QUESTION 1 (14 marks)

Royal Footwear Boutique (Pty) Ltd specializes in luxury footwear and related premium accessories. The company’s financial year concluded on 31 December 2023.

You have been given an extract from the pre-adjusted trial balance of Royal Footwear Boutique (Pty) Ltd for the 2023 financial yearend.

The following is the extract of the pre-adjustment trial balance of Footwear

Boutique (Pty) Ltd as at 31 December 2023:

Account Debit




Trade receivables 165 000  
Inventory 90 000  
Bank 35 000  
Trade payables   40 000
Sales   620 000
Cost of sales 430 000  

Additional Information:
• On 15 December 2023, Royal Footwear Boutique (Pty) Ltd received R13 500 cash from Mrs. DeSilva, an old debtor, whose account was written off as irrecoverable in the previous year.
• On 20 December 2023, a debtor, Mr. Luxe, was declared insolvent. He owed Royal Footwear Boutique an amount of R5 000. A final dividend of twenty cents in the rand was received from the insolvent estate. The remainder of the debt was to be written off.
• On 31 December 2023, it was determined that a debtor, Mr. Stevens, was not going to settle his debt of R3 500 and should be written off.
• After accounting for the bad debt from Mr. Stevens, the company estimates that 5% of the remaining trade receivable balance as of 31 December 2023 is doubtful.


Prepare the adjusting general journal entries based on the above additional information for Royal Footwear Boutique (Pty) Ltd for the financial year ended 31 December 2023.

• Include all necessary headings and sub-headings in your journals.
• Provide workings where necessary.
• Assume that there were no other transactions for the year.
• Dates and narrations may be ignored.
(10 marks)

Prepare an extract of the Statement of Financial Position to present only the Current Assets for Royal Footwear Boutique (Pty) Ltd for the financial year ended 31 December 2023. Notes are not required.(4 marks)

QUESTION 2 (26 marks)

You are the Senior Accountant at Peet’s Poultry (Pty) Ltd (“Peet’s Poultry”), a renowned butcher in Bloemfontein. The company is known for its delectable chicken nuggets and top-quality eggs. Peet’s Poultry’s financial year concludes on 31 December 2023.

The following transactions occurred during December 2023, leading up to the 2023 financial yearend:

1. Peet’s Poultry employs 10 staff members who receive their wages bi-weekly. By the close of December, wages for only one week, amounting to R20 000, have been disbursed. The remaining week’s wages, also totalling R20 000, will be settled on January 5th of the subsequent year.

2. On 1 July 2023, Peet’s Poultry remitted an insurance premium of R12 000, providing coverage for one year starting from that date. The full amount of R12 000 was paid in cash on that date.

3. On the last day of December, the company sold chicken nuggets valued at
R15 000 to Happy Feet (Pty) Ltd. The nuggets were delivered in December, but the invoice was sent to Happy Feet in January of the following year. Happy Feet settled the invoice immediately upon receipt.

4. Egg’celent Eggs Ltd has a monthly subscription with Peet’s Poultry for the supply of 3,000 eggs at a fixed cost price of R2 each. The subscription income was received by 15 December 2023. However, in December, Peet’s Poultry could supply only 2 400 eggs. The deficit was addressed in January, along with the regular monthly supply.

Additional information:
• Peet’s Poultry applies a mark-up of 20% on cost price on all its products.
• Peet’s Poultry follows the accrual accounting concept.
• Leon, the Assistant Accountant, made the following journal entries for December 2023 for the transactions mentioned. No other related entries were recorded for these events: No other entries were recorded related to these events:

Trans. Date Account Description Amount (R) Amount (R)
1 31 Dec Debit: Salaries Expense 20 000  
    Credit: Bank   20 000
2 01 Jul Debit: Insurance Expense 12 000  
    Credit: Bank   12 000
3 No entries recorded    
4 01 Dec Debit: Bank 6 000  
    Credit: Sales Income   6 000


Examine the journal entries recorded by Leon for the transactions in December 2023 for Peet’s Poultry (Pty) Ltd. Complete the following table separately, for each Transaction 1-4:

Make use of the following table to draft your answers for each transaction:



Indicate whether you agree that the journal entry recorded

by Leon is correct or not by stating ‘Yes’ or ‘No’.



Provide a brief explanation for your agreement or disagreement.

o    Specify the Adjustment Entry: Indicate what (if any) adjustments are necessary, including specific journal entries.

o    Explain the Concept: Discuss the underlying accounting concept that justifies the recommended treatment. For instance, if an accrual is needed, explain the principle of accrual-based accounting. If a prepaid expense is involved, clarify the nature and rationale of prepaid expenses.

o    Highlight Leon’s Oversight: Describe what Leon missed or misunderstood in his initial treatment.

No more than 2 sentences per transaction.

Recommended Journal Entries: Record the suggested correct journal entries that should have been recorded by Leon from the start to account for the transactions in the December 2023 month.

(Ignore January 2024).

  No. Detail/Account Debit




01 Account name (Element) xxx  


Account name (Element)
Workings/Calculations Show workings if applicable.

QUESTION 3 (40 marks)

HumbleBakes Ltd is a well-renowned bakery chain preparing for the festive rush. To meet its demand for its signature cranberry bread, the company sources a special type of whole-wheat flour.

The following are transactions of HumbleBakes Ltd for November 2023:
• 1 November: Opening inventory of 3 000 kilograms of flour at R10 per kilogram.
• 2 November: Purchased an additional 500 kilograms of flour from FlourMasters Ltd at R12 per kilogram.
• 5 November: Sold 2 000 cranberry bread units to Bakery Delights, a local retailer, at a 20% markup on cost.
• 7 November: Bought 4 000 kilograms of flour from GoldenGrains Ltd. The initial price was R13 per kilogram. However, after a negotiated trade discount, the effective cost was brought down to R11 per kilogram.
• 9 November: Returned 50 kilograms of the flour purchased on 2 Nov to FlourMasters Ltd due to inconsistency in quality. A full refund was provided.
• 15 November: An order of 2 300 cranberry bread units was fulfilled for Downtown Bakery Stores at a 20% markup on cost.
• 22 November : In anticipation of the December rush and not wanting to use aging flour, HumbleBakes Ltd offered Harbor Cafe Chain a special deal: they sold 3 000 cranberry bread units at 20% markup on cost with an attractive 10% settlement discount if paid within 8 days. Harbor Cafe Chain was more than happy to oblige and paid within 3 days. (The cost price per cranberry bread was R11)

Additional information:
• 1 kilogram of flour is required to bake one unit of cranberry bread.
• HumbleBakes Ltd only trades in cash payments.
• HumbleBakes Ltd uses the perpetual recording method and First-in-first-out
cost allocation method.
• Ignore VAT and taxation for this question.
• Round to two decimals where applicable.


Prepare the general journal entries to record all the transactions that took place on 7 November and 22 November considering how the trade and settlement discounts should be recorded.(6 marks)

Record the above transactions of HumbleBakes Ltd (including the impact of the trade discount and settlement discount) in the following general ledger accounts for the month of November 2023:
Inventory – 16 marks
Sales – 5 marks
• Dates are required. Show all calculations.
• Accounts must be closed-off.
(21 marks)

Calculate the gross profit for the month of November 2023.
(2 marks)

Assume HumbleBakes Ltd aims for a 18% mark-up on selling price, determine the selling price of a cranberry bread unit that costs R15 to produce.
(2 marks)

To maximize revenue per unit sold, based on your calculation in Question 3.4, advise whether Humblebakes Ltd should apply a 18% mark-up on selling price or continue applying a 20% markup on cost on their cranberry breads. Assume that a cranberry bread cost R15 per unit to produce.
(3 marks)

Assume HumbleBakes Ltd adopted the weigted average cost allocation method (instead of FIFO). Calculate the Cost of Goods Sold (COGS) for the flour for the month of November 2023.
(6 marks)

QUESTION 4 (20 marks)

Drakensberg Pharmaceuticals Ltd is leading pharmaceutical company listed on the Johannesburg Stock Exchange. The company has a financial yearend of 31 December. In 2023, the company decided to invest in research and development (R&D) for a potential breakthrough cancer drug. The research commenced in February 2023, with an initial budget of R 2 million.

The company hired LifeSciences Lab (Pty) Ltd, a specialist bio-tech research agency, on a contract worth R 1 million. The contracted research was completed and presented to the company’s board on 1 November 2023. The research shows potential but by 31 December 2023, no remarkable breakthroughs have been documented yet.

Drakensberg Pharmaceuticals also directly incurred R500 000 in costs for the research project, which included staff costs, purchase of specialised equipment, and raw materials.

Ignore VAT and taxation for this question.


Discuss, in terms of The Conceptual Framework for Financial Reporting, how the payment made to LifeSciences Lab (Pty) Ltd, as well as the direct costs incurred for the R&D project, should be accounted for in the annual financial statements of Drakensberg Pharmaceuticals Ltd for the financial year ending on 31 December 2023.

In your response, consider the following aspects:
• Definitions of relevant financial statement elements: Assets
• Recognition criteria & Measurement considerations: Assets
• Impacts on the financial statements if the payments were treated differently.
• Remember to provide adequate reasoning for your answers, considering the timelines and amounts specified.
(16 marks)

Assume no entries have been posted to record for these transactions. Prepare the general journal entries to account for the transactions in the year ending on 31 December 2023 for Drakensberg Pharmaceuticals Ltd. Provide journal dates and narratives.

Answers to Above Questions on Financial Accounting

Answer 1: The adjusting general journal entries based on the above additional information for Royal Footwear Boutique (Pty) Ltd for the financial year ended 31 December 2023 are given below:


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