TASK 1
You are provided with the trial balance with notes for Cherry Hotels Ltd as of 30 September 2020.
You are requested to construct the appropriate final accounts for the year ended 30 September 2020.
| Cherry Hotels Ltd, Trial Balance at 30 September 2020 | ||
| Debit | Credit | |
| £’000 | £’000 | |
| Revenue | 13,400 | |
| Cost of sales | 6,000 | |
| Administration expenses | 1,200 | |
| Rent | 2,600 | |
| Interest on investments received | 20 | |
| Interest paid | 170 | |
| Tax | 380 | |
| Fixture and Fittings (Cost) | 22,000 | |
| Fixtures and Fittings (Acc Dep) | 5,000 | |
| Inventories | 160 | |
| Trade receivables | 1,700 | |
| Cash | 60 | |
| Trade payables | 250 | |
| Bank overdraft | 20 | |
| Long-term loan | 4,000 | |
| Share capital | 6,800 | |
| Retained profits (b/f) | 4,780 | |
| 34,270 | 34,270 | |
Notes:
- Depreciation is to be charged for Fixtures and Fittings on a straight-line basis over 10 years. The residual value is estimated to be £2,000,000.
- Rent includes a payment up to 30 November 2020 and a prepayment of £350,000 was made in the previous financial year.
- Total electricity paid during the year is £235,000 and this includes accrued electricity expenses of £15000 outstanding from the previous year. The net amount is included in the administration expense. The electricity bill for September 2020 has not been received and appropriate provision needs to be made.
- One of our credit customers of £200,000 has gone bankrupt. This needs to be adjusted in the accounts and it has been decided to provide a further 2% allowance for the doubtful debt for outstanding receivables.
Required:
- You are required to prepare:
- the Income Statement
- Statement of Financial Position
- Jim, the managing Director of Cherry Hotels Ltd after looking at the trial balance above commented
‘’Looking at the trial balance I am concerned that the trade creditors, which are bad news, and profit, which is good news, are both credit balances. Why?’’
Jim has also realised that the financial statements prepared by the company probably understate the value of the company by not including goodwill.
You are required to answer Jim’s queries in terms that he will be able to understand and by making reference to accounting concepts where applicable.
TASK 2
| Summerlea Tourism Plc | |||
| Income Statement for the year ended 30 June | |||
| 2020 £m’s | 2019 £m’s | 2018 £m’s | |
| Revenue | 245 | 196 | 250 |
| Cost of Sales | 100 | 80 | 90 |
| Gross Profit | 145 | 116 | 160 |
| Net Operating Expenses | 100 | 80 | 65 |
| Operating Profit | 45 | 36 | 95 |
| Finance Expenditure | 40 | 32 | 15 |
| Finance Income | 120 | 96 | 112 |
| Net Profit Before Tax (PBT) | 125 | 100 | 192 |
| Taxation | 50 | 30 | 20 |
| Net Profit for the Year | 75 | 70 | 172 |
| Summerlea Tourism Plc | ||||
| Statement of Financial Position as of 30 June | ||||
| Notes | 2020 £m’s | 2019 £m’s | 2018 £m’s | |
| Non-Current Assets | ||||
| Intangible Assets | 200 | 200 | 200 | |
| Property, Plant, and equipment | 350 | 350 | 300 | |
| Fixtures and fittings | 100 | 90 | 80 | |
| Total NCA | 650 | 640 | 580 | |
| Current Assets | ||||
| Inventories | 20 | 30 | 40 | |
| Trade and other receivables | 1 | 300 | 270 | 250 |
| Cash and cash equivalents/other | 928 | 540 | 560 | |
| Prepayments | 300 | 498 | 352 | |
| Short Term Investment | 50 | 40 | 30 | |
| Total CA | 1598 | 1378 | 1232 | |
| TOTAL ASSETS | 2248 | 2018 | 1812 | |
| Non-Current Liabilities | 200 | 200 | 200 | |
| Current Liabilities | 2 | 521 | 366 | 230 |
| Total Liabilities | 721 | 566 | 430 | |
| NET ASSETS | 1527 | 1452 | 1382 | |
| CAPITAL | ||||
| Share Capital | 1000 | 1000 | 1000 | |
| Retained Earnings | 527 | 452 | 382 | |
| Total Capital | 1527 | 1452 | 1382 | |
| NOTES | ||||
| 1. Trade Receivables | 160 | 150 | 120 | |
| 2. Trade Payables | 80 | 70 | 60 | |
Using the provided financial statements of Summerlea Tourism Plc, you are required to:
- Calculate for both the years 2019 and 2020
- Return on Capital Employed (rounded to two decimal places)
- Acid Test Ratio(rounded to two decimal places)
- cash operating cycle (in days)
- Comment briefly on the company’s financial and non-financial performance by comparing both the years 2019 and 2020 using the ROCE, Acid test ratio, and cash operating cycle ratios calculated above.
