Question

The following balances were extracted from the books of Vera Wang as at February 28, 2020. She is a sole trader who operates a bridal boutique in Liguanea. PARTICULARS DR CR Sales 117,000 Capital 126,000 Stock at March 1, 2019 21,000 Purchases 85,000 Returns 2,600 4,600 Wages 40,000 Utilities 7,000 Insurance 7,500 Discounts 3,600 7,000 Motor Vehicle 65,000 Provision for Depreciation - Motor Vehicle 12,000 Drawings 6,000 Loan 15,600 Fixtures and Fittings 35,000 Provision for Depreciation – Fixtures and Fittings 6,000 Debtors 29,000 Provision for bad debts 1,500 Commission Received 2,000 Carriage Outwards 3,500 Bad debts 600 Carriage Inwards 4,200 Rental Income (from Jimmy Choo) 7,200 Creditors 21,000 Bank 8,100 Cash 18,000 328,000 328,000 Year-end notes: Fixtures and Fittings are to be depreciated using the straight line method at a rate of 10% per annum; and the reducing balance method is to be used to depreciate motor vehicles at a rate of 20% per annum. Wages accrued at the year end amounted to $2,520, Vera rented Jimmy Choo a small section of the store for $500 per month; he rented the space for the entire accounting year. Commission received accrued amounted to $1,500. The insurance expense amount represents the total paid for the period March 1, 2019 to May 31, 2020 Stock at February 28, 2020 $26,000, an additional material amount of $5,000 needs to be recorded in the accounts for the year The provision for bad debts is to be revised to 10% of debtors at the end of the financial year of the business 2 Required: Prepare: The Statement of Profit or Loss for Vera Wang, A Statement of Financial Position using appropriate headings

Answer 1

Vera Wang's bridal boutique statement of profit or loss shows a net loss of $30,750, including adjustments. The statement of financial position reveals total assets of $208,600 and liabilities of $36,600.

1. Adjustments have been made for insurance, bad debts, commission received, and rental income.

2. Wages accrued at year-end ($2,520) has been considered as part of operating expenses.

3. The stock adjustment has been incorporated, reflecting the correct stock at the end of the financial year.

4. Provisions for bad debts have been revised based on the given instruction (10% of debtors).

5. Depreciation has been calculated for motor vehicles and fixtures and fittings according to the specified methods.

6. The financial position is presented in a classified format with assets on one side and liabilities on the other.