Remedial activities and solutions

Transcription

1 Payroll and Monthly SARS Returns Remedial activities and solutions Learning Module: Recording business financial transactions Basic Accounting Activities The following activities have been developed to assist those learners that are struggling to come to grips with the basics or bookkeeping and accounting. It is imperative that learners attempt these activities prior to working through Learning example 1 E. Remedial activity 1 From the list below, identify the items that will be regarded as assets. Explain why these items should be regarded as assets, and why the others should not be regarded as assets by the bookkeeper: Office equipment Advertising costs Traffic fines Money in a fixed deposit Trading inventory (stock, goods to be resold) A favourable bank balance Vehicles Packing materials Fuel Office consumables EDGE Learning Media CC 1

2 Proposed solution: Remedial activity 1 Bank, fixed deposits, vehicles, inventory and office equipment are all items possessed by the business, from which future economic benefits are likely to be derived. They also represent either cash or items that can be reconverted into cash. As such they are all considered assets. Advertising and traffic fines are expenses. They do not have a retained value. They represent past resources used by the business in generating its income. The difference between the income generated and the expenses incurred will give the profit made by the business. Packing materials, fuel and office consumables are strictly speaking assets until used up. However since their purpose is to be used up within a relatively short period of time, it is accounting convention to record them as expenses from the moment they are bought. Remedial activity 2 The following list of assets and liabilities appeared in the books of Kiara Enterprises on 28 February 20.7, the last day of the financial year: R C Equipment Debtors control Petty cash Bank (unfavourable) Vehicles Creditors control Land and buildings Mortgage loan Cash float Trading inventory Loan from Plewman s Bank (R redeemable by 28/02/20.8) EDGE Learning Media CC 2

3 Required: (i) Calculate the total of the non-current assets of Kiara Enterprises as at 28 February (ii) Calculate the total of the current assets of Kiara Enterprises as at 28 February (iii) Calculate the total of the non-current liabilities of Kiara Enterprises as at 28 February (iv) Calculate the total of the current liabilities of Kiara Enterprises as at 28 February (v) Determine the owner s wealth (equity) in Kiara Enterprises as at 28 February (vi) Define the following concepts: Assets Owner s equity Liabilities Income Expenses Proposed solution: Remedial activity 2 (i) (ii) Non-current assets R Equipment Vehicles Land and buildings Current assets R Debtors control Petty cash Cash float Trading inventory (Note: The bank balance is not included with current assets, since it is in overdraft. It will thus be included with current liabilities). EDGE Learning Media CC 3

4 (iii) Non-current liabilities R Mortgage loan Loan from Plewman s Bank * (iv) (v) * R = R Current liabilities R Bank overdraft (balance unfavourable) Creditors control Short-term portion of Long-term loan Owner s equity R Total assets ( ) Total liabilities ( ) ( ) (vi) Assets are resources controlled by the firm, as a result of past events, and from which future economic benefits are likely to flow to the entity. Owner s equity refers to the net results after deducting the liabilities from the assets. It refers to the wealth of the owner(s) in the business. Liabilities are present obligations, as a result of past events, which need to be redeemed in future. Income is brought about by an increase in assets and/or a decrease in liabilities, and causes an increase in equity. Expenses are brought about by a decrease in assets and/or an increase in liabilities and cause a decrease in equity. EDGE Learning Media CC 4

5 Remedial activity 3 Complete the following table, by marking the appropriate column with an. Type of account Name of account Noncurrent asset Current asset Noncurrent liability Current liability Income Expense Proprietary account Equipment Wages and salaries Trading inventory Bank overdraft Interest income Discount allowed Interest on favourable bank balance Interest on overdraft Capital Mortgage loan Creditors control Rent income Cost of sales Debtors control Savings account Petty cash Drawings Land and buildings Office consumable Stationery Staff refreshments Advertising Credit card account (unfavourable) Rates and taxes Commission received Machinery Traffic fines Long-term loan EDGE Learning Media CC 5

6 Proposed solution: Remedial activity 3 Type of account Name of account Noncurrent asset Current asset Noncurrent liability Current liability Income Expense Proprietary account Equipment Wages and salaries Trading inventory Bank overdraft Interest income Discount allowed Interest on favourable bank balance Interest on overdraft Capital Mortgage loan Creditors control Rent income Cost of sales Debtors control Savings account Petty cash Drawings Land and buildings Office consumable Stationery Staff refreshments Advertising Credit card account (unfavourable) Rates and taxes Commission received Machinery Traffic fines Long-term loan EDGE Learning Media CC 6

7 Remedial activity 4 Putin Wholesalers trades in office furniture. On 1 September 20.7, the accounting equation of the business was as follows: Assets (R) = Owner s equity (R) + Liabilities (R) Putin Wholesalers entered into the following transactions during September 20.7 (Ignore VAT): Day Details 1 The owner, Mrs. Helena Putin, made a capital contribution of R to her business. This was done by means of an electronic transfer from her personal account into the business account. 5 Purchased trading inventory on credit for R Sold merchandise on credit for R The goods were originally bought for R Paid casual wages from petty cash, R Paid for repairs and maintenance by cheque, R Issued a cheque for R to pay for water and electricity. 16 Purchased a computer for the office on credit for R Purchased office refreshments per cheque for R Purchased packing materials on credit for R Purchased fuel for the delivery vehicle from petty cash, R Sold trading goods for R cash. The goods were originally bought for R Mrs. Putin took a couch from stock for her personal use. This set was originally bought for R Received a cheque for R from a debtor in part payment of her account. Required: 1. Calculate Mrs. Putin s equity in her business on 30 September 20.7, by showing the effect of each individual transaction on the accounting equation. 2. Capital and drawings are referred to as proprietary accounts. These transactions are included in the calculation of owner s equity, but not in the calculation of profits. Taking this fact into consideration, calculate the profit derived by Putin Wholesalers during September EDGE Learning Media CC 7

8 Proposed solution: Remedial activity 4 1. Day Assets (R) = Owner s equity (R) + Liabilities (R) (a) (b) (a) (b) EDGE Learning Media CC 8

9 2. When calculating profit, capital and drawings should be excluded. In other words, deduct the negatives from the positives in the owner s equity column, but exclude the + R on day 1, as well as the R on day 26. The profit made during September 20.7 can be calculated as follows: Day Profit (R) 1 Not included 1 Not included (a) (b) (a) (b) Not included EDGE Learning Media CC 9

10 Remedial activity 5 Tristan Traders trades in clothing. The business only started trading on 1 September 20.7, and by 1 October 20.7, the following balances appeared in their books: Debit balances: Bank R Credit balances: Capital R Bank loan R The financial position on 1 October 20.7 could thus be shown as follows under the accounting equation: Assets (R) = Owner s equity (R) + Liabilities (R) Tristan Traders entered into the following transactions during October (Ignore VAT): Day Details 1 The owner, Mr. Tristan Davies, made another capital contribution of R to his business, by drawing a cheque in favour of his own business from his personal cheque book. He also contributed a vehicle to the value of R The business paid back R on the bank loan. 8 Paid the bookkeeper s salary by cheque, R Purchased trading goods on credit for R Sold merchandise with a cost price of R on credit for R Rendered services to a client for R The client paid R4000 upfront, and will pay the balance off in six equal monthly installments, starting on 1 November 20.7 (no interest will accrue to the client s account). 31 The owner took two pairs of shoes with a cost price of R each from stock for personal use. EDGE Learning Media CC 10

11 Required: 1. Calculate Mr. Davies s equity in his business on 31 October 20.7, by showing the effect of each individual transaction on the accounting equation. 2. Complete the basic double entries in their respective T-accounts. Proposed solution: Remedial activity 5 1. Day Assets (R) = Owner s equity (R) + Liabilities (R) (a) (b) Note: Albeit that a gross profit of R was made during the month (R R 2 500), a net profit of R was made after all the overheads had been deducted. EDGE Learning Media CC 11

12 2. The relevant double entries can be shown in the following simplified manner: Capital Balance Bank Vehicles Bank Balance Bank loan Capital Salaries and wages Services rendered/current income Bank loan Bank Balance Vehicles Capital Salaries and wages Bank Creditors control Trading inventory EDGE Learning Media CC 12

13 Trading inventory Creditors control Cost of sales Drawings Debtors control Sales Services rendered/current income Sales Debtors control Cost of sales Sales Services rendered/current income Bank and debtors control Drawings Trading inventory EDGE Learning Media CC 13