In this question, we were given the trial balance and asked to prepare income statement and the balance sheet. How come we do not adjust the creditors figure even when we are told that 70% of total sales were made in cash? Shouldn't the 30% be added back to the amount of debtors? Thanks!
Hi again The preparation of the trial balance will already correctly reflect the credit sales. So, when a credit sale occurred during the year, 2 figures in the trial balance (turnover and receivables) were impacted. Normally therefore, we wouldn't expect to be given this extra info in the notes. We're given it here, not because it's needed for the income statement and trial balance, but because it's helpful for the analysis in (ii). Hope this helps Best wishes Lynn
Straight line depreciation of factory Can someone explain to me why the depreciation of the factory is (200-40)/40. In the question we are told "depreciation on property is charged using the straight line basis over 40 years. The value of te site was $40,000 when the factory was purchased." In the trial balance the price is 200,000. So obviously some sort of revaluation has occurred, but I just don't know why we need to deduct the 40,000 when finding the depreciation. Any suggestions would be great! Thanks, Kylie
I think the £40,000 is the residual value of the factory, ie it's only worth the site value at the end of its life. The factory was bought for £200,000 so the depreciation (straight line over 40 years) is (200-40)/40.
