5. Preparation of financial statements
A section of Accounting, 7707
Listing 10 of 227 questions
Gok is a wholesaler. He prepares his financial statements to the end of February each year. At 29 February 2020, Gok’s ledger account balances included the following. $ Revenue 420 000 Purchases 311 400 Sales returns 12 000 Discount allowed 9 000 Wages 12 360 Rent and rates 11 750 General expenses 4 220 Irrecoverable debts 8 600 Insurance 4 500 Telephone expenses 4 565 Inventory at 1 March 2019 26 700 Drawings 9 500 Fixtures and equipment at cost 120 000 Provision for depreciation of fixtures and equipment 43 200 Additional information Gok did not have time to count and value his inventory at 29 February 2020. His margin is 25%. A loan of $60 000 was obtained from the bank on 1 July 2019. Interest is charged at 7% per annum. The fixtures and equipment are being depreciated at 20% per annum using the reducing balance method. The insurance includes $1500 which covers the period from 1 March to 30 September 2020. Drawings include a payment of $1660 for Gok’s personal telephone expenses. One quarter of this amount was for business use. REQUIRED Prepare Gok’s income statement for the year ended 29 February 2020. Gok Income Statement for the year ended 29 February 2020 $ $ …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. ……………. The wages paid by Gok are to his part-time warehouse assistant, Aiman. REQUIRED Advise Gok whether or not he should offer Aiman a partnership in the business. Justify your answer with two advantages and two disadvantages.
7707_s20_qp_22
THEORY
2020
Paper 2, Variant 2
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Questions Discovered
227