QUESTION 1 (31 marks)

Lighthouse Limited is a property development company that is listed on the Johannesburg Stock Exchange (JSE). The company has a 30 June financial year-end. The accountant is currently preparing the annual financial statements for the year ending 30 June 2023.

The following transactions need to be considered before the finalisation of the 30 June 2023 annual financial statements:

Transaction 1:
The current trial balance on 30 June 2023 reflects an accounts receivable balance amounting to R65 000 000. Included in this balance is an amount of R2 500 000 owed by Corifurn (Pty) Ltd. Corifurn (Pty) Ltd purchased a commercial property from Lighthouse Limited during the current financial year. On the early morning news bulletin on the 29th of June 2023, it was announced that Corifurn (Pty) Ltd was declared insolvent and will not be in a position to repay its debts.

Transaction 2:
Lighthouse Limited has incurred staff training costs amounting to R1 980 000 during the year ended 30 June 2023. The human resources manager believes that Lighthouse Limited will benefit from this staff training for the next four years and is of the opinion that the full amount should be capitalised and amortised over the period of four years.

Transaction 3:
On the 15th of May 2023, a customer who visited the administration offices of Lighthouse Limited slipped at the entrance door and injured herself. She is now suing the company for damages amounting to R450 000. Lighthouse Limited has sought legal advice and is disputing the claim. The outcome of the dispute is not yet known at year-end.

REQUIRED:

Discuss, in terms of The Conceptual Framework for Financial Reporting 2018, the impact of each transaction on the annual financial statements of Lighthouse Limited for the financial year ended 30 June 2023. Each transaction should be addressed separately.

QUESTION 2 (69 marks)

Move (Pty) Ltd (Move) is an energy sports drink manufacturing company. The company has a 30 June year-end.

You are presented with the following pre-adjustment trial balance of Move (Pty) Ltd as at 30 June 2023:

The following transactions have not yet been accounted for in the pre-adjustment trial balance given above. All transactions were completed on a cash basis:

1. Share capital:

During the 2023 financial year, additional capital was injected into Move by issuing shares to existing shareholders at R2 per share.

2. Drawings:
The owner, Mr. Jump, took a box of twelve energy sports drinks from Move to use during his training sessions at the gym. The cost price of the drinks amounted to R45 each, with a selling price of R54 each.

3. Machinery:
Move purchased a new machine on the 1st of December 2022 with a cost price of R630 000, which was available for use on the 1st of January 2023. The residual value of the machine was estimated to amount to R30 000. The new machine was purchased to replace an older machine which was sold on the 30th of November 2022. The original cost of the old machine that was sold amounted to R500 000 when it was purchased on the 1st of July 2020 and was available for use on the same date. The machine was sold for an amount of R220 000. Apart from the new machine purchased, all other machinery had a residual value of zero. Machinery is depreciated over a period of 5 years on a straight-line basis.

4. Vehicles:
The vehicles given in the pre-adjustment trial balance consist of the following:

On the 31st of August 2022, the Toyota Corolla was sold for an amount of R290 000. To replace the sold vehicle, Move purchased a Kia Forte on the 1st of September 2022 for R550 000, with a residual value of R60 000. The vehicle was available for use on the date of purchase. The Kia Forte is depreciated over a period of 5 years on a straight-line basis.

5. Trade debtors:
Trade debtors include an outstanding balance from a retail store that purchases energy sports drinks from Move. The store is undergoing liquidation and is only able to repay Move 30 cents in the rand of the R2 000 balance outstanding, which was paid on the 28th of June 2023. The remaining balance should be written off as bad debt.

6. Inventory:
The inventory balance as at 30 June 2023 is made up of the following: Finished goods R 220 000
Raw materials R 30 000

During the year-end inventory count, prior to transactions that have not yet been recorded, it was noted that there were a number of Powerdrink’s, one of the popular energy sports drinks sold by Move, that are nearing their expiry date on the 2nd of July 2023. As a result, Move can only sell each bottle of Powerdrink for R20, with selling costs amounting to R3 per bottle. The cost price per bottle is R35. There were 2 000 bottles of Powerdrink on hand at year-end. No adjustments were made to inventory at year-end.

7. Trade payables:
Move purchased raw materials from a local supplier. The cost price of the raw materials acquired amounted to R125 000. Move paid for half the raw materials in cash while the balance remained outstanding at the financial year-end. The transaction has not yet been accounted for at year-end.

8. Loan from Investor Bank:
On 1 January 2023, Move received a loan from Investor Bank for an amount of R120 000, which is repayable in 3 years. Interest is payable annually at a rate of 8% per annum. No transactions relating to the loan have been accounted for at year-end.

9. Prepaid expense:
Move has paid levies for the 15-month period that ends on the 30th of September 2023.

10. Income received in advance:
Move received a payment of R155 000 from Game Stores, one of their customers, on 25th of June 2023. The delivery of the sports energy drinks will take place on 10th of July 2023. The transaction has not been accounted for at year-end.

11. Expenses:
The following cash-paid expenses have not been accounted for during the month of June 2023:
• Electricity and water – R4 000
• Fuel expense – R6 500
• Rent expense – R11 000
• Salaries and wages – R30 000
• Telephone expense – R1 800

12. Rental income:
Move rents out one of their machines to ABC Limited on a monthly basis at R1 200 per month. The June 2023 rental income was received on the 28th of June 2023.

13. Income tax expense:
Income tax for the current year has been correctly calculated and amounted to R269 061. The balance was still outstanding at the financial year-end.

14. Dividends:
The dividends reflected on the trial balance relate to dividends declared on the 28th of June 2022 in respect of the June 2022 financial year-end. The dividends relating to the 2022 financial year end were paid on the 4th of July 2022. Dividends of R60 000 were declared on 1st May 2023 in respect of the year ended 30 June 2023 and paid for on the 26th of June 2023. No transactions relating to the June 2023 financial year- end dividends have been recorded.

REQUIRED:

Calculate the profit or loss for the financial year ended 30 June 2023 that Move (Pty) Ltd will show in their annual financial statements.(35 marks)

Prepare the bank general ledger account in the accounting records of Move (Pty) Ltd for the financial year ended 30 June 2023. (14 marks)

Prepare the Statement of Financial Position of Move (Pty) Ltd for the financial year ended 30 June 2023 in accordance with International Financial Reporting Standards. Comparative figures are not required. Show all workings, and reference accordingly.

Get Answers on Above Questions on Financial Accounting

Answer 1: An analysis of the given transaction of Lighthouse Limited indicates that these transactions have direct impact on the financial statement of the company. As for instance, transaction one is all about accounts receivable from Corifurn Pty Ltd, and its analysis indicates that it will have an impact on the statement of financial position as well as the statement of comprehensive income. In the balance sheet, the account receivable should be adjusted by reducing R2500000 which is owed by Corifurn Pty Ltd because this amount is considered doubtful and there is no certainty of its recovery.

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