QUESTION 1 Bertie and Reginald are managers of a luxury silk ties shop. The business is incorporated under the name of Eulalie plc. As the business is relatively small, they do not employ a full-time accountant but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare a first draft of the accounts for Eulalie plc for the year ending 31st December 2020. A list of closing balances reported in Eulalie ple's statement of financial position as at 31 December 2019 is set out below: Eulalie plc Statement of Financial Position 31st December 2019 Shop premises (cost) 225,000 Shop premises (accumulated depreciation) 13,500 Fixtures and fittings (cost) 50,000 Fixtures and fittings (accumulated depreciation) 15,000 Inventories of ties at cost 169,500 Trade receivables 156,000 Prepayment 2,000 Total assets 574,000 Trade payables 27,850 Accruals 5,000 Bank overdraft 25,000 Bank loan repayable in 2023 135,000 Total liabilities 192,850 Share capital (2 ordinary shares) 250,000 Retained profits 131,150 Focus SACA 31st December 2019 225,000 13,500 50,000 15,000 169,500 156,000 2,000 574,000 Shop premises (cost) Shop premises (accumulated depreciation) Fixtures and fittings (cost) Fixtures and fittings (accumulated depreciation) Inventories of ties at cost Trade receivables Prepayment Total assets Trade payables I Accruals Bank overdraft Bank loan repayable in 2023 Total liabilities Share capital (2 ordinary shares) Retained profits Total equity 27,850 5,000 25,000 135,000 192,850 250,000 131,150 381,150 Further information: i. The shop premises were acquired under a 50-year lease on 1st January 2017 and are being depreciated to a zero residual value. ii. The fixtures and fittings were also bought on 15 January 2017 and are being depreciated over 10 years to a zero residual value. iii. Depreciation is provided on a straight line basis for both the shop premises and the fixtures and fittings iv. The business pays its insurance premium annually on 1st July to cover the following twelve month period. This is the only prepayment as at 31st December 2019. V. The accrued expenses relate to the accountant's fees for preparing last year's accountants, paid in March 2020. This is the only accrual as at 31st December 2019 vi. All profits earned are subject to a 20% corporate income tax paid on 31st December of the year in which they are earned. During the year to 31st December 2020, the following transactions and events took place: 1. The business made cash sales of 644,250. It also made credit sales to internet retailers of 460,725. 2. Inventory costing 568,350 was bought during the year. All items were bought on credit. Suppliers were paid 578,625 over the course of the year. 3. The inventory of ties as at 31st December 2020 cost 206,250. 4. The part-time shop assistant was paid wages of 81,750 over the year. 5. You have been told that the fees charged for preparing the accounts will be 30% higher than last year. The bill will be sent out in March 2021. 6. Receipts from credit customers totalled 408,975. 7. Electricity bills totalling 13,725 were paid during the year. The company has recently changed its electricity supplier and is now being billed quarterly in arrears. At the end of December 2020 the bill for the quarter ended on 28th February 2021 had not yet been received, but was estimated to be 5,175. 8. The insurance premium of 6,750 for the year to 30th June 2021 was paid during July 2020 9. The firm pays 3% interest on the long-term bank loan and 1.5% interest on the overdraft. Interest charges are based on the amounts outstanding on 31st December 2019 and are all paid by the end of the reporting period. 10.In December 2020 60,000 was paid off the bank loan. 11. Administrative expenses of 9,487.50 were paid as they arose. 12. Bertie and Reginald received directors' wages of 7,500 per month each B. Bertie and Reginald meet you to discuss the draft accounts. They say they had hoped to be able to pay a dividend of around 40 pence per share, but they fear that they might not have enough cash to do this. They query whether this is the case, since they are making reasonable profits. a. Calculate the amount of the proposed dividend payment (2 mark) b. Advise Bertie and Reginald if their company can pay out such dividend based on the figures reported in the financial statements you prepared. (1 mark) QUESTION 1 Bertie and Reginald are managers of a luxury silk ties shop. The business is incorporated under the name of Eulalie plc. As the business is relatively small, they do not employ a full-time accountant but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare a first draft of the accounts for Eulalie plc for the year ending 31st December 2020. A list of closing balances reported in Eulalie ple's statement of financial position as at 31 December 2019 is set out below: Eulalie plc Statement of Financial Position 31st December 2019 Shop premises (cost) 225,000 Shop premises (accumulated depreciation) 13,500 Fixtures and fittings (cost) 50,000 Fixtures and fittings (accumulated depreciation) 15,000 Inventories of ties at cost 169,500 Trade receivables 156,000 Prepayment 2,000 Total assets 574,000 Trade payables 27,850 Accruals 5,000 Bank overdraft 25,000 Bank loan repayable in 2023 135,000 Total liabilities 192,850 Share capital (2 ordinary shares) 250,000 Retained profits 131,150 Focus SACA 31st December 2019 225,000 13,500 50,000 15,000 169,500 156,000 2,000 574,000 Shop premises (cost) Shop premises (accumulated depreciation) Fixtures and fittings (cost) Fixtures and fittings (accumulated depreciation) Inventories of ties at cost Trade receivables Prepayment Total assets Trade payables I Accruals Bank overdraft Bank loan repayable in 2023 Total liabilities Share capital (2 ordinary shares) Retained profits Total equity 27,850 5,000 25,000 135,000 192,850 250,000 131,150 381,150 Further information: i. The shop premises were acquired under a 50-year lease on 1st January 2017 and are being depreciated to a zero residual value. ii. The fixtures and fittings were also bought on 15 January 2017 and are being depreciated over 10 years to a zero residual value. iii. Depreciation is provided on a straight line basis for both the shop premises and the fixtures and fittings iv. The business pays its insurance premium annually on 1st July to cover the following twelve month period. This is the only prepayment as at 31st December 2019. V. The accrued expenses relate to the accountant's fees for preparing last year's accountants, paid in March 2020. This is the only accrual as at 31st December 2019 vi. All profits earned are subject to a 20% corporate income tax paid on 31st December of the year in which they are earned. During the year to 31st December 2020, the following transactions and events took place: 1. The business made cash sales of 644,250. It also made credit sales to internet retailers of 460,725. 2. Inventory costing 568,350 was bought during the year. All items were bought on credit. Suppliers were paid 578,625 over the course of the year. 3. The inventory of ties as at 31st December 2020 cost 206,250. 4. The part-time shop assistant was paid wages of 81,750 over the year. 5. You have been told that the fees charged for preparing the accounts will be 30% higher than last year. The bill will be sent out in March 2021. 6. Receipts from credit customers totalled 408,975. 7. Electricity bills totalling 13,725 were paid during the year. The company has recently changed its electricity supplier and is now being billed quarterly in arrears. At the end of December 2020 the bill for the quarter ended on 28th February 2021 had not yet been received, but was estimated to be 5,175. 8. The insurance premium of 6,750 for the year to 30th June 2021 was paid during July 2020 9. The firm pays 3% interest on the long-term bank loan and 1.5% interest on the overdraft. Interest charges are based on the amounts outstanding on 31st December 2019 and are all paid by the end of the reporting period. 10.In December 2020 60,000 was paid off the bank loan. 11. Administrative expenses of 9,487.50 were paid as they arose. 12. Bertie and Reginald received directors' wages of 7,500 per month each B. Bertie and Reginald meet you to discuss the draft accounts. They say they had hoped to be able to pay a dividend of around 40 pence per share, but they fear that they might not have enough cash to do this. They query whether this is the case, since they are making reasonable profits. a. Calculate the amount of the proposed dividend payment (2 mark) b. Advise Bertie and Reginald if their company can pay out such dividend based on the figures reported in the financial statements you prepared. (1 mark)
