QUESTION 3 (16 marks)

Gymtrak is a local manufacturer of sports equipment. The entitys current year ended on 31 December 2022.

The following information relates to a new machine acquired during the year in order to manufacture soccer balls:

1 February: The machine was purchased FOB destination point from an overseas supplier for USD55 696. The destination was Gymtraks premises. The exchange rate on 1 February 2022 was USD1 : R19. The payment for the machine was made on this day.

28 February: The machinery arrived at the premises of Gymtrak.

1 March: The machinery was installed and installation fees paid in cash on this date amounted to R8 354. The machine was then brought into use on this day when the manufacturing of soccer balls commenced.

The machinery has a useful life of 5 years and is depreciated using a straight-line basis. It was estimated that the residual value of the machine is R13 924.

REQUIRED:

Prepare the general journal entries of Gymtrak for the year ended 31 December 2022 to account for the machine. Ignore closing off journals. Show all dates and workings.

(16 marks)

QUESTION 4 (28 marks)

Dabull Ltd is a retailer of furniture and fittings that allows customers to buy on credit.

The pre-adjusted trial balance of Dabull Ltd as at 31 October 2022 showed a trade receivables balance of R1 560 000.

It is Dabull Ltds policy to reinstate debtors who were previously written off if they repay their debts thereafter.

The following additional information relates to the trade receivable cycle that was not yet taken into account in the accounting records for the 2022 financial year:

1. A debtor, Mr X. Huang who had a debt of R6 700 was untraceable. It was thus decided to write off his debt as irrecoverable.
2. A credit note of R2 500 for goods returned had been incorrectly entered in the records on 15 October 2022 as if it were an invoice.
3. A credit sale to debtor, Mr D. Barry amounting to R750 was recorded incorrectly to debtor, Mr P. Barnard in the Debtors Ledger on 18 October 2022.
4. The October 2022 bank statement reflected a dishonoured (R/D) cheque for an amount of R35 400. This cheque had been received on 3 October 2022 from debtor Mrs L. Singh and had been deposited in the bank account on the same day and correctly recorded in the cash receipts journal on that day.
5. A settlement discount of R1 800 had been completely omitted from the records.
6. On 25 October 2022, an amount of R6 700 was received by Mr X. Huang. Mr X. Huang explained that he was visiting his remote hometown in Korea and had completely forgotten about his debt owed and remembered only once returned.
7. Debtor, Mrs. T. Zolani was declared insolvent during 2022. The total debt owed by her on 31 October 2022 was R38 600. Mrs. T. Zolanis lawyer confirmed that Dabull Ltd would receive 15c for each Rand owed. On 31 October 2022, a payment was received from Mrs. T. Zolanis lawyer. The remainder of Mrs. T. Zolanis debt was written off as irrecoverable.
8. A credit sale transaction of R43 500 and a sales return transaction of R 7 900 that occurred on 31 October 2022 were omitted from the respective journals.

REQUIRED:

4.1 Prepare the Trade Receivables account in the General Ledger of Dabull Ltd for the year ended 31 October 2022. Show all workings. Ignore VAT.

(25 marks)

4.2 There are risks to investing in working capital. State what the consequences are of the risks mentioned below:

1. Where criteria for deciding whether to allow customers to purchase on credit are too strict.
2. Where levels of inventory are too high.
3. Where cash levels are too high. .