QUESTION 1 (34 Marks)

Karoo Ltd is a retailer of furniture and fittings that allows customers to buy on credit. The following information pertains to Karoo’s for the year ended 31 March 2024:

Extract from the pre-adjusted trial balance of Karoo as at 31 March 2024

Trade receivables R2 208 960

Allowance for doubtful debts R220 896

The following are the policies of Karoo Ltd:

• Karoo Ltd has a policy to provide an allowance for bad debts of 10% of their trade receivable balance.
• It is Karoo Ltd.’s policy to reinstate debtors who were previously written off if they repay their debts thereafter.
The following additional information relates to the trade receivable cycle that were not

taken into account in the accounting records for the 2024 financial year:

1. A debtor, Mr X. Rian, who had a debt of R9 478, was untraceable. It was thus decided to write off his debt as irrecoverable.
2. A credit note of R3 540 for goods returned had been incorrectly entered in the records on 15 March 2024 as if it were an invoice.
3. A credit sale to the debtor, Mr Deliveries amounting to R1 062, was recorded incorrectly to the debtor, Mr P. Simba, in the Debtors’ Ledger on 18 March 2024.
4. The March 2024 bank statement reflected a dishonoured (R/D) cheque for an amount of R 50 126. This cheque was received on 3 March 2024 from debtor Mrs N. Phele and was deposited in the bank account on the same day and correctly recorded in the cash receipts journal on that day.
5. A settlement discount of R2 549 had been completely omitted from the records.

6. On 25 March 2024, an amount of R 9 478 was received from Mr X. Rian. Mr X.

Rian explained that he was visiting his remote hometown in China and had com- pletely forgotten about his debt owed and remembered only once returned.
7. The debtor, Mrs. A. Vushe, was declared insolvent in 2024. The total debt owed by her on 31 March 2024 was R46 320. Mrs. A. Vushe’s lawyer confirmed that Karoo Ltd would receive 15c for each Rand owed. On 31 March 2024, a payment
was received from Mrs A. Vushe’s lawyer. The remainder of Mr A. Vushe’s debt

was written off as irrecoverable.

8. A credit sale transaction of R52 200 and a sales return transaction of R 9 480 that occurred on 31 March 2024 were omitted from the respective journals.

Required:

a) Prepare the Trade Receivables account in the General Ledger. Show all workings. Ignore VAT. (31 Marks)
b) There are risks to investing in working capital. State what the consequences are

to the risks mentioned below:

• Where criteria for deciding whether to allow customers to purchase on credit are too strict.
• Where levels of inventory are too high.

• Where cash levels are too high. (3 x 1 = 3 Marks)

QUESTION 2 (16 Marks)

Inspiron is a local manufacturer of sports equipment. The entity’s current year ended on

31 March 2024. The following information relates to a new machine acquired during the year in order to manufacture soccer balls:

1 February: The machine was purchased FOB destination point from an overseas sup- plier for 56 640 USD. The destination was Inspiron’s premises. The ex- change rate on the 1 February 2024 was 1 USD: R18.95. The payment for the machine was made on this day.
28 February: The machinery arrived at the premises of Inspiron.

1 March: The machinery was installed, and installation fees paid amounted to R8 496. The machine was then brought into use on this day when the manufacturing of soccer balls commenced.

The machinery has a useful life of 5 years and is depreciated using a straight-line basis. It was estimated that the residual value of the machine is R14 160.

Required:

Prepare the general journal entries of Inspiron for the year ended 31 March 2024 to account for the machine. Ignore closing off journals. Show all dates and workings. (16 marks)

QUESTION 3 (25 Marks) BSG Traders is a company that manufactures handmade leather shoes. The company accountant, Miss A Ntintelo, is in the process of preparing the Debtors’ Reconciliation
for the month of March 2024.

The following information is available to her:

Trade receivables (29/02/24)

(The balance is a net 5% allowance for doubtful debts)

R

60 652

Total column of the sales journal 32 804

Trade receivable column in the Cash Receipts Journal 37 224

Credit sales returns for the month 5 310

Closing balance on the Debtor’s List 44 132

• In early March, a decision was taken to write off a debtor, A. Dereck, as bad. A.

Dereck, a known gambler who went missing after a high-stakes poker game, had purchased goods to the value of R4 180 in the previous month.
• On the 29 of February, another debtor, B. Bauti, was declared insolvent. Reliable estimates from the executor indicate that creditors will able to recover 16c in the rand. The outstanding balance on his account was R6 607.
• On the last day of the month, a cheque was received from A. Dereck in full pay- ment of his outstanding balance. As it turned out, he had been in Spain betting on football.

When comparing the Debtor’s Ledger with the General Ledger, Miss Ntintelo identified the following errors;
• A credit sale to a customer, G. Brians, was incorrectly accounted for in the com- pany books. the sale was for R9 322, and Mr Brians was offered a 10% trade discount for his bulk purchase. The sale was recorded as follows in the General Ledger:
Dr Trade receivables R9 322

Cr Sales R9 322

The transaction was correctly dealt with in the Debtor’s Ledger.
ABC maintains their allowance for doubtful debts at 5% of the outstanding trade receivables balance at month end.

Required;

a) Prepare the trade receivable account in the General Ledger (9 marks)

b) Prepare the account of A. Dereck in the debtors’ Ledger (6 marks)

c) Prepare ALL the entries in the general journal with regard to Bad debts and al- lowance for doubtful debts. (10 marks)

QUESTION 4 (25 Marks)

Jack Ltd sells portable waterproof speakers to hypermarkets. You have been asked to assist in the preparation of the annual financial statements for the year ended 31 March
2024. The following statement of comprehensive income has been prepared by the bookkeeper.

R

Retained income 31 March 2024 80 476

Sales 236 000

Purchases 93 338

Import duty 14 160

Salaries 29 736

Rent 19 234

Interest 3 540

General expenses 26 786

Profit 35 990

On investigation of the above statement of comprehensive income, you discover the following;

1. The bookkeeper had not journalized the reversing entry for the accrual at 31

March 2024 of rent paid in advance of R3 540 and sales received in advance of R7 870. Both these amounts are related to April 2023. All other reversing entries have been processed.
2. Interest represents payments of interest for the year on a loan of R35 400. The interest rate is 15% per annum, and there have been no repayments during the year.
3. The inventory per the statement of financial position at 31 March 2023 was

R7 420, which represented 70 speakers valued at R106.

4. There were 80 speakers on hand at 31 March 2024. Of these, 8 were considered worthless. Jack Solutions accounts for inventory on the periodic using the FIFO basis of allocating costs.

5. The purchases and purchase returns records for the year were as follows;

Purchases

July 330 units at R100 each October 375 units at R110 each January 118 units at R 120 each
March 25 units at R130 each (after trade discount)

Purchase returns

July 47 units at R100 each

March 10 units at R130 each

6. A Chinese supplier entered the market in late March and was selling its speak- ers at R177 each. The normal selling price of Jack was R236.
7. In March 2024, a carton of 10 speakers purchased in March was stolen. Jack is not insured for losses of this nature.
8. No taxation or dividends are payable for the year.

Required;

a) Record the journal entries to finalise the books for the year ended 31 March

2024 for items 1, 2, 6 and 7 only. Narrations are not required. If no entry is re- quired, state this fact and give a reason for your answer. (10 marks)
b) Prepare the statement of comprehensive income for the year ended 31 March

2024, taking (1 – 8) above into account. (15 marks)

Answers to Above Questions on Financial Accounting

Answer 1: The Trade  Receivables  account  in  the  General  Ledger is prepared below:

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