ACCOUNTING 1

QUESTION 1

1.
1.1.

Component of financial
No. Account Element
Statement
1.1.1. Equipment Asset SOFP – Non Current Asset
1.1.2. Electricity Expense SOCI - Expense
1.1.3. Services Rendered Income SOCI - Income
1.1.4. Investment in Shares Asset SOFP – Non Current Asset
1.1.5. Dividends Received Income SOCI – Other Income
1.1.6. Trade Receivable Asset SOFP – Current Asset
1.1.7. Long-term Borrowings Liability SOFP – Non Current Liability
1.1.8. Interests on Borrowings Expense SOCI – Finance Cost
1.1.9. Drawings Equity SOCE – Equity &
SOFP – Total Equity
1.1.10. Capital Equity SOCE – Equity &
SOFP – Total Equity

1.2.
Liability: is something a business owes to others, like money or services, due to
past events. It's an obligation that the business is required to settle in the future,
usually by paying money, delivering goods, or providing services.

the three criteria for showing a liability in the financial statements:

• Probability of future economic benefits
• Reliable measurement of cost or value of an item
• Probable Outflow of Resources:
1.3.
Financial statements are prepared under the assumption that the entity is going
to continue to exist into the foreseeable future and therefore all records are kept
using going concern values.

If there is any doubt that the entity will continue to exist, owners of the entity are
obliged to inform users accordingly in a note to the financial statements.
Auditors are also expected to consider whether the assumption is appropriate
or not and report any doubts of the entity’s ability to continue to exist.
 1.4.
• Relevance: Information is relevant and useful if it can influence the
decisions of the users by helping them to evaluate past, present and
future activities and events.

Qualities:
▪ Nature
▪ Materiality
• Faithful Representation: Financial information must reflect the reality of
the transaction faithfully. The information must be complete, free from
error and neutral. There must be consistency in the application of
principles and policies to ensure comparability over time and with other
similar entities.

Qualities:
▪ Comparability
▪ Verifiability

Question 2.

2.
2.1. Assets = Equipment + Inventory + Bank
= 73 000 + 58 000 + 97 500
= 228 500
Liabilities = Trade payables + Long term borrowing
= 22 000 + 50 000
= 72 000
Capital = Assets – Liabilities
= 228 500 – 72 000
= R156 500
 2.2.
No Assets = Equity + Liabilities
Non- Current Capital Income + Non- Current
Current Expenses Current
Equipment: Bank: = R156 500 + Long-term Trade
R73 000 R97 500, + Borrowings Payables
01.03.2019 R50,000 R22,000
Inventory:
R58 000
Equipment = +R39,000 +
01.11.2019
+R39,000
Bank = +R638,000 +
+R368,000 +
31.12.2019
Trade
Receivables
+R270,000
Bank = + Trade
-R93,000 = + Payables
31.01.2020 +R217,000
Inventory
+R310,000
Bank = -R144,000 +
31.01.2020
-R144,000
Bank = + Trade
31.01.2020 -R210,000 Payables -
R210,000
Inventory = +
28.02.2020
-R293,000
Bank = -R4,500 +
28.02.2020
-R4,500
Question 3.

3.
3.1.

Income
R858
Service Rendered 800,00
R25
Rent Income 500,00

R884
Total Revenue 300,00

Expenses
R234
Salaries and Wages 500,00
R58
Consumable Material 000,00
R60
Rent Expense 600,00
Telephone R7 920,00
R42
Electricity and Water 280,00
Interest on Borrowings R5 000,00
Bad Debts R2 600,00
Allowance for Credit Losses Adjustment R518,00
R10
Repairs and Maintenance (vehicle repairs) 000,00
R39
Depreciation on Equipment 000,00
R27
Depreciation on Vehicles 500,00

R487
Total Expenses 918,00

R396
Profit for the year 382,00

R396
Other Comprehensive Income 382,00
3.2.
3.2.1.

Pre-adjustment Trade Receivables = R130,600

Bad Debts to be written off = R2,600
Adjusted Trade Receivables = R130,600 - R2,600 = R128,000
Allowance for Credit Losses Adjustment:
Adjusted Allowance for Credit Losses: 3% of outstanding
receivables
Allowance = 3% × R128,000 = R3,840
Net Trade Receivables after allowance for credit losses:
= R128,000 - R3,840 = R124,160

Final Value for Trade and Other Receivables = R124,160

3.2.2.
To determine the final value for Inventory (Consumable Material), we adjust
for stock on hand:

Pre-adjustment Inventory (from the trial balance) = R128,000

Closing Stock (from physical count) = R70,000

the closing stock of R70,000 is the value that will be reflected in the
Statement of Financial Position.

Final Value for Inventory: Consumable Material = R70,000

3.2.3.
To determine the value for Trade and Other Payables, consider any unpaid
expenses:

Pre-adjustment Trade Payables = R130,000

Unpaid Telephone Expense = R1,200 (not yet recorded)
Since this telephone expense is not yet recorded, it will increase the value
of Trade and Other Payables.

Final Value for Trade and Other Payables = R130,000 + R1,200 = R131,200