Required;(a) Calculate the purchasing power gain or loss on the monetary items.(b) Prepare an inflation-adjusted income statement account for the year ended 31 December 2020.(c) Prepare an inflation-adjusted balance sheet as at 31 December 2020 when the price level index was 130 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020SalesCost of SalesGross operating incomeExpensesDepreciation (10% of K45,000)Net operating incomeK16,0004,500K100,00060,00040,00020,50019,500REQUIRED:(a) Calculate the purchasing power gain or loss on the monetary items.(b) Prepare an inflation-adjusted income statement account for the year ended 31 December2020.(c) Prepare an inflation-adjusted balance sheet as at 31 December 2020 when the price level indexwas 130. QUESTIONBIG SAM Supplies plc was formed on 1 January 2020, with a share capital of K75,000 which was fullysubscribed in cash on that date. On the same day, equipment was purchased for K45,000, of whichK20,000 was paid immediately, the balance of k25,000 being payable two years thence. The price levelindex was 100 on 1 January 2020.Goods were purchased in two instalments prior to commencing business as follows:1st purchase in the sum of K44,000, when the price level index was 110.2nd purchase in the sum of K45,000 when the price level index was 120,All sales were made when the price level index was 130, and expenses of K16,000 were also incurred atthe same index level. Stocks were valued on the FIFO method and the closing stock was valued atK29,000. The price level index at 31 December 2020 was 130.The income statement and balance sheet in respect of this year, prepared on a historical cost basis,were as follows:BALANCE SHEET AS AT 31 DECEMBER 2020Non-current assetsLess Accumulated depreciationCurrent assetsInventoryDebtorsBank balanceLess Current

Accounting is the process of recording, classifying, summarizing, and interpreting financial…

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020 Sales Cost of Sales Gross operating income Expenses Depreciation (10% of K45,000) K 16,000 4,500 K 100,000 60,000 40,000 20,500 19,500 Net operating income REQUIRED: (a) Calculate the purchasing power gain or loss on the monetary items. (b) Prepare an inflation-adjusted income statement account for the year ended 31 December 2020. (c) Prepare an inflation-adjusted balance sheet as at 31 December 2020 when the price level index was 130.

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020 Sales Cost of Sales Gross operating income Expenses Depreciation (10% of K45,000) K 16,000 4,500 K 100,000 60,000 40,000 20,500 19,500 Net operating income REQUIRED: (a) Calculate the purchasing power gain or loss on the monetary items. (b) Prepare an inflation-adjusted income statement account for the year ended 31 December 2020. (c) Prepare an inflation-adjusted balance sheet as at 31 December 2020 when the price level index was 130.

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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