Prepare the Statement of Comprehensive Income of Royal Traders for the year ended 28 February 2021 Information The trail balance, adjustments and additional information given below were extracted from the accounting records of Royal Traders on 28 Feb 2021, the end of the financial year. Royal Traders Pre-adjustment Trail Balance as at 28 Feb 2021 Debit (R) Credit (R) BALANCE SHEET ACCOUNTS SECTION Capital 301 000 Drawings 134 720 Vehicles at cost 360 000 Equipment at cost 240 000 Accumulated depreciation on vehicles 186 000 Accumulated depreciation on equipment 62 000 Trading inventory 140 000 Debtors control 62 000 Provision for bad debts 8 000 Bank 42 800 Cash float 1 000 Creditors control 82 800 Mortgage loan: Leo Bank (18% p.a.) 160 000 NOMINAL ACCOUNTS SECTION Sales 1 000 000 Cost of sales 480 000 Sales returns 8 000 Salaries & wages 178 000 Bad Debts 2 000 Stationery 4 000 Rent expenses 42 880 Motor expenses 34 000 Bad debts recovered 2 000 Telephone 14 000 Electricity & water 24 000 Bank charges 6 000 Insurance 12 000 Interest on mortgage loan 26 400 Commission income 10 000 1 811 800 1 811 800 Adjustments and additional information: 1 According to the physical stocktaking completed on 28 Feb 2021, the following inventories were on hand: 1.1 Trading inventory, $136 000 1.2 Stationery, $600 2 An account received from Airtel Fitters on 28 Feb 21 for the installation of an air conditioning unit in one of the vehicles was debited to the motor expenses account in error, $6 000 3 No entry has been made for interest at 12% p.a. that was charged for two months on the overdue account of a debtor who owed $6 000 4 An electronic funds transfer for $1 330 was made to Royal Traders on 28 Feb 2021 form a debtor, after a settlement discount of 5% was deducted. No entries have been made for this transaction. 5 The provision for bad debts must be decreased to $3 000 6 The telephone account for Feb 2021 was due to be paid on 02 March 2021, $1 400 7 Rent expenses has been paid up to 31 March 2021. NOTE: The rental was increased by 10% with effect from 1 Dec 2020. Make the necessary adjustment. 8 Interest on loan for Feb 2021 has not been paid. 9 The insurance total includes an annual premium of $4 800 that was paid for the period 01 June 2020 to 31 May 2021. 10 Cash deposit fees of $600 that appeared in the Feb 2021 bank statement were left out in error when the cash journals for Feb 2021 were prepared and posted. 11 Provide for depreciation as follows: 11.1 On equipment at 10% per annum on cost. NOTE: Equipment that cost $20 000 was purchased on 01 September 2020. The purchase has been recorded. 11.2 On vehicles at 20% per annum on the diminishing balance.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Prepare the Statement of Comprehensive Income of Royal Traders for the year ended 28 February 2021
Information
The trail balance, adjustments and additional information given below were extracted from the accounting records of Royal Traders on 28 Feb 2021, the end of the financial year.
Royal Traders Pre-adjustment Trail Balance as at 28 Feb 2021
| Debit (R) | Credit (R) | |
| BALANCE SHEET ACCOUNTS SECTION | ||
| Capital | 301 000 | |
| Drawings | 134 720 | |
| Vehicles at cost | 360 000 | |
| Equipment at cost | 240 000 | |
| 186 000 | ||
| Accumulated depreciation on equipment | 62 000 | |
| Trading inventory | 140 000 | |
| Debtors control | 62 000 | |
| Provision for |
8 000 | |
| Bank | 42 800 | |
| Cash float | 1 000 | |
| Creditors control | 82 800 | |
| Mortgage loan: Leo Bank (18% p.a.) | 160 000 | |
| NOMINAL ACCOUNTS SECTION | ||
| Sales | 1 000 000 | |
| Cost of sales | 480 000 | |
| Sales returns | 8 000 | |
| Salaries & wages | 178 000 | |
| Bad Debts | 2 000 | |
| Stationery | 4 000 | |
| Rent expenses | 42 880 | |
| Motor expenses | 34 000 | |
| Bad debts recovered | 2 000 | |
| Telephone | 14 000 | |
| Electricity & water | 24 000 | |
| Bank charges | 6 000 | |
| Insurance | 12 000 | |
| Interest on mortgage loan | 26 400 | |
| Commission income | 10 000 | |
| 1 811 800 | 1 811 800 | |
Adjustments and additional information:
1 According to the physical stocktaking completed on 28 Feb 2021, the following inventories were on hand:
1.1 Trading inventory, $136 000
1.2 Stationery, $600
2 An account received from Airtel Fitters on 28 Feb 21 for the installation of an air conditioning unit in one of the vehicles was debited to the motor expenses account in error, $6 000
3 No entry has been made for interest at 12% p.a. that was charged for two months on the overdue account of a debtor who owed $6 000
4 An electronic funds transfer for $1 330 was made to Royal Traders on 28 Feb 2021 form a debtor, after a settlement discount of 5% was deducted. No entries have been made for this transaction.
5 The provision for bad debts must be decreased to $3 000
6 The telephone account for Feb 2021 was due to be paid on 02 March 2021, $1 400
7 Rent expenses has been paid up to 31 March 2021. NOTE: The rental was increased by 10% with effect from 1 Dec 2020. Make the necessary adjustment.
8 Interest on loan for Feb 2021 has not been paid.
9 The insurance total includes an annual premium of $4 800 that was paid for the period 01 June 2020 to 31 May 2021.
10 Cash deposit fees of $600 that appeared in the Feb 2021 bank statement were left out in error when the cash journals for Feb 2021 were prepared and posted.
11 Provide for depreciation as follows:
11.1 On equipment at 10% per annum on cost.
NOTE: Equipment that cost $20 000 was purchased on 01 September 2020. The purchase has been recorded.
11.2 On vehicles at 20% per annum on the diminishing balance.
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