Question 1 (Marks: 10)

Q.1.1 In your answer booklet, provide the term in Column B that best describes the statement in Column A:

Column A Column B

1. The supporting document that shows all the important details pertaining to a particular asset.
2. The account to be debited when recording the depreciation adjustment.
3. Also known as the fixed instalment method of calculating depreciation.
4. The account that holds all the depreciation on a particular asset (or group of assets) from the day of buying the asset until the assets is disposed of.
5. When the selling price of an asset is less than the carrying value of the asset this general ledger account will be debited. (5)

Q.1.2 In your own words, explain what you understand by each of the following:

Q.1.2.1 The accrual concept (3)

Q.1.2.2 Why an allowance/provision for credit losses is categorised as a negative asset. (2)

Question 2 (Marks: 25) On 31 March 2021 Poppy Traders sold an old machine, which was purchased for R6 000. The accumulated depreciation balance on 31 December 2020 was R4 000. The machine was sold for
R2 400 cash. A new machine was purchased for R11 000 cash on the 31st March 2021. Poppy Traders writes off depreciation on machinery at 20% per annum using the diminishing balance method.
Poppy Traders has a 31 December financial year end.

Required:

Prepare the general journal entries to record the following:

• sale of the machine on 31 March 2021 (including cash transactions)

• the purchase of the new machine at 31 March 2021 (including cash transactions)

• depreciation for the year ended 31 December 2021. Journal narrations are required. Ignore VAT.

Question 3 (Marks: 25)

Below is the pre-adjustment trial balance of Cycad General Dealers for the year ended 31 January 2021:

CYCAD GENERAL DEALERS

PRE-ADJUSTMENT TRIAL BALANCE AS AT 31 JANUARY 2021

Statement of financial position section Debit Credit

Capital 80 000

Drawings 5 200

Loan from Thyme Bank (repayable in 2024) 20 000

Equipment 12 000

Furniture 7 500

Debtors control 37 300

Creditors control 12 000

Bank 42 910

Trading inventory 18 600

Nominal accounts section

Rent expense 12 000

Sales 67 110

Cost of sales 29 400

Wages 6 000

Stationery 2 000

Rates and taxes 7 400

Interest income (on debtors’ accounts) 1 200

180 310 180 310

Additional information at 31 January 2021:

• Stationery on hand R750.

• Rental expense of R1 000 per month is incurred for the 12 months to 31 January 2021.

Cycad General Dealers has been renting the premises since 1 February 2020.

• The equipment was purchased on 1 February 2020 and is expected to be used for 2 years, after which it could be sold for R3 000 (residual value). The straight- line method of depreciation is used.
• The furniture was purchased on 1 February 2020 and is depreciated at 20% per annum using the diminishing balance method of depreciation.
• The loan from Thyme Bank was received on 1 January 2021. Interest on the loan of 15% per annum accrues monthly.
• A debtor, Cactus Traders owes the business R4 500 and they have been declared insolvent.

It has therefore been decided to write off this amount as irrecoverable.

• After analysing the debtors age analysis at the year end of 31 January 2021, Cycad General

Dealers believe that an allowance for credit losses of R330 should be recognised.

Required:
Prepare the post-adjustment trial balance as at 31 January 2021, after considering all the necessary adjustments above.

Answers to Above Questions on Accounting

Answer 1: The term in Column B that best describes the statement in Column A  is explained as follows:

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