Reference no: EM131386143
The directors of the company by which you are employed as an accountant have received the forecast statement of profit or loss for 2016 which disclosed a net profit for the year of £36,000.
This is considered to be an unacceptably low figure and a working party has been set up to investigate ways and means of improving the forecast profit.
The following suggestions have been put forward by various members of the working party:
(a) Every six months we deduct income tax of £10,000 from the loan note interest and pay it over to the HM Revenue & Customs. If we withhold these payments, the company's profit will be increased considerably.
(b) I see that in the three months August to October 2016 we have forecast a total amount of £40,000 for repainting the exterior of the company's premises. If, instead, we charge this amount as capital expenditure, the company's profit will be increased by £40,000.
(c) In November 2016, the replacement of a machine is forecast. The proceeds from the sale of the old machinery should be credited to profit and loss account.
(d) There is a credit balance of £86,000 on general reserve account. We can transfer some of this to the statement of profit or loss to increase the 2016 profit.
(e) The company's £1 ordinary shares, which were originally issued at £1 per share, currently have a market value of £1.60 per share and this price is likely to be maintained. We can credit the surplus £0.60 per share to the 2016 profit and loss account.
(f) The company's premises were bought many years ago for £68,000, but following the rise in property values, they are now worth at least £300,000. This enhancement in value can be utilized to increase the 2016 profit.
You are required, as the accounting member of the working party, to comment on the feasibility of each of the above suggestions for increasing the 2016 forecast profit.
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