FINAL ACCOUNTS

❖ Statement of profit or loss or Statement of comprehensive income

❖ Statement of Financial Position (Balance Sheet)
Formats
Business Name
Statement of Financial Position
As on ________________
Assets:
Non-Current Assets:
Land --
Building --
Machine --
Intangible Assets (e.g Software) --
Current Assets:
Stock --
Debtors --

Cash and Bank --

Total Assets --
Capital and Liabilities:
Capital --
Add: Net Profit --
Less: Drawings (--)
Non-Current Liabilities:
Long Terms Loans --
Current Liabilities:
Creditors --
Bank Overdraft --
Expenses payable --
Total Capital & Liabilities --

Non-Current Liabilities:
Liabilities which are payable after more than one year from balance sheet date
Current Liabilities:
Liabilities which are payable within one year from the balance sheet date

Page 1 of 35
 Business Name
Statement of profit or loss
For the year ended -----------
Sales --
Cost of Sales (note 1) (--)
Gross Profit --
Other Income (note 2) --
Selling and administrative expenses (note 3) (--)
Financial charges (note 4) (--)
Net profit --
Notes:
(Note 1) Cost of Sales
Opening Stock --
Add Purchases --
Carriage Inwards --
Closing Stock (--)

(Note 2) Other Income

Dividend income --
Commission income --
Rent Income --

(Note 3) Selling and administrative expenses

Salaries --
Bad debts --
Depreciation --
Repair --

(Note 4) Financial charges

Interest expense --
Bank charges --

Important Points to remember:

1. Trial Balance contains Closing Balance of ledgers, unless any adjustment is required in an accounting head.
2. The amounts which are appearing in trial balance are after their debit credit effects in journal. Therefore,
figures appearing in the trial balance should be written only once according to their nature either in income
statement or in balance sheet.
3. The amounts which are in additional information should be recorded by making double entry.
4. administrative and selling expenses include all operating expenses other than interest and bank charges.

Page 2 of 35
 Accrual Concept

Incomes Expenses
Income are recorded when earned whether or not Expenses are recorded when they are incurred
amount is received whether or not amount is paid

Q.1 HERBERT
The following trial balance has been extracted from the ledger of Herbert, a sole trader, as at 31 May 2013, the end
of his most recent financial year.
Herbert: Trial balance as at 31 May 2013
DR CR
Rs.(000) Rs.(000)
Land and buildings at cost 90,000
Equipment at cost 57,500
Accumulated depreciation (as at 1 June
2012)
On land and buildings 12,500
On equipment 32,500
Inventory as at 1 June 2012 27,400
Sales 405,000
Purchases 259,600
Discounts allowed 3,370
Discounts received 4,420
Wages and salaries 52,360
Bad debts 1,720
Loan interest 1,560
Other operating expenses 38,800
Trade receivables 46,200
Trade payables 33,600
Allowance for doubtful debts 280
Cash in hand 151
Bank overdraft 14,500
Carriage out 5,310
Drawings 28,930
10% loan 15,600
Capital as at 1 June 2012 94,501
612,901 612,901
The following additional information as at 31 May 2013 is available:
(a) Inventory as at 31 May 2013 was valued at Rs.25,900,000.
(b) Depreciation for the year ended 31 May 2013 has yet to be provided as follows:
• Property – 1% using the straight-line method;
• Equipment – 15% using the straight-line method.
(c) There are accrued wages and salaries of Rs.140,000.
(d) Other operating expenses include some prepaid expenses of Rs.500,000 and does not include
some accrued expenses of Rs.200,000.
(e) The allowance for doubtful debts should be adjusted to 5% of trade receivables as at
31 May 2013.
(f) The amount for purchases includes goods valued at Rs.1,040,000 which were withdrawn by
Herbert for his own personal use.
Required:
Prepare Herbert’s statement of comprehensive income for the year ended 31 May 2013 and his statement of
financial position as at that date.

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Q.2 STEVEN CHEE
The following trial balance was extracted from the main ledger of Steven Chee, a sole trader, as at 31 May 2013 –
the end of his financial year.
Steven Chee: Trial balance as at 31 May 2013
DR CR
Rs.(000) Rs.(000)
Land and buildings at cost 120,000
Equipment at cost 80,000
Accumulated depreciation (as at 1 June 2012)
On land and buildings 20,000
On equipment 38,000
Purchases 250,000
Sales 402,200
Inventory as at 1 June 2012 50,000
Discounts allowed 18,000
Discounts received 4,800
Returns outwards 15,000
Wages and salaries 61,800
Bad debts 4,600
Loan interest 2,100
Other operating expenses 17,700
Trade payables 36,000
Trade receivables 38,000
Cash in hand 300
Bank 1,300
Drawings 24,000
Allowance for doubtful debts 500
7% long-term loan 30,000
Capital as at 1 June 2012 121,300
667,800 667,800
The following additional information is available:
(a) Inventory as at 31 May 2013 has been valued at cost at Rs.42,000,000.
(b) There are accrued wages and salaries of Rs.800,000.
(c) Other operating expenses are prepaid by Rs.300,000.
(d) The allowance for doubtful debts is to be adjusted so that it is 2% of trade receivables.
(e) Depreciation for the year ended 31 May 2013 should be provided for as follows:
• Land and buildings – 1.5% per annum on cost, using the straight-line method.
• Equipment – 25% per annum, using the reducing balance method.

Required:
Prepare Steven Chee’s statement of comprehensive income for the year ended 31 May 2013 and his statement of
financial position as at that date.

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Q.3 SWAN
The following balances were extracted from the main ledger of SWAN at 31 December 2013.
Rs.(000)

Capital 10,059
Inventory at 1 January 2013 2,720
Cash in hand 55
Bank overdraft 2,522
Sundry receivables 7,009
Sundry payables 6,735
Motor vans (Cost Rs.2,000) 1,500
Drawings in cash 2,459
Fixtures and fittings (Cost Rs.4,000) 3,800
Purchases 33,436
Allowance for doubtful debts 162
Sales 50,261
Purchases returns 120
Carriage inwards 546
Rent 626
Salaries and wages 5,226
Motor vehicle expenses 920
Interest on bank overdraft and bank charges 56
Carriage outwards 720
Discounts allowed 65
Discounts received 59
Returns inwards 240
Freehold land 10,300
Bad debts 240
You are given the following information:
(1) The inventory at 31 December 2013 was Rs.4,270,000.
(2) Wages and salaries payable at 31 December 2013 were Rs.426,000.
(3) Rent paid in advance at 31 December 2013 amounted to Rs.100,000.
(4) The allowance for doubtful debts is to be increased to Rs.260,000.
(5) Depreciation is to be charged as follows: motor vans at 25% per year on cost, fixtures and fittings
5% per year on cost.
(6) During 2013, the owner of SWAN withdrew goods valued at Rs.180,000 for his own use. No entry
has been made in the accounts for the withdrawal of these goods.
(7) One quarter of the motor vehicle expenses is the cost of the owner’s private motoring, as
distinct from expenses for business purposes.

Required:
Prepare a statement of comprehensive income for the year ending on 31 December 2013 and a statement of
financial position as at that date.

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Q.5 MARS
The following information relates to the business of Mars for the year ended 31 December 2012.
Rs. Rs.
Capital account, 1 January 2012 13,640
Freehold properties at cost 7,500
Furniture and fittings at cost 2,000
Motor cars at cost 6,300
Accumulated depreciation to 1 January
Freehold properties 450
Furniture and fittings 800
Motor cars 2,370
Inventory 1 January 6,740
Purchases 54,520
Sales 79,060
Salaries 8,760
Rates 1,170
Office expenses 3,950
Motor expenses 3,790
Drawings 4,800
Allowance for doubtful debts 1 January 600
Loan 4,000
Trade receivables 9,240
Trade payables 10,040
Bank balance 2,190
110,960 110,960
You are also supplied with the following information.
(1) Inventory at 31 December 2012 was Rs.7,330.
(2) Rates paid in advance at 31 December 2012 amounted to Rs.250.
(3) Allowance for doubtful debts is to be made equal to 5% of accounts receivable at 31 December
2012.
(4) Depreciation is to be provided for the year at the following annual rates calculated on
cost at the year end
Freehold properties 1%
Furniture and fittings 10%
Motor cars 20%
(5) Interest on the loan at 5% per annum is to be provided.

Required:
Prepare a statement of comprehensive income for the year ended 31 December 2012 and a statement of financial
position at that date. (20)

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Q.6 BOWIE [After suspense account]
Mr Bowie is a sole trader and prepares his accounts to 30 September each year. At 30 September 2013, his trial
balance is as follows:
Dr Cr
Rs. Rs.
Plant and machinery
– Cost 125,000
– depreciation at 1 October 2012 28,000
Office equipment
– Cost 45,000
– depreciation at 1 October 2012 15,000
Inventory at 1 October 2012 31,000
Purchases and sales 123,000 194,000
Selling expenses 12,000
Heat and light 8,000
Wages and salaries 19,000
Printing and stationery 6,000
Telephone and fax 6,000
Rent, rates and insurances 4,000
Trade receivables and payables 35,000 33,000
Allowance for doubtful debts at 1 October 2012 4,000
Bank 3,000
Petty cash 1,000
Drawings 22,000
Capital at 1 October 2012 169,000
Suspense account 3,000
443,000 443,000
The following additional information at 30 September 2013 is available:
(i) Closing Inventory goods for resale Rs.53,000
(ii) Prepayments:
– telephone and fax rental Rs.1,000
– rates and insurance Rs.1,000

(iii) Accruals:
–wages and salaries Rs.5,000
(iv) Specific bad debts to be written off amount to Rs.3,000.
(v) Allowance for doubtful debts to be amended to 5% of debtors, after adjusting for bad debts
written off.
(vi) The following book-keeping errors are discovered:
– the purchase of an item of inventory has been debited to the office
equipment account, cost Rs.1,200.
– the payment of Rs.1,300 to a trade payable has been recorded by debiting the bank
account and crediting the trade payable’s account
– a payment of rent of Rs.1,500 has been credited to the bank and credited to the rent
account.
(vii) The figure in the trial balance for the bank balance is the balance appearing in the cash book, prior
to the reconciliation with the bank statement. Upon reconciliation, it is discovered that:
– unpresented cheques amount to Rs.3,000; and
– bank charges not entered in the ledgers amount to Rs.4,000.
(viii) Depreciation of non-current assets is to be provided as follows:
• –
plant and machinery 10% on cost
• –
office equipment 33.33 % on the reducing balance at the end of the year
Required:
(a) Show the journal entries and suspense account to correct the bookkeeping errors identified in
note (vi). (Narrative descriptions are not required)
(b) Prepare a statement of comprehensive income for the year ended 30 September 2013.
(c) Prepare a statement of financial position at 30 September 2013

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Q.7
Following is the trial balance of Salman for the year ended 30 June 2014:

Rs. in ‘000’ Rs. in ‘000’

Debit Credit
Drawings 30,500 Salman’s capital 300,000
Trade debtors 109,420 Creditors 104,724
Goodwill 20,000 Loan taken from bank 40,000
Interest on bank loan 800 Bad debts provision as on 1 July, 2013 900
Cash in hand 728 Sales 350,868
Plant & machinery - WDV 45,000 Interest received 11,930
Factory building – WDV 42,400 Bills payable 23,150
Sales return 10,000 Accrued expenses 3,460
Cash at bank 13,512 Other income 3,100
Power and utility charges 6,500
Purchases less retunes 330,530
Salaries and wages 40,400
Rent and rates 6,992
Insurance 2,000
Advertisement 4,512
Opening stock 127,762
Carriage inward 10,420
Bills receivable 32,526
Miscellaneous expenses 4,130
838,132 838,132
Additional information:
(i) On 1 July 2013 a machine was purchased for Rs. 500 thousand. However, this cost has wrongly been posted
to the purchases account.
(ii) Salman’s son works as the head of administration and received a salary of Rs. 150 thousand per month,
which has been included in drawings.
(iii) Insurance premium was paid in advance to the extend of Rs. 650 thousand.
(iv) Depreciation is to be charged on written down value (WDV) as follows:
Plant & machinery 10%
Factory building 5%
(v) Provision for bad debts is maintained at 2% of trade debtors.
(vi) Closing stock as on 30 June 2014 amounted to Rs. 237,500 thousand.

Required:
Prepare statement of comprehensive income (Trading and Profit and Loss account) for the year ended 30 June
2014 and statement of financial position (Balance Sheet) as at 30 June, 2014. (20)

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“SUSPENSE ACCOUNT”
(i) If a transaction is completely omitted from the books even then, trial balance will be reconciled.
(ii) If there is no violation of debit/credit rule even then, trial balance will be reconciled even though entry is
wrong.
(iii) If there is a violation of debit/credit rule then trial balance will not be reconciled.
If trial balance is not reconciled then:
(i) If sum of debit column of trial balance is more than sum of credit column of trial balance then suspense
account will appear on credit column of trial balance unless corrected.
(ii) If sum of credit column of trial balance is more than the sum of debit column of trial balance then the
suspense account will appear on debit column of trial balance unless corrected.

Q.8 Following is the summarised trial balance of Fortune Traders (FT) for the year ended 30 June 2016:

Debit Credit
-------- Rs. in ‘000’--------
Buildings – Cost 3,700
Buildings – accumulated depreciation as at 1 July 2015 1,436
Plant and machinery – cost 6,650
Plant and machinery – accumulated depreciation as at 1 July 2015 2,414
Stock-in-trade as at 1 July 2015 1,045
Purchases 16,000
Purchase returns 220
Sales 28,900
Sales returns 90
Capital as at 1 July 2015 3,000
Selling and administration expenses 5,855
12% loan payable 5,000
Trade receivables 3,600
Provision for doubtful debts as at 1 July 2015 180
Prepayments and other receivables 380
Trade and other payables 2,080
Cash and bank balances 5,850
Suspense account 60
43,230 43,230
Additional information:
(i) FT depreciates its fixed assets from the month of addition. Depreciation is to be charged on written-down
value (WDV) as follows:

Buildings 5%
Plant & machinery 10%
(ii) On 1 March 2016, FT paid an advance of Rs. 330,000 for purchase of a machine and debited it to plant and
machinery. The machine was delivered on 1 September 2016.
(iii) Closing inventory was valued at Rs; 1,560,000. This included goods costing 35,000 returned by a customer
on 30 June 2016 but not yet accounted for. These goods were earlier sold at cost plus 40%.
(iv) The loan was acquired on 1 January 2016 and the principal amount is repayable in eight equal half yearly
instalments commencing from 1 January 2017. Interest is payable half yearly on 1 January and 1 July each
year.
(v) Selling and administration expenses include fire insurance premium amounting to Rs. 430,000 and Rs.
240,000 paid for office and owner's personal premises respectively. The policies are valid upto 31
December 2016.

Page 9 of 35
(vi) Rent and salaries amounting to Rs. 137,000 and Rs. 89,000 respectively are to be accrued at 30 June 2016.
(vii) At 30 June 2016, the provision for doubtful debts is to be reduced by Rs. 30,000.
(viii) Suspense account represents an error which occurred when a credit note of Rs. 30,000 received for goods
returned to a supplier was mistakenly posted as credit to trade payable account.

Required:
(a) Prepare a statement of comprehensive income for the year ended 30 June 2016. (08)
(b) Prepare a statement of financial position as at 30 June 2016. (09)

Important points to remember

• If trial balance contains opening balance of stock and purchases then closing stock will be in additional
information whish needs to be adjusted.
• If trial balance contains cost of sales and closing stock then closing stock will have only one effect in SOFP
as an asset.
• Trail balance contains income and expenses of current period only. Effects of previous period’s incomes
and expenses should have been included in the opening balance of capital.
Effect of stocks on profit:
• Closing stock has direct relationship with profit (means inverse relationship with cost of sale)
• Opening stock has inverse relationship with profit (means direct relationship with cost of sale)
When it is assumed that depreciation/amortization has already been charged in trial balance:
• If depreciation expense is appearing on the debit side of the trial balance
• If closing date is mentioned against accumulated depreciation in trial balance or closing date is mentioned
against carrying amount of asset in the trial balance.

Page 10 of 35
 Answers:
A.1
HERBERT
Statement of Comprehensive Income
For the year ended 31-05-2013

Notes ‘000’
Sales 405,000
Cost of Sales N-1 (260,060)
Gross Profit 144,940
Other Income (discount received) 4,420
Admin and selling Expenses: N-2 (112,955)
Finance cost (loan interest) (1,560)
Net Profit 34,845

HERBERT
Statement of financial position
As on 31-05-2013

‘000’ ‘000’
Non-Current Assets:
Land & Building (90,000 – 12,500 – 900) 76,600
Equipment (57,500 – 32,500 – 8,625) 16,375
Current Assets:
Inventories 25,900
Trade Receivables 46,200
Less: Allowance (2,310) 43,890
Prepaid Operating Expenses 500
Cash 151
Total Assets 163,416
Capital & Liabilities:
Capital 94,501
Add Net Profit 34,845
Less Drawings (28,930 + 1,040) (29,970) 99,376
Non-Current Liabilities:
10% Loan 15,600
Current Liabilities:
Trade Payable 33,600
Bank Overdraft 14,500
Wages & Salaries Payable 140
Operating Expenses Payable 200
163,416

Page 11 of 35
Notes:
N-1: Cost of sales
Opening Stock 27,400
Add Purchases (259,600 – 1,040) 258,560
Less Closing Stock (25,900)
Total 260,060

N-2: Admin and selling expenses

Discount Allowed (3,370)
Wages & Salaries (52,360 + 140) (52,500)
Bad debts (1,720 + 2,030) (3,750)
Other Operating Expenses (38,800 – 500 + 200) (38,500)
Carriage Outwards (5,310)
Depreciation (900 + 8,625) (9,525)
Total (112,955)

Workings:
Property:
90,000 x 1% = 900
Equipment:
57,500 x 15% = 8,625

Depreciation 9,525
Acc. Depreciation – Property 900
Acc. Depreciation – Equipment 8,625
Wages and Salaries 140
Wages and Salaries Payable 140
Prepaid Operating Expense (presented in current assets) 500
Other Operating Expense 500
Other Operating Expense 200
Payable 200
Drawings 1,040
Purchases 1,040
Allowance

Unadjusted bal 280

Bad debts (bal) 2,030
c/d 2,310

46,200 × 5% = 2,310

Bad debts 2,030

Allowance 2,030

Page 12 of 35
A.2
STEVEN CHEE
Statement of Comprehensive Income
For the year ended 31-05-2013
Notes ‘000’
Sales 402,200
Cost of Sales: N-1 (243,000)
Gross Profit 159,200
Other Income (Discount Received) 4,800
Admin and selling expenses N-2 (115,160)
Finance cost (loan interest) (2,100)
Net Profit 46,740

STEVEN CHEE
Statement of financial position
For the year ended 31-05-2013
‘000’ ‘000’
Non-current Assets:
Land & Building (120,000 – 20,000 – 1,800) 98,200
Equipment (80,000 – 38,000 – 10,500) 31,500
Current Assets:
Inventory 42,000
Trade Receivables 38,000
Less: Allowance (760) 37,240
Cash 300
Bank 1,300
Prepaid Operating Expense 300
210,840
Capital & Liabilities:
Capital 121,300
Add Net Profit 46,740
Less Drawings (24,000) 144,040
Non-current Liabilities:
7% Long-Term Loan 30,000
Current Liabilities:
Trade payables 36,000
Wages & Salaries Payable 800
Capital & Liabilities: 210,840

Notes:
N-1: Cost of sales
Opening Stock 50,000
Add Purchases (250,000 – 15,000) 235,000
Less Closing Stock (42,000)
Total 243,000

Page 13 of 35
N-2: Admin and selling expenses
Discount Allowed (18,000)
Wages & Salaries (61,800 + 800) (62,600)
Bad debts (4,600 + 200) (4,860)
Other Operating Expense (17,700 – 300) (17,400)
Depreciation (10,500 + 1,800) (12,300)
Total (115,160)

Workings:
(b) Wages & Salaries 800,000
Payable 800,000
(c) Prepaid Operating Expense 300,000
Other Operating Expense 300,000

(d) Allowance Account

Un-adjusted bal 500
Bad debts (bal) 260
c/d 760

Bad debts 250

Allowance 260
(e) Land  120,000 × 1.5% 1,800
12,300
Equipment  (80,000 – 38,000) × 25% 10,500

A.3
SWAN
Statement of Comprehensive Income
For the year ended 31-12-2013
Notes ‘000’
Sales 50,021
Cost of Sales: N-1 (32,132)
Gross Profit 17,889
Other Income (Discount Received) 59
Admin and selling Expenses: N-2 (8,691)
Finance cost (loan interest) (56)
Net Profit 9,201

Page 14 of 35
 SWAN
Statement of Financial Position
As on 31-12-2013
‘000’ ‘000’
Non-current Assets:
Freehold Land 10,300
Motor Van (1,500 – 500) 1,000
Furniture & Fittings (3,800 – 200) 3,600
Current Assets:
Inventory 4,270
Receivables (7,009 – 260) 6,749
Prepaid Rent 100
Cash in hand 55
Total Assets 26,074
Capital & Liabilities:
Capital 10,059
Add Net Profit 9,201
Less Drawings (2,459+180+230) (2,869) 16,391
Non-current Liabilities:
Current Liabilities:
Bank overdraft 2,522
Sundry payables 6,735
Accrued wages 426 9,683
Capital & Liabilities 26,074

Notes:
N-1: Cost of sales
Opening Stock 2,720
Add Purchases (33,436 – 120 - 180) 33,136
Add Carriage Inwards 546
Less Closing Stock (4,270)
Total 32,132

N-2: Admin and selling expenses

Rent (626 – 100) (526)
Carriage Outwards (720)
Salaries & Wages (5,226 + 426) (5,652)
Motor Vehicle Expense (920 – 230) (690)
Discount Allowed (65)
Bad debts (240 + 98) (338)
Depreciation (500 + 200) (700)
Total (8,691)

Page 15 of 35
Workings:
(2) Wages & Salaries 426,000
Payable 426,000
(3) Prepaid Rent 100,000
Rent 100,000
(4) Allowance
Un-adjust 162
Bad debts 98
c/d 260

Bad debts 98
Allowance 98
(5) Depreciation Van 2,000 × 25% 500
700
Fixtures 4,000 × 5% 200
(6) Drawings 180,000
Purchases 180,000

(7) Drawings 230

Motor Vehicle Expenses 230

A.5
MARS
Statement of Comprehensive Income
For the year ended 31-12-2012
Notes ‘000’
Sales 79,060
Cost of Sales N-1 (53,930)
Gross Profit 25,130
Admin and selling expenses N-2 (18,817)
Finance cost (interest on loan) (200)
Net profit 6,113

MARS
Statement of financial position
As on 31-12-2012
‘000’ ‘000’
Non-current Assets:
Freehold Property (7,500 – 450 – 75) 6,975
Furniture & Fittings (2,000 – 800 – 200) 1,000

Page 16 of 35
Motor Van (6,300 – 2,370 – 1,260) 2,670
Current Assets:
Receivables 9,240
Less: Allowance (462) 8,778
Bank 2,190
Prepaid Rates 250
Inventory 7,330
Total Assets 29,193
Capital & Liabilities:
Capital 13,640
Add Net Profit 6,113
Drawings (4,800) 14,953
Non-current Liabilities:
Loan 4,000
Current Liabilities:
Payables 10,040
Accrued Expense 200
Capital & Liabilities 29,193

Notes:
N-1: Cost of Sales
Opening Stock 6,740
Add Purchases 54,520
Less Closing Stock (7,330)
Total 53,930

N-2: Admin and selling expenses

Salaries (8,760)
Rates (1,170 – 250) (920)
Office Expenses (3,950)
Motor Expenses (3,790)
Bad debts 138
Depreciation (1,535)
Total (18,817)

(2) Prepaid Rate 250

Rate Expense 250
(3) Allowance
Bad debts (bal) 138 c/d 600
c/d (9,240 x 5%) 462
(4) Depreciation:
Property = 7,500 × 1%  75
Furniture = 2,000 × 10%  200 1,535
Page 17 of 35
 Motor Car = 6,300 × 20%  1,260

(5) Interest on Loan = 4,000 × 5% = 200

Expense 200
Expense payable 200

Ans.6 BOWIE
(a)

(i) Purchases 1,200

Office Equipment 1,200
(Purchases wrongly debited to office equipment now rectified)
(ii) Trade Payable 2,600
Bank 2,600
(Payment wrongly recorded now rectified)
(iii) Rent 3,000
Suspense 3,000
(Rent wrongly credited now rectified)

(b) BOWIE
Statement of Comprehensive Income
For the year ended 30-09-2013
Notes ‘000’
Sales 194,000
Cost of Sales: N-1 (102,200)
Gross Profit 91,800
Admin and selling Expenses: N-2 (83,700)
Finance cost (bank charges) (4,000)
Net Profit 4,100

BOWIE
Statement of Financial Position
As on 30-09-2013
‘000’ ‘000’
Non-current Assets:
Plant & Machinery (125,000 – 12,500 – 28,000) 84,500
Office Equipment (45,000 – 15,000 – 9,600 – 1,200) 19,200

Page 18 of 35
Current Assets:
Stock 53,000
Trade Receivables (35,000 – 3,000) 32,000
Allowance (1,600) 30,400
Prepaid Payments (1,000 + 1,000) 2,000
Cash 1,000
Bank --
Total Assets 190,000
Capital & Liabilities:
Capital 169,000
Add Net Profit 4,100
Less Drawings (22,000) 151,100
Non-current Liabilities:
--
Current Liabilities:
Bank overdraft (3,000 – 4,000 – 2,600) 3,600
Trade Payables (33,000 – 2,600) 30,400
Accrued Expenses 5,000
190,100

Notes:
N-1: Cost of sales
Opening Stock 31,000
Add Purchases (123,000 + 1,200) 124,200
Less Closing Stock (53,000)
Total 102,200

N-2: Admin and selling expenses

Selling Expenses (12,000)
Heat & Light (8,000)
Wages & Salaries (19,000 + 5,000) (24,000)
Printing & Stationery (6,000)
Telephone & Fax (6,000 – 1,000) (5,000)
Rent rates and taxes (4,000+3,000-1,000) (6,000)
Bad debts (3,000 – 2,400) (600)
Depreciation (W-1) (22,100)
Total (83,700)

W-1 Depreciation:
Plant & Machinery = 125,000 × 10% = 12,500
Office Equipment: (45,000 – 1,200 – 35,000) × 33.33% = 9,600

Bank

Page 19 of 35
Cheques 3,000 Bank charges 4,000
Overdraft (Liability) (2,600)
c/d 3,600

Allowance Account

Bad debts (bal) 2,400 Un-adjusted 4,000

c/d (35,000 – 3,000) × 5% 1,600

vi (b)

Bank 1,300 Payable 1,300 Payable 2,600

Payable 1,300 Bank 1,300 Bank 2,600
(Recorded) (Required) (Rectifying)

vi (c)

Suspense 3,000
Rent 1,500 (Recorded)
Bank 1,500
Rent Expense 1,500
Bank 1,500 (Required)
Rent Expense 3,000
Suspense Account 3,000 (Correction)

A.7
Salman
Statement of Comprehensive Income
For the year ended 30-06-2014
Notes Rs. 000
Sales (350,868 – 10,000) 340,868
Cost of sales N-1 (230,712)
Gross Profit 110,156
Other Income N-2 15,030
Admin and selling expenses N-3 (73,642)
Finance cost (loan interest) (800)
Net Profit 50,744

Salman
Statement of Financial Position
As on June 30, 2014
Rs.000
Non-Current Assets:

Plant & Machinery (45,000 – 4,550 + 500) 40,950

Factory Building (42,400 – 2,120) 40,280
Goodwill 20,000

Page 20 of 35
Current Assets:
Stock 237,500
Trade Receivable 109,420
Allowance for bad debts (2,188) 107,232
Bills Receivable 32,526
Prepaid Insurance 650
Cash at Bank 13,512
Cash in Hand 728
493,378
Capital & Liabilities:
Capital 300,000
Add: Net Profit 50,744
Less: Drawings (30,500 – 1,800) (28,700) 322,044
Non-Current Liabilities:
Loan from Bank 40,000
Current Liabilities:
Bills Payable 23,150
Accrued Expenses 3,460
Creditors 104,724
493,378

Notes:
N-1: Cost of Sales
Opening Stock 127,762
Add: Purchases (330,530 – 500) 330,030
Add: Carriage Inwards 10,420
Less: Closing Stock (237,500)
Total 230,712
N-2: Other Income
Interest received 11,930
Other income 3,100
Total 15,030

N-3: Admin and selling expenses

Power and utilities (6,500)
Salaries (40,400 + 1,800) (42,200)
Rent (6,992)
Insurance (2,000 – 650) (1,350)
Advertisement (4,512)
Miscellaneous Expenses (4,130)
Depreciation (4,550 + 2,120) (6,670)
Bad debts (1,288)
Total (73,642)

Working and adjusments:

Rs. Rs.
(i) Machine 500
Purchases 500
(ii) Salary (150 × 12) 1,800
Drawings 1,800
(iii) Prepaid Insurance 650
Insurance Expense 650

Page 21 of 35
(iv) Calculation of Depreciation:
Plant & Machinery = 45,000 × 10% 4,500
Add: 500 × 10% 50
4,550
Factory Building = 42,400 × 5% 2,120

(v) Allowance for bad debts

Rs. Rs.
b/d 900
Bad debts (balance) 1,288
c/d (109,420 × 2%) 2,188

Answer 8
Fortune traders
Income Statement
For the year ended June 30, 2016
Notes Rs. ‘000’
Sales (28,900 – 90 – 49) 28,761
Less: Cost of sales N-1 (15,265)
Gross Profit 13,496
Admin and selling expenses N-2 (6,100)
Finance cost (loan interest) (300)
Net Profit 7,096

Fortune Traders
Statement of Financial Position
On June 30, 2016
Rs. ‘000’ Rs. ‘000’
Building [3,700 – 1,436 – 113] 2,151
Plant & Machinery [6,650 – 330 – 2,414 – 391] 3,515
Current Assets:
Trade receivables [3,600 – 49] 3,551
Allowance (180 – 30) (150) 3,401
Closing Stock 1,560
Prepayment and other receivables 380
Prepaid selling expense 215
Advance to supplier 330
Cash and bank 5,850
17,402
Capital & Liabilities:
Capital 3,000
Add Profit 7,096
Less Drawings (240) 9,856
Non-Current Liabilities:
Long term loan (5,000 – 625) 4,375
Current Liabilities:

Page 22 of 35
Current Portion of loan 625
Trade payables (2,080 – 60) 2,020
Rent payable 137
Salaries payable 89
Interest payable 300
17,402

Notes:
N-1: Cost of Sales
Opening Stock 1,045
Add Purchases (16,000 – 220) 15,780
Less Closing Stock (1,560)
Total 15,265

N-2: Admin and selling expenses

Selling & Admin expenses (5,855 – 215 – 240) (5,400)
Depreciation – building (W) (113)
Depreciation –Plant & Machinery (W) (391)
Office rent (137)
Salaries (89)
Bad debts(Reversal of bad debts) 30
Total (6,100)
Workings:
Depreciation:
(3,700 – 1,436) × 5% = 113
(6,650 – 330 – 2,414) × 10% = 391

(i) Advance 330

Plant & Machinery 330
(ii) Sale Return 49
Debtor 49
35,000
× 140 = 49,000
100
(iii) Interest expense 300
Interest payable 300
5,000 × 12% × 6/12 = 300
5,000 ÷ 8 = 625 will in current liabilities
(iv) (a) Prepaid selling expense 215
Selling expenses 215
430,000 ÷ 2 = 215,000
(b) Drawing 240
Selling expenses 240
(v) Rent 137
Rent payable 137
Salaries 89
Salaries payable 89
(vi) Allowance 30
Bad debts 30

Page 23 of 35
 FINAL ACCOUNTS
PRACTICE QUESTIONS

Question-1
The following is the Trial Balance of Mr. Faisal on 31st December 2002 :
Particulars Dr.(Rs) Cr. (Rs)
Capital 4,000
Sundry creditors 5,200
Plant & Machinery 8,000
Accumulated depreciation 3,000
Office furniture and fittings 460
Accumulated depreciation 200
Stock as on 1st January, 2002 4,800
Motor van 1,200
Sundry debtors 4,570
Cash in hand 40
Cash at bank 650
Wages 15,000
Salaries 1,400
Purchases 21,350
Sales 48,000
Bills payable 560
Bills Receivable 720
Returns inwards 930
Provision for doubtful debts 250
Drawings 700
Returns outwards 550
Rent 600
Factory lighting and heating 80
Insurance 630
General expenses 100
Bad debts 250
Discount 650 370
Total 62,130 62,130
The following adjustments are to be made :
(i) Stock on 31st December, 2002 Rs 5,200:
(ii) 3 months lighting and heating is due, but not paid Rs 30;
(iii) 5% depreciation to be written-off on furniture and plant and machinery using WDV method;
(iv) Write-off further bad debts Rs 70;
(v) The provision for doubtful debts to be increased to Rs 300
(vi) During the year machinery purchased on 1.1.2002 for Rs 2,000, but it was debited to Purchases Account.
Required: Prepare statement of profit or loss and statement of financial position as on December 31, 2002.

Question-2
Following is the Trial Balance of Mr. Asif as at 31.12.1993. You are required to prepare statement of profit or loss
for the year ended 31.12.1993 and a statement of financial position as on that date after making necessary
adjustments:
Debit Balances Rs Credit Balances Rs
Purchases 60,000 Sales 100,000
Sales Ledger Balances (debtors) 30,400 Purchases Ledger Balances (creditors) 23,912
Returns Inward 2,000 Discount Received 1,088
Discount Allowed 2,000 Returns Outward 7,400
Building 44,000 Capital 53,200
Sundry expenses 2,000 Suspense Account 2,000
Repair expense 2,000 Rental Income 1,000
Wages 4,000 Provision for Bad Debts 2,000
Salaries 6,000 Commission 4,000
Prepaid expense 1,200
Page 24 of 35
Stock-in-Trade (1.1.1993) 20,000
Trade Expenses 4,000
Insurance 400
Cash at Bank 12,600
Deposit with Bank of Punjab – long term 4,000
194,600 194,600
Adjustments:
(i) Stock-in-trade on 31.12.1993 was valued at Rs 20,000.
(ii) Interest receivable from Bank of Punjab is @ 10% pa not yet recorded.
(iii) Out of purchases, goods of Rs 4,000 was distributed as free samples
(iv) Suspense Account represents a cheque received from Amjad a customer, in settlement of Rs 2,400 due
from him. The cheque was duly deposited and credited by the Bank.
(v) Maintain provision for bad debts @ 5% on Debtors.

SOLUTIONS
PRACTICE QUESTIONS
Answer No. 1
Mr. Faisal
Income Statement
For the year ended December 31, 2002
Notes Rs.
Sales (48,000 – 930) 47,070
Cost of Sales N-1 (18,400)
Gross Profit 28,670
Other Income (Discount received) 370
Admin and selling Expenses N-2 (19,223)
Net Profit 9,817

Mr. Faisal
Statement of Financial Position
As on December 30, 2002
Rs. Rs. Rs.
Assets:
Non-Current Assets:
Plant & Machinery (8,000 – 2,000) 10,000
Less: Account Depreciation (3,000 + 350) (3,350) 6,650

Furniture 460
Less: Account Depreciation (200 + 13) (213) 247
Motor Van 1,200
Current Assets:
Debtors (4,570 – 70) 4,500
Less: Allowance for Doubtful Debts (W-1) (300) 4,200
Bills Receivable 720
Stock 5,200
Cash in Hand 40
Cash at Bank 650 10,810
18,907

Capital & Liabilities:

Capital 4,000
Add: Net Profit 9,817
Drawings (700) 13,117
Current Liabilities:
Trade Creditors 5,200

Page 25 of 35
Lighting & Heating Payable 30
Bills Payable 560 5,790
18,907

Notes:
N-1: Cost of sales
Opening Stock 4,800
Purchases (21,350 – 550 – 2,000) 18,800
Closing Stock (5,200)
Total 18,400

N-2: Admin and selling expenses

Wages (15,000)
Salaries (1,400)
Rent (600)
Lighting and Heating (110)
Insurance (630)
General Expenses (100)
Bad Debts (250 + 70 + 50) (370)
Discount Allowed (650)
Depreciation – Furniture (460 – 200) × 5% (13)
Depreciation – Plant & Machinery (350)
Total (19,223)

WORKINGS:
(W-1) Allowance Account
Rs. Rs.
Unadjusted b/d 250
Bad debts 50
c/d 300
300 300
Depreciation Expense:
On Opening Assets (8,000 – 3,000) × 5% 250
On Additions (2,000 × 5%) 100
350

Page 26 of 35
Answer No. 2
Mr. Asif
Statement of Comprehensive Income
For the year ended December 31, 1993
Rs.
Sales (100,000 – 2,000) 98,000
Cost of Sales N-1 (48,600)
Gross Profit 49,400
Other Income N-2 6,488
Admin & selling expenses N-3 (24,200)
Net Profit 31,688

Mr. Asif
Statement of Financial Position
As on December 31, 1993
Rs. Rs. Rs.
Assets:
Non-Current Assets:
Building 44,000
Deposits with Bank of Punjab 4,000 48,000
Current Assets:
Debtors (30,400 – 2,400) 28,000
Less: Allowance (1,400) 26,600
Prepaid Expenses 1,200
Interest Receivable 400
Stock 20,000
Cash at Bank 12,600
108,800
Capital & Liabilities:
Capital 53,200
Profit 31,688 84,888
Current Liabilities:
Trade Creditors 23,912
108,800

Notes:
N-1: Cost of sales
Opening Stock 20,000
Purchases (60,000 – 4,000) 56,000
Less: Purchase Return (7,400)
Closing Stock (20,000)
Total 48,600
N-2: Other income
Interest Income 400
Rental Income 1,000
Commission Income 4,000
Discount Received 1,088
Total 6,488
N-3: Admin and selling expenses
Wages (4,000)
Repairs (2,000)

Page 27 of 35
Salaries (6,000)
Trade Expenses (4,000)
Insurance (400)
Advertisement (free samples) (4,000)
Discount Allowed (2,000 + 400) (2,400)
Bad debts reversed 600
Sundry Expenses (2,000)
Total (24,200)

WORKINGS:
(i) Entry for Point (iv)

Posted Required Rectifying

Bank 2,000 Bank 2,000 Suspense 2,000
Suspense 2,000 Discount Allowed 400 Discount Allowed 400
Debtor 2,400 Debtor 2,400

(ii) Debtor Account

Rs. Rs.
Un-adjusted balance 30,400 Suspense 2,000
Discount allowed 400
c/d 28,000
30,400 30,400
Allowance Account
Rs. Rs.
Bad Debt (bal) 600 Unadjusted balance 2,000
c/d (28,000 × 5%) 1,400 28,000
2,000 2,000

Page 28 of 35
 Extra practice questions:
Q. Following is the trial balance of Tulip Enterprises (TE) for the year ended 31 December 2017:
Rs. in '000
Debit Credit
Cash and bank balances 2,320 Trade payables 3,250
Trade receivables 4,400 Accruals and other payables 1,320
Stock-in-trade 31-12-2017 3,900 Provision for doubtful receivables 220
Prepayments and advances 1,740 Accumulated depreciation 4,630
Property, plant & equipment – cost 12,500 12% Long-term loan 5,150
Drawings 490 Capital 6,000
Cost of sales 23,580 Sales 35,230
Salaries and wages 2,610 Miscellaneous income 940
Fuel and power 450
Bad debt expense 230
Rent and insurance 2,900
Repair and maintenance 920
Financial charges 700
56,740 56,740

Additional information:
(i) While carrying out the physical inventory count at year-end, following matters were identified:
▪ Goods costing Rs. 1,000,000 were slightly defective. These can be sold for Rs.
1,130,000 after incurring a cost of Rs. 200,000.
▪ Goods costing Rs. 670,000 purchased on credit were returned to a supplier on 28
December 2017 but the return was not recorded in the books.
(ii) A machine costing Rs. 450,000 was received on 1 October 2017 against 100% advance payment.
The advance has not yet been adjusted due to non-receipt of the invoice.
(iii) On 1 October 2017, 50% advance received for an annual maintenance contract of Rs. 480,000 was
credited to miscellaneous income. Remaining amount would be received at the end of the contract.
Services are rendered evenly throughout the contract period.
(iv) Maintenance services for Rs. 150,000 were rendered in December 2017 but income has been
recorded in January 2018 on receipt of the amount.
(v) Interest on the loan is paid in arrears on 1 April and 1 October each year. Interest accrued for the
quarter ended 31 December 2017 has been credited to loan account.
(vi) Rent and insurance include:
▪ annual insurance premium of Rs. 800,000 for the health policy arranged by TE for the
department heads and the owner’s family members. Premium pertaining to the
owner’s family members is Rs. 200,000. The policy is valid up to 30 June 2018.
▪ Rs. 1,200,000 paid against the annual rent agreement expiring on 31 August 2018.
According to the rent agreement, the rent paid would not be refunded in case the
building is vacated earlier.
(vii) TE maintains provision for doubtful receivables according to the age analysis of the outstanding
balances. Relevant details are as under:
Trade receivables as on 31 December 2017
Less than 4-6 7-12 More than Total
3 months months months 1 year
Outstanding balances
(Rs. in '000) 1,970 1,000 900 530 4,400
Required provision - 5% 10% 20%

(viii) TE depreciates property, plant & equipment at 15% per annum on reducing balance method.

Required:
Prepare the followings:
a. Statement of profit or loss for the year ended 31 December 2017
b. Statement of financial position as at 31 December 2017

Page 29 of 35
 Tulip Enterprises
Statement of Profit or Loss
For the year ended 31-12-2017
Rs. ‘000’
Sales 35,230

Cost of sales (23,580 +70) (23,650)

Gross Profit 11,580
Add: Other income (940 - 120 + 150) 970
Admin and selling expenses N-1 (7,033)
Finance cost (700)
Net Profit 4,817

Tulip Enterprises:
Statement of Financial Position
As on 30-06-2017
ASSETS:
Non-Current Assets:
Property, Plant & Equipment [12,500 + 450] 12,950
Less: Accumulated Depreciation [4,630 + 1,197] (5,827)
7,123
Current assets:
Stock in trade (3,900 -70 -670) 3,160
Trade Receivables 4,400
Less: Allowance (W) (246) 4,154

Prepayments & Advances [1,740 – 450] 1,290

Prepaid Insurance 300
Prepaid Rent 800
Maintenance services receivable 150
Cash and bank 2,320
Total Assets 19,297

Equity & Liabilities:

Capital 6,000
Add Net Profit 4,817
Less: Drawings [490 + 200] (690) 10,127
Non-Current Liabilities:
Long term loan [5,150 – 150 (W)] 5,000
Current Liabilities:
Trade Payables [3,250 – 670] 2,580
Accruals and other payables 1,320
Unearned Rent Income 120
Interest payable 150
Total Equity & Liabilities 19,297

Notes:
N-1: Admin and selling expenses
Salaries and wages (2,610)
Fuel and power (450)
Bad debts expense [230 + 26] (256)
Rent and Insurance [2,900 – 200 – 300 – 800] (1,600)
Depreciation [working] (1,197)
Repair and Maintenance (920)
Total 7,033

Page 30 of 35
Workings:
(i) (a) Cost of goods = 1,000,000
NRV [1,130,000 – 200,000] = 930,000
Loss = 70,000

Cost of Sales 70,000

Stock 70,000
(b) Creditor 670,000
Stock 670,000

(ii) Machine 450,000

Advance 450,000
(iii) 480,000 × 3/12 = 120,000 [Rent Income]
Required:
Cash (480,000 × 50%) 240,000
Unearned Income 120,000
Rent Income 120,000
Posted
Cash 240,000
Rent Income 240,000
Rectifying:
Rent Income 120,000
Unearned Income 120,000
(iv) Receivable 150,000
Maintenance Income (other Income) 150,000

(v) Lets x is the amount of loan without including interest.

x + x × 12% × 3/12 = 5,150
x + 0.03x = 5,150
1.03x = 5,150
x = 5,000
Loan 150
Interest payable 150
(vi) (a) Drawings 200,000
Rent and Insurance 200,000
[800,000 – 200,000] × 6/12 = 300,000
Prepaid Insurance 300,000
Rent and Insurance 300,000
(b) Prepaid Rent 800,000
Rent and Insurance 800,000
[1,200,000 × 8/12]
(vii) Provision
b/d 220

Bad debts 26
c/d (working below) 246
Bad debts 26
Allowance 26
Workings:
1,000 × 5% = 50
900 × 10% = 90
530 × 20% = 106
246
(viii) Depreciation for the year:
[12,500 – 4,630] × 15% = 1,180.50
+ 450 × 15% × 3/12 = 16.875
1,197.375
Sometimes question gives separate information of selling and administration expenses then present them separately
in statement of profit or loss.
Page 31 of 35
Test question:
Q.1 Following is the summarised trial balance of Delta Enterprises (DE), for the year ended 30
June 2019:
Rs. in '000
Description Debit Description Credit
Property, plant and equipment 230,600 Capital 145,000
Inventory – 30 June 2019 67,800 Profit or loss – 1 July 2018 34,500
Cash and bank balances 4,600 12% Bank loan 90,000
Trade receivables 94,800 Accumulated depreciation 44,300
Prepayments 3,000 Trade payables 41,400
Other receivables 5,300 Sales revenue 487,800
Cost of sales 354,700 Other income 2,600
Selling expenses 29,400
Administration expenses 25,900
Depreciation 19,800
Interest on bank loan 9,000
Bank charges 700
845,600 845,600
Additional information:
(i) Goods returned by a customer on 30 June 2019 were recorded on 1 July 2019. These
goods had been sold on credit for Rs. 1,950,000 at cost plus 30%.
(ii) On 1 October 2018, a printer was acquired on rent from Qazi & Co. The annual rent of
Rs. 480,000 was paid in advance and debited to prepayments. However, the printer was
purchased by DE on 1 April 2019 for Rs. 1,240,000. The payment net of rent
adjustment was made in July 2019. The purchase has not been accounted for. DE
depreciates office printer at 20% using reducing balance method. Depreciation for the
year has already been recorded except for the effect of any errors.
(iii) Annual fire insurance premium of Rs. 4,500,000 was paid in advance on
1 January 2019 and debited to administration expenses. The payment also includes Rs.
1,350,000 pertaining to the owner's personal property.
(iv) Other income includes Rs. 900,000 collected on 1 April 2019 in respect of a service
agreement for the six months ending 30 September 2019.
(v) An amount of Rs. 960,000 receivable on 1 August 2019 on completion of a service
agreement for the six months ended 31 July 2019 has not been accounted for.
(vi) 12% bank loan was acquired on 1 April 2018. The principal is repayable in ten equal
yearly installments commencing from 1 April 2019. Interest is payable on
1 October and 1 April each year.
(vii) DE allocates selling and administration expenses in the ratio of 4:6. Respectively.

Required:
(a) Prepare statement of profit or loss for the year ended 30 June 2019.
(09)
(b) Prepare statement of financial position as at 30 June 2019.
(09)

Page 32 of 35
A.1 (a) Delta Enterprises
Statement of profit or loss for the year ended 30 June 2019

Rs. in '000'
Sales 487,800-1,950 485,850
Cost of sales 354,700–1,500 (353,200)
Gross profit 132,650
Other income 2,600–450+800 2,950
Selling expenses W-1 (37,320)
Admin expenses (35,157)
Financial charges (12,400)
9,000+2,700+700
Net profit 50,723
(b)
Statement of financial position as at 30 June 2019

Assets Rs. in '000'

Non-current assets
Property, plant and equipment (230,600+1,240)–(44,300+62) 187,478

Current assets
Inventory 67,800+1,500 69,300
Trade receivables 94,800–1,950 92,850
Prepayments 3,000+1,575–240–240 4,095
Other receivables 5,300+800 6,100
Cash and bank balances 4,600
176,945
364,423
Equity and liabilities
Equity
Capital 145,000
Profit or loss 34,500+50,723 85,223
Drawings (1,350)
228,873

Long-term loan 80,000

Current liabilities

Trade payable 41,400

Unearned revenue 450
Interest payable 2,700
Current maturity of long-term loan 10,000
Printer payable 1,000
55,550
364,423

W-1: Selling Administration

expenses expenses

As given (29,400+25,900) 29,400 25,900

Depreciation 19,800 7,920 (40%) 11,942(60%)
Depreciation of printer 62
Printer's rent 480×6÷12 240
Insurance pertaining to the owner's property (1,350)
Prepaid insurance [(4,500–1,350)÷2] (1,575)
37,320 35,157

Page 33 of 35
Workings
(i) Sale Return 1,950
Debtor 1,950
Stock 1,500
Cost of Sales 1,500
1,950 /130 X 100 = 1,500
(ii) Rent (Admin) 240
Prepayment 240
480,000 / 12 X 6 = 240
Remaining repayment = 480 -240 = 240
Printer 1,240
Prepayment 240
Payable 1,000
Depreciation 62
Acc . dep 62
1,240 X 20% X 3/12 = 62
(iii) Drawings 1,350
Admin Exp 1,350
Prepaid Insurance 1,575
Admin Exp 1,575
(4,500-1,350)/12 X 6 = 1,575
(iv) Other Income 450
Unearned Service Income 450
900/6 X 3 = 450
(v) Receivable 800
Other Income 800
960/6 X 5 = 800
(vi) Loan [90,000/9 X 10 = 100,000]
100,000X12% X 9/12 + 90,000 X 12% X 3/12
= 11,700

Already To be
Recorded Recorded
9,000 2,700

Interest Exp 2,700

Payable 2,700
Current portion of loan
[90,000/9 X 1] = 10,000
Non-Current portion of loan
[90,000-10,000] = 80,000

Note: This question cannot be presented properly bu using the nature of expenses method because of non availability of
opening stock figure for changes in inventory and purchases.

Page 34 of 35
Definition of total comprehensive income
Total comprehensive income during a period is the sum of:
• the profit or loss for the period and
• other comprehensive income.
Detail of other comprehensive income is not in the syllabus of intro to accounting.
Presentation of expenses in income statement.
Expenses should be presented in income statement by either:
• according to the function of the expense method; or
• according to the nature of expenses method
IAS 1 states that entities should choose the method that provides the more relevant or reliable information.
However, Companies’ Act 2017 requires classification by function with additional information on nature in
notes to the financial statements.
Analysis of expenses by their function
When expenses are analyzed according to their function, the functions are commonly ‘cost of sales’,
‘distribution expenses’, ‘administrative expenses’ and ‘other expenses’.
Illustration: Statement of comprehensive income - Expenses analyzed
by function
Rs.
Revenue xx
Cost of sales (xx)
Gross profit Xx
Other income Xx
Distribution costs (xx)
Administrative expenses (xx)
Other expenses (xx)
Finance costs (xx)
Net Profit xx
IAS 1 also requires that if the analysis by function method is used, additional information about nature of
expenses must be disclosed in notes.
Analysis of expenses by their nature
Illustration: Statement of comprehensive income - Expenses analyzed by nature
Rs.
Revenue xx
Other income xx
xx
Changes in inventories (xx)/xx
Purchases (including carriage inwards and other related amounts) (xx)
Salaries and employee’s commission (xx)
Depreciation expense (xx)
Other expenses (xx)
Finance costs (xx)
Net Profit (xx)

Note: Remember that opening stock will decrease the amount of profit while closing stock will increase the
amount of profit.

Page 35 of 35