Need assistance on how to prepare the income statement properly
Section B The balances below have been extracted from the accounting records of Elephant Ltd at 31 December 2016: CE Dr 1000 95 90 '000 102 90 598 210 Land Equipment at cost Equipment depreciation at 1 January 2016 Inventory at 1 January 2016 Trade receivables Provision for doubtful debts Sales Purchases Administrative expenses Distribution costs Prepayments Accruals Trade payables Bank 10% Debentures Debenture interest Ordinary shares of 50p Retained profits at 1 January 2016 Dividend paid Disposal 59 6 5 5 1.298 1.298 You are given the following information: 1. Inventory at 31 December 2016 cost 150,000. This includes some slow-moving items which cost 8,000 which would normally sell for 12,000 but which the directors have decided to sell at 6,000 to clear them. 2. The land was purchased in 2014 and is presently used as a car park. It was externally valued at 31 December 2016 at 135,000 and the directors wish to include this amount in the statement of financial position. 3. The company rents its premises. Rent is payable quarterly in advance on 1 March, 1 June, 1 September and I December. The annual rent was increased from 36,000 per annum to 48,000 per annum on 1 March 2016. Rent is included in Administrative expenses. Birkbeck College 2017/18 Page 10 of 11 4. Equipment costing 12,000 purchased on 1 April 2014 was sold on 30 June 2016. The proceeds have been recorded in the bank and disposal accounts. 5. Land is not depreciated. Equipment is depreciated on a reducing balance basis at 25% per year. Full year depreciation is provided in the year of acquisition and no depreciation is provided in the year of disposal. 6. Accruals at 1 January 2016 relate to power, light and heat. The accrual at 31 December 2016 is 5,000. Expenses relating to power, light and heat are included in Administrative expenses. 7. A bad debt of 5,000 is to be written off. A provision of doubtful debt is to be provided at 5% for the remaining trade receivables. 8. Corporation Tax of 20,000 on the current year's profit is to be provided. 9. The company issued 60,000 bonus shares during the year. No entries relating to this share issue have been entered. Required: A. Prepare the income statement for the year ended 31 December 2016. (30 marks) B. Compare the advantages and disadvantages of financing using ordinary shares (for both rights and bonus shares) and debentures. (20 marks) Section B The balances below have been extracted from the accounting records of Elephant Ltd at 31 December 2016: CE Dr 1000 95 90 '000 102 90 598 210 Land Equipment at cost Equipment depreciation at 1 January 2016 Inventory at 1 January 2016 Trade receivables Provision for doubtful debts Sales Purchases Administrative expenses Distribution costs Prepayments Accruals Trade payables Bank 10% Debentures Debenture interest Ordinary shares of 50p Retained profits at 1 January 2016 Dividend paid Disposal 59 6 5 5 1.298 1.298 You are given the following information: 1. Inventory at 31 December 2016 cost 150,000. This includes some slow-moving items which cost 8,000 which would normally sell for 12,000 but which the directors have decided to sell at 6,000 to clear them. 2. The land was purchased in 2014 and is presently used as a car park. It was externally valued at 31 December 2016 at 135,000 and the directors wish to include this amount in the statement of financial position. 3. The company rents its premises. Rent is payable quarterly in advance on 1 March, 1 June, 1 September and I December. The annual rent was increased from 36,000 per annum to 48,000 per annum on 1 March 2016. Rent is included in Administrative expenses. Birkbeck College 2017/18 Page 10 of 11 4. Equipment costing 12,000 purchased on 1 April 2014 was sold on 30 June 2016. The proceeds have been recorded in the bank and disposal accounts. 5. Land is not depreciated. Equipment is depreciated on a reducing balance basis at 25% per year. Full year depreciation is provided in the year of acquisition and no depreciation is provided in the year of disposal. 6. Accruals at 1 January 2016 relate to power, light and heat. The accrual at 31 December 2016 is 5,000. Expenses relating to power, light and heat are included in Administrative expenses. 7. A bad debt of 5,000 is to be written off. A provision of doubtful debt is to be provided at 5% for the remaining trade receivables. 8. Corporation Tax of 20,000 on the current year's profit is to be provided. 9. The company issued 60,000 bonus shares during the year. No entries relating to this share issue have been entered. Required: A. Prepare the income statement for the year ended 31 December 2016. (30 marks) B. Compare the advantages and disadvantages of financing using ordinary shares (for both rights and bonus shares) and debentures. (20 marks)
