4.4 Bert Negus inherited £200,000 during February 1995. This provided him with an opportunity to leave his job as an electrical maintenance engineer with a local company and to start up his own business. After giving the matter much consideration he decided to set up as a retailer of electrical appliances from 1 May 1995 and he deposited £150,000 into a business bank account as an initial transaction.

Mr Negus identified leasehold premises which he thought suitable for his purposes.

The property included a display room, store room and office. On 2 May 1995 he signed a five year lease at a cost of £80,000. The full lease payment was payable in advance and Mr Negus met this obligation on 4 May 1995. On the same day he also purchased shop fittings for £7,000 which he thought would have a useful life of about five years, and stock for £68,000.

After a slow start, business gradually picked up as the year progressed and on 30 April 1996 Mr Negus wondered whether his business had made a profit during the first year of trading. Mr Negus summarized his bank statements from 1 May 1995 to April 1996.

Receipts £000 Payments £000 Initial deposit 150.0 Lease 80.0 Sales 295.7 Shop fittings 7.0 Bank interest 0.5 Stock in trade 244.6 Wages 9.2 Motor vehicle 5.7 Postage and stationery 0.4 Advertising 4.8 Heat, light and water 4.1 Insurance and telephone 1.8 Drawings 15.0 Miscellaneous expenses 8.7 Investment account 30.0 Balance c/f 34.9 446.2 446.2 During the year Mr Negus purchased a motor vehicle which he thought was worth £5,100 at 30 April 1996. Mr Negus was allowed discount from suppliers during the financial year.
This totalled £600.
At 30 April 1996 unsold stock was valued at £37,500. At the same date Mr Negus owed his suppliers £5,400 and customers owed him £3,800. An electricity bill for £300 in respect of the quarter ending 31 May 1996 was also unpaid.
On 2 January 1996 Mr Negus transferred part of his surplus bank balance into an investment account which carries an interest rate of 5 per cent per annum and where the minimum investment period is two years. Mr Negus banked all of his takings during the year with the exception of £7,900 which he used to pay the wages of casual help in his shop.

(a) Prepare Mr Negus’ trading and profit and loss account for the year ended 30 April 1996, and a balance sheet as at that date.
(16 marks)
(ICSA, Paper 6, Introduction to Accounting, June 1996) (Adapted)