EXAMPLE 1

The trial balance given below has been extracted from the books of Sagunto Ltd as at
31 December 2009:
$ $
Called-up capital:
1 760 000 ordinary shares of 25c each 440 000
200 000 10% Preference shares of $1 each, 75c called 150 000
Delivery vehicles, at cost 51 000
Provision for depreciation on delivery vehicles 21 000
Bank loan 60 000
Sales 1 331 255
Returns inwards 10 255
Purchases 1030 000
Carriage inwards 4 600
Returns outwards 12 473
Fixtures and fittings 43 100
Provision for depreciation on fixtures and fittings 19 040
Stock at 31 December 2008 281 000
Freehold premises, at cost 390 000
13% Loan stock (2020) unsecured 200 000
Profit and loss account balance (31 December 2008) 62 550
Trade debtors 322 160
Trade creditors 181 200
General reserve 50 000
Management expenses 62 600
Interest on loan stock 13 000
Insurances 3 000
Directors fees 33 300
Interest on bank loan 4 100
Cash at bank and in hand 53 203
Wages and salaries 101 100 ________
2 464 968 2 464 968

The following matters have to be taken into consideration in preparing the financial
statements:

(i) Stocks at 31 December 2009 amounted to $278 122 (including $8 122 for raw
materials) and were valued at the lower of cost or net realizable value.
(ii) A half years interest is due on the 13% loan stock.

(iii) Wages and salaries owing amount to $900 and insurance prepaid amounts to
$300.
(iv) Depreciation is to be provided as follows:
Fixtures and fittings: at the rate of 10% per annum on cost.
Delivery vehicles: at the rate of 20% per annum on cost. They include a new
delivery vehicle which was purchased at a cost of $8 000 on 1 July 2009.
 (v) Authorized capital is as follows:
Ordinary shares of 25c each $500 000
Preference shares of $1 each $200 000

(vi) The following apportionments are made between administration expenses and
selling and distribution expenses:
Administration Selling & distribution

Wages and salaries 75% 25%

Directors fees 100% -
Insurance two-thirds one-third
Management 80% 20%

(vii) One years dividend is to be provided for on the nominal value of the preference
shares.
(viii) One quarter of the bank loan is repayable during the year ending 31 December
2010 and the remainder thereafter.
(ix) Taxation is 30% and, Aids Levy is 3% thereon.
Required:

Prepare the following for Sagunto Ltd for the year ended 31 December 2009:
a) a Statement of Comprehensive Income,
b) a Statement of Changes in Equity,

c) a Statement of Financial Position, and ,

d) Notes to the Financial Statements, for internal use and for publication.
NOTE: The presentation of the statements must comply with the requirements of
International Accounting Standard 1 (IAS 1).

Solution

(a) Sagunto Ltd (For Internal use)

Statement of Comprehensive Income for the year ended 31 December 2009
Notes $ $
Turnover ($1331 255 10 255) 1 321 000
Less Cost of sales
Opening stock 281 000
Purchases 1 030 000
Carriage inwards 4 600
Returns outwards (12 473)
1 303 127
Less Closing stock 278 122 1 025 005
Gross Profit 295 995
Less Administrative Expenses
Wages and salaries 75% ($101 100 + 900) 76 500
Directors fees 33 300
Insurance 2/3 ($3 000 300) 1 800
Management expenses 80% ($62 600) 50 080
Depn. Fixtures & Fittings 10% ($43 100) 4 310 (165 990)
Less Selling & Distribution Expenses
Wages and salaries 25% ($101 100 + 900) 25 500
Insurance 1/3 ($3 000 300) 900
Management fees 20% ($62 600) 12 520
Depn. Delivery van (8 600 + 800) 9 400 (48 320)
Less Finance Charges
Interest on loan stock ($13 000 + 13 000) 26 000
Interest on bank loan 4 100 (30 100)
Net Profit before tax 51 585
Taxation (30% x $51 585) 15 476
Aids Levy (3% x $15 476) 464 (15 940)
Net Profit for period 35 645

(b) Sagunto Ltd

Statement of Changes in Equity for the year ended 31 December 2009

Ordinary Preference General Retained Total

Share Share Reserve Earnings
Capital Capital
$ $ $ $ $
Balances at 31 Dec 2008 440 000 150 000 50 000 (62 550) 577 450

Profit for the period 35 645 35 645

Dividends Preference (15 000) (15 000)
Balances at 31 Dec 2009 440 000 150 000 50 000 (41 905) 598 095

(c) Sagunto Ltd

Statement of Financial Position as at 31 December 2009
Non-current Assets $ $
Freehold premises 390 000
Fixtures and fittings (43100 19040 - 4310) 19 750
Delivery vans (51000 21000 9400) 20 600 430 350
Current Assets
Stocks 278 122
Trade debtors 322 160
Prepayments 300
Cash and Bank balances 53 203 653 785
1 084 135

Equity and Liabilities

Equity
Ordinary share capital 440 000
Preference share capital 150 000
General Reserve 50 000
Retained Losses (41 905)
598 095
Non-current Liabilities
13% Loan Stock 200 000
Bank Loan long-term portion 45 000 245 000
Current Liabilities
Trade Creditors 181 200
Bank Loan short-term portion 15 000
Taxation 15 940
Proposed dividends 15 000
Accruals (13 000 + 900) 13 900 241 040
1 084 135
(a) Sagunto Ltd (For Publication)
Statement of Comprehensive Income for the year ended 31 December 2009
Notes $
Turnover 2 1 321 000
Cost of sales 1 025 005
Gross Profit 295 995
Administrative Expenses (165 990)
Selling & Distribution Expenses (48 320)
Finance Charges (30 100)
Net Profit before tax 3 51 585
Taxation (30% x $51 585) (15 476)
Aids Levy (3% x $15 476) (464)
Net Profit for period 35 645

(b) Sagunto Ltd

Statement of Changes in Equity for the year ended 31 December 2009

Ordinary Preference General Retained Total

Share Share Reserve Earnings
Capital Capital
$ $ $ $ $
Balances at 31 Dec 2008 440 000 150 000 50 000 (62 550) 577 450

Profit for the period 35 645 35 645

Dividends Preference (15 000) (15 000)
Balances at 31 Dec 2009 440 000 150 000 50 000 (41 905) 598 095

(c) Sagunto Ltd

Statement of Financial Position as at 31 December 2009
Non-current Assets Notes $ $
Property, Plant and Equipment 4 430 350
Current Assets
Inventory 5 278 122
Trade and Other Receivables 6 322 460
Cash and Cash Equivalents 53 203 653 785
1 084 135
Equity and Liabilities
Equity
Ordinary share capital 7 440 000
Preference share capital 7 150 000
General Reserve 50 000
Retained Losses (41 905)
598 095
Non-current Liabilities
Loan Stock 8 200 000
Bank Loan long-term portion 9 45 000 245 000
Current Liabilities
Trade and Other Payables 10 210 100
Bank Loan short-term portion 9 15 000
Taxation 11 15 940 241 040
1 084 135

(d) Sagunto Ltd

Notes to the Financial Statements for the year ended 31 December 2009

1. Accounting Policies
Financial statements have been prepared in accordance with the requirements of International
Accounting Standards using the historical cost basis and incorporate the following principal
policies which have been consistently applied in the previous years:

1.1 Property, Plant and Equipment

All property plant and equipment are initially recognized at cost price and then subsequently
measured at historical cost less accumulated depreciation. Depreciation is charged on
Fixtures and Fittings on a straight line basis, at 10% p.a. on the cost of assets on hand at the
end of each year. Depreciation on vehicles is charged at 20% p.a. on cost. Vehicles include a
new delivery van which was purchased at a cost of $8 000 on 1 July 2009. No depreciation is
provided on Freehold Premises.

1.2 Inventory
Inventory is stated at the lower of cost or net realizable value.

2. Revenue
Revenue consists of the value of goods sold to customers and can be reliably measured.

3. Profit before tax

Profit before tax is stated after charging the following:
Expenses:
Administration, selling and distribution expenses include:
- Directors fees $33 300
- Depreciation $13 710

4. Property, Plant and Equipment:

Fixtures &
 Premises Fittings Vehicles Total
$ $ $ $
Net Book Values at 01/01/2009 390 000 24 060 22 000 432
060 Cost at 01/01/2009 390 000 43 100 43 000 476
100 Accum. Depn. At 01/01/2009 - (19 040) (21 000) (40
040) Depn. for the year - (4 310) (9 400) (13
710) Additions at cost price - - 8 000 8 000
Disposals at NBV - - -
Net Book Values at31/12/2009 390 000 19 750 20 600 430 350
Cost at 31/12/2009 390 000 43 100 51 000 484 100
Accum. Depn. at 31/12/2009 - (23 350) (30 400)
(53 750)

5. Inventory $278 122

Inventory consists of: Finished Goods $270 000
Raw materials $ 8 122

6. Trade and Other Receivables:

Trade and other receivables include trade debtors amounting to $322 160

7. Share Capital:
Authorised Issued
Ordinary shares of 25c each $500 000 $440 000
10% Preference shares of $1 each $200 000 $150 000

8. Loan Stock
The unsecured Loan Stock carries a fixed interest charge of 13% p.a. and is repayable in year
2020.

9. Bank Loan
The bank loan is redeemable by an annual installment of $15 000.

10. Trade and Other Payables: $210 100

Trade and other payables include: Trade creditors $181 200
Preference dividends $ 15 000
Accruals $ 13 900

11. Taxation
Current year tax is based on ordinary activities