Worked example 1

Extract: Sales $120,000; opening inventory $8,000; purchases $62,000; closing inventory $10,000; expenses $28,000; capital opening $45,000; drawings $12,000. Calculate gross profit, net profit, and closing capital.

Show solution outline

COGS = 8,000 + 62,000 − 10,000 = ** $60,000**$ Gross profit = 120,000 − 60,000 = ** $60,000**$ Net profit = 60,000 − 28,000 = ** $32,000**$

Closing capital = 45,000 + 32,000 − 12,000 = ** $65,000**$

SOFP check: Total assets = Capital $65,000 + Liabilities.

Worked example 2

The following trial balance was extracted from the books of Ben's Bikes, a sole trader, on 31 March 2024.

Account	Dr ($)	Cr ($)
Revenue		150,000
---	---
Purchases	85,000
Inventory (1 Apr 23)	12,000
Rent & Rates	18,000
Wages & Salaries	25,000
Van at cost	20,000
Van Acc. Dep. (1 Apr 23)		4,000
Trade Receivables	9,000
Trade Payables		6,000
Bank	11,000
Drawings	10,000
Capital (1 Apr 23)		30,000
Total	190,000	190,000

Additional Information:

Closing inventory at 31 March 2024 was valued at $14,000.$
Rent of $1,500 was prepaid for the next financial year.
Wages of $2,000 are owing at the year-end.
Depreciation on the van is to be charged at 25% per annum using the straight-line method.

Required: Prepare the Income Statement for the year ended 31 March 2024 and a Statement of Financial Position as at that date.

Show solution outline

Step 1: Calculate adjusted expense figures

Rent Expense: $18,000 (per TB) - $1,500 (prepaid) = ** $16,500**$
Wages Expense: $25,000 (per TB) + $2,000 (accrued) = ** $27,000**$
Depreciation Expense: 25% x $20,000 (cost) = $5,000

Step 2: Prepare the Income Statement

Ben's Bikes Income Statement for the year ended 31 March 2024

	$	$
Revenue		150,000
Less: Cost of Sales
Opening Inventory	12,000
---	---
Add: Purchases	85,000
	97,000
Less: Closing Inventory	(14,000)	(83,000)
---	---	---
Gross Profit		67,000
Less: Expenses
Rent & Rates	16,500
---	---
Wages & Salaries	27,000
Depreciation - Van	5,000	(48,500)
Profit for the year		18,500

Step 3: Prepare the Statement of Financial Position

Ben's Bikes Statement of Financial Position as at 31 March 2024

| | $|$ | $|$ | :--- | :--- | ---: | ---: |

Non-Current Assets	Cost	Acc. Dep.	NBV
Van	20,000	(9,000)	11,000
Current Assets
Inventory		14,000
---	---
Trade Receivables		9,000
Prepayments (Rent)		1,500
Bank		11,000	35,500
Total Assets			46,500

Capital
Opening Capital		30,000
---	---
Add: Profit for the year		18,500
		48,500
Less: Drawings		(10,000)
---	---
Closing Capital			38,500
Current Liabilities
Trade Payables		6,000
---	---
Accruals (Wages)		2,000	8,000
Total Capital and Liabilities			46,500

Sole traders — practice questions

Worked example 1

Worked example 2