Financial Accounting

  Question 1 (49 Marks) Ovid Ventures run a small private company selling swimwear from China. The owner of the Venture asked you to prepare set of financial statement for the year ended 31 December 2021 as soon as possible as the previous accountant left the company at very short notice. Dr Cr £ £ Audit and Accountancy 500 Advertising 900 Bank 1,500 Creditors 8,900 Long Term Bank Loan 2,200 Debtors 41,350 Delivery 8,500 Electricity 2,800 Insurance 1,700 Fixtures and Fittings: At Cost 80,000 Accumulated depreciation (at 1.1.2021) 40,000 Motor Vehicle: At Cost 25,000 Accumulated depreciation (at 1.1.2021) 1,350 Office expenses 700 Ordinary £1 shares (issued and fully paid) 20,000 Profit and loss account (at 1.1.2021) 13,200 Purchases 160,000 Rent and rates 7,500 Sales - 280,000 Stock (at 1.1.2021) 14,000 Wages and salaries 21,000 Bank Interest 200 £365,650 £365,650 Additional Information: 1. Stock at 31st December 2021 valued at cost amounted to £18000. 2. Depreciation is to be provided on fixtures and fittings at 25% on cost and 10% on reducing balance method for motor vehicle. 3. The electricity consumed but not paid for the period is £250. 4. Insurance paid in advance at 31st December 2021 amounted to £400. Required:  Prepare Income statement for the year ended 31st December 2021. (26 Marks)  Prepare Balance Sheet as at 31st December 2021. (23 Marks) Question 2 (11Marks) 1. Briefly explain to Mr Ovid the owner of Ovid Ventures the impact of the following adjustments on Profit & Loss Account and Balance sheet: a. Prepaid Expenses b. Accrued Expenses c. Prepaid Income d. Accrued Income (8 Marks) 2. Briefly explain to the Mr Ovid the owner of Ovid Ventures why the following items will be added back or deducted from the cash flow statement using the indirect method: a. Depreciation b. Disposal of non-current asset c. An increase in inventories