DD Ltd operates a business to do with warehousing and distribution of books and CD’s for K Ltd, an on-line business. For this purpose, DD rented warehouses in each major town in the country and the actual delivery of orders was outsourced to a courier service. The market was becoming increasingly competitive and the year ending 31 December 2019 had not been as successful as the previous years. The founder and CEO was very frustrated with the complex integrated computer system that dealt with all the logistics. The system is down most of the time; as a result money is lost through lost business and poor service delivery. The CEO is of the view that there is real fear that K Ltd may penalize the company or indeed engage another company in the place of DD. A lot of money is spent on computer consultants who practically live at DD’s offices and what is worse they do not appear to make any difference. Since the logistical system was linked to the general ledger, all the problems had been making meaningful reporting and financial management extremely difficult. This has caused the DD accountant to quit just before year end and in desperation he had come to you for help. The bookkeeper extracted the following information for the year ending 31 December 2019 and forwarded it t

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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DD Ltd operates a business to do with warehousing and distribution of books and CD’s for K Ltd, an on-line business. For this purpose, DD rented warehouses in each major town in the country and the actual delivery of orders was outsourced to a courier service. The market was becoming increasingly competitive and the year ending 31 December 2019 had not been as successful as the previous years. The founder and CEO was very frustrated with the complex integrated computer system that dealt with all the logistics. The system is down most of the time; as a result money is lost through lost business and poor service delivery.
The CEO is of the view that there is real fear that K Ltd may penalize the company or indeed engage another company in the place of DD. A lot of money is spent on computer consultants who practically live at DD’s offices and what is worse they do not appear to make any difference.
Since the logistical system was linked to the general ledger, all the problems had been making meaningful reporting and financial management extremely difficult. This has caused the DD accountant to quit just before year end and in desperation he had come to you for help. The bookkeeper extracted the following information for the year ending 31 December 2019 and forwarded it to you (all accounts are to be prepared to the nearest K1000):
(i) K Ltd was DD’s only customer and all sales were made on credit. DD processed 1.62 million orders during the year and charged K Ltd K20 per order fulfilled.
(ii) The delivery charge paid to the courier was treated as the cost of goods sold and it was K6.50 per order
(iii) At the time of setting up DD K20 million ordinary shares of par value K1 per share were issued. There has been no further share issue since then.
(iv) General and administrative expenses for the year were worth K6.2 million
(v) Selling and marketing expenses were estimated at 2½% of sales.
(vi) The non-current assets consisted of IT infrastructure and warehouse equipment. They were valued at K57.63 million after depreciation expense for the year of K4.34 million
(vii) There was no long-term loan or overdraft. Hence there was no interest expense in the year.
(viii) K Ltd takes a long time to settle its accounts and as at year end was taking 56.7 days to settle their account.
(ix) The goods in the DD’ s warehouse belonged to K Ltd. Packaging material and consumables on hand at 31 December 2019 were valued at K0.420 million.
(x) Retained earning b/f on 1/1/2019 was K50.948 million.
(xi) The couriers were owed K0.610 million at 31/12/2019.
(xii) Company income tax rate was 25% and company dividend policy was to pay half the earnings after tax as dividend.
(xiii) The CEO knew that they had a lot of money in the bank at the year end, had not received the bank statement and no reconciliation statement had been prepared.
The CEO wanted you to finalise the accounts for the year ending 31/12/2019.
Required
(i) Prepare the statement of income for the year ending 31/12/2019
(ii) Prepare the statement of financial position as at 31/12/2019

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