29 Jul MICHAEL ANGELO OWNS PICTA SIMPLA A COMPANY
Michael Angelo owns Picta Simpla a company specialising in selling painting by numbers packs by mail order. The packs are purchased from a wholesaler and then resold. The public have no access to the wholesaler and so there is no competition. During the year ended 30 June 2017 Michael sold 2 900 units at 89 each having started the year with 19 250 of inventory (600 units). During the year he purchased a total of 3 150 packs from the wholesaler at 59 each. Michael wants to value his inventory using the FIFO basis. Staff have been paid wages totalling 14 500 which is only slightly less than the advertising bills paid of 15 000. Michael is upset since the advertising agency has yet to send a final bill estimated to be 500. Postage per unit sent out was 2. The packing costs were 0.50 per unit. Rent was 1 000 per month. Insurance of 3 500 has been paid but 650 of this relates to the year ending 30 June 2018. Electricity bills amounted to 2 900 but the bill for the final quarter is still outstanding and is expected to be approximately 500. The business has a computer which was purchased about two years ago and which Michael reckons has about another three years of useful life left at which point it will be worthless. It cost 4 000 and Michael uses the straight line method when calculating the depreciation charge. He also has a fax machine which he uses to communicate with his suppliers. Stationery charges have amounted to 1 350 and he has had telephone bills of 3 500 of which 200 relates to July and August 2017. In the year ending 30 June 2016 he paid 150 for July and August 2016. Michael has also paid 5 000 from the business bank account for a month-long holiday in Florida. He has asked you whether he can class this as business expenses since it has enabled him to recover from the stresses and strain of running his own business.
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