AQS

AQS
Accounting Questions for Students
Fourth Edition
AQS
Fourth Edition
L Cornelius
BAcc (NWU), BCom(Hons) (NWU), BA(Hons)(BibArch) (UNISA), MA(BibArch) (UNISA)
MM Weyers
BAcc (NWU), BCom(Hons) (NWU), MCom (NWU)
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© 2022
First Edition 2015

Second Edition 2017
Third Edition 2019 Reprinted 2020 (twice), 2021, 2022
ISBN 978-1-77617-462-1 (softback)

978-1-77617-463-8 (e-book)
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Editor: Marjorie Guy

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Contents
Page
PART A – INTRODUCTION TO ACCOUNTING
Chapter 1 – Nature and function of accounting ................................... 3
Chapter 2 – Accounting equation ......................................................... 5
Chapter 3 – Value-added tax ................................................................. 23
Chapter 4 – Source documents ............................................................. 27
Chapter 5 – Subsidiary journals and general ledger ............................. 29
Chapter 6 – Adjustments and closing entries ....................................... 43
Chapter 7 – Financial statements.......................................................... 65
PART B – ELEMENTS OF FINANCIAL STATEMENTS

Chapter 8 – Cash and cash equivalents................................................. 97
Chapter 9 – Inventory............................................................................ 107
Chapter 10 – Debtors and creditors ........................................................ 121
Chapter 11 – Non-current assets ............................................................ 137
Chapter 12 – Non-current liabilities ........................................................ 153
Chapter 13 – Statement of cash flow ...................................................... 155
v
Page
PART C – SUNDRY TOPICS
Chapter 14 – Incomplete records............................................................ 179
Chapter 15 – Insurance ........................................................................... 195
Chapter 16 – Conceptual Framework ..................................................... 205
Chapter 17 – IAS 1: Presentation of financial statements ...................... 211
PART D – TYPES OF ENTITIES

Chapter 18 – Partnerships ....................................................................... 221
Chapter 19 – Companies ......................................................................... 257
Chapter 20 – Non-profit organisations ................................................... 291
vi
PART
A
INTRODUCTION TO ACCOUNTING
Chapter
1
Nature and function of accounting
Question 1.1
1. What is the purpose and function of accounting?
2. What kinds of business organisations/legal entities exist in South Africa?
Question 1.2
Sort the following elements of the financial statements according to their classifications
(mark the appropriate block with an X):
Asset Liability Equity Income Expense
Cash
Debtors
Stationery used
Services delivered
Inventory on hand
Loan at AB Bank
Withdrawal by owner
Question 1.3
1. When may a transaction in respect of an asset be recorded in the accounting records?
2. At which value can assets be recorded in the accounting records?
Question 1.4
Name three users of financial statements and indicate for which purposes they would need
the financial statements.
3
Question 1.5
Only indicate the correct letter next to the question number:
1. International financial reporting standards are compiled by:
(a) Department of Trade and Industry
(b) SAICA
(c) International Accounting Standards Board
(d) None of the above-mentioned.
2. Financial statements must be a _____ reflection of the accounting records.
(a) Fair
(b) True
(c) Accurate
(d) Correct
3. A company may not disclose more information than required by the accounting
standards:
(a) True
(b) False
4
Chapter
2
Accounting equation
Question 2.1
The following information was obtained from the records of XHS Services at the end of the
first month of trading:
Date Transaction
1 The owner deposited R100 000 into the bank account for day-to-day expenses.
2 The following assets were acquired from OK Bazaars:
Machinery: R20 000
Furniture: R15 000
Computer: R5 000
The outstanding amount is payable within two months.
3 R186 was paid in cash to the CNA for a receipt book and sundry stationery
purchased.
3 A receipt to the amount of R1 200 was issued for services rendered to Mr J
McIntyre. The money was held in the petty cash box until the end of the week.
Cash on hand was deposited on a weekly basis.
4 Mr McIntyre was so impressed with the services that he ordered the same service
for one of his other businesses to the amount of R1 800. The services were
rendered on the same day and Mr McIntyre promised to pay the outstanding
amount before the end of the month.
4 The owner took R20 from the petty cash to buy lunch. He explained that he deserved
a good meal after his successful negotiations with Mr McIntyre.
5 The cash on hand was deposited into the bank account.
8 An electronic funds transfer (EFT) to the amount of R224 was made to Telkom for
the installation of the telephone line.
9 A delegated official from CANSA asked for a donation. The owner ordered the
cashier to give her R50 from the petty cash. According to the cashier there were
insufficient funds in the petty cash. The owner gave R150 from his own funds to
the cashier and ordered her to keep the minimum balance of the petty cash at
R50. The cashier gave the official from CANSA R50 and put the rest of the money
in the petty cash.
10 Stamps were purchased from the petty cash to the amount of R14.
continued
5
Date Transaction
12 With reference to the owner’s orders on the 9th, petty cash on hand was
deposited into the bank account.
16 Services were rendered for cash to the amount of R480.
18 The cashier took R150 from the petty cash as a “loan” to buy perfume during
lunch.
22 Services were rendered to Mr Bouta for R1 800. He asked the cashier whether he
could get a discount for settling his account immediately. The cashier replied that
they did not grant discount on cash payments. Mr Bouta decided to wait until the
end of the month to settle his account instead.
29 EFTs were made for the following accounts received:
Telkom R150
Municipality R350
29 Funds were transferred electronically for the cashier’s salary to the amount of
R1 550 (after her loan on the 18th was recovered).
30 Mr McIntyre settled his account in full.
Mr Bouta was declared insolvent and his full amount outstanding was written off
as irrecoverable.
31 The owner decided that the entity was not profitable and that he would rather
make his money on the inventories exchange.
He sold the assets to a good friend for the same amount he purchased it for.
(Ignore depreciation.) He gave the cashier 24 hours’ notice and officially closed
the doors on the same day.
Required:
Show the effect of the above-mentioned transactions on the accounting equation, as follows:
Date Assets = Equity + Liabilities
+ – – + – +
6
Chapter 2: Accounting equation
Question 2.2
The effect of the following transactions on the accounting equation was obtained for the
month of June 20.1:
Assets = Equity + Liabilities

No. Journal Entry R R R R R R
+ – – + – +
1 Bank 100 000
Long-term loan (ABSA) 100 000
2 Stationery 115
Telephone 228
Electricity 305
Bank 648
3 Bank charges 30
Bank 30
4 Bank 14
Interest 14
5 Cash on hand 1 114
Sales 1 114
6 Bank 1 114
Cash on hand 1 114
7 Debtors 570
Sales 570
8 Bank 520
Allowance for settlement
discount (debtors) 50
Debtors 570
9 Debtors 350
Sales 350
10 Credit losses 350
Debtors 350
11 Cash on hand 740
Sales 740
12 Refreshments 140
Cash on hand 140
continued
7

No. Journal Entry R R R R R R
+ – – + – +
13 Bank 600
Cash on hand 600
14 Purchases 514
Creditors 514
15 Creditors 514
Bank 514
16 Purchases 418
Creditors 418
17 Creditors 418
Allowance for settlement
discount (creditors) 41
Bank 377
18 Stationery 31
Capital 31
19 Interest 1 114
Long-term loan 1 114
Required:
Briefly explain in your own words what led to the above-mentioned entries.
Question 2.3
The following information was obtained from the records of Bambi Traders:
1. Received cash for goods supplied on credit in the previous period (R800).
2. The owner supplied the entity with a desk and chair to the value of R850. In addition to
this he also donated R1 000 cash and entity premises to the value of R500 per month.
3. Additional furniture was purchased on credit for R2 500.
4. R180 was transferred electronically to settle a creditor’s account.
5. Goods were sold on credit for R4 800.
6. The following EFTs were made:
Wages R350
Electricity R500
8
7. The debtor in point 5 above settled his account after taking advantage of the 5% settlement
discount that was granted at the time of the sale, even though the entity assumed that he
would not pay within the stipulated period.
8. Although the owner did not draw cash for personal use, provision should be made for
the owner’s salary of R2 500.
Required:
1. Record the transactions in the general journal.
2. Record the transactions in the accounting equation.
Example:
Journal entry
+ – – + – +
1 Cash R800
Debtors R800
Question 2.4
Baby Coetzee recently started working at a medium-sized audit practice in town. Although he
thought he understood the effect of any transaction on the accounting equation, he
experienced the following problems in his first month of employment:
Part 1:
A senior employee asked him to classify the following trial balance line by line as assets,
liabilities or equity:
TRIAL BALANCE
DR CR
R R
Sales 100 000
Purchases 50 000
Other expenses 30 000
Capital 10 000
Non-current assets 25 000
Debtors 20 000
Bank 35 000
Creditors 50 000
160 000 160 000
9
He started from the bottom and found the process relatively easy. When he reached “other
expenses”, however, he realised that he had never thought about the effect of the statement
of profit or loss and other comprehensive income accounts on the accounting equation.
Required:
1. Assist Baby by explaining to him whether statement of profit or loss and other
comprehensive income accounts should be classified as assets, equity or liabilities.
2. Summarise the above-mentioned transactions in the following format:
Equity Assets Liabilities

Account = –
+/– Rxxx +/– Rxxx +/– Rxxx
Part 2:
A senior official asked Baby to explain the effect of the following two transactions on the
accounting equation:
1. A provision for depreciation amounting to R12 400 was made at the end of the financial
year.
2. An allowance for credit losses amounting to R3 500 was made.
Required:
Assist Baby regarding the effect of the above-mentioned two transactions on the accounting
equation, in the following format:
Equity Assets Liabilities

Account = –
+/– Rxxx +/– Rxxx +/– Rxxx
Question 2.5
You were recently appointed as the accountant of the local SPCA. Having been an animal
lover all your life, you agreed to provide your accounting skills free of charge.
The following transactions occurred during the course of the month:
1. The branch generates three types of income: when an animal is adopted, when shelter
is provided for pets and when a government subsidy is received for shelter provided to
stray animals. (Assume that all income transactions are on a cash basis.)
(a) Fourteen animals were adopted at R150 per adoption.
(b) Shelter was provided to 18 pets that stayed an average of three nights each. The
charge per animal per night is R20.
(c) There were 15 stray animals for which shelter was provided for an average of
20 days per animal. The subsidy received per stray animal per night was R5.
10
2. The following expenses occurred for the month of review:

(a) Salaries and wages paid cash, R3 500.
(b) Animal food is purchased on credit from Doggyland in large 50 kg bags. The price
per bag is R100. Doggyland grants a special discount of 15% on all purchases by
the SPCA. A total number of 20 bags was ordered during the course of the month.
Included in the total was one bag for the receptionist’s “personal use”. (Assume
that the discount was also granted on this bag.)
(c) The telephone account of R350 was received and settled before the end of the
month (a creditor was acknowledged on receipt of the account).
(d) The electricity account of R800 was received but was still outstanding at month-
end.
Required:
1. Compile the journal entries for the above-mentioned transactions.
2. Indicate the effect of the above-mentioned transactions on the accounting equation, as
follows:
Example:
Assets Equity Liabilities

= –
+R2 100 +R2 100 0
Question 2.6
Bailiepark (Pty) Ltd is a medium-sized company. The company was established a while ago by
Mr Mike Bailey. Its main business is to supply the local builders with building and other
related supplies.
The following information was obtained from the records for March 20.1:
Date Transaction
1 Merchandise purchased from Joburg Traders on credit for R1 350. Included in
the this amount was a chair for the new secretary, valued at R295.
5 Receive and settle the following accounts for February 20.1:
Telephone R346,50
Water and electricity R465,00.
(Provision was made in February for telephone (R350) and water and
electricity (R450).)
15 Settle Joburg Trader’s account. At the time of the transaction, Bailiepark (Pty)
Ltd was offered a R150 settlement discount if payment was made within 15
days. The company intended to take full advantage of the settlement discount
offered.
continued
11
Date Transaction
20 Receive R2 375 from Mr Brooks (a builder who took building equipment on
credit in February) after a settlement discount was granted. It is the company’s
policy to grant a 5% settlement discount when a debtor settles his account
within two months. At the time of the transaction, the company assumed that
Mr Brooks would take advantage of the settlement discount.
30 The telephone and electricity accounts for March were still outstanding at the
end of the month. The same provisions as in the previous month were,
therefore, made in the current month for the above-mentioned two expense
items.
Additional information:
The periodic inventory system is in use.
Required:
Indicate the effect of the above-mentioned transactions on the accounting equation, in the
following format:
Date Account Assets = Equity + Liabilities
+ – – + – +
Question 2.7
Required:
With reference to Question 2.1, show the journal entries in the following format:
Date Description DR CR
1 Bank R100 000
Capital R100 000
Compare your answer to your answer to Question 2.1 and write down the following general
rule:
“Only __________ and ___________ accounts are debited under normal circumstances and
only __________, __________ and __________ accounts are credited under normal
circumstances.”
12
Question 2.8
Required:
1. Provide any three examples of transactions that will result in the following accounts:
• Assets
• Liabilities
• Income
• Expenses
2. Will equity be influenced by any of the above elements?
3. Provide examples of any two transactions that will have an influence on equity.
Question 2.9
The following transaction occurred in the accounting records of Corner Café. The café
currently has a bank overdraft (the entity is not registered for VAT purposes).
1. Pay the bank R750 from the business’s bank account via an EFT, which includes R500
redemption on a loan and R250 interest.
2. Return stationery, purchased on credit and which did not agree with the specifications,
to Wholesaler Ltd. The stationery originally cost R500. A debit note was received from
Wholesaler Ltd.
3. Receive a bank statement indicating the following:
Bank charges: R20
Interest received: R50
A deduction for the owner’s personal policy at SAMLAN: R100.
4. Trading inventory was purchased from Wholesaler Ltd for R2 000 and paid for via an
EFT. R200 railway charges were paid to deliver the inventory in Potchefstroom.
5. Sell goods to Mr G Ducharm on credit. The invoice price is R1 320. The entity has a
gross profit percentage of 25%.
Required:
Analyse the transactions under the following headings:
No. Source doc. Acc. DR Acc. CR A E L
13
Question 2.10
The following transactions, amongst others, occurred for Arion Traders:
1. Purchased a vehicle on credit from Acme Garage for R24 000. The monthly instalment is
R660.
2. At the end of the operating period, a physical stocktaking took place and the trading
inventory was valued at R7 230. The balance of the trading inventory account is R7 110.
3. Received an EFT from M Slabbert for R37. His debt had previously been written off.
4. Sold trading inventory for R600 cash. The company uses a profit ratio of 50% on cost.
5. Sold used equipment with a cost price of R8 600 and accumulated depreciation of
R2 400 to B Beytel. Received an EFT from him for R5 500.
6. The bank statement showed the following:
(a) Service fees R60
(b) Sundry debits R80
(c) Tax levy R30
(d) Interest on bank overdraft R75
7. Transferred R250 electronically to GB Wholesalers in payment of Arion Traders’
account of R250.
8. A debtor owing R80 is insolvent; received 80c in the rand as final dividend.
9. Purchased equipment from Office Equip for R2 750; paid R450 deposit via EFT.
Required:
Show the effect of the above transactions on the accounting equation, E = A – L, in columns.
Also use a column to show source documents.
Question 2.11
ABC Traders entered into the following transactions:
1. At the end of the accounting period, an office chair with a cost price of R85 and a
carrying amount of R45 is sold on credit to M Ellis for R35.
2. A fixed deposit of R5 000, which carries interest at a rate of 15% p.a., comes to an end
on 31 March. Receive an EFT for the amount, including interest for 6 months.
3. Pay delivery charges of R36 from petty cash.
4. Pay for repairs to a vehicle on credit by Orlando Motors for R75.
14
5. Sell trading inventories for R700 in cash. The firm uses a profit ratio of 33Ы on cost.
6. The owner takes trading inventories of R500 for private use.
7. Receive R25 from the insolvent estate of T Spence. He owed R125.
8. Charge the arrears account of E Bacon R240, being interest for 1 month at a rate of 20%
p.a.
9. Receive a credit note from Matson Wholesalers. They did not include the 15% trade
discount on purchases of R1 800.
10. Pay R680 to Finanscor, via EFT; R550 is payment on a loan, while the rest is interest.
Required:
Analyse the above transactions in the columns below:
No. Acc. DR Acc. CR E = A – L
Question 2.12
1. Brakanjan Traders trades in equipment for musketeers and their horses. The business
also owns a horse, Rofti, which won a horse race. Rofti earned R5 000 in winnings and
Brakanjan Traders deposited the money in the business’ bank account.
2. Brakanjan paid rent for Rofti’s stable, R510 in cash – R60 for 20.4 (expense payable),
R90 in advance for 20.6, and the rest for 20.5.
3. Blansjet Saddlery repaired Rofti’s equipment. He sent a credit invoice for R105 to
Brakanjan Traders.
4. Milady, a debtor, is bankrupt. Brakanjan Traders received a first and final dividend of
R62, which amounts to 20c in the rand of her debt.
5. Brakanjan, the owner, took new equipment (inventory), cost price R520, to give to his
wife, Juliet, as a birthday gift. The perpetual inventory system is in use.
6. Brakanjan Traders transferred funds of R400 electronically to Earl Richelieu, the city
treasurer, for the following: increase in water and lights deposit, R90; property tax,
R70; repayment of loan, R240.
7. EFTs made by Brakanjan Traders:
To: Bidemer Date: 15 May 20.5

For: Redemption of bill payable no. 24, value R500
Redemption date: 15 July 20.5 Amount: R500,00
15
8. Receipt
No. 278 17 May 20.5

Received from: Aremies Musketeer
The amount of: One hundred rand
For: Settlement of account
Signed: Planchet, for Brakanjan Trades
9. Brakanjan Traders purchased a sword on credit from Wilkinson Sword for R450 less
10% trade discount; sold the sword for R700 cash less 5% cash discount.
10. Brakanjan Traders sold an old horse-cart, with a cost price of R850 and accumulated
depreciation on the date of sale of R215 on credit to Grimaud for R575.
Required:
Indicate the effect of the above transactions on the accounting equation. Assume a positive
bank balance where applicable. The entity uses the perpetual inventory system. Use the
following columns:
Acc. DR Acc. CR E A L
Question 2.13
Two partners, X and Z, decided to start a garden service business which they called XYZ. The
following transactions occurred in their first month of business operations:
June 20x3:
1 X and Z each contributed R100 000 to the entity, which was deposited in the recently
opened bank account.
3 A loan of R250 000 was obtained from a financial institution and deposited in the bank
account.
4 Four new lawnmowers were purchased at R80 000 each. Deposits of R15 000 per
machine were paid and the balance is owing to Garden Suppliers.
6 Petrol and oil inventories to the value of R25 000 were purchased for cash. Vehicle
licenses and insurance amounting to R1 000 in total were paid in cash (the perpetual
inventory system is in use).
9 Paid rental for June for business premises amounting to R5 000 via EFT.
Purchased stationery on credit for R2 000.
15 Deposited service fees collected in the first 2 weeks of business amounting to R10 200.
19 Paid R500 for advertisements placed in the local press.
23 Purchased spare parts from Good Dealers amounting to R9 000 on credit, which were
accounted for as consumable stores.
16
28 Salaries and wages were paid to the staff by drawing cash of R8 000 from the bank
account.
The first instalment of R4 000 was made to Garden Suppliers via EFT.
30 Deposited service fees collected in the following two weeks of business amounted to
R15 200. This was after each partner had first taken R2 500 cash for their own use.
Inventory of petrol and oil amounted to R21 500.
Required:
Indicate how the above transactions would affect the accounting equation: E = A – L.
Calculate the totals following the processing of all the above transactions to prove that the
accounting equation has remained in equilibrium. Indicate increases by a “+” and decreases
by a “–”. Use the following format:
Date Equity = Assets – Liabilities
Question 2.14
The following are particulars of transactions in the entity Botha Shops as rendered in the
descriptions and documents. The entity uses the periodic inventory system.
1. A vehicle, of which the cost price was R7 600, was damaged in an accident to such an
extent that it had to be written off. The accrued depreciation on the vehicle amounts to
R5 200. R1 900 was received from the insurance company.
2. Pay R650 via EFT to Unifinance; R600 instalment on loan, R50 interest on the loan.
3. Carry Roets & Son’s credit balance in the debtors ledger over to their account in the
creditors ledger.
4. Receive an EFT of R150 from M Labuschagne to settle her debt of R155 before the due
date for settlement. The entity initially assumed that M Labuschagne would not take
advantage of the settlement discount offered to her.
5. EFT printout
No. 0364
To: City Council
For: Deposit: water and electricity
Amount: R170
17
6. INVOICE NO. 65
216 Church Street
PRETORIA 0002
Botha Shops 14 September 20.4
20 Plein Street
PARYS 3240
PURCHASED FROM JAMES & CO
PRETORIA
R R
100 Cassette players @ R100 each 43 4 300,00
Less: 10% trade discount (430,00)
3 870,00
E&OE
7. RECEIPT
No. 178 14 September 20.4
Received from: L Landsberg
The sum of: Ninety rand and nil cents
For: Settlement of account 90 00
DJE
On behalf of Botha Shops
8. CREDIT NOTE
Tel: 652 No. 463
PO Box 340 216 Church Street
PRETORIA 0002
Botha Shops 14 September 20.4
20 Plein Street
PARYS 3240
Credited by JAMES & CO
10 Cassette players, damaged 387 00
9. James & Co levies Botha Shops with R7 interest.

10. Pay R115 via EFT for repairs.
11. Receive a credit slip from the bank which shows that Die Spens paid R700 rent into
Botha Shop’s bank account. Accept that the bank account is overdrawn only for this
transaction.
18
Required:
Reproduce particulars in connection with transactions of Botha Shops, as rendered in the
descriptions and documents, under the elements of the accounting equation.
Use the following columns:
No. Acc. DR Acc. CR E A L
Question 2.15
The following transactions, amongst others, took place during March 20.9 in the enterprise
of P de Kock. Assume a positive bank balance where applicable.
1. Receive an EFT of R70 from the insolvent estate of A Brink as first and final dividend for
his debt of R160.
2. The owner deposited R7 000 in the bank account of the enterprise in order to increase
his capital contribution.
3. The arrears account of R240 of a debtor, B Coetzee, is charged with interest at 10% p.a.
for 3 months.
4. (a) Receive a bank statement that shows a deposit of R850, made by BM Dealers for
the rent of a storeroom.
(b) On the same bank statement, the following is also shown:
D/O R50 (in favour of Liberty for insurance)
BH R20
DG R43
DV R17
5. C Dreyer settles his account of R173 via EFT, R165.
6. A vehicle with accumulated depreciation of R17 000 and a carrying value of R8 000 was
damaged in an accident and subsequently scrapped. The insurance company paid
R7 000 for damages.
7. Pay the bank R600 via EFT consisting of:
R500 instalment on loan
R60 interest on loan
R40 fire insurance on the building
Required:
Analyse the above-mentioned transactions in the following columns. Only the final
calculations on the accounting formula must be shown in each case.
No. E = A – L
19
Question 2.16
1. Purchase furniture on credit from Office Suppliers for R700.
2. Sell a second-hand desk for R70 cash; carrying value is R65.
3. Discounted bill no. 20 (R215) at the bank for R210.
4. Depreciation of furniture at 15% p.a. on cost (R18 500) is written off.
5. Purchase a lawnmower for R400 cash less 10% cash discount. A mark-up of 20% profit
is applied. Sell it on the same day for cash less 5% cash discount. The perpetual
inventory system is in use.
6. Accept a bill in favour of N Babst R195, 1 m/d.
7. Sell merchandise to A Human for R225 cash; gross profit percentage is 25% on sales
price.
8. The bank statement shows the following debit transactions:
Monthly management fee R74
Bank charges R82
Internet banking fee R18
9. L Faul pays her debt of R90 via EFT. A R7 settlement discount was offered to her at the
time of the sale if she paid within the stipulated period, which she did. The entity
initially assumed she would not take advantage of the settlement discount.
10. The owner withdraws R300 cash for own use.
11. Settle the account of F Yssel, R260, via EFT for R250. The entity was granted settlement
discount at the time of the transaction and fully intended to take advantage of it.
Required:
Write the above-mentioned transactions for the month in the accounting formula: E = A – L.
Indicate the final calculations in numeral values each time. None of the calculations must be
indicated by a zero (0).
Question 2.17
The following transaction occurred during February 20.9 in CD Dealers:
1. Owner deposited R5 000 as capital increase.
2. Purchased furniture on credit from Morkel Furniture for R1 500.
3. Paid R3 000 to creditors.
4. Purchased a vehicle for R20 000 cash.
20
5. Converted a debt of R1 000 owing to creditors into a long-term loan.

6. Cash received for services rendered, R800.
7. Rendered services on credit to a debtor, R300.
8. Paid salaries, R400.
9. Rex Motors repaired a vehicle for CD Dealers on credit, R120.
10. Depreciation of equipment written off, R700.
11. Received R600 cash rent for a storeroom.
Required:
Enter the above-mentioned transactions under the elements of the accounting equation
using numeral values. Only the final effect on the accounting equation must be shown.
Indicate no effect with “0”.
Question 2.18
The following information was extracted from the accounting records of an entity at the
beginning and end of a financial year:
Assets Liabilities
R R
Beginning of the year 1 500 000 785 000
End of the year 1 650 000 830 000
The owner of the entity made a R2 000 monthly withdrawal from the entity’s bank account
during the year to pay for his personal expenses. The owner made an additional capital
contribution of R100 000 at the end of the financial year.
Required:
Calculate the profit or loss for the year.
Question 2.19
Martin Brundle started a hardware store, Brundle Hardware, on 1 January 20.9. He operates
the store from leased premises. The store uses the perpetual inventory system and maintains
a profit margin of 50% on cost.
The following transactions occurred during January 20. 9:
1. Martin deposited R100 000 into the store’s bank account.
2. Store equipment at a cost of R30 000 was delivered to the store. The supplier will only
be paid in February 20.9.
3. Trading inventory was purchased at a cost of R45 750 and was immediately paid via
EFT.
21
4. Hardware was sold for R22 500 on credit.

5. Martin took hardware with a selling price of R12 000 for his own use at his home.
6. Hardware was sold for R24 000 cash.
7. One of the store’s customers, Mr EN Ron, left the country after allegations of
corruption were made against him. Mr Ron had purchased hardware to the amount of
R3 600 earlier in January and the amount has not been settled yet. Martin decided to
write off this debt.
8. The monthly lease payment of the premises is R2 200 and the amount was paid via EFT
in January.
9. At the end of January, Martin realised that the store had purchased too much
equipment. Equipment originally purchased at R12 000 was sold for R10 000 cash.
Accumulated depreciation on this equipment amounted to R500 on the date of the
sale.
Required:
Analyse the above-mentioned transactions for Brundle Hardware for January 20.9 in the
accounting equation by using the following format:
No. Account description Equity Assets Liabilities

DR CR DR CR DR CR
Ignore depreciation and VAT unless stated otherwise. You may assume a positive bank
balance at all times.
22
Chapter
3
Value-added tax
The prevailing VAT rate is applicable where relevant.
Question 3.1
1. When is it compulsory for an entity to register for VAT?
2. When may an entity voluntarily register for VAT?
3. What is the current standard VAT rate?
4. Do prices quoted in stores include or exclude VAT?
Question 3.2
Indicate whether the following transactions are standard-rated, zero-rated or exempt
transactions for VAT purposes:
1. Purchase of fuel.
2. Interest received on an investment.
3. Sale of luxury goods to the public.
4. Sale of brown bread to the public.
5. Letting of residential property.
6. Letting of commercial property.
7. University class fees.
Question 3.3
Briefly discuss whether the amounts presented in an entity’s statement of profit or loss and
other comprehensive income include or exclude VAT.
Question 3.4
Show the journal entries to record the following transactions in the accounting records of
Trotters Traders (amounts include VAT where applicable). Journal narrations are not
required:
1. Cash sales of R342 000.
2. Purchase of inventory amounting to R171 000 on credit.
23
3. Pay interest on loan R10 000 cash.

4. Purchase stationery for R57 cash.
Question 3.5
Skyfall Traders sells kitchenware. The following transactions occurred during December 20.9:
1. Purchase kitchenware from Goldeneye Traders for R71 820 cash.
2. Sell kitchenware to Quantum Stores for R176 700 on credit.
3. Pay salaries for the month: R75 000.
4. Buy a new computer from iStore for R11 400 paid via electronic funds transfer (EFT).
5. Buy kitchenware from Dr No for R20 000 cash. Dr No is not registered for VAT.
6. Pay the monthly rental of R570 for the photocopier to Nashua.
7. Sell kitchenware to Felix Leiter for R36 480 cash. Felix is not registered for VAT.
Assume that all parties are registered for VAT, except where indicated otherwise. The entity
uses the periodic inventory system.
Required:
1. Provide the journal entries in the general journal to record the above-mentioned
transactions. Journal narrations are not required.
2. Prepare the VAT control account for December 20.9 if it is assumed that this account
had a credit balance of R10 993 on 30 November 20.9 and that a payment of R7 500
was made to SARS on 31 December 20.9.
Question 3.6
Blink Music Limited is a wholesaler of music equipment. The company provides inventory to
various music stores across South Africa. The company is a registered VAT vendor. Assume
that all other parties are registered VAT vendors, unless stated otherwise.
The following transactions occurred during March 20.9:
1. Inventory was purchased from the manufacturer, Roland Limited, for R1 710 000 on
credit.
2. The monthly cash sales of music equipment amounted to R3 624 060. This amount
includes sales of R179 000 made to persons who are not VAT vendors.
3. Received interest on a fixed deposit of R20 000 from Investec.
4. The monthly lease payment of the company’s premises amounts to R28 500 and was
paid via EFT.
24
Chapter 3: Value-added tax
5. The monthly salary of R18 000 was paid to Mark Hoppus, the company’s general
manager.
6. A new computer system was purchased for R51 300 cash from Tom Computers.
7. Inventory was purchased from Travis Drums, a specialist manufacturer of drums, for
R31 000 on credit. Travis Drums is not registered for VAT.
Required:
1. Provide the journal entries to record the above transactions in the accounting records
of Blink Music Limited. Journal narrations are not required.
2. Prepare the VAT control account for March 20.9 in the general ledger of Blink Music
Limited. This account had a credit balance of R21 000 on 1 March 20.9.
Question 3.7
The sales and credit policy of Monza Traders states the following:
• 5% trade discount is granted to all special clients. A list of special clients is kept.
• 10% settlement discount is granted to clients who settle their accounts within 30 days.
The following transaction occurred on 1 April 20.9:
Products with a normal selling price of R12 000 (VAT included) were sold to Monaco Traders,
a special client.
Required:
Provide all journal entries if:
(a) Monza Traders expects Monaco to pay within 30 days and Monaco pays on
10 April 20.9.
(b) Monza Traders expects Monaco to pay within 30 days and Monaco pays on
21 May 20.9.
(c) Monza Traders does not expect Monaco to pay within 30 days and Monaco pays on
12 April 20.9.
25
Chapter
4
Source documents
Question 4.1
Name the source document for each of the following transactions:
1. Sell goods on credit.
2. Settle a creditor’s account via electronic funds transfer (EFT).
3. Interest earned on the positive bank balance.
Question 4.2
1. In each of the following instances, name the applicable source document and book of
first entry:
(a) Sell goods on credit to P Malan.
(b) Receive R1 000 cash from a tenant for one of the entity’s storerooms.
2. Draw and complete the source documents for each of the following transactions:
(a) Issue a receipt to the owner, P Pienaar, for his capital contribution of R50 000 on
1 January 20.2.
(b) Purchase refreshments with cash from the petty cash at Spar for R22,50 on
2 February 20.2.
Question 4.3
A client of yours, M Ntini, started a new entity and wants to have receipt books printed for
the entity. He produced the following design:
M Ntini
Received from: ................................................................................................................ .........
For: .......................................................................................................................... .................
Signature: .................................................................................................................... .............
Required:
List any shortcomings on the receipt.
27
Question 4.4
Name the source documents in each of the following cases:
Transaction Source document

Interest on bank overdraft
Sell an asset for cash
Withdraw cash from the bank account for the
petty cash float
Question 4.5
Indicate how the following transaction will appear on a source document of Tlokwe
Wholesalers by sketching the document and then completing it:
Mr Agey settles his account of R10 825 on 1 June 20.6 at Tlokwe Wholesalers via an EFT for
R10 000. The entity initially assumed that Mr Agey would take advantage of the settlement
discount offered to him. The prevailing VAT rate is applicable.
Question 4.6
When recording a transaction with a debtor, will the entity keep the original or the duplicate
documents?
28
Chapter
5
Subsidiary journals and general ledger
Question 5.1
The following cash transactions are applicable to Work-and-Play Nursery School for the
month ended 30 January 20.2. The nursery school was established by Mrs Hattingh at the
beginning of the current year. She decided to use her pension received from her previous
school as a capital payment in the nursery’s bank account.
Date Details
1 Mrs Hattingh pays a part of her pension into the bank account of the nursery
school, R150 000. The remaining portion of R100 000 is invested at Saambou
Bank in the name of the nursery school.
2 Mrs Hattingh applies for services and telephone, and pays the following
deposits:
Municipality R500
Telkom R350
Mrs Hattingh employs two teachers and a cleaner and pays Bothma Lawyers
R150 for drawing up their contracts of employment. The teachers’ salaries
are R2 500 each per month and the cleaner’s salary is R700 per month.
5 Due to the number of enquiries by the public, Mrs Hattingh decides to take
registration fees. She decides on R50 per child. The school can take 90
children and she receives registration fees for 80% of the capacity. School
fees amount to R250 per child.
10 The school opens its doors. The remaining 20% capacity is filled and the
registration fees are received in cash.
15 Cleaning materials for R145 and groceries for R78 are purchased from
Shoprite.
18 Mrs Hatting withdraws R500 cash for the petty cash.
Mrs Hattingh took R50 out of the petty cash to buy stamps and envelopes.
19 Mrs Hattingh submits a cash slip from the Post Office for R42,50 for the
stamps and envelopes.
22 Mrs Hattingh donates R10 cash from the petty cash to the Salvation Army.
continued
29
Date Details
25 The following accounts received by mail are settled via electronic funds
transfer (EFT):
Regional Services Council R34
Telkom R189
30 The employees’ salaries are paid as well as the rent of R2 500 for the current
month.
31 Mrs Hattingh is concerned that only R10 250 of the school fees was received
at month-end.
An account from the municipality for R439 was received, but not settled.
Required:
1. Compile the cash receipts and cash payments journals for the month under review.
2. Indicate what the bank balance according to the general ledger was at the end of the
month (assume that the opening balance was nil).
3. Indicate what the outstanding amount for debtors was at the end of the month (it is
necessary to compile a debtor’s journal).
Ignore VAT.
Question 5.2
Refer to the information in Question 5.1.

In the second month of business, Mrs Hattingh decides to exercise better credit control*. She
decides to refuse entry to the school if an account is outstanding for longer than 15 days
after month-end. (This policy was also communicated to the parents.)
The following transactions occurred for the month of February 20.2:
Date Details
1 Receive R2 500 of the previous month’s school fees.
Settles the previous month’s outstanding accounts.
3 Mrs Hattingh takes R4 500 for personal use.
4 Additional toys are purchased from Toys-Are-Us for R3 750.
5 Buy groceries from Shoprite for R865.
10 Pay the cleaner an advance on her salary: R200.
15 Receive R6 250 of the previous month’s school fees and refuses entry to the
remaining children with outstanding school fees. After a conversation with
the lawyer, it is decided to write off their debt. Due to a long waiting list, the
above-mentioned children’s places were taken by other children.
continued
30
Chapter 5: Subsidiary journals and general ledger
Date Details
20 Mrs Hattingh purchases two (2) new rear tyres for her husband’s tractor. The
new tyres were R450 each and were paid for via EFT. Mrs Hattingh purchases
the old tyres for R900 from her husband for the sand pit at the nursery school
and pays via EFT.
25 The following accounts received in the mail were settled:
Municipality R389
Telkom R154
28 Receive 95% of the new kids’ school fees and 80% of the rest. (Assume that
the new children had to pay only 50% of school fees for the current month.)
Pay the personnel’s salaries.
* Credit control refers to the ability to recover debt. A business with strong credit control will recover
debt relatively soon.
Required:
1. Compile a cash receipts journal and a cash payments journal for the month under
review.
2. Indicate what the bank balance would be at the end of the month according to the
general ledger.
3. (a) Calculate the credit losses that were written off on the 15th.
(b) Indicate whether credit losses would appear in the:
• Cash receipts journal, or
• Cash payments journal, or
• None of the above.
Give a reason for your answer.
4. Indicate whether you have any ethical objections regarding the transaction on the 20th.
Ignore VAT.
Question 5.3
Refer to the information in Question 5.1 and Question 5.2.
After Mrs Hattingh started a relatively successful nursery school, the following conversation
occurred in the Hattingh residence:
Mrs Hattingh: “Koos, it is now two months since you wrote your matric exams. Don’t you
think it’s time to earn your own money?”
Koos Hattingh: “Mom, I am really trying, but a decent job is so hard to find. During the
past two months, there has only been one advert for a job, but I don’t
want to do deliveries.”
Mrs Hattingh: “I understand. I thought about it and came to the conclusion that I should
give you an opportunity to run a tuck shop at the nursery school.”
Koos Hattingh: “Really, Mom, when can I start?”
31
Koos’ first business, Koos Sweets, opened its doors on 2 March 20.2 on the premises of his
mother’s nursery school.
The following transactions occurred for March 20.2:
Date Details
2 Koos’ mother lends him R600 to buy sweets (inventories)
Buy sweets from Game for R580
Sell sweets for cash, R1 160
9 Purchase sweets from Game for R1 160
Closing inventory, R4 380
Required:
1. Without compiling a cash receipts (CRJ) or a cash payments (CRJ), complete the
following summary in the books of Koos Sweets.
• Opening balance
• Plus: Cash receipts according to CRJ
• Less: Cash payments according to CPJ
• Closing balance (balance of the bank account at the end of March 20.2).
2. Indicate whether the following statement is correct:
Koos: “Mom, I’m so happy with the profit I realised for the month. It amounts to
Rxxx.”
(Rxxx represents total receipts (CRJ) less total payments (CPJ).)
Ignore VAT.
Question 5.4
Refer to the information in Question 5.3:
After Koos started a successful tuck shop, Koos Sweets, he saw the following advert in the
local newspaper:
“Tenders are invited for the distribution of Nestlé products to supermarkets in the
local market.”
He immediately submits his tender and is informed on 4 April 20.2 that he has been
successful.
32
He asks his brother-in-law, a chartered accountant, for advice and they come up with the
following business plan:
1. They decide on a more professional name, Mr K’s Sweets.
2. His shop at the nursery school will still be called Koos Sweets and they will ask Koos’
sister to run the business.
3. Sales and purchases will both be for cash and on credit.
4. A business premises with a store will be rented from XYZ.
5. It was agreed with Nestlé that all purchases will be on credit and that payments should
be made 30 days after an invoice is submitted by Nestlé. Interest of 15% p.a. will accrue
on late payments.
6. The following requirement relating to credit sales will be applicable:
5% settlement discount will be granted if an account is settled within 10 days. It is
assumed that customers will not take advantage of this allowance for settlement
discount.
7. Since an efficient system is important to Koos’ brother-in-law, they decided on the
perpetual inventory system to account for inventories.
8. Ignore VAT.
The following information was available for Mr K’s Sweets at the end of April 20.2:
Date Details
5 Opens a bank account and deposits R5 000 of the profit from the tuck shop.
Pays rent of R4 000 in advance to XYZ via EFT.
Orders 15 different types of chocolates from Nestlé to the value of R10 430.
6 Receives invoice 789 together with a delivery of his order placed from Nestlé.
Buys a delivery vehicle from BJ Motors on credit for R80 000 and pay a 10%
deposit via EFT. Koos finances the outstanding amount with a loan from Bankfin.
According to the sales agreement Koos may fill up his vehicle with fuel at BJ
Motors on account.
Buys furniture from Hout Furniture on credit for R5 600 and receives invoice
331.
Buys stationery from ANC Stationers on credit for R968 (invoice 7711).
8 Delivers 60 boxes of chocolates to Shoprite together with invoice 001 for R11 140.
Delivers 50 boxes of chocolates to Clicks together with invoice 002 for R9 280.
Returns a damaged chair purchased from Hout Furniture for R200 and receives
credit note Z88 for this amount.
10 Returns a damaged box of chocolates to the value of R92 to Nestlé and receives
credit note 118 for this amount.
continued
33
Date Details
12 Receives an order for 100 boxes of chocolates to the value of R18 500 from Pick
& Pay.
13 Delivers Pick & Pay’s order. Koos grants a 10% trade discount and hands them
invoice 003.
15 Places an order at Nestlé for an additional 200 boxes of chocolate to the value of
R18 800 and receive a 10% trade discount for the big order. The order and
invoice 795 are delivered on the same day.
Receives cash from Shoprite in full settlement of their debt and issues receipt
001.
17 Delivers 80 boxes to Clicks to the value of R14 848 and hands them invoice 004.
18 Delivers ten boxes to Mack’s Snacks and hands them invoice 005 for R1 800.
25 The following abnormal sales occur:
• A box with a normal sales price of R180 is sold for cash to Koos Sweets after
a 50% cash discount was granted. Receipt 002 is issued for the transaction.
• Three boxes of chocolates with a total cost price of R270 are sold to Jan’s
Sweets in a neighbouring town. In terms of an agreement with Nestlé, a
profit of only 10% on the cost price may be realised on the transaction.
Invoice 006 is issued for the transaction.
26 Koos donates a box of chocolates with a cost price of R90 and a sales price of
R180.
27 Receives two damaged boxes of chocolates to the value of R360 back from Clicks
and issues credit note 001 for this amount.
28 Koos’ mother informs him that she knows the owner of Mack’s Snacks very well
and that they are having financial difficulties. Koos decides to grant the 5%
settlement discount, even though the amount has not yet been paid.
29 Koos transfers funds to his mother for the R600 she lent him for personal
expenses and gives her a box of chocolates of which the cost price was R90.
30 Receives a petrol account from BJ Motors for R1 800.
Receives and settles the municipality’s account for R780 via EFT.
Settles the amount owing to Nestlé via EFT. Interest of R60 was charged.
Settles Hout Furniture’s account via EFT and receive 5% settlement discount.
When Koos purchased the furniture for the business, he originally did not intend
to take advantage of the settlement discount that was offered.
Receives the bank statement and notes the following additional transactions:
• Bank charges for the month: R345
• Interest received on positive balance: R14
• Debit order for insurance: R480
• Direct payment by Clicks to settle their outstanding account in full
34
Required:
Account for the above-mentioned transactions in the following journals:
Ignore VAT.
Cash receipts journal – April 20.2

Doc Sundry
Date Details Bank Sales Debtors Sundry
no. details
Cash payments journal – April 20.2

Doc Sundry
Date Details Bank Purchases Creditors Sundry
no. details
Sales journal – April 20.2

Doc
Date Debtor Total Sales
no.
Sales returns and allowances journal – April 20.2

Sales
Doc
Date Debtor Total returns &
no.
allow.
Purchases journal – April 20.2

Doc Sundry
Date Creditor Total Purchases Stationery Sundry
no. details
Purchases returns and allowances journal – April 20.2

Purchases
Doc Sundry
Date Creditor Total returns & Sundry
no. details
allow.
35
Question 5.5
The following totals/balances appear in the accounting records of Worldcup Distributors on
28 February 20.2. The entity is registered for VAT; VAT is included in all relevant amounts,
except where otherwise stated. The entity uses the periodic inventory system.
Cash receipts journal R

Cash sales 60 000
Debtors control 40 000
VAT on cash sales 9 000
Bank 109 000
Cash payments journal R

Creditors control 40 000
Purchases 50 000
VAT on cash purchases 7 500
Bank 98 500
Purchases returns journal R

Purchases returns 10 000
VAT on purchase returns 1 500
Total 11 500
General ledger R
Bank (CR) 23 000
Inventory 210 000
The following information has not yet been taken into account in the above totals/balances:
1. Inventory according to the inventory count on 28 February 20.2 amounts to R220 000.
2. The bank statement received indicated the following:
(a) Interest received R125
(b) Bank charges R330
3. Cash sales amount to R12 100.
4. Receipts to the value of R22 000 were issued to debtors.
5. After comparison of the cash receipts journal and cash payments journal with the bank
statement, the following errors and differences were identified:
(a) A deposit made on 28 February 20.2 does not appear on the bank statement.
(b) An EFT for R120 appears in the cash payments journal. The correct amount, which
appears on the bank statement, should be R210. The payment was for a donation.
36
(c) The bank incorrectly debited an EFT for R300 twice on the bank statement.
(d) The balance according to the bank statement is R2 505 (favourable).
Required:
Complete the cash payments and cash receipts journals (begin with the totals provided in the
question). Use the general journal for all other corrections, where applicable.
Round off to the nearest rand.
Question 5.6
Parts 1 and 2 are related.
1. Complete the transactions below (1 to 5 March) in the general ledger (inventory and
related accounts) of Pieterson Traders. The entity is registered for VAT, which is
included in all amounts, except where otherwise stated. The periodic inventory system
is in use.
Date Transaction
1 March Inventory on hand is R12 000 (VAT excluded).
3 March Purchased inventory via EFT for R7 777.
4 March Some of the inventory purchased on the 3rd, amounting to R500 (VAT
excluded), was damaged and returned. The vendor agreed to give credit on
future credit purchases.
5 March Sold goods to a local primary school, Jan Malan, on credit for R5 000.
2. The owner wanted to perform an inventory count at the end of the week (on 7 March)
but had to postpone due to illness. On 10 March, he obtained the following information
to calculate the closing inventory as on 7 March:
Trading account for February 20.2
Sales R30 000
Cost of sales R15 000
Gross profit R15 000
(a) Inventory on hand on 10 March is R15 677.
(b) Inventory amounting to R2 200 was delivered by one of the suppliers on 8 March.
(c) Goods at a selling price of R5 000 were sold for cash on 9 March. The owner is of
the opinion that a constant gross profit percentage is maintained throughout the
year.
(d) Inventory with a cost price of R110 that was sold on 9 March, has not yet been
collected by the customer.
37
Required:
1. Calculate the closing inventory as on 7 March using the information provided in Part 2
above.
2. Complete the inventory account using the information provided in Parts 1 and 2 above.
Question 5.7
Journalise the following transactions in the general journal of PUK Garden Services (ignore
VAT). Provide journal narrations. Transfer to the general ledger and prepare a trial balance
on 31 January 20.9.
Date
1. Mr Havenga deposits R5 000 in the bank to start PUK Gardening 1-Jan
Services. A further R5 000 is placed on investment. On the same day, he
places furniture valued at R5 000 in the outbuildings of his house that he
will use for the business. He also contributes his own lawnmower and
tools to the value of R7 000.
2. Purchases a new lawnmower from Scottie Traders on credit for R3 000. 2-Jan
If the account is paid before the end of the month, a 10% settlement
discount is applicable. The entity does not intend to take advantage of
the settlement discount.
3. Make the following EFT payments:
No. Description R
1 Harold’s Garage – Fuel 50 2-Jan
2 Rent for building 250 3-Jan
3 Wages 500 6-Jan
4 Wages 500 12-Jan
5 Scottie Traders, settle account of 2 Jan 2 700 31-Jan
6 Municipality: 500 31-Jan
• Connection fee 300
• Deposit 200
4. Complete the following receipts and bank the money:
No. Description R
2 Cash – Services 2 000 31-Jan
3 P Malan – Settles account. The entity did not initially 180 31-Jan
create an allowance for settlement discount.
5. The following services were provided on credit:
No. Description R
1 P Malan 200 1-Jan
2 K Roets 300 1-Jan
continued
38
Date
6. K Roets is insolvent and Mr Havenga received R275 as final payment. 31-Jan
7. Interest on the investment amounts to 16% p.a. and is deposited in the 31-Jan
bank account monthly.
Question 5.8
1. Do Question 5.4 again, but assume that all relevant amounts include VAT.
2. Show the following general ledger accounts:
• Sales
• Creditors
• Output VAT
• Input VAT
Question 5.9
The following transactions occurred during May 20.9 in the enterprise of Herbert Dealers:
Transactions:
1 T Herbert deposited R100 000,00 in the bank account of the entity as a capital
contribution.
Buy a building from Alpha Builders for R80 000,00 and pay R60 000,00 via EFT.
3 Pay the municipality R250,00 for a trade licence via EFT.
Buy equipment from Parow Furniture on credit for R4 125,00.
Purchase stationery from CNA for R180,00 and pay via EFT.
Buy goods from Mallett Wholesalers for R8 125,00 less 20% cash discount and pay via
EFT.
Receive a credit invoice from W Abrey & Co. for the following:
Stationery, R48,60, and packaging material, R82,20.
Buy goods from Berg Wholesalers for R3 200,00 less 10% cash discount and pay via EFT.
7 Cash sales of goods: R1 820,00.
Provide merchandise on credit to:
A Brits R125,00
C Dobson R240,00
E Ferreira R180,00
Pay the salaries for the week via EFT: R450,00.
39
10 Make an EFT payment to Parow Furniture: R3 000,00.

Receive goods ordered from Transvaal Distributors and pay via EFT: R1 865,50.
14 Receive an EFT from C Dobson to settle his account.
15 Receive an invoice from Morgan Builders for repairs done to the building: R375,00.
16 Buy packaging material from Natal Dealers for R65,00 and pay via EFT.
20 Pay the salaries of the week via EFT: R460,00.
22 Receive goods ordered on credit from Mallet Wholesalers, invoiced at R14 275,00 less
10% trade discount.
24 Buy equipment on credit from Parow Furniture for R665,00.
25 Sell goods on credit to E Ferreira: R75,00 and A Brits: R210,00.
26 Receive an EFT from Rose Agencies for R200,00. The payment is for the rent for May for
a part of the building that is leased.
Receive an EFT from A Brits to settle his account.
28 Pay the salaries for the week via EFT: R480,00.
Pay the salary of the manager via EFT: R1 015,00.
30 Pay Mallet Wholesalers R6 500,00 via EFT.
Required:
1. Journalise the above-mentioned transactions in the subsidiary journals.
2. Transfer to the relevant accounts in the general ledger.
Ignore VAT.
Question 5.10
John Smart had the following assets and liabilities on 1 July 20.7:
R R
Bank 5 125,80 Creditors:
Debtors: F Grobler 4 125,00
A Brits 882,50 G Hartman 2 243,30
B Coetzee 1 184,20 H Isaacs 6 081,70
C Dreyer 106,30 J Kemp 1 040,00
D Eilers 2 083,50
E Fourie 6 625,00 Capital ?
Inventory 30 044,50
Office furniture 3 920,00
49 971,80 49 971,80
40
The following is a summary of the transactions of John Smart during July 20.7 relating to
copies of invoices sent out for goods sold on credit:
5 A Brits R406,30 13 B Coetzee R882,20
E Fourie 608,20 14 C Dreyer 206,30
D Eilers 822,30 15 L Nicols 269,10
B Coetzee 447,50 16 C Dreyer 566,10
8 A Brits 1 784,30 A Brits 478,20
C Dreyer 46,30 19 D Eilers 2 066,30
9 E Fourie 1 629,30 C Dreyer 2 030,10
11 D Eilers 443,50 20 L Nicols 256,50
E Fourie 1 222,30 23 C Dreyer 235,20
Original invoices received for goods purchased on credit:

R
9 141 F Grobler 4 003,20
142 J Kemp 404,50
143 H Isaacs 2 004,20
16 144 H Isaacs 1 066,40
18 145 F Grobler 368,00
146 J Kemp 460,00
30 147 F Grobler 3 104,30
148 H Isaacs 386,70
Cash transactions for July 20.7:

1 Buy stationery from Smith & Co. and pay R102,50.
2 Receive an EFT from C Dreyer to the value of R101,00 in settlement of his outstanding
balance on 1 July 20.7; allow settlement discount of R5,30 to him. An allowance for
settlement discount was not initially created.
3 Cash sales: R1 122,20.
5 Transfer funds for private use via EFT: R400,00.
7 Pay salaries via EFT: R500,00.
9 Receive an EFT from B Coetzee to settle his account balance as on 1 July: R1 162,50. An
allowance for settlement discount was not initially created.
14 Pay salaries via EFT: R320,00.
18 D Eilers settles his account balance as on 1 July via EFT: R2 050,00. An allowance for
settlement discount was not initially created.
41
20 Pay all creditor accounts as on 1 July via EFT after a 5% settlement discount was
deducted from each one. The entity did not initially plan to take advantage of the
settlement discount.
21 Receive an EFT from A Brits on 30 June to settle his account balance on 1 July 20.7:
R858,50. An allowance for settlement discount was not initially created.
22 Buy a new office desk and pay via EFT: R760,00.
Pay salaries via EFT: R980,00.
26 Pay fire insurance via EFT: R100,00.
28 Transfer funds for own use via EFT: R400,00.
29 Pay salaries, R400,00 and other operating costs, R208,30 via EFT.
Pay rent via EFT: R500,00.
Required:
1. Prepare the opening journal entry for assets and liabilities and calculate the opening
capital balance.
2. Record the transactions in the relevant journals.
3. Close off and transfer to the relevant accounts in the general ledger, the debtors ledger
and the creditors ledger for the month ended 31 July 20.7.
Ignore VAT.
42
Chapter
6
Adjustments and closing entries
* Assume the following relating to credit losses for all chapters from this point forward:
Where the allowance for credit losses should be adjusted to a specific percentage of outstanding
debtors, assume that individual consideration was given to each debtor and the sum total of the
outcome of each individual debtor is equal to the percentage stated.
Question 6.1 (Debtors, depreciation, inventory, VAT)

You are the newly appointed accountant of Nel Framing. The owner completed the journals
for the year and provided you with the following trial balance on 28 February 20.2:
DR CR
R R
Capital 20 000
Drawings 60 000
Interest-bearing loan 25 000
Creditors 5 000
Bank overdraft 12 500
Framing equipment 50 000
Delivery vehicle 18 000
Accumulated depreciation on framing equipment 10 000
Inventory (1 March 20.1) 27 500
Debtors 3 500
VAT input 4 100
VAT output 7 800
Petty cash 400
Sales 151 600
Purchases 45 000
Interest expense 3 700
Administration expenses 17 460
Insurance 240
43
He provided the following additional information:

1. The entity is registered for VAT.
2. Included in debtors is an amount of R160, which is a prepaid insurance expense of the
previous year. The owner pays the insurance premium annually on 31 October. Had he
paid monthly, the amount would have been R20 (VAT excluded) per month.
3. The monthly rental payments of R345 (VAT included) were paid by debit order. No entry
was made for these payments.
4. The following policy is followed for depreciation of non-current assets:
(a) Framing equipment, 20% p.a. on the reducing balance method
(b) Vehicle, 10% p.a. straight-line method
5. An old vehicle was sold on 1 March 20.1 for R3 450 (VAT included). The vehicle was
bought for R10 000 (VAT excluded) eight years ago. The vehicle was depreciated at a
10% p.a. on the straight-line method. Mr Nel omitted the cost and accumulated
depreciation when he prepared the trial balance. No further entry was made for the
transaction.
6. A new vehicle was purchased on 1 March 20.1. It is projected that a total of 200 000 km
could be travelled with this vehicle. The odometer reading on 28 February 20.2 was
11 500 km. The vehicle should have a residual value of R3 000 (VAT excluded) at the
end of its useful life. The entity has no other vehicles.
7. During the annual stocktake, it was determined that closing inventory amounted to
R23 000 on 28 February.
8. A debtor owing the company R340 is bankrupt. R110 was received from his estate. The
remainder must be written off.
9. The loan carries interest at 10% p.a. and must be repaid in capital repayments of
R5 000 p.a. from 28 February 20.3.
10. Included in creditors is an account from Landman Distributors with a debit balance of
R500.
11. The interest on the bank overdraft amounted to R2 200 for the year and is included in
the trial balance. The remaining balance of the interest paid account was in respect of
the loan.
12. An amount of R5 000 was paid to SARS on 28 February in respect of VAT. No entry was
made for this transaction.
Required:
1. Prepare a six-column worksheet in which you record all relevant adjustments. Disclose
all calculations.
2. Indicate if Mr Nel has made the correct payments to SARS regarding VAT. Substantiate
your answer.
44
Chapter 6: Adjustments and closing entries
Question 6.2 (Inventory, debtors, interest, depreciation, creditors)

The following pre-adjustment trial balance was extracted from the accounting records of
Smith Wholesalers on 31 July 20.5:
R R
Capital: P Smith 438 665
Drawings: P Smith 11 690
Long-term loan: 21% p.a. at ABSA Bank 112 500
Fixed deposit: 15% p.a. at Saambou Bank 100 000
Land and buildings at cost 500 000
Machinery at cost 120 000
Motor vehicles at cost 67 500
Accumulated depreciation: Machinery 383 350
Accumulated depreciation: Vehicles 12 000
Trading inventory (1 August 20.4) 52 500
Debtors 47 500
Allowance for credit losses 4 750
Bank 105 000
Creditors 102 500
Sales 558 578
Purchases 250 000
Freight on purchases 37 500
Railage-in 37 500
Railage-out 40 000
Water and electricity 3 750
Commission expense 15 000
Rental expense 13 500
Stationery 1 190
Bank charges 170
Salaries and wages 62 250
Credit losses 1 405
Consumables 21 875
Interest income 77 520
Rental income 6 250
1 386 330 1 386 330
45
1. A physical stocktake on 31 July 20.5 revealed the following on hand:
• Inventory R39 750
• Stationery R458
• Consumables R3 918
2. The owner took trading inventory for his own use, R3 750. No entry has been made yet.
3. The fixed deposit was made on 1 January 20.5.
4. The long-term loan was negotiated with ABSA Bank on 1 May 20.4. With the exception
of interest paid on the bank overdraft of R300 and the amount payable in respect of
interest on the long-term liability, no other interest is payable.
5. Write off an additional R2 500 as irrecoverable and adjust the allowance for credit
losses after the following information from the debtors list has been taken into
account:
Mr Jan Spies 90 days R1 200
Mrs Sannie Brendan 120 days R1 500
It is the expectation that the above-mentioned accounts will probably not be settled.
Further, it was also found that Mr Piet de Vries, whose debt has been outstanding for
60 days, has disappeared and there are suspicions that he has left the country.
6. Included in the water and electricity account is an amount of R3 000 for the year
ended 31 October 20.5. (Assume that the given amount accrued evenly over 12
months.)
7. The following expenses should be accrued:
• Railage (in) R932
• Railage (out) R495
8. Rent was received from two tenants. Mr S Schoeman’s rent amounted to R375 per
month and has been received for the 15 months ended 31 October 20.5. Ms R van
Rooi’s rent amounted to R250 per month since the beginning of the financial year (her
account is in arrears).
9. Provision for depreciation on fixed assets should be made as follows:
• Buildings (cost price R135 000) at 3% p.a. on the cost price.
• Machinery should be written off over a period of 5 years on the straight-line
method.
• Motor vehicles at 10% per year on the straight-line method.
(Take note: There were no additions to or sales of non-current assets for the year under
review.)
Required:
Complete the attached ten-column worksheet.
46
SMITH WHOLESALERS
WORKSHEET – 31 JULY 20.5
Statement of
Post- profit or loss Statement of
Pre-adjustment
Description Adjustments adjustment and other financial
trial balance
trial balance comprehensive position
income
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Capital: P Smith 438 665
Drawings: P Smith 11 690
Loan: ABSA 112 500
Deposit: Saambou 100 000
47
Land and Building: Cost 500 000

Machinery: Cost 120 000

Vehicles: Cost 67 500
Accumulated Depreciation: Machinery 38 335
Accumulated Depreciation: Vehicles 12 000
Trading inventory (1 August 20.4) 52 500
Debtors 47 500
Bank 105 000
Creditors 102 500
Sales 558 578
continued
Statement of
Post- profit or loss Statement
Pre-adjustment
Description Adjustments adjustment and other of financial
trial balance
trial balance comprehensive position
income
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Purchases 250 000
Railage (In) 37 500
Railage (Out) 40 000
48

Stationery 1 190
Bank charges 170
Credit losses 1 405
Consumables 21 875
Rental income 6 250
1 386 330 1 386 330
Question 6.3 (Errors)

Becks Books’ gross profit margin is calculated as 30% on the selling price before taking any
settlement discount into account. A new bookkeeper was appointed during the year, and has
provided the following trial balance:
TRIAL BALANCE ON 31 DECEMBER 20.9

DR CR
Sales 250 000
Purchases 170 000
Electricity 1 000
Damaged books (liability) 1 000
Inventory (1 January 20.9) 50 000
Furniture and equipment 70 000
Accumulated depreciation 20 000
Prepaid rent (31 December 20.8) 3 000
Bank 500
Capital 75 000
Discount allowed 2 000
Depreciation 7 500
Investment 3 000
616 000 98 000
The new bookkeeper (who is a good friend of yours) is aware of the fact that you have
accounting as a subject at university and she contacted you to help her with the trial balance.
She was dishonest on the CV she submitted when she applied for the job. It has, in fact, been
a very long time since she last did accounting. You kindly decided to help her.
She supplied you with the following additional information pertaining to the financial year:
• According to the summary of the cash register, cash sales for the year amounted to
R150 000. Credit sales amounted to R100 000. Only a few clients make use of the
settlement discount option offered by the shop. R2 000 worth of settlement discount
was awarded during the year. The discount was awarded only when the clients pay on
time. The bookkeeper incorrectly posted it to a discount allowed expense account.
• She cannot remember how the periodic inventory system works and therefore made no
entries. The post-adjustment trial balance must show a cost of sales account.
49
• At the date that the trial balance was compiled, she had not yet received the electricity
bill for December 20.9. But, by the time you enquired about it, she had received it and
the amount outstanding amounted to R250. She has not yet paid it.
• The rental expense account only contains rent for nine months. Her explanation for this
was that the rent for the other three months has already been prepaid during the
previous year. The rent amounts to R1 000 per month.
• “Damaged books” is inventory that was purchased but with the delivery thereof to the
shop, the inventory purchased was damaged beyond repair. Becks Books carries the risk
of this damage and cannot claim it back from the supplier. The bookkeeper debited the
purchases account on receipt of the books and credited a liability (damaged books). The
payment still needs to be recorded.
• She has made no changes to the inventory account and did not do a stocktake on
31 December 20.9.
• You found that depreciation is correctly calculated and correctly recorded.
• The total in the creditors journal was incorrectly calculated as R2 000 instead of R20 000.
At the end of last year there were no amounts due.
• Included in debtors is an amount of R10 000 that is irrecoverable. The bookkeeper
however believes that although the amount would not easily be collected, it is still an
asset and therefore she has made no entries into the accounting records.
• An allowance for credit losses to the amount of R5 000 must be created, but the
bookkeeper does not know what such an allowance entails or how it works.
Required:
1. Supply all the necessary journal entries to record the corrections and adjustments.
Ignore VAT.
2. Show the bookkeeper what the journal entry should have looked like, if she was relatively
sure that the client would make use of the settlement discount at the time of the sale.
Assume that the R2 000 discount represents 2% of the invoiced amount. Ignore VAT.
Question 6.4 (Debtors, creditors, interest, inventory, depreciation)

The accountant of Milk-On-Wheels hands you the following pre-adjustment trial balance:
MILK-ON-WHEELS
TRIAL BALANCE ON 28 FEBRUARY 20.9
20.9 20.8
R R
Capital (50 000) (60 000)
Drawings 15 250 39 900
Land and buildings 85 000 70 000
continued
50
20.9 20.8
R R
Vehicles 15 000 15 000
Accumulated depreciation on vehicles (9 000) (9 000)
Mortgage bond (60 000) (60 000)
VAT input 2 500 0
VAT output (10 000) 0
VAT control 4 000 1 000
Debtors control 4 550 5 000
Bank 250 (14 000)
Trade inventory 6 250 6 700
Rental income (11 000) (12 000)
Fuel 17 000 16 000
Interest expense – Mortgage bond 11 000 12 000
Interest expense – Bank overdraft 365 0
Insurance 11 600 10 200
Allowance for credit losses (500) (500)
Administrative expenses 14 200 9 800
Purchases 53 900 44 900
Sales (100 365) (75 000)
Required:
Use a ten-column worksheet to make the following corrections (VAT is included where
applicable, unless stated otherwise):
1. Included in the insurance expense is an annual premium of R6 600 (VAT excluded) that
was paid in advance on 31 December 20.8.
2. The attorneys indicated that one of the debtors was bankrupt. An electronic funds
transfer (EFT) amounting to R230 was received as a final dividend of 50c in the rand.
3. After careful consideration it was found that 10% of debtors might be at risk of not
being able to pay their debt.
4. Rental income is R1 000 each month (VAT excluded).
5. The bond carries interest at a rate of 3% p.a. above the prime rate. The bond of
R60 000 was obtained on 28 February 20.8 and must be repaid in equal capital
payments of R10 000. The payment of R10 000 was made, but has not yet been
recorded.
6. The interest on the bank overdraft is calculated at the prime rate of 17% p.a.
51
7. The following information was gathered during the annual periodic stocktake at year
end:
Items Number Cost Price
Bottles milk 500ml 255 R1,80
Bottles milk 1Ɛ 366 R2,50
Bottles milk 2Ɛ 125 R5,00
8. The entity purchased three identical vehicles on the same date.
• Depreciation is calculated at 20% p.a. on the cost price.
• One of the vehicles was destroyed in an accident on the last day of the financial
year. The insurance company paid out an amount of R2 875 (VAT included).
Question 6.5 (Periodic inventory, errors, debtors, creditors, depreciation)

The following information was obtained from the records of Sleeper Wood Furniture Traders:
R
Sales 680 000
Purchases 450 000
Telephone and fax 1 844
Repairs and maintenance 23 300
Rates and taxes 230
Insurance 315
Printing and stationery 3 330
Accumulated profit/loss (balancing) ?
Capital account (28 February 20.4) 850 000
Buildings 880 000
Equipment 158 600
Accumulated depreciation: Equipment (1 March 20.4) 25 800
Cash on hand 2 100
Bank (overdraft) 21 000
Inventory (28 February 20.4) 6 800
Debtors 48 350
Creditors 64 000
Accrued expenses 150
3 243 239
52
1. The owner took trading inventory with a sales value of R2 115 for own use on
15 December 20.4. The enterprise sells goods at cost price + 12.5%.
2. The accountant incorrectly included equipment that was acquired on 1 November 20.4
for R18 700 under repairs and maintenance.
3. Trading inventories at year-end amounted to R8 600, while stationery (consumable
goods) at year-end amounted to R150. Inventory at the beginning of the year consisted
of trading inventory only. A periodic inventory system is in use.
4. A debtor whose account of R3 500 was written off in the previous year, was recovered
in the current year. The accountant included this amount in sales.
5. A debtor whose account amounts to R2 750 and that was included in the above-
mentioned debtors balance must be written off.
6. After analysing the debtors list, it was found that only one debtor, owing R1 140, would
probably not be able to pay her account.
7. A provision was made in the previous year for accrued insurance. The accountant
included both amounts (in respect of the previous year and the current year) in the
expense. There was a 10% increase for this expense in the current year and there was
no outstanding amount at the end of the current financial year.
8. The rental instalment was increased by 15% at the beginning of the sixth month. The
thirteenth instalment (for March 20.5) was however included in the total. Assume that
there were no accrued or prepaid amounts in respect of rent paid at the beginning of
the year, and that the monthly instalment has been payable since the beginning of the
year.
9. Provision for depreciation of equipment must be made at 15% p.a. on the reducing
balance method.
10. The accountant was not able to draft the above-mentioned figures into the trial
balance because he could not distinguish between debit and credit balances.
11. Assume, if not otherwise stated, there were no corrections made in respect of the
additional information.
12. All amounts should be rounded off to the nearest rand.
Ignore VAT.
Required:
1. Assist the accountant and compile a trial balance from the given information. Use the
attached worksheet (opening columns).
2. Explain to the accountant whether the balancing figure for retained earnings is a profit
or a loss.
3. Record the adjustments in the worksheet (adjusting columns).
4. Balance the post-adjustment trial balance for the year ended 28 February 20.5.
53
QUESTION 6.5 – TRIAL BALANCE
Opening Adjustments Final
Sales
Cost of sales
Purchases
Freight on sales
Telephone and fax
Repairs and maintenance
Rental expense
Rates and taxes
Salaries and wages
Regional Service Council levies
54
Printing and stationery

Retained earnings (balancing)
Capital
Buildings
Equipment
Accumulated depreciation: Equipment
Cash on hand
continued
Opening Adjustments Final
Bank (overdraft)
Inventory
Debtors
Allowance for credit losses
Creditors
Accrued expenses
55

Question 6.6 (Errors, creditors, debtors, depreciation)

The following trial balance was obtained from the records of Heyns Stores on 28 February 20.2
(ignore VAT):

R R
Capital 8 020
Drawings 500
Land and buildings 8 000
Furniture 5 700
Vehicles 5 000
Accumulated depreciation: Furniture 1 884
Creditors 7 600
Bank 2 300
Debtors 5 950
Allowance for credit losses 800
Trading account (gross profit) 14 000
Depreciation: Vehicles 750
Depreciation: Furniture 684
Rental income 2 800
Doubtful debts 400
Interest income 840
Wages 1 300
37 800 37 028
1. The cost of sales total was under-calculated by R260.
2. Water and electricity payable on 28 February 20.2 was R120.
3. Water and electricity of R170 that was payable on 1 March 20.1 and included in
creditors, was paid during the year. This amount was debited against water and
electricity.
4. Included in purchases was R1 000 in respect of vehicles purchased on 31 August 20.1. It
is the policy of the entity to depreciate vehicles at 15% p.a. on the cost price.
56
5. The following amounts were received/paid in advance on 28 February 20.2:

Interest income R60
Wages R100
6. Depreciation on furniture was written off reducing 12% p.a. on cost. It is, however,
policy to depreciate furniture at 12% p.a. using the reducing balance method.
7. Rent receivable – R600.
Required:
Correct and balance the above trial balance by means of a six-column worksheet.
Question 6.7 (Inventory, errors, debtors)

The bookkeeper of Uno Shops is experiencing difficulty in balancing the trial balance. He
submits the following trial balance, in which several errors were made, to you and requests
you to assist him in his efforts (ignore VAT):
UNO SHOPS
R R
Capital 112 800
Drawings 3 800
Trade debtors control 43 000
Equipment 27 800
Trade creditors control 87 500
Vehicles 86 000
Bank (favourable balance) 22 000
Trading-inventory (1 January 20.4) 40 500
Returns-in 2 500
Returns-out 3 600
Salaries 23 750
Sales 364 000
Telephone expense 4 200
Stationery 3 700
Purchases 147 000
Suspense account 72 900
610 450 610 450
57
Upon further examination of the financial records, the following came to light:
1. The purchases account was added by R2 000 too much.
2. The total rental paid was R7 800 and has been correctly recorded in the cash payments
journal. However, when the amount of the rental expense account was transferred to
the general ledger, the digits were swopped (R8 700).
3. An account of R700 for the telephone expense was paid on 15 December 20.4. This
transaction has been correctly recorded in the cash payments journal. However, no
amount has been transferred to the relevant contra account in the general ledger.
4. Credit purchases of R5 700 were recorded as R570 in the purchases journal.
5. Credit losses of R3 000 occurred during December 20.4. However, no entries were
made in this regard.
6. The sales journal was totalled with R2 000, granted on credit, too little.
7. The owner deposited R10 000 additional capital in the bank account and the correct
entry was made in the cash receipts journal. However, the posting to the capital
account was not done.
8. According to the stocktake, the inventory at year-end was R40 500.
Required:
1. Indicate, with the aid of general journal entries, how you would eliminate the suspense
account (descriptions are not required).
2. Prepare the correct statement of financial position as on 31 December 20.4 (show
proper calculations of the calculation of the profit for the year).
Question 6.8 (Inventory, depreciation, debtors, creditors)

On 31 December 20.8, the following trial balance was prepared from the records of Yukka
Dealers (ignore VAT):
YUKKA DEALERS
DR CR
R R
Capital 83 600
Drawings 12 000
Furniture at carrying amount (31 December 20.7) 6 000
Motor vehicles at carrying amount (31 December 20.7) 15 000
continued
58
DR CR
R R
Inventory (31 December 20.7) 28 000
Purchases 68 000
Sales 92 000
Sales returns 6 000
Rental income 7 800
Commission income 1 000
Bank 12 800
Trade debtors 5 800
Trade creditors 3 800
192 600 192 600
1. Inventory amounted to R24 000 on 31 December 20.8.
2. The entity’s depreciation policy is as follows:
• Furniture at 10% p.a. on the carrying amount
• Motor vehicles at 12% p.a. on the carrying amount
3. Rent was received for the 13 months ended 31 January 20.9.
4. Salaries and wages of R1 000 were outstanding for December 20.8 and an overpayment
of R100 was made in respect of water and electricity.
5. Commission amounted to R90 per month.
6. A debtor’s account of R200 must still be written off as irrecoverable.
7. After careful consideration, it was found that 5% of outstanding debtors might be at
risk of not being able to pay their debts.
Required:
Prepare a ten-column worksheet.
59
Question 6.9
The following balances appeared in the general ledger of Maja Dealers on 31 December 20.5
(ignore VAT):
R
Capital 500 000
Drawings 120 000
Equipment at cost 150 000
Accumulated depreciation on equipment (1 January 20.5) 60 000
Vehicles at cost 225 000
Accumulated depreciation on vehicles (1 January 20.5) 125 000
Sales 375 000
Sales returns 30 000
Purchases 225 000
Salaries 24 750
Rental income 8 250
Debtors 112 500
Creditors 123 750
1. Salaries for December have not been paid yet as the financial manager is on holiday
and was unable to authorise the EFTs.
2 Rent for January 20.6 for the warehouse was paid in December.
3. Interest for January 20.6 amounting to R1 500 was received in December.
4. The rent for the shop for December 20.5 was not received in December.
5. Inventory on 31 December 20.5 amounts to R12 750.
6. Credit losses of R2 500 must be written off as irrecoverable.
7. After careful consideration, it was found that 6% of outstanding debtors might not be
able to pay their debt.
60
8. Provide for depreciation as follows:

• Equipment at 10% p.a. on cost
• Vehicles at 20% p.a. on the reducing balance method
Required:
Journalise the above adjustments.
Question 6.10 (Depreciation, inventory, salaries, interest)

You are provided with the pre-adjustment trial balance together with a list of adjustments
for Simba Traders, a sole trader, on 28 February 20.8. The entity uses the periodic inventory
system. Ignore VAT.
SIMBA TRADERS
DR CR
R R
Capital 380 410
Loan: BB Bank (14% p.a.) 120 000
Equipment 150 000
Accumulated depreciation: Equipment (1 March 20.7) 60 000
Motor vehicles 205 000
Accumulated depreciation: Motor vehicles (1 March 20.7) 35 000
Trading inventory (1 March 20.7) 73 000
Trade debtors 88 000
Sales 725 260
Sales returns/Debtors allowances 60 400
Purchases 383 300
Carriage on purchases 7 700
Carriage on sales 14 940
Customs duty on purchases 13 800
Property taxes 11 850
continued
61
DR CR
R R
Insurance 15 800
Interest on loan 10 880
Packing material 17 900
Rental income 20 800
Bank charges 2 100
Interest income on positive bank balance 590
1 548 860 1 548 860
1. A new motor vehicle, cost price R140 000, was purchased for cash on 1 September
20.7. This transaction was properly recorded. All vehicles are depreciated at 10% p.a.
on the reducing balance method.
2. Equipment, cost price R3 000, was sold on credit for R1 000 on 28 February 20.8.
Equipment is depreciated at 20% on cost. None of these transactions have been
recorded. Note that all the equipment was originally purchased on 1 March 20.5.
3. Unsuitable goods, purchased on credit for R1 500, were returned to the supplier on
28 February 20.8. No entry for this transaction was made.
4. Goods, cost price R32 500, were purchased on credit from overseas on 28 February 20.8.
The following was paid via an EFT:
• Carriage on purchases R2 600
• Customs duty R4 800
No entries have been made for any of these transactions.
5. Goods were sold on credit to Bull Dealers on 28 February 20.8. The marked selling price
of these goods was R8 000, but a 20% trade discount was granted to him. The sale of
these goods has not yet been recorded.
6. Stocktaking on 28 February 20.8 revealed the following on hand:
• Trading inventory R78 000
• Packing material R4 800
The bookkeeper was unsure of how to treat the opening and closing inventories.
62
7. An employee was left out of the salaries journal. Her net salary is R5 750. Details of her
deductions are as follows:
• PAYE R2 850
• Pension R800
• UIF R100
• Total deductions R3 750
Simba Dealers contributes towards the pension fund and UIF on a rand-for-rand basis.
8. The loan is repaid in annual instalments of R24 000 on 31 May each year. The entry for
repayment has been made. Provide for the outstanding interest on the loan.
9. Insurance includes an annual premium of R3 600 for the period 1 July 20.7 to
30 June 20.8.
10. Part of the building has been let since 1 May 20.7. The monthly rent was increased by
R200 with effect 1 November 20.7. The rent for March 20.8 is included in the amount of
R20 800.
11. The bank statement for February received from XY Bank on 28 February 20.8 revealed
the following entries that had not yet been recorded:
• Bank charges R190
• Interest received on positive bank balance R30
Required:
1. Journalise the above transactions.
2. Prepare the statement of profit or loss and other comprehensive income for the year
ended 28 February 20.8.
3. Prepare the statement of financial position as on 28 February 20.8.
Question 6.11 (Errors)

The following trial balance is presented to you (ignore VAT):
DR CR
Capital 1 156 000
Drawings 30 000
Land 970 000
Vehicles 100 000
Accumulated depreciation on vehicles 20 000
continued
63
DR CR
Bank (overdraft) 10 000
Services rendered 920 000
Consumable material 40 000
Salaries 246 000
Maintenance 72 000
Suspense account 322 000
1 366 000 2 520 000
The account balances according to the general ledger:

R
Services 290 000
Consumable material 40 000
Salaries 264 000
Maintenance 70 000
Telephone 2 000
Required:
Compile an improved trial balance.
Question 6.12 (Errors, VAT)

Shrek Ltd is a VAT vendor who started business during the current financial year. The
company uses the perpetual inventory system. Shrek Ltd purchased inventory on credit
during the year and received a tax invoice. 30% of this inventory was sold for cash at cost
plus 25%. VAT was not calculated on the above-mentioned transactions and is, consequently,
included in the following balances in the general ledger:
Creditors R209 000
Inventory R209 000
Sales R78 375
The cost of sales journal entry has also not yet been recorded.
Required:
Provide the journal entries needed to correct the balances in the above-mentioned general
ledger accounts, seeing that Shrek Ltd is registered as a VAT vendor. Also provide the cost of
sales journal entry.
64
Chapter
7
Financial statements
Question 7.1 (Easy)

The following information appeared in the records of Maksima Traders on 28 February 20.2
(ignore VAT):
MAKSIMA TRADERS
DR CR
R R
Accumulated depreciation: Equipment 3 000
Vehicles 12 000
Debtors 26 000
Bank 60 000
Capital (1 March 20.1) 156 000
Drawings 48 000
Creditors 82 000
Purchases 314 000
Purchases returns and allowances 9 800
Advertising 2 400
Insurance 1 920
Electricity 2 560
Sundry expenses 480
Sales 380 000
Sales returns and allowances 6 000
643 600 643 600
65
1. Prepaid rent on 28 February 20.2 is R2 000.
2. Inventory on hand 28 February 20.2 is R160 000.
3. Prepaid insurance on 28 February 20.2 is R320.
4. Allowance for credit losses should be increased to R2 000.
5. Depreciation should be calculated as follows:
• Vehicles: 20% p.a. on the carrying amount
• Equipment: 5% p.a. on the cost
Required:
2. Show the calculations for:
(a) Gross profit percentage on sales, and
(b) Gross profit percentage on cost of sales.
3. Compile the statement of financial position on 28 February 20.2.
Question 7.2 (Moderate)

The following trial balance on 31 December 20.3 relates to the accounting records of Delta
Traders (ignore VAT):
DELTA TRADERS
TRIAL BALANCE AT 31 DECEMBER 20.3
R
Plant and machinery at cost 80 000
Accumulated depreciation: Plant and machinery 35 000
Motor vehicles at cost 85 300
Accumulated depreciation: Motor vehicles 17 500
Fixed deposit: Nedbank (15% p.a.) 66 667
Consumables on hand 6 700
Debtors 76 000
Capital: Z Abbot 329 517
Drawings: Z Abbot 15 800
Loan from ABSA Bank (obtained 1 October 20.3 at 22% p.a.) 73 700
continued
66
Chapter 7: Financial statements
R
Advertisements 10 000
Bank (favourable) 292 800
Petty cash 300
Creditors 387 300
Rental income 4 500
Sales 512 800
Cost of sales 302 000
Insurance 3 000
Electricity 9 000
Telephone 5 800
Stationery expense 5 000
1. Money in respect of advertising was paid for the ten-month period ended
31 March 20.4.
2. Insurance included an amount of R2 400 in respect of an insurance contract for the
period 1 March 20.3 to 28 February 20.4.
3. Rental income was received on 30 June 20.3 for the following 15 months.
4. A physical stocktake on 31 December 20.3 revealed the following:
(a) Consumables on hand R1 600
(b) Stationery on hand R333
5. Included in debtors is an amount of R200 received in cash from B Bam. B Bam is a
debtor whose account was written off in 20.1.
6. An amount of R3 000 must still be written off as irrecoverable and it was found that 6%
of outstanding debtors are at risk of not being able to pay their debt.
7. The telephone account of R347 in respect of December 20.3 was only received on
4 January 20.4.
8. On 1 September 20.3, a machine purchased on 1 April 20.1 for R6 667 was sold for
R5 000 cash. The machine was replaced on 15 September 20.3 with a new machine
purchased for R16 667 cash. The new machine was only put into use on 1 October 20.3.
No entry has yet been made for this transaction.
67
9. Provision for depreciation still has to be made for the current year. The depreciation
policy is as follows:
(a) 15% p.a. on plant and machinery on the reducing balance method, and
(b) 10 cents per km on motor vehicles.
10. The odometer reading for all vehicles owned by Delta Traders recorded as 100 760 km
on 1 January 20.3 and 271 700 km on 31 December 20.3.
11. Commission income includes an amount of R2 144 for the 12-month period ended
30 June 20.4.
12. The interest on the long-term loan is payable every 3 months. The capital amount of
the loan is repayable in 10 equal instalments on 30 September each year. No entry has
yet been made.
13. The fixed deposit was made on 1 May 20.3. No interest has been received to date.
Required:
Prepare the statement of profit or loss and other comprehensive income for Delta Traders
for the year ended 31 December 20.3.
Question 7.3 (Easy)

The balances listed below appeared in the books of Alpha Traders on 31 May 20.2 (ignore
VAT):
R
Capital: R Potgieter 456 525
Drawings: R Potgieter 56 250
Office equipment at cost 90 000
Accumulated depreciation:
Office equipment 11 250
Vehicles 45 000
Inventory on hand (1 June 20.1) 90 000
Purchases 195 750
continued
68
R
Freight on sales 9 000
Rental expense for buildings 5 850
Advertising 16 425
Insurance 2 025
Electricity 10 800
General operating expenses 19 575
Sales 221 625
Loan from ABSA 45 000
Additional information that must still be taken into account:

1. Depreciation must be provided for as follows:
(a) Office equipment at 5% p.a. on cost
(b) Vehicles at 20% p.a. on the carrying amount
2. Inventory on hand on 31 May 20.2 is R112 500.
3. Rent for June 20.2 has already been paid.
4. Insurance amounting to R675 must still be paid.
5. A trade debtor who owes R2 250 cannot be traced and his debt must be written off as
irrecoverable.
6. The allowance for credit losses must be adjusted to 5% of outstanding debtors.
7. Interest on the loan at 15% p.a. must still be provided for.
Required:
1. Prepare a statement of profit or loss and other comprehensive income for the year
ended 31 May 20.2.
2. Calculate the gross profit percentage on sales.
69
Question 7.4 (Easy)

The following balances appeared in the books of Kings Traders on 30 November 20.2 (ignore
VAT):
R
Equipment 3 600
Vehicles 5 200
Capital 84 000
Drawings 8 400
Debtors 18 400
Bank (unfavourable) 4 800
Creditors 22 000
Loan: Zim Bank 30 000
Purchases 40 800
Rental income 1 760
Advertisements 840
Sundry expenses 5 520
Sales 54 000
Sales returns and allowance 6 000
Stationery 200
Telephone 2 800
The following adjustments must still be taken into account:
1. The owner withdrew goods for his own use to the amount of R800.
2. A debtor, M Mos, owing R320, was declared insolvent. His estate paid 30 cents in the
rand. Write the remainder off as irrecoverable.
70
4. The long-term loan was obtained from Zim Bank on 1 June 20.2 at an interest rate of
14% p.a. No provision in respect of interest has yet been made.
5. The rent for November 20.2 is still outstanding.
6. The sundry expenses includes an insurance premium of R1 200. Insurance amounts to
R120 per month.
7. The telephone account for R216 for November 20.2 has not yet been paid.
8. Depreciation on vehicles should be provided for at 20% p.a. on the reducing balance
method. A new vehicle was purchased on 1 September 20.2 for R24 000.
9. Make provision for depreciation on equipment at 10% p.a. on the straight-line method.
10. A physical stocktake on 30 November 20.2 showed the following inventory on hand:
(a) Inventory R29 000
(b) Stationery R80
Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended
30 November 20.2.
Question 7.5 (Easy)

The following information appeared in the records of Rodeo Traders on 31 December 20.2
(ignore VAT):
RODEO TRADERS
R
Vehicles (at cost) 20 000
Furniture (at cost) 4 000
Furniture 500
Fixed deposit: Nedbank 9 600
Capital 64 000
Drawings 3 200
Loan: ABSA Bank 3 200
continued
71
R
Inventory 16 000
Bank (overdraft) 540
Sales 136 000
Sales returns 400
Rental income 8 800
Interest income 480
Stationery 160
Credit losses 1 200
1. The fixed deposit was made on 1 January 20.2 at Nedbank. The interest rate is 10% p.a.
Interest is payable six-monthly.
2. The long-term loan of 15% p.a. was obtained on 1 July 20.2.
3. Received R160 from a debtor whose account had previously been written off as
irrecoverable.
4. Write off the account of a debtor of R800 as irrecoverable.
5. Adjust the allowance for credit losses to 2% of outstanding debtors.
6. Rent for 1 month is still outstanding.
7. A physical stocktake revealed the following:
(a) Inventory on hand R15 600
(b) Stationery on hand R80
8. Depreciation should be provided for as follows:
(a) Vehicles at 20% p.a. on the reducing balance method, and
(b) Furniture at 10% p.a. on the straight-line method.
Required:
1. Prepare the statement of profit or loss and other comprehensive income of Rodeo
Traders for the year ended 31 December 20.2.
2. Prepare the statement of financial position of Rodeo Traders on 31 December 20.2.
72
Question 7.6 (Easy)

The following information has been extracted from the records of Symphony Dealers on
31 January 20.3 (ignore VAT):
R
Capital 88 200
Drawings 22 400
Loan: North-West Bank 18 480
Debtors 36 400
Creditors 57 400
Sales 308 000
Purchases 218 750
Advertising 4 900
Stationery 2 240
Custom duties 1 736
1. The loan from North-West Bank was obtained on 31 January 20.3 at 15% p.a.
2. Depreciation on vehicles at 20% p.a. on the reducing balance method must still be
provided for.
3. Advertising of R420 in respect of January is still outstanding.
4. Reduce the allowance for credit losses to R1 120.
5. Inventory on hand on 31 January 20.3:
(a) Trading inventory R77 000
(b) Stationery R700
Required:
1. Compile the statement of profit or loss and other comprehensive income for the year
ended 31 January 20.3.
2. Calculate the gross profit percentage on sales and on cost of sales.
3. Prepare the statement of financial position on 31 January 20.3.
73

The following information is extracted from the accounting records of Focus Dealers on
31 December 20.2, the financial year end (ignore VAT):
FOCUS DEALERS
R
Land DR 250 000
Vehicles DR 175 000
Equipment DR 95 000
Accumulated depreciation: Vehicles CR 29 400
Equipment CR 41 875
Fixed deposit: Swiss Bank DR 12 000
Inventory (1 January 20.2) DR 75 750
Debtors control DR 49 725
Allowance for credit losses CR 1 763
Bank DR 3 355
Capital CR 500 000
Drawings DR 23 000
Creditors control CR 47 500
Purchases DR 253 135
Sales CR 452 913
Freight on purchases DR 7 313
Levies on property DR 5 250
Insurance DR 8 650
Packaging material DR 11 518
Sales returns DR 3 050
Purchases returns CR 2 163
Credit losses DR 420
Credit losses recovered CR 163
Telephone and postage DR 3 363
Rental income CR 14 625
Salaries and wages DR 114 833
Interest on fixed deposit CR 960
74
1. The investment at Swiss Bank was made on 1 May 20.2 at 16% p.a.
(a) Equipment: 10% p.a. on the cost price. Repairs of R7 500 were incorrectly posted
to the equipment account.
(b) Vehicles: 20% p.a. on the reducing balance method. An additional vehicle was
purchased on 1 October 20.2 for R100 000.
3. Inventory on hand on 31 December 20.2 was R76 698.
4. Packaging material on hand on 31 December 20.2 was R2 630.
5. The owner took inventory for private use with a sales price of R1 500. A mark-up of 50%
on cost is applied.
6. Carriage on purchases of R1 525 has not yet been paid.
7. Part of the administration building was rented out from 1 August 20.2 for R2 438 per
month.
8. An amount of R350 from a debtor should be written off as irrecoverable.
10. The telephone account of R613 for December is still outstanding and must be paid.
Required:
ended 31 December 20.2.
2. Compile a statement of financial position on 31 December 20.2.
Question 7.8 (Easy)

The following information appeared in the financial records of Kumba Dealers on
28 February 20.3 (ignore VAT):
KUMBA DEALERS
R
Land and buildings at cost DR 213 000
Vehicles at cost DR 31 800
Equipment at cost DR 16 500
Interest-bearing mortgage bond CR 43 200
Bills receivable DR 8 220
Bills payable CR 9 135
continued
75
R
Allowance for credit losses CR 945
Vehicles CR 7 200
Equipment CR 4 050
Inventory (1 March 20.2) DR 24 048
Bank DR 1 842
Debtors control DR 21 411
Creditors control CR 26 289
Capital: Z Ramba CR 162 900
Drawings: Z Ramba DR 20 739
Loan: Zim Bank CR 12 000
Purchases DR 117 615
Sales CR 225 372
Freight on purchases DR 2 376
Freight on sales DR 540
Interest on mortgage bond DR 3 600
Credit losses DR 399
Bank charges DR 573
Stationery DR 579
Office rent CR 10 650
Rates on property DR 1 110
Sundry expenses DR 37 389
1. The loan was obtained from Zim Bank on 1 June 20.2. Interest at 9% p.a. is still owing.
2. A part of the building was rented out to a student. The rent was increased from R750
per month to R900 per month, effective from 1 October 20.2.
3. Z Ramba took goods to the amount of R1 020 (cost price) for own use.
4. Inventory purchased for R135 was incorrectly booked against the stationery account.
5. Inventory to the value of R225 (cost price) was donated to the local school.
6. Outstanding expenses on 28 February 20.3:
(a) Freight on purchases R378
(b) Freight on sales R180
76
7. A debtor owing R186 should be written off. The allowance for credit losses should be
adjusted to 6% of outstanding debtors.
8. Accrued interest on the bond amounts to R1 095.
9. Provision for depreciation should be made as follows:
(a) Equipment at 20% p.a. on the cost price, and
(b) Vehicles at 15% p.a. on the reducing balance method.
10. Inventory on hand on 28 February 20.3:
(a) Trading inventory R24 015
(b) Stationery R93
Required:
Compile a statement of profit or loss and other comprehensive income for the year ended
28 February 20.3.
Question 7.9 (Easy)

The following is a part of the trial balance from Zeerust Dealers (ignore VAT):
ZEERUST DEALERS
R R
Capital 100 000
Drawings 75 000
Profit before the following: 119 000
Depreciation for the year – Vehicles 25 000
Prepaid expenses 3 000
Revenue receivable 10 000
Vehicles 150 000
Accumulated depreciation of vehicles (28 February 20.2) 45 000
Share investment in DR (Pty) Ltd 5 000
Bank 10 000
Petty cash 1 000
Cash on hand 3 000
Mortgage bond 20 000
77
1. A new vehicle was bought on 31 August 20.1 for R50 000. No vehicles were sold.
2. The loan is at ABASA Bank and carries interest at 20% p.a. It is redeemed in 5 equal
capital instalments. The first instalment was paid at the end of the current financial
year. The interest has already been accounted for.
3. Allowance for credit losses is made annually at 8% of debtors, as this has been the
trend for the past 10 years.
4. The owner is of the opinion that the first-in, first-out basis for the valuation of
inventory is the best method.
Required:
Prepare the statement of financial position on 28 February 20.2.
Question 7.10 (Difficult)

Tlokwe Traders is not registered for VAT.
TLOKWE TRADERS
PRE-ADJUSTMENT TRIAL BALANCE ON 31 DECEMBER 20.1
DR CR
R R
Vehicles 84 000
Capital 200 000
Drawings 60 000
Loan (AB Bank) 250 000
Trading inventory 97 000
Debtors 21 000
Bank 117 000
Petty cash 2 000
Sales 500 000
Salaries 36 000
Other operating expenses 44 000
Interest on loan – AB Bank 11 000
1 146 000 1 146 000
78
1. No provision has been made for depreciation. Depreciation is provided for on the
production unit method. It was originally established that the vehicle would be useful
for 140 000 km with an estimated residual value of R14 000. The odometer readings at
the beginning and end of the year were as follows:
(a) 1 January 20.1: 138 000 km
(b) 31 December 20.1: 168 000 km
2. The loan was obtained from AB Bank on 2 January 20.1 and the land and buildings
were offered as security. The loan bears interest at 15% p.a. and must be repaid
from 31 December 20.1 in instalments of R49 813,02 p.a. (which includes interest
and capital). The payment for the amount due has already been made, but no entry
has yet been made. Part of the interest was already paid in October. The first
instalment was paid on 31 December 20.1.
3. Inventory on hand on 31 December 20.1 is R95 000.
4. The age analysis of debtors indicates the following:
In advance Current 30 to 60 days Over 60 days
R2 000 R16 000 R2 600 R4 400
Management has decided that all debtors outstanding for more than 60 days should be
written off and that an allowance for credit losses should be established at 50% of all
debtors outstanding for more than 30 days.
5. The bonus of the manager amounting to R2 500 must still be provided for.
6. Depreciation should be provided for on buildings at 5% p.a. on cost.
7. Inventory is valued at the highest of cost or net realisable value.
Required:
ended 31 December 20.1 and the statement of financial position of the entity on
31 December 20.1. Include the notes for accounting policy, non-current assets and non-
current liabilities. Round off to the nearest rand.
2. Criticise the following note to a set of financial statements:
Inventory consists of: Net realisable value Cost
R R
3 000 litre cleaning material 97 000 90 000
Stationery on hand 5 000 5 000
79

The following balances occurred on 28 February 20.8 in the general ledger of Corner
Supermarket (ignore VAT):
R
Capital – T Eloff 65 000
Drawings 9 590
Sales 159 270
Purchases 113 740
Rail charges on purchases 1 380
Fuel and maintenance 3 910
Insurance 3 670
Advertising 2 380
Wages 18 364
Interest on bond 3 100
Credit losses 540
Stationery 380
General expenses 5 020
Rental income 5 664
Inventory:
Trading inventory 21 200
Stationery 330
15% Mortgage bond – ABSA 20 000
Land 20 000
Buildings 25 000
Furniture at cost 8 300
Accumulated depreciation (1 March 20.7):
Furniture 6 200
Buildings 5 000
Vehicles 13 400
80
1. Credit losses amounting to R1 100 must be written off.
2. Allowance for credit losses must be adjusted to 10% of outstanding trade debtors.
3. Vehicles are depreciated at 20% p.a. on the reducing balance method. A vehicle was
sold on 1 September 20.7 for R8 000. It was purchased on 31 May 20.5 for R12 500. The
only entry for this transaction was that bank was debited and sales was credited with
the proceeds.
4. New furniture was bought on 1 December 20.7 for R1 200. The debit amount was
incorrectly posted to the purchases account.
5. Depreciation must be provided for at 10% p.a. on the reducing balance method on
furniture and at 5% p.a. on the cost price of buildings.
6. The rent for February 20.8 is still outstanding. Rent is received at a fixed amount per
month that was increased by 20% on 1 October 20.7.
7. The bond was obtained on 1 December 20.5 when land and buildings were purchased.
It is repayable in a fixed capital payment of R10 000 on 30 November each year. The
interest is payable monthly. The interest rate was increased on 1 February 20.8 from
12% to 15%.
8. Groceries at a cost of R1 730 that were purchased on credit were included in the
inventory counted on 28 February 20.8, but no entry has been made in the accounting
records.
9. Included in insurance is an amount of R600 that was paid for the 3 months that ended
on 31 March 20.8.
10. Inventory is valued on a first-in, first-out basis.
11. No other assets were purchased or sold.
Required:
2. Prepare the following notes:
• Accounting policy
• Property plant and equipment
• Inventory
81
Question 7.12 (Easy)

The accountant hands over the following pre-adjustment trial balance of Your Build Dealers
to you:
YOUR BUILD DEALERS

DR CR
R R
Purchases 107 800
Administrative expenses 28 400
Bank 101 500
Fuel 34 000
VAT input 5 000
VAT control 8 000
VAT output 20 000
Land 150 000
Trademarks 20 000
Capital ?
Drawings 30 500
Accumulated depreciation – Vehicles 21 000
Mortgage loan 120 000
Sales 200 000
Insurance 23 200
Vehicles 30 000
560 000 560 000
1. Allowance for credit losses must be adjusted to 10% of debtors.
2. Rental income amounts to R1 100 per month (VAT included).
3. The mortgage loan carries interest at a rate of 20% p.a. The loan of R120 000 was made
on 28 February 20.3 and must be repaid in equal capital instalments over 6 years. The
payment has already been made, but has yet to be recorded.
82
4. After a stocktake was done, the following was found:

Quantity Cost price
10kg bags Your Build 100 R40
5kg bags Your Build 100 R30
5. The entity has three identical vehicles in use that were purchased on the same date.
Depreciation is provided for at 20% p.a. on the cost price. No depreciation has been
provided for yet during the current year.
6. One of the vehicles was hijacked in the city on the last day of the financial year. The
insurance paid out R3 300, including VAT. The transaction has not yet been accounted
for.
7. Depreciation on trademarks is provided for at R1 000 p.a. on the straight-line method.
Required:
Prepare the statement of financial position on 28 February 20.4 (notes are not required).

The following is the pre-adjustment trial balance from the records of Ally Mac Attorneys. The
firm is registered for VAT. The firm provides mainly consultation services although they also
sell some law textbooks to other firms. A periodic inventory system is in use for the law
textbooks.
Below is a list of accounts and balances on 28 February 20.9:
Description Account No. R

Capital 001 (125 000)
Drawings 002 92 500
Loan at 15% p.a. 005 (100 000)
Trade creditors 006 (11 000)
VAT output 008 (19 500)
VAT input 009 4 500
Bank 010 (250)
Petty cash 011 2 350
Equipment 015 10 000
Accumulated depreciation: Equipment (1 March 20.8) 016 (2 500)
Trade debtors 020 215 000
Allowance for credit losses 021 (15 000)
Inventory 030 24 000
continued
83
Description Account No. R

Services rendered 100 (780 000)
Sales 200 (60 000)
Purchases 205 80 000
Administration costs 215 198 000
Bank charges 220 2 100
Salaries 225 409 800
Interest on loan 230 10 000
Rental expense:
Equipment 235 35 000
Building 240 24 000
Security equipment 245 6 000
1. The firm rents all assets except for the photocopier bought on 1 March 20.6. On that
date, it was decided to provide for depreciation on the production unit method. The
estimated number of copies that the machine would be able to make was 100 000. On
1 March 20.8, it was determined that only 80 000 copies could be made with the
machine. It is decided that the correction should be made retrospectively. During the
current year, 30 000 copies were made. The machine was damaged by lightning on
31 January 20.9. A claim was recorded at the insurers. On 28 February 20.9, the
insurers reported that they would pay R2 300. The electronic funds transfer was
received on 13 March 20.9.
2. During the stocktaking on 28 February, it was noticed that there were 75 law textbooks
on hand. These books are sold at a price of R172,50 (VAT included). The gross profit
margin is 33.33% on the sales price.
3. Stationery to the value of R250 was still on hand at the end of the year. Stationery
forms part of administration expenses.
4. An insolvent debtor, who owed R330, paid a final payment of R110. The firm decided to
write off the remainder of the debt as irrecoverable.
5. R287,50 was received from a debtor whose debt was written off as irrecoverable in
20.7.
6. The policy on allowance for credit losses is to calculate the allowance as 10% of all
debtors.
7. The creditors list included the following balances:
(a) Credit balances – R12 500
(b) Debit balances – R1 500
8. The municipal account for February 20.9 amounting to R500 (VAT excluded) was
received on 8 March. Municipal fees are part of administration costs.
84
9. The loan is unsecured. The capital redemption is payable on 28 February of each year.
The capital redemption on 28 February 20.9 is R8 000. The following payment will also
be for R8 000.
Required:
Compile the statement of profit or loss and other comprehensive income for the year ended
28 February 20.9. Show all calculations (round off to the nearest rand).

The following trial balance was taken from the books of Coral Reef Traders on 30 June 20.9
(ignore VAT):
CORAL REEF TRADERS
TRIAL BALANCE ON 30 JUNE 20.9
DR CR
R R
Statement of financial position section:
Capital 132 200
Drawings 4 331
12% Mortgage loan 100 000
Unlisted share investment 4 000
Creditors 21 200
Debtors 18 800
Listed share investment 12 000
Allowance for credit losses debt 650
Inventory (1 July 20.8) 2 080
Bank 8 455
Nominal accounts section:
Purchases and imports 95 700
Purchases returns 525
Sales 207 320
Import duty 18 480
continued
85
DR CR
R R
Sales returns 160
Dividends on listed shares 2 800
Office expenses 4 200
Insurance 3 159
Bank charges 1 841
Rental income 5 280
509 330 509 330
1. Inventory on hand on 1 July 20.8 consisted of 650 units. Purchases and imports during
the year were:
14 000 units R49 000,00
12 000 units R45 000,00
400 units R1 700,00
2. 26 020 units were sold during the year; 20 units were returned by buyers. 150 units of
the first consignment purchases were sent back to the creditors. Inventory is valued on
the FIFO basis.
3. Since 1 January 20.6, a storeroom has been rented. The initial rent was R500,00 per
month. On 1 January 20.7, the rent was increased by 10% and remained unchanged
until 1 January 20.9. An increment of 20% that applied on the rent at that time was
instituted. On 30 June 20.9, there was still 3 months’ rent in arrears.
4. Insurance premiums are paid annually on the following dates:
1 October R486,00
1 January R624,00
1 April R900,00
5. Debtors to the amount of R1 580,00 are insolvent. An average dividend of 3 cents in the
rand was received. Adjust the allowance for credit losses to 4% of good debtors.
6. Depreciation on equipment is written off according to the sum of digits method. The
residual value is calculated at R800,00. The equipment was purchased on 1 July 20.6.
The estimated useful life of the equipment is 6 years.
86
7. The fleet of vehicles was purchased on 1 July 20.6. It is estimated that the vehicles will
be able to do a total of 650 000 kilometres with a residual value of R2 500,00. In the
current year a total of 81 000 km was travelled.
8. Depreciation must be provided for at 5% p.a. on the cost of buildings.
Required:
1. Calculate the closing inventory on 30 June 20.9.
2. Compile the statement of profit or loss and other comprehensive income for the
financial year ended 30 June 20.9. Round off to the nearest rand.
3. Show the calculation regarding property, plant and equipment.
Question 7.15 (Manufacturing – easy)

Voscor Manufacturers provides the following information from their accounting records
(ignore VAT):
Balances on 1 March 20.3

Finished products R264 500
Work-in-progress R21 000
Allowance for unrealised profit ?
Summary of transactions during the year:

Raw materials used R112 600
Direct labour paid R90 200
Productive wages payable on 28 February 20.4 R4 600
Factory overheads R74 400
(Depreciation amounting to R12 400 on factory equipment must still be taken into account.)
Balance of work-in-progress on 28 February 20.4 R36 400
Cost of sales for the year on 28 February 20.4 R340 170
Finished products are being transferred to the sales department at a profit ratio of 15% on
manufacturing costs.
Required:
Record the transactions in the following general ledger accounts and close off the accounts
on 28 February 20.4:
1. Finished products
2. Work-in-progress
3. Allowance for unrealised profit
87
Question 7.16 (Manufacturing – moderate)

Pony Manufacturers’ financial year ends on 28 February. The firm has been operating in the
toy manufacturing sector for a few years. The following information relates to the activities
for the year ended 28 February 20.6 (ignore VAT):
Balances on 1 March 20.5

Raw materials R12 400
Allowance for unrealised profits R25 800
Summary of transactions that occurred during the 20.6 financial year:

Raw material purchases R231 200
Delivery charges on raw material purchases R4 200
Productive wages R87 800
Factory overheads R54 200
Included in productive wages is an amount of R5 600 that was outstanding for the previous
financial year.
Inventory on hand on 28 February 20.6:

Finished goods R182 400
Pony’s policy is to add 20% manufacturing profit to the manufacturing cost when transferring
goods to the sales department.
Required:
Record the transactions in the following general ledger accounts and close off the accounts
on 28 February 20.6:
1. Finished products
2. Work-in-progress
3. Allowance for unrealised profit
4. Manufacturing profit
88
Question 7.17 (Manufacturing – moderate)

The following information was obtained from Gama Manufacturers on 31 December 20.7
(ignore VAT):
BALANCES ON 1 JANUARY 20.7

R
Capital 250 000
Drawings 8 400
Factory buildings 200 000
Manufacturing equipment 193 000
Accumulated depreciation: Manufacturing equipment 75 000
SUMMARY OF TRANSACTIONS FOR THE YEAR ENDED 31 DECEMBER 20.7

R
Purchase of raw materials 97 600
Sales of finished products 452 000
CASH PAYMENTS
R
Delivery charges on raw material purchases 8 790
Direct labour 102 300
Indirect labour 12 650
Maintenance (manufacturing equipment) 5 100
Municipal fees (manufacturing) 4 800
Electricity: Factory 2 600
Offices 940
Salaries: Administrative 14 800
Selling expenses 20 300
Administrative costs 22 700
Credit losses 1 050
89
1. 17 500 units were manufactured during the year.
2. Inventory Opening Closing
R R
Raw materials 17 600 23 400
Work-in-progress 13 400 16 200
Finished goods 32 300 26 340
Consumables 4 340 1 320
3. An additional R430 must be written off as credit losses.
4. Depreciation on manufacturing equipment is provided for at 15% p.a. on the cost price
thereof.
Required:
Prepare all the general ledger accounts relating to the manufacturing process and compile
the statement of profit or loss and other comprehensive income for the year ended
31 December 20.7.
Question 7.18 (Manufacturing – difficult)

ITL Manufacturers produce laptops which are sold to wholesalers in South Africa and Lesotho.
The following information is obtained from their financial records on 31 December 20.7
(ignore VAT):
R
Capital (1 January 20.7) 1 160 000
Land at cost 30 000
Factory building at cost 770 000
Factory equipment at cost 400 000
Accumulated depreciation: Factory equipment (1 January 20.7) 60 000
Accumulated depreciation on vehicles (1 January 20.7) 38 000
Tools (1 January 20.7) 2 500
Tools (31 December 20.7) 5 000
Tools purchased during the year 12 500
Raw materials (1 January 20.7) 30 000
Raw materials purchased 329 000
Import duties on raw materials 37 000
Delivery charges on raw materials 10 900
continued
90
R
Purchases returns – Raw materials 1 900
Raw materials (31 December 20.7) 35 000
Productive wages payable (1 January 20.7) 1 000
Productive wages paid 421 000
Rates and taxes on factory property 1 200
Insurance: Factory property 5 000
Salaries: Manufacturing supervisors 62 500
Work-in-progress (1 January 20.7) 33 000
Finished goods (1 January 20.7) – 500 computers 37 500
Work-in-progress (31 December 20.7) 40 000
Debtors 100 000
Sales – 11 000 computers 1 631 250
Delivering costs to wholesalers 30 000
Insurance – Finished goods 1 250
Salaries – Sales personnel 95 000
Creditors 46 550
General expenses 20 875
Loan – PN Bank 90 000
Retained earnings (1 January 20.7) (DR) 183 125
1. The loan is to be repaid in equal yearly instalments of R10 000 on 30 December of each
year. This payment was made on 30 December 20.7, but no entry has yet been made.
Interest should be paid 15 days after the end of the financial year and is determined at
10% of the outstanding balance on 31 December of the previous year.
2. There were 1 500 computers in stock on 31 December 20.7.
3. The allowance for credit losses of R10 000 on 30 December 20.6 should be kept
unchanged for 20.7.
4. Bonuses to supervisors of R2 500 and wages of factory workers of R10 000 were still
outstanding on 31 December 20.7.
5. Rates and taxes were only paid for 6 months.
91
6. Depreciation on factory equipment is provided for at 15% p.a. on the straight-line

method.
7. Sales personnel use the vehicles. A total of 630 000 km was driven during the year and
depreciation is calculated at 5 cents per km.
8. A manufacturing profit at a rate of 20% of the production cost of the finished goods is
added before goods are transferred to the selling department. The value of the opening
and closing inventories of finished goods is determined on the FIFO basis, at cost of
manufacturing plus manufacturing profit.
9. Sales commission of 10% of the sales was paid on 31 December 20.7, but no entry has
yet been made.
10. Insurance on finished products still outstanding, is R3 750.
11. The manager receives a bonus of 10% of the profit after the bonus has been taken into
account.
Required:
Compile the following:
(a) The T-account relating to manufacturing.
(b) The statement of profit or loss and other comprehensive income for the year ended
31 December 20.7.
(c) The statement of financial position of ITL on 31 December 20.7.
Show all calculations.
Question 7.19 (Easy)

1. ABC Manufacturers manufactures parts for a variety of consumers. Which of the
following costs do not form part of manufacturing costs?
(a) Production overheads
(b) Storage cost of finished goods
(c) Direct materials
(d) None of the above
2. The following information is gathered from the records of ABC Manufacturers:
Cost of inventory (including unrealised profit): R22 000
Net realisable value: R9 000
Allowance for unrealised profit: R2 000
At which amount should inventory be disclosed?
(a) R22 000
(b) R20 000
(c) R19 000
92
Question 7.20 (Difficult)

Nice Ltd is the manufacturer of the well-known Nice sneakers. The entity has two
departments, namely, the manufacturing department and the selling department. Nice Ltd
thought it fitting that the manufacturing department add a 10% profit to their manufacturing
cost when sneakers are issued to the selling department. In other words, Nice Ltd does not
add their manufacturing profit when they transfer the inventory to the finished goods store,
but only when they sell these inventory goods to the selling department. Inventory is issued
based on the first-in, first-out principle.
The following information is available (ignore VAT):
Manufacturing Selling
dept. dept.
WIP (opening balance) R4 000 R0
WIP (closing balance) R5 600 R0
Finished goods (opening balance) R15 000 –
Finished goods (closing balance) R14 000 –
Inventory – Selling dept. (opening balance) – R13 000
Inventory – Selling dept. (closing balance) – R11 000
Material (opening balance) R10 000 –
Material (closing balance) R12 000 –
Material purchased ? –
Direct labour cost R10 000 –
Overheads R13 000 –
Sales – R100 000
All material is purchased on credit and all creditors of Nice Ltd are only in relation to material
purchases. The opening balance of creditors was R20 000 and the closing balance was
R50 000. Only R10 000 was paid to creditors during the year.
Required:
1. Prepare the following General Ledger accounts:
(a) Material account
(b) Work-in-progress account
(c) Finished goods account for the manufacturing department
(d) Inventory account for the selling department
(e) Provision for unrealised gains account
(f) Manufacturing profit (SPLOCI)
2. Disclose the inventory note to the statement of financial position.
93
PART
B
ELEMENTS OF FINANCIAL STATEMENTS
Chapter
8
Cash and cash equivalents
Question 8.1
The following independent problems occurred at a medium-sized auditing firm for the year
ended 31 December 20.1:
1. The overdraft according to the bank statement amounted to R7 800. Outstanding
deposits amounted to R15 600. Bank charges, amounting to R900, were not recorded in
the entity’s accounting records at the end of the period. What was the balance of the
bank account in the general ledger at the end of the period?
2. Refer to the information in 1. What should the balance be according to the general
ledger?
3. The balance according to the bank statement at the end of the month amounted to
R5 396. Outstanding deposits amounted to R8 930. An electronic funds transfer (EFT)
for R860 from a customer does not yet appear on the bank statement, but was
recorded in the entity’s accounting records. What was the balance according to the
bank account in the general ledger at the end of the period?
4. The balance according to the bank statement at the end of the month amounted to
R15 600. Outstanding deposits amounted to R31 200. Bank charges, amounting to
R1 800, were not captured in the entity’s accounting records. What was the balance
according to the bank account in the general ledger at the end of the period?
5. The balance according to the bank account in the general ledger was R98 550. The bank
statement, however, showed a positive balance of R78 900 at the end of the period. If
the only other difference was bank charges not reflected in the cashbook (R450), what
was the total amount of the outstanding deposits at the end of the period?
Required:
Answer the above-mentioned questions independently.
97
Question 8.2
The following information was obtained from Rupert Traders for the month ended
28 February 20.1:
R
Debit balance according to the bank account in the general ledger 103 840
Total outstanding deposits 1 800
Required:
1. What is the balance according to the bank statement at the end of February 20.1?
At the end of March 20.1, the following information was available:
R
Credit balance according to the bank statement 103 840
Total outstanding deposits 740
Required:
2. What is the balance according to the bank account in the general ledger at the end of
March 20.1?
Assume that there was no other information that might have had an effect on the bank
reconciliations for the above-mentioned periods.
Question 8.3
One of your clients recently asked you to assist him with his bank reconciliation. The balance
according to the bank statement amounted to R4 443,40 (CR) on 30 September 20.1. The
balance according to the bank account in the general ledger amounted to R4 730,50 (CR) on
30 September 20.1. The following differences were revealed after the information for the
month under review was scrutinised by you:
1. A deposit of R510 that was deposited on 30 September 20.1 had only been credited by
the bank on 1 October 20.1.
2. A deposit of R485 was incorrectly captured in the entity’s accounting records as R458.
3. Bank charges of R29,90 were incorrectly captured in the entity’s accounting records as
R299,00.
4. The bookkeeper accidentally brought the credit balance of R98 over from August as
R89.
Required:
1. Calculate the correct balance of the bank account in the general ledger on
30 September 20.1.
2. Compile the bank reconciliation for the month ended 30 September 20.1.
98
Chapter 8: Cash and cash equivalents
Question 8.4
The following information regarding the cash transactions for Louis Koen Traders was
available for the month ended 31 July 20.1.
Jul R
1 Balance of bank account in general ledger (795,47)
31 Cash receipts for the month 25 034,00
Cash payments for the month (made up from cash receipts) 10 805,43
Cash deposited during the month 13 694,57
The following entries from the bank account in the general ledger did not appear on the bank
statement:
R
Deposit on 31 July 20.1 548,00
The following information on the bank statement did not appear in the cashbook:
R
Bank charges 72,15
Interest on overdraft 450,00
The balance according to the bank statement on 31 July 20.1 amounted to R11 828,95.
Required:
1. Calculate the balance of the bank account in the general ledger on 31 July 20.1.
2. Calculate the cash on hand on 31 July 20.1 (assume there was no opening balance cash
on hand).
3. Prepare the bank reconciliation for the month ended 31 July 20.1.
Question 8.5
The bank account in the general ledger of Balie Swart had a credit balance of R350 on
31 August 20.1. Balie received his bank statement, which showed a credit balance of R117,
after month-end, and noted the following differences:
1. Fees charges by the bank amounted to R25.
2. A deposit for R501 made on 31 August was only credited by the bank on 1 September.
3. A debit order for insurance to the amount of R240 was settled by the bank. This
amount was, however, not captured in the cashbook.
4. An EFT payment made to K Wiese for R64 was incorrectly entered in the accounting
records as R46.
5. A direct deposit by Mr B Gouws, a debtor, for R15 did not appear in the bank account in
the general ledger.
99
Required:
Prepare the bank reconciliation for the month ended 31 August 20.1.
Question 8.6
The following information was obtained from the records of Gold Traders for the month
ended 31 March 20.1:
BANK RECONCILIATION STATEMENT
FEBRUARY 20.1
R R
DR CR
Credit balance per bank statement 2 897,51
Add: Outstanding deposits 2 219,25
Less: Outstanding internet payments 165,00
385,00
Debit balance per ledger 4 566,76
5 116,76 5 116,76
BANK ACCOUNT
MARCH 20.1
Receipts Payments
R R
Opening balance 4 566,76 Internet payment 5 291,55
Deposit 2 529,12 Internet payment 1 100,00
Deposit 1 597,97 Internet payment 385,55
Internet payment 3 196,60
Internet payment 440,00
24 591,49 30 296,20
100
BANK STATEMENT
MARCH 20.1
R R
DR CR
1 Opening balance 2 897,51
Deposit 2 219,25
Bank fee 2,21
2 Internet payment 5 291,55
4 Internet payment 385,55
5 Deposit 2 529,12
Bank fee 2,52
9 Deposit 1 597,97
Bank fee 1,59
14 Deposit 3 511,97
Bank fee 3,51
Deposit 4 766,52
Bank fee 4,76
22 Deposit 4 375,80
Bank fee 4,37
26 Deposit 1 976,15
Bank fee 1,97
31 Monthly administrative fee 60,00
Interest 59,95
Closing balance 94,41
101
Required:
1. Starting with the debit and credit totals of the bank account in the general ledger,
complete the bank account for the month ended 31 March 20.1.
2. Reconcile the bank account in the general ledger with the bank statement on
31 March 20.1.
Question 8.7
The following differences were noted by the accountant of Huystek Traders when she
compared the bank statement for May 20.1 with the entries in the bank account in the
general ledger:
1. The credit balance according to the bank account amounted to R1 400,32 on
31 May 20.1, while the balance according to the bank statement amounted to R857,68
(favourable).
2. The following entries appeared only on the bank statement:
(a) Interest on overdraft (also refer to point 5) R352,00
(b) Bank fees R102,00
(c) Administration fees R45,00
3. The following internet payments do not yet appear on the bank statement:
(a) R1 854,00
(b) R2 485,00
(c) R275,00
4. A deposit amounting to R1 830,00 on 17 May 20.1 was accidentally credited to the
personal account of the owner, Mr H Huystek, instead of the business account. This was
corrected in the following month.
5. According to the accountant’s calculations, the interest on the overdraft amounted to
R35,20. After a brief session between the owner and the bank manager, the bank
apologised for its mistake and promised to correct the error in the following month.
6. An internet payment for R885 was incorrectly captured in the bank account as R858.
The amount on the bank statement was correct.
Required:
Prepare the bank reconciliation statement for the month ended 31 May 20.1.
102
Question 8.8
1. The balance of an entity’s bank account is R5 000 in overdraft. According to the bank
reconciliation statement, there are outstanding internet payments of R2 000 and
outstanding deposits of R3 000. What should the balance of the bank account according
to the general ledger be?
(a) R4 000 CR
(b) R6 000 CR
(c) R6 000 DR
(d) R4 000 DR
Question 8.9
Venter Vehicles sells second-hand cars. The accountant prepared the following bank
reconciliation statement on 31 January 20.9. You have determined that all the information is
correct.
R
Positive bank balance as per bank statement (12 300)
Outstanding internet payments:
Stationery on 28 January 20.9 1 065
Purchases on 29 January 20.9 5 585
Outstanding deposits (5 000)
Bank error (100)
Balance according to ledger 10 750
The accountant became ill, and the owner asked you to reconcile the bank statement for
February. You obtained the following information from the accounting records:
BANK ACCOUNT FOR FEBRUARY 20.9

R R
1/2 Balance 10 750 28/2 Payments 27 604
28/2 Receipts 23 700
103
Date Description DR CR Balance

R R R
1/2 Balance 12 300
Internet payment 1 065 11 235
Internet payment 5 585 5 650
2/2 Internet payment 2 536 3 114
Deposit 5 000 8 114
4/2 Internet payment 256 7 858
7/2 Deposit 11 200 19 058
14/2 Deposit 5 300 24 358
24/2 Direct deposit (rent) 1 000 9 358
Bank fees 100 5 125
Correction 100 5 225
After discussions with Mr Venter, you determine the following:

1. Albaster Traders deposits the rent for their part of the building directly into Venter
Vehicles’ account each month.
2. The internet payment on 4/2 should be R715.
3. According to the deposit slip on 7/2, the amount banked was R13 700.
4. The internet payment on 23/2 for salaries was entered in the accounting records as
R14 000. The bank statement is correct.
5. The internet payment on 28/2 should be R9 833.
6. The last deposit for the month was on 28/2 for R4 700.
7. The following internet payments did not appear on the bank statement:
• Purchases – R410
• Refreshments – R110
Required:
1. Complete the bank account in the general ledger in T-account format.
2. Reconcile the bank statement and bank account in the general ledger on
28 February 20.9.
104
Question 8.10
You are the new accountant of Breeze Bakery. The owner asked you to write up the petty
cash register and petty cash account in the general ledger for the last 2 months. You counted
the petty cash on hand and found the following:
CASH ON HAND 28 FEBRUARY 20.8

Unit No. R
1c 5 0,05
2c 9 0,18
5c 8 0,40
10c 10 1,00
20c 2 0,40
50c 3 1,50
R1 5 5,00
R2 6 12,00
R5 1 5,00
R10 5 50,00
75,53
There was an IOU from the senior clerk for R20 in the bin that indicated that he would put
the money back the next day.
You found the following documents:
Voucher Date Description R
12 04-Jan Milk 2,80
13 05-Jan Pens 17,50
14 06-Jan Wage advance 50,00
15 20-Jan Milk 2,40
16 22-Jan Sugar and coffee 16,80
17 28-Jan Notebook 14,00
18 02-Feb Refreshments 33,60
19 04-Feb Donation 10,00
20 06-Feb Milk 2,80
21 14-Feb Milk 2,80
22 14-Feb Cooldrinks 12,90
23 26-Feb Milk 2,80
105
Cash withdrawn Description R

05-Jan Petty cash 100,00
31-Jan Petty cash Restore imprest to 250,00
15-Feb Petty cash 20,00
The entity is a registered VAT trader.

The balance of the petty cash on 31 December 20.7 amounted to R55,00.
Required:
1. Prepare the petty cash register and the petty cash account in the general ledger for
January and February 20.8.
2. Determine whether there was a cash shortage on 28 February 20.8.
Question 8.11
ABC Traders presents the following bank reconciliation statement to you:
R
Debit balance according to bank statement 1 000
Outstanding deposits 400
Outstanding internet payments 700
Bank error 500
Credit balance according to bank account 800
You have gathered that the bank error occurred because a deposit of R800 was shown as
R300 on the bank statement.
Required:
Prepare an improved bank reconciliation statement.
106
Chapter
9
Inventory
Question 9.1
The following information was taken from the financial records of Alfa Enterprises:
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY 20.2
Units R
Sales 5 500 302 500
Cost of sales
Inventory: 1 March 20.1 2 500 50 000
Purchases 5 000 200 000
Required:
1. Determine the value of the inventory on 28 February 20.2 for each of the following
instances:
(a) First-in, first-out method
(a) Average cost method
2. Complete the trading section of the statement of profit or loss and other comprehen-
sive income and determine the gross profit in each case.
3. Determine the gross profit percentage in each case.
Question 9.2
The following information was taken from the financial records of Bravo Traders:
Units R
Purchases 5 400 108 000
Import duties 16 200
Sales 6 000 180 000
continued
107
Units R
Sales returns 100 3 000
Inventory: 1 January 20.1 1 800 27 000
Sales expenses 5 500
Required:
1. Determine the value of the inventory on 31 December 20.1 according to the first-in,
first-out method.
2. Compile the statement of profit or loss and other comprehensive income for the year
Question 9.3
The following information was taken from the financial records of Charlie Dealers for the
year ended 31 December 20.1:
Units R/unit R
Inventory: 1 January 20.1 7 000 29 400
Purchases: 15-Jan 18 375 4,20
21-Apr 28 875 4,40
12-Aug 20 125 4,80
27-Nov 8 400 4,98
Sales 70 000 588 000
Required:
1. Determine the value of the inventory on 31 December 20.1 on the basis of the first-in,
first-out method.
2. Compile the trading section of the statement of profit or loss and other comprehensive
income for the year ended 31 December 20.1.
3. Determine the gross profit percentage.
Question 9.4
The following information relates to Delta Traders:
R
Sales 174 000
Purchases 116 000
Inventory: 1 March 20.1 30 160
continued
108
Chapter 9: Inventory
R
Inventory: 28 February 20.2 36 250
Sales returns 2 320
Required:
income for the year ended 28 February 20.2.
2. Determine the gross profit percentage in terms of sales and cost of sales.
Question 9.5
The following information was taken from the financial records of Echo Traders for the
financial years ended 30 June 20.1 and 20.2:
20.2 20.1
R R
Sales 186 000 176 700
Cost of sales (117 800)
Inventory: 1 July 31 000
Purchases 148 800 124 000
155 000
Inventory: 30 June (37 200)
Gross profit 58 900
No inventory count was done on 30 June 20.2. The same policy as in 20.1, relating to the
determination of the selling price, was followed in 20.2.
Required:
Determine the value of the inventory on 30 June 20.2.
109
Question 9.6
The following information relates to Echo Dealers on 31 December 20.1:
Units R
Inventory: 1 January 20.1 100 15 000
Purchases 1 000 150 000
Sales 800 160 000
Cash 30 000
Capital 361 000
During the inventory count on 31 December 20.1, it appeared that 100 items had
disappeared.
Required:
Determine the value of the inventory on hand on 31 December 20.1, on the basis of the first-
in, first-out method.
Question 9.7
The following information relates to Alrode Dealers:
R
Period 1 April 20.1 to 31 March 20.2:
Sales 495 000
Purchases 379 500
Inventory – 1 April 20.1 41 250
Period 1 April 20.2 to 30 June 20.2:
Sales 132 000
Purchases 188 800
Inventory – 1 April 20.2 24 750
During May 20.2, Alrode Dealers had a sale when goods were sold at a gross profit
percentage of 10% on selling price. The total sales during the sale amounted to R33 000
(included in the sales figure for the period).
Required:
income of Alrode Dealers for the year ended 31 March 20.2 and determine the gross
profit percentage.
2. Use this information to determine the value of the inventory on 30 June 20.2.
110
Question 9.8
It is Foxtrot Enterprises’ policy to add 50% to the cost price of goods to determine the selling
price. During February 20.1, they had a sale where the selling price was lowered by 20%. The
sales during the sale amounted to R90 000. The management is anxious for the results of the
first 6 months of the financial year and asked you to assist them.
The following information is available:
R
Inventory: 1 January 20.1 10 000
Purchases 230 000
Delivery costs 5 000
Sales (including sales during sale) 300 000
Question 9.9
S Raath constantly adds 100% to the cost price of goods to determine the selling price.
During the annual summer and winter sales, all prices were lowered by 25% and 50%
respectively.
On 15 December 20.1, a fire destroyed the warehouse with its contents. Inventory in the shop
itself to the value of R132 000 was not damaged. Included in the inventory in the shop are goods
that were returned by a client. These goods were taken into account at their normal selling price
of R480.
The following information is available for the period 1 January to 15 December 20.1:
R
Inventory: 1 January 20.1 188 936
Purchases 986 280
Sales – Winter sale 62 304
Sales – Summer sale 130 800
Sales at normal selling price 1 543 600
Sales returns – On normal sales 6 000
111
Required:
Determine the value of the inventory destroyed by the fire.
Question 9.10
You are Errol Traders’ accountant and you are responsible for inventory control as well. The
financial year of the entity ends on 28 February. The following information relates to the
financial year ended on 28 February 20.2:
R
Inventory: 1 March 20.1 205 200
Purchases 1 566 000
Sales 1 400 625
Drawings 101 250
1. Inventory amounted to R324 000 on 28 February 20.2.
2. Goods are constantly sold at cost plus 25%.
3. Management has a suspicion that goods are misappropriated.
Required:
Record the transactions in the inventory account in the general ledger of Errol Traders and
close down the account on 28 February 20.2. Any inventory shortages must be shown clearly.
Question 9.11
The following information was taken from the records of Visagie’s Dealers:
FOR THE YEAR ENDED 30 JUNE 20.2
R
Sales 660 000
Cost of sales (495 000)
Inventory: 1 July 20.1 120 000
Purchases 400 000
570 000
Inventory: 30 June 20.2 (75 000)
Gross profit 165 000
112
On 1 April 20.3, the entity’s warehouse was destroyed by fire. Inventory to the value of
R47 500 was salvaged.
1. For the period 1 July 20.2 to 1 April 20.3:
(a) Purchases R340 000
(b) Sales returns R18 000
(c) Sales R498 000
(d) Freight on purchases R22 000
2. The results for the year ended 30 June 20.2 are in compliance with the entity’s policy.
3. The entity follows the same policy throughout the year.
4. During March 20.3, there was a sale when selling prices were lowered by 331/3%. The
proceeds of the sale were R24 000. No returns were allowed during the sale.
Required:
Determine the value of the inventory destroyed by the fire.
Question 9.12
Answer the following questions by writing down the correct letter next to the number of the
question. The questions are not related.
1. A business buys 100 inventory items at the beginning of the month for R1,25 each. It
had 50 items at R1,10 each in inventory. If they use the FIFO method of inventory
valuation, what will the cost of sales be if 75 items were sold during the month?
(a) R93,75
(b) R86,25
(c) R90,00
2. A plant manufactures steel furniture. Before the furniture is transferred to the
showroom, 12,5% profit is added to the manufacturing cost. If the inventory at the
increased price is R9 900, what would the unrealised profit be?
(a) R1 100,00
(b) R990,00
(c) R900,00
(d) R1 237,50
113
3. An entity has opening inventory of R10 000. An amount of R104 500 (before a 10%
trade discount has been taken into consideration) is spent on purchases. Returns of
R950 (after trade discount) were made to the suppliers. If the owner withdrew
inventory of R2 000 for own use and the closing inventory is R12 000, what is the cost
of sales for the year?
(a) R97 000
(b) R92 050
(c) R95 200
(d) R89 100
4. Which one of the following valuation methods would normally reflect the lowest value
of closing inventory?
(a) First-in, first-out
(b) Weighted average
(c) Specific identification
(d) Last-in, first-out
5. An entity sells R100 000 worth of inventory on credit. If the entity adds a 25% gross
profit to the cost price, what is the gross profit percentage on the selling price?
(a) 25%
(b) 20%
(c) 75%
6. An entity adds 10% profit to the cost price of their inventory. The following information
is available at year-end:
• Selling price of inventory on hand is R12 100.
• The net realisable value of the inventory is R12 000.
• The replacement value of the inventory is R11 500.
• The inventory is insured for R9 000.
At what value would the inventory be shown in the financial statements of the entity?
(a) R12 100
(b) R9 000
(c) R11 500
(d) R12 000
(e) R11 000
7. Which one of the following expenses is specifically excluded from the cost of inventory
in terms of IAS 2?
(a) Customs duty
(b) Storage costs
(c) Normal wastage
(d) Freight on purchases
114
8. A delivery charge was paid by electronic funds transfer (EFT) to deliver goods at a
client. The journal entry would be:
(a) DR Purchases, CR Debtors control
(b) DR Delivery charges, CR Bank
(c) DR Inventory, CR Bank
(d) DR Bank, CR Debtors control
9. Purchase goods from ABC Traders for cash and receive a cash discount of 5%. The
perpetual inventory system is in use. The journal entry would be:
(a) DR Trade discount, CR Inventory
(b) DR Bank, CR Discount received
(c) DR Inventory, CR Trade discount
(d) DR Inventory, CR Bank
10. Drupo Enterprises manufactures steel furniture. A manufacturing profit of 10% is added
to the manufacturing cost before the inventory is transferred to the sales department.
If the closing inventory, including the profit, is R1 386, what will the unrealised profit
be?
(a) R1 260,00
(b) R126,00
(c) R138,60
11. An entity does not have any opening inventory. During the month, the following
transactions took place:
• Purchased 2 000 units for 20c each.
• Purchased 1 000 units for 22c each.
• Sold 2 500 units for 40c each.
• Again purchased 1 000 units for 22,5c each.
The following are possible values for closing inventory according to different methods
of valuation.
(i) R300,00
(ii) R328,33
(iii) R335,00
(iv) R337,50
Which of these values are acceptable in terms of IAS 2?
(a) (iii) and (iv)
(b) (i) and (ii)
(c) (ii) and (iii)
(d) (ii) and (iv)
115
Question 9.13
May borrowing cost be added to the cost of inventory in terms of IAS 2? Motivate your
answer.
Question 9.14
Supply in table format a comparison between the periodic and perpetual inventories system.
Question 9.15
Complete the following accounting policy note:
Inventories are valued at the (1) of (2), calculated on the (3) method, or (4).
Question 9.16
1. Provide a definition of inventory according to IAS 2.
2. True or false: The following costs may be included in the cost of inventory:
(a) Import duties
(b) Conversion costs
(c) Sales costs
(d) Normal administrative expenses
3. Which inventories valuation method is used most often according to IAS 2?
4. Where should unrealised profit be disclosed in the financial statements?
Question 9.17
The following transactions occurred in the books of COM Dealers:
Date Transaction
01-Jan Balance of trading inventory amounts to R20 000 (200 items of R100 each).
02-Jan Buy 100 items on credit for R110 each.
03-Jan Return 5 damaged items purchased on 2 January.
06-Jan Sell 50 items for cash at R250 each.
08-Jan Purchase 100 items cash for R120 each.
10-Jan Receive 1 item sold on 6 January back and refund the client.
31-Jan Balance of inventory on hand, R36 000.
116
Required:
1. Record the transaction on the inventories card using the first-in, first-out method.
2. Record the transactions in the general ledger:
(a) Using the periodic inventory system, and
(b) Using the perpetual inventory system.
Gross profit percentage is 50%.
Balance all accounts at the end of the month and close off to the trading account.
3. Show the cost of sales account if the perpetual inventory system is in use and the FIFO
method is used to determine the cost.
Question 9.18
Assume that all parties are VAT vendors.
You are provided with the following information for the year ended 31 December 20.4:
Purchases from suppliers (after 5% trade discount) (VAT included) R484 000
Transport costs for delivery of inventory to the warehouse (VAT included) R29 700
Wages of office workers R50 000
1. 20% of all purchases were returned to the supplier and a full refund was received.
2. 40% of all inventories were sold at year-end.
3. The marketing manager estimates that the inventory on 31 December would only be
sold for R250 000 (VAT excluded) due to the popularity of a replacement product.
4. A sales commission of 10% would have to be paid to market the inventory on hand.
Required:
Calculate the value of inventory at year-end.
Question 9.19
The following transactions occurred on the books of Suran Wholesalers during the year:
1. 1/1/20.5 – Opening inventory was R30 000.
2. 2/1/20.5 – Purchase R10 000 inventory on credit.
3. 3/1/20.5 – Purchase R15 000 inventory for cash.
117
4. 4/1/20.5 – Send R2 000 of faulty inventory, purchased for cash, back.

5. 5/1/20.5 – Sell R45 000 worth of inventory for cash. The company uses a 50% gross
profit percentage.
6. 6/1/20.5 – Receive R5 000 of damaged inventory sold on the 5th and refund the
money.
7. 7/1/20.5 – According to the stocktake, inventory on hand amounts to R29 000.
Required:
Show the general ledger accounts and the statement of profit or loss and other
comprehensive income for the above transactions where:
(a) the perpetual inventory system is used.
(b) the periodic inventory system is used.
Question 9.20
Part 1:
Roseland Dealers sells goods at a gross profit percentage of 30%. A storm on 15 March 20.5
destroyed the entire inventory, except for inventory in the safe at a normal sales price of
R2 500.
The following information was obtained from the books:

During November 20.4, inventory was sold after sales prices (marked prices) were reduced
by 10%. The turnover of the sales was R14 400 and was included in the total sales of R62 400
for the financial year ended 28 February 20.5.
The cost price of the inventory on 1 March 20.4 was R10 000, while purchases amounted to
R49 800 for the year 1 March 20.4 to 28 February 20.5.
Sales for the period 1 March 20.5 to 15 March 20.5 amounted to R7 500, while purchases for
the same period amounted to R8 300. Assume that the sales during this period occurred at
the normal gross profit percentage.
Required:
Calculate the value of inventory in the records of Roseland Dealers on 15 March 20.5.
1. All amounts should be rounded off to the nearest rand value.
2. Assume that the periodic inventory system is in use.
118
Part 2:
1. Briefly explain what the difference between the periodic and the perpetual inventory
system is.
2. Briefly explain, based on the definition, whether inventory represents income, an
expense, capital, an asset, or a liability.
3. Briefly explain whether inventory is a current _______ or a non-current _______.
Provide reasons for your answer.
119
Chapter
10
Debtors and creditors
Question 10.1 (Debtors – difficult)

King Kong Traders’ debtors’ clerk experienced the following problems during her first month
of employment:
1. Received R2 736 from S Pieterse in settlement of his account after a 5% settlement
discount was granted. What was S Pieterse’s outstanding balance?
2. A Buys returned goods he bought on credit that were marked for R5 850. A 15%
settlement discount was, however, granted due to the fact that he settled his account
within 30 days. How much will his refund be?
3. Goods to the value of R7 500 were sold to S Absalom. She received a settlement
discount of R375 for settling her account within 30 days. King Kong Traders , however,
forgot to grant her a 10% trade discount when the invoice was issued. What was the
percentage of the settlement discount granted? What will the correcting journal entry
be and is there an amount refundable to her? The entity assumed that the client would
not make use of the settlement discount.
4. H Sylvester bought goods to the value of R5 780 on the first day of the month and a
7,5% settlement discount was offered if he paid the full amount before the end of the
month. An allowance was made for the settlement discount when the sales transaction
was recorded. However, at month end, H Sylvester requested to settle his outstanding
amount over a period of 2 months in equal instalments. It is policy to raise 10% interest
p.a. on all accounts that are outstanding for longer than 30 days. Interest is raised from
the day of the sale and is payable at the end of each month. What will the journal
entries be?
5. The debtors’ balance at the end of the month amounted to R130 880. The balance at
the beginning of the month amounted to R124 660. An allowance of R9 000 was made
for settlement discount when the sales were recorded. Cash received from debtors
amounted to R88 640 after settlement discount was deducted, while goods to the value
of R10 410 were returned (assume that no settlement discount was granted on the
goods returned). What were the credit sales for the month?
6. With reference to the closing balance in point 5, an allowance for credit losses of 5%
should be made. An investigation by the debtors’ clerk revealed that a debtor’s account
amounting to R1 840 should have been written off. What will the journal entry for the
credit loss be, as well as the adjusting journal entry for the allowance for credit losses?
121
(Assume that a provision for R5 000 was made in the previous period.) How will the
journal entry for the credit loss and the allowance for the current month differ if an
allowance was not made in the previous period?
Required:
Assist the debtors’ clerk with the above-mentioned transactions. Do the required calculations
and prepare journal entries, where necessary.
Ignore VAT.
Question 10.2 (Debtors and creditors – moderate)

The following information was obtained from the records of Marko Wholesales for the
month ended 30 September 20.2:
Date Details R
01-Sep Debit balances in the debtors ledger 37 475
Credit balance in the creditors ledger 15 856
30-Sep Total purchases according to purchases journal 46 451
Total sales according to the sales journal 85 291
Cash sales 39 883
Cash payments to creditors 25 671
Cash received from debtors 64 791
Credit losses written off 1 580
Returns on credit sales 2 688
Returns on credit purchases 2 000
Settlement discount granted to debtors (it was initially
assumed that the discount would be taken) 1 785
Allowance for settlement discount (debtors) 2 000
Cash received from a debtor whose account was previously
written off 194
Interest raised on debtors 54
1. An invoice for R250 was not included in the sales journal.
2. Total sales in the sales journal were over-calculated by R550.
3. The purchases journal was under-calculated by R50.
122
Chapter 10: Debtors and creditors
4. A debit balance of R375 that was transferred from the creditors’ ledger to the debtors’
ledger was not accounted for.
5. A credit note received for R240 was unfortunately also not accounted for.
Required:
1. Compile the debtors and creditors control accounts in the general ledger without taking
into account the effect of the additional information (close the accounts off
provisionally).
2. Show the journal entries, where applicable, for the additional information.
3. Post the adjustments to the general ledger underneath the balances calculated in
point 1. Show the adjusted balances.
Ignore VAT.
Question 10.3 (Debtors – easy)

The following ledger account was drafted by Jaco Smith, a first-year law student, for the
month ended 31 March 20.2:
DEBTORS CONTROL
R R
31-Mar Purchases 29 530 01-Mar Balance b/f 1 260
Sales 40 043 31-Mar Interest received 1 043
Returns-in 400 Allowance for credit
losses 4 008
Allowance for Bank (cash received
settlement discount from debtors)
(creditors) 300 22 410
Allowance for Balance c/f 42 307
settlement discount
(debtors) 755
71 028 71 028
01-Apr Balance b/f 42 307
1. Debtors at the beginning of the month amounted to R1 260.
2. The sales journal was over calculated by R2 750.
Required:
Compile a correct debtors control account.
Ignore VAT.
123

An inexperienced bookkeeper was responsible for the following:
DEBTORS CONTROL
R R
Interest on overdue
01-Oct Balance b/f 25 173 31-Oct 105
accounts
31-Oct Sales – credit 37 461 Cash received from
Sales – cash 9 630 debtors 43 179
Returns-in 141 Balance c/f 32 085
Refunds on over-
payments by debtors 84
Creditors with debit
balances transferred 2 823
75 369 75 369
01-Nov Balance b/f 32 085
1. Cash sales amounting to R2 154 was incorrectly included in the sales journal as credit
sales.
2. The following reconciling item was noted by the auditors: a sales invoice for R190 was
correctly captured in the sales journal. The entry in the debtors ledger, however, was
captured as R910.
Required:
1. Compile a correct debtors control account.
2. What would the total according to the debtors ledger be before the adjustment for the
reconciling item in point 2 above? (Assume that creditors with debit balances were
transferred to the debtors ledger as well.)
Ignore VAT.
124

The following information was obtained from the records of Rio Supermarket:
Date Details R
01-Sep Opening balance – Ledger 81 552
30-Sep Total – Sales journal 187 968
Returns-out 1 344
Returns-in 6 204
Credit losses recovered 572
Total – Purchases journal 99 120
Debtors balances transferred to the same names in the creditors
ledger 300
Interest charged on debtors 120
Payments received from debtors 150 600
Cash sales for the month 119 400
Required:
Compile a debtors control account in the general ledger, taking into account the above-
mentioned information.
Ignore VAT.
Question 10.6 (Creditors – moderate)

The following information was obtained from the records of JunieBrou Traders for the period
ended 28 February 20.2:
List of outstanding creditors according to the creditors ledger at year-end:
B Buys R5 000
Senwes R50 000
ABC Limited R25 000
R80 000
Outstanding creditors’ balances according to the statements received from creditors are as
follows:
B Buys R5 400
Senwes R55 000
ABC Limited R25 050
R85 450
125
• The statement received from B Buys shows a debit of R400 regarding interest raised. This
interest amount does not appear in JunieBrou’s ledger.
• Senwes’ statement shows that they invoiced JunieBrou for R5 000 for an order placed on
15 February, which will only be delivered to JunieBrou on 10 March.
• ABC Limited’s statement shows a credit note of R200 was issued to JunieBrou. According
to JunieBrou’s ledger, the amount is R250.
Required:
Reconcile the creditors ledger with the statements received from the creditors. Also show
the correct amount to be disclosed in the financial statements for the period ended
28 February 20.2.
Ignore VAT.

The following information was obtained from the records of Goblin Traders for the year
ended 30 June 20.5:
R
Sales 105 000
Purchases 54 800
Sales returns and allowances 5 000
Credit losses 920
1. A credit note issued for R160 was not accounted for.
2. R350 was received from N Botha for outstanding debt that was previously written off.
3. The allowance for credit losses should be adjusted to 5% of outstanding trade debtors.
Required:
Prepare the adjusting journal entries for the year ended 30 June 20.5.
126
Question 10.8 (Debtors – moderate)

The following information was obtained from the records of Cheese Curls Traders for the 3
years ended 28 February 20.4:
20.2 20.3 20.4

R R R
Sales 300 000 315 000 330 700
Returns: Credit sales 5 000 4 480 5 200
Credit losses written off 30 000 31 500 33 070
Credit losses recovered 1 500 1 575 1 654
Interest charged on debtor accounts 1 800 1 890 1 984
Trade discount granted: Credit sales 1 000 1 050 1 102
Trade discount granted: Cash sales 500 525 551
Cash received from debtors 160 000 217 992 176 386
1. 75% of sales were on credit, while 25% were for cash for all 3 years.
2. No allowance for credit losses was made at the end of 20.2.
3. An allowance for credit losses was made at the end of 20.3 for the amount of R7 500.
4. An allowance for credit losses of 5% of trade debtors was made at the end of 20.4.
5. The balance of debtors amounted to R20 000 on 1 March 20.1.
Required:
Show the following accounts in the general ledger of Cheese Curls Traders for the 3 years
• Debtors control
• Allowance for credit losses
• Credit losses
Ignore VAT.
127
Question 10.9 (Debtors – ratios)

The following information was obtained from the records of VWX Traders:
20.1 20.2 20.3
R R R
Cash sales 102 000 116 000 126 000
Credit sales 51 000 58 000 63 000
Trade discount granted on cash sales 2 000 6 000 5 000
Settlement discount granted on credit sales 1 000 3 000 2 500
Cash purchases 34 000 37 400 41 100
Credit purchases 11 000 12 400 13 700
Trade discount received on cash purchases 500 600 700
Settlement discount received on credit purchases 400 350 300
Opening inventory 4 000 5 000 6 000
Closing inventory 5 000 6 000 5 000
Debtors 10 000 11 000 12 000
Cost of sales 43 100 47 850 54 800
Note: Assume 365 days in the year.
Required:
1. Calculate the debtors turnover rate for years 20.2 and 20.3.
2. Is the increase/decrease in point 1 a benefit or not? Explain.
3. Calculate the debtors recovery period for years 20.2 and 20.3.
4. Assume that the credit policy is 5/30. Is the recovery of debtors successful or not?

The following debtors control account was compiled by an experienced accountant:
DEBTORS CONTROL ACCOUNT
R R
01/03/20.2 Balance b/f 15 280 28/02/20.3 Returns (c) 3 600
28/02/20.3 Credit sales (a) 356 124 Credit losses (d) 15 670
Interest charged (b) 1 945 Allowance for credit
losses (e) 7 500
Bank (f) 186 348
Balance c/f 162 711
375 829 375 829
01/03/20.3 Balance b/f 162 711
128
Required:
Write the above-mentioned letters down and indicate where the information was obtained
from, for example:
(a) Sales journal
(b) . . .
(c) etc.
Question 10.11 (Creditors – difficult)

ALS Traders received the creditor’s statement from BO Wholesalers on 24 February 20.3
regarding the 28 February 20.3 month-end. The creditor’s statement was compared to the
creditors ledger and the following differences were noticed:
• The opening balance according to the statement on 1 February 20.3 shows an amount of
R3 400. This amount was paid on 1 March 20.3.
• Invoice no. 2323 is shown as R7 900 in the purchases journal. The statement shows that
the amount owed regarding the invoice is, however, only R7 110. Upon further
investigation, it was found that the difference represents a 10% trade discount allowed.
• Invoice no. 7080 (R4 500) appears twice in the purchases journal. It was, however,
correctly posted once only to the general and creditors ledgers.
• Goods to the value of R10 000 were received on 19 February 20.3, but no invoice has
been received from the supplier yet. The amount does, however, appear on the
statement received from the creditor (invoice no. 9898).
• Invoice no. 9900 for R6 709 is shown on the statement as R6 079.
• Credit note no. 689 to the value of R880 is correctly shown on the statement, but has
been recorded as an invoice in the purchases journal.
The outstanding balance in the creditors ledger on 24 February 20.3 before any adjustments
have been made is R15 500.
Required:
Calculate the outstanding amount on 24 February 20.3 as per the creditor’s statement. Show
the correcting journal entries in all relevant ledgers.

The following totals appear in the accounting records of Akad Distributors on
28 February 20.3 (the entity is registered for VAT). The entity uses the periodic inventory
system. VAT is included all in relevant amounts, except where stated otherwise.
129
Cash receipts journal – Totals on 28 February 20.3:

Cash sales R50 000
Debtors control R33 000
VAT on cash sales R7 500
Bank R90 500
Cash payments journal – Totals on 28 February 20.3:

Creditors control R33 000
Debtors control R800
Purchases R41 700
VAT on cash purchases R6 255
Bank R81 755
Sales returns journal – Totals on 28 February 20.3:

Sales R8 000
VAT on sales returns R1 200
Total R9 200
General ledger – Balances on 1 March 20.2:

Debtors control R27 400
Creditors control R95 000
Bank (CR) R19 200
Inventory R175 000
The following information has not yet been taken into account in the above totals/balances:
1. Inventory according to the inventory count on 28 February 20.3 amounts to R183 000.
2. The bank statement received indicated the following:
(a) Interest received R100
(b) Bank charges R270
3. Cash sales amount to R10 200.
4. Receipts to the value of R18 000 were issued to debtors.
5. During the reconciliation of the debtors control account in the general ledger and the
debtors ledger, the following was noted:
(a) Credit note 55, for R400, was incorrectly entered three times on the debit side of
A Basson’s account.
(b) The debtors’ list was cast incorrectly with R500 too little.
130
(c) Credit sales of R88 000 were not recorded in the debtors control account.
(d) The total of the debtors list on 28 February 20.3, before any corrections, amounts
to R57 100.
Required:
Reconcile the debtors ledger and debtors control account by completing the cash journals
and preparing the debtors control account and debtors list.
Question 10.13 (Debtors)

Provide an example of the accounting policy note relating to the allowance for credit losses.
Question 10.14 (Debtors – difficult)

Mr Jaco Hendriksen runs a business named JF Traders as a sole proprietor. JF Traders buys
and sells grass seeds. JF Traders is not registered for VAT, because his turnover does not
exceed R1 million.
The following transactions occurred for the month ended 31 December 20.4. The following
transactions have not yet been recorded in the accounting records, because the accountant
is unsure of the accounting implications thereof:
1. On 5 December 20.4, the enterprise sold inventory with a sales price of R50 000 to
Ms Moira Carreira. Ms Carreira has always paid her account on time and JF Traders
expects that she will pay on time in the future. She receives a 5% discount if she pays
her account within 10 days. On 14 December 20.4, Ms Carreira paid JF Traders R47 500
for the full settlement of her outstanding account.
Required:
(a) Journalise all the transactions as given above for the year ended 31 December 20.4 in
the format given below, showing the effect on the accounting equation. Show all your
calculations and round off to the nearest rand. Assume that the bank account is in
overdraft.
No. Description Equity Assets Liabilities

DR(–) CR(+) DR(+) CR(–) DR(–) CR(+)
(b) Use the same information and format as in question (a), but assume that JF Traders is
registered for VAT. Assume that all VAT accounts are classified as liabilities. Round off
to the nearest rand.
(c) Use the same information and format as in question (a), but assume that Ms Carreira
only settled her account on 16 December 20.4.
131
Question 10.15 (Debtors – moderate)

The following pencil totals appear in the subsidiary journals of Dundee Shops on
30 April 20.8:
CRJ R CPJ R
Sundry 174,00 Sundry 1 385,00
Sales 10 208,00 Purchases 3 262,00
Debtors 4 320,00 Creditors 6 843,00
Bank 15 007,00 Bank 11 331,00
Purchases journal:
R
Total 9 874,00
Trading inventory 7 109,00
Stationery 628,00
Vehicle expenses 932,00
Sundry 1 205,00
Purchase returns journal:

R
Total 1 063,00
Trading inventory 633,00
Stationery 87,00
Vehicle expenses 120,00
Sundry 223,00
Sales journal: Sales returns journal:

R R
Total 7 018,00 Total 462,00
General journal:
DR CR
R R
General ledger 78,00 420,00
Debtors ledger 174,00 135,00
Creditors ledger 203,00 196,00
The following additional information is given on 30 April 20.8:

1. Receipt K512 for R95,00 was issued to Paulsen Wholesalers (a creditor) in order to
settle its debit balance.
132
2. Stationery to the amount of R72,00, bought from Ajax, was correctly recorded in the
purchases journal. The amount posted to the creditors’ ledger, however, was only
R27,00.
3. A debit balance of R125,00 on the account of M Simon in the creditors ledger should be
transferred to his account in the debtors ledger.
4. An electronic funds transfer (EFT) of R109,00 made to Daly Ford for tyres and fuel, was
recorded in the CPJ as R190,00.
5. The owner, Paul Hogan, took trading inventories (selling price R39,00) for private use
but brought them back as he does not want them any longer. The recording in the
subsidiary journal was made at sales price and not at cost price.
6. Rent received was correctly recorded in the subsidiary journal for R165,00. The amount
was, however, posted to the account of K Mostert, a debtor.
7. Interest at a rate of 15% p.a. for 6 months on the account of A Park, which is in arrears,
should be taken into consideration. The outstanding balance is R400,00.
8. An invoice for R50,00 was issued to H Adams, but was recorded in the sales journal
against the name of H Allen.
9. Trading inventories at a cost price of R132,00 were donated to Rip & Stir Nursery for its
bazaar.
10. The totals of the debtors and creditors lists on 1 April 20.8 are as follows:
DR CR
R R
Debtors 7 492,00 218,00
Creditors 392,00 9 654,00
Required:
1. Record the relevant transactions in the general journal.
2. Post these entries to the debtors and creditors control accounts in the general ledger
on 30 April 20.8 and balance these accounts .
Question 10.16 (Debtors and creditors – difficult)

Damon Camera Centre is owned by Karen Damon. The entity uses the periodic inventory
system. The following trial balance was prepared from the general ledger:
DAMON CAMERA CENTRE
TRIAL BALANCE ON 30 NOVEMBER 20.7
DR CR
R R
Bank 29 400
Debtors 5 200
continued
133
DR CR
R R
Inventory 114 800
Capital 170 600
Drawings 30 000
Creditors 7 400
VAT control 1 400
Sales 293 200
Sales returns 7 400
Allowance for settlement discount (creditors) 325
Purchases 197 000
Allowance for settlement discount (debtors) 91
Wages 48 800
Insurance 3 200
Municipal costs 6 200
472 691 472 691
Debtors ledger:
Rayton Camera Shop 5 200
Creditors ledger:
Tabin Manufacturers 7 400
The following transactions, amongst others, took place during December 20.7:
3 Sold goods for R1 000 on credit to Rayton Camera Shop. It was expected that they
would take advantage of the settlement discount.
5 Purchased goods for R2 700 on credit from Zenex Corporation. Damon Camera Centre
decided they would take advantage of the settlement discount.
6 Made an EFT payment in full settlement of Tabin Manufacturers’ account for November
20.7.
7 Cash sales for the week amounted to R5 600 (a cash discount of 5% was granted on all
sales).
14 Cash sales for the week amounted to R3 800.
15 Made an EFT payment to Zenex Corporation in settlement of the transaction dated
5 December 20.7.
16 Rayton Camera Shop settled its account for November 20.7.
134
17 Sold goods to Laete Studios on credit for R4 200. Laete Studios usually pays its account
30 days from date of statement.
21 Cash sales for the week amounted to R2 850 (cash discounts of 5% were granted on all
sales).
22 Sold goods to Jays Photo Services on credit for R900 and allowed 2% trade discount. It
was expected that they would take advantage of the settlement discount.
23 Purchased goods on credit from Tabin Manufacturers for R5 200. It was decided that
Damon Camera Centre would take advantage of the settlement discount.
24 Jays Photo Services returned defective cameras purchased on 22 December with a
selling price of R300, VAT excluded.
31 Laete Studios settled the invoice dated 17 December 20.7.
1. Credit terms provided to debtors are as follows:
Rayton Camera Shop n/30, 2/15 (from date of statement)
Laete Studios n/30, 1/20 (from date of statement)
Jays Photo Services n/30, 1/20 (from date of statement)
2. Credit terms allowed by creditors are as follows:
Tabin Manufacturers n/30, 5/20 (from date of statement)
Zenex Corporation n/60, 2/30 (from date of statement)
3. VAT should be taken into account on all purchases and sales.
4. The amounts in respect of transactions during December excludes VAT.
5. The balances on 30 November include VAT where relevant.
Required:
Record the above transactions (including cash transactions) in the general journal.
Round all amounts off to the nearest rand.
Question 10.17 (Debtors and creditors – difficult)

Green Fingers is a greengrocer. On 1 January 20.6, the entity had R46 000 in the bank. A
Apple owed Green Fingers R5 500 and B Banana owed R4 400. Green Fingers owed Fresh
Fruit R7 700 and Value Vegetables R2 200. The following balances are also available on
1 January 20.6:
Allowance for settlement discount (debtors) R100
Allowance for settlement discount (creditors) R70
135
The following transactions were concluded during January 20.6 (VAT is included where
applicable):
2 Sold merchandise on credit to A Apple for R2 750. Credit terms are n/30, 2/15 from
date of statement (A Apple informed Green Fingers that he intends to take advantage
of the settlement discount on all his transactions).
5 A Apple returned damaged merchandise to the amount of R330.
Purchased merchandise on credit from Value Vegetables for R3 630. Credit terms are
n/30, 5/10. Green Fingers decided that they would take advantage of the settlement
discount.
6 Sent a debit note for R440 to Value Vegetables and received its credit note.
10 Paid the amount owing for December to Value Vegetables. No allowance for settlement
discount was created at the time the relevant transactions took place.
16 Received cash from A Apple in settlement of his account for December.
18 Sold merchandise on credit to B Banana for R4 950. Allowed 10% trade discount. Credit
terms are n/30, 1/25 from date of statement. It is expected that he will take advantage
of the settlement discount.
25 Paid the amount owing for December to Fresh Fruit. An allowance for settlement
discount was created at the time the relevant transactions took place. Credit terms are
n/30, 1/20 from date of statement.
B Banana settled his account for December.
31 A Apple settled his account for January.
Required:
Record the above transactions (including cash transactions) in the general journal.
Round all amounts off to the nearest rand.
136
Chapter
11
Non-current assets
Question 11.1
Alpha Limited purchased the following on 1 July 20.1:
Machinery at cost R210 000
Estimated useful life 10 years
Residual value R10 000
Required:
Determine the depreciation on the machinery for the financial years ended 30 June 20.2 to
30 June 20.6 on each of the following methods:
(a) Straight-line method
(b) Reducing balance method at 20% p.a.
(c) Sum-of-the-digits method
Question 11.2
The following information relates to Tarmack Limited:
Cost price of machinery R149 600

Estimated useful life 4 years
Estimated residual value R11 000
It is further estimated that the machine will produce 660 000 units during its useful life.
The actual number of units produced was as follows:
Years Units
1 140 800
2 184 800
3 176 000
4 158 400
137
Required:
Calculate the following:
1. The total depreciation over the life of the assets.
2. The depreciation per year on each of the assets according to the following methods:
(a) Straight-line method
(c) Sum-of-the-digits method
(d) Production unit method
Question 11.3
National Road Builders own the following machines:
Machine A Machine B
Date purchased 1/3/20.1 1/12/20.3
Cost price R90 000 R180 000
Installation costs R40 000
Estimated useful life 5 years 4 years
Estimated residual value R5 000 R20 000
1. Depreciation must be provided on the straight-line method.
2. Machine A was sold for R60 000 on 30 November 20.4.
3. The financial year of the enterprise ends on 28 February.
Required:
Record the above transactions in the general journal for the years ended 28 February 20.2 to
28 February 20.5.
Question 11.4
The following balances appear in the books of Gerkoe Limited on 28 February 20.3:
Vehicles at cost R200 000

Accumulated depreciation: Vehicles R40 000
On 31 August 20.3, one of the vehicles was badly damaged in an accident and had to be
scrapped.
138
Chapter 11: Non-current assets
The following information relates to the vehicle:

Cost price R30 000
Date purchased 1 March 20.1
Proceeds of sale R24 000
Gerkoe Limited purchased a new vehicle on 1 December 20.3. The information is as follows:
Cost price R58 000
Modification costs R2 000
Depreciation must be provided at a rate of 20% p.a. according to the straight-line method.
Required:
1. Record the transactions in the following accounts in the general ledger of Gerkoe
Limited for the year ended 28 February 20.4:
(a) Vehicles
(b) Accumulated depreciation: Vehicles
(c) Depreciation
(d) Realisation account/Sale of asset account
2. Close the accounts off on 28 February 20.4.
Question 11.5
The following information was taken from the financial records of Charlie Limited:
Date
Machine Economic life Residual value Cost price
purchased
R R
TX 3421 1/1/20.1 5 years 90 000
TX 2524 30/6/20.2 5 years 5 000 125 000
TX 1917 30/9/20.2 5 years 5 000 75 000
The following transactions took place during the year ended 31 December 20.4:
Machine TX 3421 was sold on 30 June 20.4 for R15 000. A new machine TX 3621 was
purchased on 1 October 20.4 for R135 000 cash. The machine has an estimated useful life of
5 years and a residual value of R10 000.
Depreciation is provided according to the sum-of-the-digits method.
Required:
1. Determine the depreciation for each of the machines for each year.
139
2. Record the transactions in the following accounts in the general ledger of Charlie
Limited for the year ended 31 December 20.4 and close the accounts off on that date:
• Machinery
• Accumulated depreciation: Machinery
• Depreciation
• Realisation account/Sale of asset account
Question 11.6
The following balances appear in the books of Delta Limited on 1 January 20.1:
Accumulated depreciation on machinery R30 000
The following transactions, in respect of machinery, took place during the year ended
31 December 20.1:
1. On 1 July 20.1, Delta Limited purchased a new machine for R60 000.
2. On 30 September 20.1, a machine that cost R40 000 with a carrying value on
1 January 20.1 of R30 000, was sold for R35 000.
Required:
Calculate the depreciation for the year ended 31 December 20.1 according to each of the
following methods. You can assume that none of the machines have any residual values.
(a) Fixed payment method at 10% p.a.
Question 11.7
The balances on the motor vehicles and accumulated depreciation accounts in the general
ledger of Echoe Traders amounted to R120 000 and R42 750 respectively on 1 July 20.7.
Depreciation must be provided at a rate of 25% p.a. according to the straight-line method.
The opening balance on the motor vehicles account is in respect of three vehicles, namely,
numbers 1, 2 and 3. Vehicle 1 was purchased on 1 July 20.4. Vehicle 2 was purchased on
1 January 20.6 and vehicle 3 on 1 January 20.7.
The accumulated depreciation in respect of vehicles 1 and 2 amounted to R22 500 and
R13 500 respectively on 1 July 20.7.
The following transactions took place on 31 December 20.7:
1. A new vehicle (number 4) was purchased for R36 000 cash.
2. Vehicle 1 was sold for cash at its carrying value.
3. Vehicle 2 was traded in for R20 400 on a new vehicle (number 5). The outstanding
amount of R12 000 on the new vehicle was paid in cash.
140
Required:
Record the above-mentioned transactions in the following accounts in the general ledger and
close the accounts off on 30 June 20.8:
• Vehicles
• Accumulated depreciation: Vehicles
• Depreciation
Question 11.8
Triangle Limited is a manufacturing entity which delivers its products directly to wholesalers.
The company's financial year ends on 31 December.
The company purchased two delivery vehicles on 1 January 20.6, vehicle A for R96 000 and
vehicle B for R60 000 in cash. Vehicle C was purchased on 1 July 20.6 for R108 000 and, on
1 October 20.6, vehicle D was purchased for R115 200.
Vehicle A was sold on 30 September 20.7 for R50 000 and, on 30 June 20.8, vehicle B was
sold for R40 000 in cash. Depreciation must be provided at 20% p.a. according to the straight-
line method.
Required:
1. Record the transactions in the following ledger accounts in the general ledger for the
years ended 31 December 20.6, 20.7 and 20.8:
2. Close the accounts off at the end of each financial year:
(a) Vehicles
(b) Accumulated depreciation: Vehicles
(c) Depreciation
(d) Realisation account/Sale of asset account
Question 11.9
Transworld Distributors purchased vehicle A for R100 000 on 1 March 20.1. On
1 September 20.1, the entity purchased vehicles B and C for R50 000 and R40 000
respectively. All the purchases were for cash. They sold vehicle A on 1 June 20.2 for R90 000
cash.
Vehicle B was badly damaged in an accident on 1 September 20.2 and had to be scrapped.
Insurers Limited agreed to pay R40 000 in final settlement of the claim.
Transworld Distributors provides depreciation on vehicles at 20% p.a. according to the
reducing balance method. The financial year ends on 28 February.
Required:
Show the journal entries necessary to record the above-mentioned transactions for the
financial years ended 28 February 20.2 and 20.3.
141
Question 11.10
The following balances appear in the books of a factory on 31 December 20.8:
Accumulated depreciation R150 000
Depreciation is provided at 20% p.a. according to the straight-line method.
The following transactions took place during the year ended 31 December 20.9:
1. On 2 January 20.9, a machine with an original cost price of R80 000, was sold for
R1 500. The accumulated depreciation amounted to R72 000. They paid a further
amount of R500 in cash to remove the machine.
2. A machine that was purchased on 1 January 20.8 for R24 000, was sold on 30 April 20.9
for R15 000.
3. On 30 June 20.9, a machine that was purchased on 1 July 20.7 for R70 000, needed to
be repaired at a cost of R20 000. Due to this, the machine’s useful life was extended by
5 years.
4. On 1 September 20.9, a new machine was purchased for R116 000. Installation cost
amounted to R4 000.
5. Depreciation on all machines was provided on 31 December 20.9.
Required:
Record the transactions in the following ledger accounts and close the accounts off on
31 December 20.9:
• Machinery
• Depreciation
• Accumulated depreciation: Machinery
All calculations must be shown. Round off to the nearest rand.
Question 11.11
A business uses the production unit method to provide for depreciation on its bottling
machine. The machine was purchased on 1 January 20.1 for R75 000. During the past 3 years,
the following number of bottles were filled:
20.1 12 000
20.2 14 000
20.3 16 000
142
1. It was initially determined that the machine could fill 50 000 bottles. The machine was
used until June 20.4. During this time 10 000 bottles were filled. What is the amount of
depreciation for the 6 months ended 30 June 20.4?
(a) R15 000
(b) R7 500
(c) R12 000
(d) R6 000
2. Two years ago, an entity purchased an asset for R13 000. The residual value was
estimated at R3 000 and the expected useful life was 4 years. After 2 years’
depreciation has already been written off, it was established that the useful life of the
asset would be 6 years, but that the residual value would only be R1 000. If the entity
wants to correct the error retroactively, what would the total amount of the
depreciation in year 3 be?
(a) R 2 500
(b) R 2 000
(c) R 1 000
Question 11.12
The following transactions occurred in the accounting records of Pilot Traders (the entity is
registered for VAT):
(a) Purchased a new vehicle on 1 January 20.7 for R11 500 (VAT included).
(b) Depreciation policy: Write off vehicles over 10 years using the sum-of-the-digits
method. It is anticipated that the vehicle will have a residual value of R1 000 (VAT
excluded) at the end of the period.
(c) At year-end (28 February 20.9), it was decided to change the depreciation policy to 10%
p.a. according to the straight-line method.
Required:
Show the general ledger accounts from 20.7 to 20.9 if:
1. The change is made from 20.9 forwards (reallocation method).
2. The change is made retrospectively (cumulative catch-up method).
143
Question 11.13
The following balances appeared in the records of Kosher Traders on 28 February 20.4:
Vehicles at cost R400 000
Accumulated depreciation: Vehicles R120 000
On 31 August 20.4, one of the vehicles with a cost price of R60 000 (purchased on
1 January 20.1) was written off in an accident. The insurance company paid an amount of
R48 000 on 31 October 20.4. A new vehicle was acquired on 1 December 20.4. The details of
the new vehicle are as follows:
Cost R75 000
Modification R3 000
Depreciation is provided at 20% p.a. according to the reducing balance method.
Required:
Record the above transactions in the following general ledger accounts of Kosher Traders
and close the accounts off on 28 February 20.5:
1. Vehicles
2. Accumulated depreciation: Vehicles
3. Depreciation
4. Realisation account/Sale of asset account
Question 11.14
You were recently appointed as the accountant of Avis Ltd. The previous accountant could
not account for the transactions relating to fixed assets. Management has appointed you for
a 3-month trial period, subject to success with regard to fixed asset transactions.
The following information appeared in the fixed asset register of Avis Ltd:
Expected useful
Vehicles Date acquired Cost price Residual value
life/method
R R
Agya 01/01/20.3 3 85 000 13 000
Corolla 30/06/20.1 20% 110 000 –
Starlet 30/09/20.3 4 ? 15 000
It could not be determined what the cost price of the Starlet was. According to the auditors,
the depreciation for the 20.3 financial year amounted to R8 125.
144
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Question 11.18
On 28 February 20.7, the end of the financial year, the following balances appeared, amongst
others, in the accounting records of West Shops:
R
Vehicles at cost 63 600,00
Furniture at cost 12 400,00
Accumulated depreciation on vehicles 11 600,00
Accumulated depreciation on furniture 3 750,00
On 30 June 20.7 the following transactions took place:
1. On 28 February 20.7, a vehicle with a cost price of R9 800,00 and a carrying amount of
R7 500,00, was traded in at Pat's Motors for R7 200,00. A new vehicle was purchased
from Pat’s Motors that same day on credit for R12 600,00. Depreciation on vehicles is
provided for at 20% p.a. on the carrying amount.
2. A used desk with a cost price of R850,00 and accumulated depreciation of R434,00 was
sold for cash to M Crous for R350,00. Accumulated depreciation on this desk is written
off at a fixed instalment of R62,00 per year.
Required:
1. Journalise the above transactions.
2. Post the journal entries to the general ledger accounts on 30 June 20.7.
3. Record the adjustments for depreciation on non-current assets on 28 February 20.8 by
entering the transactions in the general ledger accounts.
Take note: Depreciation on furniture is provided for at a rate of 10% p.a. on cost. Accounts
should be closed off at year-end (28 February 20.8).
Question 11.19
1. What is the definition of an asset?
2. What is the definition of property, plant and equipment?
3. Name the criteria for the recognition of property, plant and equipment.
4. At what amount must an item of property, plant and equipment be recognised initially?
5. What is the cost of an asset?
6. What does “fair value” of an asset mean?
7. When does recognition of costs in the carrying amount of property, plant and
equipment cease?
8. When must an item of property, plant and equipment be derecognised?
147
9. When an item of property, plant and equipment is derecognised, where must the gain
or loss arising from this derecognition be included?
10. Gains derived from property, plant and equipment shall not be classified as
___________.
Question 11.20
The following scenarios are all unrelated to each other:
Part 1:
Banana Limited is a successful engineering enterprise. Over the past number of years, the
company has achieved a 30% market share for its products. At a recent board meeting, the
directors suggested recognising an intangible asset for this market share.
Required:
Briefly discuss whether the market share can be recognised as an intangible asset in terms of
IAS 38. A discussion of the recognition criteria is not required.
Part 2:
Orange Limited is a company in the IT industry. The success of the company is built around
software, which it has developed internally and for which a patent, which includes the skills
of the staff who operate the software, is registered. Staff members are required to give one
month's notice of their resignation.
Required:
Briefly discuss whether the patent and the staff skills can be recognised as an intangible asset
in terms of IAS 38. A discussion of the recognition criteria is not required.
Part 3:
Tomato Limited manages and operates toll roads on major national routes throughout the
country. The company purchased a licence to operate a toll road in the Eastern Cape 17 years
ago for an amount of R10 000 000. It was expected that the toll road would be in use for
20 years and the economic benefits will flow to the entity evenly over the 20-year period.
The estimated toll road usage is 1 000 000 cars per year. At the time, there were no plans to
construct alternative routes in the area. There is no active market for toll road licences.
During the current year, the government announced plans to construct a bridge in the area
which would significantly reduce usage of the toll road and construction commenced. The
directors estimated that the economic benefits flowing to the company would decrease each
year over the remaining 3 years. The estimated toll road usage is expected to drop from
800 000, to 600 000, to 400 000 cars, respectively, over the remaining 3-year period of the
licence.
148
The right to operate the toll road was correctly recognised, on the date of purchase 17 years
ago, as an intangible asset.
Required:
Discuss the accounting issues relating to the measurement of the licence for the toll road
over its economic life.
Question 11.21
Brandname Distributors purchased a brand name “Diesel” on 1 January 20.7 for R110 000.
Amortisation was written off at 10% p.a. according to the straight-line method for 20.7.
During 20.8, the accountant decided that intangible assets should be amortised at 20% p.a.
according to the straight-line method. The owner of Brandname Distributors decided to
adhere to the accountant’s decision to write intangible assets off over 5 years according to
the straight-line method.
Required:
1. Calculate amortisation for 20.8.
2. Disclose the non-current assets in the statement of financial position of Brandname
Distributors on 31 December 20.8 and in the notes to the financial statements for the
year ended 31 December 20.8.
Question 11.22
Cool Cat (Pty) Ltd is a company that sells and installs air conditioners.
The company has a 31 December financial year-end and applies International Financial
Reporting Standards (IFRS).
The company’s financial accountant asked your assistance with the following two
transactions that occurred during the year ended 31 December 20.9:
Transaction 1
Cool Cat (Pty) Ltd entered into a contract with the North-West University on 1 December 20.9
to supply and install 40 air conditioners in the offices of a new building.
Cool Cat (Pty) Ltd had a sufficient number of air conditioners in stock and proceeded with the
installation immediately. On 31 December 20.9, 25 air conditioners had been installed in the
building.
The company purchased the air conditioners for R2 500 each and maintains a profit margin
of 50% on cost. In addition, Cool Cat (Pty) Ltd also charges an installation fee of R750 per air
conditioner installed.
149
The North-West University paid a deposit of R150 000 into the current account of Cool Cat
(Pty) Ltd upon signing the contract.
No entry has been made for this transaction.
Required:
Provide the journal entry to record this transaction in the accounting records of Cool Cat
(Pty) Ltd for the year ended 31 December 20.9.
Indicate which element of the financial statements is represented by each account in the
journal entry. Journal narrations are not required.
Transaction 2
The company owned a delivery vehicle that was purchased on 1 January 20.6 for R120 000.
The delivery vehicle was used to deliver air conditioners to the premises of customers.
It is the company’s accounting policy to depreciate such delivery vehicles over a period of 4
years with no residual value.
On 31 December 20.9, at the end of the useful life of the delivery vehicle, the company
traded it in for a new delivery vehicle. The purchase price of the new delivery vehicle is
R140 000.
Cool Cat (Pty) Ltd made an EFT payment of R90 000 to the dealer in respect of the
transaction.
No entries have been made for this transaction.
Required:
1. Discuss, with reference to the Conceptual Framework, why the new delivery vehicle is
an asset.
2. Provide the journal entries to record the trade-in transaction.
Journal narrations are not required.
3. Briefly discuss whether the company’s accounting policy in respect of depreciation on
vehicles is appropriate by referring to historical events related to the old delivery
vehicle.
150
Question 11.23
Blunt Ltd is a close company that distributes sport equipment and was incorporated on
1 January 20.8.
The following information relates to the company’s financial year ended 31 December 20.9:
BLUNT LTD
EXTRACT FROM TRIAL BALANCE ON 1 JANUARY 20.9
DR CR
Land and buildings (at cost) 1 000 000
Office equipment (at cost) 420 000
Accumulated depreciation: Office equipment 70 000
Vehicles (at cost) 220 000
BLUNT LTD
EXTRACT FROM ACCOUNTING POLICY
Property, plant and equipment
Measurement Depreciation Expected
Asset Useful life
model method residual value
Land and
Revaluation Not applicable Not applicable Not applicable
buildings
Office
Cost Straight-line 6 years None
equipment
Vehicles Cost Straight-line 4 years 10% of cost
1. Land and buildings were originally purchased on 1 January 20.8 and have never been
revalued. On 30 November 20.9, the company appointed a sworn appraiser, Felix
Leiter, to perform a revaluation of the land and buildings. On this date, Felix estimated
the fair value of the land and buildings at R1 300 000.
2. All office equipment was purchased on 1 January 20.8. During the current year, the
company became aware that equipment with an original cost of R120 000 was no
longer being used. This equipment was sold on 30 June 20.9 for R80 000.
3. The company’s sole delivery vehicle was also purchased on 1 January 20.8. However,
the rapid expansion of the company’s operations resulted in the need for an additional
vehicle. The new vehicle was purchased on 1 October 20.9 for R253 000.
151
Required:
Prepare the note for property, plant and equipment for the year ended 31 December 20.9.
You do not need to show a total column. You are not required to provide descriptive
information.
152
Chapter
12
Non-current liabilities
Question 12.1
Mr Du Toit has two loans at his local bank. The loan agreements contain the following
conditions:
Loan 1:
The amount borrowed on 1 January 20.5 must be repaid in 10 equal capital instalments of
R10 000 p.a. The payments are made on 31 December. The interest is calculated on the
opening balance at 10% p.a.
Loan 2:
The amount of R50 000 borrowed on 1 January 20.6 must be repaid in 5 equal instalments of
R12 384,36 (interest plus capital) at the end of each year. Interest is charged at 12% p.a. The
first instalment had to be made on the day the contract was signed (1 January 20.6). This
whole instalment comprised a capital repayment.
Required:
Calculate for each of the loans:
1. Capital balance outstanding on 31 December 20.7 after the payment.
2. The interest payable for the year ended 31 December 20.7.
Round off to the nearest cent.
Question 12.2
Refer to Question 12.1.
Required:
Show how the loans will appear in the statement of financial position of Mr Du Toit on
31 January 20.7 as well as in the notes to the financial statements for the month ended
31 January 20.7.
153
Question 12.3
On 1 August 20.8, Jenna Dealers obtained R2 500 000 mortgage finance from FNB. The
interest rate is 12% p.a. (simple interest). The mortgage was registered over land and
buildings with a carrying value of R2 800 000. The interest is payable annually on
31 December, along with one-tenth of the original capital. The first instalment is payable on
31 December 20.8.
Profit before interest and tax for the 20.9 year amounted to R350 000.
Required:
Show how the loan and interest will be disclosed in the financial statements on
31 December 20.9.
154
Chapter
13
Statement of cash flow
Question 13.1
The financial information of Black Ltd is presented to you. The managing director, Mr Black,
asked you to assist him in preparing the entity’s statement of cash flow.
BLACK LTD
FOR THE YEAR ENDED 31 DECEMBER 20.2
20.2
R
Sales (80% on credit) 650 000
Cost of sales: (375 000)
Opening inventory 100 000
Purchases 465 000
Less: Closing inventory (225 000)
Other income:
Dividends received 5 000
Other expenses:
Salaries & wages (36 000)
Water & electricity (10 500)
Stationery (3 800)
Commission expense (16 250)
Depreciation (50 000)
Credit losses (1 000)
Profit before interest income and finance costs 212 450
Interest expense (13 450)
Profit for the year 229 000
155
BLACK LTD
STATEMENT OF FINANCIAL POSITION
ON 31 DECEMBER 20.2
20.2 20.1
R R
ASSETS
Non-current assets
Equipment at carrying amount 350 000 300 000
Investment: ABBA Bank at 12% 100 000 150 000
Current assets
Inventory 225 000 100 000
Trade debtors 25 000 25 000
Cash and cash equivalents 180 000 50 000
TOTAL ASSETS 880 000 625 000
EQUITY AND LIABILITIES

Equity
Ordinary shares at R1 per share 275 000 175 000
Retained earnings 496 500 267 500
Current liabilities
Trade and other creditors 108 500 132 500
Short-term bank loan 0 50 000
TOTAL EQUITY AND LIABILITIES 880 000 625 000
Equipment to the value of R100 000 was purchased during the current year. Depreciation on
equipment amounted to R50 000 for the year.
Required:
Prepare the statement of cash flow of Black Ltd for the year ended 31 December 20.2 using
the direct method. Your answer must comply with IFRS and the Companies Act 71 of 2008.
Ignore taxation. Comparative figures are not required.
156
Chapter 13: Statement of cash flow
Question 13.2
The following information was extracted on 31 December 20.2 from the records of OPM
Incorporated, a company, after the gross profit had been determined for the year:
PRE-ADJUSTMENT TRIAL BALANCE
ON 31 DECEMBER 20.2
DR (R) CR (R)
Inventory 212 500
Petty cash 1 250
Accumulated depreciation on equipment 125 000
30-day notice deposit 625 000
Bank 373 343
15% Long-term loan (no repayments during current year) 500 000
Ordinary share capital (at R2,50 per share) 1 250 000
Preference share capital (at R1 per share) 250 000
Retained earnings (1 January 20.2) 271 488
Trading account (gross profit percentage is 25% on cost) 1 375 000
Income tax expense 103 995
Distribution costs 26 680
Ordinary dividends (including dividends tax) 12 500
3 942 176 3 942 176
1. The long-term loan was entered into on 1 June 20.2. The interest was paid on
31 December 20.2, but no entry has been made for it yet.
2. On 31 December 20.2, a vehicle with a cost of R62 500 (accumulated depreciation
balance, R50 000) was sold for R25 000 cash to Top Ten Motors. No entry has been
made for this transaction yet.
3. Included in other operating expenses is depreciation of R122 500 and credit losses of
R12 610.
157
TRIAL BALANCE
ON 31 DECEMBER 20.1
DR CR
R R
Inventory 162 500
Bank 331 487
Petty cash 1 250
Ordinary share capital (at R2,50 per share) 625 000
Retained earnings 271 488
1 738 750 1 738 750
Required:
Prepare the statement of cash flow for the year ended 31 December 20.2 in accordance with
IFRS and the requirements of the Companies Act 71 of 2008. Use the direct method and
show only the note for the reconciliation of profit before tax with cash generated from
operations. The prevailing rate for dividends tax is applicable.
Question 13.3
Massa Bulk Traders (Pty) Ltd’s first year of business commenced on 1 March 20.8. The
following information was extracted from Massa Bulk Traders (Pty) Ltd’s records on
28 February 20.9, after the gross profit for the year had been determined:
ON 28 FEBRUARY 20.9
R R
Ordinary share capital 444 467
continued
158
R R
Inventory 80 000
Bank 17 500
Petty cash 500
Gross profit (gross profit percentage is 20%) 174 111
Salaries 64 848
Municipal taxes 3 592
Electricity and water 6 109
Credit losses 2 500
Bank charges 979
Auditors’ remuneration 1 500
Operating lease payments (equipment) 5 500
703 144 703 144
Adjustments and additional information:

1. Debtors to the amount of R3 500 are insolvent, of which R500 has since been received;
the balance must be written off. No entry has been made for this transaction yet.
2. Depreciation must still be calculated according to the company’s accounting policy
(assume that all the assets were purchased on 1 March 20.8):
• On vehicles at 10% p.a. on the cost price
• On equipment at 20% p.a. on the carrying amount
3. On 28 February 20.9, a vehicle with a cost of R20 000, was sold for R15 000 cash to Top
Ten Autos. No entry has been made for this transaction yet.
Required:
Prepare the statement of cash flow for the year ended 28 February 20.9 in accordance with
show only the note for the reconciliation of profit before tax with cash generated from
operations.
159
Question 13.4
The following information was obtained from the books of a sole trader, Allen Shops:
ON 31 DECEMBER 20.9
20.8 20.9
R R
ASSETS
Non-current assets
Equipment at cost 750 1 500
Accumulated depreciation (300) (450)
Current assets
Inventory 4 050 4 950
Debtors 1 800 3 000
Cash and cash equivalents 1 200 –
TOTAL ASSETS 7 500 9 000

Equity
Capital on 1 January 3 000 4 500
6 000 6 000
Drawings (1 500) (3 000)
4 500 3 000
Current liabilities
Creditors 3 000 4 500
Bank overdraft – 1 500
Required:
Prepare the statement of cash flow for the year ended 31 December 20.9 (using the indirect
method) in order to explain why, despite the fact that there was a profit for 20.9, the entity is
experiencing financial problems. Assume that all the drawings were in cash.
160
Question 13.5
The financial statements of Mossie Limited are provided:
MOSSIE LIMITED
ON 28 FEBRUARY 20.8
20.8 20.7
R R
ASSETS
Non-current assets 250 605 199 800
Current assets
Inventory 91 225 69 500
Debtors 20 950 21 700
Cash and cash equivalents – 32 600
TOTAL ASSETS 362 780 323 600

Equity
Ordinary share capital 200 000 150 000
Non-current liabilities 40 000 55 000
Current liabilities
Creditors 32 000 45 000
Shareholders for dividends 11 200 11 200
Bank overdraft 6 400 –
161
MOSSIE LIMITED
FOR THE YEAR ENDED ON 28 FEBRUARY 20.8
20.8 20.7
R R
Net turnover 485 300 362 100
Operating income before consideration of discernible
expenses 84 630 75 260
Less: Disclosable expenses (28 400) (27 260)
Director’s remuneration 16 000 13 000
Auditor’s remuneration 2 300 2 200
Depreciation 4 250 4 560
Interest on mortgage loan 5 350 7 500
Interest on overdraft 500 –
Profit before tax 56 230 48 000
SA normal tax (26 450) (21 400)
Profit after tax 29 780 21 400
Dividends declared and paid (including dividends tax) (19 000) (16 000)
Total comprehensive income 10 780 5 400
Particulars of non-current assets:
Accumulated
Cost Price Carrying amount
depreciation
20.8 20.7 20.8 20.7 20.8 20.7
R R R R R R
Land and buildings 215 000 170 000 – – 215 000 170 000
Equipment 18 000 23 000 6 695 6 600 11 305 16 400
Vehicles 34 000 21 000 9 700 7 600 24 300 13 400
267 000 214 000 16 935 14 200 250 605 199 800
A new vehicle was purchased on 28 February 20.8 and paid for by EFT. Depreciation must be
provided for at 10% p.a. on the cost price.
No new equipment was purchased during the accounting period. Used equipment was sold
for cash to J du Toit on 1 July 20.7 at carrying value. The accumulated depreciation on this
equipment amounted to R1 900 on 28 February 20.7. Depreciation is provided for at 15% p.a.
on the carrying value of the equipment.
162
Required:
Prepare the statement of cash flow, using the direct method, for the year ended
28 February 20.8 and show the note for the reconciliation of profit before tax with cash
generated from operations. The prevailing rate for dividends tax is applicable.
Question 13.6
The following information was obtained from the books of West Dealers from the partners,
Smith and Wesson (the profit-sharing ratio is 3:2).
FOR THE YEAR ENDED 30 JUNE 20.6
R R
Gross income 68 900
Add: Other income 6 950
Interest on fixed deposit 3 000
Profit on sale of asset 200
Dividend income 3 750
75 850
Less: Expenses (44 350)
Fuel 2 800
Salaries 24 000
Telephone 900
Loss on sale of asset 500
Repair 1 600
Depreciation 6 850
Credit losses 200
Interest on loan (Smit) 1 600
Interest on lease 800
Interest on bank overdraft 350
Distribution section: Smith Wesson Total

R R R
Interest on capital 4 750 5 500 10 250
Salaries 4 000 6 000 10 000
Bonuses – 1 500 1 500
Interest on current account 250 500 750
Profit-share 5 400 3 600 9 000
14 400 17 100 31 500
163

ON 30 JUNE 20.6
20.6 20.5
R R
ASSETS
Non-current assets
Property, plant and equipment 156 800 135 600
Fixed deposit 20 000 25 000
Listed shares at cost 15 000 9 000
Current assets
Inventory 60 000 50 000
Debtors 15 000 22 000
Cash and cash equivalents 7 200 –
TOTAL ASSETS 274 000 241 600

Equity
Capital accounts: 205 000 190 000
Smith 95 000 90 000
Wesson 110 000 100 000
Current accounts: 7 000 11 000
Smith (5 000) 3 000
Wesson 12 000 8 000
8% Loan: Smit 20 000 15 000
Current liabilities
Short-term loan 4 000 3 000
Creditors 38 000 18 000
Bank overdraft – 4 600
164
1. Non-current assets
Accumulated
Cost price Carrying amount
depreciation
20.6 20.5 20.6 20.5 20.6 20.5
R R R R R R
Land and buildings 105 660 96 000 105 660 96 000
Vehicles 50 000 45 000 14 500 25 000 35 500 20 000
Equipment 25 000 28 000 9 360 8 400 15 640 19 600
180 660 169 000 23 860 33 400 156 800 135 600
(a) An old vehicle, which had reached the end of its useful life, was disposed of on
1 July 20.5. The cost price was R15 000, and the accumulated depreciation was
R14 500. A new vehicle was purchased on 1 January 20.6 on credit from
MX Garage. The cost price was R20 000. The instalment on the vehicle is R500 per
month. The amount owing to MX Garage on 30 June 20.6 is included in the
creditors. Depreciation is calculated at 10% p.a. on the cost price of the vehicles.
(b) No equipment was purchased during the year. Old equipment, of which the
accumulated depreciation amounted to R1 800 on 30 June 20.5, was sold at a
profit on 31 December 20.5. Depreciation is written off at 15% p.a. on the carrying
value.
2. Only R2 000 of the short-term loan for 20.5 was settled in 20.6.
Required:
Prepare the statement of cash flow, using the direct method, for the year ended 30 June 20.7
and show the note for the reconciliation of profit before tax with cash generated from
operations.
Question 13.7
The following information is obtained from the books of SOFAR Incorporated, a company, on
31 December 20.7:
ABRIDGED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
R R
Gross profit 60 000
Interest on fixed deposits 3 000
Profit on asset sales (vehicle) 1 000
continued
165
R R
Dividends on listed stocks 4 250
Less: Operating expenses (20 600)
Bank charges 3 500
Interest on bond 7 500
Credit losses 800
Depreciation 8 500
Other operating expenses 300

ON 31 DECEMBER 20.7
20.7 20.6
R R
ASSETS
Non-current assets
Current assets
Inventory 40 000 20 000
Debtors (net after allowance for credit losses) 25 000 35 000
Cash and cash equivalents 500 2 000
TOTAL ASSETS 249 000 207 000

Equity
Ordinary share capital (at R1 per share) 75 000 75 000
Mortgage loan 48 000 62 000
Current liabilities
Creditors 47 350 45 000
166
1. Non-current assets
Accumulated
Cost price Carrying amount
depreciation
20.7 20.6 20.7 20.6 20.7 20.6
R R R R R R
Land and buildings 120 000 100 000 – – 120 000 100 000
Vehicles 32 000 30 000 12 500 13 000 19 500 17 000
Equipment 25 000 21 000 11 000 8 000 14 000 13 000
177 000 151 000 23 500 21 000 153 500 130 000
The vehicle that was sold had a cost price of R12 000 and accumulated depreciation of
R6 000 when it was sold on 1 January 20.7 for R7 000.
2. The listed investment comprised 6 500 ordinary shares of R2 each in ABC Ltd; the
market value is R23 000.
3. The allowance for credit losses for 20.7 is calculated at 5% of outstanding debtors after
the allowance is taken into consideration. The allowance for 20.6 was 2½% of
outstanding debtors after the allowance was taken into consideration.
4. The gross profit percentage is 25%.
Required:
Prepare the statement of cash flow for the company, using the direct method, for the year
ended 31 December 20.7. This statement must in all aspects comply with the requirements
of IAS 7 (IFRS) and the Companies Act 71 of 2008. Show the note for the reconciliation of
profit before tax with cash generated from operations
Show all calculations. Ignore taxation. Comparative figures are not required.
167
Question 13.8
The following information is an extract from the records of ACFC (Pty) Ltd on
31 December 20.4:
ACFC (PTY) LTD
EXTRACT FROM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
20.3 20.4
R R
Gross profit 60 000
Profit on sale of equipment 225
Dividends from listed shares 775
Less: Operating expenses (17 000)
Bank charges 2 000
Interest on mortgage bond 5 200
Credit losses 500
Loss on scrapping of vehicle 500
Depreciation 6 925
Profit before tax 45 500
ACFC (PTY) LTD

ON 31 DECEMBER 20.4
20.3 20.4
R R
ASSETS
Non-current assets 189 500 154 000
Current assets 65 500 57 500
Inventory 40 000 20 000
Accounts receivable (net after allowance for credit losses) 25 000 35 000
TOTAL ASSETS 255 000 211 500
continued
168
20.3 20.4
R R
Equity 140 000 103 000
Ordinary share capital 100 000 90 000
Non-current liabilities 44 260 60 000
Mortgage bond 44 260 60 000
Current liabilities 70 740 48 500
Accounts payable 52 000 48 500
SARS – Income tax payable 12 740 –
1. Property, plant and equipment
Accumulated Carrying
Cost
depreciation amount
20.4 20.3 20.4 20.3 20.4 20.3
R R R R R R
Land and buildings 106 000 96 000 106 000 96 000
Vehicles 50 000 45 000 14 500 25 000 35 500 20 000
Equipment 25 000 30 000 9 700 9 000 15 300 21 000
181 000 171 000 24 200 34 000 156 800 137 000
(a) An old vehicle, which had reached the end of its useful life, was scrapped on
1 January 20.4. The cost price was R15 000 and accumulated depreciation,
R14 500. A new vehicle was acquired on credit on 1 July 20.4 from WV Motors at
a cost of R20 000. The monthly payment on this vehicle is R500 per month and
the remaining balance owing to WV Motors on 31 December 20.4 is included
under accounts payable. Depreciation on vehicles is calculated at 10% p.a. on the
straight-line method.
(b) No equipment was acquired during the year. Old equipment, with an accumulated
depreciation balance of R2 000 on 31 December 20.3, was sold at a profit on
30 June 20.4. Depreciation on equipment is calculated at 15% p.a. on the reducing
balance method.
2. The listed investment comprises 8 850 ordinary shares of R2 each in NWU (Pty) Ltd. The
market value of these shares is R23 000.
169
3. The allowance for credit losses was R5 500 for 20.4 and R6 500 for 20.3.
5. A dividend of R5 760 (including dividends tax) was declared and paid on
31 December 20.4.
6. The tax expense for the year must be calculated at the prevailing rate.
7. Cash and cash equivalents as per the statement of financial position, includes a R500
cash register float.
Required:
Prepare a statement of cash flow using the direct method, including the applicable notes, for
the year ended 31 December 20.4, in accordance with the requirements of IAS 7 (IFRS) and
the Companies Act 71 of 2008.
Comparative amounts are not required.
Question 13.9
The following information was extracted on 31 December 20.5 from the records of CMD
Incorporated, a company, after the gross profit was determined for the year:
ON 31 DECEMBER 20.5
DR CR
R R
Inventory 85 000
Petty cash 500
30-day notice deposit 250 000
Bank 149 337
15% Long-term loan (no repayments during current year) 200 000
Preference share capital (at R1 per share) 100 000
continued
170
DR CR
R R
Trading account (gross profit percentage = 25%) 550 000
SARS – Income tax 41 598
Bank charges 1 595
Operating lease payments (on leased equipment) 36 000
Rates and taxes 12 696
Auditor’s remuneration (R3 500 for audit, balance for other
costs) 5 500
Depreciation 49 000
Credit losses 4 544
Accounting fees 60 000
Salaries (including administrative fees of R15 000) 164 848
1 576 870 1 576 870
1. The long-term loan was entered into on 1 June 20.5. The interest was paid on
31 December 20.5, but no entry has been made for it yet.
2. On 31 December 20.5, a vehicle with a cost price of R25 000 and accumulated
depreciation of R20 000, was sold for R10 000 cash to Auto Motors. No entry has yet
been made for this transaction.
TRIAL BALANCE
ON 31 DECEMBER 20.4
DR CR
R R
Inventory 65 000
continued
171
DR CR
R R
Bank 132 595
Petty cash 500
695 500 695 500
Required:
show the note for the reconciliation of profit before tax with cash generated from
operations. The prevailing rate for dividends tax is applicable.
Question 13.10
Matz Ltd’s first year of business commenced on 2 January 20.8. The following information
was extracted from Matz Ltd’s records on 31 December 20.9, after gross profit for the year
had been determined:
ON 31 DECEMBER 20.9
R R
Ordinary share capital (at R5 per share) 500 000
Inventory 78 000
Bank 61 191
Cash on hand 300
Shareholders for dividends 5 000
Gross profit (gross profit percentage is 35%) 168 114
continued
172
R R
Salaries 58 200
Municipal taxes 4 130
Ordinary dividends 5 000
Credit losses 650
Bank charges 620
Auditors remuneration 5 600
Rental expense (equipment) 12 000
784 562 784 562
Adjustments and additional information:

1. Depreciation is to be calculated according to the accounting policy of the company
(assume that all the assets were purchased on 2 January 20.8):
• On vehicles at 10% p.a. on the cost price
• On equipment at 20% p.a. on the carrying value
2. On 31 December 20.9, a vehicle with a cost price of R15 000 was sold for R11 500 cash
to Top Motors. No entry has yet been made for this transaction.
3. The directors proposed a dividend of 5 cents per share for the current financial year,
which was accepted at the annual general meeting. Ignore dividends tax.
Required:
show the note for the reconciliation of profit before tax with cash generated from
operations.
173
Question 13.11
You are a first-year trainee at the audit firm of G&D & Co Incorporated and you have been
instructed by one of the senior partners to prepare the statement of cash flow for MAX
Incorporated, a company, for the year ended 31 December 20.7. The following are extracts
of the working papers from the client’s audit file for the 20.7 audit, which you are going to
use to carry out your task:
Client: MAX Incorporated A1
Year-end: 31 December 20.7
Area/Topic: Lead schedule – Reserves
Profit before tax 167 065
No further audit work required on profit before tax. During audit work, it was
noticed that the following items were included in the profit before tax:
Credit losses (excludes increase in allowance for credit losses) 3 888
Sales (all sales were credit sales) 1 200 000
Depreciation 43 000
General:
It is MAX Incorporated’s first year of business and they opened their doors for their first day
of trade on 2 January 20.7.
1. The directors have suggested a final dividend of 5 cents per share and it was accepted and
approved at the annual general meeting. The dividend was paid on 31 December 20.7,
but no entry has yet been made. Ignore dividends tax.
Client: MAX Incorporated B1
Area/Topic: Lead schedule – Assets
Accumulated depreciation on office equipment (18 000)
Accumulated depreciation on vehicles (25 000)
Listed investments 50 000
Inventory 70 000
Trading debtors 85 000
Allowance for credit losses (2 500)
continued
174
Client: MAX Incorporated C1

Area/Topic: Lead schedule – Equity and liabilities
Till float 500
No further audit work on assets is outstanding.
Ordinary share capital (at R2,50 per share) (500 000)
Preference share capital (at R1 per share) (100 000)
Trading creditors (39 603)
Bank (1 832)
All audit work on equity and liabilities has been completed to satisfaction.
Required:
IFRS and the requirements of the Companies Act 71 of 2008, using the direct method.
Provide the note for the reconciliation of profit before tax with cash generated from
operations.
175
PART
C
SUNDRY TOPICS
Chapter
14
Incomplete records
Question 14.1
Saartjie started her own needlework shop. She wants to apply for a loan at AB Bank. The
bank manager requires a statement of financial position from her.
You found the following information from the previous year’s financial records:
R (DR) R (CR)
Capital 89 500
Delivery vehicle 50 000
Accumulated depreciation on vehicle 18 000
Machines 234 400
Accumulated depreciation of machines 16 400
Bank 11 500
Debtors 24 500
Creditors 17 000
Petty cash 500
Loan 180 000
1. Deposits for the year according to the bank statements were R27 000.
2. The debtors’ list on 28 February 20.1 amounted to R31 000. All sales were on credit.
The creditors’ list amounted to R24 000.
3. Saartjie took R20 000 cash before she banked the rest after certain cash payments were
made.
4. The rent amounts to R4 000 a month. She was not in arrears at the beginning of the
year.
5. The water and electricity are paid quarterly. The following invoices were found:
(a) 1234 – R200
(b) 2563 – R300
(c) 2788 – R200
(d) 3125 – R350
179
6. The following wages are paid in cash each month:

(a) AM Loubser R5 000
(b) Students R1 750
(c) Cleaner R1 000
The workers receive a bonus in December amounting to one month’s pay.
7. The following payments were made by EFT. All other expenses were paid in cash.
(a) Creditors R160 000
(b) Repairs R730
(c) Bank charges R100
8. The interest on the loan is charged at an annual rate of 14,5%. No payments were made
on the loan or in respect of interest for the year.
9. Saartjie wrote off credit losses amounting to R2 000 during the year.
10. The vehicle is 2 years old and must be depreciated at 20% on the reducing balance
method.
11. Machines are depreciated on the production unit method. 10 000 units were produced
during the year. It was initially determined that depreciation should be provided for at
11 cents per unit.
12. The entity charges a gross profit of 50% on sales.
13. There were no opening inventories.
14. No cash other than the petty cash was on hand at the end of the year.
15. Saartjie paid private expenses of R19 170 during the year.
Required:
Prepare a pre-closing trial balance on 28 February 20.1.
Question 14.2
Tintin is the proprietor of the Wavecrest Kiosk, a small retailer that sells refreshments on the
beach at Jeffreys Bay. He asked you to assist him in preparing the entity’s financial
statements for the year ended 31 December 20.2.
180
Chapter 14: Incomplete records
Tintin did not maintain formal accounting records. However, he provided you with the
following information:
1 January 20.2 31 December 20.2
R R
Amounts due from customers 5 500 7 000
Amounts due to suppliers 9 000 11 200
Inventory at cost 23 000 31 000
Tintin made certain payments from the cash received from customers before depositing the
balance in the entity’s bank account. He recorded such payments in his diary:
R
Wages paid 2 500
Suppliers paid 3 000
Drawings 12 000
Tintin had maintained a cash float balance of R500 in previous years, but in 20.2 he decided
to retain a further R200 of receipts to increase the float to R700.
The following is a summary of the entity’s bank account for 20.2:
Receipts Payments
R R
Opening balance 1 000 Suppliers 80 000
Amounts deposited 125 000 Wages 24 000
Rentals 12 000
Insurance 8 000
Shop equipment 5 000
Closing balance 4 000 Unidentified payment 1 000
130 000 130 000
You obtained the following information through discussions with Tintin:

1. The carrying amount of shop equipment was R40 000 on 31 December 20.1 and
R42 000 on 31 December 20.2.
2. On 31 December 20.1, wages in arrears amounted to R900 and on 31 December 20.2, it
amounted to R1 100.
3. The insurance premium paid was in respect of the year ended 30 June 20.3. The
premium for the year ended 30 June 20.2, which was paid in 20.1, amounted to R6 400.
181
4. The amounts due from customers as at 1 January 20.2 were fully settled during the
year. No payments were received in respect of credit sales made in 20.2.
5. According to Tintin, R500 of the amount due from customers as at 31 December 20.2
should be written off. This amount is due from a customer who was recently declared
insolvent.
6. Upon further investigation, it was determined that the unidentified payment was in fact
drawings.
Required
ended 31 December 20.2 of the Wavecrest Kiosk.
2. Prepare the statement of financial position on 31 December 20.2 of the Wavecrest
Kiosk.
3. Determine the balance of equity on 1 January 20.2 by preparing the capital account in
the general ledger.
Ignore VAT.
Question 14.3
Mooipark Liquor Store’s accountant resigned on 1 April 20.3. The owner asked you to assist
him in calculating his turnover for the 2 months ended 30 April in order for him to complete
his VAT returns. All sales are on credit.
You were able to collect the following information:
Capital contributions from owner per EFT R5 000
List of debtors 01/03/20.3 R38 000
30/04/20.3 R41 000
Payments made per EFT R79 500
Bank balance 01/03/20.3 R1 200
30/04/20.3 R4 000
Required:
Calculate the sales amount for the two months by compiling the necessary general ledger
accounts.
Question 14.4
Mr Koekemoer owns a small supermarket. He recently suspected that one of his cashiers is
stealing some of the takings. On 15 September 20.5, he performed a cash count and found
that there was only R1 771 on hand, while the receipts book indicated that there should be
more cash.
182
The following general ledger account balances are available:
1 July 20.5 15 September 20.5

R R
Debtors 23 400 18 920
Creditors 9 000 3 400
Cash on hand 1 000 1 771
Inventory at sales prices (including VAT) 63 840 38 500
Information with regard to the period 1/7/20.5 to 15/9/20.5:

1. Deposits according to the bank statement are R116 061.
2. Cash sales for the period are R16 500 according to the cash register roll.
3. Payments per EFT to creditors for inventories purchased on credit are R64 834.
4. During March 20.5, an Easter sale was held and selling prices were reduced by 30%.
Total takings from the sale were R28 875.
No losses could be found with regard to the previous year ended 30 June 20.5. The entity is
registered for VAT. Assume that all parties are registered for VAT and that, where applicable,
VAT is included.
Required:
Calculate the losses that occurred from 1 July 20.5 to 15 September 20.5 by preparing the
necessary general ledger accounts.
Question 14.5
Mr Jan Els commenced business as a general trader on 1 January 20.8 under the name of Jan
Els Dealers. Jan wants to apply for a loan from his bank, which requires financial statements.
No financial statements have been prepared for Jan Els Dealers previously and Jan
approached you to assist him with this task.
You obtained the following information:
1. Total receipts from debtors and for sales for the year ended 31 December 20.9 amount
to R1 223 460.
183
2. Analysis of payments per EFT for 20.9 is as follows:
R
Creditors 927 780
Salaries 94 200
Electricity 10 500
Repairs 7 140
Sundry business expenses 5 880
Household and personal expenses 13 020
3. Drawings for personal use:

R
Internet transfers 93 600
Inventory at selling price (cost price of the inventory was R31 200) 43 680
4. On 1 January 20.9, the balance of the bank account amounted to R111 090 (favourable).
On 31 December 20.9, it was R141 900 (favourable), including interest of R3 570.
5. The rent amounts to R7 000 per month and was paid by EFT. On 1 January 20.9, the
rent for the business premises had been prepaid for 5 years.
6. Rates and taxes for the year to 31 March 20.9 amounted to R37 800 compared to
R42 000 for the year to March 20.10.
7. Balances:
R
Debtors 31 December 20.8 23 460
31 December 20.9 30 000
Inventory 31 December 20.8 110 460
31 December 20.9 122 850
Creditors 31 December 20.8 76 440
31 December 20.9 78 120
Cash on hand 31 December 20.8 10 500
31 December 20.9 12 600
Required:
Compile the financial statements for the year ended 31 December 20.9 for presentation to
the bank.
Round all calculations off to the nearest rand.
184
Question 14.6
Bongani is the sole proprietor of Buntu Traders and he did not keep proper records of the
business activities. However, you managed to obtain the following information in respect of
the financial year ended 31 December 20.3:
1. Cash received in respect of cash sales is deposited daily. However, the following
expenses were paid from the cash received for sales:
R
Water and electricity 450
Stationery 270
Purchases 38 750
Wages 12 000
Drawings by the owner 108 000
2. An analysis of the year’s bank statements reveals the following:

R
Receipts: Sales 358 000
Additional capital introduced 50 000
Payments: Purchases 356 000
Rent 11 000
Telephone 980
Stationery 1 500
Furniture (1 September 20.3) 12 000
Water and electricity 780
Interest on long-term loan 60 000
3. Balances on 1 January 20.3:
R
Long-term loan at 25% p.a., secured by property 230 000
Inventory 56 000
Debtors 38 000
Creditors 67 500
Accumulated depreciation on motor vehicles 24 000
Accumulated depreciation on furniture and equipment 4 500
185
4. The owner took inventory to the value of R12 700 for personal use.
5. Bongani, the owner, purchased a vehicle on 1 July 20.3 for R98 000 and paid the
deposit of R48 000 from his own private funds. The balance was financed by John Cars
at 20% interest p.a. The loan is repayable in 5 equal annual instalments from
1 July 20.4.
• Vehicles at 20% p.a. on the straight-line method
• Furniture and equipment at 10% p.a. on the straight-line method
• No depreciation must be provided for on land and buildings
7. The rental expense for additional storage amounts to R1 000 per month.
8. The owner supplied the following balances on 31 December 20.3:
R
Inventory 62 000
Debtors 34 500
Creditors 54 700
Stationery 150
Required:
1. Provide the opening journal entry on 1 January 20.3.
2. Provide the journal entries for the year ended 31 December 20.3.
3. Provide the following regarding Buntu Traders:
(a) the statement of profit or loss and other comprehensive income for the year
(b) the statement of financial position on 31 December 20.3.
Cash entries must also be journalised.
Narrations for journal entries are required.
Question 14.7
Mr B Eacon wants to apply for a bank loan and the bank requires financial statements for his
business. Mr Eacon approached you to assist him in this task.
1. Mr Eacon commenced business as a sole proprietor on 1 January 20.8 and trades as a
general dealer under the name of Beacon Dealers. Mr Eacon was a salesmen previously
and his luck changed when he married the super-rich Ms Astor on 30 November 20.7.
He received R500 000 from his father-in-law with which he bought a business premises
to the value of R432 000 and equipment costing R35 672 on 1 December 20.7. He spent
the rest of the money on his honeymoon.
186
2. From various documents and information supplied by Mr Eacon, you were able to
determine the following balances:
R
Debtors 31 December 20.8 35 190
31 December 20.9 45 000
Inventory 31 December 20.8 165 690
31 December 20.9 184 275
Creditors 31 December 20.8 114 660
31 December 20.9 117 180
Cash on hand 31 December 20.8 15 750
31 December 20.9 15 750
3. A summary of internet bank transactions and payments per EFT for 20.9, reveals the
following:
R
Suppliers for merchandise 1 391 670
Salaries 141 300
Electricity 15 750
Repairs 10 710
Sundry business expenses 8 820
Household and personal expenses 159 930
4. Total receipts from debtors and for sales for the year ended 31 December 20.9 amount
to R1 835 190.
5. The favourable bank balance on 31 January 20.9 amounted to R166 635. On
31 December 20.9, the favourable balance was R247 340, including interest of R12 495.
6. During 20.9, Mr Eacon took inventory to the value of R46 800 for his personal use.
7. Rates and taxes for the year to 31 March 20.9 amounted to R56 700 compared to
R63 000 for the year to 31 March 20.10.
8. During September 20.9, Mr Eacon donated inventory to the amount of R18 000 to
Pertinand Fostma school as a contribution to their spring festival.
9. On 19 November 20.9, a fire completely destroyed inventory to the value of R38 224.
The insurance company applied the average clause and paid R24 200 in full settlement
of the claim.
10. Depreciation at 10% p.a. on the reducing balance method must be provided for on
equipment. No depreciation is written off on land and buildings.
187
Required:
2. Provide the journal entries for the year ended 31 December 20.9. Cash transactions
must also be journalised.
3. Provide the annual financial statements for the year ended 31 December 20.9.
Question 14.8
Sanet trades as Pretorius Book Store and does not keep a proper set of accounting records.
The following information was taken from the documents and records of the enterprise:
1. List of balances on 1 January 20.2:

R
Property at cost 200 000
Investments 100 000
Inventory at cost 200 000
Interest receivable 4 000
Insurance premiums paid in advance 6 000
Salaries payable 2 000
Rent received in advance 5 000
2. Summary of operations for the year ended 31 December 20.2:

R
Cash payments:
To creditors for merchandise 500 000
Insurance 7 000
Salaries 150 000
Drawings by the owner 70 000
Cash receipts:
Rent 40 000
Interest 8 000
Cash sales 400 000
Received from debtors 330 000
continued
188
R
Other:
Discount granted to debtors 5 000
Discount received from creditors 10 000
Purchase returns 8 000
3. List of balances on 31 December 20.2:

R
Interest receivable 5 000
Prepaid insurance 3 000
Salaries payable 15 000
Rent received in advance 4 000
1. There were no changes in the non-current assets.
2. Depreciation on equipment has been provided for at 20% p.a. on the cost price.
3. Sanet did not conduct a physical inventory count on 31 December 20.2, but without
exception, inventory is sold at cost plus 60%. The periodic inventory system is in use.
4. Assume that no allowance was made for discount granted to debtors or for discount
received from creditors.
Required:
2. Provide the journal entries for the year ended 31 December 20.2.
3. Provide the following:
(a) the statement of profit or loss and other comprehensive income for the year
(b) the statement of financial position on 31 December 20.2.
Cash entries must also be journalised.
Narrations for journal entries are required.
189
Question 14.9
Mr Black is the owner of Blackies Hardware in Klerksdorp. Since the opening of the business
Mr Black has never kept a proper accounting system. He is currently considering an
expansion of the business and has approached the bank for a loan. The bank, however,
requires proper financial statements. Mr Black consulted you to assist him in the preparation
of the required financial statements for the year ended 28 February 20.9.
1. Balances on 1 March 20.8
R
Inventory 68 500
Long-term loan from ABC Bank at 15% interest p.a. 80 000
2. Information from the bank statements from 1 March 20.8 to 28 February 20.9:
R
Receipts:
Cash sales 967 496
Received from debtors 128 600
Amount received from creditor for over-payment on his account 150
Payments:
Cash purchases 430 350
Payments to creditors 516 700
Operating expenses (all VAT-bearing) 90 516
1. The furniture was purchased on 1 September 20.7. Depreciation is provided for at 20%
p.a. on the reducing balance method.
2. Credit losses amounting to R3 200 must be written off.
3. Balances on 28 February 20.9:
R
Inventory on hand 91 300
Blackies Hardware is a registered VAT vendor.
190
Assume that all parties are registered for VAT and that, where applicable, VAT is included.
Required:
1. Determine the following for the year ended 28 February 20.9:
(a) Total sales
(b) Total purchases
(c) Cost of sales
(d) Gross profit
(e) Profit for the year
2. What is the balance of accumulated depreciation on 28 February 20.9?
Question 14.10
Mr Oscar Jones is the owner of Osjo Dealers and he started doing business on 1 April 20.8.
Mr Jones approached you to assist him in compiling financial statements for the period
Mr Jones did not keep proper financial records, but you managed to obtain the following
from the available documents:
Period from 1 April 20.8 to 30 June 20.8:

For the period 1 April 20.8 to 30 June 20.8 Mr Jones did not use a bank account and all
payments were done from the cash received for sales.
The following information relating to the period mentioned above was written on a piece of
paper:
R
Total sales 270 810
Salaries 14 580
Rent paid 10 200
Advertising 6 000
Telephone 1 350
Deposit paid on counter and shelves 2 700
Purchases 216 000
Merchandise taken for his own use 27 000
The remaining cash was taken by Mr Jones for his own use
191
Period from 1 July 20.8 to 31 December 20.8:

R
Deposits in the bank:
Cash sales 87 690
Payments received from debtors 600 000
Cash overage due to incorrect change given to customers 2 160
Loan from Volksbank at 10% p.a. (obtained on 1 July 20.8) 32 400
Payments per EFT:
Purchases 615 600
Advertising 2 700
Rent 2 430
Cash register purchased 4 320
Stationery 324
Telephone 1 890
Counter and shelves 10 260
1. The rent for the premises is the greater of R2 700 per month or 3% of the sales for the
full accounting period (i.e. from 1 April 20.8 to 31 December 20.8).
2. Depreciation on non-current assets must be provided for at 10% p.a. on the reducing
balance for the full period.
3. On 31 December 20.8, debtors amounted to R13 500 and creditors were R16 200.
4. No inventory count was done on 31 December 20.8. Since the gross profit percentage
could not be obtained from the records at your disposal, you decided to do a
reconciliation of the figures for the ensuing two months. For this purpose, you
instructed that a stocktaking be done on 24 February 20.9. The inventory on this date
amounted to R135 000 and the balances on debtors and creditors were R21 600 and
R5 400 respectively. For the period from 1 January 20.9 to 24 February 20.9, an amount
of R639 900 was received from debtors, R567 000 was paid to creditors and Mr Jones
took merchandise to the value of R27 000 for his own use.
5. The 10% loan from Volksbank is repayable in 4 equal annual instalments from
30 June 20.9. The capital portion of the instalments amounts to R8 100 annually.
192
Required:
This section consists of 5 multiple-choice questions.
1. What is the carrying amount of the non-current assets on 31 December 20.8?
(a) R11 664
(b) R15 552
(c) R15 984
2. What is the balance of the bank account on 31 December 20.8?
(a) R82 620
(b) R80 460
(c) R74 520
3. What was the opening balance on the capital account on 1 April 20.8?
(a) R32 400
(b) R17 280
(c) R14 580
4. What was the amount of Mr Jones’ drawings for the year ended 31 December 20.8?
(a) R27 000
(b) R29 160
(c) R45 900
5. What was the amount that should be disclosed for non-current liabilities in the
statement of financial position on 31 December 20.8?
(a) R32 400
(b) R24 300
(c) R25 920
6. Compile the statement of profit or loss and other comprehensive income for the
9 months ended 31 December 20.8.
7. Compile the statement of financial position on 31 December 20.8.
193
Chapter
15
Insurance
Question 15.1
On 31 March 20.9, a fire broke out in the warehouse of Victor Shoe Den Limited. All the
inventory of socks and sneakers was destroyed or damaged, except for goods in the show
room with a selling price of R2 160. Trading activities could not continue for 2 months.
INVENTORY ON HAND
R
1 March 20.8 162 000
28 February 20.9 41 040
Purchases Sales
R R
1 March 20.8 to 30 June 20.8 540 000 666 000
1 July 20.8 to 28 February 20.9 270 000 479 700
1 March 20.9 to 31 March 20.9 21 960 36 000
During April 20.8, a sale was held and the following gross profit/loss percentages were
maintained:
Public 10% gross profit on cost
Employees 10% discount on cost
The sales figures for the month were as follows:
Public R39 600
Employees R32 400
The above-mentioned figures were included in the sales figures for the financial year ended
on 28 February 20.9. Some of the damaged socks were sold on an auction for R1 080 cash.
Required:
Calculate the inventory loss claim instituted against the insurance company.
Do not round off the gross profit percentages. Ignore VAT.
195
Question 15.2
The following information was obtained from the financial records of Radebe’s Limited,
whose total inventory, with the exception of items to the value of R27 000 which could be
saved, was destroyed in a fire on 15 June 20.4.
RADEBE’S LIMITED
R R
Sales 2 700 000
Less: Cost of sales (1 800 000)
Plus: Purchases 1 860 000
2 620 000
Less: Inventory (31 December 20.3) (820 000)
Additional information in respect of the period 1 January 20.4 to 15 June 20.4:

Total sales R1 620 000
Purchases R1 129 000
Except for May 20.4 when a sale was held and the selling price was reduced by 25%, the
company has maintained the same profit mark-ups as during the previous year. Sales at the
reduced selling prices amounted to R225 000.
Required:
Calculate the value of the inventory destroyed by the fire.
Ignore VAT.
Question 15.3
The following information was extracted from the records of Vinkel and Koljander Shop for
the financial year ended 28 February 20.3:
R
Purchases 34 500
Total sales (including R9 200 i.r.o. goods on sale) 55 200
196
Chapter 15: Insurance
During March 20.2, goods were sold on a sale at a discount of 20% on the cost price.
On 22 April 20.3, all the inventory was destroyed when a fire caused by an electrical failure
broke out while the shop was closed for the lunch hour.
Only inventory taken on approval amounting to R1 610 (at selling price) was not destroyed.
The entity’s policy is not to record goods on approval as realised income.
The following information is available for the period 1 March 20.3 to 22 April 20.3:
• Purchases R11 500
• Sales R23 000
Required:
1. Calculate the normal gross profit percentage on sales by preparing a statement of profit
or loss and other comprehensive income for the year ended 28 February 20.3.
2. Calculate the actual inventory loss by applying the normal gross profit percentage.
Ignore VAT.
Question 15.4
On 1 July 20.6, a fire broke out in the sales department of TMB Limited and 85% of the
inventory was destroyed. The business was closed until 31 August 20.6.
The following details are available:

1. Purchases and sales:
Purchases Sales
R R
1/4/20.5 to 31/3/20.6 172 500 225 000
1/4/20.6 to 30/6/20.6 54 000 60 000
There were no sales during 20.5. Special sales were held in June 20.6 when goods were
sold at a gross profit of 10% on the selling price. Total sales during the sale amounted
to R15 000 and were included in the sales figure above.
2. Inventory on hand:
1/4/20.5 R18 750
31/3/20.6 R11 250
3. The financial year of the company ends on 31 March.
197
Required:
1. Calculate the normal gross profit percentage by preparing the statement of profit or
loss and other comprehensive income for the period ended 31 March 20.6.
2. Calculate the loss of inventory claim against the insurance company by preparing the
statement of profit or loss and other comprehensive income for the period ended
30 June 20.6.
Round the gross profit percentage off. Ignore VAT.
Question 15.5
Leon Havenga opens a tuck shop, Gymmies, at the local gym. On 1 January 20.5, due to
unavoidable circumstances, he had to go to Cape Town. He appointed somebody to manage
the tuck shop in his absence. However, when Leon returned at the end of January, he
discovered that the person had stolen large quantities of goods and had destroyed some of
the accounting records.
Leon managed to find the following information:
R
Inventory on 1 January 20.5 4 920
Purchases from 1 January 20.5 to date of theft 4 592
Sales from 1 January 20.5 to date of theft 7 544
Inventory on 31 January 20.5 1 476
The entity maintains a gross profit of 40% on cost unless otherwise stated. As a special
favour, the gym caretaker was allowed to purchase goods from the tuck shop at cost plus
15%. His purchases during January 20.5 amounted to R113,16. The amount is not included in
the above sales figure.
Required:
Prepare the statement of profit or loss and other comprehensive income to determine the
value of the inventory loss.
Show all calculations. Ignore VAT.
Question 15.6
A fire broke out on the premises of Capital Limited on 31 March 20.9 and all activities ceased
for a period of 3 months.
The following information is provided:
1. The entity has an insurance policy for inventory to the value of R32 000, subject to the
average clause, with an indemnity period of 4 months.
2. The financial year ends on 30 June.
198
3. During February of each year, goods are sold at a public auction on which a gross profit
mark-up of 25% on cost is made.
Auction sales:
20.8 R128 000
20.9 R256 000
4. During the fire, all inventory, other than that in the showroom with a sales value of
R25 600, was destroyed.
5. Inventory on hand: 01/07/20.7 R153 600
30/06/20.8 R128 000
Information extracted from the accounting records:
Total Total
sales purchases
R R
01/07/20.7 to 30/06/20.8 1 228 800 902 400
01/07/20.8 to 31/03/20.9 768 000 524 800
Required:
Calculate the value of the insurance claim that Capital Limited has against the insurance
company.
Question 15.7
Galore are wholesalers of lamps and lampshades. All goods are marked at a selling price
which comprises cost price plus 75%.
Actual selling prices are determined based on purchaser categories.
• Credit sales are at prices marked.
• A discount of 10% on the marked price is given on cash sales to the general public.
• Sales to retailers are at marked prices less a discount of 20%.
Due to an electrical fault on the evening of 1 November 20.9, a fire broke out in the
showroom and a certain portion of the inventory was damaged and destroyed. Goods with a
sales value of R448 000 were not damaged. Damaged goods were sold to a second-hand
shop for R64 000.
The following details were obtained from financial and other records which were in a
fireproof safe:
1. Inventory on hand at the beginning of the financial year on 1 March 20.9 amounted to
R1 024 000.
2. Purchases during the period from 1 March 20.9 to 1 November 20.9 amounted to
R1 152 000.
199
3. Sales during the period from 1 March 20.9 to 1 November 20.9 after discount (where
applicable) were as follows:
Credit sales R128 000
General public R480 000
Retailers R640 000
Sale proceeds R64 000
4. During the sale, goods were sold at a gross profit mark-up of 25% on cost without any
discount.
5. The inventory was insured for R1 088 000, subject to the average clause.
Required:
Calculate the claim that may be made against the insurance company.
Ignore VAT.
Question 15.8
According to the financial statements as at 30 June 20.8 of Van Staden Limited, a profit mark-
up of 50% on cost was made (including sales to employees). The company’s inventory is
insured against fire for R165 000.
On 1 May 20.9, a fire broke out in the warehouse of the company, destroying all but the
inventory in the showroom valued at R57 750.
Warehouse inventory, costing R22 000 and damaged in this fire, was sold for R8 250.
The records of Van Staden Limited reflect the following:
R
Inventory (warehouse and showroom) (01/07/20.8) 176 000
Purchases (01/07/20.8 to 30/04/20.9) 264 000
Sales (only to public) (01/07/20.8 to 30/04/20.9) 341 000
Sales to employees (at cost price less 25%) (01/07/20.8 to 30/04/20.9) 2 750
Required:
Calculate the value of the claim that may be made against the insurance company, where the
average clause is applicable.
Question 15.9
On 1 July 20.5, a fire broke out in the showroom of Sales Limited and destroyed 85% of the
inventory on hand. The entity ceased its operations temporarily until 31 August 20.5.
200
The company has an insurance policy providing cover of R15 000 in respect of loss of
inventory subject to the average clause.
The following information is also available:
Purchases Sales
R R
01/04/20.4 to 31/03/20.5 115 000 150 000
01/04/20.5 to 30/06/20.5 25 000 30 000
01/07/20.5 to 31/08/20.5 15 000 40 000
No annual sales were held in 20.4, but in June 20.5, a sale was held where goods were sold at
a gross profit percentage of 10%. These sale proceeds amounted to R10 000 and are included
in the sales for the entire period.
Inventory on hand:
01/04/20.4 R12 500
31/03/20.5 R7 500
The company’s financial year ends on 31 March of each year.
Required:
Calculate the loss of inventory claim that can be made against the insurance company.
Ignore VAT.
Question 15.10
On 15 January 20.7, a fire broke out on the premises of Heyman Weapons Unlimited, a
weapons dealer, during which all inventory, other than that valued at R27 200 (cost price)
which was in a fireproof safe, was destroyed.
The following information in respect of sales and purchases was obtained from the auditors’
working papers and documentation that were not destroyed in the fire:
01/07/20.5 01/07/20.6
to to
30/06/20.6 15/01/20.7
R R
Sales 600 000 363 200
Purchases 419 200 228 400
Proceeds from annual sale held during December 20.6
(included in sales above) 88 000 100 800
Inventory on hand:
30 June 20.5 83 200
30 June 20.6 105 600
201
1. During the December sale, goods were sold at a gross profit mark-up of 25% on cost.
2. Heyman Weapons Unlimited has an insurance policy which provides for inventory cover
of R95 040. The contract is subject to the average clause.
Required:
Calculate the value of the claim that Heyman Weapons Unlimited has against the insurance
company.
Question 15.11
Select the correct answer for each of the multiple-choice questions below:
1. If an entity’s assets (cost R100 000, insured for R150 000) are destroyed in a fire and
the average clause is applicable, what will the amount of the claim be?
(a) R100 000
(b) R150 000
(c) R66 667
2. XYZ owns premises that were acquired 10 years ago for R100 000. The current market
value is R900 000. The property is insured for R1 000 000. Damages amounting to
R450 000 occurred during the year. What is the amount of the claim against the
insurance company?
(a) R450 000
(b) R500 000
(c) R50 000
(d) R405 000
3. A fire damages the inventory of an entity. The inventory was insured for R30 000 and
the average clause is applicable. The damaged inventory can be sold for R1 000. If the
value of the damaged inventory is estimated at R20 000, what would the claim against
the insurers be?
(a) R30 000
(b) R20 000
(c) R19 000
(d) R1 000
202
Question 15.12
Savings Supermarket has an insurance policy at Tansam. The following is an extract from the
policy:
Loss of inventories:
The entity is insured for R30 000. The average clause is applicable.
A fire broke out on 1 March 20.9 in a storeroom. Normal activities could only be resumed on
1 May 20.9.
The following information was obtained from the accounting records:
R
Sales:
1/1/20.8–31/12/20.8 160 000
1/3/20.8–30/4/20.8 10 000
1/3/20.8–28/2/20.9 180 000
1/3/20.9–30/4/20.9 5 000
1/1/20.9–28/2/20.9 15 000
Purchases:
1/1/20.8–31/12/20.8 100 000
1/1/20.9–28/2/20.9 10 000
Inventory on hand:
31/12/20.7 17 500
31/12/20.8 15 000
Required:
Calculate the total claim against Tansam Insurance Company.
Question 15.13
On 1 February 20.9, a fire broke out on the property of Black Forrest Limited, a furniture
manufacturer. The building was destroyed beyond repair and was rebuilt at a cost of
R75 000. Normal activities commenced on 31 May 20.9. The building is insured for R55 000;
this amount is subject to the average clause.
(a) On 1 February 20.9, the carrying amount of the building amounts to R50 000.
(b) Black Forrest Limited is registered for VAT purposes.
(c) On 15 June 20.9, the insurance company paid the claim.
203
Required:
Determine the value of the claim against the insurance company with regard to the
destroyed building.
Question 15.14
FLB Wholesale has an insurance policy with the following clauses:
Inventory insurance – R10 000 cover. The average clause is applicable.
On one of the coldest nights (31 July 20.9) during the previous winter, a fire made by one of
the security guards went out of control and destroyed most of the storerooms. Inventory
amounting to R12 345 in one of the storerooms was, however, not destroyed, while the
damaged inventory was sold for R5 000. Management had to lease a storeroom for R5 000
per month in order to continue trading until 30 September 20.9. The entity maintains a 25%
gross profit margin.
The fire also damaged most of the accounting records. You were, however, able to obtain the
following information:
PERIOD ENDED
20.9 20.8 20.7
Sales (1 January to 31 December) 200 000
Purchases (1 January to 31 December) 146 000
Inventory (31 December) ? 40 000
Purchases (1 January to 31 July) 123 250
Sales (1January to 31 July) 161 000
Assume that all purchases and sales occur equally during the year. The financial year ends on
31 December.
Required:
Calculate the claim with regard to the inventory loss against the insurance company.
Round off to the nearest rand. Where applicable, amounts include VAT.
204
Chapter
16
Conceptual Framework
Question 16.1
Answer the following questions by writing down the correct letter next to the number. The
questions are not related.
1. Which one of the following is not correct with regard to the purpose of preparing
accounting standards?
(a) To reduce differences and possibilities
(b) To ensure strict uniformity
(c) To cancel out unwanted alternatives
(d) To provide guidelines with the most general possible application
2. Identify the underlying assumption with the preparation of financial statements as
included in the Conceptual Framework.
(a) Going concern
(b) Materiality
(c) Accrual basis
(d) Substance over form
3. Which of the following is not part of the definition of an asset according to the
Conceptual Framework?
(a) Resource
(b) Property of the entity
(c) As a result of past transaction
(d) Has the potential to generate economic benefits
Question 16.2
When would you classify an element of the financial statements as the following?
1. Income
2. A current asset
3. A non-current asset
205
Question 16.3
1. Define an asset in terms of the Conceptual Framework.
2. When, in terms of the Conceptual Framework, would you recognise an asset in the
accounting records?
3. Define the following assets:
• Property plant and equipment
• Inventory
Question 16.4
One of your clients approached you regarding an accounting problem. He has just paid the
annual insurance premium of R24 000 in advance. There are, however, only 2 months left
until the end of the financial year. He wants to know what the influence of the transaction
will be on his accounting records at year-end. He has debited the R24 000 to insurance
expenses.
Required:
Explain to him, by referring to the Conceptual Framework, when the transaction should be
recognised and motivate with reference to the accounting elements what the journal entry,
if any, at the end of the year should be.
Question 16.5
Three days before year-end (28 February 20.3), Moonlanding Ltd sold 10 tickets for R125 000
each for their first trip to the moon that is expected to take place in 20.9. As it is a long time
before 20.9, the directors are uncertain regarding how to record the transaction.
Required:
Inform them by referring to the elements of financial statements and the measurement
thereof according to the Conceptual Framework, what the journal entry should be.
Question 16.6
On 21 December 20.3, XYZ Ltd paid R2 000 for an advertisement that is to appear in the local
newspaper on 7 January 20.4. The managing director wants to show the R2 000 as an
expense in 20.3 because, as he puts it, “the EFT has already gone through”.
206
Chapter 16: Conceptual Framework
1. Based on the Conceptual Framework, explain what the contra entry in the following
journal entry should be.
DR ???
CR Bank
2. The accountant does not want to record the rent for December 20.3, which he is only
going to pay in January 20.4, just yet. What would your comments be to him based on
the Conceptual Framework and IAS 1?
Question 16.7
One of your clients made the following journal entry at year-end:
DR Insurance (expense) R20 000
CR Insurance (liability) R20 000
In the past, the entity paid insurance premiums of R20 000 p.a. Since the claims were low, he
decided to rather stop the insurance payments and save the money. However, he was
concerned that the money would be spent and he, therefore, processed the journal entry
above so that the money would be available when needed for future claims.
Required:
Discuss the validity of the journal entry based on the Conceptual Framework with specific
reference to:
(a) the elements involved, and
(b) the recognition criteria.
Question 16.8
Pro Ltd does not want to disclose advertising costs amounting to R2 000 owed for the 3
months prior to year-end as an expense in the financial statements, since the amount has not
been paid yet. Indicate whether you agree and motivate your answer.
Question 16.9
Vaalplaatz (Pty) Ltd is a company that has large manufacturing contracts with various
weapons manufacturers. On 1 June 20.6, the company concluded a contract with a building
contractor to erect a new plant over the next 20 months. The total costs of the project are
compiled as follows:
Roads and infrastructure – R10 million
Buildings – R30 million
The total project will be financed by non-current liabilities.
207
On 31 December 20.6 (year-end), the following payments had already been made:
Roads and infrastructure, completed for R10 million
Buildings, 50% erected for R15 million
One of the directors is of the opinion that the roads and infrastructure costs ought to be
shown as an expense in the financial statements, since, as he states, “the company cannot
sell them separately”. He is also of the opinion that the outstanding R15 million on the
contract should be provided for as a non-current liability.
Required:
Provide a well-argued and motivated recommendation (based on the Conceptual
Framework) regarding these two issues, which should include the following:
1. The elements involved and discussion thereof.
2. Your motivation based on the elements involved.
3. Your conclusion and recommendation for the journal entries.
Question 16.10
1. Which one of the following terms is an underlying principle for compiling financial
statements?
(a) Going concern
(b) Materiality
(c) Accrual basis
2. Define a liability in terms of the Conceptual Framework.
3. Explain comparability as an enhancing qualitative characteristic of financial statements
in terms of the Conceptual Framework.
Question 16.11
1. Name and describe the two fundamental qualitative characteristics of the usefulness of
financial information according to the Conceptual Framework.
2. Which of the above-mentioned characteristics includes materiality?
3. What does materiality mean?
4. Name the enhancing qualitative characteristics of the usefulness of financial information
according to the Conceptual Framework.
208
Chapter 16: Conceptual Framework
Question 16.12
During the year, 10 employees were dismissed without a written warning, due to
misconduct. The employees decided to lodge a claim against the company for unfair
dismissal. According to the company’s lawyers, there is a possibility that the claim may be
successful. At year-end, the directors are reluctant to make this information known to the
users of the financial statements. Their opinion is that it is merely a possibility and that it is
unnecessary to upset the users.
Advise the directors, with reference to the Conceptual Framework, about the correctness of
their opinion.
Question 16.13
Willowwood Limited purchased a machine for R200 000 on 30 June 20.9. A loan was entered
into with AB Bank for financing the machine. On 31 December 20.9 (year-end), the
outstanding amount on the loan amounted to R150 000. Depreciation of R20 000 on the
machine has been written off to date, which brings the carrying value to R180 000.
In the statement of financial position, the machine is measured at R30 000 and no loan is
disclosed. There is no further disclosure in the statements about the event. Explain to
management, based on the Conceptual Framework, why the above-mentioned disclosure is
not correct.
Question 16.14
Select the correct answer from options (a) to (e) below.
The measurement bases given in the Conceptual Framework are the following:
(i) Current value
(ii) Value-in-use
(iii) Historical cost
(iv) Current cost
(v) Net realisable value
(vi) Realisable value
(vii) Fair value
(viii) Future value
(a) i, ii, iii, iv, vii
(b) iii, iv, v, vii
(c) iii, iv, vi, vii
(d) i, iii, iv, vi, vii
(e) ii, iv, vi, viii
209
Chapter
17
IAS 1: Presentation of financial statements
Question 17.1
Answer each of the following questions by writing down the correct letter next to the
number. The questions are not related.
1. The principle of recognising assets, liabilities, equity, income and expenses in the
accounting period to which it relates is known as the:
(a) Going concern principle
(b) Accrual basis of accounting
2. Which of the general features of financial statements determines that a bank overdraft
may not be set off against cash on hand?
(a) Going concern
(b) Accrual basis of accounting
(c) Materiality and aggregation
(d) Offsetting
3. Which of the following items do not need to be presented as a separate line item on
the statement of financial position?
(a) Property, plant and equipment
(b) Shareholders for dividends (dividends payable)
(c) Inventory
(d) Cash and cash equivalents
4. Which of the following expenses must be presented as a separate line item on the
statement of profit or loss and other comprehensive income?
(a) Finance cost
(b) Depreciation
(c) Employee cost
(d) Lease expense
Question 17.2
1. Briefly discuss materiality and aggregation as well as comparative information as
general features of financial statements as contained in IAS 1.
211
2. According to IAS 1, what are the requirements for the identification of financial
statements?
3. What are the requirements of IAS 1 with regard to the notes to financial statements?
Question 17.3
1. List the contents of a complete set of financial statements.
2. Define the concept materiality.
Question 17.4
1. Define current liabilities.
2. In which sequence should notes to the financial statements be presented?
3. Discuss the identification of financial statements as noted in IAS 1.
4. Discuss consistency of presentation as a general feature of financial statements.
5. Discuss materiality and aggregation as a general feature of financial statements.
Question 17.5
You are a facilitator for accounting students. The students are uncertain about some of the
theoretical matters that were discussed in class and require your help with the following:
1. What would you say is the objective of financial statements?
2. Which two methods can be used to classify expenses in the statement of profit or loss
and other comprehensive income?
3. When would you classify an asset as a current asset?
4. If assets are not presented as current and non-current assets, what alternative is
available for the presentation of assets?
Question 17.6
You are the auditor of Luktu Limited, and the company’s financial director approaches you
with the following questions about the presentation of financial statements of which he is
uncertain:
1. When an entity does not prepare its financial statements on a going concern basis,
what are the disclosure requirements?
2. According to IAS 1, when should an asset be classified as a current asset?
3. The company launched a massive marketing drive during the year. The cost amounts to
R200 000 of the total operating expenses of R900 000. Should the entity disclose the
marketing expense separately? Provide reasons for your answer.
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Chapter 17: IAS 1: Presentation of financial statements
Required:
Answer all the questions of the director with reference to IAS 1 – Presentation of financial
statements.
Question 17.7
Pro Ltd prepared the following asset section of the statement of financial position for
presentation to its shareholders:
PRO LIMITED
BALANCE SHEET
ON 28 FEBRUARY 20.5
ASSETS
Non-current assets 165
Property, plant and equipment (Plant R100 000; Vehicles R50 000) 150
Financial assets (Listed shares R10 000; Savings account R5 000) 15
Current assets 75
Cash and cash equivalents (Petty cash R6 000; Bank overdraft R2 000) 4
Inventory 25
Trade and other debtors 36
Shareholders for dividends 10
TOTAL ASSETS 240
Required:
Critically discuss the presentation of the above statement based on the Conceptual
Framework and IAS 1.
Question 17.8
Avril Ltd is a public company listed on the Johannesburg Stock Exchange (JSE). The company
applies International Financial Reporting Standards (IFRS) to prepare its financial statements
and has elected to present its statement of profit or loss and other comprehensive income
according to the function method.
213
The company’s financial accountant prepared the following statement of profit or loss and
other comprehensive income for the year ended 31 December 20.2:
Revenue 12 000 000

Cost of sales (5 000 000)
Gross profit 7 000 000
Depreciation (1 500 000)
Salaries and wages (6 500 000)
Dividends declared (125 000)
Surplus on revaluation of property, plant and equipment 225 000
Other expenses (8 000 000)
Purchase of property, plant and equipment (4 250 000)
Profit for the year (13 150 000)
1. The following is included in “other expenses”:
R
Income tax expense (150 000)
Interest expense (505 000)
Required:
1. Briefly explain to the financial accountant why declared dividends of R125 000 should
not be presented in the statement of profit or loss and other comprehensive income as
an expense. Your answer should refer to the relevant definition in the Conceptual
Framework.
2. Provide a critical analysis of the above statement of profit or loss and other
comprehensive income in terms of IAS 1 and the Conceptual Framework.
214
Question 17.9
Select the correct answer for each of the multiple-choice questions below.
1. A set of financial statements reports on:
(i) Results of operations
(ii) Financial position
(iii) Results of cash flow operations
(iv) Source and appropriation of funds
(a) i to iii
(b) i and ii
(c) i to iv
2. IAS 1 gives the minimum information that should be presented on the face of the
statement of financial position:
(a) True
(b) False
3. According to IAS 1, expenses cannot be classified according to:
(a) Nature
(b) Function
(c) Materiality
4. Which of the following groups of people have the responsibility for preparing the
financial statements of a company?
(a) Shareholders
(b) Directors
(c) Auditors
215
Question 17.10
You are provided with the following statement of profit or loss and other comprehensive
income of Prost Limited:
R
Revenue 62 247 000
Cost of sales (25 647 000)
Other operating expenses (19 328 000)
Revaluation surplus 1 050 000
Purchase of equipment (64 000)
Distribution expenses (1 758 000)
Ordinary dividends declared (2 500 000)
Profit for the year 14 000 000
Upon further investigation, you discovered that included in “other operating expenses” are
the interest expense of R780 000 and the income tax expense of R4 343 920.
Required:
Critically evaluate the presentation of the above statement according to the requirements of
IAS 1.
216
Question 17.11
You are provided with the following statement of financial position of Brabham Limited:
ON 31 DECEMBER 20.2
Assets
Land and buildings 165
Vehicles 85
Furniture 45
Share capital (2 000 000 authorised NPV shares) 125
Cash on hand (cash float) 5
Bank overdraft (2)
Inventory 26
Trade and other debtors 15
Shareholders for dividends 11
TOTAL ASSETS 475
Equity and liabilities

Retained earnings 305
Trade and other creditors 110
Long-term loans 79
Accumulated depreciation 21
Income tax expense 30
TOTAL EQUITY AND LIABILITIES 545
Required:
Critically evaluate the presentation of the above statement according to the requirements of
IAS 1.
217
PART
D
TYPES OF ENTITIES
Chapter
18
Partnerships
Question 18.1
1. Which of the following is not a legal characteristic of partnerships?
(a) A partnership is not a legal entity.
(b) The assets are the joint property of the partners.
(c) Partners can be held personally liable for the debt of the partnership.
(d) If there is no partnership agreement, profits are divided 50/50.
Question 18.2 (Merger)

A and B are in partnership with the following statement of financial position on
31 December 20.1:
Assets
Land and buildings R100 000
Furniture R20 000
Bank R10 000
Capital
A R100 000
B R30 000
D and E are in partnership with the following statement of financial position on
31 December 20.1:
Assets
Furniture R40 000
Cash R1 000
Capital
D R100 000
E R20 000
Loan R121 000
On 1 January 20.2, they decided to merge.
221
Required:
Show the general ledger accounts in the new partnership.
Question 18.3 (Admission)

Cobus and Marius are partners and share profits in the ratio 2:1. On 30 June 20.3, their
statement of financial position was as follows:
R R
Land and buildings 100 000 Capital: Cobus 150 000
Vehicles 20 000 Marius 75 000
Furniture 10 000 Loan 40 000
Goodwill 30 000 Creditors 14 000
Inventory 48 000
Debtors 62 000
Bank 9 000
279 000 279 000
On 1 July 20.3, they decided to admit Johan to the partnership on the following conditions:
1. Assets should be re-valued as follows:
Vehicles R18 000
Furniture R8 000
Goodwill R40 000
Inventory R44 000
Debtors R60 000
2. Johan will obtain 1/5 share of the partnership and it was agreed that he would pay a
premium for goodwill for his share.
3. Cobus and Marius will share the remaining profits in the ratio 3:2. Cobus and Marius
must make cash payments/withdrawals to get their capital balances in line with their
profit-sharing ratios.
4. Goodwill should not be disclosed in the statement of financial position after the
admittance of Johan.
Required:
1. Journalise the above-mentioned entries to admit Johan to the partnership.
2. Draft the statement of financial position after Johan was admitted to the partnership.
222
Chapter 18: Partnerships

Ching and Chong are partners and share profits and losses in the ratio 3:2. On 30 June 20.5,
their statement of financial position was as follows:
R R
Property 40 000 Capital: Ching 50 000
Machinery 20 000 Chong 30 000
Inventory 24 000 General reserve 22 000
Debtors 18 000 Creditors 12 000
Bank 12 000
114 000 114 000
They agreed to admit Chang on 1 July 20.5 and that his profit share would be ¼. He was,
however, required to contribute R20 000 in cash as capital, as well as an additional amount
of R6 000 for goodwill.
It was agreed that goodwill should be valued at R24 000. In addition, it was agreed that
goodwill should not be disclosed in the statement of financial position and no goodwill
account should be opened in the ledger. Any adjustments to goodwill should, therefore, be
made directly in the capital accounts. The general reserve must be written back as a separate
line item.
Property was re-valued at R50 000 and inventory at R22 000. The revaluation surplus must
be carried as a separate line item in the statement of financial position. The three partners
will be sharing profits and losses in the following ratio:
Ching – 5; Chang – 2; Chong – 1.
The capital balances of Ching and Chong should be adjusted in accordance with their profit-
sharing ratios. Cash should be deposited, or amounts should be transferred to separate loan
accounts for this purpose.
Required:
Journalise all the above-mentioned transactions to cover all the steps as mentioned above
and compile a statement of financial position for the new partnership.

Ansie, Basjan and Chris were in a partnership and distributed the profits and losses 3:1:1
respectively. No goodwill appeared in the books.
Danie was accepted as partner on 1 July 20.1, under the following conditions:
1. Goodwill is valued at R20 000 only for the purposes of Danie’s admission.
2. Danie must contribute R21 500 in cash to the partnership.
223
3. Profits and losses will be distributed between Ansie, Basjan, Chris and Danie in the ratio
of 4:4:1:1.
4. No interest on capital or salaries will be applicable.
5. The general reserve must be written back and appear again after admission in the
books.
The statement of financial position on 30 June 20.2 is as follows:
ON 30 JUNE 20.2
R R
Capital: Ansie 16 000
Basjan 16 000
Chris 9 400
Danie 7 800
49 200
General Reserve 15 000
64 200
Non-current assets
Furniture 3 600
Vehicles 2 000 21 600
Current assets
Inventories 14 000
Debtors 12 000
Loan: Ansie 15 000
Bank 6 000
47 000
Current liabilities: Creditors (4 400) 42 600
64 200
The profit for the year ended 30 June 20.2 is R10 000. Drawings for the year ended
30 June 20.2 are as follows:
Ansie R2 000
Basjan R2 000
Chris R1 600
Danie R11 200
With the exception of drawings and the contribution of Danie, no cash was contributed or
withdrawn by the partners. Profit shares and drawings were directly recorded in the capital
accounts.
224
After the above statement of financial position was prepared, it was decided that the original
agreement was unfair, and the partners decided on the following amended arrangements:
1. The agreement will be applicable retrospectively from 1 July 20.1.
2. Land and buildings should be re-valued at R5 000 more than the carrying amount only
for the admittance of Danie.
3. Goodwill should be valued at R10 000 only for the admittance of Danie.
4. Chris and Danie’s capital accounts should be each credited with a salary of R2 000 p.a.
from 1 July 20.1.
5. Danie must still contribute R21 500.
6. Profits and losses would be shared 2:1:1:1 respectively.
7. The general reserve must be written back and appear again in the books after
admission.
8. The distribution of profits and drawings should be allocated to the capital accounts.
Required:
1. Determine the balance of the capital accounts on 1 July 20.1. Reconstruct the capital
account for the year ended 30 June 20.2 according to the original agreement.
2. Compile the capital accounts for the year ended 30 June 20.2 according to the new
partnership agreement.

Mark and Tom are partners in a computer store trading as Blink Computers. They share
profits and losses in the ratio 3:2.
On 28 February 20.1, the statement of financial position indicated the following:
BLINK COMPUTERS
ON 28 FEBRUARY 20.1
R
ASSETS
Non-current assets
Property, plant and equipment (land and buildings) 1 000 000
Current assets
Inventory 220 000
Cash and cash equivalents 44 000
TOTAL ASSETS 1 264 000
continued
225
R
Equity
Capital: Mark 400 000
Capital: Tom 200 000
Current account: Mark 350 000
Current account: Tom 150 000
General reserve 100 000
Interest-free long-term loan 64 000
TOTAL EQUITY AND LIABILITIES 1 264 000
1. On 1 March 20.1, Travis obtained a 1/3 interest in the partnership by depositing

R650 000 into the bank account of the partnership.
2. The partners do not want to show the general reserve on the statement of financial
position after the admission of Travis.
3. The partnership agreement states the following:
• Each partner is entitled to a salary of R5 000 per month.
• Partners are entitled to interest on capital of 10% of the opening balance of their
capital accounts. Newly admitted partners earn 10% of their capital contribution
apportioned for the number of months that they served as partners.
4. Sales for the year amounted to R3 000 000. All sales were made in cash.
5. Inventory purchases for the year amounted to R2 500 000. All purchases were made in
cash.
6. Inventory on hand on 28 February 20.2 amounted to R320 000.
7. Operating expenses of R160 000 were incurred and paid in cash during the year. Land
and buildings are not depreciated.
8. Cash withdrawals by the partners during the year were as follows:
Mark R65 000
Tom R30 000
Travis R75 000
Total R170 000
Required:
1. Calculate the new profit share ratio after the admission of Travis on 1 March 20.1.
2. Provide the journal entries to record the admission of Travis on 1 March 20.1. Journal
narrations are not required.
226
3. Prepare the statement of profit or loss and other comprehensive income of the
partnership for the year ended 28 February 20.2. Your answer should include the
distribution (appropriation) division. Comparative figures are not required.
4. Prepare the statement of financial position of the partnership on 28 February 20.2.
Comparative figures are not required.
Question 18.7 (Retirement)

Braam, Bianca and Bruce are partners in a family business. The trial balance on 30 June 20.3
is as follows:
R
Capital: Braam 10 000
Bianca 20 000
Bruce 10 000
Current accounts:
Braam 2 000
Bianca 3 000
Bruce 2 000
Creditors 8 000
55 000

Depreciation (4 000)
Debtors 8 000
Allowance for credit losses (900)
Inventory 11 900
55 000
Their partnership agreement mentions that the partners, Braam, Bianca and Bruce, must
share the profits and losses in the ratio 2:2:1.
Bianca decided to start her own business on 30 June 20.3 and thus retire from the
partnership. They agreed on the following:
1. The following assets were re-valued:
Debtors (net) R7 000
2. The partners bought a life insurance policy at R5 000. The return was paid to Bianca.
227
3. Since the partnership did not have sufficient funds to settle Bianca’s account, they
decided to create a loan account for Bianca. They would then pay Bianca in monthly
instalments over 14 months, starting on 1 July 20.3. No interest is payable.
4. It was agreed that the amount owing to Bianca amounts to R29 960.
5. Braam and Bruce decided to share profits equally and that goodwill should not appear
in the books of the partnership.
Required:
Journalise all the above entries, including the journal entries relating to Bianca’s retirement
from the partnership as well as the first instalment on her loan account.
Question 18.8 (Retirement)

A, B and C are in partnership and the profit-sharing ratio is 5:2:3.
The statement of financial position of the partnership 1 January 20.1 is as follows:
R
ASSETS
Property 190 000
Plant and equipment 85 000
Current assets 15 000
290 000
EQUITY
Capital A 40 000
Capital B 120 000
Capital C 80 000
Current account A 5 000
Current account B (10 000)
Current account C 20 000
Replacement reserve 20 000
290 000
On 1 January, C decided to retire under the following conditions:

1. The property must be re-valued up to R200 000.
2. Goodwill is estimated at R50 000, but should not be recorded in the books of the new
partnership.
3. All reserves must be written back.
228
4. The new profit-sharing ratio for A and B is 2:2.

5. C will receive R10 000 cash, and the rest should be converted to a loan.
Required:
1. Shown the capital accounts in column format to display the above.
2. Show the statement of financial position on 2 January 20.1.
Question 18.9 (Admission and retirement)

A and B are partners and share profits and losses in the ratio 3:2. The partnership agreement
stipulates that, should one of the partners retire, the non-current assets must be re-valued.
Furthermore, it is also stipulated that the value of goodwill will be set at twice the average
profit for the last 3 years.
A decided to retire on 31 December 20.3. On this date the following statement of financial
position was obtained from the books:
R R
Goodwill at cost 10 000 Capital: A 20 000
Land and buildings at cost 20 000 B 60 000
Inventory 40 000 Creditors 15 000
Debtors 30 000 Bank 5 000
100 000 100 000
1. Land and buildings are re-valued at R50 000.
2. Profits for the previous years are as follows: 20.1 – R70 000, 20.2 – R80 000, and 20.3 –
R90 000. Goodwill must not appear in the books after the retirement.
3. The amount owed to A must be paid out in cash.
4. After A retired, C was admitted as a partner.
5. C agrees with the valuation of the assets and brings in R100 000 as capital. The goodwill
is determined, and C has to pay R35 000 for 1/5 of the goodwill in the partnership.
6. A general reserve to the amount of R10 000 must be created.
7. Goodwill should not appear in the books after the admission.
Required:
Prepare the general journal entries to give effect to the transactions above.
229
Question 18.10 (Retirement and admission)

Part A
Siena, Lydia and Lulu are three sisters who have been in a partnership since 20.5 running a
hair salon called Upstyle Hair. The agreement that they have with one another is to share
profits in the ratio 3:2:5. Over the years, Lydia has grown tired of the hair salon business and
she has been spending less and less time at the salon.
Lydia finally decided that she would like to start a new business venture and will, therefore,
be leaving the partnership.
Lydia knows that the partnership does not have available cash to pay her until a new partner
can be found. She has agreed to be paid R10 000 in cash with the remaining amount to be set
up as a loan, until such time as a new partner comes in. The following financial information
was available at the time of her withdrawal:
DR CR
R R
Capital: Siena 72 600
Capital: Lydia 54 600
Capital: Lulu 121 000
Current account: Siena 65 000
Current account: Lydia 46 500
Current account: Lulu 39 800
Drawings: Siena 46 500
Drawings: Lydia 35 100
Drawings: Lulu 41 800
Salon equipment (carrying amount) 289 000
Other assets 173 000
Liabilities 35 000
Profit for the period 125 300
585 400 585 400
The sisters agreed that the salon equipment is undervalued by R30 000.
Lydia is aware that the hair salon has become very successful with a solid and reliable client
base. She is, however, concerned for her sisters, who are both single mothers, and she does
not want to hurt the business by demanding too much for the goodwill that has been built up
over the years. She agrees to accept an amount of R117 180 for her share of the partnership.
230
Siena and Lulu will continue to share profits in their current profit-sharing ratio. They do not
want goodwill to appear in their books after Lydia leaves and the general reserve should be
re-instated.
Required:
Calculate and prepare the journal entries for the goodwill relating to Lydia’s withdrawal from
the partnership.
Part B
Three months after Lydia left, the sisters were approached by Fergie, a hair stylist who had
recently moved to town. She had considered opening her own salon but felt the reputation
of Upstyle Hair was so strong it would be hard to compete. She approached the sisters and
asked for a 25% share in the partnership for which she would pay R184 000. The sisters felt
that they needed a third partner and accepted her offer. The financial records included the
following:
R
CAPITAL 251 000
Siena 126 000
Lulu 125 000
CURRENT ACCOUNTS 99 200
Siena 44 900
Lulu 54 300
DRAWINGS 33 200
Siena 15 400
Lulu 17 800
Profit for the period 85 000
Goodwill will not be shown in the books of the new partnership and the general reserve is no
longer required. Siena and Lulu must pay in or be paid out an amount to bring their capital
accounts in line with the new profit-sharing ratio.
Required:
1. Calculate the goodwill that will be recorded at Fergie’s admission (no journal entries
are required).
2. What must the capital accounts of Siena and Lulu be after the admission of Fergie?
231
Question 18.11 (Admission and retirement)

Tom, Dick and Harry are partners in a partnership and share profits and losses in the ratio
2:1:4 respectively. The following information has been extracted from the books of the
partnership:
TDH PARTNERSHIP
ON 30 JUNE 20.2
R R
Assets Equity and liabilities
Buildings 240 000 Capital: Tom 52 000
Equipment 24 000 Dick 104 000
Goodwill 28 000 Harry 272 000
Inventory 160 000 General reserve 56 000
Debtors 68 000 Loan: Quinton 16 000
Bank 20 000
520 000 520 000
1. On 1 July 20.2, Harry decided to retire from the partnership and the partners agreed as
follows:
(a) Goodwill must be re-valued at R42 000. The general reserve is to be cancelled.
(b) Other assets are to be valued as follows for the purposes of his retirement:
Equipment R29 800
Inventory R136 000
(c) Half of the amount calculated as owing to Harry, will be paid out immediately,
while the other half will be transferred to a loan account. This loan will be repaid
over a period of 2 years.
(d) Harry’s interest will be taken over by the remaining two partners equally.
2. In order to raise sufficient cash to pay Harry out, Tom and Dick decided to admit
Tebesho to the partnership on the same day. For the purposes of Tebesho's admission,
the partners agreed as follows:
(a) Tebesho must pay R11 760 for goodwill for his 1/5 share in the partnership.
(b) Tebesho will contribute a vehicle to the value of R16 000 and the rest as cash for a
total capital contribution of R80 000.
(c) Debtors are re-valued at R55 400 after the admittance of Tebesho.
3. A general reserve of R24 000 should be disclosed in the books of the new partnership.
4. The partners decided that goodwill will not appear in the books of the new partnership.
232
Required:
1. Prepare the necessary general journal entries in the books of the partners (round all
amounts off to the nearest rand).
2. Prepare the statement of financial position of the new partnership TDT on 1 July 20.2.
Question 18.12 (Dissolution)

The following is an extract from the trial balance of A and B (profit-sharing ratio of 2:3):
TRIAL BALANCE
ON 31 DECEMBER 20.1
R
Bank 2 000
Debtors 35 000
Inventories 3 000
Loan of A 2 000
Capital A 18 000
Capital B 12 000
The partners decided to stop trading and to dissolve the partnership. At the dissolution, the
assets realised are as follows:
Debtors R28 000
Inventory R3 500
Dissolution expenses amounted to R500.
Required:
Show the general ledger accounts to display the above.
Question 18.13 (Liquidation and complete dissolution)

Albert and Kgogometse have been trading together in a partnership for some time.
Kgogometse decided to change her career and since Albert does not want to continue with
the business on his own, they decided to liquidate the partnership.
233
The statement of financial position below represents the entity at the end of June 20.3.
A&K SERVICES
ON 30 JUNE 20.3
Cost Acc. dep. Carrying
amount
R R R
ASSETS
Non-current assets 435 000 90 000 345 000
Property, plant and equipment 305 000 40 000 265 000
Vehicles 130 000 50 000 80 000
Current assets 132 800
Accounts receivable 55 200
Cash 84 600
TOTAL ASSETS 477 800

Equity
Capital 152 400 130 400 282 800
Current accounts 43 500 54 500 98 000
Loan: Saambou Bank 62 000
Current liabilities
Accounts payable 35 000
TOTAL EQUITY AND LIABILITIES 477 800
The following transactions occurred during July at the time of dissolving the partnership:
• A vehicle with a carrying amount of R50 000 was sold for R39 000.
• A vehicle with a carrying amount of R30 000 was sold for R12 000.
• The accounts payable were settled in full.
• The land and buildings were sold for R140 000.
• The equipment was sold for R100 000.
• Accounts receivable paid R40 100 in full settlement of all outstanding debts.
• The outstanding loan from Saambou Bank was repaid in full.
• The partners share 50/50 in any losses or profits with liquidation.
234
Required:
Compile the journal entries for the above-mentioned liquidation.
Question 18.14 (Liquidation and dissolution)

Bettie, Boeboe and Babsie are partners and share profits and losses in the ratio 5:3:2. The
following information was obtained from the records of the partnership:
BETTIE, BOEBOE AND BABSIE

ON 30 JUNE 20.9
R
Capital: Bettie 48 000
Boeboe 30 000
Babsie 12 000
90 000
Loan 10 000
Creditors 8 000
108 000

Furniture 12 000
Plant 58 000
Bank 2 000
108 000
The partners decided to dissolve the partnership. The assets realised as follows:
Assets Return
R
Furniture 8 000
Plant 52 000
In the event of a shortage on a partner’s capital account, the relevant partner would be
required to make a payment in cash for the same amount.
Required:
Compile the liquidation account and bank account in view of the above decision.
235
Question 18.15 (Liquidation and complete dissolution)

PWC ACCOUNTANTS
ON 30 JUNE 20.2
R
ASSETS
Non-current assets 1 350 000
Furniture 600 000
Equipment 750 000
Current assets
Bank 225 000
TOTAL ASSETS 1 575 000

Capital 900 000
Pieter 212 500
Willie 300 000
Charles 387 500
Liabilities 675 000
Loan: Charles 450 000
Creditors 225 000
TOTAL EQUITY AND LIABILITIES 1 575 000
Pieter, Willie and Charles share profits and losses in the ratio 2:3:5. On 30 June 20.2, the
partners decided to dissolve the partnership.
Assets realise as follows:
Assets
Furniture A loss to the amount of R25 000 was realised
Equipment R800 000 was received for the equipment sold at an auction
Required:
Compile the liquidation account and bank account in view of the above decision.
236
Question 18.16 (Liquidation and distribution)

The financial records of W, X, Y and Z show the following information on 28 February 20.9:
ON 28 FEBRUARY 20.9
R
Capital: W 40 500
X 75 000
Y 31 500
Z 33 000
180 000
Loan: W 15 000
195 000
Sundry assets 261 000

Cash 9 000
270 000
Creditors (75 000)
195 000
W, X, Y and Z split profits and losses in the following ratio: 2:4:1:3. The partners decided to
dissolve the partnership. The sale of assets will take place over a period of 4 months to
obtain the best possible prices.
After each sale, all available cash must be paid out to ensure that partners do not have to
make any back payments at a later stage.
The assets were realised as follows:
Carrying
Date amount Proceeds
of assets
R R
March 20.9 126 000 81 000
April 20.9 105 000 120 000
May 20.9 24 000 27 000
June 20.9 6 000 4 000
261 000 232 000
If any loss on a partner’s capital account occurs, the partner will be responsible for payment.
237
Required:
Prepare the liquidation schedule and the distribution statement to implement the liquidation.

Portos, Artos and Bidemer are partners in a general dealer concern and share profits and
losses in the ratio 4:2:1. During March 20.6, Artos was declared insolvent and the partnership
dissolved. The statement of financial position of the partnership on 31 March 20.6 was as
follows:
ON 31 MARCH 20.6
EQUITY AND LIABILITIES R
Capital: Portos 73 000
Artos 4 500
Bidemer 62 000
Current accounts: Portos 2 400
Artos (12 340)
Bidemer 1 600
Mortgage loan on land and buildings 30 000
Loan: Portos 14 500
Current liabilities
Creditors 17 750
Bank 1 830
TOTAL EQUITY AND LIABILITIES 200 490
ASSETS
Non-current assets
Property, plant and equipment 138 400
Goodwill 14 980
Loan: Artos 6 300
Current assets
Inventory 24 600
Debtors 16 560
TOTAL ASSETS 200 490
238
The assets of the partnership are realised as follows and liabilities are redeemed with
available cash. Over a period of 4 months, the following took place:
12 April 25% of the inventory sold at a cash discount of 10%.

30 April Vehicle sold for R21 695 (carrying amount R25 000).
16 May Bidemer took over equipment with a carrying amount R3 400, for R3 000.
The amount is to be debited against his capital account.
The remaining equipment (carrying amount R10 000) was sold for R9 630
cash.
23 May Half of the inventory has been sold for R10 725.
29 May Discount received from creditors came to R574.
3 June Loan is redeemed.
6 June Remaining inventory was sold for R3 966.
18 June Settlements received from debtors came to R16 203.
30 June Land and buildings were sold for R103 500.
Dissolution costs amounted to R2 900.
Required:
1. Show how the partners’ capital accounts will be settled and closed off.
2. Prepare a liquidation schedule and distribution statement.

André and Ilze-Marie had a partnership organising tours to America. Their agreement
included the following:
“Each partner must contribute R10 000 capital. The capital will carry interest at 12% p.a.
Current accounts carry interest at 18% p.a. on credit balances. Loans from partners carry
interest at 24% p.a. These loans will be set aside until all payments were made to creditors and
other external liabilities. If the partnership should cease to exist, the money should be
distributed in such a way that no partner will contribute to the partnership again.”
The agreement did not mention the profit distribution ratio.
Due to a decline in the travel industry during 20.1, there has been a sharp drop in bookings
and the partnership experienced serious cash flow problems. To try to minimise losses, the
partners decided to liquidate the entity.
239
The trial balance on 30 June 20.2 was as follows:
DR CR
Capital – A 10 000
Capital – I 10 000
Current account – A 5 780
Current account – I 23 050
Distribution account
(profit, after all agreed payments to and from partners) 1 000
Loan – A 1 000
Loan – I 9 000
Vehicles 65 000
Debtors 25 600
Creditors 17 800
Loan – AB Bank 55 000
Bank 6 530
132 380 132 380
Up to 31 August 20.2, the assets were realised as follows:
31 July 20.2
All furniture and equipment – R24 000.
Half of the debtors were collected.
31 August 20.2
All vehicles – R50 000.
Debtors amounting to R10 000 were discounted at the bank. The discounting cost was
R1 000. The remainder of the debtors should be written off as irrecoverable.
None of the partners was able to contribute any cash.
Required:
Compile a distribution and liquidation schedule to adhere to the requirements of the
partnership agreement.
240
Question 18.19 (Admission and liquidation)

Harry and Ron are in a partnership, which operates as a general dealer, and their profit-
sharing ratio is 3:2. The following statement of financial position appears in their books on
30 June 20.4:
R
CAPITAL 30 000
Harry 18 000
Ron 12 000
ASSETS 30 000
Furniture at carrying value 2 000
Goodwill 2 000
Inventory 14 000
Debtors (after the allowance for credit losses of R1 000) 3 000
Bank 1 000
LIABILITIES (Creditors) 2 000
It was agreed on 30 June 20.4 to admit Hermione as partner on the following conditions:
• The goodwill that is currently shown in the partnership must be written off.
• The allowance for credit losses must be increased to R2 000.
• Land and buildings must be re-valued to the market value of R90 000.
• Hermione will receive 1/5 of the future profits, which will be surrendered in equal parts
by the current partners.
• Hermione must bring in R120 000 in cash of which R26 750 is for capital and the rest for
goodwill.
• Goodwill must be shown in the books of the new partnership.
• Harry and Ron must pay in or withdraw cash so that their capital contributions are in
comparison with Hermione in the ratio 5:3:2.
Required:
1. Show the capital accounts of the partners to carry out the above-mentioned.
2. Show what the realisation account would look like in the ledger, should the partnership
be liquidated prior to Hermione joining the partnership. Assume that the assets would
realise as follows:
• Land and buildings, R90 000
• Other assets, R10 000
241
Question 18.20 (Admission, retirement, liquidation and distribution)

F&S Accountants is a firm in Potchefstroom. S is the senior partner and receives 60% of
the profit. The following information was retrieved from the accounting records on
31 December 20.8:
TRIAL BALANCE
ON 31 DECEMBER 20.8
R
Capital: S (80 000)
F (120 000)
Current accounts: S (7 500)
F (3 100)
Drawings: S 60 000
F 40 000
Loan S (20 000)
Debtors 65 700
Bank 42 400
Service income (130 000)
General reserve (12 000)
Loan F 10 000
Extract from partnership agreement:

Income distribution:
Bonuses
Partners must receive the following bonuses:
S = 10% of service income
Salaries
The following salaries are payable:
S = R5 000 a month
F = R4 000 a month
Interest on capital
Partners will receive interest on capital of 10% (F) and 9% (S) on the capital balance at year-
end. The balance must be increased or decreased by any loans from and to partners, as these
loans are interest-free.
242
Retirement and dissolution:

Option 1:
A new partner may be approached to buy out the retiring partner’s share. In that instance,
the new partner must pay 100% of the last years’ service income less administrative costs for
a 30% share in the partnership. The current partners will keep their ratios of profit-sharing.
The money must be paid in cash and is regarded as goodwill. The general reserve must stay
in the records at all times. After the new partner has been admitted, the goodwill must be
written out of the books and the capital balance of the retiring partner must be paid out in
cash. Assume that the admission of the new partner takes place first.
Option 2:
The partnership may dissolve completely and distribution will be made according to the
relative capital method.
On 1 December 20.8, S announces that she would like to retire. In accordance with the
partnership agreement, the following options are reviewed:
1. W is approached and is prepared to become a partner. She accepts all the conditions of
the partnership agreement.
2. A valuation was done on the assets, and it was determined that the assets will realise as
follows on dissolution:
Sales price Cost
R R
31 January 20.9 Computers 18 000 43 000
28 February 20.9 Other furniture and equipment 99 000
31 March 20.9 Debtors 59 000
Required:
Complete the following for consideration:
Option 1 – Capital accounts of the partnership.
Option 2 – Liquidation and distribution statement.
243
Question 18.21 (Financial statements)

The following information relates to the partnership D Dell and B Bell on 28 February 20.6:
Capital (fixed): R
D Dell 270 000
B Bell 135 000
Current accounts (28 February 20.5):
D Dell (DR) 9 000
B Bell (CR) 12 000
Drawings:
D Dell 27 000
B Bell 18 000
Profit and loss account (profit for the year) 171 300
Furniture and fittings 27 000
Tools and equipment 75 000
Furniture and fittings at cost 150 000
Tools and equipment at cost 180 000
Investment at cost (Chase Bank) 42 000
Inventory: Merchandise 6 000
Prepaid expenses 870
9% Mortgage loan (secured by a first bond over land and buildings) 30 000
Interest due by Chase Bank 1 680
Accrued expenses 600
Debtors 33 000
Creditors 6 000
The partnership agreement provides for:
1. Interest on capital at 10% p.a.
2. Interest on opening balances of current accounts at 5% p.a.
3. Interest on drawings – the applicable amounts for the year are as follows:
D Dell R1 260
B Bell R690
244
4. A managerial salary of R60 000 p.a. to D Dell.

5. D Dell and B Bell to share profits and losses equally.
Required:
1. Show the current accounts of D Dell and B Bell, properly balanced, on 28 February 20.6.

The following information relates to the partnership Trifecta on 28 February 20.9:
R
Capital accounts (fixed):
Carol 600 000
Boys 200 000
Accumulated depreciation (28 February 20.8):
Furniture 125 000
Vehicles 135 000
12% Mortgage loan (secured over land and buildings) 210 000
10% Fixed deposit 30 000
Carol (CR) 45 000
Boys (DR) 15 000
Inventory (28 February 20.9):
Merchandise 300 000
Printing material 4 500
Debtors 80 000
Creditors 52 500
Drawings:
Carol 110 000
Boys 65 000
245
1. Provide for:
• Interest on fixed deposit for the full year.
• Depreciation as follows:
Furniture R25 000
Vehicles R40 000
2. The partnership agreement provides for the following:
• Carol and Boys must share profit and losses in the ratio 3:1.
• Interest on fixed capital at 10% p.a.
• Interest on opening balances on current accounts at 12% p.a.
• Interest on drawings – the applicable amounts for the current year are:
Carol R2 200
Boys R1 250
3. A managerial salary of R62 500 p.a. to Boys and a bonus of R40 000 p.a. to Carol.
Required:
1. Show the appropriation section of the statement of profit or loss and other
comprehensive income of Trifecta for the year ended 28 February 20.9.
NB: The calculation of the current account balances of Carol and Boys should be shown
separately.

Partner Johan has a а share in a partnership. His capital is R420 000 and, from the half-year
profits, he is entitled to an interest of 8% p.a. on his capital, as well as a bonus of 20% of
profit after all interest and his bonus were taken into account.
Partner André, with a capital of R264 000, is entitled to 7½% interest p.a. on his capital as
well as a salary of R21 600 p.a. André withdrew salaries of R10 800 in cash, which were
included in the general salaries account.
Johan and André withdrew cash of R1 020 and R600 respectively per month. Interest on
drawings for the half-year amounted to R180 and R108 for Johan and André, respectively.
Debit balances on the current accounts on 30 June 20.2 were as follows:
1. Johan R4 800
2. André R1 200
These accounts are subject to interest at 12% p.a. on the opening balances.
Interest on the R36 000 loan from partner Johan is calculated at 9% p.a.
246
The profits for the half year ended 31 December 20.2, before the above items were provided
for, amounted to R39 600.
Required:
1. Prepare the statement of profit or loss and other comprehensive income for the half-
year ended 31 December 20.2. (Round off to the nearest rand.)
2. Briefly discuss the different methods available for distributing profit or losses in a
partnership.

The following information was obtained from the accounting records of Hop and Shoot
Partnership on 31 December 20.3, the end of the financial period of the partnership:
Balances on 1 January 20.3: R

Current accounts: Mr Smit 4 500 (DR)
Mr Fourie 7 050
Balances on 31 December 20.3:
Capital: Mr Smit 60 000
Mr Fourie 105 000
Withdrawals: Mr Smit 7 500
Mr Fourie 16 050
Loan (1 January 20.3): Mr Smit 18 750 (CR)
The profit for the year, before the information below was taken into account, amounts to
R112 500.
1. During the year the following salaries were paid to the partners and included in the
general salaries:
Mr Smit R8 700
Mr Fourie R9 300
2. Interest on the long-term loan at 14% p.a. is still outstanding.
3. The partnership agreement states the following:
• Interest on capital should be calculated at 12% p.a. on the closing balance of the
capital accounts.
• Interest on the current accounts should be calculated at 7% p.a. on the opening
balances.
• Interest on drawings for the year amounted to:
Mr Smit R1 078,50
Mr Fourie R720,00
247
• The partners are entitled to the following salaries:

Mr Smit R2 250 per month
Mr Fourie R2 400 per month
• Mr Fourie is entitled to a bonus of 10% of the profit after all items, including the
bonus, have been taken into account.
• Mr Smit and Mr Fourie share profit and losses in the ratio 1:3.
Required:
partnership for the year ended 31 December 20.3.
2. Prepare the current account of Mr Fourie in the partnership ledger.

On 31 March 20.9, the following information was obtained from the financial records of
Pieter and Heine trading as equal partners:
R
Capital:
Pieter 90 000
Heine 75 000
Current accounts (1 April 20.8):
Pieter (DR) 7 500
Heine (CR) 3 000
Long-term loan from Heine at 15% p.a. 60 000
Sundry debtors 79 950
Accumulated depreciation: Furniture and equipment (31 March 20.8) 5 250
Allowance for credit losses (31 March 20.8) 3 000
Credit losses recovered 156,67
Inventory: Merchandise (1 March 20.8) 120 750
Purchases 300 750
Interest paid to Heine on long-term loan 2 700
Stationery on hand (1 April 20.8) 900
248
1. The partnership agreement provides for:
• Interest on capital at 15% p.a.
• Interest on current account (opening balances) at 10% p.a.
• A managerial salary of R10 000 p.a. to Heine.
• A bonus equal to 10% of the distributable profit to Pieter.
2. Credit losses to be written off, R450.
3. The allowance for credit losses should be maintained at 5% of the outstanding debtors’
balances.
4. Outstanding interest on the long-term loan from Heine should be provided for.
5. Provision for depreciation on furniture and equipment at 15% p.a. on the reducing
balance method.
6. Inventory on hand on 31 March 20.9:
• Merchandise R91 500
• Stationery R150
7. The gross profit percentage on sales is 20%.
8. Pieter and Heine share profits and losses equally.
Required:
Prepare the statement of profit or loss and other comprehensive income of Pieter and Heine
for the year ended 31 March 20.9, clearly showing the distribution section.

The following information relates to the partnership Carel & Kotzé:
R
Capital accounts on 31 March 20.3:
S Carel 175 000
S Kotzé 140 000
Drawings for the year ended 31 March 20.3:
S Carel 87 500
S Kotzé 96 250
Profit for the year ended 31 March 20.3 157 500
NB: All transactions with partners are recorded in their respective drawings accounts.
249
1. Carel and Kotzé to share profits in the ratio 3:5.
2. Interest at 15% p.a. on the opening balances of the capital accounts.
3. A managerial salary of R7 000 per month to Carel, payable during the year. This amount
was treated as an expense in determining the net profit for the year.
4. A bonus of 10% of the annual net profit to Kotzé before any distributions to partners
are taken into account.
Required:
1. Draw up the distribution section of the statement of profit or loss and other
comprehensive income for the year ended 31 March 20.3.
2. Show the owner’s equity section of the statement of financial position of the
partnership on 31 March 20.3. The calculation of the new balances should be clearly
shown.
3. Determine the amounts to be paid in or withdrawn by each of the partners to bring
their capital balances in line with their profit-sharing ratio without changing the total
amount of the owners’ equity.

The following information relates to the partnership T Owen and J Sambi:
T OWEN AND J SAMBI
TRIAL BALANCE
ON 31 DECEMBER 20.9
DR CR
R R
Capital (fixed):
T Owen 126 000
J Sambi 84 000
Current accounts (31 December 20.9):
T Owen 25 200
J Sambi 63 000
Drawings:
T Owen 28 350
J Sambi 19 950
continued
250
DR CR
R R
Prepaid rent 1 155
Creditors 21 000
Debtors 27 667,50
Land and buildings at cost 243 232,50
Furniture and equipment at cost 7 560
Accrued interest expense 1 365
Mortgage loan (secured by a first mortgage over land and
buildings) 77 700
Accumulated depreciation: Furniture and Equipment 4 200
465 360 465 360
1. Interest at 15% p.a. on fixed capital.
2. Interest at 15% p.a. to be paid or charged on opening balances of current accounts.
3. Interest on drawings – the amounts for the current year are as follows:
T Owen R966,00
J Sambi R669,90
4. Salaries to partners are as follows:
T Owen R21 000
J Sambi R15 750
5. Commission to J Sambi, R5 250.
6. T Owen and J Sambi to share profits and losses in the ratio of their fixed capital.
Required:
comprehensive income of the partnership for the year ended 31 December 20.9.
2. Prepare the statement of financial position of the partnership on 31 December 20.9.
251

Mr C Do and F Mic are in partnership as DoMic. The following balances appear in the
accounting records for the year ended 30 Jun 20.2:
C Do F Mic
Capital: Fixed (opening balances) R150 000 R200 000
Current accounts (opening balances) R10 000 (DR) R25 000 (CR)
10% Long-term loan from F Mic R50 000 (CR)
The net profit for the year ended 30 June 20.3 amounted to R88 500, before the following
items were taken into account:
1. Interest on the long-term loan for the current financial year.
2. Administrative expenses of R17 500.
The partnership agreement stipulates the following:
1. Interest on drawings for the year:
• C Do R5 000
• F Mic R7 500
2. The partners are entitled to interest on capital at 5% p.a., calculated on the closing
balances. C Do contributed additional capital of R50 000 during the current year.
3. Interest on current accounts is calculated at 10% p.a. on opening balances. If the
current account of the partner shows a debit balance, he shall pay a penalty of R500
over and above the interest.
4. C Do is entitled to a salary of R1 000 per month. R6 000 of this was paid in cash and was
included in the administrative expenses.
5. An entertainment allowance of R2 500 is payable to each partner to enable him to
entertain clients.
6. F Mic is entitled to a commission of 10% on net income before interest as specified in
the partnership agreement, but after entertainment allowances, salaries and
commission have been taken into account.
7. The remainder of the profit/loss is divided between the partners according to their
capital balances on 30 June 20.3.
Required:
Prepare the distribution section of the statement of profit or loss and other comprehensive
income of DoMic for the year ended 30 June 20.3. (Show all calculations.)
252
Question 18.29 (Financial statements and VAT)

Hugo and Nell Partners are registered for VAT. All amounts include VAT (where applicable),
unless otherwise stated.
The information below relates to the entity for the year ended 28 February 20.3:
DR CR
R R
Capital (28 February 20.2):
A Hugo 248 400
K Nell 248 400
Current accounts (drawings included):
A Hugo 54 096
K Nell 8 280
Vehicles 11 040
Furniture and equipment 6 292,80
Depreciation for the year ended 28 February 20.3: Furniture
and equipment 2 980,80
12% Long-term loan 55 200
Inventory 165 600
Gross profit for the year 220 800
Consumable goods on hand 4 123,20
Debtors 99 360
Wages and salaries 111 504
Creditors 72 177,60
Bank charges 1 159,20
Interest expense 2 870,40
Allowance for credit losses 7 672,80
Insurance 2 760
Bank overdraft 20 450,40
VAT control 5 004
253
1. On 1 March 20.1, the estimated life of the vehicles was set at 5 years. The entity uses
the straight-line method.
2. Gross rental income amounted to R1 269,60 (VAT included) per month. The office was
let for the whole year.
3. Gross salaries owing amounted to R5 520.
4. A further R1 104 (VAT included) debtors should be written off as irrecoverable and the
allowance for credit losses should be adjusted to 5% of outstanding debtors.
5. The long-term loan was negotiated on 1 September 20.2 and interest is still outstanding
in respect of the full period.
6. Included in insurance is a premium of R529,92 (VAT included) in respect of a new policy
taken out on 1 February 20.3. The premium is payable annually.
7. Bank charges amounting to R276 (VAT excluded) were wrongly included in the cash
purchase column of the cash payments journal. As yet no correction has been made.
8. Effect should still be given to the following provisions of the partnership agreement:
• Interest on capital at 8% p.a. on the opening balances.
• Interest at 10% p.a. on the opening balances of the current accounts.
• Profit and losses are to be shared equally by the partners.
9. Drawings during the year were as follows:
• Hugo: Cash R2 760; Merchandise R15 456
• Nell: Cash R2 760; Merchandise R15 456
The partner’s drawings accounts were debited with these amounts during the year. On
28 February 20.3, the drawings accounts were closed off and the balances transferred to
their current accounts.
Required:
partners for the year ended 28 February 20.3.
2. Draw up the current accounts of the partners, properly balanced, on 28 February 20.3.
3. Prepare the statement of financial position of the partners on 28 February 20.3.
254
Question 18.30 (Financial statements and VAT)

The following information relates to the partnership of C Wessels & S Smit:
C WESSELS & S SMIT

TRIAL BALANCE
ON 28 FEBRUARY 20.7
DR CR
R R
Capital (fixed):
C Wessels 128 000
S Smit 96 000
C Wessels 16 000
S Smit 24 000
Professional library at cost 96 000
Office furniture at cost 102 400
Bank 48 800
Drawings:
C Wessels 80 000
S Smit 48 000
Sundry debtors 61 440
Petty cash 640
Sundry creditors 280 000
12% Debentures (secured by a bond over land and buildings) 112 000
Professional library 30 400
Office furniture 34 400
VAT control 4 000
Stationery on hand (28 February 20.7) 1 472
Subscription accrued 1 152
Debenture interest accrued 4 320
846 752 846 752
255
The entity is registered for VAT. All amounts include VAT (where applicable), unless
otherwise stated.
1. A further R644 should be written off as irrecoverable.
2. An invoice for R1 150 for stationery has not yet been recorded.
3. The allowance for credit losses should be maintained at 10% of outstanding debtors’
balances.
4. The partnership agreement provides for:
• Interest on fixed capital at 10% p.a.
• Interest on opening balances of current accounts at 8% p.a.
• A bonus to C Wessels equal to 10% of the distributable profit (i.e. after interest on
capital and interest on the current accounts have been taken into account).
• The partners share profits and losses in the ratio of their fixed capital.
Required:
comprehensive income of the partnership for the year ended 28 February 20.7.
2. Show the current account of C Wessels, properly balanced, on 28 February 20.7.
Question 18.31 (Joint venture)

A and B decided to go into a joint venture to sell products. A purchased inventory to the
value of R1 000. R600 of inventory is transferred to B. B paid advertisement costs of R200.
B sold some of the inventory for R2 000 (cost price R500). B paid A R500 in cash.
The agreement between A and B states that B should receive a 10% bonus on sales. Profits
and losses are shared 50/50 and at the end of the project each will take the inventory that
was in their possession.
1. Show the general ledger accounts in A and B’s books.
2. Prepare a memorandum statement.
256
Chapter
19
Companies
The prevailing VAT rate, income tax rate and dividends tax rate are applicable where
relevant.
Question 19.1
1. List four reasons why a company is used as a business form.
2. List the four types of for-profit companies that can currently be established. Also
provide the abbreviation that must appear after each company’s name.
3. What is the purpose of an audit of financial statements?
4. Share capital for a company is:
(a) An asset
(b) A liability
(c) Equity
5. Briefly describe the steps to be followed when incorporating a company.
6. Which act regulates companies in South Africa?
Question 19.2
Black Star Limited is a public company with an authorised share capital of 1 000 000 ordinary
shares.
The company is a manufacturer and distributor of clothing. The directors decided to launch a
new range of shoes, but require funds for this purpose.
It was decided to offer 100 000 ordinary shares to the public at R10 each in order to obtain
the necessary funds. The public was invited to submit their applications along with the
relevant amount to the company.
The company paid R12 000 to Abbey Dawn Transaction Services to manage the share issue.
Required:
1. Show the journal entries if:
(a) The company received applications for 120 000 shares.
Assume that the ordinary shares have a par value of R2 each.
257
(b) The company received applications for 120 000 shares.

Assume that the ordinary shares have no par value.
(c) The company received applications for 80 000 shares.
Assume that the ordinary shares have no par value.
Question 19.3
A company has an authorised share capital of 20 000 shares at a par value of R2,50 each.
Applications were received from the public for the first-time issue of 35 000 shares at par
value.
Required:
Show the journal entries to record the transaction.
Question 19.4
The following information was obtained from the trial balance of Dallas Limited, a listed
company, on 31 December 20.8 (financial year-end):
R
Stated share capital (3 000 000 ordinary shares) 9 000 000
Application and allotment account 2 400 000
On 7 January 20.9, 500 000 shares were issued to the public. An amount of R150 000 was
refunded to shareholders on the same day as a result of an oversubscription.
Issue costs amount to 1% of the value of shares issued and are still due and payable to Ewing
Transaction Services.
Required:
1. Calculate the amount at which shares were issued on 7 January 20.9.
2. Show the journal entries to record the issue of shares on 7 January 20.9. Journal
narrations are not required.
Question 19.5
The profit before tax of Hanson Limited amounted to R500 000 for the financial year ended
31 December 20.9.
1. Included in profit before tax is the following:
Dividend income R50 000
Traffic fines R10 000
Depreciation R30 000
258
Chapter 19: Companies
2. Hanson Limited made the following provisional tax payments during the year:
30 June 20.9 R50 000
31 December 20.9 R34 000
3. The prevailing income tax rate is applicable. The SARS allows a wear-and-tear deduction
of R25 000 p.a. on the assets of Hanson Limited.
Required:
1. Calculate the income tax expense of Hanson Limited for the financial year ended
31 December 20.9.
2. Prepare the SARS: Tax payable account in the general ledger of Hanson Limited for the
year ended 31 December 20.9. This account had a credit balance of R10 000 on
1 January 20.9.
Question 19.6
Bavaria Limited had the following issued share capital on 31 December 20.9:
R
Stated share capital (100 000 shares) 1 000 000
16% R2 Preference shares (50 000 shares issued in 20.6) 100 000
The company declared an ordinary dividend of 50 cents per share on 31 December 20.9.
Dividends tax is applicable.
Required:
Show the journal entries to record the dividend. Journal narrations are not required.
Question 19.7
The following balances appear in the accounting records of Formula One (Pty) Ltd on
31 December 20.8:
DR CR
R R
Stated share capital (70 000 shares) 160 000
Revaluation surplus 25 000
Land 225 000
259
The following has already been taken into account in determining the above-mentioned
balances:
1. On 30 November 20.8, the company issued 20 000 ordinary shares at R3 each.
2. Profit before tax for the year amounted to R70 000. The prevailing rates for income tax
and dividends tax are applicable.
3. On 31 December 20.8, an ordinary dividend of 20 cents per share was declared, but has
not yet been paid.
4. Land originally cost R200 000 and was revalued by the company for the first time during
20.8.
Required:
1. Show the journal entry to record the dividend.
2. Prepare the statement of changes in equity for the year ended 31 December 20.8.
Comparative figures are not required. The total column is not required.
Question 19.8
The following information was obtained from the accounting records of Williams Limited, a
distributor of motor vehicle parts:
WILLIAMS LIMITED
TRIAL BALANCE
ON 31 DECEMBER 20.3
DR CR
R R
Declared share capital: 150 000 ordinary shares without par
value 2 325 000
12% Preference share capital: 200 000 shares at R1 each 200 000
Retained earnings (1 January 20.3) 1 320 000
General reserve (1 January 20.3) 418 700
8% Mortgage loan from Investec 1 500 000
Land and buildings at cost 2 800 000
Delivery vehicles at cost 1 200 000
Accumulated depreciation on office equipment 122 500
Accumulated depreciation on delivery vehicles 480 000
continued
260
DR CR
R R
Allowance for credit losses (1 January 20.3) 52 000
Inventory 920 000
SARS: Normal tax (provisional tax payments) 201 000
Sales 5 700 000
Cost of sales 3 800 000
Distribution expenses 303 000
Interest on mortgage loan 120 000
Additional information and adjustments:

1. The company’s authorised share capital consists of:
• 500 000 Ordinary shares with no par value
• 2 000 000 12% Preference shares at R1 par value
2. On 1 December 20.3, the directors of the company decided to use their general
authorisation to issue shares by issuing the following shares to the public:
• 100 000 Ordinary shares at R15,50 each
• 300 000 12% Preference shares at par value
This was the only share issue during the year and has not yet been recorded.
3. Annual depreciation has not yet been provided for. The company’s accounting policy
states that depreciation is written off as follows:
• Office equipment 25% p.a. reducing balance method
• Delivery vehicles 20% p.a. straight-line method
The company does not provide for depreciation on land and buildings. Office
equipment is exclusively used for administrative purposes and delivery vehicles are
used in the distribution of vehicle parts. The company did not purchase or dispose of
any office equipment or delivery vehicles during the year.
4. The company purchased land and buildings (Stand 34, Sandton) in 20.1 for R2 800 000
by taking out a mortgage loan from Investec. The company’s accounting policy states
that land and buildings should be revalued. Mr Damon Hill, a sworn appraiser, revalued
the land and buildings for the first time on 31 December 20.3 at a fair value of
R3 500 000. No entries pertaining to the revaluation have been recorded.
261
5. Interest on the mortgage loan of R120 000 was calculated correctly and has already
been paid.
6. The company’s credit controller, Mr Juan Montoya, performed an analysis of the
company’s debtors on 31 December 20.3. The analysis indicated that R102 000 of the
outstanding debtors are expected not to be recoverable. The allowance for credit
losses should be adjusted accordingly. Credit losses are considered part of other
operating expenses.
7. The shareholders approved a final ordinary dividend of 50 cents per share on
31 December 20.3.
8. It was decided on 31 December 20.3 to transfer a further R11 300 to the general
reserve. This transaction has not yet been recorded.
9. The prevailing rates for normal income tax and dividends tax are applicable.
Required:
Prepare the following financial statements in accordance with the requirements of
International Financial Reporting Standards (IFRS) and the Companies Act 71 of 2008:
1. Statement of profit or loss and other comprehensive income for the year ended
31 December 20.3 according to function of expenses.
2. Statement of changes in equity for the year ended 31 December 20.3.
3. Property, plant and equipment note for the year ended 31 December 20.3.
Question 19.9
Gaza Ltd was incorporated on 1 March 20.2 with an authorised capital comprising:
400 000 Ordinary shares at R1 each
100 000 7% Preference shares at R1,50 each
100 000 9% Redeemable preference shares at R2 each
Issued share capital:

200 000 Ordinary shares at a premium of R0,25 each
20 000 7% Preference shares
50 000 9% Redeemable preference shares
After incorporation, the company acquired land and buildings at a total cost amounting to
R250 000. During 20.9, the property was revalued at R420 000.
262
At the annual general meeting of 20.8, the shareholders authorised the management to
redeem 20 000 redeemable preference shares at par in cash by issuing 20 000 ordinary
shares at par, and the balance from available cash at the end of the 20.9 financial year.
The directors complied with the shareholders’ decision in full at the end of 20.9.
Other information:
• On 28 February 20.9, profit before tax amounted to R270 000.
• SA normal tax is calculated at the prevailing rate.
• Total dividends declared and authorised amounted to R70 000. No payments were made
(preference shareholders who were registered just prior to the redemption of shares are
entitled to the preference dividend). Ignore dividends tax.
• R30 000 was transferred to general reserve.
• Retained earnings on 1 March 20.8 amounted to R114 000.
Required:
1. Record the above-mentioned transactions in the general ledger for the year ended
28 February 20.9.
3. Prepare the statement of changes in equity for the year ended 28 February 20.9.
Question 19.10
Auto Africa Limited was incorporated on 1 January 20.1 with an authorised share capital
comprising 100 000 no par value ordinary shares.
On 31 March 20.1, the company purchased the following assets from Exhibition Shops:
R
Office equipment 8 000
Vehicles 32 000
Inventory 40 000
These purchases were paid for with the issue of 25 000 no par value ordinary shares. On
30 June 20.1, the company offered a further 50 000 ordinary no par value shares to the
public at R3,50 per share. On 31 July 20.1, applications and the necessary funds were
received for 60 000 shares and the directors decided to issue the shares available and return
all excess applications.
Required:
Record the above transactions by preparing general journal entries (cash transactions
included).
* Acknowledgement: A du Toit
263
Question 19.11
The following information has been extracted from the accounting records of Puknet Limited
on 30 September 20.2, the financial year-end:
PRE-CLOSING TRIAL BALANCE
ON 30 SEPTEMBER 20.2
DR CR
R R
4% Redeemable preference share capital 84 000
Declared share capital – Ordinary shares 89 000
Plant and equipment at cost 248 000
Accumulated depreciation – Plant and equipment 67 000
Sales to debtors 160 000
Sundry current assets (bank) 72 580
Sundry current liabilities 32 000
Investment at cost 29 400
Retained earnings (1 October 20.1) 47 420
Depreciation 8 000
Dividends paid 20 240
Provisional tax payments 15 820
Share premium 24 000
503 420 503 420
The following information relates to the trial balance above and is already accounted for in
the trial balance:
1. Authorised share capital comprises:
100 000 Ordinary no par value shares
100 000 4% Redeemable preference shares of R2,10 each
2. Ordinary shares were originally issued at R1 each.
3. Current liabilities comprise:
South African Revenue Service R12 000
Sundry creditors R20 000
4. On 31 March 20.2, an interim ordinary dividend of 12 cents per share was paid. After
new shares were issued (see point 5 below), a final ordinary dividend of 10 cents per
share was paid on 30 September 20.2. Ignore dividends tax.
264
5. After the preference dividends were paid for the first time this year, the directors
obtained approval to redeem, in cash, 20 000 4% redeemable preference shares at par
on 30 September 20.2:
R13 000 was provided for this out of available cash, while the rest of the cash was
obtained from the issue of ordinary no par value shares at R1,45 each.
The company must still make provision for income tax at the prevailing rate. The accounting
records must also be closed off and the financial statements must be prepared.
Required:
Prepare the statement of changes in equity for the year ended 30 September 20.2 in
accordance with the requirements of IFRS (notes are not required). No amount must just be
accepted as correct, and complete calculations must be shown.
* Acknowledgement: A du Toit
Question 19.12
Corned Ltd is registered with a total share capital of R500 000 000 compiled from the
following:
• 500 000 000 Ordinary shares of R0,50 each
• 30 000 000 8% Preference shares of R5 each
• 50 000 000 5% Redeemable preference shares of R2 each
The following balances appear in the accounting records of Corned Ltd on 28 February 20.4:
R
Ordinary share capital 125 000 000
8% Preference share capital 75 000 000
5% Redeemable preference share capital 30 000 000
Share premium (1 March 20.3) 15 000 000
General reserve (1 March 20.3) 20 000 000
Retained earnings (1 March 20.3) 17 500 000
Provisional tax paid 45 000 000
Land and buildings 250 000 000
Revaluation reserve (1 March 20.3) 20 000 000
Profit for the year 110 000 000
The following information has not yet been taken into account in determining the above:
1. SA normal income tax for the year has been calculated as R33 000 000.
2. The redeemable preference shares must still be redeemed on 28 February 20.4. The full
redemption occurs from available cash.
265
3. Besides the preference dividends, a dividend of 15 cents per ordinary share is declared.
The prevailing rate for dividends tax is applicable.
4. The directors decided to transfer R5 000 000 to the general reserve.
Required:
1. Prepare the statement of changes in equity for the year ended 28 February 20.4.
2. Show the equity portion in the statement of financial position on 28 February 20.4.
Show comparative amounts.
3. Assume that the company wanted to issue new ordinary shares at par value and
applications to the value of R200 000 000 were received. Show the journal entry for the
allocation of the shares.
Notes are not required. Comparative figures are not required, unless stated otherwise. The
measure of precision (rounding off) that the company uses is R‘000.
Question 19.13
Samek Ltd is registered and incorporated, with the following share capital:
800 000 Ordinary shares of R0,50 each
100 000 6% Preference shares of R2 each
100 000 4% Cumulative preference shares of R2 each
50 000 8% Redeemable preference shares of R1 each
The following shares were issued and taken up by 28 February 20.3:
350 000 Ordinary shares at a premium of R0,25 each
50 000 6% Preference shares at par
25 000 4% Cumulative preference shares at a premium of R0,50 each
25 000 8% Redeemable preference shares at par
1. The 6% preference shares can be converted into ordinary shares on a one-to-one basis
as per choice of the shareholders.
2. All existing shareholders were offered 100 000 ordinary shares at R1. By year-end,
applications for 125 000 shares were received and it was decided to allot 100 000
shares.
3. A special decision authorised the directors to redeem from profits 10 000 8%
preference shares on 28 February 20.4.
4. Dividends on cumulative preference shares had not been paid by 28 February 20.4.
5. On 1 March 20.3, retained earnings amounted to R20 000 and the profit after tax for
20.4 amounted to R35 000.
266
Required:
1. Prepare the equity portion of the statement of financial position on 28 February 20.4 in
accordance with the requirements of IFRS. Show comparative figures.
2. Which document contains the information provided in the first paragraph of the
question?
3. Show the general journal entry that would be made if the 6% preference shares were to
be converted into ordinary shares.
Question 19.14
Sasoon Ltd places the following information at your disposal:
TRIAL BALANCE
ON 30 JUNE 20.6
R
Accumulated depreciation: Vehicles (1 July 20.5) 14 600
Accumulated depreciation: Equipment (1 July 20.5) 9 300
SARS (income tax) 70 600 (DR)
Retained earnings (1 July 20.5) 8 047
Sales 904 600
Auditors’ remuneration (R2 000 for fees and R400 for costs)* 2 400
Bank charges* 206
Salaries* 16 000
Credit losses 493
Loss on sale of asset 702
Distribution costs 880
Interest on bank overdraft 273
Interest on mortgage loan 2 500
Sales returns 840
Ordinary dividends 11 050
Directors’ remuneration (for executive directors)* 7 450
Dividend income on listed investment 1 075
* Classified as administrative expenses
267
The following information must still be taken into consideration:

1. One of the non-executive directors has not yet received his remuneration of R1 500.
2. Account received from the municipality for water and electricity has not yet been paid,
R124.
3. The company’s accounting policy stipulates, among others, that depreciation on
vehicles should be calculated at 10% p.a. on cost of vehicles and at 15% p.a. on the
carrying value of equipment.
4. Additional credit losses of R132 must be written off. The allowance for credit losses
must be adjusted to R450.
5. A final dividend of 63 cents per share was declared. The prevailing rate for dividends
tax is applicable.
6. The normal income tax for the accounting period amounts to R72 050.
7. The company is registered with 100 000 ordinary shares of R5 each, of which 50 000
ordinary shares were issued.
Required:
company according to the function method for the year ended 30 June 20.6.
2. Also show the related notes.
Question 19.15
Heartland Limited is a company that was established in 20.2. The company has the following
authorised and issued share capital:
Authorised share capital

1 000 000 Ordinary R1 shares
500 000 5% Convertible preference shares R2,00
100 000 10% Redeemable preference shares R0,50
Issued share capital on 1 January 20.9

100 000 Ordinary R1 shares issued at R1,50 per share
50 000 5% Convertible R2 preference shares issued at R2,20 per share
10 000 10% Redeemable R0,50 preference shares issued at par
1. On 1 January 20.9, the balance of the share premium account was R60 000. The
financial year-end of the company is 31 December 20.9.
2. On 1 June 20.9, a decision was made to convert 20 000 convertible preference shares
to 16 000 ordinary par value shares at a conversion price of R2,75.
268
3. As a result of the requirements of the Companies Act 71 of 2008, Heartland Ltd decided
to convert all their ordinary par value shares to no par value shares. Therefore, a
decision was made to amend the Memorandum of Incorporation by way of a special
resolution, which was made on 1 August 20.9.
4. On 1 September 20.9, it was decided to redeem all the redeemable preference shares
at R0,70 each.
Required:
Record the above transactions in the following T-accounts:
1 Ordinary share capital
2. 5% Convertible preference share capital
3. Share premium
4. Declared (stated) share capital
5. 10% Redeemable preference share capital
Question 19.16 (Average)

The following information was obtained from the financial records of Ditus Ltd on
30 June 20.7, the end of the financial year:
Authorised share capital:
• 120 000 Ordinary NPV shares
• 50 000 8% Redeemable preference shares of R2 each
BALANCES
ON 30 JUNE 20.7
20.7 20.6
R R
Share capital in issue:
Ordinary NPV shares at R1,50 each 90 000 90 000
30 000 8% Redeemable preference share 60 000 40 000
Share premium 6 000 4 000
Profit before taxation 88 000
Retained earnings (30 June 20.6) 18 000 18 000
Replacement reserve fund 12 000 12 000
General reserve 5 000 5 000
10% Long-term loan 40 000 50 000
continued
269
20.7 20.6
R R
Machinery 20 000 14 000
Vehicles 5 000 2 500
Machinery at cost 60 000 60 000
Vehicles at cost 50 000 50 000
Investment at cost 1 500 1 500
Issue costs 2 500 -
Current assets 236 000 108 000
Current liabilities 116 000 94 000
The following information must still be taken into account on 30 June 20.7:
1. The land and buildings are situated on Stand 105, Industria, Bolesberg, and were
purchased on 1 July 20.2. Mr M Beta, a sworn appraiser, revalued the property at
R150 000 for the first time during June 20.7. Land and buildings are not depreciated.
2. R4 000 must be transferred to the general reserve.
3. At year-end, it was found that a debtor who owed R5 750 had been declared bankrupt
and would not be able to pay his account.
After the debtors’ list was scrutinised, it was found that the following debtors pose a
risk of not being recoverable:
• ABC Ltd with an outstanding balance of R1 200
• K-Tex Ltd with an outstanding balance of R2 300
There was no allowance for credit losses the previous financial year. The allowance is
based on the total amount of the at-risk debt.
4. Rental income amounting to R3 450 is still outstanding and the water and electricity
account for June 20.7 has not yet been paid. It amounted to R1 150.
5. SA normal income tax on companies must still be calculated. Assume that depreciation
is equal to wear-and-tear. During the year, provisional tax payments of R20 000 had
already been made and have been included in debtors.
6. On 31 August 20.6, 10 000 preference shares were issued. The policy of the company is
to write off any issue costs against the share premium account. On 31 March 20.7,
those 10 000 preference shares were redeemed at par and paid for in cash. The
redemption has not yet been accounted for.
7. A dividend of 10 cents per share is declared on ordinary shares on 30 June 20.7.
Preference shareholders who were registered just prior to the redemption of
preference shares are entitled to the preference dividend. The prevailing rate for
dividends tax is applicable.
270
8. It is the company’s policy to maximise distributable reserves.

9. The long-term loan was entered into on 1 July 20.2 to provide for the purchase of land
and buildings. It is repayable in 5 annual instalments as from 31 December 20.6.
10. Included in debtors for 20.7 is a short-term investment of R25 000.
11. All parties are registered for VAT. All amounts include VAT where applicable, unless
stated otherwise.
12. Current assets/liabilities consist of:
Inventory R36 000
Debtors R143 000
Bank (favourable) R57 000 (before redemption)
Creditors R100 000
VAT (CR) R16 000
Required:
1. Prepare the statement of financial position on 30 June 20.7 and the statement of
changes in equity of Ditus Ltd for the year ended 30 June 20.7 in order to comply with
IFRS and the requirements of the Companies Act 71 of 2008. The following notes are
required:
(a) Property, plant and equipment
(b) Share capital
(c) Interest-bearing loan
2. A junior clerk has prepared the following note on investments (non-current assets).
Evaluate his note critically.
Investments
5 000 shares R1 500
Short-term investment at ABASA Bank made on 1 November:
Interest calculated at 12% p.a. R25 000
271

Kollege Ltd has an authorised share capital of 40 000 shares of R5 each. Its financial year
ends on the last day of February. Below is the pre-adjustment trial balance on
28 February 20.4.
KOLLEGE LTD
PROVISIONAL LIST OF BALANCES
ON 28 FEBRUARY 20.4
Retained earnings (1 March 20.3) 118 400
Vehicles 64 000
Equipment 20 400
Accumulated depreciation on vehicles (1 March 20.3) 20 560
Accumulated depreciation on equipment (1 March 20.3) 6 410
Inventory 30 260
Cash float 400
SARS (PAYE) 2 410
SARS (provisional income tax) (DR) 36 700
Loan from XY Bank 24 000
Fixed deposit: AB Bank 10 000
Shareholders for dividends (DR) 14 000
Sales 421 680
Sales returns 7 680
Rates 3 420
Stationery 1 642
Salaries 30 000
Insurance 2 600
Credit losses 350
continued
272

Directors’ fees 36 000
Audit fees 1 780
Unemployment insurance fund contribution (employer contribution) 1 600
Interest on fixed deposit 600
VAT control (CR) 8 280
1. The manager donated goods with a selling price of R580 (cost price R360) to the local
high school. No entries have been made. Both amounts are exclusive of VAT.
2. Inventory on hand on 28 February 20.4 determined by a physical inventory count:
Inventory R29 900 (after above-mentioned donation)
Packing material R2 470
Stationery R186
3. A debtor who owes R460 must be written off as irrecoverable.
4. Adjust the allowance for credit losses to 5% of outstanding debts.
5. The rent for March 20.4 has already been received.
6. The loan from XY Bank was registered on 1 September 20.1 on the following conditions:
Interest is payable every 6 months on 28 February and 31 August at a rate of 16% p.a.
and the capital must be redeemed in equal annual instalments of R4 000 each on
31 August each year. All instalments were paid on time annually.
7. Insurance includes an annual premium of R1 380, which was paid on 1 October 20.3.
8. Depreciation must be taken into account as follows:
• On vehicles at 20% p.a. on the reducing balance method
• On equipment at 10% p.a. on the cost price
A vehicle with a carrying value of R10 000 on 1 March 20.3 was sold on 31 August 20.3
for R9 775 (VAT included). The amount will only be received on 1 March 20.4 and,
therefore, the accountant has made no entry for the sale yet. The cost price of the
vehicle was R20 000 (VAT excluded).
A second-hand vehicle was bought for R17 250 on 1 September 20.3. This transaction
has already been recorded.
9. The directors decided to declare a final dividend of 50 cents per share. Dividends tax is
applicable.
10. The income tax for the year was calculated at R38 125 and has not yet been recorded.
273
11. Land and buildings were revalued by a sworn appraiser at R500 000.
12. All parties are registered for VAT and all amounts include VAT where applicable, unless
stated otherwise.
Required:
1. Prepare the statement of profit or loss and other comprehensive income of Kollege Ltd
for the year ended 28 February 20.4 as well as the statement of financial position on
28 February 20.4.
2. Prepare the following notes to the financial statements of Kollege Ltd for the year
(a) Profit from operations
(b) Property, plant and equipment
(c) Trade and other receivables
(d) Trade and other payables

Freeman Ltd was incorporated on 1 March 20.3 with an authorised share capital of R500 000
which consists of:
200 000 Ordinary no par value shares
100 000 6% Convertible no par value preference shares
20 000 8% Cumulative preference shares of R5 each.
On 28 February 20.5, the following balances, inter alia, appeared in the books of the company:
R
Share capital (1 March 20.4): Ordinary shares (80 000 shares) 80 000
6% Preference shares (20 000 shares) 40 000
8% Cumulative preference shares 25 000
Fixed investment in shares (market value R60 000) 53 560
General administrative costs 11 000
Credit losses 5 700
5% Debentures 30 000
Land at cost 110 530
continued
274
R
Creditors 34 640
Debtors 40 180
Shareholders for dividends 1 700
Debenture interest paid up to 1 September 20.4 750
Share premium 1 250
Accumulated depreciation (1 March 20.4):
Furniture and equipment 440
Vehicles 2 610
Delivery costs (to customers) 4 900
Allowance for credit loss 5 823
Gross profit 74 787
Traffic fines 2 750
Investment income (dividends on listed shares) 2 000
1. The gross profit percentage is 50% on cost.
2. Depreciation must be written off as follows:
Furniture and equipment – 10% p.a. on the carrying value
Vehicles – 20% p.a. on the cost price
3. Debtors to the amount of R180 must be written off as irrecoverable.
4. The allowance for credit losses must be maintained at 10% of outstanding debtors.
5. The following share transactions took place during the year and due to the
inexperience of the accountant, no entry has yet been made:
• 5 000 8% cumulative preference shares were issued at R6 each on 1 July 20.4.
• 6 000 6% convertible preference shares were converted to ordinary shares on
1 January 20.5 at a conversion price of R1,50 per share.
• These movements in share capital are the first to occur since incorporation of the
company.
6. A final dividend of 40 cents per share was declared on 2 January 20.5, but was still not
paid on 28 February 20.5. This dividend is the first dividend to ever be declared by the
company. Dividends tax is applicable.
7. Land serves as security for the debentures.
8. Included in administrative costs are directors’ fees of R2 500 and auditors’ fees of
R1 000.
275

10. The income tax for the year must still be calculated. Wear-and-tear allowed by SARS
amounts to R1 500.
11. The debentures are redeemable on 28 February 20.9.
Required:
1. Prepare a statement of profit or loss and other comprehensive income for the year
2. Prepare a statement of financial position of the company on 28 February 20.5. The
financial statements must comply with the explicit requirements of the Companies Act
71 of 2008.
3. Prepare the following notes to the financial statements for the year ended 28 February 20.5:
(a) Profit from operations
(b) Property, plant and equipment
(c) Financial assets
(d) Trade and other receivables
(e) Share capital
(f) Long-term loans
(g) Trade and other creditors
Ignore VAT. Round off to the nearest rand.
Question 19.19
Waterkloof Ltd, a listed company, was registered in 20.1 with an authorised share capital of
R500 000 which is divided as follows:
• 250 000 Ordinary shares of R1,00 each
• 250 000 9% Redeemable preference shares of R1,00 each
The issued share capital at the end of 20.1 was as follows:
• 80 000 9% Redeemable preference shares of R1,00 each
276
The redeemable preference shares are redeemable at R1,25 each. The following information
was available on 28 February 20.3:
TRAIL BALANCE
ON 28 FEBRUARY 20.3
DR CR
R R
7% Debentures (issued on 1 March 20.2) 40 000
9% Preference share capital 80 000
Purchases 246 600
Plant and equipment at cost (1 March 20.2) 380 000
Debtors 72 000
Property taxes 480
Investments at cost 30 000
Revenue from investments 2 000
Goodwill at carrying value 50 000
Cash 473 900
Creditors 152 000
Wages and salaries 37 000
Sales 888 200
Inventories (1 March 20.2) 94 800
Accumulated depreciation on plant and equipment
(1 March 20.2) 96 000
1 534 880 1 534 880
277
The following still have to be taken into account in the above trial balance:
1. Depreciation must be provided for at 20% p.a. on the fixed instalment method on plant
and equipment.
2. The preference share dividend as well as an 11 cents dividend on ordinary shares has
been declared.
3. R1 400 interest on debentures that was paid is included in administrative expenses.
4. The managing director’s salary of R20 000 is included in administrative expenses. Rent
paid for the storeroom amounting to R1 000 was also included in administrative
expenses.
5. Closing inventory is R99 680 on the FIFO method of valuation.
6. The debenture is secured by the plant and is redeemable on 28 February 20.6.
7. The investment consists of 7 500 ordinary shares of R3,00 each in Neptunis (Pty) Ltd.
The directors’ valuation of these shares is R38 000. Neptunis (Pty) Ltd has issued 50 000
ordinary shares.
9. Taxes of R20 000 must be provided for.
10. The prevailing rates for normal income tax and dividends tax are applicable. No taxes
were paid at year-end.
Required:
1. Prepare the statement of profit or loss and other comprehensive income of Waterkloof
Ltd for the year ended 28 February 20.3.
2. Prepare the statement of financial position on 28 February 20.3.
3. Show all applicable notes to the financial statements, including the accounting policy.
The financial statements must be in accordance with the requirements of the
Companies Act 71 of 2008.
Ignore VAT. Round off to the nearest rand.
Question 19.20
You receive the following information from the manager of Aardklop Ltd:
Background:
1. The company was incorporated in 20.1 with an authorised share capital of 300 000
ordinary shares of R1 each and 150 000 9% redeemable preference shares of R2 each.
2. The following shares were issued on 1 April 20.3:
• 110 000 9% Redeemable preference shares at par
278
3. Office buildings and a distribution depot in Potch Industria – Site 3217 was acquired in
20.1 at a cost of R250 000.
4. During 20.2, the company conducted its activities at full capacity and the board of
directors gave its approval for the purchase of an investment in an unlisted company,
Breyten (Pty) Ltd. The investment consists of 40 000 ordinary shares of R1 each.
5. During 20.2, 60 000 redeemable preference shares were redeemed at par through the
issue of 60 000 ordinary shares at a premium of 30 cents each, and the residue from
available cash. The shareholders for redemption were paid in cash.
EXTRACT FROM THE TRIAL BALANCE
ON 31 MARCH 20.4
R
Share premium (48 000)
Issuing costs 12 000
Replacement reserve fund (70 000)
Machinery at cost 300 000
Accumulated depreciation – Machinery (80 000)
Accumulated depreciation – Equipment (14 000)
Bank (18 000)
Mortgage loan (150 000)
SARS (SA normal tax) 30 000
Debtors 320 000
Cash 40 000
Creditors 86 400
Retained earnings (1 April 20.3) (181 600)
Profit before tax (31 March 20.4) (90 000)
1. A further 30 000 redeemable preference shares were redeemed at par from available
cash on 25 March 20.4. The sole entry made by the accountant with regard to this
redemption was:
• DR 9% Redeemable preference share capital
• CR Bank
2. A dividend of 10 cents per ordinary share was declared and approved at the annual
general meeting on 31 March 20.4. The dividend declaration is applicable to all
shareholders registered on 1 March 20.4.
279
3. The mortgage loan on fixed property will be repaid in annual capital instalments of
R30 000 from 1 April 20.4 at an interest rate of 17,25% p.a. The interest has already
been taken into account in the profit before tax.
4. The directors decided to write off а of the issuing costs against the share premium
account.
5. The prevailing rates for normal income tax and dividends tax are applicable.
6. The directors’ valuation of the shares in Breyten Ltd is R35 000.
Required:
1. Prepare the statement of financial position of Aardklop Ltd on 31 March 20.4.
2. Prepare the statement of changes in equity of Aardklop Ltd for the year ended
31 March 20.4.
3. Show the following notes: accounting policy; property, plant and equipment;
investments; share capital; and non-current liabilities.
Dates in this question are very important for correct calculations.
Question 19.21
The following list of balances from the trial balance on 30 June 20.2 of Soutmansland Limited,
a listed company, is provided to you:
R
Sales 753 500
Interim dividends* 3 000
Investment income 7 500
Profit on sale of land** 12 500
Credit losses**** 3 250
Rental expense: Equipment 2 500
Salaries 19 500
Bank costs 1 625
Depreciation*** 15 000
Returns-in 2 750
Retained earnings (30 June 20.1) 149 000
280
1. The company’s issued share capital consists of:
(a) 100 000 Ordinary shares of R1,00 each
(b) 50 000 10% Preference shares of R2,00 each
2. The following dividends were declared/paid:
(a) The interim dividend was paid to ordinary shareholders*
(b) A final dividend of 6 cents was declared on 30 June 20.2
3. The profit on the sale of land was gained when a property was expropriated by the
government to enable them to build a highway.**
4. Provision still has to be made for an amount of R100 000 for SA normal company tax for
the year ended 30 June 20.2.
5. Depreciation of R15 000 was written off on furniture and equipment.***
6. The following transfers must be made to reserves:
(a) General reserve, R2 500
(b) Replacement value reserve fund, R3 000
7. The credit loss write-off is with respect to one trade debtor and is abnormally
large.****
8. Included in salaries are the following:
(a) Professional fees, R2 475
(b) Salary: Managing director, R9 000
(c) Directors’ fees for attending meetings, R1 000
9. Cost of sales includes depreciation on machinery of R37 500. The depreciation is
considered part of overheads and a cost-increasing expense for inventory.
10. Auditor’s remuneration consists of:
(a) Fees, R4 000
(b) Secretarial services, R500
(c) Expenses, R250
11. Administrative expenses include an amount of R5 000 in respect of rental income for
part of the office buildings.
12. Investment income consists of the following:
(a) Interest income:
(i) Interest on fixed deposit, R1 750
(ii) Interest on loan to Driehoek (Pty) Ltd, R750
(b) Dividend income:
(i) Listed investments, R3 750
(ii) Unlisted investments, R1 250
281
Required:
1. Prepare the statement of profit or loss and other comprehensive income of
Soutmansland Limited for the year ended 30 June 20.2.
2. Prepare the equity portion of the statement of financial position on 30 June 20.2.
3. Prepare the statement of changes in equity for the year ended 30 June 20.2.
4. Show the relevant notes to the financial statements for the year ended 30 June 20.2.
Take note:
• The accounting policy note and comparative figures are not required.
• The prevailing rate for normal income tax is applicable.
• The financial statements must comply with the provisions of IFRS and the Companies Act
71 of 2008.
Question 19.22 (Notes)

The following financial information of Swamp Ltd was compiled by an inexperienced
bookkeeper, with the result that there are quite a few discrepancies. The directors asked you
to identify and rectify the errors before the financial statements could be disclosed to the
shareholders.
An extract from the notes to the financial statements for the year ended 31 December 20.6 is
shown below:
20.6 20.5
R R
1 PROPERTY, PLANT AND EQUIPMENT
Land and buildings:
Cost price 750 000 750 000
Revaluation 500 000 500 000
Total 1 200 000 1 250 000
2 FINANCIAL ASSETS
Investment: Casio Bank 133 800 120 000
3 INVENTORY
Raw materials 250 000 250 000
Work in progress 182 500 119 630
Finished products 855 650 745 850
Merchandise 1 150 360 1 090 685
Total 2 438 510 2 206 165
continued
282
20.6 20.5
R R
4 SHARE CAPITAL
Authorised share capital
10 000 Ordinary shares 1 000 10 000
5 000 10% Redeemable preference shares 5 000 5 000
Issued share capital
8 500 Ordinary shares at R2,50 each 21 250 21 250
5 100 10% Redeemable preference shares
at R5,50 each 22 550 22 550
Total 43 800 43 800
5 NON-CURRENT LIABILITIES
Mortgage 545 950 596 785
The directors have submitted the following information to you regarding the above notes:
1. The land and buildings were purchased on 15 August 20.1 when they started business.
The property is located at 191 Duxbury Road, Pretoria. A sworn appraiser, Mr Ali Baba,
carried out the revaluation on 15 May 20.6, but Swamp Ltd only received the certificate
on 31 May 20.6.
2. The closing inventory of the company on 31 December 20.6 was as follows:
Merchandise R1 150 630
3. The carrying amount of merchandise at net realisable value was R2 301 260 (20.5:
R2 017 767). The cost of inventory written off against income during the year is R965 850
(20.5: R859 607).
4. The investment comprises a fixed deposit at Casio Bank. This investment bears interest
at 11,5% p.a. and may be withdrawn on 31 December 20.9.
5. During the 20.6 financial year, the following shares were issued:
• Ordinary shares: 1 500 shares, being the maximum shares allowed.
• No redeemable preference shares were issued.
The company always issues its shares at par value. The unissued shares are under the
control of the directors until the next annual general meeting.
6. The long-term loan is secured by a mortgage on land and buildings. The instalments are
R5 630 per month (capital portion). The mortgage bears interest at 10% p.a. on the
outstanding balance and the bond is payable in equal annual payments over a period of
15 years.
283
Required:
By using the above information, prepare the corrected notes to the financial statements for
the year ended 31 December 20.6.

The following information was obtained from the accounting records of Zuma Ltd for the
financial period ended 31 October 20.4:
R
Property, plant and equipment
Land and buildings at cost 2 500 000
Vehicles at cost (1 November 20.3) 800 000
Accumulated depreciation: Vehicles (1 November 20.3) 160 000
Plant at cost (1 November 20.3) 1 500 000
Accumulated depreciation: Plant (1 November 20.3) 450 000
Machinery at cost (1 November 20.3) 900 000
Accumulated depreciation: Machinery (1 November 20.3) 90 000
Equipment at cost (1 November 20.3) 450 000
Accumulated depreciation: Equipment (1 November 20.3) 135 000
Current assets
Inventory (1 November 20.3) 300 000
Inventory (31 October 20.4) ?
Non-current assets
Fixed deposit 500 000
Shares in TLM Holdings Ltd 3 000 000
Long-term loan 5 500 000
Equity
Ordinary share capital (par value of R3) 900 000
8% Preference shares (par value of R4,50) 675 000
1. Authorised share capital:
• 500 000 Ordinary shares
• 350 000 8% Preference shares
2. The following information relates to inventory:
• Purchases for the year, R500 250 (VAT included)
• Sales, for the year, R2 000 000 (VAT excluded)
• A gross profit of 30% was maintained for the year
284
3. The fixed deposit was made on 1 February 20.4 at Invest Bank. Interest is earned at
20% p.a.
4. The investment in TLM Holdings Ltd comprises the following:
• 1 000 000 Ordinary shares at R2 per share
• 200 000 5% Non-redeemable preference shares at R5 per share
5. The long-term loan was obtained from Honour Finance on 1 November 20.3 at an
interest rate of 15% p.a. The loan is repayable over 11 years in equal annual
instalments. The first instalment was payable on 31 October 20.4.
• Land and buildings: None
• Vehicles: 10% p.a. on the reducing balance method
• Plant: 15% p.a. on the reducing balance method
• Machinery: 5% p.a. on the straight-line method
• Equipment: 10% p.a. on cost
7. During the year, the following assets were purchased and sold:
• On 31 October 20.4, one of the machines was sold for a cash price of R100 000
(VAT included). The cost price of the machine was R120 000 (VAT excluded) and
accumulated depreciation on the date of the sale amounted to R84 000.
• On 30 June 20.4, a new delivery vehicle was purchased for R350 750 (VAT
included).
8. The company is registered for VAT purposes.
Required:
Prepare the following notes to the financial statements of Zuma Ltd for the year ended
31 October 20.4:
1. Property, plant and equipment
2. Inventory
3. Financial assets
4. Share capital
5. Long-term borrowings
285

The following information was obtained from the accounting records of Hip Hop Ltd for the
financial period ended 31 December 20.3:
DR CR
R R
Sales: Credit 800 000
Sales: Cash 750 000
Directors’ remuneration 60 000
Salaries: Directors 25 000
Auditors’ expenses 16 000
Salaries and wages: Administration 70 000
Salaries and wages: Technical services 20 000
Depreciation for the year 55 000
Profit on sale of vehicle 12 000
Profit before tax for the year 1 600 000
20% Preference shares at R2 each 100 000
shares
Ordinary shares at R1,50 each 540 000
shares
The prevailing normal income tax rate is applicable.
Required:
Prepare only the following notes to the statement of profit or loss and other comprehensive
income of Hip Hop Ltd for the year ended 31 December 20.3:
1. Income
2. Profit before tax
3. Earnings per share

Lighthouse (Pty) Ltd is a listed public company which specialises in ocean navigation lighting
and equipment. The directors of the company asked your assistance with compiling the
financial statements. The following information was made available to you:
286
LIGHTHOUSE (PTY) LTD

INCOME STATEMENT
ON 30 SEPTEMBER 20.4
Notes 20.4
R
Revenue 16 844 464
Cost of sales 1 (6 437 173)
Service income 120 156
Gain on revaluation 2 300 000
Profit on asset disposal 3 21 000
Total income 10 849 987
Expenses (8 340 710)
Depreciation 4 72 500
Credit losses 5 36 600
Investment purchased 6 138 500
Share issue cost 7 2 500
Audit fees 8 150 000
Consultation fees 9 15 000
Delivery fees 102 546
Salaries and wages 10 7 520 500
Total comprehensive income for the year 2 509 277
287
1. Cost of sales was calculated as follows:
R R
Inventory (1 October 20.3) 548 745
Purchases (cash) 5 464 645
Purchases (CR) 797 566
Inventory (30 September 20.4) (accounting records figure) (476 664)
6 334 292
Theft 46 435
Inventory (30 September 20.4) (stock count) 430 229
Net realisable value write-down 56 446
Cost of sales 6 437 173
2. Lighthouse (Pty) Ltd owns the property from which it operates. It was purchased with
the establishment of the company, for R1 500 000. The property is located on Stand
963, Extension 6, Durban. The land and buildings were revalued by Miss M Nel, a sworn
appraiser, on 1 June 20.4, to a value of R2 200 000. The previous valuation took place a
year ago, when it was valued at R1 900 000.
3. During the 20.4 financial year, Lighthouse (Pty) Ltd sold one of its delivery vessels for
R98 500. The vessel had a carrying value of R90 000 on 30 September 20.3 and a
residual value of R60 000. On 1 October 20.3, the vessel was 4 years old. The sale took
place on 1 March 20.4. Also refer to the notes below.
4. The two remaining vessels were still in a good condition. The cumulative residual value
of the remaining vessels amounted to R80 000. These vessels have a remaining useful
life of 3 years as at 30 September 20.4. No new vessels were purchased during the year.
5. No asset disposals or acquisitions took place during the previous year and there was no
change in accounting estimate relating to the depreciation of any assets.
6. The company’s depreciation policy is as follows:
Asset Method Period

Delivery vessels Straight-line 5 years
Land and buildings Not depreciated N/A
Note: Depreciation has already been calculated and recorded correctly for all of the above
items.
288
7. Credit losses of R31 600 (20.3: R11 100) were written off during the year. The
allowance for credit losses had to be increased to R17 000. The 20.4 financial year is
only the second year during which a calculation was made for the allowance for credit
losses.
8. The investment was made in the current financial year in the form of a 5% shareholding
in a company listed on the JSE. At year-end, the fair value of the shares was equal to its
purchase price.
9. A number of share transactions took place during the year. The issued share capital on
30 September 20.3 was as follows:
Value
Share class Authorised Issued Dividends
in issue
Ordinary shares 2 000 000 80 000 R9 600 000 Paid annually
Cumulative preference shares 500 000 150 000 R4 500 000 R15 per share
Convertible preference shares 300 000 50 000 R1 750 000 R20 per share
Note: All shares are no par value shares.

10. On 31 March 20.4, 20 000 ordinary shares were offered to the public in a prospectus.
By 1 September 20.4 (the closing date for applications), the public had applied for
35 000 shares. On 30 September 20.4, the directors issued 20 000 shares and refunded
the difference. The shares were issued at a price of R130 each.
11. On 1 April 20.4, 100 000 cumulative preference shares were bought back at a price of
R32 per share. This decision will better the company’s cash flow position in the future.
The directors decided to redeem the amount in excess of the average issue price
against retained earnings.
12. On 31 May 20.4, the directors decided to convert 50% of the preference shares to
ordinary share capital at a conversion price of R100 per ordinary share.
13. No shares were issued during the 20.3 financial year.
14. Dividends:
An ordinary dividend of R29 per share was declared on 30 September 20.4, payable to
all shareholders who held shares as at 31 August 20.4. No dividend payments had been
made by year-end. No dividends were declared or paid during the prior financial year.
All shareholders are natural persons.
15. Audit fees increase annually by 10%.
16. Consultation fees paid (20.3: R12 500) relate to the services of a tax expert. The income
tax expense, correctly calculated by the consultant, amounted to R657 378. You may
assume that there is no outstanding income tax liability.
17. Included in salaries and wages (20.3: R6 504 012) is the directors’ remuneration of
R3 500 401 (20.3: R3 106 111). The company does not have non-executive directors and
all payments to directors relate to services rendered.
289
18. Other:
30 September 20.4 30 September 20.3

Inventory Refer to point 1 above R548 745*
Gross debtors R340 000 R240 000
Creditors R234 000 R157 000
Retained earnings ??? R4 464 646
Profit for the year ??? R1 546 879
* No net realisable value write-downs need to be recognised.
Required:
1. Criticise the provided statement of profit or loss and other comprehensive income
based on IAS 1.
2. Prepare only the relevant notes to the financial statements for the year ended
30 September 20.4 based on the information available. The notes must comply with
International Financial Reporting Standards (IFRS). Comparative figures are required for
all notes except for the property, plant and equipment note.
The following notes need not be prepared:
• Accounting policy
• Financial assets
• Share capital
• Cash and cash equivalents
• Reconciliation of profit before tax and cash flow from operating activities.
Ignore VAT.
290
Chapter
20
Non-profit organisations
Question 20.1 (Cash inflow/outflow)

1. The cash flow of an expense amounted to R7 583. There was no opening or closing
amount included in either current assets or current liabilities. What was the amount
disclosed in the statement of profit or loss and other comprehensive income?
2. With reference to number 1, assume that there was an accrued amount (R750) relating
to this expense included in current liabilities at the end of the financial year. What was
the amount in the statement of profit or loss and other comprehensive income?
3. With reference to number 1, assume there was an accrued amount (R750) relating to
this expense included in current liabilities at the beginning of the financial year. What
was the amount in the statement of profit or loss and other comprehensive income?
4. With reference to numbers 1 and 2, assume that there was also an amount (R500)
included in current liabilities relating to this expense at the beginning of the year. What
was the amount in the statement of profit or loss and other comprehensive income?
5. The electricity expense in the statement of profit or loss and other comprehensive
income amounted to R5 634 at the end of the financial year. There was no opening or
closing balance included in either current assets or current liabilities. What was the
cash flow regarding this expense? Was there an inflow or outflow of cash?
6. With reference to number 5, assume there was prepaid electricity (R500) and accrued
electricity expenses (R250) included in the opening balances of both current assets and
current liabilities. There were no prepaid expenses or accrued expenses at the end of
the year. What was the cash inflow/outflow?
7. With reference to number 5, assume there was prepaid electricity (R500) and accrued
electricity expenses (R250) included in the closing balances of current assets and
current liabilities. There were no prepaid expenses or accrued expenses at the
beginning of the year. What was the cash inflow/outflow?
8. With reference to number 5, assume there was prepaid electricity (R500) at the end of
the year and accrued electricity expenses (R250) at the beginning of the year. What was
the cash inflow/outflow?
9. The following information is available:
Statement of profit or loss and other comprehensive income: Income R15 456
Statement of financial position: Accrued income (opening balance) R2 500
Statement of financial position: Income received in advance (closing balance) R1 500
What was the cash inflow/outflow?
291
10. The following information is available:

Cash inflow: Income R15 456
Statement of financial position: Accrued income (closing balance) R2 500
Statement of financial position: Income received in advance (opening balance) R1 500
What was the amount disclosed in the statement of profit or loss and other
comprehensive income?
Question 20.2 (Statement of income and expenditure)

The following information of Osama Tea Club for the year ended 31 December 20.3 is
available:
BANK
R R
Balance b/f 15 800 Bookkeeping fees 1 440
Income from functions 9 560 Catering 380
Interest received 1 400 Cleaning 2 700
Membership fees received 23 400 Electricity 576
Entertainment 3 300
Investment at American Bank 18 000
Postage 3 000
Printing and stationery 402
Rent 4 320
Balance c/f 1 042
50 160 50 160
Balance b/f 1 042
01/01/20.3 31/12/20.3
R R
Membership fees received in advance 1 500 2000
Accrued income:
Membership fees 500 750
Interest income 140
Accrued expenses:
Catering 100 120
Printing and stationery 200 198
292
Chapter 20: Non-profit organisations
Required:
Prepare the statement of income and expenditure for the club for the year ended
31 December 20.3.
Question 20.3 (Statement of receipts and payments)

The financial statements for Cooksister Gossip Club were prepared from the following
information:
TRIAL BALANCE
20.3 DR/CR 20.2 DR/CR
R R
Land and buildings 120 000 DR 100 000 DR
Furniture and fittings at carrying amount 18 500 DR 25 000 DR
Investments 140 000 DR
Accrued income – Membership fees 2 500 DR 2 350 DR
Bank and cash 2 630 DR 20 000 DR
Accumulated fund (opening balance) 146 780 CR 16 000 CR
Accrued expenses – Telephone 570 CR
Accrued expenses – Stationery 480 CR
Membership fees 191 478 CR 183 569 CR
Interest income on positive bank balance 12 CR 13 CR
Profit on sale of furniture and fittings 1 500 CR
Electricity and water 1 920 DR 1 860 DR
Refreshments 6 500 DR 4 550 DR
Salaries and wages 36 000 DR 35 550 DR
Stationery 550 DR 200 DR
Telephone 9 000 DR 7 992 DR
Depreciation 2 500 DR 2 500 DR
RSC levies 150 DR 150 DR
Additional information
1. The carrying amount of the furniture and fittings sold amounted to R5 000.
2. No depreciation was provided for on land and buildings.
Required:
Prepare the statement of receipts and payments for Cooksister Gossip Club for the year
293
Question 20.4 (Ledger accounts)

The following information was obtained from the records of Ford Bakkie Club for the period
ended 30 September 20.3:
STATEMENT OF INCOME AND EXPENSES
FOR THE PERIOD ENDED 30 SEPTEMBER 20.3
R
Income: 100 800
Membership fees (cash received for the year) 67 200
Bar profit 12 000
Less: Expenses (84 000)
Administration expenses 51 120
Surplus 16 800
STATEMENT OF FINANCIAL POSITION ACCOUNTS

20.3 20.2
R R
Equipment 288 000 417 600
Accumulated depreciation: Equipment (129 600) (129 600)
Investments 195 000 180 000
Bar inventory 96 000 74 400
Debtors 33 600 43 680
Bank 63 600 53 760
Accumulated fund (496 800) (480 000)
Courier fund (195 000) (180 000)
Creditors (25 200) (99 840)
Unless stated otherwise, the following was not taken into account:
1. The bar was open to members and the general public. Members, however, were
entitled to a 5% discount on the normal sales price.
294
The bar profit was calculated as follows:
R
Sales: 135 400
Members 80 000
General public 55 400
Less: Cost of sales 123 400
Opening inventory 74 400
Add: Purchases 145 000
Less: Closing inventory (96 000)
Bar profit 12 000
The discount was not taken into account in the above-mentioned calculation and the
contra entry should go against debtors.
2. Included in investments is an amount that was donated by the estate of Mr B Kuhn on
30 June 20.3 to the amount of R15 000. This amount was invested at FNB and earned
interest at 12% p.a. Both the investment and the return on the investment should be
capitalised. The return on the investment at FNB was included under income in the
statement of income and expenses. The donation relates to the Courier Fund.
3. The club register showed that there were 1 120 members on 1 October 20.2. According
to the register there were 1 122 members on 30 September 20.3. Two members
resigned during the course of the year. Admission fees for new members amounted to
R100 per member and should be capitalised. Membership fees for five members were
received in advance. Membership fees per member were R60 p.a. for both years
(membership fees should be raised fully even though members resigned or were
admitted for a portion of the year only).
4. Debtors and creditors were made up as follows:
20.3 20.2
R R
Debtors
Accrued membership fees (20.2 balance) 300 300
Sundry and bar debtors 33 300 43 380
33 600 43 680
Creditors
Membership fees received in advance (20.2 balance) 240 240
Sundry and bar creditors 102 960 99 600
103 200 99 840
295
Accrued membership fees for 20.2, received in the current year, were incorrectly taken
to membership fees received in the statement of income and expenses. No adjustment
was made for membership fees received in advance in the previous financial year and
membership fees received in advance in the current financial year was included in
membership fees received in the statement of income and expenses.
5. Depreciation on equipment should be provided for at 15% p.a. on the cost price.
Equipment (carrying amount at the beginning of the year, R100 000) was sold for
R90 000 on 31 March 20.3. No movements, other than the sale of the asset, occurred in
this account.
Required:
Show the following accounts in the general ledger for 20.3:
• Membership fees (R67 200)
• Accrued membership fees (R300)
• Membership fees received in advance (R240)
• Accumulated fund (R480 000)
• Bar trading account (bar sales and cost of sales)
• Income and expense account
Start with the opening balances and totals in brackets.
Question 20.5 (Closing bank balance)

The following information was obtained from the records of Trevor’s CD Copy Club:
1. The overdraft bank balance according to the bank statement at the beginning of the
month, 1 April 20.3, amounted to R2 691.
2. During the course of the month 36 new members were admitted. Admission fees
amount to R156 per member.
3. The monthly membership fees amounted to R20 per month and 168 members paid
their membership fees for the month. Eight members paid membership fees for
May 20.3. Five members who owed membership fees for March 20.3 paid their
outstanding fees during the course of the month. The number of members who did not
pay their membership fees for the month increased by two.
4. Repairs and maintenance amounted to R4 700 and the amount outstanding at the end
of the month was R700. There was no outstanding amount at the beginning of the
month.
5. Salaries and wages amounted to R875 and were paid.
6. CDs purchased for R1 790 were sold at cost plus 30%. There was no inventory or any
outstanding amounts at the beginning and end of the month.
7. Donations made to the Coenie de Villiers Trust Fund amounted to R400.
8. According to the bank statement, the balance at the end of the month amounted to
R15 200 after interest and bank charges of R123 and R132 respectively were taken into
account. The bank, however, admitted that the closing balance was incorrect due to a
computer error.
296
9. Assume that cash payments were made by means of electronic funds transfers only and
that all cash received was deposited (except for two members’ money which was paid
on the last day of the month).
Required:
What was the correct bank balance at the end of the month?

The following information was obtained from the records of the Agricultural College Golf
Club for the year ended 31 December 20.3:
R
Membership fees received for 20.2 52 800
Sales – Golf accessories 87 600
Office equipment purchased 590 400
Office equipment sold at carrying amount (cost price R48 000) 12 000
Purchases of golf accessories 39 600
Depreciation for the year 307 200
Insurance 11 760
Accumulated fund (opening balance) 1 744 320
Admission fees received 115 200
Office equipment (opening balance) 1 450 080
Accumulated depreciation: Office equipment (opening balance) 730 080
Accrued membership fees (closing balance) 40 800
Bank (opening balance – favourable) 64 320
Golf accessories (opening balance) 12 000
Golf accessories (closing balance) 11 500
1. R9 600 should be provided for bonuses at the end of the year.
2. R3 600 of the rates and taxes was for the 20.4 year.
3. Admission fees should be capitalised.
297
Required:
1. Prepare the statement of receipts and payments for the year ended 31 December 20.3.
2. Prepare the statement of income and expenditure for the year ended
31 December 20.3.
3. Prepare the statement of financial position on 31 December 20.3.
Question 20.7 (Statement of income and expenditure)

The following information appeared in the records of the Leopards Rugby Club at the
beginning of the financial year, 1 March 20.2:
R
Equipment (carrying amount) 480 000
Inventory:
Refreshments 14 400
Stationery 3 600
Bank (DR) 17 640
Accrued membership fees 6 360
Accumulated fund 444 000
Loan from A Markgraaff at 15% p.a. 72 000
Creditors 6 000
The following receipts and payments occurred during the year:
R
Receipts Membership fees: 20.2 4 920
20.3 165 000
20.4 3 600
Refreshments sold 100 320
Admission fees 11 040
Donations received 19 200
Payments Creditors 6 000
Donations 5 760
Equipment purchased on 28 February 20.3 14 400
Loan to W Swanepoel at 20% p.a. on 31 May 20.2 48 000
Purchases:
Refreshments 42 740
Salary – Secretary 57 600
Stationery 4 320
Wages 24 000
298
1. Admission fees should be capitalised.
2. Inventory at the end of the year is as follows:
Stationery R1 680
Refreshments R4 800
Packing material R600
3. Depreciation on equipment is written off at 15% p.a. on the reducing balance method.
4. Membership fees outstanding for 20.2 should be written off as irrecoverable.
5. Accrued membership fees for the current year amount to R540.
Required:
Prepare the statement of income and expenditure for the year ended 28 February 20.3.
Question 20.8 (Statement of financial position)

Refer to the information in Question 20.7.
Required:
Prepare the statement of financial position on 28 February 20.3.

The following information was obtained from the records of MTN Soccer Club for the year
1. The following summary was made from the cash deposit book:
R
Entrance fees 210
Donations received 660
Fixed assets sold 890
Functions 210
299
2. The following summary was made of the electronic fund transfers (EFTs) (assume all
payments were made by means of EFTs):
R
Affiliation fees 110
J Sono (coach) 310
Printing and stationery 210
Purchases of nets 310
Purchases of soccer balls 530
Rent paid 1 050
3. The opening balance of the bank account amounted to R315 (favourable).
Required:
1. Prepare the statement of receipts and payments for the year ended 31 December 20.3.
With reference to the above information, assume the following:
• Membership fees outstanding for the 20.3 year amounted to R150.
• Membership fees outstanding for the 20.2 year amounted to R50 and were
received.
• An account for soccer balls, R140, was still outstanding at the end of the year.
• Affiliation fees for the 20.2 year are still payable (R110).
• Nets, R290, and soccer balls, R460, were on hand at the end of the year.
• Entrance fees should be capitalised.
• R100 membership fees were received in respect of the 20.4 year.
• No profit or loss was realised on the non-current assets sold.
31 December 20.3.
Question 20.10 (Membership fees and fund accounts – use fund income)
Mooiriver Recreation Club approached you to attend their annual meeting. The financial
statements will also be discussed at this meeting. The chairperson requested you to address
the club members on some issues:
Members:
The club had 171 members on 28 February 20.4. Membership fees amount to R20 per
month. Twelve members’ membership fees were in arrears for the whole of the previous
year. Two other members were overseas during January and February 20.4 and requested to
pay their fees during March 20.4. The management, that exists of five members, agreed to
pay their membership fees in advance for the following year before 28 February. Two
members who were intoxicated during a function lost their membership on 31 December.
One of them had not paid his membership fees for the current or previous years. Two
300
members, whose membership fees were outstanding for the previous year, were asked to
leave the club as their membership fees were not paid by 30 June. The only advance
payments were for the management in both current and prior year. Membership fees are
billed at the beginning of each month. Five new members joined the club at the beginning of
May 20.3.
An amount of R40 040 was banked during the year.
Funds:
Mrs Malan donated R10 000 to the club 2 years ago (during 20.1). The money was invested
immediately. She determined that only the income should be used for a spring tea for the
aged members of the club. No tea was held during the first year. The balance of the
investment on 28 February 20.2 was R10 750.
Interest of R1 120 was earned last year. A large champagne breakfast was held for the
elderly. The cost was R2 900. Interest received during the current year amounted to R1 090.
A smaller tea was held for the elderly at a cost of R800.
The balance of the investment on 28 February 20.4 was R9 260.
Required:
1. Indicate, with full calculations (in T-account format), if the correct amount of
membership fees was banked.
2. Indicate (in T-account format) what the balance of the fund account should be.
Question 20.11 (Membership fees and fund accounts – use fund capital and income)
The Compukke Student Association was founded 2 years ago to promote the social wellbeing
of the members. The opening trial balance on 1 January 20.3 was as follows:
DR CR
R R
Damages fund 10 000
Furniture 10 200
Accumulated depreciation: Furniture 2 500
Investments 10 000
Debtors 3 000
Creditors 2 000
Bank 1 300
27 000 27 000
301
The statement of receipts and payments for the year ended 31 December 20.3 is as follows:
Receipts Payments
R R
Bank (1 March 20.3) 2 300
Investment (30 September 20.3) 2 500
Donations 8 305
Damages 1 700
Repairs 1 300
Interest 750
Bank (31 December 20.3) 3 859
13 350 13 350
You determined the following:

1. The association had 58 members at the beginning of 20.3. The following changes
occurred during the year:
• 31 May – five new members were accepted.
• 31 August – two members were discharged (one owed his membership fees for
20.2 and 20.3).
• 30 September – eleven new members were accepted.
2. Membership fees amount to R10 p.a. if a member applies before 31 July and R5 p.a.
after 31 July. If members are discharged, no membership fees are refunded. New
members must pay R100 entrance fee. This amount is included in the membership fees
received during the year.
3. Included in debtors is R300 membership fees receivable for 20.2. Included in creditors is
R63 for membership fees received in advance for 20.3. Members receive a 10% discount
if they pay their membership fees for the following year before 31 December.
4. All outstanding membership fees for 20.2 were recovered. The chairperson of the
association mentioned that only ten members still owed their membership fees for
20.3.
5. The damages fund is used to pay for damages that students are involved in during
official gatherings of the association. The full fund may be used for these payments.
6. Investments earn 10% interest p.a.
7. As the club has only one investment, it was decided that а of all interest earned would
be allocated to the damages fund.
302
Required:
1. Prepare the general ledger account for membership fees.
2. Show only the equity section of the statement of financial position on
31 December 20.3.
Question 20.12 (Membership fees and fund accounts – use fund income)
A friend of yours is the treasurer of Park Tennis Club. He approached you to assist him with
some problems.
Membership fees:
The club had 82 members at the end of the year (31 December). Membership fees are R40
per month payable in advance. The following numbers of new members were admitted:
April Ten members
June One member
November Two members
No members resigned during the year.
On 1 January (beginning of the financial year), three members’ fees were outstanding for the
whole of the previous year. One of these members has since paid his outstanding fees in full
and a second member paid for 3 months. At the general meeting in June, it was decided to
withdraw the membership of the two members whose fees were still outstanding and to
write off their outstanding debt up to 30 June.
According to the cash receipts statement, R30 460 was received from members during the
year. 68 members had paid their membership fees in advance for 1 month at the beginning
of the year, while 75 were 1 month in advance at the end of the year.
Included in membership fees is R4 000 that should be transferred to the development fund
annually.
Development fund:
The following revenue was received by the fund:
• Membership fees
• Interest R1 385
• Bequest R2 500 (should be capitalised)
• Government subsidy R5 000
According to the rules of the fund, the revenue may be used to advance tennis in less
privileged communities. The following payments were made in this regard:
• Expenses for the training of street children R1 800
• Bursaries to children of unemployed parents R3 000
• Donation to a tennis club in the informal settlement R5 000
303
The opening balance of the fund at the beginning of the year was R10 000 (capital) and
R3 650 (accumulated income).
Required:
Compile the following general ledger accounts:
• Membership fees
• The appropriate accounts for the development fund
Question 20.13 (Coupons, membership fees and fund accounts – use fund income)
The chairman of the Prima Polo Club approached you to help him with a few accounting
problems that he is experiencing in finalising the club’s financial statements on
31 December 20.3.
1. The club sells refreshments by means of coupons and cash. The following information
was obtained from the club’s accounting records on 31 December 20.3:
R
Printing 24
Coupon suspense – 20.2 1 725
Nominal value per booklet 15
Yield with sale of coupon booklets 15 750
Cash sales of refreshments 2 800
Cash purchases of refreshments 3 400
Credit purchases of refreshments 7 250
Coupons traded in for refreshments – 20.2 booklets 615
Coupons traded in for refreshments – 20.3 booklets 13 900
Refreshments on hand (31 December 20.3) 730
By 31 December 20.3, 390 booklets had not been sold. Coupons are only valid for
1 year after the end of the year in which the booklet was issued.
Required:
Show the following accounts in the general ledger (it is not necessary to balance and
close the accounts):
• Coupon suspense 20.2
• Coupon suspense 20.3
• Refreshment sales
304
2. On 1 January 20.3, the club had 5 320 members. The membership fees of the club are
R10 per month. Once-off entry fees of R120 are payable by new members.
On 1 January 20.3, certain members’ membership fees for the previous year were still
owing:
Three members for October, November and December
Seven members for November and December
Two members for December
One member paid only up to June 20.2
During the year a number of new members joined the club and paid their entry fees
and full membership fees. The members joined as follows:
On 1 April Six members
On 31 July Four members
On 1 October Nine members
The membership of the member in arrears since June and one member in arrears since
October was suspended and their names removed from the register on 1 January 20.3.
The other members that were in arrears all settled their debts.
By the end of 20.3, eight members had already paid their membership fees for January
and February, and three members had paid till the end of March 20.3. However, nine
members still owed their membership fees for December.
Required:
Show the membership fees account for 20.4.
3. The club collected R15 000 in donations from old members for the purpose of
establishing a Sponsorship Fund. The income may be used to send a promising player to
an overseas tournament. On 1 July 20.3, the money was invested in a 17% fixed
deposit. On 31 December 20.3, a R2 000 grant was made to B Nel.
Required:
Prepare the necessary ledger accounts to record the transactions.
Question 20.14 (Fund accounts)

ABC Club had the following funds at their disposal on 1 January:
Prize fund – R10 000

The income from this fund may be used to award prizes at the annual Bingo championship.
Sponsorship fund – R7 500

Unused fund income (opening balance) – R2 300
305
The funds as well as any revenue may be used to give sponsorships to attend the Bingo
championships in Durban.
TV fund – R11 000

The TV fund was established to collect money to buy a new TV. The rules of the fund
stipulate that the capital as well as any revenue may be used.
Investment – R30 800

The investment is for all the funds at the beginning of the year. Interest is allocated on the
basis of the individual fund balances (including accumulated income) for the financial year.
Interest amounts to 12% p.a.
Transactions for the year:

1. On 1 July, the club received a bequest from Mrs Meintjies to the value of R2 000 in her
will. The will stated that the income should be invested immediately. The will
determined that the revenue must be used to buy special chairs for the elderly.
2. Interest earned on the investment for the year – R3 800.
3. Prizes awarded on 31 December:
B Bam R300
P Pieterse R500
4. Sponsorship paid to S Salm on 31 December for travelling to Durban, R7 200.
5. TV purchased for R6 300 on 31 December.
6. Prize outstanding (already awarded but not yet paid): L Lamber, R1 000.
Required:
1. Show all applicable T-accounts.
2. Determine the amount that should be in the investment at the end of the year if the
investment only represents the funds.
3. Show how the funds will be disclosed in the statement of financial position.
Question 20.15 (Membership fees)

On 1 January 20.6, Repco Sport Club, whose monthly membership fee is R8,00 per member,
had 15 members who had not yet paid their membership fees for December 20.5. Eight
members paid their fees up to 31 March 20.6. The club has a constant member base of 70.
The membership lists show that 70 of the members have paid their fees up to
31 October 20.6, 68 up to 30 November and 65 up to 31 December. Six members have also
paid for January 20.7.
306
Required:
1. Determine the amount, in cash, that was received during the year ended
31 December 20.6 for membership fees.
2. Calculate the amount that will be shown in the statement of income and expenditure of
the club as membership fees for the year ended 31 December 20.6.
Question 20.16 (Coupons)

The financial year-end of Wanderers Club is 31 December. Snacks can be purchased with
cash or coupons. The coupons are sold in little booklets to the members.
Each booklet contains:
10 coupons of R0,10 each
One of the conditions of sale stipulates that the coupons can only be used until the end of
the financial year that follows the year of the sales. Thereafter, all coupons that are
presented will be worthless.
During 20.2, 1 000 booklets were printed, for which the printing costs amounted to R250,00.
The booklets are sold at a discount of R0,50 in order to stimulate the use of the coupons. 800
booklets, which were stamped with the year (20.2), were sold. Coupons valued at R12 000,00
were presented in 20.2.
During 20.3, the following transactions occurred:
Number of books printed 1 400
Number of books sold (including inventory of 20.2) 1 100
Printing costs R350
Take note: The 20.3 booklets were sold at a premium of R0,25, whereas the 20.2 booklets
were sold at nominal value.
The nominal value of coupons presented as payment is as follows:
Booklets issued in 20.2 R2 100,00
Booklets issued in 20.3 R17 600,00
Cash sales R12 000,00
Coupon booklets that have not been sold at the end of the financial year are considered an
asset.
Required:
Prepare the relevant accounts for the years ended 31 December 20.2 and 31 December 20.3
by using the above information.
307
Question 20.17 (Membership fees and financial statements)

The treasurer of the Roly-Poly Exercise Club provides you with the following information:
POST-CLOSING TRIAL BALANCE
ON 31 DECEMBER 20.1
R R
Accumulated fund (1 January 20.1) 8 330
Bursary fund 5 000
Creditors 255
Accumulated depreciation: Vehicles 600
Exercise apparatus at cost 3 450
Accumulated depreciation: Exercise apparatus 690
Income received in advance (membership fees R35; rental
income R60) 95
Accrued expenses (wages R40; bursary money R400) 440
Accrued income (membership fees) 360
8% Participation bond 5 000
Club T-shirts at cost 1 400
5% Savings account 2 200
Bank 1 320
Prepaid expenses (club promotion day) 600
Surplus on 31 December 20.1 1 520
16 930 16 930
STATEMENT OF RECEIPTS AND PAYMENTS

R R
Balances on 1 January 20.2: Expenses: Club promotion day 4 240
Bank 1 320 Purchases: T-shirts 500
Savings account 2 200 Stationery 66
Membership fees 9 610 Wages 180
Interest on participation bond 400 Refreshments 910
Rent 60 Creditors 255
continued
308
R R
Sales: T-shirts 1 500 Participation bond 1 000
(31 December 20.2)
Refreshments 315 Bursaries 800
Receipts: Promotion day 4 900 Donations 3 640
Entry fees 950 Fuel 169
Interest on savings account 55 Exercise apparatus purchased
(1 July 20.2) 1 300
Legacy 1 200 Balances on 31 December 20.2:
Savings account 2 255
Bank 7 795
23 110 23 110
1. Provide for depreciation on vehicles at 10% p.a. on the reducing balance method.
2. Exercise apparatus with a cash price of R450,00 of which the accumulated depreciation
on 1 January 20.2 amounted to R150,00, was donated to the local care centre for the
aged, on 1 May 20.2. Depreciation must be provided for on exercise apparatus at 20%
p.a. on the cost price.
3. Outstanding interest on the savings account must be calculated.
4. R1 000 of the legacy is meant for the Bursary fund and was invested accordingly. The
rest is applied as current income.
5. Interest on the participation bond may only be applied for the awarding of bursaries.
This year’s interest has been received and the bursary was awarded and paid to P Brits.
6. The club T-shirts are sold at a profit of 25% on the cost price.
7. On 1 January 20.2, the club had 155 members. Membership fees amount to R5,00 per
month. New members joined as follows:
1 May Six
31 August Four
1 October Nine
8. They each paid membership fees due as well as a once-off entry fee of R50,00. Entry
fees must be fully capitalised.
9. A few members resigned during the year: three members on 1 April and seven
members on 1 September – they did not owe any membership fees.
10. Three members were asked to resign at the beginning of the year; one owed 3 months’
membership fees and the other two owed 5 months’ fees each.
309
11. Other members who were in arrears, paid their membership fees during the year. Five
members already paid their fees up to March 20.3 and four members paid till
June 20.3. There were seven members whose fees were still due for December and
11 members for November and December 20.2.
Required:
1. Prepare the membership fees account.
2. Determine the surplus/shortfall for the year.
3. Prepare the statement of financial position on 31 December 20.2 for presentation at
the general members’ meeting (notes are not required).
Question 20.18 (Coupons, membership fees and fund accounts – use fund income;
trading statement; statement of income and expenditure)
The following post-closing trial balance on 31 December 20.5 was obtained from the
accounting records of Potchefstroom Recreation Club:
R R
Club buildings 250 000
Buildings 22 500
Refreshment creditors 4 300
Club badges at cost 3 800
9% Loan 124 000
Prize fund 55 000
15% Paid-up term shares 55 000
Coupon suspense account 15 300
Income received in advance (membership fees R1 600;
rental income R1 000) 2 600
Accrued expenses (wages) 3 950
Accrued income (membership fees) 2 800
Prepaid expenses (hobby exhibition) 3 700
Inventory (1 January 20.5): Refreshments 4 760
Stationery 180
Bank 6 810
7½% Savings account 46 800
456 850 456 850
310

R R
Receipts Payments
Balances b/f: Refreshment creditors 4 300

Bank 6 810 Refreshments purchases 63 240
Savings account 46 800 Wages 66 750
Rental income 23 000 Honoraria 4 500
Membership fees 78 400 Interest expense (loan) 5 580
Entry fees 15 000 Equipment (1 September 20.6) 27 000
Refreshment sales 23 800 Club badges 1 700
Interest income (bank account) 2 000 Donations 7 400
Inheritance 60 000 Stationery 1 600
Proceeds of hobby exhibition 21 770 Loan (30 June 20.6) 30 000
Club badges 2 880 Expenses for hobby exhibition 8 350
Dividends on shares 8 250 Paid-up term shares 30 000
(30 June 20.6)
Coupon suspense 76 300 Prizes 8 000
Balances c/f:
Bank 59 790
Savings account 46 800
365 010 365 010
1. Membership fees:
• On 1 January 20.6, the club had 196 members.
• Membership fees are R400 p.a., irrespective of the date of admission.
• Of the members owing membership fees for 20.5, three members were
retrospectively suspended, and their membership fees must be written off. The
other members paid their membership fees for 20.5.
• Five new members joined during the year and paid their full entry and
membership fees.
• Nine members have already paid their membership fees for 20.7.
• Some members still owe their membership fees for 20.6.
2. Entry fees are R3 000 per member for new members and are capitalised.
311
3. Prize fund:
• The prize fund has been invested in 15% paid-up term shares at the Omega Bank.
• The dividend income on this investment is used to award prizes at the annual
hobby exhibition and has already been awarded for the year ended
31 December 20.6.
4. Inheritance:
• Half of the inheritance may be used at management’s discretion and has been
applied to settle a portion of the loan.
• The balance was added to the prize fund and invested accordingly.
5. Club badges are sold to members at 12½% profit on cost.
6. Coupons:
• Coupon booklets contain the following coupons:
Six of R5 each and seven of R10 each.
• Coupons are sold at nominal value and are only valid for 6 months after the end
of the financial year.
• During 20.6, 763 booklets were sold.
• During the year, 135 of the 20.5 booklets and 630 of the 20.6 booklets were
exchanged for refreshments.
• Refreshments are sold with the aid of coupons or for cash. During the year ended
31 December 20.6, refreshments were only purchased for cash.
7. Equipment with a cost price of R5 000 and a carrying amount of R1 000 on
1 January 20.6 was scrapped on 31 December 20.6. Depreciation on equipment is
provided for at 10% p.a. on the carrying amount. Depreciation is provided for at 3% p.a.
according to the straight-line method on buildings.
8. Inventory on hand on 31 December 20.6:
Stationery R700
Refreshments R2 700
9. An amount of R2 500 was given to the caretaker as an advance on his wages for
January 20.7.
Required:
1. Prepare the following accounts in the general ledger:
• Membership fees
• Prize fund
• Coupon suspense
2. Prepare the refreshment trading statement for the year ended 31 December 20.6.
31 December 20.6.
312
Question 20.19 (Membership fees and statement of income and expenditure)

The information below was taken from the books of Pumba Soccer Club. The accounting
period of the club ends annually on 31 December.
PUMBA SOCCER CLUB
POST-CLOSING TRIAL BALANCE
ON 31 DECEMBER 20.1
DR CR
Mortgage loan: BB Bank (16% p.a.) 80 000
Fixed deposit: FF Bank (12% p.a.) 12 000
Creditors 11 000
Income received in advance (see note below) 1 320
Accrued income (membership fees) 600
Soccer balls on hand 400
Accrued expenses (water and electricity) 140
Prepaid expenses (interest on mortgage loan) 3 800
Inventory: Club ties 800
Savings account 500
Bank 32 700
280 600 280 600
Note: Income received in advance was for:

• Membership fees, R960
• Interest on fixed deposit, R360
RECEIPTS AND PAYMENTS
R R
Receipts Payments
Entrance fees 3 900 Club ties purchased 7 300
Membership fees 32 760 Tournament expenses 2 100
Tournament income 3 500 Creditors 11 000
Interest on fixed deposit (FF Bank) 1 200 Wages 4 400
continued
313
R R
Donations 11 400 Stationery 630
Club ties sold (see note no. 6) ? Water and electricity 1 930
BB Bank (see note no. 13) 19 000
Bank charges 420
Soccer balls 2 800
Equipment (1 May 20.2) 7 500
Additional information and adjustments:

1. On 31 December 20.1, the club had 260 members on its register. On 1 January 20.2,
65 members joined the club. EFTs were received from all these members for their
membership fees as well as their entrance fees in full. Entrance fees are R60 per
member and must be regarded as current income.
2. Membership fees:
(a) Membership fees are R120 per member p.a.
(b) R360 of the membership fees owing on 31 December 20.1, was received. The
remainder must be written off and the membership of the non-payers must be
terminated on 1 January 20.2.
(c) One member has already paid his membership fees in advance for 20.3, while
some members’ fees were still outstanding for 20.2.
3. The donations must be regarded as current income.
4. The bank statement for December 20.2 reflects bank charges of R70 which have not yet
been recorded in the books of the club.
5. The members decided to award an honorarium of R550 to the secretary, but this has
not been paid yet.
6. Club ties are sold at cost plus 60%. According to a stocktake on 31 December 20.2, club
ties valued at R1 200 were on hand.
7. Soccer balls on hand on 31 December 20.2 were valued at R450. The balance is to be
written off.
8. On 31 December 20.2, stationery to the value of R75 was on hand.
9. Interest of R85 was credited to the savings account by the bank. No entries were made
in the club’s books.
10. Depreciation on equipment must be taken into account at 10% p.a. according to the
reducing balance method. New equipment was purchased on 1 May 20.2.
11. Sponsorship outstanding for the tournament amounting to R1 000 will be received in
January 20.3.
12. An amount was received in advance for interest income from FF Bank. No change
occurred to the fixed deposit during the current year. R4 000 of the fixed deposit
matures on 30 June 20.3.
314
13. The payment to BB Bank on 31 December 20.2 was in respect of:

• Part-payment of mortgage loan, R10 000
• Interest on mortgage bond, R9 000
The interest and loan payments are up to date.
Required:
1. Prepare the membership fees account for the year ended 31 December 20.2 and close
it off properly.
2. Refer to the membership fees account: In your opinion, is there a problem concerning
fees outstanding for 20.2? What advice would you give to the committee with respect
to the outstanding fees?
3. Explain how you would treat the fixed deposit of R12 000 when preparing the financial
statements (see note no. 12).
4. Prepare the statement of income and expenditure for the year ended 31 December 20.2.
Calculations must be shown in brackets in the details column.
Question 20.20 (Membership fees and fund accounts; financial statements)

The Monza Go-kart Club is a motorsport club in Potchefstroom. The following information
was obtained from the club’s accounting records:
TRIAL BALANCE
ON 31 DECEMBER 20.7
DR CR
R R
Racing circuit 90 000
Accumulated depreciation: Racing circuit 54 000
Safety equipment 32 000
Accumulated depreciation: Safety equipment 16 000
Investment: Investec (10% money market account) 76 000
Investment: FNB (7% fixed deposit) 135 000
Bank 89 880
Inventory: Kiosk 2 920
Accrued income: Membership fees 1 250
Prepaid expenses: Rental of premises 900
Accrued expenses: Telephone 120
Sebastian Vettel Race Fund: Capital 75 000
Sebastian Vettel Race Fund: Accumulated income 1 000
Racing Circuit Fund 135 000
427 950 427 950
315
MONZA GO-KART CLUB

R
Bank balance on 1 January 20.8 89 880
Receipts: 44 350
Membership fees received 17 250
Entrance fees received 3 300
Safety equipment sold 9 500
Sales: Kiosk 14 300
Payments: (74 408)

Inventory purchases: Kiosk 15 625
Safety equipment purchased 42 000
Trading licence for kiosk 320
Affiliation fees paid to Motorsport South Africa (MSA) 700
Insurance 2 665
Rent of premises 9 900
Telephone 1 728
Transfer to money market account: Investec 1 470
Bank balance on 31 December 20.8 59 822
1. The club had 59 members on 31 December 20.7. The club welcomed six new members
on 1 January 20.8 who each paid the annual membership fee of R250 and the once-off
entrance fee of R550. Club management became aware that one member whose 20.7
membership fee is still in arrears, had left the country and never paid the amount due
to the club. It was decided on 1 January 20.8 to end his membership and to write off his
outstanding membership fee. On 31 December 20.8, four members had already paid
their membership fees for 20.9.
2. A donation of R75 000 was received from Sebastian Vettel during 20.6. The donation
conditions stipulated that the amount had to be invested and the proceeds on the
investment must be used to host an annual invitational race on 31 December each
year. The amount is invested at 10% p.a. in an Investec money market account. The
initial donation must be maintained at all times. The invitational race was held on
31 December 20.8 at a total cost of R10 070.
316
3. During 20.7, the club decided to build another racing circuit and created a separate
fund for this purpose. Funds were collected and invested at 7% p.a. in an FNB fixed
deposit. Both the capital and income of the Racing Circuit Fund may be used to pay for
the new racing circuit. Construction of the new circuit commenced in September and
was completed on 1 December 20.8 at a total cost of R150 000. The total amount
invested was paid to the contractor on the same day. The club will settle the
outstanding amount due to the contractor in January 20.9. Racing circuits are
depreciated at a rate of 10% on cost.
4. Kiosk inventory on hand on 31 December 20.8 amounted to R7 545.
5. It was decided on 31 March 20.8 to replace all safety equipment. The equipment was
originally purchased on 1 July 20.5 for R32 000 and annual depreciation on safety
equipment has been provided for at a rate 20% p.a. on cost. The existing equipment
was sold on 31 March 20.8 and the new equipment was purchased on the same day.
6. The club’s monthly insurance premium for January 20.9 had already been paid in
December 20.8.
Required:
1. Prepare the following T-accounts as they will appear in the general ledger of Monza Go-
kart Club for the year ended 31 December 20.8:
(a) Membership fees
(b) Sebastian Vettel Fund account
(c) Racing Circuit Fund account
2. Prepare the trading statement of the kiosk for the year ended 31 December 20.8.
31 December 20.8.
4. Show the funds and liabilities section of the statement of financial position on
31 December 20.8.
Question 20.21 (Coupons)

The Fulham Tennis Club hosts a tournament on the first Saturday of every month. A bar is
operated during tournaments and members can purchase coupons at the club office during
office hours. Coupons can be used for bar purchases during tournaments and expire within
one year from the end of the year of issue. The cost and face value of each coupon is R5.
The following information was obtained from the club’s accounting records:
R
Coupon suspense account (coupons sold in 20.8) on 1 January 20.9 620
Coupons sold in 20.9 1 015
317
Coupons used at the bar during 20.9:

Number
of coupons
Coupons sold in 20.8 92
Coupons sold in 20.9 195
Required:
Prepare the following T-accounts in the general ledger of the Fulham Tennis Club for the year
1. Coupon suspense accounts
2. Bar sales
318

AQS - Accounting Questions For Students

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Accounting Questions for Students

First Edition 2015

ISBN 978-1-77617-462-1 (softback)

Acknowledgement is hereby given to the North-West University for granting

Editor: Marjorie Guy

PART B – ELEMENTS OF FINANCIAL STATEMENTS

PART D – TYPES OF ENTITIES

Assets = Equity + Liabilities

Assets = Equity + Liabilities

Equity Assets Liabilities

Equity Assets Liabilities

2. The following expenses occurred for the month of review:

Assets Equity Liabilities

No. Source doc. Acc. DR Acc. CR A E L

No. Acc. DR Acc. CR E = A – L

To: Bidemer Date: 15 May 20.5

No. 278 17 May 20.5

9. James & Co levies Botha Shops with R7 interest.

No. Acc. DR Acc. CR E A L

5. Converted a debt of R1 000 owing to creditors into a long-term loan.

4. Hardware was sold for R22 500 on credit.

No. Account description Equity Assets Liabilities

3. Pay interest on loan R10 000 cash.

Transaction Source document

Refer to the information in Question 5.1.

Cash receipts journal – April 20.2

Cash payments journal – April 20.2

Sales journal – April 20.2

Sales returns and allowances journal – April 20.2

Purchases journal – April 20.2

Purchases returns and allowances journal – April 20.2

Cash receipts journal R

Cash payments journal R

Purchases returns journal R

10 Make an EFT payment to Parow Furniture: R3 000,00.

Original invoices received for goods purchased on credit:

Cash transactions for July 20.7:

Question 6.1 (Debtors, depreciation, inventory, VAT)

He provided the following additional information:

Question 6.2 (Inventory, debtors, interest, depreciation, creditors)

Land and Building: Cost 500 000

Chapter 6: Adjustments and closing entries

Interest expense 3 000

Question 6.3 (Errors)

TRIAL BALANCE ON 31 DECEMBER 20.9

Question 6.4 (Debtors, creditors, interest, inventory, depreciation)

Question 6.5 (Periodic inventory, errors, debtors, creditors, depreciation)

Printing and stationery

Chapter 6: Adjustments and closing entries

Question 6.6 (Errors, creditors, debtors, depreciation)

TRIAL BALANCE ON 28 FEBRUARY 20.2

5. The following amounts were received/paid in advance on 28 February 20.2:

Question 6.7 (Inventory, errors, debtors)

Question 6.8 (Inventory, depreciation, debtors, creditors)

8. Provide for depreciation as follows:

Question 6.10 (Depreciation, inventory, salaries, interest)

Question 6.11 (Errors)

The account balances according to the general ledger:

Question 6.12 (Errors, VAT)

Question 7.1 (Easy)

Question 7.2 (Moderate)