The Statements of Financial Position for the last two years trading of Toys are You Ltd are presented below:

Statement of Financial Position as at 31 December

Non-current Assets 2020 2019

000s 000s

Machines at cost 400 300

Less depreciation to date 280 240

120 60

Current Assets

Inventory 10 20

Receivables 50 50

Bank 20 20

80 90

Less Current Liabilities

Payables 30 20

30 20

Net Current Assets 50 70

Net Assets 170 130

Capital and Reserves

Issued Share Capital 150 100

Reserves 20 30

170 130

Sales for 2021 are expected to be 30,000 per month. Customers will still be given one months credit on sales. The gross margin on sales is expected to be 40%. Toys are You Ltd have also managed to negotiate two months credit on all their purchases from 1^st January 2021. By the end of 2021 inventory will be expected to be at a level of one months worth of sales.

Total running expenses (excluding purchases and depreciation) are expected to be 10,000 each month, payable as incurred. The machines are depreciated on a straight-line basis assuming an estimated useful life of ten years. The entity will want to purchase further machinery next year to the value of 100,000, possibly by cash.

Required:

1. Prepare a statement for Toys are You Ltd showing the companys forecast cash position at 31 December 2021. (5 marks)

2. Prepare the entitys Income Statement and Statement of Financial Position for the year ending 31 December 2021. (10 marks)

3. Evaluate the statements you have produced and give any advice to Toys are You Ltd that you think may help the entity in 2021. (5 marks)

4. Discuss the concepts used to produce the Income statement which means that profit is very different to cash. (5 marks)

(Total: 25 marks)