TRINITY TUTORIALS EXAM PACK AND STUDY NOTES

TRINITY TUTORIALS EXAM PACK AND STUDY NOTES THIS PACK CONSISTS OF PAST EXAM PAPERS FROM MAY 2009 NOVEMBER 2013 AND THEIR SUGGESTED SOLUTIONS PLUS NOTES WHICH WILL HELP THE STUDENT TO UNDERSTAND AND APPRECIATE THE MODULE. www.trinitytutorials.co.za Pretoria Address:270 Paul Kruger Cnr Pretorius Street Inside Saint Ignatius College, Savelkols Building Call 0781850758/0616905338 Email:info@trinitytutorials.co.za 1 P age

Table of Contents MAY/JUNE 2009 QUESTIONS AND SOLUTIONS.p3 OCT/NOV2009 QUESTIONS AND SOLUTIONS p18 MAY/JUN 2010 QUESTIONS AND SOLUTIONS..p37 OCT/NOV2010 QUESTIONS AND SOLUTIONS.p61 MAY/JUNE 2011 QUESTIONS AND SOLUTIONS.p79 OCT/NOV 2011 QUESTIONS AND SOLUTIONS...p93 MAY/JUNE 2012QUESTIONS AND SOLUTIONS p106 OCT/NOV2012 QUESTIONS AND SOLUTIONS...p119 MAY/JUNE 2013 QUESTIONS AND SOLUTIONS p132 OCT/NOV 2013 QUESTIONS AND SOLUTIONS p152 2 P age

MAY JUNE 2009 3 P age

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Doc Number SOLUTION 1: CASH JOURNALS DR P HEAL Date Details BANK Debtors Control CASH RECEIPTS JOURNAL (CRJ) Fees VAT earned Output VAT Input SUNDRIES Amount Details 450 Mar 1 K. Kelly 275 275 451 1 J. Jail 1 710 1 500 210 452 9 Y. Old 383 440 (7) (50) Settlement Discount allowed 453&491 12 Deposit 9 120 8 000 1 120 11 488 715 9 500 1 330 (7) (50) HINTS a) Whenever you sell a good or offer a service, you are required to levy output VAT. Any VAT paid out is recoverable from SARS if you are a registered vendor and any VAT received is payable to SARS. b) If goods are sold on credit, the transactions regarding VAT output would have been recorded in the Sales journal. VAT is charged at the point of sale and not at the point of payment. In the CRJ, the VAT is accounted for on cash sales. c) When goods are sold at a discount, the VAT is debited to the VAT Input Account to reduce the amount owing to SARS since the part that is relating to the discount will no longer be received. d) To remove VAT from a figure you multiply that figure by 100 114 e.g. R1 710 x 100 114 = 1500. e) Calculation of the discount and the VAT element in discount: Discount= Amount Paid-Amount owed = 440-383 = 57 VAT element= 14/114*57 = 7 We use 14/114 because the discount is at selling price inclusive of VAT. If it was exclusive of VAT, we could have used 14/100. f) The transaction on 15 March is not entered in the CRJ as information is not given on the payment of the consultation fees and unlike on other similar transactions involving receipt of funds, the receipt number is not quoted. 6 P age

CASH PAYMENTS JOURNAL (CPJ) DOC NUMBER DATE DETAILS BANK CREDITORS CONTROL VAT INPUT SUNDRIES AMOUNT DETAILS C114 1 Spacious Properties 1254 154 1100 Rental paid C115 2 Cash 855 105 750 Electricity C116 2 Pharmacy Trading 2300 2300 C117 10 Fillup Garage 300 300 Petrol C118 12 Cash 1000 1000 Drawings 5709 2300 259 3150 HINTS 1. When you buy a good or make payment for services rendered you are charged VAT input. 2. If you buy a good on credit the VAT transactions are recorded in the Purchases Journal. VAT is charged at the point of purchase, whether for cash or on credit. This means no VAT is adjusted when settling accounts for goods or services previously acquired on credit if the purchase was recorded at the point of purchase. Adjusting VAT again will result in double accounting. 3. Any account not part of the required columns is entered under sundries. 4. All VAT calculations are done using the factor 14/114 since the given payments are inclusive of VAT. If the given amount was exclusive of VAT, we could have used 14/100. 5. When an invoice is received as on the transaction on 4 March, no cash is paid on that date. An invoice is a source document for credit purchases. 7 P age

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SOLUTION 2: STATEMENT OF CHANGES IN EQUITY BOPA STORES Statement of changes in equity for the year ended 30 April 20.9 Balance at beginning of the year 500 000 Additional Equity Contributions (Bank & Equipment: 100 000+45000) 145 000 Drawings (15 000) Total Comprehensive Loss for the year (77 000) Balance @ end of year 553 000 NOTES a) The entries on the debit side of the capital account represent reductions in equity whilst those appearing on the credit side represent increases in equity. b) Total comprehensive loss reduces the owner`s equity whilst total comprehensive income increases the owner`s equity. SOLUTION 3: NOTE TO FINANCIAL STATEMENTS BERTA TRADERS NOTES AS AT 28 FEBRUARY 2009 NOTE ON PROPERTY PLANT & EQUIPMENT LAND & VEHICLES EQUIPMENT TOTAL BUILDINGS Carrying amount at 500000 145000 79000 724000 beginning of year Cost 500000 240000 130000 870000 Accumulated depreciation - (95000) (51000) (146000) Additions 200000 120000 1 25000 345000 Depreciation - (60000) (26000) (86000) Disposals @ carrying - (22000) 2 (19000) 3 (41000) amount Carrying amount at end of year Cost 700000 183000 59000 942000 700000 295000 125000 1120000 Accumulated depreciation - (112000) (66000) 178000 HINTS a) Disposals should be recorded @ carrying amount that is cast minus accumulated depreciation. b) Any assets bought during the year are recorded as additions. c) The depreciation per line item of assets refers to the total depreciation as added in the Accumulated Depreciation account. 10 P age

d) Assets acquired in previous years are recorded as an opening balance so as their related accumulated depreciations. e) The cost prices of assets disposed and so as their related accumulated depreciations are subtracted when finding the closing balance. f) The carrying amount at the end of the year is determined by subtracting the accumulated depreciation at the end of the year, which is the balance brought forward at the end of the year in the respective accumulated depreciation accounts from the cost at the end of the year which is the balance brought down in the assets at cost accounts at the end of the year. Calculations 1 Additions: Vehicles Gumbi Motors 90 000 China Cycles 30 000 120 000 2 Cost of Vehicles sold (Vehicles at cost account shown as realisation) 65 000 Accumulated Depreciation: shown as realisation 43 000 Carrying amount upon disposal 22 000 3 Cost of Equipment sold (Equipment at cost account shown as realisation 30 000 Accumulated Depreciation: shown as realisation 11 000 Carrying amount upon disposal 19 000 11 P age

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SOLUTION 4: STATEMENT OF COMPREHENSIVE INCOME FAC1502 2014 Robot Traders General Journal DR CR (a) Inventory (trading): Statement of Financial Position 12800 Trading Account 12800 Inventory :stationery 345 Stationery 345 (b) Prepaid expenses 200 Insurances 200 (c) Interest paid (50000x12% x 6 12 ) 3000 Accrued expenses 3000 (d) Accrued Income (3300 11 ) 300 Rent income 300 (e) Depreciation 13060 Accumulated depreciation : (120000 54700 ) x 20% 13060 Depreciation 65000 x 10% 6500 Accumulated depreciation : Furniture 6500 NOTES a) Prepaid expenses - This is when you pay expenses in advance for example, if you pay rent for next year. It is an asset which means it is debited. Due to the matching concept, the prepayment is eliminated from the expenses of this financial period that is why the insurance account was credited. b) Accrued expenses - This is when you incur an expense without paying for it e.g. when you use a contract mobile line. It is a liability which means it is credited in the liability account and it has to be added to the expense account in terms of the matching concept. c) Accrued income - Is when you render a service for which you haven t received income for e.g. if your tenant rents for a month without paying rent. It is an asset which means it is debited. d) Income received in advance Is when you receive income before rendering a service. It is a liability. 13 P age

4.2 ROBOT TRADERS Statement of profit or Loss and other comprehensive income for the year ended 28 February 20.9 Revenue (243645 1338-553) 241754 Less: Cost of Sales (155890) Opening inventory 13550 Purchases (154880 155 245) 154480 Carriage on Purchases 660 Less : Closing Inventory (12800) Gross Profit 85864 Other Income Rent Income (3300 + 300) 3600 Commission Income 15000 104464 Expenses Administrative, Distributive & Other expenses (88479) Stationery (2345 345) 2000 Wages 56775 Water & electricity 4400 Packing materials 3300 Insurance (2400-200) 2200 Depreciation (13060 + 6500) 19560 Credit losses 244 Finance cost Interest on loan from Africa Bank (see above on 4.1) (3000) 3000 Profit for the year 12985 HINTS When you calculate finance cost, check if the loan was issued during the year and you calculate interest on a pro rata basis, interest is only chargeable during the periods when respective loans are owing. Carriage on purchases, insurance on purchases, and freight on purchases is part of cost of sales but carriage on sales is an expense under Administrative expenses. Settlement discount allowed reduces revenue but settlement discount received reduces cost of sales. Outstanding amounts/ accrued amounts/ amounts owing are added to the respective expenses or incomes as they belong to this period although they are still unpaid. Prepaid amounts/ amounts in advance are subtracted from the respective expenses or incomes as they belong to future periods although they were paid during this period. 14 P age

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SOLUTION 5: NON - PROFIT ORGANISATION; MEMBERSHIP FEES ACCOUNT AND INCOME AND EXPENDITURE STATEMENT 5.1 DOLPHINS DIVING CLUB Membership Fees Account 2008 April 1 2009 Mar 31 Accrued Income b/d Entrance Fees Income & Expenditure (190*R1 000) Income received in advance c/d 30 000 2 000 190 000 35 000 257 000 2008 April 1 2009 Mar 31 Income received in advance b/d Bank Credit Losses Income received in advance b/d 40 000 202 000 15 000 257 000 35 000 HINTS Balancing figure: Income received in advance 35 000 Accruals of fees at the beginning of the year are assets which are debits in the income account and prepayments are liabilities which appear as a balance b/d on the credit side and when it is a balance c/d it appears on the debit side to complete double entry. 5.2 DOLPHINS CLUB Income and expenditure Statement for the year ended 31 March 20.9 Income 321800 Membership fees 190000 Donations received 4000 Diving fees received 67800 Bar Income 60000 Bar gross profit (c1) 90000 Bar wages (30000) EXPENDITURE (222080) General expenses (16400-5200) 11200 Insurance (5200-2000-1200) 2000 Maintenance 40200 Salaries & wages (96000 + 3000) 99000 Credit losses 15000 Stationery 12000 Depreciation for the year (calculation 2) 42680 Surplus for the year 99720 Notes Prepayments at the beginning of the year are added to the respective incomes or expenses, because though they were paid or received in the previous period, they belong to the current period. 16 P age

Prepayments at the end of the year are subtracted from the respective incomes or expenses, because though they were paid or received in the current period, they belong to the following period. Accruals at the beginning of the year are subtracted from the respective incomes or expenses, because the assumption is that they are paid or received this year though they they belong to the previous period. Accruals at the end of the year are added to the respective incomes or expenses, because though they were not paid or received in the current period, they belong to the current period. CALCULATIONS 1. Bar gross profit Bar sales 200000 Less Cost of sales (110000) Opening inventory 10000 Purchases 120000 Less: closing inventory (20000) Gross profit 90000 2. Depreciation Furniture, equipment and vehicles 28 680 Crockery and linen (20 000-14 000) 14 000 42 000 17 P age

OCTOBER NOVEMBER 2009 18 P age

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SOLUTION 1: BANK RECONCILIATION Provisional total 41000 M. Monk (stale cheque) 2400 T. Tom (direct deposit) 1700 Interest income 190 45290 Cash payment journal (CPJ) April 2009 Provisional total 58960 R/D cheque V. Vala 400 B. Borwa (rent stop order) 800 Sundry bank charges 250 Cheque book 40 60450 HINTS a) You update the cash journals with amounts that appear on the bank statement but do not appear in the cash journals e.g. Bank charges and direct deposits, stale cheques. BANK ACCOUNT Balance b/d 9600 Total payment 60450 Total receipts 45290 Balance c/d 5560 60450 60450 Balance b/d 5560 1.4 Bank Reconciliation Statement at 30 April 20.9 Debit Credit Balance per bank statement 1800 Outstanding cheques 275 600 274 5000 284 3500 286 3360 Outstanding deposits (7000) 7000 Errors: cheque understated (4300-2400) 1900 Balance per bank account 5560 14360 14360 22 P age

NOTES Procedure for bank reconciliation The procedure may be summarized as follows 1. Compare the bank statement with the bank account in the cashbook. Remember to compare the debit of the bank account or the cash receipts journal against the credit of the bank statement, and the credit of the bank account or the cash payments journal against the debit of the bank statement. Place a tick against those items which appear in the both records. 2. Bring the bank account in the cash book up to date by entering any items which appear on the bank statement but which have not yet been entered in the bank account. Such items may be (a)items debited on the bank statement, e.g. bank charges, standing orders paid, etc. These should be credited in the bank account in the cash book or they should be entered in the cash payments journal. (b)items credited on the bank statement, e.g. credit transfers and standing orders paid directly into the bank. These should bed debited in the bank account or entered in the cash receipts journal in the cash book. 3. Correct any errors in the cash book. 4. Balance the cash book. The balance on the bank account is now the true bank balance of the business and this figure will be shown in the balance sheet. 5. Prepare the bank reconciliation statement. (a)start with the balance shown on the bank statement. (b)add on any items that have been debited in the cash book or entered in the cash receipts journal but not yet credited on the bank statement. I.e. amounts not yet credited. (c)deduct any items that have been credited in the cash book or entered in the cash payments journal but not yet debited on the bank statement, i.e. cheques not yet presented. (d)make any necessary adjustments for bank errors. Add back any amounts debited in error by the bank and deduct any amounts credited in error by the bank. (e)the resulting figure should equal the updated bank balance shown in the cash book. 23 P age

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SOLUTION 2: FINANCIAL STATEMENTS COMP INSTALLATIONS Statement of profit or loss and other comprehensive income for the year ended 30 April 20.9 Revenue (386000-15000) 371000 Less: cost of sales (200000) Gross profit 171000 Other income Income from services rendered 702500 700000 Interest income (50000x5%) 2500 873500 Expenses Administrative, distributive & other expenses (368000) Administrative & general expenses (150000 2000) 148000 Depreciation (150000+ 70000) 220000 Profit for the year 505500 Other comprehensive income - Total comprehensive income 505000 HINTS Stationery on Hand This should be treated as a current asset in the statement of financial position as Inventory, Stationery. This should then be deducted from the stationery expense since the stationery was purchased to this period but will only be used next year. The assumption is that the stationery has been included in the administrative expenses. Interest Accrued on the Investment Although not yet received, this should be included in other income as it belongs to this period. It should also be include under trade and other debtors on current assets in the statement of financial position as this represents amounts owed to the business. 2.2 Statement of changes in equity for the year ended 30 April 2009. Balance at beginning of year 400000 Add: Total comprehensive income for the year 505500 Less: drawings (98000+1500) (99500) Balance at the end of the year 806000 HINTS The electricity of the owner paid by the business should be added to drawings. It should not be included under the expenses as this is not an expense of the business but a personal expense of the owner. 25 P age

2.3 Statement of financial position as at 30 April 20.9 Assets Non current assets 630000 Property Plant & equipment (Note1) 580000 Other financial assets :fixed deposit 50000 Current assets 203000 Inventory (Note 2) 127000 Trade and other receivables (Note 3) 32500 Cash and cash equivalents (45000 1500) 43500 Total assets 833000 EQUITY & LIABILITIES Equity 806000 Capital (refer to statement of changes in equity) 806000 Current Liabilities Trade and other payables Income received in advance 27 000 12 000 15 000 Total equity and liabilities 833000 HINTS Note 1: Property, Plant and Equipment Vehicles Equipment Total Carrying amount - 1 May 2008 600 000 200 000 800 000 Cost 150 000 300 000 1050 000 Accumulated Depreciation 150 000 100 000 250 000 Depreciation for the year (150 000) (70 000) (220 000) Carrying amount 30 April 2009 450 000 130 000 580 000 Cost 750 000 300 000 105 000 Accumulated Depreciation 300 000 170 000 470 000 Note 2. Inventory Trading inventory 125 000 Inventory: stationery 2000 127 000 Note 3 Trade and Other Receivables Trade debtors (debtors control) 30 000 Interest income accrued 2500 32 500 26 P age

Cash and cash Equivalents The amount paid for the owner s electricity must be deducted from bank because it is mentioned on the question that it was still to be recorded. Note 4 Trade and Other Payables Creditors control 12 000 27 P age

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SOLUTION 3: GENERAL LEDGER ACCOUNTS PRONTO DEALERS Total receipts (16000 + 5550 + 2240 150 20) Bank Account 23620 Balance b/d 2220 Total payments (5800 18418 +8200+1148+3395-25-100) Balance c/d 2982 23620 23620 Balance b/d 2982 Cost of Sales Account Balance b/d 186000 Trading inventory (sales returns) 125 Trade inventory (cash receipts Balance c/d 200875 journal-cash sales) 8000 Trading inventory (credit salessales journal) 7000 201000 201000 Balance b/d 200875 Trading inventory Account Balance b/d 52000 Cost of sales (cash receipts journal-cash sales 8000 Bank 5800 Cost of sales (sales journalcredit sales) 7000 Creditors control (purchases returns journal- purchases returns) 850 Creditors control (purchases Balance c/d 51275 journal-credit purchases) 9200 Cost of sales (sales returns journalsales returns) 125 67125 67125 Balance b/d 51275 HINTS a) Whenever you buy goods your inventory increases. b) When customers return goods inventory also increases. c) When you sale inventory, your inventory decreases. d) When you return goods to suppliers, inventory decreases. 30 P age

SALES ACCOUNT Balance c/d 415000 Balance b/d 385000 Bank (cash sales - CRJ) 16000 Debtors control (credit salessales journal) 14000 415000 415000 Balance b/d 415000 VAT INPUT ACCOUNT Balance b/d 1500 Creditors control (purchases returns journal) 119 Bank CRJ 20 Balance c/d 3837 Bank CPJ 1148 Creditors control (purchases journal) 1288 3956 3956 Balance b/d 3837 VAT OUTPUT ACCOUNT Debtors control 35 Balance b/d 1880 Balance c/d 6070 Bank Bank Debtors control 6105 2240 25 1960 6105 Balance b/d 6070 NB: The references in brackets are only given as an aid for you to understand the source of the transaction but are not necessarily supposed to be included in the accounts. BANK ACCOUNT 1. Total Receipts: these are calculated by adding together the following: Sales 16 000 Debtors control 5550 Settlement Discount granted (150) VAT Output 2240 VAT input (20) 23620 31 P age

(a) Sales represent cash sales; therefore they are included in total. (b) Debtors control is the gross amount settlement discounts before subtracting settlement discounts granted. As a result, the settlement discount should be deducted from the gross amount. (c) VAT Output: this should be included as this is part of the amounts receives by the business although this will later be handed over to SARS. (d) VAT input is to be deducted because it represents reductions in amounts receivable. (e) The cost of sales column is not added as it is used as a tool of updating the cost of sales when using the perpetual inventory system. This column does not affect amounts received. 2. Total Payments These were calculated as follows Purchases 5800 Creditors 8200 VAT Input 1148 VAT Output (25) Settlement Discount Received (100) Sundry expenses 3395 18418 Purchases, Sundry expenses and VAT input are included as they represent actual amounts paid. Creditors represents the gross amounts of debts settled, therefore, the settlement discount should then be deducted to arrive at the net amount paid. VAT output in the CPT represents a reduction in amounts payable, therefore it should be subtracted. 32 P age

SOLUTION 4: GROSS PROFIT DETERMINATION JUMBO TRADERS Inventory account Balance b/d 155000 Cost of sales 602000 Creditors control (refer to Balance c/d 165000 creditors control account) 612000 767000 767000 Balance b/d 165000 Debtors control account Balance b/d 159000 Credit losses 8000 Sales 1002000 Bank 950000 Balance c/d 203000 1161000 1161000 Balance b/d 203000 HINTS Sales is balancing figure Creditors control Bank 560000 Balance b/d 68000 Balance c/d 120000 Inventory 612000 680000 680000 HINTS a) Purchases/ Inventory bought = Balancing figure Balance b/d 120000 Trading Account Cost of Sales (from inventory Sales 1002000 account) 602000 Profit or loss (gross profit) 400000 1002000 1002000 33 P age

HINTS Gross profit - balancing figure If balancing figure was on the credit side it would have been a gross loss. Inventory Account Inventory is an asset; therefore, the balance b/d is always on the debit side whilst the balance carried forward (c/d) will be on the credit side. The purchases or creditors control is the balancing figure in the creditors control account. The cost of sales refers to the items from inventory that have been sold during the period. In this case it is the balancing figure after period. In this case it is the balancing figure after making all the entries in the inventory account. Debtors Control This is an asset, therefore the balance bought forward is on the debit side whilst the balance carried forward is on the credit side. In this case, since all the balances and are given. The balancing figure represents the sales made during the period. Creditors Control This is a liability; therefore the balance brought forward is on the credit side whilst the balance carried forward is on the debit side. Since the balances (opening and closing are given, the balancing figure represents purchases. 34 P age

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SOLUTION 5: NOTE; PROPERTY, PLANT AND EQUIPMENT GOOFY TRDERS NOTE ON PROPERTY PLANT & EQUIPMENT AS AT 31 DECEMBER 20.8 FAC1502 2014 Carrying amount at the beginning of the year 285000 Cost price (balance b/d vehicles account) 460000 Accumulated depreciation 175000 Additions (120000+ 70000) 190000 Depreciation (5000 + 48000) (from accumulated depreciation account) (53000) Disposals at carrying amount (100000 65000) (35000) Carrying amount at end of year 387000 Cost 550000 Accumulated depreciation (163000) NOTES QUESTIONS, PROPERTY, PLANT AND EQUIPMENT (a) Additions a. These appear on the debit side of the vehicles account. Bank is the vehicles bought for cash whilst cc Garage represents vehicles bought on credit from CG Garage. (b) Disposals at carrying amount Cost of disposal 100 000 Accumulated depreciation on disposal 65 000 35 000 The disposals are recorded as realization in the vehicles and accumulated depreciation account. (c) Carrying amount at the beginning of the year. - This is made up of the balance brought forward at the beginning of the year in the vehicles account (1 Jan 2008) subtract the balance brought forward at the beginning of the year in the accumulated depreciation account (I Jan 2008). (d) Carrying out at the end of the year. - This is made up of the balance carried down at the end of the year in the vehicles account (31 Dec 2008) subtract the balance carried down in the accumulated depreciation of vehicles at the end of the year (31 December) 36 P age

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QUESTION 1 SOLUTION: CREDITORS RECONCILIATIONS 2010 1. PRUDE TRADERS Creditors control account R 2010 April 30 Balance Purchases understated (5554-5455) April 30 Balance c/d 9940 9940 9940 b/d May 1 Balance b/d 9940 R 9841 90 HINTS You only include amendments in the creditors control account amounts that directly affect purchases journal. 2. Creditors statement as at 30 April 2010 R Balance of creditors list Add: Debtor balance under cast (Ferrari (7890-7880) 10 Credit for repairs under cast: Tshwane garage (600-60) 540 Less: Payment to Debs Stationers (Stationery paid) (50) Purchases returns to Dennis cleaners not posted (34) Credit note from Dragon suppliers wrongly credited Instead of debited (R100X2) (200) R 9674 550 10224 (284) Balance as per creditors control account 9940 NOTES -Entries in the creditors control account are made from totals extracted from various books of original entry such as the cash payments journal (total of payments made to creditors), purchases journal (total of credit purchases), purchases returns (total of goods returned to suppliers). -As a result, corrections that should be made in the creditors control should pertain to (a) transactions omitted completely, (b) errors on the totals (understatements and overstatements) of the cash receipts journal (creditors column), purchases journal and the purchases returns journal, (c) transactions wrongly extracted from source documents. NB: In this particular question, the errors shall be corrected as follows: 40 P age

3.1. This affects the individual account as this payment was debited to the debit of stationery instead of debiting Debs Stationers. Since it was a payment, which reduces creditors, it should be corrected by deducting it from the list of debtors. No error was made in the Cash Payments Journal; as such no correction is required in the Creditors` control account. The creditors should be reduced by R50. 3.2. An error in the individual account should be corrected on the debtors listing or reconciliation statement but no correction should be made in the control account. The account had been under cast by R10 (R7 890 R7880), therefore, R10 should be added to the list of debtors. 3.3. An error in the casting or total of a book of original entry pertaining to creditors affects the creditors control account and it does not affect the creditors` listing (creditors reconciliation statement). This should be credited to the creditors control account to increase creditors (a liability increase on the creditors) since the purchases had been under cast by (R5 554-R5 455= R99). 3.4. A posting error affects the individual creditors account; therefore, it should be entered in the creditors reconciliation. This is a credit note, which is a proof of a reduction in our account such as a return of goods or reduction in our account such as a return of goods or reduction in charges. Since this reduces creditors, this should be deducted in the creditors` reconciliation. This reduces creditors by R34. 3.5. An error in the individual account, therefore, it should be corrected in the creditors listing (reconciliation). No correction is made in the creditors` control account. A credit note is supposed to be debited in the personal account of the creditor but this was credited in error. The correction should be double, one to reverse the wrong error and another one to enter the correct entry. As a result, the creditors listing should be reduced by R100x2= R200. 3.6. Errors in the individual account affect the creditors listing only. This invoice had been understated by R540 (R600-R60), therefore, this should be added to the creditors listing. The question is silent on the control account, as such; we assume there was no error in the creditors control account. GENERAL 1. Transactions pertaining to creditors completely omitted affect both the creators control account and the creditors accounts listing in the reconciliation. 2. Errors of extracting figures from source documents to the book of original entry affects both the creditors control account and the creditors accounts listing in the reconciliation. 3. Errors made in adding books of original entry pertaining to creditors are only corrected in the creditors control account and these do not affect the individual listings. 4. Wrong postings to individual creditors accounts are only corrected in the individual listings and these do not affect the control accounts. 41 P age

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QUESTION 2 ADJUSTMENTS- GENERAL JOURNAL MOJA TRADERS General Journal 1. Accrued Income (4950 11) 450 Rent income 450 Rent for 1 month not yet received 2. Packaging material on hand (inventory ) 1550 Packaging material 1550 Packaging material on hand at end of year 3. Commission income 750 Prepaid income 750 Prepaid income (commission) at end of year 4. Credit losses 58 Debtors control : J. John 58 Bad debts written off 5. Depreciation (34000 15000 ) x 10% 1900 Accumulated depreciation : equipment 1900 Deprecation on equipment for the year 6. Water and electricity 310 Accrued expenses 310 Water & electricity owing 7. Prepaid expenses (1950 13) 150 Insurances 150 Insurance prepaid for April 2010 GENERAL JOURNAL This is one of the books of original entry. All the transactions that are not entered in any of the six specific books of original entry (journals) are entered in the general journal. Examples of these entries are: i. Purchase of non-current assets on credit; ii. Correction of errors; iii. Closing adjustments; iv. Providing for depreciation; v. Writing off of debtors (credit losses); vi. Provision or allowances for credit losses, e.t.c. Correction of the errors 1. (a) Since only 11 months` rent was received, rent for one month (12-11) is owing. This represents an amount receivable (asset) which should be recognised. As a result the asset rent income accrued is debited. (b) Further income should be recognised in the current period. According to the matching (accruals) concept income should be recognised in the period in which the goods or services are rendered which might not be necessarily the period when the income is received. In this case, the tenant used the premise during the year ended 31 March 2010, as such the one month not yet paid (R4 950/11=R450) is added to income in the current period. 43 P age

2. (a) Packaging material on hand at end of year should be recognised as an asset which should be debited in the Inventory: Packaging material account as this should be utilised in future periods. (b) The packaging material on hand was included in the packaging expense when it was bought but now it was not used in the current period and the material will be used in future accounting periods. This material should then be deducted from the expense for this year and it should be expensed in the period when it shall be used (matching concept). The deduction is credited in the packaging material account. 3. (a) Commission was received before performance or the actions that give rise to income. When the money was received, it was credited to the income account. Since it belongs to future periods, it should be deducted from the current year`s income and it should be matched to the periods when performance of the actions that result in income is done. As a result debit commission received (reduction in income). (b) The commission received in advance should also be recognised as a liability. It will only become the income when the entity has fulfilled the requirements. The liability income received in advance should be credited. 4. (a) The debt which will not be recovered is a business expense as the income recognised upon the sale will no longer be receivable. As a result, we credit the credit losses expense. (b) The debtor (an asset) is going down as it is no longer recoverable. This should be credited in the debtors control account and/or J. John`s account in the debtors` ledger. 5. (a) Depreciation is an expense and it should be debited. It is a measure or estimation of the loss in value of non-current assets. In this case, it is being calculated using the diminishing balance method. It is calculated as follows: Percentage (%) x (Cost Accumulated Depreciation) (b) Depreciation reduces the value of non-current assets. A reduction in assets is credited to the asset account. When non-current assts reduce due to depreciation, the depreciation for the period is credited to the accumulated depreciation account according to the International Accounting Standards (IAS16). 6. (a) Water and electricity accrued represents an expense for the current period since the electricity was used during the period for the generation of income. To add to the expenses we debit the water and electricity account. (b) The water and electricity owing is a liability as it represents an obligation to pay money resulting from present activities, that is, the electricity supplied. The liability is credited to the expenses accrued account 7. (a) The insurance paid in advance represents our money; therefore, it should be recognised as an asset: Prepaid expense. It will only belong to the insurance company in the relevant future periods. This asset is debited in the Insurance Prepaid (Asset account). (b) When this insurance was paid it was debited in the insurance expense account. Since this expenditure does not belong to this period, it should be deducted from the insurance expense account. This is credited to the insurance account. 44 P age

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SOLUTION 3: INCOMPLETE RECORDS (a) The statement of assets and liabilities is used in most instances to determine equity through the application of the Basic Accounting Equation (BAE); Assets= Equity + Liabilities; transformed to, Equity= Assets Liabilities. Thus, equity is determined by deducting total liabilities from total assets. B. BULL Statement of assets and liabilities as at 31 March 2009 Assets Non Current Assets 38 500 Property, plant & equipment (155 00+23 000) 38 500 Current assets 15 950 Trade and other receivables (2 400 + 750) 3 150 Cash and cash equivalents 4 300 Inventory 8 500 Total assets 54 450 LIBILITIES Non- current liabilities CURRENT LIABILITIES 17 300 Trade and other payables 17 300 Total liabilities 17 300 Accounting equation Assets = Equity + Liabilities R54 450 =R? + R17 300 Equity = R54 450 R17 300 = R37 150 (b) Bank A bank account is a financial account between a bank customer and a financial institution. A bank account can be a deposit account, a credit card, or any other type of account offered by a financial institution. The opening balance is favourable; therefore, it represents money in the bank, which is an asset. As a result it is banked in the bank account. All payments are credited in the bank account because they reduce an asset representing the amount in our bank account. All receipts are debited in the bank account as they represent an increase in an asset (the money in the bank). 46 P age

B. BULL GENERAL LEDGER Date Details Folio Amount Date Details Folio Amount R R Bank Account 2010 March 31 b/d 4 300 2010 March 31 Balance Receipts (48 670+7 700) Balance crj c/d 56 370 580 Payments (13 290+800+19 800+5 090+2 710+4 560+15 000) cpj 61 250 61 250 61 250 April 1 Balance b/d 580 Debtors This is an asset and it is represented by a debit balance. The opening balance (31 March 2009) will be shown as a debit balance b/d whilst the closing balance (31 March 2010) will be credited as a balance C/D. All reductions in debtors are credited. Examples are payments by debtors, sales returns, settlement discounts granted, credit losses, e.t.c. The only credit in this particular question is the receipt from debtors. All the other deductions are assumed not to have taken place if they are not indicated on the question. Increases in debtors result from transactions such as sales, interest charged on overdue accounts, e.t.c are debited to the debtors account since these increases the asset debtors. The only debit in this question is sales as the existence of debtors automatically means that there were sales during the period. All the other debits are assumed not to have taken place as long as they do not appear on the particular question. The credit sales will therefore be the missing figure. Bills, especially bills of exchange, which are due to be paid by a company's debtors. These should be treated in the same way as opening and closing debtor balances. 47 P age

Sources of information for the debtors control account Date Details Folio Amount Date Details Folio Amount R R Debtors Account 2010 March 31 2010 March 31 Balance Bills Receivable Credit sales* b/d b/d s/j 2 400 750 7 650 Bank Bills Receivable Balance Crj c/d c/d 7 700 1 200 1 900 10 800 10 800 April 1 Bills Receivable Balance b/d b/d 1 200 1 900 *Credit sales (balancing figure= 7 700+1 200+1 900)-(2 400+750) =7 650 b/d Creditors This is a liability, therefore, the opening balance (31 March 2009) should be shown on the credit side whilst the closing balance (31 March 2010) should be shown as a balance c/d on the debit side above the total. Increases in creditors from transactions such as credit purchases, interest charged by our suppliers on overdue accounts are credited to the creditors account. In this case, only purchases are credited in addition to the balance b/d. The fact that there are creditors automatically validates the existence of purchases. As the credit purchases are the only unknown figure in the purchases account, this will be calculated as a balancing figure. Decreases in creditors are debited. These result from transactions such as payments to creditors, purchases returns, settlement discounts received e.t.c. In this case, we assume only payments took place since all the others are not mentioned in the question. 48 P age

Sources of information for the creditors control account Date Details Folio Amount Date Details Folio Amount R R Creditors Account 2010 March 31 2010 March 31 Bank Balance cpj c/d 13 290 14 300 April 1 Balance Purchases* Balance b/d pj b/d 17 300 10 290 10 800 10 800 *Credit Purchases= (13 290+14 300) - 17 300= 10 290 Insurance Increases in expenses are debited to the expense account and decreases are credited to the expense account. Insurance is a business expense and payments of expenses are debited to the expense account. The insurance was paid on 2 July 2009 for an annum. The year from the beginning of July 2009 ends in June 2010, which means that the payment for April 2010 to June 2010 (3 months) is a prepayment as it falls outside the current year ended 31 March 2009. Since this amount does not belong to this period, it should be deducted from the expense account by crediting the insurance account as prepaid expense. The difference between the debit side and the credit side (balancing figure) will represent the amount to be transferred to the profit and loss account when preparing the final accounts. This amount is normally on the credit side of an expense account. The prepayment (three months) = R800x3/12=R200. Date Details Folio Amount Date Details Folio Amount R R Insurance Account 2010 March 31 Bank cpj 800 2010 March 31 Prepaid expense Profit or loss gj gj 200 600 10 800 10 800 49 P age

Rent expense Increases in expenses are debited to the expense account and decreases are credited to the expense account. Rent payable is a business expense and payments of expenses are debited to the expense account. The amount not paid for rent represents an expense for this period, although not yet paid; it should be added to the expense account. The rent was incurred in the current year; therefore, it should be recognised in the current year in compliance with the matching concept. The total will be transferred to the profit and loss account as it represents the actual rent expense for the period. The difference between the debit side and the credit side (balancing figure) will represent the amount to be transferred to the profit and loss account when preparing the final accounts. This amount is normally on the credit side of an expense account. Date Details Folio Amount Date Details Folio Amount R R Rent Expense 2010 March 31 2010 March 31 Profit or loss gj 21 600 Bank Accrued expenses Cpj gj 19 800 1 800 21 600 21 600 50 P age

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4. CLOSING ENTRIES AND FINAL ACCOUNTS When preparing the trading account, all the accounts required in the calculation of gross profit are closed off to the trading account. (a) The sales account is debited and the trading account is credited with the sales account balance. Income accounts are transferred to the credit side of final accounts. (b) The inventory account is credited and the trading account is debited with the opening inventory. (c) The purchases account is credited and the trading account is debited with the purchases account balance at end of period. Expense accounts are debited to the final accounts. (d) The closing inventory is debited in the inventory account and credited to the trading account. (e) The sales returns account is credited and the trading account is debited with the sales returns balance at the end of the period. These represent goods previously sold but now returned by our customers for various reasons, e.g. damaged goods, wrong type of goods. As a result these should be deducted from the sales of the period as they had been included in sales on the date of sale. (f) The purchases returns account is debited and the trading account is credited with the purchases returns balance at the end of the period. These represent goods previously purchased but now returned to our suppliers for various reasons, e.g. damaged goods, wrong type of goods. As a result these should be deducted from the purchases of the period as they had been included in purchases on the date of purchase (g) The settlement discount granted balance at end of period is closed off to sales. The settlement discount granted account is credited and the sales account is debited. These are reductions given to customers for paying within the stipulated period and they are offered as an incentive for paying in time. As these reduce the amount that will be finally payable by our customers, they should be deducted from the sales figure as it will have initially included the discount component. (h) The settlement discount received balance at the end of the period is closed off to the purchases account. The settlement discount received account is debited and the purchases account is credited. These are reductions given to the business by the suppliers for paying within the stipulated period and they are offered as an incentive for paying in time. As these reduce the amount that will be finally payable to the suppliers, they should be deducted from the purchases figure as it will have initially included the discount component. (i) Trading expenses balances at end of period such as carriage on purchases, freight on purchases, customs duty, insurance on purchases, e.t.c are credited and the trading account is debited. After all the transfers above have been made to the trading account, the total amounts on the debit side, are compared to the total on the credit side and if: i. The credit side is larger; there is a gross profit, which is closed off by debiting the trading account and crediting the profit or loss account. ii. The debit side is larger; there is a gross loss, which is closed off by crediting the trading account and debiting the profit or loss account. 52 P age

Instead of making all the separate closing transfers to the trading account, a combined journal is recorded as follows: Date Details Folio Debit Credit R R 2013 December 31 Sales Purchases returns Inventory (closing) Inventory (opening) Purchases Sales returns Carriage inwards Insurance on purchases Trading account XXX XXX XXX XXX XXX XXX XXX XXX XXX NB: The above closing entries are done after closing off the settlement discounts accounts to sales and purchases If the debit side are more than the credit entries, the trading entry will appear on the credit side (gross profit) and if the credit side are more than the debit entries, the trading entry will appear on the debit side (gross loss). After preparing the trading account, we then prepare the profit or loss account. The gross profit or loss will have been closed off from the trading account to the profit or loss account as stated above. The expense and income accounts are closed off to the profit or loss account. a) Income accounts are closed off by debiting the income accounts and crediting the profit or loss account. b) The expense accounts` balances at the end of the period are closed off by debiting the profit and loss account and crediting the expense accounts. 53 P age

Again, instead of closing of the component accounts separately, it can be better to make a combined journal entry of all the incomes and expenses as follows: Date Details Folio Debit Credit R R 2013 December 31 Rent income Interest income Donations received Commission earned Water and Electricity Wages and Salaries Telephone Advertising Stationery Credit losses Depreciation Insurance Packaging materials Donations paid Profit or loss XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX NB: The profit or loss entry depends on which side is larger (it appears on the smaller side). If the debit entries are larger than the credit entries, the profit or loss entry will appear on the credit side and this represents a profit. If the credit entries are larger than the debit entries, the profit or loss entry will appear on the debit side and this represents a loss. The profit or loss account is closed off to the capital account. If there is a profit, we debit the profit or loss account and credit the capital account. If there is a loss, we debit the capital account and credit the profit or loss account. Drawings are closed off to the capital account by debiting capital account and crediting the drawings account. 3.1 Robust Traders 54 P age

GENERAL JOURNAL Date Details Folio Debit Credit R 2009 June 30 Capital 2 445 Drawings June 30 Sales 553 Settlement Discount Granted R 2 445 553 June 30 Settlement discount received Purchases June 30 Sales (256 400-553) Purchases returns Closing inventory Trading account June 30 June 30 Trading account Purchases (154 880-155) Carriage on purchases Sales returns Inventory (opening) Trading account (Gross Profit: 269 642-171 608) 155 255 847 245 13 550 171 608 98 034 155 269 642 154 725 660 1 338 14 885 98 034 June 30 June 30 June 30 Commission income Rent income Profit and Loss Account Profit or Loss Credit losses Depreciation Insurance Packing materials Wages Water and Electricity Profit or Loss Account: Net Profit (98 034+18 600-82 519) Capital 15 000 3 600 82 519 34 115 18 600 244 15 400 2 400 3 300 56 775 4 400 34 115 Date Details Folio Amount Date Details Folio Amount R R Trading Account 2009 June 30 2010 March 31 55 P age Inventory (opening) Purchases (C2) Carriage on Purchases Sales Returns Profit or Loss (Gross Profit) 14 885 154 725 660 1 338 98 034 Sales (C1) Inventory: closing Purchases returns 255 847 13 550 245

269 642 269 642 Date Details Folio Amount Date Details Folio Amount R R Profit or Loss Account 2009 June 30 2010 March 31 Credit losses Depreciation Insurance Packing materials Wages Water and Electricity Capital (Net Profit) 244 15 400 2 400 3 300 56 775 4 400 34 115 Trading Account (gross profit) Commission income Rent income 98 034 15 000 3 600 21 600 21 600 C1: Sales Sales = Sales-Settlement discount granted = R256 400-R553 = R255 847 C2: Purchases Purchases= Purchases-Settlement discount received = R154 880-R155 = R154 725 56 P age

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DATE SOLUTION 5: CASH JOURNALS; VAT CASH RECEIPTS JOURNAL This is a book of original entry in which we record all receipts of money. The analysis columns for receipts are entered at the end of each day as it is entered when amounts are banked. According to the question, cash and cash equivalents are daily deposited at the bank. VAT output refers to the VAT charged to our customers. This amount belongs to SARS. It is entered at the point of charging, not at the point of payment. As such, VAT is charged at the point of sale, whether on cash or on credit. We calculate VAT for cash sales and enter it in the VAT output column in the Cash Receipts Journal and we calculate VAT on credit sales and enter it in the VAT output column in the Sales Journal. No adjustment for VAT is made when customers settle their accounts. If selling price or transactions are inclusive of VAT, as in most cases, calculate VAT by multiplying by the factor 14/114 derived as follows: Price exclusive of VAT = 100% VAT = 14% Price inclusive of VAT = 114% Therefore, vat = 14/114x Price inclusive of VAT Or VAT= 14/100x Price exclusive of VAT Some transactions are exempt of VAT, such as the sale of non-current assets for which VAT is not claimable upon purchase such as motor vehicles, salaries and wages, petrol, e.t.c. DOC. NO DETAILS ANALYSI S OF RECEIPT S Bravo Traders CASH RECEIPTS JOURNAL BANK SALE S DEBTO RS CONTR OL SETTLEM ENT DISCOUN T GRANTE D VAT INPUT VAT OUTP UT SUNDRY ACCOUNTS 2010 Mar 1 CRR Cash sales 684 600 1 84 1 776 B. Bord 650 707 2 50 2 (7) 2 777 B.Bravo 25 000 26 334 6 25 000 Capital 7 CRR Cash Sales 2 850 2 850 2 500 3 350 3 14 778 Prince Garage 5 500 4 5 500 Motor vehicle Disposal CRR Cash sales 7 068 12 568 7 6 200 5 868 5 41 752 9300 707 50 (7) 1302 30 500 1. Cash Sales R684 VAT = 14/114X R684 = R84 Sales = R684- R84 = R600 58 P age

2 Account balance = R707 Amount received = R650 Settlement discount granted = R 57 VAT =14/114xR57= R7 (VAT Input) Actual settlement discount granted = R50 The VAT on settlement discount granted is transferred to VAT Input account to reduce the amount owed to SARS. When we sold the goods, we had created VAT output from the sale which indicates that we owe SARS but now we are no longer going to receive the VAT component on discount, so we should reduce the amount owed to SARS. This is done by entering in amount owed to SARS. This is done by entering in VAT input. The total amount due, is entered in the debtors column, since this represents the total debt settled. 3 Cash Sales R2 850 VAT = 14/114X R2 850 = R350 Sales = R2 850- R350 = R2 500 4 There is no VAT on the sale of vehicles because in accordance to VAT laws, no VAT is claimable upon the purchase of vehicles. If VAT cannot be claimed when we purchase an item, therefore, VAT cannot be payable upon disposal. 5 Cash Sales R7 068 VAT = 14/114X R7 068 = R868 Sales = R7 068- R868 = R6 200 In the sales column, we enter the price exclusive of VAT, since this is the amount that belongs to the sales of the business. The VAT is entered in the VAT output whilst the total is entered in the bank column since the customer pays us the sum inclusive of VAT. 6 Banking (1March 2010) = R684+R650+R25 000 = R26 634 7 Banking (14 March 2010) = R5 500+ R7 068 = R12 568 CASH PAYMENTS JOURNAL This is the book of original entry in which we record all payments made. The payments are entered inclusive of VAT in the bank column and the VAT component is entered in the VAT input column as this represents an amount we should claim from SARS. VAT is charged when the business are charged for goods or services, as such, no VAT will be accounted for when settling a creditor except for a component of settlement discount received, if any, as the VAT component on settlement discount should be reversed to VAT output. This is because, this is a claim we had initially recorded but we can no longer claim it since we will no longer pay it to the supplier. 59 P age