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10 ACC Mod 11 Financial Statements Memos
Financial accounting (University of South Africa)
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MODULE 11
FINANCIAL STATEMENTS
Prior
learning
Knowledge of profit, net worth and its relation to owner’s equity
Note to Teacher
This module concentrates on drawing up financial statements, i.e. Income Statements and Balance Sheets.
Many learners will have drawn up these statements in Grade 9. However, notes to the Income Statement
and Balance Sheet need to be introduced if not already done.
Many examinations are issuing the learners with incomplete skeletons for the completion of these
statements. This does save time in respect of writing out a whole lot of details, however, care must be taken
that the learners do understand what they are doing. Too often, it just becomes one of filling in a blank form.
Therefore it is often advisable to make the learners draw up the statements initially.
Note must be taken of the new formats of the financial statements as these are required in terms of the
National Core syllabus. An integral part of completion of financial statements is decision making. No longer
are learners only expected to complete the statements but they should be able to use them to analyse and
make decisions. Therefore, ratio and analysis should be done on an on-going basis where the emphasis is
on the understanding rather than learning formulae.
TASK 11.1 
11.1.1
11.1.2
11.1.3
Desirable characteristics of financial statements
User of financial statements:
 Owners and managers.
 Shareholders (type of owner).
 Bank managers.
 Creditors.
 Potential buyers, investors, lenders, etc.
 Trade unions.
 Workers.
 Etc.
Comparability
– users can compare one business to another and one year to another.
Understandability – must be understood by any user – not only qualified accountants.
Reliability
– users must be confident that the information is reliable so that accurate
decisions can be made on these.
Fairness
– must be fair to all users and not favour one user over another.
Timeliness
– statements must be produced within a reasonable time so that users can
utilise the information in their decision making.
Incorrect decision could be made.
Bad investments made.
Lower or loss of profits.
Workers being retrenched.
Etc.
TASK 11.2 
Financial year-ends
11.2.1 31 August 20.2
31 January 20.4
31 July 20.5
11.2.2 Consistency and comparisons from one year to another. Easier for planning purposes.
11.2.3 Christmas and holiday period with many people on leave and a busy period in many businesses.
Tax returns are due at the end of February.
New Era Accounting: Grade 10
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TASK 11.3 
11.3.1
11.3.2
11.3.3
11.3.4
11.3.5
11.3.6
11.3.7
11.3.8
Operating
Operating
Operating
Operating
Investing
Investing
Investing
Financing
TASK 11.4
Operating, Financing & Investing activities
11.3.9
11.3.10
11.3.11
11.3.12
11.3.13
11.3.14
11.3.15
11.3.16
Financing
Financing
Operating
Financing
Financing and investing
Financing
Operating
Operating
Peter’s Paint Shop: Operating, Financing & Investing
activities
Learners are to identify the three different aspects as follows:
Operating – Income Statement
Financing – Balance Sheet – Owner’s Equity and Liabilities
Investing – Balance Sheet – Assets
TASK 11.5
Jerry’s General Dealers: Accounting equation & concepts
11.5.1
Accounts payable
Accounts receivable
Advertising
Bank
Bank charges
Capital
Cash on hand
Commission income
Cost of sales
Depreciation
Drawings
Equipment
Fixed deposit: Gauteng Bank
Insurance
Interest expense
Interest Income
Loan from Gauteng Bank
Packing materials
Rent expense
SARS
Salaries and wages
Sales
Stationery
Trading stock
Vehicle expenses
Vehicles
Water and electricity
New Era Accounting: Grade 10
Current liability
Current asset
Expense
Current asset
Expense
Capital
Current asset
Income
Expense
Expense
Drawings
Non-current asset
Non-current asset
Expense
Expense
Income
Non-current liability
Expense
Expense
Current liability
Expenses
Income
Expense
Current asset
Expenses
Non-current assets
Expense
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Table:
LEFT
Noncurrent
assets
26 000
30 000
137 600
193 600
Current
assets
8 000
3 300
600
65 000
76 900
RIGHT
Expenses
Drawings
6 000
4 800
450 000
36 400
4 000
9 600
3 700
30 000
140 000
1 200
18 100
3 000
706 800
33 000
Noncurrent
liabilities
60 000
33 000
60 000
A + E + D = R1 010 300
Current
liabilities
Capital
Income
25 000
3 100
170 000
10 700
1 500
740 000
28 100
170 000
752 200
L = C + I = R1 010 300
11.5.2 JERRY JUMBA TRADING AS JERRY’S GENERAL DEALERS
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.8
Sales
740 000
Cost of sales
[450 000]
Gross profit
290 000
Other operating income
10 700
Commission income
10 700
Gross operating income
300 700
Operating expenses
[247 200]
Advertising
6 000
Bank charges
4 800
Depreciation
36 400
Insurance
4 000
Packing materials
3 700
Rent expense
30 000
Salaries and wages
140 000
Stationery
1 200
Vehicle expenses
18 100
Water and electricity
3 000
Operating profit
53 500
Interest income
1 500
Profit before interest expense
55 000
Interest expense
[9 600]
Net profit for the year
45 400
New Era Accounting: Grade 10
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JERRY JUMBA TRADING AS JERRY’S GENERAL DEALERS
BALANCE SHEET AT 28 FEBRUARY 20.8
ASSETS
Non-current assets
193 600
Equipment
26 000
Vehicles
137 600
Fixed deposit : Gauteng Bank
30 000
Current assets
76 900
Trading stock
65 000
Accounts receivable
8 000
Bank
3 300
Cash on hand
600
TOTAL ASSETS
270 500
EQUITY AND LIABILITIES
Owner’s equity
Capital at the beginning of the year
Additional contribution
Net profit
Drawings
Non-current liabilities
Loan from Gauteng Bank
Current liabilities
Accounts payable
SARS (PAYE)
TOTAL EQUITY AND LIABILITIES
182 400
150 000
20 000
45 400
(33 000)
60 000
60 000
28 100
25 000
3 100
270 500
11.5.3 Additional information:
Learners are to be given time to discuss each of the following and decide what adjustments they
would make. They would have completed a very similar type of exercise at the beginning of Module
9. Suggested answers are given in brackets.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Jerry knows that he can sell the trading stock for more than the cost price. (No entry – historical cost
rule and prudence – stock has not been sold)
Some items of stock have been destroyed in a fire. (Prudence – write it off)
Certain pens and pencils bought were incorrectly classified as packing materials. (Adjust the 2
expenses – matching principle)
Some of the packing materials have not yet been used. (Matching – adjust to create an asset for next
year)
Jerry has won R1m on the lottery. (no entry – business entity rule)
Jerry has not yet paid the water and electricity account for February. (add the expense on –
matching)
One of the debtors has disappeared and cannot be traced. (write off the account – prudence)
Commission income of R1 000 is owed to the business. This will be received in March. (no entry –
prudence – wait until the income is received)
Jerry is owed 20 cents by the business – one of the employees complained his wage was 20 cents
short. Jerry paid him out of his own pocket. (no entry – materiality or add the 20 cents on – matching)
The vehicles and equipment have declined in value due to wear and tear. (reduce the value –
prudence)
Half of the fixed deposit will mature (i.e. paid back) in April 20.8. (show as a current asset –
materiality)
The loan from Gauteng Bank has to be repaid in equal instalments over three years. (show current
portion as a current liability – matching)
One of the vehicles was sent in for repair on 28 February. The repair costs are not yet known. (adjust
for the repairs – matching)
As there is no refuse removal service in his area, Jerry has been telling his employees to dump the
waste on the nearby riverbanks.(no entry but this is against conservation regulations)
Jerry might close his business down next month as his wife says he is working too hard. (going
concern – needs to revalue)
New Era Accounting: Grade 10
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TASK 11.6 
Identifying categories for items in financial statements
Current
asset
1.
2.
3.
4.
Noncurrent
asset
Current
liability



5.
Fixed deposit at ABC Bank

6.
Cheque account at ABC Bank

7.
8.
9.
10.
11.
Equipment
Cash float
Savings account at ABC Bank
Vehicles
Trading stock












Depends on when
repayments are to be
made.
Depends on when it
matures.
Depends on whether it
is a Dr or Cr balance.





Concepts related to financial statements
Balance Sheet – shows the financial position i.e. Assets = Owner’s Equity + Liabilities
Income Statement – used to calculate the profit or loss for the period of time, normally a year.
Owner’s equity – investment by the owner in the business
Current assets – things of value that change within a year
Non-current assets – things of value that are expected to last for more than a year – made up of fixed
assets and investments
Fixed assets – assets that last for more than a year
Investments – financial assets
Current liabilities – debts that will be paid in a year
Non-current liabilities – debts that will be paid off over a longer period than a year.
TASK 11.8
Lennox Spaza: Understanding the logic of aspects of
financial statements
11.8.1
(a) Cost of sales =
Gross profit
(b)
Explanation (if necessary)

Land and buildings
Accounts payable
Accounts receivable
Loan from ABC Bank
TASK 11.7 
Noncurrent
liability
=
90 000 x
100
200
90 000 – 45 000
Total operating expenses:
Wages [1 800 x 12]
Telephone
Electricity
Sundry expenses
Depreciation [12 000 – 10 000]
Bad debts
TOTAL
=
=
=
=
=
=
=
= R45 000
= R45 000
21 600
3 800
2 300
1 980
2 000
250
R31 930
(c)
Operating profit:
Fee income
= R6 580
Gross income = 45 000 + 6 580 = R51 580
Operating profit = 51 580 – 31 930 = R19 650
(d)
Net profit = 19 650 + 300 – 2 250 = R17 700
New Era Accounting: Grade 10
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11.8.2 INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.3
Sales
90 000
Cost of sales
[45 000]
Gross profit
45 000
Other operating income
6 580
Fee income
6 580
Gross operating income
51 580
Operating expenses
[31 930]
Wages
21 600
Telephone
3 800
Electricity
2 300
Sundry expenses
1 980
Depreciation
2 000
Bad debts
250
Operating profit
19 650
Interest income
300
Profit before interest expense
19 950
Interest expense
[2 250]
Net profit for the year
17 700
10.8.3
10.8.4
10.8.5
10.8.6
10.8.7
10.8.8
10.8.9
Fee income (telephone service) R80.
Trade and other receivables.
Wages R1 800.
Trade and other payables.
Favourably because no interest on the loan is payable – expenses decrease, profits increase.
Loans should be decreased to show a current portion of loan.
Yes. Part of the increase of R4 320 (21 600 x 20%) will be offset by the interest expense which falls
away as the loan will be paid off.
Alternate answers are applicable, e.g. a lower increase may be granted – this would not have a
substantial effect on net profit.
TASK 11.9 
Caxio Supplies: Preparing an Income Statement &
Balance Sheet
PART A
11.9.1 Debtors allowances R15 000 has been deducted to indicate the net sales for the period.
11.9.2 Net sales (turnover) minus cost of sales.
11.9.3 Gross profit + other income - expenses.
11.9.4/
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11.9.4 CAXIO SUPPLIES
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.2
Sales
735 000
Cost of sales
[420 000]
Gross profit
315 000
Other operating income
73 000
Rent income
48 000
Commission income
25 000
Gross operating income
388 000
Operating expenses
[309 720]
Salaries and wages
233 000
Vehicle expenses
9 000
Consumable stores
5 400
Advertising
3 200
Bank charges
4 330
Telephone
3 600
Water and electricity
5 620
Sundry expenses
11 570
Depreciation
29 000
Trading stock deficit
5 000
Operating profit
78 280
Interest income
2 400
Profit before interest expense
80 680
Interest expense
[42 000]
Net profit for the year
38 680
PART B
11.9.5
11.9.6
R700 000 + 38 680 (net profit) – 110 000 (drawings) = R628 680
Capital: To show the correct capital balance at the beginning the year and any changes in capital
that may occur during the year.
Fixed deposit: To indicate what portion of the fixed deposit becomes a current asset (matures
within the next 12 months). The concept of materiality applies here.
Loan: To indicate what portion of the loan becomes a current liability (will be paid within the next
12 months). The matching concept applies here.
11.9.7 CAXIO SUPPLIES
BALANCE SHEET ON 28 FEBRUARY 20.2
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at Beta Bank
[40 000 – 12 000]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Note
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Loan from Beta Bank [350 000 – 48 000]
Current liabilities
Trade and other payables
Total equity and liabilities
New Era Accounting: Grade 10
3
819 000
791 000
28 000
4
5
6
227 400
130 800
46 000
50 600
1 046 400
7
8
628 680
302 000
302 000
115 720
115 720
1 046 400
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.2
3. FIXED/TANGIBLE ASSETS
Land and
Vehicles
Equipment
Buildings
Carrying value at beginning of year
530 000
207 000
83 000
Cost
530 000
210 000
140 000
Accumulated depreciation
[3 000]
[57 000]
Movements
[18 000]
[11 000]
Additions at cost
Disposals at carrying value
Depreciation
[18 000]
[11 000]
Carrying value at end of year
530 000
189 000
72 000
Cost
Accumulated depreciation
4.
5.
6.
7.
8.
530 000
-
INVENTORY
Trading stock
Consumables on hand
210 000
[21 000]
140 000
[68 000]
Total
820 000
880 000
[60 000]
[29 000]
[29 000]
791 000
880 000
[89 000]
130 000
800
130 800
TRADE AND OTHER RECEIVABLES
Trade debtors
Income receivable/accrued
Expenses prepaid
42 000
3 000
1 000
46 000
CASH AND CASH EQUIVALENTS
Fixed deposit
Bank
Cash float
12 000
36 600
2 000
50 600
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Additional capital contributions
Drawings
Balance at end of year
620 000
38 680
80 000
[110 000]
628 680
TRADE AND OTHER PAYABLES
Trade creditors
Mortgage loan/Short-term loan/Current portion of loan
Deferred income/Income received in advance
Expenses payable/Accrued expenses
New Era Accounting: Grade 10
63 200
48 000
4 000
520
115 720
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TASK 11.10 
Novak Clothing: Preparing an Income Statement &
Balance Sheet
11.10.1 NOVAK CLOTHING
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.6
Note
Sales[1 200 000 – 7 200]
1 192 800
Cost of sales
[710 000]
Gross profit
482 800
Other operating income
113 150
Rent income
72 000
Commission income
41 150
Gross operating income
595 950
Operating expenses
[372 450]
Salaries and wages
235 500
Vehicle expenses
13 900
Cleaning materials
7 750
Advertising
15 000
Bank charges
5 200
Insurance
6 600
Telephone
5 700
Water and electricity
4 800
Sundry expenses
10 900
Trading stock deficit
13 900
Depreciation
53 200
Operating profit
223 500
Interest income
1
4 800
Profit before interest expense
228 300
Interest expense
2
[84 000]
Net profit for the year
144 300
7
11.10.2 NOVAK CLOTHING
BALANCE SHEET ON 28 FEBRUARY 20.6
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at Munibank
[80 000 – 30 000]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Loan from Munibank [600 000 – 66 000]
Current liabilities
Trade and other payables
Total equity and liabilities
New Era Accounting: Grade 10
Note
3
1 168 800
1 118 800
50 000
4
5
6
296 700
161 050
71 550
64 100
1 465 500
7
8
799 800
534 000
534 000
131 700
131 700
1 465 500
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.6
1.
INTEREST INCOME
from investments/fixed deposit
4 800
4 800
2.
3.
INTEREST EXPENSE
on loans
84 000
84 000
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
6.
7.
8.
Land and
Buildings
968 000
968 000
968 000
968 000
-
INVENTORY
Trading stock
Consumables on hand
Vehicles
Equipment
Total
127 500
220 000
[92 500]
[30 000]
[30 000]
97 500
76 500
207 000
[130 500]
[23 200]
[23 200]
53 300
1 172 000
1 395 000
[223 000]
[53 200]
[53 200]
1 118 800
220 000
[122 500]
207 000
[153 700]
1 395 000
[276 200]
160 000
1 050
161 050
TRADE AND OTHER RECEIVABLES
Trade debtors
Income receivable/accrued
Expenses prepaid
65 000
6 000
550
71 550
CASH AND CASH EQUIVALENTS
Fixed deposit at Munibank
Bank
Cash float
30 000
31 100
3 000
64 100
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Additional capital contributions
Drawings [240 000 + 4 500]
Balance at end of year
800 000
144 300
100 000
[244 500]
799 800
TRADE AND OTHER PAYABLES
Trade creditors
Short-term loan/Current portion of loan
Deferred income/Income received in advance
Expenses payable/Accrued expenses
New Era Accounting: Grade 10
62 000
66 000
1 200
2 500
131 700
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TASK 11.11 
Malaga Clothing: Preparing financial statements from
pre-adjustment figures & adjustments
11.11.1 MALAGA CLOTHING
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.7
Note
Sales [805 000 – 13 000]
792 000
Cost of sales
(410 000)
Gross profit
382 000
Other operating income
133 000
Rent income [42 000 – 6 000]
36 000
Fee income [92 000 + 5 000]
97 000
Gross operating income
515 000
Operating expenses
[271 300]
Salaries & wages
186 000
Water & electricity
11 200
Insurance [10 400 – 800]
9 600
Telephone [7 600 + 820]
8 420
Packing materials
8 900
Repairs & maintenance [12 000 + 2 100]
14 100
Consumable stores [17 000 – 1 400]
15 600
Sundry expenses
6 980
Advertising
2 000
Bad debts
400
Trading stock deficit
3 500
Depreciation
4 600
Operating profit
243 700
Interest income
1
7 500
Profit before interest expense
251 200
Interest expense
2
[54 200]
Net profit for the year
197 000
7
11.11.2 MALAGA CLOTHING
BALANCE SHEET ON 28 FEBRUARY 20.7
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at Magic Bank
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Loan from Magic Bank [360 000 + 3 900 – 30 000]
Current liabilities
Trade and other payables
Total equity and liabilities
New Era Accounting: Grade 10
Note
3
4
5
6
7
8
979 400
879 400
100 000
256 320
184 900
40 400
31 020
1 235 720
798 000
333 900
333 900
103 820
103 820
1 235 720
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.7
1.
INTEREST INCOME
from investments/fixed deposit
7 200
from current bank account
300
7 500
2.
3.
INTEREST EXPENSE
on loan [50 300 + 3 900]
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
6.
7.
8.
54 200
54 200
Land and
Buildings
838 000
838 000
838 000
838 000
-
INVENTORY
Trading stock [202 000 – 15 000 – 3 500]
Consumables on hand
Total
46 000
170 000
[124 000]
[4 600]
[4 600]
41 400
884 000
1 008 000
[124 000]
[4 600]
[4 600]
879 400
170 000
[128 600]
1 008 000
[128 600]
183 500
1 400
184 900
TRADE AND OTHER RECEIVABLES
Trade debtors [35 000 – 400]
Income receivable/accrued
Prepaid expenses
34 600
5 000
800
40 400
CASH AND CASH EQUIVALENTS
Bank
Petty cash
Cash float
28 020
2 000
1 000
31 020
OWNER’S EQUITY
Balance at beginning of year [820 000 – 40 000]
Net profit for the year
Additional capital contributions
Drawings [204 000 + 15 000]
Balance at end of year
780 000
197 000
40 000
[219 000]
798 000
TRADE AND OTHER PAYABLES
Trade creditors
Deferred income/Income received in advance
Expenses payable/Accrued expenses [820 + 2 000]
Current portion of loan
New Era Accounting: Grade 10
Equipment
65 000
6 000
2 820
30 000
103 820
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11.11.3
11.11.4
11.11.5
11.11.6
Yes. Profit of R197 000 compared to capital represents a high percentage return.
The return is 25% on capital at the beginning of the year.
At a later stage, teachers can introduce the concept of average capital. In this case, the percentage return would be similar.
Various options possible, e.g.:
 Liquidate the fixed deposit and reduce the loan to save on interest.
 Advertise more to increase sales and fee income.
 Decide whether the mark-up % should be increased or decreased to boost sales.
 Negotiate better cost price with suppliers.
 Economise on expenses.
Yes.
Assets exceed liabilities by R798 000.
Current assets are more than double the current liabilities.
It would be shown as a Current asset and not as a Non-current asset.
It would be shown as part of Cash and cash equivalents.
TASK 11.12
Thirsk Computer Traders: Preparing financial statements from pre-adjustment figures & adjustments
11.12.1 THIRSK COMPUTER TRADERS
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.4
Note
Sales [2 400 000 – 100 000]
2 300 000
Cost of sales
[1 350 000]
Gross profit
950 000
Other operating income
122 300
Fee income [120 000 + 2 300]
122 300
Gross operating income
1 072 300
Operating expenses
[667 936]
Salaries and wages
430 000
Rent expense [55 000 + 5 500]
60 500
Bad debts [1 100 + 180]
1 280
Insurance [15 400 – 800 + 290]
14 890
Telephone [9 200 + 800]
10 000
Vehicle expenses [15 000 – 520]
14 480
Repairs and maintenance
8 200
Consumable stores [22 000 – 1 090]
20 910
Sundry expenses [34 000 + 640 – 320]
34 320
Bank charges [8 000 + 56]
8 056
Trading stock deficit
4 000
Depreciation [55 000 + 6 300]
61 300
Operating profit
404 364
Interest income
1
2 290
Profit before interest expense
406 654
Interest expense
2
[31 850]
Net profit for the year
7
374 804
New Era Accounting: Grade 10
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11.12.2 THIRSK COMPUTER TRADERS
BALANCE SHEET ON 28 FEBRUARY 20.4
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at Star Bank (8%)
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Loan from Star Bank
Current liabilities
Trade and other payables
Bank overdraft [24 000 + 56 + 1 050 + 290]
Total equity and liabilities
Note
3
4
5
6
7
8
588 700
508 700
80 000
331 090
236 410
93 680
1 000
919 790
554 654
197 800
197 800
167 336
141 940
25 396
919 790
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.4
1.
INTEREST INCOME
from overdue debtors [1 200 + 240]
1 440
from current bank account
850
2 290
2.
3.
INTEREST EXPENSE
on overdraft
on loan [28 000 + 2 800]
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
1 050
30 800
31 850
Vehicles
310 000
550 000
[240 000]
[55 000]
[55 000]
255 000
Computers
260 000
420 000
[160 000]
[6 300]
[6 300]
253 700
Total
570 000
970 000
[400 000]
[61 300]
[61 300]
508 700
550 000
[295 000]
420 000
[166 300]
970 000
[461 300]
INVENTORY
Trading stock [245 000 – 6 000 – 4 000]
Consumables on hand [320 + 1 090]
235 000
1 410
236 410
TRADE AND OTHER RECEIVABLES
Trade debtors [90 000 – 180 + 240]
Income receivable/accrued
Prepaid expenses [520 + 800]
New Era Accounting: Grade 10
90 060
2 300
1 320
93 680
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Petty cash
Cash float
500
500
1 000
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital withdrawal
Drawings [180 000 + 6 000]
Balance at end of year
385 850
374 804
[20 000]
[186 000]
554 654
TRADE AND OTHER PAYABLES
Trade creditors
Current portion of loan
Expenses payable/Accrued expenses [800 + 640 + 5 500]
11.12.3
11.12.4
11.12.5
110 000
25 000
6 940
141 940
The business is earning 8% p.a. on the fixed deposit but it has a loan on which it is paying 14%
p.a. plus the business has an overdraft.
It would be better to use the fixed deposit to pay off the liabilities.
No. Capital should be invested in the assets of the business. He is making good profits and
should only be drawing out those.
OR Yes. He is making good profits of which he is leaving a considerable amount in the business.
Any allowance means a reduction of profits so, yes, they should be concerned.
OR No, Every business will have some allowances and it is only 4% of their sales.
TASK 11.13
Willy’s Vegetable Shop: Preparing Financial Statements from pre-adjustment figures & adjustments
WILLY’S VEGETABLE SHOP
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.1
Note
Sales [334 360 – 1 923]
332 437
Cost of sales
(194 958)
Gross profit
137 479
Other operating income
3 800
Rent Income [1 500 – 500]
1 000
Commission Income [2 396 + 170]
2 566
Bad debts recovered [180 + 54]
234
Gross operating income
141 279
Operating expenses
(103 647)
Bank charges [300 + 66]
366
Wages
8 460
Salaries
42 450
Delivery expenses
490
Rates and taxes
1 100
Discount allowed
1 420
Bad debts
385
Consumable stores [1 860 – 600]
1 260
Insurance [940 – 60]
880
Sundry expenses [3 368 + 65]
3 433
Depreciation [42 450 + 953]
43 403
Operating profit
37 632
Interest income
1
1 273
Profit before interest expense
38 905
Interest expense
2
(4 254)
Net profit for the year
34 651
7
New Era Accounting: Grade 10
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WILLY’S VEGETABLE SHOP
BALANCE SHEET ON 28 FEBRUARY 20.1
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at AB Bank
[5 000 + 1 240 – 6 240]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Note
3
4
5
6
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Mortgage loan [25 250 + 4 040 – 4 200]
Current liabilities
Trade and other payables
Bank overdraft [7 203 + 66 + 89 – 6 240]
Total equity and liabilities
7
8
322 520
322 520
0
38 235
27 762
8 973
1 500
360 755
314 373
25 090
25 090
21 292
20 174
1 118
360 755
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.1
1.
INTEREST INCOME
from investments
1 240
from overdue debtors
33
1 273
2.
3.
INTEREST EXPENSE
on mortgage loan
on overdraft [125 + 89]
4 040
214
4 254
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
Land &
buildings
150 000
150 000
Vehicles
Equipment
150 000
206 393
212 250
[5 857]
[42 450]
[42 450]
163 943
9 530
12 420
[2 890]
[953]
[953]
8 577
365 923
374 670
[8 747]
[43 403]
[43 403]
322 520
150 000
-
212 250
[48 307]
12 420
[3 843]
374 670
[52 150]
INVENTORY
Trading stock [27 892 – 200 + 70]
27 762
27 762
TRADE AND OTHER RECEIVABLES
Trade debtors [8 056 + 54 + 33]
Income receivable/accrued
Prepaid expenses [600 + 60]
New Era Accounting: Grade 10
Total
8 143
170
660
8 973
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Savings account
Cash float
Petty cash
1 200
200
100
1 500
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital contribution
Drawings [30 078 + 200]
Balance at end of year
280 000
34 651
30 000
[30 278]
314 373
TRADE AND OTHER PAYABLES
Trade creditors [15 339 + 70]
Current portion of loan
Expenses payable/Accrued expenses
Income received in advance/Deferred income
TASK 11.14
15 409
4 200
65
500
20 174
Milson Hi-Fi Store: Preparing financial statements
from pre-adjustment figures & adjustments
MILSON HI-FI STORE
INCOME STATEMENT FOR THE YEAR ENDED 31 MAY 20.8
Note
Sales [587 000 – 14 500 - 500]
Cost of sales [333 000 - 370]
Gross profit
Other operating income
Commission income [26 411 – 300]
Gross operating income
Operating expenses
Salaries and wages [244 850 + 600]
Discount allowed [1 440 – 20]
Sundry expenses [24 260 – 220 – 500 – 80 + 327]
Packing materials [4 600 – 1 350]
Advertising
Depreciation [58 200 + 3 390]
Loss due to flood [1 960 – 1 600]
Bad debts
Operating loss
Interest income
1
Loss before interest expense
Interest expense
2
Net loss for the year
7
New Era Accounting: Grade 10
572 000
[332 630]
239 370
26 111
26 111
265 481
[350 727]
245 450
1 420
23 787
3 250
14 690
61 590
360
180
[85 246]
4 225
[81 021]
[24 470]
[105 491]
285
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MILSON HI-FI STORE
BALANCE SHEET ON 31 MAY 20.8
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at West Bank
[23 000 – 10 000]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Note
3
4
5
6
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Mortgage loan [218 000 + 24 470 – 36 000]
Current liabilities
Trade and other payables
Total equity and liabilities
7
8
686 610
673 610
13 000
229 159
136 860
44 150
48 149
915 769
630 099
206 470
206 470
79 200
79 200
915 769
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MAY 20.8
1.
INTEREST INCOME
from investments [2 200 + 1 020]
3 220
from savings
324
Interest income
630
from overdue debtors
30
from current account
21
4 225
2.
3.
INTEREST EXPENSE
on mortgage loan
24 470
24 470
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Land &
buildings
552 000
552 000
552 000
Cost
Accumulated depreciation
4.
5.
552 000
-
INVENTORY
Trading stock [138 950 + 370 – 500 – 1 960]
Equipment
Total
160 600
291 000
[130 400]
[58 200]
[58 200]
102 400
22 600
232 000
[209 400]
[3 390]
[3 390]
19 210
735 200
1 075 000
[339 800]
[61 590]
[61 590]
673 610
291 000
[188 600]
232 000
[212 790]
1 075 000
[401 390]
136 860
136 860
TRADE AND OTHER RECEIVABLES
Trade debtors [39 800 – 500 + 140 + 30 – 180 + 150 + 20]
Income receivable/accrued [1 020 + 1 600]
Prepaid expenses [220 + 500 + 1 350]
New Era Accounting: Grade 10
Vehicles
39 460
2 620
2 070
44 150
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Fixed deposit: West Bank
Savings account: West Bank
Bank [15 255 + 21 – 327 – 150]
Cash float
10 000
22 150
14 799
1 200
48 149
OWNER’S EQUITY
Balance at beginning of year
Net loss for the year
Capital contribution
Drawings [124 330 + 80]
Balance at end of year
800 000
[105 491]
60 000
[124 410
630 099
TRADE AND OTHER PAYABLES
Trade creditors [42 660 + 140]
Expenses payable/Accrued expenses [600 – 500]
Income received in advance/Deferred income
Current portion of loan/Short-term loan
TASK 11.15
42 800
100
300
36 000
79 200
Dunster Hobby Shop: Preparing financial statements
from pre-adjustment figures & adjustments
DUNSTER HOBBY SHOP
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.6
Note
Sales [236 360 – 3 000 – 200]
233 160
Cost of sales [140 000 – 125]
(139 875)
Gross profit
93 285
Other operating income
24 610
Rent Income [8 540 – 1 220]
7 320
Commission income [18 210 – 1 100]
17 110
Discount received [200 – 20]
180
Gross operating income
117 895
Operating expenses
(76 458)
Salaries and wages [45 000 + 440]
45 440
Stationery [1 430 – 100]
1 330
Packing materials
4 100
Insurance [1 670 – 432]
1 238
Bank charges [5 700 + 15 + 305]
6 020
Sundry operating expenses
4 460
Advertising [7 800 + 120]
7 920
Repairs
450
Depreciation
3 200
Loss due to fire [4 800 – 4 000]
800
Trading stock deficit
1 500
Operating profit
41 437
Interest income
1
3 400
Profit before interest expense
44 837
Interest expense
2
(10 240)
Net profit for the year
34 597
7
New Era Accounting: Grade 10
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DUNSTER HOBBY SHOP
BALANCE SHEET ON 28 FEBRUARY 20.6
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at Dusi Bank
[17 000 + 2 400 - 19 400]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Note
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Mortgage loan: Palmiet Bank [64 000 + 10 240 – 13 700]
Current liabilities
Trade and other payables
Total equity and liabilities
3
228 400
228 400
-
4
5
6
83 102
28 200
30 832
24 070
311 502
7
8
208 917
60 540
60 540
42 045
42 045
311 502
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.6
1.
INTEREST INCOME
from investments [1 000 + 2 400]
3 400
3 400
2.
3.
INTEREST EXPENSE
on mortgage loan
10 240
10 240
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
Land &
buildings
209 000
209 000
209 000
209 000
-
INVENTORY
Trading stock [35 300 – 4 800 + 125 – 125 – 800 – 1 500]
TRADE AND OTHER RECEIVABLES
Trade debtors [26 500 – 200]
Accrued income/Income receivable
Prepaid expenses [100 + 432]
New Era Accounting: Grade 10
Equipment
Total
22 600
32 000
[9 400]
[3 200]
[3 200]
19 400
231 600
241 000
[9 400]
[3 200]
[3 200]
228 400
32 000
[12 600]
241 000
[12 600]
28 200
28 200
26 300
4 000
532
30 832
288
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Fixed deposit at Dusi Bank
Bank [4 450 + 240 - 15 – 305]
Cash float
19 400
4 370
300
24 070
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital withdrawal
Drawings [34 880 + 800]
Balance at end of year
275 000
34 597
(65 000)
(35 680)
208 917
TRADE AND OTHER PAYABLES
Trade creditors [25 330 + 240 + 20 – 125]
Accrued expenses/Expenses payable [440 + 120]
Income received in advance/Deferred income [1 100 + 1 220]
Short term loan
TASK 11.16
25 465
560
2 320
13 700
42 045
Winwood Stores: Preparing financial statements from
pre-adjustment figures & adjustments
WINWOOD STORES
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20.5
Note
Sales [235 128 - 2 000 – 560]
232 568
Cost of sales [110 000 – 420]
[109 580]
Gross profit
122 988
Other operating income
21 369
Discount received
1 450
Bad debts recovered [2 475 + 140]
2 615
[1]
Rent income [18 872 – 1 568 ]
17 304
Gross operating income
144 357
Operating expenses
[82 460]
Salaries
30 000
Wages
12 000
Water and electricity
2 640
Telephone
1 580
Repairs
1 320
Insurance
2 565
Stationery [755 + 90]
845
Bad debts [730 + 140]
870
Bank charges [2 410 + 130 + 380 + 118]
3 038
Consumable stores [1 250 – 90 – 175]
985
Property expenses (including rates) [8 980 – 900[3]]
8 080
Depreciation [14 475[2] + 2 400]
16 875
Loss due to theft [300 + 80 – 240]
140
Trading stock deficit
1 522
Operating profit
61 897
Interest income
1
2 250
Profit before interest expense
64 147
Interest expense
2
[6 750]
Net profit for the year
57 397
7
18 872 – (4 x 168) = 18 872 – 672 = 18 200 ÷ 13 = 1 400 (before the increase)
Rent for 1 month = 1 400 + 168 = R1 568
[2]
[3]
(160 000 – 111 100 x 25%) + (54 000 x 25% x 2/12)
1 800 ÷ 12 x 6 = 900
Total = 12 225 + 2 250 = 14 475
OR 1 800 ÷ 2 = 900
[1]
New Era Accounting: Grade 10
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WINWOOD STORES
BALANCE SHEET ON 31 DECEMBER 20.5
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit – HitBank [25 000 + 1 125]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Mortgage loan: Zinzi Bank [35 000 + 6 750 – 16 800]
Current liabilities
Trade and other payables
Total equity and liabilities
Note
3
4
5
6
7
8
427 750
401 625
26 125
98 540
41 268
31 040
26 232
526 290
442 397
24 950
24 950
58 943
58 943
526 290
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 20.5
1.
INTEREST INCOME
from fixed deposit
2 250
2 250
2.
3.
INTEREST EXPENSE
on loan
6 750
6 750
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Land &
buildings
282 000
282 000
282 000
Vehicles
Equipment
Total
48 900
160 000
[111 100]
39 525
54 000
[14 475]
88 425
33 600
48 000
[14 400]
[2 400]
[2 400]
31 200
364 500
490 000
[125 500]
37 125
54 000
[16 875]
401 625
282 000
-
214 000
[125 575]
48 000
[16 800]
544 000
[142 375]
Cost
Accumulated depreciation
4.
5.
INVENTORY
Trading stock [42 495 + 420 – 300 – 1 522]
Consumable stores on hand
41 093
175
41 268
TRADE AND OTHER RECEIVABLES
Trade debtors [29 475 – 560 – 140]
Income receivable/Accrued income [1 125 + 240]
Prepaid expenses
New Era Accounting: Grade 10
28 775
1 365
900
31 040
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Bank [26 400 – 130 – 380 – 118 + 140]
Petty cash [100 – 80]
Cash float
25 912
20
300
26 232
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital contribution
Drawings
Balance at end of year
350 000
57 397
54 000
[19 000]
442 397
TRADE AND OTHER PAYABLES
Trade creditors
Income received in advance/Deferred income
Current portion of loan/Short-term loan
TASK 11.17
40 575
1 568
16 800
58 943
Opendoor Stores: Preparing financial statements
from pre-adjustment figures & adjustments
OPENDOOR STORES
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.8
Note
Sales [340 000 - 4 580]
335 420
Cost of sales
[196 000]
Gross profit
139 420
Other operating income
119 050
Discount received
1 410
Rent income [25 200 – 3 600]
21 600
Bad debts recovered
1 410
Commission income
94 630
Gross operating income
258 470
Operating expenses
[237 567]
Salaries and wages
120 080
Consumable stores [16 200 – 95 – 302 – 1 947]
13 856
Water and electricity
6 090
Telephone [12 450 + 578]
13 028
Insurance [24 560 – 2 010]
22 550
Rates and taxes
9 860
Bad debts [1 110 + 418]
1 528
Bank charges
4 180
Discount allowed
970
Depreciation [38 000 + 5 325*]
43 325
Trading stock deficit
2 100
Operating profit
20 903
Interest income
1
3 068
Profit before interest expense
23 971
Interest expense
2
[12 605]
Net profit for the year
11 366
7
* Old : 51 000 – 18 000 x 15% = 4 950
New : 30 000 x 15% x 1/12 = 375
Total = 4 950 + 375 = 5 325
New Era Accounting: Grade 10
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OPENDOOR STORES
BALANCE SHEET ON 28 FEBRUARY 20.8
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit – FirstNat [20 000 – 20 000]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Mortgage loan: FirstNat Bank [65 000 + 12 375 – 20 000]
Current liabilities
Trade and other payables
Total equity and liabilities
Note
3
4
5
6
7
8
311 675
311 675
113 129
48 727
26 602
37 800
424 804
258 771
57 375
57 375
108 658
108 658
424 804
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.8
1.
INTEREST INCOME
on fixed deposit [2 500 + 33]
2 533
on overdue debtors [440 + 95]
535
3 068
2.
3.
INTEREST EXPENSE
on loans
on overdraft
12 375
230
12 605
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
Land &
buildings
200 000
200 000
200 000
200 000
-
INVENTORY
Trading stock [49 380 – 500 – 2 100]
Consumables on hand
Equipment
Total
92 000
190 000
[98 000]
38 000
[38 000]
54 000
33 000
51 000
[18 000]
[24 675]
30 000
[5 325]
57 675
325 000
441 000
[116 000]
[13 325]
30 000
[43 325]
311 675
190 000
136 000]
81 000
[23 325]
471 000
[159 325]
46 780
1 947
48 727
TRADE AND OTHER RECEIVABLES
Trade debtors [24 580 + 95 – 418]
Income receivable/Accrued income
Prepaid expenses [2 010 + 302]
New Era Accounting: Grade 10
Vehicles
24 257
33
2 312
26 602
292
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Fixed deposit
Bank
Petty cash
Cash float
20 000
16 000
1 000
800
37 800
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Additional capital contribution
Drawings [64 000 + 500 + 95]
Balance at end of year
260 000
11 366
52 000
[64 595]
258 771
TRADE AND OTHER PAYABLES
Trade creditors
Expenses payable/Accrued expenses [578 + 30 000]
Income received in advance/Deferred income
Current portion of loan/Short-term loan
TASK 11.18
54 480
30 578
3 600
20 000
108 658
Carpet Trends: Preparing financial statements from
pre-adjustment figures & adjustments
CARPET TRENDS
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.8
Note
Sales [594 784 - 6 400]
588 384
Cost of sales
[419 350]
Gross profit
169 034
Other operating income
69 197
Fee income [60 000 – 150 + 1 500]
61 350
[1]
Rent income [5 740 + 840 ]
6 580
Discount received
1 267
Gross operating income
238 231
Operating expenses
[193 268]
Salaries and wages [124 700 + 9 000]
133 700
Bad debts [2 360 + 1 666[2]]
4 026
Water and electricity
4 140
Consumable stores
17 000
Discount allowed [818 – 19[3]]
799
Advertising [2 448 - 160]
2 288
Sundry expenses [9 290 + 185 + 380]
9 855
Depreciation [5 920 + 12 630]
18 550
Trading stock deficit
2 910
Operating profit
44 963
Interest income
1
3 770
Profit before interest expense
48 733
Interest expense
2
[3 092]
Net profit for the year
45 641
7
[1]
[700 x 7] + [700 + 20% x 2]
4 900 + 1 680 = 6 580
Amount due = 6 580 – 5 740 = 840
[2]
2 380 x 70c = 1 666
[3]
10
171 x /90 = 19
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CARPET TRENDS
BALANCE SHEET ON 28 FEBRUARY 20.8
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit [39 441 + 329 – 19 885]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Loan: Yuknow Bank [75 000 + 3 000* – 15 000]
Current liabilities
Trade and other payables
Bank overdraft [11 690 + 185 + 92 + 380 + 171]
Total equity and liabilities
Note
3
4
5
6
7
8
560 935
541 050
19 885
185 119
120 410
43 324
21 385
746 054
567 281
63 000
63 000
115 773
103 255
12 518
746 054
*75 000 x 16% x 3/12 = 3 000
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.8
1.
INTEREST INCOME
on fixed deposit [3 441 + 329*]
3 770
3 770
2.
INTEREST EXPENSE
on loans
on overdraft
3 000
92
3 092
1
*39 441 x 10% x /12 = 329 (rounded off)
3.
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
5.
Land &
buildings
380 000
380 000
35 000
35 000
415 000
415 000
-
INVENTORY
Trading stock [123 320 – 2 910]
Equipment
Total
29 600
246 300
[216 700]
60 080
66 000
[5 920]
89 680
49 000
84 200
[35 200]
[12 630]
[12 630]
36 370
458 600
710 500
[251 900]
82 450
101 000
[18 550]
541 050
312 300
[222 620]
84 200
[47 830]
811 500
[270 450]
120 410
120 410
TRADE AND OTHER RECEIVABLES
Trade debtors [43 950 – 1 666 – 150 + 171 + 19]
Income receivable/Accrued income
Prepaid expenses
New Era Accounting: Grade 10
Vehicles
42 324
840
160
43 324
294
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6.
7.
8.
CASH AND CASH EQUIVALENTS
Fixed deposit
Cash float
19 885
1 500
21 385
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital contribution [25 000 + 66 000]
Drawings [78 010 + 1 500]
Balance at end of year
510 150
45 641
91 000
[79 510]
567 281
TRADE AND OTHER PAYABLES
Trade creditors [44 255 + 35 000]
Creditors for salaries/Expenses payable
Current portion of loan
SARS - PAYE
TASK 11.19
79 255
7 200
15 000
1 800
103 255
Higgins Book Shop: Preparing financial statements
from pre-adjustment figures & adjustments
HIGGINS BOOK SHOP
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 20.4
Note
Sales [580 000 - 3 000]
577 000
Cost of sales
[203 000]
Gross profit
374 000
Other operating income
82 570
Discount received
1 450
[1]
Rent income [19 400 – 1 600 ]
17 800
Bad debts recovered
870
Fee income [62 750 – 300]
62 450
Gross operating income
456 570
Operating expenses
[258 104]
Salaries
165 000
Wages
27 000
Water and electricity
2 980
Stationery [890 - 295]
595
Telephone
3 500
Motor expenses [3 250 + 1 300]
4 550
Insurance
5 560
Rates and taxes [6 000 - 1 200]
4 800
Bad debts [2 140 + 140]
2 280
Bank charges
1 010
Consumable stores [12 000 + 200 – 240]
11 960
Discount allowed [340 – 20]
320
Loss due to flooding [5 000 – 3 500]
1 500
Trading stock deficit
2 330
Depreciation [17 999[2] + 6 720]
24 719
Operating profit
198 466
Interest income
1
3 115
Profit before interest expense
201 581
Interest expense
2
[2 188]
Net profit for the year
199 393
7
[1]
19 400 – (200 x 6) = 19 400 – 1 200 = 18 200
18 200 ÷ 13 = 1 400 (before the increase)
1 400 + 200 = 1 600 (after the increase)
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[2]
120 000 x 20% = 24 000
Since this amount will result in a negative value, the maximum amount that can be written off is R17 999.
The carrying value then becomes R1.
HIGGINS BOOK SHOP
BALANCE SHEET ON 28 FEBRUARY 20.4
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit - First Bank
[25 000 – 10 000]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Note
3
4
5
6
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Mortgage loan: First Bank
[35 000 + 2 188 – 5 000 – 30 000]
Current liabilities
Trade and other payables
Total equity and liabilities
7
8
329 981
314 981
15 000
106 690
33 900
31 290
41 500
436 671
341 893
2 188
2 188
92 590
92 590
436 671
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.4
1.
INTEREST INCOME
Interest on fixed deposit [563 + 2 552]
3 115
3 115
2.
INTEREST EXPENSE
on mortgage loan
2 188
2 188
10
* 25 000 x 12.25% x /12 = 2 552
25 000 x 13.5% x 2/12 = 563
Total = 2 552 + 563 = 3 115
Amount owing = 3 115 – 600 = 2 515
3.
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
Land &
buildings
283 100
283 100
283 100
283 100
-
INVENTORY
Trading stock [42 000 – 500 – 510 – 5 000 – 2 330]
Consumable stores on hand
New Era Accounting: Grade 10
Vehicles
Equipment
Total
18 000
120 000
[102 000]
[17 999]
[17 999]
1
33 600
48 000
[14 400]
[1 720]
5 000
[6 720]
31 880
334 700
451 100
[116 400]
[19 719]
5 000
[24 719]
314 981
120 000
[119 999]
53 000
[21 120]
456 100
[141 119]
33 660
240
33 900
296
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5.
6.
7.
8.
TRADE AND OTHER RECEIVABLES
Trade debtors [24 000 – 300 – 140 + 200 + 20]
Income receivable/accrued [2 515 + 3 500]
Prepaid expenses [1 200 + 295]
23 780
6 015
1 495
31 290
CASH AND CASH EQUIVALENTS
Fixed deposit: First Bank
Bank [26 500 – 5 000 + 8 000 – 200]
Petty cash
Cash float
10 000
29 300
800
1 400
41 500
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital contribution [30 000 + 8 000 + 5 000]
Drawings [50 000 + 500]
Balance at end of year
150 000
199 393
43 000
[50 500]
341 893
TRADE AND OTHER PAYABLES
Trade creditors [60 000 – 510]
Expenses payable/Accrued expenses [1 300 + 200]
Income received in advance/Deferred income
Current portion of loan/Short-term loan
TASK 11.20
59 490
1 500
1 600
30 000
92 590
The Lawnmower Shop: Preparing financial statements from pre-adjustment figures & adjustments
THE LAWNMOWER SHOP
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 20.9
Note
Sales [710 000 - 15 970 – 1 470]
Cost of sales [370 000 – 840]
Gross profit
Other operating income
Fee income [79 000 – 130 – 320]
Rent income [24 000 + 600]
Discount received
Gross operating income
Operating expenses
Salaries and wages
Discount allowed [3 200 – 63]
Bad debts [2 990 + 315]
Bank charges [2 070 + 375]
Stationery [5 600 – 520]
Consumable stores [11 000 – 1 190]
Sundry expenses
Telephone [11 400 + 610]
Repairs and maintenance [6 000 + 5 000]
[1]
[2]
Depreciation [11 999 + 4 100 ]
Trading stock deficit
Operating profit
Interest income
1
Profit before interest expense
Interest expense
2
Net profit for the year
7
New Era Accounting: Grade 10
692 560
[369 160]
323 400
110 130
78 550
24 600
6 980
433 530
[225 036]
150 000
3 137
3 305
2 445
5 080
9 810
6 770
12 010
11 000
16 099
5 380
208 494
2 625
211 119
[10 670]
200 449
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[1]
95 000 x 20% = R19 000. However, the vehicle cannot have a negative value so the maximum
depreciation that can be written off is R11 999.
[2]
60 000 – 8 000 – 26 000 x 15% = 3 900
8 000 x 15% x 2/12 = 200
Total = 3 900 + 200 = 4 100
THE LAWNMOWER SHOP
BALANCE SHEET ON 30 JUNE 20.9
ASSETS
Non-current assets
Fixed/Tangible assets
Financial assets: Fixed deposit at Zuma Bank
[35 000 – 35 000]
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Note
3
4
5
6
EQUITY AND LIABILITIES
Owner’s equity
Non-current liabilities
Loan: QuickCash Loans
[60 000 + 8 250 – 20 250 – 20 250]
Current liabilities
Trade and other payables
Bank overdraft [5 610 + 375 + 200 + 1 437]
Total equity and liabilities
7
8
524 901
524 901
0
221 510
141 370
42 470
37 670
746 411
666 699
27 750
27 750
51 962
44 340
7 622
746 411
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20.9
1.
INTEREST INCOME
on fixed deposit [1 200 + 1 425*]
2 625
2 625
2.
INTEREST EXPENSE
on loans
on overdraft [2 220 + 200]
8 250
2 420
10 670
* [35 000 x 7% x 6/12] + [35 000 x 8% x 6/12]
Amount due = 2 625 – 1 200 = 1 425
3.
FIXED/TANGIBLE ASSETS
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
New Era Accounting: Grade 10
Land &
buildings
495 000
495 000
495 000
495 000
-
Vehicles
Equipment
12 000
95 000
[83 000]
[11 999]
[11 999]
1
26 000
52 000
[26 000]
3 900
8 000
[4 100]
29 900
533 000
642 000
[109 000]
[8 099]
8 000
[16 099]
524 901
95 000
[94 999]
60 000
[30 100]
650 000
[125 099]
298
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Total
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4.
5.
6.
7.
8.
INVENTORY
Trading stock [145 560 + 840 – 840 – 5 380]
Consumable stores on hand
140 180
1 190
141 370
TRADE AND OTHER RECEIVABLES
Trade debtors [40 210 + 1 437 + 63 – 315 – 1 470]
Income receivable/Accrued income [1 425 + 600]
Prepaid expenses
CASH AND CASH EQUIVALENTS
Fixed deposit
Petty cash [800 – 130]
Cash float
35 000
670
2 000
37 670
OWNER’S EQUITY
Balance at beginning of year
Net profit for the year
Capital contribution
Drawings
Balance at end of year
510 000
200 449
50 000
[93 750]
666 699
TRADE AND OTHER PAYABLES
Trade creditors [24 000 – 840]
Expenses payable/Accrued expenses
Income received in advance/Deferred income
Current portion of loan/Short-term loan
TASK 11.21 
39 925
2 025
520
42 470
23 160
610
320
20 250
44 340
Solly’s Surf Shop: Ratio analysis
11.21.1
A mark-up profit of R50 000 on the cost of R100 000 is being made.
11.21.2
A profit of R24 000 is made on sales of R150 000 with expenses amounting to R20 000.
11.21.3
Made a profit of R24 000 on his investment of R50 000.
11.21.4
Total debts = R45 000 (R35 000 + R10 000). Total assets = R95 000 (R62 000 + R33 000).
Therefore can settle the debts.
11.21.5
Current debts amount to R10 000 while there is R12 000 in cash.
TASK 11.22
Bennie’s Book Store: Ratio analysis
11.22.1
They are making a mark-up profit of R220 000 on the cost of R200 000 (very high).
11.22.2
A profit of R60 000 is made on sales of R420 000 with expenses amounting to R140 000.
(Lower profit and higher expenses in comparison to previous exercise).
11.22.3
Made a profit of R60 000 on his investment of R900 000 (not good).
11.22.4
Total debts = R140 000 (R100 000 + R40 000). Total Assets = R1 040 000.
(R1 004 000 + R36 000). Therefore, the business can settle the debts.
11.22.5
Current debts amount to R40 000 while there is R15 000 in cash and R36 000 in current assets
– not enough to pay off the current liabilities.
New Era Accounting: Grade 10
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TASK 11.23
Financial advice
Suggested Rubric
Criteria
Level 1
Explanation of financial statements
Purpose of the financial statements
Level 2
Level 3
Very good underHas no understand- General understanding with asing of financial
standing is evident
pects of insight restatements
but with many gaps
vealed
General underVery good underHas no idea of the standing of the pur- standing with aspurpose
pose but gaps still pects of insight reevident
vealed
General interpretaInterpretation of the Fails to interpret the
tion but many gaps
financial statements financial statements
evident
Advice
Advice given but
Fails to give advice not always appropriate
Level 4
Excellent understanding showing
much insight
Excellent understanding of the purpose showing insight
Very good interpre- Excellent interpretatation showing as- tion showing much
pects of insight
insight
Very good advice
showing some insight
Excellent advice
showing much insight
TASK 11.24 
RunEx Stores: Profitability calculations
11.24.1
100 =
1
57 110 x
184 000
31%
Slight increase from the previous year. On a sale of R100, gross profit (before expenses)
amounts to R31.
11.24.2
57 110 x
126 890
100
1
= 45%
Increase of 3% from the previous year. Still 5% below the target mark-up of 50%. The increase
implies that the business has been trying harder to achieve their target mark-up. Improved stock
control, discounts, security, etc., may help in the future.
11.24.3
15 720 x
184 000
100
1
= 8.5%
Decreased considerably from 15% to 8.5%. This needs to be investigated. Possible causes:
lower turnover, increased operating expenses, not achieving the target mark-up, economic
conditions, etc.
11.24.4
55 390 x
184 000
100
1
= 30.1%
Increased by 5% in 20.2. There is a need to exercise better control over expenses; turnover
needs to be boosted; mark-up may need to be reviewed; etc.
11.24.5
10 320 x
184 000
100
1
= 5.6%
Decreased substantially from the previous year. On a sale of R100 net profit amounts to R5.60.
The owner may not be pleased with this. The loan should be paid off or reduced. This will have
a positive effect on profitability.
New Era Accounting: Grade 10
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TASK 11.25
Calculation: Profitability calculations
11.25.1
160 000 x 100
33.33
1
11.25.2
R480 000 + 160 000 = R640 000
11.25.3
160 000 x 100
640 000
1
= 25%
11.25.4
640 000 x 18
100
= R115 200
11.25.5
160 000 – 115 200
= R44 800
11.25.6
640 000 x
= R44 800
TASK 11.26 
11.26.1
= R480 000
7
100
Fire-Start Stores: Return on Owner’s Equity
20 000
x 100
180 000 + 190 000  2
1
20 000
x 100 = 10.8%
185 000
1
Return has decreased by 5.2% compared to last year. The 10.8% return must be compared to
current interest rates offered on investments.
11.26.2
The owner is entitled to withdrawals from profit. He has withdrawn half of the net profit earned
resulting in an increase of R10 000 in owner’s equity.
TASK 11.27
Topshoe Stores: Return on Owner’s Equity
11.27.1
Balance at beginning of year
Net profit for the year
Additional capital contribution
Drawings
Balance at end of year
Year 2
20.2
108 000
60 000
10 000
(64 000)
114 000
New Era Accounting: Grade 10
301
OWNER’S EQUITY
Year 1
20.1
100 000
48 000
(40 000)
108 000
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11.27.2
20.2:
60 000
x 100
108 000 + 114 000  2
1
60 000 x 100 = 54.1%
111 000
1
20.1:
48 000
x 100
100 000 + 108 000  2
1
48 000 x 100 = 46.1%
104 000
1
The return has increased in 20.2 - higher than alternative investments.
11.27.3
20.2: Nil, drawings (R64 000) are higher than earnings (R60 000)
20.1: 48 000 – 40 000 = R4 000
11.27.4
For expansion purposes; provides a back-up during leaner times; capital growth; ease up cash
flow problems; etc.
TASK 11.28
Abdul & Badul: Profitability analysis
11.28.1
ADBUL
1 800 000
1 285 720
514 280
393 740
120 540
499 960
60 500
560 000
Sales
Cost of sales
Gross profit
Operating expenses
Interest expense
Net profit
Owner’s equity at beginning of year
Drawings
Owner’s equity at end of year
BADUL
2 209 840
1 476 510
733 330
490 780
20 560
221 990
500 000
120 000
601 990
11.28.2
ABDUL
Gross profit on turnover
=
514 280
1 800 000
x 100
1
= 28.6%
Mark-up achieved
=
514 280
1 285 720
x 100
1
= 40%
Operating profit on turnover
=
514 280 – 393 740
1 800 000
x 100
1
= 6.7%
Operating expenses on turnover
=
393 740
1 800 000
x 100
1
= 21.9%
Net profit on turnover
=
120 540
1 800 000
x 100
1
= 6.7%
Return on owner’s equity
=
120 540
x 100
½[499 690 + 560 000]
1
120 540
529 980
New Era Accounting: Grade 10
x 100
1
= 22.7%
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BADUL
Gross profit on turnover
=
733 330
2 209 840
x 100
1
= 33.2%
Mark-up achieved
=
733 330
1 476 510
x 100
1
= 49.7%
Operating profit on turnover
=
733 330 – 490 780
2 209 840
x 100
1
= 11%
Operating expenses on turnover
=
490 780
2 209 840
x 100
1
= 22.2%
Net profit on turnover
=
221 990
2 209 840
x 100
1
= 10%
Return on owner’s equity
=
221 990
x 100
½[500 000 + 601 990]
1
221 990
550 995
x 100
1
= 40.3%
11.28.3
ABDUL
Observations
Gross profit percentage on turnover is low.
21.9% (28.6 – 6.7%) of gross income is utilised for expenses.
Not achieving the target mark-up – 10% below.
Return on owner’s equity is above that available on alternate investments.
Possible reasons
His turnover is low.
Location of his business may be unsuitable.
Mark-up is not being achieved – excessive discounts, sales etc.
Operating expenses are high.
Corrective action
Increase sales – advertising campaigns, review marketing strategies, etc.
Curb discounts.
Exercise tighter control over operating expenses.
BADUL
Observations
Gross profit percentage on turnover is satisfactory.
22.2% of gross profit is utilised to cover expenses.
Has almost attained the target mark-up – this is pleasing.
Return on owner’s equity is most favourable – very much higher than that available on alternate investments.
Possible reasons
Mark-up is being achieved – this indicates that excessive discounts have been curtailed, also better control
over stock is being implemented.
Expenses are also well-controlled and this has resulted in a higher net profit and an impressive return on
owner’s equity.
Corrective action
No corrective action need to be taken as the business seems to be doing well. The owner should be
pleased with the performance of his business.
New Era Accounting: Grade 10
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TASK 11.29 
Reibo Stores: Solvency
11.29.1
Total assets:
Total liabilities:
Owner’s equity:
11.29.2
Yes, he should use R30 000 of the fixed deposit and pay off the loan. His earnings on the fixed
deposit are only 8.5% p.a. while he is paying 18% p.a. interest on the loan.
11.29.3
500 000 : 110 000 = 4.5 : 1
11.29.4
The ratio has increased.
He may have purchased more fixed/tangible assets/stocks.
Cash may have increased.
More sales on credit.
Loan may have decreased.
Less credit purchases.
Etc.
TASK 11.30
11.30.1
Solvency
Total assets
Owner’s equity
Total liabilities
Solvency ratio
300 000 + 90 000 + 50 000 + 25 000 + 35 000 = R500 000
30 000 + 80 000
= R110 000
500 000 – 110 000
= R390 000
=
=
=
=
=
=
=
320 000 + 160 000
R480 000
R20 000
480 000 – 20 000
R460 000
480 000 : 460 000
1.04 : 1
11.30.2
460 000 – 300 000 = R160 000
11.30.3
No.
11.30.4
Total assets are 4% higher than total liabilities.
The business is solvent but solvency problems can be experienced in the future.
Total assets are almost equal to total liabilities.
Some action which can be taken:
Pay off the loan, the owner may invest more capital; pay off the current liabilities, etc.
TASK 11.31
Polo Bolo Stores: Solvency & Return on Owner’s Equity
11.31.1
[R76 543 + 120 000 + 1 411 400 + 201 023 + 75 766] : [280 000 + 88 732]
1 884 732 : 368 732
5.11 : 1
11.31.2
Yes. Total assets are 5.11 times greater than total liabilities.
The business should not experience any solvency problems.
11.31.3
Owner’s equity at beginning = 1 516 000 + 360 000 – 180 000
= R1 696 000
Return on owner’s equity
= 180 000
x 100
½[1 696 000 + 1 516 000]
1
= 180 000 x 100 = 11.2%
1 606 000
1
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11.31.4
She has assets to the value of R1 873 732. This indicates a sound financial position.
Her net worth (owner’s equity) is R1 516 000 – would she get this if she sells?
She needs to assess whether these assets are generating a satisfactory return – a comparison
should be made with current bank rates.
Market conditions – profitability may improve or deteriorate in the future.
If she sells, she would not benefit from the generous withdrawals she has been making (R30 000
per month).
She will have to consider the fate of her employees who will be out of a job.
Any other suitable reasons may apply.
TASK 11.32 
Hugo Sobs Stores: Liquidity ratios
11.32.1
[58 000 + 16 120 + 5 800] : 45 000
79 920 : 45 000
1.8 : 1
11.32.2
[16 120 + 5 800] : 45 000
21 920 : 45 000
0.5 : 1
11.32.3
Current ratio decreased from the previous year.
A current ratio of 1.8 (nearly two) is adequate.
The acid test ratio decreased considerably by 1.
The business may experience liquidity problems – for every R1 owing on the short term it only
has 50 cents available.
The decrease from 1.8 to 0.5 is an indication that the business is carrying excess stock.
Of the 1.8 worth of current assets 1.3 consists of stock (1.8 – 0.5).
Expressed as a percentage this amounts to 72% (1.3/1.8 x 100).
The owner should be made aware of the dangers of carrying excess stock – exposure to
damage, theft, obsolescence, etc.
An attempt should be made to clear out the excess stock – clearance sales and other sales
promotions.
TASK 11.33
11.33.1
Stats Traders: Ratio analysis
(a)
39 600 x 100
88 000
1
= 45%
(b)
39 600 x 100
48 400
1
= 81.82%
(c)
14 960 x 100
88 000
1
= 17%
(d)
24 640 x 100
88 000
1
= 28%
(e)
All percentages have increased with the exception of net profit
Mark-up achieved showed a considerable improvement – an increase of 6.42% indicating
better control over trade discounts and stock.
The mark-up achieved improved, yet the net profit decreased by 1%.
This is probably due to the increase in operating expenses from 11.6% to 17% - expenses
need to be controlled.
Any other suitable comment.
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11.33.2
11.33.3
(a)
24 640
x 100 = 32.97%
½[73 920 + 75 560]
1
(b)
The return improved by almost 4%.
The owner should be pleased with the performance of his business.
On a R100 investment, he earns almost R33 – this is very favourable.
His return is most probably higher than the returns available on alternative investments.
(a)
54 000 : 36 000
=
1.5 : 1
(b)
[54 000 – 21 600] : 36 000 =
0.9 : 1
(c)
111 560 : 36 000
3.1 : 1
(d)
Current ratio decreased by 1.5 while the acid test ratio increased by 0.4. 0.6 of total current
assets consists of trading stock.
Trading stock figure is probably too high – the owner should be made aware of the dangers
of overstocking – damage, may become obsolete (out-of-date).
The business may experience liquidity problems – it has only 90 cents available for every
R1 owing on the short-term.
Although the solvency ratio decreased by 2.5 in 20.4, the business is still solvent, it has
adequate assets to cover liabilities.
Total assets are three times more than total liabilities. The business should not experience
solvency problems.
=
11.33.4
The business repaid the overdraft on the first day of the current financial year.
A favourable bank balance implies that the business does not incur any interest expense – this
improves profitability.
11.33.5
In 20.3 he withdrew more than the net profit.
In 20.4 his drawings increased but he retained some of his earnings in the business.
Yes – his drawings are high – he should retain more in the business to encourage capital growth.
Over the two years owner’s equity improved by only 2.22% [(73 920 – 75 560) / 73 920 x 100]
Any other suitable comment.
TASK 11.34
Keith Stores: Ratio analysis
11.34.1
120 000 + 40 000 – 24 000 = R136 000
11.34.2
24 000
x 100 = 18.75%
½[136 000 + 120 000]
1
The return for the previous year is not supplied therefore a comparison with the previous year
cannot be made.
A return of 18.75% is satisfactory as it is most likely higher than rates available on alternate
investments.
11.34.3
212 400 – 120 682 x 100
120 682
1
91 718 x 100 = 76%
120 682
1
No, 4% below the target.
11.34.4
Current assets
x (Stock) + 14 000 + 8 500
x (Stock)
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=
=
=
=
21 000 x 2.54 = R53 340
53 340
53 340 – 14 000 – 8 500
R30 840
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11.34.5
[14 000 + 8 500] : 21 000 = 1.07 : 1
11.34.6
The ratio in the previous year was less favourable.
For every R1 owing on the short term R1.07 is available for 20.9.
The ratio in the current year is more favourable – this is most likely due to a reduction of stock.
The business should not encounter any serious liquidity problems.
11.34.7
12  4 = 3 months
11.34.8
Interest rate % per month
18  12
1.5%
5 x 1.5
7.5%
1 068 x 100
1
7.5
= R14 240
11.34.9
Owner’s equity
Total liabilities
=
=
=
=
=
=
=
=
=
=
=
Interest rate % for 5 months =
=
Value of loan
=
Total equity and liabilities
Current assets
Fixed/Tangible assets
Fixed assets
TASK 11.35
No.
11.35.1
11.35.2
11.35.3
11.35.4
11.35.5
R120 000
14 240 + 21 000
R35 240
120 000 + 35 240
R155 240
14 000 + 8 500 + 30 840
53 340
x + 53 340 = 155 240
R101 900
Multiple choice questions
Answer
B
D
A
B
C
Explanation
[1]
[2]
[3]
No.
11.35.6
11.35.7
11.35.8
11.35.9
11.35.10
Answer
D
A
A
C
D
Explanation
[4]
[5]
[6]
[7]
[1] 50 000  2.8 = R17 857.14
[2] Debtors = 50 000 – 29 000 – 6 000 =
[15 000 + 6 000] : 17 857.14
=
R15 000
1.18 : 1
[3] Total assets = 20 000 + 7 000 = R27 000
27 000 : 7 000 = 3.86 : 1
[4] 120 000 x
24.9
/100 =
R29 880
Mark-up
=
=
=
210 000 – 120 000
R90 000
90 000 x 100 =
120 000
1
[6] 20 000 x 250/150
=
R33 333
[7] Gross profit
Total expenses
Turnover
% on turnover
=
=
=
=
90 000 x 50/100 = R45 000
45 000 + 12 000 – 20 000 = R37 000
45 000 + 90 000 = R135 000
37 000
x 100 = 27.41%
135 000
1
[5] Gross profit
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TASK 11.36
Lories Trading Store: Ratio analysis
11.36.1
[36 500 + 23 000 + 1 500] : [16 500 + 14 000]
61 000 : 30 500
2 : 1
11.36.2
[61 000 – 36 500] : 30 500
24 500 : 30 500
0.8 : 1
11.36.3
Although the current ratio decreased by 1 in 20.2 it is still adequate.
The acid test ratio decreased considerably by 0.7.
The business is carrying excess stock – working capital is tied up with stock
An attempt should be made to reduce stocks by having sales, mark-downs, etc.
Without selling stock they cannot pay off the debts.
11.36.4
Capital at beginning
Capital at end
=
=
=
Return on owner’s equity =
=
=
R300 000
300 000 + 80 000 – 60 000
R320 000
80 000
x 100
½[300 000 + 320 000]
1
80 000 x 100
310 000
1
25.8%
11.36.5
Yes, the return improved by 10.8%.
This is most favourable and is most probably higher than returns available on alternate
investments.
11.36.6
Non-current assets (Fixed/Tangible assets and Financial assets) and Non-current liabilities
figures are not supplied.
TASK 11.37
Section A
11.37.1 (a)
TK Computers: Ratio analysis
102 000 x 100
600 000
1
= 17%
(b)
102 000 x 100
702 000
1
= 14.53%
(c)
40 000 x 100
702 000
1
= 5.7%
(d)
67 000 x 100
702 000
1
= 9.54%
(e)
60 000 x 100
702 000
1
= 8.55%
11.37.2
Turnover increased by R159 100. This amounts to a 29% increase (159 100/542 900 x 100).
11.37.3
No. The mark-up is 3% below the target mark-up.
11.37.4
Turnover increased by 29% while operating expenses increased by 14% (
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11.37.5
All percentages have decreased in the current period.
Net profit on turnover decreased by 1.38%.
The profitability of the business can be improved if the target mark-up is achieved.
Tighter control measures should be put in place to control stocks, discounts, etc.
The loan repayment has also improved profits because the interest expense has been halved.
The decrease in mark-up has had a positive impact on profits and at this rate future prospects
look favourable.
11.37.6
480 000 + 60 000 – 20 000 = R520 000
11.37.7
60 000
x 100
½[480 000 + 520 000]
1
60 000 x 100
500 000
1
12%
11.37.8
Yes, the return increased by 1%.
A comparison should be made with returns available on alternate investments.
Conditions seem favourable for profits to improve in the future, e.g. they can generate more
profits by undertaking a repair service for computers.
Section B
11.37.9
[230 300 + 80 000 + 3 300] : 98 000
313 600 : 98 000
3.2 : 1
11.37.10
[313 600 – 230 300] : 98 000
83 300 : 98 000
0.85 : 1
11.37.11
The current ratio is favourable.
The acid test ratio is less favourable – after stock has been deducted TK Computers have 85c
available for R1 owing on the short-term term.
It is possible that liquidity problems may be experienced owing to the large amount of stock on
hand.
It should be borne in mind that a computer dealer would find it necessary to carry large stocks –
spare parts, accessories, software, etc.
11.37.12
Stock can become obsolete; may get stolen; may be exposed to mishandling and subsequent
damage; working capital is tied up in stocks, etc.
11.37.13
Negative impact on sales as the needs of customers are not being fully catered for.
11.37.14
This has a negative effect on working capital as debtors are taking too long to pay.
As a result of this, the business may find it difficult to pay their creditors and other operating
expenses.
11.37.15
B
Total assets = 520 00 + 150 000 = R670 000
670 000 : 150 000 = 4.47 : 1
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TASK 11.38
Multiple choice questions
No.
11.38.1
11.38.2
11.38.3
11.38.4
11.38.5
11.38.6
11.38.7
11.38.8
11.38.9
11.38.10
11.38.11
11.38.12
11.38.13
11.38.14
11.38.15
11.38.16
11.38.17
11.38.18
11.38.19
11.38.20
Working
[1]
[2]
[3]
[4]
[5]
[6]
Answer
B
B
C
A
D
D
B
B
C
A
D
B
A
A
B
D
A
C
B
B
Working:
[1] 3 200 x 15% x 9/12 =
No.
11.38.21
11.38.22
11.38.23
11.38.24
11.38.25
11.38.26
11.38.27
11.38.28
11.38.29
11.38.30
11.38.31
11.38.32
11.38.33
11.38.34
11.38.35
11.38.36
11.38.37
11.38.38
11.36.39
11.38.40
22 500 – 3 760  4 =
R4 685
[3]
90 000 x 25% x 8/12 =
R15 000
[4]
90 000 – 15 000
=
R75 000
[5]
Depreciation
=
=
75 000 x 25% p.a.
R18 750
[6]
50 000 x 11.05% x 6/12 =
6
70 000 x 11.05% x /12 =
[7]
80 000 x 15.45% x 9/12 = R9 270
[8]
9 270  3 = R3 090
[9]
2 200 x 3
=
2 200 + 10% x 8 =
2 762.50
3 867.50
6 630.00
50 000 x 11.05% x 12/12
6
OR 20 000 x 11.05% x /12
= 5 525
= 1 105
6 630
6 600
19 360
25 960
[10] 2 200 + 10%
=
R2 420
[11] 244 x 150/100
=
R366
[12] Dr side
=
=
=
=
12 356 – 231 – 360
R11 765
12 125 – 360
R11 765
[13] 20 000 – 14 000 =
Working
[7]
[8]
[9]
[10]
[11]
[12]
[13]
R360
[2]
Cr side
Answer
C
B
A
D
A
C
C
A
D
B
C
A
B
D
C
B
A
B
C
D
R6 000
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TASK 11.39
11.39.1
Kimlin Household Supplies: Ratio analysis
WORKINGS:
Mark-up %
585 000
/900 000 x100
20.2
20.1
65.0%
70.4%
% Gross profit on sales
585 000
/1 485 000 x 100
394%
41.3%
% Operating expenses on sales
440 000
/1 485 000 x 100
29.6%
36.5%
% Operating profit on sales
235 000
/1 485 000 x 100
15.8%
13.5%
% Net profit on sales
198 600
/1 485 000 x 100
13.4%
9.5%
Solvency ratio
1 352 600 : 342 000
4.0 : 1
2.6 : 1
Current ratio
237 000 : 162 000
1.5 : 1
1.3 : 1
Acid-test ratio
97 000 : 162 000
0.6 : 1
0.4 : 1
22.3%
13.2%
% Return on average owner's equity
198 600
x 100
½(902 000 + 1 010 600)
1
11.39.2
The mark-up % was decreased from 70,4% to 65%.
This apparently led to an increase in customers.
Sales increased from R1 150 000 to R1 485 000.
Despite the decrease in the mark-up % the gross profit went up from R475 000 to R585 000.
The strategy was successful.
11.39.3
Although the operating expenses increased by R20 000, they have been well controlled because
as a % of sales, they decreased from 36.5% to 29.6%.
The increase in the gross profit plus the good control over the operating expenses led to an
improvement in the operating profit on sales from 13.5% to 15.8%.
The interest expense leads to a lower net profit than operating profit, however, the interest
expense decreased by R9 200 due to the decrease in the non-current loan.
Consequently the % net profit on sales improved from 9.5% to 13.4%.
This now means that the business is earning a net profit of 14.4 cents for each R1.00 of sales.
The owner should be satisfied with the positive trend.
11.39.4
Yes. The solvency ratio improved from 2.6 : 1 to 4.0 : 1.
Total assets are now 4 times the total liabilities.
The business should not experience any solvency problems.
11.39.5
Both the current and the acid-test ratio look a little low, but there has been a positive trend in both.
The current ratio increased from 1.3 : 1 to 1.5 : 1. Acid-test ratio increased from 0.4 : 1 to 0.6 : 1.
The business could experience liquidity problems if the stock cannot be sold quickly and if debtors
do not pay on time.
However, there are investments in the Balance Sheet which the business could liquidate or borrow
against in the event of cash flow problems.
As the business has been operating on low liquidity ratios for the past two years, it appears their
cash flow from sales and debtors is reliable.
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11.39.6
Yes, the % return earned by the owner has improved from 13.2% to 22.3%. He is now earning a
return which exceeds that which can be earned on alternative investments (e.g. a fixed deposit). In
this respect, the owner should be satisfied. However, he is earning a net profit of only R198 600
which might not be sufficient to support a family, so he might need to increase his net profit even
further in future.
11.39.7
Various responses possible: e.g.
 The government regulates the price of petrol – a very low mark-up is applied. Is he aware of
this?
 Garage owners can earn more by servicing and repairing vehicles. Does he have the skills to
do this?
 Petrol stations stay open for 24 hours a day and they often have to deal with crime in the evenings. Also many customers pay by cash which adds a security risk. Does he want this responsibility, or should he get a partner to assist him?
 Is there any way in which the household supplies business could be enhanced, e.g. he could
open a branch in another city, he could admit a partner in order to develop the existing business.
 He could critically examine his overheads to see if any cost-cutting procedures could be applied in order to earn a bigger profit in future.
 He could increase the non-current loan in order to develop the business further. The interest
rate would be about 11% to 13%. This is lower than the % profit he earns, so use of loans
would be beneficial to the business.
TASK 11.40
Rippa Computer Shop: Interpretation of financial indicators
11.40.1 POINTS FOR INCLUSION IN THE BUSINESS LETTER:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Sales have dropped by R340 000 i.e. by 21% from the previous year. This is disappointing.
Cost of sales have decreased by R100 000 and fee income has decreased by R10 000 indicating that
the volume of goods sold has decreased, i.e. customers appear to have been lost, maybe due to
increased competition or perceptions of poor service.
The mark-up % has decreased from 80% to 60%. This should have led to increased sales volume, but
customers are obviously rejecting this business.
Due to the decline in the mark-up percentage, the percentage gross profit on sales has decreased from
44.4% to 37.5%.
Advertising is very low and has decreased from 3% to 1% of sales. This might have contributed to the
decline in sales volume and fee income.
Operating expenses on sales have increased from 30.2% to 38.3% which means that some expenses
have not been well controlled. These must be investigated and rectified in order to effect savings and
to increase the % operating profit on sales which has declined from 21.6% to 7.8%.
The salary of Ben Slack has gone up by the inflation rate of 8% each year, while the assistants have
had a 20% increase which is very unusual and possibly not deserved especially as the number of
customers appears to have declined. Ron should intrude in the business and study the efficiency of
the employees and the manner in which they are dealing with customers. Ron might have to consider
retrenching one or two of the assistants to bring the wages under control.
The interest rate on the loan has increased from 12% p.a. to 14.5% p.a. As interest is cutting into the
profits and is causing a big difference the operating profit and net profit. Ben could save a lot of money
if he could find a way to repay the loans as soon as possible.
Due to all of the above, the % net profit on sales has declined from 17.9% to 2.8% which indicates that
the business ultimately earns only 2.6 cents in every R1.00 of goods sold. This is clearly unacceptable
indicating low overall profitability.
The solvency ratio is healthy at 3.0 : 1 which reflects a slight improvement. The business appears not
to be at risk of going insolvent.
The business appears not to be in danger of experiencing liquidity problems. The current ratio and
acid-test ratio are too high and have increased over the past year. The current ratio moved from 2.2 : 1
to 3.8 : 1 which indicates that there are too many current assets on hand. By reducing stock, debtors
or cash resources, they could place more money in investments which could earn a return for the
business.
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12.
13.
14.
The acid-test ratio is also too high (at around 1.6 or 1.7 : 1) indicating there is too much cash on hand
or the debtors are taking too long to settle their accounts. These aspects must be investigated.
Possibly screen debtors properly before allowing them to open accounts, or consider legal action
against them if necessary.
The percentage return earned by Ron was very healthy in 20.1 with a 34.1% return which greatly
exceeds the return on alternative investments. However, in 20.2, there has been a significant swing
for the worse with Ron earning only a 2.8% return. All the above factors have led to this disappointing
decline.
Ron was still able to increase his drawings despite the considerable decline in the business. Although
the cash resources were obviously good enough to allow for this, the increased drawings could cause
financial strain on the business in future.
11.40.2 FORMAT OF BUSINESS LETTER
LETTERHEAD & LOGO
NAME, ADDRESS & PHONE NUMBER OF YOUR ACCOUNTING BUSINESS
Name & address of Rippa Computer Shop
Attention: RON RIPPA
Dear Ron,
PROVIDE A HEADING FOR YOUR LETTER
INTRODUCTION
SALES, GROSS PROFIT & FEE INCOME – Points 1-4
OPERATING EXPENSES – Points 5-7
INTEREST & NET PROFIT – Points 8-9
SOLVENCY – Point 10
LIQUIDITY – Points 11-12
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RETURN EARNED BY OWNER – Points 13-14
CONCLUSION
Yours sincerely.
Insert your name, CA (SA)
TASK 11.41 
Ethical & internal control scenarios relating to financial
statements
Before undertaking this task, it is advisable to inform the learners about what is meant by ethics in business,
fraud and internal control (you may refer to Modules 13 and 14). Refer also to the specific ethical and control
questions in the tasks in this module.
11.41.1
11.41.2
11.41.3
11.41.4
11.41.5
11.41.6
11.41.7
11.41.8
11.41.9
11.41.10
11.41.11
11.41.12
11.41.13
Wages – compare percentage increase in wages to percentage increase in salaries and % increase in net profit.
Telephone – compare percentage increase in telephone expense to inflation rate.
Advertising – compare percentage increase in advertising to percentage increase in sales.
Stock – calculate stock turnover rate and compare to what is expected for this line of business.
Debtors – calculate debtors collection period and compare to normal credit terms of 30 days.
Creditors – calculate creditors payment period and compare to agreed terms.
Operating expenses – calculate percentage operating expenses on sales and compare to previous year.
Mark-up – calculate percentage gross profit on cost of sales and compare to previous year; assess if sales have increased with the current mark-up percentage as this indicates that customers are supporting the business.
Return to owner – calculate percentage net profit on average owners’ equity and compare to
reasonable expectation.
All debts – calculate solvency ratio.
Immediate debts – calculate current ratio and acid-test ratio.
Land and buildings – calculate sales per square metre of property; assess capital gain in property values.
Stock quality – compare debtors allowances to sales, calculate a percentage and compare to
previous year.
CHECKLIST
Yes – proficient
Skills
Requires more
attention
Complete
Identify the users of financial statements
Identify the desirable features of financial
statements
Complete Income Statement
Complete the Balance Sheet together
with notes
Analyse and interpret the financial
statements
Understand the GAAP principles and how
they apply to financial statements
Analyse ethical and internal control
scenarios relating to financial statements
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