Derivation of revenues and expenses I Alain (‘Al’) Addin runs a shop in Brussels, specialising in the sale of handmade lamps from the Orient.

He comes to you early in year 6 with the following balance sheets and extracts from his cash book.

Addin wants to find out the annual income for year 5 from the shop’s activities and to determine the income tax which will have to be paid (at the rate of 40%) on year 5 profits.

86 PART 1 • FOUNDATIONS Balance sheets at start and end of year 5

(amounts in 000)

1/1 31/12

(provisional)

Assets Cash 15 26 Accounts receivable 10 15 Merchandise inventory 55 57 Equipment, net of depreciation 25 27 Total assets 105 125 Equities Accounts payable for merchandise 14 19 Share capital 60 60 Retained profit 31 46 Total equities 105 125

(The 31 December balance sheet is provisional because the income tax liability for the year has not been established.)

Extracts from year 5 cash book (amounts in 000)

Cash sales +81 Collections from credit customers +65 Payments to suppliers of lamps −70 Cash purchases of equipment −7 Salaries and other operating outlays −58 There were no disposals of equipment in year 5. No taxes have yet been paid.

Required Compute each of the following for year 5:

(a) revenue from credit sales;

(b) cost of lamps purchased (all purchased on account);

(c) cost of lamps sold;

(d) depreciation expense;

(e) before-tax profit;

(f) tax expense and liability for the year.

Check figure:

Net profit 9 AppenedixLO1