Ribbons and Bows operated for three months from April to June 2010. It had total sales of $7720 and closing stock of $4100. The company made a net profit of $1480 over this period, showing it was profitable. Cash in the bank declined due to purchases of stock for $2900 and a sewing machine for $1800. The balance sheet on June 30, 2010 showed total assets of $12770 including cash of $3390, stock of $4100, and machinery and computer equipment worth $3490 after depreciation. Liabilities included a cousin's loan of $10000 and outstanding wages and interest. The business was profitable for a new three month old company but needs to pay

1. Solution1.
The three monthoperationsof RibbonsandBowsare as follows:
Trading and Profit & Loss Account for the period ended 30 June 2010
Dr Cr
Particulars Amount($) Particulars Amount($)
To OpeningStock 3300 By Sales 7720
To Purchases 2900 By ClosingStock 4100
To Gross Profitc/d 5620
11820 11820
To Salary 1600 By grossprofitb/d 5620
To Rent 1800
To Depreciation
Machinery 60
Computer 250
To Office Supplies 80
To InterestonCapital 200
To advertisement 150
To Netprofittransferredtocapital 1480
5620 5620
From the above statementwe caninferthatthe companyhas made a netprofitof $1480. This
showsthat the companyhas beenprofitable forthe 3-monthperiod.
The reasonsfor decline incashinthe bank accountduringthe periodfromApril 1 to June 30 can be
shownthroughthe followingstatement:
Particulars Amount($)
Cash at the beginning(April 1) 4000
Sales 7400
Wages (1510)
Rent (1800)
Purchase of Stock (2900)
SewingMachine (1800)
3390
The purchase of sewingmachine reducedthe cashinthe bank substantially.Also,the closingstock
was higherthanthe openingstock.The inventoryreplenishmentswerepaidforwithcash.

2. Solution2.
The financial positionof the businesscanbe shownbythe followingbalance sheet:
Balance Sheet as on 30 June 2010
Liabilities Amount Assets Amount
Cousin'sLoan 10000 Cash 3390
OutstandingWages 90 BillsReceivable 320
Outstandinginterest 200 ClosingStock 4100
Carmen'sCapital 1000 Supplies 20
Add:NetProfit 1480 2480 PrepaidRent 1200
Computer 2000
Less:Depreciation 250 1750
Machinery 1800
Less:Depreciation 60 1740
Depositof Cashregister 250
12770 12770
The positionof assetsandliabilitiesare showninthe above statement.
Solution3.
For a businessthatis3 monthsold,it’squite profitable,giventhe factthatshe made a netprofitof
$1480. But Carmenhas quite a fewexpensestoconsideroverthe nextfew months,like outstanding
wagesand interestoncapital.She hasalsoto considerthe factthat she hasn’tpaidherself any
salaryand dividendsoverthe 4 monthsof existence of the business.
WorkingNotes
1. Total Sales(3 months) = CashSales+ CreditSales= 7400 + 320 = 7720
2. Rent Paid= 600 x 3 = 1800
3. Salary forpart-time employee =1510 + 90 = 1600
4. Suppliesexpenses=StoresSupplies –UnusedSupplies=100 – 20 = 80
5. Depreciationonsewingmachine =(1800 x 2) / 60 = 60
6. Depreciationof ComputerandSoftware =(2000 x 3) / 24 = 250
7. InterestonCapital = (10000 x 0.06 x 4) / 12 = 200

3. Preparedby,
Group A:
Sukanya T.
NivinVinoi
Tomin Baby
JosephPhilip
DeepuJacob