3.1 The following balance sheet relates to the affairs of Columbus who runs a second-hand car business. The balance sheet of his business at 31 December 20X1 is as follows:

Balance sheet as at 31 December 20X1

£ £

Fixed assets 2,000 Current assets Stock of cars 2,700 Trade debtors 1,000 Bank 1,000 4,700 Less: Current liabilities Trade creditors − 200 Working capital 4,500 6,500 Financed by:

Capital 6,500 6,500 Transactions undertaken in January 20X2:

1 Columbus collects the £1,000 owing in respect of the second-hand car sold in December 20X1.

2 Columbus wins £500 on the football pools and pays the proceeds into his business bank account.

3 Columbus sells for £1,200 a car that was in stock on 31 December 20X1 at a value of

£1,300.

4 Columbus withdraws £50 for private use.

5 Columbus purchases a friend’s car for £150, and promises to pay him in February.

6 Columbus purchases a new machine for £700 and pays in cash.

(a) Give the totals for gross assets, net assets and working capital based on the figures in the above balance sheet.

(b) Taking each of the transactions listed above separately, give their effect (increase or decrease) on:

(i) profit;

(ii) net assets;

(iii) gross assets;

(iv) working capital.