FINAL ACCOUNTS – FULLY WORKED EXERCISES

FIRST TERM E-LEARNING NOTE

 

SUBJECT: FINANCIAL ACCOUNTING 

 

CLASS: SS 2

 

 

 

WEEK TEN

FINAL ACCOUNTS – FULLY WORKED EXERCISES

Illustration:                                            

The following trial balance has been extracted from the ledgers of Mr. Johnson as at 31st

December, 2003.

                                                                                                   DR                           CR

     ₦                                ₦

Purchases / Sales                                                                     142,448                       233,120

Returns                                                                                        5,000                           3,000

Discounts                                                                                    2,412                           1,368

Debtors /Creditors                                                                    38,600                         23,280

Furniture and Fittings                                                                 5,000

Carriage inwards                                                                         2,500

Carriage outwards                                                                       5,176

5% Loan from Co-operative Society                                                                            15,000

Drawings                                                                                        862

Land and Buildings                                                                  40,000

Rents, Rates and Insurance                                                      11,946

Postages and Stationery                                                              2,426

Motor Vehicles                                                                         20,000

Advertising                                                                                 3,704

Provision for doubtful debts                                                                                              500

Salaries and Wages                                                                   26,152

Bad Debts                                                                                   2,468

Cash in Hand                                                                                 624

Cash at Bank                                                                               6,108

Stock as at 1st January, 2003                                                     14,308

Equipment at cost                                                                     97,400

Accumulated depreciation on Equipment                                                                    43,300

Capital                                                                                                                         107,566

427,134                       427,134

Additional Information:

(a)        Stock at close N16,442

(b)        Outstanding expenses:

Advertising                 N354

Salaries and wages      N848

Interest on loan           N750

(c)        Rent, Rates and Insurance paid in advance N426

(d)       Depreciation:

Equipment 10% on cost

Furniture and Fittings 5%

Land and Buildings 10%

Motor Vehicles 25%

(e)        Salaries and wages includes N3,600 paid to Mr. Johnson.

(f)        Records to typewriter bought on credit on 31st December, 2003 for N10,000 have not been made in the books.

(g)        Mr. Johnson decided on 31st December, 2003 to write off a further amount of N2,000 as bad debt.

(h)        Mr. Johnson’s children consumed goods worth N5,500 during the year.

(i)         Provisions for doubtful debts 5%: discount allowance 10%

 

Prepare:

  1. Trading, Profit and Loss Account for the year ended 31st December, 2003.
  2. A Balance Sheet as at that date.

 

EVALUATION

  1. Explain the following:

(a)        Cost of goods available for sale (b) Cost of goods sold (c) Gross profit

  1. Write short notes on the following:

(a)        Intangible assets  (b) Wasting assets

 

 

 

SOLUTION:

Mr. Johnson

Trading Profit and Loss Account for the year ended 31st December, 2003

₦             ₦                                                            ₦         ₦

Opening Stock                                                     14,308        Sales                233,120

Add: Purchases                       142,448                          Less: returns inwards   5,000

228,120

Add: Carriage inwards       2,500

144,948

Less: children consumption   5,500

139,448

Less: returns outwards           3,000    136,448

150,756

Less:Closing stock 16,442

Cost of Goods Sold                     134,314

Gross Profit c/d                                    93,806

228,120                                  228,120

 

Discount Allowed                                        2,412        Gross Profit                           93,806

Carriage outwards                                        5,176         Discount Received                   1,368

Postage & Stationery                                   2,426

Rent, Rates & Insurance (11,946-426)      11,520

Advertising (3,704 + 354)                           4,058

Salaries & Wages (26152 + 848 – 3600)   23,400

Loan interest accrued                                      750

Increase in provision for doubtful debt 1,330

Provision for discounts allowed

(10/100 x (36,600 – 1830)                           3,477

Bad debts: 2468 + 2000                              4,468

Depreciation:

Equipment                   9,740

Land and Building      4,000

Motor Vehicle             5,000

Furniture and fittings     250          18,990

 

Net Profit                                                   17,167

95,174                                                      95,174

 

 

Balance Sheet as at 31st December, 2003

               ₦      FIXED ASSETS       CostDep.        NBVCapital                107,566                                               N                     N         N

Add Net Profit                       17,167 Land & Building         40,000         4,000       36,000

124,733           Motor Vehicles           20,000         5,00015,000

Furniture & fittings5,000 250 4,750

Less: Drawings

(5,500 + 3,600 + 862)     9,962           Equipment       107,40053,040            54,360

114,771                       172,40062,290            110,110

 

CURRENT LIABILITIES:                        CURRENT ASSETS:

5% Co-operative loan 15,000             Stock               16,442

Creditors                     23,280             Debtors                       38,600

Creditors for Typewriter     10,000             less: Bad Debts             2,000

Outstanding Expenses:                                                           36,600

Interest on loan           750                  less: Provision for

Salaries & wages         848                  doubtful debts            1,830

Advertising                 354                                                      34,770

50,232   less: Provision for

discounts allowed         3,477           31,293

 

Insurance Prepaid                                 426

Cash at Bank               6,108

Cash in Hand                             624

54,893

 

165,003                                               165,003

 

EVALUATION QUESTIONS

  1. List six items each found in the asset and liability sides of the balance sheet of a sole proprietor.
  2. State four reasons for charging depreciation.

 

GENERAL EVALUATION

  • Explain the following types of accounts and in each case, state the rules regarding the recording of transactions in their debit and credit sides: (a) personal accounts (b) real accounts (c) nominal accounts (d) liabilities account (e) asset account
  • State seven reasons why an accountant will consider end – of – year adjustments while preparing the final accounts
  • State five differences between book – keeping and accounting
  • List seven source documents that are used in preparing the cash book
  • Explain five differences between a trial balance and a balance sheet

 

READING ASSIGNMENT

Simplified and Amplified Financial Accounting, Page 185-202

WEEKEND ASSIGNMENT

  1. The Salary of a shopkeeper who sells goods would be charged in the __________

(a) balance sheet          (b) sales account          (c) profit and loss account

(d) trading account

 

  1. The balance of the Sales Account is transferred to the Trading Account by _____

(a) debiting the Profit and Loss Account       (b) debiting the Trading Account

© debiting the Sales Account     (d) crediting the Sales Account

  1. Discount allowed is a charge to _________—

(a) Trading Account    (b) Balance Sheet        (c) Profit and Loss Account

(d) Current Account

  1. Patents and Trade-marks are classified under__________

(a) fixed assets                        (b) current assets         (c) intangible assets

(d) wasting assets

  1. Which of the following is a nominal account?

(a) Machinery              (b) Debtors      (c) Goodwill       (c) Salaries

 

THEORY

  1. Give five examples each of the following classes of account

(a) Real accounts         (b) Nominal accounts              (c) Personal accounts

2.         State five reasons why a trader would grant discounts to his customers.