Adjustments to the profit and loss account and balance sheet part 1

Transcription

1 Chapter 8 Business Accounting and Finance 2nd Edition Adjustments to the profit and loss account and balance sheet part 1 Questions 1. Asa s business has the following balances relating to trading for the year ending 31 May 20X7: Sales Purchases Import duties on purchases Haulage costs relating to purchases Sales returns Purchases returns Opening stock at 1 June 20X Closing stock at 31 May 20X What is Asa s gross profit for the year? (a) (b) (c) (d) Azar is a wholesaler of household goods. In the year ending 26 October 20X3 he makes sales of Azar s gross profit margin is exactly 30%. Opening stock at 27 October 20X2 was 7226, purchases for the year were and closing stock was What was the figure for Azar s purchases returns for the year? 3. Parvati s business insurance is paid annually, with the bill running from 1 June to 31 May each year. Her accounting yearend is 31 December. Her insurance transactions over a two-year period are as follows: Date paid Amount () Period covered 6 June 20X X X6 8 June 20X X X7 Parvati pays the bill for 4942, but queries the large increase over the previous year with the insurance company. The company discovers that it has made a mistake and sends her a refund of 836 on 17 September 20X6. What is the amount of insurance expense to be included in Parvati s profit and loss 1 1

2 account for the year ending 31 December 20X6? (Work to the nearest.) (a) (b) (c) (d) Abbey owns a wholesale business dealing in beauty products. Her summarised profit and loss account for the accounting year ending 30 November 20X2 is as follows: Sales Cost of sales Gross profit Expenses Net profit At the beginning of 20X3 Abbey had to raise her prices by 10% passing on price increases imposed by the manufacturers she buys from. At 30 November 20X3 she has the following information relating to sales and expenses in her accounting records: Insurance Delivery charges (for deliveries to customers) Sales Opening stock at 1 December 20X Purchases returns 220 Staffing costs Telephone Other administration expenses Premises costs Purchases Sundry expenses Closing stock at 30 November 20X Abbey estimates that an accrual of 245 for telephone charges will be required. 2. Of the insurance total of 1280, 250 relates to the following accounting period and should be treated as a prepayment. 2 2

3 (a) Prepare Abbey s profit and loss account for the year ending 30 November 20X3. (b) Calculate Abbey s gross and net profit margins for 20X2 and 20X3. (c) Comment on Abbey s business performance, comparing the two years results. 5. (a) Bart runs a successful fashion accessories business. He has collected together all the information he thinks you will need to prepare his profit and loss account for the year ending 31 January 20X7 and a balance sheet at that date. His list of account balances is as follows: Interest received 652 Rental of shop premises Electricity Trade creditors Administrative and secretarial costs Discounts received Cash at bank Purchases Sales returns Staffing costs Fixed assets Business rates Capital at 1 February 20X Telephone Drawings Opening stock at 1 Februar y 20X Closing stock at 31 January 20X Sales Creditor for VAT Of the business rates total of , relates to the next following accounting period. An adjustment should be made for the prepayment. 2. An accrual of 650 is required for accountancy and tax fees. 3. The electricity bills cover the period up to 31 December 20X6 only. Bart estimates that charges for January 20X7 will be 204. You are required to prepare Bart s accounts. 3 3

4 (b) Two weeks later Bart returns. He has been reviewing his stock and has come to the conclusion that the net realisable value of some of it is considerably less than cost. Included in his original closing stock figure of (all valued at cost) are items totalling which can be sold for no more than What difference will this make to Bart s gross and net profit? 6. Courtney is a wholesaler of specialist fabrics principally to retailers and fashion houses. At her year end, 31 August 20X6, her accounting records show the following totals: Trade creditors Accountancy and tax advice Discounts allowed 726 Administrative expenses Sales Import duties on purchases Closing stock at 31 August 20X Warehouse rental Staffing costs Purchases Drawings Telephone Interest paid Fixed assets Debtors Insurance Electricity Overdraft Capital at 1 September 20X Opening stock at 1 September 20X Business rates Bank charges One of Courtney s customers, Cantara Designs Limited, has recently gone into liquidation, owing Courtney This figure is included in the debtors total given above, but Courtney thinks there is very little chance of ever receiving any money and has decided to write off the whole amount as a bad debt. 2. Courtney has not previously made a general provision for doubtful debts. However, some of her customers are facing tough trading conditions and she suspects that others may 4 4

5 go out of business. Therefore, she has decided to make a provision for doubtful debts of 3% of total debts (after deducting the 3650 referred to in note 1). 3. Courtney has been taking legal advice about a boundary dispute. She has not yet received a bill from the solicitor, but thinks it would be sensible to make an accrual of of the 1450 for insurance relates to the next accounting period, and should be treated as a prepayment. Prepare Courtney s profit and loss account for the year ending 31 August 20X6 and her balance sheet at that date. 5 5