Question 6.2
The following balances were extracted from the books of Lazy Traders, on 28 February 20.23.
TRIAL BALANCE OF LAZY TRADERS ON 28 FEBRUARY 20.23
DEBIT CREDIT
Capital 304 240
Drawings 28 900
Land and building at cost 350 000
Equipment at cost 135 000
Accumulated depreciation on equipment (1 March 20.22) 45 000
Receivables control 18 500
Allowance for credit losses (1 March 20.22) 790
Payables control 76 100
Inventory (1 March 20.22) 77 500
Investment: First Bank (12 % p.a.) 25 000
Bank 4 400
Sales 559 276
Purchases 216 300
Returns in 8 800
Freight in 15 600
Returns out 10 200
Telephone and cell phone 13 650
Stationery and printing 4 300
Rent income 55 000
Salaries and wages 115 600
Municipal costs 15 200
Interest on investment 500
Insurance 4 600
Profit on sale of asset 5 670
Maintenance 13 500
Advertisements 2 950
Prepaid expenses (1 March 20.22) 1 976
Accrued income (1 March 20.22) 5 000
1 056 776 1 056 776
Additional information
1. Prepaid expenses on 1 March 20.22 consisted of the following:
- Stationery and printing, R142
- Telephone and cell phone, R1 384
- Salaries and wages, R450
2. Income accrued on 1 March 20.22 was for rent income.
3. Before the final stock count on 28 February 20.23 the owner withdrew inventory with a cost price of R5 600 for his own use. This was not recorded.
4. According to a physical stocktaking on 28 February 20.23 the inventory on hand amounted to R88 500.
5. An annual insurance premium of R1 800 was paid on 1 July 20.22 for the following year. This amount was included in the amount for insurance.
6. An amount of R500 must be written off as irrecoverable.
7. The allowance for credit losses should be adjusted to 4 % of the outstanding receivables.
8. The following amounts for February 20.23 were only paid during March 20.23:
The telephone account of R320 and the municipal account, R2 400.
9. The rent income amounts to R5 000 per month since the previous accounting period.
10. Depreciation on Equipment is calculated at 15% using the straight-line method.
11. The investment at First Bank was made on 1 September 20.22. Provide for the outstanding interest.
REQUIRED:
a) Statement of profit or loss for the year ending 28 February 20.23
b) Statement of changes in equity for the year ended 28 February 20.23
c) Statement of financial position as at 28 February 20.23.
NO NOTES TO THE FINANCIAL STATEMENTS ARE REQUIRED.
a) Statement of profit or loss for the year ending 28 February 20.23
Sales: R559 276
Less: Cost of goods sold:
Beginning inventory: R77 500
Purchases: R216 300
Returns in: R8 800
Ending inventory: R88 500
Cost of goods sold: R213 500
Gross profit: R345 776
Expenses:
Drawings: R28 900
Freight in: R15 600
Telephone and cell phone: R13 650
Stationery and printing: R4 300
Salaries and wages: R115 600
Municipal costs: R15 200
Insurance: R4 600
Maintenance: R13 500
Advertisements: R2 950
Depreciation on equipment: (R135 000 * 15%) = R20 250
Irrecoverable amount: R500
Allowance for credit losses adjustment: (R18 500 * 4%) = R740
Total expenses: R235 040
Net profit: R110 736
b) Statement of changes in equity for the year ended 28 February 20.23
Capital at beginning of year: R304 240
Add: Net profit: R110 736
Less: Drawings: R28 900
Capital at end of year: R386 076
c) Statement of financial position as at 28 February 20.23
ASSETS
Non-current assets:
Land and building at cost: R350 000
Equipment at cost: R135 000
Accumulated depreciation on equipment: (R45 000 + R20 250) = R65 250
Investment: First Bank: R25 000
Total non-current assets: R444 750
Current assets:
Receivables control: R18 500
Less: Allowance for credit losses adjustment: R740
Inventory: R88 500
Prepaid expenses: R1 976
Accrued income: R5 000
Bank: R4 400
Total current assets: R117 136
TOTAL ASSETS: R561 886
EQUITY AND LIABILITIES
Equity:
Capital: R386 076
Current liabilities:
Payables control: R76 100
TOTAL EQUITY AND LIABILITIES: R561 886