Chapter 6 - Incomplete Records - Part 2

Incomplete records simply mean that transactions have been recorded on a single basis or part of the records of a business have been destroyed / lost. It may also happen that the accounts of a business have been prepared by an incompetent accountant. In this case, the single entries must be converted into double entries and then use the available information to prepare the financial statements. The following steps may be followed:

Step 1 - Calculate capital at start

Capital = Assets at start – Liabilities at start

Step 2 - Calculate total sales

To calculate credit sales

Trade Receivables account
Balance b/f	***	Receipts	***
Credit sales	?	Discount allowed	***
		Return inwards	***
		Bad debts	***
		Balance c/d	***
	***		***
Balance b/d	***

To calculate cash sales

Cash Account
Balance b/f	***	Cash sales banked	***
Cash sales	?	Purchases	***
Other cash receipts		Drawings	***
		Expenses	***
		Balance c/d	***
	***		***
Balance b/d	***

Total Sales = Credit sales + Cash sales

Margin and markup may be used to calculate sales, gross profit and cost of sales

Example If Margin = 25%
Then	Gross Profit = 25/100 * Sales

	Cost of sales= 75/100 * Sales

Example If Markup = 20%
Then	Gross Profit = 20/100 * Cost of sales

	Gross Profit = 20/120 * Sales

Step 3 - Calculate total purchases

Trade Payables Account
Payments	***	Balance b/f	***
Discount received	***	Credit purchases	?
Balance c/d	***
	***		***
		Balance b/d	***

Total purchases = Credit purchases + Cash purchases

Step 4 - Calculate amount of expenses to be recorded in income statement

Expenses Account
Balance b/f	***	Balance b/f	***
(Prepaid at start)		(Due at start)
Bank	***	Income Statement	?
Balance c/d		Balance c/d
(Due at end)	***	(Prepaid at end)	***
	***		***
Balance b/d	***	Balance b/d	***

Step 5 - Calculate amount of Depreciation charged to income statement

Non-current assets Account
Balance b/f	***	Disposal - NBV	***
Acquisition	***	Depreciation	***
		Balance c/d	***
	***		***
Balance b/d	***

Disposal account may be prepared to calculate Profit / Loss on disposal.

Worked Example

Nikhil does not keep a full set of accounting records. However, he was able to provide the following information for the year ended 31st December 2017:

	1^st January 2017	31^st December 2017
Property - cost	80 000	80 000
Equipment - NBV	23 000	37 000
15% Bank Loan	28 000	28 000
Inventory	12 000	10 000
Trade receivables	8 000	8 500
Trade payables	6 200	5 900
Cash	1 050	450
General expenses Due	300	150
General expenses Prepaid	200	450

Bank Account
Balance b/f	1 400	Payment to suppliers	56 970
Cash sales banked	8 530	General expenses	76 830
Receipts from customers	145 570	Equipment	20 000
		Balance c/d	1 700
	155 500		155 500

Additional information:

The following payments were made out of cash sales:

Purchases $ 8 430

Drawings $ 16 500

General Expenses $ 32 780

Discount allowed and received were $ 500 and $ 900 respectively

Required

Income statement for the year ended 31^st December 2017
Statement of financial position as at 31^st December 2017.

Step 1 - Calculate capital at start

Statement to calculate capital as at 1^st January 2017	$	$
Assets
Property - cost	80 000
Equipment - NBV	23 000
Inventory	12 000
Trade receivables	8 000
Cash	1 050
General expenses Prepaid	200
Bank	1 400	125 650
Less Liabilities
15% Bank Loan	28 000
Trade payables	6 200
General expenses Due	300	(34 500)
Capital at start		91 150

Step 2 - Calculate total sales

Trade receivables Account
Balance b/f	8 000	Receipts	145 570
Credit sales	146 570	Discount Allowed	500
		Balance c/d	8 500
	154 570		154 570
Balance b/d	8 500
Cash Account
Balance b/f	1 050	Cash sales banked	8 530
Cash Sales	65 640	Purchases	8 430
		Drawings	16 500
		General Expenses	32 780
		Balance c/d	450
	66 6990		66 690
Balance b/d	450

Total sales = Credit sales + cash sales = 146 570 + 65 640 = $ 212 210

Step 3 - Calculate total purchases

Trade payables Account
Payments	56 970	Balance b/f	6 200
Discount Received	900	Credit purchases	57 570
Balance c/d	5 900
	63 770		63 770
		Balance b/d	5 900

Total purchases= Credit purchases + cash purchases = 57 570 + 8 430 = $ 66 000

Step 4 - Expenses charges to income statement

General Expenses Account
Balance b/f	200	Balance b/f	300
Cash	32 780	Income Statement	109 210
Bank	76 830	Balance c/d	450
Balance c/d	150
	109 960		109 960
Balance b/d	450	Balance b/d	150

Step 5 - Depreciation charged to income statement

Equipment at NBV Account
Balance b/f	23 000	Disposal	***
Acquisition	20 000	Depreciation	6 000
		Balance c/d	37 000
	43 000		43 000
Balance b/d	37 000

Income Statement for the year ended 31st December 2017	$	$
Revenue		212 210
Less Cost of sales
Opening inventory	12 000
Purchases	66 000
Less closing inventory	(10 000)
Cost of sales		(68 000)
Gross Profit		144 210
Discount received		900
		145 110
Less Expenses
Depreciation on Equipment	6 000
Discount allowed	500
General expenses	109 210
Interest on bank loan(15/00*28000)	4 200	119 910
Profit for the year		25 200

Statement of financial position as at 31st December 2017
	$	$
Non Current Assets
Equipment		37 000
Property		80 000
		117 000
Current Assets
Closing inventory	10 000
Trade receivables	8 500
Bank	1 700
Cash	450
Other receivables	450	21 100
Total Assets		138 100
Equity
Capital at start		91 150
Add Profit for the year		25 200
Less Drawings		(16 500)
Owner's capital		99 850
Non-current liabilities
15% Bank Loan		28 000
Capital Employed		127 850
Current Liabilities
Trade payables	5900
Other payables : General Expenses due	150
Other payables : Interest on loan due	4200	10 250
Equity and Liabilities		138100

Q1. The following information is provided by Mr. Khan for the year ended 31st December 2015

	1^st Jan 2015	31^st Dec 2015
Plant and machinery	35 000	45 000
Fixtures and fittings	23 000	20 700
Trade receivables	18 500	19 650
Trade payables	14 300	12 450
Insurance - Prepaid	300	450
Insurance - Due	150	750
Wages and salaries - Prepaid	1 200	3 600
Wages and salaries - Due	2 400	600
Inventory	4 800	3 550
Cash	450	750

DR Bank Account CR
Balance b/f	11 550	Payment to suppliers	23 000
Receipts from credit customers	54 000	Plant and machinery	15 000
Cash sales banked	3 500	Insurance	1 500
		Wages and salaries	12 000
		Drawings	4 000
		Purchases	2 000
		Balance c/d	11 550

Additional information

The following were paid in cash prior to cash sales banked

Advertising $ 1 100

General expenses $ 1 500

2. Fixtures and fittings were depreciated by $ 2 300

Required:

Income statement for the year ended 31^st December 2015
Statement of financial position as at 31^st December 2015

Q2. The following information is provided by Ms Cherie for the year ended 31^st March 2016.

	1^st Apr 2015	31^st Mar 2016
Office equipment	5 000	4 000
Property	43 000	40 000
Trade receivables	28 500	29 350
Trade payables	15 800	13 550
Electricity - Prepaid	200	400
Electricity - Due	100	800
Advertising - Prepaid	1 000	3 000
Advertising - Due	2 000	500
Inventory	9 400	5 500
Cash	400	600
5% Bank loan	6 000	6 000

DR Bank Account CR
Balance b/f	12 300	Payment to suppliers	53 000
Receipts from credit customers	78 000	Office equipment	500
Cash sales banked	5 500	Advertising	5 500
		Electricity	2 000
		Purchases	5 000
		Drawings	4 500
		Balance c/d	25 300

Additional information

The following payments were made out of cash sales

General expenses $ 3 500

Insurance $ 700

2. Property is depreciated by $ 3000.

3. Interest on loan is still due.

REQUIRED

Income statement for the year ended 31^st March 2016
Statement of financial position as at 31^st March 2016.