Question # 5

Dreamland Limited had the following balance in their Trail Balance as at 31st December. 1996: Debit Credit Land & building 310,000 Share capital (fully paid) 400,000 Plant & Machinery 3 10,000 Share premium 40,000 Preliminary expense 15,000 General reserve 100,000 Stock on 10 January, 1996. 65,000 Profit & Loss Account 25,000 Purchases 330,000 Bank Loan at 12% taken on Jul 1,1996 200,000 Salaries 50,000 Sundry Creditors 35,000 General expenses 15,000 Sales 600,000 Director's fees 3,000 Auditors 's fees 2,000 Wages 60,000 Carriage 5,000 Manufacturing expenses 20,000 Advertising 20,000 Sundry expenses 60,000 Good will 90,000 Bank Balance 45,000 1,400,000. 1,400,000

ADJUSTMENT (1) Stock on 31' December, 1996 was Rs. 55,000 (2) The managing director is entitled to a commission of 5% on net profit after charging, his commission. (3) General expenses include prepaid rates totaling Rs.300 (4) A provision for income tax is required to be maintained at Rs. 15,000 (5) The directors recommended a dividend at 5%. (6) Depreciation should be charged at the rate of 10% on Plant & Machinery and 2% on Land Building

REOUNED: (a) Prepare the income Statement for the year ending 31 December 1996 and (b) Prepare the Balance Sheet as on that date.