QUESTION ONE [25]

1.1 There are ten (10) accounts listed on the following table. Complete the table by identifying and recording the element to which each account will be allocated and state whether the account will be shown in the statement of financial position (SOFP), the statement of changes in equity (SOCE) or the statement of profit or loss and other comprehensive income (SOCI). You may use the abbreviated form of the relevant statement as shown in the example below:

Required: Use the table above to formulate your solution. Consider each of the account listed on the table and allocate to an element and show in which of the components of the financial statements the account will be shown. (10)
1.2 Provide the definition of a liability and briefly describe the three criteria for showing a liability in the financial statements. (6)

1.3 Financial statements are prepared and presented under the assumption that the entity is going to continue into the foreseeable future. What is this assumption commonly known as and what is its significance? (3)

1.4 Briefly describe the two fundamental qualitative characteristics as identified in the conceptual framework. Also list two qualities that enhance the two fundamental characteristics. (6)

QUESTION TWO [20] Ringo Smart opened a business, Smart electrical appliance repairs, on 1 November 2018. He decided that for his business the financial year ending will be 28 February each year. Ringo presented the following balances at 28 February 2019;

The following is a summary of the transactions that took place during the financial year ended 2020;

Number Transactions for the year ended 28 February 2020

1 Equipment to the value of R39 000 was brought into the business by Ringo whose son was using the equipment but no longer needed the equipment because he got a job with an international company .
2 During the year, services rendered totalled R638 000, of which R368 000 was for cash and the balance was on credit.
3 Ringo purchased R310 000 worth of spare parts during the financial year, of
which 70% was bought on credit and 30% was bought for cash.

4 On 28 February 2020 stock was taken of spare parts which was valued at R75 000.

5. Wages of R144 000 was paid during the year.

6. Trade payables were paid R210 000 for the year.

7. Interest at 9% per year on long term borrowings was paid on 28 February 2020.

The borrowings were not increased nor paid during the year.

Required:

2.1 Calculate the balance of the Capital account at 1 March 2019. (2)

2.2 Record the above transactions in a table that is formatted as follows:

Begin the table with the balances at 1 March 2019. Clearly indicate increases and decreases with + and ( ) or – respectively. (18)

QUESTION THREE [25] Benji Walker developed keep fit programmes which he also conducted to select groups of people. The following details appeared in the pre-adjustment trial balance of Keep-fit Services as at 31 December 2019, the end of the financial year.

Additional information:

1. Physical stock-taking revealed that there was consumable material on hand at 31

December 2019 valued at R70 000.

2. Repairs to the vehicle costing R10 000 was erroneously charged to the vehicle at cost account. A correction has not been recorded as yet.

3. Equipment and Vehicles have to be depreciated as follows:

a) Equipment must be depreciated at 10% per year on the reducing balance method.

No equipment was bought or sold during the current year.

b) Vehicles must be depreciated on the straight line method over a 4 year period. The residual value of the vehicle is estimated at R30 000.

4. A debtor’s account of R2 600 must be written off as irrecoverable.

5. The allowance for credit losses must be adjusted to 3% of outstanding debtors.

6. Included in the rent expense is an amount of R20 000in respect of rent for January 2020 which was paid and recorded in December 2019.

7. The telephone account of R1 200 was received in December 2019 but not yet paid nor recorded.

8. An amount of R20 000 was repaid towards the long term borrowing on 31 December 2019 and recorded correctly. Account for outstanding interest on the long term borrowing. Interest on the borrowing is payable at 5% per year.

Required:

3.1 Prepare the statement of profit or loss and other comprehensive income for Keep Fit Services for the year ended 31 December 2019 in compliance with requirements of International Financial Reporting Standards (IFRS) appropriate to businesses such as Keep Fit Services. (19)

3.2 Show workings to determine the value at which the following items will be shown in the statement of financial position at 31 December 2019:
3.2.1 Trade and other receivables (2)

3.2.2 Inventory: consumable material (2)

3.2.3 Trade and other payables (2)

Answers to Above Questions on Accounting

Answer 1: The elements to be shown in the statement of financial position (SOFP), the statement of changes in equity (SOCE) or the statement of profit or loss and other comprehensive income (SOCI) are indicated in the table below:

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