3.27 LO7 The following is the statement of financial position of TT Motors at the end of its first year of trading

(from Self-assessment Question 3.1):

TT MOTORS Statement of financial position as at 31 December 2016

$ $

Current assets Cash at bank 750 Accounts receivable 19,600 Prepaid expenses 5,300 Inventory 65,000 90,650 Non-current assets Motor vehicles—cost 32,000 Accumulated depreciation (4,000)

28,000 Total assets 118,650 Current liabilities Accrued expenses 1,250 Accounts payable 22,000 23,250 Owners’ equity Original 70,000 Retained profit 25,400 95,400 Total equity and liabilities 118,650 Prepaid expenses included $5,000 for rent and $300 for rates.

Accrued expenses included wages of $630 and electricity of $620.

During 2017, the following transactions took place:

1 The owners withdrew capital in the form of cash of $20,000.

2 Premises continued to be rented at an annual rental of $20,000. During the year, rent of $15,000 was paid to the owner of the premises.

3 Rates on the premises were paid during the year for the period 1 April 2017 to 31 March 2018, amounting to $1,300.

4 A second delivery vehicle was bought on 1 January for $26,000. This is expected to be used in the business for four years and then to be sold for $16,000.

5 Wages totalling $36,700 were paid during the year. At the end of the year, the business owed

$860 of wages for the last week of the year.

6 Electricity bills totalling $1,820 for the first three quarters of the year were paid. After 31 December 2017, but before the accounts had been finalised for the year, the bill for the last quarter arrived showing a charge of $690.

7 Inventory totalling $67,000 was bought on credit.

8 Inventory totalling $8,000 was bought for cash.

9 Sales on credit totalled $179,000 (cost $89,000).

Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2018 — 9781488616570 — Atrill/Accounting for Business Students 1e Atrill, Peter, et al. Accounting for Business Students eBook, P.Ed Australia, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/usyd/detail.action?docID=5220577.

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156 ACCOUNTING FOR BUSINESS STUDENTS 10 Cash sales totalled $54,000 (cost $25,000).

11 Receipts from accounts receivable totalled $178,000.

12 Payments to accounts payable totalled $71,000.

13 Vehicle running expenses paid totalled $16,200.

Prepare a statement of financial position as at 31 December 2017 and an income statement for the year to that date.

1 Advise Paul on whether or not he should proceed with the purchase.
2 Advise Paul as to whether the price is appropriate.
3 Explain why not separating the figures into those relating to personal or business aspects may cause problems for decision-making.
4 Attempt to summarise the above information in such a way as to calculate a profit figure for the business.
5 Summarise the aspects of the decision that relate to Paul’s artistic leanings.
6 What other factors might be worth considering by Paul in reaching a final decision?