Theory question 107
Final Accounts of a Sole TraderThe following balances were extracted from the books of Ogba Enterprise on December 31, 2014: Capital ₦ 315,200; Purchases ₦259,800; Sales ₦484,700; Carriage inwards ₦17,410; Premises at cost ₦ 215,000; Equipment at cost ₦ 198,000; Trade debtors ₦ 76,800; Bank overdraft ₦63,509; Trade creditors ₦64,820; Cash in hand ₦13,400; Stock (January 1, 2014) 27,680; Salaries and wages ₦56,700; Provision for doubtful debts ₦13,000; Discount allowed ₦11,450; Drawings ₦70,000; Discount received ₦22,800; Electricity ₦29,229; General expenses ₦37,060; Rent ₦43,000; 9% Debentures ₦100,000; Return Inwards ₦24,500; Return outwards: ₦16,000.
Additional information: (i) Stock in trade at December 31, 2014 was ₦29,400; (ii) Provision for doubtful debts to remain at 8% of debtors; (iii) General expenses owing totalled ₦12,860; (iv) Rent prepaid ₦19,500. (v) Depreciation is to be provided as follows: Premises 12½% on cost; Equipment 10% on cost.
You are required to prepare: (a) Trading, profit and loss Account for the year ended December 31, 2014; (b) Balance Sheet as at that date.
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(a) Trading (₦): sales 484,700 - returns inwards 24,500 = 460,200. Cost of sales: opening stock 27,680 + purchases 259,800 + carriage inwards 17,410 - returns outwards 16,000 - closing stock 29,400 = 259,490. Gross profit 200,710.
Add discount received 22,800 and decrease in provision for doubtful debts (13,000 - 8% × 76,800 = 6,144) 6,856 = 230,366.
Less expenses: discount allowed 11,450; general expenses (37,060 + 12,860) 49,920; rent (43,000 - 19,500) 23,500; debenture interest (9% × 100,000) 9,000; electricity 29,229; salaries and wages 56,700; depreciation - premises 26,875, equipment 19,800 = 226,474. Net profit ₦3,892.
(b) Balance Sheet at 31 December 2014 (₦): Fixed assets (cost / depreciation / NBV) - premises 215,000 / 26,875 / 188,125; equipment 198,000 / 19,800 / 178,200; total 366,325.
Current assets - stock 29,400; debtors 76,800 - 6,144 = 70,656; rent prepaid 19,500; cash in hand 13,400 = 132,956.
Current liabilities - bank overdraft 63,509; trade creditors 64,820; debenture interest owing 9,000; general expenses owing 12,860 = 150,189. Working capital (17,233). Capital employed 349,092.
Financed by: capital 315,200 + net profit 3,892 - drawings 70,000 = 249,092; 9% debentures 100,000; total 349,092.
Remember to accrue the year's debenture interest even though it is not listed.