CHAPTER 8 Practice Questions
Question 6 On 01/01/2013, T. Lee purchased a business for €400,000 which included the following tangible assets and liabilities: premises €250,000, stock €16,000, debtors €12,200, equipment €35,000, trade creditors €15,000, wages due €2,500, 3 months rates prepaid €550, 3% investment €50,000.
During 2013, T. Lee did not keep a full set of accounts but estimates that gross profit was 10% of sales and was able to supply the following information on 31/12/2013:
(i) Each week, T. Lee took goods from stock to the value of €60 and €80 cash for household expenses.
(ii) On 01/10/2013, T. Lee borrowed €130,000 to buy an adjoining building of €160,000. He used €30,000 from his personal funds. It was agreed that the sum borrowed would be repaid in 20 equal bi-yearly installments. The first installment is due on 01/01/2014. Interest is to be paid at the end of each month and a rate of 5% per annum applies.
(iii) During the year, T. Lee lodged to the business bank account, a grant of €8,000 and investment interest of €1,000. T. Lee made the following payments from the business bank account during the year: light and heat €3,500, equipment (01/09/2013) €15,000, interest €500, general expenses €45,000, annual rates €2,500.
(iv) T. Lee estimates that 20% of rates payable, light and heat used and 20% of interest payable was for personal use.
(v) During the year, bad debt provision is estimated to be 2% of debtors. Depreciation rates for equipment is to be charged at 12% as at 31/12/2013.
(vi) Included in the assets and liabilities of the business on 31/12/2013 were stock €15,000 (including heating oil €500), electricity due €250, debtors €16,000, bank overdraft €3,000 and trade creditors €17,000.
You are required to prepare, with workings, the: (a) Statement/Balance Sheet showing T. Lee profit or loss for the year ended 31/12/2013. (b) Trading, Profit and Loss Account, in as much detail as possible for the year ended 31/12/2013.
Bi-yearly means twice a year. Therefore, the loan will be repaid in 10 years.
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