QUESTION TWO [20]

Sifiso Phakathi has a general dealer store in the Ixopo area that he has been operating for a few years. The following information was provided by Sifiso for the financial year ended 28 February 2021:

Pre-adjustment trial balance at 28 February 2021	Debit - R	Credit - R
Land and buildings	604 000
Equipment at cost	195 000
Accumulated Depreciation: Equipment 1 March 2020		32 100
Inventory: trade goods 1 March 2020	109 500
Trade receivables	81 630
Bank	20 220
Capital - Sifiso		626 400
Drawings	130 530
Long term borrowing: Niks Finance (15% per year)		65 000
Trade payables		69 400
Sales		853 470
Rent income		80 400
Purchases returns		5 000
Purchases	409 660
Sales returns	6 800
Settlement discounts received		5 150
Settlement discounts granted	4 720
Advertising	14 800
Consumables	10 960
Insurance	5 850

Other operating expenses	136 000
Interest on borrowings	7 250
	1 736 920	1 736 920

Additional information:

1. A physical stock-take on 28 February 2021 revealed the following:
   • Trade goods on hand was valued at R96 000; and
   • Consumable stores on hand were R1 830.

2. Advertising included an amount of R 2 160 for advertisement to appear in print from 1 November 2020 to 30 April 2021.

3. Depreciation on equipment is provided at 10% per year using the reducing balance method. Note that equipment was purchased on 31 July 2020 for

R30 000. The purchase was recorded and is included in the above balances.

4. The long term borrowing from Niks Finance was granted on 1 May 2020. The borrowing is payable in full on 31 April 2025. Provide for the outstanding interest.

5. The tenant has already paid the rent for March 2021. Note that the monthly rent was increased by 10% effective on 1 December 2020.

6. A debit order of R800 for the insurance of Sifisos home was erroneously allocated to the business insurance account. A correction is required.

7. A debtor who owed R1 600 has been declared insolvent and his estate paid out 70 cents in the Rand on all debts. The balance of the account must be written off as irrecoverable. Entries must be made to record the receipt of money from the estate and the write-off of the remaining balance.

8. Create an allowance for credit losses equal to 5% of remaining outstanding debtors.

Required:

Prepare the following for Sifisos Stolo for the financial year ended 28 February 2021:

The statement of profit or loss and other comprehensive income.