On 1 July 2011 Mark Farmer opened a shop called Miphone Ltd. The trial balance for the first year is shown below:

Additional information at 30 June 2012;
■ Inventory is valued at £890.
■ Advertising paid in advance is £260.
■ Accrued expenses are lighting and heating £540, telephone and Internet £290, and general expenses £160.
■ Estimated current tax payable is £1,200.
Required

(a) Using a spreadsheet, prepare a draft statement of comprehensive income for Miphone Ltd for the year ended 30 June 2012, classifying expenses by nature.

(b) After taking advice from his accountant, Mark has decided to depreciate equipment using the straight-line method over 5 years, with no residual value. He has also decided to make an allowance for doubtful receivables and has decided to base it on 10% of opening trade receivables. Make these adjustments to your spreadsheet and generate a statement of comprehensive income for Miphone Ltd for the year ending 30 June 2013, classifying expenses by nature.

(c) The accountant’s final suggestion is that Mark should reclassify the expenses by function: 50% to distribution costs and 50% to administrative expenses, with the exception of advertising which should be allocated 100% to distribution costs, and the allowance for doubtful receivables which should allocated 100% to administrative expenses. Revise your statement of comprehensive income to present the expenses classified by function.

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Miphone Ltd Trial balance at 30 June 2012 Debit Credit E E Revenue 75,200 Purchases 12,160 Plant and equipment at cost 25,000 Trade receivables 1,200 Trade payables 1,600 Cash 3,260 Other income 1.200 Salaries 24,000 Rent and rates 18,000 Insurance Advertising 7,200 860 Lighting and heating 620 Telephone and Internet 450 General expenses 250 Share capital at 1 July 2011 15,000 93,000 93,000