Current Assets and Current Liabilities - Assignment Example

TMA 03 a) From the information provided above, prepare a summary of Lulu the Clown’s income and expenses for the week ended 7 May, showing the profit earned. Ignore any depreciation on Lulu the Clown’s assets. (2 marks) Income and Expenses £ Appearance Fees 650 Travel Expenses (15) Profit Earned £635 1 (b) Draw up a list as at 7 May of Lulu the Clown’s fixed assets, current assets and current liabilities, and then calculate what Lulu’s net assets are at that date. (6 marks) Fixed Assets £ Costume 500 Equipment 1,000 Puppet Dolls 200 Total 1,700     Current Assets   Bank 650     Current Liabilities   Clown Party Supplies 200     Net Assets 2,150 2 (a) From the information provided above in Question 2, construct a simple cash account for Lulu the Clown for the week from 8 to 14 May 2008. (13 marks) Cash Account  £ Opening Bank Balance 650     Operations   Appearance Fees 650 Ferrets and Animal Food (290) Travel Expenses (23) Cleaning Expenses (15) Cash from Operations 322     Capital Expenditure   Puppet Dolls (200)     Net Cash Flow 772 2 (b) Explain the purpose of a cash account (also called cash flow statement in B120 Book 3) and what an analysis of the cash account can reveal about a business. (8 marks) A cash flow statement is a financial report that provides the amount of cash that has been received and paid by a business during a particular period of time. One of the important aspects to analyse in a company is its liquidity. A cash flow generally helps evaluate the performance of the business, check for liquidity, generate rate of returns and to examine the growth of a business. A cash flow can be made on any date and can be made for any period of time. 3 (a) From the information provided in Question 3 above, prepare Lulu’s profit and loss account (or income statement) for the trading period ended 31 December 2008. (Note: you should use the format of the profit and loss account as it has been used in Section 3 of Book 3). (20 marks) Profit and Loss Account   £ Revenue   Sales of Gifts 1,850 Appearance Fees 10,350 Costs   Gifts (Clown Party Suppliers) 1,100 Stock in hand 50 Gross Profit 11,150     Operating Expenses   Wages 1,300 Travel Expenses 950 Ferrets and Ferret Food 290 Cleaning 110 Depreciation 540 Operating Profit (PBIT) 7,960     Withdrawals 3,985     Retained Profit 3,975 3 (b) Explain the purpose of a profit and loss statement and what an analysis of the profit and loss statement can reveal about a business. (8 marks) A profit and loss statement is a report that summarizes the revenues and expenses of a company. This report shows the net profit or loss of the company for a specified period. It generally includes all the operating activities and all activities that would affect the gains or losses of a business. The total revenues and the expenses incurred are presented in the income statement, irrespective of the actual cash received for sales or the actual cash paid out on expenses. Both the operating and non operating expenses are included and the statement also lists any dividend payments made or the earnings available to the shareholders. This statement is one of the most useful statements for investors as it provides the investors with a detailed report of the company’s performance. The overall operating performance of a company and its income can be obtained only from a Profit and Loss Account. 4 (a) From the information given in questions 1 to 3 above, prepare Lulu’s balance sheet as at 31 December 2008. (25 marks) Balance Sheet  £ Fixed Assets 5,200 Accumulated Depreciation 540 Total 4,660     Current Assets   Cash 460 Bank 120 Stock 50 Accounts Receivable 350 Prepaid Expenses 50 Total 1,030     Current Liabilities   Accounts Payable 200     Net Assets 5,490     Owners Equity and Reserves   Owners Capital 1,515 Retained Profit 3,975 Total 5,490 4 (b) Explain the purpose of a balance sheet and what an analysis of the balance sheet can reveal about a business. (8 marks) A balance sheet is a statement of the financial position of an organization. This financial report is normally prepared at the end of a financial year and includes details of all the assets owned by the company, liabilities, and ownership equity as of a particular date. A balance sheet is a snap shot of a company’s financial condition and is one of the most important financial statements. This is the only statement that applies to a single point in time. The balance sheet provides a clear view on what the company owns and what it owes, in other words, the value of the company is depicted in the balance sheet. It also includes the details of the investments made by the investors and shareholders. Read More