This is an individual assignment.
You are employed as a Trainee Accountant by Finners Accountants Ltd. The Finance Manager, Mr B Proudfoot has asked you to review details from a new client, Alice Cheshire. This involves producing a set of financial statements based on the information provided by the client.
Using the following information, you are required to write up the relevant ledger accounts (including bank / cash) to record the following transactions and prepare a trial balance as at 30June 2013. Ignore any accruals or prepayments at this stage.
The following is a summary of the first year of trading to 30June 2013 of Alice Cheshire, a sole trader inthe cake-making business.
On 1 July2012she started the business by paying £100,000 into a business bank account from her personal savings. She purchased the following items by cheque:
Fixtures and Fittings at cost £8,000.00
Delivery Van at cost £12,000.00
She then purchased a lease on premises for £50,000. This was partly financed by a 10% bank loan of £42,000 repayable in full in ten years time. The remainder was paid in cash from the business bank account.
The trading for the year has been summarised as follows:
Credit Customers Total Sales (£) Receipts (by cheque) (£)
Weddings r Us 25,000 20,000
Christine’s Christenings 15,000 12,200
Cake u like 23,500 18,500
Marma Ltd 16,550 11,000
Non-credit (cash) sales (received by cheque) during the year were £42,000
Purchases from suppliers Total Purchased (£) Paid (by cheque) (£)
Décor Limited 18,500 16,250
Swindell’s Farm 10,350 9,500
Sugar and Spice Ltd 13,000 10,500
Steve’s Sweets 12,000 10,000
There were no other purchases.
During the year, Sugar and Spice Ltd offered a cash discount of 5% for early settlement. Alice Cheshire had taken advantage of this when making payments against her account.
Operating expenses (all paid by cheque) have been summarised:
Business rates (15 months to 30 September 2013) £3,000
Delivery Van expenses £4,000
Loan Interest £2,100
Electricity (10 months to 30 April 2013) £2,500
Sundry administration costs £865
Alice Cheshire cashed a cheque for £800 each month for her own wages.
Task 2 - 30 marks
You are required to prepare an Income Statement and Statement of Financial Position, in the correct format, for the year ended 30 June 2013 after the following year end adjustments have been made.
1. Closing inventory at 30June 2013 was valued at £2,000 cost price.
2. Deprecation on fixtures and fittings is 20% per annum straight line; on delivery van it is 25% reducing balance. There are no expected residual values for the fixtures and fittings and delivery van at the end of their expected life.
3. A letter has been received from the liquidator of Christine’s Christenings saying that she has ceased trading and her creditors should only expect to be paid 50p per £1 of debt.
You are required to produce some power point slideswhich you will present at a conference for small businesses, one of which is Alice Cheshire. The Finance Manager, Mr B Proudfoot has provided the following guidance:
“For each of the following items please will you provide an explanation as to what the statement means and the way it can enhance relevance and reliability of financial statements for the users of these statements. Some examples would also be useful.
2. The use of the accruals basis
3. The application of consistency