Question P1

You are the account assistant to Morvern Enterprises plc, which trades in
computer software. Below is the Trial Balance of the company at 31 July 2010.

Debit Credit
£'000 £'000
Administration expenses 800
Bank 300
Debentures (10%) 250
Trade Debtors 750
Director’s salary 60
Investments 1,200
Land 400
Hire of machinery 25
Investment income 165
Equipment at cost 80
Equipment (accumulated depreciation) 30
Ordinary share capital 1,000
(1,000,000 £1 shares)
Buildings (at cost) 1,000
Buildings (accumulated depreciation) 200
Profit and loss account (at 1 April 2009) 772
Rental Income 108
Purchases 2,340
Stock (at 1 August 2009) 300
Trade creditors 580
Turnover 4,150
7,255 7,255
Notes to the accounts

1. Stock at 31 July 2010 was valued at £200,000

2. The following expenses were still outstanding at 31 July 2010:

Administration costs £10,000

Director’s Salary £5,000

3. The hire of machinery includes a prepayment of £2,000 relating to the

following year.

4. Depreciation is to be charged on:

Buildings at a rate of 5% per annum using the straight-line method.

Equipment at a rate of 20% reducing balance method.

5. Corporation tax charge on profits for the year is estimated to be £90,000

6. At 31 July 2010, the directors have proposed that a final ordinary dividend of
10p per share should be paid.

7. Debenture interest is outstanding at the year-end.

Required: You are required to produce a Trading, Profit and Loss Account and
Balance Sheet as at 31 July 2010 (for internal use). Relevant working notes
should be submitted.
Question P2

You are provided with the following information

Expected sales January February March April May June

Units 1,000 1,100 1,200 1,350 1,400 1,200

Selling Price £60

30% of sales are cash sales with the remaining on one month’s credit.

Each unit uses 3kg of materials, which costs £7 per kg. Purchases are made on
cash and credit basis with 50% in cash and 50% paid one month after purchase.

Each unit takes 3 hours of direct labour which is paid at a rate of £7.00 per hour.

Variable production overheads are to be charges at a rate of £2.00 per labour hour
and are paid in the month of production.

Fixed costs per month are as follows:

Selling and Distribution £750

Supervisor's salary £1,600

Fixed Monthly production overheads are as follows:

Rent and Rates £800

Heat and Light £550

Insurance £200

Depreciation £250

Other £180

Fixed production overheads are paid in the month of production.

The bank balance at the start of January is to be £50,000

You are required to prepare an income expenditure and a cash budget for the 6
month period. Show the breakeven point in units and revenue for the period.