Questions: Milson Ltd is a new company that sells kitchen recycling systems across the UK. It commenced

 

 

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Milson Ltd is a new company that sells kitchen recycling systems across the UK. It commenced life on 1st January in Year 1. Year 1 has just been completed. In January, it issued 100,000 ordinary shares with a nominal value of £1 each at a premium of £0.50 each. It also obtained a 5-year bank loan of £200,000 at an annual interest rate of 6% when it started business. During Year 1, the following occurred: 1. In January Year 1, £26,250 was spent on rent of buildings for the first eighteen months. 2. At the start of Year 1, machinery and equipment was purchased for £100,000, to be used for 5 years. Non-current assets are depreciated using the reducing balance approach (also known as the declining balance approach). 3. Inventories totalling £120,000 were purchased on credit during the year and at the end of the year closing inventories amounted to £31,000. £40,000 was still owed to trade payables at the end of the year. 4. Inventories were sold on credit and generated total revenue of £610,000, but during the year a debtor owing £20,000 went bankrupt and the debt was writte as a bad debt. At the end of the year, the business was still owed £80,000 by credit off customers. It was decided to create a provision for doubtful debts of 5% of the year end receivables. 5. Various operating expenses amounted to £2,500 each month, paid with one month's delay. 6. Wages and salaries totalled £170,000 for the year and were all paid in full. 7. At the end of Year 1, the bank loan interest due for Year 1 was paid. 8. Taxation on Year 1's profit is estimated as being £33,000. Half of this sum had been paid midway during Year 1. The remainder is payable in the next year, Year 2. 9. At the end of Year 1 £125,000 was paid to the bank as a part-repayment of the loan taken out at the beginning of the year. 10. The directors proposed paying no dividends for Year 1. Milson Ltd is a new company that sells kitchen recycling systems across the UK. It commenced life on 1st January in Year 1. Year 1 has just been completed. In January, it issued 100,000 ordinary shares with a nominal value of £1 each at a premium of £0.50 each. It also obtained a 5-year bank loan of £200,000 at an annual interest rate of 6% when it started business. During Year 1, the following occurred: 1. In January Year 1, £26,250 was spent on rent of buildings for the first eighteen months. 2. At the start of Year 1, machinery and equipment was purchased for £100,000, to be used for 5 years. Non-current assets are depreciated using the reducing balance approach (also known as the declining balance approach). 3. Inventories totalling £120,000 were purchased on credit during the year and at the end of the year closing inventories amounted to £31,000. £40,000 was still owed to trade payables at the end of the year. 4. Inventories were sold on credit and generated total revenue of £610,000, but during the year a debtor owing £20,000 went bankrupt and the debt was writte as a bad debt. At the end of the year, the business was still owed £80,000 by credit off customers. It was decided to create a provision for doubtful debts of 5% of the year end receivables. 5. Various operating expenses amounted to £2,500 each month, paid with one month's delay. 6. Wages and salaries totalled £170,000 for the year and were all paid in full. 7. At the end of Year 1, the bank loan interest due for Year 1 was paid. 8. Taxation on Year 1's profit is estimated as being £33,000. Half of this sum had been paid midway during Year 1. The remainder is payable in the next year, Year 2. 9. At the end of Year 1 £125,000 was paid to the bank as a part-repayment of the loan taken out at the beginning of the year. 10. The directors proposed paying no dividends for Year 1.

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