Income-Statement-And-Statement-Of-Financial-Position Igcse Edexcel

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Exam code:4AC1

Income statement for manufacturers

What is the layout of the income statement of a manufacturing business?

The income statement of a manufacturing business is prepared in a similar way to the other types of retail businesses
The income statement will be prepared after the manufacturing account
For the trading section:
- Use the inventory for finished goods
- Use the production cost in place of purchases
  - The business might have also purchased extra finished goods
  - Include this in the cost of sales
For the profit and loss section:
- Only include expenses that relate to the non-production aspects of the business
  - Such as advertising, carriage outwards, etc
- The expenses related to manufacturing are included in the production cost
- A business might use a factory and an office
  - The factory expenses are included in the production cost
  - The office expenses are included in the profit and loss section

**Layout of the trading section of an income statement for a manufacturing business**

Statement of financial position for manufacturers

What is the layout of the statement of financial position of a manufacturing business?

The statement of financial position of a manufacturing business is prepared in a similar way to the other types of retail businesses
The only difference is how the inventory is displayed in the current assets section
All three inventories are shown separately and the total is calculated

**Layout of the inventory entry on the statement of financial position for a manufacturing business**

Worked Example

Pablo owns a small carpet and rug factory, making bespoke carpets for local furniture businesses. The following balances are provided at 31 December 2023.

	$
Revenue	280 050
Inventory at 1 January 2023
Raw materials	7 100
Work in progress	10 420
Finished goods	12 450
Purchases of raw materials	96 200
Wages of factory workers	38 000
Wages of factory supervisors	28 500
Wages of office and sales staff	48 000
Insurance and rates	15 000
General factory expenses	13 180
Factory equipment at cost	120 000
Provision for depreciation of factory equipment	40 000

Additional Information

Inventory at 31 December 2023
- Raw materials $6 860
- Work in progress $10 885
- Finished goods $14 650
Insurance and rates are to be apportioned ⅓ to the office and ⅔ to the factory
Factory equipment is to be depreciated at 15% using the reducing balance method

(a) Prepare the manufacturing account for the year ended 31 December 2023.

(b) Prepare the trading section of the income statement for the year ended 31 December 2023.

Answer

Deal with the additional information.

Inventory at 31 December 2023
- These appear as current assets on the statement of financial position
- The raw materials and work in progress appear on the manufacturing account
- The finished goods appear on the income statement
Insurance and rates are to be apportioned ⅓ to the office and ⅔ to the factory
- Find the amount for the office
  - ⅓ × $15 000 = $5 000
  - This appears in the profit and loss section of the income statement
- Find the amount for the factory
  - ⅔ × $15 000 = $10 000
  - This appears on the manufacturing account as a factory overhead
Factory equipment is to be depreciated at 15% using the reducing balance method
- Find the net book value of the factory equipment
  - $120 000 – $40 000 = $80 000
- Calculate the year’s depreciation charge
  - 15% × $80 000 = $12 000
  - This appears on the manufacturing account as a factory overhead

(a) Prepare the manufacturing account.

<td class=”border border-

Pablo Manufacturing Account for the year ended 31 December 2023
	$	$
Opening inventory of raw materials		7 100
Purchases of raw materials		96 200
Closing inventory of raw materials		(6 860)
Cost of material consumed		96 440
Direct wages – factory workers		38 000
Prime cost		134 440
Factory overheads
Wages – Supervisors	28 500
Insurance and rates	10 000
General expenses	13 180
Depreciation of factory equipment	12 000
		63 680
		198 120
Opening work in progress	10 420
Closing work in progress	(10 885)
		(465)
Production cost

Accounting-Financial Statements Igcse Edexcel