QUESTION ONE

1.1

No Account element Component of

financial statement.
1.1.1 Equipment Asset SOFP
1.1.2 Electricity Expense SOCI
1.1.3 Services rendered Income SOCI
1.1.4 Investment in shares Asset SOFP
1.1.5 Dividends received Income SOCI
1.1.6 Trade receivable Asset SOFP
1.1.7 Long term borrowings Liability SOFP
1.1.8 Interest on borrowings Expense SOCI
1.1.9 Drawings Equity SOFP
1.1.10 Capital SOFP SOFP

1.2

A liability is something a company owes, usually a sum of money. Liabilities are settled over
time through the transfer of economic benefits including money, goods, or services. Recorded on
the right side of the balance sheet, liabilities include loans, accounts payable, mortgages,
deferred revenues, bonds, warranties, and accrued expenses.

In general, a liability is an obligation between one party and another not yet completed or paid
for. In the world of accounting, a financial liability is also an obligation but is more defined by
previous business transactions, events, sales, exchange of assets or services, or anything that
would provide economic benefit at a later date. Liabilities are usually considered short term that
is expected to be concluded in 12 months or less or long term referring to those taking 12 months
or greater.

The first criteria needed to show liability in the financial statements is that the liability is
required to "embody a present duty or responsibility ... that entails settlement". In legal terms this
would be an obligation to pay a specific party or parties. By strict definition, accrual in advance
may not meet this definition. When considering the financial substance of the transaction and its
effect on current financial position, the liability created under the accrue in advance method may
be a far more accurate measurement. Accrue in advance allows for true matching of expenses
and liabilities to the periods in which they occurred.

The second criteria needed to show liability in the financial statements requires "the duty or
responsibility obligates a particular entity, leaving it little or no discretion to avoid the future
sacrifice". From a practical standpoint, major overhaul costs cannot be avoided, and in some
cases they are strictly regulated. Weather accrue-in-advance meets this portion of the definition
would depend on the intent of the applying party. While the third criteria needed to show liability
in the financial statements is that it requires “the transaction or other event obligating the entity
has already happened".

In conclusion, aside from the definition of liability issue, we believe that the accrue in advance
method of accounting for major maintenance activities is a financially sound method of
accounting. When considering an entities financial position and results of operations, this method
provides the most accurate matching of costs to the period in method of accounting. When
considering an entities financial position and results of operations, this method provides the most
accurate matching of costs to the period in which they were incurred, in which they were
incurred.

1.3 Going Concern Assumption. Its significance is that it provides an accurate picture of overall
cash flow for the business. Many business transactions occur over a period of several months and
therefore several accounting periods. Going Concern accounting reflects that income and
expenses generated in one month can carry over into the next month or even longer.

1.4 Relevance and faithful representation. Two qualities that enhance the two fundamental
characteristics are timeless and understandability.

2.1 R249,000.
2.2

No Assets = Equity + liabilities

Non- Current Capital Income + Non-
Current
current expenses Current

01.03.2019 +R39000 +R39000

2. +R270000 +368000 +R63800 +27000
+R36800
3. +R310000 +93000 -R217000
-R93000
4 -R75000
5 -R144000 -R144000
6 -R21000 -R210000
7 +R4500 +R4500

2.3 Bank account of smart electrical appliance

28 Feb 2019 Balance b/d R97500 Spare parts R75000

churches
Services R270000 wages R144000
rendered
Trade payables R210000
 Interest paid R4500
Balance c/d R66 000

R433 500 R433 500

QUESTION 3

3.1

R R
Revenue (service fees) 858 800

Cost of Sales

Opening inventory: consumables 53 000

+ consumable material 128 00
181 00

-Closing inventory 70 000

Gross profit 788 800

Other income 25500
Rent Income 773300

Selling, distribution, admini an other expenses

Increase in allowance for credit loses 518
Salaries and wages 234500
Rent expenses (80600-20000) 60600
Telephone (6720+1200) 7920
Electricity and water 42 280
Vehicle repairs 10000
Credit loses written off 2678
Depreciation: equipment 39000
 Interest on borrowings 2,150
Vehicles 27000 427918

Profit and loss and other OCI

345382

3.2. 1 Trade and other receivable

Opening balance: 130600

Less written off (2678)

Less Allowance (3840)

SOFP 124,082

3.2.2 Inventory: Consumable material

Opening balance: 53000

Material 12800

Less consumal (70000)

SOFP -4200

3.2.3 Trade and other payables

Opening balance: 130 000

Repayment 367 100

SOFP 497 100

QUESTION 4

4.1
 Dr Cr

Sales (711500 + 483500) 1195000

Returns inwards 74,200
1269200

COST OF SALES
Opening inventory (152 100 + 17330) 152 100
Add: Purchases (201200 + 334 180) 201200
1622500
Add: Carriage inwards 45,500
Less: returns outwards 61,120
1515880
Less: closing inventory (145660+21900) 14 5660
Gross profit 1370, 220

Gross Profit% on cost

=Total sale – cost of goods sold / total sales

= 1195000 – 521630/1195000

=56.35%

Gross Profit% on sales

=Gross Profit / Total Sales X 100

= 599170/1195000X100

=50.14%

4.2 Vardy is fears are not true, the performance of a business is not affected by Tax because
gross profits are not consumed by value added tax.
QUESTION 5

Trade receivables control account

Dr Cr

31st May, 2020 b/d 73460 Cash receipts from debtor 3160
Credit sales 39000 Discount allowed 3460
Interest charged 520 Sales returns 3280
30th April, 2020 Balance 39,380 Credit losses 1400
c/d
Sell off 3430
th
30 April, 2020 Balance 137, 630
c/d

152, 360 152, 360

1sth May,2020 balance b/d 14, 730 1sth May,2020 balance b/d 14, 730