Photo AI
On 01/01/2015 H - Leaving Cert Accounting - Question 4 - 2016
Question 4
On 01/01/2015 H. O'Neill lodged €560,000 to a business bank account and on the same day purchased a business for €490,000, consisting of the following tangible asset... show full transcript
Worked Solution & Example Answer:On 01/01/2015 H - Leaving Cert Accounting - Question 4 - 2016
Step 1
Prepare a Statement/Balance Sheet showing O'Neill's profit or loss for the year ended 31/12/2015.
Answer
To prepare the statement, we'll calculate the net profit/loss by establishing revenues and expenses based on the provided information.
Revenue
- Lodgements from cash register: €145,000
Expenses
- Expenses incurred:
- Light and heat: €9,200
- Wages: €41,000
- Rates and general expenses: €94,000
- Interest paid on loan ( extit{calculated as:} €350,000 imes 0.06 imes 12/12 = €21,000): €21,000
Total Expenses Calculation:
Total Expenses = Light and Heat + Wages + Rates and General Expenses + Interest
Total Expenses = €9,200 + €41,000 + €94,000 + €21,000 = €165,200
Net Profit Calculation:
Net Profit = Revenue - Total Expenses
Net Profit = €145,000 - €165,200 = -€20,200 (Indicating a loss)
Balance Sheet as at 31/12/2015:
Assets
- Stock: €17,300
- Debtors: €37,300
- Bank: (Balance computed or inferred)
- Total Assets: €54,600 (computed from given information)
Liabilities
- Creditors: €644,600
- Interest due: €760
- Total Liabilities: €645,360
Conclusion:
Based on the calculations, O'Neill has incurred a loss of €20,200 for the year.
Step 2
What advice would you give O'Neill in relation to record keeping?
Answer
O'Neill should keep a detailed cash book and general ledger supported by appropriate subsidiary day books. This would enable O'Neill to prepare an accurate trading and profit and loss account and therefore avoid reliance on estimates or net worth to ascertain profit. Keeping detailed records will also help in understanding expenses, tracking revenues, and preparing for any tax obligations.