SuperSoap Ltd. is a new company that produced de-hydrated laundry detergent sheets as an ecological alternative to
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SuperSoap Ltd. is a new company that produced de-hydrated laundry detergent sheets as an ecological alternative to current provisions on the market. SuperSoap's company mission statement is to 'Keep it clean and green, not mean' with company goals aligned to the UK climate pledge.
- It commenced life on 1st January in Year 1. Year 1 has just been completed. In January, it issued 150,000 ordinary shares with a nominal value of 0.80 each at a premium of 0.50 each. It also obtained a 5-year bank loan of 95,000 at an annual interest rate of 14% when it started business.
- An agreement had been reached between SuperSoap and a company Rentaspace Ltd meaning that in January Year 1, 66,000 was spent on rent of buildings for the first eighteen months. The buildings included an office space for the admin team and a climate-controlled warehouse to ensure the product remained de-hydrated and in saleable condition.
- At the start of Year 1, machinery and equipment had been purchased for 90,000, to be used for 5 years. SuperSoap Ltd decided to apply the same depreciation policy to all non-current using the reducing balance approach which is also known as the double declining balance approach.
- The first year's inventories totalling 80,000 were purchased on credit during the year. At the end of the year on New Year's Eve, 31st December, a stock take was performed. On close inspection of the product, it appeared that there had been a leak in the warehouse roof and a number of packets to the value of 4,000 were ruined and considered unsaleable. The closing inventories in total amounted to 16,000 before writing off the ruined merchandise. When the accountant performed year-end checks it was noted that 9,000 was still owed to trade payables at the end of the year.
- Demand for the SuperSoap laundry sheet for the first year was good and inventories sold on credit generated a total revenue of 250,000. SuperSoap Ltd had two paths for distribution of their product, Business-to-Business (B2B) or directly to consumers buying via the SuperSoap website. During the year, one of the medium sized B2B customers went bankrupt, at the time they owed SuperSoap Ltd 5,000 the accountant advised that the debt be recognised and written off as a bad debt. After writing off the bad debt, at the end of the year, the business was still owed 20,000. It seemed sensible to recognise that this might well happen to other customers in the future, and it was decided to create an allowance for bad debts of 5% of the year end receivables.
- The admin team were very comfortable in their office where they processed orders, collected payments and paid suppliers. Various other operating expenses amounted to 800 each month, paid one month in arrears. The wages and salaries totalled 30,000 for the year and were all paid in full by the end of the year. In the last week of the year a quarterly invoice for the landline was paid as 300 covering the period December 1st this year until 28th February in the new financial year. At the end of Year 1, the bank loan interest was paid.
- The accountant has advised that taxation of Year 1's profits is estimated as being 8,320. Half of this sum had been paid midway during Year 1. The remainder is payable in the next year. We note that 4,000 was paid to the bank as a repayment of the loan taken out at the beginning of the year.
- In order to raise capital for future growth of the business, in the final week of Year 1 there was a second share issue of 18,000 shares at a premium of 25 pence per share.
- Being a new company, the decision was taken to create a company policy suggesting that no dividends will be paid for the first year and all reinvested profits be ploughed back into the business for maximum growth potential.
Required:
Prepare the following statements for SuperSoap Ltd for Year 1. There are a number of questions to complete below which are based upon the SuperSoap Ltd scenario, and the financial statements you generate:
- Simple Cash flow statement (ready for direct method CF figures)
- Income Statement.
- Statement of Financial Position.
Related Book For
Intermediate Accounting
ISBN: 978-1118300855
10th Canadian Edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
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