Mr. Bright is a shoemaker and derives his income from making and selling shoes. Bright inherited a three bed-room apartment from his father. There were two shops in front of the three-bedroom apartment, which Mr. Bright converted to his office and store.
Mr. Bright makes male and female shoes. On 10 April 2018, he registered his business name as ‘Bright Shoes Enterprises.’ He commenced business on 2 May 2018 and prepares his financial statements to 30 April every year. As at 1 May 2019, Mr. Bright had ₦500,000 in his bank account. The accounting period of his business ended on 30 April 2020. As a result, the subsequent balances were obtained from the accounts of Bright Shoe Enterprises:
Mr. Bright provided the following additional information:
i. ₦1,000 call credit used in March 2020 was yet to be paid as of 30 April 2020.
ii. Depreciation for office equipment is 25% on a straight-line basis. Office equipment has a useful life of 4 years.
iii. Depreciation for shoe-making tools is 10% on a straight-line basis. Shoe-making tools have a useful life of 10 years.
iv. Electricity expense includes ₦3,000 paid in advance for May 2020.
v. A customer bought a pair of shoes worth ₦2,000 on 10 July 2018. Mr. Bright sold the pair of shoes to the customer because he promised to transfer them to the bank account of Bright Shoes Enterprises. The customer’s bank did not complete the transfer. On personal recognition, Mr. Bright sold the pair of shoes to the customer. He was yet to pay for them as of 30 April 2020. Mr. Bright decided to write off the ₦2,000 as bad debt.
You are required to prepare the statements of:
Profit or loss for the year ended 30 April 2020; and
Financial position as at 30 April 2020.
See the suggested answers to practice activity 9.6 here.
Suggested answers to practice activity 9.6
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