The owner of a small business selling and repairing cars which you patronise has just received a copy of his accounts for the current year. He is rather baffled by some of the items and as he regards you as a financial expert, he has asked you to explain certain points of difficulty to him. This you have readily agreed to do. His questions are as follows: (a) ‘What is meant by the term “assets”? My mechanical knowledge and skill is an asset to the business but it does not seem to have been included.’ (b) ‘The house I live in cost £30,000 five years ago and is now worth £60,000, but that is not included either.’ (c) ‘What is the difference between “fixed assets” and “current assets”?’
The owner of a small business selling and repairing cars which you patronise has just
received a copy of his accounts for the current year.
He is rather baffled by some of the items and as he regards you as a financial expert, he has
asked you to explain certain points of difficulty to him. This you have readily agreed to do. His
questions are as follows:
(a) ‘What is meant by the term “assets”? My mechanical knowledge and skill is an asset to the
business but it does not seem to have been included.’
(b) ‘The house I live in cost £30,000 five years ago and is now worth £60,000, but that is not
included either.’
(c) ‘What is the difference between “fixed assets” and “current assets”?’
(d) ‘Why do amounts for “vehicles” appear under both fixed asset and current asset headings?’
(e) ‘Why is the “bank and cash” figure in the balance sheet different from the profit for the year
shown in the
(f) ‘I see the profit and loss account has been charged with
I bought all these things several years ago and paid for them in cash. Does this mean that I am
being charged for them again?’
Required:
Answer each of his questions in terms which he will be able to understand.
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