TASK 1 You are provided with the trial balance with notes for Cherry Hotels Ltd as of 30 September 2020. You are requested to construct the appropriate final accounts for the year ended 30 September 2020.

TASK 1

You are provided with the trial balance with notes for Cherry Hotels Ltd as of 30 September 2020.

You are requested to construct the appropriate final accounts for the year ended 30 September 2020.

Cherry Hotels Ltd, Trial Balance at 30 September 2020
	Debit	Credit
	£’000	£’000
Revenue		13,400
Cost of sales	6,000
Administration expenses	1,200
Rent	2,600
Interest on investments received		20
Interest paid	170
Tax	380
Fixture and Fittings (Cost)	22,000
Fixtures and Fittings (Acc Dep)		5,000
Inventories	160
Trade receivables	1,700
Cash	60
Trade payables		250
Bank overdraft		20
Long-term loan		4,000
Share capital		6,800
Retained profits (b/f)		4,780
	34,270	34,270

Notes:

Depreciation is to be charged for Fixtures and Fittings on a straight-line basis over 10 years. The residual value is estimated to be £2,000,000.
Rent includes a payment up to 30 November 2020 and a prepayment of £350,000 was made in the previous financial year.
Total electricity paid during the year is £235,000 and this includes accrued electricity expenses of £15000 outstanding from the previous year. The net amount is included in the administration expense. The electricity bill for September 2020 has not been received and appropriate provision needs to be made.
One of our credit customers of £200,000 has gone bankrupt. This needs to be adjusted in the accounts and it has been decided to provide a further 2% allowance for the doubtful debt for outstanding receivables.

Required:

You are required to prepare:

the Income Statement
Statement of Financial Position

Jim, the managing Director of Cherry Hotels Ltd after looking at the trial balance above commented

‘’Looking at the trial balance I am concerned that the trade creditors, which are bad news, and profit, which is good news, are both credit balances. Why?’’

Jim has also realised that the financial statements prepared by the company probably understate the value of the company by not including goodwill.

You are required to answer Jim’s queries in terms that he will be able to understand and by making reference to accounting concepts where applicable.

TASK 2

Summerlea Tourism Plc
Income Statement for the year ended 30 June
	2020 £m’s	2019 £m’s	2018 £m’s
Revenue	245	196	250
Cost of Sales	100	80	90
Gross Profit	145	116	160
Net Operating Expenses	100	80	65
Operating Profit	45	36	95
Finance Expenditure	40	32	15
Finance Income	120	96	112
Net Profit Before Tax (PBT)	125	100	192
Taxation	50	30	20
Net Profit for the Year	75	70	172

Summerlea Tourism Plc
Statement of Financial Position as of 30 June
	Notes	2020 £m’s	2019 £m’s	2018 £m’s
Non-Current Assets
Intangible Assets		200	200	200
Property, Plant, and equipment		350	350	300
Fixtures and fittings		100	90	80
Total NCA		650	640	580

Current Assets
Inventories		20	30	40
Trade and other receivables	1	300	270	250
Cash and cash equivalents/other		928	540	560
Prepayments		300	498	352
Short Term Investment		50	40	30
Total CA		1598	1378	1232

TOTAL ASSETS		2248	2018	1812

Non-Current Liabilities		200	200	200
Current Liabilities	2	521	366	230
Total Liabilities		721	566	430

NET ASSETS		1527	1452	1382

CAPITAL
Share Capital		1000	1000	1000
Retained Earnings		527	452	382
Total Capital		1527	1452	1382

NOTES
1. Trade Receivables		160	150	120
2. Trade Payables		80	70	60

Using the provided financial statements of Summerlea Tourism Plc, you are required to:

Calculate for both the years 2019 and 2020

Return on Capital Employed (rounded to two decimal places)
Acid Test Ratio(rounded to two decimal places)
cash operating cycle (in days)

Comment briefly on the company’s financial and non-financial performance by comparing both the years 2019 and 2020 using the ROCE, Acid test ratio, and cash operating cycle ratios calculated above.