Augustus owns a hardware shop, Roman Empire.

The entity uses the perpetual inventory system to manage its inventory. All inventory sold for cash is sold at 38% markup on cost. Despite credit checks, credit sales have historically resulted in delayed payments by customers. Owing to this higher cost of money, Augustus decided that all credit sales will carry a 40% markup on cost.

Roman Empire is not registered as a VAT vendor, as the annual turnover is not expected to exceed R1 000 000. The entity also decided not to voluntary register for VAT.

All goods (trading stock as well as any other goods) exceeding R15 000 are purchased on credit. Credit terms have been agreed to with all suppliers. Purchases up to the value of R15 000 are paid immediately.

Assume that the bank has a favourable balance.

The following transactions took place during May 2020:

1.The owner, Augustus, deposited R110 000 as capital in the bank account of Roman Empire.

2.Purchased inventory from Nerva, R46 000.

3.Sold goods on credit, R21 770.

4.Paid the rental for the premises per cheque, R16 400.

5.Received R180 000 from First Bank, being a loan repayable in monthly instalments over the next 6 years.

6.Purchased furniture from AroFurn, R9 000.

7.Cash sales of goods, R10 005.

8.Received payment on his account from a debtor, R17 600.

9.Issued a cheque to Telfast for R4 520, being payment of Roman Empire's telephone account, R3 260, and Augustus's personal telephone account, R1 260.

10. Settled account owed to Nerva (refer to 2), R46 000.

Required:

Show the effect of the above transactions on the accounting equation below. Verify the application of the duality concept by balancing and testing the equation...................................................................[33 Marks]

Example: Roman Empire pays the local newspaper for the sales advertisement placed in the local community brochure - R1 650.