Unit 3 Answers to activities

Activity 3.1
1 Serge Bashir
Income statement for the year ended 31 March 201X
Dr Cr
$ $
Purchases 124 300 Sales 255 000
Gross profit c/d 130 700     ______
255 000 255 000

Gross profit b/d 130 700

Rent 14 700
Electricity 6600
Insurance premium 2100
Telephone charges 3200
Wages and salaries 39 000
Other expenses   18 900
84 500
Profit for the year   46 200 _______
130 700 130 700

2 The business returned a gross profit of $130 700 and a profit for the year of $46 200.

Activity 3.2
1 Paulo De Santos
Trial Balance as at 31 December
Dr ($) Cr ($)
Sales 100 000
Purchases 75 000
Electricity 1500
Telephone 4000
Insurance 1000
Other expenses 14 500
Equipment 19 000
Bank 5000
Opening capital (1 Jan)         20 000
120 000 120 000

2 First part of income statement only:

Paulo de Santos
Income statement for the year ended 31 December
Dr Cr
$ $
Purchases 75 000 Sales 100 000
Gross profit c/d   25 000     ______
100 000 100 000

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3 Paulo de Santos
Income statement for the year ended 31 December
Dr Cr
$ $
Purchases 75 000 Sales 100 000
Gross profit c/d   25 000 _______
100 000 100 000
Gross profit b/d 25 000

Electricity charges 1500

Insurance premiums 1000
Telephone charges 4000
Other expenses 4500
Profit for the year   14 000 _______
  25 000   25 000

4
General Ledger Paulo de Santos
Capital account

Dr Cr

$ $

Dec 31 Balance c/d 34 000 Jan 1 Bank 20 000

Dec 31 Income statement 14 000
34 000 34 000

Activity 3.3
1 (a) 1 (b)
$ $ $ $
Sales 355 000 Gross profit 93 600
less sales returns 17 000      less Rent 18 000
Revenue 338 000   Electricity 12 800
Purchases 260 000   Insurance 4500
less purchases returns 15 600   Cleaning 6700
Net purchases 244 400   Sundry expenses 13 000
Gross profit 93 600 55 000
Profit for the year 38 600
2 (a)
Trial Balance as at 30 September
Dr ($) Cr ($)
Sales 355 000
Sales returns 17 000
Purchases 260 000
Purchases returns 15 600
Rent 18 000
Electricity 12 800
Insurance 4500
Cleaning 6700
Sundry expenses 13 000
Equipment 9000
Bank 4600
Opening capital (1 Oct) 25 000        
370 600 370 600

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2 (b)
Income statement for the year ended 30 September
Dr Cr
$ $ $ $
Purchases 260 000 Sales 355 000
less Purchases returns   10 600 less Sales returns   17 000
Cost of sales 244 400 338 000
Gross profit c/d   93 600        
338 000 338 000

Gross profit b/d 93 600

Rent 18 000
Electricity 12 800
Insurance 4500
Cleaning 6700
Sundry expenses   13 000
55 000
Profit for the year   38 600        
  93 600   93 600

Activity 3.4
1 JP Drexwell
Income Statement for year ended 31 December 2013
Dr Cr
$ $ $ $

Purchases 140 000 Sales 190 000

less Purchases returns   10 000 less Sales returns   14 000
Cost of sales 130 000 176 000
Gross profit c/d   46 000        
176 000 176 000

Rent 5400 Gross profit b/d 46 000

Electricity 2000
Wages 15 000
Insurance 600
Loan interest    500
23 500
Profit for the year   22 500        
  46 000   46 000

2
General ledger JP Drexwell
Capital account

Dr Cr

$ $

Dec 31 Drawings 12 500 Jan 1 Balance b/d 25 000

Dec 31 Balance c/d 35 000 Dec 31 Income statement 22 500
47 500 47 500

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Activity 3.5
a. net sales or revenue = (sales – sales returns) = $103 600
b. net purchases = (purchases – purchases returns) = $54 250
c. cost of sales = (net purchases – closing inventory) = $41 650
d. gross profit = (revenue – cost of sales) = $61 950
e. profit for the year = (gross profit – expenses) = $39 220
f. increase in owner’s capital = ( profit for the year – drawings) = $14 220

Activity 3.6
1 Go Faster Sports
Income Statement for Year 4 ended 31 December
Dr Cr
$ $ $ $
Opening inventory 9000 Sales 135 000
  Purchases 98 000 less Sales returns    8000
  less Purchases returns  5400 127 000
92 600
  less Closing inventory 12 000
  80 600
Cost of sales 89 600
Gross profit c/d   37 400
127 000       
127 000
Gross profit b/d 37 400
Rent 9600
Electricity 3300
Advertising 2800
Sundry expenses  1700

Total expenses 17 400

(b) Profit for the year   20 000

      
  37 400
  37 400

2
Capital account

Dr Cr

Year 3 $ Year 3 $
Dec 31 Drawings 7000 Jan 1 Balance b/d 10 500
Dec 31 Balance c/d 19 300 Dec 31 Income statement 15 800
26 300 26 300
Year 4 Year 4
Dec 31 Drawings 12 000 Jan 1 Balance b/d 19 300
Dec 31 Balance c/d 27 300 Dec 31 Income statement 20 000
39 300 39 300

Drawings account

Dr Cr

Year 3 $ Year 3 $
Dec 31 Balance c/d   7000 Dec 31 Capital   7000
Year 4 Year 4
Dec 31 Balance c/d 12 000 Dec 31 Capital 12 000

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 (a) She retained profit in the business of $8000 (profit for the year of $20 000 less $12 000 of
drawings).
(b) Her closing capital at the end of year 4 was $27 300:

$
Opening capital 19 300
add Profit for the year 20 000
 39 300
less Drawings 12 000
Closing capital 27 300

Activity 3.7
(a) (i)
Rahul Sababady
Income Statement for year ended 30 June 2013
Dr Cr
$ $ $ $
Opening inventory 12 900 Sales 93 000
  Purchases 47 800 less Sales returns   5400
  add Carriage inwards   2000 87 600
49 800
  less Purchases returns   5000
44 800
  less Closing inventory 16 900
27 900
Cost of sales 40 800
Gross profit c/d 46 800      
87 600 87 600
Gross profit b/d 46 800

Rent 10 000
Electricity 3000
Insurance 2800
Cleaning and maintenance 2100
Sundry expenses 900
Carriage outwards 1000
19 800
Profit for the year 27 000
     
46 800
46 800

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 (ii)
Rahul Sababady
Income Statement for year ended
30 June 2013
$ $
Sales 93 000
less Sales returns   5400
87 600
less Cost of Sales:
   Opening inventory 12 900
   add Purchases 47 800
   add Carriage inwards   2000
62 700
   less Purchases returns   5000
57 700
   less Closing inventory 16 900
40 800
Gross profit 46 800

less Expenses:
   Carriage outwards 1000
   Rent 10 000
   Electricity 3000
   Insurance 2800
   Cleaning and maintenance 2100
   Sundry expenses   900
19 800
Profit for the year 27 000

(b) The value of Rahul’s net assets had increased by $7 000 (profit of the year of $27 000 less
drawings of $20 000) by the end of his second year of trading.
(c) Closing capital at 30 June 2013 was $32 000:

 $
Opening capital 25 000
add Profit for the year 27 000
 52 000
less Drawings 20 000
Closing capital 32 000

Activity 3.8
1 (a)  Cost of sales: $ (c)  Loss for the year: $
Opening inventory 18 000 Gross profit 110 000
add Purchases 370 000 less Total expenses 120 000
add Carriage inwards 25 000 Loss for the year (10 000)
less Closing inventory 23 000
Cost of sales 390 000 (d)  Change in owner’s capital: $
Loss for the year 10 000
(b)  Gross profit: $ less Drawings 30 000
Revenue 500 000 Decrease in owners capital (40 000)
less Cost of sales 390 000
Gross profit 110 000

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2 Yash’s Computer Sales
Income Statement for year ended 31 December
$ $
Sales 36 000

less Cost of Sales:

   Purchases 27  000
   less Closing inventory   3 000
24 000
Gross profit 12 000

less Expenses:
   Carriage outwards 3500
   Telephone 1500
   Other expenses  8000

13 000
Loss for the year   1000

3 (a)
Income Statement for year ended 31 March 2013
$ $
Sales 67 500
less Sales returns  7600
59 900
less Cost of Sales:
   Opening inventory 7980
   add Purchases 42 400
50 380
   less Purchases returns  3500
46 880
   less Closing inventory 15 800
31 080
Gross profit 28 820

less Expenses
32 950

Loss for the year   4130

(b)

Capital account

Dr Cr

2013 $ 2012 $
April 1 Balance b/d 9400

Mar 31 Drawings 5950 2013

Mar 31 Income statement   4130 Mar 31 Balance c/d    900
10 050 10 050

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Activity 3.9
1 The investment in solar panels will:
(a) increase non-current assets
(b) decrease current assets because the cash purchase will reduce cash in bank. However, over time
the company will spend less from cash on electricity.
2 Walmart could finance the investment from cash it holds in the business bank account or from
taking out one or more long-term bank loans. Because it is a company it could also sell shares to
raise permanent capital

Activity 3.10
1
Alpha Repairs Beta Supplies
$ $
Current assets: Current assets:
   Inventory 8000    Inventory 15 000
   Bank 5800    Trade receivables 5500
   Cash   1200    Bank 4100
15 000    Cash    400
25 000
Current liabilities:
   Bank overdraft 7000 Current liabilities:
   Trade payable   6500    Bank overdraft 12 000
13 500    Trade payables   5000
17 000
Working Capital = current assets − current
liabilities Working Capital = current assets − current
= 15 000 – 13 500 = $1500 liabilities
= 25 000 – 17 000 = $8000

2 Beta supplies has more working capital than Alpha Repairs and was therefore in a better liquidity
position than Alpha. This was because the value of its current assets was $8 000 more than the
value of its current liabilities. In contrast, Alpha would only have $1 500 left in current assets after
it had met or paid off its current liabilities.

Activity 3.11
G Stannard
Statement of Financial position at end of accounting year
$ $ $ $
Non- current assets Capital
Premises 66 000 Opening capital 60 000
Computer equipment 12 000 add Profit for the year 10 000
78 000 70 000

Current assets Liabilities

Trade receivables 3000 Trade payables 15 000

Bank   4000
   7000      
85 000 85 000

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Activity 3.12
A Mamoud
Statement of Financial position at end of accounting year
$ $ $ $
Non- current assets Capital
Premises 145 000 Opening capital 190 000
Machinery 26 700 add Profit for the year 55 800
Delivery vehicles 22 400 less Drawings 45 000
Fixtures and fittings 10 900 200 800
Computer equipment   5600
210 600

Current assets Liabilities

Inventory 18 900 Bank loan 38 000
Trade receivables 12 450 Trade payables  7800
Bank 3450 45 800
Cash   1200
  36 000       
246 600 246 600

Activity 3.13
John Fofana
Statement of Financial Position as at 31 March 201X
$ $ $
Non-current assets:
   Premises 100 000
   Equipment   20 000
120 000
Current assets:
   Inventory 19 000
   Trade receivables 8000
   Cash    1000
28 000
less Current liabilities:
   Trade payables 11 000
   Bank overdraft    2000
  13 000
Net current assets (working capital)   15 000
Total assets less current liabilities 135 000
less Non-current liabilities
   15 year Loan   40 000
Net assets   95 000
Capital:
    Capital at start of year 80 000
   add Profit for the year 30 000
   less Drawings 15 000
95 000

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Activity 3.14
1 (a) Value of equipment at cost = $2000
(b) Accumulated depreciation = 3 years × $500 per year = $1500
(c) Net book value of equipment at end of year 3:
equipment at cost − accumulated
depreciation = 2000 − 1500 = $500
2 (a) Value of inventory at cost = 200 boxes × $5 per box = $1000
(b) Value of inventory at normal selling price = 200 × $9 = $1800
(c) Net realisable value of inventory = 200 × $4 = $800
3 Trade receivables in statement of financial position = $810
$
Trade receivables 900
less P
 rovision for doubtful debts at 10% of $900 90
 810

Activity 3.15
Easy-mix
Omar’s Hardware Store
cement
Date Purchase/sale Quantity Price – $/kg Value – $
1 August Purchase 10 kg 1.00 10.00
1 September Purchase 15 kg 1.50 22.50
1 October Purchase 20 kg 2.00 40.00
45 kg 72.50

45kg of cement mix has been purchased and 18 2kg bags have been sold. The closing inventory of
Easy-mix cement at 31 October is therefore 45 − 36 = 9 kg

Omar’s Hardware Store Easy-mix cement –

inventory valuation 31 October
Method kg Price – $/kg Value – $
FIFO (counting backwards from last 9 2.00 18.00
purchases)
LIFO* (after each sale it is the earliest 5 1.00 5.00
ones left) 4 2.00 8.00
13.00
AVCO (average price across ALL 9 45 kg bought for $72.50 14.50
purchases) Average price = 72.50 ÷ 45
= $1.611/kg

*15 Sept sales of 20 kg (10 bags of 2 kg) uses all 15 kg of 1 Sept purchase and 5 kg of 1 August purchase,
leaving 5 kg from August at $1.00/kg
15 October sales of 16 kg (8 bags of 2 kg) uses 16 kg of 1 October purchase, leaving 4 kg from October at
$2.00/kg

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