SUGGESTED SOLUTION TO QUESTION 6.

1
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PART 1

TRUST CASH BOOK

Balance b/f 175 000 Investors Bank 100 000

Save Limited Bank 50 000
Balance c/d 25 000
R175 000 R175 000

CLIENT A

Balance b/f 37 500

CLIENT B

Balance b/f 37 500

CLIENT C

Balance b/f 100 000

SECTION 78(2)(a) INVESTMENT

Save Limited Bank 50 000

SECTION 78(2A) INVESTMENT

Investors Bank 100 000

TRUST LIABILITIES AT 31 MARCH 2004

R
Client A 37 500
Client B 37 500
Client C 100 000
175 000

REPRESENTED BY

Current account 25 000

Section 78(2)(a) account: Save Limited Bank 50 000
Section 78(2A) account: Investors Bank 100 000
175 000

PART 2

The interest on the section 78(2A) investment accrues to Client C. The interest on the section 78(2)(a) investment
accrues to the Attorneys Fidelity Fund and in respect of the period ending on the last day of February (in this case
February 2004), interest in respect of that period must be paid over the fund by 31 May 2004.
 SUGGESTED SOLUTION TO QUESTION 6.2
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1. True

2. False - 5 five years

3. False - balanced within two months

4. False - deposited on date of receipt or the first banking day following its receipt

5. True

6. False - section 78(2)(a) or (2A) investments would reflect debit balances

7. False - must be made payable to or to the order of a payee specifically designated

8. True - provided that person's written confirmation of the investment is obtained as

soon as is reasonably possible after the investment is made or he is notified in writing
thereof

9. True

10. True
 SUGGESTED SOLUTION TO QUESTION 6.3
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1. False - accrues to the Fidelity Fund

2. True

3. False - quarterly

4. False

5. False - it may be a trust investment

6. True

7. True

8. False

9. False

10. True
 SUGGESTED SOLUTION TO QUESTION 6.4
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1. Any monies in the trust banking account not immediately required may be invested in a separate trust savings
or other interest-bearing account (at a bank or building society). The investment is referred to as a Section
78(2)(a) investment and the account must be referenced as such. Interest on such investment accrues to the
Attorneys Fidelity Fund and in respect of any period ending on the last day of February, interest in respect of
that period must be paid over to the fund by 31 May.

Where a separate trust savings or other interest bearing account is opened on the instructions of any person who
has money deposited in his trust banking account the interest on the investment accrues to that person. Such
investment is referred to as a section 78(2A) investment and the account must be referenced as such.

2. 2.1 Any monies received by a practitioner on account of any person must be kept in a separate
trust banking account.

2.2 Proper accounting records must be maintained in respect of trust monies and the investment thereof.

2.3 The council of the appropriate law society are empowered to have the accounting records of the
practitioner examined to ensure that the provisions of section 78 relating to trust monies have been
observed.
 SUGGESTED SOLUTION TO QUESTION 6.5
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1. When the firm undertakes investments on behalf of his client (other than Section 78(2)(a) or (2A) investments).

2. A separate trust account must be maintained for each investment client with sufficient details so that each
transaction can be separately identifiable. The client must be supplied, no later than six months after the
financial year end with an investment schedule reflecting all relevant details of the client's investments.

3.
3.1 No, unless the company is a subsidiary of a listed company.

3.2 Yes.

3.3 No.
 SUGGESTED SOLUTION TO QUESTION 6.6
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TRUST BOOKS
FIDELITY FUND

2004 2004
Feb 28 Trust bank account 7 328 Feb 28 Interest (S78(1)) 286
May 31 Trust bank account 5 419 Feb 28 Interest (S78(2)(a)) 12 461
R12 747 R12 747

TRUST BANK ACCOUNT

2004 2004
Feb 28 Fidelity fund 286 Feb 28 Business account 7 328
Fidelity fund 12 461 May 31 Fidelity fund 5 419
Clients 18 648

BUSINESS BOOKS

BUS BANK ACCOUNT

2004 2004
Feb 28 Trust bank account 7 328 Feb 28 Bank charges 7 328

BANK CHARGES (TRUST) A/C

2004 Bus bank 2004

Feb 28 Bank account R7 328 Feb 28 Bus bank account R7 328
 SUGGESTED SOLUTION TO QUESTION 6.7
Page 1 of 2 pages

Letter format

1. NO BANK CHARGES SYSTEM

General journal

Dr Bank charges (Trust Account) 3 150

Cr Business bank 3 150
Being bank charges incurred on trust account

Dr Business bank 2 975

Cr Bank charges (Trust account) 2 975
Attorney's Fidelity Fund

Dr Income Statement expense 175

Cr Bank charges (Trust account) 175
Transfer of unrecovered bank charges to Income Statement

BUSINESS BANK ACCOUNT

Bank charges (trust account) 2 975 Bank charges (trust account) 3 150

BANK CHARGES (EX TRUST ACCOUNT)

Business bank account 3 150 Business bank account 2 975

Income statement 175
R3 150 R3 150

INCOME STATEMENT (P & L A/C)

Bank charges 175

2. BUFFER SYSTEM

General Journal

Dr Trust bank charges 3 400

Cr Business bank 3 400
Being imprest amount for trust bank charges

Dr Business bank 250

Cr Trust bank charges 250
Being excess imprest transferred from trust account

Dr Business bank 2 975

Cr Trust bank charges 2 975
Attorneys Fidelity Fund

Dr Income Statement expense 175

Cr Trust bank charges 175
 SUGGESTED SOLUTION TO QUESTION 6.7
Page 2 of 2 pages

BUSINESS BANK ACCOUNT

Bank charges (trust account) 250 Bank charges (trust account) 3 400
Bank charges (trust account) 2 975

BANK CHARGES (EX TRUST ACCOUNT)

Business bank account 3 400 Business bank account 250

Business bank account 2 975
Income statement 175
R3 400 R3 400

INCOME STATEMENT (P & L A/C)

Bank charges 175

TRUST JOURNAL

Dr Trust bank account 3 400

Cr Trust bank charges imprest account 3 400
Deposit of buffer

Dr Trust bank charges imprest account 3 150

Cr Trust bank 3 150
Bank charges

Dr Trust bank charges imprest account 250

Cr Trust bank 250
Transfer of balance to business

TRUST BANK ACCOUNT

Trust bank charges 3 400 Trust bank charges 3 150

(imprest account) (imprest account)
Imprest account 250

TRUST BANK CHARGES IMPREST ACCOUNT

Trust bank account 3 150 Trust bank account 3 400

Trust bank account 250
R3 400 R3 400
 SUGGESTED SOLUTION TO QUESTION 6.8
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Method 1 The Buffer System - the attorney creates a buffer in the trust bank account by paying in an amount from
the business bank account. This amount is topped up to keep it over and above any bank charges that are
deducted from the trust bank account.

Method 2 The No-Bank Charges system - No bank charges are made on the trust bank account. The bank charges
all bank charges, business or trust, to the business bank account.

Method 3 The Separate Buffer System - The bank sets up a separate account into which all interest on trust funds
(being section 78(1) interest) is paid. And all bank charges are taken from that separate account.
 SUGGESTED SOLUTION TO QUESTION 6.9
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PART 1

Section 78(2)(a) investments are made from surplus funds in trust which are not immediately required for any
particular purpose and the interest earned is payable to the Attorney’s Fidelity Fund.

Section 78(2A) investments are made on the written instructions of a client in respect of monies deposited by the
client in the attorney=s trust account from which monies are invested on behalf of the client for the benefit of the
client. Interest is payable to the client.

PART 2

Extract a list of trust credit balances which total must agree with the balance on the trust bank account and other
trust investments.

PART 3

This would constitute a breach of the rules of the relevant Law Society unless it was an investment account in terms
of section 78. Money may have been wrongly paid or used for a purpose not intended or a bookkeeping error could
have occurred.

PART 4

Check if the trust account reflects a credit balance equal to more than the amount of the cheque. Check if you have
your client=s authority to pay.
 SUGGESTED SOLUTION TO QUESTION 6.10
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1. Bank charges on trust bank account

These bank charges can be claimed against the interest due to the fidelity fund (see below).

2. Bank changes on business bank account.

These represent an expense to the attorney and will be reflected under expenses in the income statement.

3. Interest on surplus trust monies.

The net interest (after deducting the trust bank charges) must be paid over to the fidelity fund by 31 May 1999.
Thus credit the fidelity fund trust account with the interest.

4. Interest on investment of client monies per their mandate.

Interest belongs to client and will be credited to clients trust account.

5. Audit fees
Attorney can claim the greater of R250 or 20% of net interest paid to the fidelity fund but limited to the audit
fees.
i.e. 20% of (13 495 – 6 350) = R1 429
The balance of the audit fees would be an expense to the attorney and reflected as such in his income
statement.
 SUGGESTED SOLUTION TO QUESTION 6.11
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Trust Books

DR Trust bank account 12 460

CR Fidelity Fund 12 460
Recording of interest on surplus funds

DR Trust bank account 5 000

CR Trust bank charges imprest account 5 000
Buffer amount received

DR Trust bank charges imprest account 4 850

CR Trust bank account 4 850
Bank charges debited by bank

DR Trust bank charges imprest account 150

CR Trust bank account 150
Transfer of surplus to business bank account

DR Fidelity Fund 4 850

CR Trust bank account 4 850
Transfer of bank charges refundable by fund to business account

DR Fidelity Fund 7 610

CR Trust bank account 7 610
Settlement of net interest

Business Books

DR Bank charges trust accounts 5 000

CR Business bank account 5 000
Payment of buffer amount to trust bank account

DR Business bank account 150

CR Bank charges trust account 150
Surplus buffer refunded by trust bank account

DR Business bank account 4 850

CR Bank charges trust account 4 850
Refund of bank charges by Fidelity fund
 SUGGESTED SOLUTION TO QUESTION 6.12
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PART 1

Bank charges refundable are 90% of 8 648 = R7 783

Accountants fees refundable:

Actual fees R4 800 but limited to the greater of R500 or 15% of
(14 656 + 572 – 7 783) = R1 117
Refundable amount is R1 117

PART 2
TRUST LEDGER ACCOUNTS

Trust bank account

Attorneys fidelity fund 572 Attorney Fidelity Fund 6 328
Attorneys fidelity fund 14 656 Bus bank 8 900
Clients 43 487

Attorney Fidelity Fund

Trust bank 6 328 Trust bank 572
Trust bank 8 900 Trust bank 14 656

Clients Trust accounts

Trust bank 43 487

BUSINESS LEDGER ACCOUNTS

Business bank account

Trust bank 8 900 Accountants fees 4 800
Bank charges 8 648

Trust bank charges

Bank 8 648 Bus bank 7 783
Income statement 865

Accountants fees
Bank 4 800 Bus bank 1 117
Income statement 3 683