You are Nigel and you have recently been recruited as an accountant by Canny Accountants LLP. George, an accountant who worked for Canny Accountants LLP for many years, left the practice. On your first day your line manager, Cheryl, told you that you will be responsible for some of George's clients. Cheryl then sent you an email to request that you perform some tasks in relation to three specific clients. The email has an attachment that includes all the detailed information that you need to perform the tasks. Email Dear Nigel Welcome to our team at Canny Accountants LLP, I look forward to working with you. During our first meeting, I mentioned to you that it is my intention that you will take over some of the clients that were managed by George. Please can you perform a few tasks for me in relation to three specific clients whose requests are still pending. You will find more information about these businesses and details of the tasks to perform in the report attached. Many thanks for your help Nigel. Best wishes Cheryl Attachment - Report on three clients Client 1: Sweet Things Sweet Things is a shop selling old fashioned sweets located in the UK. It was opened by Florence on 1 April 2020 and has just completed its first year of trading. Please can you prepare the financial statements for Sweet Things. You can find below the trial balance for the year ended 31 March 2021 that George had already prepared before he left, together with some additional information that you will need to complete the task. Sweet Things - Trial balance as at 31 March 2021 Bank account Buildings Capital Carriage inwards Carriage outwards '000 '000 122 670 400 26 23 Discounts allowed 35 Discounts received Drawings 86 888 18 Equipment and shop fittings - Cost 330 General expenses 94 Insurance 58 Interest on bank loan 6 Land - Cost 225 Light and heat 70 Loan with bank at 6% p.a. 450 Payables 253 Purchases 1,968 Receivables 44 Returns inwards 68 Returns outwards 56 Sales 2,770 Wages 135 3,854 4,303 Additional information: 1. Sweet Things sold some shop fittings on 31 January 2021 for 15,000. The bookkeeper has debited the bank account but posted nothing else in the books of account. The shop fittings cost 17,000 on 1 April 2020. 2. 3. 4. 5. 6. 7. 8. 9. This is the first year of the business, and no depreciation has been charged yet. Florence has decided the following depreciation policy: Buildings are depreciated on a straight line basis over 45 years. Equipment and shop fittings are depreciated at 30% per annum on a reducing balance basis. A full year of depreciation is provided in the year of acquisition and none in the year of disposal. A debt of 3,000 is irrecoverable and an allowance against a further debt of 2,000 is needed. An accrual for light and heat for February and March is needed. Florence took inventory valued at 4,000 from the shop for her own use during the year. Insurance includes 9,000 for the year to 30 November 2021. The loan was taken out on 1 November 2020 for 5 years. The loan must be repaid in five equal instalments commencing on 1 November 2021. A payment for insurance for 11,000 has been credited to the general expenses account and credited to the bank account. On 31 March 2021 the closing inventory had a cost of 171,000 which included some damaged stock items that cost 24,000 but is unlikely to raise more than 2,000. In relation to Sweet Things, please can you: (a) (i) Prepare the journal entries to correct the trial balance and deal with the period-end adjustments. (ii) Show the clearance of the suspense ledger account. (25 marks) (5 marks) (b) Prepare the statement of profit or loss for Sweet Things for the year ended 31 March 2021 and the statement of financial position as at 31 March 2021. (30 marks) Note: Ignore VAT. Client 2: Fruit Associates Before leaving, George extracted some information from the books of accounts for Fruit Associates for the year ended 30 April 2021. He realised that the balance from the individual receivables ledger did not agree with the balance on the receivables control account in the nominal ledger. Total of balances extracted from the receivables ledger Balance on the receivables control account 69,060 76,050 As the balances did not agree, George investigated and identified that a number of errors have been made as follows: (i) The returns inwards book has been undercast by 1,300. (ii) Some credit balances totalling 185 were included in the list of balances extracted from the receivables ledger as debit balances. (iii) The balance on the account of Grapes Ltd for 880 had been written off in the personal receivables ledger and written off in the irrecoverable and impaired debts expense account, but no entry was made in the receivables control account. (iv) A sale on credit to Pear Ltd for 670 was recorded in the purchase day book but not posted in Pear Ltd's subsidiary ledger. (v) Cash received from customers was overcast in the cash book by 270. (vi) Fruit Associates bought some goods from Kiwi Ltd, a customer who is also a supplier to Fruit Associates. A contra entry of 4,780 for the goods purchased has been properly posted through the Kiwi Ltd's personal ledgers, but not dealt with in the control accounts. In relation to Fruit Associates, please can you: (a) Prepare a revised receivables control account and reconcile it to the revised total of the list of balances extracted from the sales ledger. (15 marks) (b) (i) Explain the difference between an irrecoverable debt and an impaired debt, and give an example of each. (7 marks) (ii) State the accounting concept which underpins why we account for irrecoverable and impaired debts at the end of each accounting period. Note: Ignore VAT. (3 marks) Client 3: Jonathan George was approached by a client, Jonathan, who is a sole trader and is planning on incorporating his business and making it into a limited company. Jonathan has heard that the layout of company financial statements is different to that of a sole trader, but is not sure what the differences are nor why they are different. He has asked Canny Accountants LLP to explain the differences. In relation to Jonathan's query, please can you: (a) Explain why the presentation of the financial statements of companies is different to that of a sole trader. (8 marks) (b) Briefly outline the differences between sole trader and company financial statements. (7 marks)