SCENARIO

Luluwaa Adam is a sole trader and her financial year ends on 31 December every year. She provided the following balances on 31 December 2022.

Items

Amounts ($)

Accumulated depreciation - equipment

17500

Accumulated depreciation - furnishing

24100

Administrative expenses

14040

Allowance for receivable

2800

Bank overdraft

4600

Capital at 1 January 2022

110140

Cash

6700

Discount allowed

4950

Discount received

6050

Drawings

3740

Equipment

290600

Furnishing

165100

General expense

11640

Insurance expense

3060

Inventories at 1 January 2022

20200

Marketing expenses

12360

Purchases

187780

Purchases return

4540

Rental expense

23580

Salaries and wages expense

68920

Sales return

3640

Sales revenue

661280

Trade payable

40000

Trade receivable

55600

The following additional details are discovered after balances were extracted on 31 December 2022.

Equipment costing $10600 with a scrap value of $1060 was sold for $2070 cash during the year and this equipment was fully depreciated by the date of disposal. Relevant accounting entries were not yet made for the disposal of the equipment. It is the business policy to depreciate equipment using straight line method on cost at 10% per annum. Furniture is depreciated using reducing balance method of depreciation at 20% per annum. No furniture was bought or sold during the year.

The business pays fire insurance annually in advance on 1stNovember each year. The annual fire insurance payment made on 1stNovember 2021 was $2972 and the payment made on 1stNovember 2022 was $3072 by cash. No accounting entry has been made for the latest fire insurance payment. The rent expense of the office is made quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year in equal installments. The office rent payment is $24216 per year. The total rental expense for the year did not include the office rent for the last quarter of the year because it was still outstanding at the end of the year.

It was decided that debts of $2050 were to be written off because those customers declared bankrupt. A special allowance of 25% has to be made from a debt of $5120. It is the policy of the business to make a general allowance 5% for trade receivable after deducting any debts considering any special allowances and all irrecoverable debts.

On 1stDecember 2022 the payable control account showed a credit balance of $42940 and a small balance of $100 on the debit side. Credit purchases during December 2022 were $20940 and cash purchases were also made during the month. Payments made to suppliers, excluding cash purchases, and after deducting settlement discounts were $18950. Purchases returns during December 2022 were $660 and there was a contra entry with receivables control account for $760. The small balance on the debit side was fully settled during the month and there is no other entries missing in the payable control account, except for the amount of cash discounts received during December 2022 for early settlements of supplier's accounts, for which proper accounting entries were not yet made. The bank statement received on 31 December 2022 showed bank charges and bank interest of $860 and $960 respectively, for which no accounting entries has been made in the cash book. It was also noted that unpresented cheques of $210 and outstanding lodgments of $318 were not recorded on the bank statement. Administrative expenses of $428 were incorrectly debited to the marketing expenses account. Both sales and sales returns accounts were under casted by $730 each. General expenses paid $1,200 was correctly entered in the cashbook but incorrectly entered in the general expense account as $2,100.

Inventories value at 1st December 2022 was at $19880 which consist of 100 units. On 10th December the business sold 20 units for $405 and on 15th December another 50 units were sold for $416. Purchased 120 units on 20th December for $194 per unit and there were no more sales or purchases after that date until the year end. All the sales and purchases transactions were properly entered in the relevant accounts. The business uses AVCO (weighted average costing) method for inventory valuation.

REQUIREMENTS

1. Prepare Luluwaa's statement of profit for loss for the year ended 31 December 2022.

(55 marks)

1. Prepare Luluwaa's statement of financial position as at 31 December 2022.

(45 marks)

(Total: 100 marks)