PREPARATION OF FINANCIAL STATEMENTS

EXAMPLE 1
Trial Balance for Julia year ending 31/07/01 is given below. Prepare income statement &
Balance Sheet from this data as on 31st July 2001.
Dr Cr
$ $
Purchases 42,370
Sales 95,800
Stock (01/08/00) 3,050
Returns 3,000 4,500
Discounts 1,250 1,300
Drawings 5,200
Equipment 18,000
Vans 8,000
Accumulated dep (Van) 2,000
Wages and salaries 18,750
Motoring expenses 2,575
Provision for doubtful debts 70
Debtors and Creditors 2,010 4,405
Capital 18,590
Heat and light 1,340
Sundry expenses 1,000
Land and buildings 50,000
Accumulated dep (Building) 10.000
Loan 20,000
Bad debts 120
156,665 156,665
Adjustments:
1) Stock (31/07/01) $1,900. The net realizable value of the inventory is $2,500.
2) Accrued motor expenses $500
3) Prepaid wages $200
4) A customer got bankrupt and $200 will not to be received. General provision of 5%
needs to be created on remaining debtors.
5) Buildings are depreciated 10% per annum on straight line basis whereas Vans are
depreciated at 20 % diminishing balance method.

Julia
 Income Statement

For the year ended 31st July 2001

Details $ $
Sales Less: Return inwards(95,800 – 3,000) 92,800
Less Cost of Sales :
Opening Inventory 3,050
+ Purchases Less: Return outwards (42,370 – 4,500) 37,870
-Closing Stock (1,900) (39,020)
Gross Profit 53,780
Add: Other Incomes
Discount received 1,300 1,300
Less: Expenses :
Wages & Salaries (18750 - 200) 18,550
Motoring expenses (2575 + 500) 3,075
Heating & lighting 1,340
Discount allowed 1,250
Sundry expenses 1,000
Debtors expenses 340
Depreciation (Building) 5,000
(31,755)
Depreciation (Van) 1,200
Net Profit 23,325

Julia
 Balance sheet

As on 31st July 2001

Assets £ £
Non-Current Assets :
Land & Building (Premises) 35,000
Equipment 18,000
Motor Vehicles 4,800 57,800
Current Assets :
Closing Inventory 1,900
Trade Receivables (Debtors) 1,720
Prepaid wages 200 3,820
Total Assets 61,620
Liabilities and Capital
Non-Current Liabilities:
Loans 20,000 20,000
Current Liabilities :
Trade Payables (CREDITORS) 4,405
Accrued motor expenses 500 4,905
Capital:
Opening balance 18,590
+Net Profit 23,325
- Drawings (5,200) 36,715
Total Liabilities and Capital 61,620
Bad debts and provision

INCOME STATEMENT ($) BALANCE SHEET ($)

OLD BAD DEBTS 120 DEBTORS( IN TRAIL BALANCE) 2010
(IN TB)
+NEW BAD DEBTS 200 - NEW BAD DEBTS (200)
( IN ADJ)
+ NEW PROVISION (IN ADJ) 90 - NEW PROVISION (90)
- OLD PROVISION (70)
(IN TB)
TOTAL DEBTOR EXPENSES 340 CLOSING DEBTORS 1720

NEW PROVISION = DEBTORS (IN TRAIL) - NEW BAD DEBTS = NET DEBTORS X %age
2010 - 200 = 1810 x 5% = 90 approximately.

Depreciation and NBV of Non-Current Assets

Assets Land & Building ($) Vans ($)

Cost 50000 8000
Accumulated (10000) (2000)
Depreciation
NBV (at start) 40000 6000
Depreciation 50,000 x 10 % 6000 X 20% =
for the year = (5,000) (1200)
NBV (at end) 35000 4800

EXAMPLE 2
The following trial balance was extracted from the books of Babar on 30 April 2013. Prepare
his income statement for the year ended 30 April 2013, and a balance sheet as at that date.

Dr Cr
$ $
Long term Loan 1,000
Sales 18,600
Purchases 11,556
Stock 1 May 2012 3,776
Carriage outwards 326
Carriage inwards 234
Returns inwards 440
Returns outwards 355
Salaries and wages 2,447
Motor expenses 664
Rent 576
Bad debts 1,202
Motor vehicles 2,400
Accumulated dep (MV) 400
Fixtures and fittings 600
Accumulated dep (FF) 100
Debtors 4,577
Creditors 3,045
Provision for debtors 150
Bank 4,526
Cash in hand 120
Drawings 2,050
Capital 11,844
35,494 35,494

1) Stock at 30 April 2013 was $4,998

2) Prepaid rent $100
3) Outstanding wages $200
4) Further bad debts amounted to $100. Create provision for doubtful debts 4% on
remaining debtors.
5) Provide depreciation on furniture 20 % straight line method and vehicles 10% reducing
balance method

Babar
 Income Statement

For the year ended 30th April 2013

Details $ $
Sales Less: Return inwards (18,600 – 440) 18,160
Less Cost of Sales :
Opening Inventory 3,776
+ Purchases Less: Return outwards (11,556 – 355) 11,201
-Closing Stock (4,998)
+Direct expenses (Carriage Inward) 234 (10,213)

Gross Profit 7,947

Less: Expenses :
Salaries & Wages (2447 + 200) 2,647
Rent (576 – 100) 476
Carriage out 326
Motor expenses 664
Debtors expenses 1,331
Depreciation (FF) 120
(5,764)
Depreciation (Vehicles) 200
Net Profit 2,183
 Babar

Balance Sheet

As on 30th April 2013

Assets $ $
Non-Current Assets :
Motor Vehicles 1,800
Fixtures & Fittings 380 2,180
Current Assets :
Closing Inventory 4,998
Trade Receivables/Debtors 4,298
Bank 4,526
Cash 120
100 14,042
Prepaid rent
Total Assets 16,222
Liabilities and Capital
Non-Current Liabilities:
Long term loans 1,000 1,000
Current Liabilities :
Trade Payables/ Creditors 3,045
Outstanding wages 200 3,245
Capital:
Opening balance 11,844
+Net Profit 2,183
- Drawings (2,050)
11,977
Total Liabilities and Capital 16,222

Bad debts and provision

INCOME STATEMENT ($) BALANCE SHEET ($)
OLD BAD DEBTS 1202 DEBTORS( IN TRAIL BALANCE) 4577
(IN TB)
+NEW BAD DEBTS 100 - NEW BAD DEBTS (100)
( IN ADJ)
+ NEW PROVISION (IN ADJ) 179 - NEW PROVISION (179)
- OLD PROVISION (150)
(IN TB)
TOTAL DEBTOR EXPENSES 1331 CLOSING DEBTORS 4298

NEW PROVISION = DEBTORS (IN TRAIL) - NEW BAD DEBTS = NET DEBTORS X %age
4577 - 100 = 4477 x 4% = 179 approximately.

Depreciation and NBV of Non-Current Assets

Assets Furniture & Fixtures Vehicles ($)

($)
Cost 600 2400
Accumulated (100) (400)
Depreciation
NBV (at start) 500 2000
Depreciation 600 x 20 % 2000 x 10% =
for the year = (120) (200)
NBV (at end) 380 1800

SLM = PROVIDE DEP ON COST

RBM = PROVIDE DEP ON NBV AT START

Example 3
From the following trial balance of Ghalib draw up a trading and profit and loss account for
the year ended 30 September 2012, and a balance sheet as at that date.

Dr Cr
$ $
Short term loan 2,000
Stock 1 October 2011 2,368
Carriage outwards 200
Carriage inwards 310
Returns inwards 205
Returns outwards 322
Purchases 11,874
Sales 18,600
Salaries and wages 3,862
Rent 304
Insurance 78
Motor expenses 664
Office expenses 216
Lighting and heating expenses 166
Bad debts 314
Provision for doubtful debts 20
Premises 5,000
Motor vehicles 1,800
Accumulated dep (MV) 180
Fixtures and fittings 350
Accumulated depreciation (FF) 50
Debtors 3,896
Creditors 1,731
Bank 732
Drawings 1,200
Capital 10,636
33,539 33,539

1) Stock at 30 September 2012 was £2,946.

2) Insurance paid in advance $ 50
3) Salaries payable $200
4) Provision for doubtful debts has been increased by $ 10.
5) The UEL of furniture was 7 years. Provide depreciation on furniture based upon straight
line basis. MV is depreciated 10% reducing balance method.
 Ghalib
Trading and profit & loss account

For the year ended 30th September 2012

Details $ $
Sales Less: Return inwards(18,600 – 205) 18,395
Less Cost of Sales :
Opening Inventory 2,368
+ Purchases Less: Return outwards (11,874 - 322) 11,552
-Closing Stock (2,946)
Carriage inward 310 (11,284)

Gross Profit 7,111

Less: Expenses :
Salaries & Wages (3862 + 200) 4,062
Rent 304
Insurance (78 – 50) 28
Heating & lighting 166
Motor expenses 664
Office expenses 216
Carriage out 200
Debtors expenses 324
Depreciation (Furniture) 50 (6,176)
Depreciation (MV) 162
Net Profit 935
 Ghalib

Balance Sheet

As on 30th September 2012

Assets $ $
Non-Current Assets :
Premises 5,000
Motor Vehicles 1,458
Fixtures & Fittings 250 6,708
Current Assets :
Closing Inventory 2,946
Trade Receivables/Debtors 3,866
Bank 732
Prepaid insurance 50 7,594
Total Assets 14,302
Liabilities and Capital
Current Liabilities :
Trade Payables/ Creditors 1,731
Short term loan 2,000
Salaries payable 200 3,931
Capital:
Opening balance 10,636
+Net Profit 935
- Drawings (1,200) 10,371
Total Liabilities and Capital 14,302
Bad debts and provision

INCOME STATEMENT ($) BALANCE SHEET ($)

OLD BAD DEBTS 314 DEBTORS( IN TRAIL BALANCE) 3896
(IN TB)
+NEW BAD DEBTS 0 - NEW BAD DEBTS 0
( IN ADJ)
+ NEW PROVISION (IN ADJ) 30 - NEW PROVISION (30)
- OLD PROVISION (20)
(IN TB)
TOTAL DEBTOR EXPENSES 324 CLOSING DEBTORS 3866

NEW PROVISION = Old provision was $20 and new provision was increased by $10. It means
that new provision will be $30.

Depreciation and NBV of Non-Current Assets

Assets Furniture & Fixtures Vehicles ($)

($)
Cost 350 1800
Accumulated (50) (180)
Depreciation
NBV (at start) 300 1620
Depreciation 350/7 = (50) 1620 X 10 % =
for the year (162)
NBV (at end) 250 1458
Example 4
Trail Balance for Karol, year ending 31/12/01. Prepare Trading and Profit & Loss Account
and Balance Sheet from this data

Dr Cr
$ $
Purchases 35,200
Sales 75,800
Stock (01/01/01) 6,570
Returns in 800
Returns out 200
Discount allowed 400
Discount received 1,200
Drawings 12,000
Land & Building 75,000
Accumulated dep (LB) 6,000
Office furniture 15,000
Accumulated dep (FUR) 1,500
Wages and salaries 18,000
Bad debts 200
Advertising 2,420
Bank 4,250
Cash 7,670
Debtors 4,710
Creditors 4,520
Provision for debtors 70
Capital 52,930
Short term Loan 40,000
182,220 182,220

1) Stock at 31st December 2001 was £5,000.

2) Advertising cost paid in advance $ 50
3) Salaries outstanding $200
4) Further bad debts $50. Provision for doubtful debts has decreased by $ 30 in the current
year.
5) Provide depreciation on land & building based upon straight line basis. The UEL is 50
years. Furniture is depreciated 10% reducing balance method.
 Karol
Income Statement

For the year ended 31st December 2001

Details $ $
Sales Less: Return inwards(75,800 – 800) 75,000
Less Cost of Sales :
Opening Stock 6,570
+ Purchases Less: Return outwards (35,200 – 200) 35,000
-Closing Stock (5000) (36,570)

Gross Profit 38,430

Add: Other Incomes
Discount received 1,200 1,200
Less: Expenses :
Wages & Salaries (18000 + 200) 18,200
Debtors expenses 220
Advertising (2420 – 50) 2,370
Discount allowed 400
Depreciation (LB) 1,500
1,350 (24,040)
Depreciation (Furniture)
Net Profit 15,590
 Karol
Balance sheet
As on 31st December 2001

Assets £ £
Non-Current Assets :
Land & Building 67,500
Office Furniture 12,150
79,650
Current Assets :
Closing Stock 5,000
Trade Debtors 4,620
Bank 4,250
Cash 7,670
50 21,590
Prepaid advertisement
Total Assets 101,240
Liabilities and Capital
Current Liabilities :
Trade Creditors 4,520
Short term loan 40,000
Salaries payable 200 44,720
Capital:
Opening balance 52,930
+Net Profit 15,590
- Drawings (12,000) 56,520
Total Liabilities and Capital 101,240
Bad debts and provision

INCOME STATEMENT ($) BALANCE SHEET ($)

OLD BAD DEBTS 200 DEBTORS( IN TRAIL BALANCE) 4710
(IN TB)
+NEW BAD DEBTS 50 - NEW BAD DEBTS (50)
( IN ADJ)
+ NEW PROVISION (IN ADJ) 40 - NEW PROVISION (40)
- OLD PROVISION (70)
(IN TB)
TOTAL DEBTOR EXPENSES 220 CLOSING DEBTORS 4,620

NEW PROVISION = Old provision was $70 and new provision was decreased by $30. It means
that new provision will be $ 40.

Depreciation and NBV of Non-Current Assets

Assets Land & Building ($) Furniture ($)

Cost 75000 15000
Accumulated (6000) (1500)
Depreciation
NBV (at start) 69000 13500
Depreciation 75000 / 50 = (1500) 13500 x 10 % =
for the year (1350)
NBV (at end) 67500 12150