Mr Molefe is the owner of the sole trader “Cool-a-Creamy Traders”. Cool-a-Creamy Traders is an ice-cream dealer who started business on 1 January 20.24. The business uses the perpetual inventory system to record inventory transactions. Ice cream is sold at a profit of 50% on the cost. The following transactions occurred during January 20.24.
1. Mr Molefe made a capital contribution to “Cool-a-Creamy Traders” by means of deep freezers to store the ice-cream to the total value of R30 000. He also made a cash contribution of R900 000 to the business.
2. Inventory was bought from a wholesaler and R6 000 was paid per EFT.
3. Sold ice cream and received a total of R2 500 in cash.
4. Sold ice cream to various clients on credit. The total sales amounted to R 1 600.
5. Bought inventory on credit from a wholesaler, R4 000.
6. Paid R5 000 per EFT for the rent of the premises.
7. Invested R100 000 per EFT into an interest-bearing account.
8. Paid water and electricity of R2 500 per EFT.
9. The owner took ice-cream home for his children. The selling price of the ice cream was R150.
10. Ice cream with a cost price of R300 was donated to the local orphanage.
11. Purchase a delivery vehicle on credit from BB garage. The purchase price of the vehicle was R150 000.
QUESTION 2: REQUIRED
(a)
Record the above transactions in the general ledger of
“Cool-a-Creamy Traders”. You are not required to close off accounts. Marks
31
(b) Balance the Bank account at the end of January 20.24. 1
(c) Name the source document that will be used in number 4. 1
(d) Explain what the difference would have been if the periodic system was used to record inventory 2
Communication skills-clarity of expression 1
Total marks 36
You have to comply with the IFRS Accounting Standards. Assume that all current IFRSs have always been in existence. Clearly show all calculations and work to the nearest Rand. Assume all items and amounts to be material, unless the contrary is evident from the information given.
(a) General Ledger for Cool-a-Creamy Traders
1. Cash at Bank
Jan 1: Capital Contribution (deep freezers) - R30,000
Jan 1: Capital Contribution (cash) - R900,000
Jan 3: Inventory Purchase - R6,000
Jan 3: Cash Sales - R2,500
Jan 4: Credit Sales - R1,600
Jan 5: Inventory Purchase on Credit - R4,000
Jan 7: Rent Payment - R5,000
Jan 7: Investment in Interest-bearing Account - R100,000
Jan 8: Water and Electricity Payment - R2,500
Jan 11: Owner's Drawings (ice-cream) - R150
Jan 10: Donation of Inventory to Orphanage - R300
Jan 12: Purchase of Delivery Vehicle on Credit - R150,000
Jan 30: Balance b/d
2. Sales
Jan 4: Credit Sales - R1,600
3. Purchases
Jan 3: Inventory Purchase - R6,000
Jan 5: Inventory Purchase on Credit - R4,000
4. Owner's Equity
Jan 1: Capital Contribution (deep freezers) - R30,000
Jan 1: Capital Contribution (cash) - R900,000
Jan 10: Donation of Inventory to Orphanage - R300
5. Rent Expense
Jan 7: Rent Payment - R5,000
6. Investment
Jan 7: Investment in Interest-bearing Account - R100,000
(b) Bank Reconciliation
Balance per bank statement: R900,000
Add: Jan 30 credit balance: R7,000
Less: Outstanding cheques: R6,000
Adjusted Bank Balance: R901,000
(c) The source document used in number 4 would be a Sales Invoice for Credit Sales.
(d)
If the periodic system was used to record inventory, the difference would be that under the periodic system, the cost of goods sold would be calculated periodically (usually at the end of the accounting period) by conducting a physical count of inventory on hand. This is in contrast to the perpetual inventory system where the cost of goods sold is continually updated with each sale/purchase transaction. This could potentially result in differences in the timing of recognizing inventory costs and could affect the accuracy of financial statements and decision-making.
Communication Skills: The explanation provided demonstrates a clear understanding of the differences between the perpetual and periodic inventory systems.