Trial balance to SOFP

1.2 Example: accounts preparation from a trial balance
The following trial balance was extracted from the ledger of Stephen Chee, a sole trader, as at
31 May 20X1 – the end of his financial year.
STEPHEN CHEE
TRIAL BALANCE AS AT 31 MAY 20X1
Dr Cr
$ $
Property, at cost 120,000
Equipment, at cost 80,000
Accumulated depreciation (as at 1 June 20X0)
– on property 20,000
– on equipment 38,000
Purchases 250,000
Sales 402,200
Inventory, as at 1 June 20X0 50,000
Discounts received 4,800
Returns out 15,000
Wages and salaries 58,800
Irrecoverable debts 4,600
Loan interest 5,100
Other operating expenses 17,700
Trade payables 36,000
Trade receivables 38,000
Cash in hand 300
Bank 19,300
Drawings 24,000
Allowance for receivables 500
17% long-term loan 30,000
Capital, as at 1 June 20X0 121,300
667,800 667,800

The following additional information as at 31 May 20X1 is available.
(a) Inventory as at the close of business has been valued at cost at $42,000.
(b) Wages and salaries need to be accrued by $800.
(c) Other operating expenses are prepaid by $300.
(d) The allowance for receivables is to be adjusted so that it is 2% of trade receivables.
(e) Depreciation for the year ended 31 May 20X1 has still to be provided for as follows.
(i) Property: 1.5% per annum using the straight line method
(ii) Equipment: 25% per annum using the reducing balance method
Required
Prepare Stephen Chee’s statement of profit or loss for the year ended 31 May 20X1 and his statement of financial position as at that date.

Hello tutor,

I have 2 questions relating to this exercise:

1. Is it correct that the number of account receivables for year end ($38,000) is always net of irrecoverable debt ($4,600)? At first, I thought that that irrecoverable debt is still appearing in the trial balance, so I assumed that AR is not yet deducted that number. As a result, the irrecoverable debt expense according to my calculation was wrong, as I had the wrong allowance for AR and consequencely the wrong increase in allowance for SPL.

2. My second question is the loan interest: normally I think the journal entry is like: DR loan interest expense, CR interest payables. How can we know that the loan interest item here is only an item of SPL, but not of SOFP? I thought that loan interest here is the item of both statements, therefore I created a line for interest payable in SOFP along with interest expense in SPL. As a result of this misunderstanding, my Liabilities and Equity side was higher than Total Asset in SOFP.

Thank you tutor!