The following information was extracted from Springs Ltd. Springs Ltd operates from both its headquarters and branch. The inventory was transferred from Head office to branch at transfer price comprising of cost price plus 18%.
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Opening balances (1 April 2015):
Branch inventory (at cost to head office) 12,000
Branch accounts receivables 3,600
Branch bank 2,200
Head office bank 2,400
Closing balance (30 April 2015):
Branch inventory (at cost to head office) 10,000
During the month of April 2015 the following
transactions took place in the branch:
Inventory sent to branch (at cost to Head office) 22,000
Inventory returned by branch to the head office
(At cost to the head office) 1,200
Receipts from sales paid into bank 7,700
Credit sales 20,000
Inventory returned to branch by customers 500
Cheque received from customers 19,000
Discount allowed to customers 100
Bad debts written off 50
Cash transferred from branch bank to head office
bank account 20,500
Rent 700
Cooling 150
Lighting 300
Transport 100
Fuel 350
Salaries 200
Wages 120
General expenses 40
Required:
i. Prepare the relevant accounts using the memorandum column method. Also, prepare extracts from the statement of profit or loss for the period ended 30 April 2015.
ii.Prepare the relevant accounts using the adjustment account method. Also, prepare extracts from the statement of financial position as at 30 April 2015.
See the suggested answers to practice activity 18.4 here.
Suggested answers to practice activity 18.4
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