FA – L1 – Q70 – Preparing financial statements of a sole trader

Prepare Henry's statement of profit or loss for the year ended 31 May 20X9 and statement of financial position as at that date using the trial balance.

Question

The following trial balance has been extracted from the ledger of Henry, a sole trader, as at 31 May 20X9, the end of his most recent financial year.

Henry: Trial balance as at 31 May 20X9

	DR GH₵(000)	CR GH₵(000)
Land and buildings at cost	90,000
Equipment at cost	57,500
Accumulated depreciation (as at 1 June 20X8)
On land and buildings		12,500
On equipment		32,500
Inventory as at 1 June 20X8	27,400
Sales		405,000
Purchases	259,600
Discounts received		4,420
Wages and salaries	52,360
Irrecoverable debts	1,720
Loan interest	1,560
Other operating expenses	38,800
Trade receivables	46,200
Trade payables		33,600
Allowance for receivables		280
Cash in hand	151
Bank overdraft		14,500
Carriage out	8,680
Drawings	28,930
10% loan		15,600
Capital as at 1 June 20X8		94,501
Total	612,901	612,901

The following additional information as at 31 May 20X9 is available:
(a) Inventory as at 31 May 20X9 was valued at GH₵25,900,000.
(b) Depreciation for the year ended 31 May 20X9 has yet to be provided as follows:

Property – 1% using the straight-line method;
Equipment – 15% using the straight-line method.
(c) There are accrued wages and salaries of GH₵140,000.
(d) Other operating expenses include some prepaid expenses of GH₵500,000 and some accrued expenses of GH₵200,000.
(e) The allowance for receivables should be adjusted to 5% of trade receivables as at 31 May 20X9.
(f) The amount for purchases includes goods valued at GH₵1,040,000 which were withdrawn by Henry for his own personal use.

Required
Prepare Henry’s statement of profit or loss for the year ended 31 May 20X9 and his statement of financial position as at that date.

Answer

Henry: Statement of profit or loss for the year ended 31 May 20X9

	GH₵(000)	GH₵(000)
Sales		405,000
Opening inventory at 1 June 20X8	27,400
Purchases (see working 1)	258,560
	285,960
Less: Closing inventory at 31 May 20X9	(25,900)
Cost of sales		(260,060)
Gross profit		144,940
Wages and salaries (52,360 + accrual 140)	52,500
Other operating expenses (see working 2)	38,500
Depreciation, land and buildings: (1% × GH₵(000) 90,000)	900
Depreciation, equipment: (15% × GH₵57,500,000)	8,625
Carriage out	8,680
Discounts received	(4,420)
Loan interest	1,560
Irrecoverable debts	1,720
Increase in allowance for receivables (see working 3)	2,030
		(110,095)
Net profit		34,845

Workings
W1 Purchases

	GH₵(000)
Purchases in the trial balance	259,600
Less: goods taken by the owner for his own use	(1,040)
	258,560

W2 Other operating expenses

	GH₵(000)
Expenses in the trial balance	38,800
Add: accrual	200
Less: prepayment	(500)
Expenses in the statement of profit or loss	38,500

W3 Change in allowance for receivables

	GH₵(000)
Allowance for receivables at 31 May 20X9: (5% × 46,200,000)	2,310
Allowance for receivables at 1 June 20X8	280
Increase in allowance	2,030

Henry: Statement of financial position as at 31 May 20X9

	Cost GH₵(000)	Accumulated depreciation GH₵(000)	GH₵(000)
Non-current assets:
Land and buildings	90,000	13,400	76,600
Equipment	57,500	41,125	16,375
	147,500	54,525	92,975
Current assets:
Inventory			25,900
Trade receivables (46,200 – 2,310)			43,890
Prepayment (operating expenses):			500
Cash in hand			151
			70,441
Total assets			163,416
Capital
At 1 June 20X8			94,501
Net profit for the year			34,845
			129,346
Drawings (28,930 + 1,040)			(29,970)
At 31 May 20X9			99,376
Non-current liabilities:
10% loan			15,600
Current liabilities
Bank overdraft			14,500
Trade payables			33,600
Accruals (140 wages + 200 operating expenses)			340
			48,440
Total capital and liabilities			163,416

Tags: Accruals, Depreciation, Drawings, Financial Statements, Inventory, Prepayments, Profit or Loss, Receivables, Sole Trader, Statement of Financial Position
Level: Level 1

Topic: Preparing financial statements of a sole trader

Uploader: Samuel Duah