Universal Limited is a new business that started trading on 1 January 2022 You have recently been appointed as an account manager within the accounting department and have been presented with the following summary of transactions that have occurred during the first year of trading: 1) The owners introduced 180,000 of equity, which was paid into a bank account opened in the name of the business. 2) Premises were rented from 1 January 2022 at an annual rate of 90,000. During the year, rent of 112,500 was paid to the owner of the premises. 3) Rates (a tax on business premises) were paid during the year as follows: 2,400 For the period 1 January 2022 to 31 March 2022 For the period 1 April 2022 to 31 March 2023 4,500 4) A delivery van was bought on 1 January 2022 for 60,000. This is expected to be used in the business for five years and then to be sold for 12,000. 5) Wages totalling 117,000 were paid during the year. At the end of the year, the business owed 2,175 of wages for the last week of the year. 6) Electricity bills for the first three quarters of the year were paid totalling 5,700. After 31 December 2022, but before the financial statements had been finalised for the year, the bill for the last quarter arrived showing a charge of 2,025. 7) Inventories totalling 486,000 were bought on credit. 8) Inventories totalling 39,000 were bought for cash. 9) Sales revenue on credit totalled 504,000 (cost of sales 243,000). 10) Cash sales revenue totalled 129,000 (cost of sales 54,000). 11) Receipts from trade receivables totalled 438,000. 12) Payments to trade payables totalled 393,000. 13) Van running expenses paid totalled 33,600. At the end of the year it was clear that a credit customer (trade receivables) who owed 1,500 would not be able to pay any part of the debt. All of the other trade receivables were expected to settle in full. The business uses straight-line depreciation for non-current assets.

Workings 2

2) Premises were rented from 1 January 2021 at an annual rate of 90,000. During the year, rent of 112,500 was paid to the owner of the premises.

Rent 90,000

Annual rent for the premises recorded in the income statement as expenses

Prepaid rent (112,500 - 90,000) =

The difference between the annual rate and the rent paid are recorded as prepaid rent (recorded as current asset in the statement of financial position)

Cash paid 112,500 recorded as cash payment in cash workings(see workings 15)

Working 3

3) Rates (a tax on business premises) were paid during the year as follows: For the period 1 January 2021 to 31 March 2021 2,400 For the period 1 April 2021 to 31 March 2022 4,500

Rates 2,400 + (4,500/12 * 9) = recorded in the income statement as expenses

Prepaid rates (4,500/12 * 3) = recorded as current asset in the statement of financial position.

Cash paid for rates (2,400 + 4,500)= recorded as cash payment in cash workings(Workings 15)

Working 4

4) A delivery van was bought on 1 January 2021 for 60,000. This is expected to be used in the business for five years and then to be sold for 12,000.

Cash paid 60,000 recorded as cash payment in cash workings (see workings 15)

Van Depreciation recorded in the income statement as depreciation

Initial Cost Resale Value = 60,000 - 12,000 = 9,600 per year

Number of Years 5 years

Working 5

5) Wages totalling 117,000 were paid during the year. At the end of the year, the business owed 2,175 of wages for the last week of the year.

A) Wages Expenses (117,000 +2175) recorded as expenses in the income statement

B) Cash paid 117,000 recorded as cash payment in cash workings (see workings 15)

C) Accrued expenses 2175 recorded as current liability in the Statement of financial position

Working 6

6) Electricity bills for the first three quarters of the year were paid totalling 5,700. After 31 December 2021, but before the financial statements had been finalised for the year, the bill for the last quarter arrived showing a charge of 2,025.

Electricity Bills (5700+2025) ) recorded as expenses in the income statement

Cash paid 5700 recorded as cash payment in cash workings (see workings 15)

Accrued expenses 2025 recorded as current liability in the Statement of financial position

Workings 7 and 8

7) Inventories totalling 486,000 were bought on credit.

8) Inventories totalling 39,000 were bought for cash.

Inventories

Total Inventories Bought (Cash + Credit) Total Cost of Goods Sold (See adjustments no.9 and 10)

486,000 + 39,000 (243,000 + 54,000) =

Cash paid 39,000 recorded as cash payment in cash workings (see workings 15)

Workings 9 and10

9) Sales revenue on credit totalled 504,000 (cost of sales 243,000).

10) Cash sales revenue totalled 129,000 (cost of sales 54,000)

Sales Revenue (Credit +Cash)

504,000 + 129,000 =

Cost of Goods Sold(Credit +Cash)

243,000 + 54,000 =

Cash129,000 recorded as cash received in cash workings(see workings 15)

Workings 11

11) Receipts from trade receivables totalled 438,000.

Trade Receivables

Sales Revenue(credit sales) Receipts from Trade Receivables- Bad debts

504,000 - 438,000 - 1500 (Bad Debt) =

Cash438,000 recorded as cash received in cash workings (see workings 15)

Workings 12

12) Payments to trade payables totalled 393,000.

Trade Payables

Inventories bought on credit Payments for Trade Payables

= 486,000 - 393,000

Cash paid 393,000 recorded as cash payment in cash workings

Workings 13

13) Van running expenses paid totalled 33,600.

Van running expenses 33,600 recorded as expenses in the income statement

Cash paid 33,600 recorded as cash payment in cash workings

Workings 14

At the end of the year it was clear that a credit customer (trade receivables) who owed 1,500 would not be able to pay any part of the debt.

Bad debt expenses 33,600 recorded as expenses in the income statement

Workings 15

Accounting for Cash

Initial Equity 180,000 (Workings 1)

Rent Paid (112,500) (Workings 2)

Rates Paid (2,400 + 4,500) (6,900)(Workings 3)

Delivery Van (60,000)(Workings 4)

Wages (117,000)(Workings 5)

Electricity (5,700)(Workings 6)

Cash Inventories (39,000)(Workings 8)

Cash Sales Revenue 129,000(Workings 10)

Trade Receivables Cash receipts 438,000(Workings 11)

Trade Payables Cash Payments (393,000)(Workings 12)

Van Expenses (33,600)(Workings 13)

Requirement prepare the income statement and statement of financial position.