- 20 Marks
FA – Nov 2015 – L1 – Q7 – Capital structure and finance costs | Preparation of financial statements of a sole trader
Differentiate between capital and revenue expenditure and prepare financial statements for Danfo Enterprise.
Question
a) Distinguish between Capital Expenditure and Revenue Expenditure. (5 marks)
(b) The following Trial Balance was extracted from the books of Danfo Enterprise, a second-hand bags dealer, as at 31st December 2014:
| Description | DR (GH¢) | CR (GH¢) |
|---|---|---|
| Stock in Trade | 120,000 | |
| Vehicle (Cost) | 150,000 | |
| Trade Receivables | 80,000 | |
| Accumulated Depreciation: Vehicle | 30,000 | |
| Accumulated Depreciation: Furniture & Fittings | 10,120 | |
| Trade Payables | 100,000 | |
| Drawings | 120,000 | |
| General Expenses | 65,000 | |
| Provision for Doubtful Debts | 2,500 | |
| Rate & Rent | 14,000 | |
| Insurance | 5,000 | |
| Bad Debt | 7,000 | |
| Discount Received | 25,150 | |
| Discount Allowed | 15,160 | |
| Bank Balance | 165,240 | |
| Wages & Salaries | 250,000 | |
| Sundry Expenses | 6,150 | |
| Vehicle Running Expenses | 15,650 | |
| Furniture & Fittings | 50,600 | |
| Repairs to the Shop | 6,500 | |
| Purchases | 650,120 | |
| Sales | 1,079,130 | |
| Capital | 473,520 | |
| Total | 1,720,420 | 1,720,420 |
Additional Information:
i. Provision for doubtful debts is to be reduced by 10%.
ii. Rate and Rent has been paid in advance by two (2) months. Note that Danfo Enterprise pays GH¢1,000 each month.
iii. Stock in trade as at 31st December, 2014 GH¢80,150.
iv. A bill of GH¢6,150 for vehicle running was outstanding as at 31st December, 2014.
v. The Enterprise provides depreciation as follows:
- Vehicle: 20% per annum on straight line basis.
- Furniture and Fittings: 20% per annum on straight line basis.
You are required to:
i. Prepare Income statement for the year ending 31st December 2014. (8 marks)
ii. Prepare Statement of Financial Position as at 31st December 2014. (7 marks)
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