Financial Statements of a Sole Proprietorship – Practice Question 05
This question has been extracted from the year 2017 G.C.E Ordinary Level Business and Accounting Studies paper. This is question number 7 (iii).
The trial balance of Ranga’s trading business as at 31.12.2016 is as follows.
- Stock as at 31.12.2016 is Rs. 28 000
- Distribution vehicle should be depreciated annually at 10% on the straight-line method
- Pre paid insurance as at 31.12.2016 is Rs. 2 000
Insurance is prepaid by Rs. 2 000. Hence, we should deduct the prepaid amount of Rs. 2 000 from the balance in the trial balance (Rs. 12 000 – 2 000 = Rs. 10 000). As a result, Rs. 10 000 becomes the annual relevant insurance expense amount for the year 2016. We should enter this amount in the profit or loss statement under the administration expense category. Then we need to enter the prepaid amount of Rs. 2 000 in the statement of financial position under the current assets section as a prepaid expense is a current asset.