Final Accounts of Limited Liability Companies

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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 31^st 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 31^st 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 31^st December 1990
a Balance Sheet as at that date.

Solution:

Johnson Nigeria Limited

Trading, profit and loss for the year ended 31^st 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 31^st 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.

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Final Accounts of Limited Liability Companies