QUESTION 1 (4 marks)
Briefly define the following terms used in accounting, in no more than 2 sentences:
Trade payables or creditors. (1 mark)
Purchases. (1 mark)
Credit customers of a business. (1 mark)
Journal in which all credit sales are recorded. (1 mark)
QUESTION 2 (28 marks)
You are the accountant for Lolly-Pop Traders (Pty) Ltd. You received the following statement of account from a supplier, Sweets Traders (Pty) Ltd for purchases made during January 2022:
| Supplier statement from: Sweets Traders (Pty) Ltd Addressed to customer: Lolly-Pop Traders (Pty) Ltd Period: 01 January 2022 – 31 January 2022 | |||||
| DATE | Description | Doc reference | AMOUNT | per Doc | Balance |
| JAN 2022 | |||||
| 1 | Balance at the beginning of the month: | 2 627 | |||
| 3 | Invoice INV001 | 5 944 | 8 571 | ||
| 4 | Credit note CN002 | (1 117) | 7 454 | ||
| 5 | Invoice INV003 | 3 750 | 11 204 | ||
| 5 | Receipt R004 | (9 446) | 1 758 | ||
| 8 | Invoice INV005 | 6 930 | 8 688 | ||
| 9 | Credit note CN006 | (1 650) | 7 038 | ||
| 10 | Invoice INV007 | 7 200 | 14 238 | ||
| 11 | Invoice INV008 | 27 000 | 41 238 | ||
| 15 | Invoice INV010 | (3 726) | 37 512 | ||
| 15 | Receipt R013 | (15 000) | 22 512 | ||
| 31 | Closing balance at the end of the statement: | 22 512 | |||
Lolly-Pop Traders (Pty) Ltd had the following transactions recorded in their trade payables general ledger account for Sweets Traders (Pty) Ltd for January 2022:
| Trade Payables: SWEETS TRADERS (Pty) Ltd: | |||
| DATE Description
05/01 Payment Receipt (R004) 01/01 Purchases returns (CN006) Purchases returns 15/01 (CN010) |
Amount
9 446
1 650
3 726 |
DATE Description
01/01 Balance B/F
05/01 Purchases (Invoice INV003) Purchases 08/01 (Invoice INV005) Purchases 10/01 (Invoice INV007) Purchases (Invoice INV009) |
Amount
2 627
4 000
396
7 200
1 711 |
| 14 822 | 15 934 | ||
Notes on transactions that occurred during January 2022:
| Invoice INV001 | This invoice relates to purchases made on 31 December and has already been recorded in the general ledger account on that
date. |
| Credit note CN002 | These goods were returned by Lolly-Pop Traders (Pty) Ltd on
13 December 2021. The accountant forgot to account for this credit note in December 2021. |
| Invoice INV003 | The accountant incorrectly calculated the trade discount at 20%
instead of 25% as allowed by Sweets Traders (Pty) Ltd, (the supplier). |
| Receipt R004 | Lolly-Pop Traders (Pty) Ltd paid R9 664 to Sweets Traders (Pty) Ltd, however, both the general ledger and statement of
account are incorrectly illustrating the payment as R9 446. |
| Invoice INV005 | Was for the purchase of 8 boxes of caramel chocolates costing
R660 each, less a trade discount of 25%. |
| Credit note CN006 | Half of the merchandise purchased on 8 January 2022 (INV005)
was returned. |
| Invoice INV007 | These goods were received on 15 January 2022. |
| Invoice INV008 | These are purchases made by another shop, Lekker Traders
(Pty) Ltd, on 11 January 2022. |
| Invoice INV009 | Lolly-Pop Traders (Pty) Ltd purchased additional sugar cones on 12 January 2022. The accountant accurately recorded this transaction in the general ledger; however, it was not found on the statement of account received from Sweets Traders (Pty)
Ltd. |
| Invoice INV010 | The accountant of Lolly-Pop Traders (Pty) Ltd notified Sweets Traders (Pty) Ltd that INV010 is incorrectly reflecting as a credit on the statement of account and should be rectified accordingly. The accountant incorrectly recorded this transaction as a credit
note CN010. |
REQUIRED:
Based on the information given, prepare the Trade payables general ledger account of Sweets Traders (Pty) Ltd in the books of Lolly-Pop Traders (Pty) Ltd showing all the adjustments and additional transactions necessary to correctly account for the January 2022 transactions.
You are NOT required to process any of the transactions already processed in the account given above, you only need to show the adjustments required and any additional transactions that were not already included in the trade payables account given above. Close off the account at the end of 31 January 2022.
Start your answer by using the format listed below and using the current closing balances documented in the general ledger account given above:
| Trade payable: SWEETS TRADERS (PTY) LTD | |||||
| DATE | Description | Amount | DATE | Description Totals brought forward / Opening | Amount
15 934 |
| Totals brought | 14 822 | ||||
| forward / Opening | |||||
Prepare the Trade payables Reconciliation between Lolly-Pop Traders (Pty) Ltd and Sweets Traders (Pty) Ltd for January 2022.
QUESTION 3 (10 marks)
Define the following accounting terms:
FOB shipping point (2 marks)
FOB destination point (2 marks)
Depreciation (2 marks)
Depreciation Date (1 marks)
Residual Value (1 marks)
Carry Value/Book Value (2 marks)
QUESTION 4 (43 marks)
You ordered a machine for your business on 15 October 2020 from American Machines (Pty) Ltd, a supplier situated in the USA.
The following information in relation to the machine purchased has been provided:
• The machine was shipped, FOB shipping point, on 1 November 2020 and the pur- chase price of $50 000 was paid in full on the same day.
• The shipment arrived in Cape Town harbor on 1 December 2020.
• On 5 December 2020, your business paid R20 000 for transportation fees to have the machine delivered to your factory premises.
• On 13 December 2020, your company paid R15 000 for special services acquired from an engineering company on to install the machine.
• On 2 January 2021, additional equipment had to be purchased to install the machine on the right platform for it to work as initially intended. Your business paid R140 000 for this additional equipment.
• The machine was finally ready to be used on 1 February 2021.
• The following exchange rate data was made available:
| Transaction detail | Date | Rand per 1 Dollar |
| Order date | 15 October 2020 | 14.70 |
| Shipping / Payment date | 01 November 2020 | 15.10 |
| Harbour arrival date | 01 December 2020 | 17.00 |
| Factory arrival date | 05 December 2020 | 16.50 |
| Ready to be used date | 01 February 2021 | 14.00 |
Additional information:
• Your company’s financial year end is 28 February.
• The machine has a residual value of R30 000.
• You are considering applying one of the following depreciation methods for the ma- chine:
o Option A: Straight line depreciation method of 10% per year.
o Option B: Diminishing balance depreciation method of 20% per year.
o Option C: The estimated useful life of the machine can be stated in terms of producing a total of 100 000 units. Of which 1 500 units were produced in the 2021 financial year, and 22 000 units were produced in the 2022 financial year.
REQUIRED:
Calculate the initial cost price at which the machine should be recognised.(6 marks)
Prepare the general journal entries to account for all the transactions that took place from the date that the order was placed on 15 October 2020, up until 1 February 2021. Include dates when preparing the general journal entries.(12 marks)
Assume “Option A” was selected as the preferred depreciation method. Assume that the cost price of the machine is R930 000 and that the machine was ready to be used on 1 February 2021.
Prepare the Accumulated depreciation general ledger account of machinery for the 2021 and 2022 financial years. The account must be closed off at the end of each year.(11 marks)
Assume that the cost price of the machine is R930 000 and that the machine was ready to be used on 1 February 2021. Calculated the depreciation for the 2021 and 2022 financial years using:
Option B (7 marks)
Option C (7 marks)
QUESTION 5 (15 marks)
Plants for Africa (Pty) Ltd is a company with branches situated all over South Africa, which stocks everything from pots, plants, trees and tools. The company has a 28 February year-end.
You have been provided with the following extract from the pre-adjusted trial balance as at 28 February 2022:
| 28 Feb 2022 | 28 Feb 2021 | ||
| Account | Notes | Rand | Rand |
| Share Capital: Class A | 1 | 500 000 | 500 000 |
| Share Capital: Class B | 2 | 325 000 | 300 000 |
| Dividends payable | 3 | ? | – |
Notes:
1. Share Capital: Class A
On 28 February 2022, Plants for Africa (Pty) Ltd had 500 000 Class A shares of R1 each. The Class A shares have voting rights and no fixed distribution right.
2. Share Capital: Class B
On 28 February 2021, Plants for Africa (Pty) Ltd had 150 000 Class B shares of R2 each. On 1 September 2021, Plants for Africa (Pty) Ltd issued an additional 10 000 Class B shares at R2.50 per share.
The Class B shares have no voting rights and have a right to a fixed, cumulative distribution of 8% in preference of the Class A dividends.
3. Dividends:
The directors have recommended that the final Class B dividend for the year be accounted for. The directors declared a Class A dividend of 35 cents per share, the dividend payment was made on 20 March 2022.
REQUIRED:
In the group of profit companies, there are four separate types of entities. List these four types of companies/entities and give a brief explanation of each.(4 marks)
Prepare the general journal entries required to process all the transactions in Note 3: Dividends in the records of Plants for Africa (Pty) Ltd for the financial year ended 28 February 2022. (11 marks)
Answers to Above Questions on Financial Management
Answer 1:
Trade creditors or payables is defined as the party to which business has to make payment for the purchases made by it.
Purchases are defined as the process of sourcing the business requirements that can be used to sell finished products/services to end customers.
Get completed answers on above questions on finance management from the accounting assignment help experts in South Africa.
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