BARGAIN MATRESSES 20 MARKS

Mr Boroko is the sole owner of Bargain Mattresses (‘BMat’) and has been in business since
1996. BMat is a registered Value-Added-Tax (‘VAT’) vendor. The current VAT rate is 14%.
His wife, Snuzela, is responsible for the administration of the business and the financial year
end is 28 February.
BMat has a limited range of mattresses. It only sells double bed Seelie and Edbo
mattresses. BMat uses the periodic inventory system to account for inventory on the first-in-
first-out method. The gross profit percentage on Seelie mattresses is 30% of the selling price
and a 50% margin is added to the cost price of Edbo mattresses to determine its selling
price. No discounts are accounted for when the selling price of goods is determined.
All mattresses are bought on credit from the same supplier and a settlement discount of 5%
is received, should BMat pay the outstanding invoice within 20 days. The policy is to make
use of allowance accounts because BMat always makes use of this discount. At the
beginning of the financial year BMat also negotiated a trade discount of 2% on Edbo
mattresses. All mattresses are delivered by a small BEE company, which is not registered
for VAT. The delivery cost is always equal to 4% of the VAT exclusive value of the invoice of
the delivered goods. The VAT inclusive storage cost has been worked out by Snuzela as
R17.10 per mattress.
BMat decided to participate in the ‘Black Friday’ sales promotions which were held country
wide in November 2017. During the last two weeks in November all merchandise were
marked down by 20%. The proceeds banked from the sale of Seelie and Edbo mattresses
amounted to R66 690 and R39 900 respectively during this period. These special sales were
recorded in two ‘Special sales’ accounts in the general ledger. The total sales for the rest of
the year according to the ‘Normal sales’ account for Seelie mattresses amounted to
R425 400 and the sum total of all the sales accounts in the general ledger was R2 630 600
for the financial period under review.
On 28 February 2017 the cost of Seelie mattresses and the cost of Edbo mattresses on
hand was R21 800 and R54 900 respectively. The VAT inclusive amount of all credit
invoices received from the supplier during the year amounted to R2 024 720. BMat had
settled all its outstanding debt on 28 February 2018. Total storage costs paid, amounted to a
VAT exclusive amount of R48 000 for the financial year under review.
The physical stock count at 28 February 2018 revealed that the cost of the closing inventory
of Seelie mattresses was R27 805. A family of rats had caused severe damage to the Edbo
mattresses which were stored in the corner of the shop. Upon further investigation it was
found that 15% of the closing inventory of Edbo mattresses was damaged and could only be
sold at 50% of its original cost price.
 Marks
REQUIRED Sub– Total
total
(a) Prepare the inventory notes to the financial statements of Bargain 18
Mattresses for the year ended 28 February 2018. The accounting
policy note and comparatives are also required. Show all your
workings. 2 20
Communication skills – Layout and structure

TOTAL MARKS 20