Depreciation is to be charged as follows:- 50% of the depreciation is to be charged to Cost of Sales;30% to Selling & Distribution expenses; and20% to Administrative expenses.3. As at 31 December 2020, the property had a fair value of €230,000.This property was previously revalued in 2019 (this was its first revaluation) andit resulted in a revaluation gain of €21,000 being booked to the accounts.4. The piece of equipment owned by the company was sold on 31 December 2020.The company received proceeds of €34,000 in respect of the sale. This transactionhas not been reflected in the trial balance above.5. Closing inventory as at 31 December 2020 was €38,000. Included in this value, isan item of inventory which originally cost of €3,000. Economic conditions havedeteriorated and the selling price is now €1,750 before transport costs of €50.6. Accruals and prepayments were as follows:Prepayments (€'000)120Accruals (€°000)Administrative expensesDistribution expenses70154997. No corporation tax payments were made by the company during the year.8. The company has discovered fraud committed by one of their employees duringthe year. The employee in question, had been authorising payments for goods thatwere never received.The company has contacted their insurance company in respect of this fraud inorder to determine if they can claim for any of the damages resulting from thisfraud (circa €1million).The insurance company has stated that the company's policy does not cover thistype of fraud. The company are still to receive an opinion from their lawyers inrespect of this.Other information: The ordinary shares shown above include 10,000 shares issued at€2 each on 1 January 2020. The share issue was correctly entered in the books of thecompany at the time of issue.The company proposes to pay a final dividend in the amount of 4c per share on 1February 2021. This proposal has not yet been approved.(e) The company is considering changing the presentation of its depreciation expensein its financial statements from 2021 onwards. It will now no longer includedepreciation as part of its Cost of Sales, and instead, split the cost evenly betweenAdministrative and Selling and Distribution costs.Provide advice to the company on what considerations are needed in respect ofthis change, and any additional details that may be required in the Financialstatements as a result. You have been recently appointed the junior accountant of Peachy Limited.The following trial balance has been extracted from the records of Peachy Limited as at 31December 2020.€’000€'000Ordinary shares of €1 each150,00050,00050,00080,000129,010Share Premium5% preference shares7% loan notesRetained earningsPremises290,00087,00040,000Motor vehicles at costEquipment at costAccumulated depreciation – motor vehiclesAccumulated depreciation - EquipmentInventory at 1.1.20PayablesReceivables17,0008,00048,00012,75024,400Bank11,740Revenue327,000Purchases188,00034,000WagesAdministrative expensesSelling & distribution costs15,32012,47070,2302,600Directors SalariesLoan note interest paid823,760823,760Additional Information:1. The company uses the revaluation model for valuing its premises. The premises isincluded in the trial balance at its fair value as at 31 December 2019.Both motor vehicles and equipment are included in the trial balance at cost.2. Depreciation is charged in full in the year of acquisition and none in thedisposal:yearofPremises – 10% of fair value on a straight line basisMotor Vehicles – 15% of cost per annum on a reducing balance basisEquipment – 10% of cost per annum on a straight line basis

Depreciation expense is the deduction of the book value of the fixed asset over the useful life of…

Administrative and Selling and Distribution costs. Provide advice to the company on what considerations are needed in respect of this change, and any additional details that may be required in the Financial statements as a result.

Administrative and Selling and Distribution costs. Provide advice to the company on what considerations are needed in respect of this change, and any additional details that may be required in the Financial statements as a result.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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