- 20 Marks
FA – L1 – Q71 – Preparing financial statements of a sole trader
Prepare Harmony Ventures' statement of profit or loss for the year ended 30 September 20X9 using the trial balance and additional info.
Question
Harmony Ventures is run by a sole trader. The following Trial Balance was prepared from the business accounts on 30th September 20X9.
Harmony Ventures: Trial Balance as at 30th September 20X9
| DR GH₵ | CR GH₵ | |
|---|---|---|
| Capital | 185,280 | |
| Inventory | 37,360 | |
| Sales | 421,450 | |
| Purchases | 193,150 | |
| Purchase returns | 6,040 | |
| Electricity | 3,410 | |
| Discounts allowed | 2,230 | |
| Discounts received | 2,420 | |
| Motor expenses | 4,270 | |
| Drawings | 32,000 | |
| Bank | 24,511 | |
| Salaries | 108,000 | |
| Insurance | 15,400 | |
| Receivables | 110,140 | |
| Irrecoverable debts | 1,420 | |
| Allowance for receivables | 3,153 | |
| Payables | 76,283 | |
| General expenses | 6,780 | |
| 9% Loan (20Y16 – 20Y3) | 150,000 | |
| Loan interest | 12,000 | |
| Land and buildings | 340,000 | |
| Accumulated depreciation for buildings | 16,000 | |
| Equipment | 22,000 | |
| Accumulated depreciation for equipment | 10,300 | |
| Motor vehicles | 26,000 | |
| Accumulated depreciation for motor vehicles | 13,250 | |
| Total | 896,031 | 896,031 |
The following information is also available:
(i) Only 10 months’ salaries are shown in the Trial Balance. An equal amount is paid for salaries for each month of the year.
(ii) As at 30th September 20X9, GH₵3,200 had been prepaid for insurance, whilst GH₵410 was owing for general expenses.
(iii) GH₵4,600 had been charged to general expenses for the owner’s private holiday.
(iv) As at 30th September 20X9, inventory was valued at GH₵22,500.
(v) A customer, owing GH₵5,040 has been declared bankrupt. This amount is to be written off in full.
(vi) An allowance for receivables is to be maintained at 3% of the remaining receivables.
(vii) As at 30th September 20X9, the business’s land was valued at GH₵100,000. Land is not depreciated.
(viii) Depreciation is to be provided as follows:
- Buildings: 4% per annum using the straight line method.
- Equipment: 25% per annum using the straight line method.
- Motor vehicles: 40% per annum using the reducing balance method.
(ix) There were no additions or disposals of non-current assets during the financial year.
Required:
(a) Prepare the statement of profit or loss for the year ended 30th September 20X9.
(b) Prepare the statement of financial position as at 30th September 20X9.
(c) (i) Identify the accounting concept involved in each of the footnotes/items (i), (iii) and (v).
Find Related Questions by Tags, levels, etc.
- Tags: Accounting Concepts, Accruals, Bad Debts, Business Entity, Drawings, Financial Statements, Prudence, Sole Trader
- Level: Level 1
