A sole trader extracted the following ledger balances and adjustment details at the end of the accounting period: | Account / Information | Amount (\text{N}) | | :--- | :--- | | Gross Profit | 120,000 | | Discount Received | 4,500 | | Rent Paid | 18,000 | | Salaries and Wages Paid | 32,000 | | Gener

A sole trader extracted the following ledger balances and adjustment details at the end of… — JAMB UTME

A sole trader extracted the following ledger balances and adjustment details at the end of the accounting period:

Account / Information	Amount ( $\text{N}$ )
Gross Profit	$120,000$
Discount Received	$4,500$
Rent Paid	$18,000$
Salaries and Wages Paid	$32,000$
General Expenses	$15,000$
Trade Debtors	$50,000$

Additional information at year end:
1. Rent paid includes $\text{N}3,000$ prepaid for the next financial period.
2. Accrued salaries and wages at the end of the year amount to $\text{N}4,000$ .
3. A provision for doubtful debts is to be created at $5\%$ of trade debtors.

What is the net profit for the year in Naira ( $\text{N}$ )?

Answer: 56000 Naira

Answer

The net profit for the year is N56,000.

To determine the net profit, add revenues (Gross profit of N120,000 + Discount received of N4,500 = N124,500) and subtract all adjusted operating expenses (Rent of N15,000 + Salaries of N36,000 + General expenses of N15,000 + Doubtful debts provision of N2,500 = N68,500). Net profit equals N124,500 - N68,500 = N56,000.

Step-by-Step Solution

Calculate Total Income

Total Income = N124,500

Discount received is revenue income and must be added to gross profit in the Profit and Loss Account.

Adjust Rent for prepayment

Adjusted Rent = N15,000

Prepayments relate to the next accounting period and must be deducted from rent paid during the current period.

Adjust Salaries and Wages for accrual

Adjusted Salaries = N36,000

Accrued expenses represent benefits consumed but not yet paid, so they must be added to wages paid under the matching concept.

Compute Provision for Doubtful Debts

Provision = N2,500

Creating a 5% provision on trade debtors of N50,000 creates an operating expense of 0.05 * 50,000 = N2,500.

Sum total adjusted operating expenses

Total Expenses = N68,500

Total operating expenses include rent (N15,000), salaries (N36,000), general expenses (N15,000), and provision for doubtful debts (N2,500).

Deduct total expenses from total income to find Net Profit

Net Profit = N56,000

Net Profit is computed as Total Income (N124,500) minus Total Operating Expenses (N68,500).

Key Concept

Net Profit Determination with Year-End Adjustments

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