Lionel began trading on 1 July 2022. He introduced $15000 of his own money into the business bank account. He did not maintain complete accounting records, but he has supplied the following details at 30 June 2023.
1. Cash sales totalled $90000 and were banked. Nothing else was received. Lionel adds 50% to the cost of his goods.
2. Payments from the bank: Purchase of motor vehicle (van) $8000; Payments to credit suppliers $55000; Wages $8060; General expenses $1140; Rent and insurance $5585; Motor expenses $4992; Cash drawn from bank $14600
3. Purchases returns were $3000.
4. Inventory at 30 June 2023 was $4175.
5. One third of the motor expenses paid related to Lionel’s private car.
6. A full year’s depreciation at 25% is to be charged on the van using the reducing balance method.
7. Lionel took $1000 each month from business cash for personal use. The rest of the cash drawn from the bank was used to pay wages.
(a)[9]
Prepare Lionel’s income statement covering the year ended 30 June 2023.
(b)[5]
Prepare Lionel’s capital account for the year ended 30 June 2023. Balance the account and carry the balance down at 1 July 2023.
(c)[1]
State one reason why Lionel ought to keep double-entry bookkeeping records.
(d)[5]
Advise Lionel whether he ought to offer the 10% trade discount or the 3% cash discount. Justify your answer.
Worked solution & mark scheme
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