Financial Accounting 1A (AFE 3691)

Tutorial questions

PARTNERSHIPS

QUESTION 1

Cobus and Marius are partners and share profits in the ratio 2:1. On 30 June 20.3 their statement
of financial position was as follow:

R R

Land and Building 100 000 Capital: Cobus 150 000

Vehicles 20 000 Marius 75 000

Furniture 10 000 Loan 40 000

Goodwill 30 000 Creditors 14 000

48 000
Debtors 62 000
Bank 9 000
279 000 279 000

On 1 July 20.3 they decided to admit Johan to the partnership on the following conditions:

1. Assets should be re-valuated as follow:

R
Land and Buildings 120 000
Vehicles 18 000
Furniture 8 000
Goodwill 40 000
Inventory 44 000
Debtors 60 000

2. Johan will obtain 1/5 share of the partnership and it was agreed that he would pay a
premium for goodwill for his share.
3. Cobus and Marius will share the remaining profits in the ratio 3:2. Cobus and Marius must
make cash payments/withdrawals in order to get their capital balances in line with their
profit-sharing ratios.
4. Goodwill should not be disclosed in the statement of the financial position after the
admittance of Johan.
 REQUIRED:

1. Journalise the above-mentioned entries.

2. Draft the statement of the financial position immediately after Johan was admitted to the
partnership.

QUESTION 2

Ching and Chong are partners and share profits and losses in the ratio 3:2. On 30 June 20.5
their statement of financial position was as follow:

R R
Property 40 000 Capital: Ching 50 000
Machinery 20 000 Chong 30 000
Inventory 24 000
General Reserves 22 000
Debtors 18 000 Creditors 12 000
Bank 12 000
114 000 114 000

They agreed to admit Chang on 1 July 20.5 and that his profit share would be ¼. He was
however required to contribute R20 000 in cash as well as an additional amount of R6 000 for
goodwill.

It was agreed that goodwill should be re-valued for R24 000 and that goodwill should not be
disclosed in the statement of financial position. The general reserve must be written back.

Property was re-valued at R50 000 and inventory at R22 00. The three (3) partners would be
sharing profits in the following ratio:

Ching -5; Chang -2; Chong -1.

The capital balances of Ching and Chong should be adjusted in accordance with their profit-
sharing ratios. Cash should be deposited or amounts should be transferred to loan accounts
for this purpose.

REQUIRED:

Journalise all the above-mentioned transactions and compile a statement of financial position
for the new partnership.
QUESTION 3

Ansie, Basjan and Chris were in a partnership and distributed the profits 3:1:1 respectively.
No goodwill appeared in the books.

Danie was accepted as a partner on 1 July 20.0, with the following requirements:

a. Goodwill is valued at R20 000 only for the purposes of Danie’s admission.
b. Danie must contribute R21 500 in cash to the partnership.
c. Profits and losses will be distributed in 4:4:1:1 respectively.
d. No interest on capital or salaries will be applicable.
e. The general reserve must be written back and appear again after admission in the books.

The statement of financial position on 30 June 20.1 as follow:

STATEMENT OF THE FINANCIAL POSITION ON 30 JUNE 20.1

R R
Capital: Ansie 16 000
Basjan 16 000
Chris 9 400
Danie 7 800
49 200
General Reserves 15 000
64 200

Non-current assets
Land and Buildings 16 000
Furniture 3 600
Vehicles 2 000 21 600

Current Assets
Inventories 14 000
Debtors 12 000
Loan Ansie 15 000
Bank 6 000
47 000
Current Liabilities: Creditors 4 400 42 600
64 200

The profit for the year ending 30 June 20.1 is R10 000. Drawings for the year ending on
June 20.1 are as follow:
Ansie R 2 000
Basjan 2 000
Chris 1 600
Danie 11 200
With the exception of the drawings and the contribution of Danie, no cash was
contributed or withdrawn by the partners. Profit shares and drawings were directly
recorded in the capital accounts.
After the above statement of financial position was prepared, it was decided that the
original agreement was unfair and the partners decided on the following amended
agreements:
a. The agreement will be applicable from 1 July 20.0.
b. Land and buildings should be re-valued at R5 000 more than the carrying amount.
This is only for admission purposes.
c. Goodwill should be valued at R10 000 only for the admittance of Danie.
d. Chris and Danie’s capital accounts should be each credited with a salary of R2 000
per year from 1 July 20.0
e. Profits and losses would be shared 2:1:1:1 respectively.
f. Danie must still contribute R21 500.
g. The general reserve must be written back and appear again again after admission in
the books.

The distribution of profits and drawings should be allocated to the capital accounts. The
general reserve should be kept in the books at all times.

REQUIRED:

1. Determine the balances of the capital accounts on 1 July 20.0. Reconstruct the capital
account for the year ended on 30 June 20.1 according to the original agreement.
2. Compile the capital accounts for the year ended 30 June 20.1 according to the new
partnership agreement.
QUESTION 4

Mark and Tom are partners in a computer store trading as Blink Computers. They share profits
and losses in the ratio 3:2.

On 28 February 20.10 the statement of position indicated the following:

BLINK COMPUTERS
STATEMENT OF THE FINANCIAL POSITION
ON 28 FEBRUARY 20.10

ASSETS
Non-current assets
Property, plant and equipment (land and building) 1 000 000

Current assets 220 000

Inventory 44 000
Cash and cash equivalents

Total assets 1 264 000

EQUITY AND LIABILITIES

Equity
Capital: Mark 400 000
Capital: Tom 200 000
Current account: Mark 350 000
Current account: Tom 150 000
General reserve 100 000

Non-current liabilities
Interest-free long term loan 64 000

Total equity and liabilities 1 264 000

1. On 1 March 20.10 Travis obtained a one third (1/3) in interest in the partnership by
depositing R650 000 into the cheque account of the partnership.
2. The partners do not want to show the general reserve on the statement of financial
position after the admission of Travis.
3. The partnership agreement states the following:
3.1 Each partner is entitled to a salary of R5 000 per month.
 3.2 Partners are entitled to interest on capital of 10% of the opening balance of their
capital accounts. Newly admitted partners earn 10% of their contribution
apportioned for the number of months that they served as partners.
4. Sales for the year amounted to R3 000 000. All sales were made in cash.
5. Inventory purchases for the year amounted to R2 500 000. All purchases were made in
cash.
6. Inventory on hand at 28 February 20.11 amounted to R320 000.
7. Operating expenses of R160 000 was incurred and paid in cash during the year. Land and
building are not depreciated.
8. Cash withdrawals by the partners during the year were as follows:
Mark R 65 000
Tom R 30 000
Travis R 75 000
Total R170 000

REQUIRED:
a) Calculate the new profit share ratio after the admission of Travis on 1 March 2010.
b) Provide the journal entries to record the admission of Travis on 1 March 20.10.
Journal narrations are not required.
c) Prepare the statement of profit or loss and other comprehensive income of the
partnership for the year ended 28 February 2011. Your answer should include the
distribution (appropriation) division. Comparative figures are not required.
d) Prepare the statement of financial position of the partnership on 28 February 20.11.
Comparative figures are not needed.
 QUESTION 5
A and B are partners and share profits and losses in the ratio 3:2. The partnership
agreement stipulates that, should one of the partners retire, the non-current assets must
be re-valued. Furthermore, it is also stipulates that the value of the goodwill be set as two
(2) years’ purchase of the last three (3) years’ average profits.

A decided to retire on the 31 December. On this date the following statement of financial
position was obtained from the books:
R R
Goodwill at CP 10 000 Capital: A 20 000
Land and building 20 000 B 60 000
Inventory 40 000 Creditors 15 000
Debtors 30 000 Bank 5 000
R100 000 R100 000

Additional information:
1. Land and building are re-valued at R50 000.
2. Profits for the previous years are as follows:
20.1-R70 000
20.2-R80 000
20.3-R90 000
Goodwill must not appear in the books after the retirement.
3. The amount owed to A must be paid out in cash.
4. After A retired, C was allowed as a partner.
5. C agrees with the valuation of the assets and brings in R100 000 as capital. The
goodwill is determined and C has to pay R35 000 for 1/5 of the goodwill in the
partnership.
6. A general reserve to the amount of R10 000 must be created.

REQUIRED:
Journal entries in order to carry out the above-mentioned transactions.
 QUESTION 6
Tom, Dick and Harry are partners in a partnership and share profits and losses in the
ratio 2:1:4 respectively. The following information has been extracted from the books
of the partnership:

TDH PARTNERSHIP
Statement of the financial position
On 30 June 20.2
Assets R Equity and Liabilities R

Buildings 240 000 Capital: Tom

Equipment 24 000 Dick 104 000
Goodwill 28 000 Harry 272 000
Inventory 160 000 General Reserve 56 000
Debtors 68 000 Loan: Quinton 16 000
Bank 20 000
520 000 520 000

1. On 1 July 20.2 Harry decided to retire from the partnership and the partners
agreed as follows:
a) Goodwill must be re-valued at R42 000. The general reserve is cancelled.
b) Other assets to be valued as follows for the purposes of his retirement:
Equipment R 29 800
Inventory R136 000
c) Of the amount calculated as owing to Harry, half will be paid out immediately
whilst the other half will be transferred to a loan account. This loan will be
repaid over a period of two (2) years.
d) Harry’s interest will be taken over the remaining two (2) partners equally.
2. In order to raise sufficient cash to pay Harry out, Tom and Dick decided to admit
Tebesho to the partnership on the same day. For the purpose of Tebesho’s
admission, the partners agreed as follows:
a) Tebesho must pay R11 760 for goodwill for his 1/5 share in the partnership.
b) Tbesho will contribute a vehicle to the value of R16 000 as well as cash for a
total capital contribution.
c) Debtors are re-valued at R55 400 after the admittance of Tebesho.
3. A general books of the parreserve of R24 000 should be disclosed in the books of
the new partnership.
4. Goodwill will not appear in the books of the new partnership.
 REQUIRED:
1. Prepare the journal entries in the books of the partners (all amounts should
be rounded off)
2. Prepare the statement of financial position of the new partnership of TDT on
1 July 20.2.

QUESTION 6 (Liquidation and dissolution)

Albert and Kgogometse have been trading together for some time. Kgogometse decided to
change her and since Albert does not want to continue with the business on his own they decide
to liquidate the partnership.

The statement of financial position below presents the entity at the end of June 20.3.

A&K SERVICES

Statement of financial position on 30 June 20.3

R R R
Total assets Cost Acc Dep.
Non-current assets: 435 000 90 000 345 000
Property, plant and equipment 305 000 40 000 265 000
Vehicles 130 000 50 000 80 000
Current assets: 132 800
Debtors 55 200
Allowance for credit losses (7 000)

Cash 84 600

Total assets 477 800

Equity: Albert Kgogometse Total

Capital account 152 400 130 400 282 800

Current account 43 500 54 500 98 000

Liabilities

Non-current liabilities: 62 000

Loan: Saambou Bank

Current liabilities

Creditors 35 000

Total equity and liabilities 477 800

 The following transactions occurred during July in the partnership:

• A vehicle with a carrying amount of R50 000 was for R39 000.
• A vehicle with a carrying amount of R30 000 was sold for R12 000.
• The accounts payable were settled in full.
• The land and buildings were sold for R140 000.
• The equipment was sold for R100 000.
• Accounts receivable paid R40 100 in full settlement of all the outstanding debts.
• The outstanding loan from Saambou bank was repaid in full.

REQUIRED:

Compile the journal entries for the above-mentioned liquidation.

QUESTION 7 (Liquidation and dissolution)

Bettie, Boeboe and Babsie are partners and share profits in the ratio 5:3:2. The following
information was obtained from the records of the partnership:

BETTIE, BOEBOE AND BABSIE

Statement of financial position on 30June 20.9

Capital: Bettie 48 000

Boeboe 30 000
Babsie 12 000
90 000
Loan 10 000
Creditors 8 000
108 000
Land and Buildings 36 000
Furniture 12 000
Plant 58 000
Bank 2 000
108 000
The partners decided to dissolve the partnership. The assets realised are as follows:

Assets Return
Furniture 8 000
Plant 52 000
Land 42 000
In the event of a shortage on a partner’s capital account, that particular partner would be required
to make a payment in cash for the same amount.

REQUIRED:

Compile the liquidation account and bank account in view of the above decision.

QUESTION 8 (Liquidation & Distribution)

Andre and Ilze-Marie had a partnership organising tours to America. Their agreement included
the following:

“Each partner must contribute R10 000. The capital will carry interest at 12% per annum. Current
accounts carry interest at 18% per year. Loans from partners carry interest at 24% per year.
These loans will be set aside until all payments were made to creditors and other external
liabilities. If the partnership should cease to exist, the money should be distributed in a way that
no partner will contribute to the partnership again.’’

The agreement did not mention the profit distribution ratio.

Since the attacks on the United States on 11 September 20.1 there was a sharp drop in bookings
and the partnership experienced serious cash flow problems. To try to minimise losses, the
partners decided to liquidate the entity.

The trial balance on 30 June 20.2.

DR CR
Capital-A 10 000
Capital-I 10 000
Current account-A 5 780
Current account-I 23 050
Distribution account (Profit, after all agreed payments from
partners) 1 000
Loan-A 1 000
Loan-I 9 000
Furniture and equipment 35 000
Vehicles 65 000
Debtors 25 600
Creditors 17 800
Loan-AB Bank 55 000
Bank 6 530
132 380 132 380
Up to 31 August 20.2 the assets were realised as follows:

31 July 20.2

All furniture and equipment-R24 000

Half of the debtors were collected.

31 August 20.2

All vehicles-R50 000

Debtors amounting to R10 000 were discounted at the bank. The discounting cost was R1 000.
The reminder of the debtors should be written off.

None of the partners were able to contribute any cash.

REQUIRED:

Compile a distribution and liquidation schedule to adhere to the requirements of the partnership
agreement.

QUESTION 9 (Financial statements)

The following information relates to the partnership D. Dell and B. Bell on 28 February 20.6.

R
Capital account (fixed):
D. Dell 270 000
B. Bell 135 000
Current account (28/2/20.5):
D. Dell (debit) 9 000
B. Bell (credit) 12 000
Drawings:
D. Dell 27 000
B. Bell 18 000
Profit and loss account (net profit for the year) 171 300
Accumulated depreciation:
Furniture and fittings 27 000
Tool and equipment 75 000
Furniture and fittings cost price 150 000
Tools and equipment at cost price 180 000
Land and buildings at cost price 270 000
Investment at cost price (ABSA Building Society) 42 000
Inventory: Merchandise 6 000
Prepaid expenses 870
9% Mortgage loan (secured by a first bond over land and buildings)
30 000
Interest due by ABSA Building Society 1 680
Allowance for credit losses 1 650
Bank overdraft 9 000
Debtors 33 000
Creditors 6 000
Accrued expenses 600

Additional information:

The partnership agreement provides for:

1. Interest on capital at 10% per annum.

2. Interest on opening balances of current accounts at 5% per annum.
3. Interest on drawings- the applicable amounts for the year are as follows: D. Dell R1 260
B. Bell R 690.
4. A managerial salary of R60 000 per annum to D. Dell.
5. D. Dell and B. Bell to share profits and losses equally.

REQUIRED:

1. Show the current accounts of D. Dell and B. Bell, properly balanced, on 28 February 20.6.
2. Prepare the statement of financial position of the partnership on 28 February 20.6.
PARTNERSHIPS

Question 1

The following balances appeared, amongst others, in the records of MS and Co on 30 June 20.8.

MS and Co

Trial balance as at 30 June 20.8

R R
Profits according to statement of income 53 175
Capital
M 40 000
S 50 000
Current account
M 20 000
S 10 000
Drawings
M 15 000
S 5 000

Additional information

1. Partners are entitled to 8% interest per annum on their capital and 65 interest per annum
on the balance of their current accounts, as at the beginning of the year.
2. The partnership agreement stipulates that partner S will receive an annual commission of
15% on profit after commission.
3. M and S share profits or losses in their capital.

REQUIRED:

a) Journalise the profit sharing between the partners.

b) Prepare the following ledger accounts:
Current account M
Current account S.
c) Prepare statements of changes in equity of MS and Co for the year ended 30 June 20.8.
d) Prepare the ‘’equity and liabilities’’ section of statement of financial position as at 30 June
20.8.
 Question 2

Kit, Cat and Rolo are in partnership and share profits or losses in the ratio 2:2:1. On 30 June 20.7
their financial position is as follow:

KIT, CAT & ROLO

Statement of financial position as at 30 June 20.7
ASSETS R R
Land and buildings 120 000
Other assets 80 000
Receivables 50 000
250 000
EQUITY AND LIABILITIES
Equity
Capital 175 000
Kit 64 000
Cat 66 000
Rolo 45 000
Current account
Kit 15 000 1 000
Cat (4 000)
Rolo (10 000)
Liabilities
Payables 74 000
250 000

On 1 July 20.7, Rolo decided to withdraw from the partnership under the following
conditions:
1. Land and buildings are revalued at R160 000.
2. Rolo will receive a cheque for his share in the net assets.
3. Kit and Cat will share Rolo’s portion in the ratio 3:2.

Kit and Cat agreed that Kit must contribute or withdraw cash to ensure that their capital accounts
are in profit-sharing ratio.

On the same day Kit and Cat admitted Smarties to the partnership on the following conditions:

1. Land and buildings are valued at R210 000.

2. Others assets are measured at R90 000.
3. Smarties must contribute R60 000.
After the admission of Smarties, the abridged statement of financial position of the new
partnership is as follows:

KIT, CAT & SMARTIES

Statement of financial position as at 1 July 20.7

ASSETS R
Land and buildings 180 000
Other assets 100 000
Receivables 50 000
Bank 5 000
335 000
EQUITY AND LIABILITIES
Capital
Kit 112 000
Cat 102 000
Smarties 51 000
Total equity 265 000
Payables 70 000
335 000
REQUIRED:

Determine whether the profit-sharing ratio among Kit, Cat and Smarties.

Hint: Prepare the capital account in column form.

CLOSE CORPORATIONS

QUESTION 1

The following information was obtained from the records of Nash Bridges CC on 31 December
20.3.

R R
Retained earnings (1 January 20.3) 8 400
Bank overdraft 287
Furniture and fittings- Carrying amount 15 750
Inventory (1 January 20.3) 7 000
Investment- Cost 2 100
Land and buildings- Valuation 13 500
Member’s Contributions 17 500
Allowance for credit losses 175
Receiver of Revenue (Income tax) 5 890
Revaluation surplus 5 775
Trade creditors 7 000
Trade debtors 11 600
Vehicles- Cost price ( 1 January 20.3) 12 260
12% Member’s loan 5 250
20% Long-term loan (1 July 20.3) 17 500
Sales 105 000
Purchases 50 750
Delivery on purchases 1 365
Discount granted 403
Discount received 333
Income tax- current 5 891
Insurance 1 225
Interest on overdraft 525
Interest received 210
Members’ salaries 3 062
Printing and stationery 752
Freight on purchases 1 925
Rates and taxes 875
Rent paid 420
Repairs and maintenance 542
Salaries and wages 22 750
Water and electricity 2 100
Credit losses 525
173 320 173 320
Additional Information (round off to the nearest)

1. Allowance for credit losses should be adjusted to 2.5% of trade debtors at year end.
2. An additional loan, amounting to N$2 000, was obtained from the member on 30
November 20.3 (the other portion was obtained in the previous financial year)
3. An additional members’ contribution was made by the member on 30 June 20.3 to the
amount of N$7 500.
4. Included in salaries and wages was an amount of N$1 750 in respect of services by the
member.
5. Depreciation on fixed assets is as follows:
• Furniture and fittings -15% per year on the reducing balance method.
• Vehicles -20% per year on the cost price.
6. Land and buildings were valued by Mr. Fortune on 30 April 20.3.
7. Inventory at the end of the period amounted to N$ 6 800.

REQUIRED:

1. To compile the statement of profit or loss and other comprehensive income for Nash
Bridges CC for the year ended 31 December 20.3, as required by the CC Act as well as
IFRS.
2. To compile the statement of changes in member’s interest and net investments for the
year ended 31 December 20.3.
QUESTION 2

The following information was obtained from the records of Stallone CC, for the year ended 28
February 20.2.

Statement of financial position 20.2

R
Total Assets
Property, Plant and equipment 150 000
Loans Receivable 20 000
Loan to K. Watson (employee) 5 000
Loan to P. Mitsi (member) 15 000
Investments 40 000
Debtors 2 500
Inventory 3 500
Total Members’ Interest and Liabilities
Accumulated income 20 000
Members’ contributions 100 000
Revaluation reserve 30 000
Loans outstanding 66 000
Loan from Saambou Bank 16 000
Loan from Mitsi (member) 50 000

Additional information:

1. The accountant could not submit the statement of comprehensive income, he

remembered however that the distribution to members for the current year amounted to
R10 000 and retained earnings at the beginning of the year amounted to R5 000.
2. The opening balance of the of the loan from K. Mitsi amounted to R37 500. Assume that
the other loans showed no movement for the year under review.
3. The member’s contribution were made at the beginning of entity while the re-valuation
was conducted in the current financial year.

REQUIRED:

Compile the statement of changes in equity and members investment for the year ended 28
February 20.2.
QUESTION 3

The members’ interest of Goldilox CC as at 28 February was as follows:

Percentage members’ interest:

Astrix 50%

Oblix 25%

Citrix 25% R

Members’ contribution 54 000

Retained earnings 10 000

Members’ interest 64 000

Represented by net assets reasonably valued at 64 000

On 28 February 20.3 Astrix resigns and sell his interest to the CC for R30 000.

REQUIRED:

a) Journalise the transaction on 2b February 20.3 in the records of Goldilox CC.

b) Prepare the statement of financial position of Goldilox CC as at 28 February 20.3, and the
statement of changes in the net investment of the members for the year ended 28
February 20.3, after Astrix resigned.
c) Mention the names of five professional bodies whose members qualify for appointment
as accounting officers of a close corporation.
 QUESTION 4

You are the accountant and member of Riviera CC. On 30 September 20.2, the following
information, amongst others, was available.

RIVIERA CC R R

20.2 20.1
Land and buildings at carrying amount 700 000 600 000
Machinery at carrying amount 250 000 200 000
Vehicles at carrying amount 400 000 600 000
Retained earnings at beginning of year ? 30 000
Profit for the year 130 000 150 000
Surplus on revaluation of land and buildings 90 000 50 000
Members’ contribution 240 000 210 000

Additional information:

1. The members of Riviera CC are A, B and C with interests of 45%, 30% and 25%
respectively.
2. On 1 February 20.2, B donated a vehicle with a value of R30 000 to the CC. This donation
serves as additional members’ contribution.
3. Salaries of R40 000, R30 000 and R35 000 were paid to A, B and C during the year.
4. On 30 September 20.2 and 30 September 20.1, profits of R120 000 and R100 000
respectively were distributed to members in the ratio of their interests.

REQUIRED:

Prepare the statement of changes in net investments of members of Riviera CC for the year
ended 30 September 20.2.
 COMPANIES

QUESTION 1

• List four reasons why a company is used as a form of entity.

• List the four types of profit companies that can currently be established. Also provide the
abbreviation that must appear after each company’s name.
• What is the purpose of an adult of financial statements?
• Share capital for a company is:
a) An assets
b) A liability
c) Equity
• Briefly describe the steps to be followed when incorporating a company.
• Which act regulates companies in South Africa?

QUESTION 2

Black Star Limited is a public company with an authorised share capital of 1 000 000 ordinary
shares. The company is a manufacturer and distributor of clothing. The directors decided to
launch a new range of shoes, but require funds for this purpose. It was decided to offer 100 000
shares to the public at R10 each in order to obtain the necessary funds. The public was invited to
submit their applications along with the relevant amount to the company.

The company paid R12 000 to Abbey Dawn Transaction Services to manage the share issue.

REQUIRED:

Show the journal entries if:

a) The company received applications for 120 000 shares. Assume that ordinary shares
have a par value of R2 each.
b) The company received applications for 120 000 shares.
Assume that ordinary shares have no par value.
c) The company received applications for 80 000 shares. Assume that ordinary shares
have no par value.
QUESTION 3

The following information was obtained from the trial balance of Dallas Limited, a listed company,
on 31 December 20.12 (financial year-end):

R
Stated capital ( 3 000 000 ordinary shares ) 9 000 000
Application and allotment account 2 400 000

On 7 January 20.13, 500 000 shares were issued to the public. An amount R150 000 was refunded
to shareholders on the same day as a result of an over subscription.

Issues costs amount to 1% of the amount of shares issued and is still due and payable to Ewing
Transactions Services.

REQUIRED:

1. Calculate the amount at which were issued on 7 January 20.13.

2. Show the journal entries to record the issue of shares on 7 January 20.13. Journal
narrations are not required.

QUESTION 4

The profit before tax of Hanson Limited amounted to R500 000 for the financial year ended 31
December 20.12.

1. Included in the before tax is the following:

• Dividends received R50 000
• Traffic fines paid R10 000
• Depreciation R30 000
2. Hanson Limited made the following provisional tax payments during the year.
• 30 June 20.12 R50 000
• 31 December 20.12 R34 000
3. The normal income tax rate is 28% and SARS allows a wear-and-tear deduction of R25
000 per year on the assets Hanson Limited.

REQUIRED:
1. Calculate the income tax expense of Hansen Limited for the financial year ended 31
December 20.12.
 2. Prepare the SARS: tax payable account in the general ledger Hanson Limited for the
year ended 31 December 20.12. This account had a balance of R10 000 (credit) on 1
January 20.12.

QUESTION 5

The following balances appear in the accounting records of Formula One (Pty) Ltd on 31
December 20.12:

DEBIT CREDIT
R R
Stated capital ( 70 000 shares) 160 000
Retained earnings 69 000
Land 225 000
Revaluation reserve 25 000

Additional information:

The following has already been taken into account in determining the abovementioned balances:

1. On 30 November 20.12, the company issued 20 000 ordinary shares at R3 each.

2. Profit before tax for the year amounted to R70 000. The normal company tax rate
for companies is 28% and the rate for dividends tax is 15%.
3. On 31 December 20.12, an ordinary dividend of 20 cents per was declared, but
has not yet been paid.
4. Land originally cost R200 000 and was revalued by the company for the first time
during 20.12.

REQUIRED:

a) Show the journal entry that was passed to record the dividend.
b) Prepare the statement of changes in equity for the year ended 31 December
20.12. Comparative amounts are not required. The total column is not
required.
QUESTION 6

Kippersol Limited was incorporated a number of years ago with an authorised share capital of:

1. 150 000 no par value ordinary shares

2. 100 000 10% redeemable preference shares of R2 each.

The following information appeared in the books on 31 December 20.5:

100 000 no par value ordinary shares 150 000

80 000 10% redeemable preference 160 000

Share premium 8 000

General reserve 4 000

Revaluation of property 10 000

Reserve for increased replacement value of

non-current assets 6 000

Retained earnings 1/1/20.5 20 000

Profit for the period 230 000

Cash and cash equivalents 100 000

Additional information:

1. A further 30 000 nor par value ordinary shares were issued at R1,60 per share on 30
December 20.5.
2. On the same date 20 000 10% redeemable preference share were redeemed at par out of
profits.
3. R20 000 should be transferred to a general reserves.
4. The directors elected to pay a dividend of 5 cents per ordinary share to all registered
shareholder on 26 December 20.5.

No entries have yet been made for any of the above transactions

REQUIRED:

1. Show the calculation of retained earnings at the end of the year.

2. Prepare the statement of changes in equity for the year ended 31 December 20.5.
3. Show the journal entries in respect of:
• Creation of the capital redemption reserve fund
• The redemption of the redeemable preference shares
QUESTION 7

Jammies Limited was incorporated on 1 June 20.0 with an authorised share capital of:

1. 10 000 ordinary no par value shares

2. 10 000 6% redeemable preference shares of R1 each

On 1 July 20.0 the following shares are offered:

1. 4 000 ordinary nor par value shares at R1,50 each

2. 6 000 6% redeemable preference shares at R1,50 each

On 1 August 20.0 applications were received for:

1. 2 000 ordinary shares

2. 8 000 preferences shares

The following shares were allotted by the directors on 15 August 20:

1. 2 000 ordinary shares

2. 6 000 preference shares

On 17 August 20.0 all surplus application money was returned to unsuccessful applicants. On 15
February 20.1 3 000 6%nredeemable preference shares were redeemed out of profits at par.

REQUIRED:

Record the above transactions in the following accounts:

1. Bank
2. Application and allotment account: Ordinary shares
3. Application and allotment account: Redeemable preference shares
4. Ordinary shares stated capital
5. 6% redeemable preference share capital
6. Share premium
7. Capital redeemable reserve fund

NB: Do not balance the account

MANUFACTURING CONCERNS

QUESTION 1

The following information relates to Kwando Manufacturers:

Inventory (1 January 20X3):

- Raw materials 7 140

- Finished products 3 050
- Work in progress 1 870
- Consumable stores 2 000

Totals for the year ending 31 December 20X3

Direct labour 20 000

Indirect labour 11 970

Indirect raw materials (factory R6 000, office R4 000) 10 000

Depreciation on factory equipment 4 200

Purchases of consumable stores for cash 2 800

Insurance (factory R2 010, office R1 460) 3 470

Water and electricity (factory R11 550, offices R3 000) 14 550

Repairs and maintenance of factory equipment 2 600

Sales of finished goods 191 000

Salaries- office workers 41 000

Salaries- factory workers 25 000

Raw materials purchased on credit 45 630

Import tariffs on raw material purchased 4 480

Rent paid (factory 75%, office 25%) 30 000

Inventory (31 December 20X3):

- Raw materials 1 720

- Finished goods 3 400
- Work in progress 5 400
- Consumable goods 1 310
REQUIRED:

1. Prepare the following general ledger accounts for the year ended 31 January 20.3.
• Raw materials inventory;
• Factory overhead expenses;
• Work-in-progress inventory;
• Finished goods inventory;
• Trading account;
• Profit and loss account.
2. Draft the statement of cost of goods manufactured of Kwando Manufacturers for the year
ended 31 December 20X3.
3. Draft the income statement of Kwando Manufacturers for the year ended 31
December20X3.

QUESTION 2

The followings are the general ledger balances of the firm Mark and Brake, which manufactures
equipment:

Inventory: 1 March 20X7

- Raw materials 14 400

- Work in progress 9 500
- Finished goods 52 000

Delivery vehicles at cost 19 000

Plant and machinery at cost 120 000

Office furniture at cost 6 000

Bank 11 400

Accumulated depreciation on 1 March 20X7

- Delivery vehicles 3 800

- Plant and machinery 36 000
- Office furniture 1 200

Water and electricity: Factory 6 200

Office 320

Purchase of raw materials 144 000

Customs duty on raw materials 3 400

Freight in on raw materials 7 200

Insurance paid: Factory 2 520

Office 840

Insurance paid in advance 1 March 20X7: Factory 960

Office 260

Provision for doubtful debts on 1 March 20X7 830

Debtors 16 600

Factory wages 73 000

Indirect labour 9 600

Salaries: Sales personnel 17 400

Office personnel 11 600

Factory overheads 4 560

Stationery 760

Sales 260 400

Additional information

• Inventory on hand 28 February 20X8:

Raw materials 13 400
Work in progress 10 700
Finished goods 60 000
• Depreciation should be provided for on the reducing-balance method:
Delivery vehicles 20% p.a.
Plant and machinery 15% p.a.
Office equipment 5% p.a.
• Insurance is payable one year in advance on 1 July.
• Finished goods are transferred from the factory to the sales department at production
cost plus 25%.

REQUIRED:

Prepare a manufacturing account for the year ended 28 February 20X8 using the above
information.