Reference no: EM13489818

Section A

Question 1

Campbell runs a clothing store and has produced the following trial balance for the year ended 31^st  March 2012. The trial balance produced does not balance and he has asked for your help.

You are required to help Campbell by:

(a) Preparing journal entries to correct the trial balance and deal with all of the year-end adjustments including the fire.

(b)  Producing an income statement for the year and a balance sheet as at 31^st March 2012.

Campbell - Trial Balance as at 31 March 2012

	£'000	£'000
Accumulated depreciation of land and buildings at 1.4.11.		600
Accumulated depreciation of shop fittings at 1.4.11		640
Bank Interest	40
Bank loan at 5%		1600
Capital		838
Carriage inwards	80
Carriage outwards	126
Cash at bank		116
Discounts allowed	124
Discounts received		58
Drawings	305
Heat and light	254
Insurance	295
Inventory as at 1.4.11	402
Land and buildings	2400
Office expenses	320
Payables (Creditors)		440
Purchases	5992
Provision for doubtful debts as at 1.4.11		32
Receivables	1216
Returns Inwards	240
Returns outwards		200
Sales		9840
Shop fittings	1240
Wages	1480
TOTALS	14514	14364

 

Adjustments:

1.    The land and buildings are shown at cost including £800,000 for the land. Buildings are depreciated on a straight line basis over 50 years

2.    Shop fittings are depreciated at 20% per annum on a reducing balance basis

3.    Campbell took goods valued at £24,000 from the shop for his own use during the year

4.    Insurance includes £36,000 for the year to December 2012

5.    An accrual for heat and light for £8000 is needed

6.    A bad debt of £16000 is to be written off and the provision for doubtful debts should be maintained at 2% of the remaining receivables

7.    Campbell sold some shop fittings on 31 March 2012 for £50,000 he has debited the cash at bank account but nothing else. The fittings cost £240,000 5 years ago.

8.    An interest payment on the bank loan is due. The loan was taken out in 2009.

9.    A payment to a supplier for £50,000 has been debited to payables and debited to the cash at bank account.

10. A payment for insurance for £50,000 has been debited to the office expenses account and credited to the cash at bank account

11. An invoice for clothing goods for £50,000 has been debited to office expenses and credited to payables

12. On 31 March 2012 there was a fire in Campbell's storeroom and all of his remaining inventory and his inventory records were destroyed. In addition to information in the trial balance you know that all sales are made based on a standard margin of 40% and that the inventory is covered by an insurance policy which covers the sales value of any inventory lost.

 

Section B - The following data is to be used for questions 2 AND 3

 

Sessegnon Ltd Income Statement for the year ended 31 December 2011

	£000s	£000s
Sales		1,690
Cost of Sales		1,252
Gross Profit		438
Admin expenses	144
Depreciation	170
Loss on sale of machinery	60	374
Operating Profit		64
Interest payable		32
Profit Before Tax		32
Tax		10
Profit After Tax		22

 

Sessegnon Ltd Balance Sheet as at 31 December 2011

	2011	2011	2010	2010
	£000s	£000s	£000s	£000s
Non-Current Assets NBV		4500		3274
Current Assets
Inventory	136		148
Receivables	160		190
Cash at Bank	-	296	180	518
Total Assets		4796		3792
Non-Current Liabilities
Bank Loan	1500		640
Current Liabilities
Trade Payables	192		155
Taxation	15		60
Interest Payable	10		7
Bank Overdraft	115                        332		-                 222
Total Liabilities		1832		862
Net Assets		2964		2930
Equity
Share Capital		1000		950
Share Premium Account		30		20
Retained Earnings		1934		1960
		2964		2930

 

Notes

1.    Dividends were paid during the year

2.    The assets disposed of had a book value of £260,000

Question 2

Prepare a cashflow statement for the year ended 31 December 2011 and describe what it tells us.

Question 3

Analyse the profitability, the liquidity and the gearing of Sessegnon Ltd based on the information above and using appropriate financial ratios. Would a new supplier be willing to give them credit?