cash flow and and profit and loss statement problems?

Question

Hi guys,
Can someone help me about this... i already answered part (a), but i dont know if i am correct...and also please help me about (b)...thnx...

New World Hotel Limited has just started in business this year.

(a) During the year purchase (all for cash) were:
Beer $464,300
Wines $314,200
Spirits $230,900

At the end of the year stocks on hand were:
Beer $24,000
Wines $103,900
Spirits $46,900

Required:
What was the cost of the beer, wines and spirits sold by the hotel during the year?

Beer : $464,300 - $24,000 = $440,300
Wines : $314,200 - $103,900 = $210,300
Spirits : $230,900 - $46,900 = $184,000



(b) Sales (all for cash) during the same period were:
Beer $764,000
Wines $285,000
Spirits $468,800

Required:

(i) Prepare a cash flow statement for the drinks trading.

(ii) Prepare a profit and loss statement for the drinks trading.

(iii) Which part of the trade is most profitable? Discuss.

Answer 1

(i)Prepare a cash flow statement for the drinks trading.
Direct method:
Cash receipts from customers 1,517,800
Cash paid to suppliers (1,009,400)
Cash generated from drinks operations 508,400

Indirect method:
Profit from drinks operations 683,200
Increase in inventories (174,800)
Cash generated from drinks operations 508,400

(ii)Prepare a profit and loss statement for the drinks trading.
Sales of drinks 1,517,800
less cost of drinks sold (834,600)
Gross profit 683,200

(iii)Which part of the trade is most profitable? Discuss.
Gross profits and GP margins were as follows:
Beer 323,700 (42.37%)
Wines 74,700 (26.21%)
Spirits 284,800 (60.75%)

Spirits brought in the highest GP margin, so it's the most profitable of the 3 types of drinks.

Answer 2

The real problem facing businesses today are the rising bills around them such as Business rates, Water Rates, Value Added Tax, PAYE NIC Contributions and so on. It is impossible to constantly pass these increases in overheads onto the customers; therefore you will find a lot of companies swallowing these extra expenses. These extra expenses decrease the amount of liquid cash that is available to them even if there business is steady and doing well. With a decrease in liquid cash you will find yourself unable to promote your business especially which will stunt its future growth and ultimately result in it falling behind.

Answer 3

You did part a correctly. Part b I won't do it for you but in part a you calculated the cost of goods sold and you're given the sales (aka revenues). So, now you can do the P&L which is Revenues - CGS - Expenses = Net income. You're on the right track!