Question Tag: Balance Sheet

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  • 20 Marks

FA – Mar 2024 – L1 – Q4 – Non-current assets and depreciation | Preparation of financial statements of a sole trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for Kontiba Enterprise, including necessary adjustments.

Kontiba Enterprise

Statement of Profit or Loss for the year ended 30 September 2023

The following information is also available:
1) Only 10 months’ salaries are shown in the Trial Balance. An equal amount is paid for
salaries for each month of the year.
2) As at 30 September 2023, GH¢2,560 had been prepaid for insurance, whilst GH¢328 was
owing for general expenses.
3) GH¢3,680 had been charged to general expenses for the owner’s private holiday.
4) As at 30 September 2023, inventory was valued at GH¢18,000.
5) A customer, owing GH¢4,032 has been declared bankrupt. This amount is to be written
off in full.
6) An allowance for receivables is to be maintained at 3% of the receivables balance.
7) As at 30 September 2023, the business’s land was valued at GH¢80,000. Land is not
depreciated.
8) 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.
Page 7 of 20

Motor vehicles: 40% per annum using the reducing balance method.
9) There were no additions or disposals of non-current assets during the financial year.

Required:
i) Prepare the statement of profit or loss for the year ended 30 September 2023. (10 marks)
ii) Prepare the statement of financial position as at 30 September 2023. (10 marks)

a) Kontiba Enterprise

Statement of Profit or Loss for the year ended 30 September 2023

b) Kontiba Enterprise

Statement of Financial Position as at 30 September 2023

  • 31 Marks

FA – May 2016 – L1 – Q1 – Accruals and prepayments | Bad and doubtful debt | Preparation of financial statements of a sole trader

Prepare income statement and balance sheet, identify and explain accounting concepts related to specific adjustments.

Asomdwee Enterprise is run by a sole trader. The following Trial Balance was prepared from the business accounts on 30th September 2015:

Account Dr (GH¢) Cr (GH¢)
Capital 185,280
Inventory 24,200
Sales 421,450
Purchases 167,350
Purchase returns 6,040
Electricity 2,230
Discounts allowed 2,420
Discounts received 4,270
Motor expenses 1,580
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 76,288
General expenses 6,780
9% Loan (2012-2019) 150,000
Loan interest 12,000
Land and buildings 340,000
Accumulated depreciation – buildings 26,000
Equipment 22,000
Accumulated depreciation – equipment 10,300
Motor vehicles 26,000
Accumulated depreciation – 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 2015, 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 2015, 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 2015, 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 Income Statement for the year ended 30th September 2015. (8 marks)
b) Prepare the Statement of Financial Position as at 30th September 2015. (6 marks)
c) i) Identify the accounting concept involved in each of the footnotes/items (i), (iii), and (v). (3 marks)
ii) Explain the correct accounting treatment in each case. (3 marks)

a) Asomdwee Enterprise
Income Statement for the year ended 30 September 2015

Particulars GH¢ GH¢
Sales 421,450
Opening Inventory 24,200
Purchases 167,350
Less: Purchase Returns (6,040)
Net Purchases 161,310
Cost of Goods Available for Sale 185,510
Less: Closing Inventory (22,500)
Cost of Sales (163,010)
Gross Profit 258,440
Discounts Received 4,270
Total 262,710
Electricity 2,230
Discounts Allowed 2,420
Motor Expenses 1,580
Salaries (108,000 + 21,600) 129,600
Insurance (15,400 – 3,200) 12,200
Irrecoverable Debts (1,420 + 5,040) 6,460
General Expenses (6,780 – 4,600 + 410) 2,590
Loan Interest (9% x 150,000) 13,500
Depreciation:
– Buildings (340,000 – 100,000) x 4% 9,600
– Equipment (22,000 x 25%) 5,500
– Motor Vehicles (26,000 – 13,250) x 40% 5,100
Total Expenses (190,780)
Net Profit 71,930

b) Asomdwee Enterprise
Statement of Financial Position as at 30 September 2015

Assets GH¢ GH¢
Non-Current Assets
Land and Buildings 340,000
Less: Accumulated Depreciation (26,000)
Less: Depreciation for the Year (9,600)
Net Book Value (Land and Buildings) 304,400
Equipment 22,000
Less: Accumulated Depreciation (10,300)
Less: Depreciation for the Year (5,500)
Net Book Value (Equipment) 6,200
Motor Vehicles 26,000
Less: Accumulated Depreciation (13,250)
Less: Depreciation for the Year (5,100)
Net Book Value (Motor Vehicles) 7,650
Total Non-Current Assets 318,250
Current Assets
Inventory 22,500
Receivables 110,140
Less: Bad Debts (5,040)
Less: Allowance for Receivables (3,153)
Net Receivables 101,947
Prepaid Insurance 3,200
Bank 24,511
Total Current Assets 152,158
Total Assets 470,408
Equity and Liabilities
Equity
Capital 185,280
Net Profit 71,930
Less: Drawings (32,000)
Less: Owner’s Holiday Expenses (4,600)
Total Equity 220,610
Non-Current Liabilities
9% Loan 150,000
Current Liabilities
Payables 76,288
Accruals:
– General Expenses 410
– Salaries 21,600
– Loan Interest 1,500
Total Current Liabilities 99,798
Total Equity and Liabilities 470,408

c)
i) Item (i): Accruals/Matching Concept
This concept requires expenses to be matched with revenues in the period in which they are incurred. In this case, the salaries expense needs to be adjusted to account for the two months’ salaries not recorded in the trial balance.

ii) Item (iii): Business Entity Concept
The owner’s private holiday expenses should not be recorded as a business expense. These should be treated as drawings, reducing the capital of the owner.

iii) Item (v): Prudence Concept
This concept dictates that expenses and liabilities should not be understated. The bad debt from the customer declared bankrupt should be written off to ensure the accounts reflect a prudent view of the company’s financial position.

  • 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.

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)

(a) Capital Expenditure:

  • Capital expenditure results in the acquisition of fixed assets or an improvement in their earning capacity.
  • It is not charged as an expense in the income statement in one go; instead, a depreciation or amortization charge is usually made to write off the capital expenditure gradually over time.
  • Capital expenditure on fixed assets is the recognition of a fixed asset (e.g., vehicles, land, and buildings) in the statement of financial position of the business.

Revenue Expenditure:

  • Revenue expenditure is incurred for the purpose of trade/service of the business, including selling & distribution expenses, administration expenses, and finance charges.
  • It is also for maintaining the existing earning capacity of fixed assets, such as repair expenses.
  • It ensures the smooth running of the day-to-day activities of the company/business.

(b) i. Danfo Enterprise Income Statement for the year ended 31st December, 2014

ii. Danfo Enterprise Statement of Financial Position as at 31st December 2014

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