Spitney Briers has taken the pop world by storm over the first six months of his career and has asked you to prepare some financial statements for that trading period.

Income

Spitney sold 40,000 DVDs during the period and he is entitled to receive half of the 10 retail price. Eighty per cent of these monies had been received in cash during the six-month period.

Spitney had made three appearances on Top of the Pops during the period, earning 10,000 in cash for each appearance. In the final month of the period, he was the support artist for Timberin Justlake at the London Arena. This earned him 45,000 but it will be at least another two months before he receives the cash.

Expenditure

Because of his popularity, Spitney had to hire a minder at the start of month 4. The wages are 10,000 per month but the minder is paid one month in arrears. Travel costs for the six-month period, all paid in cash, were 42,000.

At the beginning of month 1, Spitney invested 120,000 in cash in a recording studio for his basement flat. Although technology continues to change rapidly, it is expected that Spitney will benefit from the studio for three years.

To generate publicity for his career, Spitney paid 24,000 in month 1 to the editor of Popteens Monthly. This guaranteed Spitney a one-page advert in the magazine for the whole of the year.

Tax

The Inland Revenue have been monitoring Spitneys success and have advised the singer to provide for a tax charge of 30,000 to cover the six-month trading period.

Investment

Spitneys two best mates from school provided the investment to get his career up and running. They set up Spitney Ltd by each buying 10,000 1.25 shares in the company. They are not anticipating any dividends during the early trading periods.

In addition, the bank gave Spitney an interest-free loan of 200,000 in month 1. This was repaid by Spitney in month 5.

Prepare an income statement for Spitney Ltd for the first six months and a balance sheet at the end of the six month period.