Mr Hick has been in the grab food's trading business for quite sometimes, but he has...

  

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Mr Hick has been in the grab food's trading business for quite sometimes, but he has not been able to reconcile stock for sales properly. His business period begins at 01 April and ends 31 March the following year. At the later stage of the operation last year, he realized that he was running out of cash for working capital and has therefore approached a local bank for overdraft facilities. His intention is to recover this bank overdraft from whatever cash is made available so that he does not have to pay huge interest fees from this bank overdraft. The company uses only one current account and the last balance sheet statement shows that his business is still supported by an overdraft facility. Somehow during this Covid-19 pandemic time, surprisingly, his business seems to do quite well and cash from business sales is coming in. Within one month of operation in April 2021. Mr Hick has instructed his accountant, Miss Ting Ho to lay out and present a proper financial statement and to pay off the bank overdraft from any source of cash surplus. All transactions by cash will be transacted through bank directly. The Balance sheet of a business at the start of the month of April 2021 is as follow ASSETS RM Property 300,000 Furniture and Fittings 50,000 Inventories 46,000 Trade Receivables 74,000 470,000 ====== FINANCED BY: Equity Capital 330,000 Bank overdraft 75,000 Trade Payables 65,000 Total Equities and Liabilities 470,000 ====== During The month, the following transactions take place: a) Inventories sold for RM75,000 cash. These inventories had cost RM25,000 b) Sold inventories for RM54,000 on credit. These inventories had cost RM18,000. c) Received cash for trade receivables totaling RM44,000. d) The owners of the business brought in another cash RM120,000 as part of business capital, which was placed in the business bank account. e) The owners brought a one-ton lorry, valued at RM70,000 into the business also beginning of the month. All fixed assets except property will be depreciated at 10 % on cost per annum. It is the company policy to charge full year depreciation. For the purpose of determining the monthly profit, the depreciation charge will be pro-rate on a monthly basis. f) Bought inventories on credit for RM35,000. g) Paid trade payables RM45,000. h) Mr Hick writes off 300 bad debt and provides for doubtful debts of 2 percent of net Trade Receivables. No adjustment has been made i) The financial year period is from 01 April current year to 31 March following year, in order to take advantage of the corporate tax benefits. You are required to: 1) Show how much profit is made as at 30 April 2021 2) Show the effect of the above transaction on the revised balance sheet at 30 April 2021. 3) Mr Hick wants his accountant to explain why the business has to account for the depreciation of assets, because according to the owner, depreciation seems to reduce company's profit? Mr Hick has been in the grab food's trading business for quite sometimes, but he has not been able to reconcile stock for sales properly. His business period begins at 01 April and ends 31 March the following year. At the later stage of the operation last year, he realized that he was running out of cash for working capital and has therefore approached a local bank for overdraft facilities. His intention is to recover this bank overdraft from whatever cash is made available so that he does not have to pay huge interest fees from this bank overdraft. The company uses only one current account and the last balance sheet statement shows that his business is still supported by an overdraft facility. Somehow during this Covid-19 pandemic time, surprisingly, his business seems to do quite well and cash from business sales is coming in. Within one month of operation in April 2021. Mr Hick has instructed his accountant, Miss Ting Ho to lay out and present a proper financial statement and to pay off the bank overdraft from any source of cash surplus. All transactions by cash will be transacted through bank directly. The Balance sheet of a business at the start of the month of April 2021 is as follow ASSETS RM Property 300,000 Furniture and Fittings 50,000 Inventories 46,000 Trade Receivables 74,000 470,000 ====== FINANCED BY: Equity Capital 330,000 Bank overdraft 75,000 Trade Payables 65,000 Total Equities and Liabilities 470,000 ====== During The month, the following transactions take place: a) Inventories sold for RM75,000 cash. These inventories had cost RM25,000 b) Sold inventories for RM54,000 on credit. These inventories had cost RM18,000. c) Received cash for trade receivables totaling RM44,000. d) The owners of the business brought in another cash RM120,000 as part of business capital, which was placed in the business bank account. e) The owners brought a one-ton lorry, valued at RM70,000 into the business also beginning of the month. All fixed assets except property will be depreciated at 10 % on cost per annum. It is the company policy to charge full year depreciation. For the purpose of determining the monthly profit, the depreciation charge will be pro-rate on a monthly basis. f) Bought inventories on credit for RM35,000. g) Paid trade payables RM45,000. h) Mr Hick writes off 300 bad debt and provides for doubtful debts of 2 percent of net Trade Receivables. No adjustment has been made i) The financial year period is from 01 April current year to 31 March following year, in order to take advantage of the corporate tax benefits. You are required to: 1) Show how much profit is made as at 30 April 2021 2) Show the effect of the above transaction on the revised balance sheet at 30 April 2021. 3) Mr Hick wants his accountant to explain why the business has to account for the depreciation of assets, because according to the owner, depreciation seems to reduce company's profit?

Answer rating: 100% (QA)

To answer the questions provided we will need to perform several calculations and adjustments based on the transactions that occurred during the month of April 2021 Here is the stepbystep process to d... View the full answer