Question

In: Accounting

Melissa Parker is considering the merits of buying a small café in Adelaide. The café is...

Melissa Parker is considering the merits of buying a small café in Adelaide. The café is fully furnished and equipped. The business has been operating for the last 3 years. The café premises are not owned, but leased. The current lease expires in two years, but there are options for a further five-year term in place. The current lease costs $30,000 per annum in rent.

The current owner, Philip Taylor, started the business in 2017 with a capital of $75,000. He is asking for a price of $100,000 for the business. Philip provided the following information:

Table 1 : info for the year

Sales revenue

400000

Cost of sales

175000

Gross profit

225000

Other expenses

277000

loss

-52000

Upon a request from Melissa, Philip provided the following information about the ‘other expenses’ of $277,000 from the records of the business:

Table 2 Information about other expenses

Coffee machine

$ 100000

insurance

6000

Computer & software

15000

Telephone usage

4000

Interest paid to bank

2000

Car maintenance expense

8000

furniture

50000

Servicing of coffee machines

8000

internet

2000

electricity

10000

Water bill

7000

Advertising & membership

25000

Lease rent

30000

Shop cleaning

10000

Total

$ 277000

In addition, Philip informed the following:

  • The business took a bank loan of $50,000, which is repayable in 2024.
  • Accounts payable and cash balance as at June 30, 2020 are $5,000 and $31,500 respectively.
  • The owner takes out $500 every week from the business.
  • All sales are cash sales.

Following detailed discussions with Philip, Melissa discovered that:

  • No attempt has been made to segregate personal and business expenses. Electricity, water and car maintenance were estimated to be 80% business and 20% owner’s personal purposes.
  • The ‘coffee machine’, ‘computers & software’ and ‘furniture’ were bought on July 1, 2019 and estimated to have a useful life of 5 years each.
  • Tax rate of 30%

Questions

  1. Prepare a Statement of Financial Performance and Statement of Financial Position for the year ended June 30, 2020 and as at June 30, 2020 respectively.

Solutions

Expert Solution

Note : Opening capital is not available from records, the figure of Capital in balancing figure.


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