Leaving Cert Accounting FINAL ACCOUNTS - Company: McCormack Ltd, has an authorised

Question

McCormack Ltd, has an authorised capital of €2,500,000 divided into 1,500,000 ordinary shares at €1 each and 1,000,000 4% Preference shares at €1 each. The following trial balance was extracted from the books on 31/12/2021:

Land and buildings (Land at cost €1,000,000)  €1,760,000
Office equipment (Cost €460,000)  €357,000
Profit and loss balance 01/01/2021  €127,000
Discount  €17,500
Debenture interest paid  €7,500
Investments  €75,000
Patents  €64,000
Stock 01/01/2021  €51,500
Purchases and sales  €905,000  €1,850,000
Bad debt provision  €7,000
Debtors and creditors  €249,800  €81,500
Bank  €49,000
Wages and salaries  €196,700
6% Debentures (including €60,000 issued on 01/06/2021)  €360,000
Dividends paid  €65,100
Directors fees  €91,000
VAT  €1,000
PAYE, PRSI, USC  €27,700
Sales commission  €32,000
Insurance  €25,000
Advertising  €8,400
Ordinary share capital  €1,000,000
4% Preference share capital  €350,000

The following information and instructions are to be taken into account:

(i) Stock at cost on 31/12/2021 was €82,800. It was discovered that goods had been received from a creditor on 31/12/2021 on a 'sale or return' basis. These goods had been entered in the books as a credit purchase. The retail value of the goods was €9,250 which included a mark-up on cost of 25%.
(ii) Provide for depreciation on office equipment. A full year's depreciation is charged in the year of acquisition and none in the year of disposal. It is estimated that office equipment has a useful economic life of six years with a residual scrap value of 4% of original cost. Note: On 30/04/2021 equipment which cost €65,000 on 01/10/2017 was traded in against new equipment costing €645,000. An allowance of €23,000 was made on the old equipment. The bank transfer for the net amount of this transaction was entered correctly but the bank transfer for the amount of the purchase was made wrong. This is the only entry made in the books in respect of this transaction.
(iii) During the year a warehouse which cost €120,000 was destroyed by fire. The insurance company has agreed to contribute €115,000 in compensation.
(iv) Buildings are to be depreciated by 2% of cost per annum.
(v) The figure for the bank in the trial balance has been taken from the firm’s own records. However, a bank statement dated 31/12/2021 has arrived showing an overdraft of €48,950. A comparison of the bank account and the bank statement has revealed the following discrepancies:

1. A cheque for fees of €4,950 issued to a trader had not been represented for payment by 31/12/2021.
2. A cheque for €26,700 issued to a supplier had been entered in the books (cash book and ledger) as €27,600.
3. A credit transfer for €64,500 had been received on 31/12/2021 in respect of a debtor who has recently been declared bankrupt. This represents a first and final payment of 30c for every €1 owed.
4. A credit transfer for €9,000 had been received on 31/12/2021 from a debtor in respect of a debt previously written off as bad. This represents 75% of the original debt. The bank had agreed to pay the remainder within two months. No entry was made in the books to record this transaction.
(vi) The dividends declared for 4 months investment income, are being written off over a five-year project which commenced in 2020.
(vii) Directors recommend that:
1. Provision should be made for both investment income due and debenture interest due.
2. The managing director should be paid a bonus commission of 2% on all sales in excess of €1,500,000.
3. Provision for bad debts to be adjusted to 9% of debtors.
4. A transfer of €250,000 should be made from profit to the capital reserve.
5. Provision for corporation tax of €60,000 is to be recorded.

McCormack Ltd, has an authorised capital of €2,500,000 divided into 1,500,000 ordinary shares at €1 each and 1,000,000 4% Preference shares at €1 each - Leaving Cert Accounting - Question (B) - 2022

Worked Solution & Example Answer:McCormack Ltd, has an authorised capital of €2,500,000 divided into 1,500,000 ordinary shares at €1 each and 1,000,000 4% Preference shares at €1 each - Leaving Cert Accounting - Question (B) - 2022

(i) Stock at cost on 31/12/2021 was €82,800.

(ii) Provide for depreciation on office equipment.

(iv) Buildings are to be depreciated by 2% of cost per annum.

(v) The figure for the bank in the trial balance has been taken from the firm’s own records.

(vi) The dividends declared for 4 months investment income.

Join the Leaving Cert students using SimpleStudy...