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.

Question

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.

‘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.