Question 4

Taku-Tau Store’s financial year-ends on 31 December each year. On 31 December

2011, the owner of Taku-Tau Store needed the financial statements in order to see
how the entity has performed during the current financial year. Unfortunately, the
bookkeeper of Taku-Tau Store was sick and could not able to prepare the financial
statements. The following list of accounts balance was provided to you by the
bookkeeper as at 31 December 2011.

N$

Capital 141 700

Land and building at cost 263 240

Motor vehicle (Cost price N$40 000) 28 800

Equipment (Cost price N$9 000) 7 290

Investment: Chineke bank (12%) 50 000

Inventory 8 500

Accounts receivables 5 200

Bank (favourable) 3 100

Cash 600

Accounts payables 9 550

Long-term loan: 18% 25 000

Provision for unpaid debts 300

Sales 381 000

Cost of sales 165 400

Sales return 1 200

Salaries and wages 27 000

Assessment rates 1 500

Prepaid insurance 380

Accrued advertisements 790

Motor vehicle expenses 4 500

Bad debts 550

Packaging materials 4 700

Insurance 2 250

Water and electricity 2 100

Telephone expenses 1 400

Advertisements 2 000

Rent income 15 600

Settlement discount received 650

Interest on investment 5 000

Bad debts recovered 120

The bookkeeper also informed you regarding the following transactions which must
still be taken into account:

1. During the inventory count at the end of the financial year 31 December 2011,
packaging materials was valued at N$980.
2. Prepaid insurance and accrued advertisement are due in the current financial
period.
3. The long-term loan was entered into on 1 July 2011. According to the
agreement interest will be payable at the end of the year.
4. Advertisement includes and amount of N$400 paid for January next year.
5. Insurance amounting to N$750 was still outstanding at the end of the current
financial year.
6. Depreciation policy of Taku-Tau Store is to depreciate all the non-current
assets using the reducing balance method at a rate of 10%, Land and
buildings are not depreciated.
7. The account of Mr Dumingu, a debtor owing Taku-Tau Store N$200 must be
written-off as irrecoverable.
8. Adjust the provision for unpaid debt to 5% of outstanding debtors.

Required:

a) Prepare journal entries to bring the adjustments into account.

b) Prepare the statement of Profit or loss of Taku-Tau Store for the year ended
31 December 2011.
c) Prepare the statement of financial position of Taku-Tau Store as at 31
December 2011.