Financial Statements Exercises

A The cash and bank account of A. White, an ironmonger, show the following total entries during the year to 31 December 2016.

Repairs to premises 1,500

Repairs to plant and machinery 2,500

Rates 2,900

Purchases 143,500

Sales 175,261

Sundry expenses 3,525

Wages 27,500

Salaries 7,250

The balance of cash in the bank is £18,725, and cash in the office till is £1466. Stock is held valued at cost at £184,400. A total of £127,255 is owed to the business by debtors, and the business owes £122,500 to its creditors.

At the beginning of the year no cash was held in the till, stock was valued at £141,000, plant and machinery at £120,000, leasehold premises at £112,500, and office furniture at £1920.

Draw up the income and expenditure account in such a way as to show, in the form of a sub-account, the gross profit - treating for this purpose the following expenditure as direct: wages; repairs to plant and machinery. Write off 15% depreciation on plant and machinery, 10% of leasehold premises, and 10% of furniture.

Calculate the rate of mark-up of gross profit, expressed as a percentage of cost price of sales, the percentage net profit of sales, and the percentage net profit to capital employed. What is the amount of working capital?

(a) Prepare a balance sheet from the following information taken

from the websites of J. Jones at the end of his first year of trading on 30 November 2016:

£1 £1

Freehold shop 25,000 Shop furniture and fittings at

Stock 12,000 valuation 3,500

Cash at bank 5,800 Net profit for year 8,200

Amount owed to business Wages owing to staff 320

by customers 6,800 Drawings in cash for

Amount owed by personal use 4,500

business 5,000

Cash in hand 120

(b) Calculate J. Jones's working capital.

(c) Jones contemplates installing a new shop front and display cases at a cost of £111,000, borrowing the money from the bank on the security of the shop. What effect would this have on his working capital?

(d) Jones can perfectly well continue to trade without the extra work on the shop premises. What factors should he take into consideration in deciding whether to go ahead?

C The graph in Fig. 13.4 illustrates the performance of a business in each of four years.

1. In which year did the business make the most net profit?

2. In which year was the percentage net profit to sales at the maximum?

Total sales revenue

Net profit

f'000 50 45 40 35 30 25 20 15 10 5 0

1st 2nd 3rd 4th Years

Financial Statements Test Questions

1. Why are all receipts and payments of a capital nature excluded from an income and expenditure account?

2. A depreciation charge is treated as expenditure in an income and expenditure account, although it represents no movement in cash and is not included in the cash website. What is depreciation? On what sort of assets is it properly chargeable?

3. What is a balance sheet?

4. How would you account for expenses paid in advance (a) in the balance sheet, and (b) in the income and expenditure account?

5. How would you account for expenses incurred but not... see: Financial Statements Test Questions

Refunds, Personal And Business Finance 2017

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