You have recently joined Orchid & Lily Ltd a manufacturer of beauty industry equipment, such as manicure stations, hairdressing chairs and massage tables. You are the newly appointed financial controller of Orchid and Lily Ltd you have joined during the preparation of the year end financial statements. Below is the trial balance for Orchid and Lily Ltd at December :
Revenue
Purchases
Administrative expenses
Finance costs
Loan repayable in
Distribution costs
Land and buildings carrying amount at December
land
Plant and machinery cost
Accumulation depreciation at December
Research Asset
Retained earnings at December
Ordinary share capital shares
Cash at bank
Inventories at December
Trade and other receivables
Trade and other payables
Suspense account
You have been provided with the following additional information:
Inventories held on December cost
Within inventory are a batch of massage tables that cost however they have been damaged in storage and can now only be sold for and require rectification work costing
The Nail Retreat, a local nail shop and regular customer of Orchid and Lily, has gone out of business. At December they owed Orchid and Lily
The company sells its products with a warranty, typically claims are settled within months. Based on historic information, data relating to these claims are detailed in the table below. No adjustment to the accounts has been made in relation to the data this year because the owner would rather deal with claims as they arise:
Percentage of goods sold
Defect
Compensation payable
None
Minor
Moderate
Major
The owner decided to adopt the revaluation model for land and buildings this year. An independent surveyor valued Orchid and Lilys land and buildings on January at million land million The owner doesnt think it makes sense to depreciate following the revaluation, since it reflects the market value. The remaining useful life of buildings at January was estimated as years. Depreciation of buildings are treated as an administrative expense.
Plant and machinery are being depreciated at reducing balance. Depreciation of plant and machinery are treated as a cost of sale.
On July the owner and previous financial controller recognised some product research costs of as an intangible asset. The directors are hoping to launch a prototype product in January in the hope of it becoming commercially viable at that date. They recognised the other side of the adjustment as a credit to administrative expenses.
On October the company raised funds through a share issue, at a market value of per share The proceeds have been recorded in the suspense account.
Income tax for the year to st December is estimated to be
Orchid & Lily paid for buildings insurance on st November for months from the st December The full invoice amount has been posted to admin expenses.
Requirements:
a Prepare a schedule of adjustments, detailing the debits and credits required to deal with the additional information refer to appendix where the first entry has been done for you
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