Example 1

Mushroom Ltd was established on 1 January 2014. Its opening balance sheet (on this date)
was as follows:

Land $6,000
Equipment 4,000
Inventory 2,000
Equity 12,000

During 2014, the company made the following transactions:

a. Purchased extra inventory $10,000
b. Sold inventory for $11,000 cash which had a historical cost value of $9,000.
c. Closing inventory on 31 December 2014 had a historical cost of $3,000 and was bought
when RPI was 115 (average)
d. The equipment has an expected life of four years and nil residual value. The straight line
method of depreciation is used.
e. The general price index stood at:
100 on 1 January 2014
110 on 30 June 2014
120 on 31 December 2014.

f. Assume that purchases and receipts occur evenly throughout the year. There are no
trade receivables or trade payables.

Required:
Calculate the CPP profit for 2014 and prepare the CPP balance sheet as at 31 December
2014.