I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

321 

STEPHEN CHEE 

STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 20X1 

 

 

 Accumulated 

 Carrying 

 

 Cost 

 depn. 

 value 

 

 $ 

 $      

 $ 

Non-current assets 

 

 

 

Property 

 120,000 

 21,800 

   98,200 

Equipment 

   80,000 

 48,500 

   31,500 

 

 200,000 

 70,300 

 129,700 

Current assets 

 

 

 

Inventory  

 

 42,000 

 

Trade receivables net of allowance for receivables ($38,000 – 760 (W1)) 

 37,240 

 

Prepayments 

 

 300 

 

Bank 

 

 19,300 

 

Cash in hand 

 

      300 

 

 

 

 

   99,140 

 

 

 

 228,840 

Capital 

 

 

 

Balance as at 1 June 20X0 

 

 

 121,300 

Profit for the year 

 

 

   64,740 

 

 

 

 186,040 

Drawings 

 

 

   24,000 

 

 

 

 162,040 

Non-current liabilities 

 

 

 

17% loan 

 

 

 30,000 

Current liabilities 

 

 

 

Trade payables 

 

 36,000 

 

Accruals 

 

      800 

 

 

 

 

   36,800 

 

 

 

 228,840 

Workings 

 1 

 Irrecoverable debts 

$   

 

 Previous allowance 

 500 

 

 New allowance (2% × 38,000) 

    760 

 

 Increase 

 260 

 

 Per trial balance 

 4,600 

 

 Statement of profit or loss 

 4,860 

 2 

 Depreciation 

 

 

 Property 

 

 

 Opening accumulated depreciation 

 20,000 

 

 Charge for the year (1.5% × 120,000) 

   1,800 

 

 Closing accumulated depreciation 

 21,800 

 

 Equipment 

 

 

 Opening accumulated depreciation 

 38,000 

 

 Charge for the year (25% × 42,000) 

 10,500 

 

 Closing accumulated depreciation 

 48,500 

 

 Total charge in statement of profit or loss 

 12,300 

 

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PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

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QUESTION 

Final accounts

 

Donald Brown, a sole trader, extracted the following trial balance on 31 December 20X0. 

TRIAL BALANCE AS AT 31 DECEMBER 20X0 

 

Dr 

Cr 

 

$ 

$ 

Capital as at 1 January 20X0 

 

  26,094 

Receivables 

  42,737 

 

Cash in hand 

  1,411 

 

Payables 

 

  35,404 

Fixtures and fittings at cost 

  42,200 

 

Discounts received 

 

  1,175 

Inventory as at 1 January 20X0 

  18,460 

 

Sales 

 

  491,620 

Purchases 

  387,936 

 

Motor vehicles at cost 

  45,730 

 

Lighting and heating 

  6,184 

 

Motor expenses 

  2,862 

 

Rent 

  8,841 

 

General expenses 

  7,413 

 

Bank overdraft 

 

  18,557 

Accumulated depreciation 

 

 

 

Fixtures and fittings 

 

  2,200 

   

Motor vehicles 

 

  15,292 

 Drawings 

   26,568 

               

 

 590,342 

 590,342 

The following information as at 31 December is also available. 

(a) 

$218 is owing for motor expenses. 

(b) 

$680 has been prepaid for rent. 

(c) 

Depreciation is to be charged for the year as follows. 

 

 

Motor vehicles: 20% on cost 

 

 

Fixtures and fittings: 10% reducing balance method 

(d) 

Inventory at the close of business was valued at $19,926. 

 EXAM FOCUS POINT 

In the exam report covering January to June 2015, ACCA's examining team provided the following 

comments on questions about the statement of profit or loss for a sole trader. Take note of the 

examining team's comments, because they are designed to help students improve their performance: 



 

Carefully read through the information provided in the question and decide what should be 

included in the statement of profit and loss. Remember not everything in a trial balance may 

be needed. 

 

Consider any notes provided and decide what adjustments or calculations are required eg 

prepayments or accruals. 

 

Exam questions of this type typically require a depreciation figure to be calculated using a 

stated method. 

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CHAPTER 18  

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  PREPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS 

 

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Required 

(a) 

Prepare Donald Brown's statement of profit or loss for the year ended 31 December 20X0. 

 

 

(7 marks) 

(b) 

Which of the following formulas correctly describes the figure to be entered as capital in Donald 

Brown's statement of financial position? 

A       Balance b/f + gross profit for the year – drawings 

B       Balance b/f – gross profit for the year + drawings 

C       Balance b/f + profit for the year – drawings 

D       Balance b/f – profit for the year + drawings  

(2 marks) 

(c) 

What is the net effect on profit of the adjustments in notes (a) to (c) above? 

 (6 marks)    

Total marks for the question 

(15 marks) 

ANSWER 

Tutorial notes  

1 

Discounts received is a revenue item and should be added to gross profit. 

2 

The figure for depreciation in the trial balance represents accumulated depreciation up to and 

including 20W9. You have to calculate the charge for the year 20X0 for the statement of profit or 

loss. 

(a) DONALD 

BROWN 

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X0 

 

$ 

$ 

Revenue 

 

 491,620 

Cost of sales 

 

 

 Opening 

inventory 

 18,460 

 

 Purchases 

 387,936 

 

 

 406,396 

 

 Closing 

inventory 

   19,926 

 

 

 

 386,470 

Gross profit 

 

 105,150 

Other income – discounts received 

 

     1,175 

 

 

 106,325 

Expenses 

 

 

 

 

 

 

Lighting and heating 

 6,184 

 

 

Motor expenses (2,862 + 218) 

 3,080 

 

 

Rent (8,841 – 680) 

 8,161 

 

 General 

expenses 

 7,413 

 

 Depreciation 

(W) 

 13,146 

 

 

 

 37,984 

Profit for the year 

 

 68,341 

Working: Depreciation charge  

Motor vehicles: $45,730 × 20% = $9,146 

Fixtures and fittings: 10% × $(42,200 – 2,200) = $4,000 

Total: $4,000 + $9,146 = $13,146 

(b) 

C 

The correct answer is: Balance b/f + profit for the year – drawings  

(c) 

The effects are as follows. 

(i) 

Motor expenses accrual – $218 additional expense, so reduction in profit. 

(ii) 

Rent prepayment – $680 reduction in expense, so increase in profit. 

(iii) 

Depreciation – total charge $13,146 (9,146 + 4,000) additional expense, so reduction in 

profit. 

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PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

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Total effect on profit for the year  = + 680 – 218 – 13,146 

 

= 12,684 reduction  

Although you were not asked to prepare the statement of financial position, this is shown on the 

next page for completeness. You may like to have an attempt at the statement yourself before 

checking the answer. 

DONALD BROWN 

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X0 

 

Cost 

Depreciation 

 Carrying 

value 

 

 $ 

 $ 

 $ 

Non-current assets 

 

 

 

Fixtures and fittings 

 42,200 

 6,200 

 36,000 

Motor vehicles 

 45,730 

 24,438 

 21,292 

 

 87,930 

 30,638 

 57,292 

Current assets 

 

 

Inventory 

 19,926 

 

Receivables 

 42,737 

 

Prepayments 

 680 

 

Cash in hand 

   1,411 

 

 

 

   64,754 

 

 

 122,046 

Capital 

 

 

 

Balance b/f 

 

 

 26,094 

Profit for the year 

 

 

 68,341 

 

 

 

 94,435 

Less drawings 

 

 

 26,568 

 

 

 

 67,867 

Current liabilities 

 

 

 

Payables 

 

 35,404 

 

Accruals 

 

 218 

 

Bank overdraft 

 

 18,557 

 

 

 

 

   54,179 

 

 

 

 122,046 

 

 

 

 

 

 

 

 

 EXAM FOCUS POINT 

There is an article on adjustments to financial statements on ACCA's website.  

You are advised to read this article as part of your preparation for your FFA/FA exam.  

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CHAPTER 18  

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 

You should now be able to prepare a set of final accounts for a sole trader from a trial balance after 

incorporating period-end adjustments for depreciation, inventory, prepayments, accruals, irrecoverable 

debts and allowances for receivables. 

 

 

 

 

1 

Which of the following is the correct formula for cost of sales? 

A 

Opening inventory – purchases + closing inventory 

B 

Purchases – closing inventory + sales 

C 

Opening inventory + closing inventory – purchases  

D 

Opening inventory – closing inventory + purchases 

2 

If an owner takes goods out of inventory for their own use, how is this dealt with? 

A 

Credited to drawings at cost 

B 

Credited to drawings at selling price 

C 

Debited to drawings at cost 

D 

Debited to drawings at selling price 

3 

A business starts trading on 1 September 20X0. During the year, it has sales of $500,000, purchases of 

$250,000 and closing inventory of $75,000. What is the gross profit for the year? 

A $175,000 

B $250,000 

C $325,000 

D $675,000 

4 

Mario's trial balance includes the following items: non-current assets $50,000, inventory $15,000, 

payables $10,000, receivables $5,000, bank $110,000, allowance for receivables $1,000. 

What is the figure for current assets? 

A $180,000 

B $170,000 

C $129,000 

D $134,000 

5 

Using the information in Question 4 above, what is the figure for total assets? 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER ROUNDUP 

QUICK QUIZ

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