IIE Module Work Book FIAC5111

FINANCIAL ACCOUNTING 1A
MODULE WORKBOOK 2017
(First Edition: 2017)

This manual enjoys copyright under the Berne Convention. In terms of the Copyright Act, no
98 of 1978, no part of this manual may be reproduced or transmitted in any form or by any
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information storage and retrieval system without permission in writing from the proprietor.

The Independent Institute of Education (Pty) Ltd is registered with the

Department of Higher Education and Training as a private higher
education institution under the Higher Education Act, 1997 (reg. no.
2007/HE07/002). Company registration number: 1987/004754/07.

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Table of Contents

Using this Guide.................................................................................................................... 3

Introduction ........................................................................................................................... 4
Module Resources ................................................................................................................ 6
Module Purpose .................................................................................................................... 7
Module Outcomes ................................................................................................................. 7
Module Pacer and Assessments: Financial Accounting 1A ............................................ 8
1 Glossary of Key Terms for this Module ........................................................................ 12
Learning Unit 1:................................................................................................................... 22
Chapters 1, 2, 3 & 4 (& 10):................................................................................................. 22
Introduction to financial accounting ..................................................................................... 22
1 Key Concepts Covered in this Learning Unit ............................................................... 22
2 Recommended Additional Reading ............................................................................. 23
3 Recommended Digital Engagement and Activities ...................................................... 23
Learning Unit 2.................................................................................................................... 32
Chapter 8 ............................................................................................................................ 32
Processing accounting data ................................................................................................ 32
Work Space ........................................................................................................................ 32
Learning Unit 3.................................................................................................................... 44
Chapter 9 ............................................................................................................................ 44
Receivables and Payables – Transactions and Reconciliation ............................................ 44
Learning Unit 4.................................................................................................................... 56
Chapter 11 .......................................................................................................................... 56
Cash and cash equivalents ................................................................................................. 56
Learning Unit 5.................................................................................................................... 67
Chapter 11 .......................................................................................................................... 67
Property, Plant and Equipment ........................................................................................... 67
Learning Unit 6.................................................................................................................... 74
Chapter 6 & 7 ...................................................................................................................... 74
Adjustments, the closing-off procedure, determining profit and preparing financial statements
of a Sole Trader .................................................................................................................. 74
Learning Unit 7.................................................................................................................. 102
Chapter 13 ........................................................................................................................ 102
Non-Trading Entities ......................................................................................................... 102
Learning Unit 8.................................................................................................................. 112
Chapter 19 ........................................................................................................................ 112
Branch Accounting ............................................................................................................ 112
Assessments .................................................................................................................... 119
Reference List ................................................................................................................... 120

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Using this Guide

This guide has been developed to support your use of the prescribed material for this
module. There may be occasions when the prescribed material does not provide sufficient
detail regarding a particular idea or principle. In such instances, additional detail may be
included in the guide. This guide should not, however, be used as a stand-alone textbook, as
the bulk of the information that you will need to engage with will be covered in the prescribed
material. You will not pass this module if you only use the module guide to study from.

Various activities and revision questions are included in the learning units of this guide.
These are designed to help you to engage with the subject matter as well as to help you
prepare for your assessments.

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Introduction

This module has been constructed in a manner that will empower both students with a
background in accounting and those that do not.

In the first week of studying this module we cover a brief overview of the history and
development of accounting principles over time. The uses, users, principles and
characteristics of the annual financial statements are all discussed. The basic accounting
equation leads us to defining the elements of the financial statements. We learn to record
transactions following the double entry rule and showing the effect of these transaction of the
accounting equation. Both inventory systems are covered, i.e. the periodic inventory system
and the perpetual inventory system.

In the second and third weeks of the semester, we complete the monthly accounting cycle
by summarising transactions into the various journals, posting to the general ledger, drawing
up a trial balance at the end of the month. We then extend the accounting cycle by preparing
the financial statements. Value Added Tax (VAT) is introduced. While a detailed study of
VAT is not included in this module, we cover the basic principles and deal with the receipt
and payment of VAT.

In the following week internal controls regarding Receivables and Payables are equally as
important. In this section we learn how to record transactions particular to Receivables and
Payables as well as the disclosure in the financial statements. Reconciling the Receivables
and Payable ledger accounts with the control accounts is covered. Reconciling each
creditors accounts with statements received from creditors do not form part of the syllabus
and will not covered or assessed.

Week five is test week.

We move on in week six to study the elements of cash and cash equivalents. Internal control
of cash is a very important aspect of running a business. We learn how to reconcile the bank
account with the bank statement. The Petty Cash Journal will not be assessed in this
module.

Week seven sees us disposing of non-current assets. We also deal with the disclosure of
property, plant and equipment in the finanicial statements.

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Week nine is test week.

The year-end procedures: the necessity and recording of adjustments; the closing transfers
and the preparation of the financial statements are covered in weeks eight, ten and eleven.
The entries of these transactions in the journal and the general ledger as as important as the
financial statements of a service undertaking and a retail undertaking. We include the
calculation of the gross profit and the net profit of undertakings who use either the periodic
inventory system or the perpetual inventory system. We study three of the annual financial
statements, namely the Statement of Profit or Loss and other Comprehensive Income; the
Statement of Changes in Equity and the Statement of Financial Position of a Sole Proprietor.

In week twelve we cover the recording of transactions and preparation of financial

statements for non-trading entities.

The accounting for dependent branches is covered in our last week of the semester (week
thirteen). We review, particularly, the recording of transactions, in the books of the head
office, relating to the transfer of inventory between the head office and the branch. The
inventory invoiced at at selling price only will be assessed. Accounting for inventory invoiced
to branch at cost price does not form part of the syllabus of this module.

We will do revision during week fourteen and you will be on tudy leave during week fifteen.

Your assessments will be in line with the activities in the textbook, as well as the exercises
provided in this Module Guide.

Please note that Financial Accounting A is a pre-requisite for continuing onto the Financial
Accounting B module.

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Module Resources
Prescribed Book for this Dempsey, A., Britz, P.M., Joubert, J.A. and Watson, S.A.
Module 2016. 9th ed. Introduction to Financial Accounting. Durban:
LexisNexis

Please note that this module guide is intended to support

your learning. The content of this module should be sourced
from the prescribed material as well as this module guide,
you will not succeed in this module if you focus on this
module guide only.
Recommended Additional The recommended additional reading included in each
Reading learning unit includes information related to this module and
may be consulted as additional resources. Please note,
however, that you will not be tested on any content from
these titles.

Doussy, F., Jansen van Rensburg, J.S., Ngcobo, R.N.,

Rehwinkel, A., Scheepers, D. and Scott, D. 2014. 5th
edition. About Financial Accounting. Volume 1. South Africa:
LexisNexis.
Doussy, F, Jansen van Rensburg, JS, Ngcogo, RN,
Rehwinkel, A, Scheepers, D and Scott, D. 2014 5th edition.
About Financial Accounting. Volume 2. South Africa:
LexisNexis

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Module Purpose
The purpose of this module is to ensure that you are able to demonstrate an understanding
of the basic principles of accounting. In addition, you will learn to gather, process and record
information in the accounting records of a sole proprietor and to compile reconciliations of
accounts for the entity. Finally you will be able to prepare financial statements of a sole
proprietor, namely the statement of profit or loss and other comprehensive income, the
statement of changes in equity and the statement of financial position.
Module Outcomes
MO1 Apply knowledge of basic accounting principles and concepts.
MO2 Demonstrate the ability to record cash and credit transactions from initial source
documents through to accounting journals, general ledger and financial
statements.
MO3 Demonstrate the ability to prepare reconciliations.
MO4 Explain the development, role and functions of accounting as a Business
Information System.
MO5 Demonstrate an understanding of accounting principles and concepts in a
business environment.
MO6 Apply the accounting equation and its composites when recording transactions.
MO7 Accurately record financial transactions to trial balance.
MO8 Demonstrate an understanding of statutory requirements in a business
environment.

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Module Pacer and Assessments: Financial

Accounting 1A
Theme: Introduction to financial
Learning Unit 1 Text book reference
accounting
Week 1 LO1: Identify, name and discuss the users Chapter 1, 2, 3 & 4 –
Sessions: 1–5 and their uses of financial statements Basic concepts,
Related Outcomes: LO2: Discuss the objective and qualitative Transactions, Ledger
MO1 characteristic of financial statements Accounts,
MO5 LO3: Recognise the elements of the financial Accounting Cycle
MO6 statements Chapter 10 –
MO8 LO4: Apply the definitions and elements of Inventory systems
financial statements and identify given
items as assets, liabilities, income or
expenses i.e. the types of accounts
LO5: Discuss the accounting equation.
LO6: Understand and record transactions
using either the Periodic or Perpetual
inventory systems
LO7: Recognise transactions in the
accounting equation (showing the effect)

ICE task 1 to be completed by the end of week 2 covering work done to date
Learning Unit 2 Theme: Application of accounting systems Text book reference
Week 2 & 3 LO1: Calculation of cost price including mark Chapter 8 & 5 –
Sessions: 6–15 up as percentage of cost price or selling Accounting systems
Related Outcomes: price and the gross profit percentage and Trial Balance
MO1 LO2: Introduction of VAT, including
MO2 terminology and calculation
MO7 LO3: Calculation and accounting procedures
for recording of VAT
LO4: Settlement discount granted (including
VAT), allowance for settlement discount
granted
LO5: Preparing journals from source
documents;
LO6: Posting to general ledger
LO7: Extract a trial balance
LO8: Discuss errors in the trial balance
Learning Unit 3 Theme: Receivables and Payables Text book reference
including reconciliations
Week 4 LO1: Recording transactions relating to Chapter 9 –
Sessions: 16–20 Receivables and Payables in both the Receivables and
Related Outcomes: general ledger and subsidiary ledgers Payables Control
MO3 LO2: Recording of transactions peculiar to Accounts and
Receivables and Payables individual accounts,
LO3: Credit Losses, Credit Losses Recovered including

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(including VAT) and Allowance for Credit reconciliations

Losses
LO4: Reconciliation of Receivables accounts
and Payables accounts

ICE task 2 to be completed by the end of week 4 covering work done to date
Week 5 Test 1 Learning unit 1 & 2
Learning Unit 4 Theme: Bank Reconciliation Text book reference
Week 6 LO1: Discuss the internal control of cash Chapter 11 – Cash
Sessions: 21–25 LO2: Complete the reconciliation process of and Cash
Related Outcomes: reconciling the bank account with the Equivalents
MO3 bank statement
Learning Unit 5 Theme: Financial Assets and Asset Text book reference
Disposal
Week 7 LO1: Identify non-current assets including Chapter 12 – Non-
Sessions: 25–30 costs involved, including VAT current Assets
Related Outcomes: LO2: Depreciation using Straight Line method
MO1 and Diminishing Balance method
LO3: Complete the disposal of an asset
procedure
LO4: Complete the Property, Plant and
Equipment Note

ICE task 3 to be completed by the end of week 6 covering work done to date
Learning unit 3, 4 &
Week 9 Test 2
5

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Learning Unit 6 Theme: Adjustments and the closing Text book reference
procedure and Annual Financial
Statements
Week 8, 10 & 11 LO1: Understand the need for adjustments Chapter 6 & 7–
Sessions: 31–45 LO2: for the following adjustments: Adjusting and closing
Related Outcomes: Prepaid Expenses Prepare journal procedure
MO1 entries and posting to the general ledger
MO5 (including stationery consumed)
MO8 Accrued Expenses
Income Received in Advance
Accrued Income
Depreciation
Credit Losses
Adjustment of Allowances
LO3: Prepare a Post-Adjustment Trial
Balance
LO4: Understand the process of the closing
off procedure for both service and
trading entities
LO5: Prepare journal entries and posting to
the general ledger for all closing
transfers
LO6: Prepare a Post-Closing Trial Balance
LO7: Prepare the Annual Financial
Statements of a Sole Trader, including
the applicable notes

ICE task 4 to be completed by the end of week 8 covering work done to date
Learning Unit 7 Theme: Non-Trading Entities Text book reference
Week 12 LO1: Understand the difference between a Chapter 13 – Non-
Sessions: 46–50 service or trading entity and a non- Trading Entities
Related Outcomes: trading entity
MO1 LO2: Membership Fees
MO5 LO3: Prepare a Receipts and Payments
MO8 Statement
LO4: Prepare the Annual Financial
Statements of a Non-Trading Entity

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Learning Unit 8 Theme: Branch Accounting Text book reference

Week 13 LO1: Understand the difference between the Chapter 19 – Head
Sessions: 51–55 two methods with regard to branch office and branches
Related Outcomes: accounting
MO1 LO2: Follow the centralised method only
MO5 LO3: Merchandise sent to branch at SELLING
price only
LO4: Prepare the necessary ledger accounts
(including VAT)
Revision Theme: Revision Text book reference
Week 14 Revision of all Learning Units All of the above
Sessions: 56–60

Week 15

Study leave

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1 Glossary of Key Terms for this Module

From EDGE Resource Files © 2013 EDGE Learning Media CC

Term Definition My Notes

Abridged tax A source document that is issued when a

invoice VAT vendor makes a sale of goods or
services for less than R50
Accounting The accounting cycle commences with a
cycle transaction, which needs to be analysed
in journals. Journals are then
summarised and posted to the ledger,
where after a trial balance is drawn up.
These three steps are repeated for every
subsequent month in the financial year –
until the final month. In the final month of
the financial year (usually month 12), the
trial balance is followed by year-end
adjustments, a post-adjustment trial
balance, a post-closing trial balance and
the preparation of financial statements.
Accounting The equation on which the main
equation framework of accounting is based. It is a
mathematical equation that must always
balance.
Accumulated A negative asset account that holds the
depreciation accumulated pool of depreciation that
account has been written off on a specific asset
or group of assets since they were
acquired.
Assets Resources controlled by the firm, as a
result of past events, and from which
future economic benefits are likely to flow
to the business.
Asset register Shows all the important details pertaining
to a particular asset, from the date of
purchase to the date of sale.
Balance sheet A financial statement that reflects the
accounting equation (the financial
position of the business). The modern
term used for the balance sheet is the
“Statement of financial position”.

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Term Definition My Notes

Balance sheet The section of the general ledger and

section trial balance that includes all the
accounts that will end up in the balance
sheet, i.e. the proprietary accounts
(capital and drawings), asset accounts
and liability accounts.
Balancing The month-end process of totalling the
accounts.
Bank deposit Supporting document used as proof that
slip cash was banked.
Bank statement Statement drawn up by the bank that
shows all the transactions affecting the
business’s bank account.
Bank A statement drawn up by the business to
reconciliation remind them of debits and credits that
statement still need to be passed in the bank
account by the bank.
Business ethics The question of how managers decide
what is right or wrong in conducting the
business of their organisation and how
they aim to achieve the “right” and to
“avoid the wrong”.
Capital account Account used when the owner makes
contributions of cash or other assets to
the business.
Carrying value The book value or depreciated value of a
non-current asset. The carrying value is
equal to the cost of the asset less its
accumulated depreciation.
Cash invoice A document that indicates that the sale
has taken place and been paid for
immediately.
Cash receipt Source document used to record the
receipt of cash in cases where no VAT
should be charged.
Cash receipts The journal in which transactions that
journal increase the balance of the current bank
account are recorded.
Cash receipts Any transaction that causes an increase
transaction in the bank account balance.
Cash payments The journal in which transactions that
journal decrease the balance of the current bank
account are recorded.
Cash payments Any transaction that causes a decrease
transaction in the bank account balance.

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Term Definition My Notes

Cash slip An abridged tax invoice that may be used

only for sales that do not exceed R3 000.
Cheque “Stub” that remains in the cheque book
counterfoil after issuance of a cheque; used as
source document for the recording of
cheque payments from the cheque book.
Code of Document outlining the common set of
conduct values and morals for management and
employees within an organisation.
Contra-account The opposite account that is debited or
credited as the opposite double entry.
Credit invoice A document that indicates that a sale has
taken place, but that money owed for the
transaction is still outstanding.
Credit note Document that records the cancellation
of a sale or part thereof.
Creditor A person or entity our business owes
money to. The modern term for creditors
is “accounts payable”.
Current assets Resources that are cash or likely to be
turned into cash within one year. Also
referred to as short-term assets
Current Short-term debts
liabilities
Debtor A person or entity that owes our business
money. “Accounts receivable” is a
modern term for debtors.

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Term Definition My Notes

Discounts Discounts are reductions in selling prices

offered to customers/ clients. Discounts
usually take the form of either a trade
discount (a discount offered at the point
of sale) as well as a settlement discount
(a discount offered for early settlement of
account by a debtor).
Double entry A system whereby the total value of the
system debits in a transaction must equal the
total value of the credits.
Drawings Account used when the owner withdraws
account valuables from the business.
Electronic Electronic transfer of money from one
Funds Transfer bank account to another.
Ethics Thinking about or pondering a certain
kind of behaviour.
EFT Proof of Electronic Funds Transfer (EFT).
confirmation slip
Exempt Non-taxable supplies.
supplies
Expense Accounts used to record decreases in
accounts equity.
Final accounts These are accounts used to facilitate the
year-end accounting procedures, where
income and expense accounts are
closed off and owner’s equity is updated
at the financial year-end. There are two
final accounts used in the books of a sole
trader, namely the trading account and
the profit-and-loss account.
Financial Discipline involving recording of
accounting transactions that have happened in the
past.
Financial A process involving the effective
management planning, organizing, co-ordinating and
controlling of the financial activities of a
venture.
Financial These are reports set up by an
statements accountant outlining the financial position
and performance of the business for a
specific financial period.
Financial year 12-month reporting period for a business.
Fixed costs Expenses which do not vary with
production and are incurred irrespective
of the volume of production.

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Term Definition My Notes

Full tax invoice Required from a VAT vendor whenever a

supply total exceeds R3 000.
General journal Journal used to record sundry
transactions that cannot be recorded in
any of the above seven journals.
General ledger The general ledger summarises the
subsidiary journals, and accumulated
running balances that are listed on the
trial balance. The general ledger is also
the official records of account as it is the
book in which business transactions are
ultimately recorded.
Gross profit The difference between the selling price
and the cost price of a product.
Income Accounts used to record increases in
accounts equity.
Income Statement of financial performance. The
statement modern term for an income statement is
the “statement of profit or loss and other
comprehensive income”.
Internal control A system of controls – a set of methods
and procedures which can be auctioned
to ensure that the objectives and goals of
the organisation are achieved.
Input VAT VAT charged to a registered vendor on
purchases of goods or services from
another registered vendor.
Invoice A document that records that a sale of
goods or services has taken place, either
for cash or on credit.
Invoice basis The basis according to which VAT is
accounted for upon the issue and receipt
of invoices, regardless of whether they’ve
been paid.
Journal A book of prime entry, in tabular form.
Journal voucher Internal source document from which
transactions are recorded in the general
journal.
Language of Accounting is often referred to as the
business language of business, an “international”
language that crosses many borders.

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Term Definition My Notes

Legal persons Companies, Close Corporations, trusts

and deceased estates.
Liabilities The debts of the business.
Managerial Discipline involving management and
accounting strategic input, linked to operational
outputs. Reporting based on future
expectations and strategic decision-
making.
Management Accounting records that report on the
accounts current trading status of the business.
Mark-up The amount added to the cost price of a
product to arrive at its selling price.
Morals Standard rules of behaviour.
Net profit The difference between the total income
and total expenses of a business.
Net working The net difference between the current
capital assets and current liabilities of a
business.
Nominal The section of the general ledger and
accounts trial balance that includes all the
section accounts that will end up in the income
statement, i.e. the income and expense
accounts.
Non-current Resources that are not expected to be
assets turned into cash within one year.
Non-current Long-term debts.
liabilities
Original credit Source documents used to record credit
invoices purchases in the creditor’s journal.
Original credit Source documents used to record
notes returns to/ rebates on goods or services
previously recorded in the creditor’s
journal.
Output VAT VAT charged to customers by a VAT
vendor.
Owner’s equity Wealth of the owner in his or her
business. Assets less liabilities =
Owner’s equity.
Payables ledger A subsidiary ledger that includes all the
individual payables’ accounts.
Payables list A list of the individual balances in the
payables ledger.
Payables A general ledger account used as a
control account control mechanism for accounts payable.

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Term Definition My Notes

Payments The basis according to which VAT is

(cash) basis accounted for upon receipt of the actual
cash from customers, or when suppliers
are paid in cash.
Perpetual A system of inventory keeping whereby
inventory stock levels are updated at the point of
system sale. Perpetual inventory has two main
benefits. It improves record-keeping
practices, making it simple to calculate
cost of goods sold in a certain period.
Secondly, it allows businesses to see
accurate inventory at a given moment,
making it easier to know when to order
more. This higher degree of control can
make companies more dynamic, and
helps keep up with customer demand. Its
major disadvantage is the upfront cost of
implementation.
Post-closing Index of accounts in the general ledger
trial balance that outlines the financial position of the
business as at the last day of the
financial year. With closing entries all
nominal accounts and drawings are
closed off and only balance sheet
accounts remain open. The post-closing
trial balance is prepared after closing
entries and therefore only consists of
balance sheet accounts, excluding
drawings.
Profit The amount by which the total income
exceeds the total expenses for a financial
period.
Profit and loss A final account that is used in the manual
account system of accounting to facilitate the
closing transfers needed to close off
additional income and expense accounts.
Pro- forma Not the actual tax invoice, but rather an
invoice additional document to confirm an order.
Projected A budgeted income statement showing
income projected items of income and
statement expenditure.

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Term Definition My Notes

Purchases Journal used to record credit purchases

journal of inventory from payables.
Purchases Journal used to record the
Returns Journal returns/rebates with regard to
transactions previously entered into the
Purchases journal (PJ).
Rules of double The rules whereby assets, drawings and
entry expenses are debited when they are
increased; whereas liabilities, income
and capital are credited when they are
increased.
Sales journal Journal used to record credit sales.
Sales Returns Journal used to record the
journal returns/rebates with regard to
transactions previously entered into the
Sales journal (SJ).
Source The original records of transactions.
documents Normally completed in duplicate.
South African Established by legislation to collect tax
Revenue revenue and to ensure that individuals
Service and businesses comply with tax laws.
Standard rate The normal VAT rate charged on
standard-rated goods and services
(currently 14%).
Standard rated Goods or services on which the vendor
supplies charges VAT and on which the consumer
can claim the full VAT amount back if
they are a VAT vendor themselves.
Statement of Modern term for “income statement”.
profit or loss This is a statement of income and
and other expenditure and measures financial
comprehensive performance.
income
Statement of Modern term for “balance sheet”. This is
financial a statement of equity, assets and
position liabilities and measures financial position.
Sundry Used when there is no column available
accounts for the contra-account in a journal.
Sundry columns These columns are use when there is no
designated column for the contra-
account in a journal.
T-account A structure used for general ledger
accounts, clearly showing a left-hand
side (debit) and a right-hand side (credit)

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Term Definition My Notes

Timing These differences occur when the bank

differences is not aware of a particular transaction
recorded by the business.
Trading account A final account used in the manual
system of accounting to facilitate the
closing transfers of all accounts related
to the calculation of gross profit for the
financial year.
Trading stock The traditional term used as a synonym
for trading inventory.
Trading The merchandise sold by a trading
inventory business. This is the modern term for
“trading stock”.
Trial balance List of the totals or balances on the
accounts in the general ledger (index of
accounts). The trial balance must be in
balance to prove that the rules of double
entry have been applied throughout.
Value Added Indirect tax levied by vendors on the
Tax (VAT) supply of certain goods and services.
VAT exclusive The amount excluding VAT, constituting
amount the true cost price (expense) of selling
price (income) of the product or service.
VAT inclusive The amount including VAT, being the
amount amount which the client or customer
pays at the point of sale.
VAT vendor Person or business that is registered for
Value Added Tax.
Working capital This refers to the current assets of the
business.
Zero-rated Goods and services on which a VAT rate
supplies of 0% is charged.

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Add any new words, terms or concepts to this glossary as you work through
the module:

Term Definition My Notes

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Learning Unit 1:
Chapters 1, 2, 3 & 4 (& 10):
Introduction to financial accounting

Learn Objectives:
 Identify, name and discuss the users and their uses of financial statements
 Discuss the objective and qualitative characteristic of financial statements
 Recognise the elements of the financial statements
 Apply the definitions and elements of financial statements and identify given items as
assets, liabilities, income or expenses i.e. the types of accounts
 Understand and record transactions using either the Periodic or Perpetual inventory
systems
 Discuss the accounting equation
 Recognise transactions in the accounting equation (showing the effect)

1 Key Concepts Covered in this Learning Unit

1.1 Users and uses of Accounting

Financial information in the form of Financial Statements are prepared for all accounting
entities. The users, as mentioned in Chapter 1 of your textbook, use financial information
provided to assist future decision making and to support decisions. Different users have
different needs and thus use the information provided in a variety of ways (Doussy, Jansen
van Rensburg, Ngcobo, Rehwinkel, Scheepers and Scott, 2014).

1.2 IFRS Principles

The South African Institute of Chartered Accountants (SAICA) was launched in 1894 in
Johannesburg and is today “the foremost accounting body in South Africa” (The South
African Institute of Chartered Accountants, 2016).
Apart from the underlying assumption of Going Concern, there are other characteristics
which must be taken into consideration when Annual Financial Statements of an entity are
prepared. See Chapter 1 in your textbook.

1.3 The elements of financial statements

Assets, Liabilities and Equity are the elements measured in the Statement of Financial
Position while the elenments of income and expenses measure the financial performance of

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an entity in the Statement of profit or loss and other comprehensive income. The definitions
of these elements are important. See Chapter 1 in your textbook.

1.4 The effect of transactions on the financial position i.e. the

Accounting Equation
Retail entities use one of two methods to record their Trading Inventory: the Periodic
Inventory Method or the Perpetual Inventory Method. Before we can begin recording
transactions and analysing their effect on the accounting equation, we need to be familiar
with both methods. They are outlined in Chapter 10 of your textbook and in your module
workbook. The accounting equation forms the foundation of the double entry system of
accounting. In Chapter 2 specific transactions are outlined with regard to how each one
affects the accounting equation.

2 Recommended Additional Reading

You should engage extensively with your recommended additional reading as it is an

essential part of the learning experience. It will give you different perspectives and
engagement opportunities with different authors and schools of thoughts. This will give you
deeper insight into this discipline and has been designed as a “value add” to the module.

3 Recommended Digital Engagement and Activities

Your module is on VCLEARN and you will be directed to it regularly throughout the
semester. It is vital that you use all resources available to you: the textbook, the Module
Workbook and the Learn Guide/VCLEARN, not forgetting face to face time with your
Lecturer during the set lecture times.

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PLEASE REMEMBER:

CALCULATIONS ALWAYS NEED TO BE SHOWN

AND AMOUNTS MUST BE ROUNDED OFF

TO THE NEAREST RAND, WHEN NECESSARY

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EXERCISE ONE – analysis of transactions and the effect on the accounting equation
(Perpetual Inventory System)

K Naidoo runs his own business Naidoo Parts and Services. The following transactions took place during August Year 1.

REQUIRED Analyse the following transactions by completing the table, show amounts under A=OE+L.
DATE TRANSACTION A/C DR A/C CR A = OE +L
Purchased parts for R10 000 cash and received a 10% trade
3
discount.
9 Purchased equipment on credit from Elite Equipment for R40 000.
12 Purchased parts on credit from Parts Centre, R20 000.

16 Sold parts cash for R1 500 (cost price R1 200).

18 Paid Elite Equipment R3 000 on account.

21 Sold parts on credit to A Singh for R1 700 (cost price R1 300).

23 Received R2 500 cash for servicing a customer’s car.

Mr Naidoo withdrew parts marked at R400 (cost price R150) for
26
his own use.
The account of K Kotze is overdue by R500. Debited his account
27
with 8% interest for 3 months.
28 Received a cheque from A Singh for R1 620.
Paid Mr Naidoo’s personal telephone account R450 with a
30
business cheque.

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EXERCISE TWO – analysis of transactions and the effect on the accounting equation
(Periodic Inventory System)

S Shange runs his own business Garden Implements and Services. The following transactions took place during September Year 1.

REQUIRED Analyse the following transactions by completing the table, show amounts under A=OE+L.
DATE TRANSACTION A/C DR A/C CR A = OE +L
Purchased implements for resale for R50 000 cash and received
3
a 10% trade discount.
10 Purchased furniture on credit from Office Equipment for R65 000.
11 Purchased inventory on credit from Trees Stores, R87 000.
17 Sold goods cash for R1 500.
18 Paid Office Equipment to settle their account
22 Sold merchandise on credit to A Atlas for R1 700
25 Received R12 500 cash for servicing a customer’s garden.
26 Mr Shange withdrew parts with a cost price R150 for his own use.
The account of K Kallis is overdue by R670. Debited his account
27
with 8% interest for 5 months.
28 Received a cheque from A Atlas for R1 000.
Paid Mr Shange personal petrol account R1 450 with a business
30
cheque.

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EXERCISE THREE – analysis of transactions and the effect on the accounting equation

REQUIRED Analyse the following transactions by completing the table, show amounts under A=OE+L.
No. TRANSACTION A/C DR A/C CR A = OE + L
Owner deposited R100 000 into the bank account of the
1
business as his capital contribution.
2 Purchased machinery and paid by cheque, R13 680, and
issued cheque for the delivery of machinery to the business,
3
R285, and
issued cheque to pay for the installation of machinery,
4
R228.
Issued cheque for R11 400 for the purchase of furniture and
5
equipment.
Purchased merchandise for resale and issued a cheque,
6
R17 100. (Perpetual inventory)
Purchased merchandise for resale and issued a cheque,
7
R17 100. (Periodic inventory)
Sent a cheque, R500 to Metro Council for deposit to
8
connect the water and electricity.
Owner withdrew a business cheque for R700 to pay son’s
9
monthly school fees.
Issued cheque to Waltons for stationery purchased for use
10
in the office, R100.
11 Receipt issued for rent received from tenant, R1 000.

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Goods sold for cash, R5 700. (Profit mark-up is 25% on cost

12
price) (Perpetual inventory)

Goods purchased for resale, R1 000 subject to a 5% cash

13
discount. Paid by cheque. (Perpetual inventory)
Goods purchased for resale, R2 000 subject to a 10% trade
14
discount. Paid by cheque. (Periodic inventory)
Issued cheque to pay for water and electricity consumed,
15
R325.
16 Issued cheque to pay insurance premium, R340.
17 Paid R10 000 as capital payment on loan.
18 Vehicle purchased and paid by cheque, R80 000.
Received Bank Statement from the bank, indicating R57 in
19 Bank Charges and R34 Interest Received on Current
Account. (Bank has a favourable balance.)
Bank Statement indicated interest charged, R210. (Bank
20
balance is unfavourable.)

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EXERCISE FOUR

The following transactions appeared in the books of Logan Traders, a VAT vendor, during
January Year 1:

4 Credit sales to Paul Pan, R7 720.

7 Purchased inventory on credit from Jackson & Jackson, R23 940.
8 Paid freight on goods purchased, R114.
12 The owner took goods for private use, cost price R228.
Paul Pan returned some of the goods purchased (see 4th), R1 140. Issued a credit
14
note.

REQUIRED

4.1 Record the transactions in the general journal of Logan Traders if the periodic
inventory system is used (omit narrations). All amounts incude 14% VAT where
applicable.

4.2 Suppose Logan Traders uses a mark up of 25% on cost. Record the transactions in
the general journal if the perpetual inventory system is used (omit narrations). All
amounts incude 14% VAT where applicable.

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EXERCISE FIVE

Complete the table below:

APPEARS IN APPEARS IN
NAME OF TYPE OF STATEMENT OF STATEMENT OF
ACCOUNT ACCOUNT COMPREHENSIVE FINANCIAL
INCOME POSITION
e.g. Wages Expense Yes No
Purchases
Equipment
Creditors Control
Fixed Deposit
Advertising
Interest on Overdraft
Inventory (Perpetual)
Sales
Debtors Control
Land & Buildings
Fees Earned
Cost of Sales
Depreciation
Donations Expense
Stationery
Sales Returns
Cash Float
Vehicles
Credit Losses
Bank Overdraft
Insurance
Purchases Returns

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TEST YOUR KNOWLEDGE

1. The following steps all form part of the accounting cycle:

a Completing source documents
b Preparing financial statements
c Analysis and interpretation of financial statements
d Recording of transactions in subsidiary journals and ledgers
e Transactions taking place
f Decision making by management regarding the analysis and interpretation of
the information
Which one of the following alternatives represents the correct sequence in which the
above steps usually take place in the accounting cycle?

A e,d,a,f,b,c
B e,a,d,b,c,f
C d,e,a,f,b,c
D a,e,d,b,c,f

2. The accounting assumption that an entity has a reasonable expectation of continuing

in business for an indefinite period of time, is known as

A The going concern assumption

B The financial performance assumption
C The accounting entity assumption
D The financial position assumption

3. Drawings represent

A An income of the entity

B An expense of the entity
C A liability of the entity
D A reduction of capital

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Learning Unit 2
Chapter 8
Processing accounting data
Learning Objectives:
 Understand concept and be able to calculate VAT;
 Allowance for discount granted/received (including VAT)
 Prepare journal entries in all subsidiary journals;
 Post to the general ledger;
 Extract a trial balance;
 Discuss the limitations of the trial balance.

Work Space

1.1 Allowance for discount

The treatment of settlement discounts for Receivables and Payables is very

important. Please refer to your textbook on pages 139, 144 and 172 – 176.

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EXERCISE SIX – journals, general ledger and trial balance and financial statements.
(Retail Undertaking – Periodic Inventory System – No VAT)

The following trial balance appeared in the books of Wasswa Wetsuits:

WASSWA WETSUITS
TRIAL BALANCE AS AT 30 NOVEMBER Year 1
Bank 67 140
Receivables Control 125 200
Inventory 114 800
Payables Control 668 800
Capital: W Wasswa 270 600
Drawings: W Wasswa 30 000
Sales 2 293 200
Sales Returns 247 400
Allowance for Discount 3 340
Commission Income 33 200
Purchases 1 197 000
Advertising 555 200
Rent 823 000
Insurance 43 200
Electricity & Water 66 200
R3 269 140 R3 269 140

Extract from List of Receivables Payables

Folami Surf Shop 25 200
Balewa Stores 27 400

It is Wasswa Wetsuits policy to offer receivables discounts for prompt payment, as well
as accept any offers from payables for discounts for prompt payment. The following
transactions took place during December Year 1:
All monies are deposited on the day received
The owner, after inheriting money from his father, deposited R150 000
2
directly into the entity’s banking account as additional capital.
3 Folami Surf Shop purchased goods at R105 000 on credit.
Purchased trading stock from Jang Traders and paid by cheque, R145 000.
Purchased goods on credit from Fabian Stores for R272 700, subject to a
5
cash discount of 5% if the account is paid within 30 days.
6 Issued cheque in full settlement of Balewa Stores account.

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7 Cash sales for the week amounted to R565 600.

Purchased inventory from Jang Traders, R324 500 and paid by cheque after
deducting the 10% trade discount offered.
9 Issued cheque for R730 to Super Printers for advertising posters printed.
12 Folami Surf Shop settled their account as at 30 November.
14 Cash sales for the week amounted to R396 800.
Sold goods to Lake Surfboards, a regular receivable, on credit for R456 200.
17
Will allow 5% cash discount if paid within 30 days.
21 Cash sales for the week amounted to R294 850.
Lake Surfboards returned damaged goods R56 200.
22 Sold goods on credit to Folami Surf Shop for R90 000.
Purchased two computer and computer desks on credit from Moss Traders,
R45 000.
23 Purchased goods on credit, R575 200, from Mchunu Dealers.
Folami Surf Shop returned defective inventory purchased on 22 December
24
with a selling price of R30 000.
25 Issued cheque to Fabian Stores in settlement of their account.
Sent the municipality a cheque for R4 000 in payment of the water and
electricity account.
Returned R33 500’s worth of defective equipment to Mchunu Dealers.
28 Returned broken equipment to Moss Traders totalling R5 000.
Lake Surfboards informed Wasswa Wetsuits that they were unable to settle
their account within 30 days and send R150 000 as part payment of their
account

REQUIRED

1. Record the transactions for December Year 1 into the relevant subsidiary journals:

CRJ; CPJ; PJ; PRJ; SJ; SRJ and GJ

Total the columns and cross cast.

2. Post to the general ledger; balance/total the accounts, as necessary.

3. Draw up a Trial Balance.

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EXERCISE SEVEN – journals, general ledger and trial balance and financial
statements.
(Retail Undertaking – Perpetual Inventory System – No VAT)

The following information relates to Patrick Dealers who sells their inventory at a constant
mark-up of 50% on cost price. Patrick Dealers offers their receivables 2.5% discount if
accounts are settled within 30 days and accepts the same offer from their payables.

PATRICK DEALERS
TRIAL BALANCE AS AT 30 NOVEMBER Year 1
Capital 925 380
Bank 238 500
Inventory: Merchandise 414 036
Receivables Control 87 524
Payables Control 225 140
Equipment 290 950
Sales 2 327 960
Cost of Sales 1 551 340
Sales Returns 27 700
Allowance for Discount 64 200
Rent Income 66 600
Advertising 51 680
Carriage on Sales 92 280
Insurance 76 720
Salaries 778 550
R3 609 280 R3 609 280

Receivables List: Payables List:

James Jones 42 177 Super Stores 88 415
Joe Johnston 21 585 SpoiltforChoice Store 65 610
Jan Jansen 13 212 Sampson Stores 71 115
Josh Jacob 10 550
R87 524 R225 140

The following transactions took place in December Year 1:

1 Paid annual insurance premium of R18 800 by cheque to Insurers Incorporated for December.
Received a cheque from Joe Johnston in full settlement of his account on 30 November Year
2
1.
3 Paid Super Stores by cheque in full settlement of the amount owed as at 30 November Year 1.
Received payment of rent from tenant for December, R8 325.
Purchased goods on credit from Sampson Stores, R93 300, Patrick Dealers intends paying
4
the account within the settlement period.
5 Paid Transport Spoor R15 110 for railage on goods received from Sampson Stores.
6 Cash sales, R200 486.

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8 Sold goods on credit to Joe Johnston, R61 650, Joe Johnston will pay within 30 days.
Purchased goods and paid by cheque, R77 500.
Paid Transport Spoor R965 for freight on goods delivered to Joe Johnston. Patrick Dealers
9
bears the cost of the delivery.
10 Accepted damaged goods returned by Joe Johnston and issued a credit note for R9 090.
12 Received R5 200 on account from Jan Jansen.
13 Sold goods on credit to Josh Jacob, R25 200.
17 Purchased stationery on account from Super Printers R5 500.
Purchased merchandise from John Johnstone and paid by cheque, R112 500.
19 Returned damaged inventory to Sampson Stores, R10 300 and received their credit note.
20 Sold goods on credit to Jan Jansen, R31 012.
23 Cash sales, R433 355.
24 Purchased goods on credit from SpoiltforChoice Store, R90 350.
The owner withdrew inventory with a marked price of R5 000, for his private use.
25 Paid cash for goods purchased from John Johnstone, R97 900.
Returned unwanted goods SpoiltforChoice Store, R21 000 and received their credit note.
30 Paid salaries, R82 000.
Paid the amounts due to Sampson Stores and SpoiltforChoice Store.

REQUIRED

1. Record the transactions for December Year 1 into the relevant subsidiary journals:

CRJ; CPJ; PJ; PRJ; SJ; SRJ and GJ

Total the columns and cross cast.

2. Post to the general ledger; balance/total the accounts, as necessary.

3. Draw up a Trial Balance.

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EXERCISE EIGHT – posting to the general ledger

(Retail Undertaking – Perpetual Inventory System)

The trial balance of Tracey Traders shows the following balances on 1 April Year 1
Bank (credit balance) 66 327 Sales 1 620 000
Cost of Sales ??? Receivables Control 718 425
Inventory 465 000 Sales Returns 232 300

Tracey Traders uses a mark up of 25% on cost. The following subsidiary journals, with only
the totals of the analysis columns shown below, appeared in the books of Tracey Traders at
30 April Year 1. ???amounts to be calculated

Cash Receipts Journal: 30 April Year 1

Sundry Cost of Receivables
Sales Bank
Amount Sales Control
-- 450 000 ??? 653 750 ???

Cash Payments Journal: 30 April Year 1

Sundry Payables
Inventory Bank
Amount Control
533 395 715 500 210 200 ???

Sales Journal: 30 April Year 1

Cost of Allowance Receivables
Sales
Sales for Discount Control
735 000 ??? 42 000 ???

Purchases Journal: 30 April Year 1

Payables
Inventory
Control
514 200 ???

Sales Returns Journal: 30 April Year 1

Sales Cost of Receivables
Returns Sales Control
??? ??? 72 500

Purchases Returns Journal: 30 April Year 1

Payables
Inventory
Control
??? 611 047

REQUIRED

Prepare the following general ledger accounts for Tuck Traders for April Year 1:

Bank; Cost of Sales; Trading Inventory; Sales; Receivables; Sales Returns

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1.5 Vat – Value Added Tax

A detailed study of VAT is not necessary in this module, however, understanding and
applying the basic concepts of this form of taxation is required. Refer to your textbook for
detailed discussion on VAT from pages 133 - 138.

EXERCISE NINE

CALCULATE THE MISSING AMOUNTS IN THE TABLE BELOW:

PRICE (VAT EXCL.) VAT PRICE (VAT INCL.)

R4 500 ?? ??
?? ?? R95 760
?? R280 ??

EXERCISE TEN

Jabulani Industries produces a single, homogeneous product, called a “Genie”. The

materials used to manufacture a Genie costs R855, including VAT. Wages to factory
workers amounted to R12 500 during March Year 1. Jabulani Industries manufactured and
sold 750 Genies at R3 420 each (including VAT) during this period. All 750 of these Genies
were sold to a wholesaler, Prospect Traders. Prospect Traders added 35% to the cost price
of all these Genies, before selling them to MagicTraders, a retailer. All parties involved are
registered VAT vendors and all Genies are a standard-rated supply. VAT is levied at 14%.

REQUIRED

Calculate the following amounts:

10.1 The cost of sales incurred by Jabulani Industries during March Year 1.
10.2 The sales revenue earned by Jabulani Industries during March Year 1.
10.3 The cost of sales incurred by Prospect Traders during March Year 1.
10.4 The sales revenue earned by Prospect Traders during March Year 1.
10.5 The gross profit made by Jabulani Industries during March Year 1.
10.6 The gross profit made by Prospect Traders during March Year 1.
10.7 The VAT input claimable on Genies by Jabulani Industries for the period in question.
10.8 The VAT output payable to SARS by Jabulani Industries for the period in question.
10.9 The VAT input claimable on Genies by Prospect Traders for the period in question.
10.10 The VAT output payable to SARS by Prospect Traders (with respect to Genies) for
the period in question.

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EXERCISE ELEVEN – journals, general ledger and trial balance.

(Retail Undertaking – Periodic Inventory System – VAT)

The following information relates to Pitsi Dealers. Pitsi Dealers is a registered VAT vendor.
Pitsi Dealers does not offer Receivables settlement discounts and does not receive any from
the Payables.

PITSI DEALERS
BALANCES AS AT 31 MARCH Year 1
Capital 833 857
Land & Buildings at cost 768 200
Equipment at cost 531 900
Inventory 99 800
Receivables Control 74 400
Bank – favourable 413 231
Payables Control 132 200
Sales 1 847 100
Sales Returns 67 377
Purchases 915 400
Purchase Returns 71 320
Wages 88 106
Stationery 15 263
Vat Control (CR) 89 200

Transactions for April Year 1: (Vat, where applicable, is included at 14%)

1 Cash sales, R317 160.
3 Purchased merchandise on credit from PP Wholesalers, R49 790.
Sold merchandise on credit to A Apple, R29 937.
Paid XY Wholesalers R19 800 on account.
6 Drew cheque for wages, R101 853.
7 Cash sales, R540 940.
Sold merchandise on credit to B. Banana, R54 400.
8 Received cash from C Carrot R8 800.
9 Purchased stationery, R15 330 and paid by cheque.
11 Purchased packing material from TT Packers and paid by cheque, R16 490.
12 Bought merchandise from XY Wholesalers, R112 815, and paid by cheque.
Drew a cheque for wages, R110 871.
Paid the telephone account, R4 572.
13 Issued a credit note to A Apple for an overcharge on the 3rd, R12 100.
17 B. Banana returned damaged goods; a credit note was issued to him, R9 900.

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21 Received a cheque from G Grape in part payment of his account, R19 450.
Drew a cheque for wages, R110 863.
24 Purchased equipment on credit from ZY Suppliers, R25 816.
26 Cash sales of merchandise, R211 089.
27 Issued a cheque to the City Treasurer for the water and electricity account, R10 253.
28 Received cash from a new tenant, K Kay, R22 000, half being a rent deposit
and half being the first month of occupation’s rental.
Settled the account of PP Wholesalers as at the 3rd April.
29 Received a bank statement from True Bank indicating cash handling fees of R88,
cheque book charges R105 and service fees R240.
30 Sold unused stationery on credit to D Dumpling, R6 000.
Purchased merchandise on credit from PP Wholesalers, R298 970.
Drew a cheque for wages, R120 886.
Sent a cheque to SARS to pay VAT owing (include April’s Vat Input and Output).

REQUIRED

1. Record the transactions in the appropriate subsidiary journals for April Year 1

CRJ; CPJ; SJ; SRJ; PJ and GJ

Total the columns and cross cast.

2. Post to the general ledger; balance the accounts, as necessary.

3. Draw up a Trial Balance.

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EXERCISE TWELVE – cash receipts journal

(Retail Undertaking – Perpetual Inventory System – VAT)

The following information for December Year 1relates to Avo Dealers (registered as a VAT
vendor):

1. The perpetual inventory system is in use. There was no inventory on hand on

1 December Year 1.
2. All the amounts are inclusive of VAT, unless indicated.
3. VAT is levied at 14%

ADDITIONAL INFORMATION

The following transactions took place during December Year 1:

2 Purchased inventory for cash, R3 000 (1500 units @ R2), from Avo Growers.
5 Sold a third of the inventory for cash, R1 500 (excluding VAT) to various customers.
9 A third of the inventory was sold on credit to F Farmer, at R4 per unit. This transaction
was subject to a 10% trade discount and a further 2.5% discount for prompt payment
within 30 days.
10 The remaining of the inventory was sold for cash, at R5 per unit.
11 Inventory was purchased on credit from Avo Suppliers for R900.
20 Received a cheque from C Cafe in settlement of his account. The outstanding balance on
30 November Year 1 was R600 and they were taking advantage of the 2.5% discount for
prompt payment.
23 Received a cheque from F Farmer to settle his debt (see 9th).

REQUIRED

Prepare the cash receipts journal of Avo Dealers, properly totalled for December Year 1,
with the following analysis columns:

Sundries, Sales, Vat Output, Receivables and Bank.

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EXERCISE THIRTEEN – cash receipts journal

(Retail Undertaking – Periodic Inventory System – VAT)

The following information relates Toyren Dealers, a registered Vat vendor, for
February Year 1. All amounts are inclusive of VAT of 14% unless otherwise indicated.

ADDITIONAL INFORMATION:

The following transactions took place during February Year 1:

2 Purchased inventory for cash, R340 420 from Mercedes Traders.

5 Sold a quarter of the inventory for cash, R94 800 (excluding VAT) to various
customers.
9 A quarter of the inventory was sold on credit to M Mini for R52 280 who was offered
2.5% discount if payment is made within 30 days.
11 Inventory was purchased on credit from Mercedes Traders for R111 026.
20 Received a cheque for R16 000 from F Fiat, a debtor, in part payment of his
account.
21 Paid a cheque from Mercedes Traders to settle our account.
23 Returned goods received from M Mini, R28 500
30 Received the monthly rental from Marco's Repairs who rent part of the premises,
R22 052.
M Mini paid her account in full.

REQUIRED

1. Prepare the Cash Receipts Journal of Toyren Dealers for February Year 1 with the
following analysis columns:

Sundries, Sales, Vat Output, Receivables and Bank.

TOTALS are not required.

2. Calculate the total Vat Input for the month. Show all workings

3. In which journals would the transactions on the 9th and 23rd February Year 1 be
recorded?

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TEST YOUR KNOWLEDGE

1. Accountants in the USA use the word foot to mean adding a column of numbers. To
crossfoot means to verify that the sum of the totals in various columns also agrees to
a grand total. What term do we use?

2. Which of the following items are normally entered in the general journal, when the
enterprise makes use of all the necessary subsidiary journals?
a Goods returned previously bought on credit
b Drawings of inventory for owner’s use
c Purchase of a vehicle on credit
d Correction of an error

A a, b, c and d
B b, c and d
C a, b and d
D b and d

3. Which of the following alternatives mainly indicates the purpose of analysis columns
in the subsidiary journals (books of prime entry)?

A To distinguish more clearly between nominal and balance sheet accounts

B To limit the number of postings to the general ledger as far as possible
C To facilitate the drawing up of a pre-adjustment trial balance
D To limit the use of source documents

4. The purchases journal

A Reflects all the credit purchases of goods and services

B Reflects credit purchases of goods bought for resale purposes
C Reflects all the credit and cash purchases of goods bought for resale
D Only reflects cash purchases of goods for resale purposes

5. The accounting records in which the essential facts, details and figures of all the
transactions are initially recorded are called the

A Ledgers
B Books of prime entry
C Financial Statements
D Accounts

6. "Balance b/d"…

A Means the debit side is greater than the credit side

B Applies to asset accounts only
C Represents the opening balance of the new period
D Cannot be used in a liability account

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Learning Unit 3
Chapter 9
Receivables and Payables – Transactions and
Reconciliation
Learning Objectives:
 Record various transactions relating particularly to Receivables and Payables;
 Reconcile Control Accounts with individual Receivables and Payables accounts.
 Allowance for Settlement and VAT
 Credit Losses/Credit Losses Recovered and VAT and Allowance for Credit Losses

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EXERCISE FOURTEEN Analyse the following transactions according to the table. All amounts include VAT at 14%, where applicable.

No. TRANSACTION JOURNAL ACC DR ACC CR A = OE + L

1 Goods sold on credit to Receivable A, R1 140. 5% cash discount
will be allowed if Receivable A pays within 30 days. (Perpetual
inventory – profit mark-up is 33⅓% on cost price.)

2 Issued invoice to Receivable B, R912. (Perpetual inventory –

profit mark-up is 25% on cost price.)

3 Credit sales to Receivable C, R2 280. (Periodic inventory)

4 Credit note issued for overcharge on invoice for goods sold to

Receivable C, R128.

5 Received a cheque from Receivable B for payment on his

account, R500.
6 Received a cheque R1 083 from Receivable A within 30 days
from the sale.

7 Bank returned Receivable A’s cheque marked “Refer to Drawer –

insufficient funds”. See previous transaction(s)

8 Receipt issued to Receivable C to settle amount owing.

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9 Charged Receivable A interest on his overdue account, R35.

10 Receivable B declared insolvent. Wrote off his account as
irrecoverable. See previous transaction(s).

11 Received a cheque from Receivable B to pay his account.

12 Bank dishonoured cheque received from Receivable C. See

previous transaction(s).
13 Invoice received from Payable Y for merchandise purchased for
resale, R2 500 subject to a 2½% trade discount. (Perpetual
inventory). Payable Y has offered us a 5% cash discount if the
account is paid within 30 days

14 Paid Payable Y the amount owing after the time allowed to

receive the 5% cash discount

15 Amount owing to Payable Z is R500. Interest charged on

overdue account at 17% p.a. for 3 months.
16
Merchandise returned to Payable X, R285. (Perpetual inventory)

17 Purchased goods on credit from Payable W, R4 560 subject to a

20% trade discount. (Periodic inventory)

18
Returned goods to Payable W, R342. See transaction no. 17.

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EXERCISE FIFTEEN – Journals and posting to general ledger

(Retail Undertaking – Perpetual Inventory System)

Missing Traders is a VAT Vendor. Amounts include 14% VAT where applicable.
Missing Traders do not bank their cash everyday.

Transactions for the month June Year 1:

3 Sold merchandise on credit to L Louw, R4 560.
Sold merchandise for cash R9 120.
6 Credit sales to S Sibusiso. A discount of 4% will be allowed when she pays
her account within 30 days, R8 550
10 Sell merchandise to P Pillay and received his cheque, R11 400.
13 Supply goods on credit to L Louw, R6 156.
16 Received a cheque from L Louw for R3 000 to settle part of his account.
Received interest on the savings account, R1 140.
Deposit all cash in the bank.
20 Sell on credit to A Akoonjee, R1 938.
21 Received a debit note form S Sibusiso for damaged merchandise and issued
a credit note, R570.
24 Received a cheque from S Sibusiso in full settlement of her account
25 Sent credit note to L Louw for over-invoicing of R684 plus VAT
Deposit all cash in the bank

REQUIRED

Prepare the Sales Journal, Sales Returns Journal, Cash Receipts Journal and
General Journal. Ensure that you have an amount column in CRJ.

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EXERCISE SIXTEEN

The following details for January Year 1 were taken from the records of Ruby
Tuesday (VAT included where applicable):

1 January Year 1:
Total of debit balances in receivables ledger 12 564
Total of credit balances in the receivables ledger 194
Total of credit balances in the payables ledger 21 894
Total of debit balances in the payables ledger 183

The following occurred during the month of January Year 1:

Receipts issued to receivables 18 451
Cheques received from receivables returned by the bank marked R/D 450
An Allowance for credit losses was created 2 350
Cash received from Joe Soap (His account was previously written off) 750
Credit sales of merchandise 45 690
Returns out 450
Credit purchases of merchandise 31 560
Merchandise returned by receivables 650
Interest charged on receivables accounts in arrears 55
Cash Purchases of merchandise 29 665

ADDITIONAL INFORMATION

1. Sales of R48 were posted to Tom Moon account as R84.

2. An invoice of R544 for goods sold to Jan Back was not recorded in the sales
journal.
3. A debit balance of R70 was transferred from the payables ledger to the
receivable ledger, but no entry was made in the general ledger.

REQUIRED

The Receivables Control Account for January Year 1.

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EXERCISE SEVENTEEN

The Receivables control account balance on 31 December Year 1 amounted to

R30 960, while the list of receivables accounts in the receivables ledger totalled
R16 872. After checking the accounting records of Top Traders, who is registered for
VAT purposes, the following information was discovered:

1. The total column in the sales journal had been overstated by R5 950.
2. The balance on H Harold’s account of R551 had been correctly written off as
bad debts in the general ledger, but no entry was made in the receivables
ledger.
3. J Jones has settled her account by offsetting her credit balance of R3 318 in
the payables ledger against her debit balance in the receivables ledger. The
entry had only been recorded in the her accounts in the receivables and
payables ledgers.
4. A sale to a receivable, D Dach, amounting to R2 300 had incorrectly been
posted to another receivables account, D Dash.
5. Sales returns by T Tandy of R2 478 had been recorded in the sales journal and
posted as such to the general ledger. However, the entry in the receivables
ledger was correctly recorded as sales returns.
6. An invoice from a payable, S Slow, for motor repairs amounting to R978 had
been recorded in the accounting records as a credit sale to a receivable,
S Slowen.
7. A receivable, O Oost, who owed R650, was written off as a bad debt. The
amount in the journal was correctly recorded, but was posted to O Oost’s
account in the receivables ledger as R560.
8. When the list of receivables’ balances was extracted from the receivables
ledger at 31 December Year 1 a receivable, Y Yeo, with a debit balance of
R505 was left out in error.

REQUIRED

Reconcile the balance of the receivables control account and the total of the
receivables list. (Show all adjustments/corrections)

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EXERCISE EIGHTEEN

The following information relates to Super Manufacturers. Super Manufacturers is not

a VAT Vendor. The Receivables Control account has been prepared by an
inexperienced bookkeeper.

SUPER MANUFACTURERS
RECEIVABLES CONTROL
Balance (correct) b/d 12 600 Bank CPJ 400
Bank (total receivables
CRJ 8 300 Sales SJ 10 000
column)
Sales Returns SRJ 980 Sundry Accounts GJ 380
Sundry Accounts GJ 480 Petty Cash (refund) PCJ 80

ADDITIONAL INFORMATION

1. An invoice issued to receivable, B Bhengu, was recorded in the relevant

journal as R730 instead of R370.
2. A credit note issued for R250 was not posted to the account of M Malunga.
3. The bank statement showed that a cheque received from receivable,
H Hlophe,had been returned "I/F". The cheque for R520 had been sent in
settlement of his debt. No entries have been made.
4. A receivable, M Msomi, previously written off as a bad debt, sent a cheque for
R530. This was recorded in the Receivable Control column in the Cash
Receipts Journal. It was not posted to the receivable’s ledger.
5. The Sales Journal was overcast by R800.
6. C Chili, a receivable, is still to be charged R30 on his overdue account.
7. S Shezi sent a lawyer's letter notifying us that she was insolvent and that she
would only be paying R600, which equated to 60 cents in the Rand. The
amount outstanding must be written off as a bad debt.
8. Receivable, Z Zulu has a credit balance of R450. He is to be transferred to
the payables ledger.
9. The total of the receivables list on 28 February Year 1 was R13 880.

REQUIRED

1. Prepare the Receivables Control account for the month of February Year 1,
properly adjusted and balanced.
2. Reconcile the Receivables List with the final balance of the control account as
calculated above.

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EXERCISE NINETEEN

The following information relates to Naidoo and Sons (not registered as a VAT
vendor)
1. Balance on the Receivables Control Account at 1 April Year 1 13 000
2. Total of the list of Receivables balances at 30 April Year 1 10 610
3. Totals of the subsidiary journals for April Year 1:
CASH RECEIPTS JOURNAL COLUMNS:
Bank 25 600
Receivables Control 13 100
Payables Control 200
Sales 11 000
CASH PAYMENTS JOURNAL COLUMNS:
Bank 17 200
Receivables Control 100
Payables Control 6 450
Purchases 8 750
Sales Journal 11 700
Purchases Journal 9 000
Sales Returns Journal 1 300
General Journal debits in respect of Receivables 200
General Journal credits in respect of Receibables 300

ADDITIONAL INFORMATION

1. The sales journal was undercast by R200.

2. Interest of R100, charged to a receivables account during April Year 1, was
correctly posted to the relevant receibables account in the receivables ledger
and to the interest account in the general ledger, but the contra entry was
posted to the payables control account.
3. Sales of R1 190 which had been recorded correctly in the sales journal, was
entered in the account of debtor P Pretorius as R1 100.
4. A credit note of R50 was recorded correctly in the sales returns journal, but
erroneously posted to the wrong side of R Reddy’s account.
5. A cheque for R1 250 received from B Chetty was entered on the credit side of
C Chetty’s account.
6. Redundant machinery that was sold for R600 on credit to S Sithole (carrying
amount R450) has not yet been recorded in the books.
7. A cheque for R550 received from Z Zwane, was returned by the bank marked
"R/D". No entry has as yet been made regarding this R/D cheque.
8. S Salie, who owed R300 was declared insolvent. His estate paid 40c in the
Rand. All the relevant entries must still be recorded in the books.

REQUIRED

Prepare the Receivables control account for April Year 1, properly adjusted and
balanced and reconcile of the total of the list of receivable’s balances.

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EXERCISE TWENTY

You were recently appointed as accountant of Shaik’s Swop Shop. The payables
control account was prepared by an inexperienced bookkeeper and you are
requested to make the necessary adjustments, if any. The balance of the control
account on 31 July Year 1 is correct.

PAYABLES CONTROL ACCOUNT

31- 01- 13
Aug
Jnl credits iro payables 1 300 Aug Balance b/d
750
Jnl credits iro receivables 860 31 Credit sales 3 150
35
Credit purchases Jnl debits iro receivables 1 015
700
Sales returns Jnl debits iro payables 7 550
(credit sales) 1 230 Drawings 2 750
Purchases returns
(credit purchases) 1 700

List of payables’ balances at 31 August Year 1 as per payables ledger

P Prins R2 250
S Smith R6 500
R Radebe R21 500
S Singh R12 100

ADDITIONAL INFORMATION

1. Totals of the cash subsidiary journals at 31 August Year 1:

CASH RECEIPTS JOURNAL COLUMNS
Bank 36 200
Sales 15 000
Receivables Control 12 300
Payables Control 300

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CASH PAYMENTS JOURNAL COLUMNS

Bank 14 300
Purchases 7 620
Payables Control 7 500
Drawings 4 750

2. An invoice of R14 750 in respect of a power-boat bought from P Prins, was

erroneously omitted from the purchases journal.
3. Wages paid of R2 425 to the messenger, L Langa, was analysed to the
creditors column in the cash payments journal. No correction has as yet been
made.
4. The purchases journal was overcast by R900.
5. According to the monthly payables statement received from F Ford , interest
of R68 has been charged on the overdue account. No entry has as yet been
made.
6. According to the payables ledger the correct balance on S Smith's account on
31 August Year 1 was R3 465.
7. A credit note in the amount of R1 700, received from R Radebe in respect of
goods returned was correctly entered in the purchases returns journal, but
posted to the wrong side of R Radebe's account. There were no other items
returned by Shaik’s Swop Shop to any other suppliers during August Year 1.
8. A cheque for R1 350 payable to K Kapp was entered on the debit side of
K Kock's account.
9. An invoice for R2 450, which was correctly entered in the purchases journal,
was incorrectly entered against the account of P Prins as R2 540.
10. An account of R535 for freight on credit sales was received from S Shezi. No
entry has been made.

REQUIRED

1. Prepare the payables control account in the general ledger of Shaik’s Swop
Shop for August Year 1, properly adjusted and balanced.
2. Prepare a list of the adjusted payables balances as at 31 August Year 1 to
reconcile with the balance on the payables control account.

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EXERCISE TWENTY ONE

The following information relates to Jeppe Traders:

1. Balance on the Payables Control Account at 1 January Year 1 84 420

2. Total of the list of Payables balances at 31 January Year 1 80 290
3. Transactions for the month ended 31 January Year 1:
Cash Purchases 171 580
Cash Sales 165 600
Credit Purchases 207 220
Credit Sales 291 440
Sales Returns 6 520
Purchases Returns 9 000
Payments to Payables 207 490
Credit losses written off 2 680
Receivables R/D cheques 2 400
Journal debits iro Payables 1 180
Journal credits iro Payables 1 730

ADDITIONAL INFORMATION

1. A Joyces’s credit balance of R1 520 in the receivable ledger is to be

transferred to the account in the payables ledger.
2. Returns to ABC Traders of R2 300 were posted to the wrong side of their
account. The transaction was entered correctly in the purchases returns
journal.
3. An account for freight on sales, R5 780, was received from Spring Carriers.
No entry has yet been made.
4. A cheque for R2 700 issued on 31 July Year 0 in full settlement of payable,
NNN Services' account of R2 780, for maintenance, is still outstanding
according to the bank reconciliation statement. This cheque must be
cancelled.
5. The purchases journal was undercast by R1 000.
6. Credit purchases amounting to R2 370 were incorrectly posted as R3 270 to
payables S Dollie's account.
7. The debit balance of R420 on J Rampersad’s account in the payables ledger
was treated as a credit balance in the list of balances.

REQUIRED

1. Prepare the payables control account of Jeppe Traders for January Year 1,
properly balanced.
2. Reconcile the total of the list of payables balances with the final balance of
the payables control account as calculated in (1) above.

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TEST YOUR KNOWLEDGE

1. The Allowance for Credit Losses is

A added to debtors in the statement of financial position

B deducted from debtors in the statement of financial position
C shown as a current liability in the statement of financial position
D shown in brackets as a current asset in the statement of financial position

2. Tek Ltd uses control accounts in their accounting system. Which one of the
following errors/omissions will affect the debtors control account?

A the purchases returns journal was undercast by R100

B an invoice for R170 was not posted from the sales journal to the account
of K Key
C an invoice for goods sold for cash to R Row for R220 was not entered in
the books
D Goods to the value of R68, returned by W Will were never entered in the
books, although the necessary debit note was made out.

3. Which one of the following statements is false?

A an allowance for credit losses is necessary to ensure that income is

reduced by the amount of doubtful debts in the same period as that within
which the income is recognised as revenue
B an allowance for credit losses is necessary to ensure, inter alia, that
debtors are shown in the balance sheet as net realisable value
C the dispatch of regular monthly statements to debtors is part of the
control process
D when a Debtor fails to pay his/her account and the enterprise hands
them over for collection the Debtor is credited and the collection
agency is debited.

4. The following information was extracted from the books of Home Agents at
30 June 2006: Receivables R34 900
Settlement Discount Granted – still to be deducted R700
Irrecoverable debts – still to be written off R900
Allowance for Credit Losses – 30 June 2005 R1 400
If the allowance for credit losses remains at 5% of outstanding debtors, the
balance of the allowance for credit losses account will be

A R1 245
B R1 665
C R1 700
D R1 745

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Learning Unit 4
Chapter 11

Cash and cash equivalents

Learning Objectives:
 Discuss the theory of cash and cash equivalents and control of cash;
 Reconcile the bank account with the Bank Statement;

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EXERCISE TWENTY TWO

The following information relates to Unwise Traders:

BANK STATEMENT FOR OCTOBER Year 1

Date Details Debit Credit Balance
1 Balance 13 242 13 242
2 Deposit 700 13 942
Cheque 797 250 13 692
4 Cheque 828 216 13 476
Deposit 320 13 796
5 Cheque 829 294 13 502
10 Cheque 831 740 12 762
13 Cheque 830 80 12 682
Cheque 832 628 12 054
15 Deposit 547 12 601
18 Cheque 834 278 12 323
22 Deposit 510 12 833
28 Cheque 835 340 12 493
Deposit 484 12 977
29 M Moosa (R/D Cheque) 48 12 929
30 Direct transfer 1 200 14 129
Bank Charges 12 14 117

CASH RECEIPTS JOURNAL FOR OCTOBER Year 1

Date Details Amount
R
3 S Smith (Receivable) 320
14 Cash Sales 547
22 M Mohammed (Receivable) 510
26 Cash Sales 484
29 D de Beer (Receivable) 253

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CASH PAYMENTS JOURNAL FOR OCTOBER Year 1

Cheque
Date Details Amount
No.
R
4 Telkom 828 216
5 P Paxton (Payable) 829 294
6 S Nel Ltd 830 80
10 B Baloyi (Payable) 831 740
Computer Sales Ltd 832 628
12 J Johnson (Payable) 833 153
17 W Wise 834 278
27 W Wilson (Payable) 835 340
29 S Nel Ltd 836 58

ADDITIONAL INFORMATION

1. Unwise Traders reconciled the cash payments journal, cash receipts journal
and bank balance on 30 September Year 1, finding the following outstanding:

Cheque No. 794 R162

797 R250
Deposit R700

2. Bank account balance which appeared in the trial balance on

30 September Year 1 was R13 530 (favourable).

3. The transfer on 30 October Year 1 to the current bank account was for
interest on an investment.

REQUIRED

1. Complete the Cash Receipts Journal and Cash Payments Journal (including
transactions given) of Unwise Traders for October Year 1.

2. Prepare the Bank Account in the general ledger of Unwise Traders, properly
balanced at 31 October Year 1.

3. Prepare the Bank Reconciliation Statement of UnwiseTraders at

31 October Year 1.

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EXERCISE TWENTY THREE

The following information relates to Digital Traders:

Bank reconciliation statement at 31 March Year 1:

Debit Credit
R R
Balance per Bank Statement 13 600
Outstanding cheques: No. 202 2 400
No. 273 600
No. 274 5 000
No. 275 4 600
Outstanding deposit 8 600
Balance per Bank Account 9 600
22 200 22 200

Information obtained from the bank columns in the cash journals for April Year 1:

CASH RECEIPTS JOURNAL:

R
Deposits: 03-Apr 4 000
07-Apr 9 000
14-Apr 6 000
21-Apr 15 000
28-Apr 7 000
Provisional total 41 000

CASH PAYMENTS JOURNAL:

R
Cheque no’s: 278 1 600
279 8 400
280 1 100
281 1 700
282 30 000
283 5 000
284 3 500
285 4 300
286 3 360
Provisional total 49 490

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Information obtained from the bank statement for April Year 1:

CREDIT ENTRIES:
R
Deposits: 01-Apr 8 600
03-Apr 4 000
07-Apr 14 000
14-Apr 6 000
17-Apr 1 800
21-Apr 15 000
Interest 190

DEBIT ENTRIES:
R
Cheque no’s: 275 4 600
278 1 600
279 8 400
280 1 100
281 1 700
282 30 000
283 5 000
285 2 400
B Borwa (stop order for Rent) 800
Sundry Bank Charges 250
Cheque Book 40
"R/D" Cheque: V Vala 400

Balance as per Bank Statement at 30 April Year

1: R6 800 Cr

ADDITIONAL INFORMATION

1. Cheques outstanding for more than six months must be regarded as stale.
2. Cheque no. 202 was issued to M Monk on 11 October Year 0 for repairs to
vehicles.
3. A debtor, T Tom, deposited R1 700 on 17 April Year 1 without notifying Digital
Traders.
4. The correct amount of cheque no. 285 is R4 300.

REQUIRED

1. Prepare the cash receipts journal for April Year 1 (details and bank columns
only)
2. Prepare the cash payments journal for April Year 1
3. Show the bank account, properly balanced, in the general ledger.
4. Prepare the bank reconciliation statement as at 30 April Year 1

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EXERCISE TWENTY FOUR

The following information relates to NTM Traders:

BANK RECONCILIATION STATEMENT AT 31 JANUARY Year 1:

Balance per Bank Statement 7 367
Outstanding cheques: No. 531 230
No. 784 1 245
No. 785 2 163
No. 789 80
Correction of error 120
Balance as per Bank Account 10 965
11 085 11 085

Provisional (pencil) total of the bank columns in the subsidiary journals on

29 February Year 1 are as follows: Cash Receipts Journal: R133 468, and
Cash Payments Journal: R111 396

A comparison of the cash journals for February Year 1 with the bank statement
for February Year 1 brought the following to light:
1. Items appearing on the bank statement but not in the cash journals:
1.1 A direct deposit made by Receivable Z Mkhize for the amount of R3 148.
1.2 Bank Charges for the month R410.
1.3 Interest on Bank Overdraft R180.
1.4 A cheque to the amount of R380, incorrectly debited to NTM Traders'
bank account.
1.5 A stop order of R325 for the monthly insurance premium and a debit order
of R898 for payment of the Telephone account.
1.6 Correction of the error that appeared on the previous bank reconciliation.
1.7 Cheque No. 784 for R1 245 and No. 789 for R80 that appeared on the
previous bank reconciliation.
2. It was also found that Cheque No. 785 (for cash Purchases) appeared on the
bank statement as R2 136, which is the correct amount.

Items appearing in the cash journals but not on the bank statement:
1. A deposit made on the 29 February Year 1 for R5 213.
2. Cheque No. 531 (dated 18 August Year 0, issued to J Morgan for Purchases)
for R230, No. 799 for R2 110 and No. 812 for R3 212.

The favourable balance as per the Bank Statement at 29 February Year 1 was
R12 428.

REQUIRED

Prepare the following for NTM Traders for February Year 1:

1. The Cash Receipts Journal and Cash Payments Journal (bank columns only).
2. The Bank Account, properly balanced, in the general ledger.
3. The Bank Reconciliation Statement.

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EXERCISE TWENTY FIVE

When comparing the cash journals of Umgeni Trading for April Year 1 with the bank
statement for the same month, the following was ascertained:

1. Credit balance of the Bank Account in the general ledger at 32 000

1 April Year 1

2. Credit balance per Bank Statement at 30 April Year 1 61 610

3. Provisional (pencil) totals of the cash journals at 30 April Year 1:

Cash Receipts Journal 424 320
Cash Payments Journal 317 280

4. Items appearing in the cash journals but not on the bank statement:
A deposit made on 30 April Year 1 32 320
Cheque No. 489 dated 29 April Year 1 for cash purchases 18 000

5. Items appearing on the bank statement but not in the cash journals:
Bank Charges 1 400
Interest on Bank Overdraft 600
A direct deposit made by a receivable, D Don 12 000
A cheque received from P Pick, a receivable, returned by the
3 600
bank and marked "R/D"
A stop order in favour of Clayville Properties (for Rent) 7 000

6. A cheque incorrectly debited to Umgeni Trading's bank account 760

7. Item appearing in the bank reconciliation statement at 31 March Year 1, but not
on the April Year 1 bank statement:
Cheque No. 173, issued on 15 October Year 0 to payable P Prins R1 980

8. A cheque for R360, issued during April for Purchases, was entered in the Cash
Payments Journal as R630. This error must still be corrected.

REQUIRED

1. Complete only the bank columns of the cash journals of Umgeni Trading for
April Year 1.
2. Prepare the bank account, in the general ledger of Umgeni Trading, properly
balanced for 30 April Year 1. Show all calculations.
3. Prepare the bank reconciliation statement of Umgreni Trading at 30 April Year
1.

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EXERCISE TWENTY SIX

The following information, relating to March Year 1, was taken from the records of
Vusi Traders after the cash journals had been compared with the bank statement but
before any corrections of supplementary entries were made:

BANK RECONCILIATION STATEMENT AT 29 FEBRUARY Year 1:

Balance per Bank Statement 1 440
Cr outstanding deposit 9 000
Outstanding cheques: No. 400 2 380
No. 406 7 660
No. 407 4 540
Balance as per Bank Account 7 020
16 020 16 020

After the necessary comparisons were made the following was found:

1. Cash receipts journal: total of bank column on 31 March Year 1, R291 000

2. Cash payments journal: total of bank column on 31 March Year 1, R244 400

3. The cash receipts journal showed a deposit of R6 460 on 31 March Year 1

which did not appear in the bank statement.

4. The cash payments journal showed the following cheques which had not yet
been presented to the bank for payment:
No 416 R7 880 (dated 28 March Year 1)
No 439 R5 400 (dated 30 March Year 1)

5. A cheque received from Charlie Green for R3 960 was returned by the bank on
28 March Year 1 marked “R/D” post-dated for 6 April Year 1. The date was
changed by Charlie Green to 31 March Year 1 and the cheque was redeposited
on this date. This deposit is still outstanding on the bank statement

6. Cheque no. 400 for R2 380 was issued in February Year 1 in favour of “Bloem
News” for advertisements. The advertisements were never placed. Payment of
the cheque was stopped and must be cancelled

7. Cheque no. 620 for R4 900 was received form T. Tom on 26 March Year 1 and
deposited. This cheque was dishonoured by the bank because it was post-
dated for 5 April Year 1. This cheque was held for redepositing it later

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8. The bank statement showed the following transactions which did not appear in
the cash journals for March Year 1:

 Cheque no. 407 amounting to R4 540

 A deposit of R9 000 on 1 March Year 1
 S Sparks made an EFT deposit for the rental of March Year 1, R6 000
 A stop order in favour of Super Insurance for short term insurance, R1
200
 An EFT deposit of R7 600 which was erroneously made into the bank
account of Vusi Traders. This EFT deposit was in favour of Musi
Traders.
 A cheque for R1 500 drawn on the personal account of Vusi (the
owner), was debited to the business account in error.
 Cheque no. 224, drawer B. Broke, was received on 20 March Year 1
and deposited, R19 600. The cheque was dishonoured by the bank due
to insufficient funds.
 Bank charges, R134 and interest on the credit balance, R126.
 On 31 March Year 1 the bank statement showed a credit balance of
R38 872.

REQUIRED

1. Complete the cash journals of Vusi Traders

2. Prepare the bank account, in the general ledger of Vusi Traders, properly
balanced. Show all calculations.
3. Prepare the bank reconciliation statement of Vusi Traders at 31 March Year 1.

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TEST YOUR KNOWLEDGE

1. Cheques that are older than 6 months are known as

A out-of-date cheque
B past cheque
C stale cheques
D tired cheque

2. Which of the following transactions, shown on a bank statement, will increase

an unfavourable bank balance?

A interest credited to bank account

B bank charges reversed
C interest debited to bank account
D direct deposit

3. The provisional total of the CPJ of Olies Security Services was R75 000 on
30 September 2005. After comparing the entries in the cash journals with the
bank statement, it was found that the following items were not yet marked off
on the bank statement.
a the following cheques paid by the bank: No. 101 and 156, R1 200 and
R3 000, respectively
b a debit order in favour of the municipality for R1 800
c a stop order from Jan Brand in favour of Olies Security Services for
R2 200
d a stop order in favour of Ace Insurance Company for R1 100
e a cheque of R2 000 received from John Smart, marked R/D
f bank charges totalling R120
g a credit entry for interest, R100
Which of the following amounts will be the total to be credited to the bank
account?

A R84 300
B R82 320
C R82 220
D R80 020

4. A cheque issued on 25 May Year 1 to creditor D, that has not been shown on
any bank statement by 30 November Year 1, the end of the financial year,

A should it be included in the bank reconciliation statement at 30 NovYear 1

B should it be shown as an accrued expense in the statement of financial
position
C should it be cancelled by debiting the bank and crediting creditors control
D should be shown as a prepaid expense in the statement of financial
position

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5. On reconciling the cash journals with the bank statement, the accountant of
Namibia Traders ascertained that the bank has debited the firm's account with
R1 700 in respect of the premium on the "building owner's insurance policy"
with the Windhoek Insurance Co. Which one of the following alternatives
represents the contra ledger account to be debited with the amount?

A Land & Buildings

B Insurance
C Windhoek Insurance Co.
D Bank

6. Your must prepare a bank reconciliation statement at 30 April Year 1. A

comparison with the bank account and other financial information reveals the
following differences that must be taken into consideration:

Cheques not appearing on the bank statement:

 Cheque no. 197: R2 000
 Cheque no. 212: R1 000
 Cheque no. 213: R5 000

Receipts not appearing on the bank statement:

 P Muller paid R14 000 in settlement of his account.

ADDITIONAL INFORMATION

 The balance on the bank statement for the month ended 30 April
showed a balance of R36 000 (Cr).
 The balance in the bank account showed a balance of R22 000 (Dr) at
1 April Year 1.
 The totals of the bank columns in the subsidiary journals had the
following balances:
o Cash Receipts Journal, R60 000
o Cash Payments Journal, R40 000

REQUIRED

Prepare a bank reconciliation statement for the month ended 30 April Year 1.

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Learning Unit 5
Chapter 11
Property, Plant and Equipment
Learning Objectives:
 Calculate the cost price of non-current assets;
 Calculate two methods of depreciation;
 Record transactions for disposal of non-current assets.

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EXERCISE TWENTY SEVEN

At the end of the financial year, on 31 May Year 3, equipment which was bought on
1 June Year 1 with a cost price of R85 000, was sold for R60 000 cash.

Equipment is depreciated at 10% on diminishing balance each year.

Calculate the book value of the equipment as at 31 May Year 3.

NB Year 1 = 1 June year 1 to 31 May year 1
Year 2 = 1 June year 2 to 31 May year 2 etc.

EXERCISE TWENTY EIGHT

A vehicle is purchased for R180 000. Additional costs for the vehicle are R4 000 for
special trims and R6 800 for the sunroof. The estimated residual value at the end of
its useful life is R48 000. The estimated life of the vehicle is 4 years.

Calculate the annual depreciation using the straight-line method.

EXERCISE TWENTY NINE

Hill Billy Agency purchases a vehicle for R165 000 on 1 March Year 1. Its scrap
value at the end of its five years useful life is nil.

The vehicle is to be depreciated at 20% per annum on the straight-line method.

Calculate the Accumulated Depreciation at the end of the third year.

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EXERCISE THIRTY

The following are balances obtained from the general ledger of Lucy's Store at
30 April Year 3, the end of their financial year:

Capital 660 000

Vehicles at cost 320 000
Machinery at cost 400 000
Accumulated depreciation on vehicles (30 April Year 0) 80 000
Accumulated depreciation on machinery (30 April Year
76 000
0)
Debtors 68 000
Creditors 100 000
Inventory 30 000
Bank (Dr) 98 000

ADDITIONAL INFORMATION

1. On 31 December Year 3 a vehicle, bought on 1 July Year 1 for R60 000, was
sold for R48 000.

2. On 1 March Year 3 Lucy's Store purchased a new machine. The following

information pertains to the new machine:
Purchase Price R100 000
Installation Cost R4 000
Transport Cost R16 000

3. Depreciation must be provided for as follows:

Vehicles - 25% per annum according to the straight line method.
Machinery - 10% per annum according to the diminished balance method.

REQUIRED

1. Prepare general journal entries to record the following (narrations are NOT
required):
Sale of the vehicle and all related entries
Purchase of the new machine
Depreciation at the end of the year
2. Prepare the following accounts in the general ledger of Lucy's Store for the
current financial year:
Asset Realisation
Vehicles
Accumulated Depreciation on Vehicles
Deprecation
3. Prepare the note on property, plant and equipment to the financial statements
of Lucy's Store, at 30 April Year 3

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EXERCISE THIRTY ONE

The following information was extracted from the books of Super Sonic Motors:

BALANCES AT 1 MARCH Year 2

Vehicles at cost 228 000
Equipment at cost 122 800
Accumulated depreciation: Vehicles 82 080
Accumulated depreciation: Equipment 23 332

The following transactions took place during the year in respect of non- current
assets:

1. On 31 August Year 2 Super Sonic Motors sold the delivery vehicle for
R87 200 cash to Mrs Peterson. The proceeds from this sales transaction was
used to finance the purchase of another vehicle from Cape Motors Ltd for
R250 000 cash. The cost price of the vehicle sold was R112 000 and its
accumulated depreciation amounted to R22 400 on 1 March Year 2.

2. On 31 January Year 2, SS Supermarket sold a used computer printer for

R1 520 cash to Mr Moon. The cost price of the computer printer sold was
R4 600 and was bought on the 1 March Year 1.

3. Depreciation is provided for as follows:

Vehicles: 20% p.a. - Diminished balance method
Equipment: 10% p.a. - Diminished balance method.

4. The financial year commences on 1 March Year 2.

REQUIRED

Prepare the following ledger accounts, properly balanced / closed off, for the year
ended 28 February Year 2:

1. Vehicles
2. Equipment
3. Accumulated Depreciation on Vehicles
4. Accumulated Depreciation on Equipment
5. Depreciation
6. Asset Realisation

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EXERCISE THIRTY TWO

NZT Traders provided the following information in respect of its property, plant and
equipment:

MACHINERY MERCURY VENUS

Date of Purchase 1 May Year 0 1 September Year 1
Purchase Price R300 000 R400 000
Estimated useful life 4 years 5 years

ADDITIONAL INFORMATION

1. The entity uses the fixed instalment method to provide for depreciation.

2. On 31 January Year 1 management decided to increase the production

capacity and purchased a Mars machine on credit from Swan Machines for
R800 000. The Mercury machine was traded in, reducing the amount owing to
Swan machines to R490 000. The balance is interest free and will be paid in
four equal instalments from 31 July Year 2.

3. Installation cost of R80 000 was paid in cash and production with the new
machine started on 1 February Year 1.

4. The estimated life span of the Mars machine is 8 years and the estimated
trade-in value at the end of the term is R100 000.

REQUIRED

1. Prepare general journal entries to record the following (narrations are NOT
required):
1.1 Trade in of the machine and all related transactions
1.2 Purchase of the new machine
1.3 Depreciation at the end of the financial year.

2. Prepare the following general ledger accounts (properly balanced and closed
off) for the year ended 30 April Year 1:
2.1 Machinery
2.1 Accumulated Depreciation on Machinery
2.2 Machinery realisation.

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EXERCISE THIRTY THREE

The following information is extracted from the General Ledger of Yellow Traders for
the financial year 1 January Year 1 to 31 December Year 1.

VEHICLES
Year 1 Year 1
Jan 1
Balance b/d 840 000 May 1
Asset realisation GJ 200 000
Year 1 Year 1
Mar 31
Bank CPJ 500 000 Dec 31
Balance c/d 1 190 000
Year 1
Aug 1
Payables Control GJ 50 000

1 390 000 1 390 000

Year 2
Jan 1
Balance b/d 1 190 000

ACCUMULATED DEPRECIATION ON VEHICLES

Year 1 Year 1
Aug 1
Asset realisation GJ 165 000 Jan 1
Balance b/d 475 000
Year 1 Year 1
Dec 31
Balance c/d 423 000 Aug 1
Depreciation GJ 25 000
Year 1
Dec 31
Depreciation GJ 88 000

588 000 588 000

Year 2
Jan 1
Balance b/d 423 000

ASSET REALISATION

Year 1 Year 1 Acc Dep on

Aug 1
Vehicles GJ 200 000 Aug 1
GJ 165 000
Vehicles
Profit on sale of
GJ 10 000 Payables Control GJ 45 000
asset
210 000 210 000

REQUIRED

Use the information from accounts above to prepare the Note on Property, Plant and
Equipment for Yellow Traders for the year ended 31 December Year 1.

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EXERCISE THIRTY FOUR

The following information relates to Shaik Suppliers:

According to the Pre-Adjustment Trial Balance on 28 February Year 1, the balance of

the equipment account amounted to R420 000 and the accumulated depreciation on
equipment to R113 000. (Shaik Suppliers owns 2 pieces of equipment, machines,
one which produces vuvuzelas and the other which produces soccer balls.)

The machine which produces vuvuzelas, was purchased for R220 000 on
1 September Year 0. Shaik Suppliers estimated the machine’s useful life to be that of
5 years and to have an estimated residual value of R10 000.

The other piece of equipment has an estimated life of 4 years and no residual value.

On 31 October Year 2 it was decided to replace the vuvuzela machine with the latest
model. The old machine was sold for R130 000 cash. The new machine was bought
for R330 000 and paid for by cheque. It too has an estimated life of 5 years and an
expected scrap value of R15 000. (NB No entries have as yet been entered into the
books for the sale of the vuvuzela machine and the purchase of the new machine.)

The straight line method of depreciation is employed by Shaik Suppliers and their
financial year ends on 28 February each year.

REQUIRED

1. Journalise the transactions pertaining to the trade in of the vuvuzela machine

and the purchase of its replacement.

2. Prepare the Asset Realisation Account in the ledger of Shaik Suppliers.

3. Prepare the note for the Plant, Property and Equipment amount in the
Statement of Financial Position of Shaik Suppliers as at 28 February Year 2.
No total column required.

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Learning Unit 6
Chapter 6 & 7
Adjustments, the closing-off procedure, determining
profit and preparing financial statements of a Sole
Trader
Learning Objectives:
 Prepare journal entries for all adjustments;
 Post to the general ledger;
 Draw up a Post-Adjustment Trial Balance;
 Prepare journal entries for closing transactions;
 Post to the general ledger;
 Draw up a Post-Cloding Trial Balance;
 Prepare Annual Financial Statements

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EXERCISE THIRTY FIVE adjustments in general journal

The following information relates to Poison Traders:

POISON TRADERS
AN EXTRACT OF THE PRE ADJUSTMENT TRIAL BALANCE AT
31 DECEMBER Year 1
Vehicles at cost price 455 000
Equipment at cost price 325 000
Accumulated Depreciation: Vehicles 45 600
Accumulated Depreciation: Equipment 99 000
Fixed Deposit at Province Bank 220 000
Receivables Control 13 900
Bank 46 240
Sales 1 150 800
Cost of Sales 982 240
Fuel 111 580
Wages 92 800
Insurance 34 837
Advertisements 21 920
Telephone 51 500
Credit Losses 12 760

ADDITIONAL INFORMATION

1. The telephone account for December is outstanding, R800.

2. According to a physical stock taking, fuel on hand amounted to R440.
3. Wages of R1 240 was paid for January Year 2.
4. Provide for depreciation:
Equipment at R45 500 per annum
Vehicles at R85 500 per annum
5. Write off an additional R160 as irrecoverable.
6. Insurance was only paid for 11 months.

REQUIRED

Journalise the adjustments in the general journal of Poison Traders on

31 December Year 1. Narrations NOT required.

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EXERCISE THIRTY SIX – adjustments in general journal

The following balances were extracted from the general ledger of Africa Enterprises
at 30 June Year 1.

R '000 ??A/OE/L??
Capital 21
Equipment at cost price 270
Accumulated Depreciation: Equipment 50
Inventory: 30/06/Year 0 180
Packing Material 15
Insurance 10
Receivables Control 90
Allowance for Credit Losses 4
Loan 10%: repayable beginning in Jan Year 2 120
Purchases 360
Carriage on Purchases 15
Sales Returns 5
Wages 68
Rent Expense 44
Sales 936
Rent Income 8
Credit Losses 2

ADDITIONAL INFORMATION

1. Depreciation on equipment of R27 000 is written off annually.

2. The insurance premium was paid for a period of 15 months on 1 July Year 0
3. The loan was obtained on 1 January 2010 and interest is payable annually on
1 January Year 2.
4. Wages amounting to R1 200 for the last three days of June Year 1 are still
owed.
5. Premises are rented at R4 000 per month. One of the buildings was rented
out under a sub-contract at R9 000 per annum.
6. Inventory on hand at 30 June Year 1: Packing Material R6 000.
7. A further R120 of debt must be written off as irrecoverable.
8. Adjust the allowance for credit losses to 6% of the receivables.

REQUIRED

Journalise the adjustments in the general journal of Africa Enterprises on

30 June Year 1. Narrations are required.

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EXERCISE THIRTY SEVEN – adjustments in general journal

The following pre-adjustment trial balance was taken from the books of Steep
Distributors:
STEEP DISTRIBUTORS
PRE ADJUSTMENT TRIAL BALANCE OF AT 31 DECEMBER Year 1
Capital (01/01/Year 1) 141 700
Land & Buildings at cost 263 240
Vehicles at cost 40 000
Equipment at cost 9 000
Accumulated Depreciation: Vehicles (01/01/Year 1) 11 200
Accumulated Depreciation: Equipment (01/01/Year 1) 1 710
Fixed Deposit: NBC Bank Ltd 50 000
Inventory: Merchandise 8 500
Receivables Control 5 200
Bank 3 100
Petty Cash 100
Cash Float 500
Payables Control 9 550
Long-term Loan: Bean Ltd 25 000
Allowance for Credit Losses 300
Sales 381 790
Cost of Sales 165 400
Sales Returns 1 200
Wages 2 000
Salaries 25 000
Assessment Rates 1 830
Trading Licence 1 000
Vehicle Expenses 3 500
Credit Losses 550
Packaging Materials 4 700
Insurance 2 250
Water & Electricity 2 100
Telephone Expense 1 400
Advertising 2 000
Rent Income 15 600
Interest on Investment 5 000
Credit Losses Recovered 770
R592 620 R592 620

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ADDITIONAL INFORMATION

The following adjustments must still be taken into account:

1. Packaging material on hand at 31 December Year 1, R980.

2. The long term loan was entered into on 1 October Year 0. According to the
agreement, interest will be payable bi-annually at a rate of 18% per annum.

3. Advertising includes an amount of R400 paid for January Year 2.

4. Rent income includes an amount in respect of January Year 2.

5. Interest on the fixed deposit has not yet been received for the last two months
of the financial year. Interest is calculated at a rate of 12% per annum.

6. Insurance includes an amount of R750 paid for the period 1 November Year 1
to 31 October Year 2.

7. The telephone account of R165 for December Year 1 was not yet paid.

8. The account of Loose-Ends Ltd, a receivable owing the business R200, must
be written off as irrecoverable.

9. The allowance for credit losses should reflect a balance equal to 5% of the
receivable balance.

REQUIRED

1. Journalise the adjustments in the general journal of Steep Distributors on

31 December Year 1. Narrations are not required.

2. Open all the ledger account in the General ledger of Steep Distributors
affected by the adjustments. Post the transactions from the general journal:

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TEST YOUR KNOWLEDGE

1. An accrued expense
a is shown as a current asset on the statement of financial position
b is shown as a current liability on the statement of financial position
c represents an expense paid in advance
d should be added to the expense item on the pre-adjustment trial balance
Choose the alternative reflecting the true statements
A a and c
B b and d
C b and c
D a and d

2. PP Accountants subscribe to two accounting magazines in Year 1. The per

annum subscription fees were R240, paid on 1 March Year 1, and R360, paid
on 1 July Year 1 respectively. The amount that must be debited to the profit
and loss account as magazine subscriptions at 31 December Year 1 is

A R300
B R360
C R380
D R600

3. Which one of the following statements is false? Adjustments are necessary to

A Correctly match a period's revenue and expenses

B Adjust assets and liabilities to their market value
C Achieve an accurate statement of assets and liabilities
D Correct errors of principle in the general ledger

4. Determine the amount of "Rates and Taxes" that must be debited to the profit
and loss account at 30 June Year 1, the end of the financial year, from the
following information given to you:
 R1 200 was paid on 1 March Year 0 for the financial year ended
28 February Year 1
 R1 500 was paid on 1 March Year 1 for the financial year ended
28 February Year 2

A R1 050
B R1 300
C R1 350
D R1 500

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EXERCISE THIRTY EIGHT – closing entries in general journal

The following balances were extracted from the accounting records of Appy
Traders at their financial year end, 28 February Year 1.

Capital 4 000 000

Sales 2 305 000
Sales Returns 345 000
Purchases 1 102 000
Purchases Returns 232 000
Carriage on Purchases 612 000
Inventory (1 March Year 0) 78 000
Drawings 233 000
Import Duties 66 000
Credit Losses Recovered 73 000
Rent Income 224 000
Interest on Fixed Deposit 84 000
Interest on Overdraft 91 500
Interest on Loan 44 500
Salaries 660 000
Stationery 73 000
Packaging Materials 45 500
Advertising 72 500
Credit Losses 84 000

ADDITIONAL INFORMATION

A physical inventory count revealed unused inventory, R65 000.

REQUIRED

1. Journalise the closing entries. Narrations required.

2. Draw up the Trading Account, the Profit & Loss Account, the Drawings
Account and the Capital Account

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EXERCISE THIRTY NINE – closing transfers, Trading, Profit and Loss

Accounts, Post closing Trial Balance. (Periodic Inventory System)

The following information relates to Barking Traders:

BARKING TRADERS
POST-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY Year 1
ACCOUNT AMOUNT ??A/OE/L??
Purchases Returns 45 000
Capital 1 189 490
Sales 2 526 150
Land & Buildings 862 800
Rates 73 250
Equipment 221 500
Accumulated Depreciation on Vehicles 217 100
Inventory (1 March Year 0) 51 530
Receivables Control 72 280
Bank 5 380
Payables Control 83 515
Sales Returns 66 300
Purchases 1 128 900
Carriage on Purchases 92 400
Accumulated Depreciation on Equipment 58 300
Rent Income 55 850
Vehicles 437 300
Salaries & Wages 638 620
Drawings 455 800
Telephone 23 540
Credit Losses 45 805

REQUIRED

1. Journalise the closing transfers in the general journal. Narrations required.

2. Closing Inventory R45 000.
3. Post only to the following ledger accounts:
Capital Drawings
Trading Account Profit and Loss Account
4. Draw up a Post Closing Trial Balance as at 28 February Year 1.

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EXERCISE FORTY – closing transfers, Trading, Profit and Loss Accounts, Post
closing Trial Balance. (Perpetual Inventory System)

The following post adjustment trial balance was extracted from the books of
Blesbok Traders at 30 June Year 1

BLESBOK TRADERS
POST-ADJUSTMENT TRIAL BALANCE AS AT 30 JUNE Year 1
ACCOUNT AMOUNT ??A/OE/L??
Capital 234 000
Drawings 92 500
Vehicles 640 000
Equipment 410 000
Inventory 111 500
Prepaid Expenses 5 900
Accrued Expenses 7 600
Sales 2 145 500
Cost of Sales 1 058 000
Accummulated Depreciation on Vehicles 279 300
Sales Returns 211 300
Interest Income 5 000
Wages & Salaries 532 000
Accummulated Depreciation on Equipment 125 000
Rent Expense 69 000
Loan 475 000
Telephone 62 000
Advertisement 44 000
Water & Electricity 35 200

REQUIRED

1. Journalise the closing transfers in the general journal. Narrations not required.
2. Post only to the following ledger accounts:
Capital
Drawings
Trading Account
Profit and Loss Account
3. Draw up a Post Closing Trial Balance as at 30 June Year 1.

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EXERCISE FORTY ONE

The following information relates to Green Traders for the year ended 31 January
Year 1:

Sales 600 000

Purchases 875 000
Inventory (1 February Year 0) 45 000
Inventory (31 January Year 1) 65 000
Purchases Returns 50 000
Carriage on Sales 40 000
Import and Custom Duties 5 000

REQUIRED

Calculate the gross profit for the year ended 31 January Year 1.

EXERCISE FORTY TWO

The following information for the year ended 31 December Year 1 relates to Spring
Traders:

Purchases 120 000

Carriage on Sales 2 400
Carriage on Purchases 4 800
Sales 180 000
Closing Inventory - 31 December Year 1 96 000
Gross Profit percentage on Cost of Sales 25%

REQUIRED

Calculate the opening inventory figure as at 1 January Year 1

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EXERCISE FORTY THREE

The following information relates to Jimbo Traders:

Inventory - 31 January Year 1 340 000

Total cash purchases for February Year 1 18 000
Total discount received from creditors on payment of accounts 300
Total sales for February Year 1 48 000

The perpetual inventory system is in use and a consistent profit mark-up of 50% on
cost price is maintained. Included in the inventory at 31 January Year 1 is stock to
the value of R11 000 which is still subject to a trade discount of 5%.

REQUIRED

Calculate the correct value of the Inventory Account as at 28 February Year 1

EXERCISE FORTY FOUR

The following information relates to the Year 1 financial year of Black Bird CC:

R
Sales 300 000
Purchases 275 000
Inventory on Hand at 28 February Year 0 25 000
Inventory on Hand at 29 February Year 1 55 000
Purchases Returns 50 000
Carriage on Sales 4 000
Customs duties 5 000

REQUIRED

Calculate the gross profit percentage on sales for the year ended 29 February Year
1.

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EXERCISE FORTY FIVE

The following information relates to Maxi Limited for the year ended
31 December Year 0:

Sales for the year 945 000

Purchases for the year 650 000
Inventory (31 December Year 0) 210 000
Constant profit mark up on cost 50%

REQUIRED

Calculate the Inventory amount as at 1 January Year 1.

EXERCISE FORTY SIX

The following information relates to Zana Traders for the year ended
31 December Year 1:

Inventory (1 January Year 1) 20 000

Purchases 25 000
Carriage on Purchases 1 000
Sales 37 500
Carriage on Sales 1 000
Percentage gross profit mark-up on cost 25%

REQUIRED

Calculate the Inventory amount as at 31 December Year 1.

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EXERCISE FORTY SEVEN

The following balances appeared in the books of Dlamini Ltd on 31 March Year 1 the
end of the financial year:
ACCOUNT AMOUNT ??A/OE/L??
Sales 3 520 730
Carriage on Purchases 562 460
Carriage on Sales 61 240
Insurance 132 500
Purchase Returns 325 510
Purchases 2 225 000
Sales Returns 210 000
Inventory: 1/4/Year 0 12 000
Wages 575 200
Telephone 121 225
Credit Losses 65 110
Receivables 90 000
Vehicles – cost 760 000
Equipment – cost 585 500
Accumulated Depreciation on:
Vehicles 112 500
Equipment 112 825
Rent Income 7 500
Water & Electricity 21 200
Stationery 45 800

ADDITIONAL INFORMATION

1. Inventory on 31 March Year 1 was R14 500.

2. Depreciation for the year is as follows:
on Vehicles R16 000
and on Equipment R12 000
3. Insurance has been paid until 30 April Year 2.
4. The wage of an employee, R850 has not yet been paid.
5. An additional bad debt of R120 must be written off.
6. The warehouse in Durban brings in R1 500 per month in the form of rent. The
tenants have been there since 1 August Year 2.

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REQUIRED

1. Show the relevant journal entries required to record the additional information.
Narrations required.
2. Record the entries which show the closing transfers needed at the end of the
financial year, after the above adjustments have been made. Narrations
required.
3. Prepare the Trading Account and Profit & Loss Account.
4. Calculate the gross profit percentage on sales.

EXERCISE FORTY EIGHT

The following information was extracted from the Trial Balance of Jumbo Traders for
the years ended 30 September Year 0 and 30 September Year 1.

30 Sept Year 1 30 Sept Year 0

Inventory 165 000 155 000
Receivables Control 203 000 159 000
Allowances for Credit Losses 25 000 18 000
Payables Control 120 000 68 000

ADDITIONAL INFORMATION

1. Cash received from customers during the year ended 30 September Year 1,
amounted to R950 000 and credit losses of R8 000 had been written off.
2. Cash payments to suppliers during the year ended 30 September Year 1,
amounted to R560 000.

REQUIRED

Calculate the gross profit of Jumbo Traders for the year ended 30 September Year
1, by preparing the following general ledger accounts.

 Inventory
 Receivables Control
 Payables Control
 Trading Account

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TEST YOUR KNOWLEDGE

1. In the income statement, carriage on sales is

A added to sales
B deducted from sales
C included in the calculation of cost of sales
D shown as an expense in the profit and loss section

2. When using the perpetual inventory system, goods purchased on credit will
appear as

A a debit against the purchases a/c and a credit against the creditors a/c
B a debit against the purchases a/c and a credit against the inventory a/c
C a debit against the inventory a/c and a credit against the creditors a/c
D a debit against the inventory a/c and a credit against the bank a/c

3. Closing inventory in a periodic inventory system

A is shown on the pre-closing trial balance

B is debited to the inventory account
C is added to purchases in calculating cost of sales
D is subtracted from sales when cost of sales is calculated

4. Should the owner take goods for his personal use where the periodic
inventory system is in use, the entry will be:

A debit the drawings account, credit the purchases account

B debit the drawings account, credit the sales account
C debit the drawings account, credit the inventory (stock) account
D debit the drawings account, credit the cost of sales account

5. Cost of goods sold is calculated as

A Closing inventory plus purchases less sales returns less opening

inventory
B Opening inventory plus purchases less sales returns less closing
inventory
C Opening inventory plus purchases plus carriage on purchases less
purchases returns less closing inventory
D Opening inventory plus purchases plus carriage on sales plus carriage
on purchases less purchases returns plus closing inventory

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EXERCISE FORTY NINE

The following information pertains to Hatch Trainers as at 31 March Year 1:

EXTRACT OF BALANCES FROM THE PRE-ADJUSTMENT TRIAL BALANCE
Capital 650 000
Drawings 45 000
Land and Buildings 300 000
Loan: ZZ Bank 400 000
Bank Overdraft 38 000
Receivables Control 75 200
Inventory (1 April Year 0) 29 000
Sales 960 000
Carriage on Sales 15 600
Sales Returns 12 000
Commission Income 37 900
Insurance 39 200
Purchases 540 000
Carriage on Purchases 18 000
Purchases Returns 4 000
Credit Losses 8 500
Stationery 14 500
Salaries 205 000
Water and Electricity 26 000
Interest on Overdraft 800
Rent Income 12 000

ADDITIONAL INFORMATION
1. Inventory on hand on 31 March Year 1:Trading Inventory R29 000
Stationery R2 500
2. A receivable, J Jolly, is insolvent; his debt of R200 has to be written off.
3. Create an allowance for Credit Losses at 5% of the book debts.
4. An invoice for R750 has been received for Water and Electricity but not yet
paid.
5. R3 600 commission was earned on 27 March Year 1; the amount is still
outstanding.
6. An insurance premium of R400 per month has been paid until the end of
June Year 1.
7. Harry Hatch inherited R200 000 in January Year 1 which he deposited into
the firm’s banking account as a further capital contribution.

REQUIRED
1. Journalise the adjustments. (Narrations required)
2. Prepare the Statement of Profit or Loss and other Comprehensive Income
and Statement of Changes in Equity

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EXERCISE FIFTY

The following list, which is an extract of balances at 30 June Year 1, was taken from
the general ledger of Naido Traders before any of the additional information:

Sales 301 200

Purchases 139 200
Sales Returns 1 300
Purchases Returns 1 400
Rent Income 12 000
Salaries & Wages 93 000
Railage on Sales 1 900
Interest on Mortgage Loan 6 300
Packaging Material 4 300
Credit Losses 400
Stationery 6 500
Insurance 1 800
Printing 1 700
Railage on Purchases 3 000
Capital 72 600
Drawings 4 100
Mortgage Loan: New Bank 84 000
Inventory: Merchandise (1 July Year 0) 16 500
Allowance for Credit Losses 200

ADDITIONAL INFORMATION

1. Inventory on hand at 30 June Year 1: Merchandise R18 400.

2. Depreciation must be provided for as follows:
Vehicles R4 100
Furniture R700.
3. The mortgage loan was granted on 1 July Year 0 at 10% interest per annum,
payable every 3 months. Interest for the period 1 April Year 1 to 30 June Year
1 was payable on 1 July Year 1.
4. A store room was sublet from 1 October Year 0 at R1 200 per month.
5. An amount of R200, paid to Insure Ltd, was an advance premium for
July Year 1.
6. An account of R1 500 was received from Printo Limited for the printing of
documents. This must still be recorded.

REQUIRED

1. Prepare the Statement of Profit or Loss and other Comprehensive Income.

2. Prepare the Statement of Changes in Equity.

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EXERCISE FIFTY ONE

The following information relates to Comp Installations (who also sell equipment)
List of balances as at 30 April Year 1:
Capital (1 May Year 0) 400 000
Drawings 98 000
Bank (favourable) 45 000
Investment (5% fixed deposit at Monument Bank) 50 000
Inventory: Merchandise 125 000
Vehicles at cost 750 000
Equipment at cost 300 000
Accumulated Depreciation on Vehicles (1 May 2008) 150 000
Accumulated Depreciation on Equipment (1 May 2008) 100 000
Receivables Control 30 000
Payables Control 12 000
Income from Services Rendered 700 000
Sales 386 000
Cost of Sales 200 000
Administrative and General Expenses 150 000

ADDITIONAL INFORMATION

1. Included in sales is an amount of R15 000, received on 30 April Year 1, being

a deposit on an order to be completed during the next financial year.
2. The electricity account for R1 500 (for the owner) for April Year 1 was paid
with a business cheque. and must still be recorded.
3. The investment was made on 1 May 2013. Interest on the investment to the
amount of R2 500, due on 30 April Year 1, must still be recorded.
4. Stationery of R2 000 on hand at 30 April Year 1 must still be recorded.
5. Depreciation of Vehicles (R150 000) and on Equipment (R70 000) must still
be recorded.

REQUIRED

Using the above information

1. Calculate the total comprehensive income (net profit) of Comp Installations for
the year ended 30 April Year 1.
2. Prepare the Statement of Changes in Equity of Comp Installations for the
year ended 30 April Year 1.
3. Prepare the Statement of Financial Position of Comp Installations as at
30 April Year 1.

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EXERCISE FIFTY TWO

The following Post-Adjustment Trial Balance and additional information is taken from
the books of Jackson Stores:

JACKSON STORES
POST-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY YEAR 1
Accounting Fees 14 000
Advertising 10 500
Credit Losses 3 400
Bank Charges 2 800
Interest on Overdraft 2 900
Bank Overdraft 26 500
Capital 50 000
Carriage on Purchases 9 000
Cleaning Materials 1 800
Payables Control 63 000
Receivables Control 56 000
Delivery Charges 14 800
Depreciation: Machinery 7 000
Vehicles 4 000
Drawings 12 500
Entertainment 3 000
Fixed Deposit 50 000
Insurance 14 800
Interest on Fixed Deposit 5 000
Interest on Long Term Loan 3 900
Inventory - 1 March Year 0 72 000
Long term loan 38 200
Machinery: Cost 35 000
Accumulated Depreciation 14 000
Printing & Stationery 4 300
Allowance for Credit Losses 2 800
Purchases 390 000
Rent Expense 72 000
Repair & Maintenance 3 800
Salaries & Wages 144 000
Sales 765 000
Telephone 12 900
Vehicles: Cost 20 000
Accumulated Depreciation 8 000
Vehicle expenses 8 100
R972 500 R972 500

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ADDITIONAL INFORMATION

1. Inventory on 28 February Year 1 amounted to R83 000.

2. No property, plant and equipment was purchased during the year.

3. The long term loan was from Sun Bank and is repayable in four equal annual
payments, with the first payment on 28 February Year 2. The interest rate is
10% per annum and is secured by a personal guarantee of the owner.

4. The owner deposited an additional amount of R5 000 during the year

(capital).

5. Depreciation on machinery and vehicles is calculated at 20% per annum on

the straight line method.

6. The fixed deposit is with AAA Bank for 24 months at 10%.

REQUIRED

Draw up the 3 financial statements as at 28 February Year 1. PP&E note is not

required.

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EXERCISE FIFTY THREE

The following information relates to Odd Clothes Traders:

Balances from the Trial Balance as at 31 March Year 1:

Capital 600 000

Drawings 72 000
Petty Cash 2 000
Bank (favourable) 62 000
Investment (10% Fixed Deposit at Hand Bank) 280 000
Inventory: Consumables 12 000
Merchandise 56 000
Vehicles at cost 600 000
Equipment at cost 80 000
Accumulated depreciation: Vehicles 240 000
Equipment 8 000
Receivables Control 18 000
Payables Control 14 000
Sales 960 000
Cost of Sales 480 000
Administrative and General Expenses 160 000

ADDITIONAL INFORMATION

1. Included in sales is an amount of R20 000, received on 31 March Year 1,

being a deposit on an order to be completed during the next financial year.
2. The electricity account for the owner of R2 400 for March Year 1 was paid by
business cheque and must still be recorded.
3. The investment was made on 1 July Year 0. The interest must still be
recorded.
4. Cash to the amount of R15 000 was invested in the business on 31 March
Year 1. This must still be recorded in the books.

REQUIRED

Using the above information (NB: Notes to the financial statements are NOT
required):

1. Calculate the net profit/loss of Odd Clothes Traders for the year ended
31 March Year 1.
2. Prepare the Statement of Changes in Equity of Odd Clothes Traders for the
year ended 31 March Year 1.
3. Prepare the Statement of Financial Position of Odd Clothes Traders at
31 March Year 1.

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EXERCISE FIFTY FOUR

The Pre-adjustment Trial Balance of Greef Traders on 28 February Year 1, the end
of the financial year, is given. Greef Traders trade in stationery and is not a
registered VAT Vendor.
GREEF TRADERS
PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY Year 1
Capital 269 734
Drawings 20 316
Land & Buildings 250 000
Vehicles 180 000
Equipment 60 000
Accumulated Depreciation on Vehicles 125 000
Accumulated Depreciation on Equipment 19 200
Inventory (1 March Year 0) 25 410
Receivables Control 18 640
Allowance for Credit Losses 795
Loan: Union Bank (16% p.a.) 24 000
Fixed Deposit: BNS Bank (12% p.a.) 4 000
Bank 3 215
Petty Cash 100
Payables Control 26 330
Sales 611 790
Purchases 312 920
Sales Returns 2 340
Purchases Returns 5 246
Carriage on Purchases 2 615
Interest Income 240
Interest on Loan 4 000
Insurance 5 948
Credit Losses 1 320
Salaries & Wages 147 460
Rent Income 19 865
Stationery for office use 5 210
Packing Material 6 506
Depreciation 52 200
R1 102 200 R1 102 200

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ADJUSTMENTS AND ADDITIONAL INFORMATION

1. Inventory to the value of R750 was returned to suppliers on 28 February

Year 1. No entry was made for this transaction.

2. Stationery bought for use in the office, R375, was entered in the Purchases
Journal as Inventory by mistake. Correct the error.

3. Stationery from Inventory, cost price, R280, was donated to the local school
as part of their fund raising campaign. No entry was made for this.

4. A stock taking on 28 February Year 1 shows the following inventory on hand:

Inventory R22 986
Stationery (office use) R 810
Packing Material R 1 392

5. The Bank Statement for February Year 1 was received after the Trial Balance
had been drawn up. It showed the following:
Interest received on credit balance, R173
Unpaid cheque R450 (received from L Brydon in settlement of an account
of R500 and was dishonoured owing to insufficient funds).

6. D Ramp owes R140. Write off the account as irrecoverable and adjust the
allowance for credit losses to 4% of debtors.

7. Rent was received from the tenant for the period 1 March Year 0 to
31 March Year 1. Take into account that rent was increased by 10% on
1 September Year 0.

8. The fixed deposit was invested on 1 June Year 0. Make provision for interest
still owing.

9. R6 000 of the loan was repaid on 31 December Year 0. Make provision for
any interest still owing.

10. Insurance includes an annual premium of R2 976 paid on 1 July Year 0.

11. The bookkeeper had already written off depreciation on vehicles and
equipment. However he wrote off depreciation on vehicles at 25% p.a. on the
cost price instead of 25% p.a. on the carrying value. Correct the error.

REQUIRED

1. The Statement of Profit or Loss and other Comprehensive Income for the year
ended 28 February Year 1.
2. The Statement of Financial Position as at 28 February Year 1.

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EXERCISE FIFTY FIVE

You are provided with the pre-adjustment Trial Balance of BB Stationers at the end of
financial year:
BB STATIONERS
PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY YEAR 1
Capital 310 920
Drawings 96 400
Mortgage Loan: XX Bank 173 200
Land and Buildings 420 000
Vehicles 248 000
Accumulated Depreciation on Vehicles 93 800
Equipment 138 000
Accumulated Depreciation on Equipment 44 500
Fixed Deposit: XX Bank 45 230
Savings Account: XX Bank 8 320
Inventory (1 March Year 0) 122 800
Receivable Control 21 200
Allowance for Credit Losses 780
Bank 3 310
Petty Cash 500
Cash Float 750
Payable Control 217 060
Sales 800 500
Purchases 418 500
Sales Returns 9 200
Purchases Returns 2 760
Salaries and Wages 147 000
Advertising 6 650
Rent Income 41 600
Commission Income 52 460
Carriage on Purchases 5 500
Carriage on Sales 7 450
Credit Losses 1 220
Interest on Investments 4 070
Interest on Current Bank Account 380
Interest on Loan 19 200
Postage and Office Stationery 2 460
Packing Materials 8 740
Insurance 8 640
Sundry Expenses 2 960
R1 742 030 R1 742 030

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ADJUSTMENTS

1. Stationery was taken from the stock on the shop shelves for use in the office
at cost price, R560.

2. According to the physical count, the following were on hand at year-end:

Inventory R119 000 and Packing Material R1 900.

3. Advertising included an amount of R600 in respect of March Year 2.

4. Insurance included an amount of R750 that was paid for the period
1 September Year 1 to 31 August Year 2.

5. The rent includes rent for March Year 2.

6. Interest is still due on the fixed deposit for 2 months at 12% p.a. Interest must
be capitalised.

7. Commission income of R1 400 is owed to the business on 28 February

Year 1.

8. The telephone account for February Year 1 has not yet been paid, R375.
Telephone is regarded as a sundry expense.

9. Credit Losses of R180 are to be written off. Thereafter the Allowance for
Credit Losses is to be adjusted to 6% of the book debts.

10. A new vehicle was purchased on credit from XX Motor Dealers on

31 December Year 1 for R70 000. This entry has been recorded.

11. On 28 February Year 1 a piece of equipment with a cost price of R20 000 was
sold for cash for R15 000. The accumulated depreciation on this equipment,
when last depreciated was R6 000. No entries have been recorded in this
regard.

12. Depreciation is provided for as follows:

On equipment at 10% p.a. on cost price
On vehicles at 20% p.a. on the diminishing balance method.

REQUIRED

Prepare the 3 financial statements of BB Stationers, including the note for Property,
Plant and Equipment, after considering the adjustments.

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EXERCISE FIFTY SIX

You are provided with the pre-adjustment Trial Balance of Target Bargain Stores at
the end of financial year, 29 February Year 1.

TARGET BARGAIN STORES

PRE-ADJUSTMENT TRIAL BALANCE AS AT 29 FEBRUARY Year 1
BALANCE SHEET SECTION
Capital 545 000
Drawings 180 000
Equipment 173 400
Vehicles 186 000
Accumulated Depreciation on Equipment 44 900
Accumulated Depreciation on Vehicles 97 650
Fixed Deposit: Super Bank 80 000
Inventory 338 070
Trade Receivables 99 450
Bank 31 600
Petty Cash 3 800
Trade Payables 137 800
Short-term Loan: Super Bank 21 570
NOMINAL ACCOUNTS SECTION
Sales 965 180
Cost of Sales 356 000
Sales Returns 18 500
Salaries and Wages 269 260
Credit Losses 2 200
Rent Paid 79 800
Telephone 2 020
Interest on Fixed Deposit 8 000
R1 820 100 R1 820 100

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ADJUSTMENTS

1. A debtor cannot be found and an amount of R1 320 must be written off.

Create an Allowance of 5% of the debtor’s balance.

2. The February Year 1 telephone account of R1 400 is still outstanding and has
to be provided for.

3. Rent was paid for thirteen months, up to the end of March Year 1. The rental
per month was increased in January by 10%.

4. Interest on the Fixed Deposit at 15% p.a. has to be provided for the full year.
The Fixed Deposit will mature on 31 August Year 1.

5. Depreciation on equipment has to be provided for on the straight line method.

The equipment has an estimated lifespan of ten years. New equipment was
purchased on credit for R45 000 on 31 October Year 1. This equipment has a
scrap value of R5 000 and an estimated lifespan of 5 years.

6. Depreciation on vehicles has to be provided for on the diminishing balance

method at 15% p.a. A vehicle with a cost price of R86 000 and a book value
of R44 893 on 1 March Year 0, was traded in on 31 May Year 1 for R40 000.
A new vehicle was purchased on the same date for R110 000. (No entries
have been made for the disposal of the asset and the purchase of the new
vehicle.)

7. Interest of R5 000 must be provided on the short-term loan, which is

unsecured and repayable in full by 30 June Year 1.

8. The owner deposited an additional amount of R50 000 during the year.

REQUIRED

Prepare the 3 financial statements of Target Bargain Stores, including the note for
Property, Plant and Equipment, after considering the adjustments.

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TEST YOUR KNOWLEDGE

1. Which one of the following statements is true?

A all assets appear in the statement of financial position

B all non-current assets are tangible
C all tangible non-current assets are subject to depreciation
D costs in respect of land held for future development should never be
capitalised

2. Which one of the following statements is false?

A Merchandise consists of goods which is the property of the business and

which are intended for and ready for sale.
B The purpose for which goods are purchased is important in deciding
whether or not the item is an inventory item
C Machinery is usually a fixed asset and can never be classified as
merchandise
D Merchandise as it appears in the statement of financial position, will
always be classified as a current asset

3. Which statement is true: Non-current assets

A are bought at the onset of a business and never change

B are bought with the purpose of reselling them
C are expected to have a relatively long life
D need not directly contribute to the income of the firm

4. Which one of the following is false?

A If operating expenses are erroneously capitalised (entered on an asset

account) current income will be overstated and future income
understated.
B An asset account for motor vehicles is actually a control account.
C Depreciation is a periodic allocation process by which the cost of an asset
is systematically expensed.
D The carrying value of an asset is the difference between its cost and the
balance on the depreciation expense account

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Learning Unit 7
Chapter 13
Non-Trading Entities
Learning Objectives:
 Understand the nature of non-profit entities;
 Prepare Statement of Receipts and Payments;
 Prepare Annual Financial Statements.

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EXERCISE FIFTY SEVEN

The following information was extracted from TPP Tennis Club:

Balance Sheet items on 31 December Year 1
Accrued Income (membership fees) R360
Income Received in Advance (membership fees) R600
Cash received during the year ended 31 December Year 1:
Membership fees for Year 0 R120
Year 1 R10 680
Year 2 R750

At the end of Year 0 the club had 97 members and membership fees amounted to
R120 per year. The committee informed the members that as from the beginning of
Year 1 fees would be increased by R30 per year. Any fees outstanding for Year 0
must be written off and the members’ membership cancelled. Outstanding
membership fees for Year 1 needs to be calculated.

REQUIRED

1. Prepare the Membership Fees A/c of TPP Tennis Club for the year Year 1.

EXERCISE FIFTY EIGHT

Super Gold Club ends it financial year at the end of February each year. On
28 February Year 0, the membership fees of 5 members were received in advance
(at the new rate for membership fees) and that of 8 members were still outstanding
for Year 0. The membership fees for Year 0 were R150 and for Year 1, R180 per
member per annum.
During Year 1 membership fees received amounted to R21 720, including R1 200 in
respect of Year 0 and R1 080 in respect of Year 2. The membership fees of 7
members were still outstanding on 28 February Year 1.

REQUIRED

Prepare the Membership Fees A/c of Super Gold Club for the year ending
28 February Year 1.

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EXERCISE FIFTY NINE

The following information relates to Dolphin Diving Club:

BALANCE SHEET ITEMS AS AT 31 DECEMBER Year

0:
Membership fees in arrears R15 000
Membership fees prepaid R18 000

CASH TRANSACTIONS FOR THE YEAR ENDED 31 DECEMBER Year

1:
Membership fees: Year 0 R13 000
Year 1 R83 000
Year 2 R6 500

ADDITIONAL INFORMATION

1. Entrance fees must be capitalised.

2. Unpaid membership fees for Year 0 are irrecoverable.
3. The club has 200 members and membership fees amount to R500 per
member pa.
4. During the current year 20 new members joined the club.
5. Each paid their entrance fee of R50. These amounts were included in the
membership fees received.

REQUIRED

Prepare the membership fees account for the year ended 31 December Year 1 for
the Dolphin Diving Club, correctly closed off.

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EXERCISE SIXTY

The following information relates to Hubs Tennis Club:

ELECTED BALANCE SHEET ITEMS AT 30 JUNE Year 1 R
Inventory: Bar 16 000
Investment: LUD Bank at 12,5% p.a. 90 000
Membership fees in arrears 480
Bank balance (Cr) 4 620
Special fund: Tennis courts 90 000
Membership fees received in advance 600
Bar payables 825

RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 30 JUNE Year

1
RECEIPTS R
Entrance fees (to be capitalized) 1 300
Bar sales 57 000
Tournament income 72 920
Membership fees: Year 0 360
Year 1 22 920
Year 2 240
Fund: Tennis courts 60 000
Interest received on investments 13 125
Loan from Community Bank at 15% p.a. 90 000
PAYMENTS R
Maintenance of courts 17 500
Construction of courts 160 000
Investment: LUD Bank at 12,5% p.a. 60 000
Bar payables 1 255
Bar purchases (cash) 44 800

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ADDITIONAL INFORMATION

1. Bar inventory on hand at 30 June Year 1, R12 000.

2. Closing balance of Bar Payables at 30 June Year 1, R930
3. Depreciation on equipment for the year still to be provided for R8 500.
4. Membership fees in arrears at 30 June Year 1, R720.
5. The outstanding membership fees for Year 0 are to be written off as
irrecoverable.
6. The club keeps a separate bar trading account.
7. The additional legacy to the Special Fund: Tennis Courts was invested at
LUD Bank on 1 September 2012. The income from this fund may only be
used for maintenance of the tennis courts.

REQUIRED

Prepare the following for Hubs Tennis Club for the year ended 30 June Year 1:
1. The membership fees account
2. The calculation of the bar gross profit (or loss) for the year
3. The Statement of Profit or Loss for the year.
4. The Statement of Changes in Equity for the year ended 30 June Year 1.

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EXERCISE SIXTY ONE

The following information relates to the Pro Tennis Club:

STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Year 1:

Year 1 Year 0 Year 1 Year 0
R R R R
Land and buildings at cost 100 000 100 000 Accumulated fund Bal b/d 124 240 121 600
Vehicles at carrying value 21 600 24 000 Entrance fees 720 240
Equipment at carrying value 4 320 3 600 Surplus 2 304 2 400
Stock on hand: Loan: L Louw 2 400 4 800
Stationery 48 72 Sundry expenses in arrear 260 570
Cafeteria 310 230 Membership fees prepaid 480 150
Tennis balls 96 110 Water & Electricity due 220 --
Membership fees due 650 284
Bank 3 600 1 464
R130 624 R129 760 R130 624 R129 760

INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED

31 DECEMBER Year 1
R R
Wages 5 166 Donations 4 800
Honorarium: Secretary 600 Membership fees 8 112
Interest on loan 480 Cafeteria: Gross profit 3 985
Tennis balls 2 788
Stationery 384
Water & Electricity 2 031
Sundry expenses 264
Depreciation:
Vehicle 2 400
Equipment 480
Surplus 2 304
R16 897 R16 897

ADDITIONAL INFORMATION

The mark-up on cafeteria sales is 25% on cost.

REQUIRED

Prepare the Receipts and Payments Statement of Pro Tennis Club for the year
ended 31 December Year 1.

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EXERCISE SIXTY TWO

The following information relates to Beginners Whatsup Rugby Club, a non-trading

organisation.

TRIAL BALANCE AS AT 29 FEBRUARY Year 1

Accumulated Funds 61 100
Equipment 51 000
Accumulated Depreciation on Equipment 21 000
Land and Buildings 150 000
Investment with ABC Bank @ 12% interest 40 000
Bank 16 000
Trade Payables 2 000
Refreshments in Stock (1 March Year 0) 900
Loan: Up Bank @ 18% interest 150 000
Membership fees 27 800
Entrance Fees 4 000
Donation Received 13 800
Interest on Investment 4 400
Rent 9 600
Bank Charges 3 300
Water and Electricity 3 240
Stationery 1 170
Wages 10 400
Refreshments purchased 4 100
Insurance 3 000
Refreshments sold 8 610
R292 710 R292 710

ADDITIONAL INFORMATION
1. The membership fees are R100 per year per member.
2. At the beginning of the year, membership fees accrued amounted to R300
and those paid in advance came to R200. The club received a total of
R27 900 as membership fees over the year.
3. In March Year 0 two members paid their fees for the previous year and it was
decided to write off the fees still outstanding from the previous year.
5. At the end of the current year, ten members still owed the club their fees.
6. One member had paid his fees for the following year in advance.
7. According to the club’s constitution, the entrance fees received must be
capitalised.
8. Interest for Feb Year 1 on the investment with ABC Bank had not yet been
received.
9. Depreciation on equipment was calculated to be R1 500 for the year.
10. The bank loan with UP Bank was negotiated six months ago, and it was
agreed that the interest on the loan would be paid by half-yearly instalments.
11. The insurance includes an annual premium of R500 which was paid on
1 December Year 0.

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12. The water account for February was R200, but it had not yet been paid.
13. R1 500 was paid to an employee, as his March Year 1 wages, in February as
he was going on leave for the month of March.
14. The stock of refreshments on hand on 29 February Year 1 was R300.

REQUIRED

1. Prepare the Membership Fees Account.

2. Prepare the Income and Expenditure Statement of Beginners Whatsup Rugby
Club for the year ended 29 February Year 1.

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QUESTION SIXTY THREE

The following information pertains to the Dolphins Diving Club:

Extract from the list of balances as at 31 March Year 1:

Bar Purchases 120 000
Bar Inventory (1 April Year 0) 10 000
Bar Sales 200 000
Bar Wages 30 000
Crockery and linen at cost (1 April Year 0) 20 000
Furniture at cost price (1 April Year 0) 60 000
General Expenses 16 400
Diving Fees Received 67 800
Equipment at cost 48 000
Vehicles at cost 70 000
Accumulated depreciation (1 April Year 0) on:
Furniture 18 000
Equipment 9 600
Vehicles 10 000
Insurance in arrears (1 April Year 0) 1 200
Maintenance 40 200
Salaries and Wages 96 000
Stationery Consumed 12 0000
Membership Fees Received 202 000
Membership Fees in arrears (1 April Year 0) 30 000
Membership Fees prepaid (1 April Year 0) 40 000
Donation Received 4 000

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ADDITIONAL INFORMATION

1. Bar inventory at 31 March Year 1 amounted to R20 000.

2. At 31 March Year 1, the crockery and linen was valued at R6 000.

3. The total depreciation for the year on furniture, equipment and vehicles
amounted to R28 680 and must still be provided for.

4. Insurance premiums to the amount of R5 200 was paid during the year and
debited to the general expense account. An amount of R2 000 thereof was
prepaid insurance premiums.

5. The club had 190 members during the current financial year. Membership
fees amounts to R1 000 per member per annum. All of the members paid
their membership fees for the current year. R15 000 of the membership fees
in arrears on 1 April Year 0 must be written off as irrecoverable.

6. During the current year 20 new members joined the club. Each new member
paid an entrance fee of R100. The entrance fees which must be capitalised,
was erroneously recorded as membership fees received.

7. The salary of the club secretary of R3 000 for March Year 1 is still due and
must be provided for.

REQUIRED

Prepare the following for the Dolphins Diving Club:

1. The membership fees account for the year ended 31 March Year 1, properly
balanced.
2. The Statement of Profit or Loss for the year ended 31 March Year 1. (Show a
separate calculation for the gross profit of the bar.)

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Learning Unit 8
Chapter 19
Branch Accounting
Learning Objectives:
 Understand the centralised method of Branch Accounting
 Prepare the ledger accounts in the Books of the Head Office with regard to
Branch Inventory.

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EXERCISE SIXTY FOUR

The following information relates to Thulas Limited, a branch of Ludlow Limited:

1. Balances:
R
Inventory on hand
1 January Year 1 (at cost) 9 000
31 December Year 1 (at selling price) 9 600
2. Transactions during the year ended 31 December Year 1:
R
Goods to branch at selling price 126 000
Administrative expenses paid by head office 9 800
Credit sales 38 400
Cash sales 88 000
Goods returned to head office at cost 2 400
Rental paid by head office 4 000
Settlement discount granted to debtors 600
Damaged goods at cost 200
Cash sales embezzled 750

3. ADDITIONAL INFORMATION

3.1 Goods supplied to the branch are invoiced at selling price, which is cost plus
33.1/3% on selling price.
3.2 An amount of R1 650 included in cash sales was in respect of sales of goods
purchased locally by the branch. The mark-up on goods purchased locally is
50% on cost.
3.3 The loss of goods due to theft is estimated at R400 (at cost price).
3.4 During the year, the branch donated goods to the value of R240 (at selling
price) to a local charitable organisation.
3.5 During November Year 1 a “sale” was held to boost sales. Inventory was sold
at selling price less 40%. Proceeds amounted to R34 000 and is included in
the cash sales figure.
3.6 Inventory invoiced to Thulas Limited with a selling price of R12 000, included
in the amount of goods sent to Branch, is still in transit at the end of the
accounting period.

REQUIRED

The following accounts, properly balanced, for the year ended 31 December Year 1,
in the Books of the Head Office:
1. Branch Inventory Account
2. Goods to Branch Account
3. Branch Gross Profit Account
4. Branch Profit and Loss Account

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EXERCISE SIXTY FIVE

The following information relates to Knife, a dependent branch of Sharp Ltd:

1. Balances

Inventory (stock) on hand (selling price) on: R

1 January Year 1 38 040
31 December Year 1 49 370

2. Transactions during the year ended 31 December Year 1

Goods send to branch (cost price) 303 120

Returns to head office (selling price) 1 585
Cash sales (deposited) 116 760
Credit sales 175 920
3. ADDITIONAL INFORMATION

3.1 Goods are supplied to the branch by the head office at selling price. The mark
up added to cost equals 20% on the selling price.

3.2 An amount of R1 305 was embezzled from the money received for cash
sales. No entry in this respect has been made. The company is not insured
against theft of cash.

3.3 An annual sale took place at the end of November Year 1. Goods were sold
at selling price less 30%. The proceeds from the annual sale amounted to
R50 400, which must still be deposited in the head office’s bank account.

REQUIRED

The following accounts, properly balanced, for the year ended 31 December Year 1,
in the Books of the Head Office:

1. Branch Inventory Account

2. Goods to Branch Account
3. Branch Gross Profit Account
4. Branch Profit and Loss Account

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EXERCISE SIXTY SIX

The following information relates to the Johannesburg branch of Reedbok Limited:

1. Transactions during the year ended 31 March Year 1:

R
Deliveries to branch at selling price 208 750
Returns to head office at selling price 970
Cash sales - amount deposited 107 420
Credit sales 92 730
Credit Losses written off 600
Goods returned by receivables at selling price 1 375
Administrative and selling expenses paid by head office 20 160
Credit Losses recovered 240

2. ADDITIONAL INFORMATION:

2.1 Goods are purchased by the head office and supplied to the branch at selling
price, i.e. cost plus 25%.

2.2. Inventory on hand at selling price:

1 April Year 1 R23 100

31 March Year 1 R30 550

2.3 Goods invoiced to the branch of R630, included in the amount of R208 750,
were still in transit at 31 March Year 1.

2.4 Goods to the value R500 (cost) and R300 cash (cash sales) were stolen
during a burglary.

REQUIRED

The following account, properly balanced, for the year ended 31 March Year 1, in the
Books of the Head Office:

1. Branch Inventory Account

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IIE Module Work Book FIAC5111

EXERCISE SIXTY SEVEN

TWO BRANCHES

The following information relates to the Rolle and Casteel Branches of Batigol
Limited:

1. Transactions for the year ended 31 December Year 1:

Rolle Casteel
Goods sent to branch at cost 102 600 140 620
Goods returned to head office at selling price 9 445 3 750
Net cash sales 50 450 102 400
Credit sales 78 750 93 000
Cash transferred to head office 30 000 78 500
Payments by receivables 58 275 101 700
Returns by receivables 7 504 4 100
Credit Losses written off 1 200 1 650

2. ADDITIONAL INFORMATION

2.1. All goods are purchased by head office. The goods are supplied to the Rolle
branch at cost price plus 25% and to the Casteel branch at a mark-up which
equals 20% on selling price.
2.2. Inventory on hand at selling price:
At 31 Dec Year 0 At 31 Dec Year 1
R R
Rolle 31 500 22 400
Casteel 36 000 21 200

2.3 During August Year 1 a cash sale was held at the Rolle Branch where goods
were sold at selling price less 20%. Net sales from the sale amounted to
R7 520. This amount is included in the cash sales of the branch.

2.4. When checking its records, the head office ascertained that goods with a cost
price of R4 500 forwarded to the Casteel branch on 31 December Year 1
were inadvertently invoiced to the Rolle branch. This error must be corrected.

REQUIRED

The following account, properly balanced, for the year ended 31 December Year 1, in
the Books of the Head Office:
1. Branch Inventory Account
2. Calculate of the mark up on cost for the Casteel branch

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EXERCISE SIXTY EIGHT

TWO BRANCHES

The following information relates to the Johannesburg and Pretoria Branches of Bach
Limited:

1. Transactions for the year ended 29 February Year 1:

Jo’burg Pretoria
Goods sent to branch at cost 68 400 93 750
Goods returned to head office at selling price 6 300 2 500
Cash sales (net) 20 288 64 200
Credit sales 52 500 62 000
Cash transferred to head office 45 000 117 750
Payments by receivables 38 850 67 800
Returns by receivables 3 752 4 100

2. ADDITIONAL INFORMATION:

2.1 All goods are purchased by the head office. The goods are supplied to the
Johannesburg branch at cost price plus 33⅓% and to the Pretoria branch at a
mark up on cost which equals 25% on selling price.
2.2. Stock on hand at selling price:
1 March Year 1 28 Feb Year 1
Johannesburg 21 000 33 600
Pretoria 24 000 26 500
2.3 During October Year 1, a cash sale was held at the Johannesburg branch
where goods were sold at selling price less 20%. Net sales from the sale
amounted to R3 760. This amount is included in the cash sales of the branch.
2.4 On 31 December Year 1, the Pretoria branch transferred goods with a selling
price of R900 to the Johannesburg branch.
2.5 When checking its records, the head office ascertained that goods with a cost
price of R2 250 forwarded to the Pretoria branch on 28 February Year 1 were
inadvertently invoiced to the Johannesburg branch. This error must be
corrected.

REQUIRED

1. The branch inventory

2. The branch gross profit or loss account

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EXERCISE SIXTY NINE

The following information relates to the Durban branch of Twig Limited:

1. Balances:

1.1 Stock (selling price) on hand at:

30 June Year 0 38 640
30 June Year 1 36 000
1.2 Receivables: 30 June Year 0 R51 120

2. Transactions for the year ended 30 June Year 1:

R
Goods sent to the branch at selling price 506 880
Returns to head office at selling price 4 560
Cash sales 195 360
Credit sales 293 760
Cash received from receivables 271 440
Expenses paid by head office 40 680

1. ADDITIONAL INFORMATION

3.1 Goods are purchased by the head office and supplied to the branch at selling
price, i.e. cost plus 33⅓%
3.2 A burglary took place during the year and goods to the value of R1 440
(selling price) were stolen. Included in cash sales is an amount of R960
received from the insurance company in full settlement of Twig’s claim.
3.3 Cash sales totalling R720 were embezzled during the year. This amount is
not included in the cash sales.
3.4 During November Year 0, the branch’s annual sale took place and all goods
were sold at selling price less 20%. The total proceeds of the sale amounted
to R57 600 and is included in the cash of sales.

REQUIRED

The following ledger accounts in the books of Twig Limited, properly balanced at :

1. Branch Inventory Account

2. Branch Gross Profit Account
3. Branch Profit and Loss Account
4. Branch Receivables Account

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Assessments

Integrated Curriculum Engagement (ICE)

Minimum number of ICE activities to complete 4
Weighting towards the final module mark 10%

Tests/ Examination Test 1 Test 2 Examination

Weighting 20% 20% 50%
Duration 1 hour 1 hour 3 hours
Total marks 60 60 180
Open/ closed book Closed Closed Closed
Resources required Calculator Calculator Calculator
Learning Units covered SU 1 & 2 SU 3, 4 & 5 SU 1 - 7

Assessment Preparation Guidelines

Format of the Assessment Preparation Hints
(The Focus/ Approach/ (How to Prepare, Resources to
Objectives) Use, etc.)
Tests and The tests and exam will To prepare effectively for the
Examination comprise of theory and assessments you can include the
application of theory (practical) following in your preparation:
questions involving calculations.  Ensure that you work through
Theory-based questions will all the examples and
consist of a variety of formats, questions in your textbook.
such as Match-the-Column  Revision exercises in the
questions, multiple choice module guide.
questions, short questions, and/  Check if you are confident
or paragraph questions. that you could answer
However, the majority of questions relating to all of the
questions will test the Learning Objectives for the
application of theory and will be Learning Units tested.
practical questions with  Work through Mock
calculations. Assessments or previous
assessments.

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Reference List
Doussy, F., Jansen van REnsburg, J.S., Ngcobo, R.N., Rehwinkel, A., Scheepers, D.
and Scott, D. 2014. About Financial Accounting. 5th ed. Pietermaritzburg: LexisNexis.

The South African Institute of Chartered Accountants [ZA]. Year 1. About. [Online].
Available at: https://www.saica.co.za/About/tabid/56/language/en-ZA/Default.aspx
[Accessed 29 September 2016].

Exercises have been adapted from exercises produced by UNISA and University of
the Free State.

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