Professional Documents
Culture Documents
Capital Account:
Balance at 1 Jan 20X8 16,730
Net profit for 20X8 4,708
21,438
Drawing 4,620
16,818
Non-current liabilities:
10% Loan 8,000
Current Liabilities:
Accounts Payable 5,430
30,248
Notes:
(A) Accounts receivable consist of : (B) Accounts payable consist of :
E 2,600
F 987 M 2,840
G 536 N 1,990
H 381 O 600
4,504 5,430
Continue with the example of Elton above and prepare his income statement in vertical format
and the balance sheet at the end of January. Assume that the inventory remaining at 31 Jan 20X9
totalled $6,100.
CLOSING INVENTORY
Example 1:
A trader starts in busness an by the end of his first year he has purchased goods costing $33,000
and he has made sales totalling $40,000. Goods which cost him 9,000 have not been sold by the
end of the year.
What profit has he made in the year?
Example 2:
A wholesaler buys goods from a manufacturer at $2 per unit and sells them on credit terms to
various retailers at $3 per unit. He has summarised his transactions for 20X8 as follows:
Unit
Opening inventory (1 Jan 20X8) 500
Purchases 6200
6700
Sales Revenue 5900
Closing inventory (31 Dec 20X9) 800
How is the Gross Profit to be calculated?
Hillman extracted the trial balance below from his ledger on 31 March 20X9
Dr Cr
$ $
Light and heat 100
Sales revenue 6000
Accounts receivable 2000
Wages 600
Drawings 2100
Rent 400
Postage and stationery 200
Capital at 1 April 20X8 5500
Purchases 2800
Inventory 400
Accounts payable 800
Fixture and fittings 3500
Cash 200
12,300 12,300
Inventory at 31 March 20X9 is valued at 300.
Prepare the financial statements of Hillman, using vertical format.
rtical format
at 31 Jan 20X9
troduced a car
on credit terms to
8 as follows:
rch 20X9
ExampleCalculation of inventory and cost of sales under these methods
A business is commenced on 1 Jan and purchases are made as follows:
(b) Show the effect of each method on the trading results for the six months!
Q.1. B'worth extracted the list of account balances below from his ledger on 31 Mar 20X
Dr Cr
$ $
Light and heat 100
Trade Receivable 8,250
Sales revenue 25,375
Wages 8,237
Drawings by proprietor 3,500
Rent 500
Postage and stationary 727
Capital at 1 April 20X8 18,250
Purchases 17,280
Inventory 4,100
Trade Payables 7,247
Fixtures and fittings 2,100
Cash 6,078
50,872 50,872
Inventory at 31 March 20X7 is valued at $5,200.
You are required to prepare the income statement and balance sheet of B'worth,
using the vertical format.
Q.2. Alpha
Using the following balances and additional information given below, You are
required to PREPARE the income statement for the year ended 31 Dec and
a balance sheet as at that date:
Dr Cr
$ $ $
Sales revenue 39,468 39,468
Bank balance ?
Insurance 580 580
Plant repairs 110 110
Rent 1,782 1,782
Motor van 980 980
Plant 2,380 2,380
Purchases 27,321 27,321
Inventory at 1 Jan(opening) 3,655 3,655
Wages 3,563 3,563
Discount allowed to customers 437 437
Motor van expenses 1,019 1,019
Shop fittings 1,020 1,020
General expenses 522 522
Capital account -balance 1 Jan (opening)
2,463 2,463
Receivables (Debtors) 3,324 3,324
Payables (Creditors) 4,370 4,370
Cash on hand 212 212
Personal Drawings by proprietor 2,820 2,820
96,026 49,725 46,301
Bank balance ? 3,424
49,725 49,725
Additional information:
1 The diference in the list of balances is the bank balance at 31 Dec.
2 Inventory at 31 December amounted to $3,123
3 Adjust for cost of goods taken by Alpha for personal use amounting to $220.
methods:
ng to $220.
Accruals
Calculate the appropriate expense for the accounting period in the following examples:
(a) For the year to 30 September 2005 a business paid heating bills of $2,700.
At 30 Sept 2005, the year end, there was an unpaid bill outstanding of $600 for the
3 months to 30 Nov 2005.
(b) A business paid its rent for the six months to 31 Mach 2003 $1,200, for the six months
to 30 Sept 2003 $1,800 and for the six months to 31 Mar 2004 $1,800. If the business's
year end is 31 Dec 2003, what is the rent expense for that accounting period
DUNDEE ENGINEERING
DE has a number of motor vehicles that are used within the business. The expenses of running
these vehicles are recorded in the Motor expenses and insurance account. At 1 May 2007 there
were garage bills accrued of $478 and insurance that had been prepaid of $290. During the
year to 30 Apr 2008 the transactions shown below took place.
$
30 Jun 2007 paid garage bills 698
1 Sep 2007 paid insurance for half of the motor vehicles
for the year to 30 Aug 2008 3480
1 Dec 2007 paid insurance for remaining motor vehicles
for the year to 30 Nov 2008 3900
You are required to write up the Motor Expenses and insurance account for the year ended
###
Heilbronn Properties
Interest payble and prepaid and rental due and received in advance at the beginning and
end of Heilbonn Prop's accounting year are as follows:
31-Jul-04 31-Jul-05
$ $
Interest payable 12,000 14,500
Interest receivable 8,000 6,400
Rental due from tenants 15,000 19,000
Rental received in advanced from tenants 3,000 2,500
During the year to 31 Jul 2005 the amount of interest payable charged to the income statement
was $56,000 and the cash collected from rental tenants was $116,000.
You are required to write up the Interest payable account and the Rental income account
for the year ended 31 Jul 2005.
g examples:
xpenses of running
At 1 May 2007 there
$290. During the
al income account
Harry Evans
HE set up in business on 1 Jan 2000 as a violin maker. At the end of his first year
of trading, 31 Dec 2000, the amounts owing to him from customers totalled
$6,570. After some consideration, Harry decided that of these debts a total of
$370 was unlikely ever to be received and should be written off as bad. Of the
remaining balances he decided to be prudent and allow against 4%.
At 31 Dec 2002 Harry's receivables totalled $6,250. There were no debts that
were considered bad but a specific allowance was to be made against one
debt of $350 and a general allowance of 2% was to be continued on the
remaining receivables.
MCQ Type
B acquired a lorry on 1 May 2006 at a cost of $30,000. The lorry has a estimated useful life
of four years, and an estimated resale value at the end of that time of $6,000. B charges
depreciation on the straight line basis, with a proportionate charge in the period of
acquisition.
What will the depreciation charge for the lorry be in B's ten month accounting period to
30 Sept 2006?
A $3,000
B $2,500
C $2,000
D $5,000
Essay Type
Explain the purpose of providing for depreciation and give details of one method of
computing the annual depreciation on an asset. (10 Marks)
George
George has been trading for many years, making up his accounts to 31 December.
On 1 July 2005 he purchased a van for $2,400. He estimates that its useful life is five
years, with residual value of $300. He provides depreciation on a straight line basis
on all his non-current assets.
George sold the van on 1 April 2007 for proceeds of $1,800.
You are required to enter the above transactions in the relevant ledger accounts and to
show the effect on the financial statements for each year. (15 Marks)
Depreciation 2
A firm has the following transactions with motor cars:
1-Jan-2004 Purchased car for $8,000 (Car 'A')
1-Jul-2004 Purchased additional car for $12,000 (Car 'B')
1-Jul-2005 Sold Car 'A' for $6,000
The firm's accounting year ends on 31 Dec in each year, and the following amounts of
Depreciation have been calculated as being relevant to those years.
y/e 31 Dec 2004 Car 'A' $1,600
y/e 31 Dec 2004 Car 'B' $1,200
y/e 31 Dec 2005 Car 'A' $800
y/e 31 Dec 2005 Car 'B' $2,400
y/e 31 Dec 2006 Car 'B' $2,400
You are required to show the motor cars accounts for each of the three years, together wi
the entry for motor cars in the balance sheet at 31 Dec 2005.
(15 Marks)
method of
ecember.
ul life is five
t line basis
ccounts and to
g amounts of
annual rates:
ch next year.