WAEC Financial Accounting 2018 Theory question 109

Theory question 109

Final Accounts of a Sole Trader

The trial balance of Obinah for year ended 31st December, 2016 was provided as follows: (Dr / Cr, ₦)
Capital / 630,000
Drawings 69,000
Opening stock 300,000
Purchases and Sales 1,050,000 / 1,200,000
Returns 15,000 / 18,600
Debtors and Creditors 29,400 / 21,000
Provision for doubtful debts / 2,400
Salaries 90,000
Rates 18,000
Insurance 93,000
Telephone 3,000
Furniture at cost 120,000
Machinery at cost 90,000
Provision for depreciation: Furniture / 30,000; Machinery / 15,000
Bad debts 600
Bank balance 39,000
Totals 1,917,000 / 1,917,000
Additional information: i. Closing stock 31/12/16 ₦360,000 ii. Rates prepaid ₦1,500 iii. Telephone outstanding ₦660 iv. Accrued salaries ₦15,000 v. Provision for doubtful debts is to be increased to 10% of debtors vi. Depreciation on furniture at 10% on book value. vii. Depreciation on machinery at 20% on cost.
You are required to prepare for Obinah The Trading, Profit and Loss Account for the year ended 31st December, 2016 and a Balance Sheet as at that date

Show the model answer

Model answer

Trading (₦): sales 1,200,000 − returns inwards 15,000 = 1,185,000; opening stock 300,000 + purchases (1,050,000 − 18,600 = 1,031,400) = 1,331,400 − closing stock 360,000 = cost of sales 971,400; gross profit 213,600.
Profit and loss: salaries (90,000 + 15,000) 105,000; rates (18,000 − 1,500) 16,500; insurance 93,000; telephone (3,000 + 660) 3,660; bad debts 600; increase in provision (2,940 − 2,400) 540; depreciation – furniture (10% × 90,000) 9,000, machinery (20% × 90,000) 18,000 = 246,300. Net loss ₦32,700.
Balance Sheet at 31/12/2016: furniture 120,000 − 39,000 = 81,000; machinery 90,000 − 33,000 = 57,000; total 138,000. Current assets: stock 360,000; debtors 29,400 − 2,940 = 26,460; rates prepaid 1,500; bank 39,000 = 426,960. Less current liabilities: creditors 21,000; accrued salaries 15,000; telephone 660 = 36,660. Working capital 390,300. Net assets 528,300.
Capital 630,000 − net loss 32,700 − drawings 69,000 = 528,300.

Explanation

Adjust each expense before charging it; this business makes a net loss.