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Could anyone help me with this balance sheet question?

  • 7 posts
  • # 70096

A Ltd company is set up with 100 shares @ £1 each
The company buys a van for £800. (owner puts the van into the company)
Business trades for a year with a low turnover £8k, with a profit of zero after wages and expenses
Van depreciation £200 during year, net book value £600
One fixed asset (van £600)
No current assets
No loans or liabilities, expenses paid up front as they occour
What would the balance sheet look like?

(I am confused about the relationship between the 100 shares @ £1 (capital) and the van (capital) that was introduced and depreciated throughout the year)
I cannot see how the balance sheet would balance, or what it would look like. i.e. shares, capital etc.

Can anyone show me how (in this case) the balance sheet would look?
Thank you

Edited at 08 Apr 2011 09:05 AM GMT

  • Practice Licence
  • 698 posts
  • # 70100

Hi Jim

The legal enitity concept comes into play here a limited company is a legal entity in it's own right and therefore when the business owner introduces the van he would become a liability as the business would owe him the money for the van.

The Share capital would be be shown in the financed by section.

I assume all 100 shares were subscribed and paid for.

This would be easier to explain over the phone e-mail me at stuart.wildman@wellersaccountants.com and I will give you my phone number to go over this.

Kind regards

Stuart

  • 160 posts
  • # 70105

Jimpelican said:

“A Ltd company is set up with 100 shares @ £1 each
The company buys a van for £800. (owner puts the van into the company)
Business trades for a year with a low turnover £8k, with a profit of zero after wages and expenses
Van depreciation £200 during year, net book value £600
What would the balance sheet look like?

(I am confused about the relationship between the 100 shares @ £1 (capital) and the van (capital) that was introduced and depreciated throughout the year)
I cannot see how the balance sheet would balance, or what it would look like.





Can anyone show me how (in this case) the balance sheet would look?
Thank you”

I do not think that it can balabce unless you can work out the liabilities, and the loans etc for this








 

  • 183 posts
  • # 70142

Jimpelican said:

“The company buys a van for £800. (owner puts the van into the company)"
This seems to contradict itself.  As the company is a separate legal entity either the company bought the van or the owner did, can't be both.

I would like to know the answer to this question as well, just as a matter of interest :-)  It may help others as well.  Perhaps you could oblige Stuart? Other than just leaving us wondering what you said on the phone  :-)

Pauline

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  • Practice Licence
  • 27 posts
  • # 70151

I sympathise with you, not the greatest of questions.  I am reluctant to just provide you with the answer, as it is better for you to work it out yourself.

Apply basic bookkeeping to this and you will have the answer.  Draw up "T" accounts to post the entries.
First, a van was purchased for £800.  Assume this was paid from the bank account.  
Second, assume the shares were purchased by the director and the money paid into the bank account.
Third, depreciation is £200.  This is the confusing bit as you only need the balance sheet entry for the answer ( although depreciation will appear in the P&L  other transactions in the P& L have created a zero profit)

So from your double entry knowledge debit balances are assets and credit balances are liabilities in the balance sheet, you should now be able to create the balance sheet.  

Have a go, if you need additional help submit a post and I will clarify the entries.

Good luck

Lynne
 

Edited at 11 Apr 2011 05:56 PM GMT

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