- 15 Marks
FA – L1 – Q68 – Preparing financial statements of a sole trader
Question
The following trial balance was extracted from the main ledger of Michael Tan, a sole trader, as at 31 May 20X9 – the end of his financial year.
Michael Tan: Trial balance as at 31 May 20X9
| DR GH$(000) | CR GH$(000) | |
|---|---|---|
| Land and buildings at cost | 120,000 | |
| Equipment at cost | 80,000 | |
| Accumulated depreciation (as at 1 June 20X8) | ||
| On land and buildings | 36,000 | |
| On equipment | 38,000 | |
| Purchases | 250,000 | |
| Sales | 402,200 | |
| Inventory as at 1 June 20X8 | 50,000 | |
| Discounts received | 4,800 | |
| Returns outwards | 15,000 | |
| Wages and salaries | 79,800 | |
| Irrecoverable debts | 2,100 | |
| Loan interest | 2,100 | |
| Other operating expenses | 17,700 | |
| Trade payables | 36,000 | |
| Trade receivables | 38,000 | |
| Cash in hand | 300 | |
| Bank | 1,300 | |
| Drawings | 24,000 | |
| Allowance for receivables | 500 | |
| 7% long-term loan | 30,000 | |
| Capital as at 1 June 20X8 | 121,300 | |
| 665,300 | 683,800 |
The following additional information as at 31 May 20X9 is available:
(a) Inventory as at 31 May 20X9 was valued at GH$42,000,000.
(b) Depreciation for the year ended 31 May 20X9 has yet to be provided as follows:
- Land and buildings: 1.5% using the straight-line method;
- Equipment: 25% on the carrying amount at the year-end (i.e., cost less accumulated depreciation at 1 June 20X8).
(c) There are accrued wages and salaries of GH$800,000.
(d) Other operating expenses include some prepaid expenses of GH$300,000.
(e) The allowance for receivables should be adjusted to 2% of trade receivables as at 31 May 20X9.
Required:
Prepare Michael Tan’s statement of profit or loss for the year ended 31 May 20X9 and his statement of financial position as at that date.
Answer
Michael Tan: Statement of profit or loss for the year ended 31 May 20X9
| GH$(000) | GH$(000) | |
|---|---|---|
| Sales | 402,200 | |
| Opening inventory at 1 June 20X8 | 50,000 | |
| Purchases less returns (250,000 – 15,000) | 235,000 | |
| 285,000 | ||
| Less: Closing inventory at 31 May 20X9 | (42,000) | |
| Cost of sales | (243,000) | |
| Gross profit | 159,200 | |
| Wages and salaries (79,800 + accrual 800) | 80,600 | |
| Other operating expenses (17,700 – prepayment 300) | 17,400 | |
| Depreciation, land and buildings: (1.5% × 120,000,000) | 1,800 | |
| Depreciation, equipment: (25% × (80,000 – 38,000)) | 10,500 | |
| Discounts received | (4,800) | |
| Loan interest | 2,100 | |
| Irrecoverable debts | 2,100 | |
| Increase in allowance for receivables (see working) | 260 | |
| (112,460) | ||
| Net profit | 46,740 |
Working:
Allowance for receivables at 31 May 20X9: (2% × 38,000) | 760
Allowance for receivables at 1 June 20X8 | 500
Increase in allowance | 260
Michael Tan: Statement of financial position as at 31 May 20X9
| Cost GH$(000) | Accumulated depreciation GH$(000) | GH$(000) | |
|---|---|---|---|
| Non-current assets | |||
| Land and buildings | 120,000 | 36,000 | 82,200 |
| Equipment | 80,000 | 48,500 | 31,500 |
| 200,000 | 84,500 | 113,700 | |
| Current assets: | |||
| Inventory | 42,000 | ||
| Trade receivables | 38,000 | ||
| Less allowance for receivables | (760) | 37,240 | |
| Prepayment (operating expenses) | 300 | ||
| Bank | 1,300 | ||
| Cash in hand | 300 | ||
| 81,140 | |||
| Total assets | 194,840 | ||
| Capital | |||
| At 1 June 20X8 | 121,300 | ||
| Net profit for the year | 46,740 | ||
| 168,040 | |||
| Drawings | (24,000) | ||
| At 31 May 20X9 | 144,040 | ||
| Non-current liabilities | |||
| 7% long-term loan | 30,000 | ||
| Current liabilities | |||
| Trade payables | 36,000 | ||
| Accrued wages and salaries | 800 | ||
| 36,800 | |||
| Total capital and liabilities | 210,840 |
- Uploader: Samuel Duah