Nurlan Serik cures silicone swim caps in Almaty, Kazakhstan. Two swimming clubs and a chain of sports shops take everything he makes. Caps reach the selling...
Question 1 Report
Nurlan Serik cures silicone swim caps in Almaty, Kazakhstan. Two swimming clubs and a chain of sports shops take everything he makes. Caps reach the selling store at the cost of making them.
| Held at the start and the close | 30 November 2024 $ | 30 November 2025 $ |
|---|---|---|
| Silicone in store | 9,200 | 11,000 |
| Caps part cured | 4,800 | 6,800 |
| Caps ready to sell | 16,000 | 19,000 |
| Transactions and balances | $ |
|---|---|
| Silicone bought during the year | 118,000 |
| Freight paid on silicone | 1,800 |
| Wages of press operators | 64,000 |
| Factory supervision | 24,000 |
| Factory power | 10,000 |
| Depreciation of curing presses | 14,000 |
| Revenue | 372,000 |
| Administration expenses | 52,000 |
| Selling expenses | 21,000 |
| Depreciation of office equipment | 2,000 |
| Curing presses at cost | 112,000 |
| Office equipment at cost | 16,000 |
| Accumulated depreciation on the presses at the year end | 48,000 |
| Accumulated depreciation on office equipment at the year end | 7,000 |
| Owed by customers | 25,200 |
| Money at the bank | 6,000 |
| Owed to suppliers | 18,000 |
| Other payables | 3,000 |
| Loan repayable in 2033 | 24,000 |
| Capital brought forward | 58,000 |
| Drawings for the year | 34,000 |
- Complete the manufacturing account for the year to 30 November 2025 (11)
- Complete the income statement for the year to that date (8)
- Set out the statement of financial position drawn up on 30 November 2025 (6)
Answer Details
Split the costs by where they arise before drafting. The press operators' wages are direct, because they work on the caps; factory supervision, factory power and the depreciation of the presses are factory costs that cannot be traced to any one cap and so are indirect overheads. Administration, selling and the office equipment depreciation belong to the income statement. The accumulated depreciation figures are given at the year end, so this year's charges are already inside them.
(a) Manufacturing account for the year to 30 November 2025 [11]
| Silicone in store at 30 November 2024 | 9,200 | |
| Silicone bought during the year | 118,000 | |
| Freight paid on silicone | 1,800 | |
| less Silicone in store at 30 November 2025 | (11,000) | |
| COST OF RAW MATERIALS CONSUMED | 118,000 | |
| Direct wages: press operators | 64,000 | |
| PRIME COST | 182,000 | |
| Factory overheads | ||
| Factory supervision | 24,000 | |
| Depreciation of curing presses | 14,000 | |
| Factory power | 10,000 | |
| Total factory overheads | 48,000 | |
| 230,000 | ||
| Add Caps part cured at 30 November 2024 | 4,800 | |
| less Caps part cured at 30 November 2025 | (6,800) | |
| COST OF PRODUCTION | 228,000 | |
Freight on silicone is part of the cost of obtaining the material, so it joins purchases rather than the overheads. The work in progress adjustment removes $2,000 of the year's spending from the account, because it has gone into caps that are not yet cured and will be finished next year.
(b) Income statement for the year to 30 November 2025 [8]
| Revenue | 372,000 | |
| Cost of sales | ||
| Caps ready to sell at 30 November 2024 | 16,000 | |
| Cost of production transferred from the factory | 228,000 | |
| less Caps ready to sell at 30 November 2025 | (19,000) | |
| Cost of sales | (225,000) | |
| GROSS PROFIT | 147,000 | |
| Expenses | ||
| Administration expenses | 52,000 | |
| Selling expenses | 21,000 | |
| Depreciation of office equipment | 2,000 | |
| Total expenses | (75,000) | |
| PROFIT FOR THE YEAR | 72,000 | |
Caps reach the selling store at the cost of making them, so the $228,000 transfers across unchanged and no factory profit has to be removed from the closing finished goods.
(c) Statement of financial position at 30 November 2025 [6]
| Cost $ | Accumulated depreciation $ | Carrying amount $ | |
|---|---|---|---|
| Non-current assets | |||
| Curing presses | 112,000 | 48,000 | 64,000 |
| Office equipment | 16,000 | 7,000 | 9,000 |
| Total non-current assets | 128,000 | 55,000 | 73,000 |
| Current assets | ||
| Silicone in store | 11,000 | |
| Caps part cured | 6,800 | |
| Caps ready to sell | 19,000 | |
| Trade receivables | 25,200 | |
| Bank | 6,000 | |
| Total current assets | 68,000 | |
| Current liabilities | ||
| Trade payables | 18,000 | |
| Other payables | 3,000 | |
| Total current liabilities | (21,000) | |
| Net current assets | 47,000 | |
| Total assets less current liabilities | 120,000 | |
| Non-current liabilities: loan repayable in 2033 | (24,000) | |
| NET ASSETS | 96,000 | |
| Capital | ||
| Capital brought forward | 58,000 | |
| Add profit for the year | 72,000 | |
| less Drawings | (34,000) | |
| CAPITAL EMPLOYED | 96,000 | |
Both sides agree at $96,000, and the $72,000 carried into capital is the profit the income statement produced. All three inventories appear among current assets: silicone waiting to be used, caps part cured, and caps ready to sell. Together they come to $36,800 against a bank balance of only $6,000, which is worth noticing when nearly all output goes to three customers.
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