Question 1 Printmark is a printing business set up two years ago by Mike and Jean Porter (as a partnership), when Mike was made redundant from his job as manager of a print shop Mike does the printing and delivery work, whilst Jean, a former marketing manager, deals with advertising and administration A list of closing balances as at 31st March 2016, the last day of Printmarks first accounting period, is provided below for you Van at cost 30,900 Van accumulated depreciation 12,360 Bank loan repayable 2021 35,000 Printing equipment cost 24,000 Printing equipment accumulated depreciation 4,000 Inventory 9,800 Trade receivables 6,000 Trade payables 3,000 Allowance for trade receivables 180 Original Capital 15,000 Accrued expenses 1,000 Cash 29,280 Prepaid rent 1,200 Retained profit 30,640 Further information The van was bought at the start of the business on 1st April 2015 They expect it to last for 4 years, and then to sell it for 4,000 The van is depreciated at 40 per year using the reducing balance method The specialist printing equipment was bought second hand when Mike and Jean started their business They expect it to last for 6 years and have no residual value at the end of its useful life The straight line method of depreciation is used for this asset class Page 2 of 8 c Printmark rents their business premises for 400 per month, payable quarterly in advance There is an accrued expense in relation to electricity amounting to 1,000 as at 31st March 2016 An allowance for trade receivables of 3 is maintained During the accounting period to 31st March 2017, the following transactions events took place The printing equipment breaks down frequently, so Mike and Jean sell it during the period for 6,000 In its place, new printing equipment costing 30,000 is bought for cash on 1st October 2016 The new printing equipment has an expected useful life of 10 years, at the end of which the residual value will be 3,000 The companys policy with respect to depreciation is to charge a full years worth of depreciation in the year of purchase and no depreciation in the year of sale Credit sales of 82,800 and cash sales of 23,400 are made The inventory consists of printing consumables (paper, ink, etc) Further supplies costing 63,500 are purchased on credit during the year As at 31st March 2017, inventory totals 8,100 and trade payables total 14,400 Receipts from trade receivables during the period totalled 80,400 Rent payments were made quarterly in advance on the following dates 30th June, 30th September, 31st December, 31st March From 1st January 2017, the monthly rent increased by 10 Electricity bills totalling 3,200 were paid during the period At the end of March, the electricity bill for the quarter March May 2017 had not yet been received, but was estimated at 1,230 (assume electricity is consumed evenly over the quarter) Van expenses for the year totalled 7,600 and were all paid before the end of the period Telephone expenses of 80 a month were paid by direct debit Bank interest of 650 was received during the period Annual interest of 8 was charged on the outstanding loan, half of which was paid during December 2016, with the remaining outstanding at the end of the period Page 3 of 8 No bad debts had been written off during the year However, of the amounts due from credit customers at the end of the year, 2,000 had been outstanding for more than six months and it was considered that it would not be collected as the customers concerned had just filed for bankruptcy The owners have decided to decrease the allowance for trade receivables from 3 to 2 , after writing off the uncollectable amounts, due to improving macroeconomic and industry conditions Each owner withdrew 500 on the first of each month for their personal living costs Required a) Prepare an Income Statement for Printmark for the year ending 31st March 2017 Show clear workings of how you arrived at each income statement figure (19 marks) b) Prepare a Statement of Financial Position for Printmark as at 31st March 2017 Present detailed workings of how you arrived at each statement of financial position figure, including the closing cash balance (21 marks)

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 03, 2024

Question 1 Printmark is a printing business set up two years ago by Mike and Jean Porter (as a partnership), when Mike was made redundant

Question 1

Printmark is a printing business set up two years ago by Mike and Jean Porter (as a partnership), when Mike was made redundant from his job as manager of a print shop. Mike does the printing and delivery work, whilst Jean, a former marketing manager, deals with advertising and administration.

A list of closing balances as at 31st March 2016, the last day of Printmarks first accounting period, is provided below for you:


Van at cost	30,900
Van: accumulated depreciation	12,360
Bank loan repayable 2021	35,000
Printing equipment: cost	24,000
Printing equipment: accumulated depreciation	4,000
Inventory	9,800
Trade receivables	6,000
Trade payables	3,000
Allowance for trade receivables	180
Original Capital	15,000
Accrued expenses	1,000
Cash	29,280
Prepaid rent	1,200
Retained profit	30,640

Further information:

The van was bought at the start of the business on 1st April 2015. They expect it to last for 4 years, and then to sell it for 4,000. The van is depreciated at 40% per year using the reducing balance method.
The specialist printing equipment was bought second-hand when Mike and Jean started their business. They expect it to last for 6 years and have no residual value at the end of its useful life. The straight-line method of depreciation is used for this asset class.

Page 2 of 8

c. Printmark rents their business premises for 400 per month, payable quarterly in advance.

There is an accrued expense in relation to electricity amounting to 1,000 as at 31st March 2016.
An allowance for trade receivables of 3% is maintained.

During the accounting period to 31st March 2017, the following transactions/events took place:

The printing equipment breaks down frequently, so Mike and Jean sell it during the period for 6,000. In its place, new printing equipment costing 30,000 is bought for cash on 1st October 2016. The new printing equipment has an expected useful life of 10 years, at the end of which the residual value will be 3,000. The companys policy with respect to depreciation is to charge a full years worth of depreciation in the year of purchase and no depreciation in the year of sale.
Credit sales of 82,800 and cash sales of 23,400 are made.
The inventory consists of printing consumables (paper, ink, etc). Further supplies costing 63,500 are purchased on credit during the year. As at 31st March 2017, inventory totals 8,100 and trade payables total 14,400.
Receipts from trade receivables during the period totalled 80,400.
Rent payments were made quarterly in advance on the following dates: 30th June, 30th September, 31st December, 31st March. From 1st January 2017, the monthly rent increased by 10%.
Electricity bills totalling 3,200 were paid during the period. At the end of March, the electricity bill for the quarter March May 2017 had not yet been received, but was estimated at 1,230 (assume electricity is consumed evenly over the quarter).
Van expenses for the year totalled 7,600 and were all paid before the end of the period. Telephone expenses of 80 a month were paid by direct debit. Bank interest of 650 was received during the period. Annual interest of 8% was charged on the outstanding loan, half of which was paid during December 2016, with the remaining outstanding at the end of the period.

Page 3 of 8

No bad debts had been written off during the year. However, of the amounts due from credit customers at the end of the year, 2,000 had been outstanding for more than six months and it was considered that it would not be collected as the customers concerned had just filed for bankruptcy. The owners have decided to decrease the allowance for trade receivables from 3% to 2%, after writing off the uncollectable amounts, due to improving macroeconomic and industry conditions.
Each owner withdrew 500 on the first of each month for their personal living costs.

Required:

a) Prepare an Income Statement for Printmark for the year ending 31st March 2017. Show clear workings of how you arrived at each income statement figure.

(19 marks)
b) Prepare a Statement of Financial Position for Printmark as at 31st March 2017. Present detailed workings of how you arrived at each statement of financial position figure, including the closing cash balance.

(21 marks)