Theory question 104
Final Accounts of a Sole Trader4. The following Trial Balance was extracted from the books of Koiwo Enterprises on 31st December, 1995.
Stock 1st January, 1995: N6,225 (Dr)
Purchases and Sales: N8,625 (Dr); N21,450 (Cr)
Returns: N338 (Dr); N225 (Cr)
Discounts: N555 (Dr); N608 (Cr)
Land and Buildings at cost: N22,500 (Dr)
Provision for depreciation – Land and buildings: N4,500 (Cr)
Debtors and Creditors: N1,080 (Dr); N600 (Cr)
Bad debts: N97 (Dr)
Provision for bad debts 1st January: N255 (Cr)
Rent: N4,500 (Dr)
Electricity: N1,373 (Dr)
Wages and Salaries: N3,563 (Dr)
Drawings: N1,550 (Dr)
Cash and bank balances: N10,382 (Dr)
Capital: N33,150 (Cr)
Totals: N60,788 / N60,788
Additional Information:
(a) Stock on hand at 31st December, 1995 was N5,288.
(b) Wages owing amounted to N488.
(c) Provision for bad debt is to be reduced to N112.
(d) Provide for depreciation on Land and buildings at 10% on cost.
You are required to prepare Trading, Profit and Loss Accounts for the year ended 31st December, 1995.
Show the model answer
Trading: sales 21,450 − returns inwards 338 = 21,112. Opening stock 6,225 + purchases 8,625 − returns outwards 225 = 14,625 − closing stock 5,288 = cost of sales 9,337. Gross profit 11,775.
Profit and loss: add discount received 608 and decrease in provision 143 (255 − 112) = 12,526.
Expenses: discount allowed 555; bad debts 97; rent 4,500; electricity 1,373; wages and salaries 3,563 + 488 = 4,051; depreciation of land and buildings 10% × 22,500 = 2,250; total 12,826.
Net loss = 12,826 − 12,526 = 300.
A reduction in the provision for bad debts is a gain credited to profit and loss.