Question 1:

Wisdom Paine, a qualified dentist, decided to set up his own practice Paine-free Dentistry. The following are transactions for March 2020, the first month of business activities.

 Date Transactions Example 1.3.2020 W Paine, the owner, deposited R100 000 as his opening capital. 2.3.2020 3.3     6.3 7.3     10.3 16.3 24.3 27.3     28.3     31.3 W Paine transferred personal equipment valued at R80 000 to the practice. Purchased additional equipment on credit from Dentoquip for R38 000. The account will have to be settled within 90 days from date of the invoice. Rendered services to I Smile for R12 000 on credit. Paid the practice’s March rent of R10 000 by electric funds transfer (EFT). Paid an additional R15 000 as a refundable deposit for the premises rented. W Paine drew R13 000 in cash for personal use. An EFT payment of R9 500 was used to buy consumables (Treat as asset). Made an EFT payment of R3 300 for electricity and water. A part payment of R18 000 was made to Dentoquip. The balance will be paid in two equal monthly installments at the end of April and May 2020. A total of R127 000 was deposited into the practice’s bank account for services rendered to clients. Direct transfers were made to pay total salaries of R23 000.

Required:
Process Paine-free Dentistry’s above transactions through a table such as the one shown below:

 Date Accounting equation Ledger accounts 2020 March Assets = Equity + Liabilities Account debited Account credited Example 1.3 +100 000 = +100 000 + 0 Bank Capital-Paine

The above example records the very first transaction on 1 March 2020 whereby the owner deposited R100 000 into the business bank account.
Use + to indicate an increase; – OR brackets (00) to indicate a decrease and 0 for no effect. Show the effect on both the accounting equation and the effect on specific ledger accounts.
(22)

Refer to the transaction on the 3 March 2020, and calculate the amount of the instalment to be paid at the end of April 2020 to Dentoquip. (1)
State whether the “equipment” purchased from Dentoquip will be categorized as a “non-current” or “current” item. Provide a brief motivation for the choice you have made. (2)

QUESTION TWO [20]
The following information was extracted from the accounting records of Celestial Enterprises. The business operates and maintains a general ledger as well as subsidiary ledgers for Debtors and Creditors. At 30 April 2020, the total of the list of debtors was R224 640 which did not reconcile with the balance of R202 500 in the Debtors Control account. Details follow:

1. Celestial Enterprises: General ledger for April 2020.

 DR                                                  Debtors Control account                                       CR 1.4 Balance b/d 101 520 30.4 Bank & discount 352 080 30.4 Sales 457 200 Sales returns 3 780 Interest income 1 260 Bad debts 1 620 Balance c/d 202 500 559 980 559 980 1.5 Balance b/d 202 500

2. Celestial Enterprises: Debtors’ subsidiary ledger for April 2020.

 List of debtors as at 30 April 2020 R L Sun C Mars M Venus B Moon X Saturn 18 900 79 380 109 620 11 340 5 400 Total of list 224 640

The following errors and omissions were discovered after the above were drawn up:

1. X Saturn was declared insolvent and the liquidators paid 50% of the balance outstanding at 30 April 2020. This amount was deposited directly into the business bank account. The balance must be written off as irrecoverable. All the necessary entries to record the amount received from the liquidators and the amount written-off must still be recorded.
2. An amount of R22 680 was received from C Mars and recorded correctly in the Cash Receipts Journal, but was not posted to his personal account in the Debtors ledger.
3. A credit note number CR678 for R2 700 was issued to B Moon for the return of damaged goods. This was recorded correctly in the Sales Return Journal but erroneously posted to L Sun’s account in the debtors’ ledger.
4. D Venus’s account is overdue and must be charged interest of R1 096.
5. A credit sale of goods to L Sun for R3 240 has not yet been recorded.
6. The sales return journal is undercast by R540.

Required:
Use the information provided to correct and prepare the following:
Debtors Control account for April 2020. You are required to show the corrections made and balance the account. (12)
A List of debtors as at 30 April 2020. You are required to show the corrections and total the list (8)
Question 3:

Joe Soap owns a general dealer business situated in Umzinto. The following information was provided for Joe’s General Dealers for the financial year ended 28 February 2020.

Joe’s General Dealers

 Pre-adjustment trial balance as at 28 February 2020 Debit – R Credit – R Vehicles at cost 507 800 Equipment at cost 448 500 Accumulated depreciation: vehicles 107 300 Accumulated depreciation: equipment 147 700 Inventory: trading (1 March 2019) 184 900 Trade debtors control 55 680 Bank 169 560 Capital 403 300 Drawings 131 000 Loan term borrowing from People’s Bank 300 000 Trade creditors control 65 000 Sales 1 413 585 Sales returns 5 580 Purchases 672 400 Purchases returns 2 735 Carriage on purchases 4 596 Carriage on sales 3 750 Insurance on purchases 987 Commission income 54 000 Rental income 19 500 Settlement discounts received           T0 be deducted from 1 675 Settlement discounts granted            relevant trading 1 395 items 25 725 Insurance 15 300 Electricity and water 13 800 Packing material 273 822 Sundry expenses 2 514 795 2 514 795

1. Physical stock-take on 28 February 2020 revealed the following Inventories on hand;
• Trading inventory R228 250, and
• Consumable inventory: packing material R3 600
2. A new tenant rented a portion of the premises from 1 March 2019. According to the rental agreement the rent for the period 1 March 2019 to 31 March 2020 was R1 500 per month. Rent is usually received in advance ie. rent is received in the month before it is due. For example; the April 2019 rent was received during March 2019.
3. Commission income of R10 800, earned in February 2020, has not yet been received nor recorded.
4. Electricity and water of R1 600 for February 2020 has not been paid and is not yet included in the above records.
5. The long term loan from People’s Bank was obtained on 1 September 2016 at an interest rate of 11,5% per year. The loan was payable in four (4) equal annual instalments. The first instalment was paid on 31 August 2019. The second instalment is payable on 31 August 2020. Interest is paid during March each year.
6. A debtor who owes Joe’s General Dealers R12 680 cannot be traced. His account must be written-off as irrecoverable.
7. The insurance account balance of R25 725 covers the period 1 March 2019 to 30 April 2020. The monthly insurance premium remained unchanged during this period.
8. Provide for depreciation for the year as follows:
• Vehicles – at 10% per year on straight line method, and
• Equipment – at 14% on the diminishing balance method.
There were no purchases or sales of the above items during the current financial year.

Required:

Use the above information to prepare the statement of profit and loss and other comprehensive income for Joe’s General Dealers for the year ended 28 February 2020. Your answer must comply with International Financial Reporting Standards that are appropriate to this type of business.
Round off all amounts to the nearest rand. All calculations must be shown.
QUESTION FOUR [20]
Mat and Will are partners in a business that offers their services as Top Debt Collectors. Their business is very successful and the following information was extracted from their accounting records for the year ended 28 February 2020. The statement of profit and loss and other comprehensive income has been completed and the following needs to be considered to prepare the statement of changes in equity.

 Balances as at 28 February 2020 R Capital: Mat Capital: Will Current account: Mat (credit balance: 1 March 2019) Current account: Will (debit balance:1 March 2019) Drawings-general: Mat Drawings-general: Will Drawings-salary: Mat Drawings-salary: Will Profit for the year 400 000 400 000 30 000 10 000 52 400 71 600 60 000 35 000 780 000

During the current financial period Mat and Will’s capital contributions changed as follows:
On 31 August 2019, Mat contributed an additional R100 000 as capital and Will withdrew R50 000 from his capital. These have been correctly recorded to arrive at the above capital balances.
Mat and Will have a partnership agreement which includes the following relevant items;
Provision must be made for interest on capital at 10% per year.
Interest on current account debit balances and credit balances at beginning of the year must also be recorded at 10% per year.
Interest on drawings-general has been calculated on daily balance as follows:

• Mat R4 600
• Will R5 400

Partners are entitled to the following salaries:

• Mat is entitled to a salary of R6 000 per month for the full year;
• Will is entitled to a salary of R7 000 per month from 1 September

The remaining profits must be shared equally.

Required:
Prepare the statement of changes in equity for Top Debt Collectors for the year ended 28 February 2020. The statement must be presented in the following format.

Recommended format:
Top Debt Collectors
Statement of changes in equity for the year ended 28 February 2020.

QUESTION FIVE [10]
The following information was extracted from the accounting records of Humid Limited for the year ended 31 May 2020:

Humid Ltd
Summary of the statement of profit and loss and other comprehensive income for the year ended 31 May 2020 .

 31 May 2020 R Sales 1 840 000 Cost of sales (980 000) Gross profit 860 000 Other income 185 000 Commission income 123 000 Profit on sale of non-current asset 62 000 Distribution administration and other expenses (625 000) Audit fees 58 000 Depreciation 80 000 Salaries and wages 402 000 Other expenses 85 000 Finance cost (40 000) Interest on borrowings 40 000 Profit before taxation 380 000 Income tax expense (80 000) Profit / total comprehensive income for the year 300 000

Humid Ltd
Extract from the statement of financial position as at 31 May 2020.

 31 May 2020 R 31 May 2019 R Inventories – merchandise 90 000 122 000 –    Stationery 5 000 5 800 Trade debtors 330 000 298 000 Bank 147 000 53 000 Trade creditors 170 000 178 000 Prepaid expenses 4 200 1 800 Accrued expenses 16 800 17 600

Required:

Prepare the following section of the statement of cash flows of Humid Limited for the year ended 31 May 2020:
• “Cash generated by operations” section only.

Note that the entire “cash flows from operating activities” section is not required. Humid Limited uses the indirect method to prepare its statement of cash flows.

Answers to Above Questions on Financial Accounting

Answer 1: The transactions of Paine-free Dentistry’s are processed in the table below:

Get completed answers on the accounting questions above from the best accounting assignment help experts of Student Life Saviour.

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