No. 4(a): Workings for preparation of the appropriation account of Benji and Nicka:
Calculation of interest on capital:
Calculation of interest on drawings:
Calculation of share of profit using ratio of 3:2:
Remaining profits = (56,200 + 300 + 215) – (16,000 +14,000 + 5,000) = $21,715
No. 2(a) (i): Formulae and comments on the gross profit margin and the operating expenses/sales revenue ratios:
Gross Profit Margin:
The formula to compute gross profit margin is;
Gross profit x 100
The gross profit margin for the year ended 31st December 2017 was 24%. This means that for every $1 of sales revenue earned the business had $0.24 to help cover the expenses for that period. This is a 4% increase when compared to the gross profit margin of 2016 and thus a strength, or a positive thing for the business.
Operating Expenses/Sales Revenue:
The formula to compute operating expenses/sales revenue is;
Operating Expenses x 100
The operating expenses/sales revenue for the year ended 31st December 2017 was 11%. This means that for every $1 of sales revenue earned the business paid $0.11 towards expenses for that period. This is a 2% increase opposed to the $0.09 they paid in 2016. This may be perceived as a negative thing as it means that the expenses of the business increased during 2017. Please note however, that there may be a number of reasons for this such as increased sales resulting in increased expenses, and therefore may not necessarily be a sign of weakness.
No. 1(a): Preparation of Cash Book for the month of 31st March 2018.
1. 26th March 2018 the total of the cheque to Jeff’s Air-Con:
Cheque will equal $7,500 less a 5% discount.
The discount equals 5% x $7500 = $375.
Therefore the cheque total equals = $7,500 - $375 = $7,125.
2. 30th March 2018 the total of the cheque received from Layby Stores:
Invoice total on the 13th March sent to Layby Stores equals $2,250 less 20% trade discount.
The discount equals 20% x $2,250 = $450.
Therefore the invoice total equals = $1,800.
19th March 2018 the total of the credit note sent to Layby Stores equals $200 less 20% trade discount.
The discount equals 20% x $200 = $40.
Therefore the credit note total equals $200 - $40 = $160.
This means that the total on Layby Store’s account on the 30th March 2018 = $1800 - $160 = $1640.
Layby Stores was given a cash discount of $150 therefore the cheque received from Layby will equal
$1640 - $150 = $1,490.
Now that the workings has been completed the Cash Book for the month ended 31st March, 2018 can be prepared.
The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.