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28.7A The owner of a small business selling and repairing cars which you patronise has just
received a copy of his accounts for the current year.
He is rather baffled by some of the items and as he regards you as a financial expert, he has
asked you to explain certain points of difficulty to him. This you have readily agreed to do. His
questions are as follows:

(a) ‘What is meant by the term “assets”? My mechanical knowledge and skill is an asset to the
business but it does not seem to have been included.’
(b) ‘The house I live in cost £30,000 five years ago and is now worth £60,000, but that is not
included either.’
(c) ‘What is the difference between “fixed assets” and “current assets”?’
(d) ‘Why do amounts for “vehicles” appear under both fixed asset and current asset headings?’
(e) ‘Why is the “bank and cash” figure in the balance sheet different from the profit for the year
shown in the profit and loss account?’
(f ) ‘I see the profit and loss account has been charged with depreciation on equipment etc.
I bought all these things several years ago and paid for them in cash. Does this mean that I am
being charged for them again?’

Required:
Answer each of his questions in terms which he will be able to understand.

(Association of Chartered Certified Accountants)

28.8 The following trial balance was extracted from the books of R Giggs at the close of business
on 28 February 20X7.

Dr Cr
£ £
Purchases and sales 92,800 157,165
Cash at bank 4,100
Cash in hand 324
Capital account 1 March 20X6 11,400
Drawings 17,100
Office furniture 2,900
Rent 3,400
Wages and salaries 31,400
Discounts 820 160
Debtors and creditors 12,316 5,245
Stock 1 March 20X6 4,120
Provision for doubtful debts 1 March 20X6 405
Delivery van 3,750
Van running costs 615
Bad debts written off 730
174,375 174,375

Notes:
(a) Stock 28 February 20X7 £2,400.
(b) Wages and salaries accrued at 28 February 20X7 £340.
(c) Rent prepaid at 28 February 20X7 £230.
(d) Van running costs owing at 28 February 20X7 £72.
(e) Increase the provision for doubtful debts by £91.
(f ) Provide for depreciation as follows: Office furniture £380; Delivery van £1,250.

Required:
Draw up the trading and profit and loss account for the year ending 28 February 20X7 together
with a balance sheet as on 28 February 20X7. ‘

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‘ 28.9 The trial balance for a small business at 31 August 20X8 is as follows:
£ £
Stock 1 September 20X7 8,200
Purchases and Sales 26,000 40,900
Rent 4,400
Business rates 1,600
Sundry expenses 340
Motor vehicle at cost 9,000
Debtors and creditors 1,160 2,100
Bank 1,500
Provision for depreciation on motor vehicle 1,200
Capital at 1 September 20X7 19,700
Drawings 11,700
63,900 63,900
At 31 August 20X8 there was:
l Stock valued at cost prices £9,100
l Accrued rent of £400
l Prepaid business rates of £300
l The motor vehicle is to be depreciated at 20% of cost
Required:
1 The adjustments to the ledger accounts for rent and business rates for the year to 31 August
20X8.
2 A trading profit and loss account for the year ending 31 August 20X8, together with a balance
sheet as at that date.

28.10A J Wright, a sole trader, extracted the following trial balance from his books at the close
of business on 31 March 20X9:
Dr Cr
£ £
Purchases and sales 61,420 127,245
Stock 1 April 20X8 7,940
Capital 1 April 20X8 25,200
Bank overdraft 2,490
Cash 140
Discounts 2,480 62
Returns inwards 3,486
Returns outwards 1,356
Carriage outwards 3,210
Rent and insurance 8,870
Provision for doubtful debts 630
Fixtures and fittings 1,900
Van 5,600
Debtors and creditors 12,418 11,400
Drawings 21,400
Wages and salaries 39,200
General office expenses 319
168,383 168,383

Notes:
(a) Stock 31 March 20X9 £6,805.
(b) Wages and salaries accrued at 31 March 20X9 £3,500; Office expenses owing £16.
(c) Rent prepaid 31 March 20X9 £600.
(d) Increase the provision for doubtful debts by £110 to £740.
(e) Provide for depreciation as follows: Fixtures and fittings £190; Van £1,400.

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Required:
Prepare the trading and profit and loss accounts for the year ended 31 March 20X9 together with a
balance sheet as at that date.

28.11 This question also relates to extended trial balances (see Exhibit 28.2)
From the following trial balance of John Brown, store owner, prepare a trading account and profit
and loss account for the year ended 31 December 20X7, and a balance sheet as at that date, taking
into consideration the adjustments shown below:

Trial Balance as at 31 December 20X7

Dr Cr
£ £
Sales 400,000
Purchases 350,000
Sales returns 5,000
Purchases returns 6,200
Opening stock at 1 January 20X7 100,000
Provision for doubtful debts 800
Wages and salaries 30,000
Rates 6,000
Telephone 1,000
Shop fittings at cost 40,000
Van at cost 30,000
Debtors and creditors 9,800 7,000
Bad debts 200
Capital 179,000
Bank balance 3,000
Drawings 18,000
593,000 593,000

(i) Closing stock at 31 December 20X7 £120,000.

(ii) Accrued wages £5,000.
(iii) Rates prepaid £500.
(iv) The provision for doubtful debts to be increased to 10 per cent of debtors.
(v) Telephone account outstanding £220.
(vi) Depreciate shop fittings at 10 per cent per annum, and van at 20 per cent per annum, on cost.

28.12A The following trial balance has been extracted from the ledger of Mr Yousef, a sole
trader.

Trial Balance as at 31 May 20X6

Dr Cr
£ £
Sales 138,078
Purchases 82,350
Carriage 5,144
Drawings 7,800
Rent, rates and insurance 6,622
Postage and stationery 3,001
Advertising 1,330
Salaries and wages 26,420
Bad debts 877 ‘

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‘ Provision for doubtful debts

Debtors 12,120
130

Creditors 6,471
Cash in hand 177
Cash at bank 1,002
Stock as at 1 June 20X5 11,927
Equipment
at cost 58,000
accumulated depreciation 19,000
Capital 53,091
216,770 216,770
The following additional information as at 31 May 20X6 is available:

(a) Rent is accrued by £210.

(b) Rates have been prepaid by £880.
(c) £2,211 of carriage represents carriage inwards on purchases.
(d) Equipment is to be depreciated at 15% per annum using the straight line method.
(e) The provision for doubtful debts to be increased by £40.
(f) Stock at the close of business has been valued at £13,551.

Required:
Prepare a trading and profit and loss account for the year ended 31 May 20X6 and a balance sheet
as at that date.

(Association of Accounting Technicians)

28.13 Mr Chai has been trading for some years as a wine merchant. The following list of
balances has been extracted from his ledger as at 30 April 20X7, the end of his most recent
financial year.
£
Capital 83,887
Sales 259,870
Trade creditors 19,840
Returns out 13,407
Provision for doubtful debts 512
Discounts allowed 2,306
Discounts received 1,750
Purchases 135,680
Returns inwards 5,624
Carriage outwards 4,562
Drawings 18,440
Carriage inwards 11,830
Rent, rates and insurance 25,973
Heating and lighting 11,010
Postage, stationery and telephone 2,410
Advertising 5,980
Salaries and wages 38,521
Bad debts 2,008
Cash in hand 534
Cash at bank 4,440
Stock as at 1 May 20X6 15,654
Trade debtors 24,500
Fixtures and fittings – at cost 120,740
Provision for depreciation on fixtures and fittings – as at 30 April 20X7 63,020
Depreciation 12,074

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Chapter 28 l Accruals and prepayments and other adjustments for financial statements

The following additional information as at 30 April 20X7 is available:

(a) Stock at the close of business was valued at £17,750.
(b) Insurances have been prepaid by £1,120.
(c) Heating and lighting is accrued by £1,360.
(d) Rates have been prepaid by £5,435.
(e) The provision for doubtful debts is to be adjusted so that it is 3% of trade debtors.
Required:
Prepare Mr Chai’s trading and profit and loss account for the year ended 30 April 20X7 and a bal-
ance sheet as at that date.
(Association of Accounting Technicians)

You can find a range of additional self-test questions, as well as material to help you with
your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood

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