Theory question 107
Final Accounts of a Sole Trader7. Audu Bako is a trader. The following balances were extracted from his books on 31st July, 1998.
Sales N307,442
Sales ledger control N28,860
Stock-in-trade 1/8/97 N21,488
Trade subscriptions N104
Telephone and postages N884
Travellers commission N14,968
Salaries N10,432
Rent paid N2,280
Purchases N253,066
Purchases ledger control N12,358
Printing expenses N1,578
Petty cash in hand N32
Equipment and office furniture N3,240
Electricity N812
Insurance N504
Miscellaneous expenses N3,046
Drawings – Audu Bako N7,054
Discount allowed N770
Discount received N1,452
Cash at Bank N8,464
Capital Account – Balance 1/8/97 N36,814
Bad debts written off N484
Additional information:
(a) Amounts owing by Audu Bako on 31st July, 1998 were Rent N760, Travellers commission and expenses N1,230, Electricity N112. (b) Stock at 31st July, 1998 was N19,112. (c) Provision: Accountancy charges N462. Doubtful debts N580. (d) Office furniture and equipment is to be depreciated by 10 percent.
You are required to prepare: (i) Trading and Profit and Loss Account for the year ended 31st July, 1998; and (ii) a Balance Sheet as at that date.
Show the model answer
(i) Trading: sales 307,442; opening stock 21,488 + purchases 253,066 − closing stock 19,112 = cost of sales 255,442; gross profit 52,000.
Profit and loss: add discount received 1,452 = 53,452. Expenses: trade subscriptions 104; telephone 884; travellers' commission 14,968 + 1,230 = 16,198; salaries 10,432; rent 2,280 + 760 = 3,040; printing 1,578; electricity 812 + 112 = 924; insurance 504; miscellaneous 3,046; discount allowed 770; bad debts 484; accountancy charges 462; provision for doubtful debts 580; depreciation 324 (10% × 3,240); total 39,330. Net profit 14,122.
(ii) Balance sheet: equipment and furniture 3,240 − 324 = 2,916.
Current assets: stock 19,112; debtors 28,860 − 580 = 28,280; bank 8,464; petty cash 32 = 55,888.
Current liabilities: creditors 12,358; accruals 760 + 1,230 + 112 = 2,102; accountancy charges 462 = 14,922. Working capital 40,966.
Net assets 43,882 = capital 36,814 + net profit 14,122 − drawings 7,054.
Add every amount owing to its expense and show it again as a current liability.