Question Tag: Sole Trader

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  • 1 Marks

FA – May 2016 – L1 – SA – Q4 – Financial Statements Preparation

A question regarding the net assets of a sole trader after considering profit, drawings, and additional capital.

Ajonibode runs a business as a sole trader and the following information relates to the business:
On January 1, 2015, the net assets of the business were N1,675,000. During the year to December 31, 2015, the business made a profit of N625,000 and Ajonibode took out N550,000 in drawings. Due to a shortage of cash, he paid in additional capital of N100,000 in early December 2015.
What are the net assets of the business as of December 31, 2015?
A. N1,675,000
B. N1,850,000
C. N2,300,000
D. N2,400,000
E. N2,950,000

Answer:
B. N1,850,000

Explanation:
Net assets as of December 31, 2015, are calculated by adjusting the January 1 net assets for profit, drawings, and additional capital. The formula is:
Net Assets=Opening Net Assets+Profit−Drawings+Additional Capital
= N1,675,000 + N625,000 – N550,000 + N100,000 = N1,850,000.
  • 1 Marks

FA – MAY 2015 – L1 – SA – Q6 – Users of Accounting Information and Their Needs

Identify the incorrect statement about differences between sole traders and limited liability companies.

Which of the following is NOT correct in differentiating between sole trader and limited liability companies?
A. A sole trader is fully and personally liable for any losses that the business might make.
B. Drawings would only appear in the financial statements of a sole trader.
C. Only companies have share capital.
D. A sole trader’s financial statements are private and never made available to any other equity holder.
E. Companies’ financial statements are sent to shareholders and may be publicly filed.

Answer: D
Explanation:
A sole trader’s financial statements may be disclosed to other equity holders, such as partners, lenders, or creditors. Hence, the statement in option D is incorrect.

  • 1 Marks

FA – Mar/July 2020 – L1 – SA – Q17 – Users of Accounting Information and Their Needs

Identifying users not interested in the financial statements of sole traders and partnerships

Which of the following users is NOT likely to be interested in the financial statements of a sole trader and a partnership business?
A. Employees and proprietors of the business
B. The stock exchange and shareholders
C. Auditors and financial analysts
D. Banks and insurance companies
E. The government and tax authorities

B. The stock exchange and shareholders
Explanation:
Sole traders and partnership businesses do not have shares traded on the stock exchange, and therefore the stock exchange and shareholders are not likely to be interested in their financial statements. The other users are stakeholders in these businesses.

  • 20 Marks

FA – Nov 2016 – L1 – Q3 – Preparation of financial statements of a sole trader

Preparation of Statement of Profit or Loss and Statement of Financial Position for a sole trader from given trial balance and additional information.

BBT, a sole trader, prepared the following Trial Balance from his accounts on 30th September 2016.

Dr (GHȼ) Cr (GHȼ)
Sales 181,200
Sales returns 1,810
Purchases 79,310
Discounts received 1,520
Carriage outwards 420
Rent and rates 30,800
Insurance 780
Salaries 20,400
Motor expenses 6,200
General expenses 7,450
Irrecoverable debts 240
Allowance for receivables 280
Drawings 12,100
Loan interest 600
10% Loan 8,000
Motor vehicles 20,000
Accumulated depreciation for motor vehicles 7,600
Equipment 48,050
Accumulated depreciation for Equipment 15,890
Inventory at 1st October 2015 6,200
Receivables 15,000
Payables 16,120
Bank 1,250
Capital 20,000
250,610 250,610

The following information is also available: i) The closing inventory as at 30th September 2016 was valued at GHȼ6,480. At 30th September 2016, loan interest owing amounted to GHȼ200; rent owing was GHȼ450; whilst insurance was prepaid by GHȼ120. ii) BBT had included his son’s school fees of GHȼ1,400 in general expenses. iii) Receivables have been analysed as follows:

GHȼ
Current month 8,000
30 to 60 days 4,000
60 to 90 days 2,000
Over 90 days 1,000

Allowance to be made for receivables is as follows:
30 to 60 days: 1%
60 to 90 days: 2.5%
Over 90 days 5%: (after writing off GHȼ500)

iv) One half of the 10% loan is repayable during the year ending 30th September
2016, and the balance after that date.
v) Depreciation is to be provided for as follows.

  • Equipment: 10% per annum on cost using the straight line method. There were no additions or disposals during the year.
  • Motor vehicles: 20% per annum by the reducing balance method. There were no additions or disposals during the year.

Required:

a) Prepare, for BBT, the Statement of profit or loss for the year ended 30th September 2016. (12 marks)

b) Prepare, for BBT, the Statement of Financial Position as at 30th September 2016. (8 marks)

 

Working (W1):

Allowance for receivables: Balance b/f: 280

Provision for the year [4,000 x 1% + 2,000 x 2.5% + (1,000 – 500) x 5%]: 115

Decrease in Allowance: 165

(12 marks)

 

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