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On 1/1/2004, J - Leaving Cert Accounting - Question 7 - 2005
Question 7
On 1/1/2004, J. Connolly purchased a business for €195,000 consisting of the following tangible assets and liabilities: Premises €162,000; Stock €15,200; Debtors €... show full transcript
Worked Solution & Example Answer:On 1/1/2004, J - Leaving Cert Accounting - Question 7 - 2005
Step 1
b) Balance sheet as at 31/12/2004.
Answer
Assets
Intangible Fixed Assets
- Goodwill: €20,340
Tangible Fixed Assets
- Buildings: €162,000
- Equipment: €22,000
- Vehicles: €26,000
- Total Tangible Fixed Assets: €210,000
Current Assets
- Stock: €17,300
- Debtors: €18,100
- Cash: €650
- Prepaid Insurance: €1,500
- Total Current Assets: €37,550
Total Assets: €267,890
Liabilities
Creditors Falling Due Within 1 Year
- Creditors: €15,500
- Electricity Due: €720
- Interest Due: €1,875
- Loan Repayment Due: €7,000
- Total Current Liabilities: €25,095
Creditors Falling Due After More Than 1 Year
- Loan: €77,000
Total Liabilities: €102,095
Net Assets:
Net Assets = Total Assets - Total Liabilities = €267,890 - €102,095 = €165,795
Equity:
- Capital: €195,000
- Drawings: €11,404
- Net Profit: €14,239
Total Equity: €198,835
Step 2
c) What additional information would be available if Connolly’s accounts were prepared using the 'double entry' system?
Answer
Under the 'double entry' system, Connolly's accounts would provide:
- Accurate Profit and Loss Statements: Detailed insights on income and expenses, allowing for better financial analysis.
- Balance Accuracy: Ensures that total debits equal total credits, improving reliability and integrity of financial statements.
- Improved Tracking: Enhanced tracking of assets, liabilities, equity, income, and expenses over time, thus aiding in cash flow management.
- Accountability: Clearer accountability of transactions, reducing scope for errors and fraudulent activities.
- Financial Position Analysis: More comprehensive financial ratios and indicators to evaluate the business's performance and financial health.