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Kevin


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HELP! Experiencing problems when preparing financial statements using the Trial Balances
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Hi everyone,

I'm a new member for this forum. I have an uni exam for 'financial accounting' in two days, and I'm experiencing some problems solving questions from the past paper. And the worse thing is my professor didn't give us correct answers for the paper and he's on vacation right now. 

So I came across this website and hope someone here can help me with this. 

I'd really appreciate any help from you guys!!!

So here is the original questions:

 

PART A: Q1. Using the formats provided, complete the income statement, balance sheet and supporting T accounts from the following information as at 31st Dec 2010:
                                                                                                               £000      £000
Ordinary shares @ £1, fully paid                                                                  2800
12% Cumulative, redeemable preference shares @ £1 each                  2200
Revaluation Reserve                                                                                        1724
Retained Profit @ 1st Jan 2010                                                                     1200
Land and buildings less accumulated depreciation                     4480    180
Distribution equipment less accumulated depreciation            2770    1250
Fixtures and fittings less accumulated depreciation                  1540    380
Non-current asset investment and interest received                   2064   272
Debenture interest paid and 15% Debentures (repayable 2015) 36     480
Rental income                                                                                                  140
Stock @ 1st Jan 2010                                                                           2070
Purchases and sales                                                                        10350,  17762
Audit Fees                                                                                                30
Distribution costs                                                                                3068
Administration costs                                                                           2348
Loss on partial closure and reorganisation of the business        390
Trade accounts receivable and payable                                           1300    842
Other accounts receivable and payable                                             58      44
Returns in and and out                                                                          34      50
Cash and bank                                                                                         61      620
Corporation tax liability on 2009 profits (payable 1st Jan 2011)           382
VAT liability                                                                                                       112
Intangible assets                                                                                   179
Long term provision for business reorganisation                                     700
Interim ordinary dividend paid                                                        140
Preference dividend paid                                                                     220           `
                                                                          31138 31138
I've highlighted the terms that I don't understand.
Why is revaluation reserve credited and what is 'returns in and out'?
Also, I mostly don;t understand the account 'Cash and bank'. I know that cash is an asset and debited. But what is bank and why is it credited?
For preparing income statement, do I use the 'Purchase and Sales' for revenue and CoGs?
Hope someone can generously help me out here!
Thanks a lot indeed!
 


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Figurate


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Revaluation reserve - when a fixed asset has been revalued from it's (previous) book value - this is where the difference is put to adhere to the double-entry, (and so it doesn't hit the P&L account)
Debentures - these are loan stock (which are kind of like long term loans which are repayable at some specified point in the future (which is the redemption date) and interest is payable on them in the meantime)
Returns in & Out: This is either goods returned to the company from their customers (returns in) or returns that the company has sent back to it's suppliers (returns out)
Cash & Bank - the amount of cash either in the petty cash or in various bank accounts.
(If there's a credit on the bank account, it's a liability or overdraft owing to the bank)
Revenue =sales
CoG= purchases

Good luck with your exam.

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web: www.figurate.co.uk - Chartered Management Accountants
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Kevin


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Thanks a lot, man. Really appreciated it! But for Cash & Bank: DR 61 CR 620. Does it mean a current asset (Cash or equivalent) of 61 and current liability (Bank overdraft) of 620 on the balance sheet? I'm still confused about the bank overdraft part. Is the full portion of CR620 overdraft? Does that mean at that specific date, the business has 61 cash in hand and 620 bank overdraft outstanding? And aren't they supposed to pay interest on the overdraft amount?

Cheers mate!

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MarkS


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Hi Kevin

If you have £61 dr and £620 cr in cash/bank means that you have £61 in petty cash/bank accounts and £620 overdrawn in bank.  By inference the credit balance cant be petty cash as you can never have negative petty cash (can only have negative bank).   So yes the £620 cr mush relate in full to bank account(s).

Yes the trial balance is always "as at" a particular date so that shows the position at that date.

Would depend on the terms of the account whether any interest being paid on overdraft.  As this is just an exam question then is probably the reason why no interest shown.  In practice you would expect their to be some interest paid or due to be accrued for an overdrawn account.

Regards

MarkS



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Mark Stewart CA

http://stewartaccounting.co.uk/

Providing accounting, bookkeeping, payroll and tax services to small and medium sized businesses across Central Scotland and beyond.
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