FRK 111 Financial Accounting Summary and Notes: Chapters 1 - 6 including past paper questions and detailed explanatory solutions.
Conceptual Framework; The Accounting Equation with a detailed example and solution showing calculations; Statement of Financial Position; Statement of Profit or Loss...
Answer: False.
VAT input is the amount claimed back from SARS by a VAT vendor for payment made on purchased/manufactured goods used to make taxable supplies. Therefore, it is an asset.
2.
A person who carries on an enterprise making taxable supplies in the previous 12 months of R60 000 can register for VAT.
1. True 2. False
Answer: True.
Every person may register for VAT if:
• Carrying on any enterprise;
• Total value of taxable supplies;
• In the previous or following 12 months;
• Exceeds R50 000.
3.
VAT registration is done on a VAT 201 form.
1. True 2. False
Answer: False.
VAT registration is done on a VAT 101 form.
A VAT 201 form is submitted to SARS to declare the VAT input or output for every tax period.
4.
Interest on overdraft is classified as the following VAT supply category:
1. Standard-rated
2. Zero-rated
3. Exempt
4. Non-allowable
5. Cash basis
Answer: 3. Exempt supply
5.
Diesel is classified as the following VAT supply category:
1. Standard-rated
2. Zero-rated
3. Exempt
4. Non-allowable
5. Cash basis
Answer: 2. Zero-rated supply
Content preview
Conceptual Framework
The elements of financial statements
Definition of an asset
• Present economic resource;
• Controlled by the entity;
• As a result of past events.
An economic resource is a right that has the potential to produce economic
benefits.
Rights correspond to an obligation of another party. E.g.:
• Rights to receive cash.
• Rights to goods or services.
• Rights to exchange economic resources with another party on favourable terms.
• Rights to benefit from an obligation of another party to transfer an economic
resource if a specified uncertain future event occurs.
Assets = Non-current assets + current assets
Non-current assets (convertible into cash in >12 months):
- Land
- Buildings
- Vehicles
- Equipment
Current assets (convertible into cash in <=12 months):
- Inventory
- Trade and other receivables (Debtors)
- Bank (when bank balance is a positive)
- Petty cash
,Definition of a liability
• A present obligation of the entity;
• To transfer an economic resource;
• As a result of past events.
An obligation is a duty or responsibility that an entity has no practical ability to avoid.
Liabilities = Non-current liabilities + current liabilities
Non-current liabilities (payable >12 months):
- Long-term loan
Current liabilities (payable <=12 months):
- Short-term loan
- Trade and other payables (Creditors)
- Bank overdraft (when bank balance is a negative)
Definition of equity
Equity is the residual interest in the assets of an entity after deducting all its liabilities.
Equity = Capital contributions – Drawings + Income – Expenses
Definition of income
Income is increases in assets, or decreases in liabilities, that result in increases in
equity, other than those relating to contributions from holders of equity claims (i.e.
Capital).
Income includes:
- Gains: Disposals of non-current assets, changes in fair value of non-current
assets
- Income from normal activities: Rent income; Dividend income; Interest income
- Revenue: Sales
, Definition of expenses
Expenses are decreases in assets, or increases in liabilities, that result in decreases in
equity, other than those relating to contributions from holders of equity claims (i.e.
Drawings).
Expenses include:
- Losses: Disposals of non-current assets at a loss; Impairment losses
- Expenses from normal activities: Water and Electricity; Telephone; Salaries;
Rent expense; Repairs and Maintenance
- Costs: Cost of sales
Qualitative characteristics of useful financial information
Fundamental qualitative factors Meaning
Relevance How helpful the financial information is
to users for financial decision making.
Relevant information is material if
omitting or misstating it could influence
decisions that users make.
Faithful representation The extent to which the information
accurately reflects the company’s
resources and transactions that take
place.
Faithfully represented information is
Complete; Neural and Free from errors or
Omissions
Enhancing qualitative factors Meaning
Comparability Enables users to identify and understand
similarities and di\erences among items.
Verifiability Helps assure users that the information
faithfully represents the economic
conditions if faces. Ensures reliable and
accurately presented information.
Timeliness Having information available to users in
time to be capable of influencing their
decision making.
Understandability Classifying, presenting and disclosing
information clearly and concisely, making
it understandable.
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