Back to: FINANCIAL ACCOUNTING SS3
Welcome to class!
In today’s class, we will be talking about the final accounts of limited liability companies. Enjoy the class!
Final Accounts of Limited Liability Companies
The final accounts of limited liability companies comprise the following:
- Trading, Profit and Loss Account.
- Appropriation Account.
- Balance Sheet.
Format of Trading Profit & Loss account
Trading Profit & Loss account for the year ended 31/12/9x
Opening Stock x Stock x
Add purchases x Less return inward x
Less return outward x x Gross loss x
Cost of goods available x
Less closing stock x
Cost of sales x
Gross profit c/d x
X x
Expenses Gross profit b/d x
Wages & salaries x Income from quoted In. x
Rent & Rate x Rent receivable x
Depreciation of assets x Discount received x
Directors remuneration x Other incomes x
Auditors remuneration x x
Advertising x
Hire of plant x
Debenture interest x
Insurance x
Other expenses x
Net profit x
X x
Appropriation account
Corporate tax x Balance b/f from last year x
General reserve x Net profit b/d x
Revenue reserve x
Dividend interim x
Proposed dividend x
Goodwill written off x
Retained profit c/d x
X x
Balance sheet format
Authorized capital N Fixed asset
Cost Dep. NBN
Ordinary share @ N1 each x Land & build X (x) X
10% Preference Share @ N 1 each x Furniture x (x) x
X Machinery x (x) x
Issued share capital Premises x (x) x
Ordinary share @ N 1 each x Goodwill x
10% preference share @ N 1 each x investments
Reserves Quoted x
Share premium x Unquoted x
General reserve x Current assets x
Retained profit x Stock x
Capital redemption reserve x Debtors x
Long-term liabilities Cash x
10% Debenture x Bank x
Current liabilities Bill receivable x
Bill payable x Prepayment x
Income in advance x Accrued income x x
Corporate tax x Preliminary expenses x
Creditors x
Proposed dividend x
Accruals x x
X x
Evaluation
- List five items that feature in the Appropriation Account of a limited liability company.
- Explain the following terms:
- Debentures
- Authorised share capital
- Issued capital
- Proposed dividend
- Revenue reserve
Illustration
The following Trial Balance was extracted from the books of Johnson Nigeria Limited as at 31st December 1990.
| Dr | Cr | |
| Issued and fully paid 20,000 shares of ₦1 each | 20,000 | |
| Share premium | 10,000 | |
| General reserve | 8,000 | |
| Profit and loss account | 3,000 | |
| Stock 1/1/90 | 8,000 | |
| Salaries and wages | 5,000 | |
| Discount | 200 | 400 |
| Carriage inwards | 160 | |
| Loans | 24,000 | |
| Interest on loan | 1,000 | |
| Carriage outwards | 560 | |
| Provision for bad depth | 2,000 | |
| Preliminary expenses | 12,000 | |
| Motor vehicle expenses | 1,800 | |
| Director’s salaries | 6,000 | |
| Repairs to premises | 250 | |
| Rates | 1,600 | |
| Premises at cost | 20,000 | |
| Motor vehicle at cost | 23,000 | |
| Plants and machinery cost | 25,000 | |
| Purchases and sales | 45,000 | 91,740 |
| Provisions for depreciation | ||
| Plants and machinery | 2,500 | |
| Debtors & creditors | 12,390 | 8,000 |
| Sundry expenses | 3,500 | |
| Cash in hand | 300 | |
| Cash in bank | 4,000 | |
| Returns | 240 | |
| 170.000 | 170,000 |
Additional information
- Stock at close ₦12,500
- Expense unpaid: motor expenses – ₦ 20
Insurance – ₦ 450
Sundry experiences – ₦400
- Prepaid expenses: Rate – ₦ 320
Sundry expenses – ₦ 250
- Provision for bad debts to be increased to – ₦2,800
- Part of the premises is sublet at ₦2,400 per annum
- Bad debts at 31st December, ₦600
- Monthly salaries and wages bill ₦400
- Loan interest is 5% per annum
- Provide for depreciation on a straight-line method: premises 2% ,plant & machinery 25%,motor vehicle 10%
- Write off preliminary expenses
- Transfer to general reserves ₦5,000 and ₦5,000 to revenue reserve.
Prepare :
- Trading, Profit and Loss and Appropriation Account of the year ended 31st December 1990
- a Balance Sheet as at that date.
Solution:
Johnson Nigeria Limited
Trading, profit and loss for the year ended 31st December 1990
| ₦ | ₦ | |||
| Opening stock | 8,000 | Sales | 91,740 | |
| Add purchases | 45,000 | Less return inward | (240) | |
| Add carriage inwards | 160 | 91,500 | ||
| 45,160 | ||||
| Less returns outward | (360) | 44,800 | ||
| Costs of goods available | 52,800 | |||
| Less closing stock | (12,500) | |||
| Cost of good sold | 40,300 | |||
| Gross profit c/d | 51,200 | |||
| 91,500 | 91,500 | |||
| Operational expenses | Gross profit b/d | 51,200 | ||
| Discount allowed | 200 | Discount received | 400 | |
| Salaries and wages(400×12) | 4,800 | Rental income | 2,400 | |
| Carriage outwards | 560 | |||
| Interest on loan(0.05×24,000) | 1,200 | |||
| Motor on vehicle exp.(1,800+200) | 2,000 | |||
| Director’s salaries | 6,000 | |||
| Repairs to premises | 250 | |||
| Rates (1,600-320) | 1,280 | |||
| Provision of depreciation | ||||
| Premises (0.02×20,000) | 400 | |||
| Plant and machinery(0.25×25,000) | 6,250 | |||
| Motor vehicle (0.1×23,000) | 2,300 | |||
| Sundry expenses(3,500 + 400)= | ||||
| 3,900 – 250 | 3,650 | |||
| Insurance | 450 | |||
| Bad debts | 600 | |||
| Provision for bad debts | 800 | |||
| Net profit c/d | 23,260 | |||
| 26,260 | 26,260 | |||
| General reserves | 5,000 | Net profit b/d | 23,260 | |
| Revenue reserves | 5,000 | Profit brought forward | 3,000 | |
| Preliminary expenses written off | 12,000 | |||
| Undistributed profit c/d | 4,260 | |||
| 26,260 | 26,260 |
The balance sheet as at 31st December 1990
| Authorized share capital ₦ | Fixed assets ₦ | |||||||||
| 20,000 ordinary shares of ₦1 each | 20,000 | Cost | Dep. | NBC | ||||||
| Issued share capital | Premises | 20.000 | (400) | 19,600 | ||||||
| 20,000 ordinary shares for ₦1 each | 20,000 | Motor vehicle | 23,000 | (2,300) | 20,700 | |||||
| Plant and machinery | 25,000 | (8,750) | 16,250 | |||||||
| Reserves | Current Assets | |||||||||
| General reserves(5000+8,000) | 13,000 | Cash in hand | 300 | |||||||
| Revenue reserves | 5,000 | Debtors (12,390 – 600)= | ||||||||
| Share premium | 10,000 | 11,790 – 2,800 | 8,990 | |||||||
| Retained profit | 4,260 | Stock | 12,500 | |||||||
| Long term liabilities | Bank | 4,000 | ||||||||
| Loans | 24,000 | Rent receivable | 2,400 | |||||||
| Current liabilities | Prepaid : | Rates | 320 | |||||||
| Creditors | 8,000 | Sundry expense | 250 | |||||||
| Loan interest owing | 200 | Wages and salaries | 200 | |||||||
| Motor expenses owing | 200 | |||||||||
| Insurance accrued | 450 | |||||||||
| Sundry expenses owing | 400 | |||||||||
| 85,510 | 85,510 | |||||||||
Evaluation
- What is fixed assets and give five examples of fixed assets.
- Define intangible assets and mention three examples
General evaluation
- List five methods of providing for depreciation of fixed assets.
- State five reasons for making provision for depreciation of fixed assets.
- List eight errors that will affect the agreement of the trial balance.
- Give five reasons for preparing departmental accounts.
- List and explain five classifications of the Ledger.
Reading assignment
Essential Financial Accounting page 265-282
Weekend assignment
- Net purchase in the trading account is —————- (a)purchases –return outwards (b) purchases – return inward (c)purchases – carriage inwards (d) purchases – sales
- Net sales in the trading account is ————– (a)purchases – sales (b)sales – return inwards (c)sales – return outwards (d) sales + purchases
- Working capital is ————— (a)current assets – current liabilities ( b) current liabilities – current assets (c) total current assets (d) current assets + stock
- Capital owned is ————— (a)current assets – total liabilities (b) total assets – total liabilities (c) total assets + total capital (d) current assets + stock
- Capital employed is ———– (a)total assets – current liabilities (b)total assets – total liabilities (c ) total liabilities + all assets (d) current assets + current liabilities
Theory
- What is a bonus issue?
- Enumerate five features of a private limited company.
In our next class, we will be talking about the Issue of Shares and Debentures. We hope you enjoyed the class.
Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.
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