1. **Problem Statement:** Calculate the Statement of Profit or Loss for the years ended 31 December 2023 and 2024, and the Statement of Financial Position as at 31 December 2024 for Hesbon Mwatate's business. 2. **Key Formulas and Concepts:** - Gross Profit (GP) = Sales - Cost of Goods Sold (COGS) - COGS = Opening Inventory + Purchases - Closing Inventory - Goods taken for private use - Net Profit = Gross Profit - Expenses - Depreciation - Depreciation (Straight Line) = Cost of Furniture and Fittings / Useful Life - Statement of Financial Position includes Assets = Liabilities + Owner's Equity 3. **Step 1: Calculate Gross Profit Rate for 2023** - Sales 2023 = 4,875,000 - Purchases 2023 = 4,810,000 - Opening Inventory 2023 = 0 (new business) - Closing Inventory 2023 = unknown, but uniform GP rate assumed - Goods for private use 2023 = 65,000 Let GP rate = $g$ COGS 2023 = Opening Inventory + Purchases - Closing Inventory - Private Use COGS 2023 = 0 + 4,810,000 - Closing Inventory 2023 - 65,000 Sales 2023 = COGS 2023 + GP $4,875,000 = (4,810,000 - Closing Inventory 2023 - 65,000) + g \times 4,875,000$ Rearranged: $4,875,000 - 4,810,000 + Closing Inventory 2023 + 65,000 = g \times 4,875,000$ $130,000 + Closing Inventory 2023 = g \times 4,875,000$ Since Closing Inventory 2023 is unknown, we use uniform GP rate to estimate it from 2024 data. 4. **Step 2: Calculate Gross Profit Rate using 2024 data** - Sales 2024 = 10,660,000 - Purchases 2024 = 11,655,000 - 4,810,000 = 6,845,000 - Opening Inventory 2024 = Closing Inventory 2023 (unknown) - Closing Inventory 2024 = 1,592,500 - Private use 2024 = 98,000 COGS 2024 = Opening Inventory 2024 + Purchases 2024 - Closing Inventory 2024 - Private use 2024 Gross Profit 2024 = Sales 2024 - COGS 2024 Using uniform GP rate $g$: $g = \frac{Gross\ Profit}{Sales} = \frac{Sales - COGS}{Sales}$ Express COGS 2024 in terms of Closing Inventory 2023: $COGS_{2024} = Closing Inventory_{2023} + 6,845,000 - 1,592,500 - 98,000 = Closing Inventory_{2023} + 5,154,500$ Gross Profit 2024: $GP_{2024} = 10,660,000 - (Closing Inventory_{2023} + 5,154,500) = 5,505,500 - Closing Inventory_{2023}$ GP rate: $g = \frac{5,505,500 - Closing Inventory_{2023}}{10,660,000}$ From Step 3, we have: $130,000 + Closing Inventory_{2023} = g \times 4,875,000$ Substitute $g$: $130,000 + Closing Inventory_{2023} = \frac{5,505,500 - Closing Inventory_{2023}}{10,660,000} \times 4,875,000$ Multiply both sides by 10,660,000: $(130,000 + Closing Inventory_{2023}) \times 10,660,000 = (5,505,500 - Closing Inventory_{2023}) \times 4,875,000$ Calculate: $1,385,800,000 + 10,660,000 \times Closing Inventory_{2023} = 26,828,812,500 - 4,875,000 \times Closing Inventory_{2023}$ Bring terms together: $10,660,000 \times Closing Inventory_{2023} + 4,875,000 \times Closing Inventory_{2023} = 26,828,812,500 - 1,385,800,000$ $15,535,000 \times Closing Inventory_{2023} = 25,443,012,500$ $Closing Inventory_{2023} = \frac{25,443,012,500}{15,535,000} \approx 1,638,000$ 5. **Step 3: Calculate GP rate $g$** $g = \frac{5,505,500 - 1,638,000}{10,660,000} = \frac{3,867,500}{10,660,000} \approx 0.3627$ or 36.27% 6. **Step 4: Calculate Profit or Loss for 2023 and 2024** - COGS 2023 = 0 + 4,810,000 - 1,638,000 - 65,000 = 3,107,000 - GP 2023 = 4,875,000 - 3,107,000 = 1,768,000 - COGS 2024 = 1,638,000 + 6,845,000 - 1,592,500 - 98,000 = 6,792,500 - GP 2024 = 10,660,000 - 6,792,500 = 3,867,500 7. **Step 5: Calculate Expenses for each year** Total expenses paid by cheque over two years: Purchases (already accounted), Rent and rates = 663, Salaries = 1,430, Advertising = 182, Other expenses = 375 (all in thousands) Sum expenses (excluding purchases): $663 + 1,430 + 182 + 375 = 2,650,000$ Expenses per year = $2,650,000 / 2 = 1,325,000$ Adjust for outstanding and prepaid expenses for 2024: Outstanding liabilities 2024: Purchases = 975, Advertising = 65, Other expenses = 221 (total 1,261,000) Prepaid expenses 2024: Rates = 13, Insurance = 65 (total 78,000) Expenses 2024 adjusted = 1,325,000 + 1,261,000 - 78,000 = 2,508,000 Expenses 2023 adjusted = 1,325,000 (no adjustments given) 8. **Step 6: Calculate Depreciation** Furniture and fittings = 1,600,000 Depreciation per year = $\frac{1,600,000}{10} = 160,000$ 9. **Step 7: Calculate Net Profit for each year** - 2023: $1,768,000 - 1,325,000 - 160,000 = 283,000$ - 2024: $3,867,500 - 2,508,000 - 160,000 = 1,199,500$ 10. **Step 8: Prepare Statement of Financial Position as at 31 December 2024** Assets: - Bank opening balance = 3,250,000 - Add: Cash sales 2023 + 2024 = 4,875,000 + 10,660,000 = 15,535,000 - Less: Purchases, expenses, drawings, furniture, private income, etc. (detailed cash flow analysis needed) Inventory = 1,592,500 Furniture and fittings net = 1,600,000 - (160,000 \times 2) = 1,280,000 Liabilities: - Outstanding liabilities = 975,000 + 65,000 + 221,000 = 1,261,000 Owner's equity = Opening capital + Net profits - Drawings Opening capital = 3,250,000 Net profits total = 283,000 + 1,199,500 = 1,482,500 Drawings = 860,000 Owner's equity = 3,250,000 + 1,482,500 - 860,000 = 3,872,500 11. **Final answers:** **Statement of Profit or Loss:** | Year | Sales | COGS | Gross Profit | Expenses | Depreciation | Net Profit | |-------|-------|-------|--------------|----------|--------------|------------| | 2023 | 4,875,000 | 3,107,000 | 1,768,000 | 1,325,000 | 160,000 | 283,000 | | 2024 | 10,660,000 | 6,792,500 | 3,867,500 | 2,508,000 | 160,000 | 1,199,500 | **Statement of Financial Position as at 31 December 2024:** | Assets | Amount | |--------|---------| | Inventory | 1,592,500 | | Furniture and fittings (net) | 1,280,000 | | Bank and cash (balancing figure) | Calculated to balance | | Liabilities and Equity | Amount | |------------------------|---------| | Outstanding liabilities | 1,261,000 | | Owner's equity | 3,872,500 | **Note:** Detailed bank and cash reconciliation is needed for exact cash/bank balance.