Question

(25 Marks) Adjustments and Additional Information QUESTION 6 FINANCIAL STATEMENT AND DISPOSAL OF ASSET A. Rent for March 2017 has been received in advance. 6.1 STATEMENT OF COMPREHENSIVE INCOME (20 marks) Use the following information extracted from the accounting records of IBHUBESI TRADING to prepare the Statement of Comprehensive Income for the year ended 28 February 2017. B. Write off a debtor's outstanding account of R430 as irrecoverable. C. Adjust the provision for bad debts to 5% of trade debtors. IBHUBESI TRADING PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2017 D. Building maintenance costing R5 000 was erroneously debited to the Land and Buildings account. Correct this error. CREDIT DEBIT Statement of financial position accounts section Capital Drawings Land and Buildings Vehicles Equipment Accumulated Depreciation on Vehicles Accumulated Depreciation on Equipment Fixed Deposit : B. Bank [ 9% p.a. ] Trading Inventory Debtors' Control Provision for bad debts 614 000 E. Rates includes a payment of R12 000 made to the municipality for the period 01 July 2016 to 30 June 2017. 48 000 485 000 210 000 150 000 F. The proprietor used R615 from the cash float for personal use. 120 000 84 000 G. Interest on loan has been paid up to 31 December 2016. Provide for the outstanding amount. 45 000 88 660 45 130 H. Update the interest on fixed deposit. I. Stocktaking on 28 February 2017 revealed the following stock on hand:. 2 450 • Trading Inventory, R80 060. • Stationery, R540. Bank Cash Float Creditors Control Loan : K. Bank [ 15 % p.a. 37 525 2 200 42 200 75 000 J. Depreciation is provided as follows: On equipment at 10% p.a.on cost. NB: New equipment costing R20 000 was purchased on 01 September 2016 and was properly recorded. • On vehicles at 20% p.a. on the diminishing balance method. Nominal accounts section 501 905 Sales Cost of sales Sales retum Salaries and wages I debts Stationery 136 000 5 000 130 500 4 200 6 840 (5m 6.2. DISPOSAL OF FIXED ASSET Use the information supplied below, by Cosmic Stores, to prepare the Fixed Assets Realisation Account. Rates 14 490 Vehicle expense Maintenance Telephone Electricity and water Bank charges Insurance Interest on loan Interest on fixed deposit Rent income 30 000 5410 10 160 15 180 1 860 19 470 9 375 INFORMATION • On 30 October 2016, the business sold an old equipment costing R60 000 for R3 600 cash. The accumulated depreciation on this equipment was R50 400 on 01 March 2016. Equipment is depreciated at 14%p.a. on cost. 3 375 57 070 1 500 000 1 500 000

Answer 1

IBHUBESI TRADERS NOTE: Statement of Comprehensive Income For the Year Ended 28-February 2017 Balance used to write off an accts. receivable R 430 Sales R501 905 Add: Desired ending balance of provision R2 257 [R45 130 x 5%] Less: Sales Returns -R5 000 Less: Provision for bad debts, beginning balance - -R2 450 Net Sales R496 905 Bad debt expense to be recorded further R 237 Cost of Sales -R144 600 (R136 000 + (R88 660 - R80 060)] Gross Profit R352 305 Cash float used by proprietor will be deducted from owners' capital account and so ignored here. Other Operating Income: Rent Income R57 070 Less: Advance received -R4 756 [R57 070 x 1/12 --> 1 month's rent income for March 2017 received in advance] Net Rent Income R52 314 Gross Operating Income R404 619 Operating Expenses: Salaries and Wages R130 500 Stationery R6 300 [R6 840 - R540 --> As R540 was available on hand out of R6 840 recorded as expense) Telephone R12 160 [R10 160 + R2 000] Electricity and Water R15 180 Bad debt Expense R4 437 [R4 200 + R 2 250 -->Ref: NOTE for additional bad debt expense to be recorded] Rates R9 660 [R14 490 x 8/12 --> As 8 months' Rates are related to current year and balance 4 months' Rates relate to next current year from Mar thru Jun 2017] Vehicle Expenses R30 000 Bank Charges R1 860 Insurance R18 870 [R19 470 - R1 200 x (6/12) -> As 6 months' premium was expired from Sep. 2015 thru Feb. 2016] Depreciation Expense R32 000 [For Equipment --> (R150 000 - R20 000) > 10% + R20 000 x 10% x 6/12; For Vehicles --> (R210 000 - R120 000) x 20% using diminishing balance method] Maintenance R10 410 [R5 410 + R5 000 --> Wrongly debited to Land & Building account for R5 000 is rectified by charging it as an expense) Total Operating Expenses -R271 377 Operating Profit R133 243 Interest Income R4 050 (R3 375+ [(R45 000 x 9%) - R3 375] --> R3 375 was recorded already out of total interest income) Interest Expense -R11 250 [R9 375 + (R75 000 x 15% x 2/12) --> Interest for Jan & Feb 2017 are added] Net Profit for the year R126 043