Accountant Forums


Reply
Thread Tools

Income statement exercise

 
 
Junior Member
Join Date: Nov 2011
Posts: 2
Thanked: 0
 
      11-29-2011, 07:40 PM
I am preparing for an exam next week and have trouble with this questions:

Three friends are great fans of wool clothing: jumpers, cardigans, hats, socks – in fact any clothing made of wool. They recently decided to create a new limited liability company called WoolyWorth Limited. The details of activities and transactions for the first year are shown below.
1. On 30 November 2010 the company was created with authorised ordinary share capital of £500,000 made up of 250,000 ordinary shares, and authorised 5% preference share capital of £100,000 made up of 200,000 reference shares.
2. On 1st December 2010 the company issued 100,000 ordinary shares at a premium of £1 above the nominal value, and 100,000 preference shares at nominal value.
3. During the financial year credit sales totalled £500,000. The credit customers paid £450,000 during the year. Two credit customers went bankrupt during the year, each owing £5,000 and their debts were written off. On the last day of the financial year the company decided to create a provision for bad debts equivalent to 10% of the year end trade receivables.
4. On 1st December 2010 £72,000 was paid for rent for the period 1st December 2008 to 31st May 2012.
5. On 1st December 2010 equipment costing £25,000 was purchased for cash, with an anticipated useful life of 5 years, using straight line depreciation.
6. On 1st December 2010 a vehicle costing £20,000 was purchased for cash, with an anticipated useful life of 4 years, using reducing balance depreciation (at twice the straight line rate).
7. During the financial year wool clothing costing £100,000 was purchased on credit. At the end of the financial year, trade payables were still owed £20,000, and the unsold clothing remaining had a cost value of £20,000.
8. Salaries expense for the financial year totalled £200,000 and this amount was paid.
9. Various operating expenses for the financial year totalled £60,000 of which £50,000 had been paid in cash by the end of the financial year.
10. In November 2011 the company received a letter from a lawyer on behalf of one of the company’s customers. The letter claimed that the customer had suffered skin irritation because of an allergy to wool. The directors are worried that any court case could result in damages of £10,000 being awarded against the company. Any court case would be heard in January 2012.
11. During the financial year an interim dividend of 1p per ordinary share had been paid in cash.
12. On the last day of the financial year, the vehicle was sold for £11,000 cash. Depreciation is charged in the year of disposal even if it is the same year as acquisition.
13. The corporation tax bill for the financial year was estimated as being £20,000, half which had already been paid in cash.
14. The preference dividend for the year was paid in cash on the last day of the financial year. 15. No agreement could be reached with the ordinary shareholders regarding final dividends.

anybody you can show me how to do the incomestatement from this information?

Thanks in advance
 
Reply With Quote
 
 
 
 
Member
Join Date: Sep 2011
Posts: 45
Thanked: 2
 
      11-30-2011, 10:45 AM
i guess we could, but it would be better if you made an attempt and posted it and we can comment on where/how you get on...
 
Reply With Quote
 
 
 
 
Junior Member
Join Date: Nov 2011
Posts: 2
Thanked: 0
 
      11-30-2011, 10:53 AM
here is my start and i also need to do a balance sheet but this is all i know....


(i)
WoolyWorth Limited
Income Statement for the year ended 30 November 2011
£ £
Revenue: 500000
Less cost of goods sold:
Purchases 100000
Less Closing inventory (20000)
(80000)
Gross Profit: 420000
Less Expenses:
Salaries 200000
Bad debts written off
(2 x 5000 £) 10000
Depreciation on equipment
(25000£/5) 5000
Depreciation on vehicle
(20000£/4 x 2) 10000
Rent
(72000/18 x 12) 48000
Operating expenses 60000

(333000)
Operating Profit: 87000
Profit of disposal on car: 1000 88000
Less taxation: (20000)
Profit for the year after tax: 68000
Less Dividends:
Interim dividends (100000x1p) 1000
Preference dividend (100000x5%x0.5) 2500
(3500)
Retained profit for the year: 64500


(ii)
WoolyWorth Limited
Balance Sheet as at 30 November 2011
£ £ £
Non-Current assets:
Equipment
(25000-5000) 20000
Current assets:
Inventory 20000
Trade receivable 40000
Less provision for doubtful debts
(0.1 x40000) (4000)
Prepayment
(72000-48000) 24000
Cash and cash equivalents 11000
91000
Less current liabilities:
Trade payable 20000
Accruals 10000
Taxation 20000
(50000)
41000
Net current-assets: 61000
Total net assets: 61000
Equity:
Share capital
Share premium account
Retained earnings
Total equity:


any ideas?
 
Reply With Quote
 
Member
Join Date: Sep 2011
Posts: 45
Thanked: 2
 
      11-30-2011, 02:57 PM
erm well I think you have done a better job than I could!

I guessed there was probably a B/S (and probably a cashflow) question too.

Only thing I'm not sure on is the rent. The £72k spans 3.5 financial years (1/12/08 - 31/5/12) so £21,571.28 per year...then you would make an assumption that an accrual was raised up until rent was physically paid and released when the payment occured (although I guess there maybe an error with the question and your answer relfects the correct question).

And interim dividend is 1p on 250,000 shares...

Otherwise you're pretty much done, +/- the bank transactions and the equity balances
 
Reply With Quote
 
 
 
Reply

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are On
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Cost basis & Holding period re exercise of Rights 0b3hks001@sneakemail.com Tax 0 01-25-2006 11:43 PM
Non-qualified Stock Option Exercise and Social Security Benefits baumgrenze Tax 2 05-02-2005 05:34 AM
Discounting FMV of ISOs on exercise date to avoid AMT? Jonathan Kamens Tax 5 04-06-2005 03:18 PM
Question regarding reporting ISO options and cashless exercise Dirk Bussiere Tax 1 04-07-2004 08:49 AM
How many ISOs can one exercise without hitting AMT ? Photo Buddy Tax 0 12-24-2003 12:42 AM


All times are GMT. The time now is 09:23 PM.
Posts in this forum do not constitute the advice of AccountantForums.com or its members. Financial advice should always be taken from qualified advisors before committing to a financial decision.