QUESTION ONE [25]
Pitso and Steve are partners operating a business Topclass Pro Services. The information that follows is relevant to the business activities of the partnership for the year ended
30 June 2022. Pitso and Steve share in profits and losses in the ratio of 3:2 respectively.
Topclass Pro Services
Extract of relevant account balances as at 30 June 2022
| Debit
R |
Credit
R |
|
| Capital: Pitso | 270 000 | |
| Capital: Steve | 270 000 | |
| Current account: Pitso: balance at 1 July 2021 | 76 600 | |
| Current account: Steve: balance at 1 July 2021 | 52 900 | |
| Drawings for the year: Pitso | 68 310 | |
| Drawings for the year: Steve | 43 470 | |
| Long term loan from Pitso | 110 000 | |
| Salaries paid to partners during the year: | ||
| Pitso | 144 000 | |
| Steve | 126 000 | |
| Profit for the year – before taking the any of the additional | 765 500 | |
| information into account |
Additional information:
The following has been extracted from the partnership agreement:
1. Interest must be calculated and recorded at the following rates at the end of each financial period. All interest must be processed through the current accounts of the partners. Interest rates are as follows:
Interest on capital must be calculated at 10% per year,
Interest at 10% per year on current account balances at beginning of the year,
Interest on drawings accounts balances has been calculated as follows:
• Pitso R4 500
• Steve R2 900
2. The following salaries are payable to the partners for the current year:
Pitso: R12 000 per month, and Steve R15 000 per month.
Year-end adjustments:
1. On 1 January 2022 Pitso contributed another R90 000 as capital to the partnership. It was agreed that the amount will be included in his fixed capital account. The transaction was correctly recorded as at 30 June 2022.
2. Pitso granted an unsecured loan to the partnership on 1 January 2022. According to the loan agreement, interest will be charged at 10% per year. The loan will be repaid in annual installments beginning 31 December 2026. Interest on the loan is still to be calculated and recorded in the books of the partnership.
Required:
Take the above information into account and adjust the “Profit for the year” to show the correct amount to be shared between the partners, Pitso and Steve. Thereafter,
prepare the statement of changes in equity for Topclass Pro Services for the year ended 30 June 2022 to clearly show the distribution of profits in terms of the partnership agreement.
Show all calculations. Use the format suggested below.
Topclass Pro Services
Statement of changes in equity for the year ended 30 June 2022
| Capital accounts | Pitso
R |
Steve
R |
Total
R |
| Balance at 1 July 2021
Additional contributions |
|||
| Balance at 30 June 2022 | |||
| Current accounts: | Pitso R | Steve R | Appropriation R |
| Balance 1 July 2021
Profit for the year |
|||
| Appropriations: Interest on capital Interest on current a/c Interest on drawings Salaries due
Share of profits |
|||
|
Drawings |
|||
|
Balance 30 June 2022 |
|
|
|
QUESTION FOUR [25]
The following information was extracted from the accounting records of Mode Ltd for the financial year ended 30 June 2022.
Extract from: Statement of Profit or loss and other comprehensive income of Mode Ltd for the year ended 30 June 2022
| R | |
| Gross profit | 1 440 000 |
| Dividends received | 43 000 |
| Profit on sale of machine | 75 000 |
| Depreciation | (15 000) |
| Interest expense | (180 000) |
| Distribution, administration and other expenses | (403 000) |
| Taxation | (420 000) |
| Profit for the year after taxation | 540 000 |
Extract from: Statement of financial position of Mode Ltd as at 30 June 2022:
| ASSETS | 30 June 2022
R |
30 June 2021
R |
| Land and buildings | 925 000 | 890 000 |
| Machinery at carrying amount | 875 000 | 250 000 |
| Investments | 235 000 | 385 000 |
| Inventory | 170 000 | 480 000 |
| Trade debtors | 140 000 | 400 000 |
| Receiver of revenue – income tax | 10 000 | Nil |
| Bank balance | 30 000 | 15 000 |
| Total assets | 2 385 000 | 2 420 000 |
|
EQUITY AND LIABILITIES |
1565 000 |
940 000 |
| EQUITY | ||
| Ordinary share capital | 745 000 | 480 000 |
| Retained earnings | 820 000 | 460 000 |
|
LIABILITIES |
820 000 |
1 480 000 |
| Long term Borrowings | 750 000 | 1 050 000 |
| Trade creditors | 60 000 | 352 000 |
| Receiver of revenue – income tax | Nil | 43 000 |
| Shareholders for dividends | 10 000 | 35 000 |
| Total equity and liabilities | 2 385 000 | 2 420 000 |
Additional information:
1. Shares were issued for cash during the year.
2. Dividends of R180 000 were declared during the current financial year.
3. On 31 October, machinery with a carrying amount of R110 000 was sold for cash. A replacement machine as well as additional machinery was purchased for cash.
4. No long term borrowings were made during the year.
5. Investments were sold during the year. No new investments were purchased.
Required:
Take all the above information into account and prepare the statement of cash flows for Mode Ltd for the year ended 30 June 2022. Use the indirect method. Your answer must comply with the International Financial Reporting Standards (IFRS) appropriate to this type of business.
Show all workings. Round off all workings to the nearest Rand.
Answers to Above Questions on Case Study
The correct amount to be shared between the partners, Pitso and Steve is calculated as follows:
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