Tutorial Work 101/2023

Question 1
1.1 Some reports are prepared as at a particular date, whilst others are prepared
for a period in time. Which method is used for the statement of financial
position and why? (2)

1.2 What is the primary information that the cash flow statement gives its users?
(1)
1.3 Consider the following two transactions:
a) Company A purchased a motor vehicle and paid R30 000 cash
b) Company A sold inventory for R30 000 cash
Explain, using the definition of ïncome”, whether each of these transactions result
in income being earned for Company A. (3)
1.4 Refer to the statement of financial position of Mhlanga Business
Centre as at 31 January 2019 below and answer the questions that follow:
ASSETS EQUITY
Vehicles 120 000 Capital 100 000
Inventory 30 000 Retained Profit 25 000
Bank 18 000
LIABILITIES
Loan 43 000

Total assets 168 000 Total equity & 168 000

Liabilities

Assume that Mhlanga Business Centre has only been operating for one
financial year.

1.4.1 Briefly explain what the statement of financial position communicates to

the users of financial statements. (1)

1.4.2 Assume that drawings for the year amounted to R10 000. Calculate
the profit/loss that was made for the financial year. (1)

1.4.3 “Drawings are recorded as an expense in the statement of

comprehensive income”. Is this statement true or false? You need to
give a reason for the answer you provide. (1)

1.5 Briefly explain what you understand by the entity concept”. (2)
 1.6 Spa Shop has a year-end of 31 January. The business receives the
electricity bill for January 2019 for R2 300. Eskom is paid the full amount on 10
February 2019.
At 31 January 2019:
1.6.1 What amount will be recognised on the SOCI for the year ended 31
January 2019?

1.6.2 What amount will be recognised on the SCF for the year ended 31
January 2019?

1.6.3 What amount will be recognised on the SOFP as at 31 January 2019?

1.7 Mzi-Wabantu has an electronics business called Mzi-Wabantu Retail
Business. The following transactions occurred during December 2019:
ASSET - EQUITY + LIABILITY
1 +R120 000 Bank +R120 000 Loan
9 +R18 000 inventory
-R18 000 Bank
20 +R35 000 Trade +R35 000 Sales
receivables income
-R20 000 Inventory -R20 000 Cost of
sales

1.7.1 Some reports are prepared as at a particular date, whilst others are prepared
for a period in time. Which method is used for the statement of
comprehensive income and why? (1)

1.7.2 Briefly explain in your own words what transaction took place on 1 December
2019 and identify what business decision was being made. (2)

1.7.3 Consider the following two transactions:

a) Mzi Wabantu Retail Business buys a popcorn machine for R150 000, on
credit from Chinatown.
b) Mzi Wabantu Retail Business sells the popcorn for R35 000 cash.
Explain, using the definition of an “asset”, whether each of these transactions
results in an asset being recognised for Mzi Wabantu Retail Business. (3)
1.7.4 “Drawings are recorded as an expense in the statement of comprehensive
income.” Is this statement true or false? You need to give reasons for the
answer you provide. 1 (2)

1.8 Briefly explain what accrual concept is? (2)

1.9 The business purchased the inventory for cash on the 9 December 2019. How
else could the business have purchased the inventory from Wa-Who suppler.
Explain briefly how the alternative method of purchasing inventory works. (2)
1.10 Calculate the profit/ loss that was made by the business on the 20 December
2019. (2)

QUESTION 2 (14 MARKS)

Sellati Limited is a retail business which has a financial year end on 31 December.
On 30 November 2018 the accountant recorded the following journal entry
and it was posted to the ledger:
2018
Nov 30 Dr Inventory 20 000
Cr Sugar Wholesalers Ltd 20 000
The amount of R20 000 represents the purchases of merchandise from Sugar
Wholesalers Ltd, a supplier of sugar products to retail businesses.
REQUIRED:
2.1 Identify the element of financial statements which was debited in the above
journal entry.
Element debited
2.2
Explain the element you have chosen in 1.1.
Your explanation/motivation should refer only to the definition criteria of this element
in accordance to the conceptual framework of 2018.
Thus, "Inventory" is a/an ………………… because: ……. (6)
2.3 Identify the element of financial statements which was credited in the above
journal
entry.
Element credited

2.4
Explain the element you have chosen in 1.3.
Your explanation/motivation should refer only to the definition criteria of this element
in accordance to the conceptual framework of 2018.
Thus, "Sugar Wholesalers Ltd" is a/an ………………… because: (6)
QUESTION 3 (7 MARKS)
Sellati Limited is a retail business which has a financial year end on 31 December.
On 30 November 2018 the accountant recorded the following journal entry
and it was posted to the ledger:
Year/month Da Description Debit Credit
y
2018 Nov 30 Equipment 5 000
Bank 5 000

The amount of R5 000 represents the purchases of equipment which will

be used to manufacture inventory. The bank had an unfavourable balance at that
date.
REQUIRED:
3.1 Explain/Motivation why equipment is an asset. Refer only to the
definition criteria of an asset in accordance to the conceptual framework of 2018. (6)
3.2 Explain/Motivation why the bank overdraft is a liability. Refer only to
the definition criteria of a liability in accordance to the conceptual framework of
2018.

Question 4. 61 Marks: 73 Minutes

Handbags for Africa had the following transaction during January 2020.
1. Judy, the owner of Handbags for Africa, deposited R250 000 into the business
account as her start-up capital.
5. Purchased a Hyundai H100 for the business using the personal funds of the
owner to the value of R399 900.
9. Purchased inventory costing R85 000 on credit from Coronavirus.
11. Sold good to customers for R25 300 that had cost of R18 700 on credit.
17. Purchased a house for the business for R950 000. A deposit of R120 000 was
paid out of the entity’s bank account and the balance was paid by taking out a
mortgage bond over the property.
24. Paid for the gardening services at the entity’s premises, R5 500
30. Judy took stock worth R9 520 from the business for her son’s 12st birthday
party.

You are required to:

1. Show how the transactions above affect the financial position of the business as
represented by A = E + L. You need to clearly indicate whether the element has
increased or decreased and provide the relevant amount and account that would
be affected as well as the source document and the subsidiary journals. (20)
 No, Assets = Equity + Liabilities Source Subsidiary
document Journals

2. Identify the type of business key decision in transactions 1, 5, 11 and 30 above.

Provide a brief explanation of the type of decision made. (6)

3. Prepare the general journal entries of Handbags for Africa to record transactions
5,11,17 and 30 above. Show dates and narrations (10)

4. Briefly explain what do you understand about the Principle of double entry. (1)

5. Prepare ALL ledger accounts in the general ledger of Handbags for Africa for the
month of January 2020. The account must show dates and contra accounts, and must
be properly balanced. (16)

6. Prepare the Trial Balance for the month of January based on the questions 5 above. (8)

Question 5 (9 marks: 11 minutes)

Recently, your Uncle Thandimali Finance, who knows that you always have your eye
out for a profitable investment, has discussed the possibility of purchasing some
shares in Orlando Pirate (Pty) Limited.
You have told Thandimali that, unless you can take a look at Orlando Pirate’s
financial statements, you would not feel comfortable about such an investment.
Thandimali has procured a copy of Orlando Pirate’s most recent, unaudited financial
statements, which are a year old. These statements were prepared by Mrs. White.
The statements seem quite impressive. The statement of financial position indicates
that of the assets of R10m, R8m have been funded by the owner and, for the year
shown, the company reported net profit of R2.4 million.
You have noticed notes indicating that the business has purchased certain items
using outside finance (debt). Given that they do not legally own these items, the
items are not reflected on the statement of financial position.
Two of the machines (still reflected on the statement of financial position) are not
being used as their products have not sold for the past two years. The machines
could be sold for 30% of their carrying value.
The financial statements are not shown in comparison with amounts from other
years. In addition, no information about how inventory or any other assets have
been measured appears in the notes.
You are required to:
1. Do you believe that the information provided by these financial statements is
useful in making economic decisions? (2)

2. Identify whether or not the fundamental qualitative characteristics are present

(provide examples). (3)

3. Identify whether or not all of the enhancing qualitative characteristics are

present (provide examples) (4)
ANSWER QUESTION 2:
1.1
Element debited Asset

1.2
Motivation:
Thus ‘inventory’ is an asset because

1. Inventory is a present economic resource

Sellati Limited has the right to sell the inventory.
There is the potential to produce economic benefits through the inflow of
cash (or another economic resource), when the inventory is sold.
2. The inventory is controlled through legal ownership.
3. There was a past event
The inventory was purchased (cause) and Sellati Ltd gained the economic
benefits of the inventory (result/effect) on 30 November 2018 which was
before the financial year end of 31 December 2018.

1.3 Identify the element of financial statements which was credited in the above
journal entry.
Element credited Liability

1.4
Explain the element you have chosen in 1.3.
Motivation:
Thus, "Sugar Wholesalers Ltd" is a liability because

1. Sugar Wholesalers Ltd (the trade payable) is a present obligation, because

Sellati Limited has the duty to pay the supplier
Sellati Limited has no practical ability of avoiding the duty due to the legal
contract of purchase.
2. The obligation has the potential to result in a transfer of an economic
resources.
Sellati Limited will have to transfer cash to meet the obligation.
3. There was a past event.
The inventory was purchased (cause) and Sellati Ltd gained the economic
benefits of the inventory (result/effect) on 30 November 2018 which was
before the financial year end of 31 December 2018.
ANSWER:
3.1
Motivation:
The "Equipment" is an asset because:

1. The equipment is a present economic resource

Sellati Limited has the right to direct the use of the equipment. ü
(Direct = when, how, keep or sell the equipment)
There is the potential to produce economic benefits through the
manufacture of inventory. (inflow of other economic resources)
2. The equipment is controlled through legal ownership.
3. There was a past event.
The inventory was purchased (cause) and Sellati Ltd obtained control of the
equipment (result/effect) ü on 30 November 2018 which was before the
financial year end of 31 December 2018.

2.2
Motivation:
The bank overdraft is a liability because:

1. The overdraft is a present obligation, because

Sellati Limited has the duty to pay the bank.
Sellati Limited has no practical ability of avoiding the duty due to the legal
nature of the overdraft / credit granted.
2. The obligation has the potential to result in a transfer of an economic
resources. Sellati Limited will have to transfer cash to meet the obligation.
3. There was a past event.
Sellati Limited obtained an economic benefit by using the overdraft facility
(cause) and it resulted in a potential transfer of economic resources
(result/effect). The past event happened on 30 November 2018 which was
before the financial year end of 31 December 2018.

QUESTION 3 (3 MARKS)
Sellati Limited is a retail business which has a financial year end on 31 December.
On 30 November 2018 the accountant recorded the following journal entry
and it was posted to the ledger:
Debit Credit
2018 Nov 30 Salaries and wages 40 000
Bank 40 000
The bank had a favourable balance at that date.
REQUIRED:
3.1
Explain/Motivation why salaries and wages is an expense. Refer only to the
definition criteria of an expense in accordance to the conceptual framework of
2018.
3.1
Motivation:
The salaries and wages is an expense because
1. There is a decrease in assets: Sellati’s favorable bank balance was
decreased
2. The decrease in assets resulted in a decrease in equity:
The transaction decreased the asset but did not change the liabilities,
and thus equity does decrease.
3. The decrease in equity is not a distribution to a holder of an equity claim
The cash payment was made to employees and not to a holder of an
equity claim (e.g.
ordinary shareholders) and thus is not a distribution to a holder of any
equity claims.

Solution 5

1. Information is not relevant(1) - unaudited financial statements(1)

2. Fundamental Characteristic
Complete(½) – Debt assets not reflected on AFS(½)
Neutral(½)
Free from errors(½)

3. Enhancing Characteristic
Comparability(½) – Figures are not shown in comparison(½)
Timeliness(½) - Year old AFS(½)
Understand ability(½)
Verifiability(½)