Mr Golden is the owner of Golden Crispy Traders (hereafter "GCT"). The business specializes in buying and selling fully refined 20 liters of deep frying oil to local Tuck shops, individuals and restaurants across South Africa. GCT accounts for inventory using perpetual inventory system on the First-In First- Out (FIFO) basis. The entity is a registered VAT vendor and so are all entities trading with it. VAT is levied at 15%. 20 liters frying oil are sold at a mark-up of 80% on cost. GCT measure their inventory at the lower of cost or net realisable value. Transactions include VAT, unless stated otherwise. The following transactions occurred during May 2021: 1. Inventory on hand as at 1 May 2021 amounted to R510 000. Each 20L frying oil cost R340 (excluding VAT). 2. During the first week of May, GCT sold 1 400 20L of frying oil cash. 3. A customer returned 50 frying oil that were sold during the first week of May due to the expiry date and requested a refund. The refund was processed via EFT. On the same day, GCT decided to discard all the 50 frying oil since they cannot be sold again. 4. During the second week, GCT purchased 1 000 20L of frying oil cash, for R460 each. The supplier offered 5% trade discount for this purchase. GCT also paid R13 800 for transporting the new stock from the supplier to the business premises. The supplier insured all the deliveries with Safe-Trip insurance at a cost of R400 per delivery. The insurance premiums are cost to supplier, this is to ensure that all customers receive their stock in good condition and prevent any losses or damages While the stock is in transit. The bookkeeper of GCT was very confused on how to record this transaction, but was thinking to process it as follows: Accounts affected DR-R CR-R Purchases (R460 x 1 000) 460 000 Insurance expense 400 Transport expense 13 800 Bank 474 200 5. During the 3rd week of May. GCT sold 600 20L of frying oil. Of these total sales, 45% were for cash and the rest being on credit. 6. GCT performed a physical inventory count on 31 May 2021 which revealed that the business is having 445 20L of frying oil on hand, excluding the 50 that were returned and thrown away (refer to transaction 3) REQUIRED: MARKS a) [41 (4) b) With reference to transaction 4, you are required to do the following: 1. Discuss whether or not you agree with the journal entry of the Bookkeeper. - Your discussion should be on the accounts affected only, calculations are not required 2. Provide the correct journal entry. - Calculations are required - Date and narrations are not required Prepare the journal entries that would appear in the records of GCT for the month end 31 May 2021 1. Transaction 2 2. Transaction 3 3. Transaction 5 4. Transaction 6 Dates and narrations are not required Show all calculations (5) (5) [9] (3)
