Crafty is a sole proprietorship that was founded by Mr Yeast in 2008 and has a 30 June year- end. Crafty had two employees at the beginning of the 2020 financial year. Due to the COVID-19 epidemic, the craft beer business could not operate as usual under the strict levels of lockdown and struggled financially Mr Yeast had to let one of his employees go at the end of May 2020. Mr Yeast paid this employee his salary until the end of May 2020 and offered him a package of a cash amount of R55 000, payable on 31 July 2020. The two employees were entitled to a gross monthly salary of R18 500 each. The total deductions (all paid up to date) for the year ended 30 June 2020 that was subtracted for the two employees were as follows: Medical aid contribution 40 255 (Employer pays to Medical scheme on behalf of employees) PAYE Tax 76 590 (Employer pays SARS on behalf of employees) As Crafty is struggling financially in the 2020 financial year, the owner, Mr Yeast, contributed R27 500 to the entity on 1 May 2020. He made the following journal entry: Dt Bank (SFP) 27 500 Cr Income (PAL) 27 500 Mr Yeast regarded this amount to be classified as income when he considered the definitions of elements in the Conceptual Framework for Financial Reporting. REQUIRED Marks Sub total Total 2 2 2 (a) Discuss, with reference to IAS 19 Employee Benefits, the classification of the R55 000 package in the financial statements of Crafty on 30 June 2020. (0) Provide the journal entries of the total salaries and the deductions in the general journal of Crafty for the year ended 30 June 2020. Show each payment to the different parties as separate Bank entries The heading to the journal, closing journals and dates are not required. Communication skills (C) Give a reason, with reference to the Conceptual Framework for Financial Reporting, whether you agree with the classification of the R27 500 that was done by Mr Yeast. You do not need to discuss alternative classifications if you do not agree. 3 1 1 TOTAL 7 Crafty is a sole proprietorship that was founded by Mr Yeast in 2008 and has a 30 June year- end. Crafty had two employees at the beginning of the 2020 financial year. Due to the COVID-19 epidemic, the craft beer business could not operate as usual under the strict levels of lockdown and struggled financially Mr Yeast had to let one of his employees go at the end of May 2020. Mr Yeast paid this employee his salary until the end of May 2020 and offered him a package of a cash amount of R55 000, payable on 31 July 2020. The two employees were entitled to a gross monthly salary of R18 500 each. The total deductions (all paid up to date) for the year ended 30 June 2020 that was subtracted for the two employees were as follows: Medical aid contribution 40 255 (Employer pays to Medical scheme on behalf of employees) PAYE Tax 76 590 (Employer pays SARS on behalf of employees) As Crafty is struggling financially in the 2020 financial year, the owner, Mr Yeast, contributed R27 500 to the entity on 1 May 2020. He made the following journal entry: Dt Bank (SFP) 27 500 Cr Income (PAL) 27 500 Mr Yeast regarded this amount to be classified as income when he considered the definitions of elements in the Conceptual Framework for Financial Reporting. REQUIRED Marks Sub total Total 2 2 2 (a) Discuss, with reference to IAS 19 Employee Benefits, the classification of the R55 000 package in the financial statements of Crafty on 30 June 2020. (0) Provide the journal entries of the total salaries and the deductions in the general journal of Crafty for the year ended 30 June 2020. Show each payment to the different parties as separate Bank entries The heading to the journal, closing journals and dates are not required. Communication skills (C) Give a reason, with reference to the Conceptual Framework for Financial Reporting, whether you agree with the classification of the R27 500 that was done by Mr Yeast. You do not need to discuss alternative classifications if you do not agree. 3 1 1 TOTAL 7
