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Week 1 workshop DU
S
Activity 1 – Statement of profit or loss for a limited company
Ships Ltd
Statement of profit or loss for the year ended 30 June 2023
£
Revenue 100
Cost of sales (40)
Gross profit 60
Operating expenses (35)
Operating profit 25
Finance charges (5)
Profit before tax 20
Tax (6)
Profit for the year 14

What goes in revenue?

Sales

What goes in cost of sales?

Opening inventory + purchases – closing inventory

What goes in operating expenses?

Any operating costs ie. Rent, electricity etc

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Activity 2 HO
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DU
State which of the following items could appear on the Statement of S
Financial Position of Business A as an asset:

 £1,000 owing to Business A by a customer who will never be able to

pay?

No

 £1,500 that Business A owes to their suppliers?

No

 £2,000 owed to Business A from customers who bought on credit?

Yes

 Purchase of a machine which has been acquired on credit and which

has not yet been paid for?
Yes ( but will also be shown as a liability until paid for)

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Example – Statement of financial position for a limited company DU
S

Space Ltd
Statement of financial position as at 30 June 2023

£ £ £
ASSETS:
Non-current assets (‘fixed assets’):
Property, plant & equipment 70

Current assets:
Inventories (‘stock’) 50
Trade and other receivables (‘debtors’) 20
Cash and cash equivalents 10
80
Total assets 150

EQUITY & LIABILITIES:

Share capital 50
Retained earnings 10
Total equity 60

Non-current liabilities:
Bank loan 40

Current liabilities:
Trade payables (‘trade creditors’) 20
Other payables 16
Corporation tax 6
Proposed dividends 8
50
Total liabilities 90
Total equity & liabilities 150

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Activity 3 ED
DU
Sally Evans was unemployed and unable to find a job. She decided to embark on a S
business venture selling shoes. She began the venture by forming a company (“Steps
Limited”) with £2,000 of share capital and bought 50 pairs of boots at a cost of £500.
On her first day of trading she sold three-quarters of her stock for £900 in cash.

Prepare the statement of profit or loss for Steps Ltd.’s first day of trading, and the
statement of financial position at the end of that day.

Steps Ltd.

Statement of profit or loss – day 1

Workings £
Revenue 900
Cost of sales (50 pairs x 0.75 =37.5) W1 (380)
Gross profit 520

Statement of financial position at end of day 1

Workings £
Current assets:
Inventories 120
Cash at bank 2,000-500+900 2,400
2,520

Share capital 2,000

Retained earnings for the day 520
2,520

(W1) Cost of sales:

Opening inventories -
Purchases 500 50 pairs
(Less) closing inventories (120) 12 pairs
380

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Activity 4 HO
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DU
On the second day of trading, Sally purchased another 80 pairs of shoes for £800 on S
credit. She managed to sell 70 pairs on credit for £1,300.
Prepare the statement of profit or loss for Steps Ltd’s second day of trading and the
statement of financial position at the end of that day.

Steps Ltd
Statement of profit or loss – day 2
Workings £
Revenue 1,300
Cost of sales W1 (700)
Gross profit 600

Statement of financial position at end of day 2

Workings £ £
ASSETS:
Current assets:
Inventories 220
Trade receivables 1,300
Cash at bank 2,400
Total assets 3,920

EQUITY & LIABILITIES:

Share capital 2,000
Retained earnings b/f 520
Retained earnings day 2 600
Total equity 3,120
Current liabilities:
Trade payables 800
Total equity & liabilities 3,920
(W1) Cost of sales:
Opening inventories 120 12 pairs
Purchases 800 80 pairs
(Less) closing inventories (220) 22 pairs
700

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Activity 5 HO
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(We will introduce some extra items here – non-current assets in the statement of DU
financial position and operating expenses in the statement of profit or loss.) S

Ernie started a company selling golf balls (“Ballz Limited”) on 1 April 2022. He put in
£20,000 of his own money. During the first three months of trading, the following
transactions took place:

Purchase of a shop for £15,000 (cash)

Purchase of a stock of gold balls for £8,000 (on credit)
Sales of £20,000 (half for cash, half on credit)
Wages paid of £3,000
Distribution costs paid of £2,000
Inventories remaining at the end of the three months were worth £1,000.

Prepare the statement of profit or loss for Ballz Limited’s first 3 months of trading
and the statement of financial position at the end of the 3 months. Ignore
depreciation.

Ballz Limited
Statement of profit or loss for the three months ended 30 June 2022

Workings £
Revenue 20,000
Cost of sales W1 (7,000)
Gross profit 13,000
Operating expenses (5,000)
Operating profit 8,000

(W1) Cost of sales:

Opening inventories -
Purchases 8,000
(Less) closing inventories (1,000)
(1/4 x 600) 7,000

(W2) Operating expenses:

Wages 3,000
Distribution costs 2,000
5,000

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Ballz Limited HO
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Statement of financial position as at 30 June 2022 DU
S
Workings £ £
ASSETS:
Non-current assets (‘fixed assets’):
Property, plant & equipment 15,000

Current assets:
Inventories (‘stock’) 1,000
Trade and other receivables (‘debtors’) 10,000
Cash and cash equivalents W3 10,000
21,000
Total assets 36,000

EQUITY & LIABILITIES:

Share capital 20,000
Retained earnings 8,000
Total equity 28,000

Current liabilities:
Trade payables (‘trade creditors’) 8,000
36,000
(W3) Cash and cash equivalents
£
Opening capital 20,000
Cash sales 10,000
Purchase of shop (15,000)
Wages paid (3,000)
Distribution costs paid (2,000)
10,000

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EXERCISE 6 HO
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DU
The company Harries Limited commenced trading on 1 January 2022. It was S
incorporated with an issue of shares to the value of £50,000. The following
information is available for the first six months of trading:

Sales orders received £800,000

Goods purchased on credit £600,000

Expenditure incurred in the period:

Sales salaries £100,000
Sales commissions £22,500
General and admin £120,000
Interest £6,000
Total expenditure incurred £248,500

Receipts (i.e. cash inflows):

From issue of shares £50,000
From customers £250,000
Bank loan £300,000
Total cash inflows £600,000

Payments (i.e. cash outflows):

To suppliers for goods £400,000
Expenses £155,000
To acquire a building £30,000
Total cash outflows £585,000

Other information:
Closing inventories at 30 June 2022 £250,000

Requirement:

Prepare the statement of profit or loss for the first six months of trading and the
statement of financial position as at 30 June 2022. Ignore depreciation.

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Harries Limited HO
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Statement of profit or loss for the six months ended 30 June 2022 DU
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Workings £
Revenue 800,000
Cost of sales (350,000)
Gross profit 450,000
Operating expenses (242,500)
Operating profit 207,500
Interest payable (6,000)
Profit before taxation 201,500

(W1) Cost of sales:

Opening inventories -
Purchases 600,000
(Less) closing inventories (250,000)
350,000

(W2) Operating expenses:

Sales salaries 100,000

Sales commissions 22,500
General & admin 120,000
242,500

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Harries Limited HO
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Statement of financial position as at 30 June 2022 DU
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Workings £ £
ASSETS:
Non-current assets (‘fixed assets’):
Property, plant & equipment 30,000

Current assets:
Inventories (‘stock’) 250,000
Trade and other receivables (‘debtors’) W3 550,000
Cash and cash equivalents W4 15,000
815,000
Total assets 845,000

EQUITY & LIABILITIES:

Share capital 50,000
Retained earnings 201,500
Total equity 251,500

Non-current liabilities:
Bank loan 300,000

Current liabilities:
Trade payables (‘trade creditors’) W5 200,000
Other payables W6 93,500
293,500
Total liabilities 593,500
Total equity & liabilities 845,000

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(W3) Trade receivables: 800,000-250,000 = 550,000 HO
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(W4) Cash and cash equivalents DU
£ S

Opening capital 50,000

Receipts from customers 250,000
Bank loan 300,000
Payments to suppliers (400,000)
Expenses (155,000)
Purchase of building (30,000)
15,000

(W5) Trade payables: 600,000 – 400,000 = 200,000

(W6) Other payables:

Sales salaries 100,000

Sales commissions 22,500
General & admin 120,000
Interest 6,000
(Less) cash expenses paid (155,000)
93,500

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