ASSIGNMENT QUESTION
Question 1 (20 marks, 30 minutes)
Ndlovu Attorneys is a partnership between Nomthemba, Nandi, Njabulo and Ndumiso.
The partners share profits in the ratio 1:2:4:5 respectively. On 31 July 2021, Nandi
approached the partners to retire from the partnership. The trial balance of Ndlovu
Attorneys on 31 July 2021 is shown below.
Ndlovu Attorneys
Trial balance as at 31 July 2021
DR
R
Capital account – Nomthemba
Capital account – Nandi
Capital account - Njabulo
Capital account - Ndumiso
Current account – Nomthemba
Current account – Nandi
Current account – Njabulo
Current account - Ndumiso
Land and buildings
Plant and equipment
Furniture
Trade receivables
Trade payables
Bank overdraft
Sales
Cost of sales
Stationery
Interest expense
CR
R
20 000
40 000
80 000
100 000
10 000
6 000
2 000
10 000
900 000
150 000
12 000
16 000
28 000
5 000
1 299 000
475 000
1 500
1 500
1 578 000
1 578 000
The partnership decided that goodwill should not appear in the accounts of the
partnership and that no private exchange will take place between the partners.
On Nandi’s retirement from the partnership on 31 July 2021, the following was
discovered:
1. Land and buildings are considered to be valued at R1 250 000
2. Plant and machinery are considered to be valued at R120 000
3. Nomthemba, Njabulo and Ndumiso will shares profits in the ratio of 2:2:1
4. The partnership is considered to be worth R750 000
5. Nandi will be paid out in cash upon leaving the partnership
6. Nonthemba will contribute R150 000 more cash to the partnership after Nandi
retires
Required
Marks
1.
Calculate the value of goodwill upon Nandi retiring from the
8
partnership
2.
Calculate the balances that the new partnership (i.e. after Nandi’s
retirement) will reflect on the Statement of Financial Position for all
the partner’s capital accounts on 31 July 2021
9
3.
N.B. Round all answers off to the nearest rand
List the items contained in a partnership agreement
Total
3
20
Question 2 (60 marks, 90 minutes)
SleepE Ltd is a manufacturer of high quality pillows. The company distributes its
products to various wholesalers and retailers across South Africa. The following
information relates to the company for the year ended 31 December 2020:
SleepE Ltd
Trial balance as at 31 December 2020
DR
R
Balance sheet accounts
Preference share capital
Ordinary share capital
Retained earnings (1 January 2020)
Goodwill
Debentures
Mortgage bond (12% p.a.)
Investment in Dreamz Ltd
Fixed deposit
Trade receivables
Trade payables
Inventory
Fuel (asset)
Stationery (asset)
Provision for bad debts
Building, at cost
Plant, at cost
Equipment, at cost
Vehicles, at cost
Accumulated depreciation on building
Accumulated depreciation on equipment
Accumulated depreciation on vehicles
Bank
Petty cash
SA revenue service
Nominal accounts
Sales
Cost of sales
Debtor’s allowances
Audit fees
Bad debts
Bank charges
Director’s fees
Dividend income (Dreamz Ltd))
Interest on fixed deposit
Interest on mortgage bond
Interim dividend on ordinary shares
Rent income
CR
R
300 000
600 000
285 000
20 000
35 000
160 000
40 000
25 000
47 600
53 800
59 880
12 800
2 670
1 440
930 000
142 000
180 000
135 000
42 000
36 000
21 000
84 870
1 100
56 460
766 295
359 380
6 540
16 000
2 360
1 800
24 000
2 000
1 125
15 600
20 000
26 200
Salaries
Share issue expenses
Sundry office expenses
75 000
65 000
6 800
2 329 860
2 329 860
Adjustments and additional information:
1. On 1 January 2020, the issued share capital consisted of:
100 000 non-redeemable preference shares,
issued at R3 each
1 000 000 ordinary shares, issued at 34c each
R
300 000
340 000
2. On 30 September 2020, SleepE Ltd increased its ordinary share capital by
issuing 200 000 ordinary shares at R1,30.
3. Share issue expenses were incurred and these are to be written off against
retained earnings.
4. SleepE Ltd acquired its investment in Dreamz Ltd on 1 January 2020 and paid
R20 000 goodwill. Goodwill is to be written off.
5. On 30 June 2020, Dreamz Ltd paid an interim dividend equal to 5% of the
investment amount and a cheque was received and recorded by SleepE Ltd in
July 2020. On 31 December 2020, a final dividend of 9% of the investment
amount was declared by Dreamz Ltd, but no cheque has been received as yet
for this amount.
6. It was ascertained that a credit sales invoice for R2 400 (cost: R1 600) had
been omitted from the accounting records. This transaction still needs to be
recorded.
7. A stock take was performed on 31 December 2020 and the value of inventory
was determined to be R57 000.
8. Equipment has a residual value of R20 000 and is depreciated at 15% p.a.,
using the diminishing balance method. A provision for the current years’
depreciation still needs to be made.
9. The company owns one vehicle, purchased on 1 January 2019. During 2019
the vehicle travelled 35 000 kilometers. On 31 December 2020 the vehicle had
travelled a total of 68 500 kilometers. Depreciation on vehicles is calculated
using the unit of output method and still needs to be calculated for the 2020
year of assessment. The vehicle is expected to travel a total of 225 000
kilometers over its useful life.
10. The carrying amount of the building was R870 300 as at 31 December 2020.
11. The installation of the plant was completed on 31 December 2020 and no
depreciation is to be written off in the current year.
12. A debtor who owes R500 has been declared insolvent. SleepE Ltd received a
final settlement cheque equal to 40c in the R1, and wrote the balance off as
irrecoverable. These transactions must still be recorded.
13. Provision for bad debts is to be provided at 4% of trade receivables.
14. Audit fees still owing at 31 December 2020 amounted to R3 500.
15. The total amount if unused fuel at 31 December 2020 was R520.
16. The fixed deposit matures on 30 September 2021. Interest on the fixed deposit
has only been received for the period 1 January 2020 to 30 September 2020.
17. Stationery to the value of R2 200 was used during the year.
18. A portion of the building has been let to a tenant for the full year and rent has
been received for January 2021. The January 2021 rent includes a 10%
increase.
19. Debentures consist of 1 750, 8% debentures at R20 each. No interest on
debentures has been recorded.
20. The capital amount of the mortgage bond is redeemed at R20 000 per year,
payable on 1 July each year, until fully paid. Total interest for the year is
R20 400.
21. The company has a general reserve of R32 000. No transactions for this
reserve have been processed.
22. The directors declared a dividend of 27c per preference share on 31 December
2020.
23. A final dividend on the ordinary shares, equal to 3x (three times) the interim
dividend per share, was declared on 31 December 2020.
24. The total tax expense for the year was R62 000.
Required
1.
Prepare the following statements for
31 December 2020:
 Statement of comprehensive income
 Statement of changes in equity
 Statement of financial position
NB: Comparatives are not required
Total
Marks
the
year
ended
35
10
15
60