Wilma Tonbridge started a business on 1 January 2013, with her own capital of £10,000 and an interest-free long-term loan of £20,000 from a friend. Her business retails Tonies, which are luxury fluffy toys sold at £80 each. Wilma, who has little knowledge of accounting, produced the following statement of her business’s financial situation at the end of her first year’s trading:

Statement of Finances

£ £

Cash received from selling 2,000 Tonies 160,000 Less Cash paid:

Wages 56,000 Purchases 127,200 Rent and rates 16,000 Office expenses 9,600 Loan repayment 4,000

(212,800)

Loss (52,800)

Wilma sent the statement to her bank manager, who immediately told Wilma to find an accountant to produce a set of financial statements drawn up according to Generally Accepted Accounting Principles. Wilma instructs you to prepare these statements.

You confirm that the amounts shown in Wilma’s statements agree with details shown in the business’s bank statements, but you find the following additional information:

1 A further 600 Tonies were sold in 2013, but not paid for during the year.

2 Wilma estimates that 5% of debtors are doubtful.

3 £7,000 is owed for purchases received in the year.

4 Wilma’s starting capital and the loan were used to buy computers and office furniture and fittings with an estimated life of 5 years and an anticipated residual value of

£5,000.

5 Wages of £1,600 and office expenses of £800 were accrued at the end of the year.

6 Inventory at the end of the year was valued at £9,200.

7 The rent and rates covered the period from 1 January 2013 to 31 March 2014.

8 The wages figure included £32,000 taken by Wilma for her own personal use.

242 ACCOUNT ING AND FINANC E FOR BUSINESS Required:

Prepare an income statement for the year ended 31 December 2013 and a statement of financial position as at that date.