QUESTION 2 (30 MARKS) (45 MINUTES)

Z&Y Clothing Ltd manufactures and sells clothing's in Industria, Gauteng. The following balances were extracted from the trial balance of Z&Y Clothing Ltd for the reporting period ended 31 March 2023 before taking the additional information given below into account:

Note

Revenue: Sales 1 Dividend received 2 Rent received Interest on bank overdraft

Cost of sales Salaries and wages 3 Operating lease payments: Machinery 4 Depreciation - manufacturing plant 5 Bad debts 6 Distribution costs Administrative costs Profit before tax (calculated by the junior accountant)

ADDITIONAL INFORMATION:

R

4

3

435 550 67 500 66 000 28 400

046 644 772 000 63 000 145 000 48 435 278 500 393 850 335 240

Clothing, with a cost of R12 355 and a selling price of R17 915, were donated to the local orphanage. The junior accountant incorrectly included the donation as sales.

Z&Y Clothing received dividends were received from their investment of 22 500 ordinary shares in H&N Ltd (total issued number of shares: 150 000). The shares were purchased on 11 August 2022 for R27 per share. The closing price on 31 March 2023 was R32 per share. The investment were purchased with the intention of not being held for trading. The fair value adjustment has not yet been accounted for.

The entity purchased R100 000 12% debentures at par in Lili Ltd on 1 April 2022. Interest is receivable annually on 31 March and the debentures mature on 31 March 2025. The nominal interest is R12 000 and the effective interest is R10 895 on 31 March 2023. Interest on the debentures was not taken into account in the profit before tax calculation.

3. Salaries and wages comprise:

Salaries: Managing director Sales, administrative personnel and managers

Managing director's travel allowance Payment to chairman of the board

R

185 000 548 000 24 000 15 000 772 000

Due to the good profit realised in the current year, the board of directors decided to award all employees (not directors) a bonus of 115% of their monthly basic salary. One of the administrative personnel started working for the company on 1 October 2022, and is entitled to a proportionate share of the bonus allocation.

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ACC1CP2 (2024) _________________________________________________________________________________

QUESTION 2 (CONTINUED)

The basic salaries (excluding the bonuses) of the employees are as follows:

Type of work

Administrative personnel Sales personnel Managers

Basic salary per employee per year

R

66 000

84 000 248 000

Number of employees

2 2 1

A machine used in the clothing manufacturing process was leased on 01 April 2021 for a period of 5 years. The lease payments are R5 250 per month for the first 3 years and R4 500 per month thereafter. The lease payments for the current year were expensed in full.

Included in bad debts is an amount of R28 725 which was owed by Toys Ltd. The company was liquidated before the end of the financial year. The amount is considered to be material.

7. Assume a company tax rate of 28%.

REQUIRED:

2.1 Calculate the correct profit before tax for Z&Y Clothing Ltd for the reporting period ended 31 March 2023.

Note: Start the calculation with the already correctly calculated profit before tax. (5)

2.2 Prepare the statement of comprehensive income and the accompanying notes of Z&Y Clothing Ltd for the reporting period ended 31 March 2023 according to the minimum requirements of the Companies Act and IFRSs.

Note: The note for revenue is not required (25)

Note:

The notes on accounting policy are not required.

Comparative figures are not required.

Ignore VAT.

Round off all amounts to the nearest Rand.