QUESTION ONE 1.1 Chris Nuts has a car repair business, Nuts and Bolts, that he started on 1 July 2020 after he lost his job during lockdown. The following are some of the transactions for the month of May 2021 Transaction number Transactions example 1 2 Paid rent of R2 450 for the month of May 2021. Bought consumables during the month for R9 600 on credit. All consumables are purchased for immediate use. Took a loan of R50 000 from his uncle Spanner Hardman. The loan bears interest at 9% per year payable monthly. The loan capital is payable in two equal annual instalments, the first of which is payable on 31 May 2022. Chris purchased electronic diagnostic equipment that had a marked price of R40 000 with a 10% cash discount offered. Chris paid cash for the equipment which he put to use immediately. Services fees for the month were as follows: Cash deposited into the bank account R32 400. On credit to businesses given 30 day accounts: R17 300. 3 4 5 Paid monthly interest on the loan taken from Spanner Hardman. Refer transaction 2 above. Transferred payment to settle the creditor's account - Refer transaction 1. A 5% settlement discount was received. 6 Required: 1.1 Prepare an accounting equation as the one illustrated below. Process the above transactions through the equation using + for increase in an element, use a - or use (brackets) for decreases and 0 for no effect. Chris does not have any overdraft facitlities. Format: Trans Assets= Liabilities number R Equity+ R (2 450) Rent R example (2 450) Bank 0 1.2 Chris, an ambitious person, wanted to expand his business and arrange his administration more efficiently. The following are a couple of the questions he asked. Provide brief but clear explanations that satisfy International Financial Reporting Standards and other applicable regulations: 1.2.1 What are source documents and how important is it to keep them? 1.2.2 What is the purpose of preparing financial statements and who, besides the owner, is going to use them? Your explanation must include two users, other than owners, and briefly describe their needs. QUESTION ONE Walnut Limited has a new and inexperienced financial accountant who insists that an estimate of current income corporate tax should not be processed in its financial statements for the year ended 31 December 2021. His reasoning is that the official 2021 tax assessment has not yet arrived and he believes that it is only once this official assessment has been received that the amount will be known and a liability can be recognised. Current income tax has not yet been processed in Walnut Limited's current 2021 financial statements. The auditors are therefore requesting that Walnut Limited include the following in the 2021 financial statements: Current income tax of R80 000 in respect of 2021. Required: Explain by a way of a discussion of the relevant definitions and recognition criteria whether or not a liability and expense should be recognised
