Question 16 of 27

Extract of pre-adjustment trial balance of Kumkani Traders as at 30 September 20.20
	Debit	Credit
	R	R
Capital (1 October 20.19)		200 000
Drawings	?
Inventory: Trading (1 October 20.19)	61 725
Allowance for credit losses.		4 450
Mortgage: Ginsberg Bank ...........................................		195 000
Fixed deposit (at 7.5% per annum)	50 000
Sales...		345 060
Carriage on purchases	9 500
Sales returns.	6 780
Rental income...		19 800
Purchases..	197 800
Purchases returns		2 890
Depreciation..	38 367
Salaries and wages..	88 500
Insurance expenses.	27 300
Telephone expenses	14 280
Water and electricity.	23 450
Credit losses..	1 600

After a year-end inventory count, the value of trading inventory on hand was R123 450.

Additional information

(a) On 1 April 20.20 Kumkani Traders bought a factory building by means of a mortgage, from Ginsberg Bank, that bears interest at a rate of 10.05% per annum compounded annually. The loan is redeemable in 20 annual instalments of R22 980. The instalments are in arrears. Interest for the current year must still be provided for.

(b) The fixed deposit investment of R50 000 was made on 1 April 20.20. Interest on this investment is paid annually.

Which one of the following alternatives represent the correct amount that must be disclosed as interest on mortgage for the year ended 30 September 20.20?

• A. The interest expense amount will be R Nil.
• B. The interest expense amount will be R8 644.
• C. The interest expense amount will be R17 288.
• D. The interest expense amount will be R19 598.
• E. The interest expense amount will be R9 799.