1.

The trial balance extract below belongs to M Cee, a sole proprietor

TRIAL BALANCE AS AT 31 December 2014

DR £ CR £

Sales 138,078

Purchases 82,350

Carriage 5,144

Drawings 7,800

Rent & Insurance 6622

Postage 3,000

Advertising 1,330

Salaries 26,420

Irrecoverable debts 877

Allowance for receivables 130

Trade Receivables 12,120

Trade Payables 6,471

Cash 177

Cash in Bank 1002

Inventory as @ 1 Jan 2014 11,927

Equipment at cost 58,000

Accumulated depreciation 19000

Capital 53,091

Total 216,770 216,770

The following information as at 31 December 2014 is also available.

 Rent accrued is £210

 Insurance has been prepaid by £880
 £2,210 of carriage represents carriage inwards on purchases
 Equipment is depreciated at 15% per annum using the straight-line method
 The allowance for receivables is to be increased by £40
  Closing inventory is valued at £13,550.

Required

a) Prepare a statement of or loss/income statement for the year ended 31 December 2014

[20 marks]

b) Prepare a statement of financial position/balance sheet as at 31 December 2014

[20 marks]

END OF QUESTIONS

Working 1 & 2:
Rent and Insurance
[Rent & insurance as per TB Add: Rent Accrued Less: Insurance prepaid]
(6,622 + 210) – 880 =5,952

Working 3:
Carriage as per TB= £5,144
If carriage inwards = £2,210
Carriage outwards = (5,144 -2,210) = £2,934

Working 4:
Straight-line depreciation 15% @ cost = (58,000 * 15/100) = £8700
Accumulated depreciation = (19,000 + 8,700) =27,700
CV = Cost – Accumulated depreciation (58,000 – 27,700) =30,300

Working 5:
Increase in allowance £40.00 is an expense to the business

Working 6:
Closing inventory £13,550

Working 7:
Purchases = (82,350 +2,210) =84,560
 MCee’s Income statement for the year ending 31 December 2014

DR £ CR £
Sales 138,078
Cost of goods:
Opening inventory 11,927
Add: purchases (W7) 84,560
Less: closing inventory (W6) (13,550) 82,937

Gross profit 55,141

Less Expenses:
Carriage outwards (W3) 2,934
Rent and Insurance (W1&2) 5,952
Postage 3,000
Advertising 1,330
Wages 26,420
Irrecoverable debt 877
Depreciation (W4) 8,700
Increase in allowance 40 (49,253)

Net profit 5,888

Statement of Financial Position (Balance sheet) as at 31 December 2014

Cost £ Acc dep. £ Carrying

Value £
Non-Current Asset
Equipment (W4) 58,000 27,700 30,300

Current Asset
Inventory (W6) 13,550
Trade receivables 12,120
Less: Allowance for receivables (170 ) 11,950
Prepayment 880
Cash 177
Bank 1,002 27,599

Less Current liabilities

Payables 6,471
Rent Accrual 210 6,681
Net Asset 51,178

Financed by:
Opening capital 53,090
Add: Net profit 5,888
Less Drawing (7,800)
51,178