Question 4: Joy Toy Ltd is a company producing toys for children in Halifax. Its summary statement of financial position (balance sheet) as at 31 October 2019 showed the following: Assets £ Property, plant and equipment, net book value 11,500 Inventory 750 Cash at Bank 1,020 Liabilities Trade payables (1,024) Long-term loan (2,500) Net Assets 9,746 Equity Share capital of £1 each 6,000 Retained earnings 3,746 Total equity 9,746 The following information is relevant for the 12 months to 31 October 2020: The company made sales of £65,000 and purchased materials costing £20,500, of which of the materials costing £1,750 remained at the end of the year. Included in this £1,750 were materials costing £550, which had been damaged during the year and were now worthless. Monthly rent was £1,500 and was paid on the first day of each month. Exceptionally, the company paid the rent for November 2020 on the 31 October 2020. Monthly wages were £1,200. On 31 October half of a month’s salary was

Income Statement Sales £65,000 Cost of goods sold £20,050 Gross profit £44,950 Operative expenses Rent 1500X12 months £18,000 Wages 1200X11.5 months £13,800 Wages 1/2 month o/s £600 Advertising £1,100 Office admin expense £700 Utility bills 200X12 £2,400 Depreciation on PPE £3,000 Depreciation on Van1/2 yr £500 Bad debts expense 5% of 1800 £90 Delivery van expenses-May to Oct 20 £800 Interest on 4% loan £100 Accrued telephone bill £20 Total expenses £41,110 Other non operative income/expense Gain on sale of van £1,850 Less: Loss on inventory £550 Net profit befor tax £5,140 Less: Taxes for the year £942 Net profit after tax £4,198 Cost of goods sold Opening stock £750 Purchases £20,500 Less closing stock £1,200 £20,050 Closing stock £1,750 £550 £1,200 Depreciation on Property plant and equipment [PPE] Cost of PPE £20,000 Nov 2016 Less salvage value £5,000 Total depreciation £15,000 Life of asset 5 years Depreciation for 1 year £3,000 Depreciation Delivery van Cost of delivery van £7,000 May 2014 Salvage value £1,000 Total depreciation £6,000 Life of asset 6 years Depreciation for 1 year £1,000 of which depreciation for 6 months in 2020=500 Depreciation to date £6,000 2014 to 2020 Carrying cost Nil Gain on sale £1,850 Interest on loan Loan £2,500 4% int for 1 year £100 of which Paid in April £50 Payable £50 Balance Sheet Assets Property Plant and equipment £11,500 Less Depreciatioin £1,000 £10,500 Cash at bank £3,744 Inventory £1,200 Receivables £1,800 Less: Bad debts £90

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Question 4: Joy Toy Ltd is a company producing toys for children in Halifax

Accounting Jan 12, 2021

Question 4: Joy Toy Ltd is a company producing toys for children in Halifax. Its summary statement of financial position (balance sheet) as at 31 October 2019 showed the following:

Assets	£
Property, plant and equipment, net book value	11,500
Inventory	750
Cash at Bank	1,020

Liabilities
Trade payables	(1,024)
Long-term loan	(2,500)

Net Assets	9,746

Equity
Share capital of £1 each	6,000
Retained earnings	3,746
Total equity	9,746

The following information is relevant for the 12 months to 31 October 2020:

The company made sales of £65,000 and purchased materials costing £20,500, of which of the materials costing £1,750 remained at the end of the year. Included in this £1,750 were materials costing £550, which had been damaged during the year and were now worthless.
Monthly rent was £1,500 and was paid on the first day of each month. Exceptionally, the company paid the rent for November 2020 on the 31 October 2020.
Monthly wages were £1,200. On 31 October half of a month’s salary was still owing to employees.
During the year, the company spent £1,100 on advertising and £700 on office administration. Monthly utility bills amounted to £200.
Property, plant, and equipment at the beginning of the year consists of a machine purchased for £20,000 on 1 November 2016 and a delivery van purchased on 1 May 2014 for £7,000. The machine was to be depreciated over five years to a salvage value of £5,000, and the van over six years to a residual value of £1,000. The company calculates depreciation on the straight-line basis starting from the date of acquisition. On 30 April 2020, the delivery van reached the end of its useful life. The company found one buyer Mr. Lewis and disposed of the delivery van, with sale proceeds of £1,850.
The company sold the van, deciding to use a private delivery service, which cost £800 for the rest of FY2020.
At 31 October 2020, the company had invoices owing from customers of £1,800, but expected that 5% of this would ultimately be uncollectable. The company also had trade payables of £460.
The company borrowed £2,500 of long-term loan on 1 November 2018. The annual interest rate on the loan was 4%, paid half-yearly on 30 April and 31 October. However, the company missed the interest payment due on 31 October 2020.
The company estimated its tax bill to be £942 and had made a partial payment of £242 for tax bill.
On 31 October 2020, the company declared and paid a dividend of £5,414 to ordinary shareholders.
At 31 October 2020, the company had an accrue of telephone bill £20.
At 31 October 2020, the cash balance at Bank account was £0 after all transactions. However, on 31 October, the company received the cash revenue of £380 for the order that is going to be produced to delivered to customers in January 2021. This has not been recognized.
Joy Toy Ltd had not issued any new shares. Also, according to company’s new policy in FY2020, the operating expenses are not divided into administration and distribution cost.

You Are Required To:

a. Prepare the Income Statement of Joy Toy Ltd for the year ended 31 October 2020.

(7 Marks)

b. Prepare the Balance sheet of Joy Toy Ltd as at 31 October 2020.

Identify and explain two qualitative characteristics of useful financial information in accordance with the conceptual framework. Also, discuss whether you have seen these characteristics in Joy Toy Ltd’s financial statements.

(4 Marks)

d. In accordance with IAS 16, describe the effect of change in depreciation estimates on the income statement and balance sheet with examples.

*This is the full question however I only need part a and b done as I am struggling with those only.

Expert Solution

Income Statement
Sales		£65,000
Cost of goods sold		£20,050
Gross profit		£44,950
Operative expenses
Rent 1500X12 months	£18,000
Wages 1200X11.5 months	£13,800
Wages 1/2 month o/s	£600
Advertising	£1,100
Office admin expense	£700
Utility bills 200X12	£2,400
Depreciation on PPE	£3,000
Depreciation on Van1/2 yr	£500
Bad debts expense 5% of 1800	£90
Delivery van expenses-May to Oct 20	£800
Interest on 4% loan	£100
Accrued telephone bill	£20
Total expenses		£41,110
Other non operative income/expense
Gain on sale of van		£1,850
Less: Loss on inventory		£550
Net profit befor tax		£5,140
Less: Taxes for the year		£942
Net profit after tax		£4,198

Cost of goods sold
Opening stock	£750
Purchases	£20,500
Less closing stock	£1,200
	£20,050

Closing stock

£1,750

£550

£1,200

Depreciation on Property plant and equipment [PPE]
Cost of PPE	£20,000	Nov 2016
Less salvage value	£5,000
Total depreciation	£15,000
Life of asset	5 years
Depreciation for 1 year	£3,000

Depreciation Delivery van
Cost of delivery van	£7,000	May 2014
Salvage value	£1,000
Total depreciation	£6,000
Life of asset	6 years
Depreciation for 1 year	£1,000	of which depreciation for 6 months in 2020=500
Depreciation to date	£6,000	2014 to 2020
Carrying cost	Nil
Gain on sale	£1,850

Interest on loan
Loan	£2,500
4% int for 1 year	£100
of which Paid in April	£50
Payable	£50

Balance Sheet
Assets
Property Plant and equipment	£11,500
Less Depreciatioin	£1,000	£10,500
Cash at bank		£3,744
Inventory		£1,200
Receivables	£1,800
Less: Bad debts	£90	£1,710
Prepaid rent		£1,500
Total assets		£18,654
Liabilities
Trade payables	£460
Interest payable on 4% loan	£50
Wages Payable	£600
Accrued telephone bill	£20
Income tax payable(942-242)	£700
Deferred sales	£380
Long term Loan	£2,500
		£4,710
Net Assets		£13,944

Share capital		£6,000
Retained earnings	£3,746
Add: profit for the year	£4,198
Total	£7,944	£7,944
Total Equity		£13,944

Working notes:

Cash Book
Date	Particulars	Debit	Credit	Balance
1st Nov 2019	To opening balance			£1,020
	Sales	£65,000		£66,020
	Purchases		£20,500	£45,520
	Rent for 12 months+1 month advance at 1500 a month		£19,500	£26,020
	Monthly wages for 11.5 months at1200 a month		£13,800	£12,220
	Advertising expenses		£1,100	£11,120
	Office administration		£700	£10,420
	Utility bills at 200 per month		£2,400	£8,020
	Sale of delivery van	£1,850		£9,870
	Delivery van expenses 800*6 months		£800	£9,070
	Interest expense on 4% note		£50	£9,020
	Tax bill payment		£242	£8,778
	To dividends		£5,414	£3,364
	Advance receipts for next year sales	£380		£3,744 ???

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