Mr. Babatunde, a timber merchant, maintains incomplete accounting records. On 1 January 20… — JAMB UTME

Mr. Babatunde, a timber merchant, maintains incomplete accounting records. On 1 January 2024, his financial position showed Premises of ₦500,000, Equipment (cost) of ₦200,000, Inventory of ₦120,000, Trade Debtors of ₦80,000, Trade Creditors of ₦60,000, Bank Overdraft of ₦40,000, and Accrued Rent of ₦10,000.

On 31 December 2024, his assets and liabilities prior to end-of-year adjustments were: Premises ₦500,000, Equipment (cost) ₦200,000, Inventory ₦150,000, Trade Debtors ₦110,000, Cash at Bank ₦35,000, Trade Creditors ₦75,000, Prepaid Insurance ₦15,000, and Accrued Wages ₦20,000.

Additional information for the year ended 31 December 2024:
1. Equipment is to be depreciated at $10\%$ per annum on cost.
2. A provision for doubtful debts of $5\%$ is to be created on closing trade debtors.
3. He withdrew ₦6,000 cash monthly for personal use and took goods worth ₦8,000 for private consumption.
4. He introduced additional capital of ₦50,000 into the business during the year.

What is Mr. Babatunde's net profit for the year ended 31 December 2024?

Cevap: ₦129,500 / 129,500 / N129,500 / 129500 / ₦129500 / N129500

Cevap

The net profit for the year ended 31 December 2024 is ₦129,500.

The net profit is calculated by finding opening capital (₦790,000) and adjusted closing capital (₦889,500) from their respective Statements of Affairs. Applying the single-entry profit formula

\text{Net Profit} = (\text{Closing Capital} + \text{Drawings} - \text{Additional Capital}) - \text{Opening Capital}

gives

(₦889,500 + ₦80,000 - ₦50,000) - ₦790,000 = ₦129,500

Adım Adım Çözüm

Calculate Opening Capital as at 1 January 2024 using the Statement of Affairs approach.

Total Opening Assets = ₦500,000 (Premises) + ₦200,000 (Equipment) + ₦120,000 (Inventory) + ₦80,000 (Trade Debtors) = ₦900,000.
Total Opening Liabilities = ₦60,000 (Trade Creditors) + ₦40,000 (Bank Overdraft) + ₦10,000 (Accrued Rent) = ₦110,000.
Opening Capital (

C_0

) = ₦900,000 - ₦110,000 = ₦790,000.

Capital is determined by subtracting total liabilities from total assets at the beginning of the accounting period.

Calculate Adjusted Closing Capital as at 31 December 2024 after incorporating year-end adjustments.

Net Equipment = ₦200,000 - (10% × ₦200,000) = ₦180,000.
Net Debtors = ₦110,000 - (5% × ₦110,000) = ��104,500.
Total Closing Assets = ₦500,000 (Premises) + ₦180,000 (Net Equipment) + ₦150,000 (Inventory) + ₦104,500 (Net Debtors) + ₦35,000 (Bank) + ₦15,000 (Prepaid Insurance) = ₦984,500.
Total Closing Liabilities = ₦75,000 (Trade Creditors) + ₦20,000 (Accrued Wages) = ₦95,000.
Closing Capital (

C_1

) = ₦984,500 - ₦95,000 = ₦889,500.

Depreciation and doubtful debt provisions reduce closing asset values before determining closing capital.

Calculate Total Drawings during the year.

Cash Drawings = ₦6,000 × 12 months = ₦72,000.
Goods Drawings = ₦8,000.
Total Drawings (

D

) = ₦72,000 + ₦8,000 = ₦80,000.

Drawings include both cash withdrawn periodically and goods taken for private use.

Calculate Net Profit using the capital comparison formula:

\text{Net Profit} = (\text{Closing Capital} + \text{Drawings} - \text{Capital Introduced}) - \text{Opening Capital}

Net Profit = (₦889,500 + ₦80,000 - ₦50,000) - ��790,000 = ₦919,500 - ₦790,000 = ₦129,500.

Adding drawings back and deducting introduced capital adjusts closing capital to reflect profit generated purely from business operations.

Anahtar Kavram

Statement of Affairs Method for Capital and Profit Determination

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