1. **Problem Statement:** Prepare the Income Statement for the year ended 31.12.2019 and the Statement of Financial Position as at 31.12.2019 for a sole trader, incorporating given adjustments. 2. **Key Formulas and Rules:** - Depreciation = Cost × Rate - Provision for bad debts = Percentage × Sundry debtors - Adjust expenses and incomes for accruals and prepayments - Closing stock affects Cost of Goods Sold (COGS) - Drawings reduce capital 3. **Adjustments:** - Depreciation on Plant and Machinery = $140,000 \times 10\% = 14,000$ - Depreciation on Fixtures = $25,000 \times 15\% = 3,750$ - New Provision for Bad Debts = $60,000 \times 4\% = 2,400$ - Increase in Provision = $2,400 - 1,800 = 600$ - Prepaid Insurance = 500 (reduce Insurance expense) - Rates accrued = 400 (add to Rates expense) - Closing Stock = 60,000 - Goods taken for personal use = 2,000 (deduct from Purchases) 4. **Income Statement Preparation:** - Sales = 520,000 - Less: Closing Stock = 60,000 - Adjusted Purchases = $280,000 - 2,000 = 278,000$ - Cost of Goods Sold (COGS) = Opening Stock + Purchases - Closing Stock = $50,000 + 278,000 - 60,000 = 268,000$ - Gross Profit = Sales - COGS = $520,000 - 268,000 = 252,000$ - Expenses: - Salaries & Wages = 35,000 - Discount Allowed = 7,500 - Advertising = 10,400 - Insurance = $3,800 - 500 = 3,300$ - Rates = $5,600 + 400 = 6,000$ - General Expenses = 7,200 - Depreciation (Plant + Fixtures) = $14,000 + 3,750 = 17,750$ - Increase in Provision for Bad Debts = 600 - Total Expenses = $35,000 + 7,500 + 10,400 + 3,300 + 6,000 + 7,200 + 17,750 + 600 = 87,750$ - Other Income: - Discount Received = 5,500 - Net Profit = Gross Profit - Expenses + Other Income = $252,000 - 87,750 + 5,500 = 169,750$ 5. **Statement of Financial Position Preparation:** - Assets: - Freehold Premises = 240,000 - Plant and Machinery (Net) = $140,000 - 14,000 = 126,000$ - Fixtures and Fittings (Net) = $25,000 - 3,750 = 21,250$ - Sundry Debtors = 60,000 - Less: Provision for Bad Debts = 2,400 - Net Debtors = $60,000 - 2,400 = 57,600$ - Bills Receivable = 30,000 - Closing Stock = 60,000 - Cash in Hand = 2,400 - Liabilities: - Bills Payable = 15,000 - Sundry Creditors = 43,000 - Bank Overdraft = 17,600 - Accrued Rates = 400 - Capital: - Opening Capital = 300,000 - Add: Net Profit = 169,750 - Less: Drawings = 6,000 - Less: Goods taken for personal use = 2,000 - Closing Capital = $300,000 + 169,750 - 6,000 - 2,000 = 461,750$ - Check: Total Assets = Total Liabilities + Capital - Total Assets = $240,000 + 126,000 + 21,250 + 57,600 + 30,000 + 60,000 + 2,400 = 537,250$ - Total Liabilities + Capital = $15,000 + 43,000 + 17,600 + 400 + 461,750 = 537,750$ - Difference of 500 due to prepaid insurance (asset), adjust assets to $537,250 + 500 = 537,750$ **Final Answers:** **Income Statement:** - Net Profit = 169,750 **Statement of Financial Position:** - Total Assets = 537,750 - Total Liabilities + Capital = 537,750 This completes the preparation of final accounts with adjustments for the sole trader.