QUESTION THREE (20 MARKS) The following trial balance was extracted from the books of Rydone, a sole trader, at 31^st December 2021: Ksh Ksh. Drawings/Capital Debtors/Creditors Purchases'Sales Rent and Rates Light and heat 246 Salaries and wages 8.268 Bad debts 247 Provision for bad debts Stock in trade 31^st Dec 2020 9,274 172 General Expenses Bank balances Motor var at cost/Provision for depreciation 8,000 3,6000 Proceeds on sale of van 250 Motor expenses 861 Freehold premises at cost 15,000 750 Rent received Provision for depreciation cn buildings 5.000 117401 117.401 The following matiers are to be takea in to account: 1. Stock in trade at 31^st December 2021 was Ksh 9.884 2. Ratespaid in advance at 31^st Dezember 2021, Ksh.40 3. Rent receivable due at 31^st Dccember 2021, Ksh.250 4. Lighting and heating due at 31^st December 2021, sh.85 5. Provision for doubtful debts to be increased to Ksh.388 6. Included in the amount for insurance Ksh .172, is an item for Ksh82 for motor insurance and this amount should be transferred to motor expenses. 7. Depreciation has been and is to be charged on vans at an annual rate of 20% on cost. 8. Depreciate buildings Ksh.500 9. On 1^st January 2021 a van which had been purchased for Ksh.1,000 on 1^st January 2018 was sold for Ksh250. . The only record of matter is the credit of Ksh.250 to "Proceeds of sale on van" account. Required: A Statement of Profit and Loss for the year ended 31^st December 2021 and a Statement of Financial Position as at date using vertical format.

To prepare the Statement of Profit and Loss and the Statement of Financial Position, we need to make the necessary adjustments to the trial balance based on the given information. Let's go through each adjustment step by step:<br /><br />1. Stock in trade at 31st December 2021 was Ksh 9,884:<br /> - Increase the "Stock in trade" account by Ksh 9,884.<br /><br />2. Rates paid in advance at 31st December 2021, Ksh 40:<br /> - Increase the "Rent and Rates" account by Ksh 40.<br /><br />3. Rent receivable due at 31st December 2021, Ksh 250:<br /> - Increase the "Rent received" account by Ksh 250.<br /><br />4. Lighting and heating due at 31st December 2021, Ksh 85:<br /> - Increase the "Light and heat" account by Ksh 85.<br /><br />5. Provision for doubtful debts to be increased to Ksh 388:<br /> - Increase the "Provision for bad debts" account by Ksh 388.<br /><br />6. Motor insurance of Ksh 82 should be transferred to motor expenses:<br /> - Decrease the "Insurance" account by Ksh 82 and increase the "Motor expenses" account by Ksh 82.<br /><br />7. Depreciate vans at 20% annual rate:<br /> - Calculate the depreciation for the van: (Ksh 8,000 * 20%) = Ksh 1,600.<br /> - Decrease the "Motor van at cost" account by Ksh 1,600 and increase the "Provision for depreciation" account by Ksh 1,600.<br /><br />8. Depreciate buildings by Ksh 500:<br /> - Decrease the "Freehold premises at cost" account by Ksh 500 and increase the "Provision for depreciation on buildings" account by Ksh 500.<br /><br />9. On 1st January 2021, a van was sold for Ksh 250:<br /> - Decrease the "Motor van at cost" account by Ksh 1,000 and increase the "Proceeds on sale of van" account by Ksh 250.<br /><br />Now, let's prepare the adjusted trial balance:<br /><br />Drawings/Capital: 246<br />Debtors: (to be calculated)<br />Creditors: (to be calculated)<br />Purchases: (to be calculated)<br />Sales: (to be calculated)<br />Rent and Rates: 246 + 40 = 286<br />Light and heat: 172 + 85 = 257<br />Salaries and wages: 8,268<br />Bad debts: 247<br />Provision for bad debts: 388<br />Stock in trade (31st Dec 2020): 9,274<br />Stock in trade (31st Dec 2021): 9,884<br />General Expenses: (to be calculated)<br />Bank balances: (to be calculated)<br />Motor van at cost: 8,000 - 1,600 = 6,400<br />Proceeds on sale of van: 250<br />Motor expenses: 861 + 82 = 943<br />Freehold premises at cost: 15,000 - 500 = 14,500<br />Rent received: 117,401 + 250 = 117,651<br />Provision for depreciation on buildings: 5,000 + 500 = 5,500<br /><br />Next, we can prepare the Statement of Profit and Loss and the Statement of Financial Position using the adjusted trial balance.