Shahnaz Rahman operates two passenger launches on the river at Barisal, Bangladesh. Tickets are sold at the jetty and a small kiosk on board sells tea and s...

Shahnaz runs a mixed business: ticket takings are service income, while the kiosk buys tea and snacks for resale and therefore has inventory, purchases and a cost of sales. The question gives a single revenue figure of $147 200 covering both, so the gross profit calculated below is the combined result of carrying passengers and selling refreshments rather than a pure trading margin. Set out cost of sales for the kiosk goods only, since those are the only goods bought for resale.

The allowance is the deliberate trap. It is required at $365 and it already stands at $365, so there is no increase and no decrease and nothing at all appears in the income statement. Writing $365 as an expense would charge the same estimate for a second time. The allowance still shows in the statement of financial position, because trade receivables must be stated at the amount realistically expected to be collected.

The launches and the fittings are depreciated on different bases because they lose value differently: the launches are written off evenly at 8% of cost, giving the same $11 360 charge each year, while the fittings lose a fifth of a falling carrying amount. Whichever policy the business has adopted, the consistency concept requires it to be applied in the same way year after year so results can be compared.

(a) Income statement for the year ended 31 July 2024 [15]

Hull maintenance keeps the launches at their existing standard, so it is revenue expenditure charged in full this year. Had the money been spent on lengthening a launch or fitting a larger engine, that would be capital expenditure, added to the $142 000 cost and depreciated over the asset's remaining life instead.

(b) Statement of financial position at 31 July 2024 [10]

The two sides agree at $60 985. Drawings of $28 000 exceed the $20 980 profit, so capital has fallen by $7 020 over the year even though the business traded profitably. Net current assets of $7 545 against current liabilities of $9 730 gives a current ratio of about 1.8 to 1, which is adequate, but almost all of the launches' value is pledged against the $24 000 loan.