Basic Accounting of Retail Company

RETAIL CIA – Year 1

1. The company is created as a grocery retailer on 1 January 20X0 and issues 5 million £1 ordinary shares which are fully subscribed.  The other transactions in its first year of business (to 31 December 20X0) are as follows.

1. A bank loan of £2 million is obtained.  This loan carries interest of 10% per annum payable on 30 June 20X0 and the loan is to be repaid in 5 years time.

1. A shop is purchased for £4 million.  The shop has a 20 year useful life.

1. The shop is fitted out at a cost of £2 million.  The fittings have a useful life of 8 years.

1. Inventory for resale is purchased during the year as follows.

1. Purchased on credit £12 million
2. Purchased by cheque £3 million

1. The following costs are incurred

1. Bank loan interest and overdraft interest paid totalled £0.3 million
2. Retail staff wages of £1.5 million are paid
3. Administrative staff salaries of £0.5 million are paid
4. Operating costs (heat & light, cleaning, insurance etc) paid total £2.5 million
5. Depreciation on shop was £0.2 million and on shop fittings was £0.25 million.
6. Paid trade credit suppliers £10.8 million

1. Inventory sold during the year raised £20 million.

1.  Company records show inventory at the year end should total £1.1 million (at cost).  A physical inventory check revealed only £1 million inventory (at cost) in the shop at the year end.

1. Tax due is estimated at £0.2 million.

1. A dividend of £0.1 million has been paid.