Directorate: Curriculum FET Grade 12 ACCOUNTING Term 1: Week 2 Topic: Final accounts with adjustments You already know about ... This lesson will enable you to understand the… • • Grade 10 Bookkeeping of Sole Trader: Post to relevant general ledger accounts (Balance sheet section and Nominal accounts section) • Grade 11 - Accounting cycle of Partnerships: Documents and journals; Post to the Ledger • Salaries / Wages calculations for adjustment purposes Use your TEXT BOOK to read about • Year-end adjustments • Final accounts Pay attention to ... • • The effect of adjustments on the Financial statements Salary and wages calculations Gr 12 Study & Master (Ch 2 PPT) Company Final accounts, adjustments, etc. • • • • Preparation of company final accounts taking into account year-end adjustments. Year-end adjustments covered in Gr 10 & 11 Year-end adjustments related to income tax, payment and declaration of dividends and other company related items Final accounts: Trading account; Profit and Loss account; Appropriation account Reversal entries of some adjustments, i.e. accruals, income received in advance and prepaid expenses Alternative digital resources Gr 12 Revision Pack https://wcedeportal.co.za/eresource/89841 Companies notes (Pg. 76) Gr 12 Accounting Revision poster Term 1: Companies (ENG) https://wcedeportal.co.za/eresource/109466 Activities, Work book, Memos and video lessons Refer to Term 1 for this lesson 2019 Telematics: Companies Material: https://wcedeportal.co.za/eresource/89916 https://wcedeportal.co.za/eresource/180776 Lucem Gr 12 Teachers Guide Via Afrika Gr 12 Study Guide (text and work book in one) https://wcedeportal.co.za/eresource/116321 (Pg.8 - 99) Gr 12 Accounting https://wcedeportal.co.za/eresource/116301 Term 1, 2021 1 BASIC CONCEPTS: Adjustments Adjustment Explanation Accrued Expenses Expenses that have to be paid at year-end Effect Current Liabilities: Trade and other payables Prepaid Expenses Expenses that have been paid in advance at Current Assets Trade and other receivables year-end, but relates to the next financial year Accrued Income Income that has to be received at year-end Income received in advance Income that has been received at year-end,but Current Liabilities Trade and other payables relates to the next financial year Depreciation Decrease the carrying value of Non-current Methods: Cost price (Fixed % / Straight line) assets Diminished balance (% on carrying value) Current Assets Trade and other receivables Effect: Non-Current Assets Accumulated depr (+) Depreciation (expenses) (+) Consumables on hand Consumables stores NOT used at year-end, i.e. Current Assets Inventory note Stationery, Packing materials, Cleaning (counted) materials, Sundry materials used for rendering Trade and other receivables services. Prepaid expenses (estimated) (Items physically counted are treated differently to ESTMATED stock on hand, e.g. Fuel, Oil, etc.) Trading stock on hand Trading stock a/c final balance should be equal to actual stock counted Surplus: Balance exceeds counted items Deficit: Balance lower than counted items Provision for Bad Debts Bad debts recovered Risk that debtors won’t pay their accounts. (provide for losses due to credit sales) (Trade Debtors to be valued conservatively in the financial statements = Prudence) Statement of Comprehensive Income Trading Stock surplus a/c = income OR Trading Stock deficit a/c = expense Current Assets Trade and other receivables (subtract from Trade debtors) Debt recovered from debtors previously written Current Assets Cash and Cash equivalents off (no entry) Bank (Dr bal) (+) (IF an incorrect entry has been made, it will be Statement of Comp. Income Bad debts recovered treated as an error - see below) (income) (+) Salary/Wages not paid at year-end Gross salary/wages: Salary/Wages a/c (+) Net salary/wages:Creditors for Salaries/ Creditors Current Liabilities Trade and other payables (Creditors for Salaries/Wages (+); Various funds (+) for Wages a/c (+) Employer contributions: Add to relevant funds, e.g. UIF, Pension, Medical,etc. Statement of Comprehensive Inc. Salary/Wages (exp)(+) Errors in recording Identify where error occured and how it was Effect will depend on the error to be or posting incorrectly entered. corrected READ these adjustments carefully. Shares and dividends New issues = new shares 'sold' to shareholders Buy back of shares = shares taken out of the 'market' (loss on this included in Appropriation a/c) Interim dividends = profit sharing paid to shareholders during the year Final dividends = profit sharing declared at the end of fin year (due to shareholders) Gr 12 Accounting Term 1, 2021 New: Ordinary Share capital [OSC] (+) Buy back: OSC (-); Retained Income (-) Bank (-) Interim: Ordinary Dividends (+) Final: Bank (-) Ordinary Dividends (+) Shareholders for Div (+) 2 SUMMARY Accrued Expenses Prepaid Expenses Accrued Income Income received in advance Not paid yet Paid Not received Received Payable No Receivable No - - CR (add) DR (subtract) DR (add) CR (subtract) - - - DR Prepaid Expenses DR Accrued Income - CR Accrued Expenses - - CR Income received in advance Paid / Received Payable / Receivable Income Account Expense Account Asset Account Liability Account CLOSING OFF ENTRIES (PERPETUAL INVENTORY SYSTEM) (e) = expense; (i) = income; OE = owner's equity ACCOUNTS TO BE CLOSED OFF Debtors allowances granted (e) Sales (i) Cost of sales (e) Trading account All Income accounts (i) All Expenses accounts (e) Profit and Loss account Drawings (OE) CLOSED OFF TO Sales (i) Trading Account Trading Account Profit and Loss Account (Gross Profit) Profit and Loss Account CR with income DR with expenses Capital (OE) - Net Profit for the year Capital (OE) CLOSING OFF ENTRIES (PERIODIC INVENTORY SYSTEM) ACCOUNTS TO BE CLOSED OFF Debtors allowances (incl. sales returns) granted (e) Creditors allowances received (i) Sales (i) Purchases (e) Freight on purchases etc. (e) Trading account All Income accounts (i) All Expenses accounts (e) Profit and Loss account Drawings (OE) Gr 12 Accounting CLOSED OFF TO Sales (i) Purchases (e) Trading Account Trading Account Trading Account Profit and Loss Account (Gross Profit) Profit and Loss Account: CR with income DR with expenses Capital (OE) - Profit for the year Capital (OE) Term 1, 2021 3 ACTIVITY 1: Final accounts & Adjustment calculations You are provided with information relating to Glad Limited for the year ended 28 February 2020. REQUIRED: Calculate the amounts to be included in the Final accounts (Trading a/c OR Profit and Loss a/c OR Appropriation a/c) for the adjustments below. Indicate which final account will be affected INFORMATION: Extract from the Pre-Adjustment Trial Balance on 28 February 2020 Debit Ordinary Share Capital (1 March 2019) (500 000 shares) Loan: WSB Bank Debtors Control Unemployment Insurance Fund (UIF) Futura Pension fund Sales Cost of Sales Commission Income Audit fees Bad Debts Directors’ fees Salaries Employer's contributions Credit 2 800 000 1 250 000 525 000 13 100 42 300 (?) 4 275 000 132 000 73 500 14 520 497 800 950 000 101 000 Adjustments and additional information: (a) The company maintains a mark-up of 50% on cost. Old goods, costing R95 000 (included in cost of sales) were sold at 10% below cost price. (b) A supplier has not paid the commission for February 2020. (c) J. Mitchell, a debtor owing R1 600, was previously written off as bad debts. His insolvent estate paid out 40 cents in the rand on 25 February 2020. The amount received has not yet been entered. (d) One of the employee’s salary for February 2020 was omitted on the Salaries Journal. His details were: Gross salary: R16 600. Salary workers are not legible for overtime pay. Employee deductions: UIF: 1% of the gross salary Pension fund: 8% of the basic salary. Employer's contributions: UIF and Pension Fund: a rand-for-rand basis (e) 75% of the annual audit fees have been paid. (f) The company has three directors who earn the same fee. One director received was paid two months in advance. (g) Loan: WSB Bank Fixed monthly repayments, including interest, are R31 600. Total interest capitalised for the year, R242 500. Interest for the next financial year is expected to be R162 000. Part of the loan will be repaid in the next financial year. (h) Shares and dividends: 27 June 2019: 100 000 new shares were issued at R8 each. 31 August 2019: Interim dividends of 22 cents per share were declared and paid. 26 Fabruary 2020: 75 000 shares were repurchased at R7,20 per share. These shares were entitled to final dividends. 28 February 2020: A final dividend of 28 cents per share was declared. (i) Net profit for the year as per Profit and Loss a/c was R548 000. Income tax is calculated at 28% of the net profit. Gr 12 Accounting Term 1, 2021 4 ACTIVITY 1: ANSWER SHEET No (a) Adjustment Calculations Amount Final a/c Item (b) (c) (d) (e) (f) (g) (h) (i) Gr 12 Accounting Term 1, 2021 5 ACTIVITY 2 ADJUSTMENTS AND FINANCIAL STATEMENTS You are presented with information relating to Studio Limited for the year ended 31 March 2020. The business sells cosmetics and provides beauty treatments for which they charge fees. The company was registered with an authorised share capital of 1 000 000 shares. 40% of these shares were NOT issued on 1 April 2019. REQUIRED: Indicate WHICH Financial Statement will be affected by each adjustment (on the Answer Sheet). Calculate the amount to be recorded in the relevant financial statement. Show your calculations clearly. Identify the 'section' and 'item' in the financial statement where the entry wil be made. INFORMATION: Extract from the Pre-Adjustment Trial Balance on 31 March 2020 Statement of Financial Position Accounts Section Ordinary Share Capital (1 April 2019) Fixed Deposit: Eco Bank (8% p.a.) Land and Buildings Vehicles Accumulated depreciation on vehicles Equipment Debit 450 000 2 200 000 740 000 268 000 560 000 Accumulated depreciation on equipment Trading stock Consumable stores on hand (1 April 2019) (Packing material) Debtors control Provision for bad debts SARS (Income tax) Nominal accounts section Sales Debtors Allowances Cost of sales Audit fees Directors fees 310 000 585 000 13 700 360 000 19 050 238 000 5 200 000 132 000 3 169 400 85 000 1 200 000 Fee income (for treatments) Interest on fixed deposit Packing materials Rent Income Maintenance Salaries and wages 111 000 800 000 Treatment expenses 330 000 Gr 12 Accounting Credit 1 800 000 1 620 000 24 200 21 000 133 800 Term 1, 2021 6 ACTIVITY 2: ANSWER SHEET Adjustments and Financial Statements of Studio Limited for the year ended 31 March 2020 Statement of Comprehensive Income Adjustment (Income Statement) Section & Item E.g. W&L for June not paid yet, R1 200 A. A credit note for cosmetics returned, R17 600, was not entered in the DAJ for March 2020. 60% mark-up on cost applied to these goods B. No entries have been made for stock stolen or the insurance claim at the beginning of March 2020. OUTsurance informed Studio Ltd that they have paid out R49 500 in respect of the insurance claim. Studio Ltd bears 25% of stock losses. C. A physical stocktaking on 31 March 2020 revealed the value of trading stock on hand as R521 000. D. Refunds on unsatisfactory treatments, R8 400 E. An EFT was received from a debtor for her monthly treatments, R9 000. It appeared on the March bank statement but has not been properly recorded. Gr 12 Accounting Operating Expenses Water& Lights Statement of Financial position (Balance Sheet) Calculation & Amount R1 200 Term 1, 2021 Section & Item Calculation & Amount Current Liabilities Accrued Expenses 7 R1 200 F. Provide for bad debts 5% of the debtors. G. Rent income was increased by 5% on 1 December 2019. The tenant has not paid the rent for March 2020. H. • • The bookkeeper did not reverse the packing materials stock on hand at the beginning of the year. Packing materials of R15 600 were still on hand at the end of the year. I. R90 000 was paid to Cheer Builders during the year for the construction of a storeroom (R80 000) and repairs to the paving (R10 000). The entire amount was debited to Maintenance in error. J. Depreciation for the year: On vehicles, 20% on cost Depreciation for the year: On equipment, 15% on diminishing balance Gr 12 Accounting Term 1, 2021 8 K. Provide for interest receivable on the fixed deposit. L. All the unissued shares were issued at 500c per share on 1 September 2019. 120 000 shares were repurchased at 620c per share on 31 December 2019. M Interim dividends of R150 000 were paid on 31 August 2019. Final dividends of 42c per share were declared on 29 March 2020 . Solutions: https://wcedeportal.co.za/eresource/181266 Gr 12 Accounting Term 1, 2021 9
