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a) Prepare a Statement of Profit or Loss (or `Income Statement`) for Augax Ltd for the year ended 30 June 2020 and a Statement of Financial Position (or `Balance Sheet`) as at that date.

The following information concerns Augax Ltd in relation to its year ended 30 June 2020:

Trial balance as at 30 June 2020:

Dr £

Cr £

Inventory as at 1 July 2019

50,418

 

Wages & salaries

126,407

 

Trade payables

 

70,881

Business rates

27,974

 

Utilities

21,584

 

Purchases

505,626

 

Trade receivables

92,400

 

Sales

 

1,053,388

Fixtures & fittings: at cost

440,160

 

IT equipment: at cost

188,160

 

Fixtures & fittings: accumulated depreciation at 1 July 2019

 

109,800

IT equipment: accumulated depreciation at 1 July 2019

 

70,920

Dividends paid

41,960

 

Cash at bank

1,592

 

5% loan notes 2030-2032

 

161,000

Loan note interest paid

4,025

 

Bad debt expense

10,918

 

Share premium

 

33,000

Allowance for doubtful debts at 1 July 2019

 

1,861

Premises: at cost

675,700

 

Premises: accumulated depreciation at 1 July 2019

 

175,682

Ordinary shares of 10p each

 

139,000

3% irredeemable preference shares of £1 each

 

61,000

Commissions received

 

8,766

Directors` remuneration

84,270

 

Retained profits at 1 July 2019

 

385,896

 

2,271,194

2,271,194

In addition to the above trial balance you ascertain the following information:
1. The inventory was counted at 30 June 2020 and was valued at a cost of £54,909.

2. Depreciation needs to be charged at the following rates per year:

Premises: Fixtures & fittings: IT equipment:

(straight-line) 2% (reducing balance) 25% (straight-line) 20%

  1. The amount shown for business rates on the trial balance includes a payment of £6,180 which represents twelve months` business rates to 31 August 2020.
  2. Utilities charges incurred for which no invoices have yet been received amount to a total of £7,842.
  3. The audit fee for the year has been agreed at £18,000 and this needs to be provided for.
  4. The allowance for doubtful debts is to be set at 3% of trade receivables.
  5. The interest on the loan notes is paid in two instalments each year, and the second instalment needs to be accrued.
  6. The corporation tax charge on this year`s profit is estimated to be £27,000.

Required:

  1. a) Prepare a Statement of Profit or Loss (or `Income Statement`) for Augax Ltd for the year ended 30 June 2020 and a Statement of Financial Position (or `Balance Sheet`) as at that date.

(38 marks)

  1. b)  There are many possible different groups of users of financial statements. For example, the suppliers of a company may be interested in using its financial statements to assess that company`s ability to pay for its goods. Identify three other potential user groups (in addition to suppliers) and briefly outline why they would be interested in financial statements.

(6 marks)

  1. c)  Explain, using at least two examples, why the increase (or decrease) in a company`s cash during the year will nearly always be different to the profit (or loss) that it reports for that year.

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