QUESTION 1 (35 marks)

Lorey One (Pty) Ltd (‘Lorey One’) is a company based in Durban, selling gold plated jewellery. Lorey One has a financial year-end of 30 April.

You have been provided with the following trial balance for Lorey One (Pty) Ltd for the period 1 May 2023 up until 31 March 2024:

The following transactions took place during the month of April 2024 and have not been recorded in the books of Lorey One (Pty) Ltd:

1. The existing insurance contract came to an end on 31 March 2024. All premiums have been paid and accounted for up until 31 March 2024. Lorey One started using a new insurance company from 1 April 2024, when the new contract was signed. Lorey One had to pay the premiums for the first 6 months, to the value of R30 000, in advance which Lorey One then paid in cash on 1 April 2024.

2. The water and electricity bill for April 2024 were received on 30 April 2024. The amount of R7 800 is still outstanding at the end of the financial year. Lorey One has an arrangement with the municipality to pay outstanding balances on the 2nd of each month.

3. Salaries and wages to the amount of R25 000 were paid in cash on 25 April 2024.

4. Jewellery to the amount of R120 000 were sold during the month of April 2024. The cost price of the jewellery sold was R75 000.

5. On 1 April 2024, 75% of trade receivables paid their outstanding debt. Lorey One decided that the remainder of the debt, all owed by JW Dewling, should be written off.

6. The company has a policy to account for depreciation and interest on loans on the last day of the year. This has not yet been accounted for regarding the current financial year.

Additional information:

• All sales are made in cash, unless otherwise specified.

• The vehicle has a useful life of 5 years.

• The loan from ABC Bank was received on 1 August 2023 and will be repaid in annual instalments starting 1 August 2024.

REQUIRED:

1.1 Prepare the general journal entries to record transactions 1 – 5 for Lorey One (Pty) Ltd for the financial year ending 30 April 2024.

• Please note that specific dates and detailed narrations are not necessary.

• Show all calculations.

• Ignore Value Added Tax (VAT).

• Please use the following format to present your answer:

Name and describe the accounting principle used to account for transaction 1. (2 marks)

Prepare the Statement of Profit or Loss and Other Comprehensive Income
for Lorey One (Pty) Ltd for the financial year ended 30 April 2024.
• Include all necessary headings and sub-headings in your statement.
• Ignore taxation.
• Provide workings where necessary.
• Assume that there were no other transactions for the year.
• Show all calculations.
(18 marks)

QUESTION 2 (20 marks)

Footworks (Pty) Ltd (‘Footworks’) is an entity that manufactures and sells footwear. The entity has a February financial year-end.

The following transactions occurred during the year ended 29 February 2024:
1. Footworks bought leather for R12 500 from Leather King Ltd, which they will use to make the shoes. Footworks has a credit agreement with Leather King Ltd to only pay for the leather after 60 days.
2. Cash sales to AS Shoeshop (Pty) Ltd to the amount of R25 000. The cost price of these shoes was R18 000.
3. Footworks bought a motor vehicle at a price of R200 000 to transport the shoes to clients. The vehicle was ready for use on 1 March 2023 and has a useful life of 5 years and a nil residual value.
4. Footworks bought shoe soles to the value of R4 500 from TB Traders (Pty) Ltd. Footworks paid in cash and received a 10% discount on the original price.
5. Some of the leather received from Leather King Ltd was not up to standard, and Footworks sent it back. The cost price of the leather sent back was R2 300.
6. Footworks upgraded their leather cutting machine. They can now cut 3 times faster than before. The upgrade cost R12 000 and Footworks paid for it immediately.
7. Footworks has an outstanding balance of R8 000 at Leather King Ltd. Footworks paid 90% of the outstanding balance on 29 February 2024. The remaining balance is part of a dispute and has been outstanding since 31 August 2023. The remaining balance accrues interest at a rate of 6% per annum.

REQUIRED:

Using the accounting equation, record transactions 1-7 for Footworks (Pty) Ltd for the year ending 29 February 2024.
Indicate the impact of each transaction by showing whether the element has increased or decreased.
• Show all calculations.
• Ignore Value Added Tax (VAT).
• Please use the following format to present your answer:

QUESTION 3 (25 marks)

Joline has always been very good at baking beautiful cakes. She has recently decided to take her hobby to the next level and started a new company that she named Joline’s Cakes (Pty) Ltd (“Joline’s Cakes”). Joline’s Cakes specialises in baking and selling cakes. The company has a December year-end.

Joline is new to accounting and has therefore asked you, as an accountant, to assist her.

The following transactions occurred during the year ending 31 December 2024 and have not been recorded yet:

1. To start the company, Joline’s Cakes, Joline deposited R100 000 into the bank account of Joline’s Cakes on 1 January 2024.

2. On 1 February 2024, Joline’s Cakes bought an industrial cake mixer from Wholesaler Galore Ltd that she will use to make the cakes. The original price of the cake mixer was R25 000. Wholesaler Galore Ltd gave a 10% discount on the original price of the cake mixer because Joline’s Cakes paid in cash. The cake mixer was ready for use on 1 February 2024 and has a useful life of 3 years with no residual value.

3. During the year, Joline’s Cakes had the following cash sales:

4. On 31 December 2024, Joline’s Cakes got a last-minute order to supply a New Year’s cake. Joline sold the cake for R350 on 31 December 2024; however, the client only paid the amount on 2 January 2025. This sale has not been included as part of the sales indicated in point 3 above.

5. Joline’s Cakes bought R25 500 worth of ingredients during the year. All of these were bought from CakeFlour (Pty) Ltd. At year end R2 500 worth of flour was still on hand.

6. On 1 September 2024, Joline decided to run the business from a shop in the local town. She signed a yearly rental contract on that day. An amount of R500 000 was paid upfront in cash for the period 1 September 2024 – 31 August 2025.

7. Joline’s Cakes grew fast, so they decided to get a R540 000 loan from ABC Bank Ltd on 31 July 2024 to fund the growth. The loan is repayable in 6 yearly payments starting on 31 July 2025. The loan bears interest at 6% per annum.

REQUIRED:

Prepare the general journal entries to document transactions 1 – 7 for Joline’s Cakes (Pty) Ltd for the financial year ending 31 December 2024.
• Please note that specific dates and detailed narrations are not necessary.
• Show all calculations.
• Ignore Value Added Tax (VAT).
• Please use the following format to present your answer:

QUESTION 4 (20 marks)

SharkGlow Ltd (“SharkGlow”) is a company that sells soft toys in the Aquarium in Cape Town. SharkGlow Ltd has a February year-end.

You are presented with an extract of the following pre-adjustment trial balance of SharkGlow Ltd for the year ended 29 February 2024:

The following transactions for the financial year ended 29 February 2024 have not yet been recorded:

Transaction 1:
Sipho, the owner of SharkGlow, inherited R60 000 on 30 June 2023 and decided to use this money to expand SharkGlow. Sihpo deposited the R60 000 in the bank account of SharkGlow. They expanded by buying another vending machine. The vending machine cost R50 000 and the delivery costs were R1 000.

Transaction 2:
On 1 July 2023, SharkGlow got an additional R40 000 loan from AB Bank Ltd. This loan is repayable in monthly installments of R2 000, with the first repayment date being 29 February 2024. This loan bears interest at a rate of 10% per annum.

Transaction 3:
SharkGlow bought soft toys to the value of R14 000, on credit from Flow Wholesales Ltd, for the new vending machine.

Additional information:
• No interest has been accounted for to date.
• On 1 March 2023, equipment consisted of 6 vending machines that SharkGlow bought when they started the company. All vending machines have a useful life of 3 years and a nil residual value.

REQUIRED:

Prepare the selected general ledger accounts of SharkGlow Ltd to account for
transactions 1-3 at 29 February 2024.
The following general ledger accounts must be prepared:
Bank (4 marks)
Equipment: Vending machine (3 marks)
Loan payable (3 marks)
Interest expense (5 marks)

• Please note that dates are not necessary.
• Round off to the nearest Rand where applicable.
• Show all calculations.
• Use the Trail Balance balances provided as starting point.
• Close off all accounts.

Assume SharkGlow Ltd made a profit of R25 645 for the year ended 29 February 2024 after all transactions have been accounted for.

Prepare an extract from the Statement of Financial Position of SharkGlow Ltd as at 29 February 2024, showing ONLY the Equity part of the statement.
• Subtotals and totals are not required.
• Notes to the financial statement extract are not required.
• Use and reference amounts from 4.1 where applicable.
• Show all calculations.

Answers to Above Questions on Financial Accounting

Answer 1: The general journal entries to record transactions 1 – 5 for Lorey One (Pty) Ltd for the financial year ending 30 April 2024 are performed as follows: