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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

Accounting

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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