Theory question 105
Final Accounts of a Sole TraderThe following trial balance was extracted from the books of Alajobi Enterprises for the year ended 30th June, 2007.
Capital: Cr ₦120,000
Stock 1/7/06: Dr ₦18,200
Purchases and Sales: Dr ₦178,000; Cr ₦280,000
Returns: Dr ₦3,400; Cr ₦1,700
Discounts: Dr ₦1,320; Cr ₦1,560
Debtors and Creditors: Dr ₦32,000; Cr ₦24,600
Carriage outwards: Dr ₦4,250
Rent and rates: Dr ₦7,480
Wages and Salaries: Dr ₦17,740
Machinery at cost: Dr ₦150,000
Provision for depreciation (machinery): Cr ₦30,000
Provision for bad debt: Cr ₦7,200
Bad debts: Dr ₦1,060
General office expenses: Dr ₦3,890
Cash at bank: Dr ₦47,720
Totals: ₦465,060 ₦465,060
Additional information:
(a) Stock as at 30/6/07 was valued at ₦16,700.
(b) The proprietor had withdrawn goods worth ₦5,600. This has not been reflected in the books.
(c) Wages of ₦2,260 is owed while rent of ₦1,400 had been prepaid.
(d) Provision for bad debt is to be reduced to ₦6,000.
(e) Provide for depreciation of machinery at 20% reducing balance.
You are required to prepare: (i) Trading, Profit and Loss Account for the year ended 30th June, 2007; and (ii) a Balance Sheet as at that date.
Show the model answer
(i) Trading, Profit and Loss Account for the year ended 30 June 2007:
Sales 280,000 − returns inwards 3,400 = ₦276,600
Opening stock 18,200 + purchases 178,000 − returns outwards 1,700 − goods taken by owner 5,600 = 188,900; − closing stock 16,700 = cost of sales ₦172,200
Gross profit ₦104,400
Add: discount received 1,560; reduction in provision for bad debts (7,200 − 6,000) 1,200 → ₦107,160
Less expenses: discount allowed 1,320; carriage outwards 4,250; rent and rates (7,480 − 1,400) 6,080; wages and salaries (17,740 + 2,260) 20,000; bad debts 1,060; general office expenses 3,890; depreciation 20% × (150,000 − 30,000) 24,000 = ₦60,600
Net profit ₦46,560
(ii) Balance Sheet as at 30 June 2007:
Fixed asset: machinery cost 150,000 − accumulated depreciation 54,000 = ₦96,000
Current assets: stock 16,700; debtors 32,000 − provision 6,000 = 26,000; prepaid rent 1,400; cash at bank 47,720 = ₦91,820
Current liabilities: creditors 24,600; accrued wages 2,260 = ₦26,860
Working capital 64,960; net assets ₦160,960
Financed by: capital 120,000 + net profit 46,560 = 166,560 − drawings 5,600 = ₦160,960
Take the goods withdrawn out of purchases and add them to drawings; adjust wages, rent, provision and depreciation before finding net profit.