CAPITULO I: MARCO TEÓRICO
1.2. Análisis de las necesidades de formación
1.2.2. Análisis de la persona
1.2.2.1. Formación profesional
186 3.0 MAIN CONTENT
187
confusion about the accounting policy for depreciation with his old school friend who is now a member of the Institute of Chartered Accountants of Nigeria. He accepted his friend’s recommended policies for depreciation as follows:
Motor vehicles: 20% at cost
Equipment: 20% reducing balance
Furniture: Sum of the years’ digit based on 5 years useful life approximated to the nearest N’000
N’000 N’000 Purchases and Sales 254,810 401,400 Carriage outwards 2,850
Carriage inwards 760
Capital 49,675
Drawings 8,600
Cash at bank 4,220
Cash in hand 312 Accounts receivable 38,220
Accounts payable 16,300
Long-term bank loan 10,000
Inventory (1 July 2015) 72,410
Equipment 13,000
Furniture 10,000
Motor vehicle expenses 1,490 Sundry expenses 298
Rent 8,200
Office expenses 310
188 Wages and salaries 59,600
Insurance 745
Telephone charges 680
Returns 2,110 1,240
N478,615 N478,615 Additional information:
(i) Inventory as at 30 June 2016 amounted to N85,000,000. Goods supplied by Mr Okiemute’s bosom friend, Ajayi Plenty, to enable a smooth take off of Life Begins At Sixty was captured by PeeJay as opening inventory because it was the first batch of goods the business started its operations with.
(ii) Some employees took salaries advance relating to their next year’s salaries amounting to N350,000.
(iii)Rent owing N500,000
(iv) The business charges N80,000 of Mr Okiemute’s family’s telephone charges to the business.
(v) Part of the sundry expenses was income tax of N100,000 Mr Okiemute paid to the State Internal Revenue Service.
Required:
(a) Prepare the adjustment entries relevant to prepare a complete financial statement for the year.
(b) Prepare the statement of comprehensive income for the year ended 30 June 2016 (c) Prepare the statement of financial position as at 30th June, 2016
189 SOLUTION
(a)
Dr Capital A/c Cr N’000
Bal c/f 56,175 N56,175
N’000 Bal. b/f 49,675 Motor vehicle A/c (Wk 1) 6,500 N56,175 Bal. b/f N56,175 Dr Motor Vehicles A/c Cr N’000
Capital A/c 6,500 N6,500 Bal. b/f N6,500
N’000 Bal. c/f 6,500 N6,500
Dr Motor Vehicle Expenses A/c Cr N’000
Bal. b/f 1,490 N1,490
N’000 Drawings A/c 490 Profit or Loss A/c 1,000 N1,490 Dr Drawings A/c Cr N’000
Bal. b/f 8,600 Motor vehicle Expenses A/c 490 Telephone charges A/c 80 Income tax A/c (Note 1) 100 Salaries and wages A/c 20,000 N29,270 Bal. b/f N29,270
N’000
Bal. c/f 29,270 N29,270
Dr Income Tax A/c Cr N’000
Sundry expenses A/c 100 N100
N’000 Drawings A/c 100 N100
190
Dr Sundry Expenses A/c Cr N’000
Bal. b/f 298 N298
N’000 Income tax A/c 100 Profit or Loss A/c 198 N298
Dr Telephone Charges A/c Cr N’000
Bal. b/f 680 N680
N’000 Drawings A/c 80 Profit or Loss A/c 600 N680
Dr Salaries and Wages A/c Cr N’000
Bal. b/f 59,600 N59,600 Bal. b/f N350
N’000 Drawings A/c 20,000 Profit or Loss A/c 39,250 Bal. c/f (Note 2) 350 N59,600
Dr Purchases A/c Cr N’000
Bal. b/f 254,810 Inventory A/c (Note 3) 72,410 N327,220
N’000 Trading A/c 327,220 N327,220 Dr Inventory (Opening) A/c Cr N’000
Bal. b/f 72,410 N72,410
N’000 Purchases A/c 72,410 N72,410
Dr Rent A/c Cr N’000
Bal. b/f 8,200 Bal. c/f 500 N8,700
N’000 Profit or Loss A/c 8,700 N8,700 Bal. b/f N500
191
Dr Allowance for Depreciation A/c (Motor Vehicles) Cr N’000
Bal. c/f 1,300 N1,300
N’000 Profit or Loss A/c (Wk 2) 1,300 N1,300 Bal. b/f N1,300 Dr Allowance for Depreciation A/c (Equipment) Cr N’000
Bal. c/f 2,600 N2,600
N’000 Profit or Loss A/c (Wk 3) 2,600 N2,600 Bal. b/f N2,600 Dr Allowance for Depreciation A/c (Furniture) Cr N’000
Bal. c/f 3,333 N3,333
N’000 Profit or Loss A/c (Wk 4) 3,333 N3,333 Bal. b/f N3,333 Workings:
(1) Motor vehicles not accounted for:
Car N4,500,000
Truck N2,000,000 N6,500,000
These omitted vehicles are part of the capital contributed by the owner of the business and so must be added to the capital account.
(2) 20% x N6,500,000 = N1,300,000
(3) 20% x (N13,000,000 – N0) = N2,600,000, where N0 represents accumulated depreciation. Since there is no accumulated depreciation brought forward, the reducing balance at this time would produce an identical amount with straight line method.
(4) Sum of the years’ digit =
192 Where n = useful life
= 15
Depreciation for year 1 = x N10,000,000 = N3,333,333 Approximately: N3,333,000
Notes:
(1) A sole proprietorship form of business is not income taxable by the tax authority because it is not a taxable person at law. Only the owner, Mr Okiemute, is liable to tax and so such tax should be treated as drawings when paid by the firm. However, if Mr Okiemute had registered his business as a company, the tax would have been treated as a business tax to the extent of the amount not related to the personal tax liability of Mr Okiemute. The simple reason why a company rather than a sole trader pays tax is that the former is regarded as a person at law.
(2) This is the prepaid salaries and wages which is a current asset rather than an expense for the year.
(3) There is actually no opening inventory as this is a new business. Instead, the transaction represents purchases.
(b)
Life Begins At Sixty Ventures
Statement of Comprehensive Income for the year ended 30th June 2016 N’000 N’000
Sales 401,400
Less: Returns (2,110)
193
Net sales 399,290
Less: Cost of goods sold:
Opening inventory -0-
Add: Purchases 327,220 Less Returns (1,240)
Net purchases 325,980
Carriage inwards 760
Cost of goods available for sale 326,740 Less: Closing inventory (85,000)
Cost of goods sold (241,740)
157,550 Less: Expenses:
Carriage outwards 2,850
Motor vehicle expenses 1,000
Sundry expenses 198
Telephone charges 600
Salaries and wages 39,250
Rent 8,700
Depreciation: Motor vehicle 1,300
Equipment 2,600
Furniture 3,333
Office expenses 310
Insurance 745
(60,886)
Net Profit 96,664
194
195 (c)
Life Begins At Sixty Ventures
Statement of Financial Position as at 30th June, 2016 Non-current assets: Cost Dep NBV
N’000 N’000 N’000
Motor vehicles 6,500 (1,300) 5,200
Equipment 13,000 (2,600) 10,400
Furniture 10,000 (3,333) 6,667
29,500 (7,233) 22,267 Current Assets:
Inventories 85,000
Accounts receivable 38,220 Prepaid Salaries 350
Bank 4,220
Cash 312
128,102 Current Liabilities:
Accounts payable 16,300
Accrued rent 500
(16,800)
Net current assets 111,302
Total assets less current liabilities N133,569 Financed by:
Capital 56,175
Add: Net profit 96,664
196
152,839
Less: Drawings (29,270)
123,569 Long-term liabilities:
Long-term bank loan* 10,000
N133,569
Note: Alternatively, the long-term liabilities could be subtracted from the total assets less current liabilities (i.e. N133,569 – N10,000) to get a value of N123,569 for net assets.
4.0 CONCLUSION
.The preparation of the financial statements of sole proprietorships is usually more complex than many conventional textbooks present. Against this backdrop, this Unit adopted a case study scenario highlighting some real life decisions many small sole trader businesses grapple with especially in Nigeria.
5.0 SUMMARY
In this Unit, we have illustrated the preparation of statement of comprehensive income and statement of financial position of a more complex nature than those parts contained in Units 16 and 17. The illustration adopted a micro case study scenario to provide exemplars of some of the difficulties sole traders face in practice in their book-keeping process which ultimately affect their preparation of financial statements.
6.0 TUTOR-MARKED ASSIGNMENT
1. The information for Ogidigan Enterprises for the year ending 31st December 2015 is as follows
N’000 N’000
Purchases and Sales 85,010 139,835 Carriage outwards 2,850
197 Carriage inwards 805
Capital 68,000
Drawings 10,600 Cash at bank 18,720
Cash in hand 1,320
Accounts receivable 35,000
Accounts payable 16,300
Long-term bank loan 10,000
Inventory (30 Dec. 2014) 14,210 Land & building 34,800
Equipment 8,000
Furniture & fittings 7,200 Motor vehicles 10,600 Dep provision (1/1/2015):
- Building 8,000
- Equipment 3,000
- Motor vehicles 4,000
- Furniture & fittings 4,500 Sundry expenses 880
Motor running expenses 580
Office expenses 310
Wages and salaries 19,500
Insurance 540
Telephone charges 220
Returns 5,890 3,400
198 257,035 257,035 Additional information:
i. The book value of inventory as at 30 June 2016 amounted to N11,500,000. However, the inventory has an estimated net realisable value of N10,850,000.
ii. Drawings are made up of Cash of N9.2 million while the balance represents goods. . iii. Salaries and wages outstanding N500,000
iv. Sundry expenses prepaid is N1.2 million v. Depreciation is provided for as follows:
a. Building: straight-line basis for 20 years and this year marks the ninth anniversary of the building. (Hints: land and building is made of land N14.8 million
b. Equipment and furniture & fittings are depreciated on reducing balance basis at the rate of 8%. The equipment’s residual value is 10% of the asset cost.
c. Motor vehicles are depreciated on equal instalment basis at the rate of 20%
and the asset has a residual value of N600,000.
Required:
(a) Use journal to make the necessary adjusting entries.
(b) Prepare the statement of comprehensive income for the year ended 31st December, 2015
(c) Prepare the statement of financial position as at 31st December, 2015 7.0 REFERENCES/FURTHER READING
Gowthorpe, C. (2014). Business accounting and finance, 3rd edition, Australia: South Western Cengage Learning
Thomas, A. & Ward, A. M. (2012). Introduction to financial accounting, 7th edition, London: McGraw Hill Education
Wood, F. & Sangster, A. (2012). Frank Wood’s business accounting 1, Harlow, England:
Pearson Education Limited
199 UNIT 19
EXTENDED TRIAL BALANCE OF A SOLE PROPRIETORSHIP
CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content
3.1 Composition of Extended Trial Balance 3.2 Original trial balance
3.3 Adjustments 3.4 Income statement 3.5 Financial position 3.6 Illustrative Examples 4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment 7.0 References/Further Reading
1.0 INTRODUCTION
This Unit focuses on a worksheet which combines in a snapshot the trial balance, adjustments, statement of comprehensive income and the statement of financial position.
2.0 OBJECTIVES
At the end of this Unit, the student should be able to carry out adjustment entries through the adjusted trial balance and know how to perform the mechanics of adding and subtracting within the extended trial balance.
200 3.0 MAIN CONTENT