QUESTION TWO

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:

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.

Debit-R Credit - R 604 000 195 000 Pre-adjustment trial balance at 28 February 2021 Land and buildings Equipment at cost Accumulated Depreciation: Equipment 1 March 2020 Inventory: trade goods - 1 March 2020 Trade receivables 32 100 109 500 81 630 Bank 20 220 626 400 130 530 Capital - Sifiso Drawings Long term borrowing: Niks Finance (15% per year) Trade payables Sales 65 000 69 400 853 470 Rent income 80 400 Purchases returns 5 000 Purchases 409 660 6 800 5 150 Sales returns Settlement discounts received Settlement discounts granted Advertising Consumables 4 720 14 800 10 960 Insurance 5 850 Other operating expenses Interest on borrowings 136 000 7250 1 736 920 1 736 920