Stella began trading as a retailer on 1 April 2023. She deals in only one kind of good. She has not maintained a complete set of accounting records, but she has supplied the information below.
1 Exactly half of Stella’s purchases were for cash and the other half were on credit. For the year ended 31 March 2024, Stella paid $34 250 to credit suppliers. On 31 March 2024, credit suppliers were still owed $2960.
2 In contrast to her rivals, Stella received cash for all of her sales. Stella’s mark-up was 32%.
3 The following sums were paid for expenses during the year to 31 March 2024:
Rent and insurance $6750
Wages $8300
Other expenses $1815
4 At 31 March 2024, $300 was still owing for wages and $500 had been paid in advance for rent.
5 Insurance is $2400 per annum. On 1 April 2023, Stella paid $3000 for insurance covering the next 15 months.
6 Other expenses included $120 spent on vases and flowers. One third of these were for Stella’s own home. Stella regards business costs below $150 as revenue expenditure.
7 Inventory was valued at $6420 on 31 March 2024.
(a)[3]
Calculate total purchases for the year ended 31 March 2024.
(b)[8]
Prepare Stella’s income statement for the year ended 31 March 2024.
(c)[5]
Advise Stella whether or not to start selling on credit terms. Support your answer with points in favour of and against starting selling on credit.
(d(i))[1]
State the accounting principle which Stella is following when she treats payments for small items which may last longer than one year, as revenue expenditure.
(d(ii))[1]
State one advantage of following the principle in 5(d)(i).
(e)[2]
State two advantages of maintaining a full set of double entry accounting records.
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