The following trial balance was drawn up from the books of A Merchant at 31 December 20X0:

Required:

Prepare a profit and loss account for the year ending 31 December 20X0, and a balance sheet as at that date, taking into account the following:

(a) Provision is to be made for depreciation of motor vehicles for the year at the rate of 20 per cent per annum on the cost of the vehicles.

(b) The doubtful debts provision is to be adjusted to an amount equal to 5 per cent of the outstanding debtors.

(c) The rates are £4,000 per annum and have been paid to 31 March 20X1.

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Capital account: A Merchant Capital account at 1 January 20X0: 90,000 Introduced by A Merchant during the year 1,500 Drawings during the year 8,000 Gross profit for the year 27,000 Stock, 31 December 20X0 23,600 Selling and distribution expenses 4,500 Motor vehicles at cost 20,000 Freehold premises at cost 30,000 Provision for depreciation of motor vehicles at 1 January 20X0 4,000 Debtors and creditors 52,000 31,100 Bank balance 8,750 Rates and insurances 6,000 Office salaries 3,000 Office expenses 1,250 Doubtful debts provision 2,500 Bad debts written off 500 Discounts 1,500 3,000 159,100 159,100