Hassan runs a grocery store. The following balances were extracted from his records. At 1 May 2024 Item $ Shop fittings (net book value) 15 000 Inventory 7 ...
Question 1 Report
Hassan runs a grocery store. The following balances were extracted from his records.
At 1 May 2024
| Item | $ |
|---|---|
| Shop fittings (net book value) | 15 000 |
| Inventory | 7 800 |
| Trade receivables | 4 200 |
| Cash in hand | 600 |
| Bank (debit balance) | 3 400 |
| Trade payables | 5 600 |
At 30 April 2025
| Item | $ |
|---|---|
| Shop fittings (net book value) | 12 000 |
| Inventory | 9 200 |
| Trade receivables | 5 100 |
| Cash in hand | 800 |
| Bank (debit balance) | 4 600 |
| Trade payables | 6 200 |
During the year, Hassan:
- withdrew cash drawings of $14 400
- took goods costing $2 000 for personal use
- introduced an additional $8 000 capital from personal savings
(a) Calculate Hassan's capital at 1 May 2024. [3]
(b) Calculate Hassan's capital at 30 April 2025. [3]
(c) Calculate Hassan's total drawings for the year. [2]
(d) Calculate the profit or loss for the year ended 30 April 2025. [6]
(e) Explain how the goods taken for personal use should be recorded in the accounting records. [4]
(f) State one reason why shop fittings decreased in value. [2]
Answer Details
(a) Capital at 1 May 2024
Capital = Total assets - Total liabilities
Total assets = $15 000 + $7 800 + $4 200 + $600 + $3 400 = $31 000 [1]
Total liabilities = $5 600 [1]
Capital = $31 000 - $5 600 = $25 400 [1]
(b) Capital at 30 April 2025
Total assets = $12 000 + $9 200 + $5 100 + $800 + $4 600 = $31 700 [1]
Total liabilities = $6 200 [1]
Capital = $31 700 - $6 200 = $25 500 [1]
(c) Total drawings
Total drawings = Cash drawings $14 400 + Goods for personal use $2 000 = $16 400 [1][1]
(d) Profit or loss for the year
The profit can be found using the formula: Profit = Closing capital - Opening capital + Drawings - Additional capital introduced.
| Closing capital | $25 500 [1] |
| Less: Opening capital | ($25 400) [1] |
| Increase in capital | $100 |
| Add: Total drawings | $16 400 [1] |
| $16 500 | |
| Less: Additional capital introduced | ($8 000) [1] |
| Profit for the year | $8 500 [1] |
Correct method and workings shown. [1]
Drawings are added back because they reduced closing capital without being a business loss. Additional capital is deducted because it increased closing capital without being earned profit.
(e) Recording goods taken for personal use
The entry is: Debit Drawings $2 000 [1] and Credit Purchases $2 000 [1].
This reduces the purchases figure in the income statement (so cost of sales is not overstated) [1] and increases total drawings, which are deducted from the owner's capital in the statement of financial position [1].
(f) Why shop fittings decreased in value
Depreciation has been charged on the shop fittings ($15 000 - $12 000 = $3 000). [1] This reflects the wear and tear, usage, and ageing of the asset over the year. [1]
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