Solution 1.

The three month operations of Ribbons and Bows are as follows:

Trading and Profit & Loss Account for the period ended 30 June 2010Dr CrParticulars Amount ($) Particulars Amount ($)To Opening Stock 3300 By Sales 7720To Purchases 2900 By Closing Stock 4100To Gross Profit c/d 5620

11820 11820To Salary 1600 By gross profit b/d 5620To Rent 1800To DepreciationMachinery 60Computer 250To Office Supplies 80To Interest on Capital 200To advertisement 150To Net profit transferred to capital 1480

5620 5620

From the above statement we can infer that the company has made a net profit of $1480. This shows that the company has been profitable for the 3-month period.

The reasons for decline in cash in the bank account during the period from April 1 to June 30 can be shown through the following statement:

Particulars Amount ($)Cash at the beginning (April 1) 4000Sales 7400Wages (1510)Rent (1800)Purchase of Stock (2900)Sewing Machine (1800)

3390

The purchase of sewing machine reduced the cash in the bank substantially. Also, the closing stock was higher than the opening stock. The inventory replenishments were paid for with cash.

Solution 2.

The financial position of the business can be shown by the following balance sheet:

Balance Sheet as on 30 June 2010

LiabilitiesAmount Assets

Amount

Cousin's Loan 10000 Cash 3390Outstanding Wages 90 Bills Receivable 320Outstanding interest 200 Closing Stock 4100Carmen's Capital 1000 Supplies 20Add: Net Profit 1480 2480 Prepaid Rent 1200

Computer 2000Less: Depreciation 250 1750Machinery 1800Less: Depreciation 60 1740Deposit of Cash register 250

12770 12770

The position of assets and liabilities are shown in the above statement.

Solution 3.

For a business that is 3 months old, it’s quite profitable, given the fact that she made a net profit of $1480. But Carmen has quite a few expenses to consider over the next few months, like outstanding wages and interest on capital. She has also to consider the fact that she hasn’t paid herself any salary and dividends over the 4 months of existence of the business.

Working Notes

1. Total Sales (3 months) = Cash Sales + Credit Sales = 7400 + 320 = 7720

2. Rent Paid = 600 x 3 = 1800

3. Salary for part-time employee = 1510 + 90 = 1600

4. Supplies expenses = Stores Supplies – Unused Supplies = 100 – 20 = 80

5. Depreciation on sewing machine = (1800 x 2) / 60 = 60

6. Depreciation of Computer and Software = (2000 x 3) / 24 = 250

7. Interest on Capital = (10000 x 0.06 x 4) / 12 = 200

Prepared by,

Group A:

Sukanya T.

Nivin Vinoi

Tomin Baby

Joseph Philip

Deepu Jacob