Question

Financial Reporting and Analysis Case Study (1).pdf

P. Gumede is the proprietor of PG Stores. He commenced trading on 01 March 2017. At the end of the second year of trading, his bookkeeper resigned unexpectedly and Mr Gumede found that the financial statements for the year ended 28 February 2019 were incomplete. He requires your assistance in completing them. The pre-adjustment trial balance, adjustments and additional information that were extracted from the accounting records as at 28 February 2019 are presented below. REQUIRED Complete the financial statements (that appear after the adjustments and additional information) with the missing amounts and details. The entire statements must be submitted. Where applicable, show your workings in brackets. Note: The notes to the financial statements and Statement Of Changes In Equity are not required. INFORMATION PG STORES PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2019 Balance sheet accounts section Debit (R) Credit (R) 870 700 94 000 70 000 5 000 60 000 96 000 1 277 000 66 000 2 000 2 540 700 Capital Drawings Land and buildings Vehicles at cost Equipment at cost Accumulated depreciation on vehicles Accumulated depreciation on equipment Trading inventory Debtors control Provision for bad debts Bank Cash float Petty cash 500 Creditors control Loan: Tek Bank (12% p.a.) 234 000 608 700 275 000 203 000 Nominal accounts section Sales Cost of sales Sales returns Wages Bank charges Rent income Packing materials Advertising Rates Bad debts Discount allowed Discount received Stationery Interest on loan Water and electricity Insurance Telephone 140 000 103 000 4 000 1 500 700 000 15 000 123 000 4 000 37 000 18 000 7 000 2 000 1 000 20 000 10 000 9 000 16 000 9 000 540 700 2 ADJUSTMENTS AND ADDITIONAL INFORMATION 1. No entry was made for trading inventory that was taken by the proprietor for his personal use, R2 000. 2. Inventories on 28 February 2019 according to physical stocktaking were as follows: 2.1 Trading inventory R135 000 2.2 Stationery R2 000 3. The telephone account of R1 000 for February 2019 was erroneously paid twice, on 25 February 2019 and 27 February 2019. 4. Rent has been received up to 31 January 2019. 5. A debtor, P. Peter, was declared insolvent. On 28 February 2019, his insolvent estate paid a first and final dividend of 60 cents in the Rand. An amount of R1 800 was received and recorded. The balance of his account must now be written off. 6. The provision for bad debts must be increased by R1 000. 7. The insurance total includes an amount of R7 200 that was paid for the period 01 November 2018 to 31 October 2019. 8. Interest on loan for February 2019 has not yet been paid. Interest is not capitalised. Note: A repayment of R18 000 (excluding interest) is expected to be made in March 2019 to reduce the loan balance. 9. Depreciation must be brought into account each year as follows: 9.1 On vehicles at 20% per annum using the diminishing balance method. 9.2 On equipment at 15% per annum on cost. Note: Equipment with a cost price of R20 000 was purchased and recorded on 01 December 2018. REFER TO THE INCOMPLETE FINANCIAL STATEMENTS THAT FOLLOW AND FILL IN THE MISSING AMOUNTS AND DETAILS. WHERE APPLICABLE, SHOW YOUR WORKINGS IN BRACKETS. HIGHLIGHT YOUR ANSWERS FOR THE MISSING AMOUNTS OR SHOW THEM IN BOLD PRINT. PG STORES STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2019 Sales Cost of sales Gross profit Other operating income Rent income Discount received Gross operating income Operating expenses Wages Bank charges Packing materials Advertising Rates Bad debts Discount allowed Stationery Water and electricity Insurance Telephone Operating profit Interest income Interest expense Net profit for the year R (700 000) ? ? ? 2 000 ? ? 123 000 4 000 37 000 18 000 7 000 ? 1 000 ? 9 000 ? ? ? ? ? ? ? 0 ? ? ? PG STORES STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2019 ASSETS Non-current assets Property, plant and equipment Current assets Inventories Trade and other receivables Trade debtors Provision for bad debts Prepaid expenses Accrued income Cash and cash equivalents Bank Cash float Petty cash Total assets EQUITY AND LIABILITIES Equity Capital Non-current liabilities Loan: Tek Bank Current liabilities Trade and other payables Creditors control Income received in advance Accrued expenses Total equity and liabilities R ? ? ? ? ? ? ? ? ? 6 000 4 000 1 500 500 ? ? ? ? ? ? 60 000 ? ? ? ?

Answer 1

The Following is the Income statement and Balance sheet after all the adjustments:

Rates PG STORES STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2019 R Sales (Less Sales Returns) 1262000 (1277000-15000) Cost of Sales -700000 Gross Profit 562000 Other Operating Income Rent Income 72000 Discount Received 2000 Gross Operating Income 636000 Operating Expenses 307800 Wages 123000 Bank Charges 4000 Packing Materials 37000 Advertising 18000 7000 Bad Debts 3200 Dicount Allowed 1000 Stationary 18000 Inventory Written off 5000 (140000-135000) Provision for bad debts ( additional) -1000 Water and Electricity 9000 Insurance 11200 Telephone 9000 Less: Wrongly Paid twice R1000 1000 8000 Depreciation Vehicle 36200 Equipment 28200 64400 Operating Profit 328200 Interest Income 0 Interest Expenses 11520 Netv Profit for the year 316680 * * * * 858300 858300 (608700+275000+203000-94000-70000-64400) 244600 137000 6000 95800 5800 PG STORES STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2019 ASSETS NON CURRENT ASSETS Property, Plant and Equipment Current Assets Inventories Trade and Other Recivables Trade Debtors Provision for Bad Debts Prepaid Expenses Accrued Income Cash and Cash Equivalants Bank Cash Float Petty Cash Total Assets EQUITY AND LIABILITIES Equity Capital Non Current Liabilities Loan : Tek Bank Current Liabilities Trade and Other Payables Creditors Control Income Received in Advance Acccrued Expenses - Interest 6000 4000 1500 500 1108900 951380 (870700+316680-236000) 96000 96000 61520 60000 1520 Total Equity and Liabilities 1108900 0 Working notes: Prepaid Expenses Telephone Excess Paid by wrongly 1000 Drawings Add: Inventory 2000 taken for personal use 234000 2000 236000 Rent Add: Receivable 66000 6000 72000 Trade and Other Recivables Add:Rent receivable 6000 Debtors Control Less:Provision for Bad debts Less:Insolvant P written off 103000 6000 1200 95800 16000 Insurance Less: Prepaid 4800 11200 12% Loan - Tek Bank 12% Interet Exp ses 96000 11520 608700 Property, plant and Equipment Land and Building Vehicles at cost Less: Accumulated Deprecuiation Equipment at Cost Less: Accumulated Deprecuiation Total Property, plant and Equipment 144800 275000 130200 203000 98200 104800 858300

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