Theory question 101
Final Accounts of a Sole TraderSection A
Yahaya Usman is a sole trader, the business Trial Balance as at 31st December, 1986 is given below
Stock 1/1/1986: Dr ₦3,406
Capital Account: Cr ₦22,000
Motor Vehicles: Dr ₦3,000
Purchases: Dr ₦36,367
Sales: Cr ₦46,003
Provision for Bad Debts: Cr ₦81
Debtors: Dr ₦5,278
Drawings: Dr ₦1,500
Creditors: Cr ₦5,800
Freehold Premises: Dr ₦8,250
Cash: Dr ₦4,763
Insurance: Dr ₦711
Returns Inwards: Dr ₦314
Returns Outwards: Cr ₦511
Discount Allowed: Dr ₦342
Discount Received: Cr ₦509
Interest on Deposit Account: Cr ₦537
Carriage Inwards: Dr ₦118
Salesmen Salaries and Commission: Dr ₦1,228
Wages: Dr ₦1,601
Transport Expenses: Dr ₦130
General Expenses: Dr ₦1,506
Office Salaries: Dr ₦2,500
Furniture and Fittings: Dr ₦1,000
Tenement Rate: Dr ₦212
Advertisement: Dr ₦1,421
Bank Deposit: Dr ₦1,800
Totals: ₦75,441, ₦75,441
You are given the following additional information: (a) The stock in hand on 31st December, 1986 was ₦4,318. (b) Insurance of ₦130 was outstanding (c) An employee took a salary advance of ₦110 (d) The provision for bad debts should be increased to ₦255. (e) Depreciation: (i) Motor Vehicle ₦450 (ii) Furniture and fittings 10% per annum. You are required to prepare: (i) Trading Profit and Loss Accounts for the year ended 31st December 1986 (ii) The Balance Sheet as at that date.
Show the model answer
Trading, Profit and Loss Account for the year ended 31 December 1986
Sales 46,003 − returns inwards 314 = net sales 45,689
Opening stock 3,406; purchases 36,367 − returns outwards 511 + carriage inwards 118 = 35,974; wages 1,601; goods available 40,981; less closing stock 4,318; cost of sales 36,663
Gross profit = ₦9,026; add discount received 509 and interest on deposit 537 = 10,072
Expenses: increase in bad debts provision (255 − 81) 174; insurance (711 + 130) 841; discount allowed 342; salesmen salaries and commission 1,228; transport 130; general expenses 1,506; tenement rate 212; office salaries (2,500 − 110 advance) 2,390; advertisement 1,421; depreciation: motor vehicle 450, furniture (10% × 1,000) 100; total 8,794
Net profit = ₦1,278
Balance Sheet as at 31 December 1986
Fixed assets: freehold premises 8,250; furniture 1,000 − 100 = 900; motor vehicle 3,000 − 450 = 2,550; total 11,700
Current assets: stock 4,318; debtors 5,278 − 255 = 5,023; salary advance (prepaid) 110; bank deposit 1,800; cash 4,763; total 16,014
Total assets ₦27,714
Capital 22,000 + net profit 1,278 − drawings 1,500 = 21,778; current liabilities: creditors 5,806 (see note) + insurance accrued 130 = 5,936; total ₦27,714
The salary advance is not this year's expense: take it off office salaries and show it as a current asset.