Malcolm Phillips is a sole trader who prepares his financial statements annually to 30 April. His summarised statements of financial position for the last two years are shown below.

Malcolm is surprised to see that he now has an overdraft, in spite of making a profit and bringing in additional capital during the year. Questions:

(a) Draw up a suitable financial statement which will explain to Malcolm how his overdraft has arisen.

(b) The following further information relates to the year ended 30 April 2012.

Calculate Malcolm’s (i) gross profit margin (ii) rate of inventory turnover.

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Non-current assets Less Provision for depreciation Current assets Inventory Trade accounts receivable Bank Total assets Current liabilities Trade accounts payable Bank overdraft Total liabilities Net assets Statements of Financial Position as at 30 April 2011 Capital account: Balance at 1 May Add Net profit for the year Additional capital introduced Less Drawings Total capital 3,100 3,900 1,500 2,000 15,500 (1,500) 14,000 8,500 22,500 (2,000) 20,500 20,000 7,000 27,000 (6,500) 20,500 5,900 3,400 2,200 900 2012 18,500 (1,700) 16,800 9,300 26,100 (3,100) 23,000 20,500 8,500 2,000 31,000 (8,000) 23,000