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Question 2 (3 parts for a total of 75 marks).

Assume that you commenced business as a retailer on October 1st 2015, trading as XYZ Ltd, in
rented premises, with the following assets and liabilities:
Assets (3): Delivery van: € 50,000 Inventories: € 70,000 Cash: € 80,000

Liabilities (3): Equity: € 100,000 Trade payables: €50,000 Loan: € 50,000

The interest rate on the loan is 8% per annum.
Over the next twelve months to 30 September 2016, you undertook the following transactions:
(1) Transactions with suppliers:
Bought goods for resale costing €120,000, by cash.
Bought goods for resale costing €240,000, on credit
By 30 September 2016:
• the trade payables due on October 1st 2015 had been paid in full;
• 75% of the debts due to suppliers for purchases on credit
during the year had been settled.

(2) Transactions with customers:

Sold goods for cash to the value of €200,000.
Sold goods on credit to the value of €300,000.
By 30 September 2016:
• 60% of the debts due from customers in respect of credit
sales had been collected.

(3) Paid wages €39,000. One week’s wages €1,000, was outstanding on 30 September
2016.

(4) Paid general running expenses (electricity etc) for the year to 30 September: €20,000.
(5) Paid rent covering the 15 months to 31st Dec 2016: €25,000.

(6) The delivery van was more than 3 years old (second hand). The delivery van turned out to
be unsuitable and, on the 31st December 2015, was traded in for a new one costing
€80,000. The agreed valuation for the old van was €45,000, and the balance of the
purchase price was paid in cash. The new van is to be depreciated at the rate of 20% per
annum, based on cost.
(7) On June 30th 2016, interest on the loan for the first nine months was paid. On that
date XYZ Ltd also repaid (in accordance with the loan agreement) €10,000 of the
€50,000 loan. Also, in accordance with the loan agreement, the interest rate for the
final three months of the financial year was reduced to 5% per annum (as the loan was
reclassified into a less risky category). The remaining €40,000 of the loan is due to be
repaid in five equal annual instalments, commencing 30th June 2017.

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(8) Paid €2,000 to the tax authorities, representing 40% of the tax charge for the year.

(9) Withdrew €10,000 for personal use (drawings).

Additional information:
(i) Closing inventories on 30 September 2016 were counted, audited and valued at
€70,000.
(ii) Bad debts totalling €5,000 have been identified among the debtors (trade receivables)
still outstanding [as per (2) above], and it is considered prudent to make a further
provision of €2,000 for doubtful debts.
(iii) Provide for appropriate closing accruals / prepayments (closing adjustments) in
respect of wages, rent, depreciation on the new delivery van, interest & tax.

REQUIRED (in good presentational form): (Total 75 marks)

(a) Prepare an Income Statement for the year ended 30.09.2016 (30 marks)
(b) Prepare a Balance Sheet as at 30.09.2016 (30 marks)
(c) Using a selection of relevant ratios (5 ratio’s to be used), analyse / comment briefly on
the results of the first year’s operations. (15 marks)

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© Trinity College Dublin, The University of Dublin 2017