• 15 Marks

FA – L1 – Q67 – Preparing financial statements of a sole trader

Prepare DOVE's statement of profit or loss for 20X9 and statement of financial position as at 31 Dec 20X9 using given ledger balances and adjustments.

The following balances were extracted from the main ledger of DOVE on 31 December 20X9.

Description GH$(000)
Capital 10,059
Inventory at 1 January 20X9 2,720
Cash in hand 55
Bank overdraft 2,522
Sundry receivables 7,009
Sundry payables 6,735
Motor vans (Cost GH$2,000) 1,500
Drawings in cash 2,459
Fixtures and fittings (Cost GH$4,000) 3,800
Purchases 33,436
Allowance for receivables 162
Sales 50,261
Purchases returns 120
Carriage inwards 546
Rent 626
Salaries and wages 5,226
Motor vehicle expenses 920
Interest on bank overdraft and bank charges 56
Carriage outwards 785
Returns inwards 240
Freehold land 10,300
Irrecoverable debts 240

You are given the following information:
(1) The inventory at 31 December 20X9 was GH$4,270,000.
(2) Wages and salaries payable at 31 December 20X9 were GH$426,000.
(3) Rent paid in advance at 31 December 20X9 amounted to GH$100,000.
(4) The allowance for receivables is to be increased to GH$260,000.
(5) Depreciation is to be charged as follows: motor vans at 25% per year on cost, fixtures and fittings 5% per year on cost.
(6) During 20X9, the owner of DOVE withdrew goods valued at GH$180,000 for his own use. No entry has been made in the accounts for the withdrawal of these goods.
(7) One quarter of the motor vehicle expenses is the cost of the owner’s private motoring, as distinct from expenses for business purposes.

Required:
Prepare a statement of profit or loss for the year ending on 31 December 20X9 and a statement of financial position as at that date.

DOVE: Statement of profit or loss for the year ended 31 December 20X9

GH$(000) GH$(000)
Sales 50,261
Less: Returns inwards (240)
50,021
Opening inventory at 1 January 20X9 2,720
Purchases less returns (see working 1) 33,136
Carriage inwards 546
36,402
Less: Closing inventory at 31 December (4,270)
Cost of sales (32,132)
Gross profit 17,889
Other income:
Discounts received –
Less expenses:
Salaries and wages (5,226 + 426) 5,652
Rent (626 – 100) 526
Depreciation, motor vans: (25% × GH$2,000,000) 500
Depreciation, fixtures and fittings: (5% × GH$4,000,000) 200
Motor vehicle expenses (see working 2) 690
Carriage outwards 785
Interest on bank overdraft and bank charges 56
Irrecoverable debts 240
Increase in allowance for receivables (260 – 162) 98
(8,747)
Net profit 9,201

Workings
W1 Purchases less returns

GH$(000)
Purchases in the trial balance 33,436
Less: goods taken by the owner for his own use (180)
Less: purchase returns (120)
33,136

W2 Motor vehicle expenses

GH$(000)
Expenses in the trial balance 920
Less: cost of private motoring: (25%) (230)
Business expense – statement of profit or loss 690

DOVE: Statement of financial position as at 31 December 20X9

GH$(000) GH$(000)
Non-current assets:
Freehold land at cost 10,300
Motor vans at cost 2,000
Less accumulated depreciation (500 + 500) (1,000)
Carrying amount 1,000
Fixtures and fittings at cost 4,000
Less accumulated depreciation (200 + 200) (400)
Carrying amount 3,600
14,900
Current assets:
Inventory 4,270
Sundry receivables 7,009
Less allowance for receivables (260)
6,749
Prepayment (rent) 100
Cash at bank 55
11,174
Total assets 26,074
Capital
At 1 January 20X9 10,059
Net profit for the year 9,201
19,260
Drawings (see working 3) (2,869)
At 31 December 20X9 16,391
Current liabilities
Bank overdraft 2,522
Sundry payables 6,735
Accruals (wages and salaries) 426
9,683
Total capital and liabilities 26,074

W3 Drawings

GH$(000)
Drawings in cash (trial balance) 2,459
Goods taken for private use 180
Cost of private motoring: (25% of 920) 230
Total drawings 2,869
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