IGCSE Accounting 906

Accounting Procedures for Sole Traders

Teacher’s Guide and Answer Keys

 Not for Sale or Re-production

IGCSE ACCOUNTING
© EDUSEEDS

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First published 2013

Second edition 2019

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Section 1 – Sole Traders

Lesson 1.1
Income Statement for Trading Businesses

1.
a.
Mo Frank
Trial Balance as at 31 Dec 2017
DR CR
$ $
Capital on 1 January 2017 49,000
Drawings 16,100
Fixtures & Fittings 7,600
Cash in Hand 280
Purchases 222,020
Sales 304,320
Purchase Returns 1,580
Opening Inventory 40,300
Motor Vehicle 11,500
Wages 26,940
Rent & Rates 7,180
Water & Light 2,340
Cash at Bank 15,380
Sundry Expenses 3,960
Trade Receivables 15,360
Trade Payables 19,200
Motor Vehicle Expenses 7,380
Discount Received 2,240

376,340 376,340

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b.
Mo Frank
Income Statement for the year ended 31 December 2017
Sales 304,320
Cost of Sales
Opening Inventory 40,300
Purchases 222,020
Less: Purchase Returns (1,580) 220,440
260,740
Less: Closing Inventory (29,540) (231,200)
Gross Profit 73,120
Add: Discount Received 2,240
75,360
Expenses
Wages 26,940
Rent & Rates 7,180
Water & Light 2,340
Sundry Expenses 3,960
Motor Vehicle Expenses 7,380 (47,800)
Profit for the Year 27,560

Mo Frank
Income Statement for the year ended 31 Dec 2017
$ $ $
Opening Inventory 40,300 Sales 304,320
Purchases 222,020
Less: Purchase
Returns 1,580 220,440
260,740
Less: Closing Inventory 29,540
Cost of goods sold 231,200
Gross Profit c/d 73,120
304,320 304,320
Gross Profit
Wages 26,940 b/d 73,120
Discount
Rent & Rates 7,180 received 2,240
Water & Light 2,340
Sundry Expenses 3,960
Motor Vehicle
Expenses 7,380
Net Profit c/d 27,560
75,360 75,360

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c.
Mo Frank
Statement of Financial Position as at 31 December 2017
Non-Current Assets
Fixtures & Fittings 7,600
Motor Vehicles 11,500

Current Assets
Inventory 29,540
Trade Receivables 15,360
Cash 280
Bank 15,380
79,660

Capital & Liabilities

Opening Capital 49,000
Add: Profit for the Year 27,560
Less: Drawings (16,100)

Current Liabilities
Trade Payables 19,200
79,660

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2.
Russell
Income Statement for the year ended 31 December 2017
Sales 480,000
Cost of Sales
Opening Inventory 60,000
Purchases 160,000
Less: Drawings (10,000)
Carriage Inwards 3,400 153,400
213,400
Less: Closing Inventory (90,000) 123,400
Gross Profit 356,600
Add: Discount Received 2,000
Interest Received 2,000

Expenses
Carriage Outwards 5,000
Wages & Salaries 54,000
General Expenses 12,000
Discount Allowed 1,900
Advertising Expenses 5,000
Bad Debts 1,800
Insurance 4,400 (84,100)
Profit for the Year 276,500

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Russell
Income Statement for the year ended 31st December, 2016
Opening stock 60,000 Sales 480,000
Purchases 160,000
Less: Drawings (10,000)
Carriage inward 3,400 153,400
213,400
Closing stock (90,000)
Gross profit 356,600

480,000 480,000

Carriage outward 5,000 Gross profit 356,600

Wages & Salaries 54,000 Interest received 2,000
General expenses 12,000 Discount Received 2,000
Discount Allowed 1,900
Advertising Expense 5,000
Bad debts 1,800
Insurance 4,400
Profit for the Year 276,500
360,600 360,600

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Lesson 1.2
Income Statement for Service Businesses

1.
Conspire Serviced Apartments
Income Statement for the year ended 31 December 2017
Revenue 200,000
Revenue from Restaurant 52,000
Catering Revenue 13,500
Service Revenue 35,000
300,500
Expenses
Laundry Expenses 50,700
Insurance 30,000
Discount Allowed 3,400
Advertising Expenses 26,200
Transportation Expenses 17,000
Commission Paid 20,000
Electricity 45,100
Wages & Salary 100,300 (292,700)
Profit for the year 7,800

Conspire Serviced Apartments

Income Statement for the year ended 31 December 2017
Expenses Revenue 200,000
Laundry Expenses 50,700 Revenue from Restaurant 52,500
Insurance 30,000 Catering Revenue 13,500
Discount Allowed 3,400 Service Revenue 35,000
Advertising Expenses 26,200
Transportation Expenses 17,000
Commission Paid 20,000
Electricity 45,100
Wages & Salary 100,300
Profit for the year 7,800
300,500 300,500

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2.
Xavier
Income Statement for the year ended 31 May 2017
Service Revenue 15,500
Other Income 5,000
20,500
Expenses
Miscellaneous Expenses 300
Stationery 500
Travel Expenses 2,000
Salaries 4,000
Telephone Expenses 200 (7,000)
Profit for the Year 13,500

Xavier
Income Statement for the year ended 31 May 2017
Expenses Service Revenue 15,500
Miscellaneous Expenses 300 Other Income 5,000
Stationery 500
Travel Expenses 2,000
Salaries 4,000
Telephone Expenses 200
Profit for the Year 13,500
20,500 20,500

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Lesson 1.3
Statement of Financial Position

1.
Russell
Statement of Financial Position as at 31 December 2016
Non-Current Asset
Machinery 100,000
Premises 170,000
Fixtures & Fittings 36,000
306,000
Current Assets
Inventory 90,000
Bank 22,000
Trade Receivables 150,000
568,000

Capital
Opening Capital 161,500
Add: Profit for the Year 276,500
Less: Drawings (10,000)
428,000
Liabilities
Current Liabilities
Trade Receivables 40,000

Non-Current Liabilities
Bank Loan 100,000
568,000

NOTE:
For the Horizontal Format, all assets will be on the left, capital and liabilities
will be on the right

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2.
Killarney
Statement of Financial Position as at 30 June 2018
Non-Current Asset
Machinery 80,000
Fixtures & Fittings 30,000
Motor Vehicle 15,000
125,000
Current Asset
Inventory 12,000
Trade Receivables 9,000
Cash 200
146,200
Capital & Liabilities
Capital
Opening Capital 140,000
Less: Loss of the Year (11,500)
Less: Drawings (9,000)

Current Liabilities
Trade Payables 12,000
Bank Overdraft 4,700

Non-Current Liabilities
Long Term Loan 10,000
146,200

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Section 1 Review

Jackson
Income Statement for the year ended 30 September 2017
Sales 82,000
Cost of Sales
Opening Inventory 18,600
Purchases 70,100
Add: Carriage Inwards 400 70,500
89,100
Less: Closing Inventory 20,100 (69,000)
Gross Profit 13,000
Add: Other Income
Rent Received 210
Expenses
Machinery Expenses 1,500
Insurance 390
Sundry Expenses 340
Salary 10,300
Rates 1,200
Loan Interest 500 (14,230)
Loss for the Year 1,020

Jackson
Statement of Financial Position as at 30 September 2017
Non-Current Asset
Machinery 30,000
Equipment 4,000
34,000
Current Asset
Trade Receivables 14,000
Inventory 20,100
Bank 1,980
70,080
Capital and Liabilities
Capital 54,400
Less: Loss for the year (1,020)
Less: Drawings (1,300)

Non-Current Liabilities
Bank Loan 10,000

Current Liabilities
Trade Payables 8,000
70,080

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Section 2 – Financial Statements with Adjustments

Lesson 2.1
Accruals & Prepayments

1.
Johnny Kameo
Commission Received Account

01.09.16 Bal b/d 280 05.09.16 Bank 280

31.08.17 Inc.Stmnt 608 03.05.17 Bank 312
31.08.17 Bal c/d 296
888 888
01.09.17 Bal b/d 296

2.
Jomer Steven
Income Statement for the year ended 30 November 2016
Sales 100,000
Cost of Sales
Opening Inventory 12,000
Purchases 66,000
Less: Purchase Returns (4,000)
74,000
Less: Closing Inventory (9,000) (65,000)
Gross Profit 35,000
Less: Expenses
Utilities (4250 – 250) 4,000
Salaries 6,000
General Expenses 1,000
Motor Expenses (2,600 + 400) 3,000
Rent 5,000 (19,000)
Profit for the Year 16,000

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3.
Clint
Statement of Financial Position for the year ended 31 October 2017
Sales 350,000
Cost of Sales
Opening Inventory 20,000
Purchases 280,000
Less: Purchase Returns (10,000)
Add: Carriage Inwards 5,000 275,000
295,000
Less: Closing Inventory (24,000) 271,000
Gross Profit 79,000
Add: Other Income
Rent Received (5,500+500) 6,000
Discount Received 4,100
Expenses
General Expenses 12,200
Rates & Insurance (5,490-400) 5,090
Repair Expenses 3,870
Salaries (41,000+3,500) 44,500
Machinery Expenses 2,940
Bank Charges 790 (69,390)
Profit for the Year 19,710

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Clint
Statement of Financial Position as at 31 October 2017
Non-Current Asset
Premises 80,000
Equipment 14,000
Machinery 9,500
103,500
Current Assets
Trade Receivables 29,100
Inventory 24,000
Other Receivables – Accrued Rent Received 500
Prepaid Insurance 400
157,500
Capital & Liabilities
Opening Capital 110,000
Add: Profit for the Year 19,710
Less: Drawings (17,000)

Current Liabilities
Trade Payables 23,300
Bank Overdraft 17,200
Other Payables – Accrued Salary 3,500
Bank Charges 790
157,500

Lesson 2.2
Depreciation

1.
a.
i.
Peter
Machinery Account
23.06.16 Tractors Ltd 48,000 31.12.16 Bal c/d 48,000
48,000 48,000
01.01.17 Bal b/d 48,000 18.05.17 Disposal 24,000
18.05.17 Bank 28,000 31.12.17 Bal c/d 52,000

76,000 76,000
01.01.18 Bal b/d 52,000

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ii.
Peter
Provision for Depreciation Account
31.12.16 Bal c/d 7,200 31.12.16 Income statement 7,200
(15%x 48,000)
7,200 7,200
18.05.17 Disposal 3,600 01.01.17 Bal b/d 7,200
Dec 31 Bal c/d 10,860 31.12.17 Income statement 7,260
(15%x28,000) +
15%x (24,000-3,600)
14,460 14,460
01.01.18 Bal b/d 10,860

b.
Disposal Account
18.05.17 Machinery 24,000 18.05.17 Prov for 3,600
Depreciation
Cash 17,500
31.12.17 Inc Stmnt – Loss on 2,900
Disposal
24,000 24,000

2.
John Creasy
Income Statement for the year ended 31 December 2018
Revenue 102,000
Expenses
Miscellaneous Expenses 11,550
Rates & Insurance (11,400-320) 11,080
Salaries 42,500
Machinery Expenses 3,650
Loan Interest (300+300) 600
Bank Charges 140
Depreciation – Equipment (9,500x10%) 950
Machinery [(28,000-5,600) x 20%] 4,480 (74,950)

Profit for the Year 27,050

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John Creasy
Statement of Financial Position as at 31 December 2018
Non-Current Assets Cost Acc Depn. NBV
Premises 55,000 0 55,000
Equipment 9,500 1,900 7,600
Machinery 28,000 10,080 17,920
92,500 11,980 80,520
Current Assets
Trade Receivables 7,800
Other Receivables – Rates & Ins Prep. 320
88,640
Capital & Liabilities
Opening Capital 68,000
Add: Profit for the Year 27,050
Less: Drawings (18,600)
76,450
Non-Current Liability
Loan – SS Trading 10,000

Current Liabilities
Trade Payables 590
Bank Overdraft 1,160
Other Payables – Bank Charges 140
Loan Interest 300
88,640

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3.
Jacob
Income Statement for the year ended 31 May 2017
Sales 78,000
Less: Sales Returns (2,000)
76,000
Cost of Sales
Opening Inventory 4,800
Purchases 33,000
Less: Purchase Returns (1,300)
Less: Drawings of Inventory (600) 31,100
35,900
Less; Closing Inventory (7,000) (28,900)
Gross Profit 47,100
Add: Other Income
Discount Received 700
Interest Income 900
Expenses
Loan Interest 1,500
General Expenses 2,800
Salaries 28,000
Advertising Expense 5,500
Rent 6,000
Utilities 4,000
Depreciation
Machinery (50,000-12,000) x 10% 3,800
Fix & Fitts (26,000-22,000) 4,000 (55,600)
Loss for the Year 6,900

Lesson 2.3
Bad Debts and Provision for Doubtful Debts

1.
Marvin’s Account
01.01.17 Bal b/d 600 31.12.17 Bad Debt 600
600 600

Jacky’s Account
01.01.17 Bal b/d 5,900 31.12.17 Bank 5,000
Bad Debts 900
5,900 5,900

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Constantine’s Account
01.01.17 Bal b/d 700 31.12.17 Bad Debts 700
700 700

Bad Debts Account

31.12.17 Marvin 600 31.12.17 Inc Stmnt 2,200
Jacky 900
Constantine 700
2,200 2,200

Provision for Doubtful Debts Account

31.12.17 Bal c/d 716 31.12.17 Inc Stmnt 716
716 716

01.01.18 Bal b/d 716

2.
a.
Michael Rodd
Income Statement for the year ended 31 March 2017
Revenue 45,000
Commission Received 2,450
Provision for doubtful debts [ 300 - (4,300 x 5%) ] 85
47,535
Expenses
Motor Expense 2,850
Insurance (4,500 – 900) 3,600
Salaries 26,100
Maintenance Expense 2,550
Bad Debts 300
General Expense 330
Depreciation – Equipment (12,000 – 10,900) 1,100
Motor Vehicle ( 18,000 – 16,000) 2,000 (38,830)
Profit for the Year 8,705

b. Current Asset
Trade Receivables 4,300
Less: Provision for doubtful debts (215)
4,085

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Section 2 Review

James
Income Statement for the year ended 31 December 2017
Sales 156,000
Less: Sales Returns (10,500)
145,500
Cost of Sales
Opening Inventory 12,500
Purchases 71,000
Less: Goods for own Use (2,250)
Add: Carriage Inwards 3,100 71,850
84,350
Less: Closing Inventory (15,600) (68,750)
Gross Profit 76,750
Add: Other Income
Discount Received 6,600
Reduction in Provision for Doubtful Debts 250
Expenses
Salaries (24,750 + 3,600) 28,350
Rent 7,800
Sundry Expense 7,050
Advertising (7,200 – 400) 6,800
Loan Interest (20,000 x5%) x 6/12 500
Bad Debt 5,250
Depreciation
M. Vehicles (70,000 – 20,000) x 15% 7,500
Equipment (40,000 x 10%) 4,000 (67,250)

Profit for the Year 16,350

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James
Statement of Financial Position as at 31 December 2017
Non-Current Assets Cost Acc Depn NBV
Motor Vehicle 70,000 27,500 42,500
Equipment 40,000 14,000 26,000
110,000 41,500 68,500
Current Assets
Inventory 15,600
Trade Receivables 18,750
Less: Provision for Doubtful Debts (750) 18,000
Other Receivables – Prepaid Advert 400
102,500

Capital & Liabilities

Opening Capital 40,000
Add: Profit for the Year 16,350
Less: Drawings (2,250+12,000) (14,250)

Non-Current Liabilities
Bank Loan 20,000

Current Liabilities
Trade Payables 19,300
Bank Overdraft 17,000
Other Payables (3,600+500) 4,100
102,500

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Specimen Answers to Past Year Questions (refer to Activity Book)

1. Accounting (0452), November 2013, Paper 1, Variant 1, Q.1 (c)

Answer: D

Explanation: Insurance prepaid (an expense) is an asset that must be deducted

from the Insurance balance. Since this deduction was not done, the expenses are
overcast. When expenses are overcast, the profit is undercast. Also, the
Insurance prepaid asset must be added to Current assets. Since this addition was
not done, the current assets are undercast.

2. Accounting (0452), June 2014, Paper 1, Variant 2, Q.1 (f)

Answer: A

Explanation: Rent owing as at 1 Jan 2013 means the Rent a/c has a credit
opening balance of $400. Rent paid for the year, $1700, means the Rent a/c has
a debit entry of $1700. Finally, the rent paid in advance (prepaid) as at 31 Dec
2013 means the Rent a/c must have a debit closing balance of $250.

The Rent account is:

Rent
31 Dec Bank 1,700 1 Jan Bal b/d 400
31 Dec Income Statement 1,050
31 Dec Bal c/d 250
1700 1700
1 Jan Bal b/d 250

Therefore, the amount payable for the year 2013 = $1050.

3. Accounting (0452), June 2014, Paper 1, Variant 2, Q.1 (g)

Answer: A

Explanation: A provision is made for doubtful debts to reduce the profit. This is
according to the Prudence principle. The provision for doubtful debt also assumes
that a small percentage of debts cannot be collected even though they are still
shown in the books. This is according to the Accruals principle.

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4. Accounting (0452), November 2013, Paper 1, Variant 3, Q.5 (a)

Answer:

Bad debt – amount owing that cannot be paid by the debtor

Provision for doubtful debt – an estimated amount a business may lose in a year
due to bad debts

Note – the keyword in explaining provision for doubtful debt is ‘estimate’

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Tests

Section 1 Test

1.
a.
Samuel
Income Statement for the year ended 30 June, 2017
Sales 71,250
Less: Sales returns (725)
70,525
Cost of Sales
Opening Inventory 3,900
Purchases 57,500
Less: Purchase Returns (1,235)
Add: Carriage Inwards 800 57,065
60,965
Less: Closing Inventory (4,200) 56,765
Gross Profit 13,760
Add: Other Income
Discount Received 200
Commission Revenue 1,475
Expenses
Discount Allowed 300
Insurance 650
Carriage Outwards 475
Stationery 375
Wages & Salaries 2,175
Rent 1,035 (5010)

Profit for the Year 10,425

(All entries, EXCEPT total figures, 1 mark each, =15 marks. Gross profit and
profit for the year 2 marks each, =4 marks. Total 19 marks)

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b.
Samuel
Statement of Financial Position as at 30 June 2017
Non-Current Assets
Machinery 30,000
Equipment 20,000
50,000
Current Assets
Trade Receivables 5,000
Bank 3,000
Inventory 4,200
62,200
Capital and Liabilities
Capital 34,775
Add: Profit for the year 10,425

Non-Current Liabilities
Bank Loan 15,000

Current Liabilities
Trade Payables 2,000
62,200

(1 mark for each entry, including profit for the year, = 8 marks. 2 marks for
correct capital calculation and 1 mark for the same total balance figure.
TOTAL 11 marks)

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Section 2 Test

1.
David
Income Statement for the year ended 30 April 2016
Sales 110,500
Less: Sales Returns (5,500)*
105,000
Cost of Sales
Opening Inventory 20,000
Purchases 55,000
Less: Purchase Returns (2,500)*
Add: Carriage Inwards 2,100* 54,600
74,600*
Less: Closing Inventory (15,000) 59,600
Gross Profit 45,400*
Add: Other Income
Interest Income 1,600*
Commission Income (2,000 – 440)* 1,560*
Expenses
Carriage Outwards 1,500
Salaries 10,500
**
Rates 3,200
Rent 17,400
Insurance (2,800 – 980)* 1,820*
Bad Debts 400*
Provision for Doubtful Debts 378**
Depreciation
Machinery 6,850**
Fixtures & Fittings 2,500** (44,548)
Profit for the Year 4012*

(* = 1 mark. Total 20 marks)

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David
Statement of Financial Position as at 30 April 2016
Non-Current Assets Cost Acc Depn NBV
Machinery 68,500 6,850 61,650*
Fixtures & Fittings 25,000 2,500 22,500*
93,500* 9,350* 84,150*
Current Assets
Trade Receivables 12,600
Less: Provision for Doubtful Debts (378) 12,222**
Inventory 15,000
Cash at Bank 26,000
Other Receivables – Prepaid Ins 980*
138,352

Capital and Liabilities

Opening Capital 137,500
Add: Profit for the Year 4,012
Less: Drawings (24,000)

Current Liabilities
Trade Payables 20,400
Other Payables – Prepaid Income 440*
138,352

(* = 1 mark. Total 9 marks.

1 mark for correct equal total balance = 10 marks)

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Module Test

1.
a. A
b. B
c. D
d. C
e. B
f. A
g. B
h. D
i. A
j. C
(10 marks)
2.
a.
Brian’s Account
01.07.17 Sales 100 31.07.17 Bank 80
30.04.18 Bad Debts 20
100 100
(1 mark for each entry. Total = 3 marks)

b.
Bad Debts Account
30.04.18 Brian 20 31.05.18 Income Statement 20
20 20
(1 mark for each entry. Total = 2 marks)

c.
Bad Debts Recovered Account
31.05.18 Income Statement 50 01.12.17 Bank 50
50 50
(1 mark for each entry. Total = 2 marks)

d.
Provision for Doubtful Debts Account
31.05.18 Bal c/d 150 01.06.17 Bal b/d 200
Income Statement 50
200 200
01.06.18 Bal b/d 150
(1 mark for each entry. Total = 4 marks)

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3.
a.
Zakary Manor
Income Statement for the year ended 31 January 2017
Sales 99,510
Cost of Sales
Opening Inventory 16,000
Purchases 62,000
Less: Purchase Returns (1,000)
Less: Goods for own use ** (580)
Add: Carriage Inwards 500 60,920
76,920
Less: Closing Inventory (4,100) 72,820
Gross Profit 26,690*
Add: Other Income
Discount Received 583

Expenses
Salary 12,000
Insurance (2,800 – 400) 2,400**
Advertising 1,200
Bad Debts 90
Rates (2,160 – 720) 1,440**
Provision for doubtful debts 130**
Depreciation – Mach (10% x 70,000) 7,000**
Eqpmt (15% x 40,300) 6,045** (30,305)

Loss for the Year 3,032**

(* = 1 mark. Total = 15 marks)

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b.
Zakary Manor
Statement of Financial Position as at 31 January 2017
Non-Current Assets Cost Acc Depn NBV
Machinery 70,000 7,000 63,000*
Equipment 40,300 6,045 34,255*
97,255*
Current Assets
Inventory 4,100
Trade Receivables 6,500
Less: Provision for doubtful debts (130)** 6,370*
Bank 3,602
Other Receivables 400*
111,727*

Capital and Liabilities

Opening Capital 112,640
Less: Loss for the Year (3,032)*
Less: Drawings (580+5,200+720)*** (6,500)*

Current Liabilities
Trade Payables 8,619
111,727*

(* = 1 mark. Total = 14 marks)

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Alternate Test

1.
a. Working capital is the total current assets minus total current liabilities.
(2 marks)

b. Inventory, Trade receivables, cash in hand, cash in bank, other receivables.

(Any 2, 1 mark each)

c. Cost – Accumulated Depreciation

(2 marks)

d. (Gross profit + Other Income) – Total expenses

(2 marks)

e. Cash drawings and drawings of inventory

(2 marks)

f. Trade payables and bank overdraft

(2 marks)

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2.
a.
Jeremiah
Income Statement for the year ended 31 August 2017
Sales 124,200
Less: Sales Returns ** (400)
123,800
Cost of Sales
Opening Inventory 24,020
Purchases 60,000
Less: Purchase Returns *** (550)
Add: Carriage Inwards 2,460 61,910
85,930
Less: Closing Inventory (18,320) 67,610
Gross Profit 56,190*
Add: Other Income
Discount Received * 6,000

Expenses
Salaries (10,000 + 3,000) ** 13,000
Misc. Expenses 1,680
Rent & Rates (5,200 – 360) ** 4,840
Discount Allowed* 5,080
Depreciation – Off Eqpmnt ( 10% x 1,200
12,000) **
Bad Debts 400 *
Provision for Doubtful Debts 290 ** (26,490)

Profit for the Year 35,700*

(* = 1 mark. Total = 18 marks)

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b.
Jeremiah
Statement of Financial Position as at 31 August 2017
Non-Current Assets Cost Acc Depn NBV
Premises 49,000 - 49,000*
Office Equipment 12,000 3,950 8,050*
57,050*
Current Assets
Inventory 18,320
Trade Receivables (6,200-400) 5,800*
Less: Provision for Doubtful Debts (290)* 5,510
Cash at Bank 9,800
Other Receivables – Rent & Rates 360*
91,040*
Capital and Liabilities
Opening Capital 45,000
Add: Profit for the Year 35,700*
Less: Drawings (7,560)

Non-Current Liabilities
Bank Loan 11,000

Current Liabilities
Trade Payables 3,900
Other Payables – Accrued Salary 3,000*
91,040*

(* = 1 mark, Total = 10 marks)

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