Using a worksheet draw up the balance sheet and profit and loss account for the business whose transactions are set out below:

Month 1 Bert put in £9000 of his own money and transferred his own car into the name of the business. At the time of the transfer it would have cost £6000 to buy a new model of the same car but as the car was one year old its second-hand value was only

£4000.

The business then bought a machine for £4000 paying for this in cash, and at the same time bought a second machine on credit terms. The credit terms were a deposit of £1000 which was paid in cash and two equal instalments of £900 payable at the start of months 4 and 7 respectively. The cash price of the machine was £2 500.
Month 2 Bought raw materials for £3000 and paid cash and made cash sales of £3000.
Month 3 Paid rent in arrears for the three months, amounting to £600 in cash.
Paid wages of £1500 for the three months to date.
Made cash sales of £4000 and purchased more raw materials, again for cash, amounting to £8000.
Month 4 Paid instalment on machine of £900 in cash and made cash sales of £4000.
Months 5-7 Bought raw materials for cash for £2000 and made cash sales of £5000, paid wages for three months of £1500, the rent for three months (£600) and the second and final instalment on the machine of £900.
Months Made cash sales of £14 000, bought raw materials for cash for 6-12 £6000, paid wages for six months of £3000 and paid rent for three months of £600.
At the end of the year he has raw materials in stock which cost £2000. He calculates that the car will last two more years after which he thinks he will be able to sell it for £400. The machines have useful lives estimated at three years and will then be sold for £100 each. Since Bert is not very good with figures he opts for straight line depreciation on all the fixed assets.