Reference no: EM131385936

David Denton set up in business as a plumber a year ago, and he has asked you to act as his accountant. His instructions to you are in the form of the following letter.

Dear Henry, I was pleased when you agreed to act as my accountant and look forward to your first visit to check my records. The proposed fee of £250 p.a. is acceptable. I regret that the paperwork for the work done during the year is incomplete. I started my business on 1 January last, and put £6,500 into a business bank account on that date. I brought my van into the firm atthattime, and reckon that it was worth £3,600 then. I think it will last another three years after the end ofthe first year of business use. I have drawn £90 per week from the business bank account during the year. In my trade it is difficult to take a holiday, but my wife managed to get away for a while. The travel agents bill for £280 was paid out of the business account. I boughtthe lease of the yard and office for £6,500. The lease has ten years to run, and the rent is only £300 a year payable in advance on the anniversary of the date of purchase, which was 1 April.

I borrowed £4,000 on that day from Aunt Jane to help pay for the lease. I have agreed to pay her 10 per cent interest per annum, but have been too busy to do anything about this yet. I was lucky enough to meet Miss Prism shortly before I set up on my own, and she has worked for me as an office organiser right from the start. She is paid a salary of £3,000 p.a. All the bills forthe year have been carefully preserved in a tool box, and we analysed them last week. The materials I have bought cost me £9,600, but I reckon there was £580 worth left in the yard on 31 December. I have not yet paid for them all yet, I think we owed £714 to the suppliers on 31 December. I was surprised to see that I had spent £4,800 on plumbing equipment, but it should last me five years orso. Electricity bills received up to 30 September came to £1,122; but motor expenses were £912, and general expenses £1,349 for the year. The insurance premium for the year to 31 March next was £800.

All these have been paid by cheque but Miss Prism has lostthe rate demand. I expectthe Local Authority will send a remindersoon since I have not yet paid. I seem to remember that rates came to £180 for the year to 31 March next. Miss Prism sent out bills to my customers for work done, but some of them are very slow to pay. Altogether the charges made were £29,863, but only £25,613 had been received by 31 December. Miss Prism thinksthat 10 per cent ofthe remaining bills are not likely to be paid. Other customersfor jobs too small to bill have paid £3,418 in cash for work done, but I only managed to bank £2,600 of this money. I used £400 of the difference to pay the familys grocery bills, and Miss Prism used the rest for general expenses, except for £123 which was left over in a drawer in the office on 31 December.
Kind regards,
Yours sincerely,
David.

You are required to draw up a statement of profit or loss for the year ending 31 December 2017, and a statement of financial position as at that date.