- 15 Marks
FA – L1 – Q69 – Preparing financial statements of a sole trader
Question
The following information relates to the business of Sarah for the year ended December 20X8.
| GH$ | GH$ | |
|---|---|---|
| Capital account, 1 January 20X8 | 13,640 | |
| Freehold properties at cost | 7,500 | |
| Furniture and fittings at cost | 2,000 | |
| Motor cars at cost | 6,300 | |
| Accumulated depreciation to 1 January | ||
| Freehold properties | 450 | |
| Furniture and fittings | 800 | |
| Motor cars | 2,370 | |
| Inventory 1 January | 6,740 | |
| Purchases | 54,520 | |
| Sales | 79,060 | |
| Salaries | 8,760 | |
| Rates | 1,170 | |
| Office expenses | 3,950 | |
| Motor expenses | 3,790 | |
| Drawings | 4,800 | |
| Allowance for receivables 1 January | 600 | |
| Loan | 4,000 | |
| Trade receivables | 9,240 | |
| Trade payables | 10,040 | |
| Bank balance | 2,190 | |
| 110,960 | 110,960 |
You are also supplied with the following information:
(1) Inventory at 31 December 20X8 was GH$7,330.
(2) Rates paid in advance at 31 December 20X8 amounted to GH$250.
(3) Allowance for receivables is to be made equal to 5% of accounts receivable at 31 December 20X8.
(4) Depreciation is to be provided for the year at the following annual rates calculated on cost at the year end:
- Freehold properties: 1%
- Furniture and fittings: 10%
- Motor cars: 20%
(5) Interest on the loan at 5% per annum is to be provided.
Required:
Prepare a statement of profit or loss for the year ended 31 December 20X8 and a statement of financial position at that date.
Answer
Sarah: Statement of profit or loss for the year to 31 December 20X8
| GH$ | GH$ | GH$ | |
|---|---|---|---|
| Revenue | 79,060 | ||
| Cost of sales | |||
| Opening inventory | 6,740 | ||
| Purchases | 54,520 | ||
| 61,260 | |||
| Closing inventory | (7,330) | ||
| (53,930) | |||
| Gross profit | 25,130 | ||
| Less Expenses | |||
| Salaries | 8,760 | ||
| Rates GH$(1,170 – 250) | 920 | ||
| Office expenses | 3,950 | ||
| Motor expenses | 3,790 | ||
| Allowance for receivables written back (W) | (138) | ||
| Loan interest (5% × GH$4,000) | 200 | ||
| Depreciation | |||
| Freehold properties | 75 | ||
| Fixtures and fittings | 200 | ||
| Motor vans | 1,260 | ||
| 1,535 | |||
| (19,017) | |||
| Net profit | 6,113 |
Sarah: Statement of financial position at 31 December 20X8
| Cost GH$ | Depn GH$ | GH$ | |
|---|---|---|---|
| Tangible non-current assets | |||
| Freehold properties | 7,500 | 525 | 6,975 |
| Furniture and fittings | 2,000 | 1,000 | 1,000 |
| Motor vans | 6,300 | 3,630 | 2,670 |
| 15,800 | 5,155 | 10,645 | |
| Current assets | |||
| Inventory | 7,330 | ||
| Trade receivables | 9,240 | ||
| Less Allowance for receivables (W) | 462 | 8,778 | |
| Prepayments | 250 | ||
| Bank balance | 2,190 | ||
| 18,548 | |||
| 29,193 | |||
| Capital account | |||
| Capital at 1 January 20X8 | 13,640 | ||
| Add Profit for year | 6,113 | ||
| 19,753 | |||
| Less Drawings | (4,800) | ||
| 14,953 | |||
| Non-current liabilities | |||
| Loan | 4,000 | ||
| Current liabilities | |||
| Trade payables | 10,040 | ||
| Accrued expenses | 200 | ||
| 10,240 | |||
| 29,193 |
Working:
Allowance for receivables at 31 Dec 20X8: (5% × 9,240) = 462
Allowance for receivables at 1 Jan 20X8 = 600
Allowance written back = 600 – 462 = 138
- Uploader: Samuel Duah