At the company Board Meeting in March, considerable concern is expressed by the directors at the continuing loss-making operation and the cash flow problems evident in the rising bank overdraft, which is over the 20,000 limit agreed with the bank.

After some discussion, the directors agree to make personal loans to the company totalling 5,000 - to be paid into the company's bank account in March. The directors agree that these loans are repayable as soon as the company's cash flow problems are resolved.

In addition, the directors agree to accept the offer of 20,000 loan finance from the Bank The loan will be repayable over four years, with the first capital repayment due to take place on 1 April 2022. Since the directors have been negotiating this finance for some months, acceptance of the bank's offer will allow the loan funds to be deposited into the company's bank account on 6 March 2021. During March 2021, the following transactions also occur:

1. Monthly salaries of 3,000 are paid. 2. Plant and machinery, costing 5,000, is purchased and paid for by cheque. 3. Cash of 12,580 is paid to creditors. 4. Insurance premiums of 6,000 are paid (for twelve months to 31 December 2021). 5. Inventory, costing 3,000, is sold for 6,500, on credit. 6. Cash of 10,500 is received from debtors. 7. Inventory is purchased for 9,500, on credit terms. 8. Inventory, costing 6,500, is sold for 13,250 for cash.

You are requested to prepare the financial statements for March 2021 as soon as possible after 31 March 2021. However, you are aware of other items which may require to be reflected in the March financial statements.

These are:

1. A vehicle repairs bill of 400 for March 2021 will be paid in April 2021 2. A customer, owing 1,200, has gone into liquidation in early April 2021. 3. An adjustment is required for the prepaid amount of the insurance premium. 4. Quarterly depreciation charges require to be provided - 20% on plant and 25% on motor vehicles on a straight-line basis.

TASKS

1. Prepare the Accounting Equation as at 31 March 2021, detailing the impact of each of the transactions in March on the accounting records. 2. Prepare the Profit and Loss Account for March 2021. 3. Prepare the Balance Sheet as at 31 March 2021.

At 28 February 2021, you have prepared the following Balance Sheet FIXED ASSETS Plant & Machinery Motor Vehicles 38,000 22,000 60,000 CURRENT ASSETS Inventory Debtors CURRENT LIABILITIES Creditors Bank Overdraft 9,400 26,500 35,900 27,500 20,700 48.200 NET CURRENT LIABILITIES (12,300) 47,700 CAPITAL AND RESERVES Ordinary Share Capital (1 shares) Accumulated Losses 75,000 (27.300) 47.700