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Financial Accounting (MiM 2010)
Problem Set 2
Please submit a typed solution in a clear and organized manner
Question 1 – Fossick Ltd.
Fossick Ltd is a spaghetti wholesaler, which has been trading for only one year. At the
beginning of its second year, it has the following items on its balance sheet:
£
Fixed Assets 1,150
Cash 2,000
Share Capital 700
Retained Profit 950
5 year Bank Loan 1,500
During the second year, the company undertakes the following transactions:
1) Purchases inventory (raw, untreated spaghetti) for £500, on credit.
2) Sells inventory which originally cost £500 for £1,000. All customers buy on credit.
3) Pays £50 for insurance and £120 for advertising. The insurance is paid in cash, but the
advertising company gives credit.
4) Purchases a spaghetti pump for £950, on credit.
5) Pays the spaghetti taster £90 in cash.
6) Pays interest of 10% on its loan, in cash.
7) Pays £1,000 to its trade creditors (payables).
8) Receives £640 from its customers.
9) Fossick’s accountant calculates that as a result of the above transactions, the company
will have to pay tax of £32.
10) Finally, the board of directors decide to pay a dividend of £29.
On the following page, you are given a worksheet for Fossick’s second year. Fill in the
opening balances (from the end of the first year), and then record the transactions during the
second year, line by line. Calculate closing balances and then, using the proformas given,
construct a closing Balance Sheet and a Profit and Loss Account.
