Anika owns property which she rents out. Prepare financial statements based on the trial balance and additional information provided.

Steps to Solve

1. Adjust Rent Receivable Anika has received $8100 in rent which has been paid in advance.

   • Adjust for unearned rent income: Rent Receivable will decrease by $8100.

2. Adjust General Expenses General expenses include $1300 paid in advance, meaning these expenses should not be included in the current year’s expenses.

   • Reduce General Expenses by $1300.

3. Adjust Rates Payable The rates of $3400 are owed, so we need to add this to current liabilities.

   • Increase the Rates expense by $3400.

4. Adjust Insurance Expenses The prepaid insurance of $1800 should cover the 15 months ending November 2022. For this calculation:

   • Monthly insurance expense = $1800 / 15 months = $120.
   • For the 12 months until August 2022, total insurance expense = $120 * 12 = $1440.
   • Adjust the insurance expense accordingly.

5. Record Repairs for New Fittings The expenditure of $9000 for new fittings wrongly recorded as repairs should be treated as an asset.

   • Remove $9000 from Repairs and add it to Fittings.

6. Calculate Depreciation for Premises The premises depreciate by equal instalments over a 50-year period:

   • Annual depreciation = Cost / Useful life = $418000 / 50 = $8360.

7. Calculate Depreciation for Fittings The fittings depreciate at 20% per annum using the reducing balance method:

   • First, add the new fittings cost ($9000) to the existing fittings value: $90000 + $9000 = $99000.
   • Calculate depreciation: $99000 * 20% = $19800.

8. Total Expenses and Profit Calculation Sum the adjusted expenses and subtract from the total income to calculate profit. Adjust for new expenses and income based on adjustments made above.