70.2K

Verified Solution

Link Copied!

Lafferty Ltd - Trial Balance as at 31 March 2020 L'000 '000 450 350 1450 40 4000 108 126 28 22 1000 Accumulated depreciation of land and buildings at 1.7.19 Accumulated depreciation of shop fittings at 1.7.19 Accumulated depreciation of production machinery at 1.7.19 Allowance for receivables Bank loan at 4% p.a. Carriage Inwards Carriage outwards Cash at bank Directors remuneration Discounts allowed Discounts received Dividends paid Heat and light Insurance Inventory of raw materials as at 1.7.19 Inventory of work in progress at 1.7.19 Inventory of finished goods at 1.7.19 Land and buildings Loan interest paid Office Expenses Payables Production Machinery Purchases Receivables Retained Earnings Returns Inwards Returns Outwards Sales Share Capital (Shares of 10p each) Share Premium Account Shop fittings Wages 880 800 620 380 1240 10000 80 240 2000 6860 2420 9098 128 10856 2000 1200 1450 1780 TOTALS 30143 30566 Additional information: 1. The land and buildings are shown at cost including 5,000,000 for the land. Buildings are depreciated on a straight-line basis over 60 years 2. Shop fittings are depreciated at 25% per year on a reducing balance basis 3. Machinery is depreciated on a reducing balance basis at 20% per year 4. There have been no additions of property, plant or equipment in the period. Lafferty Ltd charges a full years depreciation in the year of purchase and none in the year of disposal. 5. A dividend of 5p per share was declared on 28th February 2020 but has not yet been paid and a further dividend of 10p per share is expected to be declared in April. 6. Insurance includes 36,000 for the year to December 2020 7. An accrual for heat and light for March 2020 is needed. Two thirds of heat and light is for administration and the rest is for production, 8. A credit note from a supplier for 24,000 has been debited to payables and debited to returns inwards 9. A bill for insurance for 24,000 has been credited to the bank account and debited to office expenses 10. The 25 year bank loan was taken out 5 years ago and the capital is being repaid in equal annual installments on 31 March each year. 11. Inventory at 31 March 2020 is valued at a cost of 940,000 for raw materials and 760,000 for work in progress. There was a serious fire in the finished goods warehouse on 31 March 2020 that destroyed the finished goods inventory and all records relating to it. Lafferty Ltd claim to operate to a strict policy of making a 40% gross profit mark-up. The destroyed goods are covered by an insurance policy that covers the cost of the goods destroyed. 12. A debt of 63,000 is irrecoverable and further debts of 180,000 are 60 days or more overdue. 13. Lafferty Ltd sold some shop fittings on 31 March 2020 for 40,000 in cash. The bookkeeper has not recorded the transaction. The fittings cost 150,000 5 years ago 14. 60% of the wages relate to production labour. 15. Corporation tax for the period is estimated at 22,000 16. Relevant data from the financial statements to 30 June 2019: Revenue 12,980,000 Gross profit 4,327,000 Profit for the year 1,075,000 You are required to: (a) Prepare journal entries to deal with all necessary adjustments, clearly showing that the errors have been corrected and the suspense account cleared. (b) Prepare a statement of profit or loss, a statement of changes in equity and a statement of financial position for the period to 31st March 2020 in a format that would be fit for publication. (c) Using the financial statements that you have prepared in (b) above and the data given below relating to the year ended on 30th June 2019 you are required to identify the important issues that would need to be given attention by the company's auditors and suggest some relevant audit tests that would need to be carried out. Lafferty Ltd - Trial Balance as at 31 March 2020 L'000 '000 450 350 1450 40 4000 108 126 28 22 1000 Accumulated depreciation of land and buildings at 1.7.19 Accumulated depreciation of shop fittings at 1.7.19 Accumulated depreciation of production machinery at 1.7.19 Allowance for receivables Bank loan at 4% p.a. Carriage Inwards Carriage outwards Cash at bank Directors remuneration Discounts allowed Discounts received Dividends paid Heat and light Insurance Inventory of raw materials as at 1.7.19 Inventory of work in progress at 1.7.19 Inventory of finished goods at 1.7.19 Land and buildings Loan interest paid Office Expenses Payables Production Machinery Purchases Receivables Retained Earnings Returns Inwards Returns Outwards Sales Share Capital (Shares of 10p each) Share Premium Account Shop fittings Wages 880 800 620 380 1240 10000 80 240 2000 6860 2420 9098 128 10856 2000 1200 1450 1780 TOTALS 30143 30566 Additional information: 1. The land and buildings are shown at cost including 5,000,000 for the land. Buildings are depreciated on a straight-line basis over 60 years 2. Shop fittings are depreciated at 25% per year on a reducing balance basis 3. Machinery is depreciated on a reducing balance basis at 20% per year 4. There have been no additions of property, plant or equipment in the period. Lafferty Ltd charges a full years depreciation in the year of purchase and none in the year of disposal. 5. A dividend of 5p per share was declared on 28th February 2020 but has not yet been paid and a further dividend of 10p per share is expected to be declared in April. 6. Insurance includes 36,000 for the year to December 2020 7. An accrual for heat and light for March 2020 is needed. Two thirds of heat and light is for administration and the rest is for production, 8. A credit note from a supplier for 24,000 has been debited to payables and debited to returns inwards 9. A bill for insurance for 24,000 has been credited to the bank account and debited to office expenses 10. The 25 year bank loan was taken out 5 years ago and the capital is being repaid in equal annual installments on 31 March each year. 11. Inventory at 31 March 2020 is valued at a cost of 940,000 for raw materials and 760,000 for work in progress. There was a serious fire in the finished goods warehouse on 31 March 2020 that destroyed the finished goods inventory and all records relating to it. Lafferty Ltd claim to operate to a strict policy of making a 40% gross profit mark-up. The destroyed goods are covered by an insurance policy that covers the cost of the goods destroyed. 12. A debt of 63,000 is irrecoverable and further debts of 180,000 are 60 days or more overdue. 13. Lafferty Ltd sold some shop fittings on 31 March 2020 for 40,000 in cash. The bookkeeper has not recorded the transaction. The fittings cost 150,000 5 years ago 14. 60% of the wages relate to production labour. 15. Corporation tax for the period is estimated at 22,000 16. Relevant data from the financial statements to 30 June 2019: Revenue 12,980,000 Gross profit 4,327,000 Profit for the year 1,075,000 You are required to: (a) Prepare journal entries to deal with all necessary adjustments, clearly showing that the errors have been corrected and the suspense account cleared. (b) Prepare a statement of profit or loss, a statement of changes in equity and a statement of financial position for the period to 31st March 2020 in a format that would be fit for publication. (c) Using the financial statements that you have prepared in (b) above and the data given below relating to the year ended on 30th June 2019 you are required to identify the important issues that would need to be given attention by the company's auditors and suggest some relevant audit tests that would need to be carried out

Answer & Explanation Solved by verified expert

See Answer