Reference no: EM132581430

The following is the balance sheet (statement of financial position) of Valencia, a sole trader business, as at 31 January 2010:

Valencia

Balance sheet as at 31 January 2010

                                                                       £            £

Non-current assets

Motor vehicles 82,600

Less: Accumulated depreciation          (30,000)         52,600

Current assets

Inventories 19,400

Trade receivables 32,700

Cash 1,400 53,500

Total assets 106,100

Equity

Original 42,000

Retained profit 32,300 74,300

Current liabilities

Trade payables 28,200

Accrual (wages) 3,600 31,800

Total equity and liabilities 106,100

During the year to 31 January 2011, the following transactions took place (in no particular order):

1. Inventories costing £122,600 were purchased. All purchases were made on credit.

2. Sales made during the year were £132,400, of which £6,200 were cash sales.

3. Receipts from credit customers (trade receivables) totalled £120,200.

4. Payments to credit suppliers (trade payables) totalled £114,500.

5. Closing inventories were initially valued at £37,500. However, one box of inventory (cost £4,300) was found to be damaged, and it is estimated that it will only be sold for £2,000.

6. Wages totalling £35,500 were paid during the year. At the end of the year, the business owed £2,200 of wages.

7. The business uses the straight line method of depreciation for non-current assets. All motor vehicles are assumed to have a useful life of 5 years and no residual value. There were no additions or disposals to non-current assets during the year.

Required:

Question a) Prepare an income statement for the year ended 31 January 2011 and a balance sheet as at that date.

Question b) Identify and write brief notes on at least 2 examples of the accruals (matching) concept in practice in the preparation of Valencia's income statement and balance sheet in part