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Homework answers / question archive / Business Accounting F84M 34 LO1 Assessment 1 Open book conditions - 2 arithmetic and 2 errors of principal Required: You are a business manager with Sandwells Ltd, a manufacturer producing mainly Shoes
Business Accounting F84M 34
LO1 Assessment 1
Open book conditions - 2 arithmetic and 2 errors of principal
Required:
You are a business manager with Sandwells Ltd, a manufacturer producing mainly Shoes. Your director has asked you to produce the draft financial statements for the year ended 31 July 2020, based on the trial balance below which has been extracted from the accounting system and the information in the notes to the accounts. You have been given a pro forma layout to assist you in your task.
Trial Balance for Sandwells Ltd at 31 July 2020
Debit Credit
£000 £000
Administration expenses 865
Bank 243
8% Debentures 2024 200
Trade Receivables 560
Investments 820
Distribution costs 112
Investment income 55
Equipment at cost 180
Equipment (accumulated depreciation) 60
Ordinary share capital (400,000 £1 shares) 400
Dividends Paid (31 January 2020) 50
Buildings at cost 420
Buildings (accumulated depreciation) 140
Retained earnings (at 1 August 2019) 564
Purchases 1,410
Inventory (at 1 August 2019) 124
Trade payables 481
Revenue 2,884
4,784 4,784
Outcome 1 - Prepare financial statements
Continued
Notes to the accounts
1) Inventory at 31 July 2020 was valued at £2,12,000
2) The following expenses were still outstanding at 31 July 2020:
Administration costs £32,000
3) The Distribution costs include a prepayment relating to the following year of £16,000
4) Depreciation is to be charged on:
Buildings £42,000
Equipment £18,000
5) Corporation tax charge on profits for the year is estimated to be £1,71,000
6) Debenture interest is outstanding at the year-end.
You are required to produce an Income Statement, a Statement of Financial Position and a Statement of Changes in Equity as at 31 July 2020 (for internal use). Relevant working notes should be submitted.
Income Statement for the year ended
£000 £000
Revenue
Cost of Sales
Gross Profit
Expenses
Profit/Loss on disposal of operations
Operating profit
Finance income/investment income
Finance costs
Profit on ordinary activities before taxation
Taxation
Profit on ordinary activities after taxation and profit for the financial year
Statement of Financial Position at
£000 £000
Non-current assets
Current assets
Total Assets
Capital and Reserves
Equity
Non-current liabilities
Current liabilities
Total Equity and Liabilities
Statement of changes in equity
Share Capital Retained Earnings Total Equity
£000 £000 £000
Balance at
Changes in Equity
Issue of Share Capital
Profit for year
Ordinary dividends paid
Balance at
LANCASTER PLC
Lancaster plc would like to embark on an expansion programme which includes investment in new buildings and machinery. In this regard you are required to examine the financial accounts given and provide the following information:
1. Identify the major inflows and outflows of cash over the previous 12 months.
2. Analyse the company's recent financial performance, identifying at least 6 key financial ratios which cover the areas of liquidity, profitability, efficiency and capital structure.
3. Recommend actions that could be taken to improve the company's performance and finances, based on your analysis.
INCOME STATEMENT FOR THE YEAR ENDING 31 DECEMBER
2019 2020
£000 £000
Revenue 4,900 5,100
Cost of sales (2,510) (2,600)
Gross profit 2,390 2,500
Distribution costs (770) (778)
Administration costs (195) (206)
Operating profit 1,425 1,516
Finance costs (160) (160)
Profit before tax 1,265 1,356
Corporation tax (110) (130)
Profit after tax 1,155 1,226
Retained earningsbrought fwd 865 1,890
2,020 3,116
Dividends (130) (850)
Retained earnings carried fwd 1,890 2,266
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
2019 2020
£000 £000 £000 £000
Non-current Assets
Intangible assets 350 1,280
Tangible assets 1,490 1,580
Investments 1,300 1,300
3,140 4,160
Current Assets
Inventory 820 1,005
Trade receivables 985 462
Bank 140 859
1,945 2,326
Total Assets 5,085 6,486
Capital and reserves
Ordinary shares 1,500 2,000
Retained earnings 1,890 2,266
3,390 4,266
Non-current Liabilities
Long term loans 220 220
Debentures 900 900
1,120 1,120
Current Liabilities
Trade Payables 465 970
Corporation tax 110 130
575 1,100
5,085 6,486
CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2020 £000
Net cash inflow from operating activities 2,423
Net finance costs (160)
Taxation expenses (110)
Investing activities (1,084)
Financing activities 500
Dividends paid (850)
Increase in cash and cash equivalents 719
NOTE 1
Reconcilliation of profit to cash flows from operating activity
£000
Operating profit 1,516
Depreciation 64
Increase in inventory (185)
Decrease in trade receivables 523
Increase in trade payables 505
Cash generated from operating activities 2,423
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