QUESTION 1 (20 Marks) REQUIRED Use the information provided below to prepare the Statement of Comprehensive Income for the year ended 28 February 2022. INFORMATION The trial balance, adjustments and additional information given below were extracted from the accounting records of Whetstone Stores on 28 February 2022, the end of the financial year. WHETSTONE STORES PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2022 Debit (R) Credit (R) Balance sheet accounts section Capital 3 759 100 Drawings 310 000 Land and buildings 2 840 000 Vehicles at cost 2 100 000 Equipment at cost 1 500 000 Accumulated depreciation on vehicles 1 200 000 Accumulated depreciation on equipment 840 000 Investment: Med Bank (8 % p.a.) 450 000 Debtors control 444 000 Provision for bad debts 22 000 Bank 602 700 Creditors control 418 000 Loan: Med Bank (18% p.a.) 750 000 Nominal accounts section Sales 5 600 000 Opening stock 200 000 Purchases 2 150 000 Purchases returns 118 000 Sales returns 60 000 Salaries and wages 1 234 000 Bad debts 42 000 Stationery 68 000 Rates and taxes 178 000 Motor expenses 300 000 Repairs and maintenance 52 000 Telephone 100 000 Electricity and water 150 000 Bank charges 18 000 Advertising 194 000 Interest on mortgage loan 130 000 Interest on investment 32 000 Rent income 383 600 13 122 700 13 122 700 Adjustments and additional information 1. According to stocktaking done on 28 February 2022, the following were on hand: 1.1 Trading inventory R240 000 1.2 Stationery R6 000. 2. A debtor who was declared insolvent paid R4 200, which represented 60% of the amount owed, to Whetstone Stores. The amount that was received has been recorded but the rest of his account must now be written off. 3. The provision for bad debts must be adjusted to R20 000. 4. Interest is outstanding on the investment, which was made on 01 February 2021. The maturity date is 31 July 2022. 5. The long-term loan from Med Bank was obtained on 01 March 2021. A repayment of R100 000 was made and recorded on 31 August 2021. Provide for the outstanding interest. Interest is not capitalised. 6. An account for R2 000 to replace broken window panes has been received. This has not been recorded and payment was due to be made during March 2022. 7. The advertising amount includes a contract for R30 000, in respect of monthly advertisements of equal value, that was taken for the period 01 December 2021 to 31 May 2022. 8. Rent has been received for the period 01 March 2021 to 31 March 2022. Note: Rent was increased by 10% with effect from 01 September 2021. 9. The telephone account for February 2022 was due to be paid on 02 March 2022, R10 000. 10. Provide for depreciation as follows: 10.1 On vehicles at 20% p.a. on the diminishing balance. 10.2 On equipment at 10% p.a. on cost
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.
QUESTION 1 (20 Marks)
REQUIRED
Use the information provided below to prepare the Statement of Comprehensive Income for the year ended
28 February 2022.
INFORMATION
The
records of Whetstone Stores on 28 February 2022, the end of the financial year.
WHETSTONE STORES
PRE-ADJUSTMENT TRIAL BALANCE AS AT 28 FEBRUARY 2022
Debit (R) Credit (R)
Balance sheet accounts section
Capital 3 759 100
Drawings 310 000
Land and buildings 2 840 000
Vehicles at cost 2 100 000
Equipment at cost 1 500 000
Accumulated
Accumulated depreciation on equipment 840 000
Investment: Med Bank (8 % p.a.) 450 000
Debtors control 444 000
Provision for
Bank 602 700
Creditors control 418 000
Loan: Med Bank (18% p.a.) 750 000
Nominal accounts section
Sales 5 600 000
Opening stock 200 000
Purchases 2 150 000
Purchases returns 118 000
Sales returns 60 000
Salaries and wages 1 234 000
Bad debts 42 000
Stationery 68 000
Rates and taxes 178 000
Motor expenses 300 000
Repairs and maintenance 52 000
Telephone 100 000
Electricity and water 150 000
Bank charges 18 000
Advertising 194 000
Interest on mortgage loan 130 000
Interest on investment 32 000
Rent income 383 600
13 122 700 13 122 700
Adjustments and additional information
1. According to stocktaking done on 28 February 2022, the following were on hand:
1.1 Trading inventory R240 000
1.2 Stationery R6 000.
2. A debtor who was declared insolvent paid R4 200, which represented 60% of the amount owed, to
Whetstone Stores. The amount that was received has been recorded but the rest of his account must
now be written off.
3. The provision for bad debts must be adjusted to R20 000.
4. Interest is outstanding on the investment, which was made on 01 February 2021. The maturity date is
31 July 2022.
5. The long-term loan from Med Bank was obtained on 01 March 2021. A repayment of R100 000 was
made and recorded on 31 August 2021. Provide for the outstanding interest. Interest is not
capitalised.
6. An account for R2 000 to replace broken window panes has been received. This has not been
recorded and payment was due to be made during March 2022.
7. The advertising amount includes a contract for R30 000, in respect of monthly advertisements of equal
value, that was taken for the period 01 December 2021 to 31 May 2022.
8. Rent has been received for the period 01 March 2021 to 31 March 2022. Note: Rent was increased
by 10% with effect from 01 September 2021.
9. The telephone account for February 2022 was due to be paid on 02 March 2022, R10 000.
10. Provide for depreciation as follows:
10.1 On vehicles at 20% p.a. on the diminishing balance.
10.2 On equipment at 10% p.a. on cost
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