Shiv trades in goods. His financial year finishes on 31 August. He does not keep a complete set of accounting records, but he was able to supply the following details for the year ended 31 August 2021.
Total revenue $320 000
Mark-up rate 25%
Bank account summary for the year ended 31 August 2021
Assets and liabilities details
1 September 2020 / 31 August 2021
Inventory at cost $23 500 / $
Trade receivables $22 000 / $25 900
Expenses owing $- / $400
Trade payables $32 600 / $29 600
Equipment at net book value $- / $12 800
Premises at cost $90 000 / $90 000
During the year, Shiv took $900 out for a family holiday. He had entered this in the expenses.
On 31 August 2021 Shiv decided to create a provision for doubtful debts of 3% of trade receivables.
(a)[3]
Calculate the amount of purchases for the year ended 31 August 2021.
(b)[11]
Prepare the income statement for the year ended 31 August 2021. The inventory on 31 August 2021 must be shown clearly within the statement.
(c)[1]
Name the accounting principle Shiv should use when recording the $900 he spent on a family holiday.
(d)[5]
Discuss the implications of Shiv valuing the inventory on 31 August 2021 at selling price.
Worked solution & mark scheme
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