Question 8 of 20

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. Use the information in the pre-adjustment trial balance and the additional information to calculate the interest on fixed deposit for the year ended 30 September 2020.

• A. The interest income amount will be R2 188.
• B. The interest income amount will be R Nil.
• C. The interest income amount will be R3 750.
• D. The interest income amount will be R18 750.
• E. The interest income amount will be R1 875.

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