The following has been extracted from the books of Masumbuko Traders Trial balance as at 31July 2012:

DR (Sh.) CR (Sh.)Sh.10 ordinary share capital 300,000Ordinary share premium 50,00010% Sh10 preference share capital 150,000Preference share premium 25,000Land 228,000Buildings 265,000Fixtures and fittings 42,000Rates 3,500Purchases and sales 950,000 1,333,000Returns 9,000 7,000Discounts 11,000 13,000Debtors and creditors 90,000 85,000Wages and salaries 62,000Administrative expenses 5,000Rents 40,000Provision for depreciation 1.8. 20X1– Buildings 22,500– Fixtures and fittings 7,000Provision for doubtful debts 2,000Advertising 26,50010% long term loan 105,000Capital reserves 100,000Revenue reserves 75,000Bank 70,000Consultancy charges 7,000Short term investments 68,000Stock 500,000Retained earnings 30,000Loan interest 7,500 ________

2,344,500

2,344,500

Additional information:

i. Sh.10,000 is to be written off as bad debt and a general provision of 5% of the remaining balance is to be provided for.

ii. Closing stock at 31 July 2012 was valued at Sh.550,000. Land was re-valued by 25% of the balance brought forward

iii. The company has invested in securities with an expected income of Sh.70,000 per yearwhich has yet to be received or recorded

iv. A freight expense on purchases of Sh.7,000 is yet to be recorded nor paid

v. Depreciation is still to be provided as follows:? Buildings: straight line over 10%? Fixtures and fittings: reducing balance 10%

vi. The following accruals for expenses at 31 July 2012 need to be made:

? Rates Sh.500? Administration Sh.1,000.? Consultancy charges, Sh.3,000

vii. The following prepayments for expenses at 31 July 2012 need to be taken into account.

? Salaries Sh..2,000;? Advertising Sh.12,000.

Required:

i. An income statement for the year ended 31 July 2012 if dividend payout ratio is 50% of the after tax profits, the tax rate being 30%. The remainder of the profit is allocated to retained earnings, revenue reserves and capital reserves in the ratio 2:1:1 respectively

.ii. A statement of financial position as at that date.