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Adjustment is a term used to refer to the updating of accounting records with the
information that was not included in these records at a specific date, usually at the
end of the financial period (Hopkins et.al). Harrison :2015 describes a financial
period as a fixed period for which the final accounts are drawn up to calculate a
profit/loss. Financial period is a period of 12 months. Adjustments are made in order
to prepare financial statements containing all the relevant information. This is
prompted by the Matching/Accrual principle as well as Prudence principle
(Mantel;2016).
1. An amount of R 20 000 was received for the work which is to be done in May
2021. The financial year of DeliveriesFast end in February 2021. A financial
year is a fixed period for which the final accounts are drawn up to calculate
profit/loss, hence an amount of R 20 000 that the business received during
this financial year which is included in the given Sales should not be used to
calculate Profit/Loss because it is for the following financial year therefore it
must be deducted from the Sales amount.
Calculations: Sales amount – Amount received in advance
R 1 601 881 – R 20 000
R 1 581 881 (correct sales amount for this current financial
year)
2. Discount is a reduction given to the debtor (credit customer) for early
settlement of account (Shilomboleni:2018). According to the adjustment
given,the customers discounts for the previous month was not yet processed
hence the need to adjust the Discount amount given in the Pre-adjusted Trial
balance by increasing Discount amount with an amount that was not
processed.
Calculations: Discount Percentage/100 because percentages are
always out 100 multiplied by the sales amount of that specific month
which was not processed.
2%
100 X R 251 881
5037.62
R 5038 This is an amount that was not processed and should be
added to Discount amount in the Statement of Comprehensive
Income.
3. Packaging which is consumable goods was ordered by the business and
received by the business but the business did not yet paid for it. Anything that
the business spend its money on is called an expense to the business, hence
Packaging is an Expense,but in this case it was taken on credit because the
business did not pay for it. When dealing with adjustments in accounting, all
business expenses that are still due/outstanding /in arrears/owing or still
payable are referred to as Accrued expenses (meaning business expenses
still outstanding)
Calculations:
There are no calculations in this case because the amount due for
Packaging that the business had acquired is given in the adjustment.
4. Rent for February 2021 which is the last month of the business financial year
has not been received. This amount is part of the business income and it must
be included in the calculation of the business Profit/Loss of this current
financial year,hence the amount of R 4 800 must be added to the Rent
Income amount given in Pre-adjustment Trial balance.
Calculations:
Rental Income (amount in the Pre-Adjustment Trial Balance)
+
Outstanding Rental amount given in adjustment number 4
= R 42 649 + 4800
= R 47 449
5. Vehicles depreciated over 5 year period using Reducing balance method and
remaining useful life of 3 years.
Depreciation is the estimated loss in value of a non- current asset during a
financial period. Reducing balance method is one the accounting method of
calculating depreciation (Shilomboleni:2018)
Calculations:
Reducing Balance Method= Cost price of an Asset- Provision for
Depreciation = Book value of an asset X %
100
= R 1 000 000 (cost price of Vehicle given in the Pre-adjustment)
-
R 250 000
= R 750 000 X %
100
= ………………(no % given in this assignment)
Therefore another method to get the answer is by : R750 000/3years
= R250 000
6. The business paid first quarter insurance premium for the new financial year.
This insurance amount should is for the next financial year, and what we
calculating is the Profit/Loss for this current financial year, therefore whatever
amount which is not part of this financial year must be excluded from the
calculations, hence the Insurance amount given in the Pre-adjustment trial
balance must be adjusted by reducing it/decreasing it by subtracting the
insurance amount for the next financial year.
Calculations
R 1999 (insurance premium per month) X (quarterly which is 3 months )
= R 5997 (an amount that the business has paid in advance)
In accounting, amount that the business pays in advance for expenses
is referred to as Prepaid Expenses.
Therefore in the Comprehensive Income Statement , we take the given
Insurance amount ( R 25 000 – R 5997 (amount paid in advance)
= R 19 003
DELIVERIES FAST
GENERAL JOURNAL
DELIVERIES FAST
R R
Sales (1 601 881 – 20 0000) 1 581 881
Less: Cost of Sales (881 035)
GROSS PROFIT 700 846
Add: Income
Retain earnings 95 201
Rental income (42 649 + 4 800) 47 449 142 650
843 469
Less: EXPENSES (535 711)
Discount: Sales (20 000+5038) 25 038
Interest on loan: Wesbank 72 750
Cellphone and interest 10 000
Interest on Mortgage loan 55 000
Salaries and wages 75 200
Insurance (25 000-5997) 19 003
Consumable and packaging (22 200+6520) 28 720
Depreciation (1 000 000-250 000)/3 250 000
NET PROFIT 307 758
REFERENCES
Honder
Education
publisher
(London)