ABC

Income statement
for the year ended 31 December 2014
$ $
Sales XXX
-sales returns (return inward) (XXX) XXX
-Cost of sales
Opening inventory XXX
+purchases(less goods taken by owner) XXX
+carriage on purchases (Carriage inward) XXX
-purchases returns(Return Out Ward) (XXX)
-closing inventory (XXX) (XXX)
Gross profit XXX

+Other incomes
Rent received XXX
Discount received XXX
Commission received XXX
Decrease in provision for doubtful debts XXX XXX

-operating expenses
Salaries & wages XXX
Discount Allowed XXX
Rent paid XXX
Increase in provision for doubtful debts XXX
Warehouse rent XXX
Insurance XXX
Motor expenses(paid + accrued) XXX
Lighting and heating expenses XXX
General expenses(paid –prepaid) XXX
carriage outwards(Carriage on sales) XXX
Business rates XXX
Communication expenses XXX
Bad debts (written off + to be written off) XXX
Commissions paid XXX
Depreciation if straight line (cost × 20%) XXX
Depreciation if reducing balance method XXX (XXX)
(Cost – given dep=book value ×20%)
Profit from Operation XXX
Less Interest on loan(loan amount *% age) (XXX)
Profit for the year XXX
 ABC
Statement of financial Position
As at 31 December 2014
$ $ $
Cost Provision N.B.V
for
Deprecation
Non-current Assets
Land & building XXX (old +New) XXX
Furniture XXX XXX XXX
Motor vehicles XXX XXX XXX
Premises XXX XXX XXX
Machinery XXX XXX XXX
Fixtures & Fitting XXX XXX XXX
XXX
Current Assets
Inventory XXX
Trade receivables XXX
Closing Provision for doubtful debts A/c (XXX) XXX
Cash at bank XXX
Cash in hand XXX
Prepaid Expense XXX
Accrued Income XXX XXX
Total Assets XXX

Equity & liabilities

Opening capital XXX
+profit for the year XXX
-drawings(given + goods taken by owner) (XXX) XXX

Non-current liabilities
Liabilities 7% loan XXX XXX

Current Liabilities
Bank overdraft XXX
Trade payables XXX
Short term loan XXX
Prepaid Income XXX
Accrued Expense XXX XXX
Total of Liabilities & Capital XXX
Note:-
1) In income statement Till Gross profit it is called Trading Account
2) After Gross profit it is called Profit and loss Account

Accounting Equation:-
Assets=Liabilities+ Capital

Non-current assets + current assets = Non-current liabilities + current liabilities + Capital

Accruals and prepayments

Matching / accrual concept:
Incomes should me matched with the expenses while calculating profit. We should subtract
expenses from the incomes of same accounting period. Incomes earned whether received or
not and expenses incurred whether paid or not should be recorded.

Prudence concept:
Assets and Income should not be overstated and liabilities and Expenses should not be understated. We
should record expected losses and should not record expected profits

Prepaid Expense Treatment:-

1) In income statement the amount of prepaid expenses are subtracted from relevant expense
account.
2) The amount of prepared expense will be added in Current Asset in the statement of financial
position.

Accrued Expense Treatment:-

1) In income statement the amount of Accrued expenses are added to relevant expense account.
2) The amount of Accrued expense will be added in Current Liability in the statement of financial
position.

Depreciation
Definition: It is that part of original cost of non-current asset which is consumed by the
business during its useful life.
Causes of depreciation
1) Wear and tear
2) Erosion, rust and decay
3) Obsolescence
4) Inadequacy
Method of Deprecation

1) Straight line method:-

In straight line deprecation rate of deprecation is applied on cost of Asset

In this method depreciation is calculated on cost. Depreciation of each year remains the same. This
method is also known as fixed instalment method. This method is suitable for the assets which give
even benefit throughout their life. Examples include buildings, furniture etc. the formula for SLM is as
under
Depreciation = Cost−residual value
Expected life

For example: Furniture costing $ 25 000 was purchased at January 1 2015.Furniture is depreciated at
20% on cost (straight line method)

2) Reducing Balance Method:-

In reducing balance method rate of deprecation is applied on N.B.V (net book Value) of Asset
N.B.V = Cost of Asset – Provision for Depreciation of Asset

3) Revaluation Method: - an adjustment made in the carrying value of the fixed asset by adjusting it
upward or downward depending upon the fair market value of the fixed asset.

Depreciation = Value of Asset at start of year at book value + New Assets purchased during the year
– Disposal at book value of Asset - Value of Asset at end of year at book value.

The assets which are low in value but large in number, no other method
Is suitable for their depreciation, they are depreciated using revaluation method.

Note:-
1) Value of current year deprecation is added in expenses in Income Statement.
2) Current Year deprecation is added in provision for depreciation in statement of
financial position.
Examples are loose tools and packing materials.

For example
Loose tools at the start of the year were valued at $800; tools purchased during the year were $350. At
the end of the year tools were valued at $750.

Value of tools at the start of the year 800

Tools purchased during the year
350
1150
Value of tools at the end of the year 750
Depreciation 400
 Provision for Doubtful debts
Accounting is based on certain concepts, before we discuss provision for doubtful debts we need
to know the following concepts which are relevant in the discussion of provision for doubtful debts.

Prudence Concept:
• Assets should not be overstated and liabilities should not be understated.
• We should create provisions for all probable losses and should not anticipate profits.
Matching Concept:-
Matching concept requires that expenses of a period should be charged against the revenues of the
same period to calculate profit.
Doubtful debts:-
Doubtful debts are debts which may or may not be recovered. Provision for doubtful debts is created
• to anticipate future loss due to current years transactions
• So that Profits are not Over stated
• To show the trade receivables at their net collectable amounts.

If provision for doubtful debts is not created, in the subsequent years when these debts will become
bad debts, these bad debts will be charged to the Income Statement of which they do not relate.

At the beginning of the topic we learnt matching concept which states that while preparing
Income statement we should match revenues with the incomes to calculate the profit. The solution
to this problem is to create provision for bad debts with an estimated amount which may become
bad in future.

How to decide the amount of doubtful debts?

• aging of trade receivables
• past experience
• market research

Creation of doubtful debts

When doubtful debts are first time created and there is no previous balance of provision for
doubtful debts, Trade Receivables will be given in the trial balance and in the additional
information students will be asked to create provision.
For example:
Trial balance
$ $
Trade 12 000
Receivables
Additional Information:
1. Create provision for doubtful debts at 5% of Trade Receivables.
Accounting treatment of creation of provision for doubtful debts
Income Statement
Expenses:
$
Provision for doubtful debts (12000×5%) 600
Statement of financial Position
Current Assets
$ $
Trade Receivables 12 000
- Provision for doubtful debts (New) (600)
11 400

Provision for doubtful debts Account

Date Detail $ Date Detail $
Balance b/d xxx

Income Statement xxx Income Statement xxx

(other Income) (Expenses)
(Decrease in provision) (Increase in provision)

Balance c/d xxx

xxx xxx

This value will come from Trial balance

This value will come from Adjustment

Income Statement (Extract)
Expenses
Irreverable debts A/C XXX
Provision for doubtful debts A/C (increase in provision) XXX
Other income
Provision for doubtful debts A/C (decrease in provision) XXX

Statement of Financial position (Extract)

Current Asset
Account Receivable XXX
Closing Provision for doubtful debts Account (XXX)
 Practice Sheet 1
(Accruals and prepayments)
Following information is available in the books of Mr. Hardworking, a sole
trader, on 31 December, 2015.

Trial Balance
$ $
Revenue 269900
purchases 176200
Sales returns and purchases returns 900 1200
Carriage on purchases 6480
Carriage on sales 5600
Inventory at January 1, 2015 10150
Discount received 2290
Cash in hand 1620
Cash at bank 2350
Land and building 90000
Vehicles 22650
Vehicle running expenses 1380
Accounts receivable and payables 14780 13000
Salaries and wages 19935
Insurance 4950
Marketing expenses 6800
General expenses 3045
Building repairs 5150
Long term loan 15000
Drawings 19900
Capital 90500
391890 391890

Additional information
1. Inventory at 31 August 2015 was valued at $9500.
2. Salaries and wages were accrued $1065 and Insurance was prepaid $1950.
REQUIRED

a) Prepare an income statement for the year ended December 31,2015.

b) Prepare a statement of financial position as on December 31, 2015.
 Mr. Hardworking
Income Statement for the year ended 31 December 2015
$ $
Revenue 269900
-Sales returns (900)
269000
Less cost of sales

Inventory 1 January 10150

Purchases 176200
Carriage on purchases 6480
Purchases Returns (1200)
Inventory 31 December (9500)
(182130)

Gross profit 86870

Other Incomes
+ Discount received 2290
89160
Operating Expenses
Carriage outwards 5600
Vehicle running expenses 1380
Salaries and wages (19935+1065) 21000
Insurance premiums (4950 –1950) 3000
Marketing expenses 6800
General expenses 3045
Building repair 5150
(45975)

Profit for the year 43185

 Mr. Hardworking
Statement of Financial Position as at 31 December 2015

Non-current assets $ $

Land and building (90000)

Vehicle (22650)
112650
Current assets

Inventory at 31December 9500

Trade receivables 14780
Cash at Bank Cash 2350
in hand Other 1620
receivables 1950
Other receivables:
30200

Total Assets 142850

Financed by
Capital at 1 January: 90500
+ Profit for the year 43185
- Drawings (19900)
= Capital at 31 December 113785

Non-current liabilities
Long term loan 15000

Current liabilities

Trade payables 13000

Other payables: 1065 14065

Total of capital and liabilities 142850

 Practice Sheet 2
(Simple depreciation and creation of doubtful debts)
John Kerry is a trader. The following balances were extracted from his books on 31 August
2015.
$
Purchases 67 600
Revenue (Sales) 121 300
Wages and salaries 23 700
Rent and rates paid 7 350
Insurance 1 480
Carriage on purchases 1 260
Discounts received 460
Sundry expenses 10 760
Rent received 1 750
Trade Receivable 11 250
Trade Payable 7 200
Bank overdraft 1 560
Inventory at 1 September 2014 9 650
Capital (Equity) at 1 September 2014 25 000
Fixtures and equipment at cost 10 000
Provision for depreciation on Fixtures 4 000
Drawings 18 220

Additional information
1. Inventory at 31 August 2015 was valued at $11 200.
2. Sundry expenses were accrued $240, Insurance prepaid $180
3. A provision for doubtful debts of 4% of trade receivables at 31 August
2015 is to be created.
4. Fixtures and equipment are to be depreciated at 20% on cost (straight line
method).
REQUIRED

(a) Prepare the Income Statement of John Kerry for the year ended 31 August 2015.
(b) Prepare statement of financial position of John Kerry as at 31 August 2015
 John Kerry
Income Statement for the year ended 31 st August 2015
$ $
Revenue 121300

Less cost of sales

Inventory 1st September 2014 9650

Purchases 67600
Carriage on purchases 1260
Inventory 31st August 2015 (11200)
(67310)

Gross profit 53990

Other Incomes
+ Discount received 460
+ Rent received 1750 2210
56200
Operating Expenses
Wages and salaries 23700
Rent and rates 7350
Insurance (1480-180) 1300
Sundry expenses (10760 +240) 11000
Provision for doubtful debts 450
Depreciation of fixtures and equipment 2000
(45800)

Profit for the year 10400

 John Kerry
Statement of Financial Position as at 31st August 2015

Non-current assets $ $ $

Cost Accumulated NBV

depreciation
Equipment XXX (old +New) XXX
10000 (6000) 4000
10000 (6000) 4000
Current assets

Inventory at 31st August 11200

Trade receivables 11250
-provision for doubtful debts (450) 10800
Other receivables 180
Other receivables:
22180

Total Assets 26180

Financed by
Capital at 1st September 2014: 25000
+ Profit for the year 10400
- Drawings (18220)
= Capital at 31st August 2015 17180

Current liabilities

Trade payables 7200

Bank overdraft 1560
other payables: 240 9000

Total of capital and liabilities 26180

 Practice sheet 3
(Depreciation SLM and creation of doubtful debts)
The following balances were extracted from the books of Sandy Marsh,
a trader, on 30 April 2015.
$
Revenue (Sales) 196 300
Ordinary goods Purchased 83 500
Wages and salaries 66 400
Rent and rates paid 9 900
Discount received 1 400
General expenses 21 100
Trade Receivables 16 300
Trade Payables 6 800
Fixtures and fittings at cost 12 200
Provision for depreciation on
Fixtures and fittings at 1 May 2014 7 320
Inventory at 1 May 2014 13 350
Cash at bank 970
Capital at 1 May 2014 25 000
Drawings 13 100
Additional information

1. Inventory at 30 April 2015 was valued at $12 600.

2. Fixtures and fittings are to be depreciated by 20% per annum on cost.
3. A provision for doubtful debts of 3% of Trade receivables at 30 April
2015 is to be created.

REQUIRED

(a) Prepare Income statement of Sandy Marsh for the year ended 30
April 2015.
(b) Prepare statement of financial position of Sandy Marsh as at 30
April 2015.
 Practice sheet 4
(Depreciation SLM & RBM and increase in doubtful debts)
Williams is a trader. The following balances were extracted from his books on 30
April 2015.
$
Ordinary goods purchased 106 300
Carriage on purchases 2 450
Revenue (Sales) 197 600
Wages and salaries 33 600
Motor expenses 14 700
Rent and rates paid 22 620
Bank interest and charges 685
Discounts received 680
Sundry expenses 9 600
Trade Receivables 16 560
Trade payables 7 985
Inventory at 1 May 2014 8 620
Fixtures and equipment at cost 8 440
Motor vehicles at cost 12 400
Provision for depreciation of
Motor vehicles 4 960
Provision for doubtful debts 475
Bank overdraft 8 450
Capital 31 000
Drawings 15 175

Additional information:

1 Inventory at 30 April 2015 was valued at $9920.

2 Depreciation is to be charged on fixtures and equipment at 25 % on cost.
3 Motor vehicles are to be depreciated using the diminishing (reducing) balance
method at 40 % per annum.
4 Provision for doubtful debts is maintained at 5% of trade receivables.

REQUIRED

(a) Income statement for the year ended 30 April 2015.

(b) Statement of financial position as at 30 April 2015.
 Practice sheet 5
(Depreciation SLM & RBM and decrease in doubtful debts)
Seema is in the import business. The following balances were extracted from her
books on 31 March 2009.
$
Revenue (Sales) 95 800
Ordinary goods purchased 48 340
Purchases returns 960
Inventory at 1 April 2008 10 780
Carriage expense 18 000
Motor vehicles at cost 20 000
Provision for depreciation
of motor vehicle at 1 April 2008 15 000
Premises at cost 60 000
Provision for depreciation
of premises at 1 April 2008 12 000
Rent and insurance 7 700
Light and heat 4 950
General and marketing expenses 6 200
Discount received 5 300
Provision for doubtful debts 560
Cash 270
Bank overdraft 1 680
Trade receivables 18 500
Trade payables 9 750
Drawings 11 310
Capital at 1 April 2008 65 000

Additional information

1 Inventory at 31 March 2009 was valued at $12 600.

2 Depreciation is to be charged on the premises at the rate of 2 % per annum on
cost using the straight-line method and on the motor vehicle at 20 % per annum
using the diminishing (reducing) balance method.
3 The provision for doubtful debts is to be maintained at 2 % of debtors.
4 Carriage expense includes 60% carriage on purchases and 40% carriage on sales.

REQUIRED

(a) an income statement for Seema for the year ended 31 March 2009.
(b) a statement of financial position of Seema at 31 March 2009.
 Seema
Income Statement for the year ended 31st March 2009
$ $
Revenue 95800

Less cost of sales

Inventory 1st April 2008 10780

Purchases 48340
Carriage on purchases 10800
Purchases return (960)
Inventory 31st March 2009 (12600)
(56360)

Gross profit 39440

Other Incomes
+ Discount received 5300
+ decrease in provision for doubtful debts 190 5490
44930
Operating Expenses
Carriage outwards 7200
Rent and insurance 7700
Light and heat 4950
General and marketing expense 6200
Depreciation of Premises 1200
Depreciation of Motor vehicles 1000
(28250)

Profit for the year 16680

 Seema
Statement of Financial Position as at 31st March 2009

Non-current assets $ $ $

Cost Accumulated NBV

depreciation
Premises 60000 (13200) 46800
Motor vehicles 20000 (16000) 4000
10000 (6000) 50800
Current assets

Inventory at 31st March 12600

Trade receivables 18500
-provision for doubtful debts (370) 18130
Cash 270

31000

Total Assets 81800

Financed by
Capital at 1st April 2008: 65000
+ Profit for the year 16680
- Drawings (11310)
= Capital at 31st August 2015 70370

Current liabilities

Trade payables 9750

Bank overdraft 1680 11430

Total of capital and liabilities 81800

 Practice sheet 6
(Depreciation, bad debts, doubtful debts and errors)
The following balances were extracted from the books of Vigotsky, a trader, on 30 September 2010:
$
Ordinary goods purchased (purchases) 70 000
Carriage inwards 3 000
Revenue (sales) 155 000
Sales returns 9 500
Non-current assets:
Motor vehicles 42 000
Office equipment 26 000
Provisions for:
depreciation on motor vehicles 8 000
depreciation on office equipment 4 000
Provision for doubtful debts 1 000
Salaries 23 750
Rent and rates 6 800
Discount received 5 600
Sundry expenses 14 150
Advertising 6 200
Trade payables 18 300
Trade receivables 23 000
Inventory at 1 October 2009 11 500
Bank overdraft 16 000
Capital 40 000
Drawings 12 000

Additional information at 30 September 2010

1. Inventory (stock) was valued at $14 600.
2. During the year Vigotsky took goods costing $1250 for his own use. No entries have been
made in the books.
3. Depreciation is to be charged as follows: motor vehicles at the rate of 25% per annum using
the diminishing (reducing) balance method; office equipment at the rate of 10% per annum
using the straight line method.
4. Trade receivables (debtors) include a debt of $4250 which is considered irrecoverable and is
to be written off. The provision for doubtful debts is to be maintained at 4% of all remaining
debts.

REQUIRED
(a) An income statement of Vigosky for the year ended 30 September 2010.
(b) A statement of financial position of Vigosky at 30 September 2010.
 Practice sheet 7
(Complete CAIE question)
Ismail Khan is in the import/export business. The following balances were extracted from her books
on 30 September 2015.
$ $
Revenue (Sales) 306 000
Carriage on sales 28 300
Ordinary goods purchased 147 600
Carriage on purchases 12 800
Inventory at 1 October 2014 13 400
Wages and salaries 51 100
Rent rates and insurance 6 900
Advertising costs 11 800
Motor vehicle expenses 2 700
Office expenses 17 400
Provision for doubtful debts 360
Cash at bank 7 140
Motor vehicles at cost 15 500
Provision for depreciation of motor
vehicles at 1 October 2014 3 100
Trade receivables 39 000
Trade payables 15 500
Drawings 12 320
Capital at 1 October 2014 35000
Long term loan 6 000
365 960 365 960
Additional information

1. Inventory at 30 September 2015 was valued at $13 900.

2. During the year Ismail Khan took goods costing $1200 for her own use. No entries have been
made in the books.
3. Depreciation is to be charged on the motor vehicles at 25 % per annum using the straight
line method.
4. Wages and salaries, $1530, were owing at 30 September 2015.
5. Insurance, $300, was prepaid at 30 September 2015.
6. The provision for doubtful debts is to be maintained at 3 % of debtors.
7. Ismail Khan made a long-term loan, $6000, at 3 % per annum to the business on 1 October
2014. This was included in error in capital. The interest has not been entered in the books.
REQUIRED

(a) an income statement of Ismail Khan for the year ended 30 September 2015. [19]
(b) a statement of financial position of Ismail Khan as at 30 September 2015. [16]
 Ismail khan
Income Statement for the year ended 30 th September 2015
$ $
Revenue 306000

Less cost of sales

Inventory 1st October 2014 13400

Purchases 147600
Carriage on purchases 12800
Drawings (1200)
Inventory 30th September 2015 (13900) 158700

Gross profit 147300

Operating Expenses
Carriage outwards 28 300 (1)
Wages and salaries
[51 100 (1) + 1530 (1)] 52 630
Rent, rates and insurance
[6900 (1) – 300 (1)] 6 600
Advertising costs 11 800
Motor vehicle expenses 2 700
Office expenses 17 400
Provision for depreciation of
motor vehicles 3 875(1)
Increase in provision for
doubtful debts 810 (2)
Interest on loan 180 (2)
(124295)

Profit for the year 23005

 Ismail Khan
Statement of Financial Position as at 31st March 2009

Non-current assets $ $ $

Cost Accumulated NBV

depreciation
Motor vehicles 15500 (6975) 8525
Current assets

Inventory at 31st March 13900

Trade receivables 39000
-provision for doubtful debts (1170) 37830
Cash at bank 7140
Other receivables 300
59170

Total Assets 67695

Financed by
Capital at 1st October 2014: 35000
+ Profit for the year 23005
- Drawings (12320+1200) (13520)
= Capital at 30th September 2015 44485

Non-Current liabilities
Loan 6000

Current liabilities

Trade payables 15500

Other payables (180+1530) 1710 17210

Total of capital and liabilities 67695

 Practice Sheet 8
(Complete CAIE question with treatment of loan, interest on loan and difficult carriage expense)
Julia is in the import business. The following balances were extracted from her books
on 31 March 2009.
$
Revenue (Sales) 95 800
Ordinary goods purchased 48 340
Purchases returns 960
Inventory at 1 April 2008 10 780
Wages of motor vehicle driver 11 500
Motor vehicle running expenses 6 500
Motor vehicles at cost 20 000
Provision for depreciation of motor vehicle at 1 April 2008 15 000
Premises 60 000
Provision for depreciation of premises at 1 April 2008 12 000
Rent and insurance 7 700
Light and heat 4 950
General and marketing expenses 6 200
Discount received 5 300
Provision for doubtful debts 560
8 % Bank loan repayable 30 June 2011 30 000
Cash 270
Bank overdraft 1 680
Trade receivables 18 500
Trade payables 9 750
Drawings 11 310
Capital at 1 April 2008 35 000

Additional information

1. Inventory at 31 March 2009 was valued at $12 600.

2. The motor vehicle is used to bring purchases to the business premises of Julia and to deliver
goods to customers. The motor vehicle is used 20 % of the time to collect purchases and 80
% to deliver goods to customers.
3. Depreciation is to be charged on the premises at the rate of 2 % per annum on cost using the
straight line method and on the motor vehicle at 20 % per annum using the diminishing
(reducing) balance method.
4. The loan interest is outstanding at 31 March 2009.
5. Insurance, $450, was prepaid at 31 March 2009.
6. Electricity for lighting, $130, was due at 31 March 2009.
7. The provision for doubtful debts is to be maintained at 2 % of Account Receivable.

REQUIRED
a) Prepare the income statement for Julia for the year ended 31 March 2009. [18]
b) Prepare the statement of financial position of Julia at 31 March 2009. [14]
 Practice sheet 9
Franco is in business as a sole trader. The following balances were extracted from his books
on 31 January 2014.
$
Land and buildings (cost) 150 000
Fixtures and fittings (cost) 30 000
Computer equipment (cost) 70 000
Provisions for depreciation:
Land and buildings 20 000
Fixtures and fittings 13 500
Computer equipment 34 000
Disposal account 500 Cr
8% Bank loan (repayable 30 April 2020) 100 000
Bank 17 430 Dr
Trade Rec 45 000
Trade payables 37 650
Provision for doubtful debts 1 400
Revenue 362 500
Purchases 172 400
Returns inwards 7 200
Returns outwards 8 800
Inventory at 1 February 2013 17 970
Distribution expenses 16 300
Insurance 5 900
Light and heat 7 850
Wages and salaries 69 500
Marketing expenses 31 000
General expenses 9 200
Commission received 11 400
Drawings 20 000
Capital 80 000
Additional information at 31 January 2014
1. Inventory was valued at $15 600.
2. Wages and salaries includes $15 000 drawings by Franco.
3 Marketing expenses, $6750, were prepaid.
4 No interest had been paid on the bank loan.
5 Computer equipment costing $8000 was purchased by cheque on 25 January 2014.
No entries had been made in the books.
6 Depreciation policy is as follows:
(i) The buildings are depreciated at the rate of 2% per annum using the
straight line method. Land and buildings consists of land, cost $50 000,
and buildings, cost $100 000. No depreciation is charged on the land.
(ii) Fixtures and fittings at the rate of 15% per annum using the straight line
method.
(iii) Computer equipment at the rate of 25% per annum using the diminishing
(reducing) balance method.
7 Ismail Khan, $3000, were considered irrecoverable. A provision for doubtful debts of
5% is to be maintained.
REQUIRED

(a) Prepare the income statement for the year ended 31 January 2014.

(b) Prepare the statement of financial position at 31 January 2014.

 Practice sheet 10
Amah Retto's ledger accounts for the year ended 30 April 2008 showed the following
balances:
$
Premises at cost 250 000
Machinery at cost 52 000
Provision for depreciation on machinery at 1 May 2007 15 600
Provision for doubtful debts at 1 May 2007 500
Sales 243 000
Purchases 184 000
Sales returns 2 040
Purchases returns 1 980
Carriage inwards 350
Carriage outwards 800
Rent received 2 420
Discount allowed 1 800
Discount received 1 300
Electricity 2 100
General expenses 9 340
Stock at 1 May 2007 13 500
Account Receivable 9 000
Account Payable 11 460
Bank (Credit) 8 260
Cash 990
Drawings 18 600
Long-term loan at 11 % per annum 60 000
Capital ?

Additional information at 30 April 2008

1. Inventory was valued at $15 100.

2. No interest had been paid or provided for on the loan, which had been taken out on 1
November 2007.
3. Amah Retto's tenant had paid only eleven months' rent; one month's rent was due and
unpaid.
4. Electricity prepaid amounted to $40.
5. General expenses accrued amounted to $50.
6. Debts of $200 were to be written off.
7. Depreciation was to be provided on machinery at 40 % using the reducing (diminishing)
balance method.
8. Doubtful debts provision was to be 3 % of debtors at the end of the year.

REQUIRED

a) Prepare Amah Retto's trading and profit and loss account for the year ended 30 April 2008.
b) Prepare Amah Retto's balance sheet at 30 April 2008.
 Practice sheet 11
The following trial balance was extracted from the Mighty Wholesale Company’s books at
30 April 2010.
Dr Cr
$000 $000
Revenue (Sales) 1600
Ordinary goods purchased (Purchases) 946
Property (Buildings) at cost 1490
Warehouse fittings at cost 348
Inventory (Stock) at 1 May 2009 124
Capital 1400
12% loan repayable 2015 100
Wages 160
Provisions for depreciation at 1 May 2009:
Property (Buildings) 320
Warehouse fittings 197
Ismail Khan (Debtors) 360
Trade payables (Creditors) 92
Cash and cash equivalents (Bank) 48
Distribution expenses 43
Business rates 50
Insurance 30
Advertising 79
Drawings 25
Loan interest 6
3709 3709
Additional information:

1. Inventory (stock) at 30 April 2010 cost $230 000. This includes inventory (stock)
costing $20 000 which has a net realizable value of $9000.
2. Depreciation is to be provided for as follows:
a. Property (buildings) 2% on cost
b. Warehouse fittings 25% reducing (diminishing) balance
3. Other payables (accruals) at 30 April 2010 are:
a. Wages $12 000
b. Distribution expenses $5 000
c. Loan interest ? (The loan was taken out in 2005)
4. Other receivable (prepayment) at 30 April 2010 is Insurance $2000

REQUIRED

(a) Prepare the income statement for the year ended 30 April 2010.
(b) Prepare the statement of financial position at 30 April 2010.
 Practice sheet 12
Kirsty, a sole trader, prepared the following trial balance at 30 April 2011.
$ $
Rent 4 000
General expenses 6 000
Insurance 3 300
Salaries 14 000
Electricity 2 000
Capital 44 000
Motor expenses 4 900
Bad debts 200
Drawings 6 000
Ismail Khan 6 200
Trade payables 3 800
Cash and cash equivalents 2 600
Inventory 3 600
10% Loan 15 000
Loan interest 1 250
Carriage outwards 700
Commission received 730
Ordinary goods purchased 56 000
Revenue 108 000
Purchases returns 2 500
Sales returns 4 800
Discounts allowed 600
Discounts received 400
Provision for doubtful debts 520
Equipment 48 000
Provision for depreciation of equipment 14 400
Motor vehicles 36 000
Provision for depreciation of motor vehicles 10 800
200 150 200 150
The following information is also available:

1 The closing inventory at 30 April 2011 was valued at $4200.

2 Included in the general expenses is an item of equipment purchased during the year for
$1200. This item has not yet been included in the equipment account.
3 A cheque for $800 received from a credit customer has not yet been entered in the
accounts.
4 At 30 April 2011:
a. loan interest owing amounted to $250
b. electricity owing was $380
c. insurance was prepaid by $460
5 During the year Kirsty had withdrawn, for her personal use, goods costing $1800. This
has not been recorded in the accounts.
6 Commission receivable of $150 was owing to Kirsty at 30 April 2011.
7 The provision for doubtful debts is to be provided for a specific debt of $200, plus 2% of
the remaining debtors.
8 One half of the 10% loan is repayable during the year ending 30 April 2012, and the
balance is repayable after that date.
9 Depreciation is to be provided as follows:
Equipment 10% per annum on cost.
A full year’s depreciation is provided on all equipment held at 30 April 2011, regardless
of the date of purchase.
Motor vehicles 25% by the reducing (diminishing) balance method. There were no
additions or disposals during the year.

REQUIRED

(a) Prepare the income statement for Kirsty for the year ended 30 April 2011.
(b) Prepare the statement of financial position (balance sheet) for Kirsty at 30 April 2011.
 Practice sheet 13

Harley, a sole trader, prepared the following trial balance at 30 April 2011.
$ $
Rent 4 000
General expenses 6 000
Insurance 3 300
Salaries 14 000
Electricity 2 000
Capital 44 000
Motor expenses 4 900
Bad debts 200
Drawings 6 000
Ismail Khan 6 200
Trade payables 3 800
Cash and cash equivalents 2 600
Inventory 3 600
10% Loan 15 000
Loan interest 1 250
Carriage outwards 700
Commission received 730
Ordinary goods purchased 56 000
Revenue 108 000
Purchases returns 2 500
Sales returns 4 800
Discounts allowed 600
Discounts received 400
Provision for doubtful debts 520
Equipment 48 000
Provision for depreciation of equipment 14 400
Motor vehicles 36 000
Provision for depreciation of motor vehicles 10 800
200 150 200 150
The following information is also available:

1 The closing inventory at 30 April 2011 was valued at $4500.

2 Included in the general expenses is a motor vehicle purchased during the year for
$1500. This item has not yet been included in the motor vehicle account.
3 A cheque for $800 paid to a creditor has not yet been entered in the accounts.
4 At 30 April 2011:
a. electricity owing was $380
b. insurance was paid for 3 months in advance
5 During the year Harley had withdrawn, for her personal use, goods costing $1300. This
has not been recorded in the accounts.
6 Commission receivable of two months was owing to Harley at 30 April 2011.
7 The provision for doubtful debts is to be provided for a specific debt of $200, plus 2% of
the remaining debtors
8 One third of the 10% loan is repayable during the year ending 30 April 2012, and the
balance is repayable after that date.
9 Depreciation is to be provided as follows:
Equipment 10% per annum on cost.
Motor vehicles 20% by the reducing (diminishing) balance method.
A full year’s depreciation is provided on all non-current assets held at 30 April 2011,
regardless of the date of purchase.

REQUIRED

(a) Prepare the income statement for Harley for the year ended 30 April 2011.
(b) Prepare the statement of financial position for Harley at 30 April 2011.
 Practice sheet 14
Ajit's ledger accounts for the year ended 30 April 2014 showed the following balances:

$ $
Premises at cost 250 000
Machinery at cost 52 000
Provision for depreciation on machinery 15 600
Provision for doubtful debts at 1 May 2013 500
Revenue 243 000
Ordinary goods purchases 184 000
Sales returns 2 040
Purchases returns 1 980
Carriage inwards 350
Carriage outwards 800
Rent received 2 420
Discount allowed 1 800
Discount received 1 300
General expenses 9 340
Inventory at 1 May 2013 13 500
Ismail Khan 9 000
Trade payables 11 460
Bank (Credit) 8 260
Cash 990
Drawings 18 600
Long-term loan at 11 % per annum 60000
Capital 197 900
542320 542320

Additional information at 30 April 2014

1. Inventory was valued at $15 400.

2. No interest had been paid or provided for on the loan, which had been taken out on
1 January 2014.
3. Ajit's tenant had paid only ten months' rent; two month's rent was due and unpaid.
4. A cheque of $500 received from a credit customer was not recorded in the books
of accounts.
5. Discount allowed $250 was debited to discount received account; this error is not
yet corrected.
6. The provision for doubtful debts is to be provided for a specific debt of $300, plus
2% of the remaining debtors.
7. Included in the machinery was a machine costing $25000 bought on 31 October 2013.
8. Depreciation was to be provided on machinery at 25% using the reducing
(diminishing) balance method.

REQUIRED a) Prepare Ajit's income statement for the year ended 30 April 2014.
b) Prepare Ajit's statement of financial position at 30 April 2014.