SECTION B $-[17]$

YEAR END ADJUSTMENTS

$3\mathrm{.}2$ The following pre$-$adjustment trial balance appeared in the books of Muskadel Traders at the end of their second financial year.

Pre$-$adjustment trial balance of Muskadel Traders on $31$ August $2023$

$\backslash$table$[[,$Fol.,Debit,Credit$],[$Statement of financial position section$],[$Capital$,81,,204087],[$Drawings$,$B$2,52500,],[$Land and buildings,B$3,675000,],[$Vehicles$],[$Accumulated depreciation: Vehicles,B$4,75000,],[$Fixed deposit: Munroe Investments,B$5,62500,],[$Trading inventory,$B6,87500,],[$Petty Cash,B$7,17500,],[$Bank$,$B$8,1500,],[$Trade receivables,B$9,49662,],[$Trade payables,B$10,,83875],[$Mortgage loan: Norton Bank,B$11,,583000],[$Nominal accounts section$],[$Sales$,,,1060000],[$Sales returns,,$20000,],[$Cost of sales,,$650000,],[$Rent income,,,$56875],[$Interest on fixed deposit,,,$7500],[$Telephone$,,18375,]]$

OSTADIO Assignment $-2024$ Semester $1$ ACN$200-$ ACCOUNTING FOR MANAGERS II Page $6$ of $8$

$\backslash$table$[[,$Fol.,Debit,Credit$],[$Interest on mortgage loan,,$90163,],[$Wages and salaries,,$157100,],[$Repairs and maintenance,,$12187,],[$Postage and stationery,$3750,,],[$Advertising$,11500,,],[$Credit losses,$11100,,],[,,1995337,1995337]]$

Adjustments at year$-$end:

According to a physical stocktake, the following was on hand on $31$ August $2023$:

Trading inventory, R$21000$

Postage and stationery, R$750$

Depreciation must be written off on vehicles at $25\%$ per annum according to the diminishing balance method. No vehicles were bought or sold during the financial year.

The following adjustments must be made to enforce the accrual concept:

Wages and salaries payable, R$8000.$

Telephone prepaid for September $2023,$ R$1800.$

Rent received in advance, R$2000.$

Accrued interest on fixed deposit, R$210.$

Create an allowance for credit losses to the amount of R$695.$

REQUIRED:

$3\mathrm{.}2\mathrm{.}1$ Explain the purpose of a pre$-$adjustment trial balance. Why is it important for a business's financial reporting process?

$3\mathrm{.}2\mathrm{.}2$ What is the impact of "Accumulated depreciation: Vehicles" account on the company's financial statements?

$3\mathrm{.}2\mathrm{.}3$ Evaluate the overall financial health of Muskadel Traders by analysing the adjusted balances and considering the year$-$end adjustments. Discuss any potential financial strengths or weaknesses that are evident from the adjustments.