CACN011: FINANCIAL ACCOUNTING IA-JUNE 2022 Question 4 [13 marks 20 minutes] On 10 April 2022 fire damaged the office and warehouse of Klausi Lighting. Most of the accounting records were destroyed, but the following account balances were determined as of 31 March 2022: Inventory (January 1, 2022), R80,000. Sales revenue (1 January-31 March 2022), R180,000. Purchases (1 January-31 March 2022), R94,000. The company's fiscal year ends on 31 December. The company uses a periodic inventory system. From an analysis of the April 2022 bank statement, you discover honoured electronic funds transfers of R4,200 for cash purchases from April 1-10. Deposits during the same period totalled R20,500. Of that amount, 60% were collections on accounts receivable, and the balance was cash sales. Correspondence with the company's principal suppliers revealed R12,400 of purchases on account from 1-10 April 2022. Of that amount, R1,900 was for merchandise in transit on 10 April that suppliers shipped under the terms of FOB destination. Correspondence with the company's principal customers produced acknowledgements of credit sales totalling R37,000 from 1 to 10 April. It was estimated that R5,600 of credit sales would never be acknowledged or recovered from customers. Klausi Lighting agreed with the insurance company that its fire-loss claim should be based on the average of the gross profit rates for the preceding two years. The company secretary observes that "in future, there will be no need to take physical inventory count if the insurance company accepts our calculations of inventory damaged by the fire." You are required to: a) Determine the balances in (i) sales revenue and (i) purchases accounts on 10 April 2022. [5 marks] b) Comment on the validity of the company secretary's observations. In your answer, identify the uses of the gross profit method of estimating closing the inventory. [8 marks]