Question

Arapeta Williams owns Southern Supplies Ltd, a small building supplies business. He asks you to assist in preparing his final accounts from the following trial balance for the period ended 31 March 2020.

	Debit	Credit
Cash	$7,000
Accounts Payable		$29,000
Accounts Receivable	$17,000
Advertising	$3,600
Capital (Opening)		$70,000
Capital Contributed		$28,500
Delivery Van	$20,000
Drawings	$24,000
Electricity	$3,100
Freight Inwards	$4,600
Fuel (Van) Expense	$2,500
General Expenses	$2,450
Interest Expense	$2,280
Interest Received		$130
Inventory (Opening)	$2,600
Loan from Southern Bank		$44,500
Purchases	$110,000
Rent Expense	$52,000
Sales Revenue		$177,500
Shop Fixtures	$65,500
A/D – Shop Fixtures		$14,000
Term Deposit (6 months)	$8,000
Wages - Delivery Driver	$18,000
Wages - General Manager	$21,000

After checking Arapeta’s accounts you find the following adjustments have not been made:

1. Depreciation for the year has not been calculated.
   1. A delivery van was purchased at the start of the year for $20,000. It has an estimated useful life of 8 years and will be depreciated using the diminishing balance method at 15%.
   2. The fixtures in the shop are depreciated using the straight-line method over 20 years. At the start of the year, accumulated depreciation of $14,000 and residual value of $9,500.
2. A $8,000 bill from the radio station for advertising was received on 30March and has not been entered into the trial balance. The bill has not been paid.
3. The delivery driver was not paid for 10 hours of overtime. His normal hourly wage is $20.00. Overtime is paid at time-and-a-half (1.5x) of normal wages.
4. The shop is rented for $48,000 per year. Rent Expense includes rent paid up until the end of April.
5. On 29 March, a customer made a deposit of $2,000 for goods that have not been delivered yet. This deposit has been included in Sales Revenue.
6. Inventory stocktake at balance date = $54,000

1. For the first five adjustments above, describe the adjustment to the accounting records that must be made.
2. Calculate the Cost of Goods Sold for the year
3. From your calculations above, prepare an Income Statement for the year ended 31 March 2020
4. From your calculations above, prepare a balance sheet as at 31 March 2020

Answer 1

1.

Valuation of Depreciation & Its Adjustment

Depreciation :

Value of Delivery Van: $20,000

Rate of Depreciation: 15%

Value of Depreciation: $ 20,000 *15%= $3,000

Adjustment:

Depreciation will be disclosed in Income statement & Value of Van will be shown in Balance sheet with its Net Value. (i.e. after deducting depreciation from the gross value)

2.

Valuation of Depreciation & Its Adjustment on Fixtures

Depreciation :

Value of Fixtures: $65,500

Residual Value: $ 9,500

Life : 20 Years

Value of Depreciation: Cost Value-Residual Value/ Life of the Assets

= 65,500-9500/20

=$ 2,800

Adjustment:

Depreciation will be disclosed in Income statement & Value of Fixtures will be shown in Balance sheet with its Net Value. (i.e. after deducting depreciation from the gross value)

3.

Advertising Bill of $ 8,000

Adjustment:

It is to be payable in the current year. Liability to pay such expenses will be disclosed under the head of Current Liabilities.

4.

Rent Exps & Its Adjustment

Rent In trial Balance: $ 52,000

Rent per year: $ 48,000

Prepaid Rent: $ 4,000

Adjustment:

Prepaid rent will be deducted from the rent amount and it will be disclosed under the head loans & advances in Current Assets. Rent is paid advance for 1 month of next year.

5.

Deposit of Goods

Adjustment:

Such Deposit will be deducted from Sales Revenue & will be added In Loans & Advances of Deposit.

Arapeta Williams owns Southern Supplies Ltd
Income Statement
For the year ended on March, 31,2020
Revenues
Sales	175500
Interest Earned	130	175630
Expenses
Cost of Goods Sold	58600
Depreciation Expenses	5800
Wages - Delivery Driver	18300
Wages - General Manager	21000
Rent Expenses	48000
Advertisement Expenses	11600
Electricity	3100
Freight Inwards	4600
Fuel (Van) Expense	2500
General Expenses	2450
Interest Expense	2280	178230
Income		-2600

Arapeta Williams owns Southern Supplies Ltd
Balance Sheet
As at march,31,2020
Assets
Current Assets:
Cash	7000
Accounts Receivable	17000
Prepaid Rent	4000
Term Deposit (6 months)	10000
Inventory	54000
Total Current Assets		92000
Non Current Assets:
Delivery Van	20000
Fixtures	65500	85500
Total Assets		177500
Liabilities
Liabilities:
Accounts Payable	37000
Loan from Southern Bank	44500
Acc. Depreciation	19800	101300
Stakeholder's Equity
Capital(Opening)	70000
Add: Capital Contributed	28500
Add: Income from Income Stmt	-2600
Less: Drawings	24000	71900
Total Liabilities		173200