QUESTION

**
Mr Chan is a sole trader. The following trial balance was extracted from his books as at 31 December 2007:
Mr Chan
Trial Balance as at 31 December 2007
Dr
$
573,870
44,145

Purchases and sales

Debtors and creditors
Returns outwards
Returns inwards
Carriage outwards
Discounts received
Bad debts
Electricity
Discounts allowed
Rent and rates
Salaries and wages
Insurance
Motor expenses
Sundry expenses
Furniture and fittings at cost
Equipment at cost
Motor vehicles at cost
Capital
Bank
Cash
Stock
Drawings
Provision for depreciation as at 1/1/07
Furniture and fittings
Equipment
Motor vehicles

Cr
$
1,264,570
45,880
12,380

9,700
2,380
3,530
5,400
130,500
2,524
102,790
119,300
13,500
21,800
4,200
180,200
210,350
332,800
320,500
55,410
15,240
5,610
8,240

1,837,959

93,040
31,117
66,942
1,837,959

Additional information:
(i) Stock as at 31 December 2007 amounted to $4,770.
(ii) Depreciation is to be charged at 20 per cent per annum on cost for furniture and fittings and at 15 per cent
per annum for equipment and motor vehicle on a reducing balance basis.
The company's policy is to charge a full year's depreciation if the asset is purchased before or if it is
disposed after 30 June. No depreciation should be charged if the asset is purchased after or if it is disposed
before 30 June.
(iii) One of the motor vehicles was sold for $35,000 on 30 December 2007 and the amount was deposited
directly to the companys bank account. This motor vehicle was purchased on 1 September 2004 at $70,000.
No record has been made in the books.
(iv) 10 per cent of the motor expenses were used by Mr Chan and his family during holidays.
(v) A loan of $69,600 by cheque was received from T Tang at 31 December 2007.
Required:
Prepare for Mr Chan a trading and profit and loss account for the year ended 31 December 2007 and a balance
sheet as at that date.
(Calculations to the nearest $.)
Frank Woods Principles of Accounts for HK (6th Edition)
Question Bank

Pearson Education Asia Ltd 2004

ANSWER TO QUESTION

**
Mr Chan
Trading and Profit and Loss Account for the year ended 31 December 2007
$
Sales
Less
Less

Returns inwards
Cost of goods sold:
Opening stock
Add
Purchases
Less
Returns outwards

$
1,264,570
9,700
1,254,870

5,610
573,870
12,380

Less
Closing stock
Gross profit
Add
Other revenues:
Discounts received

561,490
567,100
4,770

562,330
692,540
3,530
696,070

Less

Expenses:
Carriage outwards
Bad debts
Electricity
Discounts allowed
Rent and rates
Salaries and wages
Insurance
Motor expenses ($21,800 x 0.9)
Sundry expenses
Loss on disposal of motor vehicle (W1)
Provision for depreciation:
Furniture and fittings ($180,200 x 20%)
Equipment [($210,350 $31,117) x 15%]
Motor vehicles [($332,800 $66,942) x 15%]
Net profit

2,380
5,400
130,500
2,524
102,790
119,300
13,500
19,620
4,200
7,989
36,040
26,885
39,879

511,007
185,063

Workings:
(W1)
Disposal of Motor Vehicles
Motor vehicles

$
70,000

Provision for depreciation (W2)

Bank
Profit and loss: Loss on disposal

70,000

$
27,011
35,000
7,989
70,000

(W2)
Provision for depreciation on the disposed motor vehicle:
2005:
$70,000 x 15% = $10,500
2006:
($70,000 $10,500) x 15% = $8,925
2007:
($70,000 $10,500 $8,925) x 15% = $7,586
Total depreciation charged for the disposed motor vehicle = $10,500 + $8,925 + $7,586
= $27,011

Frank Woods Principles of Accounts for HK (6th Edition)

Question Bank

Pearson Education Asia Ltd 2004

Mr Chan
Balance Sheet as at 31 December 2007
$
Fixed Assets
Furniture and fittings at cost
Less
Depreciation to date ($93,040 + $36,040)
Equipment at cost
Less
Depreciation to date ($31,117 + $26,885)
Motor vehicles at cost ($332,800 $70,000)
Less
Depreciation to date ($66,942 + $39,879 $27,011)

180,200
129,080
210,350
58,002
262,800
79,810

Current Assets
Stock
Debtors
Bank ($55,410 + $69,600 + $35,000)
Cash

51,120
152,348
182,990
386,458

4,770
44,145
160,010
15,240
224,165

Less

Current Liabilities
Creditors
Net current assets
Less

45,880
178,285
564,743

Long-term Liabilities
Loan from T Tang

69,600
495,143

Financed by:
Capital as at 1 January 2007
Add
Net profit
Less

320,500
185,063
505,563
10,420
495,143

Drawings [$8,240 + ($21,800 x 0.1)]

Frank Woods Principles of Accounts for HK (6th Edition)

Question Bank

Pearson Education Asia Ltd 2004