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Service Firm The following were included in the assets and liabilities of the New Era Gym and Health Centre Ltd, on 01/01/2011: - Buildings and Grounds €520,000; Equipment €75,000; Vehicles at cost €660,000; Stock in shop €3,600; Stock of heating oil €1,600; Creditor's for supplies €5,000 and Health Centre €1,600 - Leaving Cert Accounting - Question 6 - 2012
Question 6
Service Firm The following were included in the assets and liabilities of the New Era Gym and Health Centre Ltd, on 01/01/2011: - Buildings and Grounds €520,000; E... show full transcript
Worked Solution & Example Answer:Service Firm The following were included in the assets and liabilities of the New Era Gym and Health Centre Ltd, on 01/01/2011: - Buildings and Grounds €520,000; Equipment €75,000; Vehicles at cost €660,000; Stock in shop €3,600; Stock of heating oil €1,600; Creditor's for supplies €5,000 and Health Centre €1,600 - Leaving Cert Accounting - Question 6 - 2012
Step 1
Calculate the company’s reserves (profit and loss balance) on 01/12/2011.
Answer
To calculate the reserves on 01/12/2011, we start from the capital and profit figures. According to the marking scheme, we find:
- Initial Issued Capital = €350,000
- Accumulated profit/loss balance carried forward will be computed through net profit calculations adjusted by previous balances, ultimately leading to:
Reserves = Issued Capital + Net Profit - Dividends paid.
Using the figures:
Reserves on 01/12/2011 = €350,000 + (Net Profit calculated) - (Dividends if any).
Step 2
Calculate the profit/loss from the year end 31/12/2011.
Answer
The profit or loss can be calculated as:
Profit = Total Income - Total Expenses.
Using the receipts and payments account:
- Total Income = Shop Receipts + Clients Fees + Investment Income = €42,000 + €20,000 + €1,100 = €63,100.
For Total Expenses, we calculate all listed expenses including salaries, supplies, and depreciation accordingly. Thus, once calculated: Profit for year ended 31/12/2011 = €(Total Expenses calculated) - €63,100.
Step 3
Prepare a Balance Sheet on 31/12/2011.
Answer
To prepare the balance sheet, we format our assets and liabilities as follows:
Assets
- Fixed Assets (Buildings, Equipment, Vehicles, etc.)
- Current Assets (Stocks, Receivables, Cash in Bank)
Liabilities
- Current Liabilities (Creditors due within one year)
- Long Term Liabilities (Loans, etc.)
Then calculate the net worth by subtracting total liabilities from total assets to get the equity position.
Step 4
Step 5
Advise the company on how to fund the expected cost of €150,000.
Answer
The company can explore multiple avenues for funding the expected cost:
- Investment Selling: Liquidate some investments amounting to €40,000.
- Issuing Shares: Offer remaining shares for €50,000.
- Loan Financing: Consider borrowing €60,000 through a bank or other financial institutions.
- Funding Strategy: Ensure any option chosen aligns with cash flow capabilities and repayment terms.