Question

The books of Subuko traders in tea showed the following balances as at 31 March 2018:

Shs.

Opening stock of tea 100,000

Purchases – Tea 400,000

Salaries paid 80,000

Buildings 95,000

Cash in hand 2,000

Cash at bank 135,000

Rent, rates and council taxes 15,000

Insurance premium paid 3,000

Miscellaneous receipts 10,000

Sales 720,000

Discounts allowed 4,750

Bad debts 3,250

Building repairs 2,900

Miscellaneous expenses 8,700

Advertisement 20,000

Commission to sales manager 32,400

Furniture and fittings 35,000

Air conditioners 30,000

Sundry debtors 100,000

Sundry creditors    80,000

Loan on mortgage 70,000

Interest paid on the above    3,000

Prepaid expenses 4,000

Drawings 18,000

Bills payable (Current liability) 30,000

Bank charges 2,000

Legal charges 6,000

Motor vehicles 80,000

Travelling and conveyance 10,000

Capital 280,000

The following further information was obtained :

1. Closing stock was Shs.55,000.

2. Legal charges include Shs.5,000 for the cost of stamps and registration of a new building acquired during the year.

3. Purchases include 4000 kg tea valued at Shs.20,000, which was found totally spoilt. An insurance claim of Shs.15,000 has been accepted by the insurance company.

4. Travelling and conveyancing include proprietor’s personal travelling for which he is charged Shs.4, 800.

5. The sales manager is entitled to commission of 7.5% of the total sales. However any bad debts incurred during the year are deductible from such commission entitlements.

6. Debtors include:

7. Shs.10, 000 due from M & C0 (Creditors include Shs.18, 000 due to the same party).

8. Shs.5, 000 due from the sale of furniture.

9. Further bad debts of Shs.2, 000

10. Provision for bad debts is to be created at 2% of net amount outstanding from trade debtors.

11. Depreciation is chargeable as follows:

Buildings 2.5%

Furniture and Fittings 10%

Air conditioners 15%

Motor vehicles 20%

12. Miscellaneous receipts represent sales proceeds of furniture, whose written down value was Shs.12, 000.

13. Prepaid expenses include insurance premiums for the next year.

Required: Prepare a trading, profit and loss account for the year ended 31st March 2018 and a Balance Sheet as at that date.

Answer 1

DR                                          TRADING AND PROFIT OR LOSS ACCOUNT                                                           CR

Particulars	Amount	Particulars	Amount
Opening stock Purchases Gross profit c/d Salaries Rent,rates and council taxes Insurance           3000 Add: prepaid     3000 Discount Baddebt                  3250 Add: further BD     2000 Add:New provisi   1960 Repairs Miscellaneous expenses Advertisement Interest Bank charges Legal charges          6000 (-)Building stamp   5000 Travelling               10000 (-)personal travel   4800 Commission to sales manager Goods loss Depreciation      Building      Furniture      AC      Motor vehicle Due on sale of furniture Net profit c/d	100000 400000 295000 795000 80000 15000 6000 4750 7210 2900 8700 20000 3000 2000 1000 5200 48750 5000 2375 3500 4500 16000 5000 57115 298000	Sales Closing stock Goods loss Gross profit b/d Profit on sale of furniture Net profit b/d	720000 55000 20000 795000 295000 3000 298000 57115

BALANCE SHEET

Liabilities	Amount	Assets	Amount
Creditors                     80000 (-)Due from M&Co    10000 Mortgage loan Bills payable Capital                       280000 Add: Netprofit           57115 Less : drawings          18000 Less : Personal travel   4800 Managers Commission	70000 70000 30000 314315 16350 500665	Building                           95000 Less : Depreciation         2375 Add : Stamp                     5000 Cash Bank Furniture                         35000 Less : Depreciation       3500 Less : sale                       12000 AC                                   30000 Less : Depreciation         4500 Debtors                           100000 (-)Further baddebt          2000 (-)new provision              1960 (-) due to m&co             10000 Prepaid exp               4000 (-)insurance               3000 Motor vehicle less depreciation Closing stock Insurance claim	97625 2000 135000 19500 25500 86040 1000 64000 55000 15000 500665