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Published Accounts Moorfields plc has an Authorised Capital of €850,000 divided into 550,000 Ordinary shares at €1 each and 300,000 6% Preference shares at €1 each - Leaving Cert Accounting - Question 6 - 2013
Question 6
Published Accounts Moorfields plc has an Authorised Capital of €850,000 divided into 550,000 Ordinary shares at €1 each and 300,000 6% Preference shares at €1 each. ... show full transcript
Worked Solution & Example Answer:Published Accounts Moorfields plc has an Authorised Capital of €850,000 divided into 550,000 Ordinary shares at €1 each and 300,000 6% Preference shares at €1 each - Leaving Cert Accounting - Question 6 - 2013
Step 1
Prepare the published profit and loss account for the year ended 31/12/2012.
Answer
To prepare the profit and loss account, we will start with the turnover and deduct the cost of sales to find the gross profit.
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Turnover:
- Purchases and Sales: €1,264,000
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Cost of Sales:
- Cost of Sales = Opening Stock + Purchases - Closing Stock
- Cost of Sales = €21,000 + €1,264,000 - €85,000 = €1,200,000
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Gross Profit:
- Gross Profit = Turnover - Cost of Sales = €1,264,000 - €1,200,000 = €64,000
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Operating Expenses:
- Administrative Expenses: €206,000
- Distribution Costs: €194,000
- Total Operating Expenses = €206,000 + €194,000 = €400,000
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Operating Income:
- Investment Income: €4,200
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Operating Profit:
- Operating Profit = Gross Profit + Other Operating Income - Total Operating Expenses
- Operating Profit = €64,000 + €4,200 - €400,000 = -€331,800 (Loss)
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Interest Payable:
- Interest on Debentures: €10,000
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Profit Before Tax:
- Loss Before Tax = Operating Profit - Interest = -€331,800 - €10,000 = -€341,800
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Tax:
- Since there is a loss, no tax is payable.
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Net Profit/Loss:
- Net Loss = Profit Before Tax = -€341,800
Balance Sheet at 31/12/2012
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Assets:
- Fixed Assets:
- Buildings = €880,000 - Accumulated Depn. (€260,000) = €620,000
- Vehicles = €260,000 - Accumulated Depn. (€105,000) = €155,000
- Intangible Assets:
- Patents = €85,000 - Amortised €6,000 = €79,000
- Current Assets:
- Stock = €85,000
- Debtors = €184,000
- Bank = €57,800
- Total Assets = Fixed Assets + Current Assets
- Total Assets = (€620,000 + €155,000 + €79,000 + €85,000 + €184,000 + €57,800) = €1,180,800
- Fixed Assets:
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Liabilities:
- Current Liabilities:
- Creditors = €184,000
- Taxation = €134,000
- Other Creditors = €43,800
- Non-Current Liabilities:
- 5% Debentures = €80,000
- Total Liabilities = €184,000 + €134,000 + €43,800 + €80,000
- Total Liabilities = €441,800
- Current Liabilities:
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Net Assets
- Net Assets = Total Assets - Total Liabilities = €1,180,800 - €441,800 = €739,000
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Equity:
- Issued Capital = €550,000 + €150,000 = €700,000
- Profit Carried Forward: -€341,800
- Total Equity = Issued Capital + Revaluation Reserve - Loss
- Total Equity = €700,000 - €341,800 = €358,200
Step 2
Name three bodies/institutions that regulate the production, content and presentation of company financial statements.
Answer
- The Government – Legislation: Laws and regulations imposed by the government to ensure accuracy in financial reporting.
- The European Union – Directives: EU directives that set standards for company accounting practices among member states.
- Accounting Standards Board – FRS’s and SSAP’s: These provide frameworks for accounting practices in the UK and Ireland.
- The Stock Exchange – Listing Rules: Rules that companies must follow to be listed on the stock exchange, including financial reporting standards.
Step 3
What is an Audit? Explain a qualified auditor's report.
Answer
An Audit is an examination of the financial statements of an enterprise by an appointed auditor. The purpose is to provide an independent opinion on whether the accounts give a true and fair view of the financial position of the business.
A qualified auditor's report is issued when an auditor finds that the financial statements are, in their opinion, not satisfactory or are unable to give a true and fair view for one or more of the following reasons:
- The company does not keep proper accounting records.
- The financial statements are not prepared in accordance with the Companies Acts.
- The financial records are inadequate for the auditor to express a clear opinion on the state of the affairs of the company.
In such cases, the auditor reports that the accounts are only partially reliable, describing the specific limitations that caused the qualification.