Theory question 101
Final Accounts of a Sole TraderSection A
The following Trial Balance was extracted from the books of Yisa Aliyu, a sole proprietor as at 31st December, 1987.
Capital: Cr ₦50,000
Cash at Bank: Dr ₦10,820
Leasehold Premises: Dr ₦13,000
Plant and Equipment: Dr ₦11,000
Furniture and Fixtures: Dr ₦6,000
Motor Van: Dr ₦7,000
Stock 1/1/87: Dr ₦3,700
Wages and Salaries: Dr ₦1,800
Debtors and Creditors: Dr ₦850, Cr ₦770
6% Loan: Cr ₦2,000
Purchases and Sales: Dr ₦7,600, Cr ₦10,300
Office Expenses: Dr ₦80
Rent: Dr ₦200
Insurance: Dr ₦40
Discount Allowed and Received: Dr ₦20, Cr ₦40
Drawings: Dr ₦1,000
Totals: Dr ₦63,110, Cr ₦63,110
You are given the following additional information: (a) Stock at 31st December, 1987 was valued ₦8,000 (b) the leasehold premises is for a term of 10 years (c) Depreciation is to be charged as follows: Plant and Equipment 5%; Motor Van 10%; Furniture and Fixtures 2½%. (d) A debt of ₦10 is irrecoverable.
You are required to prepare: (i) Trading, Profit and Loss Account for the year ended 31st December 1987 (ii) The Balance Sheet as at the date.
Show the model answer
Yisa Aliyu: Trading, Profit and Loss Account for the year ended 31 December 1987
Sales 10,300; opening stock 3,700 + purchases 7,600 = 11,300 − closing stock 8,000 = cost of sales 3,300
Gross profit = ₦7,000; add discount received 40 = 7,040
Expenses: wages and salaries 1,800; office expenses 80; rent 200; insurance 40; discount allowed 20; bad debt 10; loan interest accrued (6% × 2,000) 120; depreciation: plant 550 (5% × 11,000), motor van 700 (10% × 7,000), furniture 150 (2½% × 6,000); leasehold amortised 1,300 (13,000 ÷ 10); total 4,970
Net profit = ₦2,070
Balance Sheet as at 31 December 1987
Fixed assets (cost − depreciation = NBV): leasehold 13,000 − 1,300 = 11,700; plant 11,000 − 550 = 10,450; furniture 6,000 − 150 = 5,850; motor van 7,000 − 700 = 6,300; total ₦34,300
Current assets: stock 8,000; debtors 850 − 10 = 840; cash at bank 10,820; total 19,660
Current liabilities: creditors 770; loan interest accrued 120; total 890; working capital 18,770
Net assets 34,300 + 18,770 = 53,070; less 6% loan 2,000 = ₦51,070
Financed by: capital 50,000 + net profit 2,070 − drawings 1,000 = ₦51,070
Remember the year's 6% loan interest (₦120) is not in the trial balance, so accrue it.