Grade 12
Chapter 6
Financial statements-
Sole Proprietorship
Name: ………………………………………………………
A/L Year: ………………………………………………………
Contact details: 0778759158
Maryam Ali Mohamed (ACCA Lecturer @ PPIM)
Chapter 6 – Prepares financial statements of a sole proprietorship business
1. The following transactions took place during the month of April 2016 in a firm, engaged in the business
of renting out a wedding reception hall. The hall is rented at Rs. 400 000 of which 25% is payable at the
time of booking the hall and the balance within one week after the wedding reception.
Date Transaction Amount (Rs.)
02.04.2016 Balance amount received for the wedding reception 300 000
held on 28.03.2016.
05.04.2016 Advance received for the wedding reception to be
held on 27.04.2016. 100 000
15.04.2016 Advance received for the wedding reception to be
held on 10.05.2016 100 000
30.04.2016 Operating expenses incurred for month of April 2016 330 000
What is the income and profit/(loss) for the month of April 2016 and receivables as at 30.04.2016?
Income (Rs.) Profit/(loss) (Rs.) Receivables (Rs.)
(1) 200 000 (130 000) 600 000
(2) 400 000 70 000 300 000
(3) 500 000 170 000 600 000
(4) 700 000 370 000 300 000
(5) 800 000 470 000 600 000 (……)
2. Vishwa started a trading business on 01.01.2016 investing Rs. 1 000 000 as capital. He spent 90% of
this amount to purchase goods and sold them with a 30% mark-up on cost. The net assets of the
business as at 31.03.2016 were Rs. 1 200 000. There was no additional capital introduced or drawings
made during the period.
Calculate the following for the period ending 31.03.2016:
(a) Profit Rs. …………………………………………………………
(b) Operating expenses Rs. ……………………………………………………….
3. The gross profit and net profit of a business as per the draft income statement for the year ending
31.03.2014 were Rs. 840 000 and Rs.260 000 respectively. It was revealed subsequently that the
inventory as at 01.04.2013 had been undervalued by Rs. 20 000 and the inventory as at 31.03.2014 had
been overvalued by Rs. 30 000. In addition, Rs. 60 000 paid by the business as rent to the owner for the
use of a building owned by him had not been recorded.
The correct gross profit and the net profit for the year ending 31.03.2014:
Gross profit (Rs.) Net profit (Rs.)
(1) 730 000 200 000
(2) 790 000 150 000
(3) 830 000 190 000
(4) 850 000 210 000
(5) 890 000 250 000 (…….)
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4. The draft income statement of an entity for the year ended 31.03.2011 showed a profit of Rs. 10 000
000. The following information relates to items with a cost of Rs. 2 000 000 included in the inventory as
at 31.03.2011.
Expiry date of these items was 30.04.2011.
50% of these items has been subsequently sold for Rs. 1 000 000 before 30.04.2011 by
incurring a selling expense of Rs. 200 000.
There is no sales value for the balance items.
What were the value of above inventory items as at 31.03.2011 and the profit for the year
respectively after considering the above information? (Assume that the financial statements have
not yet been authorized for issue.)
Inventory (Rs.000) Profit (Rs.000)
(1) 800 8 800
(2) 1 000 9 000
(3) 1 200 9 200
(4) 2 000 9 800
(5) 2 000 10 000 (……)
5. The following information was extracted from the books of a business.
As at 31.03.2017 (Rs.) As at 31.03.2016 (Rs.)
Trade receivables 1 200 000 1 000 000
Allowance for doubtful debts 120 000 100 000
Further, during the year ending 31.03.2017, Rs. 60 000 was written off as bad debts and recorded in
the bad debts account.
Which of the following is correct?
Bad and doubtful debts expense for the year Carrying amount of trade
Ending 31.03.2017 (Rs.000) receivables as at 31.03.2017 (Rs.000)
(1) 60 1 080
(2) 80 1 020
(3) 80 1 080
(4) 180 1 020
(5) 180 1 080 (……)
6. The following information is provided for a business entity, which does not maintain accounting
records properly.
Description As at 31.03.2017 (Rs.000) As at 31.03.2016 (Rs.000)
Capital 650 500
Retained earnings 325 250
The owner annually withdraws Rs. 50 000 from the business for personal use. It is debited to the
retained earnings, the only reserve maintained by the business.
What is the profit for the year ending 31.03.2017 and the net assets as at 31.03.2017?
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Profit for the year (Rs.000) Net Assets (Rs.000)
(1) 25 925
(2) 75 975
(3) 75 875
(4) 125 875
(5) 125 975 (…….)
7. Income statement of a retail business reported the following information for the year ending
31.03.2018.
Description Rs.000
Sales 2 000
Interest earned 250
Gain on sale of motor vehicles 150
Interest expenses 300
Operating expenses 500
Cost of sales 1 200
Drawings-goods 200
The total income and total expenses to be recognized by this business for the year ending 31.03.2018:
Total income (Rs.000) Total Expenses (Rs.000)
(1) 1 200 800
(2) 1 200 1 000
(3) 2 250 2 000
(4) 2 400 2 000
(5) 2 400 2 200 (……)
8. The following information relates to Amal PLC as at 01.04.2017.
Rs.000
Trade receivables 900
Allowance for doubtful debts 90
The following transactions were carried out in the entity during the year ending 31.03.2018.
Rs.000
Credit sales 3 600
Sales returns 400
Receipt of cash for trade receivables 2 800
Bad debts written off 200
The business makes a 10% allowance for doubtful debts on the year end balances of trade receivables.
The following as at 31.03.2018:
(a) Trade receivables control account balance (Rs.000) ………………………………………..
(b) Carrying amount of trade receivables reported (Rs.000) ………………………………………..
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9. The following transactions took place in Isuru’s catering business.
15.01.2018 - Accepted an order to supply food and received a cash advance of Rs. 100 000
28.01.2018 - Supplied the food for the above order and received Rs. 200 000 in cash.
05.02.2018 - Received the balance amount of Rs. 50 000 for this order.
In relation to recognition of revenue of the above order:
(a) Date of recognition of revenue : ………………………………………………….
(b) Revenue to be recognized on this date : …………………………………………………..
(c) The most applicable accounting concept: ………………………………………………….
10. State whether the following statements relating to a sole trader business are true or false.
Statement True/False
A- The sum of capital investment and retained earnings is equal to
equity. …………………
B- The income statement is not prepared on accrual basis. …………………
C- The drawings are recognized as an expense in the income statement. ………………..
D- It is not useful to prepare management accounting reports as the
business is operated by the owner. ……………….
11. The following information has been provided with respect to Amali traders, a sole trader, as at
31.03.2019.
Rs.
Total assets 2 750 000
Total liabilities 1 650 000
Equity of the business as at 31.03.2018 was Rs. 800 000.
During the year ending 31.03.2019, the owner of the business has drawn Rs. 250 000 and invested Rs.
450 000 as additional capital.
State the following:
(a) Equity as at 31.03.2019 : Rs. ………………………………………………..
(b) Profit for the year ending 31.03.2019 : Rs. ……………………………………………….
12. Somapala Brothers is a VAT registered company and the summary of the VAT control account for the
year ended 31.03.2011 is given below. All purchases and sales are on cash.
Dr (Rs.000) Cr (Rs.000)
Balance as at 01.04.2010 - 150
Cash (collected on sales) - 2 500
Cash (paid for purchases) 650 -
Cash (paid to inland revenue department) 1 700 -
Compute the Vat liability as at 31.03.2011 assuming that all VAT paid on purchases van be deducted.
Rs. …………………………………………………………………………………………………………………………..
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13. Namal Traders commenced its operations on 01.04.2020. The following information is provided for the
month of April 2020.
Total of prime entry books: Rs. '000 Other Information: Rs. '000
Sales Journal 220 Cost of Sales 110
Purchase Journal 200 Operating Expenses (excluding 60
Sales Return Journal 20 discounts)
Purchase Return Journal 10 Trade discounts received 20
Trade discounts allowed 8
Cash discounts received 5
Cash discounts allowed 10
The total income and total expenses recognized for the month of April 2020:
Total Income (Rs. '000) Total Expenses (Rs.000)
(1) 200 170
(2) 205 170
(3) 205 180
(4) 220 180
(5) 225 188 (…….)
14. An entity reported a profit of Rs. 150 000 for the year ending 31.03.2020. However, in a subsequent
investigation, the following errors were revealed in the accounting books.
The total credit sales of Rs. 650 000 for the month of March 2020 has been recorded as Rs. 560 000 in
the sales account and the debtors control account.
A cash discount of Rs. 20 000 allowed to a trade debtor has been posted only in the debtors control
account.
An interest income of Rs. 25 000 received from a bank deposit has been credited to interest expenses
account. However, this amount has been correctly recorded in the cash account.
The depreciation on motor vehicles for the year Rs. 30 000 has not yet been provided.
What is the correct profit for the year ending 31.03.2020 after correcting the above errors?
1. Rs. 165 000
2. Rs. 190 000
3. Rs. 210 000
4. Rs. 215000
5. Rs. 235 000 (……..)
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