Answer to Question #157985 in Accounting for M Junaid Saleem

Question

The market price of the ordinary shares at 31 December 2020 was Rs1.60. The dividend yield on ordinary shares was 2 per cent. The creditor for taxation at 31 December 2019 was Rs25 000. Taxation paid in the year ended 31 December 2020 amounted to Rs22 000. The liability for taxation on the profit of the year ended 31 December 2020 is Rs31 000 and is carried forward on the Taxation account. The retained profit for the year ended 31 December 2020 was Rs60 000. The debentures were issued in 2016. The preference shares were issued at par.

The summarized Balance Sheet at 31 December 2020 of Iqra Ltd was as: Fixed assets 2550000, Net current assets 950000, 6% debentures 2019/2020 150000, Ordinary shares of Rs1, 2500000, 10% redeemable preference shares of Rs1, 300000, Share Premium account 200000 Profit and Loss Account 350000.

REQUIRED Prepare IqraLtd’s Profit and Loss Account for the year ended 31 December 2020 in as much detail as possible. The Profit and Loss Account should commence with the operating profit.

Answer 1

Answer

Step 1

Operating income is referred to that part of profit that is calculated by deducting operating expenses from the revenue. The operating expenses include depreciation, wages and cost of goods sold. Interest and tax amount is not taken into consideration to calculate the operating income. 

Step 2

Required profit and loss account:

Working notes: