5.1 Sole traders (3)
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1.
Prepare a basic Statement of Financial Position for a company with the following information as at 31 December 2023:
- Non-current Assets: Land & Buildings £200,000, Equipment £50,000, Intangible Assets £10,000
- Current Assets: Inventory £40,000, Cash at Bank £15,000, Accounts Receivable £30,000
- Current Liabilities: Accounts Payable £20,000, Short-term Loan £10,000
- Non-current Liabilities: Long-term Loan £80,000
- Capital: £150,000
Present the information in a clear and organised format.
Statement of Financial Position
As at 31 December 2023
| Assets | Amount (£) |
| Non-current Assets | £260,000 |
| Intangible Assets | £10,000 |
| Property, Plant & Equipment | £200,000 |
| Total Non-current Assets | £270,000 |
| Current Assets | £85,000 |
| Inventory | £40,000 |
| Cash at Bank | £15,000 |
| Accounts Receivable | £30,000 |
| Total Current Assets | £85,000 |
| Total Assets | £355,000 |
| Liabilities | £200,000 |
| Current Liabilities | £30,000 |
| Accounts Payable | £20,000 |
| Short-term Loan | £10,000 |
| Total Current Liabilities | £40,000 |
| Non-current Liabilities | £80,000 |
| Long-term Loan | £80,000 |
| Total Non-current Liabilities | £80,000 |
| Total Liabilities | £120,000 |
| Capital | £150,000 |
| Total Equity | £150,000 |
| Total Assets | £355,000 |
2.
ABC Ltd has the following statement of financial position as at 31 December 2023:
Debtors: £25,000
The management estimates that 5% of the debtors will be irrecoverable.
Required: Calculate the amount to be shown in the Statement of Financial Position as 'Debtors - Less Provision for Doubtful Debts'.
Calculation:
Provision for Doubtful Debts = 5% of £25,000
Provision for Doubtful Debts = 0.05 x £25,000
Provision for Doubtful Debts = £1,250
Amount to be shown in the Statement of Financial Position = £25,000 - £1,250 = £23,750
Answer: £23,750
3.
XYZ Company has the following balances as at 31 December 2023:
- Buildings: £50,000
- Accumulated Depreciation on Buildings: £10,000
- Debtors: £18,000
- Inventory: £7,000
- Creditors: £9,000
- Loan Stock: £6,000
Required: Prepare the Statement of Financial Position for XYZ Company as at 31 December 2023.
Depreciation Calculation:
Depreciation Expense = (Cost - Salvage Value) / Useful Life
Assuming a salvage value of £0:
Depreciation Expense = (£15,000 - £0) / 5 years = £3,000 per year
Effect on Statement of Financial Position:
The depreciation expense of £3,000 will reduce the carrying value of the machine on the Statement of Financial Position. The machine is an asset, and its carrying value is its cost less accumulated depreciation. The accumulated depreciation is an expense account, and a higher depreciation expense reduces the retained earnings (part of equity) of the business. Therefore, the total assets will decrease by £3,000 and the total equity will decrease by £3,000.
The Statement of Financial Position would show the machine's value reduced by £3,000, and the equity would be lower by the same amount.