Questions and Answers of Fundamental Accounting

Define these terms:• Undrawn income. • Members’ interest.• Association agreement. • Limited liability.• Founding Statement. • Accounting officer.
Below is the trial balance for Rahe CC (for the year ended 31 March 20x3):Additional information:1. Hennie contributed R2 000 at the beginning of the current year. No entry has been made. As a
Bob and Rob decided to start their own CD and tape shop and formed a CC, which was incorporated on 1 July 20x8. They agreed to invest:In addition:• Bob is to contribute land and buildings valued at
The balances listed below are from the books of Inventive CC as at 31 December 20x7:Additional information:• A distribution of R6 000 of the undrawn income for 20x7 is made to the members and
These balances and totals are taken from the trial balances of Josa CC as at 28 February 20x2:Additional information:1 Distribution to members for the year, R4 500. (No entry has been made.)2 The
These balances were taken from the books of Amigo CC as at 30 June 20x2:Additional information:1. Mpho and Jansen, the only members, contributed R300 000 and R200 000 respectively during the year.
On 1 August 20x0, L. Challen and A. Wanyezi formed Technical Services CC to repair TV sets. It was agreed that profits and losses would be shared equally by the two members.These members’
These balances were taken from the books of Parrot Elvis as at 30 September 20x6:You are required to:1. Prepare the work-in-progress inventory account for the year ended 30 September 20x6.2. Prepare
This information is for Ngama Manufacturers for the year ending 31 December 20x1:You are required to:Calculate the cost of raw material used as at 31 December 20x1. Raw material inventory on 1
These transactions and balances were extracted from the records of Caskets Ltd, a business that makes coffins.Additional information:• 20% of wages is non-manufacturing and R36 560 of the balance
Remmie and Steel is a company that manufactures steel products. This information is for the production process:You are required to:1. Prepare the work-in-progress inventory account and trading
Define the following terminology:• Manufacturing costs. • Manufacturing overheads.• Conversion costs. • Indirect labour costs.• Prime costs. • Work-in-progress.
These details were taken from the books of Cadbury Manufacturing Ltd as at 31 July 20x6:Note• Completed products (31 July 20x6) 4 500 units• Production is transferred to the sales department at
This information for June 20x5 is from Zuma (Pty) Ltd:You are required to:Prepare the following accounts in the general ledger of Zuma (Pty) Ltd for June 20x5:1. Raw material inventory. 2.
This information is from the books of Joshua & Company Ltd:You are required to:Prepare the following accounts in the general ledger of Joshua & Company Ltd for June 20x4:1. Raw material
These details were taken from the trial balance of Baxit Ltd as at 31 December 20x2.Additional information:• Inventory as at 31 December 20x2 was:• Provide for depreciation for the year:You are
These balances and totals appeared in the books of Thula Manufacturers Ltd as at 31 December 20x4:Adjustments and further information:• An amount of R20 000 is erroneously debited against the
Mr Len Naidoo, the owner of Widget Distributors, has in the past imported widgets. However, from 1 January 20x8, he decided to manufacture the widgets himself.Here is the abridged statement of
This information is from the books of Tools Ltd for the year ended 28 February 20x6:Additional information:• Provide for depreciation on plant and machinery at the rate of 10% per annum on cost.•
Here is the trial balance as at 30 June 20x4, and other information relating to Peninsula Manufacturing Ltd.Notes1. Raw material on hand at 30 June 20x4 with a cost R10 400, of which material that
Identify the main differences in accounting for manufacturing concerns using either the periodic inventory system or the perpetual inventory system.
List four different types of stakeholders that could benefit from analysing the financial statements of a business.
List, in order, four stages that are appropriate in approaching the analysis and interpretation of the financial statements of a business.
Identify three pertinent sources of information for a comprehensive financial analysis of a public company.
Define each of these terms. Then discuss why each term is important to consider when analysing the financial statements of a company:• Global economy.• National economy.• The industry.
The information below was extracted from the books of Bekker Traders, owner J. Bekker, on 30 June 20x2. Bekker Traders’ accounting period ends annually on 30 June.You are required to:Use the given
Below is an extract from the annual financial statements of Bontsha Ltd (all figures in R’000):You are required to:Calculate the following ratios:1. Gross profit %.2. Net profit %.3. Return on
Comparisons are made when analysing financial data. Indicate three possible standards that can be used for such comparisons and state the reasons why each will be used.
Hie Ha Traders supplies you with this information:You are required to:Calculate the:1. Gross profit. 2. Net profit.3. Current ratio. 4. Quick ratio.5. Accounts receivable collection in
The current ratio is an indicator of a company’s liquidity and ability to meet its short-term debts. What further information would you require before concluding whether or not a specific
You are the auditor of Syphele Ltd, a company trading in the motor industry. On examining its latest annual financial statements, you make these observations:• Its gross profit margin, which had
Brooks Ltd makes sports shoes. You have been asked to analyse the company’s financial position and, in particular, to assess the management of current assets and the use of debt.Additional
Quo Vadis Ltd would like to purchase additional non-current assets that cost R100 000 and is considering borrowing R100 000 from Ratios Ltd at 10% per annum to finance this. (Ignore taxation and
You have been given these financial statement extracts of Speed Merchants (Pty) Ltd:Notes relating to statement of profit or loss & other comprehensive income:1. Gross profit % = 15%.2. Tax rate
This information for Ying Yong (Pty) Ltd was extracted from the company’s financial statements on the last day of the financial year, 31 December 20x9.Additional information:• Assume that
Laser & Tiger Ltd produces specialised machinery used in the car repair industry. These summarised financial statements have been prepared for two financial years.You are required to:1. Calculate
The new managing director of Eatmore Ltd (a company in the food industry) has asked you to analyse and give your views on the relative profitability and liquidity of its two wholly-owned
1. Discuss the benefits of planning and budgeting.2. List the most logical sequence in which budgets should be prepared.
List three recognised sales forecasting techniques.
Krakto Ltd marks its inventory up by 60% of cost. Inventory at cost at the beginning of May is R120 000 which, as a policy, represents the anticipated sales for May. Management plans as a matter of
Mazisto Ltd wants to increase its R120 000 cash balance by 20% during the budget period. Projected cash inflows and outflows are, respectively, R748 000 and R762 000. Calculate the amount that will
Prexley Ltd has forecast sales of R480 000 in January, R440 000 in February, R360 000 in March and R400 000 in April. Cash sales comprise 20% of monthly sales. Debtor receivable payments average 70%
Hydro Ltd normally produces and sells 26 000 units of its product each month. In addition to these, it has the capacity to produce and sell on special order, another 4 000 units at a price of R87.50
Ripley Ltd manufactures a single product. Budgeted sales for May are R495 000. The gross margin is set at 40%.If the budgeted net operating profit for May is R84 000, calculate the other total
Scramble Supermarket is a cash-sale store in Paarl. The managers expect the next three months (from January to March) to demand cash requirements beyond the normal operational outflows.A monthly cash
Define these terms in the context of non-current tangible assets and depreciation:• Capitalised costs. • Useful life.• Residual value. • Depreciable amount.
1. On 1 July 20x5, Manuel da Costa, the owner of Costa Plenti Manufacturers, bought a new machine for R25 000. He estimated that the machine would have a useful life of 10 years, after which it would
Why is a distinction made between company financial statements drafted for the managers’ purposes (internal use) and company financial statements for external use?
Give five advantages and five disadvantages of a public company as a form of business entity.
Rabie Traders uses the perpetual inventory system to account for its inventory.• The pricing policy of the business is to mark goods up by 50% on cost.• All money received is deposited daily.•
After he had inherited R50 000, Mike Hill decided to start a steam cleaning business, called Pro-Clean.Transactions for May:1 Mike opened a bank account in the name of his business, Pro-Clean. He
ZAP Traders uses the periodic inventory system to account for inventory.These balances appeared in the general ledger at the beginning of June 20x6:Transactions for June 20x6 (ignore VAT):1 The owner
JP Spares bought a delivery vehicle on 1 June 20x6 and paid these expenses:You are required to:Calculate the cost of the vehicle. Cost price Sign writing Tinting of windscreen and windows Seat
Explain fully the difference between the depreciation account and the accumulated depreciation account. Indicate how they arise and when they are written off.
Define and explain these depreciation methods:• Straight-line method.• Diminishing-balance method.• Units of production or usage method.
Use the information from Question 14.2 to answer this question. Assume that management estimates that the useful life of the vehicle is five years and that maintenance cost would increase as the
On 1 January 20x4, Fedoc Distributors had these accounts (among others) in their books:Their accounting policies for depreciation are:During the year, these transactions relating to non-current
On 1 January 20x6, Pigments Manufacturers bought a vehicle for R40 000. The vehicle is expected to have a useful life of four years and a residual value of approximately R8 000.You are required
This information is from the books of AB Transport Company as at 31 December 20x7:On 1 July 20x8, Vehicle A was traded in for R20 000 to buy Vehicle C at a cost of R75 000. The company provides for
AB Transport Services Ltd had this abridged statement of financial position on 30 June 20x4:AB Transport Services depreciates vehicles at 25% p.a. on the diminishing-balance method.These transactions
Rustenburg Ruiters bought a new machine on 1 January 20x1 for R22 500. The business estimates the machine to have a useful life of six years, and a residual value at the end of six years of R1 500.
Despatch Brick Company (Pty) Ltd owns a fleet of delivery vehicles. For the year ended 30 September 20x4, this information relates to the vehicles:Trade-in on CCN 10405, original cost R17 000,
Here is an extract from the trial balance of Pro-shade Enterprises as at 1 March 20x0:Additional information:1. Depreciation on vehicles is calculated on 20% per annum on the straight-line basis.2.
1. Vehicles are depreciated at 20% per annum on the straight-line basis.2. The business considers the residual value of the vehicles to be 35% on cost.3. Depreciation on machinery is calculated at
1. Vehicles are depreciated at 20% per annum on the straight-line basis.2. Residual value is based on a 30% of the cost of vehicles.3. Land and buildings are not depreciated.4. Depreciation on
You have been appointed as the accountant of A&L Manufacturing for the June 20x1 year end. The previous accountant had never accounted for depreciation, thus, resulting in inaccurate financial
1. Vehicles are depreciated at 20% per annum on the straight-line basis.2. The business considers the residual value on the vehicles to be 35% on cost.3. Depreciation on machinery is calculated at
1. Vehicles are depreciated at 20% per annum on the straight-line basis.2. The business considers the residual value on the vehicles to be 25% on cost.3. Depreciation on equipment is calculated at
1. Vehicles are depreciated at 20% per annum on the straight-line basis.2. The business considers the residual value on the vehicles to be 25% on cost.3. Depreciation on equipment is calculated at
1. Vehicles are depreciated at 20% p.a. on the straight-line basis.2. The business considers the residual value on the vehicles to be 25% on cost.3. Depreciation on equipment is calculated at 20%
This trial balance is for High Flats (owned by Mr Cook) as at 31 December 20x5.Additional information:1. Office furniture and equipment must be depreciated at 15% per annum on the diminishing-balance
Explain the purpose of year-end adjustments.
Lerato Molefe has completed her first year in business as a general dealer and her bookkeeper produced these abridged annual financial statements:Lerato Molefe was surprised to discover that she had
Explain the matching concept as it applies to year-end adjustments.
Here are the balances from the statement of financial position of Stix Stores, a retail merchant, as at 31 March 20x0 and 20x1:Drawings for the years ended 31 March 20x0 and 20x1 were R4 000 and R6
After the financial statements of P&Q Enterprises had been prepared for the 20x1 financial year and the ledger accounts closed, these errors were discovered:1. The year-end allowance for bad
This list of balances and totals is from the books of Thando Traders as at 30 September 20x5:Adjustments and other information:1. On 30 September 20x5, a receivable paid his account of R1 200.
These balances and totals appeared in the books of Peters Parlour as at 28 February 20x6:Additional information:1. The bookkeeper had made these errors:– Omitted a debit of R500 in determining the
Use the trial balance of Unisex Hairdressing Salon as at 31 May 20x3, to draft the:1. Statement of profit or loss & other comprehensive income.2. Statement of financial position.
These balances were extracted from the pre-adjustment trial balance of Mark Nkosi, a general dealer, on 31 December 20x4:Additional information:1. Inventory on 31 December 20x4:– Merchandise R9
Mr Slow Dohe died early in March 20x6 before having drafted his financial statements for the year ended 28 February 20x6.You are able to establish some information from his books and records:1 The
What is the purpose of reversing accruals and prepayments at the beginning of a new year?Give suitable examples in your explanation.
Here is the trial balance of North Traders as at 31 December 20x0 (financial year end):Additional information:• The business lets a portion of its premises at a monthly rent of R300. The property
Here is the trial balance for Palace Industries as at 31 December 20x6:Additional information:1. Interest earned on the municipal stock but not yet received is R620.2. Advertising includes a payment
These balances and totals appeared in the books of Jack Spratt on 28 February 20x7:On presentation to management of the trial balance, it was considered essential to take these items into account:1.
The trial balance of Leeway Investors as at 31 December 20x6 (financial year end), is given below together with additional information:Additional information:1. Wages earned by employees in December
These balances and totals are taken from the ledger of SA Moosa on 28 February 20x5:Additional information:1. Inventory on 28 February 20x5, R42 029.2. Rates and taxes are for the year ended 30 June
Here is the trial balance of Angela’s Antiques, a furniture dealer. Angela Boshoff determines inventory values on a LIFO basis using the periodic method. Her marketing policy has been to
Here is the trial balance of Katrina’s Kombuis as at 31 December 20x6. It is Katrina’s policy to determine selling prices by marking up all goods by 30% on cost, and to use the perpetual
What is the purpose of the following statements?• Statement of financial position.• Statement of profit or loss & other comprehensive income.• Statement of changes in equity.• Statement
What is the difference between a public company and a private company?
This is the trial balance of Tembo Ltd for the year ended 28 February 20x0:Additional information:• The managers transferred an amount of R50 000 to the asset replacement reserve.You are required
Define these terms:• Share capital.• Retained earnings.• Redeemable cumulative preference shares.• Memorandum of Incorporation (MoI).• Limited liability.• Authorised share capital.
What are the main differences between a sole proprietor and a company?
The statement of financial position of a retail trading company was presented to you by an inexperienced bookkeeper:Additional information:1. All the shares have been issued.2. Accounts receivable of
What should the financial statements of a company consist of in terms of the Companies Act and International Accounting Standard 1 (IAS 1)?
These balances were extracted from the books of XY Ltd as at 30 June 20x3:Additional information:The directors have resolved:• That the entire profit from sale of land be treated as part of the
Berkshire Ltd provided you (as the accountant) with this information from their accounting records as at 1 July 20x0:The following information is available for the financial year ended 30 June
Here is the pre-adjustment trial balance of Tsepo Ltd as at 31 March 20x4:This additional information relates to the trial balance:1. The plant and machinery were bought on 1 April 20x0.– A machine
The trial balance of Daphne (Pty) Ltd as at 30 September 20x2 included these accounts:Additional information:1. The profit before tax figure for the year ended 30 September 20x2 is R68 000. The

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