FINANCIAL ACCOUNTING CONCEPTS, PRINCIPLES AND PROCEDURES

1. INTRODUCTION Dear Student, This tutorial letter contains the following:  the solution to assignment 01 for the first semester of 2020. It is in your own interest to work through the assignments in conjunction with the solutions and your written answers. Refer to Tutorial letter 106/1/2020 for additional information regarding the May 2020 examination. The examination paper will consist of multiple choice questions which should be answered within one hour 25 minutes. You will receive information regarding a Mock examination paper that you can write to familiarise yourselves with how to write the MCQ exam. Then you can make a choice of whether to write the MCQ paper this semester or rather not to go and write the semester in which case you will automatically be deferred to the October 2020 examination. Please note that you should NOT expect the May 2020 examination paper to have the same topics as previous examination papers. In your preparation for the exam you cannot work through previous examination papers only. All your study material should be studied in order for you to achieve success. LECTURERS AND CONTACT DETAILS Please use only the following e-mail address for electronic communication with the lecturers: Please use the following telephone numbers (012) 429 2484, (012) 429 3070 and (012) 429 4625 for all telephonic communication with the lecturers. Lecturers Office Mr V Booi SR Building 02-12 Ms A du Plessis SR Building 02-11 Ms MS du Rand SR Building 02-07 Ms L Govender SR Building 02-09 Mr S Mqadi SR Building 02-06 PLEASE NOTE: Lecturers are available for telephone enquiries from 08:00 to 16:00 on weekdays. Kind regards. FAC1502 LECTURERS This study source was downloaded by from CourseH on :19:19 GMT -05:00 4 2. SOLUTION TO ASSIGNMENT 01/1/2020 1. (3) Refer to page 6 and 7 of your study guide. 2. (4) Refer to study unit 2 of your study guide. Net asset value (equity) = Assets - Liabilities = (R60 000 + R250 000 + R100 000 + R30 000) - R5 000 = R435 000 3. (5) Refer to study unit 3 of your study guide. 4. (2) Equity = Assets - Liabilities (2) 0 ±R50 000 0 The electricity generator will be classified as a non-current asset (equipment) for Gizmo Traders. The purchase of the equipment will result in an increase in the assets of Gizmo Traders. Payment for the equipment was done via EFT (electronic funds transfer) and this will result in the bank account decreasing. Since bank is classified as a current asset, in this question, this will result in a decrease in the assets of Gizmo Traders. Therefore there is a + and – sign under assets with the amount of R50 000. 5. (4) Journal VAT input VAT output Sales (4) Cash receipts journal - R750 R5 000 The value of the sale of inventory, excluding VAT, will be R5 000 and the VAT output amount will be R750. How do we get these amounts? % R Selling price (excluding VAT) 100 ? VAT 15 ? Selling price (including VAT) 115 R5 750 Therefore, selling price excluding VAT is calculated as follows: R5 750/115 x 100/1 = R5 000 6. (2) Account to be debited Account to credited Amount (2) Interest on long-term loan Accrued expenses R5 000 Calculation: R150 000 x 10% x 4 /12 = R5 000 An accrued expense is an expense which relates to the current financial period, but which is still unpaid at the end of that period. This study source was downloaded by from CourseH on :19:19 GMT -05:00 FAC1502/201 5 SOLUTION TO ASSIGNMENT 01/1/2020 (continued) An amount of R5 000 was not taken into account. This means that R5 000 is still owed and must be paid at a future date. Accounting entries: The debit balance on the interest on long-term loan expense account has to be increased by R5 000. To increase an expense account, a debit entry has to be made. The balance on the interest on long-term loan account will now reflect the actual expenditure, namely R15 000. This amount can be closed off against the profit and loss account. The outstanding amount of R5 000 is a liability in the statement of the financial position and it is credited in the accrued expenses account. The accrued expenses account is shown on the statement of the financial position under current liabilities. Therefore, the year-end closing adjustment entry would be as follows: Debit: Interest on long-term loan (expense) R5 000 Credit: Accrued expense (current liability) R5 000 Dr Long- term loan Cr R R 20.1 20.1 Feb 1 Balance b/d 10 000 Feb 28 Profit and loss J12 15 000 Accrued expense J12 5 000 7. (1) The information given to you for question 7 relates to the periodic inventory system. According to the periodic inventory system, purchases, purchases returns , settlement discount received and freight inwards and donations are recorded in separate accounts. At the end of the financial year, the purchases returns account, settlement discount received account will be transferred to the purchases account. Donations of inventory will recorded at cost price and you will debit donations and credit the purchases account. Cost of sales includes all the costs of bringing the goods to their present location and condition and represents the total cost of the merchandise sold during the particular financial year. When a trading entity used the periodic inventory system, a cost of sales account is usually not maintained in the general ledger. The figure is calculated in the statement of profit and loss and other comprehensive income. This calculation is shown to you below: