Question

Additional information and adjustments The rent for March 2019 has already been received. The value of inventories according to physical stocktaking as at 28 February 2019 are as follows: * Trading inventory R86 000 * Stationery R500 2. 3. An invoice received for an advertisement was erroneously debited to sundry expenses account, R2 400. 4. The telephone account for February 2019 has not yet been paid, R900. 5. Bank charges, which appeared on the bank statement for February 2019, were not yet recorded, R500. 6. The insurance account includes a premium of R2 400 that was paid for the period 01 June 2018 to 31 May 2019. Provide for the outstanding interest on fixed deposit. The investment in fixed deposit was made on 01 March 2018, Provide for the outstanding interest on loan, R560. 8. Create a provision for bad debts equal to 5% of trade debtors. 9. Provide for depreciation on equipment at 15% per year, using the diminishing balance method. 10. END OF PAPER 7.

Answer 1

PENSI TRADERS Statement of Comprehensive Income For the Year Ended 28-February-2019 Sales R1,060,000 Less: Sales Returns -R20,000 Net Sales R1,040,000 Cost of Sales -R604,000 (R600 000 + (R90 000 - R86 000)] Gross Profit R436,000 Other Operating Income: Rent Income R18,200 Less: Advance received -R9,100 [R18 200 x 1/2 as it denotes 2 months' rent income for Feb. & March] Net Rent Income R9,100 Gross Operating Income R445,100 Operating Expenses: Salaries and Wages R98,000 Stationery R4,500 [R5 000 - R500 --> As R500 available on hand out of R5 000 recorded as expense] Advertising R29,400 [R27 000 + R2 400] Telephone R9,900 [R9 000 + R900] Electricity and Water R13,000 Bad debt Expense R1,300 [R26 000 x 5%] Rates and Taxes R6,000 Bank Charges R2,500 [R2 000 + R500] Insurance R6,000 [R8 000 < (9/12) --> As 9 months' premium was expired from Jun. 2018 thru Feb. 2019] Depreciation Expense R6,300 [(R75 000 - R33 000) x 15% --> Provided depreciation @ 15% under diminishing balance method] Sundry Expenses R20,600 [R23 000 - R2 400] Total Operating Expenses -R197,500 Operating Profit R247,600 Interest Income R1,360 (R1 000 + [(R17 000 x 8%) - R1 000] --> R 1 000 was recorded already out of total interest] Interest Expense -R5,760 (R5 200 + R560] Net Profit for the year R243,200