Displayed here are the draft financial statements which have been prepared for Valerie’s  business for the year ended 30 April 2021. Draft Statement of Financial Position as at 30 April 2021   Assets       Non-current assets see point a. below     Cost   90,000   Provision for depreciation   30,600   Net Book Value     59,400 Current assets       Inventory   To be advised   Trade receivables   43,200   Cash   4,680 47,880 Total assets     107,280         Liabilities       Current liabilities       Trade payables   17,280   Non-current liabilities       Bank loan   16,000   Total liabilities     33,280 Net assets     74,000         Owner’s interest     Capital invested   24,000 Profit and Loss Reserve:     Opening balance 34,720   Draft profit for the year (provisional figure) 15,280   Profit and Loss Reserve closing balance   50,000 Closing owner’s interest   74,000   Draft Statement of Profit or Loss for the 12 months to 30 April 2021 Revenue   247,200 Opening inventory 23,040   Purchases 98,880   Cost of sales (provisional figure)   121,920 Gross profit   125,280 Salaries 48,000   Power 20,400   Insurance 12,050   Other operating overheads 29,550       110,000 Operating profit   15,280   Final adjustments are now needed in order to complete the statements. The information needed to finalise the accounts is as follows:      An analysis of the net book value of non-current assets is shown below. The balances represent those brought forward on 1 May 2020.   Vehicles Fixtures and Fittings Total Cost 54,000 36,000 90,000 Depreciation provision 21,600 9,000 30,600 Net Book Value 32,400 27,000 59,400 No accounting entries have yet been made for depreciation for the year ended 30 April 2021. The vehicles are being depreciated on a straight-line basis over 5 years, with nil residual value assumed, whilst fixtures and fittings are being depreciated on a 25% reducing balance basis.   The draft accounts were prepared before the information from the stock-take on 30 April 2021 had been collated. It is now known that the value of inventory held on that date was £24,320.   Due to a power cut on the last day of the accounting period, sales invoices issued on 30 April 2021 were prepared manually and still need to be recorded in the computerised accounting system. These sales were all made on credit and the day’s invoices came to a total of £2,800. Due to the uncertain economic climate, Valerie has decided to create a provision for doubtful debts representing 4% of the balance outstanding at the year end. The solicitor has also advised that the business’s defence against a charge for breaches of Health and Safety regulations is likely to fail, with the business having to pay some £5,000 in fines and costs in summer 2021.   The power expense in the Statement of Profit or Loss represents bills paid and received in the year, with adjustment having been made for the accrual brought forward on 1 May 2020. No adjustment has been made yet for the estimated £3,900 of power consumed in March and April 2021 but not billed until May 2021.    The insurance expense in the Statement of Profit or Loss takes account of the prepayment brought forward on 1 May 2020 and all of the annual premium paid on 1 January 2021. This premium of £7,200 provides cover for the 12 months ended 31 December 2021.   Interest on the bank loan at a rate of 7% was paid during the year but has not been recorded anywhere in the accounting records, including the bank account.   Requirements: Prepare the final Statement of Profit or Loss for the year ended 30 April 2021 together with the Statement of Financial Position as at that date, using all of the information provided.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Displayed here are the draft financial statements which have been prepared for Valerie’s  business for the year ended 30 April 2021.

Draft Statement of Financial Position as at 30 April 2021

 

Assets

 

 

 

Non-current assets

see point a. below

 

 

Cost

 

90,000

 

Provision for depreciation

 

30,600

 

Net Book Value

 

 

59,400

Current assets

 

 

 

Inventory

 

To be advised

 

Trade receivables

 

43,200

 

Cash

 

4,680

47,880

Total assets

 

 

107,280

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade payables

 

17,280

 

Non-current liabilities

 

 

 

Bank loan

 

16,000

 

Total liabilities

 

 

33,280

Net assets

 

 

74,000

 

 

 

 

Owner’s interest

 

 

Capital invested

 

24,000

Profit and Loss Reserve:

 

 

Opening balance

34,720

 

Draft profit for the year (provisional figure)

15,280

 

Profit and Loss Reserve closing balance

 

50,000

Closing owner’s interest

 

74,000

 

Draft Statement of Profit or Loss for the 12 months to 30 April 2021

Revenue

 

247,200

Opening inventory

23,040

 

Purchases

98,880

 

Cost of sales (provisional figure)

 

121,920

Gross profit

 

125,280

Salaries

48,000

 

Power

20,400

 

Insurance

12,050

 

Other operating overheads

29,550

 

 

 

110,000

Operating profit

 

15,280

 

Final adjustments are now needed in order to complete the statements. The information needed to finalise the accounts is as follows:     

  1. An analysis of the net book value of non-current assets is shown below. The balances represent those brought forward on 1 May 2020.

 

Vehicles

Fixtures and Fittings

Total

Cost

54,000

36,000

90,000

Depreciation provision

21,600

9,000

30,600

Net Book Value

32,400

27,000

59,400

No accounting entries have yet been made for depreciation for the year ended 30 April 2021. The vehicles are being depreciated on a straight-line basis over 5 years, with nil residual value assumed, whilst fixtures and fittings are being depreciated on a 25% reducing balance basis.

 

  1. The draft accounts were prepared before the information from the stock-take on 30 April 2021 had been collated. It is now known that the value of inventory held on that date was £24,320.

 

  1. Due to a power cut on the last day of the accounting period, sales invoices issued on 30 April 2021 were prepared manually and still need to be recorded in the computerised accounting system. These sales were all made on credit and the day’s invoices came to a total of £2,800.
  2. Due to the uncertain economic climate, Valerie has decided to create a provision for doubtful debts representing 4% of the balance outstanding at the year end. The solicitor has also advised that the business’s defence against a charge for breaches of Health and Safety regulations is likely to fail, with the business having to pay some £5,000 in fines and costs in summer 2021.

 

  1. The power expense in the Statement of Profit or Loss represents bills paid and received in the year, with adjustment having been made for the accrual brought forward on 1 May 2020. No adjustment has been made yet for the estimated £3,900 of power consumed in March and April 2021 but not billed until May 2021.

  

  1. The insurance expense in the Statement of Profit or Loss takes account of the prepayment brought forward on 1 May 2020 and all of the annual premium paid on 1 January 2021. This premium of £7,200 provides cover for the 12 months ended 31 December 2021.

 

  1. Interest on the bank loan at a rate of 7% was paid during the year but has not been recorded anywhere in the accounting records, including the bank account.

 

Requirements:

  1. Prepare the final Statement of Profit or Loss for the year ended 30 April 2021 together with the Statement of Financial Position as at that date, using all of the information provided.                                                                                                                                                        

 

‘The measurement of cash flow is straightforward and objective. Profit on the other hand is complex and subjective, with the result being shaped by the impact of accounting concepts, conventions and judgement’: discuss.                                                                             

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