QUESTION 2 (20 marks)

Purtacco (Pty) Ltd is owned by Jane Howard and started operations a month ago. In terms of the new Companies Act Jane has decided to do the bookkeeping herself. She attended an accounting course covering the basics where the accounting equation was used to record transactions.

She identified some of the transactions she struggled with and requested your help with it. She intends preparing monthly financial statements.

1. Cash purchases of merchandise amounted to R380 000. Sales for the month amounted to R455 000. The company uses a constant mark-up of 100% to determine the selling price. 40% of the sales was on credit. Industry expectations are that 8% of all debtors default on their accounts and have to be written off. Jane wants this to be taken into account on a monthly basis. The company operates a perpetual inventory system.
2. In terms of the rental agreement, R88 000 was paid at the beginning of the month. This covered the deposit of R30 000, as well as rent for the first 3 months. After the initial 3 months, the rental payments will be on a month-to-month basis in advance.
3. The annual insurance premium of R42 000 was paid in advance at the beginning of the month.
4. At the end of the month the water and electricity, and telephone bills were R9 000 and R4 000 respectively. These outstanding amounts will be paid before the 7th of the next month.
5. Office equipment of R135 000 was bought on a 60 day term just before opening of business. This is still unpaid. The useful life of office equipment is 10 years where after it will be replaced. Depreciation must be provided on the straight-line basis.
6. Other operating expenses amounted to R122 000 for the month and was paid cash.
7. At the beginning of the month a loan of R550 000 was raised through ABCA Bank to fund further expansions. The loan bears interest at 9% per year. Expansion will take place from the start of the next month. No interest or capital repayment has yet been made.

REQUIRED

1. Record the above transactions on the accounting equation using the following;

Property, Plant and Equipment (PPE) + Inventory + Accounts receivables + Bank = Equity + Revenue Expenses +Long term Liabilities + Current Liabilities

Property, Plant and equipment +Inventory + Accounts Receivables +Bank =Equity +Revenue -Expenses + Long-term Liabilities +Current Liabilities

1. Determine the profit or loss for the month.