income statement

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The following information relates to Imperial Tech Ltd.

Trial Balance for the year ending 31 December 2015


Land and Buildings


Trade receivables


Purchases of inventory


Retained Earnings at 31 December 2014


Inventories at 31 December 2014


Furniture and fixtures


Sales revenue


Distribution cost


Administrative expenses


Trade payable


Motor vehicles (net book value)


Cash and Bank


Equity share capital






You are also given the following information, which is not reflected in the trial balance


1. Inventories at 31 December were £25,000

2. Dividend proposed for 2015 was £7,000 and not yet paid

3. An accrual for distribution cost of £3,000 was required at 31 December 2015

4. A prepayment of £5,000 was wrongfully booked on administrative expenses

5. Tax was estimated at £19,000 to be payable on the profit of 2015

6. Annual depreciation charges on land & Buildings and Motor Vehicles are included in the administrative

expenses and distribution costs, and in the accumulated depreciation used to calculate the net book values of £95,000 and £40,000 respectively, shown in the trial balance.

7. The furniture and fixtures balance of £30,000 relates to the purchases of assets during 2015. The depreciation cost are not included in the trial balance yet. They are require to be calculated on a straight line basis for the full year of 2015, based on a useful life of eight years and an estimated residual value of £6,000

8. Interest is 10% on the loan and not paid yet


(a) Prepare the Income Statement of 2015 and Statement of Financial Position (Balance Sheet) as at the date. (20 marks)

(b) Explain what adjusting entries are. (10 marks)


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