Question 3

The following are ledger balances extracted from the books of Forte Enterprise at 31 December 2019.

RM

Capital 200, 000

Office furniture and equipment at cost 89, 000

Provision for depreciation - office equipment 34, 500

Bad debts 1, 450

Purchases 480, 000

Sales 645, 000

Returns outwards 5, 600

Returns inwards 12, 500

Carriage inwards 48, 500

Carriage outwards 23, 400

Salaries and wages 96, 200

Stationery and printing 4, 200

Lighting and heating charges 8, 400

Telephone charges 7, 200

Inventory 1 January 2019 62, 000

Provision for doubtful debts - 1 January 2019 2, 200

Drawings 25, 000

Sales commission 12, 900

Advertising charges 9, 600

Office rent 33, 000

Accounts receivable 72, 500

Accounts payable 42, 800

Bank overdraft 53, 750

Additional information:

1.Inventory at 31 December 2019: RM84, 000.

2.Office furniture and equipment are to be depreciated at 10% per annum on cost.

3.A trade debtor with an outstanding balance of RM3, 500 was declared bankrupt on 31 December 2019 and the amount owed by him is to be written off.Provision for doubtful debts is to be adjusted to 2% of the accounts receivable.

4.Returns outwards amounting to RM1, 000 to a supplier was debited to his account but wrongly recorded as returns inwards by debiting his Returns account.

5.Advertising charges include RM500 paid on 31 December 2019 for advertising made on 2 January 2020.

6.Accrued expenses are:

Salaries and wages RM1, 250

Lighting and heating charges 600

Telephone charges 550

Office rent 3, 000

Bank overdraft interest 1, 850

You are required to do the following:

(a)Prepare:

(i)A statement of profit and loss for the year ending 31 December 2019.

(ii)A statement of financial position at 31 December 2019.

(b)In your opinion, is the financial performance of Forte Enterprise for the year ended 31 December 2019 satisfactory?Discuss possible reasons for the figure obtained. What could have been done to improve the profitability of the business?