1.

You are presented with the following trial balance of Arbalrest, a limited
liability company at 30 September 20X6.
Account Dr Cr
$ $
Inventory at 1st Oct 20X5 186,400
Purchases 1,623,200
Carriage inwards 38,100
Carriage outwards 47,300
Sales 3,010,000
Trade receivables 318,000
Wages and Salaries 694,200
Marketing expense 80,000
Administrative expense 276,000
Loan interest 50,000
Allowance for Trade receivable at 1st Oct 18,800
20X5
Irrecoverable debt 14,300
st
Equipment at 1 Oct 20X5
- Cost 214,000
- Acc. Dep. 88,700
Land and building 1 Oct 20X5
- Cost 3,000,000
- Acc. Depn. Building 500,000
1$ Ordinary Share 1,000,000
Share premium 300,000
st
Retained Earnings at 1 Oct 20X5 312,000
10% loan notes 500,000
Suspense 812,000
Total 6,541,500 6,541,500

Additional information as at 30 September 20X6:

1. The balance of the suspense account is made up of two items:
(a) The proceeds of right issues on a 1 for 2 basis at $1.6 per share, credited
to the suspense account from the cash book.
Right shares = 1,000,000*1/2 = 500,000
Dr Suspense a/c: 1.6*500,000 = 800,000
Cr share capital: 500,000
Cr share premium: 300,000
(b) the proceeds of sale of some equipment on 1st Oct 20X5 with a carrying
amount at the date of sale of $14,200 and which had originally cost $30,000.
The cost and accumulated depreciation of the sold equipment has not been
removed from the above trial balance -> Cr Equipt-cost; 30,000, Dr A/D:
15,800->Cr Suspense a/c: 14,200
Dr Suspense a/c: 14,200
Dr A/D – Equipment: 15,800
Cr Equipment – Cost: 30,000
2. At 28 Sept 20X6 the inventories were destroyed by a fire, the inventories
on hand are only $50,000. Arbalrest normally applies a profit margin of 50%
for all sales. The destroyed inventories are fully insured by an insurance
company. The company has not recorded the loss of inventories.
Arbalrest normally applies a profit margin of 50% for all sales ->
COGS=50%.
Sales=3,010,000-> COGS=1,505,000
Calculated COGS= OP Inv + Purch – Closing Inv= 186,400+1,623,200-
50,000=1,759,600
➔ Inventory loss=1,759,600-1,505,000=254,600
Dr Insurance claim a/c: 254,600
Cr COGS: 254,600

3. Marketing expenses include $8,000 which relates to November 20X6.

-> Prepayment
Dr Prepayment: 8000
Cr Marketing expense: 8000
4. In preparing the bank reconciliation statement at 30 Sep 20X6, the
following items are causing the difference between Cash book balance and
bank statement balance:
- Cheque of $1,000 incorrectly debited to the account by bank (Bank’s error)
- Outstanding lodgements are not credited $4,580 (timin diff)
- Cheque paid in by the company and dishonored $500
Dr A/R: 500
Cr Bank: 500
5. Office equipment is depreciated at 20% per annum using the reducing
balance method. Building which has cost of $1,000,000 are depreciated at 5%
per annum on their original cost.
At 30 Sep 20X6, the land and buildings is revalued at $3,200,000.
Dr Depreciation cost: 20%*(214000-88700) = 25,060
Cr A/D – Office equipment: 25,060
Dr Depreciation cost: 1,000,000*5%=50,000
Cr A/D – Building: 50,000
Dr Land and Buildings – Cost: 200,000
Dr Land and Buildings – A/D: 500,000+50,000 = 550,000
Cr Revaluation Surplus: 750,000

Closing Inv = 186,400 + 1,623,200-1,505,000= 304,600

Required:
(a) Journalize all the adjusting entries
(b) Prepare the statement of profit or loss for the year ended 31 September
20X6
(c) Prepare the statement of financial position as at 31 September 20X6
2. Markus Company has prepared a trial balance at 30 April 20X3 which is
presented below.
Dr Cr
$ $
Share capital 15,000
Share premium 4,000
Retained earnings – 1 May 20X2 10,000
Revaluation surplus – 1 May 20X2 1,000
Finance costs 300
Bank 7,400
Administrative expenses 65,800
Distribution expenses 31,200
Plant and machinery – cost 77,000
Plant and machinery – accumulated depreciation at 25,000
1 May X2
Trade receivables 20,000
Allowance for receivables-1 May 20X2 3,150
Revenue 230,000
Inventory – 1 May 20X2 18,750
Dividend 13,000
Trade payables 17,500
Purchases 90,000
6% loan – repayable 31 July 20X5 3,000
316,050 316,050

The following notes are relevant to the preparation of the financial statements for
the year ended 30 April 20X3:
(i) It has been determined that trade receivables of $600 are irrecoverable. In
addition, it was decided that the allowance for receivables should be reduced by
$500. Bad debt expense is an administrative expense.
Dr admin expense: 600
Cr T/R: 600
DR allowance for irrecoverable debt: 500
Cr admin expense: 500
(ii) Depreciation on plant and machinery is charged at 15% per annum on a reducing
balance basis. Depreciation is charged to cost of sales. It has been decided to
revalued the plant and machinery downward by $2,450 at 30 Apr 20X3.
Dr Cost of Sales: 7,800
Cr Plant and machinery – A/D: 15%*(77,000-25,000) = 7,800
Dr Revaluation
Dr Plant and machinery – A/D:
 Cr Plant and machinery – Cost: 2450
(iii) The loan was taken out on 1 August 20X2 and interest has not yet been paid or
accrued.

(iv) Closing inventory had been valued at $17,500. It was subsequently discovered
that some items of inventory which had cost $5,000 had a net realisable value of
$3,750.

(v) At 30 April 20X3, a prepayment for insurance paid in advance of $400 had not
yet been accounted for. Insurance is classified as an administrative expense.

(vi) At 30 April 20X3, an accrual for freight and delivery expenses amounting to
$350 had not yet been accounted for. Freight and delivery expenses are classified
as distribution expenses.

(vii) Markus has prepared bank reconciliation statement at 30 Apr 20X3 and
discovered the following items caused a difference between the bank statement
balance and cash book balance:
- Bank is credited to the account in error $200
- Direct debit for $300 for electricity. Electricity is classified as an administrative
expense.
- Cheque paid to a supplier on 29 December $800
Required:
1, Prepare a statement of profit or loss of Markus the year ended 30 April 20X3
2, Prepare a statement of financial position as at 30 April 20X3.