Prepare income statement for the year ended 31 December 20X7 and statement of financial position as at that…

Question

Prepare income statement for the year ended 31 December 20X7 and statement of financial position as at that date.

ScanSolve AI Tutor · Accepted Answer

Here's the preparation of the Income Statement and Statement of Financial Position for Shon Black.

All figures are in K'000.

Adjustments Calculation:

Closing Inventory (a)
K1,660
Bad Debts (b)
- Bad debts written off: K6
- Increase in allowance: K30 (new) - K18 (old) = K12
- Total Bad Debts Expense: $6 + 12 = \text{K}18$
- Adjusted Trade Receivables: K810 (original) - K6 (written off) = K804
Salaries and Wages (c)
- Accrued: K190 (add to expense, current liability)
- Prepaid: K70 (deduct from expense, current asset)
- Adjusted Salaries and Wages Expense: K1,590 + K190 - K70 = K1,710
Distribution Expenses (d)
- Prepaid: K60 (deduct from expense, current asset)
- Accrued: K120 (add to expense, current liability)
- Adjusted Distribution Expenses: K1,460 - K60 + K120 = K1,520
Interest (e)
- Accrued: K50 (add to expense, current liability)
- Adjusted Interest Expense: K50 (paid) + K50 (accrued) = K100
Purchases (f)
- Accrued: K18 (add to purchases, add to trade payables)
- Adjusted Purchases: K8,100 + K18 = K8,118
- Adjusted Trade Payables: K820 + K18 = K838
Sales (g)
- Accrued: K7 (add to sales, add to trade receivables)
- Adjusted Sales: K13,600 + K7 = K13,607
- Adjusted Trade Receivables (after bad debts and this adjustment): K810 - K6 + K7 = K811
Depreciation (h)
- Buildings: $2\% \times \text{K}8,300 = \text{K}166$
- Warehouse: $1.5\% \times \text{K}1,800 = \text{K}27$
- Motor Vehicles: $25\% \times \text{K}1,680 = \text{K}420$
- Total Depreciation Expense: $166 + 27 + 420 = \text{K}613$
a) Prepare income statement for the year ended 31 December 20X7
$\textbf{Shon Black} \\ \textbf{Income Statement} \\ \textbf{For the year ended 31 December 20X7}$ $\begin{array}{l r r} \text{Sales (K13,600 + K7)} & & 13,607 \\ \text{Less: Returns Inwards} & & (400) \\ \textbf{Net Sales} & & \textbf{13,207} \\ \text{Less: Cost of Goods Sold} & & \\ \quad \text{Opening Inventory} & 1,530 & \\ \quad \text{Purchases (K8,100 + K18)} & 8,118 & \\ \quad \text{Add: Carriage Inwards} & 700 & \\ \quad \text{Less: Returns Outwards} & (150) & \\ \quad \text{Net Purchases} & \underline{8,668} & \\ \quad \text{Cost of Goods Available for Sale} & 10,198 & \\ \quad \text{Less: Closing Inventory} & \underline{(1,660)} & \\ \textbf{Cost of Goods Sold} & & \underline{(8,538)} \\ \textbf{Gross Profit} & & \textbf{4,669} \\ \text{Add: Other Income} & & \\ \quad \text{Discounts Received} & & 100 \\ \text{Less: Expenses} & & \\ \quad \text{Distribution Expenses (K1,460 - K60 + K120)} & 1,520 & \\ \quad \text{Salaries and Wages (K1,590 + K190 - K70)} & 1,710 & \\ \quad \text{Interest on Loan (K50 + K50)} & 100 & \\ \quad \text{Discounts Allowed} & 80 & \\ \quad \text{Carriage Outwards} & 250 & \\ \quad \text{Bad Debts Expense (K6 + K12)} & 18 & \\ \quad \text{Depreciation (K166 + K27 + K420)} & \underline{613} & \\ \textbf{Total Expenses} & & \underline{(4,291)} \\ \textbf{Net Profit} & & \boxed{\textbf{478}} \\ \end{array}$
b) Prepare statement of financial position as at 31 December 20X7
$\textbf{Shon Black} \\ \textbf{Statement of Financial Position} \\ \textbf{As at 31 December 20X7}$ \begin{array}{l r r} \textbf{ASSETS} & & \\ \textbf{Non-Current Assets} & & \\ \quad \text{Land at cost} & 1,510 & \\ \quad \text{Buildings at cost} & 8,300 & \\ \quad \text{Less: Accumulated Depreciation (K1,020 + K166)} & (1,186) & 7,114 \\ \quad \text{Warehouse at cost} & 1,800 & \\ \quad \text{Less: Accumulated Depreciation (K290 + K27)} & (317) & 1,483 \\ \quad \text{Motor Vehicles at cost} & 1,680 & \\ \quad \text{Less: Accumulated Depreciation (K620 + K420)} & \underline{(1,040)} & \underline{640} \\ \textbf{Total Non-Current Assets} & & \textbf{10,747} \\ & & \\ \textbf{Current Assets} & & \\ \quad \text{Inventory (Closing)} & 1,660 & \\ \quad \text{Trade Receivables (K810 - K6 + K7)} & 811 & \\ \quad \text{Less: Allowance for Doubtful Debts} & (30) & 781 \\ \quad \text{Cash at Bank} & 140 & \\ \quad \text{Prepaid Expenses (Salaries K70 + Distribution K60)} & \underline{130} & \\ \textbf{Total Current Assets} & & \underline{\textbf{2,711}} \\ \textbf{TOTAL ASSETS} & & \boxed{\textbf{13,458}} \\ & & \\ \textbf{EQUITY AND LIABILITIES} & & \\ \textbf{Equity} & & \\ \quad \text{Capital 1 January 20X7} & 10,782 & \\ \quad \text{Add: Net Profit} & \underline{478} & \\ \textbf{Closing Capital} & & \textbf{11,260} \\ & & \\ \textbf{Non-Current Liabilities} & & \\ \quad \text{10% Loan} & & \underline{\textbf{1,000}} \\ & & \\ \textbf{Current Liabilities} & & \\ \quad \text{Trade Payables (K820 + K18)} & 838 & \\ \quad \text{Accrued Expenses (Salaries K190 + Distribution K120 + Interest K50)} & \underline{360} & \\ \textbf{Total Current Liabilities} & & \underline{\textbf{1,198}} \\ \textbf{TOTAL EQUITY AND LIABILITIES} & & \boxed{\textbf{13,458}} \\ \end{array}

Prepare income statement for the year ended 31 December 20X7 and statement of financial position as at that date.

Answers

Step-by-step solution

Closing Inventory (a)

Bad Debts (b)

Salaries and Wages (c)

Distribution Expenses (d)

Interest (e)

Purchases (f)

Sales (g)

Depreciation (h)

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