Accounting questions! how to prepare SOFP and income statement? thank you! 16. The balances below have been extracted from the accounting records of Nelson Ltdat 31 December 2020:DrCr£8% Debenture loan: repayable in 2026Prepayment on building insuranceBank account2,000,00080,000267,000Retained profits at 1 January 20202,058,0002,000,0008,000,000Freehold landBuildings: costBuildings: accumulated depreciation at 1 January20202,000,000Plant & machinery: costPlant & machinery: accumulated depreciation at 1January 2020Trade payablesTrade receivables3,750,0002,340,000520,000450,000Return outwards38,000Inventory at 1 January 2020Revenue238,0005,006,000Purchases3,200,00080,00066,000Debenture interestReturn inwardsProvision for doubtful debts65,000Distribution costs382,000Administrative expensesOrdinary shares of £1 eachShare premium514,0004,500,000500,00019,027,000 19,027,000 You are given the following information:i.The land was purchased in 2008 for £2,000,000. It was externally valued at£4,000,000 on 31 December 2020. The directors wish to include this figure in theaccounts.ii. Inventory at 31 December 2020 cost £300,000. This includes some slow-movingitems which cost £18,000 which would normally sell for £22,000 but which thedirectors have decided to sell at £14,000 to clear them.ii.The company's depreciation policy is to provide a full year's depreciation in theyear of acquisition and no depreciation in the year of disposal with the followingrates applicable to the non-current assets:a. Freehold land – no depreciation required.b. Buildings – 2% per year on a straight-line basis.c. Plant and machinery – 10% on a reducing balance method.iv.A bad debt of £20,000 is to be written off. The company has decided to maintainthe provision for doubtful debts at 5% of remaining trade receivables.V.The prepayment on building insurance on 31 December 2020 was £100,000.vi.Corporation Tax of £25,000 on the current year's profits is to be provided. Anaudit fee for £13,000 would also need to be provided.The company issued 12,000 additional shares at £2.50 each on 30 December2020. The proceeds were paid as Christmas bonuses to employees. No entrieshave been made in the company's accounting records in respect of thisvii.transaction.viii.There was no movement on the debenture account in 2020. Any unpaid interesthas yet to be accrued for.Required:(a) Prepare the Statement of Financial Position and the Income Statement for theyear ended 31 December 2020 for the directors.

Financial statements are the records of the economic activities performed by the business to earn…

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Business

Accounting

Accounting questions! how to prepare SOFP and income statement? thank you!

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 24CE

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