FA – L1 – Q94 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for a sole trader using incomplete records for 20X9.

Question

Kofi Mensah does not keep proper books of account due to his lack of knowledge of double entry system of accounting. He has supplied you the following information with respect to the year ended 31 December 20X9 from the records kept in his diary:
(i) Transactions during the year:

	GH¢
Cash received from customers	80,000
Discount allowed to customers	1,400
Irrecoverable debts written off	1,800
Cash paid to suppliers	63,000
Discount allowed by suppliers	1,000
Sales returns	3,000
Purchases returns	2,000
Expenses paid	6,000
Drawings	5,000
Rent paid	2,500

(ii) Opening balances as on 1 January 20X9:

Assets and liabilities	GH¢
Receivables	45,000
Payables	24,000
Cash	4,500
Furniture and fixtures	15,000
Inventory	25,000
Motor van	16,000

(iii) Receivables and payables as on 31 December 20X9 amounted to GH¢ 48,600 and GH¢ 27,000 respectively.
(iv) Outstanding expenses as on 31 December 20X9 amounted to GH¢ 1,200.
(v) Depreciation is charged on furniture and fixtures at the rate of 10% and on motor van at 20%.
(vi) Kofi Mensah sells goods at cost plus 40% and follows a policy of maintaining an allowance of 5% of the outstanding receivables.

Required:
Prepare the following:
(a) Statement of profit or loss for the year ended 31 December 20X9.
(b) Statement of financial position as at 31 December 20X9.

Answer

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

	GH¢	GH¢
Sales (W3)		86,800
Opening inventory	25,000
Purchases (W2)	67,000
Less returns	(2,000)
	90,000
Closing inventory (W5)	(30,000)
		60,000
Gross profit c/d		26,800
Discount received		1,000
		27,800
Discount allowed	1,400
Irrecoverable debts*	4,230
Expenses (6,000 + 1,200)	7,200
Rent	2,500
Depreciation
Furniture	1,500
Motor Van	3,200
		20,030
Net profit		7,770

*1,800 + (48,600 × 5%)

Statement of financial position as at 31 December 20X9

	GH¢	GH¢	GH¢
Non-current assets	Cost	Acc depreciation	Net
Furniture and fittings	15,000	1,500	13,500
Motor van	16,000	3,200	12,800
	31,000	4,700	26,300
Current assets
Inventory		30,000
Receivables	48,600
Less: Allowance	(2,430)
		46,170
Cash		8,000
			84,170
Total assets			110,470
Capital
At 1 January 20X9		77,500
Add: Net profit		7,770
Less: Drawings		(5,000)
			80,270
Current liabilities
Payables		27,000
Accrued expenses		1,200
			28,200
Total capital and liabilities			108,470

Workings:
W1: Opening capital

	GH¢	GH¢
Receivables	45,000
Cash	4,500
Furniture and fittings	15,000
Inventory	25,000
Motor van	16,000
		105,500
Less: Payables		24,000
Capital		81,500

W2: Payables control account

	GH¢		GH¢
Cash paid	63,000	Balance b/d	24,000
Discount received	1,000	Purchases (bal. fig)	67,000
Purchases return	2,000
Balance c/d	27,000
	93,000		93,000

W3: Receivables control account

	GH¢		GH¢
Balance b/d	45,000	Cash received	80,000
Sales (bal fig)	89,800	Discount allowed	1,400
		Irrecoverable debts	1,800
		Sales return	3,000
		Balance c/d	48,600
	134,800		134,800

W4: Cash

	GH¢		GH¢
Balance b/d	4,500	Payments to suppliers	63,000
Receipts from customers	80,000	Expenses paid	6,000
		Drawings	5,000
		Rent paid	2,500
		Balance c/d	8,000
	84,500		84,500

W5: Calculation of closing inventory

	GH¢
Net sales	86,800
Net purchases	67,000
Opening inventory	25,000
	92,000
Less cost of goods sold (100/140 of net sales)	62,000
Closing Inventory	30,000

Tags: Accruals, Bad Debts, Depreciation, Discounts, Incomplete records, Inventory, Payables, Receivables, Statement of Financial Position, Statement of profit or loss
Level: Level 1

Topic: Preparation of accounts from incomplete records

Uploader: Samuel Duah