Accounting for Companies_Financial Accounting 1A_15 April 2019

The following information was obtained from the accounting records of Williams Limited, a distribution
of vehicle motor parts:

WILLIAMS LIMITED
TRIAL BALANCE ON 31 DECEMBER 2011
DEBIT CREDIT
N$ N$
Stated capital: 2 000 000 ordinary shares without par value 2 325 000
12% Preference shares capital: 200 000 shares at N$ each 200 000
Retained earnings (1 January 2011) 1 320 000
General reserve (1 January 2011) 418 700
8% Mortgage loan from Investec 1 500 000
Trade creditors 10 000
Land and buildings (at cost) 2 800 000
Office equipment (at cost) 280 000
Delivery vehicles (at cost) 1 200 000
Accumulated depreciation on office equipment 122 500
Accumulated depreciation on delivery vehicles 480 000
Trade debtors 977 500
Allowance for credit losses (1 January 2011) 52 000
Inventory 920 000
Cash and cash equivalents 1 100 000
Inland Revenue: Normal tax (provisional tax payments) 201 000
Sales 5 700 000
Cost of sales 3 800 000
Distribution expenses 303 000
Administrative expenses 324 000
Other operating expenses 102 700
Interest on mortgage loan paid 120 000

Additional information and adjustments:

1. The company’s authorised share capital consists of:

 3 000 000 ordinary shares with no par value
 500 000 12% preference shares at N$ 1 par value.
2. On 1 December 2011, the directors of the company decided and resolved to use their general
authorisation to affect the following:
 To issue 300 000 12% preference shares to the public at par value.
 To convert the 2 000 000 no par ordinary shares into par value shares of N$ 1 each.
 These transactions have not yet being recorded.

3. Annual depreciation has not yet been provided for. The company’s accounting policy states
that depreciation is written off as follows:
 Office equipment 25% diminishing balance method
 Delivery vehicles 25% straight-line method
The company does not provide for depreciation on land and buildings. Office equipment
exclusively used for administrative purposes and delivery vehicles used in the distribution
of vehicle parts. The company did not purchase or dispose of any office or delivery vehicles
during the year.

4. The company purchased land and buildings (stand 34, Sandton) in 2009 for N$ 2 800 000 by
taking out a mortgage loan from Investec. The company’s accounting policy states that land
and buildings should be revalued. Mr Damon Hill, a sworn appraiser, revalued the land and
buildings for the first time on 31 December 2011 at a fair value of N$3 500 000. No entries
pertaining to the revaluation have been recorded.
5. Interest on the mortgage loan of N$120 000 was calculated correctly and has already been
paid.
6. The company’s credit controller, Mr Juan Montoya, performed an analysis of the company’s
debtors on 31 December 2011. The analysis indicated that N$102 000 of the outstanding
debtors are expected not to be recoverable. The allowance for credit losses should be adjusted
accordingly. Credit losses are considered part of the operating expenses.
7. The shareholders approved a final ordinary dividend of 50c per share 0n 31 December 2011.
8. It was decided on 31 December 2011 to transfer a further N$11 300 to the general reserve.
This transaction has not yet been recorded.
9. The normal income tax rate for companies is 32%.
Required: (comparative amounts are required where adequate information is available)

(a) Prepare the adjusting journal entries for the items in points 2,3,4,6,7 & 8 above.
(b) Prepare the following in accordance with the requirements of International Financial Reporting
Standards (IFRS) and the Companies Act 28 of 2004:
1. Statement of profit or loss and other comprehensive income for the year ended 31
December 2011 according to function of expenses.
2. Statement of financial position as at 31 December 2011
3. Statement of changes in equity for the year ended 31 December 2011.