Errata to Fundamental Accounting (6 th edition Revised Reprint ISBN )

Transcription

1 Errata to Fundamental Accounting (6 th edition Revised Reprint ISBN ) These changes must be read in conjunction to the textbook. It refers to changes in the individual chapters and pages noted. The red text indicates changes to the original text. Read the instructions carefully to apply these changes. The errata and the fully-updated Chapter 16 are also available on the Juta website. See: CHAPTER 1 1. Refer to page 1-7. Change the second last sentence under the heading Close corporation with the following: Presentation of the financial statements of a close corporation is regulated by the Close Corporations Act 69 of 1984 section 58(2)(b). 2. Refer to page Change Question 1.5 as CHAPTER 2 List three users (both internal and external) who might be interested in accounting information. Explain why they would require such information. 1. Refer to page 2-8. Delete the second bullet point under the heading Knowledge. CHAPTER 3 1. Refer to page 3-6. Change the sentence under the heading Investments in Figure 3.1 as Investments are shown at cost, less allowances and amounts written off, and their results dividends are received. 1

2 2. Refer to page 3-7. Change the second paragraph under the heading 5 Qualitative characteristics of financial reports as An authoritative study... considered to be the most up to date and comprehensive. The IFRS Conceptual Framework is consistent with this. Two overriding qualitative characteristics were isolated: 1. Relevance 2. Faithful representation Change the heading Reliability to Faithful representation Change the first sentence under this heading as Faithful representation is defined as the quality of information that ensures and faithfully purports to represent. Change the first paragraph under the heading Other qualities as Having established that relevance and faithful representation are the two most fundamental qualitative characteristics, a number of less important qualities were identified. They include comparability, timeliness, understandability and verifiability. 3. Refer to page 3-7 and 3-8. Change the last sentence on page 3-7 leading to page 3-8 as The IFRS Conceptual Framework defines the three elements of a statement of financial position as: 4. Refer to page Change the third last paragraph under the heading 8 Summary as For information to have value to the user, it should possess certain qualitative characteristics; that of relevance and faithful representation are the most fundamental. 2

3 5. Refer to page Change Question 3.5 as CHAPTER 4 List the qualitative characteristics to that a set of financial statements should comply according to the IFRS Conceptual Framework. 1. Refer to page 4-3. Change the third last paragraph as However, it is essential to understand clearly from the outset that financial position statements, as one of the two main outputs of the accounting system, are largely based on the historic cost of the assets at the time of purchase, less amounts known as depreciation, deducted as a result of age or use. 2. Refer to page Change the second sentence under Transaction 4 as If it is assumed that the materials purchased have no value for resale, but can be used in the service business, the assets are still worth only R Refer to page Change the third transaction in Question 4.9 as 3 Purchased premises by paying R in cash and taking a bond for the remaining R Refer to page Change the fifth transaction in Question 4.10 as 5 Bought hydraulic jack, spanners, socket sets, etc from Commodore Ltd to equip his workshop, R8 750 on credit. Change the twelfth transaction in Question 4.10 as 12 Bought a tow-truck from CDA Ltd, R on credit. 3

4 CHAPTER 5 1. Refer to page 5-4. Change the first sentence under the heading Explanation as The assets of the business have neither increased nor decreased as no additional value has come into the business cleaning material is an asset when remaining at the end of the period. 2. Refer to page In Question 5.5 change the first transaction as Transactions for the month: 1 Purchased a vehicle on credit for R Refer to page In Question 5.10 change the instruction under the sentence You are required as CHAPTER 6 Record the above transactions as debit/credit entries in the three accounts of the accounting equation. 1. Refer to page Change the following transactions under the heading Transactions for March as 12 Sold an old typewriter at carrying value and received R300 (R11) 20 Sold old dental equipment at carrying value to Dr P. Bandy and received his cheque for R2 000 (R13) 2. Refer to page Change the descriptions for the following entries in the table as Loan: National Bank (liability) Doubtful debts expense

5 CHAPTER 7 1. Refer to page 7-6. Change the first sentence under the T-accounts at the top of the page as CHAPTER 8 Note particularly how the accounts in Figure 7.3 are balanced and totalled. 1. Refer to page 8-2. Change the second paragraph under the heading Introduction as From the outset it is important to understand that the reporting of financial information in the financial statements must adhere to certain standards, which are set by the International Accounting Standards Board (IASB). Change the third last paragraph as The framework for the preparation and presentation of financial statements is issued by the IASB. 2. Refer to page 8-4. Delete the heading Materiality and the paragraph under it. 3. Refer to page 8-6. Delete the heading Prudence and the paragraph under it. 4. Refer to page 8-7. Change the first bullet list with the following: An asset is defined as: A resource, controlled by the entity As a result of past events Which is expected to result in an inflow of economic benefits to the entity. 5

6 5. Refer to page Change the second sentence in Question 8.2 as CHAPTER 9 Further discuss the two underlying assumptions on which financial statements should be based according to the Conceptual Framework. 1. Refer to page 9-4. Change the first case in Example 9.1 as 1 On 1 April, Comprint bought 30 printers and paid R in total. 2. Refer to page 9-5. Change the periodic table under the heading Case 3 June as Goods available for sale Less: closing inventory (13 printers) ( ) Replace the second last sentence in the last bullet point at the bottom of the page with the following: For example. It could be argued that should be higher than R1 500 per set. However, this would not be consistent with the historic concept. (This issue will be dealt in the chapter.) 3. Refer to page 9-6. In Figure 9.2, replace the description under Income from sales with the following: Income from all inventory sold during the period less VAT Change the second last sentence under the heading 3 Establishing the cost of sales as Stated differently, this includes all costs incurred in bringing an item to its present condition and location available for sale. 6

7 4. Refer to page 9-7. Change the second bullet point as Bulk discounts: Refer to discounts for purchasing large quantities and are offered because economies of scale on expenses such as handling, delivery and administration may be partially passed on to the purchaser in the form of a discount. 5. Refer to page 9-8. In Example 9.3, add the following bullet points above the heading You are required to : A hula-hoop is sold at R52.50 Incurred delivery charges of R240 for delivery of hula-hoops. In Example 9.4, change the second sentence as Credit Management offers an early settlement discount of 5% to customers who settle their accounts within 30 days. 6. Refer to page 9-9. Change the note under point 3 as Note: The accounts payable amount remains the same would take the discount. The difference is interest expense account. Interest expense could also be reflected as inventory as per IAS 8. Change the note under point 4 as Note: The accounts payable amount remains the same would not take the discount. The difference is interest income account. It could also be reflected as inventory as per IAS Refer to page Change the first bullet point under the heading Perpetual as The transaction for the purchase of inventory is entered into the trading inventory account. 7

8 Change the third paragraph under the heading 6 Establishing the cost of closing inventory as This is an important... on the unsold inventory. In such a case, the accounting principle is to value the inventory at its estimated net realisable value incurred to make the sale). Change the table in Example 9.11 as Date Date 1 Opening inventory 10 2 Sales 20 5 Purchases Sales Purchases Sales Refer to page Change the table under the sentence *The weighted average of R11,58 above was calculated like this: *The weighted average of R11,58 above was calculated like this: 80 items x R10 = Refer to page items x R15 = Therefore, 380 items = Change the third sentence under the heading Inventory in transit as If the inventory bought during a financial period has been correctly recorded, one of the three possibilities exists and the additional journal entries resulting from each shows that: In Example 9.12, change the sentence under You are required as Show the necessary general journal entries for both the periodic and perpetual inventory systems, given the assumptions below that must be posted. 8

9 10. Refer to page Change the first sentence in Question 9.12 as These transactions are for Sekwele Tractors, a business that sells tractors to farmers in the Eastern Cape, for the period June to August 20x Refer to page Change the first transaction in Question 9.22 as CHAPTER 10 1 On 1 March 20x7, placed an order for 10 clocks of R70 each, for which payment was made with the order. 1. Refer to page Change the second sentence under the heading 7 VAT input may be prohibited as These items include VAT incurred on some entertainment, as well as on the purchase of certain vehicles. 2. Refer to page Add the following sentence to the note at point 3 AND point 4: Refer to Chapter 9 (page 9-9). This could have IAS 8 implications. 3. Refer to page Replace the introductory sentence in Example 10.8 as Sales Extreme made the following EFT payments related to expenses. 4. Refer to page Replace the last sentence under the heading 12 Chapter illustrative example with the following: Barry uses the perpetual system to account for inventory purchases along with the first-in-first-out method for inventory movement. 9

10 5. Refer to page Replace the sentence above the heading Transactions for January (first month of trading) with the following: 2 All amounts are VAT inclusive, unless otherwise stated, and all parties below are registered VAT vendors unless otherwise stated. 6. Refer to page Replace the third sentence under the heading 13 Summary with the following: The difference between VAT input paid and VAT output collected is sent to the South African Revenue Service (SARS). 7. Refer to page Change Question 10.6 as follows (introductory sentence and point number 1): Footlite Limes marks its goods up by 50%. The business sells an item of inventory for R3 000, which represents a discount of 10% on normal selling price before VAT. You are required to: 1. Calculate the VAT payable if inventory is sold at the usual price. 2. Calculate the normal selling price. 3. Calculate the cost of goods sold. 4. Calculate the gross profit. 5. Discuss the meaning of gross profit and net profit. Change Question 10.7 as A vendor bought goods for R (VAT incl.) Expenditure of R (VAT incl.) was incurred in order to bring the goods to the required condition for sale. The goods were sold for R (VAT incl). 10

11 CHAPTER Refer to page In Example 12.2 change the reference to interest expense in the CRJ and general ledger to Discount allowed. 2. Refer to page Change the first sentence in Example 14.4 as On 1 August, goods sold for cash marked at R456 including 14% VAT. Change the last sentence under the heading The sundries column as Each item in each column is posted separately. 3. Refer to page Change the first transaction on the 9 February (see heading Transactions for February 20x3 ) as CHAPTER 13 Received cheque number R109 from P.Palm to settle his account on 1 February 20x3 1. Refer to page Change the second table (Accounts Payable List) at the top of the page as Accounts Payable List as at 31 January 20x5 C. Claerhout APL S. Selepe APL S. Stern APL Balance per Accounts payable

12 CHAPTER Refer to page Correct the spelling error at the top of the page (point 2) to read as 2. The establishment levy (currently 0,160512%): Calculated on turnover (exclusive of VAT). 2. Refer to page Change the second last paragraph above Example 14.1 as CHAPTER 15 To calculate gross remuneration, time records can be used. 1. Refer to page Change the last sentence under the heading Non-current assets as The focus in this chapter will be on tangible assets; assets that are identifiable and physical in nature. 2. Refer to page Change the first sentence under the heading Measurement of a non-current asset after initial recognition as A business may decide on either the cost model or the revaluation model as its accounting policy. Change the sentence above the numbered list as There are three common methods for allocating depreciation: 3. Refer to page Change the bullet list (third bullet) in Question 15.7 as Vehicles 20% p.a. straight-line (residual value R40 000) 12

13 Change the first date entry below the bullet list as 1 Jan Bought a new vehicle for R cash. The vehicle had a residual value of R Refer to page Change the second bullet under the heading A Manufacturing machine 1 as A goods lift was added to the machine at a cost of R (excluding labour and installation cost) Change the first bullet under the heading C Delivery vehicle as The business bought a delivery vehicle on 1 October 20x0 to facilitate the expansion programme, which was brought into use on the same day. 5. Refer to page In Question change the second sentence under the heading Additional information as 2 The business considers the residual value of the vehicles to be 35% on cost. 6. Refer to page In Question delete point number 2 under the heading Additional information. Renumber the notes from 1 to 6 CHAPTER Refer to page Change the last sentence under the heading Introduction as It considers credit control policies and deals with the creation of allowance for credit losses at the end of the financial year. Change the first sentence in the last paragraph under the heading Credit policy as Think, for example, of a clothing account at a retail store. 13

14 2. Refer to page Change the sentence above Figure 16.1 as An Ageing Schedule (also called an Age Analysis) the time since the date of purchases, in other shown in Figure Refer to page 16-4 to NB: Doubtful debts are more for the allowance account rather than the actual bad debt account. Bad debts are recognised when there is certainty that the debt has indeed gone bad. In this section, please change the reference doubtful debt/s to bad debt/s unless otherwise noted in this errata. 4. Refer to page Change the heading at the top of the page to: 4 Accounting for credit losses (bad debts) 5. Refer to page The last paragraph at the bottom of the page (above the last set of bullets) should read as The method of determining expected doubtful debts from the current Accounts receivable involves subjective judgement as there are two unknown factors: 6. Refer to page Change the first sentence at the top of the page as Determining the allowance for bad debts is made easier by consulting past records and the Accounts Receivable Ageing Schedule. 7. Refer to page Change the paragraph above Example 16.3 as In estimating the allowance for bad debts at exactly which individual prove irrecoverable. Estimated bad debt allowances are, therefore, not credited allowance for bad debts account. 14

15 8. Refer to page Change the second last paragraph at the bottom of the page as Remember that the allowance for bad debts had to be estimated so that neither income nor assets (Accounts receivable) would be overstated. 9. Refer to page Change the second and third paragraph under the heading 7 Accounts payable year-end adjustment as An allowance must be made for all known liabilities and expenses, whether the amount of the liability and expense is known with certainty or is a best estimate. Accrual for discussed earlier in the text. To ensure that the matching and accrual concept is complied with, it is also necessary to anticipate expenses that may not be incurred. This process at the cut-off procedures. 10. Refer to page Change the first bullet point under the heading Skills as Record in the General Journal the writing off of bad debts to the allowance for bad debts account. 11. Refer to page Delete Question CHAPTER Refer to page Delete the second last paragraph under the heading Introduction. Change the last paragraph under the heading Introduction as In this chapter, we continue with the concept of accounting for items at the year-end that have consequences only realised in the next financial year, but which relate to the current year s performance. 15

16 2. Refer to page Change the table in Example 17.2 as CHAPTER Refer to page Change the first sentence under the heading 2 Financial Statements as CHAPTER 19 The financial statements of a sole proprietor and a Statement of Financial Position,(SOFP), together with explanatory notes and a statement of cash flows. 1. Refer to page Change the second paragraph under the heading Introduction as A rapid growth in capital. The sole proprietor to capital and, as a result, the company as a business form was developed. 2. Refer to page Delete the last sentence at the bottom of the page. 3. Refer to page Delete the sentence before Example CHAPTER 20 Details Fol. Debit Credit Stationery N Insurance N Refer to page Change the last sentence in the second last paragraph as In terms of the Companies Act 71 of 2008, no par value shares may be issued. 16

17 2. Refer to page Change the last paragraph as If the shares is decreased by the average issue price of the NPV shares. The average price is calculated by account by the number of issued shares. 3. Refer to page Change the first sentence as When the company paid more for the shares than the average issue price or book value, the so-called premium can be written off to: 4. Refer to page Change the table (first line) in Question 20.8 as Stated capital ( ordinary shares) Preference shares (fixed annual dividend of 15c/ordinary share) CHAPTER Refer to page Change the last phrase at the bottom of the page as 2 Debentures (this is a financial liability) 2. Refer to page Change the heading Debentures to Debentures (are a financial liability) CHAPTER Refer to page Change the first bullet list under the heading Introduction as The Companies Act 71 of

18 International Financial Reporting Standards (IFRS) approved by the International Accounting Standards Board (IASB) and specifically International Accounting Standard 1 (IAS 1). Change the second bullet list under the heading Introduction as International Financial Reporting Standards (IFRS). International Accounting Standards (IAS). Interpretations originated by the Committee on International Financial Reporting Interpretations (IFRIC) or the former Standards Interpretations Committee (SIC). Change the third bullet list under the heading Introduction as Opinions issued by the South African Institute of Chartered Accountants (SAICA). JSE Securities Exchange Regulations. Change the second paragraph after the third bullet list as Section 29 of the Companies Act 71 of 2008, requires that the annual financial statements of a company shall in conformity with IFRS, fairly present profit or loss of the company for that financial year. Change the second last paragraph from the bottom as There are many other Accounting Standards, most recently the International Accounting Standards, which also include additional disclosure requirements for financial statements. Change the last paragraph at the bottom as These disclosure requirements will be addressed in later years of study when the specific Accounting Standard (IAS/IFRS) is addressed. The additional disclosure financial records of the company. 2. Refer to page Change the second bullet point under the heading Share options as Period during which the rights may be exercised. 18

19 3. Refer to page Delete the last bullet point under Figure Refer to page Change the third paragraph (first line) under the heading 5 Statement of Profit or Loss and Other Comprehensive Income for publication as The Statement of Profit or Loss & Other Comprehensive Income for publication shows the revenue, cost of sales, the gross profit and the profit before taxation. Change the heading Gross sales to Revenue Change the paragraph under this heading as CHAPTER 23 The aggregate amount of the revenue for the accounting period should be stated. The basis used to determine revenue should be stated, usually in the statement of accounting policies. Revenue is shown as net of VAT if the company is a registered vendor. 1. Refer to page Change the first paragraph under the top table as The direct method consists of cash from operations the gross cash inflows as cash from customers and the gross cash outflows as a result of expenditure (see Figure 23.2). 2. Refer to page Change the sentence under the heading 6 Drafting procedure as It is apparent that a number of calculations are required in drafting a Statement of Cash Flows. 19

20 3. Refer to page Change the second last paragraph (first sentence) above Example 23.4 as The profit in the Statement of Profit or Loss & Other Comprehensive Income does not show the total cash received when an asset, other than inventory, is sold, but only the profit or loss on the sale. 4. Refer to page Change the Note above the heading Writing off inventory as Note: If the intangible asset is bought in the current year, the purchase transaction related to the asset represents an outflow of cash that is disclosed under investing activities. 5. Refer to page Change the paragraph above Example 23.6 as IAS 7 requires that the cash flows from these items be shown separately, usually in the cash flow from operating activities section of the Statement of Cash Flows. 6. Refer to page Change Question 23.1 as CHAPTER 24 Briefly discuss the two interpretations of the term funds and indicate which interpretations are adopted in drafting the Statement of Cash Flows. 1. Refer to page Change the paragraph under the table as The above documents will form of a Cash Book, rather than using separate Cash Receipts and Cash Payments Journals. 20

21 2. Refer to page Change the last sentence in Question 24.9 as CHAPTER 26 They have asked you to fix the 20x3 financial statements. 1. Refer to page Change the second last paragraph as The revaluation surplus arises when certain assets are revalued by the CC. Undrawn income is the balance... distributions to members. 2. Refer to page Change the second bullet point under the heading Other pertinent characteristics as The members of a CC, Close Corporations Act, can only be natural persons. A company, which is a juristic person hold shares in a company. Change the fifth bullet point under the heading Other pertinent characteristics as Both the company and the CC pay taxation at a flat rate, currently 28%. In a company, payments of income after taxation, such as dividends to shareholders, are taxed by way of a withholding tax. While withholding tax is withheld by the CC, it is the responsibility of the shareholder. The payments to members of a CC (also known as distributions) are also taxed. It should be noted, however, that any remuneration such as salaries, interest and rentals paid to members will remain taxable in their hands. 3. Refer to page Change the first sentence at the top of the page as The Founding Statement replaces the Memorandum of Incorporation and other registers of a company. 21

22 Change the first sentence under the heading Accounting officer as Every close corporation must appoint an Accounting officer, who is a member of a recognised professional accounting body. Dentists and doctors, who are members of a profession, can t necessarily become accounting officers. The professional body members guilty of negligence. 4. Refer to page Change the third paragraph and bullet list (second bullet must be deleted) thereafter under the heading Accounting requirements as The annual financial Founding Statement. No audit is required of a CC. The accounting officer should only ensure that these financial statements are in agreement with the accounting records. Change second last paragraph (first sentence) above Example 26.1 as The members of a CC, usually being both the owners and managers, generally constitute the main users of the financial statements. The Accounting and reporting requirements contained in the financial statements. 5. Refer to page Change the third sentence under the heading Disclosure requirements as The disclosure of a Statement of Cash Flows and a Statement of Changes in Equity is, however, required indirectly as per Section 58(2)(b). Change the fourth sentence under the heading Disclosure requirements as A CC has no directors and an audit is not required. 22

23 CHAPTER Refer to page Change the second paragraph under the heading Comparison as Depending on the purpose numerator may be any one of operating profit before or after interest, taxation or preference share dividends. The denominator could be fixed plus capital employed. 2. Refer to page Change the second sentence under the heading Profitability as These aspects attempt to reflect the profit per Rand of sales or the profit per Rand of capital invested. 3. Refer to page Change the last sentence under the heading Net profit percentage as Music Ltd has recovered well and it is likely that the net profit will increase in 20x5. 4. Refer to page Change the second sentence at the top of the page as The interest expense has shielded the company from the 28% tax it otherwise would... interest from its taxable income. Change the reference to Music in the fifth paragraph under the heading Other factors to consider to Music Ltd 5. Refer to page Change the second paragraph at the top of the page as When Music Ltd experienced a difficult year diversifying some funds into assets other than business operations //