Prepare the Manufacturing Account and an Income Statement up to Gross Profit for the year ended 31 December Year 2

3. The following is a list of balances extracted from the financial records of McBean plc
as at 31 December Year 2.
£000
Sales Revenue 1,800
Factory Machinery at cost 100
Property at cost 838
Inventories at 1 January Year 2:
Raw Materials 80
Work in Progress 60
Finished Goods 40
Production wages 520
Factory indirect labour 68
Purchase of Raw Materials 600
Carriage on Raw Materials 20
Insurance 27
Electricity 55
Royalties 48
Warehouse wages 45
Provision for depreciation: Factory Machinery as at 1 January Year 2 40
NOTES
At 31 December Year 2, the following additional information was made available:
1. Inventories at 31 December Year 2 were as follows:
Raw Materials £30,000
Work in Progress £54,000
Finished Goods £64,000
2. On 31 December Year 2, Production wages of £10,000 were payable and
Insurance of £2,000 was receivable.
3. Electricity had only been paid up to the end of November Year 2. It is to be
apportioned as follows:
Factory – 80%, Warehouse – 15%, Administration – 5%
4. Insurance is to be apportioned as follows:
Factory – 60%, Warehouse – 20%, Administration – 20%
5. All non-current assets are to be depreciated at the rate of 10% using the
diminishing balance method.
6. In Year 2 finished goods have been estimated to have a current market value of
£1,380,000.

(a) Prepare the Manufacturing Account and an Income Statement up to Gross Profit
for the year ended 31 December Year 2.
(b) Explain how either profit or loss on manufacture is treated in the Income
Statement