Question

2.2 While on holiday in Bridlington, Helen had her credit cards and purse stolen from the beach while she was swimming. She was left with only £40, which she had kept in her hotel room, but she had three days of her holiday remaining. She was determined to continue her holiday and decided to make some money to enable her to do so. She decided to sell orange juice to holidaymakers using the local beach. On the first day she bought 80 cartons of orange juice at £0.50 each for cash and sold 70 of these at £0.80 each. On the following day she bought 60 cartons at £0.50 each for cash and sold 65 at £0.80 each. On the third and final day she bought another 60 cartons at £0.50 each for cash. However, it rained and, as a result, business was poor. She managed to sell 20 at £0.80 each but sold off the rest of her inventories at £0.40 each. Required: Prepare an income statement and statement of cash flows for each day’s trading and prepare a statement of financial position at the end of each day’s trading.

2.3 On 1 March, Joe Conday started a new business. During March he carried out the following transactions: 1 March Deposited £20,000 in a newly opened business bank account. 2 March Bought fixtures and fittings for £6,000 cash and inventories £8,000 on credit. 3 March Borrowed £5,000 from a relative and deposited it in the bank. 4 March Bought a motor car for £7,000 cash and withdrew £200 in cash for his own use. 5 March A further motor car costing £9,000 was bought. The motor car bought on 4 March was given in part exchange at a value of £6,500. The balance of purchase price for the new car was paid in cash. 6 March Conday won £2,000 in a lottery and paid the amount into the business bank account. He also repaid £1,000 of the borrowings. Required: Draw up a statement of financial position for the business at the end of each day.

Answer 1

	2.2	INCOME STATEMENT FOR EACH DAY'S TRADING
		DAY 1
		Sales Revenue	£    56.00	(70*0.8)
		Cost of goods sold	£    35.00	(70*0.5)
		Income	£    21.00
		DAY2
		Sales Revenue	£    52.00	(65*0.8)
		Cost of goods sold	£    32.50	(65*0.5)
		Income	£    19.50
		Inventory On Hand on Day 3:
			Beginning Balance	Purchase	Sale	Ending Balance
		Day 1	0	80	70	10
		Day2	10	60	65	5
		Day3	5	60	65	0
		Income Statement Day 3
		Sales Revenue	£    34.00	(20*0.8+45*0.4)
		Cost of goods sold	£    32.50	(65*0.5)
		Income	£       1.50
		CASH FLOW STATEMENT
		Day1
		Income	£    21.00
		Increase in inventory	-£      5.00	(10*0.5)
		Cash Flow from Trading	£    16.00
		Cash at the beginning of theday	£    40.00
		Cash at the endof theday	£    56.00	(40+16)
		Day2
		Income	£    19.50
		Decrease in inventory	£       2.50	(5*0.5)
		Cash Flow from Trading	£    22.00
		Cash at the beginning of theday	£    56.00
		Cash at the endof theday	£    78.00	(56+22)
		Day3
		Income	£       1.50
		Decrease in inventory	£       2.50	(5*0.5)
		Cash Flow from Trading	£       4.00
		Cash at the beginning of theday	£    78.00
		Cash at the endof theday	£    82.00	(78+4)