GRADE 10 LESSON 86 FINANCIAL STATEMENTS INCOME STATEMENT WORKSHEET 10 ACTIVITY 9 REQUIRED: Prepare the Income Statement of XYZ Traders for the year ended 30 June 2012. INFORMATION The following information was taken from the books of XYZ Traders. Their financial year ended on 30 June 2012. The business sells sports equipment and applies a profit mark-up of 120% on cost. XYZ TRADERS PRE-ADJUSTMENT TRIAL BALANCE ON 30 JUNE 2012 Debit Credit Balance Sheet Accounts Section Capital 850 442 Drawings 56 600 Land and buildings 850 000 Equipment 80 500 Trading stock 67 253 Debtors control 58 835 Bank 5 845 Cash float 500 Creditors control 51 000 Mortgage loan 24 000 Nominal Accounts Section Sales 532 426 Cost of sales 242 858 Debtors allowances 4 450 Rent income 37 375 Commission income 1 420 Salaries 80 520 Wages 10 600 Repairs Bad Debts 21 620 3 090 Consumables Insurance Interest on current account Telephone Water and electricity Discount allowed Discount received 1 680 5 658 1 001 3 540 2 553 300 1 497 403 740 1 497 403 ADJUSTMENTS: 1. The June Bank statement was received after the Pre-adjustment Trial Balance was drawn up. The following differences must be adjusted for: Interest on favourable bank balance: R176 2. Insurance premium includes an annual premium of R 1 410 paid on 1 March 2012. 3. Received the loan statement from the bank which showed an amount of R27 600 owing to them on 30 June 2012. Interest has been capitalised. 4. Rent income amounted to R2 875 per month. 5. A physical stock count revealed that the following was on hand at year end: a. Trading stock R66 800 b. Consumables R580 6. B Baloyi, a debtor for R1 200, was declared insolvent. A dividend of 60 cents in the rand was received and recorded. Write off the balance as irrecoverable. 7. Goods donated to the local church at a selling price of R440, has not been recorded. 8. An amount of R114 was received from M Maseko, a debtor whose debt had previously been written off as irrecoverable. The amount was credited to the account of M. Maseko. Correct the error. REMEMBER 5 STEPS WHEN PREPARING AN INCOME STATEMENT 1 2 3 4 5 Write down the format. Write down all the Income accounts under OTHER OPERATING INCOME Write down all the Expense accounts under OPERATING EXPENSES Write the opening balance of each income and expense in brackets (figures in the Pre-Adjustment Trial Balance) Example: Rent expense (9100 Start with the adjustments and work through them ONE-BY-ONE. Ensure that you use brackets ( ) when you subtract an amount ANSWER INCOME STATEMENT OF XYZ TRADERS FOR THE YEAR ENDING 30 JUNE 2012 Note Sales Cost of sales Gross profit Other operating income Gross operating income Operating expenses Operating profit 1 Operating profit before interest expense 2 Net profit for the year R LESSON 85 FINANCIAL STATEMENTS INCOME STATEMENT WORKSHEET 9 EXAMPLE 3 REQUIRED Use the information of ABC Stores provided to prepare an Income statement for the year ended 28 February 2012 INFORMATION PRE–ADJUSTMENT TRIAL BALANCE OF ABC STORES ON 28 FEBRUARY 2012 Fol Debit Credit Balance sheet accounts Capital B1 250 000 Drawings B2 36 012 Land and buildings B3 286 000 Vehicles B4 70 000 Equipment B7 25 000 Accumulated depreciation on vehicles B8 67 200 Accumulated depreciation on equipment B9 20 480 Trading stock B10 30 288 Debtors control B11 27 576 Bank B12 2 984 Loan: SA Bank 12 000 Creditors control 28 560 Nominal accounts Sales N1 299 628 Cost of sales N2 147 870 Debtors’ allowances N3 3 888 Advertising N4 5 460 Wages N5 39 670 Bad debts N6 596 Stationery N7 2 926 Interest on current account N8 70 Water and electricity N9 3 118 Rates N10 5 722 Telephone N11 2 724 Rent income Insurance N12 N13 15 840 3 804 693 708 ADJUSTMENTS 1 Part of the building has been let to TT Traders at R720 per month. Rent for February has not yet been received. 2 The balance of the account of S Smit, a debtor, must be written off as irrecoverable. He owed the business R480. 3 Advertising paid for the period 1 February 2012 to 30 April 2012 amounts to R570. 4 Depreciation on vehicles is calculated on cost price at 15% per annum and on equipment at 10% p.a. on the diminishing balance method. 5 An amount of R250 has been paid for repairs to the store. The amount has been posted to the Land and Buildings account. STEPS TO FOLLOW WHEN PREPARING AN INCOME STATEMENT 1 Write down the format. 2 Write down all the Income accounts under OTHER OPERATING INCOME 3 Write down all the Expense accounts under OPERATING EXPENSES 4 Write the opening balance of each income and expense amount in brackets (the figures in the Nominal accounts section in the Pre-Adjustment Trial Balance) Example: Rent expense (9100 5 Start with the adjustments and work through them ONE-BY-ONE. 6 Ensure that you use brackets ( ) when you subtract an amount. 693 708 ANSWER INCOME STATEMENT OF JAY-JAY TRADERS FOR THE YEAR ENDING 28 FEBRUARY 2012 Note R Sales (299 628 – 3 888) 295 740 Cost of sales (147 870) Gross profit 147 870 Other operating income 16 560 Rent income 16 560 Gross operating income 164 430 Operating expenses (75 132) Advertising (5460 – 570) 4 890 Wages 39 670 Bad debts (596 + 480) 1 076 Stationery 2 926 Water and electricity 3 118 Rates 5 722 Telephone 2 724 Insurance 3 804 Depreciation (10 500 + 452) 10 952 Repairs 250 Operating profit Interest income 89 298 1 Operating profit before interest expense Interest expense Net profit for the year 0 89 298 2 (70) 89 228 ACTIVITY 8 Jane Jones started her own business two years ago. She buys handbags and then sells them at her small shop. There are three other people who work for her. Jane has recorded all the transactions in the journals and posted them, and then drew up a Pre-adjustment Trial Balance. REQUIRED: Jane wants you to draw up the Income Statement for the year ending 28 February 2012. INFORMATION: PRE–ADJUSTMENT TRIAL BALANCE OF JAY-JAY TRADERS ON 29 FEBRUARY 2012 Fol Debit Balance sheet accounts Capital B1 Drawings B2 9 750 Vehicles B3 68 000 Equipment B4 8 100 Trading stock B7 25 600 Debtors’ control B8 4 980 Bank B9 10 870 Cash float B10 900 Creditors’ control B11 Loan: NEC Bank (14%) B12 Nominal accounts Sales N1 Cost of sales N2 288 000 Debtors’ allowances N3 1 254 Rent expense N4 9 100 Insurance N5 4 140 Stationery N6 689 Telephone N7 3 720 Fuel N8 5 040 Salaries N9 60 000 Wages N10 90 750 Bad debts N11 836 Bad debts recovered N12 591 729 ADDITIONAL INFORMATION AND ADJUSTMENTS: Credit 36 990 2 475 50 000 502 054 210 591 729 1. The telephone account of R312 for February 2012 must still be paid. 2. The shop is rented at R700 per month and is payable monthly in advance. 3. An annual insurance premium of R1 560 was paid on 1 July 2011. 4. The February 2012 bank statement was received after the trial balance had been drawn up. The following item must be brought into account: o interest on favourable balance R50 5. A debtor returned unwanted goods with a selling price of R140. The mark-up on these goods was 75% on cost. This transaction has not yet been recorded. 6. Debtor B Baloyi’s account of R289 must be written off as irrecoverable. 7. Stock on hand on 28 February 2008 Trading stock R24 890 Stationery R 126 8. Commission income of R680 is still due to Jane. ANSWER INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2012 Notes R Gross profit Other operating income Gross operating income Operating expenses Operating profit Operating profit before interest expense Net profit for the year LESSON GRADE 10 87 FINANCIAL STATEMENTS Format of Balance Sheet & Notes WORKSHEET 11 Balance sheet It shows all the assets and liabilities. It shows whether the business is solvent and liquid Notes The notes show how the figures were calculated FORMAT OF THE BALANCE SHEET Notes ASSETS NON-CURRENT ASSETS Tangible / Fixed assets Financial assets Fixed deposits (longer than 12 months) CURRENT ASSETS Inventories Trade and other debtors Cash and cash equivalents 3 xxxxx xxxxx A xxxxx 4 5 6 TOTAL ASSETS EQUITY AND LIABILITIES Owner’s Equity R 7 xxxxx xxx xxxx xxxx B XXXXX (A + B) xxxxx C Total Assets NON-CURRENT LIABILITIES Mortgage bond Loan (longer than 12 months) xxxxx xxxx xxxx D CURRENT LIABILITIES Trade and other creditors Bank overdraft Short-term loan (shorter than 12 months) xxxxx xxx xxx xxx E 8 TOTAL EQUITY AND LIABILITIES XXXXX Total Equity + Liabilities (C + D + E) Assets = Equity + Liabilities FORMAT OF THE NOTES TO THE FINANCIAL STATEMENTS 1. Interest income From investments / fixed deposits From overdue debtors From current account xxxx xxxx xxxx xxxx 2. Interest expense / Finance costs On mortgage bond / loan On overdraft On overdue creditors 3. Fixed Assets / Tangible assets / Property / Plant / Equipment Cost Accumulated depreciation Carrying value beginning of year Movements Additions at cost Disposals at carrying value (Grade 11) Depreciation for the year Carrying value at end of year Cost Accumulated depreciation Carrying value at end of year 4. Inventories Trading stock xxxx xxxx xxxx xxxx Land & buildings xxx xxx Vehicles xxx (xx) xxx Equip ment xxx (xx) xxx Total xxx (xx) xxx xx xx xx xx (xx) xxx xxx (xx) xxx (xx) xxx xxx (xx) xxx (xx) xxx xxx (xx) xxx xxx xxx xxx xxxx Consumables stores on hand (includes stationary/packing material on hand) 5. Trade and other receivables (debtors) Trade debtors Prepaid expenses Accrued income Deposit for water and electricity 6. Cash and cash equivalents Fixed deposits (maturing within 12 months) Bank Cash float Petty cash 7. Capital Balance at beginning of the year Net profit (loss) for the year Additional capital contributed Drawings Balance end of the year 8. Trade and other payables (creditors) Trade creditors Accrued expenses Income received in advance Creditors for salaries Pension fund Medical Aid fund South African Revenue Services (PAYE) EXPLANATION OF NOTES NOTE NUMBER EXPLANATION 4 INVENTORIES Consumable stores on hand – it includes Stationery and Packing material on hand 6 CASH AND CASH EQUAVALENTS Fixed deposits maturing within 12 months: this is the portion if the fixed deposits that matures within the next financial year (short-term) 7 CAPITAL xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxx xxx ( xxx) xxxxxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx Add: Net profit Suntract: Drawings ## EXPLANATION OF NOTE NUMBER 3 3. Fixed Assets Cost Accumulated depreciation Carrying value beginning of year Movements Additions at cost Disposals at carrying value Depreciation for the year Carrying value at end of year Cost Accumulated depreciation Carrying value at end of year Land & buildings Vehicles xxx xxx (xx) xxx xxx xx # xxx xxx # xxx Total xxx (xx) xxx xx xx (xx) xxx xxx (xx) xxx (xx) xxx xxx (xx) xxx Balances at the beginning of the year assets bought during the year Grade 11 work Balances at the end of the year The total carrying value of all fixed assets is entered in the Balance Sheet No depreciation These totalson Land and Buildings must be the same Format to balance sheet statement BALANCE SHEET Notes ASSETS NON-CURRENT ASSETS Tangible / Fixed assets Financial assets Fixed deposits (longer than 12 months) CURRENT ASSETS Inventories Trade and other debtors 3 R xxxxx xxxxx A xxxxx 4 5 xxxxx xxx xxxx B Total Assets Cash and cash equivalents 6 TOTAL ASSETS xxxx XXXXX (A + B) xxxxx C NON-CURRENT LIABILITIES Mortgage bond Loan (longer than 12 months) xxxxx xxxx xxxx D CURRENT LIABILITIES Trade and other creditors Bank overdraft Short-term loan (shorter than 12 months) xxxxx xxx xxx xxx E EQUITY AND LIABILITIES Owner’s Equity TOTAL EQUITY AND LIABILITIES 7 8 XXXXX Total Equity + Liabilities (C + D + E) Assets = Equity + Liabilities
