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On the 1st January in Year 1, an unlimited liability business called AFB commenced business life. The business deals in buying and reselling useless items.
On the 1st January in Year 1, an unlimited liability business called AFB commenced business life. The business deals in buying and reselling useless items. Below is what happened in summary in its first year: 1. On 1 January it started business. Its owners injected 260,000 capital. It also obtained a 5 year bank loan of 150,000 at an annual interest rate of 18%. The total proceeds were placed in the business bank account. 2. Distribution and administration expenses totalled 80,000 for the year. 3. During January, 140,000 was spent on rent of buildings for the first 16 months, and 220,000 on tangible long-lived assets to be used for 8 years. Fixed assets are to be depreciated using the straight line approach. 4. Marketing expenses incurred totalled 28,000 for the year. The business paid off 15,000 of these expenses. 5. Inventories totalling 250,000 were purchased on account during the year, but 25,000 remained unpaid at the end of the year. 6. During the year, 75% of inventories were sold to customers on account and this generated total revenue of 650,000. At the end of the year, 200,000 was owed by the account customers. Also at the end of the year the company decided to create a provision for bad and doubtful debts equivalent to 10% of the year end receivables. 7. During the year, the business paid all the interest on the loan. 8. The owners took no salary but decided to reward themselves with cash drawings of 75,000. FROM THE CASH FLOW STATEMENT: Total cash inflow: Total cash outflow: Cash from trade Receivables: Rent paid: Marketing paid: Interest paid: Trade Payables paid: FROM THE INCOME STATEMENT: Revenue: COGS: Gross Profit: Depreciation: Rent expense: Distribution and Administration expense: Provision for bad & doubtful debts: Net Profit/Loss: FROM THE BALANCE SHEET: Non-current assets NBV: Total current assets: Cash at bank: Net receivables: Total Equity: Total non-current liabilities: Total current liabilities
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