Ken Kennett Building Services is a local business operating in the housing industry.

Ken Kennett has no

formal accounting system and does not use financial statements for decision making. However, he is
negotiating a contract with a supplier of building materials who wants to see his financial statements to
ensure that Ken can meet his payments each month. Ken has asked you to prepare financial statements.
Based on his last tax return and the content of his shoebox (where he keeps his invoices and receipts) for
this year, you have recorded the following items:

Cash in the shoebox (with the receipts and invoices) $500

Cash in the bank account 3,800

Building services provided 550,000

Amounts owed by customers 80,000

Wages paid to employees 150,000

Wages owed to the employees 3,500

Equipment 68,000

Building supplies used 310,000

Building supplies on hand 18,000

Amounts owed to suppliers 30,000

Motor vehicle 32,000

Motor vehicle expenses 5,600

Electricity and telephone expenses 4,000

Cash used by Ken for personal expenditure 5,700

REQUIRED:

A. Using the information above, prepare a statement of financial performance (income statement) and a
statement of financial position (balance sheet) for Ken Kennett Building Services. ( 6 Marks)

B. How would the financial statements you provide help the supplier of building materials decide
whether or not to trade with Ken? What parts of the financial statements would be positive indicators
that Ken Kennett Building Services would be able to pay for supplies on time and what items may cause
some concern for the suppliers? (4 Marks)

QUESTION 2 (10 Marks)

Clive Calmer offers accounting services to the local small business owners! He has set up a sole
proprietorship business named CC Accounting. Clive has collected the following information relating to
his business activities at the end of financial year:

Office supplies $1,500

Office supplies expense 840

Telephone expense 255

Motor vehicle expense 330

Accounts receivable 1,500

Bank loan 7,500

Accounts payable 1,080

Cash at bank 8,445

Computer equipment 8,250

Advertising expense 510

Accounting service income 9,750

The following information was also disclosed from examining Clive’s bank statement:

Accounting service income receipts $8,250

Initial contribution by Clive 3,300

Bank loan received 9,000

Payments to suppliers 2,355

Repayment of loan 1,500

Computer equipment purchase 8,250

REQUIRED:

A. Without preparing formal financial statements, calculate the following:

1. Profit/loss for the year

2. Total assets at the end of the year

3. Total liabilities at the end of the year

4. Clive Calmer’s capital balance at the end of the year

5. Net cash inflow/outflow for the year

B. If Clive had withdrawn $3,000 in cash during the year, what effect would this have (increase, decrease,
no effect) on the figures you calculated in requirement A? (4 Marks)