1. **Problem Statement:** Prepare the income statement for Mr Chai for the year ended 30 April 2010 using the provided ledger balances and adjustments. 2. **Formula and Rules:** Income Statement calculates Net Profit or Loss as: $$\text{Net Profit} = \text{Gross Profit} - \text{Expenses}$$ where $$\text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold (COGS)}$$ and $$\text{COGS} = \text{Opening Inventory} + \text{Purchases} + \text{Carriage Inwards} - \text{Closing Inventory} - \text{Returns Inwards}$$ 3. **Calculate Net Sales:** Sales = 259,870 Returns Out = 13,407 $$\text{Net Sales} = 259,870 - 13,407 = 246,463$$ 4. **Calculate Cost of Goods Sold (COGS):** Opening Inventory = 15,654 Purchases = 135,680 Carriage Inwards = 11,830 Returns Inwards = 5,624 Closing Inventory = 17,750 $$\text{COGS} = 15,654 + 135,680 + 11,830 - 17,750 - 5,624 = 139,790$$ 5. **Calculate Gross Profit:** $$\text{Gross Profit} = 246,463 - 139,790 = 106,673$$ 6. **Calculate Expenses:** Rent, Rates and Insurance = 25,973 Less Prepaid Insurance = 1,120 Adjusted Rent, Rates and Insurance = 25,973 - 1,120 = 24,853 Heating and Lighting = 11,010 Add Accrued Heating and Lighting = 1,360 Adjusted Heating and Lighting = 11,010 + 1,360 = 12,370 Postage, Stationery and Telephone = 2,410 Advertising = 5,980 Salaries and Wages = 38,521 Bad Debts = 2,008 Discount Allowed = 2,306 Carriage Outwards = 4,562 Depreciation = 12,074 7. **Calculate Allowance for Doubtful Debts Adjustment:** Trade Accounts Receivable = 24,500 Required Allowance = 3% of 24,500 = 735 Current Allowance = 512 Increase = 735 - 512 = 223 (expense) 8. **Total Expenses:** $$24,853 + 12,370 + 2,410 + 5,980 + 38,521 + 2,008 + 2,306 + 4,562 + 12,074 + 223 = 105,307$$ 9. **Calculate Net Profit:** $$\text{Net Profit} = 106,673 - 105,307 = 1,366$$ **Final Answer:** Mr Chai's net profit for the year ended 30 April 2010 is $1,366.