Anika owns property that she lets to university students. She has achieved a steady profit in every year she has traded. Her trial balance at 31 August 2022 was as follows.
Additional information:
1. On 31 August 2022, rent received of $8100 had been received in advance.
2. On 31 August 2022, general expenses of $1300 had been paid in advance and rates of $3400 were still payable.
3. The insurance figure includes $1800 paid for the 15 month period ending 30 November 2022.
4. $9000 spent on new fittings has been entered under repairs.
5. Depreciation is to be charged as follows:
Premises: in equal annual instalments on cost over a 50 year period.
Fittings: 20% per annum using the reducing balance method.
A full year's depreciation is charged on fittings in the year they are bought.
(a)[9]
Prepare Anika's income statement for the year ended 31 August 2022.
(b)[3]
Prepare the capital account for the year ended 31 August 2022 and show the balance brought down on 1 September 2022.
(c)[5]
Advise Anika on her plans and on whether she should supply her own extra capital or enter a partnership with Janos. Support your answer with reasons.
(d)[3]
Explain to Anika how capital expenditure differs from revenue expenditure. Why is this distinction important when preparing the financial statements?
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.