Answer

Tutorial note.
a) Discounts allowed are an expense of the business and should be shown as a deduction
from gross profit. Similarly, discounts received is a revenue item and should be added to
gross profit.
b) The figure for depreciation in the trial balance represents accumulated depreciation up to
and including 2016. You have to calculate the charge for the year 2016 for the income
statement and add this to the trial balance figure to arrive at the accumulated depreciation
figure to be included in the statement of financial position.
JOYCE TILYENJI
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2016
K
Sales 491,620
Cost of sale
Opening inventory 18,460
Purchases 387,936
406,396
Closing inventory 19,926
386,470
Gross profit 105,150
Other income – discounts received 1,175
106,325
Expenses
Discounts allowed 1,304
Lighting and heating 6,184
Motor expenses (2,862 + 218) 3,080
Rent (8,841 – 680) 8,161
General expenses 7,413
Depreciation (W) 13,146
39,288
Net profit for the year 67,037
Workings
Depreciation charge
Motor vehicles: K45,730 X 20% = K9,146
Fixtures and fittings: 10% X K(42,200 – 2,200) = K4,000
Total: K4,000 + K9,146 = K 13,146
JOYCE TILYENJI
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER2016

Cost Depreciation carrying

value
K K K
Non-current assets
Fixtures and fittings 42,200 6,200 36,000
Motor vehicles 45,730 24,438 21,292
87,930 30,638 57,292
Current assets
Inventory 19,926
Receivables 42,737
Prepayments 680
Cash in hand 1,411
64,754
122,046
Capital
Balance b/f 26,094
Net profit for year 67,037
93,131
Less drawings 26,568
66,563
Current liabilities
Payables 35,404
Accruals 218
Bank overdraft 19,861
55,483
122,046