Charles Rayon has recently changed his company from a sole trader to a limited company, Crayon...

  
 
 

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Charles Rayon has recently changed his company from a sole trader to a limited company, Crayon Ltd.- 2a) Discuss two advantages of becoming a limited company. (type your answer here) 4 marks 2b) Discuss one disadvantage of becoming a limited company. 2 markse (type your answer here) 2c) In April 2020 Crayon Ltd had no opening inventory but had cash of £8,000. Crayon Ltd bought 500 pens for £1.50 each and then sold 100 pens at £2 per pen during April 2020. (these were the only transactions)- 6 marks (i) What was the value of closing inventory at 30th April 2020? Answer: (ii) What was the total profit on this sale?e Answer:e What was the bank balance at the 30th April 2020? (iii) Answer: At 31st March 2021, the directors of Crayon Ltd were given the following Cash Flow Statement. They are confused as, despite good profits and starting the year with a positive bank balance, Crayon Ltd has an overdraft. They feel certain that someone is stealing from the company.- Crayon Ltde Cash Flow Statement for the year ended 30th April 2021e Cashflows from operating activities Operating profit 37,000- 8,000- 45,000- Add: depreciatione Working capital movements: (40,000)- (35,000)- (20,000)- (50,000)- Less: increase in inventoriese Less: increase in trade receivablese Less: decrease in trade payables Cash flows from operating activities (15,000)- (65,000)- Less: tax paide Net cash inflow from operating activities Cashflows from investing activitiese (20,000)- 5,000- Purchase of lorrye Sale of machinerye Interest receivede 2,000- Net cash outflow from investing activitiese (13,000) Cashflows from financing activitiese Loan e 30,000 (7,000)- (40,000)- (17,000)- Interest paide Dividend paymente Net cash inflow from financing activitiese Net decrease in cashe (95,000) Cash balance at 1st April 2020 8,000 Cash balance at 30th March 2021 (87,000) Using the six headings in the table below explain why the cash balance has decreased. (24 marks)- 2d) Movement in cash balances e 2 marks (type in this box)- 2e) Cash flows from operating activities 2 marks (type in this box)- 2f) Working capital movementse 5 marks (type in this box)- 2g) Cash flows from investing activities 2 marks (type in this box)- 2h) Cash flows from financing activities 4 marks (type in this box) 2i) Overall summary for why the cash position was reducede 3 marks The directors are worried about the cash balance. 4 markse 2j) Give TWO reasons why the cash balance at the end of the year may not be the same as the profit figure for the year. 1.4 (type in this box your first point) 2.4 (type in this box your second point) Charles Rayon has recently changed his company from a sole trader to a limited company, Crayon Ltd.- 2a) Discuss two advantages of becoming a limited company. (type your answer here) 4 marks 2b) Discuss one disadvantage of becoming a limited company. 2 markse (type your answer here) 2c) In April 2020 Crayon Ltd had no opening inventory but had cash of £8,000. Crayon Ltd bought 500 pens for £1.50 each and then sold 100 pens at £2 per pen during April 2020. (these were the only transactions)- 6 marks (i) What was the value of closing inventory at 30th April 2020? Answer: (ii) What was the total profit on this sale?e Answer:e What was the bank balance at the 30th April 2020? (iii) Answer: At 31st March 2021, the directors of Crayon Ltd were given the following Cash Flow Statement. They are confused as, despite good profits and starting the year with a positive bank balance, Crayon Ltd has an overdraft. They feel certain that someone is stealing from the company.- Crayon Ltde Cash Flow Statement for the year ended 30th April 2021e Cashflows from operating activities Operating profit 37,000- 8,000- 45,000- Add: depreciatione Working capital movements: (40,000)- (35,000)- (20,000)- (50,000)- Less: increase in inventoriese Less: increase in trade receivablese Less: decrease in trade payables Cash flows from operating activities (15,000)- (65,000)- Less: tax paide Net cash inflow from operating activities Cashflows from investing activitiese (20,000)- 5,000- Purchase of lorrye Sale of machinerye Interest receivede 2,000- Net cash outflow from investing activitiese (13,000) Cashflows from financing activitiese Loan e 30,000 (7,000)- (40,000)- (17,000)- Interest paide Dividend paymente Net cash inflow from financing activitiese Net decrease in cashe (95,000) Cash balance at 1st April 2020 8,000 Cash balance at 30th March 2021 (87,000) Using the six headings in the table below explain why the cash balance has decreased. (24 marks)- 2d) Movement in cash balances e 2 marks (type in this box)- 2e) Cash flows from operating activities 2 marks (type in this box)- 2f) Working capital movementse 5 marks (type in this box)- 2g) Cash flows from investing activities 2 marks (type in this box)- 2h) Cash flows from financing activities 4 marks (type in this box) 2i) Overall summary for why the cash position was reducede 3 marks The directors are worried about the cash balance. 4 markse 2j) Give TWO reasons why the cash balance at the end of the year may not be the same as the profit figure for the year. 1.4 (type in this box your first point) 2.4 (type in this box your second point)

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2a Two advantages of becoming a Limited Company Minimized Personal Liability Since the company is treated as a Separate Legal Entity the owner is separate from the business and hence the personal asse... View the full answer