Capital                                                                       3,000
  Cash                                                     500
  Drawings                                           4,000
  Creditors                                                                  1,500
  Debtors                                             3,000
  Motor car at cost                              5,000
  Office expenses                                8,000
  Purchases                                        14,000
  Sales                                                                        30,000
                                                          £34,500          £34,500
                                                          ======          ======
 

Additional Information:
Stocks at 30 June 19X7:  £2,000
Office Expenses includes a figure of £2,400 for the purchase of computers.

Required: Prepare Jean's trading and profit and loss account for the year to 30 June 19X7, and a balance sheet as at that date.

answers to testing your understanding - 5 QA

                                                                         £
    Sales                                                         30,000
    Less Cost of Sales
      Purchases                  14,000
      Closing stock            (2,000)
                                                                    (12,000)
    Gross Profit                                             18,000
    Less Expenses:
      Office expenses                                    ( 5,600)
    Net Profit                                                12,400
 

  CURRENT ASSETS
    Stock                                                2,000
    Debtors                                            3,000
    Cash                                                    300
                                                             5,500

  CURRENT LIABILITIES:
    Creditors                                         (1,500)
  NET CURRENT ASSETS                                           4,000
                                                                                     11,400

  Represented by:
  Capital                                                                         3,000
  Profit for the year                                                      12,400
  Drawings                                                                    (4,000)
                                                                                     11,400
 

 back to question 
 

Testing your understanding - 5 QB)       £       £

Sales                                                                     800
Salaries                                                      48
Stock                                                        320
Wages                                                        30
Purchases                                                400
Capital Introduced                                              150
Fixtures and Fittings                               200        30
Land & Buildings                                    300          4
Loan                                                                     150
Loan Interest                                              8
General Expenses                                     40
Drawings                                                    20
Debtors                                                    150
Creditors                                                              160
Cash                                                             2
Bank                                                          50
Retained Profits                                       ___      174
                                                              1,518    1,518
 

The following additional information is available.

• Closing Stock as valued at 350
• A provision for doubtful debts of 5% of debtors is to be made.
• Wages contains a category for sales commission.  Commission of £4 has not yet been accounted for in the above trial balance and is related to the current year.
• Salaries includes an amount of £12 paid for project work which will not be undertaken until next year.
• Depreciation of 20% calculated using the reducing balance method has yet to be accounted for.

Prepare a Trading, Profit and Loss Account and balance sheet.
Comment on the profitability of the business using two ratios.
Using two liquidity ratios calculate and discuss the liquidity position.

Workings

Provision for doubtful debts
     150 x 5% =      7
     To be deducted from debtors.

Accrual commission of  £4 must increase
     wages.  Show in balance sheet under current liabilities along with creditors.

Prepayment of £2 will be deducted
     from salaries and shown with debtors.

   Debtors and prepayment now = 150 - 7 + 2 = 145

Depreciation

                               Cost   Accumulated  NBV  Rate Depreciation
                                          Depreciation                     charge for the year
 
Fixtures & fittings 200        30                  170   20%   34
Land & buildings   300         4                   296   20%   59
                                                                                       93
 
NBV = Net book Value and is = to Cost less accumulated depreciation

Final Balance

                     Cost  Accumulated  NBV
                               Depreciation

 F&F             200         64              136
 L&B            300         63              237
                      500      127               373
 
                                        £            £

Sales                                            800
Less Cost of Sales
  Opening Stock           320
  Purchases                  400
  Closing Stock          ( 350 )
                                                    370
Gross Profit                                430

Less Expenditure
  Salaries                       46
  Wages                        34
  Loan Interest               8
  General                      40
  Provision for doubtful
  debts                           7

Depreciation                93            228

Net Profit for the year                  202
Add retained Profit b/f                  174
Retained profit c/f                         376
 

                                                        £      £      £

Fixed Assets
  Fixtures and Fittings                  200   64  136
  Land and Buildings                     300   63  237
                                                      500  127  373

Current Assets
  Stock                                         350
  Debtors and Prepayments        145
  Cash                                              2   497

Current Liabilities
  Creditors and Accruals            164
  Overdraft                                    50  ( 214)  283
                                                                       656

Loan                                                              (150)
                                                                        506

Represented by Capital Employed
  Capital                                               150
  Profits                                                376
  Less Drawings                                   ( 20 ) 356
                                                                       506

  back to question                   try another one?