Question 1

The trial balance extracted from the books of Kami Limited as at 31 December 2019 was as follows:

Office equipment, at cost Motor vehicle, at cost

Accumulated depreciation at 1 January 2019: Office equipment

Motor vehicle

Bank

Inventory at 1 January 2019 Accounts receivable Accounts payable Purchases

Transportation in

Sales

Administrative expenses Selling expenses

Bank loan, repayable in 2022

Bank loan interest expenses

Ordinary share capital

(720,000,000 shares in issue and fully paid) General reserve

Retained profits at 1 January 2019

Cr $'000

24,648 7,560

Dr $'000 300,000 70,200

246,144

887,028 1,900,560

939,816 51,744

9,010,272

120,000 42,000

5,424,240

1,145,040 964,224

11,031,180

810,000

6,000 112,884 11,031,180

The following additional information is available:

(i) Inventory as at 31 December 2019 was valued at $560,400,000 after inventory count.

(ii) The bank statement for December 2019 showed a bank loan interest of $1,200,000 was deducted but no entries have been recorded in the book.

(iii) It was discovered that a payment of $9,600,000 for purchase of office equipment on 1 January 2019 had been wrongly treated as purchase of inventory. The cash paid was correctly recorded in the bank account. No adjustment has been made. There are no other additions or disposal of fixed asset during the period.

(iv) Depreciation is to be provided for the year as follows:

Office equipment: straight line method with useful life of 5 years and no residual value.

Motor vehicle: double declining balance method with useful life of 8 years and residual value $120,000.

(v) The following year-end adjustments are to be made: $'000

Accrued administrative expenses Prepaid selling expenses remained Profits tax provision for 2019

14,400 6,264 88,200

(vi) The company declared a bonus issue of one for ten shares. The bonus issue is financed by transferring $72,000 out of retained earnings to share capital account during the year. These shares are not entitled to any dividends for the year of 2019. No entries have been made.

(vii) The following appropriations are to be made: Transfer to general reserve: $24,000,000

Final dividends for ordinary shares: $0.8 per share

Required:

(a) Prepare statement of profit or loss for the year ended 31 December 2019. Notes to the accounts are not required.

(b) Prepare statement of financial position / balance sheet as at 31 December 2019. Notes to the accounts are not required.

(c) Explain how accountants can improve the accuracy of their budget. Illustrate your answer with an example.