Question One Shoe Black, is a sole trader operating as a retailer. The following information is extracted from his accounting books as at 31 December 20X7.

The following additional information is available: (a) Closing inventory is K1,660,000 (b) Trade balances totaling K6,000 are to be written off and the allowance for doubtful debts increased to K30,000. (c) Salaries and wages owing K190,000 with K70,000 paid in advance. (d) Distribution expenses of K60,000 were prepaid and K120,000 not paid as at 31 December 20X7. (e) Interest of K50,000 is owing (f) In January 20X8, the business received invoices for credit purchases totaling K18,000 for goods delivered before 31 December 20X7.

(g) It was also found that credit sales invoices totaling K7,000 for goods delivered to customers before 31 December 20X7 had by mistake been dated in January 20X8 and thus excluded from sales for the year and from account receivables at the year end. NOTE: The goods received had been included in the year end inventory figures given at (a) above, and the goods sold had been excluded from it. No adjustment to the inventory figure is therefore required: (h) Depreciation should be provided as follows: - Land nil - Buildings 2% on cost per annum - Warehouse 15% on cost per annum - Motor vehicles 25% on cost per annum

Required: (a) Prepare income statement for the year ended 31 December 20X7 and (b) Balance sheet as at 31 December 20X7.

K'000 K'000 1460 1000 820 140 18 810 1680 620 1800 290 8300 1020 Distribution expenses 10% Loan Trade payables Cash at bank Allowance for doubtful debts Trade receivables Motor vehicles at cost Accumulated depreciation motor vehicles Warehouse at cost Accumulated depreciation warehouse Buildings at cost Accumulated depreciation buildings Land cost Interest on loan paid Salaries and wages Discounts allowed and received Returns inwards Returns outwards Carriage inwards Carriage outwards Inventory 1 January 20X7 Purchases Sales Capital 1 January 20X7 1510 50 1590 80 400 100 150 700 250 1530 8100 13600 10782 28400 28400