Simon trades in soft furnishings from shop premises in the centre of a small town in Northern England. He provides basic summaries of his transactions for his accountant, Bernie, who prepares his final accounts and tax computation. The business year-end is 31 July. Simon’s income and expense transaction totals for the year ended 31 July 2012, before any necessary year-end adjustments, are as follows:
1. Of the £4478 included above for insurance, £501 relates to the period after 1 August 2012.
2. Simon has two very trustworthy assistants working in the shop. As well as wages, he pays each of them an annual bonus of 0.5% of total sales (not including income from the curtain making service). An accrual needs to be made for this item.
3. Electricity charges of £377 require accrual.
4. Bernie always makes an accrual for his own fees when drawing up Simon’s accounts. He estimates that the fee required for the year ended 31 July 2012 will be £800.
5. In conversation, Simon mentions that he has been having a lot of trouble with the occupants of the shop next door who regularly leave rubbish scattered on the forecourt which serves both shops. Simon has taken legal advice to see whether he can obtain a legal injunction, but he has not yet received a bill from the solicitor for work done. At Bernie’s request Simon contacts the solicitor for an estimate of the fees at 31 July 2012. The solicitor tells Simon that time charges for consultation and correspondence amount to about £350.
Bernie and Simon agree that an accrual should be made for this amount. Prepare an income statement for Simon for the year ending 31 July 2012 and calculate the totals for accruals and prepayments for inclusion in the statement of financial position at that date.