MERCURY LTD.

Below is the list of balances for Mercury Ltd., a retailer, at the financial year end 31 December 2014

MERCURY LTD.

Trial Balance as at 31 December 2014

		DR		CR
		000		000
Ordinary share capital (2 shares)	500
Revaluation reserve	50
Retained earnings at 1 January 2014	41
Cash at bank	12
Loan (repayable in 2019)	100
Land	380
Leasehold buildings	180
Machinery	78
Vehicles	40
Provision for depreciation: Buildings	48
Provision for depreciation: Machinery	18
Provision for depreciation: Vehicles	12
Inventory at 1 January 2014	87
Purchases	1,010
Returns -out	100
Carriage- in	35
Trade payables	83
Trade receivables	223
Sales	1,446
Returns-in	120
Provision for pension benefits	20
Provision for environmental clean-up	11
Provision for doubtful debts	16
Dividend paid	25
Wages and salaries	110
Carriage-out	12
Utilities expense	35
Insurance expense	27
Interest expense	4
General expenses	67

Additional Information :

1.The closing inventory has been valued at cost using the FIFO method of stock valuation at 54,000

2.The depreciation policy on fixed assets is as follows:

i.Land is not depreciated and the company has decided to adopt the revaluation model for land. An independent valuation found the land to be worth 450,000 based on the recent sales value of a similar plot of land nearby.

ii.Buildings are depreciated over the life of the lease (30 years).

iii.Machinery is depreciated using the declining balance method at 30%

iv.Vehicles are depreciated using the straight line method at a rate of 25%

3.The loan was obtained from the bank on 1 April 2014 at an interest rate of 8%

4.The insurance expense includes an amount of 9,000 which relates to 2015.

5.The wages and salaries figure does not include employee bonuses earned of 8,000

6.Mercury has received notification through their professional advisors that a customer owing 13,000 has gone into liquidation and this amount will not be paid. Mercury estimates that 10% of the remaining year-end trade receivables may not be able to pay the amounts owed.

7.The environmental clean-up provision relates to some costs that Mercury will incur as a result of damage caused during production over the last two years. A recent quotation showed that costs are now expected to be 14,000. It is expected that the clean-up operation will take place during November and December 2015.

8.The dividend of 10p per share was paid in June 2014.

9.The taxation charge for the year to 31 December 2014 is estimated at 20,000

REQUIRED:

a) First prepare the Trial Balance by transferring each of the figures into the correct column.

(Hint: It DOES Balance totals are 2,445,000)

b) Prepare the journal entries for each of the adjustments.

c) Prepare an Income Statement for the year ended 31 December 2014 and a Statement of Financial Position at that date.