S6hy0506_SL_Hung_Incomplete_Record.doc

Incomplete RecordAfter having worked in a trading firm for many years, Mr. S.L. Hung decided to start his own trading business, investing his savings of $100 000. On 1 April 2011, he leased suitable premises at a rental of $12,000 per month. He paid a deposit of two months rent and the first months rent in advance. On the same day he opened a bank account in the name of Hung Traders and made an initial deposit of $64,000.Mr Hung has been very successful in running the business but he knows very little about bookkeeping. At the end of a year of trading he is eager to know his trading position. He has maintained sufficient records of cash, receivables and payables.The following information is given in respect of the transaction for the first year:(i) An analysis of the bank statements, pay-in-slips and cheque book stubs reveals the following:$amounts banked (including initial deposit)840,000payment to creditors350,000electricity bills paid29,000rent paid 132,000fixture purchased88,000van purchased24,000insurance premiun paid2,200personal expenses28,000cash drawn165,000(ii) Mr Hung employed an assistant on 1st May 2011 on a monthly salary of $3,000 which was always paid in cash. Cash drawn was also used for the following:$printing and stationery 16,000cleaning and maintenance 25,420petrol and oil 18,900signboard for the shop12,000purchases of goods for resale47,000miscellaneous expenses8,020(iii) Mr Hung banked all his takings with the exception of one occasion when he used $25,000 cash to pay for purchases of goods and only banked the balance.(iv) A sum of $46,900 is still owing from customers on 31 March 2012.(v) Stock-in-trade on 31 March 2012 was valued at $59,800.(vi) Mr Hung paid the electricity bill for the month of March 2012, amounting to $3,680, on 5 April 2012.(vii) Mr Hung wants to set aside $1,000 as accountants fees.(viii) Mr Hung owes a sum of $84,900 to trade creditors on 31 March 2012 for goods purchased.(ix) Depreciation is to be provided at 20% on the cost of the van and 10% on the cost of fixtures. Mr Hung agrees that the signboard for the shop should be considered as a fixture.(x) Mr Hung had taken, for his personal use, goods purchased for resale costing $2,500.Required:(a) the trading, profit and loss account of Hung Traders for the year ended 31 March 2012; and (11 marks)(b) the balance sheet as at that date.(9 marks)(a)Hung TradersTrading & profit & loss account for the year ended 31March 2012$2Purchases 434900(1) +25000 (0.5) +47000(0.5)506900Sales84790020.5Less: drawings25005044000.5Less: closing stock59800Cost of goods sold 444600Gross profit c/d4033008479008479000.5Printing & stationery16000Gross profit b/d4033000.5Rent $12000 x 121440000.5Cleaning & maintenance254200.5Petrol & oil189000.5Electricity 326800.5Accountants fees10000.5Insurance22000.5Miscellaneous exp.8020Depreciation of 0.5 Fixture (88000+12000)x10%100000.5 Van48000.5Wages330000.5Net profit107280403300403300(11)Note: l Signboard is a “fixture” and should not be charged to the income statement.l Personal expense of the owner is “drawings” and should not be charged to the income statement.l Some students misunderstood the phrase “set aside”. They thought this “set aside” is to create some sort of “RESERVE”. In fact, the accountant fee is just an expense not yet paid. The “set aside” means to provide for it as an accrual.(b)Hung TradersBalance sheet as at 31 March 2012MarksNon-current AssetsCostDepreciationNBVCapitalMarks$ 1Fixtures1000001000090000Capital 1000000.51Van24000480019200Net profit for the year1072800.5109200207280Less: drawings305000.5Current Assets$28000+25001767800.5Inventory 59800Current Liabilities0.5Trade Receivables46900Trade payables849000.51Rental deposit24000Accruals468011Bank218003680+1000895801Cash4660157160266360266360(9)Note:l Rental deposit $24,000 ($12,000 x2) is current asset.l Accruals are composed of electricity $3,680 and accountant fee $1,000.l Drawings are composed of goods $2,500 and personal expenses $28,000.l Workings1.Bank account$Capital 64000Creditors350000Cash776000Electricity 29000Rent132000Fixtures88000Van 24000Insurance2200Personal expenses28000Cash drawn 165000Balance c/d218008400008400002.Cash account $Cash withdrawn from bank165000Bank 776000Debtors801000Cash Purchases25000Printing & stationary 16000Cleaning & maintenance 25420Petrol & oil 18900(Signboard) - Fixture12000Purchases of goods 4700