Reference no: EM131627695

Question 1:

David Tam started his own trading company, David Company, a few years ago. The accounting year of the company runs from 1 April to 31 March.

The following trial balance was extracted from the company's books at the close of business on 31 March 2017 before any adjustments.

Trial balance as at 31 March 2017

Plant and equipment, at cost Motor vehicles, at cost Accumulated depreciation, as at 1 April 2016	Dr ($) 8,416,000 3,220,000	Cr ($)
-     Plant and equipment		2,412,000
-     Motor vehicles		880,000
Inventory, as at 1 April 2016	126,900
Trade Receivables and Payables	667,400	774,960
Cash at Bank	445,700
4% bank loan (repayable in 2022)		2,000,000
Paid-up capital		3,000,000
Retained profit, as at 1 April 2016		2,130,020
Allowance for doubtful debts of trade receivables, as at	1 April 2016	12,000
Purchases and Sales	1,041,300	4,888.400
Carriage inwards	102,480
Carriage outwards	104,200
Rent and rates	562,100
Bank loan interest	40,000
Water and electricity	347,600
Wages and salaries	648,200
Insurance	134,900
Advertising	141,700
Bad debts	28,000
Sundry expense	85,600
Discounts allowed and received	87,300	99,400
Returns inwards and outwards	74,500	77,100
	16,273,880	16,273,880

The following additional information is available at 31 March 2017:

(1) Cost of the inventories as at 31 March 2017 amounted to $166,200. On the same date, the estimated selling price of the inventories was $184,200, with estimated costs

(2) The depreciation policy is as follows:

Plant and equipment      5% per annum using straight line method
Motor vehicles              20% per annum using reducing balance method

(3) On 1 April 2016, a motor vehicle which was bought at $420,000 on 1 April 2012 was sold at a price of $200,000. The disposal proceeds was debited in bank account and credited in sales account respectively.

(4) Advertising fee $45,000 for the months from January 2017 to May 2017 was still not yet recorded and settled on 31 May 2017.

(5) Included in the insurance cost was an amount of $60,000 which belongs to insurance premium for the period from 1 October 2016 to 30 September 2017.

(6) $15,000 due from one of the customers was considered to be uncollectible and to be written off. The allowance for doubtful debts was assessed to be $17,000 as at 31 March 2017.

(7) Bank loan interest for the second half year had not yet been provided, nor paid for.

(8) Motor vehicle related expense is to be allocated between administration expenses and selling & distribution costs in the ratio of 1:2.

Required:

(a) Prepare the relevant journal entries for items (3) to (6).

(b) Prepare a statement of profit or loss and other comprehensive income for David Company for the year ended 31 March 2017.

(c) Prepare a statement of financial position as at 31 March 2017.

(d) Explain, with examples, how could you apply those fundamental qualitative characteristics when preparing the financial statements of a company