Theory question 105
Final Accounts of a Sole TraderThe following Trial Balance was extracted from the books of Olusola Afolabi as at 31st December, 1990.
Capital: Cr ₦74,053
Purchases and Sales: Dr ₦73,130, Cr ₦105,460
Returns: Dr ₦618, Cr ₦435
Debtors and Creditors: Dr ₦12,642, Cr ₦15,750
Stock – 1st January 1990: Dr ₦21,600
Carriage Inwards: Dr ₦290
Motor Vehicles (at cost): Dr ₦27,000
Freehold property (at cost): Dr ₦52,000
Office Equipment (at cost): Dr ₦10,500
Salaries: Dr ₦9,750
Electricity: Dr ₦380
Provision for depreciation: Motor Vehicles Cr ₦10,300; Office Equipment Cr ₦2,650
Provision for bad debts: Cr ₦700
Insurance: Dr ₦290
Rates: Dr ₦400
Motor Vehicles expenses: Dr ₦925
Advertisement: Dr ₦320
Rental Income: Cr ₦820
Bad Debt: Dr ₦247
Discount: Dr ₦194, Cr ₦128
Totals: ₦210,286, ₦210,286
Additional information: (a) Closing Stock ₦25,780 (b) Rental Income owed by tenant ₦380 (c) Accrued salaries ₦564 (d) Provision for bad debts is to be increased to ₦830 Prepaid expenses: (e) Insurance ₦54 Rate ₦96 (f) Provision for depreciation. Motor Vehicles - 10% on cost. Office Equipment – 10% on reducing balances.
You are required to prepare: (i) Trading, Profit and Loss Account for the year ended 31st December 1990 and (ii) A Balance Sheet as at that date.
Show the model answer
(i) Trading, Profit and Loss Account for the year ended 31 December 1990
Sales 105,460 − returns inwards 618 = 104,842
Opening stock 21,600 + purchases 73,130 + carriage inwards 290 − returns outwards 435 = 94,585 − closing stock 25,780 = cost of sales 68,805
Gross profit ₦36,037
Add rental income (820 + 380) 1,200; discount received 128 = 37,365
Expenses: salaries (9,750 + 564) 10,314; electricity 380; increase in provision (830 − 700) 130; insurance (290 − 54) 236; rates (400 − 96) 304; motor expenses 925; advertisement 320; bad debts 247; discount allowed 194; depreciation: motor vehicles 10% × 27,000 = 2,700; office equipment 10% × (10,500 − 2,650) = 785; total 16,535
Net profit ₦20,830
(ii) Balance Sheet as at 31 December 1990
Fixed assets: freehold 52,000; office equipment 10,500 − 3,435 = 7,065; motor vehicles 27,000 − 13,000 = 14,000; total 73,065
Current assets: stock 25,780; debtors 12,642 − 830 = 11,812; prepaid insurance 54, rates 96; rent receivable 380; total 38,122
Current liabilities: creditors 15,740 (see note); accrued salaries 564; total 16,304; working capital 21,818
Net assets ₦94,883 = capital 74,053 + net profit 20,830 = ₦94,883
Office equipment is depreciated on its reducing balance (cost less depreciation to date), not on cost.