Administrative and Selling and Distribution costs. Provide advice to the company on what considerations are needed in respect of this change, and any additional details that may be required in the Financial statements as a result.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Depreciation is to be charged as follows:
- 50% of the depreciation is to be charged to Cost of Sales;
30% to Selling & Distribution expenses; and
20% to Administrative expenses.
3. As at 31 December 2020, the property had a fair value of €230,000.
This property was previously revalued in 2019 (this was its first revaluation) and
it resulted in a revaluation gain of €21,000 being booked to the accounts.
4. The piece of equipment owned by the company was sold on 31 December 2020.
The company received proceeds of €34,000 in respect of the sale. This transaction
has not been reflected in the trial balance above.
5. Closing inventory as at 31 December 2020 was €38,000. Included in this value, is
an item of inventory which originally cost of €3,000. Economic conditions have
deteriorated and the selling price is now €1,750 before transport costs of €50.
6. Accruals and prepayments were as follows:
Prepayments (€'000)
120
Accruals (€°000)
Administrative expenses
Distribution expenses
70
154
99
7. No corporation tax payments were made by the company during the year.
8. The company has discovered fraud committed by one of their employees during
the year. The employee in question, had been authorising payments for goods that
were never received.
The company has contacted their insurance company in respect of this fraud in
order to determine if they can claim for any of the damages resulting from this
fraud (circa €1million).
The insurance company has stated that the company's policy does not cover this
type of fraud. The company are still to receive an opinion from their lawyers in
respect of this.
Other information: The ordinary shares shown above include 10,000 shares issued at
€2 each on 1 January 2020. The share issue was correctly entered in the books of the
company at the time of issue.
The company proposes to pay a final dividend in the amount of 4c per share on 1
February 2021. This proposal has not yet been approved.
(e) The company is considering changing the presentation of its depreciation expense
in its financial statements from 2021 onwards. It will now no longer include
depreciation as part of its Cost of Sales, and instead, split the cost evenly between
Administrative and Selling and Distribution costs.
Provide advice to the company on what considerations are needed in respect of
this change, and any additional details that may be required in the Financial
statements as a result.
Transcribed Image Text:Depreciation is to be charged as follows: - 50% of the depreciation is to be charged to Cost of Sales; 30% to Selling & Distribution expenses; and 20% to Administrative expenses. 3. As at 31 December 2020, the property had a fair value of €230,000. This property was previously revalued in 2019 (this was its first revaluation) and it resulted in a revaluation gain of €21,000 being booked to the accounts. 4. The piece of equipment owned by the company was sold on 31 December 2020. The company received proceeds of €34,000 in respect of the sale. This transaction has not been reflected in the trial balance above. 5. Closing inventory as at 31 December 2020 was €38,000. Included in this value, is an item of inventory which originally cost of €3,000. Economic conditions have deteriorated and the selling price is now €1,750 before transport costs of €50. 6. Accruals and prepayments were as follows: Prepayments (€'000) 120 Accruals (€°000) Administrative expenses Distribution expenses 70 154 99 7. No corporation tax payments were made by the company during the year. 8. The company has discovered fraud committed by one of their employees during the year. The employee in question, had been authorising payments for goods that were never received. The company has contacted their insurance company in respect of this fraud in order to determine if they can claim for any of the damages resulting from this fraud (circa €1million). The insurance company has stated that the company's policy does not cover this type of fraud. The company are still to receive an opinion from their lawyers in respect of this. Other information: The ordinary shares shown above include 10,000 shares issued at €2 each on 1 January 2020. The share issue was correctly entered in the books of the company at the time of issue. The company proposes to pay a final dividend in the amount of 4c per share on 1 February 2021. This proposal has not yet been approved. (e) The company is considering changing the presentation of its depreciation expense in its financial statements from 2021 onwards. It will now no longer include depreciation as part of its Cost of Sales, and instead, split the cost evenly between Administrative and Selling and Distribution costs. Provide advice to the company on what considerations are needed in respect of this change, and any additional details that may be required in the Financial statements as a result.
You have been recently appointed the junior accountant of Peachy Limited.
The following trial balance has been extracted from the records of Peachy Limited as at 31
December 2020.
€’000
€'000
Ordinary shares of €1 each
150,000
50,000
50,000
80,000
129,010
Share Premium
5% preference shares
7% loan notes
Retained earnings
Premises
290,000
87,000
40,000
Motor vehicles at cost
Equipment at cost
Accumulated depreciation – motor vehicles
Accumulated depreciation - Equipment
Inventory at 1.1.20
Payables
Receivables
17,000
8,000
48,000
12,750
24,400
Bank
11,740
Revenue
327,000
Purchases
188,000
34,000
Wages
Administrative expenses
Selling & distribution costs
15,320
12,470
70,230
2,600
Directors Salaries
Loan note interest paid
823,760
823,760
Additional Information:
1. The company uses the revaluation model for valuing its premises. The premises is
included in the trial balance at its fair value as at 31 December 2019.
Both motor vehicles and equipment are included in the trial balance at cost.
2. Depreciation is charged in full in the year of acquisition and none in the
disposal:
year
of
Premises – 10% of fair value on a straight line basis
Motor Vehicles – 15% of cost per annum on a reducing balance basis
Equipment – 10% of cost per annum on a straight line basis
Transcribed Image Text:You have been recently appointed the junior accountant of Peachy Limited. The following trial balance has been extracted from the records of Peachy Limited as at 31 December 2020. €’000 €'000 Ordinary shares of €1 each 150,000 50,000 50,000 80,000 129,010 Share Premium 5% preference shares 7% loan notes Retained earnings Premises 290,000 87,000 40,000 Motor vehicles at cost Equipment at cost Accumulated depreciation – motor vehicles Accumulated depreciation - Equipment Inventory at 1.1.20 Payables Receivables 17,000 8,000 48,000 12,750 24,400 Bank 11,740 Revenue 327,000 Purchases 188,000 34,000 Wages Administrative expenses Selling & distribution costs 15,320 12,470 70,230 2,600 Directors Salaries Loan note interest paid 823,760 823,760 Additional Information: 1. The company uses the revaluation model for valuing its premises. The premises is included in the trial balance at its fair value as at 31 December 2019. Both motor vehicles and equipment are included in the trial balance at cost. 2. Depreciation is charged in full in the year of acquisition and none in the disposal: year of Premises – 10% of fair value on a straight line basis Motor Vehicles – 15% of cost per annum on a reducing balance basis Equipment – 10% of cost per annum on a straight line basis
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