Prepare the Statement of Comprehensive Income of Royal Traders for the year ended 28 February 2021. INFORMATION The trial balance, adjustments and additional information given below were extracted from the accounting records of Royal Traders on 28 February 2021, the end of the financial year. ROYAL TRADERS PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2021 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 and wages 178 000 Bad debts 2 000 Stationery 4 000 Rent expense 42 880 Motor expenses 34 000 Bad debts recovered 2 000 Telephone 14 000 Electricity and water 24 000 Bank charges 6 000 Insurance 12 000 Interest on mortgage loan 26 400 Commission income 10 000 Adjustments and additional information 1. According to the physical stocktaking completed on 28 February 2021, the following inventories were on hand: 1.1 Trading inventory, R136 000 1.2 Stationery, R600. 2. An account received from Airtel Fitters on 28 February 2021 for the installation of an air conditioning unit in one of the vehicles was debited to the motor expenses account in error, R6 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 R6 000. 4. An electronic funds transfer for R1 330 was made to Royal Traders on 28 February 2021 from 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 R3 000. 6. The telephone account for February 2021 was due to be paid on 02 March 2021, R1 400. 7. Rent expense has been paid up to 31 March 2021. Note: The rental was increased by 10% with effect from 01 December 2020. Make the necessary adjustment. 8. Interest on loan for February 2021 has not been paid, 9. The insurance total includes an annual premium of R4 800 that was paid for the period 01 June 2020 to 31 May 2021. 10. Cash deposit fees of R600 that appeared in the February 2021 bank statement were left out in error when the cash journals for February 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 R20 000 was purchased on 01 September 2020. The purchase has been recorded. 11.2 On vehicles at 20% per annum on the diminishing balance.
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.
Prepare the Statement of Comprehensive Income of Royal Traders for the year ended 28
February 2021.
INFORMATION
The
Royal Traders on 28 February 2021, the end of the financial year.
ROYAL TRADERS
PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2021
Balance sheet accounts section
Capital 301 000
Drawings 134 720
Vehicles at cost 360 000
Equipment at cost 240 000
Accumulated depreciation on equipment 62 000
Trading inventory 140 000
Debtors control 62 000
Provision for
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 and wages 178 000
Bad debts 2 000
Stationery 4 000
Rent expense 42 880
Motor expenses 34 000
Bad debts recovered 2 000
Telephone 14 000
Electricity and water 24 000
Bank charges 6 000
Insurance 12 000
Interest on mortgage loan 26 400
Commission income 10 000
Adjustments and additional information
1.
According to the physical stocktaking completed on 28 February 2021, the following inventories were on hand:
1.1 Trading inventory, R136 000
1.2 Stationery, R600.
2. An
of the vehicles was debited to the motor expenses account in error, R6 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 R6 000.
4. An electronic funds transfer for R1 330 was made to Royal Traders on 28 February 2021 from 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 R3 000.
6. The telephone account for February 2021 was due to be paid on 02 March 2021, R1 400.
7. Rent expense has been paid up to 31 March 2021. Note: The rental was increased by 10% with effect from
01 December 2020. Make the necessary adjustment.
8. Interest on loan for February 2021 has not been paid,
9. The insurance total includes an annual premium of R4 800 that was paid for the period 01 June 2020 to 31
May 2021.
10. Cash deposit fees of R600 that appeared in the February 2021 bank statement were left out in error when the
cash journals for February 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 R20 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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