Dauda, a retailer, does not keep proper books of account. The following were balances in his books on January 2013. Premises 70,000 Equipment 8,200 Vehicles...
Question 1 Report
Dauda, a retailer, does not keep proper books of account. The following were balances in his books on January 2013.
| Premises | 70,000 |
| Equipment | 8,200 |
| Vehicles | 5,100 |
| Inventory | 9,500 |
| Accounts receivable | 150 |
| Bank | 1400 |
The summary of his bank statement for the twelve months period from 1st January 2013 to 31st December 2013 is as follows:
| Money paid to the bank: | 96,500 |
| Shop takings | 1,400 |
| Received from debtors | 8,000 |
| Payments made by cheque | |
| Inventory purchased | 70,500 |
| Delivery Van | 6,200 |
| Maintenance of vehicle | 1,020 |
| Electricity and water | 940 |
| Store boys' wages | 5,260 |
| Miscellaneous expenses | 962 |
Additional information;
i. Dauda paid all shop takings for the year into the bank apart from monthly drawings of D500 and miscellaneous expenses of D408.
ii. He was owing, D7, 600 to supplies for inventory bought.
iii. The accounts receivable is to be treated as bad debts.
iv. Inventory was valued at D13,620
v. Depreciation for the year was calculated as D720 for equipment and D1,000 for vehicles.
You are required to prepare:
(a) Statement of Affairs as at 01/01/13
(b) Income Statement for the year ended 31st December 2013
Answer Details
Approach. Dauda keeps single-entry records, so we find opening capital from a Statement of Affairs, reconstruct total sales (takings withheld for drawings and cash expenses must be added back), derive purchases from cash paid plus amounts still owing, then draw up the Income Statement. Assumptions used are stated in the notes.
(a) Statement of Affairs as at 1st January 2013
| Assets | D |
|---|---|
| Premises | 70,000 |
| Equipment | 8,200 |
| Vehicles | 5,100 |
| Inventory | 9,500 |
| Accounts receivable | 150 |
| Bank | 1,400 |
| Opening capital | 94,350 |
Workings
- Total shop takings (cash sales) = banked 96,500 + drawings withheld (500 x 12 = 6,000) + cash miscellaneous 408 = 102,908.
- Add collection from debtors banked 8,000 (credit sales). Total sales = 102,908 + 8,000 = 110,908.
- Purchases = paid by cheque 70,500 + still owing to suppliers 7,600 = 78,100.
- Miscellaneous expenses = 962 (cheque) + 408 (cash) = 1,370.
- Bad debts = opening receivable 150 (written off).
- Delivery van 6,200 is capital (added to vehicles), not an expense.
(b) Income Statement for the year ended 31st December 2013
| Particulars | D | D |
|---|---|---|
| Sales | 110,908 | |
| Opening inventory | 9,500 | |
| Add Purchases | 78,100 | |
| Goods available | 87,600 | |
| Less Closing inventory | (13,620) | (73,980) |
| Gross profit | 36,928 | |
| Less expenses: | ||
| Store boys' wages | 5,260 | |
| Maintenance of vehicle | 1,020 | |
| Electricity and water | 940 | |
| Miscellaneous expenses | 1,370 | |
| Bad debts | 150 | |
| Depreciation - equipment | 720 | |
| Depreciation - vehicles | 1,000 | (10,460) |
| Net profit | 26,468 |
Notes. The question data is partly garbled; the figures above rest on the assumptions that (i) monthly drawings of D500 run for 12 months, (ii) the D8,000 collected from debtors represents credit sales fully received in the year, and (iii) the delivery van is capital expenditure. Different assumptions would shift the sales and net-profit figures.
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