In: Accounting
QUESTION 1
Ernest and his partner Mary run a second-hand bookshop. The business is incorporated under the name of Ketchum Ltd, and they are the only shareholders.
As the business is small they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare a first draft of the accounts for Ketchum Ltd for the year ending 31st December 2019.
A list of closing balances reported in Ketchum Ltd’s statement of financial position as at 31st December 2018 is set out below:
Ketchum Ltd. Statement of Financial Position 31st December 2018 |
||
£ |
£ |
|
Shop premises (cost) |
56,250 |
|
Shop premises (accumulated depreciation) |
3,375 |
|
Fixtures and fittings (cost) |
12,500 |
|
Fixtures and fittings (accumulated depreciation) |
3,750 |
|
Inventories of books at cost |
42,375 |
|
Trade receivables |
39,000 |
|
Prepayment |
500 |
|
Total assets |
143,500 |
|
Trade payables |
6,962.50 |
|
Accruals |
1,250 |
|
Bank overdraft |
6,250 |
|
Bank loan repayable in 2022 |
33,750 |
|
Total liabilities |
48,212.50 |
|
Share capital (£1 ordinary shares) |
62,500 |
|
Retained profits |
32,787.50 |
|
Total equity |
95,287.50 |
Further information:
During the year to 31st December 2019, the following transactions and events took place:
Required:
Show your workings.
(1 mark)
(1 mark)
Summary of all the transactions | ||
Particulars | Amount | |
Sales | ||
Cash | 107,375.00 | |
Credit | 76,787.50 | |
Total Sales | 184,162.50 | |
Inventory | ||
Opg. | 42,375.00 | |
Closing | 34,375.00 | |
Purchases | 94,725.00 | |
Trade Payables | ||
(6962.5 + 95725 - 96437.5) | 5,250.00 | |
Gain/Loss on sale of Fixtures | ||
Cost of Fixtures | 2,500.00 | |
Less : Deprecition | ||
(2500/10) x 3 | 750.00 | |
Book Value as on Jan. 1, 2019 | 1,750.00 | |
Less : Sales | 1,375.00 | |
Loss on sale of fixtures | (375.00) | |
Depreciation on fixtures for the year | ||
(12,500 - 2500 + 3750)/ 10 | 1,375.00 | |
Receivables | ||
(39000 + 76787.5 - 68162.5) | 47,625.00 | |
Electricity Exps Payable | 862.5 | |
Insurance Premium | ||
Prepaid Insurance | ||
(1125/2) | 562.50 | |
Insurance Expense | 562.50 | |
Bank Loan | ||
(33750 - 10000) | 23,750.00 | |
Interest on Bank Loan | 1,000.00 | |
Interest on Overdraft | 118.75 | |
Director Wages | ||
Ernest (1250 x 12) | 15,000.00 | |
Mary (1250 x 12) | 15,000.00 | 30,000.00 |
2.
Ketchum's Ltd | |||
Statement of Profit or loss for the year 2019 | |||
Particular | Amount | Particular | Amount |
Opening Stock | 42,375.00 | Sales | 184,162.50 |
Purchases | 94,725.00 | ||
Depreciation | Closing Stock | 34,375.00 | |
(1125 + 1375) | 2,500.00 | ||
Loss on sale of fixtures | 375.00 | ||
Electricity Expenses | |||
(2287.5+862.5) | 3,150.00 | ||
Insurance Expenses | 562.50 | ||
Interest on Bank Loan | 1,000.00 | ||
Interest on Overdraft | 118.75 | ||
Assistant Wages | 13,625.00 | ||
Administrative Expenses | 1,581.25 | ||
Accounting | 1,250.00 | ||
Director Wages | 30,000.00 | ||
Provision for Tax @ 20% | 5,455.00 | ||
Net Profit T/f to Bal. Sheet | 21,820.00 | ||
218,537.50 | 218,537.50 | ||
Calculation of Provision for Tax | |||
Earnings | 218,537.50 | ||
Less : Expenses | 191,012.50 | ||
Profit Before Tax | 27,275.00 | ||
Less : Tax | 5,455.00 | ||
PAT | 21,820.00 |
3.
Ketchum's Ltd | ||
Statement of Cash Flows | ||
Dr | Cr | |
Particular | Amount | Amount |
Cash Sales | 107,375.00 | |
Cash Received from Receivables | 68,162.50 | |
Purchases | 94,725.00 | |
Payment to Trade payables | 96,437.50 | |
Sale of fixtures | 1,375.00 | |
Purchases of fixtures | 3,750.00 | |
Wages to Assistant | 13,625.00 | |
Electricity Bill | 2,287.50 | |
Insurance Premium | 1,125.00 | |
Bank Loan | 10,000.00 | |
Interest on Bank Loan | 1,000.00 | |
Interest on Overdraft | 118.75 | |
Administrative Expenses | 1,581.25 | |
Director's Wages | 30,000.00 | |
Bank Overdraft | 77,737.50 | |
254,650.00 | 254,650.00 |
4. Statment of Financial Position
Ketchum's Ltd | ||
Statement of Financial Position | ||
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