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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
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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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) Net operating income K 16,000 4,500 K 100,000 60,000 40,000 20,500 19,500 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.
Transcribed Image Text:INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020 Sales Cost of Sales Gross operating income Expenses Depreciation (10% of K45,000) Net operating income K 16,000 4,500 K 100,000 60,000 40,000 20,500 19,500 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.
QUESTION BIG SAM Supplies plc was formed on 1 January 2020, with a share capital of K75,000 which was fully subscribed in cash on that date. On the same day, equipment was purchased for K45,000, of which K20,000 was paid immediately, the balance of k25,000 being payable two years thence. The price level index 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 at the same index level. Stocks were valued on the FIFO method and the closing stock was valued at K29,000. 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 2020 Non-current assets Less Accumulated depreciation Current assets Inventory Debtors Bank balance Less Current <Liabilities Net current assets Share capital Retained earnings K 29,000 19,000 39,500 87,500 33,500 K 45,000 4,500 40,500 54,000 94,500 75,000 19,500 94,500
Transcribed Image Text:QUESTION BIG SAM Supplies plc was formed on 1 January 2020, with a share capital of K75,000 which was fully subscribed in cash on that date. On the same day, equipment was purchased for K45,000, of which K20,000 was paid immediately, the balance of k25,000 being payable two years thence. The price level index 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 at the same index level. Stocks were valued on the FIFO method and the closing stock was valued at K29,000. 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 2020 Non-current assets Less Accumulated depreciation Current assets Inventory Debtors Bank balance Less Current <Liabilities Net current assets Share capital Retained earnings K 29,000 19,000 39,500 87,500 33,500 K 45,000 4,500 40,500 54,000 94,500 75,000 19,500 94,500
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