Examkin

Question

Difficulty: HardPreparation of Final Accounts from Incomplete Records

The following information was extracted from the incomplete records of a sole trader for the year ended 31st December 2025:

- Opening Debtors: ₦12,000
- Closing Debtors: ₦15,000
- Cash received from Debtors: ₦68,000
- Discount allowed: ₦2,000
- Bad debts written off: ₦1,000
- Opening Creditors: ₦9,000
- Closing Creditors: ₦11,000
- Cash paid to Creditors: ₦40,000
- Discount received: ₦1,500
- Opening Inventory: ₦8,000
- Closing Inventory: ₦10,000
- General operating expenses paid: ₦14,000
- Accrued operating expenses at 1st January 2025: ₦1,000
- Prepaid operating expenses at 31st December 2025: ₦2,000

What is the net profit of the business for the year ended 31st December 2025?

  1. ₦20,000Answer
  2. B
    ₦17,000
  3. C
    ₦14,000
  4. D
    ₦28,000

Answer

The net profit of the business for the year ended 31st December 2025 is ₦20,000.
The correct figure of ₦20,000 is derived by reconstructing control accounts to determine total sales (₦74,000) and purchases (₦43,500), calculating gross profit (₦32,500), adding discount received (₦1,500), and deducting net adjusted expenses (₦14,000 total).

Step-by-Step Solution

1
Calculate total credit sales using the Sales Ledger Control Account.
Total Sales = Cash Received (₦68,000) + Discount Allowed (₦2,000) + Bad Debts (₦1,000) + Closing Debtors (₦15,000) - Opening Debtors (₦12,000) = ₦74,000.
Credit sales equal total credits to debtors plus closing balance minus opening balance.
2
Calculate total credit purchases using the Purchases Ledger Control Account.
Total Purchases = Cash Paid (₦40,000) + Discount Received (₦1,500) + Closing Creditors (₦11,000) - Opening Creditors (₦9,000) = ₦43,500.
Credit purchases equal total debits to creditors plus closing balance minus opening balance.
3
Calculate Cost of Goods Sold and Gross Profit.
Cost of Goods Sold = Opening Inventory (₦8,000) + Purchases (₦43,500) - Closing Inventory (₦10,000) = ₦41,500. Gross Profit = Sales (₦74,000) - Cost of Goods Sold (₦41,500) = ₦32,500.
Gross profit is the difference between total sales revenue and the cost of inventory sold.
4
Adjust operating expenses and compute Net Profit.
Net Operating Expenses = Paid Expenses (₦14,000) - Opening Accrued (₦1,000) - Closing Prepaid (₦2,000) = ₦11,000. Total Expenses = Net Operating Expenses (₦11,000) + Discount Allowed (₦2,000) + Bad Debts (₦1,000) = ₦14,000. Net Profit = Gross Profit (₦32,500) + Discount Received (₦1,500) - Total Expenses (₦14,000) = ₦20,000.
Net profit accounts for non-trading revenue like discount received and deducts all accrued operating expenses and losses.

Key Concept

Conversion from Single Entry to Double Entry for Final Accounts Preparation
Estimated Time:2m 30s
Rate this question

Topics

Preparation of Final Accounts from Incomplete Records

More questions from this topic