Assignment Task

Below is the trial balance of Flora`s Florist at 5 April 2022.

The following information is relevant.

1. The closing inventory at 5 April 2022 is valued at £129,430.
2. On 5 December 2021 Flora sold a motor vehicle for £4,740. The customer was due to pay Flora’s Florist on 5 April 2022 but only paid two-thirds of the amount due by cheque on this last day of the accounting year. Nothing regarding the disposal transaction, including any cash received, has been recorded in the accounts. This motor vehicle had been bought on 6 October 2020 for £14,600.
3. On 5 January 2022, Flora bought a new motor vehicle for £20,000 on credit terms. The credit entry was correctly dealt with but Flora mistakenly debited Fixtures and fittings at cost.
4. Depreciation on motor vehicles is provided at 20% per annum using the reducing balance basis on a monthly pro-rata basis. Depreciation on fixtures, fittings and equipment is provided at 15% per annum on the straight line basis, assuming no residual value. There were no purchases or disposals of fixtures, fittings, and equipment during the year.
5. Flora estimates that £2,320 due from customers will be irrecoverable and must be written off.
6. The allowance for irrecoverable receivables is to be set at 2% of net receivables at 5 April 2022.
7. Rent includes a prepayment of £460.
8. The heating bill will arrive on 5 June 2022 and £470 is expected to relate to the period ended 5 April 2022.
9. An accrual of £630 is needed for insurance.
10. The long-term loan is repayable in 10 years’ time. Interest payable on the loan is 4% and will be paid once per year.

Required:

• a. Prepare the income statement for Flora`s Florist for the period ending 5 April 2022. Your answer should only be in round pounds. Show your workings, including a full non-current assets note.
• b. Prepare the balance sheet for Flora`s Florist as at 5 April 2022. Your answer should only be in round pounds. Show your workings, including a full non-current assets note.
• c. i) Explain the difference between accrued income and income received in advance.
• ii) Briefly explain the adjustments needed at the period-end for accrued income and income received in advance to prepare ‘true and fair’ financial statements. You must illustrate/support your explanation with examples using dates and figures. 
• d. While Question 1 (a) and (b) is similar to what you can expect in Question 1 in the exam, there are some differences. Outline these differences. Briefly discuss how you would prepare for Question 1 in the exam.

Question 2

There are five parts to Question 2 (a–e). You are required to answer each part.Bianca, a sole trader, owns and manages a business that manufactures and sells one special type of garden furniture for garden centres.

Set out below is the sales revenue and profit for 2021.

Year           Sales            Profit

2021         £372,424      £150,268

In 2021 the business manufactured and sold 98,000 units and had fixed costs of £132,670. All other costs were variable.

• a. Calculate the selling price and variable cost per unit for 2021. 

• b. Calculate the sales revenue level, both in units and money terms, at which the business broke even in 2021. 

• c. Complete a contribution analysis table that indicates fixed, variable and total costs, as well as revenue, for 2021 at production levels of 0, 100,000, 200,000 and 300,000 units.

• d. Illustrate your answers to (a), (b) and (c) above on a breakeven chart that shows revenue, total cost and fixed cost lines with an appropriate legend for each. Your chart should be labelled with an arrow that points to the breakeven point as well as to the margin of safety area.

• e. Bianca had considered spending an additional £12,200 on advertising in 2021. She predicted that such an additional investment would have increased the sales and production volume in the year to 126,000 units at a better selling price of £4.10. She also predicted there would have been no other changes to her fixed costs for the year nor any changes to the variable cost per unit.
  • If her predictions had proved correct, what would have been her new profit for the year?
  • If her predictions had proved correct, what would have been her new breakeven point, in units, for the year?

Question 3

• Explain, using two appropriate examples, how variable costs can differ from direct costs. Your examples should both help to clearly illustrate this difference.

• Using the example of someone considering giving up an existing job to start a new business, explain the concept of opportunity cost. Your example should quantify the relevant opportunity cost in terms of both investing existing savings as well as giving up an existing job.

• Briefly describe how variances can be used to improve planning and budgeting in an organization.

• Explain, using an appropriate example, what is meant by ‘management by exception’.