Gooch Ltd manufactures and sells clothing and their inexperienced bookkeeper has produced the following trial balance for the 15 months ended 31 st  March 2019. The company has decided to move the financial year end away from December as that is a very busy time for them.  Gooch Ltd – Trial Balance as at 31 March 2019                                                                                                                £’000  £’000  Accumulated depreciation of land and buildings at 1.1.18      250  Accumulated depreciation of shop fittings at 1.1.18      150  Accumulated depreciation of production machinery at 1.1.18      750  Allowance for receivables      20  Bank loan at 5% p.a.      2000  Carriage Inwards  58      Carriage outwards  66      Cash at bank      18  Directors remuneration  120      Discounts allowed  12      Discounts received  24      Dividends paid  500      Heat and light  480      Insurance  400      Inventory of raw materials as at 1.1.18  320      Inventory of work in progress at 1.1.18  180      Inventory of finished goods at 1.1.18  640      Land and buildings  6000      Loan interest paid  100      Office Expenses  40      Payables      330  Production Machinery  1000      Purchases  3960      Receivables  620      Retained Earnings      5518  Returns Inwards  68      Returns Outwards      40  Sales      5456  Share Capital (Shares of 10p each)      1000  Share Premium Account      600  Shop fittings  750      Wages  890                  TOTALS  16228  16143    Additional information:   The land and buildings are shown at cost including £3,000,000 for the land. Buildings are depreciated on a straight-line basis over 60 years   Shop fittings are depreciated at 20% per year on a reducing balance basis   Machinery is depreciated on a reducing balance basis at 25% per year   There have been no additions of property, plant or equipment in the period.   A dividend of 5p per share was proposed on 28 th  February 2019 but has not yet been paid and a further dividend of 10p per share is expected to be proposed in April.   Insurance includes £18,000 for the year to December 2019   An accrual for heat and light for March 2019 is needed. One third of heat and light is for administration and the rest is for production.   An invoice from a supplier for £24,000 has been debited to purchases and debited to receivables   A bill for insurance for £12,000 has been credited to the bank account and debited to office expenses   The 25 year bank loan was taken out 5 years ago and the capital is being repaid in equal annual installments.   Inventory at 31 March 2019 is valued at a cost of £640,000 for raw materials and £360,000 for work in progress. There was a serious fire in the finished goods warehouse on 31 March 2019 that destroyed the finished goods inventory and all records relating to it. Gooch Ltd claim to operate to a strict policy of making a 40% gross profit mark-up. The destroyed goods are covered by an insurance policy that covers the cost of the goods.   A debt of £36,000 is irrecoverable and further debts of £180,000 are 60 days or more overdue.   Gooch Ltd sold some shop fittings on 31 March 2109 for £20,000 in cash. The bookkeeper has not recorded the transaction. The fittings cost £80,000 5 years ago.   60% of the wages relate to production labour.   Corporation tax for the period is estimated at £12,000   Relevant data from the financial statements to 31 December 2017:    Revenue                            £2,980,000   Gross profit                       £688,000   Profit for the year  £75,000   Trade Receivables £300,000   Trade Payables                  £250,000  You are required to:  Prepare journal entries to deal with all necessary adjustments, clearly showing that the errors have been corrected and the suspense account cleared. Prepare a statement of profit or loss, a statement of changes in equity and a statement of financial position for the period to 31 st  March 2019 in a format that would be fit for publication. Using the financial statements that you have prepared in (b) above and the data given below relating to the year ended on 31 December 2017 you are required to identify the important issues that would need to be given attention by the company’s auditors and suggest some relevant audit tests that would need to be carried out.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Gooch Ltd manufactures and sells clothing and their inexperienced bookkeeper has produced the following trial balance for the 15 months ended 31 st  March 2019. The company has decided to move the financial year end away from December as that is a very busy time for them. 

Gooch Ltd – Trial Balance as at 31 March 2019 

                                                                                                         

 
 

£’000 

£’000 

Accumulated depreciation of land and buildings at 1.1.18 

 
 

250 

Accumulated depreciation of shop fittings at 1.1.18 

 
 

150 

Accumulated depreciation of production machinery at 1.1.18 

 
 

750 

Allowance for receivables 

 
 

20 

Bank loan at 5% p.a. 

 
 

2000 

Carriage Inwards 

58 

 
 

Carriage outwards 

66 

 
 

Cash at bank 

 
 

18 

Directors remuneration 

120 

 
 

Discounts allowed 

12 

 
 

Discounts received 

24 

 
 

Dividends paid 

500 

 
 

Heat and light 

480 

 
 

Insurance 

400 

 
 

Inventory of raw materials as at 1.1.18 

320 

 
 

Inventory of work in progress at 1.1.18 

180 

 
 

Inventory of finished goods at 1.1.18 

640 

 
 

Land and buildings 

6000 

 
 

Loan interest paid 

100 

 
 

Office Expenses 

40 

 
 

Payables 

 
 

330 

Production Machinery 

1000 

 
 

Purchases 

3960 

 
 

Receivables 

620 

 
 

Retained Earnings 

 
 

5518 

Returns Inwards 

68 

 
 

Returns Outwards 

 
 

40 

Sales 

 
 

5456 

Share Capital (Shares of 10p each) 

 
 

1000 

Share Premium Account 

 
 

600 

Shop fittings 

750 

 
 

Wages 

890 

 
 
 
 
 
 
 
 

TOTALS 

16228 

16143 

 

Additional information: 

 The land and buildings are shown at cost including £3,000,000 for the land. Buildings are depreciated on a straight-line basis over 60 years  

Shop fittings are depreciated at 20% per year on a reducing balance basis 

 Machinery is depreciated on a reducing balance basis at 25% per year  

There have been no additions of property, plant or equipment in the period. 

 A dividend of 5p per share was proposed on 28 th  February 2019 but has not yet been paid and a further dividend of 10p per share is expected to be proposed in April.  

Insurance includes £18,000 for the year to December 2019 

 An accrual for heat and light for March 2019 is needed. One third of heat and light is for administration and the rest is for production.  

An invoice from a supplier for £24,000 has been debited to purchases and debited to receivables 

 A bill for insurance for £12,000 has been credited to the bank account and debited to office expenses  

The 25 year bank loan was taken out 5 years ago and the capital is being repaid in equal annual installments. 

 Inventory at 31 March 2019 is valued at a cost of £640,000 for raw materials and £360,000 for work in progress. There was a serious fire in the finished goods warehouse on 31 March 2019 that destroyed the finished goods inventory and all records relating to it. Gooch Ltd claim to operate to a strict policy of making a 40% gross profit mark-up. The destroyed goods are covered by an insurance policy that covers the cost of the goods.  

A debt of £36,000 is irrecoverable and further debts of £180,000 are 60 days or more overdue. 

 Gooch Ltd sold some shop fittings on 31 March 2109 for £20,000 in cash. The bookkeeper has not recorded the transaction. The fittings cost £80,000 5 years ago.  

60% of the wages relate to production labour. 

 Corporation tax for the period is estimated at £12,000  

Relevant data from the financial statements to 31 December 2017: 

 

Revenue                            £2,980,000 

 Gross profit                       £688,000  

Profit for the year  £75,000 

 Trade Receivables £300,000  

Trade Payables                  £250,000 

You are required to: 

Prepare journal entries to deal with all necessary adjustments, clearly showing that the errors have been corrected and the suspense account cleared.

Prepare a statement of profit or loss, a statement of changes in equity and a statement of financial position for the period to 31 st  March 2019 in a format that would be fit for publication.

Using the financial statements that you have prepared in (b) above and the data given below relating to the year ended on 31 December 2017 you are required to identify the important issues that would need to be given attention by the company’s auditors and suggest some relevant audit tests that would need to be carried out.

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