18.1 Trevor Jones started business by investing £200,000 in a new trading firm. He then buys 1,000 units of stock for resale at £200 each. Just before the end of his first trading period he sold all the units for cash, at £350 each. At the time of the sale, the replacement cost of one unit was £250.

(a) Assuming that Trevor has no expenses other than cost of goods sold, calculate his profit for the period, using historical cost.

(b) Assuming that Trevor draws out the maximum amount (i.e. an amount equal to his profit for the period), calculate the firm’s cash position as at the end of the year.

(c) If he wishes to go on trading at the same level, what would Trevor have to do, given the cash position in (b)?

(d) Show how the distributable profit could be more usefully calculated.