13.3 Bob Dean has been in business for some years as a grocer. He has hitherto prepared his own accounts, but he has experienced increasing difficulties with his Inspector of Taxes. You have been recommended to him as a competent accountant and he telephoned you in December 20X3 to ask you to prepare his accounts for the year ended 30 November 20X3. You were rather busy and did not have enough time to visit Dean; so you asked him to send you certain records. He, accordingly, sent you the following letter:

Dear Mr Land, Thank you very much for agreeing to prepare my accounts for the year to 30 November 20X3.1 am afraid that I can’t find a copy of the accounts I prepared for last year, but I hope that the following information will be sufficient.

I own a small ‘lock-up’ shop, the freehold of which I purchased six years ago for £100,000. My only other assets are vans 1 use to deliver goods and my car which I never use for business purposes. The vans cost me £23,000 on 1 December 20X1. I usually keep my vans for four years and I expect that I will be able to get £7,000 when I trade them in.

I purchase all my goods on credit and I have a small number of credit customers. I had some trouble keeping track of my credit purchases and sales some years ago and I now keep pretty good records of these transactions. I enclose all the invoices, etc. As you can see, I owed my suppliers £18,260 on 30 November 20X2 and £17,250 on 30 November 20X3. My credit customers owed me £2,870 on 30 November 20X2 and £3,240 on 30 November 20X3 but I fear that I won’t be able to collect £560 of the £3,240.

I always count the stock myself and I reckon that my stock on 30 November 20X2 was £5,620 and on 30 November 20X3, £28,430.1 was ill at the end of last November and I didn’t get to counting the stock until the Christmas holiday; so I had to adjust my stock take for sales and purchases since the year end. I am afraid I cannot send you detailed stock sheets because I can’t find them.
As I told you I work full-time in the shop myself but old age is creeping up on me and I’ve employed an assistant since 1 June 20X3.1 pay her £1,000 per month out of the takings. I also pay for my petrol out of the takings, and this came to £600 for the year. Otherwise I pay all my takings into the bank although I do keep a float. It used to be £300 but I increased it to £500 three or four months ago.
I enclose my bank statements for both my current and deposit accounts and, on the former, I have made sufficient notes for you to identify the nature of the payments.
I hope that you 11 be able to keep your fees down. My costs are going up all the time. My insurance premium for both the vans and the shop went up by 40 per cent. In fact the only thing that did not go up was the cost of the van licences.
Yours sincerely B. Dean A summary of the information obtained from Dean’s current account bank statements is given below:
£
£
Balance 1 December 20X2 4,670 Add: Sundry bankings of cash takings 189,920 Sundry cheques received from credit customers 52,550 242,470 247,140 Less: Sundry cheques To suppliers of goods 188,340 Cash drawings 12,000 Sundry expenses 1,180 Other payments 20X3 10 Jan.
Electricity (quarter ended 31 December X2)
300 3 Mar.
Insurance, car (year ended 28 February X4)
460 5 Mar.
Insurance, shop (year ended 31 March X4)
420 20 Apr.
Electricity (quarter ended 31 March X3)
320 29 May Licence for vans (year ended 31 May X4)
400 31 May Insurance, vans (year ended 31 May X4)
840 5Jul.
Repairs, vans 580 17 Jul.
Electricity (quarter ended 30 June X3)
280 1 Aug.
Transfer to deposit account 40,000 8 Oct.
Electricity (quarter ended 30 September X3)
360 245,480 Balance 30 November 20X3 £1,660 The deposit account statement shows that the account was opened with the transfer of £40,000 from the current account on 1 August 20X3 and that no other items were recorded in the period 1 August-30 November.
Your experience of businesses of a similar nature to Dean’s suggests that they usually earn a gross profit of between 25 and 28 per cent. You estimate that your fee will be £450.
Required.-.

(a) Prepare, on the basis of the above information, Dean’s trading and profit and loss account for the year ended 30 November 20X3 and his balance sheet as at that date.

(b) Draw up a list of questions to put to Dean when you meet him.