Question 1: Prudence Pipe Prudence Pipe runs a business from her home selling jewelry and clothes. Her regular customers make purchases on credit and any other customers pay by cheque. Prudence does not keep full accounting records and she has asked you to help her produce some financial statements for the year to 31 March 20X1, using the information that you are given below: Prudence Pipe: Statement of financial position at 31 March 20X0 Non-current assets Car: cost 12,500 Less: accumulated depreciation (2,000) 10,500 Current assets Inventory 5,500 Trade receivables 2,200 Less: provision for doubtful debts (44) 2,156 Cash at bank 11,644 19,300 Total assets 29,800 Liabilities and equity Current liabilities Trade payables 4,500 Other payables 148 4,648 Non-current liabilities: Bank loan 10,000 Total liabilities 14,648 Equity: Proprietors capital 15,152 Liabilities and equity 29,800 Additional information An analysis of the bank statements for the year to 31 March 20X1 shows the following: Cash banked from debtors 58,600 Other cash banked from sales 67,800 Cash received from sale of car 8,500 Cash paid for new car (15,400) Payments to trade creditors (91,724) Wages (6,200) Sundry expenses, including telephone (3,250) Drawings (6,500) Cash atbank at31.3.X1 23,470 1. Prudence sells all of her goods at a 50% mark-up on cost. 2. During the year Prudence paid 4,200 of her cash takings into her personal bank account. 3. The wages shown in note 1 were paid to Prudences daughter, Phillipa, who helps her at the clothes parties. Phillipa also received 3,200 of cheques directly from customers (that is, they were made out to her directly rather than to the business). 4. The new car is to be depreciated on a straight-line basis over four years, at which time its expected resale value is 5,400. 5. Inventory at 31 March 20X1 was valued at 7,000. 6. Prudence is unable to tell you what she owes her trade payables on 31 March 20X1. 7. Other payables on 31 March 20X0 consisted of accrual for Prudences business telephone bill. An invoice for telephone expenses for the quarter to 31 March 20X1, amounting to 215, was received after the year-end. 8. Prudences records of her receivables show that payments had not been received in respect of invoices amounting to 3,868 on 31 March 20X1. A review of these invoices showed that one for 368 related to a customer who has been declared bankrupt with no chance of any money being repaid. 9. The accounts for Prudence are to include a general provision for doubtful debts of two percent of receivables. 10. Interest on the bank loan at 10% p.a. is due for the year to 31 March 20X1. Required: a. An income statement for the year to 31 March 20X1 and a statement of financial position at that date. b. A note to Prudence explaining the benefits of performing regular reviews of her outstanding receivables and payables