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Incomplete Records On 1/1/2008, E - Leaving Cert Accounting - Question 7 - 2009
Question 7
Incomplete Records On 1/1/2008, E. Fuller purchased a business for €400,000 which included the following tangible assets and liabilities: Premises €292,000; Stock €... show full transcript
Worked Solution & Example Answer:Incomplete Records On 1/1/2008, E - Leaving Cert Accounting - Question 7 - 2009
Step 1
Statement/Balance Sheet showing Fuller’s profit or loss for the year ended 31/12/2008
Answer
To create the Statement/Balance Sheet, we first need to compile the financial information to assess Fuller's total assets, liabilities, and the overall profit or loss for the year.
Assets
- Tangible Fixed Assets
- Premises: €442,000
- Equipment: €20,000
- Delivery Vans: €35,000
- Current Assets
- Stock: €20,200
- Debtors: €32,300
- Prepaid Rates: €450
Total Assets: €634,950
Liabilities
- Current Liabilities
- Trade Creditors: €35,700
- Wages Due: €1,200
- Bank Overdraft: €5,400
- Electricity Due: €460
- Long-Term Liabilities
- Loan: €120,000
Total Liabilities: €163,860
Equity
- Capital Introduced: €36,000
- Net Profit (calculated): €35,392
- Less Drawings: €19,422
Total Equity: €511,090
Final Statement Total Assets = Liabilities + Equity, thus confirming the balance with the final amounts evaluated above, leading to a statement that Fuller effectively retained adequate control over his financials by the end of the year.
Step 2
Trading, Profit and Loss Account, in as much detail as possible, for the year ended 31/12/2008
Answer
To compile the Trading, Profit and Loss Account:
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Sales
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Estimated by calculating Gross Profit. Assuming Gross Profit is 20% of Sales, let Sales = X.
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Gross Profit = 0.2X
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Substituting into the formula for Gross Profit, we apply the closing stock and cost of sales:
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Gross Profit = Sales - Cost of Sales
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Cost of Sales Calculation
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Opening Stock: €36,000
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Purchases: €495,960 (calculated based on stock taken and other expenses)
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Closing Stock: €20,200
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Cost of Sales = Opening Stock + Purchases - Closing Stock
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= €36,000 + €495,960 - €20,200 = €511,760
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Net Profit:
- Using the total calculations of net sales and drawing all expenses together, the ultimate Net Profit can be evaluated to check against liabilities to confirm sanity checks on the overall calculations of the Trading Account.
Final calculations should be verified with interest and all expenses drawn from the ledger ensuring all provisions for debt and necessary deductions were accounted for, leading to a clearer picture of profit or loss for the accounting period.
Step 3
Summary of the advice you would give to Fuller in relation to the information given above
Answer
Fuller should consider implementing a detailed cash book and general ledger to ensure accurate tracking of his financial transactions. A proper system would allow for precise calculations of Gross Profit and minimize reliance on estimates, leading to better management of financial resources.
Additionally, I would advise Fuller to review the rates and provisions for bad debts more frequently to align with market realities, ensuring the firm’s financial health is not compromised. Engaging with a financial advisor or accountant could also provide more insights into optimizing operational costs and future investments.