Question Five A trader has the following balances appearing, in his ledger. Find the missing figure for Capital. Gross profit 27000, Discount received 3000, Discount allowed 2000, Bad debts 1000 Bad debts recovered 4000, Provision for doubtful debts 6000 Debtors 70000, Carriage outwards 3000,10% Loan from Kopa ni harusi lipa ni matanga bank 50000, Interest on harusi matanga bank loan 5000, Audit fees 1000,Creditors 7000, Rent 3000 Closingstock10000, Land and buildings 80000 Provision for depreciation for buildings 20000, Bank overdraft 4000 . Capital? Required: a Prepare a Trial balance (9 marks) b Income Statement. (11 marks) Note that Rent prepaid was 1000 and salaries unpaid 24000.

**a) Trial Balance**<br /><br />| Account Title | Debit | Credit |<br />|---------------------------------|-----------|-----------|<br />| Land and Buildings | 80,000 | |<br />| Provision for Depreciation - Buildings | | 20,000 |<br />| Debtors | 70,000 | |<br />| Closing Stock | 10,000 | |<br />| Bank Overdraft | | 4,000 |<br />| Creditors | | 7,000 |<br />| 10% Loan from Kopa Bank | | 50,000 |<br />| Gross Profit | | 27,000 |<br />| Discount Received | | 3,000 |<br />| Discount Allowed | 2,000 | |<br />| Bad Debts | 1,000 | |<br />| Bad Debts Recovered | | 4,000 |<br />| Provision for Doubtful Debts | | 6,000 |<br />| Carriage Outwards | 3,000 | |<br />| Interest on Kopa Bank Loan | 5,000 | |<br />| Audit Fees | 1,000 | |<br />| Rent | 2,000 | |<br />| Prepaid Rent | | 1,000 |<br />| Salaries | 24,000 | |<br />| Capital | | **62,000** |<br />| | **202,000** | **202,000** |<br /><br /><br />**Explanation of Capital Calculation:**<br /><br />The trial balance must balance. Since the total debits are 202,000, the total credits must also be 202,000. Adding up all the credit balances except for Capital gives us 140,000. Therefore, the Capital balance must be 62,000 (202,000 - 140,000) to make the trial balance balance.<br /><br /><br />**b) Income Statement**<br /><br />| Item | Amount |<br />|---------------------------------|-----------|<br />| Gross Profit | 27,000 |<br />| Add: Discount Received | 3,000 |<br />| Less: Discount Allowed | (2,000) |<br />| | |<br />| **Gross Trading Profit** | **28,000** |<br />| Less: Expenses | |<br />| Bad Debts | 1,000 |<br />| Carriage Outwards | 3,000 |<br />| Interest on Kopa Bank Loan | 5,000 |<br />| Audit Fees | 1,000 |<br />| Rent | 2,000 |<br />| Salaries | 24,000 |<br />| | |<br />| **Total Expenses** | **(36,000)** |<br />| | |<br />| **Net Loss** | **(8,000)** |<br />| Add: Bad Debts Recovered | 4,000 |<br />| | |<br />| **Net Loss after recovery** | **(4,000)** |<br /><br /><br />**Explanation of Rent:** The rent expense is 2,000 (3,000 paid - 1,000 prepaid). The prepaid rent is a current asset and appears in the trial balance. The unpaid salaries are an expense for the period and increase the salaries expense to 24,000. They also create a current liability (salaries payable) which would appear in a balance sheet but not the income statement.<br />