HFAC1311 - Financial Accounting Principles, Concepts and Procedures Assignment

Assignment Task

Question

1. Ms. Smith opened a vibrant bookstore in September 2022, situated in the heart of Cape Town, named "Smith's Reading Den". The bookstore has a financial yearend of 31 August.

You have been provided with a trial balance for Smith's Reading Den spanning from 1 September 2022 up until 31 July 2023.

Smith's Reading Den Trial Balance as at 31 July 2023:

During the month of August, the following transactions took place and must still be accounted for:

• 01 August 2023: Ms. Smith deposited an additional R100 000 into the business bank account. On the same day, she secured a loan of R80 000 from a local bank.
• 02 August 2023: Signed a two-year lease for the shop space, costing R20 000 per month. Ms. Smith immediately paid the rent for August and an additional R20 000 as a security deposit, totaling a payment of R40 000.
• 03 August 2023: Ms. Smith hired Mr. Mkhize as the store manager, with an agreed monthly salary of R22 000, which is due on the 25th of every month.
• 05 August 2023: Purchased books for R65 000 cash from "Literary Distributors Inc."
•  06 August 2023: Obtained office supplies on credit, valued at R4 000, from "Office Essentials Ltd."
•  07 August 2023: Ordered books from "Bookworld Ltd" on credit. The total cost of the books was R95 000.
• 11 August 2023: Smith's Reading Den made a sale to "Elite Schools Ltd." on credit, invoicing them R40 000 for books that originally cost the store R28 000.
• 25 August 2023: Mr. Mkhize's monthly salary of R22 000 for August was disbursed.
• 31 August 2023: To enhance the customer checkout experience, a new point-ofsale system was purchased for R45 000. An upfront payment of R20 000 was made, with the remaining R25 000 to be settled in four equal monthly instalments.
• 31 August 2023: The point-of-sales system showed a total amount of cash sales achieved during the month amounting to R33 600. The books that were sold had been initially acquired for R24 000.
• 31 August 2023: Invested in the store's ambiance by buying bookshelves and seating arrangements, which cost R55 000 in cash.
• 31 August 2023: Utility bills for the month, amounting to R4 500, were paid.
• 31 August 2023: A debtor, "Elite Schools Ltd.", made a payment, settling 80% of their outstanding credit amount.
• 31 August 2023: Smith's Reading Den made a payment of 75% to "Bookworld Ltd" as part-payment for the books that were previously purchased on credit.
• 31 August 2023: Smith's Reading Den had R3 500 office supplies left that they would use in the future.

REQUIRED

1.1 Calculate the profit or loss for the month of August 2023.

1.2 Assume a loss of R27 900 was made during August 2023. Prepare the Statement of Financial Position for Smith's Reading Den for the financial year ending 31 August 2023.

2. ElectroShop Ltd. is a leading retailer of electronics in Cape Town. The company offers a wide range of electronics, from televisions to laptops. ElectroShop Ltd. has a financial yearend of 31 August 2024.

The following are the transactions for the month of April 2024:

1. ElectroShop procured 100 televisions at R5 000 each on credit. However, the company received a 10% discount for the bulk purchase from the supplier.

2. ElectroShop ran a promotion and sold 50 televisions for R7 000 each in cash. The cost of each television inventory item is R5 500.

3. ElectroShop decided to lease a new store space. They paid rent for 6 months in advance at R25 000 per month. The new store space will only be available from 1 July 2024.

4. ElectroShop received an electricity bill of R33 000 for February 2024, of which 10% constitutes interest charges for surpassing the agreed payment period. The company paid the full amount on 30 April 2024.

5. ElectroShop earned an interest of 4% on their fixed deposit of R500 000 for the month of April 2024.

6. Wages and salaries for the month amounted to R300 000, but only 90% has been paid. The rest will be paid next month.

7. ElectroShop sold 20 laptops on credit for R10 000 each. The cost of each laptop is R7 300.

REQUIRED

By using the accounting equation, record transactions 1-7 for ElectroShop Ltd. for April 2024. Indicate the impact of each transaction, by showing whether the element has increased or decreased. 

3. MegaBuild Inc. is a renowned construction company based in Durban. The company specialises in building luxury apartments and commercial spaces. MegaBuild Inc. has a financial yearend of 31 December. You have been provided with an extract trial balance for the 11 months ended 30 November 2024, as well as transactions for the month of December 2024.

An extract of the trial balance of MegaBuild Inc. as at 30 November 2024:

The following transactions took place during the month of December 2024:

1. MegaBuild secured a deal to construct a new 10-floor luxury apartment building. The client paid 20% of the total contract value of R25 000 000 as a down-payment to MegaBuild. Construction of the new 10-floor luxury apartment will only begin on 01 January 2025.

2. Construction materials were purchased on credit from BuildMart for R6 500 000. MegaBuild negotiated a 5% discount if the amount is paid within 15 days. The company paid 50% of the amount owed to BuildMart within the agreed time.

3. MegaBuild sold one of its older cranes for R800 000 cash. The crane originally cost R1 200 000 and had accumulated depreciation of R500 000 up to the date of sale.

4. On 1 December, Money Bank increased the loan to MegaBuild by a cash amount of R500 000. Interest on the loan is paid by MegaBuild on the last day of each month. The loan capital will be repaid in full on 31 December 2025. The loan was initially taken out on 1 January 2019.

5. MegaBuild earned a monthly rental income of R120 000 from one of the company’s commercial properties.

6. Salaries for the month totalled R2 000 000. However, 10% was deferred to be paid next month.

7. To bolster its operations, the company purchased a second-hand truck on 31 December 2024 for R750 000. A deposit of R250 000 was immediately made. The remaining R500 000 was financed through a loan from East Bank. The bank extended a 4-year loan at an annual interest rate of 7.2%.

REQUIRED

Prepare the following accounts in the General Ledger of MegaBuild Inc for the month of December 2024. Entry dates are not required, but ensure that the accounts are balanced and appropriately closed off:

• Bank Account 
• Loan Account 
• Interest Expense Account

4. New Horizons Ltd. is an electronic gadget retailer in Johannesburg, South Africa. The company has a 30 June financial yearend.

As the assistant accountant, you are presented with several transactions related to the month of June 2024 which must still be recorded:

1. New Horizons Ltd. agreed on a deal with TechHub Suppliers, obtaining inventory valued at R240 000. The payment terms were 2/10, n/30. By settling within 10 days, New Horizons Ltd. availed a 2% discount.

2. Sales were made on credit to Gadgets R Us, amounting to R400 000. These goods were procured at a cost of R220 000. Gadgets R Us later returned defective goods valued at R20 000 (original cost: R 10 000) and were issued credit note CN010 by New Horizons Ltd.

3. Bonuses for the year amounting to R160 000 were recognized. 10% of this sum remained unsettled at the month's end, which is due to be paid in the next financial year.

4. Moonlight Ltd, a debtor of New Horizons Ltd., declared bankruptcy, leaving an outstanding amount of R80 000. However, New Horizons Ltd. managed to recover R45 000 through Moonlight Ltd's legal representatives as a settlement.

5. New Horizons Ltd. entered into a six-month agreement with FastMove Logistics for product deliveries at a fixed monthly fee of R30 000, starting from 1 July 2024. An advance cash payment covering the entire 6-month period was made in June 2024.

6. A building was acquired for R2 000 000. A down payment of 15% was made, with the remaining amount financed through a loan from Invest Bank.

7. New Horizons Ltd. disposed of a vehicle, initially costing R100 000 and with accumulated depreciation of R30 000, for a cash consideration of R80 000. 8. An electricity rebill was received from the Municipality. As a result, New Horizons Ltd. recognized an additional annual electricity expense of R84 000 and paid just half of this adjusted amount.

REQUIRED

Prepare the general journal entries to document transactions 1 - 8 for New Horizons Ltd. for the financial year ending 30 June 2024. Please note that specific dates and detailed narratives are not necessary. 

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