Midway Traders is owned by Mr K. Rabada. His accountant, Mr V. Philander, prepared the Statement of Comprehensive Income for the year ended 29 February 2020. However he unexpectedly fell ill and was unable to prepare the remaining financial statements. Mr K. Rabada requires your assistance in preparing the Statement of Financial Position. The net profit, pre-adjustment trial balance, adjustments and additional information from accountant’s records as at 29 February 2020 were retrieved and are presented below. MIDWAY TRADERS PRE-ADJUSTMENT TRIAL BALANCE AS AT 29 FEBRUARY 2020 Debit (R) Credit (R) Balance sheet accounts section Capital 1 656 600 Drawings 134 200 Land and buildings 1 254 900 Vehicles at cost 945 000 Equipment at cost 650 000 Accumulated depreciation on vehicles 528 000 Accumulated depreciation on equipment 365 200 Fixed deposit: Pep Bank (8% p.a.) 198 000 Trading inventory 155 000 Debtors control 176 600 Provision for bad debts 9 900 Bank 137 800 Creditors control 184 800 Mortgage loan: Pep Bank (20% p.a.) 330 000 Nominal accounts section Sales 2 070 000 Cost of sales 794 000 Sales returns 13 000 Salaries and wages 587 000 Bad debts 18 000 Stationery 30 000 Rates and taxes 58 000 Motor expenses 32 000 Advertising 23 000 Telephone 44 000 Electricity and water 66 000 Bank charges 8 000 Insurance 10 000 Interest on fixed deposit 14 000 Rent income 176 000 5 334 500 5 334 500 ADJUSTMENTS AND ADDITIONAL INFORMATION 1. 1.1 1.2 Physical stocktaking on 29 February 2020 showed the following inventories: Trading inventory R150 000; Stationery R3 000. 2. Write off the account of debtor, R. Smith, R2 000. 3. The provision for bad debts must be increased by R1 000. 4. Rent income amounts to R16 000 per month. Make the necessary adjustment. 5. The water and electricity account for February 2020 was due to be paid on 02 March 2020, R11 000. 6. Rates and taxes include an amount of R15 000 that was paid for the period 01 January 2020 to 31 March 2020. 7. An amount of R800 appeared in the February 2020 bank statement for bank charges. This transaction was not recorded. 8. The investment in fixed deposit was made on 01 March 2019 and matures on 31 August 2020. Make the necessary adjustment for the interest. 9. The loan from Pep Bank was obtained on 01 February 2020. Provide for the outstanding interest. Interest is not capitalised. Note: Loan repayments during the next financial year are expected to total R50 000. 10. Provide for depreciation as follows: 10.1 On equipment at 10% p.a. on cost. 10.2 On vehicles at 20% p.a. using the diminishing balance method. 11. The net profit, according to the Statement of Comprehensive Income for the year ended 29 February 2020, amounted to R429 140 after the above adjustments and additional information were taken into account.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Midway Traders is owned by Mr K. Rabada. His accountant, Mr V. Philander, prepared the
Statement of Comprehensive Income for the year ended 29 February 2020. However he
unexpectedly fell ill and was unable to prepare the remaining financial statements.
Mr K. Rabada requires your assistance in preparing the
profit, pre-adjustment
records as at 29 February 2020 were retrieved and are presented below.
MIDWAY TRADERS
PRE-ADJUSTMENT TRIAL BALANCE AS AT 29 FEBRUARY 2020
Debit (R) Credit (R)
Balance sheet accounts section
Capital 1 656 600
Drawings 134 200
Land and buildings 1 254 900
Vehicles at cost 945 000
Equipment at cost 650 000
Accumulated depreciation on equipment 365 200
Fixed deposit: Pep Bank (8% p.a.) 198 000
Trading inventory 155 000
Debtors control 176 600
Provision for
Bank 137 800
Creditors control 184 800
Mortgage loan: Pep Bank (20% p.a.) 330 000
Nominal accounts section
Sales 2 070 000
Cost of sales 794 000
Sales returns 13 000
Salaries and wages 587 000
Bad debts 18 000
Stationery 30 000
Rates and taxes 58 000
Motor expenses 32 000
Advertising 23 000
Telephone 44 000
Electricity and water 66 000
Bank charges 8 000
Insurance 10 000
Interest on fixed deposit 14 000
Rent income 176 000
5 334 500 5 334 500
ADJUSTMENTS AND ADDITIONAL INFORMATION
1.
1.1
1.2
Physical stocktaking on 29 February 2020 showed the following inventories:
Trading inventory R150 000;
Stationery R3 000.
2. Write off the account of debtor, R. Smith, R2 000.
3. The provision for bad debts must be increased by R1 000.
4. Rent income amounts to R16 000 per month. Make the necessary adjustment.
5. The water and electricity account for February 2020 was due to be paid on 02 March 2020,
R11 000.
6. Rates and taxes include an amount of R15 000 that was paid for the period
01 January 2020 to 31 March 2020.
7. An amount of R800 appeared in the February 2020 bank statement for bank charges. This
transaction was not recorded.
8. The investment in fixed deposit was made on 01 March 2019 and matures on
31 August 2020. Make the necessary adjustment for the interest.
9. The loan from Pep Bank was obtained on 01 February 2020. Provide for the outstanding
interest. Interest is not capitalised. Note: Loan repayments during the next financial year are
expected to total R50 000.
10. Provide for depreciation as follows:
10.1 On equipment at 10% p.a. on cost.
10.2 On vehicles at 20% p.a. using the diminishing balance method.
11. The net profit, according to the Statement of Comprehensive Income for the year ended
29 February 2020, amounted to R429 140 after the above adjustments and additional
information were taken into account.
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