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:

Statement of profit and loss

$

Capital at end

***

Less capital at start

(***)

Less additional capital

(***)

Add drawings

***

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:


1st Jan 2015

31st December 2015


$

$

Non-current assets

44 000

44 000

Provision for depreciation on NCA

11 000

?

Current assets

12 500

13 500

Current liabilities

11 200

12 100

Non-current liabilities

-

5 600

 

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

Solution

Step 1 – Calculate capital at start

Statement of affairs as at 1st January 2015

$

$

Assets:



Non current assets (44 000 – 11 000)

33 000


Current Assets

12 500

45 500

Less Liabilities



Current Liabilities

11 200


Non current liabilities

-

(11 200)

Capital at start


34 300


Step 2 – Calculate capital at end

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

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

Statement of affairs as at 31st December 2015

$

$

Assets:



Non current assets (44 000 – 19 250)

24 750


Current Assets

13 500

38 250

Less Liabilities



Current Liabilities

12 100


Non current liabilities

5 600

(17 700)

Capital at end


20 550


Step 3 – Calculate profit / loss

Statement of profit and loss

$

Capital at end

20 550

Less capital at start

(34 300)

Less additional capital

(1 600)

Add drawings

13 000

Loss for the year

(2 350)


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


1st Jan 2015

31st December 2015


$

$

Non current assets

50 000

50 000

Provision for depreciation on NCA

10 000

?

Current assets

13 500

9 500

Current liabilities

8 200

5 100

Non current liabilities

-

7 500

 

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

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


1st Jan 2015

31st December 2015


$

$

Non current assets

60 000

60 000

Provision for depreciation on NCA

14 000

?

Current assets

5 500

8 500

Current liabilities

1 200

2 100

Non current liabilities

-

3 600

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

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


1st Jan 2015

31st December 2015


$

$

Non current assets

20 000

20 000

Provision for depreciation on NCA

8 000

?

Current assets

1 500

18500

Current liabilities

1 700

1 100

Non current liabilities

-

500

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