Case study Marvin makes magic

Case study

Marvin makes magic

During the second half of his first year in business, Marvin (see previous case studies) decided to supplement his income by manufacturing and selling magic sets. This was in addition to his fees as an entertainer and any profit made by selling bought-in novelties from Kaboosh Limited. He rented a workshop on 1 March 2012 and employed his assistant Esmeralda’s seven brothers and sisters as production workers. At the end of his first year of business, 30 June 2012, he produced the following trial balance:

At the end of the year, the following further information was provided:

1 Closing inventory of materials used to manufacture magic sets was valued at £6,320 and closing inventory of bought-in novelties was valued at £2,400. All the manufactured magic sets were sold in the year. There was no work in progress at the year-end.

2 £200 wages was owed to Grimstock, one of the workers on the production line, whilst £100 was owed for light and heat.

3 One-seventh of the rent and rates had been prepaid for the following financial period. Marvin was owed £200 at the year-end by Tanya Turner for a party fee. This had not been shown in Marvin’s accounting records.

4 Depreciation for the year on the magician’s equipment totalled £1,080, and depreciation for the year on the disappearing lady apparatus was £800. Depreciation on the workshop machinery was to be calculated on the straight line method over six years, assuming a residual value of £600. A full year’s depreciation was to be charged, even though the machinery had been owned for less than a year.

Prepare Marvin’s income statement for the year ended 30 June 2012, and a statement of financial position as at that date.

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