Question

On the 1st January in Year 1, an unlimited liability business called AFB commenced business life. The business deals in buying and reselling useless items. Below is what happened in summary in its first year: 1. On 1 January it started business. Its owners injected £260,000 capital. It also obtained a 5 year bank loan of £150,000 at an annual interest rate of 18%. The total proceeds were placed in the business bank account. 2. Distribution and administration expenses totalled £80,000 for the year. 3. During January, £140,000 was spent on rent of buildings for the first 16 months, and £220,000 on tangible long-lived assets to be used for 8 years. Fixed assets are to be depreciated using the straight line approach. 4. Marketing expenses incurred totalled £28,000 for the year. The business paid off £15,000 of these expenses. 5. Inventories totalling £250,000 were purchased on account during the year, but £25,000 remained unpaid at the end of the year. 6. During the year, 75% of inventories were sold to customers on account and this generated total revenue of £650,000. At the end of the year, £200,000 was owed by the account customers. Also at the end of the year the company decided to create a provision for bad and doubtful debts equivalent to 10% of the year end receivables. 7. During the year, the business paid all the interest on the loan. 8. The owners took no salary but decided to reward themselves with cash drawings of £75,000.

Answer 1

From Cash Flow Statement
Total Cash Inflow	860000
Total Cash Outflow	782000
Cash From Trade Receivables	450000
Rent Paid	140000
Marketing Paid	28000
Interest Paid	27000
Trade Paybles Paid	225000
From The Income Statement
Revenue	650000
COGS	187500
Gross Profit	462500
Depreciation	27500
Rent Exp	105000
Distribution & Administration Exp	80000
Provision for bad and doubtful debts	20000
Net Profit/ Loss	175000
From The Balance Sheet
Non Current Assets	192500
Total Current Assets	355500
Cash At Bank	78000
Net Receivables	180000
Total Equity	360000
Total Non Current Liabilities	150000
Total Current Liabilities	38000

Working(Journal Entries)

Particulars	Amt
Bank A/c Dr.	260000
To Owners Capital A/c	260000
Bank A/c Dr.	150000
To Loan From Bank	150000
Distribution & Admin Exp	80000
To Bank A/c	80000
Rent A/c Dr	105000
Prepaid Rent A/c Dr	35000
To Bank A/c	140000
Fixed Aseet A/c Dr.	220000
To Bank A/c	220000
Marketing Exp	28000
To Bank A/c	15000
To Outsatnding Exp	13000
Purchase A/c Dr	250000
To Bank A/c	225000
To Sundry Creditors A/c	25000
Debtors A/c Dr	650000
To Sales A/c	650000
Bank A/c Dr.	450000
To Debtors A/c	450000
Bad Debt A/c Dr	20000
To Provison For Bad Debt	20000
Interest A/c Dr	27000
To Bank A/c	27000
Capital A/c Dr	75000
To Bank A/c	75000
Depreciation A/c Dr	27500
To Fixed Asset A/c	27500