Photo AI
Final Accounts of a Manufacturing Company The following balances were extracted from the books of Mullins Ltd as at 31/12/2021 - Leaving Cert Accounting - Question 1(B) - 2022
Question 1(B)
Final Accounts of a Manufacturing Company The following balances were extracted from the books of Mullins Ltd as at 31/12/2021. € € Share capital Authorised - 630,0... show full transcript
Worked Solution & Example Answer:Final Accounts of a Manufacturing Company The following balances were extracted from the books of Mullins Ltd as at 31/12/2021 - Leaving Cert Accounting - Question 1(B) - 2022
Step 1
Prepare a manufacturing account for the year ended 31/12/2021.
Answer
To prepare the manufacturing account, we need to calculate the prime cost first.
Prime Cost Calculation
-
Raw Materials:
- Opening Stock: €52,000
- Add: Purchases: €367,000
- Less: Closing Stock: €40,000
Raw Materials Consumed = €52,000 + €367,000 - €40,000 = €379,000
-
Factory Wages: €114,000
-
Direct Expenses: €17,500
Prime Cost = Raw Materials + Factory Wages + Direct Expenses = €379,000 + €114,000 + €17,500 = €510,500
Add Factory Overhead Expenses
- Factory Supervisor's Wages (25% of €114,000): €28,500
- Factory Insurance: €21,000
- Factory Light and Heat: €14,400
- Depreciation for Factory Equipment (15% of €270,000): €40,500
- Depreciation for Factory Buildings (5% of €718,000): €35,900
Total Factory Costs
Total Factory Costs = Prime Cost + Factory Overheads = €510,500 + (€28,500 + €21,000 + €14,400 + €40,500 + €35,900) = €510,500 + €140,300 = €650,800
Cost of Manufacture
- Add: Work in Progress (01/01/2021): €16,900
- Less: Work in Progress (31/12/2021): €18,800
Cost of Manufacture = €650,800 + €16,900 - €18,800 = €648,900
Summary
The manufacturing account structure will look like this:
- Opening Stock of Raw Materials: €52,000
- Purchases of Raw Materials: €367,000
- Closing Stock of Raw Materials: €40,000
- Factory wages: €114,000
- Direct Expenses: €17,500
- Total Cost / Prime Cost: €510,500
- Total Factory Costs: €650,800
- Cost of Manufacture: €648,900
Step 2
Prepare a trading, profit and loss account for the year ended 31/12/2021.
Answer
To prepare the trading, profit, and loss account, we begin with the sales and deduct costs to determine the gross profit.
Trading Account
-
Sales: €877,500
-
Less Sales Returns: €18,000
-
Net Sales: €877,500 - €18,000 = €859,500
-
Less Cost of Sales:
- Opening Stock of Finished Goods: €58,000
- Cost of Manufacture: €648,900
- Closing Stock of Finished Goods: €47,000
Cost of Sales = €58,000 + €648,900 - €47,000 = €659,900
- Gross Profit = Net Sales - Cost of Sales = €859,500 - €659,900 = €199,600
Profit and Loss Account
-
Administration Expenses: €8,880
-
Selling & Distribution:
- Advertising: €8,000
- Factory Wages (75% of €114,000): €85,500
- Depreciation (Delivery Van €3,500): €1,380
-
Total Expenses: €8,880 + €85,500 + €1,380 = €95,760
-
Net Profit: Gross Profit - Total Expenses = €199,600 - €95,760 = €103,840
-
Add: Opening Balance of Profit and Loss: €63,800
-
Less: Provision for Taxation: €21,000
-
Closing Balance of Profit and Loss: €146,640
Step 3
Prepare a balance sheet as at 31/12/2021.
Answer
To prepare the balance sheet, we need to classify the assets and liabilities accordingly.
Assets
Non-Current Assets:
- Patents: €85,000
- Factory Buildings (Net Book Value): €682,100
- Factory Equipment (Net Book Value): €270,000
- Delivery Van (Net Book Value): €31,500
Current Assets:
- Closing Stocks (Raw Materials): €40,000
- Work-in-Progress: €18,800
- Finished Goods: €47,000
- Debtors: €77,550
- VAT: €13,700
- Bank: €41,300
Total Assets
Total Assets = Non-Current Assets + Current Assets = (€85,000 + €682,100 + €270,000 + €31,500) + (€40,000 + €18,800 + €47,000 + €77,550 + €13,700 + €41,300) = €917,600 + €238,350 = €1,155,950
Liabilities
Current Liabilities:
- Creditors: €84,300
- Corporation Tax: €21,000
- VAT: €13,700
- Bank: €41,300
- Debenture Interest due: €12,000
Shareholders’ Equity
- Authorised Share Capital: €630,000
- Retained Profits: €219,420
Total Liabilities and Equity
Total Liabilities + Total Equity = Current Liabilities + Share Capital + Retained Profits
Total Liabilities = (84,300 + 21,000 + 13,700 + 41,300 + 12,000) = €172,300
Total Equity = (630,000 + 219,420) = €849,420
Final Check
Total = Total Assets = Total Liabilities + Shareholders’ Equity
€1,155,950 = €172,300 + €849,420
Both sides should match, confirming the balance sheet is correctly formulated.