Mill and Bill have set up a private limited company. The registered business name is MB Ice (MBI). Mill and Bill hold the majority of shares. They make and sell a variety of ice creams. Their customers include local shops, restaurants, and hotels. They also have the company-owned MB Ice Café.
The finance department of MBI presented the following key figures from the records for two years 2019 and 2020.
| 2019 ($) | 2020 ($) | |
| Sales turnover | 35000 | 42000 |
| Cost of sales | 23800 | 30200 |
| Expenses | 6800 | 8200 |
| Non-operating incomes | 2200 | 2800 |
| Net profit for the year | 6600 | 6400 |
| Fixed assets | 40000 | 40000 |
| Current assets | 24200 | 28100 |
| Current liabilities. | 12000 | 13800 |
As per the company policy, fixed assets are depreciated at the rate of 5 percent per annum using the reducing balance method.
However, on examination of accounts, it was discovered that depreciation was not provided for both years while calculating profit.
Questions:
- With reference to MBI, explain two features of a private limited company [4 marks]
- Straight-line method of depreciation [ 2 marks]
- Reducing balance method of depreciation [ 2 marks]
- Using the financial information provided for 2019 and 2020, prepare profit and loss accounts for two years to recalculate profit incorporating the provision for depreciation. [ 12 marks]
