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A) Prepare The Income Statement For John And Banu For The Year Ended 31 March 2021 b) Prepare The Appropriation Acc For John And Banu For The Year Ended 31 March 2021

Accounting

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Answer

a

\mathbf{\56,150}$

Step-by-step solution

10 steps

Here are the financial statements for John and Banu:

Part a· 4 steps

Prepare The Income Statement For John And Banu For The Year Ended 31 March 2021

  1. Calculate the Cost of Sales.

    Opening Inventory: 9,400Purchases:9,400 Purchases: 69,200 Closing Inventory: 9,200 (Additional information 1) Cost of Sales = Opening Inventory + Purchases - Closing Inventory $$ \text{Cost of Sales} = \9,400 + $69,200 - $9,200 = $69,400 $$

  2. Calculate Gross Profit.

    Revenue: 158,000 Gross Profit = Revenue - Cost of Sales $$ \text{Gross Profit} = \158,000 - $69,400 = $88,600 $$

  3. Calculate total operating expenses.

    Rates and insurance: 11,250+11,250 + 650 (unpaid, Additional information 2) = 11,900Wages:11,900 Wages: 10,475 General expenses: 9,675Discountallowed:9,675 Discount allowed: 2,000 Depreciation on fittings: 18,000×15%=18,000 \times 15\% = 2,700 (Additional information 4)
    Interest on Loan from John: 10,000×5%=10,000 \times 5\% = 500 (Additional information 5)
    Total Operating Expenses = 11,900+11,900 + 10,475 + 9,675+9,675 + 2,000 + 2,700+2,700 + 500 = 37,250

  4. Calculate Net Profit for the year.

    Commission receivable (income): 4,800(Additionalinformation3clarifies4,800 (Additional information 3 clarifies 300 is due, meaning it's part of the 4,800, not additional income) Net Profit = Gross Profit + Commission Receivable - Total Operating Expenses $$ \text{Net Profit} = \88,600 + $4,800 - $37,250 = $56,150 $$

    \multicolumn3∣c∣John and Banu\multicolumn3∣c∣Income Statement\multicolumn3∣c∣For the year ended 31 March 2021Revenue$158,000Less: Cost of SalesOpening Inventory$9,400Add: Purchases69,200Less: Closing Inventory(9,200)\cline2−2(69,400)\cline3−3Gross Profit88,600Add: Other IncomeCommission Receivable4,800\cline3−3Less: ExpensesRates and Insurance11,900Wages10,475General Expenses9,675Discount Allowed2,000Depreciation on Fittings2,700Interest on Loan from John500\cline2−2Total Expenses(37,250)(37,250)\cline3−3Net Profit for the year$56,150\begin{array}{|l|r|r|} \hline \multicolumn{3}{|c|}{\textbf{John and Banu}} \\ \multicolumn{3}{|c|}{\textbf{Income Statement}} \\ \multicolumn{3}{|c|}{\textbf{For the year ended 31 March 2021}} \\ \hline \text{Revenue} & & \$158,000 \\ \text{Less: Cost of Sales} & & \\ \quad \text{Opening Inventory} & \$9,400 & \\ \quad \text{Add: Purchases} & 69,200 & \\ \quad \text{Less: Closing Inventory} & (9,200) & \\ \cline{2-2} & & (69,400) \\ \cline{3-3} \text{Gross Profit} & & 88,600 \\ \text{Add: Other Income} & & \\ \quad \text{Commission Receivable} & & 4,800 \\ \cline{3-3} \text{Less: Expenses} & & \\ \quad \text{Rates and Insurance} & 11,900 & \\ \quad \text{Wages} & 10,475 & \\ \quad \text{General Expenses} & 9,675 & \\ \quad \text{Discount Allowed} & 2,000 & \\ \quad \text{Depreciation on Fittings} & 2,700 & \\ \quad \text{Interest on Loan from John} & 500 & \\ \cline{2-2} \quad \text{Total Expenses} & (37,250) & (37,250) \\ \cline{3-3} \text{Net Profit for the year} & & \boxed{\mathbf{\$56,150}} \\ \hline \end{array}

Part b· 6 steps

Prepare The Appropriation Acc For John And Banu For The Year Ended 31 March 2021

  1. Bring forward the Net Profit from the Income Statement.

    Net Profit for the year: $56,150

  2. Calculate Interest on Drawings.

    John's Drawings: 19,000×6%=19,000 \times 6\% = 1,140
    Banu's Drawings: 21,000×6%=21,000 \times 6\% = 1,260
    Total Interest on Drawings = 1,140+1,140 + 1,260 = 2,400

  3. Calculate Interest on Capital.

    John's Capital: 75,000×3%=75,000 \times 3\% = 2,250
    Banu's Capital: 50,000×3%=50,000 \times 3\% = 1,500
    Total Interest on Capital = 2,250+2,250 + 1,500 = 3,750

  4. Account for John's Salary.

    John's Salary: $8,500

  5. Calculate the residual profit.

    Residual Profit = Net Profit + Interest on Drawings - Interest on Capital - John's Salary Residual Profit=$56,150+$2,400−$3,750−$8,500=$46,300\text{Residual Profit} = \$56,150 + \$2,400 - \$3,750 - \$8,500 = \$46,300

  6. Share the residual profit according to the ratio (40% to John, 60% to Banu).

    John's share of profit: 46,300×40%=46,300 \times 40\% = 18,520
    Banu's share of profit: 46,300×60%=46,300 \times 60\% = 27,780

    \multicolumn3∣c∣John and Banu\multicolumn3∣c∣Profit and Loss Appropriation Account\multicolumn3∣c∣For the year ended 31 March 2021Debit$Credit$Interest on Capital:Net Profit for the year56,150John2,250Interest on Drawings:Banu1,500John1,140\cline2−23,750Banu1,260\cline4−4John’s Salary8,5002,400Share of Profit:John (40%)18,520Banu (60%)27,780\cline2−246,300Total58,550Total58,550\begin{array}{|l|r|r|} \hline \multicolumn{3}{|c|}{\textbf{John and Banu}} \\ \multicolumn{3}{|c|}{\textbf{Profit and Loss Appropriation Account}} \\ \multicolumn{3}{|c|}{\textbf{For the year ended 31 March 2021}} \\ \hline \textbf{Debit} & \textbf{\$} & \textbf{Credit} & \textbf{\$} \\ \hline \text{Interest on Capital:} & & \text{Net Profit for the year} & 56,150 \\ \quad \text{John} & 2,250 & \text{Interest on Drawings:} & \\ \quad \text{Banu} & 1,500 & \quad \text{John} & 1,140 \\ \cline{2-2} & 3,750 & \quad \text{Banu} & 1,260 \\ \cline{4-4} \text{John's Salary} & 8,500 & & 2,400 \\ \text{Share of Profit:} & & & \\ \quad \text{John (40\%)} & 18,520 & & \\ \quad \text{Banu (60\%)} & 27,780 & & \\ \cline{2-2} & 46,300 & & \\ \hline \textbf{Total} & \textbf{58,550} & \textbf{Total} & \textbf{58,550} \\ \hline \end{array}
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