You are Provided with the Trial Balance with Notes for Cherry Hotels Ltd: Introduction to Accounting & Finance Assignment, UWL, UK

University University of West London (UWL)
Subject Introduction to Accounting & Finance

TASK 1

You are provided with the trial balance with notes for Cherry Hotels Ltd as of 30 September 2020.

You are requested to construct the appropriate final accounts for the year ended 30 September 2020.

Cherry Hotels Ltd, Trial Balance at 30 September 2020

DebitCredit
£’000£’000
Revenue13,400
Cost of sales6,000
Administration expenses1,200
Rent2,600
Interest on investments received20
Interest paid170
Tax380
Fixture and Fittings (Cost)22,000
Fixtures and Fittings (Acc Dep)5,000
Inventories160
Trade receivables1,700
Cash60
Trade payables250
Bank overdraft20
Long-term loan4,000
Share capital6,800
Retained profits (b/f)4,780
34,27034,270

Notes:

  1. Depreciation is to be charged for Fixtures and Fittings on a straight-line basis over 10 years. The residual value is estimated to be £2,000,000.
  2. Rent includes a payment up to 30 November 2020 and a prepayment of £350,000 was made in the previous financial year.
  3. Total electricity paid during the year is £235,000 and this includes accrued electricity expenses of £15000 outstanding from the previous year. The net amount is included in the administration expense. The electricity bill for September 2020 has not been received and appropriate provision needs to be made.
  4. One of our credit customers of £200,000 has gone bankrupt. This needs to be adjusted in the accounts and it has been decided to provide a further 2% allowance for the doubtful debt for outstanding receivables.

 Required:

  • You are required to prepare:
  1. the Income Statement
  2. Statement of Financial Position
  • Jim, the managing Director of Cherry Hotels Ltd after looking at the trial balance above commented

‘’Looking at the trial balance I am concerned that the trade creditors, which are bad news, and profit, which is good news, are both credit balances. Why?’’

Jim has also realised that the financial statements prepared by the company probably understate the value of the company by not including goodwill.

You are required to answer Jim’s queries in terms that he will be able to understand and by making reference to accounting concepts where applicable.

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TASK 2

Summerlea Tourism Plc

 Income Statement for the year ended 30 June

2020 £m’s2019 £m’s2018 £m’s
Revenue245196250
Cost of Sales1008090
Gross Profit145116160
Net Operating Expenses1008065
Operating Profit453695
Finance Expenditure403215
Finance Income12096112
Net Profit Before Tax (PBT)125100192
Taxation503020
Net Profit for the Year7570172

Summerlea Tourism Plc

Statement of Financial Position as of 30 June

Notes2020 £m’s2019 £m’s2018 £m’s
Non-Current Assets
Intangible Assets200200200
Property, Plant, and equipment350350300
Fixtures and fittings1009080
Total NCA650640580
Current Assets
Inventories203040
Trade and other receivables1300270250
Cash and cash equivalents/other928540560
Prepayments300498352
Short Term Investment504030
Total CA159813781232
TOTAL ASSETS224820181812
Non-Current Liabilities200200200
Current Liabilities2521366230
Total Liabilities721566430
NET ASSETS152714521382
CAPITAL
Share Capital100010001000
Retained Earnings527452382
Total Capital152714521382
NOTES
1. Trade Receivables160150120
2. Trade Payables807060

Using the provided financial statements of Summerlea Tourism Plc, you are required to:

  • Calculate for both the years 2019 and 2020
  1. Return on Capital Employed (rounded to two decimal places)
  2. Acid Test Ratio(rounded to two decimal places)
  3. cash operating cycle (in days)
  • Comment briefly on the company’s financial and non-financial performance by comparing both the years 2019 and 2020 using the ROCE, Acid test ratio, and cash operating cycle ratios calculated above.

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