HFAC130-1-Financial Accounting Analysis - Accounting & Finance Assignment Help

Assignment Task

Task 

The following learning outcomes are assessed:

Reference: Chapter 11

• Understand what is meant by property, plant and equipment.
• Know when to record the purchase and disposal of property, plant and equipment.
• Understand what the term “depreciation” means and how to calculate depreciation.
• Record further expenditure that may be incurred on items of property, plant and equipment once they have been purchased.
• Present information about the property, plant and equipment in the annual financial statements in terms of generally accepted accounting practice.

Reference: Chapter 10, page 337- 350.

• Record credit transactions between a business and its customers (debtors).
• Understand why an accounting system that records transactions with each customer individually is needed.
• Prepare the transactions to record bad debt.
• Understand how to manage the components of working capital.

Reference: Chapter 9

• Understand why a business would purchase on credit.
• Understand why an accounting system that records transactions with each individual supplier is needed.
• Record credit transactions between a business and its supplier.
• Maintain a Trade payables ledger and extract a list of its individual credit balances.
• Prepare a reconciliation between the Trade Payables account in the general ledger and the list of creditors.
• Understand the relationship between the creditor’s account in the Trade payables ledger and the creditor’s statement.
• Understand why the balance of the creditor’s account in the Trade payables ledger can differ from the balance on the statement received from the creditor.
• Prepare a creditors reconciliation between the creditor’s statement and the creditor’s subsidiary ledger.

Reference: Chapter 11

• Understand what is meant by property, plant and equipment.
• Know when to record the purchase and disposal of property, plant and equipment.
• Understand what the term “depreciation” means and how to calculate depreciation.
• Understand what the residual value is
• Understand when PPE is recognized

QUESTION 1
Bestie Books Ltd is a publisher and distributor of textbooks for schools and universities. They have a 31 December year end. Below is the trial balance of Bestie Books
Ltd at 31 December 2020.

The residual value of all assets is zero.
The following are the transactions that occurred during the financial year ended 31 December 2021:

1. The land was purchased by Bestie Books Ltd on the 1 July 2020 with the intention of building their own offices on the property in the future. The purchase price was R800 000. On 2 January 2021, the fair value of the land was determined to be R1 300 000.
2. Office equipment with a cost price of R40 000 was disposed of on the 1 July for R25 000. The office equipment was originally purchased on the 1 January 2018. No other additions or disposals of office equipment occurred during the year. On the 31 December 2021, the remaining office equipment had a value in use of R175 000 and fair value less cost to sell of R170 000.
3. Bestie Books Ltd owns three industrial printing machines that were all purchased on the 1 January 2018 for the same cost price of R108 000 each. The three machines were modified on the 1 October 2021 in order to allow them to have embossed printing functionalities as this is what many customers were requesting especially for the front cover of their books. The cost of the modification parts was R27 000 for each machine and will last as long as the machines’ remaining useful lives On the 1 December 2021, the company has serviced the three machines at a cost of R10 500 each. Servicing costs are incurred by the company every year to ensure that the machines operate as expected. There were no other modification/additions or disposals to machinery during the year.
4. Bestie Books Ltd has one vehicle. The vehicle was purchased on 1 January 2019.

REQUIRED:
Prepare the PPE reconciliation note at 31 December 2021.
Show all workings clearly.
The total column is not required. The notes on the accounting policy are not required.
Assume all assets are used from their respective purchase dates.

The mark allocation is as follows:

• Land 
• Office Equipment 
• Machinery 
• Vehicles 

QUESTION 2 
Doors and Floors Ltd is a retailer of furniture and fittings who allows customers to buy on credit. The following information pertains to Doors and Floors for the year ended 31 March 2021:
Extract from the pre-adjusted trial balance of Doors and Floors as at 31 March 2021
Trade receivables                  1 560 000
Allowance for doubtful debts 156 000

The following are policies of Doors and Floors Ltd:

• Doors and Floors Ltd has a policy to provide an allowance for bad debts of 10%  of their trade receivable balance.
• It is Doors and Floors Ltd’s policy to reinstate debtors who were previously written off if they repay their debts thereafter.

The following additional information relates to the trade receivable cycle that were not taken into account in the accounting records for the 2021 financial year:
1. A debtor, Mr X. Huang who had debt of R6 700 was untraceable. It was thus decided to write off his debt as irrecoverable.
2. A credit note of R2 500 for goods returned had been incorrectly entered in the records on 15 March 2021 as if it were an invoice.
3. A credit sale to debtor, Mr D. Barry amounting to R750 was recorded incorrectly to debtor, Mr P. Barnard in the Debtors’ Ledger on 18 March 2021.
4. The March 2021 bank statement reflected a dishonoured (R/D) cheque for an amount of R35 400. This cheque had been received on 3 March 2021 from debtor
Mrs L. Singh and had been deposited in the bank account on the same day and correctly recorded in the cash receipts journal on that day.
5. A settlement discount of R1 800 had been completely omitted from the records.
6. On 25 March 2021, an amount of R6 700 was received by Mr X. Huang. Mr X.
Huang explained that he was visiting his remote hometown in China and had completely forgotten about his debt owed and remembered only once returned.

7. Debtor, Mrs T. Zolani was declared insolvent during 2021. The total debt owed by her on 31 March 2021 was R38 600. Mrs T. Zolani’s lawyer confirmed that Doors and Floors Ltd would receive 15c for each Rand owed. On 31 March 2021, a payment was received from Mrs T. Zolani’s lawyer. The remainder of Mr T. Zolani’s debt was written off as irrecoverable.

8. A credit sale transaction of R43 500 and a sales return transaction of R 7 900 that occurred on the 31 March 2021 was omitted from the respective journals.

REQUIRED:
2.1 Prepare the Trade Receivables account in the General Ledger. Show all workings. Ignore VAT. (27 Marks)
2.2 There are risks to investing in working capital. State what the consequences are to the risks mentioned below:
2.2.1 Where criteria for deciding whether to allow customers to purchase on credit are too strict.
2.2.2 Where levels of inventory are too high.
2.2.3 Where cash levels are too high.

QUESTION 3 
Twinkle (Pty) Ltd is a retailer of various types of fashionable jewellery and they use the perpetual method to record inventory. The Accountant of Twinkle (Pty) Ltd who prepared the accounting records for the company was not able to reconcile the trade payables control account in the general ledger to the list of creditors at 31 December 2021.

The following balances are provided at 31 December 2021:
The trade payable control account in the general ledger: 143 500
The listing of individual creditors in creditors' ledger:        156 800
All totals in specialised journals (journals of prime entry) were posted at 31 December 2021.

Investigations revealed the following additional information:
1. A payment of R57 250 made to a certain creditor (Dainty Diamonds) was totally omitted from all the accounting records.
2. The Accountant posted the total column in the purchases journal for December amounting to R97 300 as R79 300.

3. Goods to the value of R13 600 was returned to the supplier (Jolly Gems) and a credit note received. The credit note is correct in the purchases return journal but has not been recorded in the creditors account in the creditors’ ledger.

4. A balance of R5 300 owing to creditor (Silver & Stones) was incorrectly listed in the creditors’ ledger as R3 500.

5. A creditor who was paid on 31 December 2021 was correctly displaying with a zero balance in the creditors’ ledger, however the accountant omitted to make the payment entry of R17 900 in the cash payments journal.

6. A duplicate payment for Invoice#67 (R8 600) made in the cash payments journal was identified when the creditor (Charm Me) notified Twinkle (Pty) Ltd that they received payment for the same invoice twice. Charm Me refunded Twinkle Ltd on the 27 December 2021 with R 8 600 since Invoice#67 was the only purchase made from them. The refund was correctly recorded in the cash receipt journal and the accounts payable account updated accordingly. The refund however was not updated in the creditor’s ledger resulting is the creditor reflecting a negative balance. 

7. A creditor, Quality Crystals, who is owed R10 000 at 31 December 2021 was listed twice in the creditors’ ledger.

8. Twinkle (Pty) has only one director (owner). A creditor who is a neighbour of the owner was paid in cash of R2 900 out of the owner’s personal account. No  entry of the payment was made in any records.

9. One creditor whose account of R7 200 from 1 July 2021, was still owing after six months, was charged interest on the overdue account at 10% p.a. The interest was charged only after 30 days of the amount being owed. No entries have been made to account for the interest. No other creditor charged any interest.

10.The bank statement for December indicated that a payment for creditor, Statement Chains, was erroneously paid into the account of another entity with a similar bank account number.

REQUIRED:
Prepare the Trade Payables account in the General Ledger as well as a reconciliation of the Trade Payables account to the Creditor’s Ledger. Show all workings. Ignore VAT.

QUESTION 4 
Gear Goals is a local manufacturer of sports equipment. The entity’s current year ended on 31 December 2021. The following information relates to a new machine acquired during the year in order to manufacture soccer balls:

1 February: The machine was purchased FOB destination point from an overseas supplier for R40 000 USD. The destination was Gear Goals’s premises. The exchange rate on the 1 February 2021 was 1 USD: R15.10. The payment for the machine was made on this day.

28 February: The machinery arrived at the premises of Gear Goals.

1 March: The machinery was installed and installation fees paid amounted to R6
000. The machine was then brought into use on this day when the manufacturing of soccer balls commenced.
The machinery has a useful life of 5 years and is depreciated using a straight line basis. It was estimated that the residual value of the machine is R10 000.

REQUIRED:

• Prepare the general journal entries of Gear Goals for the year ended 31 December 2021
• to account for the machine. Ignore closing off journals. Show all dates and workings.

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