bookkeeper resigned unexpectedly and Mr Gumede found that the financial statements for the year ended 28 February 2019 were incomplete. He requires your assistance in completing them. The pre-adjustment trial balance, adjustments and additional information that were extracted from the accounting records as at 28 February 2019 are presented below.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
P. Gumede is the proprietor of PG Stores. He commenced trading on 01 March 2017. At the end of
the second year of trading, his bookkeeper resigned unexpectedly and Mr Gumede found that the
financial statements for the year ended 28 February 2019 were incomplete.
He requires your assistance in completing them. The pre-adjustment
additional information that were extracted from the accounting records as at 28 February 2019 are
presented below.
REQUIRED
Complete the financial statements (that appear after the adjustments and additional information)
with the missing amounts and details. The entire statements must be submitted. Where applicable,
show your workings in brackets.
Note: The notes to the financial statements and Statement Of Changes In Equity are not required.
INFORMATION
PG STORES
PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2019
Debit (R) Credit (R) Balance sheet accounts section Capital 870 700 Drawings 234 000 Land and buildings 608 700 Vehicles at cost 275 000 Equipment at cost 203 000 Accumulated
ADJUSTMENTS AND ADDITIONAL INFORMATION
1. No entry was made for trading inventory that was taken by the proprietor for his personal use,
R2 000.
2. Inventories on 28 February 2019 according to physical stocktaking were as follows:
2.1 Trading inventory R135 000
2.2 Stationery R2 000
3. The telephone account of R1 000 for February 2019 was erroneously paid twice, on 25 February
2019 and 27 February 2019.
4. Rent has been received up to 31 January 2019.
5. A debtor, P. Peter, was declared insolvent. On 28 February 2019, his insolvent estate paid a first
and final dividend of 60 cents in the Rand. An amount of R1 800 was received and recorded.
The balance of his account must now be written off.
6. The provision for bad debts must be increased by R1 000.
7. The insurance total includes an amount of R7 200 that was paid for the period 01 November
2018 to 31 October 2019.
8. Interest on loan for February 2019 has not yet been paid. Interest is not capitalised.
Note: A repayment of R18 000 (excluding interest) is expected to be made in March 2019 to
reduce the loan balance.
9. Depreciation must be brought into account each year as follows:
9.1 On vehicles at 20% per annum using the diminishing balance method.
9.2 On equipment at 15% per annum on cost. Note: Equipment with a cost price of R20 000 was
purchased and recorded on 01 December 2018.
REFER TO THE INCOMPLETE FINANCIAL STATEMENTS THAT FOLLOW AND FILL IN THE MISSING
AMOUNTS AND DETAILS. WHERE APPLICABLE, SHOW YOUR WORKINGS IN BRACKETS.
HIGHLIGHT YOUR ANSWERS FOR THE MISSING AMOUNTS OR SHOW THEM IN BOLD PRINT.
PG STORES
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2019
R
Sales ?
Cost of sales (700 000)
Gross profit ?
Other operating income ?
Rent income ?
Discount received 2 000
Gross operating income ?
Operating expenses ?
Wages 123 000
Bank charges 4 000
Packing materials 37 000
Advertising 18 000
Rates 7 000
Bad debts ?
Discount allowed 1 000
Stationery ?
Water and electricity 9 000
Insurance ?
Telephone ?
?
?
?
?
Operating profit ?
Interest income 0
Interest expense ?
Net profit for the year ?
PG STORES
ASSETS R
Non-current assets ?
Property, plant and equipment ?
Current assets ?
Inventories ?
Trade and other receivables ?
Trade debtors ?
Provision for bad debts ?
Prepaid expenses ?
Accrued income ?
Cash and cash equivalents 6 000
Bank 4 000
Cash float 1 500
Petty cash 500
Total assets ?
EQUITY AND LIABILITIES
Equity
Capital ?
Non-current liabilities ?
Loan: Tek Bank ?
Current liabilities ?
Trade and other payables ?
Creditors control 60 000
Income received in advance ?
Accrued expenses ?
?
Total equity and liabilities ?
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