Buchanan International Designs is still in business at the end of the first year of trading. Initially the business was set up with £10 000 in cash contributed as capital by Isobel Buchanan. In addition, she received a loan of £40 000 from her Uncle Andrew and his wife Hannah. The loan was made at a commercial interest rate of 6%, with the agreement that it would be repaid at £5000 per year over eight years commencing on the 1 March 20X4. Andrew and Hannah would be willing to make a further £40 000 available in the form of a loan on similar terms if Isobel requires it.

Carpets and rugs are purchased in four sizes. Each size has a different purchase and selling price, The table below summarises the purchases, sales and closing stock at the year-end date, 28 February 20X2, together with the purchase and sales prices, which have remained at the same level throughout the year.

Depreciation accounting Purchase price

£

Small rugs 100 Larger rugs 300 Small carpets 750 Larger carpets 1 000 Selling price Number Number in stock

£

sold 28.02.X2 150 281 42 420 103 8

1 035 16 6

1 380 7

3