Create an income statement and and a statement of changes in equity

• Administrative expenses: The initial amount is reduced by prepaid expenses. $$210,000 - 8,000 = 202,000$$
• Selling expenses: The initial amount is increased by expenses owing. $$140,000 + 5,000 = 145,000$$
• Bad Debts Expense:
  • First, adjust trade receivables for the debt written off: $$350,000 - 10,000 = 340,000$$
  • Calculate the required provision for bad debts (5% of adjusted trade receivables): $$340,000 \times 0.05 = 17,000$$
  • The increase in the provision is the required provision minus the existing provision: $$17,000 - 16,000 = 1,000$$
  • The total bad debts expense for the year includes the debt written off and the increase in provision: $$10,000 + 1,000 = 11,000$$
• Depreciation Expense:
  • Calculate the carrying amount of non-current assets (cost minus accumulated depreciation): $$1,290,000 - 490,000 = 800,000$$
  • Depreciation is 35% of the carrying amount: $$800,000 \times 0.35 = 280,000$$
• Repairs and maintenance: No adjustment needed. $$25,000$$
• Debenture interest: No adjustment needed. $$15,000$$

We start with the given Gross Profit and subtract all calculated expenses.

$\begin{array}{l r} \text{Gross Profit} & \$830,000 \\ \text{Less: Expenses} & \\ \quad \text{Administrative expenses} & (202,000) \\ \quad \text{Selling expenses} & (145,000) \\ \quad \text{Repairs and maintenance} & (25,000) \\ \quad \text{Bad debts expense} & (11,000) \\ \quad \text{Depreciation expense} & (280,000) \\ \quad \text{Debenture interest} & (15,000) \\ \text{Total Expenses} & \underline{(678,000)} \\ \textbf{Profit for the year} & \underline{\underline{\mathbf{\$152,000}}} \\ \end{array}$

• Proposed Ordinary Dividend:
  • Number of ordinary shares: 500,000 \text{ shares} \times \frac{\1}{share} = 500,000 \text{ shares}$.
  • Proposed dividend: 500,000 \text{ shares} \times \0.05/share = 25,000$.
• Transfer to General Reserve: An amount of 45,000 is transferred from Retained Earnings to General Reserve.

$\begin{array}{l c c c c c c} \hline & \begin{smallmatrix}\text{Ordinary} \\ \text{Share} \\ \text{Capital}\end{smallmatrix} & \begin{smallmatrix}\text{Preference} \\ \text{Share} \\ \text{Capital}\end{smallmatrix} & \begin{smallmatrix}\text{Share} \\ \text{Premium}\end{smallmatrix} & \begin{smallmatrix}\text{General} \\ \text{Reserve}\end{smallmatrix} & \begin{smallmatrix}\text{Retained} \\ \text{Earnings}\end{smallmatrix} & \begin{smallmatrix}\text{Total} \\ \text{Equity}\end{smallmatrix} \\ \hline \text{Balance at 1 January 2014} & \$500,000 & \$250,000 & \$100,000 & \$55,000 & \$245,000 & \$1,150,000 \\ \text{Profit for the year} & - & - & - & - & 152,000 & 152,000 \\ \text{Transfer to General Reserve} & - & - & - & 45,000 & (45,000) & - \\ \text{Preference dividend paid} & - & - & - & - & (20,000) & (20,000) \\ \text{Interim ordinary dividend paid} & - & - & - & - & (10,000) & (10,000) \\ \text{Proposed ordinary dividend} & - & - & - & - & (25,000) & (25,000) \\ \hline \textbf{Balance at 31 December 2014} & \mathbf{\$500,000} & \mathbf{\$250,000} & \mathbf{\$100,000} & \mathbf{\$100,000} & \mathbf{\$297,000} & \mathbf{\$1,247,000} \\ \hline \end{array}$