Question

ABC ltd provide the following financial data for the year ended December 31.2024
Item. Amount (frw)
Sales revenue 250000
Sales return. 10000
Opening stock. 30000
Purchase. 100000
Closing inventory. 20000
Sales expenses. 40000
Rent expenses. 12000
Utilities expenses. 30000
Depreciation expenses. 5000
Interest income. 1500
Interest expenses. 2000
Tax rates. 20%
Required: prepare the income statement and calculate the net income for the year

Answer 1

To prepare the income statement for ABC Ltd and calculate the net income for the year ended December 31, 2024, we will follow these steps:

1. **Calculate Net Sales**:
Net Sales = Sales Revenue - Sales Returns
Net Sales = 250,000 - 10,000 = 240,000 FRW

2. **Calculate Cost of Goods Sold (COGS)**:
**COGS** = Opening Stock + Purchases - Closing Inventory
COGS = 30,000 + 100,000 - 20,000 = 110,000 FRW

3. **Calculate Gross Profit**:
Gross Profit = Net Sales - COGS
Gross Profit = 240,000 - 110,000 = 130,000 FRW

4. **Calculate Total Operating Expenses**:
- Sales Expenses: 40,000 FRW
- Rent Expenses: 12,000 FRW
- Utilities Expenses: 30,000 FRW
- Depreciation Expenses: 5,000 FRW
- **Total Operating Expenses** = 40,000 + 12,000 + 30,000 + 5,000 = 87,000 FRW

5. **Calculate Operating Income**:
Operating Income = Gross Profit - Total Operating Expenses
Operating Income = 130,000 - 87,000 = 43,000 FRW

6. **Calculate Other Income and Expenses**:
- Interest Income: 1,500 FRW
- Interest Expenses: 2,000 FRW
- **Net Other Income/Expenses** = Interest Income - Interest Expenses
Net Other Income/Expenses = 1,500 - 2,000 = -500 FRW

7. **Calculate Income Before Tax**:
Income Before Tax = Operating Income + Net Other Income/Expenses
Income Before Tax = 43,000 - 500 = 42,500 FRW

8. **Calculate Tax Expense**:
Tax Expense = Income Before Tax × Tax Rate
Tax Expense = 42,500 × 20% = 8,500 FRW

9. **Calculate Net Income**:
Net Income = Income Before Tax - Tax Expense
Net Income = 42,500 - 8,500 = 34,000 FRW

### Income Statement for ABC Ltd for the Year Ended December 31, 2024

| **Item** | **Amount (FRW)** |
|---------------------------------|------------------------|
| Sales Revenue | 250,000 |
| Less: Sales Returns | (10,000) |
| **Net Sales** | **240,000** |
| | |
| Cost of Goods Sold | |
| Opening Stock | 30,000 |
| Purchases | 100,000 |
| Less: Closing Inventory | (20,000) |
| **Cost of Goods Sold** | **110,000** |
| | |
| **Gross Profit** | **130,000** |
| | |
| Operating Expenses | |
| Sales Expenses | 40,000 |
| Rent Expenses | 12,000 |
| Utilities Expenses | 30,000 |
| Depreciation Expenses | 5,000 |
| **Total Operating Expenses** | **87,000** |
| | |
| **Operating Income** | **43,000** |
| | |
| Other Income and Expenses | |
| Interest Income | 1,500 |
| Interest Expenses | (2,000) |
| **Net Other Income/Expenses** | **(500)** |
| | |
| **Income Before Tax** | **42,500** |
| | |
| Tax Expense | (8,500) |
| | |
| **Net Income** | **34,000** |

Thus, the net income of ABC Ltd for the year ended December 31, 2024 is **34,000 FRW**.