TC Limited operates in manufacturing. Its financial year ends on 31 January.
As at 31 January 2021, the balances in the ledger accounts were as follows.
Inventory at 1 February 2020:
Raw materials $7500
Work in progress $11220
Finished goods $925
Purchases: Raw materials $91400, Finished goods $6850
Wages: Factory operatives $52000, Factory supervisor $23100
Rent and rates $19620
Insurance $4600
General factory expenses $4200
Carriage inwards on raw materials $6280
Factory equipment at cost $90000
Provision for depreciation of factory equipment $30960
Additional information
1 Inventory at 31 January 2021: Raw materials $8000, Work in progress $11900, Finished goods $1075
2 Factory equipment is to be depreciated at 20% per annum using the reducing balance method.
3 In December 2020, $3600 was paid for rent for the period 1 December 2020 to 28 February 2021.
4 At 31 January 2021 rates of $550 were unpaid.
5 Rent and rates are to be shared equally between the factory and the office.
6 Insurance is to be split 75% to the factory and 25% to the office.
(a)[5]
Set up the rent and rates account for TC Limited for the year ended 31 January 2021, then balance it and carry the closing balances down to 1 February 2021.
(b)[10]
Draw up the manufacturing account for TC Limited for the year ended 31 January 2021.
(c)[5]
Advise the directors on whether depreciation should be charged on these items, and support your view with two advantages and two disadvantages.
Worked solution & mark scheme
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