Miranda Hotel Statement of Profit and Loss For The Year Ended XXX

1.
Draw up a trial balance for the Master Hotel from the figures given:
Capital - 11,950 Creditors - 100
Cash at Bank - 175 Plant & Equipment - 2,500
Cash in hand - 25 Rates - 120
Premises - 10,000 Debtors - 50
Stationery - 20 Telephone - 80
Sales - 5,500 Purchases - 2,035
Wages - 1,500 Equipment Repairs - 195
Drawing - 850

Debits Credits
Capital 11,950.00
Cash at bank 175.00
Cash in hand 25.00
Premises 10,000.00
Stationery 20.00
Sales 5,500.00
Wages 1,500.00
Drawing 850.00
Creditors 100.00
Plant & Equipment 2,500.00
Rates 120.00
Debtors 50.00
Telephone 80.00
Purchases 2,035.00
Equipment Repairs 195.00

17,550.00 17,550.00
2. Using the balances from question 5, prepare a Profit and Loss account and a
Balance Sheet.

Miranda Hotel
Statement of Profit and Loss
For the year ended XXX

Sales 5,500.00
Purchases 2,035.00
Gross Profit 3,465.00

Wages 1,500.00
Rates 120.00
Telephone 80.00
Equipment Repairs 195.00 1,895.00
Net Profit 1,570.00

Miranda Hotel
Balance Sheet
As of XXX

Assets
Cash at bank 175.00
Cash in hand 25.00
Premises 10,000.00
Debtors 50.00
Stationery 20.00
Plant & Equipment 2,500.00
Total Assets 12,770.00

Liabilities and Equity
Creditors 100.00
Capital 11,950.00
Drawing (850.00)
Retained Earnings 1,570.00
Total Liabilities and Equity 12,770.00

3. Describe the uses of the following ratios within final accounts, using examples:
a. Acid Test
b. Return on Capital Employed
c. Net profit margin
d. Debtor collection days
a. Acid test is an indicator that determines whether a firm has enough short term assets to cover
its immediate liabilities without selling inventory. It is calculated by using this formula:

Cash + Accounts receivable + Short term investments
Current liabilities

Supposing a small business has 150.00 cash and 450.00 accounts receivable but no short term
investments as liabilities could be considered money owed let s assume its 300.00. The acid test
would be:
Net Profit Ma = 2
300.00

That means The business is viable and in the worst case scenario where the liabilities have to be
covered in a hurry, the company will be able to respond.
b. Return on capital employed (ROCE) is a ratio that indicates the efficiency and profitability of a
companys investments.
Return On Capital Employed = Operating profit X 100
Capital employed
So suppose Miranda hotel has profits of 150.00 from sales, its total assets (including buildings
etc) is 300.00 and its total liabilities or expenses are 90.00 the ROCE would be:
150.00 X 100 = 71.43
300.00 - 90.00
c. Net profit margin is a measure of profitability and it is a measure of profitability and it is a ration
comparing net profit after taxes to revenue.
Net Profit Margin = Net Income X 100
Revenue
Example suppose a company has revenue of 150.00 and its cost is 80.00 then using the above
formula:
Net Profit Margin = (150.00 80.00) X 100 = 46.67
150.00
d. Debtor collection days are a measure of the average time payment takes. The formula is
Trade Debtors X 365
Sales
The lower the debtor collection days the better. Example: Suppose business A has sold on credit
to A. King 300.00 and to J. Jones 200.00 and its revenue is 1600.00 then
500 X 365 = 114.06
1600.00

4. Explain briefly the following accounting terms, giving examples
a. Profit
b. Assets
c. Capital
d. Liabilities
Profit is the positive gain remaining for a business after all costs and expenses have been deducted
from total sales. Profit is also referred to as the bottom line, net profit or net earnings. Example:
Merchant X has made 350.00 in Sales and he has spent is 200.00. The formula for calculating
profit is: Sales Expenses so 350 200 = 150. His profit is 150.00
An asset is an economic resource that a) can be owned, and b) is expected to provide future
economic benefits. Assets create or preserve wealth, making them of utmost importance to both
individuals and companies. Example: A company lists its assets on its balance sheet. Common asset
categories include cash and cash equivalents; accounts receivable; inventory; prepaid expenses;
and property and equipment. Although physical assets commonly come to mind when one thinks
of assets, not all assets are tangible. Trademarks and patents are examples of intangible assets.
Capital is money available to a company for day-to-day operations. Capital is a common measure
of a company's liquidity, efficiency, and overall health. Positive working capital generally indicates
that a company is able to pay off its short-term liabilities almost immediately. The formula for this
is Current Assets - Current Liabilities. Example: Suppose company Z has
Assets Liabilities
Cash 600.00 Brown 200.00
Inventory 350.00 Purchases 100.00
Jones 50.00
1000.00 300.00
So for company Z Capital = 1000.00 - 300.00 = 700.00
Liability is a company's legal debts or obligations that arise during the course of business operations.
Liabilities are settled over time through the transfer of economic benefits including money, goods
or services. Liabilities include loans, accounts payable, mortgages, deferred revenues and accrued
expenses. Liabilities are a vital aspect of a company's operations because they are used to finance
operations and pay for large expansions. Example: Let's assume that Hotel Miranda sold 1000.00
of gift certificates during the holidays. The gift certificates entitle the holders to 1000.00 worth of
stays, and Hotel Miranda must therefore record a liability for these stays. As the gift certificates are
redeemed, the company reduces the liability.

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