Anika owns property that she lets to university students. She has earned a profit in every year since she started trading. Her trial balance at 31 August 2022 was as follows.
Additional information
1 At 31 August 2022, rent received of $8100 was paid in advance.
2 At 31 August 2022, general expenses of $1300 were paid in advance and rates of $3400 were owing.
3 The insurance includes $1800 paid for the 15 month period ending 30 November 2022.
4 Expenditure of $9000 for new fittings has been recorded in repairs.
5 Depreciation is to be provided as follows:
Premises by equal instalments on cost each year over a 50 year period.
Fittings 20% per annum by the reducing balance method.
A full year’s depreciation is charged on fittings during the year of purchase.
(a)[9]
Draw up Anika’s income statement for the year ended 31 August 2022.
(b)[3]
Prepare the capital account for the year ended 31 August 2022, showing the balance brought down at 1 September 2022.
(c)[5]
Advise Anika on her plans and whether she should provide her own additional capital or form a partnership with Janos. Support your answer.
(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.