Discoveries and Requirements for Moosa Fulhu's Financial Statements

Additional Financial Information Discovered

The following additional details are discovered after balances were extracted on 31 December 2018.

A secondhand lorry acquired by the business on 1 June 2014 at a cost of $(3,600 + 120 × Y), with an estimated life of four years, was sold for $(2,300 + 30 × Z) cash on 30th September 2018. The business charges depreciation at the rate of 20% on the cost of Motor Vehicles held at the end of each financial year, with a proportionate charge in the period of acquisition and disposal. Relevant accounting entries were not yet made for the disposal of this lorry. It provides depreciation on Fixtures and Fittings at the rate of 10% using reducing balance method of depreciation. No acquisitions or disposals of Fixtures and Fittings took place during the year.The business entered into a two-year contract with a fire insurance provider on 1st September 2017 and agreed to pay fire insurance annually in advance on 1st September each year. The business paid its first annual fire insurance payment of $(150 + 30 × V) on 1st September 2017 but failed to make the payment of $(180 + 30 × V) on 1st September 2018. The business pays its rent quarterly in advance on 1 February, 1 May, 1 August and 1 November each year. After remaining unchanged for some years, the annual rent of the office building was increased from $(2,400 + 60 × X) per year to $(3,000 + 60 × X) per year as from 1 December 2018. It was decided that debts of $(500 + 40 × W) were to be written off as irrecoverable. A special allowance of 15% was to be made from a debt of $(800 + 80 × Y). It is the policy of the business to make a general allowance 10% for trade receivable after deducting any debts considered for special allowances and all irrecoverable debts.On 1st December 2018 the payable control account showed a credit balance of $(18,200 – 20 × Y) and a small balance of $(40 – Z) on the debit side. Credit purchases during December 2018 were $(8,700 – 30 × X) and cash purchases werealso made during the month. Payments made to suppliers, excluding cash purchases, and after deducting settlement discounts were $(4,800 – 20 × Y). Purchases returns during December 2018 were $(130 + 20 × W) and there was a contra entry with receivables control account for $(150 + 10 × Z). The small balance on the debit side was fully settled during the month and there is no other entries missing in the payable control account, except for the amount of cash discounts received during December 2018 for early settlements of supplier’s accounts, for which proper accounting entries were not yet made.The bank statement received on 31 December 2018 showed bank charges and bank interest of $(200 + 10 × Z) and $(250+ 20 × Y) respectively, for which no accounting entries has been made in the cash book. It was also noted that unpresented cheques of $(80 + 2 × Z) and outstanding lodgments of $(90 + 3 × X) were not recorded on the bank statement. Generalexpenses of $(70 + 4 × Y) were incorrectly debited to the administrative expenses account. Both sales and sales returns accounts were over casted by $(130 + 6 × V) each. Marketing expenses paid $270 was correctly entered in the cashbook but incorrectly entered in the Marketing expense account as $720.On 1st December 2018, the business held 500 units of inventory valued at $(8,000 – 100 × Z). It sold 120 units at a price of $(40 + 3 × W) each on credit and another 140 units at $(60 + 2 × V) each for cash on 6th and 10th December 2018 respectively. On 15th December 2018, 90 units were purchased at a price of $(30 – Y) per unit for cash, in addition to the 420 units bought on credit on the same day. There were no more purchases or sales after this date until the financial year end. All the sales and purchases transactions were properly entered in the relevant accounts. The business uses AVCO (weighted average costing) method for inventory valuation.

Requirements

1. Prepare Moosa Fulhu’s statement of profit for loss for the year ended 31 December 2018.
2. Prepare Moosa Fulhu’s statement of financial position as at 31 December 2018.
3. Discuss how a sole trader like Moosa Fulhu can apply the International Accounting Standards in preparing his financial