Question

. Jazz turned his love of music into a business venture and has owned and managed "Music City" for many years from rented premises in the west end of town. The business sells second hand cd's and vinyl records, vintage music equipment and concert tickets. Due to the recent growth of sales in vinyl records, Jazz would like to move into the market of selling record players but requires additional finance to do this. Jazz has arranged to meet with the business's bank manager to discuss this idea further. The bank manager has a copy of the business's financial statements for the year ending 31st January 2016, (which shows net assets of £39,668, including inventories of £16,758), and has asked Jazz to bring a copy of the business's latest trading figures to the meeting Jazz provides the following information (i) List of balances from the cash book for the year ending 31stJanuary 2017 Receipts and Payments: Advertising and postage Bank interest and charges Commission received for concert ticket sales-(note i 13,125 Christmas gifts for the family Electricity-(note i) Insurances-(note iv) Jazz's wages Motor expenses New computers and bill system Property repairs 4,132 1,672 44,800 3,112 4,800 81,890 25,405 Rent & Rates- (note v) Repainting the shop premises Staff wages Sundry expenses Business cash at 31" January 2017 Overdrawn bank balance at 31 January 2017 7.384 (ii) The business has an arrangement whereby it receives commission of 5% of the selling price for all concert tickets sold During January 2017, concert ticket sales were £50,000 and this commission is due to be received on 25th February 2017. (ii) At 31st January 2017 there is an outstanding electricity bill of £970 which has (iv) surances prepaid at 31st January 2017 (v) Rent & Rates includes rent of £3,750 for not been accounted for total £451 the 3 months ending 30th April 2017. (vi) he inventories at 31st January 2017 are valued at cost of £20,334, and selling price £37,655. Required: (a) From the data provided by Jazz, prepare a Statement of Profit or Loss for the year ending 31st January 2017 for "Music City and a Capital Account as at that date. Show clearly all workings. (Note: A Statement of Financial Position is not required). (15) (b) The bank manager has reviewed the information provided and has pointed out that depreciation still needs to be accounted for. The following has been taken from the Financial Statements of "Music City" as at 31st January 2016 Cost Accumulated Net Book Value Fittings & Eq 8723 Motor Vehicle 41 80000 ,957 31 757 The business's annual depreciation policy is: Fittings & Equipment (including computing equipment)-15% reducing balance basis Motor Vehicles-straight line basis over 4 years with a residual value of £8,000 (i) Explain what is meant by the accounting term "depreciation" the rationale behind the requirement to depreciate Non-Current Assets. (ii) Taking into account any additions or disposals to Non-Current Assets, calculate the annual depreciation charge for each group of non-current assets and explain the impact this charge will have on the financial statements for the year ending January 2017 (c) Using your business knowledge and all available information, briefly explain why there is a difference between "Music City's profit and overdrawn bank balance of £7,384, highlighting any concerns that bank manager may have in relation to increasing borrowing facilities

Answer 1

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