Reference no: EM132592749

After completing his management degree at the University, Sandy decided to set up his own business on 1 st July 2019, of buying and selling clothes for men.

• He opened a separate bank account for the business He invested Rs300,000 from the savings account he had previously. In addition, his father granted him a loan of Rs200,000 at an interest rate of 3% per annum for a smooth start up. He contacted one of his uncles who agreed to give him his garage to be used for his business against a monthly rent of Rs10,000, payable at the end of each month as from 1 st July 2019.

• He wanted to make the garage look attractive. Therefore, he had some repairs done at a cost of Rs25,000, placed some furniture and fittings at a cost of Rs20,000 which he paid from the business bank account. He also purchased a computer at a cost of Rs30,000 which he would use to record his business transactions. The computer is expected to have a useful life of 4 years, while he believed that the furniture would need to be replaced in five years. All these were completed in early July 2019.

• He bought goods on cash and credit. As per his records, his total purchases on cash for the year ended 30 th June 2020 were Rs250,000 paid from the business bank account. Purchases on credit were Rs75,000 from a single supplier Smith Limited. Sandy had already paid Rs40,000 to his supplier as at 30 th June 2020. Some of the goods purchased were defects and goods worth Rs15,000 were returned to the supplier. Sandy also had to pay Rs 12,500 as transport costs to get the goods delivered to him upon purchase. As at 30 th June 2020, goods worth Rs65,000 were unsold.

• Sales on cash were Rs 450,000 and Rs 40,000 to a credit customer, Sam. All cash received were banked. Goods returned to him by Sam were Rs10,200.

• Rs22,000 were received from Sam during the year ended 30 th June 2020.

• During the year ended 30 th June 2020, Sandy paid the following expenses from the business bank account: Electricity bills of Rs12,000, Water bills of Rs6,000, Rent for 10 months,

• Telephone and internet Rs23,000, insurance of Rs15,000 for his inventory for the period of 1 st January 2020 to 31 st December 2020, advertising of Rs18,000, delivery costs of Rs35,000.

• Sandy got information that Sam lost his job during the Covid19 pandemic, and it became almost certain that his outstanding debt will not be recovered. Amounts due at 30 th June 2020 were Rs1,000 for electricity, water of Rs450 and telephone of Rs1,800. Sandy employed an assistant to help him out on a part time basis and paid him Rs7,000 monthly. During the year ended 30 th June 2020, Sandy used Rs60,000 from the business bank account for some personal expenses. There were no other expenses from his bank account.

Required:

Question (a) Prepare trial balance as at 30th June 2020.

Question (b) Prepare income statement or the year ended 30th June 2020

Question (c) Prepare statement of financial position as at 30th June 2020.

Question (d) Explain why it is important for Sandy to prepare the set of accounts.