QUESTION $3(25$ MARKS$)$

Alphabet Ltd is a large stationery retailer listed on the JSE Securities Exchange. The company

has a $30$ June reporting period and it and all of its suppliers and$/$or customers are registered

VAT vendors at a rate of $15\%.$

The following extract from the trial balance for the year ended $30$ June $2023$ is presented to

you:

ALPHABET LTD

TRIAL BALANCE FOR THE YEAR ENDING $30$ JUNE $2023$

Note Debit Credit

R R

Other financial investments $61275625$

Mortgage bond: Finrite Financers $(7,5\%)31500000$

Accumulated impairment loss $$ Investment in EF $($Pty$)$ Ltd $617255$

Gross profit $13502012$

Dividends received $750000$

Interest paid $257500$

Insurance compensation $$ vehicle destroyed in fire $5120500$

Impairment loss $$ Investment in EF $($Pty$)$ Ltd $617255$

Doubtful debts $566350$

General expenses $122500$

Salaries and wages $560000$

Other expenses $183500$

ADDITIONAL INFORMATION:

Unless stated otherwise, the following information has not yet been accounted for in the

accounting records of Alphabet Ltd:

$1.$ Gross profit percentage on turnover amounts to $50\%.$

$2.$ The following interest was paid during the year and correctly accounted for:

Supplier loan R$36500$

Bank overdraft $21000$

$57500$

$3.$ On $1$ July $2019,$ a vacant stand adjacent to the existing property was purchased, which

was financed through the acquisition of a further mortgage bond of R$1500000$ from

Finrite Financers at an annual interest rate of $7,5\%.$ The loan is repayable in $5$ equal

annual instalments, which includes capital and interest. The accountant has correctly

entered the acquisition of the property and the loan in the accounting records. The

following repayment schedule is applicable:

ACCOUNTING $12$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Page $6$ of $7$

Payment

R

Capital

R

Interest

R

Capital

outstanding

R

$01$ July $2019$ Loan $1500000$

$30$ June $2020$ Instalment $13707472582471125001241753$

$30$ June $2021$ Instalment $237074727761693131964137$

$30$ June $2022$ Instalment $337074729843772310665701$

$30$ June $2023$ Instalment $437074732082049928344881$

$30$ June $2024$ Instalment $537074734488125866-$

$4.$ On $30$ June $2022,$ it was determined that the recoverable amount of a machinery item

was lower than its carrying amount and the machinery item was thus impaired. The

impairment was correctly accounted for in the accounting records for the previous year.

The recoverable amount of the machinery item was R$472075.$ The machinery item was

originally purchased on $1$ March $2020$ and it is the policy of Alphabet Ltd to depreciate

machinery over its useful life of $8$ years. The current year$$s depreciation has not yet been

accounted for.

$5.$ On $31$ January $2023,$ one of the company$$s vehicles was destroyed in a fire on the

premises. This vehicle$$s original cost price was R$265000$ and its carrying value on $1$

July $2022$ was R$208356.$ As the vehicle was destroyed by the fire, the insurance

company paid out an amount of R$138575($including VAT$),$ in full and final settlement.

The accountant only recorded the following in the accounting records:

$2023$

Dr$.$

R

Cr$.$

R

$31$ Jan Vehicles $($SFP$)120500$

Insurance compensation $-$ vehicles

destroyed in fire $($P$/$L$)120500$

Recognise the insurance pay$-$out of claim

Vehicles are depreciated at $15\%$ p$.$a$.$ on the diminishing balance method.

$6.$ Other financial investments are made up as follows:

$80000$ ordinary shares of R$12,50$ each in CD Ltd$,$ listed on R$1000000$

the JSE Ltd

$31500$ ordinary shares of R$8,75$ each at cost in EF $($Pty$)$ Ltd $275625$

$1275625$

ACCOUNTING $12$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Page $7$ of $7$

The following JSE listed share prices of CD Ltd are provided to you:

Date Fair value per

share

$01/07/2022$ R$12\mathrm{.}50$

$31/01/2023$ R$11\mathrm{.}75$

$30/06/2023$ R$11\mathrm{.}25$

$7.$ Dividends received are made up of:

Dividends received from CD Ltd R$45000$

Dividends from EF $($Pty$)$ Ltd $5000$

$50000$

$8.$ Company tax, correctly calculated, amounted to R$442960.$

REQUIRED:

$3\mathrm{.}1$ Present the abovementioned information in the Statement of Profit and Loss of

Alphabet Ltd for the year ended $30$ June $2023.(17)$

$3\mathrm{.}2$ Disclose the following notes to the financial statements of Alphabet Ltd as at $30$ June

$2023.(8)$

$$ Other Financial Investments

$$ Long$-$Term Borrowings

Please note:

$$ Show all calculations as marks are awarded for these;

$$ Round off all amounts to the nearest Rand