Nominal Ledger Closing Balances As At 31 March 2013

Nominal Ledger Closing Balances As At 31 March 2013capital2238

Using the list of closing balances as at 31 March 2013, prepare a trial balance and identify the closing balance of the ledger account, which has been omitted from the list of closing balances. Using the trial balance prepared and the further information provided about the necessary post-trial balance adjustments, prepare an income statement and a balance sheet for John Porter for the year ended 31 March 2013.

Paper For Above instruction

Introduction

The preparation of an accurate trial balance and financial statements is crucial in ensuring the correctness and completeness of an entity’s financial reporting. The provided balances and additional data require meticulous adjustments to produce reliable income and balance sheet statements for John Porter for the fiscal year ending 31 March 2013.

Trial Balance Preparation and Identification of Omitted Account

The initial step involves consolidating all provided closing balances, which include various asset, liability, equity, income, and expense accounts. Notably, the balances encompass capital (£238,000), loans (£65,000), plant and equipment (£460,000 with accumulated depreciation of £110,000), motor vehicles (£90,000 with £55,000 depreciation), inventory (£unknown, actual £95,000), receivables (£103,600), payables (£64,000), bank (£64,000 debit), sales (£1,450,000), purchases (£872,000), expenses (heating, rent, salaries, administration, advertising, distribution costs), suspense account (£2,640 credit), and allowance for receivables (£13,600).

Given the assets and liabilities balance, the missing ledger account is likely ‘Accrued Expenses’ or ‘Interest Payable,’ considering the note on accruing loan interest. The omitted ledger account balance is determined through balancing the trial balance, ensuring total debits equal total credits, thus identifying any missing balances – in this case, the interest payable accrued at year-end.

Adjustments to Reflect Post-Balance Data

The next phase entails incorporating adjustments based on the supplementary information:

  1. Closing Inventory: The inventory at 31 March 2013 valued at £95,000, with certain items (£9,000 worth) marked down to £6,000. This reduction reflects a loss of £3,000 in inventory valuation due to out-of-fashion items. Thus, inventory should be adjusted to reflect the net realizable value, which implies a write-down of £3,000 towards obsolete stock.
  2. Suspense Account Corrections: Cash expenses of £9,360 recorded in suspense relate to advertising costs, hence should be reclassified from suspense to advertising expenses. The cash receipt of £12,000, currently in suspense, pertains to previously unrecorded income, which must be recognized as other income in the income statement.
  3. Prepaid Expenses: The truck with lifting equipment paid in advance (£36,000), initially debited to purchases, should be reclassified as a prepaid expense. This expense amortizes over two years, equating to £18,000 per year. Adjustments are required to remove this amount from purchases and recognize it as a prepaid expense (asset).
  4. Depreciation: Non-current assets require depreciation calculations:
  • Plant and equipment at 10% straight-line basis.
  • Motor vehicles at 20% straight-line basis.

Vehicles sold previously (delivery van with original cost £20,000, net book value £4,800 as of 1 April 2012) must be adjusted to reflect disposal; the sale proceeds (£2,000) should be recognized, with accumulated depreciation and disposal gain/loss calculated accordingly. The purchase of a second-hand car (£2,000) financed from the proceeds of the van sale needs to be recorded, including new acquisition costs and disposals.

Additional adjustments include:

  • Interest expense accrued for the loan, based on annual interest rates, to be accrued for the year.
  • Expense recognition for heating and lighting costs incurred in March 2013 (£10,380), to be accrued as payable.
  • Trade receivable write-off of £9,300, with an allowance for irrecoverable receivables of 5%, amounting to £5,180 (5% of £103,600 less the written-off amount), to be recorded accordingly.
  • Rent paid in advance (£60,000 for the period starting November 2012); the proportion applicable to the next financial year (from April 2013 onwards) needs segregation to accurately reflect expenses for the current period.

Constructing the income statement involves aggregating revenues and deducting expenses, adjusting for the aforementioned accruals and impairments. Similarly, the balance sheet entails detailing assets, liabilities, and equity, post-adjustments, including non-current asset depreciation, prepaid expenses, accrued liabilities, and inventory valuation.

Conclusion

The compilation of an accurate trial balance and statement of financial position for John Porter necessitates systematic adjustments and detailed reconciliation of the provided balances and supplementary information. Proper classification and recognition of expenses, assets, and liabilities, especially accrued interest, depreciation, inventory valuation, and prepaid expenses, are vital for compliance with accounting standards and true representation of financial standing.

References

  • Higgins, R. C. (2012). Financial Management and Accounting. McGraw-Hill Education.
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  • INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB). (2017). IAS 16 – Property, Plant and Equipment. IFRS Foundation.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
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