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PART IIncome StatementFor the year ended December 31, 2009Part.pdf
- 1. PART I Income Statement For the year ended December 31, 2009 Particulars Amount $ Sales Revenue 54000 Less: Purchases of merchandise (27000) Add: Opening Stock 15000 Less: Closing Stock (10250) Gross Profit 31750 Less:Operating Expenses (Other Indirect cost, Expenses and losses) Rent for shop 4000 Sales Commission 2300 Utilities for shop 2450 Net Profit 23000 Part 2 For the year ended December 31, 2010 Particulars Amount Amount Opening Stock of Raw Material Add: Purchase of Raw materials Add: Purchase Expenses Less: Closing stock of Raw Materials Raw Materials Consumed
- 2. Direct Wages (Labour) Direct Charges 13500 31000 0 9275 35,225 18300 0 Prime cost (1) 53,525 Add :- Factory Over Heads: Rent on Manufacturing Plant Plant Janitorial Service Utilities of plant 9000 1250 4600 Works cost Incurred 14850 Add: Opening Stock of WIP Less: Closing Stock of WIP 0 720 Works cost (2) 67655 Add:- Administration Over Heads:- 0 Cost of Production (3) 67655 Add: Opening stock of Finished Goods Less: Closing stock of Finished Goods 0 5700 Cost of Goods Sold
- 3. 61955 PART 2 (b) Income Statement For the year ended December 31, 2010 Particulars Amount Amount 105000 Less: Cost of Goods Sold As per Above (61955) Gross profit 43045 Less : Selling and Distribution OH Customer service hotline Exp 1000 Delivery Exp 1500 Sales Salaries 5000 7500 Net Profit 35545 PART 2 (c) The Major differencein income statement of Best friends Manufacturing and hannah's pets is in Calculation of cost of goods sold Cost of goods sold of Best friends Manufacturing includes (i) Manufacturing cost (ii) administration expenses and (iii) Opening and Closing Stock of Raw material,WIP and FG BUT Cost of goods sold of hannah's pets includes only administration expenses and Finished goods Stock The method for reporting earnings is the same for merchandisers and manufacturers. Each type of company has sales and the total of these sales is the earnings figure. This figure does not reflect cost-of-goods expenses. Cost of Goods for Merchandisers Merchandisers buy goods and resell them. The cost of those goods must be subtracted from the
- 4. earnings figure. The method for calculating this figure is to add inventory on hand at the beginning of the accounting period to inventory purchased during the accounting period. Subtract the inventory on hand at the end of the period, and subtract any freight charges. This is the cost-of-goods figure for a merchandiser. The merchandiser's income statement will show gross revenues minus this cost-of-goods number. Cost of Goods for Manufacturers Manufacturers break the cost of goods into categories. Raw materials expenses make up the first category of manufacturing expenses. This cost covers any components, parts or materials required to make the company’s product. The manufacturer must also inventory goods-in- progress. These are partially manufactured products that could not be finished before the end of the accounting period. In addition, manufacturers must count finished products that are available for sale. Manufacturers also count the cost of manufacturing labor and factory overhead in determining expenses that are related to the cost of goods. This is quite different from merchandisers who do not include labor in cost-of-goods figures. Manufacturers do not count freight as an expense in the manufacturing process, because freight is usually paid for by the merchandiser. Cost of Goods Manufactured The expenses for merchandisers and manufacturers are so different that they often call their expense statements by different names. The merchandiser refers to expenses as “cost of goods sold.” Manufacturers often refer to expenses and “cost of goods manufactured.” The income statements for each of these types of companies may reflect this terminology. Separate Documents Manufacturers who generate a “cost of goods manufactured statement” may make this a separate document that is attached to the income statement. The total of the manufacturing expenses must be included in the actual income statement. PART3 (a) Balance sheet as at December 31, 2009 Liabilities Amount Assets Amount Current Assets Inventories $10,250 PART 3 (b) Balance sheet as at December 31, 2010 Assets Inventories 1 15695 (As per schedule) Schedule no 1 Inventories
- 5. At lower of cost or net reliable value (a) Raw material 9275 (b) Work in progress 720 (c) Finished goods 5700 Total 15695 Particulars Amount $ Sales Revenue 54000Less; Cost of goods sold Less: Purchases of merchandise (27000) Add: Opening Stock 15000 Less: Closing Stock (10250) Gross Profit 31750 Less:Operating Expenses (Other Indirect cost, Expenses and losses) Rent for shop 4000 Sales Commission 2300 Utilities for shop 2450 Net Profit 23000 Solution PART I Income Statement For the year ended December 31, 2009 Particulars Amount $ Sales Revenue
- 6. 54000 Less: Purchases of merchandise (27000) Add: Opening Stock 15000 Less: Closing Stock (10250) Gross Profit 31750 Less:Operating Expenses (Other Indirect cost, Expenses and losses) Rent for shop 4000 Sales Commission 2300 Utilities for shop 2450 Net Profit 23000 Part 2 For the year ended December 31, 2010 Particulars Amount Amount Opening Stock of Raw Material Add: Purchase of Raw materials Add: Purchase Expenses Less: Closing stock of Raw Materials Raw Materials Consumed Direct Wages (Labour) Direct Charges 13500 31000 0 9275 35,225
- 7. 18300 0 Prime cost (1) 53,525 Add :- Factory Over Heads: Rent on Manufacturing Plant Plant Janitorial Service Utilities of plant 9000 1250 4600 Works cost Incurred 14850 Add: Opening Stock of WIP Less: Closing Stock of WIP 0 720 Works cost (2) 67655 Add:- Administration Over Heads:- 0 Cost of Production (3) 67655 Add: Opening stock of Finished Goods Less: Closing stock of Finished Goods 0 5700 Cost of Goods Sold 61955 PART 2 (b) Income Statement For the year ended December 31, 2010 Particulars Amount Amount 105000
- 8. Less: Cost of Goods Sold As per Above (61955) Gross profit 43045 Less : Selling and Distribution OH Customer service hotline Exp 1000 Delivery Exp 1500 Sales Salaries 5000 7500 Net Profit 35545 PART 2 (c) The Major differencein income statement of Best friends Manufacturing and hannah's pets is in Calculation of cost of goods sold Cost of goods sold of Best friends Manufacturing includes (i) Manufacturing cost (ii) administration expenses and (iii) Opening and Closing Stock of Raw material,WIP and FG BUT Cost of goods sold of hannah's pets includes only administration expenses and Finished goods Stock The method for reporting earnings is the same for merchandisers and manufacturers. Each type of company has sales and the total of these sales is the earnings figure. This figure does not reflect cost-of-goods expenses. Cost of Goods for Merchandisers Merchandisers buy goods and resell them. The cost of those goods must be subtracted from the earnings figure. The method for calculating this figure is to add inventory on hand at the beginning of the accounting period to inventory purchased during the accounting period. Subtract the inventory on hand at the end of the period, and subtract any freight charges. This is the cost-of-goods figure for a merchandiser. The merchandiser's income statement will show gross revenues minus this cost-of-goods number. Cost of Goods for Manufacturers Manufacturers break the cost of goods into categories. Raw materials expenses make up the first
- 9. category of manufacturing expenses. This cost covers any components, parts or materials required to make the company’s product. The manufacturer must also inventory goods-in- progress. These are partially manufactured products that could not be finished before the end of the accounting period. In addition, manufacturers must count finished products that are available for sale. Manufacturers also count the cost of manufacturing labor and factory overhead in determining expenses that are related to the cost of goods. This is quite different from merchandisers who do not include labor in cost-of-goods figures. Manufacturers do not count freight as an expense in the manufacturing process, because freight is usually paid for by the merchandiser. Cost of Goods Manufactured The expenses for merchandisers and manufacturers are so different that they often call their expense statements by different names. The merchandiser refers to expenses as “cost of goods sold.” Manufacturers often refer to expenses and “cost of goods manufactured.” The income statements for each of these types of companies may reflect this terminology. Separate Documents Manufacturers who generate a “cost of goods manufactured statement” may make this a separate document that is attached to the income statement. The total of the manufacturing expenses must be included in the actual income statement. PART3 (a) Balance sheet as at December 31, 2009 Liabilities Amount Assets Amount Current Assets Inventories $10,250 PART 3 (b) Balance sheet as at December 31, 2010 Assets Inventories 1 15695 (As per schedule) Schedule no 1 Inventories At lower of cost or net reliable value (a) Raw material 9275 (b) Work in progress 720 (c) Finished goods 5700 Total 15695 Particulars Amount $
- 10. Sales Revenue 54000Less; Cost of goods sold Less: Purchases of merchandise (27000) Add: Opening Stock 15000 Less: Closing Stock (10250) Gross Profit 31750 Less:Operating Expenses (Other Indirect cost, Expenses and losses) Rent for shop 4000 Sales Commission 2300 Utilities for shop 2450 Net Profit 23000