The following balances were extracted from the books of Doji, a trader, on 30 September 2010: $ Ordinary goods purchased (purchases) 70 000 Carriage inwards 3 000 Revenue (sales) 155 000 Sales returns 9 500 Non current (fixed) assets: Motor vehicles 42 000 Office equipment 26 000 Provisions for: depreciation on motor vehicles 8 000 depreciation on office equipment 4 000 Provision for doubtful debts 1 000 Salaries 23 750 Rent and rates 6 800 Discount received 5 600 Sundry expenses 14 150 Advertising 6 200 Trade payables (creditors) 18 300 Trade receivables (debtors) 23 000 Inventory (stock) at 1 October 2009 11 500 Bank overdraft 16 000 Capital 40 000 Drawings 12 000 Additional information at 30 September 2010 1 Inventory (stock) was valued at $14 600. 2 During the year Doji took goods costing $1250 for his own use. No entries have been made in the books. 3 Advertising, $300, was prepaid. Salaries, $2600, were accrued. 4 Depreciation is to be charged as follows: motor vehicles at the rate of 25% per annum using the diminishing (reducing) balance method; office equipment at the rate of 10% per annum using the straight line method. 5 Trade receivables (debtors) include a debt of $4250 which is considered irrecoverable and is to be written off. The provision for doubtful debts is to be maintained at 4% of all remaining debts. 6 On 1 April 2010 Doji made a short-term loan, $10 000, to the business. This was included in error in the capital account. Interest payable at 5% per annum has not been entered in the books.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2010). The mark or mark type is shown in brackets.

1. [22] (a) Doji Income Statement (Trading and Profit & Loss Account) for the year ended 30 September 2010. Revenue (sales) $155 000 (1) Less Sales returns $9 500 (1) Net Revenue $145 500 Less Cost of sales Inventory (opening stock) $11 500 (1) Ordinary goods purchased (purchases) $70 000 (1) Less goods for own use $1 250 (1) Net Purchases $68 750 Carriage inwards $3 000 (1) Cost of goods available for sale $83 250 Less Inventory (closing stock) $14 600 (1) Cost of Sales $68 650 Gross profit $76 850 (1) Add Other income Discount received $5 600 (1) Decrease in Provision for Doubtful Debts $250 (2) Total Other income $5 850 Total Income $82 700 Less Expenses Salaries ($23 750 + $2 600) $26 350 (2) Rent and rates $6 800 (1) Sundry expenses 14 150 (1) Advertising (6 200 – $300) $5 900 (2) Depreciation on motor vehicles $8 500 (1) Depreciation on office equipment $2 600 (1) Bad debt $4 250 (1) Loan interest $250 (2) Total Expenses $68 800 Profit for the year (net profit) $13 900 (1) Calculation of Provision for Doubtful debts: $23 000 - $4 250 = $18 750 × 4% = $750 less $1 000 = $250 decrease
2. [18] (b) Doji Balance Sheet at 30 September 2010 Non-current (fixed) assets Motor vehicles Cost $42 000 / Depreciation to date $16 500 / Book value $25 500 (1) Office equipment Cost $26 000 / Depreciation to date $6 600 / Book value $19 400 (1) Total Non-current assets Book value $44 900 (1) Current assets Inventory (stock) $14 600 (1) Trade receivables (debtors) (18 750) / Less Provision for doubtful debts (750) = $18 000 (2) Other receivables (prepayments) $300 (1) Total Current assets $32 900 Current liabilities Trade payables (creditors) $18 300 (1) Other payables (accruals) ($2 600 + $250) $2 850 (2) Short term loan $10 000 (1) Bank overdraft $16 000 (1) Total Current liabilities $47 150 Net current assets ($14 250) (1) Total Assets less Current Liabilities $30 650 Financed by Equity (capital) Opening balance ($40 000 – $10 000) $30 000 (2) Plus Profit for the year (net profit) $13 900 (1) Subtotal 43 900 Less Drawings (12 000 + $1 250) $13 250 (2) Total Equity $30 650