QUESTION 1 (8 marks)

Sarah is a business owner who wants to make sure her business is profitable and she is therefore on the lookout for new opportunities to grow/expand her business.

In order to do so, Sarah learned that business owners, such as herself, and shareholders need information about their business.

Sarah also learned that by keeping record of transactions, it will assist her business to have information that is useful for making economic decisions.

REQUIRED:

Briefly discuss what type of information business owners/shareholders would need about a company to allow them to make good economic decisions.(2 marks)

Briefly discuss why it is important to communicate financial information.(2 marks)

Briefly discuss how financial information would be communicated.(2 marks)

Briefly discuss what information financial analysts, investors, financial advisors, and financial institutions need about a business in order to make economic decisions. (2 marks)

QUESTION 2 (46 marks)

Precision Pro Engineering is a company that provides engineering consulting services to clients. The company’s financial year ends on 30 June 2023. During the financial year, the following transactions took place:

1. On 1 July 2022, R200 000 was invested into Precision Pro Engineering as additional capital.
2. On 1 July 2022, Precision Pro Engineering obtained a bank loan of R500 000 from First National Bank. The loan has a repayment term of 5 years with a fixed annual interest rate of 7%. The loan will be repaid in 5 equal instalment payments over the 5-year term. The first instalment payment is due on 30 June 2023. By 30 June 2023, the interest and instalment payments were made.
3. During the year, Precision Pro Engineering purchased office equipment for R240 000 on credit from Quality Equipment Suppliers.
4. On 1 March 2023, Precision Pro Engineering paid R120 600 in cash for rental of office space for the next six months.
5. On 1 June 2023, Precision Pro Engineering purchased a delivery vehicle from Cars Ltd for R350 000 and paid R60 000 as a deposit.
6. The company received an invoice from its legal advisor amounting to R8 000 for legal services rendered during the 2023 financial year. Payment was made on 31 December 2022.
7. During the 2023 financial year, Precision Pro Engineering paid R2 000 to an external accounting services provider for accounting services rendered.
8. On 1 February 2023, Precision Pro Engineering received R15 000 from ABC Construction for consulting work completed during the month.
9. During the 2023 financial year, the business paid R750 000 in salaries and wages to employees in cash. A bonus payment of R50 000 was however still outstanding to be paid for the year.
10. During the year, Precision Pro Engineering settled an outstanding account payable of R80 000 by making a cash payment.
11. During the year, Precision Pro Engineering received R60 000 in cash from clients for outstanding accounts.

12. On 30 June 2023, the business purchased a property for R1 200 000. A cash payment of R80 000 was made from the entity’s bank account, and a mortgage bond for R1 120 000 was taken out to pay the remaining balance. No other mortgage-related transactions occurred during the financial year.
13. On 30 June 2023, the owner withdrew R5 000 in cash from the business for personal use.
14. During the year, Precision Pro Engineering bought R600 000 worth of furniture from various suppliers. Of this amount, R540 000 was purchased on credit and R60 000 was paid in cash.

REQUIRED:

Using the accounting equation, record ONLY transactions 1 – 7 for Precision Pro Engineering for the financial year ended on 30 June 2023 by showing how transactions 1-7 affect the financial position of the business as represented by A
= E + L.
You need to indicate whether the element has increased or decreased and provide the relevant amount and account that would be affected. Show all calculations and use the below format to structure your answer.(20 marks)

Prepare the general journal entries for ONLY transactions 8 – 14 for Precision Pro Engineering for the financial year ended on 30 June 2023. Dates and (16 marks)

Compile the Bank account for Precision Pro Engineering in the General Ledger for the financial year ended on 30 June 2023 by recording the individual entries affecting the Bank account. Start with an opening debit bank balance of R625 600 as at 1 July 2022. The dates of individual entries are not required, yet the account should be balanced and closed off. (10 marks)

QUESTION 3 (10 marks)

You have been provided with the following information on Stark Industries Ltd, a company with a 31 December year end.

1. On 1 January 2023, the company had a share capital balance of R100 000 and retained earnings of R40 000.
2. Stark Industries Ltd had a revaluation surplus opening balance of R50 000 on 1 January 2023. During the year, the company revalued its property resulting in an increase in the revaluation surplus by R30 000.
• This was the only revaluation that took place for the year.
• The company did not dispose of any of its assets during the year.
3. During the year, Stark Industries Ltd issued additional shares for R20 000.
4. The company had a net profit of R65 000 for the year.
5. The directors declared a dividend of R5 000 during the year.
6. The owner of the company withdrew R10 000 from the company for personal use.

REQUIRED:

Prepare the Statement of Changes in Equity for Stark Industries Ltd for the year ended 31 December 2023 considering the above transactions (1-6).

Instructions:
• Include all necessary headings and sub-headings in your statement.
• Totals and subtotals are not required.
• Provide workings where necessary.
• Assume that the company has only one class of shares.
• Round all amounts to the nearest rand.
(10 marks)

QUESTION 4 (16 marks)

Evergreen Manufacturing (Pty) Ltd. is a company based in South Africa that specialises in the production and sale of renewable energy machinery. They focus on creating key components for wind turbines and solar panels. The financial year of the company ended on 31 December 2023.

The following transactions took place during the 2023 financial year and must still be recorded in the books of Evergreen Manufacturing (Pty) Ltd for the financial year ended 31 December 2023:

1. On 1 January 2023, Evergreen Manufacturing (Pty) Ltd. purchased equipment on credit for R100 000. This equipment will be used in the production of components for wind turbines and solar panels.
2. Evergreen Manufacturing (Pty) Ltd. paid R550 000 in rent for the factory space where the machinery is assembled.
3. Evergreen Manufacturing (Pty) Ltd. sold components worth R6 000 000 to renewable energy companies on credit. The cost of producing these components was R3 600 000.
4. Evergreen Manufacturing (Pty) Ltd. paid salaries totaling R792 000 to its employees, who are skilled in the design and assembly of renewable energy machinery.
5. Evergreen Manufacturing (Pty) Ltd. received R242 400 of interest income from a fixed deposit investment.
6. Evergreen Manufacturing (Pty) Ltd. paid R356 400 for electricity expenses for the factory.
7. Evergreen Manufacturing (Pty) Ltd. paid R35 000 for advertising expenses to promote their products in the renewable energy sector.
8. Evergreen Manufacturing (Pty) Ltd. sold a large batch of wind turbine components to a customer on credit for R400 000. The cost of producing these components was R250 000.
9. Evergreen Manufacturing (Pty) Ltd. paid R21 000 for legal fees.
10. Evergreen Manufacturing (Pty) Ltd. paid R240 000 for finance costs related to a loan obtained for purchasing specialised equipment.

11. On 1 December 2023, the owner of Evergreen Manufacturing (Pty) Ltd took a solar panel out of inventory for personal use. The cost of inventory was R33 000. This solar panel could have been sold to a customer for R48 000.
12. On 31 December 2023, Evergreen Manufacturing (Pty) Ltd paid bonuses to its employees. The bonuses were calculated as 5% of the total gross profit made during the 2023 financial year.

REQUIRED:

Prepare the Statement of Profit or Loss for Evergreen Manufacturing (Pty) Ltd. for the financial year ended 31 December 2023, considering the above transactions (1-12).

Instructions:
• Include all necessary headings and sub-headings in your statement.
• Show all your workings / calculations.
• Assume that there were no other transactions for the year.(13 marks)

Prepare the general journal entry to record transaction 11 in the books of Evergreen Manufacturing (Pty) Ltd. for the financial year ended 31 December 2023. Dates and narratives are required.(3 marks).

QUESTION 5 (20 marks)

Wardrobe Emporium (Pty) Ltd is a retail store that sells clothing and accessories. The retail store entity’s financial year ended on 30 June 2023.

You are presented with the following pre-adjusted trial balance of Wardrobe Emporium (Pty) Ltd for the financial year ended 30 June 2023:

Pre-adjusted trial balance of Wardrobe Emporium (Pty) Ltd as at 30 June 2023:

The following transactions have not yet been recorded for the financial year ended 30 June 2023:

1. On 30 June 2023, a vehicle valued at R54 000 was contributed by one of the company’s shareholders to facilitate deliveries to customers.
2. On 1 June 2023, the company paid a total of R37 500 in rent for the next 5 months (including June 2023).
3. On 30 June 2023, Wardrobe Emporium (Pty) Ltd obtained a loan of R200 000 from the bank to finance some of their operations.

4. On 30 June 2023, the company paid R22 000 to suppliers regarding trade payables.
5. Gift vouchers worth R36 000 were sold by Wardrobe Emporium (Pty) Ltd during June 2023, with the condition that they would be redeemed in November 2023 for Black Friday sales.
6. On 30 June 2023, the company had unused stationery supplies of R2 500 on hand.

Additional information:
• The accountant has identified that the total debits and credits in the pre-adjusted Trial Balance do not match.
• An arithmetic error made in June resulted in the overstatement of trade receivables by R3 000.
• The error has not yet been corrected.

REQUIRED:

Prepare the Statement of Financial Position for Wardrobe Emporium (Pty) Ltd for the financial year ending 30 June 2023, considering accounting for the above transactions (1-6) and rectifying the error of overstated trade receivables.

Instructions:
• Include all necessary headings and sub-headings in your statement.
• Provide workings where necessary.
• Assume that there were no other transactions for the year.
(20 marks)
Answers to Above Questions on Financial Accounting

Answer 1: In order to make informed and sound decisions about a company, it is important to have accessibility to various types of useful information about the company. Some of the important information as required includes the financial performance of the company as reflected by the profit and loss account and financial statement, the profit margins and cash flow management, revenue and sales performance, market and industry analysis, information about the debt and equity and many more.

Get completed answers on the above questions on financial accounting principles from the best accounting experts of Student Life Saviour South Africa.