siness Accounting - Sangster, Frank Wood’s Business Accounting 2, 13

S olutions Manual F rank Wood’s Bu siness Accounting Volume 2 T hirteenth Edition Alan Sangster 1 / 4

© Pearson Education Limited 2016 5 Sangster, Frank Wood’s Business Accounting 2, 13 th Edition, Solutions Manual Answers Answer to Question 1.4A BA 2 (a) All in £000 Branch Inventory (Selling price) Balance b/d 75 Returns 30 Goods to branch 600 Cash sales 120

Branch accounts receivable: returns 8 Branch accounts receivable 437

Inventory deficiency to branch adjustment 6 Balance c/d 90

683 683

Balance b/d 90 Goods Sent to Branch (Cost price) Returns from branch 20 Branch inventory 400 Head office trading a/c 380

400 400

Branch Adjustment (Profit loading) Returns from branch 10 Unrealised profit b/d 25 Branch inventory deficiency 6 Goods to branch 200 Branch profit and loss 179 Unrealised profit c/d 30

225 225

Unrealised profit b/d 30 Branch Accounts receivable

Balance b/d 66 Branch inventory: returns 8

Branch inventory 437 Bank 390 Discounts 9 Bad debts 15 Balance c/d 81

503 503

Balance b/d 81 Branch Bank Balance b/d 3 General expenses 42 Cash sales 120 To HO bank 459 Branch accounts receivable 390 Balance c/d 12

513 513

Balance b/d 12 2 / 4

(b)Paper Products Income Statement for the year ending 31 March 2016 Head Office Branch Total

Revenue: Cash 1,500 120 1,620

Credit 1,960 429 2,389

3,460 549 4,009

Less Cost of goods Opening inventory 180 50 230 AddPurchases 2,400 380 2,780

2,580 430 3,010

LessClosing inventory 220 2 ,360 60 370 280 2,730 Gross profit 1,100 179 1,279

Less Expenses:

General expenses 410 42 452 Discounts allowed 29 9 38 Bad debts 24 463 15 66 39 529 Net profit 637 113 750 (c) See text,but merits mainly concern tight control as HO can see what profits the branch oughtto be making;also saves branch staff having to keep full accounting records.Demerits depend on whether branch staff are given room for initiative within the above system,or else the HO stupidly lets the system strangle all initiative.Answer to Question 1.6A BA 2 LR Income Statement for the year ending 31 December 2016 Head Office Branch Revenue 83,550 51,700

LessCost of goods sold:

Purchases 123,380 Goods to branch 44,264 44,264

79,116

LessClosing inventory 12,276 66 ,840 2 ,664 41 ,600 Gross profit 16,710 10,100 LessGeneral expenses 8,470 6,070 Net profit 8,240 4,030 Statement of Financial Position as at 31 December 2016 Non-current assets39,000 Current assets Inventory 14,940 Accounts receivable 15,020 Cash in transit 1,000 Bank5,260 36 ,220

75,220

Less Current liabilities Accounts payable12,690

62,530

Equity Capital introduced52,000 AddNet profit12,270

64,270

LessDrawings1,740

62,530

© Pearson Education Limited 2016 6 Sangster, Frank Wood’s Business Accounting 2, 13 th Edition, Solutions Manual 3 / 4

Workings:

Inventory: Head office

Purchases123,380

LessCost of sales:

100

/125×£83,550 66,840

Cost of goods to branch:

100

/125×£56,250 45,000 111,840

11,540

AddCost of goods in transit:

100

/125×£920 736

12,276

Inventory: Branch

Cost of goods sent45,000

LessCost of sales:

100

/125×£51,700 41,360

Cost of goods in transit: 736

Inventory shortage at cost:

100

/125×£300 240 42,336

2,664 Answer to Question 1.8A BA 2 (a) (All in £000)Star Stores Income Statements for the year ending 31 December 2016 Head Office Branch Revenue 1,200 570 Goods transferred to branch 360

1,560 570

LessCost of goods sold:

Opening inventory 80 30 AddPurchases 880 Transfer of goods from head office 300

960 330

LessClosing inventory 100 860 48 282 Gross profit 700 288 LessAdministrative expenses 380 30 Distribution costs 157 172 Increase in provision for profit included in branch inventory* 13 550 202 Net profit 150 86

* (48 ×

1

/6) −5 +(60 ×

1 /6) © Pearson Education Limited 2016 7 Sangster, Frank Wood’s Business Accounting 2, 13 th Edition, Solutions Manual

• / 4