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Published Accounts Lemont PLC has an Authorised share capital of €700,000 divided into 500,000 ordinary shares at €1 each and 200,000 8% preference shares at €1 each - Leaving Cert Accounting - Question 4 - 2008
Question 4
Published Accounts Lemont PLC has an Authorised share capital of €700,000 divided into 500,000 ordinary shares at €1 each and 200,000 8% preference shares at €1 eac... show full transcript
Worked Solution & Example Answer:Published Accounts Lemont PLC has an Authorised share capital of €700,000 divided into 500,000 ordinary shares at €1 each and 200,000 8% preference shares at €1 each - Leaving Cert Accounting - Question 4 - 2008
Step 1
Prepare the published Profit & Loss account for the year 31/12/2007
Answer
To create the Profit & Loss account, we will structure it with the following key elements:
Turnover
- Total Sales Revenue: €1,990,000
Cost of Sales
-
Opening Stock: €67,000
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Purchases: €1,250,000
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Closing Stock: €197,000
-
Cost of Sales Calculation:
Cost of Sales = Opening Stock + Purchases - Closing Stock
= €67,000 + €1,250,000 - €197,000 = €1,120,000
Gross Profit
-
Gross Profit Calculation:
Gross Profit = Turnover - Cost of Sales
= €1,990,000 - €1,120,000 = €870,000
Administrative Expenses
- Total Administrative Expenses: €1,250,000
Other Operating Income
- Investment Income: €10,000
- Profit on Sale of Land: €43,000
Operating Profit Calculation:
Operating Profit = Gross Profit - Administration Expenses + Other Operating Income
= €870,000 - €1,250,000 + €10,000 + €43,000 = -€327,000
Interest Payable
- Interest on Debentures: €240,000
Profit on Ordinary Activities Before Tax:
-
Calculation:
Profit Before Tax = Operating Profit - Interest Payable
= -€327,000 - €240,000 = -€567,000
Taxation
- Apply applicable tax regulations (not specified here)
Dividends
- Ordinary dividends (10% on ordinary shares):
Dividend = €1 per share * 500,000 ordinary shares * 10% = €35,000
Profit Brought Forward
- At 1/1/2007: €400,000
Profit Carried Forward
- At 31/12/2007: -€567,000 + €400,000 = -€167,000
Summary of Profit & Loss:
- Following is the structure of the Profit & Loss Account:
Lemont PLC
Profit & Loss Account for the year ended 31/12/2007
-----------------------------------------------------------
Turnover €1,990,000
Cost of Sales (€1,120,000)
Gross Profit €870,000
Administrative Expenses (€1,250,000)
Other Operating Income €53,000
-----------------------------------------------------------
Operating Profit -€327,000
Interest Payable (€240,000)
-----------------------------------------------------------
Profit on Ordinary Activities Before Tax -€567,000
Taxation (not calculated)
-----------------------------------------------------------
Dividends (€35,000)
Profit Brought Forward €400,000
-----------------------------------------------------------
Profit Carried Forward -€167,000
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Notes to the Accounts
-
Accounting policy notes:
- Tangible Fixed Assets are valued at cost.
- The depreciation policy is as follows: Buildings are depreciated at 2% per annum straight line.
- Vehicles are depreciated at 20% per annum straight line.
-
Operating Profit:
- Calculated as shown above.
-
Financial Fixed Assets:
- Quoted Investments and Unquoted Investments as noted in the balance sheet.
-
Dividends:
- Total ordinary dividends as shown above.
-
Tangible Fixed Assets:
- Total worth calculated as per assets management and depreciation methods discussed in notes.
Step 2
State how a company would deal with a Contingent Liability which is possible but unlikely
Answer
When a Contingent Liability is possible but unlikely, it is not necessary to make a provision in the accounts. However, it is important to disclose the nature of the liability in the notes to the financial statements because it could have an impact on future financial positions.
Regulations to Observe When Preparing Financial Statements
-
The Companies Acts:
- These acts outline the legal requirements and framework for preparing company accounts.
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The Accounting Standards Board:
- Guidance and regulations around recognizing, measuring, and reporting contingent liabilities.
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The Stock Exchange Policies:
- Obligations to disclose relevant information to shareholders and maintain transparency regarding potential liabilities.