounting basis | ||
| Sh.000 | Sh.000 |
Sales Opening stock Purchases Cost of goods available for sale Closing stock Gross profit Expenses: Loan interest expense Administration expenses Selling and distribution expense Depreciation Profit before tax Taxation Profit after tax Dividends - Interim paid - Final proposed Retained profits for the year |
4,800 73,200 78,000 6,000
350 8,600 4,250 1,800
300 600 | 96,000
72,000 24,000
15,000 9,000 4,000 5,000
900 4,100 |
Additional information:
During the year ended 31 December 2001, the company paid all the loan interest expenses, administration expenses and selling and distribution expenses.
Proposed dividends as at 31 December 2000 were paid in 2001 together with the interim dividend for the year 2001.
The company received Sh.92,604,000 from its trade debtors and paid Sh.72,500,000 to its trade creditors in the year ended 31 December 2001.
Total amount paid for taxation in the year ended 31 December 2001 was sh.4,500,000
The loan attracted an interest rate of 10% per annum and Sh.1,000,000 of the loan was repaid on 30 June 2001.
The non-current asset consists of a fixed asset purchased in January 1998 at a cost of Sh.18,000,000 and is being depreciated on a straight-line basis over a ten-year period based on cost.
The historical cost accounting accumulated depreciation on the asset as at 31 December 2000 was Sh.5,400,000
The appropriate current cost accounting price indices for the fixed assets were as follows:
| Price index |
1 January 1998 date of purchase 31 December 1999 31 December 2000 31 December 2001 | 120 125 130 135 |
Current cost accounting depreciation adjustment is based on year-end current cost value of the fixed asset.
The average age of stocks is one month and the suitable price indices applicable to stock and monetary working capital moved as follows:
| Price index |
1 November 2000 31 December 2000 Average for 2001 1 November 2001 31 December 2001 | 100 102 112 120 122 |
It is the groups policy to treat the balance at bank and bank overdraft as part of monetary working capital.
Required:
Current cost profit and loss account for the company for the year ended 31 December 2001 (10 marks)
Current cost balance sheet of the company as at 31 December 2001. (10 marks)
(Note: Round figures to the nearest thousand shillings) (Total: 20 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started