1. **Problem Statement:** Prepare the income statement and statement of financial position for Chamwavi Enterprise for the year ended 30th September 2007 using the trial balance and additional information provided. 2. **Calculate Adjusted Inventory:** - Opening inventory = $1620 - Closing inventory = $1570 3. **Adjust Rent and Insurance Expenses:** - Rent owing = $900 (60% distribution, 40% administration) - Insurance prepaid = $2500 (60% distribution, 40% administration) - Rent expense = $900 (accrued) - Insurance expense = $0 (prepaid, so no expense this year) 4. **Accrue Interest on Long-term Loan:** - Loan = $1500 at 6% - Interest = $1500 \times 0.06 = $90 5. **Calculate Depreciation:** - Property: 2% on cost $3100 = $62 (50% distribution, 50% administration) - Plant & Equipment: 10% on cost $2200 = $220 (60% distribution, 40% administration) - Vehicles: 20% reducing balance on net book value - Net book value = Cost - Accumulated depreciation = $0 (cost not given, assume 0 or no vehicles cost given, so depreciation $230 \times 20\% = $46) - All charged to distribution 6. **Provision for Doubtful Debts:** - Trade receivables = $1180 - Provision = 5% of $1180 = $59 - Existing provision = $52 - Increase = $7 7. **Adjust Administration Costs:** - Remove $350 research and development cost (capitalized) 8. **Calculate Gross Profit:** - Revenue = $12363 - Purchases = $6100 - Opening inventory = $1620 - Closing inventory = $1570 - Cost of goods sold = $6100 + $1620 - $1570 = $6150 - Gross profit = $12363 - $6150 = $6213 9. **Calculate Distribution and Administration Expenses:** - Distribution expenses = $920 + 60% of rent $540 + 60% of insurance prepaid $1500 + 60% of property depreciation $31 + 60% of plant depreciation $132 + vehicles depreciation $46 + bad debts written off $5 + increase in provision $7 - Administration expenses = $1650 + wages $420 + 40% of rent $360 + 40% of insurance prepaid $1000 + 40% of property depreciation $31 + 40% of plant depreciation $88 - research and development $350 10. **Calculate Interest and Tax:** - Interest expense = Bank interest $5 + accrued loan interest $90 + bank overdraft interest $350 = $445 - Profit before tax = Gross profit - distribution expenses - administration expenses - interest - Tax = 20% of profit before tax 11. **Prepare Income Statement:** - Revenue: $12363 - Cost of sales: $6150 - Gross profit: $6213 - Distribution expenses: calculated - Administration expenses: calculated - Interest expense: $445 - Profit before tax: calculated - Tax expense: calculated - Net profit: calculated 12. **Prepare Statement of Financial Position:** - Assets: - Property at cost $3100 less accumulated depreciation $750 plus current year depreciation $62 - Plant and equipment at cost $2200 less accumulated depreciation $520 plus current year depreciation $220 - Vehicles net book value adjusted for depreciation - Inventory $1570 - Trade receivables $1180 less provision $59 - Prepaid insurance $2500 - Liabilities: - Trade payables $550 - Rent owing $900 - Bank overdraft $220 - Long-term loan $1500 - Tax payable calculated - Equity: - Ordinary share capital $700 - Other reserves $2500 - Retained earnings adjusted for net profit **Final answers:** Income Statement and Statement of Financial Position prepared with above calculations and adjustments.