The directors of Gee Marketing Ltd have presented you with the following summarized draft accounts. Balance...

  

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The directors of Gee Marketing Ltd have presented you with the following summarized draft accounts. Balance sheets Ordinary share capital (GH¢1 shares) Profit and loss account Share premium account Loans Trade creditors Proposed dividends Current taxation Bank overdraft Plant and machinery Cost Accumulated depreciation Stock Debtors Cash at bank 2005 GH₂000 740 531 320 152 140 470 2,353 31 October 2,700 1905 GH₂000 (748) 1,952 203 147 51 2.353 31 October 2006 GH¢000 940 864 100 150 141 170. 602 766 3.733 2006 GH₂000 3,831 (1,125) 2.706 843 184 3.733 Profit and loss account for the year ended 31 October 2006 Profit before tax Corporation tax Profit after tax Ordinary dividends: Paid Proposed GH₂000 90 170 GH₂000 1,195 During the year the company offered 200,000 shares by way of rights to existing shareholders. (602) 593 260 333 Retained profit You further ascertain the following. (1) (2) The only loan raised during the year was a five year bank loan amounting to GH¢65,000. Depreciation charged during the year amounted to GH 401,000. (3) During the year plant which originally cost GHe69,000 was disposed of for proceeds of GH₂41,000. The managing director has come to you with the following comment. "in spite of a record trading profit of GHe 1,195,000 we ended up with an overdraft of GH¢766,000. I just cannot understand it." Requirement Write a letter to the managing director explaining the reason for the overdraft. Your answer should include a cash flow statement. The directors of Gee Marketing Ltd have presented you with the following summarized draft accounts. Balance sheets Ordinary share capital (GH¢1 shares) Profit and loss account Share premium account Loans Trade creditors Proposed dividends Current taxation Bank overdraft Plant and machinery Cost Accumulated depreciation Stock Debtors Cash at bank 2005 GH₂000 740 531 320 152 140 470 2,353 31 October 2,700 1905 GH₂000 (748) 1,952 203 147 51 2.353 31 October 2006 GH¢000 940 864 100 150 141 170. 602 766 3.733 2006 GH₂000 3,831 (1,125) 2.706 843 184 3.733 Profit and loss account for the year ended 31 October 2006 Profit before tax Corporation tax Profit after tax Ordinary dividends: Paid Proposed GH₂000 90 170 GH₂000 1,195 During the year the company offered 200,000 shares by way of rights to existing shareholders. (602) 593 260 333 Retained profit You further ascertain the following. (1) (2) The only loan raised during the year was a five year bank loan amounting to GH¢65,000. Depreciation charged during the year amounted to GH 401,000. (3) During the year plant which originally cost GHe69,000 was disposed of for proceeds of GH₂41,000. The managing director has come to you with the following comment. "in spite of a record trading profit of GHe 1,195,000 we ended up with an overdraft of GH¢766,000. I just cannot understand it." Requirement Write a letter to the managing director explaining the reason for the overdraft. Your answer should include a cash flow statement.

Answer rating: 100% (QA)

Dear managing director I have been asked to explain the cause of the companys overdraft of GHe766000 ... View the full answer