Question

Rickety Racquets was formed by yourself and your four flatmates nine months ago, for the purpose of selling a new revolutionary tennis racquet. Listed below are the details of your first nine months of trading.

Sales
Your main customers are the general public and you have already sold, for cash, 1,250 racquets at £150 each. Additionally, you have recently won an order from a local company for 500 racquets. These racquets are to be delivered over the next two years at a discounted price of £120 per racquet. You have just delivered the first batch of 200 racquets for which payment is due in one month’s time.

Purchases
The racquets cost you £90 each. You currently have 300 racquets in stock and you still owe your supplier for the last 80 racquets you received.

Selling & Distribution Expenses
Shop rental is £20,000 per annum, paid in advance. All the wage costs of £1,500 for the nine months were paid. Rates for the shop premises are £1,200 per annum and are still outstanding. When you first opened for business, you spent £2,000 on shop fittings. These should last a long time but you prudently decided to depreciate them at 10 per cent of their original cost per annum.

Administration Expenses
You paid cash of £600 for sundry expenses.

Investment
You set the business up with shares at a nominal value of 50p and each of you put £5,000 of share capital into the company. To help your cash flow initially, you persuaded your rich aunt to lend you, interest-free, a further £10,000.

Dividends
Because you felt that the business was doing well, after five months you paid yourselves an interim dividend of 20p per share. Having reached the end of the nine-month period, you are not proposing to pay yourselves a final dividend.

Taxation
The Inland Revenue has advised you to provide for a corporation tax payment of £10,000 to cover the nine-month period.

Required:

Prepare an income statement for the nine-month period and a balance sheet at the end of the period for Rickety Racquets Limited.

Rickety Racquets was formed by yourself and your four flatmates nine months ago, for the purpose of selling a new revolutionary tennis racquet. Listed below are the details of your first nine months of trading.

Sales
Your main customers are the general public and you have already sold, for cash, 1,250 racquets at £150 each. Additionally, you have recently won an order from a local company for 500 racquets. These racquets are to be delivered over the next two years at a discounted price of £120 per racquet. You have just delivered the first batch of 200 racquets for which payment is due in one month’s time.

Purchases
The racquets cost you £90 each. You currently have 300 racquets in stock and you still owe your supplier for the last 80 racquets you received.

Selling & Distribution Expenses
Shop rental is £20,000 per annum, paid in advance. All the wage costs of £1,500 for the nine months were paid. Rates for the shop premises are £1,200 per annum and are still outstanding. When you first opened for business, you spent £2,000 on shop fittings. These should last a long time but you prudently decided to depreciate them at 10 per cent of their original cost per annum.

Administration Expenses
You paid cash of £600 for sundry expenses.

Investment
You set the business up with shares at a nominal value of 50p and each of you put £5,000 of share capital into the company. To help your cash flow initially, you persuaded your rich aunt to lend you, interest-free, a further £10,000.

Dividends
Because you felt that the business was doing well, after five months you paid yourselves an interim dividend of 20p per share. Having reached the end of the nine-month period, you are not proposing to pay yourselves a final dividend.

Taxation
The Inland Revenue has advised you to provide for a corporation tax payment of £10,000 to cover the nine-month period.

Required:

Prepare an income statement for the nine-month period and a balance sheet at the end of the period for Rickety Racquets Limited.

Answer 1

Income Statement		Amount
Revenue
Income from Sale of Racquets		217500
Total (A)		217500
Expense
Purchase of Racquets	157500
-Closing Stock	-27000	130500
Wages		1500
Shop Rent(For 9 Months)		15000
Discount		6000
Rate		1200
Depreciation		150
Admin Expense		600
Corporate Tax		10000
Total Expense(B)		164950
Net Profit (A)-(B)		52550
-Dividend Paid		-8000
Profit Transfer to equity		44550

Balance Sheet		Amount
Equity and Liabilities
Equity/Share Capital	20000
+Profit	44550	64550
Interest Free Loan		10000
Creditors		7200
O/s Rates		1200
Provision for Corporate Tax		10000
Total		92950
Asset
Fixed Assets
Shop Fittings		1850
Trade Receivable		24000
Closing Stock		27000
Cash		35100
Prepaid Rent		5000
Total		92950

Note: Please feel free to ask any detailed calculation in the above solution.