11-04-2005, 05:40 AM
ok.i will show u all the info.
Your friend, who started a small building business a year ago (1st september 2004) has asked you to have a look at his financial records for the year to 31st August 2005. He has made an attempt to calculate his profit for the year, but is not sure if it is correct. He has given you the following data on which he based his calculations
Business Assets
Premises. Small unit on industrial estate. Cost £55,000 in september 2004. A similar one has just been sold for £65,000, but this is in better condition and should be worth around £70,000. Owner's valuation is £70,000
Van.Bought second hand for £9000 in september.Is still in good condition and should last for at least three more years. Owner's valuation £9,000
Equipment. Purchased in a closing down sale. Price paid £15,000, but would have cost at least £25,000 if not bought in sale. Owner's value £25,000
Stock. Cost £12,000 before trade discount of £1000. 20% is added on to cost before charging to customers. Owner's Value £ 14,400
Amounts due. At the present time customers owe in total £18,000. This includes £2,400 for a job done in november 2004, and the customer has now moved. It is hoped that this can still be calculated. Owner's value £ 18,000
Goodwill. The business is generating a good reputation and this is adding value to the business, estimated at around £15,000. Owner's value £15,000
Total value of business assets £151,400
Amounts Owed.
Bank Overdraft. This has been agreed at a limit of £10,000. The balance was £8,000 overdrawn on 31st August 2005. The latest bank statement received in september 2005 shows interest and charges for the quarter to 30th september 2005 of £240. Owner's Valuation -£8,000
Loan. Borrowed from a relative £40,000 in september 2004. Interest agreed at 5% per year.Owner's valuation -£40,000
Creditors. Owed to various suppliers. Owner's valuation -£12,000
Current net value of business £91,400
The amount put into the business by the owner at the start of the year was £50,000. The profit for the year is £41,400 (£91,400 - £50,000). The owner took out £1,200 per month for living expenses.
Discuss the accounting treatment for the calculation of profit and the valuation of assets and liabilities, and assess the way in which profit has been calculated in the above scenario.
Increase your faith
"On the Day you shall see the believing men and the believing women - their light running forward before them and by their right hands. Glad tidings for you this Day! Gardens under which rivers flow, to dwell therein forever! Truly, this is the great success." [Soorah al-Hadeed (57)12]
Your friend, who started a small building business a year ago (1st september 2004) has asked you to have a look at his financial records for the year to 31st August 2005. He has made an attempt to calculate his profit for the year, but is not sure if it is correct. He has given you the following data on which he based his calculations
Business Assets
Premises. Small unit on industrial estate. Cost £55,000 in september 2004. A similar one has just been sold for £65,000, but this is in better condition and should be worth around £70,000. Owner's valuation is £70,000
Van.Bought second hand for £9000 in september.Is still in good condition and should last for at least three more years. Owner's valuation £9,000
Equipment. Purchased in a closing down sale. Price paid £15,000, but would have cost at least £25,000 if not bought in sale. Owner's value £25,000
Stock. Cost £12,000 before trade discount of £1000. 20% is added on to cost before charging to customers. Owner's Value £ 14,400
Amounts due. At the present time customers owe in total £18,000. This includes £2,400 for a job done in november 2004, and the customer has now moved. It is hoped that this can still be calculated. Owner's value £ 18,000
Goodwill. The business is generating a good reputation and this is adding value to the business, estimated at around £15,000. Owner's value £15,000
Total value of business assets £151,400
Amounts Owed.
Bank Overdraft. This has been agreed at a limit of £10,000. The balance was £8,000 overdrawn on 31st August 2005. The latest bank statement received in september 2005 shows interest and charges for the quarter to 30th september 2005 of £240. Owner's Valuation -£8,000
Loan. Borrowed from a relative £40,000 in september 2004. Interest agreed at 5% per year.Owner's valuation -£40,000
Creditors. Owed to various suppliers. Owner's valuation -£12,000
Current net value of business £91,400
The amount put into the business by the owner at the start of the year was £50,000. The profit for the year is £41,400 (£91,400 - £50,000). The owner took out £1,200 per month for living expenses.
Discuss the accounting treatment for the calculation of profit and the valuation of assets and liabilities, and assess the way in which profit has been calculated in the above scenario.
Increase your faith
"On the Day you shall see the believing men and the believing women - their light running forward before them and by their right hands. Glad tidings for you this Day! Gardens under which rivers flow, to dwell therein forever! Truly, this is the great success." [Soorah al-Hadeed (57)12]
