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PREPARATION OF FINANCIAL STATEMENTS FROM INCOMPLETE RECORDS

Although large businesses keep sophisticated records, many small businesses do n
ot have time,
resources, or expertise to do this. Though some records are maintained, proper a
ccounting records are
not maintained. Although these organizations do not keep proper accounting recor
ds, they have some
sort of rough data or information in relation to their transactions such as bank
statements, debtors'
records, etc. which are called incomplete records. Those businesses can prepare
their financial
statements using these incomplete records.
PROFIT AS AN INCREASE IN NET ASSETS
Net assets can be used asses the performance of a business when limited informat
ion available. If
there is no information to prepare debtors control account, creditors control ac
count or a cashbook,
then this method should be used.
Net assets are the balance that is remained after deducting all the external lia
bilities from total assets
at a particular date.
Net Assets
Assets - Liabilities
The above net assets equation can be converted into a profit equation, which is
as follows.
P/L
C, - Co + D - AC
P/L
C,
AC
D
Co
Profit or loss
Capitall net assets as at closing balance sheet date
Additional capital contributed
Drawings
Capital I Net assets as at opening balance sheet date
After finding out the profit or loss we can prepare the balance sheet using that
profit figure. B
order to prepare a complete income statement, following information also should
be available.

1.
Total expenditures for the year
Amount of expenses paid in cash during the year
( +) Accruals at the end at the year
Prepayments at the beginning at the year
(-) Accruals at the beginning at the year
Prepayments at the end of the year
Expenditure for the year
xxx
xxx
xxx
xxx
(xxx)
(xxx)
The above expenditure amount should be debited to profit and loss account.
2.
Depreciation of fixed assets
F A at the beginning at the year
( +) Purchases of F A during the year
(-) Disposals at F A during the year
xxx
xxx
(xxx)
xxx xx
( -)
FA at the end at the year
Deprecation
(xxx)
xxxxx
This depreciation value also should be debited to profit and loss account.
3. Other Non-Cash - Expenses
These expenses include bad debts, provision for doubtful debit, stock losses etc
. and should be
debited to profit and loss account.
4. Items that are credited to profit & Loss account
This includes rent received, discount received etc. and those items should be cr

edited to profit
and loss account.
After adjusting above four items to the net profit or loss found by profit equat
ion we can find out the
gross profit or loss. Then by using the gross profit or loss and gross profit ra
tio, sales & purchases can
be found out in order to prepare basic trading, profit and loss account.
USE OF CONTROL ACCOUNTS
If there is adequate information available (information for control accounts) th
en we can use this
method. That means information related to debtors, creditors, bank account shoul
d be available. Under
this method, the following statements should be prepared.
1. Statement of Affairs
This is prepared by including assets and liabilities as at opening balance sheet
date, in order to
find out the opening capital balance.
2. Debtors Control Amount
We have to input whatever the available data to this account and find out one 0
e
followings
a. Credit sales
b. Opening debtors or closing debtors
c. Cash received from debtors
3. Creditors Control Amount
Any available data related to creditors should be input to this account and one
of the following
can be found out.
a. Credit purchases
b. Opening or closing balance or creditors
c. Cash paid to creditors
4. Cash Book
If adequate information is available a cashbook should be prepared, and one of t
he folio ing
can be found out at that.
a. Opening or closing cash balance
b. Cash paid to creditors
c. Cash received from debtors

d. Expenses paid by cash

e. Any other income received in cash
5. Bank Schedule
By using the bank statement we can prepare a bank schedule, which will replace t
he bank
column at the cashbook. But for this purpose, what is available in the bank stat
ement should
be adjusted as follows.
a. Opening Bank Balance As Per Cash Book
Balance as per bank statement
(+) Deposit unrealized at the beginning of the year
(-) Cheques unprepared at the beginning of the year
Balance as per cashbook
b. The Value of the Cheques Issued to Creditors during the year.
Cheques debited to the bank account
( +) Cheques unpresented at the end of the year
(-) Cheques unpresented at the beginning beginning of the year
Cheques issued to creditors
c. The value at the money received from the Debtors
Deposits credited to bank amount
(+) Deposits unrealized at the end at the year
(-) Deposits unrealized at the beginning at the year
Funds received from debtors'
Preparation of Final Accounts using Incomplete Records
Exercise: 87
xxx
xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
The following information has been extracted from the books of Suranganavo busin
ess.
Assets & Liabilities as at

Land & buildings

Machinery
Furniture
Stocks
Debtors
Creditors
Accrued expenses
Cash in hand
Bank 010
01/04/09
225,000
100,000
42,000
18,000
14,800
10,500
2,300
2,000
1,600
31/12/10
236,000
90,000
39,600
15,000
18,600
14,600
4,100
8,000
600
The business has received Rs. 10,000 during the year owner's life insurance poli
cy during the year
owner has taken away Rs. 2000 for his private uses.
Calculate profit or loss earned by the business.
Exercise: 88
i. Assets and liabilities as at
The following information relates to PAGAL Enterprises which has not kept proper
accounts
Land & buildings
Motor Vehicle
Furniture
Inventories
Debtors
Creditors

Acc= red expenses

t~
Prepayments
Cash
01/01/2010
130,000
150,000
40,000
12,000
18,000
16,000
1,000
2,000
3,000
31/12/2010
138,000
162,000
38,500
15,000
12,000
20,000
1,500
2,200
1,000
iii. The enterprise has purchased a land and motor vehicle for Rs. 10,000 and 15
,000
respectively.
iv. Owner has taken Rs. 500 each month for his private purposes
v. Owner has given Rs. 7500 to the business during the year.
vi. A debt of Rs. 500 has been written at during the year
vii. During the year business has allowed discounts amounting to Rs. 300 and has
received
discounts amounting to Rs. 500.
viii. Always business has a policy at keeping a gross profit ratio at 33 1/3 % o
n the cost
Using above information:
1. Calculate the profit or loss during the year
2. Trading profit and loss account for the year
3. Balance sheet as at 31/12/2010
Exercise: 89

On 01 st January 2010, PREME started a business with a capital at Rs. 200,000. O

n the same day she
purchased furniture amounting to Rs. 30,000. Although she did not keep proper ac
counting records
following details are available.
Sales (including cash sales at Rs. 70,000)
Purchases (including cash purchases at Rs. 40,000)
Salary paid to employees
Salaries drawn by Preme
Debts, which cannot be, recovered
Operating expenses
Rs.
170,000
150,000
12,000
20,000
5,000
7,000
Other Information
1. Preme has taken away the stocks amounting to Rs. 5000 for her private usage a
nd she has
paid Rs. 2000 to her son.
2. The following payments have to be made as at 31/12/2010
Credit purchases Rs. 36,000
Operating expenses Rs. 3,000
3. Rs.52,000 should be received as at 31/12/2010 from debtors
4. Preme has valued the stock as at 31/12/2010 as Rs. 65,000
You are required to Prepare:
a. Cash account
b. Trading, profit and loss account for the year ended 31/12/2010
a. Balance sheet as at 31112/2010.
Exercise: 90
Love Dot's Bank statement for the year at 2009 shows the followings
Bank Summary
Bal B/F (01/01/09)
Cash sales & collection from debtors
Bal C/F
4,318

204,725
991
Payment to creditors
Rent & Rates
Expenses
Drawings
157,802
6,476
14,256
31,500
210,034
210,034
Love Dot has deposited all the money received expect Rs. 17,791 which is spent f
or salaries Rs.
10,752 and Rs. 7,039 for this private usage.
Following information has been extracted from his books
09/12/31
20,412
16,338
18,816
8,400
680
385
Inventories
Trade creditors
Trade Debtors
Furniture & fittings
Arrived operating expenses
Prepaid rates
09/12/31
26,460
14,356
22,596
8,400
1,126
378
Amount payable to a debtor who has paid more to the business Rs. 504 during the
year creditors hav
allowed discounts amounting to Rs. 1260.
You are required to prepare:
i. Statement of affairs as at 31/12/09

ii. Trading profit and loss account for the year ended 31112/09
III. Balance sheet as at 3111 2/09
Exercise: 91
The Books of Account of Alpha Traders were destroyed by the recent flood, but th
e Accountant of th
Company has managed to gather the following information:
(1) Balance Sheet of Alpha Traders as at 31.03.2009
Non-Current Assets
Office Equipment - at cost
Furniture & Fittings - at cost
Rs. Rs.
168,800
226,600
395,400
425,200
318,400
2,000
54,100 799700
195,100
933,600
254,300
4,750
2,450 261 500
1,195,100 1,195,100
Current Assets
Inventories (Stocks)
Accounts Receivable
Prepaid Electricity
Cash at Bank
Total Assets
(2) Capital &. Liabilities
Proprietors Capital
Current Liabilities
Accounts Payable
Accrued Expenses- Rent
- Telephone
Analysis of Bank Statements for the year ended 31/03/2010 revealed the following
:
01.
02
a
a
a
a
a
a

Rs.
Total deposits (on account of Sales) durinq the year
Payments analysis was as follows:
Total amounts paid to suppliers of goods 1,240,000
Purchase of Office Equipment 125,000
Drawings by Proprietor 120,000
Rent 68,250
Electricity 17,500
Telephone 28,150

2,580,000

C""_I~_: __ ~_..J _ . . L. __ ~

~_~~ __

C'1" AnA

03. Rent is payable @ Rs A,750 per month for the first six (06) months up to the
end of
September 2009 and @ Rs.5,000 per month thereafter.
04. Bills to be settled as at 31/03/2005 were:
Electricity Rs. 1,800
Telephone Rs. 2,600
05. Total Accounts Receivable and Total Accounts Payable as at 31/03/2010 were a
greed
as follows:
Accounts Receivable Rs. 432,800
Accounts Payable Rs. 312,600
06. Stocks as at 31/03/2010 were valued at Rs.384,200.
From the above data you are required to prepare for Alpha Traders;
(a) Cash Book (Bank column) for the year ended 31/03/2010.
(b) Trading and Profit & Loss Account of the business for the year ended 31/03/2
010, (Ignore
depreciation of Property, Plant and Equipment)
(c) Balance Sheet as at 31/03/2010
Exercise: 92
The following information was extracted from the books of Sarath & Company: for
the year ended 31
December 2010:
(i)
Total sales for the year 2010.
Cash Sales
Credit Sales
620,000
450,000
1,070,000
(ii)
Cash receipts during the year 2010.
From Cash Sales
From 2009 Credit Sales
From 2010 Credit Sales
620,000

72,000
300,000
992,000
(iii)
Total expenses for the year 2010
Cash expenses paid for 2009
Cash expenses paid for 2010
Expenses incurred for 2010 but not paid
75,000
525,000
60,000
You are required to prepare:
(a) Debtors Control Account
(b) Expenses Account.
(c) Net Profit for the year 2010.
Exercise: 93
From the following details, you are required to prepare the Debtors and Creditor
s Control Accounts and
ascertain the gross profit earned for the month of September 2010.
Stocks
Total Debtors
Total Creditors
Balance on
01/09/2010
225,000
478,500
327,200
Balance on
30109/2010
283,500
585,000
352,100
Transactions of September 2010
Total cash sales
Total amount received from Debtors
Total amount paid to Creditors
Total cash purchases
Bad debts written off
Discount received

Discount allowed
Rs.
2,780,000
1,985,000
1,235,200
720,250
4,500
6,250
8,100
Exercise: 94
Mr. Ariayasena who is conducting a wholesale business, could not keep accounting
records due to his
business.
He expects your corporation in order to prepare accounts as at 31/03/98 using th
e following
information.
i. The bank statement for the year ended 31/03/98 indicates the following inform
ation.
Bal B/F 7,580 Creditors 635,400
Cash Deposits 778,410 Rates (for the year ended 31/12/98)
Electricity 31,500
Administration Expenses 8,100
Salaries 65,970
Repairs 13,600
Lawyer's fees 4,950
Sundry expenses 7,000
Equipment 4,400
Bal CIF 4,800
10,270
785,990
785,990
ii. According to the books during the year cash sales are Rs. 316,530 and credit
sales are Rs.
673,770.
Debtors as at 01/04/97 were Rs. 44,390 and as at 31(03(98 was Rs.88,000 deb 0 S
as
31/03/98 include a balance at Rs. 1,240 which is due from bankrupt debtors.
iii. Given below payments have been made out at cash during the year.
Sundry expenses 3,320
Repairs 3,510
Salaries 32,000
Cash balance as at 01/04/1997 was Rs. 280and as at 31/08/1998 it was Rs. 20,160.
Cas
receipt to the business is only out at cash sales and collection from debtors. I
t there is a y
difference in the payment side at the cash book, it is due to Mr. Ariyasena's Dr

awings.
iv. Net book value of equipment as at 01/04/97 was Rs. 20,600 (cost is Rs. 45,00
0). All fixed
assets should be depreciated by 25% on cost on straight line basis.
'I. 1?~<')\I\~C\a\ cmmc\\ c'naTges rates tor every year ending 31 st December. T
he business has paid
rates amounting to Rs. 30,600 for the year ended 31/12/97, during the financial
year ended
31/03/97.
vi. The following balances are available
Stocks
Trade creditors
Arrived electricity
01/04/97
92,650
61,840
1,580
31/03/98
81,540
53,360
4,700
vii. You may charge Rs. 8,000 as you're accounting fees.
Prepare trading profit and loss account for the year ended 31/03/1998 and the ba
lance sheet as at
that date.
Exercise: 95
Nandana after working in Dubai returned to Sri Lanka and used his savings to sta
rt a consumer
electronic store. He named the store "Nan-Dan Electronics" and commenced busines
s operations on 1
April 2003.
His business concept was to provide a spacious well appointed shop customers cou
ld view, test and
obtain sufficient information from knowledgeable sales assistants. The store was
to be designed in
such a manner as to provide customers with an enjoyable shopping experience. He
also acted as a
whole sale distributor for certain brands of electronic products.
His nephew, Sarath, who is studying for the examinations of the Institute of Cha
rtered Accountants of
Sri Lanka, maintained his financial records and prepared a trial balance as at 3
1 March 2004.
However Nandana was not convinced that records had been properly maintained espe
cially since the

cash book balance did not tie up to the bank statement balance. The trial balanc
e and other
information have been provided below.
Dr. (Rs.) Cr. (Rs.)
Capital introduced
2,000,000
Sales
29,082,026
Returns outwards
150,000
Purchases 19,500,846
Return inwards 350,000
Carriage inwards 580,000
Carriage outwards 590,000
Shop rent 1,440,000
Capital expenditure 1,260,000
Salaries & Wages 2,400,000
Administration & premises costs 1,056,369
Advertising costs 2,030,000
Drawings 1,200,000
Stationery costs 256,000
Cash and bank 568,511
31,232,026 31,232,026
Trial Balance
Nan-Dan Electronics
Sarath accounted for sales based on cash received and for purchases and expenses
when
payments were made.
On reviewing the invoices raised to customers, Rs. 1,356,780 remained unpaid as
at 31 March
2004. Nandana estimates that 5% of these customers are doubtful of settlement.
o After examination of the cash book and the bank statement the following issues
were
identified.
o A sales receipt of Rs. 23,797 was recorded as Rs. 23,779
o Payment to a supplier of Rs. 75,636 was omitted from the financial records.
o Bank charges not recorded amounted to Rs. 759.
o Unrealised deposits amounted to Rs. 267,569.
o Unpresented cheques amounted to Rs. 189,574.
o As at the yearend unsold goods amounted to Rs. 2,134,567.
o Rs. 3,546,189 worth of goods received from suppliers had not been paid for as
at the year
end.
o Capital expenditure consisted of the following:
Refundable deposit paid for shop premises
Painting the shop
Partitions and display shelves
Furniture & office equipment

Neon shop sign

Van
Rs.
250,000
166,320
259,000
130,680
154,000
300,000
1,260,000
Nandana expects to paint his shop once in two years, replace the furniture, offi
ce equipment,
partitions and display shelves every 4 years, the Neon shop in two years and the
Van in 3
years. The deposit is repayable on vacation of the premises.
o The following expenses were outstanding and unpaid as at the end of the year.
(ii)
Other than errors in recording transactions give two reasons as to why the cash
book will not reconcile to the bank statement balance.
Prepare bank reconciliation and compute the balance appearing in the bank
statement.
(a)
(i)
(b) Using in the information given and the answers to (a) above, prepare Nan-Dan
Electronics' Trading Account and Profit and Loss Account for the year ended 31 M
arch
together with a Balance Sheet as at 31 March 2004.