In: Accounting
Based on the balance sheet below:
Use your trial balance and the additional information below to prepare:
a. the statement of profit or loss for the two months ended on 31 December
2018 (in a vertical format).
b. the statement of financial position as at 31 December 2018 (classify assets
and liabilities into non-current and current).
Additional information at the year-end requiring adjustments in the financial
statements:
a)Depreciation on office equipment is recorded on the straight-line basis and
calculated per month. The equipment is estimated to have the residual value of
€6,000. The useful life is 3 years. Consider November as a full month.
b)) Salaries owed to employees for December are €8,500.
c) The bank loan has an interest rate of 6% per annum. No interest has been paid
yet.
d) Closing inventory as at 31 December is €7,000.
e) Show rent expense incurred by and rent prepayment as at 31 December.
(The average gross profit margin in the given
industry is 37%). What recommendations would you give to Rob Rowan, the
owner of the business for the future?
Working - Journal Entries: |
||||
Date |
Account |
Debit |
Credit |
|
Nov 1 |
Cash and Bank |
£ 60,000 |
||
Nov 1 |
R.Rowan - Capital |
£ 60,000 |
||
Nov 2 |
Rent Expense |
£ 4,000 |
(12000/6*2) |
|
Nov 2 |
Prepaid Rent |
£ 8,000 |
||
Nov 2 |
Cash and Bank |
£ 12,000 |
||
Nov 3 |
Office Equipment |
£ 24,000 |
||
Nov 3 |
Cash and Bank |
£ 24,000 |
||
Nov 5 |
Purchases/Inventory |
£ 15,000 |
||
Nov 5 |
Trade Payable |
£ 15,000 |
||
Nov 10 |
Trade Receivable |
£ 14,000 |
||
Nov 10 |
Sales Revenue |
£ 14,000 |
||
Nov 15 |
Purchases/Inventory |
£ 10,400 |
||
Nov 15 |
Trade Payable |
£ 10,400 |
||
Nov 18 |
Trade Payable |
£ 15,000 |
||
Nov 18 |
Cash and Bank |
£ 15,000 |
||
Nov 19 |
Cash and Bank |
£ 14,000 |
||
Nov 19 |
Trade Receivable |
£ 14,000 |
||
Nov 30 |
Cash and Bank |
£ 30,000 |
||
Nov 30 |
Bank Loan Payable |
£ 30,000 |
||
Dec 1 |
Trade Receivable |
£ 18,000 |
||
Dec 1 |
Sales Revenue |
£ 18,000 |
||
Dec 5 |
Salaries Expense |
£ 7,000 |
||
Dec 5 |
Cash and Bank |
£ 7,000 |
||
Dec 7 |
Trade Payable |
£ 5,200 |
10400/2 |
|
Dec 7 |
Cash and Bank |
£ 5,200 |
||
Dec 16 |
R.Rowan - Drawing |
£ 15,000 |
||
Dec 16 |
Cash and Bank |
£ 15,000 |
||
Dec 30 |
Utility Expense |
£ 800 |
||
Dec 30 |
Cash and Bank |
£ 800 |
Part a and b:
Cash and Bank |
|||
Debit |
Credit |
||
Nov 1 |
£ 60,000 |
Nov 2 |
£ 12,000 |
Nov 19 |
£ 14,000 |
Nov 3 |
£ 24,000 |
Nov 30 |
£ 30,000 |
Nov 18 |
£ 15,000 |
Dec 5 |
£ 7,000 |
||
Dec 7 |
£ 5,200 |
||
Dec 16 |
£ 15,000 |
||
Dec 30 |
£ 800 |
||
Ending |
£ 25,000 |
||
Trade Receivable |
|||
Debit |
Credit |
||
Nov 10 |
£ 14,000 |
Nov 19 |
£ 14,000 |
Dec 1 |
£ 18,000 |
||
Ending |
£ 18,000 |
||
Purchases/Inventory |
|||
Debit |
Credit |
||
Nov 5 |
£ 15,000 |
||
Nov 15 |
£ 10,400 |
||
Ending |
£ 25,400 |
||
Office Equipment |
|||
Debit |
Credit |
||
Nov 3 |
£ 24,000 |
||
Ending |
£ 24,000 |
||
Bank Loan Payable |
|||
Debit |
Credit |
||
Nov 30 |
£ 30,000 |
||
Ending |
£ 30,000 |
||
Trade Payable |
|||
Debit |
Credit |
||
Nov 18 |
£ 15,000 |
Nov 15 |
£ 10,400 |
Dec 7 |
£ 5,200 |
Nov 5 |
£ 15,000 |
Ending |
£ 5,200 |
||
R Rowan Capital |
|||
Debit |
Credit |
||
Nov 1 |
£ 60,000 |
||
Ending |
£ 60,000 |
||
R Rowan Drawing |
|||
Debit |
Credit |
||
Dec 16 |
£ 15,000 |
||
Ending |
£ 15,000 |
||
Sales Revenue |
|||
Debit |
Credit |
||
Nov 10 |
£ 14,000 |
||
Dec 1 |
£ 18,000 |
||
to Income Summary |
£ 32,000 |
||
Salaries Expense |
|||
Debit |
Credit |
||
Dec 5 |
£ 7,000 |
||
to Income Summary |
£ 7,000 |
||
Rent Expense |
|||
Debit |
Credit |
||
Nov 2 |
£ 4,000 |
||
to Income Summary |
£ 4,000 |
||
Prepaid Rent |
|||
Debit |
Credit |
||
Nov 2 |
£ 8,000 |
||
Ending |
£ 8,000 |
||
Utilities Expense |
|||
Debit |
Credit |
||
Dec 30 |
£ 800 |
||
to Income Summary |
£ 800 |
Part c
Accounts |
Debit |
Credit |
Cash and Bank |
£ 25,000 |
|
Trade Receivable |
£ 18,000 |
|
Prepaid Rent |
£ 8,000 |
|
Purchases/Inventory |
£ 25,400 |
|
Office Equipment |
£ 24,000 |
|
Trade Payable |
£ 5,200 |
|
Bank Loan Payable |
£ 30,000 |
|
R.Rowan - Capital |
£ 60,000 |
|
R.Rowan - Drawing |
£ 15,000 |
|
Rent Expense |
£ 4,000 |
|
Salaries Expense |
£ 7,000 |
|
Sales Revenue |
£ 32,000 |
|
Utility Expense |
£ 800 |
|
Total |
£ 127,200 |
£ 127,200 |
Answer :-
B/s as on 31st DEc 2018 | |||||
Liabilities | Assets | ||||
Equity & Reserves | Non Current Asset | ||||
Tangilbe Assets | |||||
R.Rowan Capital | 60000 | Office Equipment | 24000 | ||
Less : Drawing | 15000 | Less: Dep | 1000 | 23000 | |
Less : Net Loss | 12000 | 33000 | |||
Non Current Liabilities | |||||
Bank Loan | 30000 | Current Assets | |||
Interest on loan | 300 | 30300 | |||
Prepaid Rent | 4000 | ||||
Current Liabilities & Provision | |||||
Inventory | 7000 | ||||
Trade Payable | 5200 | ||||
Trade Receivable | 18000 | ||||
Salaries Payable | 8500 | ||||
Cash & Bank Balance | 25000 | ||||
77000 | 77000 |
P&L as on 31st Dec 2018 | |||||
Expense | $ | Income | $ | ||
Purchase | 25400 | Sales | 32000 | ||
Closing inventory | 7000 | ||||
Gross Profit | 13600 | ||||
39000 | 39000 | ||||
Indirect Exp | By Gross profit B/d | 13600 | |||
Rent Exp | 8000 | ||||
Salaries Exp | 15500 | ||||
Interest on Bank loan | 300 | ||||
Utility Exp | 800 | ||||
Depriciation on Equipment | 1000 | ||||
By Net Loss | 12000 | ||||
25600 | 25600 |
Calculations |
1) Depriciation for the year = (24,000-6000)/3 |
For 2 months = |
2) Salaries payable for Dec of 8500 added in Salaries Exp and Created Salary payable Liability a/c |
3) Bank Loan is 6% P.A. Interest for the whole year = 30,000*6% = 1800 |
Interest for 2 months = 1800*2/12 = 300. Interest payable is added in Loan |
4) Rent A/c Dr by 4000 and prpaid A/c credited by 4000 for Dec Rent |
b) The business Carried on by Rob is incurring huge losses for the 2 months. Either the business should be shut or Alternative business should be carried on by Rob as Loss % on the Investment is coming to around 20% for the 2 months. |