Question

The statement of financial statement is based on the following equation:

Assets = Liabilities + Equity

The above mentioned equation can be expanded as follows

Non-current assets + current assets = non-current liabilities + current liabilities + equity

Your accountant provides you with the following trial balance as at 1 March 2017

Description	Balance
Property, plant, equipment	$350 000
Share capital	$250 000
Inventory	$54 000
Trade Payables	$67 000
Motor vehicles -Cost	$120 000
Motor vehicle – Acc Depreciation	$60 000
Trade Receivables	$123 000
Bank overdraft	$31 000
Mortgage bond – company premises	$175 000
Retained Income	$ 64 000

The following is an extract of some of the transactions of Highveld ltd, a manufacturing company, for the period ending 28 February 2018:

1. Obtain a loan on the 1^st of February 2018 to the amount of $75 000. The loan is repayable in 12 monthly installments. The first installment to be paid on the 28 February 2018.
2. Purchased a new machinery 1^st of January 2018 on credit to the value of $ 175 000. The purchase is financed by ABSA bank and the company paid 10% deposit. The balance is payable in 36 monthly installments. Installments have been paid on the 30^th of January and 28^th of February. (ignore vat and finance charges)
3. Purchased inventory on credit to the value of $35 000 from Blue Circle Component Suppliers. Receive an invoice from DHL to the value of $1500 being delivery charges on the inventory purchased
4. Sold inventory with a cost value of $30 000 on credit to Manufacturers LTD. The mark-up policy is 45% on selling price. The company uses the perpetual inventory system ie, calculate cost of sales for each transaction.
5. Received $15 000 from Truck Manufacturers LTD as part payment of the outstanding balance.
6. Paid wages via EFT to the value of $ 22 500 for the month
7. The water and electricity bill for the month has not been received. The accountant estimated the water and electricity cost to be $7 500 and raised the accrual entry.
8. The machine purchased on the 1^st of January 2018 has a useful life of 5 years and the accountant estimated a salvage value of $25 000 at the end of year 5. The depreciation entry was raised in the accounts. The company uses a straight line depreciation policy.

Required:

1. Use the trial balance as at 1 March 2017 and complete the opening balance accounting equation. (5 Marks)

Organize your answer as follows

Number	Non-Current assets +	Current Assets	=	Non- current liabilities +	Current Liabilities +	Equity
Opening balance

2. Indicate for each transaction the effect on the accounting equation. Please note, in some of the transactions you must calculate the value of the transaction. Total each of the columns. Continue completing the table as in question 1. Indicate an increase or decrease by means of a + or – for each transaction ignore vat ( 20 marks)
3. Draft a summarized statement of financial position as at 28 February 2018 using the totals as calculated in question 2. (5 marks)
4. Assume the above mentioned transactions were the only transaction for the period ending February 2018, comment on the capital structure of Highveld ltd ( 5marks)

Answer 1

Accounting Equation:

Opening balance:

Recording each transaction:

Summerized Statement of Financial Statement