Question

Lord who has been in business as a builder since 1 January 20X7 asks you to prepare his first year’s accounts.

He has not kept proper records of his business transactions but is able to supply you with the following information:

(1)       The cheques received for work done have been paid directly into the bank whilst cash receipts had been used for paying cash expenses. If insufficient cash was available, more would be drawn from the bank to meet wages and drawings;

(2)       From bundles of receipts and the wages notebook some of the cash expenses for the year appear to have been;

                                                                                                   £

                        Wages and national insurance                  140,400

                        Materials                                                        136,000

                        Electricity                                                           2,240

                        General expenses                                              560

(3)       Cash drawings were estimated at £720 per week out of which Lord paid the rent of his builder’s yard of £80 per week;

(4)       On 1 April 20X7 he purchased a van for £32,240. His father lent him £10,000 for the deposit on the van. His father paid the deposit direct to the garage supplying the van. At the end of the year the loan had not been repaid;

(5)       A summary of his bank account showed:

                                                                 £                                                                            £

            Balance 1 Jan 20X7              6,000            Materials                                      191,600

            Deposits                              374,000            Van expenses                               13,680

                                                                                    General expenses                          4,400

                                                                                    Cash withdrawn                          124,000

                                                                                    Cement mixer                                  8,000

                                                                                    Van                                                  22,240

                                                                                    Private cheques                              9,500

                                                             _____            Balance at 31.12.X7                      6,580

                                                       £380,000                                                                £380,000

(6)       On 31 December 20X7 the stock/inventory of materials amounted to £24,200, cash in hand £200, debtors/trade receivables £48,000, creditors/trade payables for material £5,540 and outstanding van expenses £1,560. There was no work in progress on 31 December 20X7.

(7)       Depreciation of £7,000 is to be provided on the van and £2,000 on the cement mixer.

REQUIRED:

Prepare Lord’s Profit & Loss account/Income Statement for the year ended 31 December 20X7 and a Balance Sheet as at that date.

LORD

  

  

Answer 1

Profit & Loss account of the Lord Builder for the year ended 31 December 20X7
Particulars	Dr Amount	Particulars	Cr Amount
By Materials A/c	£ 327,600.00
By Wages and national insurance A/c	£ 140,400.00
			To Closing stock A/c	£    24,200.00
			TO Trading loss C/f	£ 443,800.00
		£ 468,000.00			£ 468,000.00
By Trading loss B/F	£ 443,800.00
By Electricity A/c	£      2,240.00
By General expenses A/c	£      4,960.00
By rent A/c	£      4,160.00
By Depreciation A/c	£      9,000.00
By vehicle expenses A/c	£    13,680.00
By loss transferred to Capital A/c	£ 477,840.00
		£ 477,840.00			£ 477,840.00
Balance sheet of the Lord Builder for the year ended 31 December 20X7
Liabilities	Amount	Assets	Amount
Capital account	£ 686,680.00	Vehicle	32240
Less Withdrawls(private cheques)	-£ 115,720.00	less depreciation	-7000	£    25,240.00
Profit and loss A/c	-£ 477,840.00	cement mixture	8000
			less depreciation	-2000	£      6,000.00
			Closing stock		£    24,200.00
Loans(from father)	£    10,000.00	Trade receivables		£    48,000.00
Trade payables	£      5,540.00	Bank		£      6,580.00
Outstanding expenses	£      1,560.00	cash in hand		£          200.00
		£ 110,220.00			£ 110,220.00
Working notes
Rent paid	£                            4,160.00
80 per week
Depreciation
On VAN	£                            7,000.00
On cement mixure	£                            2,000.00
	£                            9,000.00
VAN	£                          32,240.00
Less Depreciation	-£                           7,000.00
Cash account
To capital A/C (balancing figure)		To expenses
		£ 312,680.00	wages	£              140,400.00
Deposits		£ 374,000.00	material	£              136,000.00
		£ 686,680.00	electricity	£                  2,240.00
			general expenses	£                      560.00
			To drawings	£                33,280.00
			To closing balance	£                      200.00
		£ 312,680.00		£              312,680.00