Homework 8 due 11 October 2021 (45 MARKS)

Naeema Schooter is the owner of Sports Unlimited. The entity sells sports supplies and also rents out additional space in the warehouse to a cricket club. Naeema has supplied you with the information below and asked you to make the necessary adjustments and to prepare financial statements for her business in respect of the financial year ended 31 December 2018.

LIST OF PRE-ADJUSTMENT BALANCES OF SPORTS UNLIMITED ON 31 DECEMBER 2018:

Rand Bank balance (favourable) 180 700

Supplies 35 430

Equipment at cost 400 000

Land and buildings at cost (Land at cost, R800 000) 1 550 000

Accumulated depreciation: Buildings (01/01/2018) 144 485

Long term loan 65 000

Capital (01/01/2018) 1 500 000

Drawings 98 450

Inventory (01/01/2018) 88 100

Accounts receivable 43 680

Allowance for doubtful debts (01/01/2018) 1 110

Accounts payable 89 370

Sales 1 171 330

Rent Income 24 000

Purchases 333 140

Carriage on purchases 18 660

Returns inwards 6 450

Returns outwards 1 570

Salaries expense 165 500

Advertising expense 18 450

Repairs and maintenance expense 3 790

Rates expense 39 190

Telephone expense 12 400

Interest expense 2 925

Additional information:

1. The business uses the periodic method for accounting for inventory and a gross profit percentage of 20% is used.

2. During the year Naeema took inventory home for her children to play with, with a selling price of R1 200. This transaction has not yet been recorded in the records of the business.

3. On 31 December 2018, unused supplies and inventory were physically counted and amounted to R2 200 and R124 980 respectively.

4. The equipment was purchased on 01 March 2018 and the residual value of the equipment is estimated to be R40 000 at the end of its useful life. The estimated useful life is 4 years. The straight line method of depreciation is used.

5. The buildings are depreciated at 5% per annum using the diminishing balance method. No additions were made to buildings.

6. Naeema paid her personal house cleaner R9 500 with a business cheque and debited salaries expense during the year.

7. Titus Najar, a debtor, skipped the country to marry his fianc in India and Naeema found out that she would never recover the R1 000 Titus owed the business. She therefore decided to write this amount off on 31 December 2018.

8. An allowance of 5% of the accounts receivable still need to be made for doubtful debts at 31 December 2018.

9. The rental agreement stipulates that an annual rental equal to 8% of the annual cricket club revenue should be paid to Sports Unlimited. The cricket club agreed to pay monthly instalments of R2 000 on the first day of each month and then to settle the difference at the end of each year. All rent has been paid each month and debited to the rent income account. The cricket club earned R34 800 in revenue for the 2018 financial year, but has not made any further payments to Sports Unlimited.

10. Naeema was worried about not earning enough revenue and entered into a new advertising agreement with AdMark Limited on 30 November 2018 to promote the business for a twelve month period starting 01 December 2018 and ending on 30 November 2019. The total amount for the campaign will be R36 000 spread evenly over the year of the agreement and the advertising fee will be paid monthly in advance on the last day of the previous month. The payment on 30 November and 31 December has been made and debited to advertising expense.

11. Sports Unlimited took out a loan on 1 May 2018 and interest on the loan is charged at a rate of 9% per annum. The loan agreement also calls for six monthly interest payments at the end of each half year. A six monthly payment was made and recorded on 31 October 2018.

12. On 1 October 2018 Naeema invested R50 000 of her own money into a short-term investment account in the name of Sports Unlimited with Capitek Bank and this transaction has not yet been recorded in the books of the business. Interest is received half yearly in arrears on 01 April and 01 October at 10% per annum

. You are required to:

a) Prepare the Post-Adjustment Trial Balance of Sports Unlimited as at 31 December 2018. Show all calculations. (45 marks)