Question

QUESTION TWO Ringo Smart opened a business, Smart electrical appliance repairs, on 1 November 2018. He decided that for his business the financial year ending will be 28 February each year. Ringo presented the following balances at 28 February 2019; R 73 000 58 000 Balances at 28 February 2019 Equipment Inventory - spare parts Bank Trade payables Long term borrowing Capital - R Smart 97 500 22 000 50 000 The following is a summary of the transactions that took place during the financial year ended 2020; Number 1 2 3 Transactions for the year ended 28 February 2020 Equipment to the value of R39 000 was brought into the business by Ringo whose son was using the equipment but no longer needed the equipment because he got a job with an international company. During the year, services rendered totalled R638 000, of which R368 000 was for cash and the balance was on credit. Ringo purchased R310 000 worth of spare parts during the financial year, of which 70% was bought on credit and 30% was bought for cash. On 28 February 2020 stock was taken of spare parts which was valued at R75 000. Wages of R144 000 was paid during the year. Trade payables were paid R210 000 for the year. Interest at 9% per year on long term borrowings was paid on 28 February 2020. The borrowings were not increased nor paid during the year. 4 5. 6. 7. Required: 2.1 Calculate the balance of the Capital account at 1 March 2019. 2.2 Record the above transactions in a table that is formatted as follows: No Assets Non Current Equity Capital Income + expenses Liabilities Current Non- current current 01.03 2019 ? ? ? ? ? ? 1. 2 Begin the table with the balances at 1 March 2019. Clearly indicate increases and decreases with + and () or respectively. 2.3 Prepare the "Bank account" as it would appear in the general ledger of Smart electrical appliance repairs for the year ended 28 February 2020.

Answer 1

1.

Calculation of Capital Account balance as on March 1, 2019: Trial Balance for the period ended Feb 2019 Particulars Debit Credit Equipment 73,000 Inventory 58,000 Bank 97,500 Trade Payables 22,000 Long term borrowing 50,000 Capital - R Smart (B.F.) 1,56,500 Totals 2,28,500 2,28,500

2.

+ Liabilities Non-Current Current 50,000 22,000 No Assets Equity Non-Current Current = Capital Income - Expenses + 01-03-2019 73,000 1,55,500 = 1,56,500 + 1 39,000 39,000 + 2 6,38,000 = 6,38,000 + 3 2,17,000 = + 4 -75,000 = -75,000 + 5 -1,44,000 = -1,44,000+ 6 -2,10,000 = + 7 -4,500 = -4,500 + 28-Feb-20 1,12,000 5,77,000 = 1,95,500 4,14,500 + 2,17,000 -2,10,000 50,000 29,000

3.

Opening balance Service revenue Bank Debit Credit 97,500 Inventory 93,000 3,68,000 Wages 1,44,000 Trade Payables 2,10,000 Interest 4,500 Closing balance 14,000 4,65,500 4,65,500

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