BAC4023 W10 - Preparation of Financial Statements EXAMPLE

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BAC4023 WEEK 10: FINANCIAL STATEMENTS EXAMPLE

The following trial balance was extracted from the ledger of Tom John, a sole trader, as at 31
May 2019 – the end of his financial year.

Tom John
Trial Balance as at 31 May 2019

Name of the Account Dr £ Cr £


Property, at cost 120,000
Equipment, at cost 80,000
Accumulated depreciation (as at 1 June 2018) on property 20,000
Accumulated depreciation (as at 1 June 2018) on equipment 38,000
Purchases 250,000
Sales 402,200
Inventory, as at 1 June 2018 50,000
Returns out 15,000
Wages and salaries 72,000
Irrecoverable debts 4,600
Loan interest 5,100
Other operating expenses 17,700
Trade payables 36,000
Trade receivables 38,000
Cash in hand 300
Bank Acc 1,300
Drawings 24,000
Allowance for receivables 500
17% long-term loan 30,000
Capital, as at 1 June 2018 121,300
663,000 663,000

The following additional information as at 31 May 2019 is available.

(a) Inventory as at the close of business has been valued at cost at £42,000.
(b) Wages and salaries need to be accrued by £800.
(c) Other operating expenses are prepaid by £300.
(d) The allowance for receivables is to be adjusted so that it is 2% of trade receivables.
(e) Depreciation for the year ended 31 May 2019 has still to be provided for as follows:
Property: 1.5% per annum using the straight-line method; and
Equipment: 25% per annum using the reducing balance method.

Required
Prepare Tom John's Income Statement for the year ended 31 May 2019 and his Statement
of Financial Position as at that date.
BAC4023 WEEK 10: FINANCIAL STATEMENTS EXAMPLE
BAC4023 WEEK 10: FINANCIAL STATEMENTS EXAMPLE

Workings
1- Irrecoverable debts £
Previous allowance
New allowance (SOFP)
Increase
Per trial balance
Income Statement

2- Depreciation
Property
Opening Acc Dep
Dep for the year
Closing Acc Dep (SOFP)
Equipment
Opening Acc Dep
Dep for the year
Closing Acc Dep (SOFP)

Total Dep charge in I/S

Tom John
Income Statement for the Year Ended 31 May 2019
£ £
Sales
Cost of sales:
Opening inventory
Purchases
Purchases returns

Closing inventory

Gross profit

Expenses:
Wages and salaries
Irrecoverable debts (W1)
Loan interest
Depreciation expense (W2)
Other operating expenses

Net profit for the year


BAC4023 WEEK 10: FINANCIAL STATEMENTS EXAMPLE

Tom John
Statement of Financial Position as at 31 May 2019
Accumulated Carrying
Cost depn. value
£ £ £
Non-current assets
Property
Equipment

Current assets
Inventory
Trade receivables (net of allowance for receivables)
Prepayments
Bank
Cash in hand

Total Assets

Capital
Balance at 1 June 2018
Net profit for the year

Drawings

Non-current liabilities
17% loan
Current liabilities
Trade payables
Accruals

Total Equity and Liabilities

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