Miss Excellent has not kept proper bookkeeping records for her business. She found the following details after searching through several receipts, invoices, and dairies which she kept for her business:
Balances as at 31 December 2016:
₦
Business premises 8,000
Equipment 2,800
Inventory 5,100
Amounts expected from credit customers 6,100
Bank 7,900
Cash 3,500
Amounts payable to suppliers 3,200
Loan from Mr. Excel 5,600
Balances as at 31 December 2017:
₦
Business premises (Carrying amount) 6,800
Equipment (Carrying amount) 3,600
Inventory 5,700
Amounts expected from credit customers 7,600
Bank 9,800
Cash 5,300
Amounts payable to suppliers 3,500
Loan from Mr. Excel 3,600
During the year ended 31 December 2017, Miss Excellent made several drawings from her capital. The drawings are as follows:
30 April 2017 ₦2,000
30 September 2017 ₦2,000
30 November 2017 ₦3,400
Required: What is the amount of profit for the year ended 31 December 2017?
See the suggested answer to practice activity 8.6 here.
Suggested answer to practice activity 8.6
To calculate the profit for the accounting year ended 31 December 2017, the following steps should be followed:
Step 1: Calculate the opening capital
The opening capital can be computed from balances of Assets and Liabilities as at 31 December 2016.
The accounting equation is Assets less Liabilities = Capital
Step 2: The capital as at 31 December 2016 will be the opening capital as at 1 January 2017.
The capital as at 31 December 2016 is ₦24,600. This is the opening capital as at 1 January 2017.
Step 3: Calculate the closing capital as at 31 December 2017
Step 4: Calculate the total drawings for the accounting year ended 31 December 2017
The drawings are as follows:
30 April 2017 ₦2,000
30 September 2017 ₦2,000
30 November 2017 ₦3,400
Total ₦7,400
Therefore, the total drawings is ₦7,400.
Step 5: Calculate the profit for the year ended 31 December 2017
Closing capital = Opening capital + Profit for the year – Drawings
₦31,700 = ₦24,600 + Profit for the year – ₦7,400
Denote Profit for the year as P
₦31,700 = ₦24,600 + P – ₦7,400
₦31,700 - ₦24,600 + ₦7,400 = P
P = ₦14,500
The Profit for the year ended 31 December 2017 is ₦14,500.
Reconciliation of the capital, profit and drawings for the year ended 31 December 2017.
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