Question
The following information pertains to The Roses CC and covers questions 1 9: David and Patrick are the only members of a Close Corporation trading
The following information pertains to The Roses CC and covers questions 1 9:
David and Patrick are the only members of a Close Corporation trading as The Roses CC (Roses CC). They both have an equal interest of 50% each in the CC. The CC has a 28 February financial year-end.
You have been appointed by Roses CC as the accounting officer for the year ended 28 February 2023.The following information was presented to you by the CCs accountant:
The Roses CC
EXTRACT OF BALANCES AS AT 28 February 2023:
The Roses CC | R |
Member contribution:David | 180000 |
Member contribution:Patrick | 240000 |
Loan from David | 60000 |
SARS (Dr) | 6240 |
Allowance for credit losses | 2400 |
Inventory (01 March 2022) | 72000 |
Long-term loan : Redbank | 134400 |
Prepaid expenses | 4920 |
Accrued expenses | 6480 |
Sales | 648000 |
Sales return | 22800 |
Purchases | 238800 |
Delivery expenses on Sales | 5904 |
Depreciation | 5184 |
Rental income | 6540 |
Purchases returns | 4980 |
Salaries and wages | 283692 |
Land and buildings at cost | 576000 |
Debtors control | 39600 |
Interest on loan from member | ? |
Telephone expense | 7680 |
Stationery | 3960 |
Water and electricity | 8580 |
Advertising expense | 5160 |
Insurance expense | ? |
Additional information:
Extract from the members arrangement:
1.Patrick and David are entitled to a monthly salary of R6 000 each. Patrick as the managing members is entitled to an additional amount of R12 000 per annum.
Year-end adjustments:
1.The allowance for credit losses must be adjusted to R5 760.Mr Johny a debtor who owe the business R1 300 was declared insolvent and must be written off as irrecoverable.
2.Inventory on hand on 28 February 2023 amounted to R82 000
3.The partners salaries were paid during the year and are included in salaries and wages amount.
4.On 15 August 2022 Roses CC entered into an insurance contract with Orange Insurance. The policy came into effect from the 1 September 2023 at a premium of R1200 per month. A total of R15 000 was paid to Orange by the CC as insurance premium. No entries have been made in the books of The Roses regarding the premiums.
5.On 30 November 2022, a profit distribution of R40 000 was made to each member of the close corporation. These amounts should be regarded as loans from members with interest charged and capitalised at 10% per annum. This transaction is yet to be accounted for.
6.Interest on the mortgage from City Bank at 18% per annum must still be considered. The interest is payable on 1 March 2023. The mortgage was obtained on 1 September 2022 and is secured by a first mortgage over land and buildings. The mortgage is repayable in five equal instalments as from 31 March 2024.
Rounds off all amounts to the nearest rand.
PART A
QUESTION 1
Which alternative represents the correct amount for revenue in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
R625 200
B.
R648 000
C.
R670 800
D.
R650 000
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Question 2
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Which alternative represents the correct amount for cost of sales in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
R228 800
B.
R305 820
C.
R392 800
D.
R223 820
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Question 3
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Which alternative represents the correct amount for salaries and wages in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
R427 692
B.
R283 692
C.
R127 692
D.
R139 692
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Question 4
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Which alternative represents the correct amount for Members remuneration in the statement of profit or loss and other comprehensive income of The Rose CC for the year ended 28 February 2023?
A.
R144 000
B.
R156 000
C.
R84 000
D.
R200 000
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Question 5
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Which alternative represents the correct amount to adjust credit losses in the statement of profit or loss and other comprehensive income of The Roses for the year ended 28 February 2023?
A.
R4 660
B.
R5 760
C.
R 2 400
D.
R2 000
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Question 6
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Which alternative represents the correct amount for Insurance expense in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
R 7 800
B.
R7 200
C.
R15 000
D.
R1 200
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Question 7
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Which alternative represents the correct amount for interest on loan from Members in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
R8 000
B.
R2 400
C.
R3 000
D.
R2 000
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Question 8
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Which alternative represents the correct amount for interest on loan from Redbank in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
R12 096
B.
R24 192
C.
R14 112
D.
R5 880
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Question 9
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Which alternative represents the correct accounting treatment of carriage on sales amount in the statement of profit or loss and other comprehensive income of The Roses CC for the year ended 28 February 2023?
A.
Deducted from revenue amount.
B.
Deducted from cost of sales amount.
C.
Added to the settlement discount granted.
D.
Disclosed as an expense under distribution, administrative and other expenses.
E.
Added to the cost of sales amount.
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Question 10
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Which of the following journal entries is correct for recording the provision of distribution of total comprehensive income to members of a Close Corporation?
A.
Debit Bank; Credit- Distribution to members
B.
Debit- Distribution to Members; Credit- Distribution to Members payable
C.
Debit - Distribution to Members; Credit- Retained earnings.
D.
Debit Distribution to members payable; Credit - Distribution to Members
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Question 11
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Which of the following statements is/are True?
A.
A close corporation may have one to a maximum of ten members, all of whom are usually natural persons.
B.
A close corporation may continue to operate under its registered name, irrespective of changes in its membership.
C.
A member shall be liable to the close corporation for loss caused by him if such a member failed to act with the degree of care and skill that might be reasonable expected from that person.
D.
All of the above
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