Chapter 5 - Incomplete Records - Part 1

When a full set of accounting records is maintained the owner of the business has all the information about the assets, liabilities, revenue and expenditure. This makes the preparation of the financial statements relatively easy. Sometimes small businesses do not maintain a full set of accounting records and therefore a trial balance cannot be drawn. Therefore, it becomes difficult to prepare the financial statement.

If the only records available are the assets and liabilities of the business then it Is impossible to prepare the income statement to show profit / loss. These assets and liabilities are listed in a statement of affairs to show capital at start and capital at end. The change in the capital during the accounting period is either profit or loss. Capital increases when a profit is made and decreases when there is a loss.

In general, the following statement can be prepared to show profit / loss:

Note: Capital at end and capital at start is calculated using statement of affairs.

Worked Example

The following information is available from the books of an inexperience businessman:

Additional information:

1. Non-current assets are depreciated at 25% using the reducing balance method.
2. Additional capital brought in by the owner during the year amounted to $ 1 600
3. Drawings by proprietor during 2015 amounted to $ 13 000.

Required

1. Statement of affairs as at 1^st January 2015 and as at 31^st December 2015.
2. Statement of profit or loss as at 31^st December 2015.

Solution

Step 1 – Calculate capital at start

Step 2 – Calculate capital at end

Depreciation   =          25 / 100 * (44 000 – 11 000) =          8 250

Acc. Depn.       =          11 000 + 8 250                        =          19 250

Step 3 – Calculate profit / loss

1. The following information is available from the books of an inexperience businessman:

 Additional information:

1. Non current assets are depreciated at 20% using the reducing balance method.
2. Additional capital brought in by the owner during the year amounted to $ 2 000
3. Drawings by proprietor during 2015 amounted to $ 11 000.

Required

1. Statement of affairs as at 1^st January 2015 and as at 31^st December 2015.
2. Statement of profit or loss as at 31^st December 2015. 

2. The following information is available from the books of an inexperience businessman:

 Additional information:

1. Non current assets are depreciated at 10% using the reducing balance method.
2. Additional capital brought in by the owner during the year amounted to $ 600
3. Drawings by proprietor during 2015 amounted to $ 7 000.

Required

1. Statement of affairs as at 1^st January 2015 and as at 31^st December 2015.
2. Statement of profit or loss as at 31^st December 2015.

3. The following information is available from the books of an inexperience businessman:

 Additional information:

1. Non current assets are depreciated at 20% using the reducing balance method.
2. Additional capital brought in by the owner during the year amounted to $ 400
3. Drawings by proprietor during 2015 amounted to $ 900.

Required

1. Statement of affairs as at 1^st January 2015 and as at 31^st December 2015.
2. Statement of profit or loss as at 31^st December 2015.