Question

Answer all questions in this Section. 1. Read the following and answer questions that follow.

  

The following information was taken from Masego Leero’s books.

01/01/2015 Started business with P20, 000 cash

03/01/2015 Deposited P15, 000 cash into the bank account

05/01/2015 Bought furniture on credit P3, 000 from Supreme

07/01/2015 Bought goods P7, 000 paying by cheque.

09/01/2015 Sold goods P6, 000 by cash

11/01/2015 Sold goods on credit to Lesego R P1, 000, Lorato L P2, 000 and Kago M P3, 000

13/01/2015 Kago M returned goods P300, Lorato L returned goods P200 to the business

15/01/2015 Bought goods from Sefalana worth P5, 000 and paid P3, 000 deposit by cheque

17/01/2015 Returned P500 goods to Sefalana

19/01/2015 Paid a cab for transporting goods in the business P300 by cash.

21/01/2015 Lesego R paid us P500 cash, Lorato L and Kago M paid us the amount owed by cheque

23/01/2015 Bought goods from the following on credit: Choppies P3, 000, Superspar P5,000

25/01/2015 Sold goods by cheque P10, 000

26/01/ 2015 Bought a second hand car paying by cheque P8, 000

29/01/2015 Paid electricity P500, telephone P500, rent P2, 000 by cheque

30/01/2015 Bought stationary by cash P300

31/01/2015 Paid Choppies P2, 000, Superspar P3, 000 by cheque

31/01/2015 Sold goods by cheque P3, 000

Required

a. Do the double entry and balance off accounts for the above showing the following in your answer.       (50 marks)

i. Show all the transactions that happen in the above scenario.

ii. Classify all accounts in the above scenario.

iii. Show the effect of each transaction.

iv. Show the double entry.

b. Draw up Masego Leero’s Trial balance (13 marks)

c. After drawing up the trial balance the following errors were discovered:

i. Credit Sales invoices to M Mothusi P3, 000, L Mokone P2, 500, M Moilwa P4, 000 were omitted from the books.

ii. P5, 000 cash banked was not recorded in the books

iii. A car bought for P10, 000 by cheque was mistakenly recorded in the books as P8, 000 iv. A purchase of furniture P500 was mistakenly recorded in the purchases account. v. Interest Payable P300 was not recorded in the books.

d. Draw up a corrected trial balance (12 marks)

e. Using the new trial balance and additional notes given below:

Notes:

1. Closing inventory on 31 January 2015 was P2, 000

2. Assets are to be depreciated at 25% at cost on a reducing balance method

3. Interest payable P100 was owing

4. Electricity P100 was paid in advance

5. Provision should be made for bad debts at 10% of debtors

i. Draw up the income statement (11 marks)

ii. Statement of Financial Position (8 marks)

f. Use the following ratios to analyse and interpret the results of the financial statements.

i. Gross profit margin (2 marks)

ii. Gross profit mark-up (2 marks)

iii. Stock turn over (2marks)

vi. Current ratio (2 marks)

vii. Acid test ratio (2 marks)

Answer 1

A. Double Entry in the books
Masego Leero Books 20000 1/1/2015 Cash A/C- Dr To Capital A/C 20000 15000 3/1/2015 Bank A/C - Dr To Cash A/C 15000 3000 5/1/2015 Furniture A/C-Dr To Supreme 3000 7000 7/1/2015 Purchase A/C- Dr To Bank A/C 7000 6000 9/1/2015 Cash A/C- Dr To Sales 6000 11/1/2015 Lesego R-Dr Lorato L-Dr Kago M-Dr To Sales 1000 2000 3000 6000

13/1/2015 Sales A/c-Dr To Kago To Lorato 300 200 15/1/2015 Purchase A/c-Dr To Sefalana A/C To Bank A/C 2000 3000 500l 17/1/2001 Sefalana A/c-Dr To Purchase A/C 500 300/ 19/1/2015 Cab charges - Dr To Cash 300 500 4500 21/1/2015 Cash A/C - Dr Bank A/C-Dr To Lesego A/C To Lorato A/C To Kago A/c 500 1800 2700 8000 23/1/2015 Purchase A/c-Dr To Choppies A/C To Sunerspar Alc 3000 50001

10000 25/1/2015 Bank A/c - Dr To Sales A/C 10000 8000 26/1/2015 Car A/c-Dr To Bank A/C 8000 29/1/2015 Electricity Bill A/C- Dr Telephone Bill A/c-Dr Rent A/C-Dr To Bank A/C 500 500 2000 3000 300 30/1/2015 Stationary A/c-Dr To Cash A/C 3001 31/1/2015 Choppies A/C- Dr Superspar A/c-Dr To Bank A/C 2000 3000 5000 3000 31/1/2015 Bank A/C-Dr To Sales 3000

B. Masego Leero Trial Balance

  

Trial Balance Cr Dr 10900 20000 6500 3000 3000 19500 24500 500 0 Cash A/C Capital A/C Bank A/C Furniture A/C Supreme Alc Purchase A/C Sales A/C Lesego R A/C Lorato L A/C Kago M A/C Sefalana A/c Cab Charges A/C Choppies A/C Superspar A/C Car A/C Electricity Bill A/C Telephone Bill A/C Rent A/C Stationary A/C 1500 300 1000 2000 8000 500 500 2000 300 Total | 52000 52000!

C. Corrected Trial Balance

  

Cr 20000 3000 34000 Corrected Trial Balance Dr Cash A/C 5900 Capital A/C Bank A/C 9500| Furniture A/C 3000 Supreme A/C Purchase A/C 190001 Sales A/C Mothusi A/C 30001 Mokone A/C 2500 Moilwa A/c 40001 Lesego RA/C 500 Lorato LA/C Kago MAC ol Sefalana A/c Cab Charges A/c 300 Choppies A/c Superspar A/C Car A/C 10000 Furniture A/C 500 Electricity Bill A/C 500 Telephone Bill A/C 500 Rent A/C 2000 Stationary A/C 300 Interest A/C 300 Interest Payable 1500 1000 2000 300 Total 618001 61800

Income Statement:

Note : We had calculated the depriciation for one month only.

Income Statement for the period ended 31 January 2015 Purchase 19,000 Sales Closing Stock 34,000 2,000 Provision for Bad Debts Interest Depriciation Cab Charges Electricity Telephone Bill Stationary Rent 1,000 300 281.25 300 400 500 2000 300 11,919 36,000 36,000

Statement of Financial Position

Statement of Financial Position as at 31 January 2015 Liabilities Assets Capital Profit 20,000 11,919 Furniture Car Advance Electricity Rent 3427.1 9791.7 100 Accounts Payable Interest Payable 7,500 300 Closing Stock Account Receivable Cash Bank 2,000 9,000 5900 9,500 39,719 39,719

Gross Profit Margin = Gross Profit / Net Sales = 11,919/34,000 = 35.05%

Current Ratio = Current Asset/Current Liablities = 26,500/7,800 = 3.40

Acid Test Ratio = (Cash+Accouts Receivable)/Current Liabilities = (5900+9000)/7800 = 301.987

Stock Turnover Ratio = COGS/(Opening Inventory+Closing Inventory)/2.

Since, the information for COGS is not available hence we cannot proceed further in this formula. However, we can take the opening inventory as zero, since the business has just started on 1/1/2015