Question 4

Below is shown the trial balance of Try-it Limited as at 31 March 2020. All figures in the trial balance are shown in £000s. 

The trial balance does not reflect the following matters:

i. On the last day of the financial year 20,000 ordinary shares were issued at a premium of 50p per share for cash.

ii. On 31st March 2020 a piece of equipment was sold for £1,000 and this transaction is not reflected in the trial balance. It had originally been purchased on 1st April 2018 for £8,000 with a predicted useful life of 4 years. The company’s depreciation policy is to charge annual depreciation using the reducing balance approach at fixed annual percentage rate. It is the company’s policy NOT to charge depreciation on assets sold in the year of sale. Any profits or losses arising on disposal of noncurrent assets are to be included in the Income Statement before Operating Profit. Depreciation on the non-current assets remaining after the sale of the equipment is not reflected in the trial balance.

iii. A provision for bad debts is to be created on 31 March 2020 and should reflect 20% of gross year-end trade receivables (Hint: The accounting treatment should be to deduct the bad debt from the trader receivables and report the net receivables in the balance sheet as a current asset, and to report the provision for the bad debt in the income statement as a period expense).

iv. Tax payable on the profits for the year to 31 March 2020 is estimated as £10,000 payable in the next financial year.

v. Inventories at cost at 31 March 2020 are £50,000.

vi. The shareholders have agreed to £0.01 dividends per ordinary share for the year to 31 March 2020.

Required:

a) Extract and prepare a Balance Sheet as at 31 March 2020.

b) Extract and prepare an Income Statement for the year ending 31 March 2020.

c) Comment on the liquidity of Try-it Ltd.