Directorate: Curriculum FET

Gr 11 ACCOUNTING Term 2: Lesson 3

Topic: Year-end adjustments, Financial Statements and the Notes

You already know ... The lesson/worksheet will enable you to...
• year-end adjustments covered in Gr 10 & Gr 11 (T1) • Prepare the notes to the financial statements

• Notes to the Financial Statements • Prepare the Statement of Comprehensive

Income of partnerships taking the year-end
• Statement of Comprehensive Income and Statement
adjustments into account.
of Financial Position
• Answer questions on problem solving/internal
• Adjustments are used to determine the net profit of
control/ethical behaviour
the business for ONE financial period. Some cost
items include amounts from either the previous or
next financial year.
• Some amounts need to be taken into account via
adjustment entries (GAAP principle of Matching
concepts and Historical cost)
• Adjustments must be taken into account when
completing the financial statements.

Some important notes to the financial statements you have already dealt with:
FIXED/TANGIBLE ASSETS LAND AND EQUIPMENT TOTAL
BUILDINGS
Carrying value at beginning of year C C C A–B=C
Cost A A A
Accumulated depreciation (B) = 0 (B) (B)
Movements
Additions at cost D D D
Disposals at carrying value (E) (E) (E)
Depreciation for the year (F) = 0 (F) (F)
Carrying value at end of year J J J C+D–E–F=J
Cost H H H
Accumulated depreciation (I) = 0 (I) (I)

Land and buildings are not The total carrying value is transferred to the
depreciated. A zero will Statement of Financial Position ( Balance Sheet)
ALWAYS be shown in these
blocks

TRADE AND OTHER RECEIVABLES

Trade debtors (Debtors control) K
Provision for bad debts (L)
Net trade debtors M
K–L=M
Prepaid expenses N
Accrued income O
P
M+N+O=P
Transfer P to the current assets
section in the Statement of Financial
Position

Gr 11 Accounting Term 2, 2020 1

 Use your Text book to read about: Alternative digital resources:
Partnerships: Via Afrika Gr 11 Study Guide (ENG/AFR)
• Year-end Adjustments bit.ly/Gr11ViaENG
• Preparing financial statements of
partnerships
Lucem Publishers Gr 11 Teachers Guide
Study examples of adjustment entries and (text book & workbook in one)
financial statements.

Follow the CORRECT format in your textbook bit.ly/Gr11LucemAE

GR 11 Study&Master videos
Partnerships/Venootskappe FS
Gr 11 Study&Master Ken&Verstaan videos

NEW TOPIC:
• Notes to the Financial Statements
• Financial statements (Statement of Comprehensive Income and Statement of Financial Position)
• Problem solving/ internal control/ ethical behaviour

REMEMBER:
1. Know the format of the Financial Statements (refer to the example in your textbook)
2. Know what is included in each Note to the Financial Statements.
3. Take adjustments into account to reflect the correct amounts for the financial period

'Steps' in completing Financial statements:

1. Enter the names of the accounts from the Trial balance in their respective place in the statement,
for example, Interest on loan will appear under Interest Expense in the Statement of
Comprehensive Income.
2. Open the bracket and enter the amount that appears in the Pre-adjustment trial balance next to the
account (NOTE: DO NOT CLOSE THE BRACKET)
3. If notes to the financial statements are required, follow the same procedure as above. The totals of
these notes will be transferred to the respective statement.
4. Read each adjustment and make the necessary changes as per the requirements of the
adjustment.
5. Once you have attended to all the adjustments – close the bracket and enter the amount in the total
column
6. When all the adjustments have been done, calculate your final figures and enter it correctly.

ACTIVITY 1:
You are provided with information regarding Valla Clothing. The business is owned by partners
Valerie and Lana. Valerie started the business and Lana joined her as a partner three years ago.

REQUIRED:
1.1 Prepare the Statement of Comprehensive Income (Income Statement) for the year ended
29 February 2020.
1.2 Prepare the following notes to the financial statements:
• Current accounts
• Trade and other payables
1.3. Lana says that she has worked long hours for the past three years. She is not very happy
with her earnings from the business:
• Briefly explain why she might feel this way
• How could she address her unhappiness?

Gr 11 Accounting Term 2, 2020 2

INFORMATION:
Valla Clothing
PRE-ADJUSTMENT TRIAL BALANCE ON 29 FEBRUARY 2020
Balance Sheet Accounts Section Debit Credit
Capital: Valerie 600 000
Capital: Lana 560 000
Current account: Valerie (1 March 2019) 38 900
Current account: Lana (1 March 2019) 26 800
Drawings: Valerie 187 000
Drawings: Lana 70 000
Bank 15 400
Land and buildings 645 000
Equipment 260 000
Accumulated depreciation on equipment 56 000
Loan: AH Bank 394 000
Fixed deposit: Sam Bank 48 000
Trading stock 198 000
Debtors Control 29 800
Provision for bad debts 7 000
Creditors control 42 300
SARS (PAYE) 3 360
UIF 3 200
Nominal accounts section
Sales 2 800 000
Debtors allowances 72 000
Cost of sales 1 750 000
Interest income 3 960
Interest expense ?
Rent income 63 000
Salaries and wages 178 000
Employer’s contribution to UIF 1 450
Advertising 4 500
Bank charges 8 600
Bad debts 21 000
Packing material 18 200
Telephone 10 600
Water and electricity 17 500
Discount allowed 2 350

ADJUSTMENTS AND ADDITIONAL INFORMATION:

1. Rent for March and April was received during February 2020.
2. The telephone account for February 2020 have not yet been paid, R540.
3. Advertising includes an amount of R2 700 paid for six advertisements in The Cape Argus. By
29 February 2020 only three of these adverts had appeared in the newspaper.
4. A debtor, S. Mart, returned a coat she was not satisfied with. The selling price was R4 720 and the
mark-up was 60% on cost.
5. Stock of clothing costing R5 000 was taken by Valerie for her sister’s birthday, and obsolete stock of
R1 500 was donated to the local orphanage.
6. The physical stock count revealed the following on hand on 29 February 2020:
• Trading stock of clothing, R184 000
• Packing material, R1 900

Gr 11 Accounting Term 2, 2020 3

7. Interest on fixed deposit is calculated at 9% p.a. The interest for the last month has not yet been
recorded.
8. The bank statement for February was received after the trial balance was drawn up. The following
items have not yet been recorded:
• Bank charges, R 910
• Interest on current account balance, R170
• Dishonoured cheque, R2 700 (it had been received from B. Les in settlement of his debt, R2 600)
9. The provision for bad debts must be decreased by R1 200.
10. Interest on loan from AH Bank has not yet been entered. The loan statement received from AH Bank
reflected the following:
• Balance on 1 March 2019, R506 800
• Payments of R146 800 (includes loan repayments of R9 400 per month and interest)
• Balance on 29 February 2020, R394 000
11. Provide for depreciation on equipment, R30 600
12. The salary of an employee was inadvertently omitted from the records. Her monthly gross salary is
R12 000, PAYE deductions are R2 160 and UIF deductions are 1%. The employer also contributes 1%
to UIF.
13. The partnership agreement provides the following:
• Salary to Valerie, R12 400 per month; Lana received R127 400, which includes her salary for
March 2020.
• Bonus to Valerie, R40 000 per year.
• Interest on capital at 8% p.a. (Note that Lana increased her capital by R80 000 on
1 December 2019 – this was properly recorded)
• Remaining profits are shared in the ratio 4:1 between Valerie and Lana.
ACTIVITY 1: Answer Sheet
VALLA CLOTHING
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 2020
Sales
Cost of sales
Gross profit
Other operating income

Operating expenses

Interest expense
Net profit for the year

Gr 11 Accounting Term 2, 2020 4

 CURRENT ACCOUNTS Valerie Lana Total
Profit per Income Statement

Primary distribution
Share of remaining profit (loss)
Drawings

Retained income for the year

Balance at beginning of the year

Balance at end of year

TRADE AND OTHER PAYABLES

Creditors

1.3 Briefly explain why she might feel this way.

How could she address her unhappiness?

Gr 11 Accounting Term 2, 2020 5