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2020 Accounting 100 Question bank 4 (Additional Question 7, Chapters 2 – 8) Question 6QUESTION 3 (50 MARKS)
AC Entity, as well as all of AC Entity’s suppliers, are registered as vendors in accordance with the
VAT Act. AC Entity’s current reporting date is 31 December 20.7 and the financial statements will
probably be approved by the owner by 28 February 20.8.
AC Entity uses the perpetual inventory system.
The following information represents the list of balances of AC Entity on 31 December 20.7:
Additional Dr Cr
information R R
Sales 1 12 150 720
Cost of sales 1 9 113 040
Trade receivables 1, 2 & 3 2 025 120
Trade inventories 1 840 000
Doubtful debts 2&3 252 600
Rent expense 4 440 000
Office supplies 520 000
Office supplies on hand (31 Dec 20.7) 48 000
Prepaid insurance (31 Dec 20.6) 5 297 000
Insurance 5 432 000
Water and electricity 6 420 750
Term deposit 7 618 000
Bank 558 200
Equipment – cost price 8 2 455 000
Capital 100 000
Retained earnings 3 482 551
Accumulated depreciation – equipment (31 Dec 20.6) 8 480 000
Bank loan 9 1 375 000
Interest expense 9 125 000
VAT input 99 210
VAT output 141 729
Trade payables 10 1 513 920
19 243 920 19 243 920
Additional information
The following transactions and events still have to be appropriately recognised, unless the contrary
is stated. Where applicable, the amounts include VAT at 14%:
1. Trade inventories that were sold to Receivable A on credit, were received by Receivable A on
31 December 20.7. The invoice price is R64 410 and is payable within 30 days. The cost of
the goods sold amounts to R42 375.
2. On 3 March 20.7, Receivable O’s debt was written off as irrecoverable. (This write-off has
already been appropriately recognised.) On 31 December 20.7, the liquidator of
Receivable O’s insolvent estate deposited an amount of R21 888 directly into AC Entity’s
bank account by means of an EFT. This amount is AC Entity’s portion of a liquidation
distribution made to Receivable O’s creditors.
3. On 31 December 20.7 the credit manager gave authorisation that Receivable B’s debt, to the
amount of R31 920, be written off as irrecoverable.
1
, 2020 Accounting 100 Question bank 4 (Additional Question 7, Chapters 2 – 8) Question 6
4. Due to an oversight, the lease instalment to the amount of R45 600 for renting an office
building in December 20.7 was only paid on 8 January 20.8.
5. The insurance premium is annually paid on 1 October. The insurance premium for the
12 months ended 30 September 20.8 amounts to R492 480 and was paid on 1 October 20.7.
The payment has already been correctly recognised in the accounting records.
6. The water- and electricity account for December 20.7 to the amount of R40 128 was received
on 8 January 20.8 from Payable Jozi and is payable before 25 January 20.8.
7. The investment in the term deposit was made on 1 July 20.6. The interest rate is 6% per year
and the interest is added to the term deposit at the end of each six months. The investment
term is two years. The term deposit and the accrued interest will be received back in one
amount on 30 June 20.8.
The interest schedule in respect of the term deposit is as follows:
Interest at Amortised
Date Detail 6% per year cost of the deposit
R
1 Jul 20.6 Term deposit 600 000
31 Dec 20.6 Interest 18 000 618 000
30 Jun 20.7 Interest 18 540 636 540
31 Dec 20.7 Interest 19 096 655 636
30 Jun 20.8 Interest 19 669 675 305
75 305
8. On 1 December 20.7 an equipment item was purchased and received. The invoice price is
R855 000 and was paid on 1 December 20.7 with an EFT. This transaction was recognised
by debiting the equipment account with R855 000 and crediting the bank account with
R855 000.
The depreciation expense on equipment still has to be recognised. Depreciation on
equipment is calculated in accordance with the straight line method, over the estimated useful
life of equipment, namely 10 years. No residual value must be accounted for. No other
equipment items were purchased or sold during the year.
9. The bank loan to the amount of R1 250 000 was received on 2 January 20.7 and is repayable
in one amount, which includes interest, on op 31 December 20.9. The interest is annually
added to the primary debt on 31 December at 10% per year.
The interest schedule for the loan is as follows:
Interest at Amortised
Date Detail 10% per year cost of the loan
R
2 Jan 20.7 Primary debt 1 250 000
31 Dec 20.7 Interest 125 000 1 375 000
31 Dec 20.8 Interest 137 500 1 512 500
31 Dec 20.9 Interest 151 250 1 663 750
413 750
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