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    Dear business students!

    Could you please help me to prepare a balance sheet as at 31st December 2011 based on the material below?


    Terence is planning to start a new retail business from 1 January 2011. The business will be a small private company and will be called TerenceLtd.


    At the start of trading, the business will have been incorporated and share capital of £12,000 would have been issued at par and paid for by Terence. The business will commence with £2,000 in cash, £2,000of stock and a 2nd hand van worth £8,000.

    A business plan has been prepared by Terence which indicates the following:

    Sales are budgeted to be £3,000 per month January 2011 – March, £4,000per month April – June, £5,000 per month July – September and£6,000 per month October to December 2011.

    Terence expects to earn a gross profit margin of 40% throughout the period and plans to maintain the £2,000 level of stock throughout the year.Each month, therefore, Terence will purchase sufficient goods for resale to cover that month’s sales.

    10%of the sales are budgeted to be cash sales and 90% credit sales each month. Credit customers (debtors) will be given two months to pay. Hence credit sales made, for example, in January 2011 would be received by Terence Ltd during March 2011.

    All purchases of goods for resale will be on a credit basis and suppliers(creditors) will give one month of credit. Hence credit purchases made, for example, in January 2011 would be settled by Terence Ltdduring February 2011.

    Rent of £1,200 would be payable for the year, this being paid at £100per month throughout the year. Business rates of £1,000 will be settled £500 in April and £500 in October 2011.

    Heat,Light and Cleaning costs of £720 for the year are to be paid at the rate of £60 per month throughout the year. Assume that these amounts payable will be sufficient to cover the full costs for the year and that no year end accruals would therefore be required.

    Administrative costs for the year, £960, are to be paid at the rate of £70 per month for the first 6 months and £90 per month for the final 6months. Assume that these amounts payable will be sufficient to cover the full costs for the year and that no year end accruals would therefore be required.

    Vehicle running costs £1,200, are to be paid at the rate of £100 per month throughout the year. Assume that there is no year end accruals or prepayments of expenditure required.

    Terence is to take a director’s salary (£11,400 for the year) and you should assume that this cost, which includes National Insurance Contributions, will be paid £500 per month January 2011 – March, £800 per month April – June, £1,000 per month July – September and £1,500 per month October to December 2009.

    The vehicle used for the business will have a useful life of four years with no estimated resale value. Terence intends to depreciate the vehicle on a straight line basis.

    The corporation tax liability for the year is estimated to be £600 and Terence plans to settle this at £150 per quarter, in March, June,September and December 2011.

    Terence anticipates paying a dividend of £1,000 in December 2011.


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    Hi there,

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