Macsun Traders is a sole proprietor trading in solar appliances. On 28 February 20.24, the end of the reporting period, the following balances appeared in the records of Macsun Traders:

Question

Note
No Debit
R Credit
R
Capital 2 863 563
Drawings 26 000
Bank 787 455
9% Long term loan at 28 February 20.24 7 360 000
Land and buildings at cost 1 2 500 000
Furniture and equipment at cost 2 & 3 260 000
Trade and other payables 320 000
Trade and other receivables 4 250 000
Interest paid on long term loan 33 600
Accumulated depreciation:
-Furniture and equipment (1 March 20.23) 3 101 563
Inventory 165 000
Sales 1 180 000
Cost of sales 472 000
Fuel 162 571
Salaries 5 188 000
Rent income 7 19 500
4 844 626 4 844 626

Additional information:
1. Land and buildings were purchased on 1 March 20.20 and serves as security for the long-term loan.
2. The furniture and equipment were acquired on 1 September 20.20 at a cost of R200 000. New furniture was purchased on 1 June 20.23 for R60 000 and correctly recorded in the accounting records. Import duties relating to the purchase of the new furniture amounting to R5 600 was erroneously debited to the fuel account.
 
3. Depreciation should be provided for as follows:
• Furniture and equipment at 25% per annum on the diminishing balance method.
• Land and buildings are not subjected to depreciation.
4. Trade receivables to the value of R34 200 should be written off as irrecoverable.
5. A Salary of R10 000 for February 20.24 is still due to the sales assistant.
6. Rent for the storeroom was received for 13 months till the end of March 20.24.
7. The long-term loan was registered on 1 March 20.22 and is repayable in ten equal annual instalments from 1 October 20.24.
8. Ignore Value Added Tax (VAT) for the question.

REQUIRED:

a) Journalise the necessary adjustments for the year ending 28 February 20.24 (omit narrations).
b) The statement of profit or loss for the year ending 28 February 20.24
c) The statement of changes in equity for the year ended 28 February 20.24
d) The statement of financial position as at 28 February 20.24

Answer 1

a) Journal Entries for Adjustments:

1. Adjusting the Furniture and Equipment Cost:
Dr. Furniture and Equipment 5,600
Cr. Fuel 5,600

2. Recording Depreciation:
Dr. Depreciation Expense (Furniture and Equipment) 148,438
Cr. Accumulated Depreciation 148,438

3. Writing off Trade Receivables:
Dr. Bad Debts Expense 34,200
Cr. Trade Receivables 34,200

4. Accrued Salary Expense:
Dr. Salary Expense 10,000
Cr. Trade and Other Payables 10,000

5. Recording Rent Income for next year:
Dr. Bank 19,500
Cr. Rent Income 19,500

b) Statement of Profit or Loss for the year ending 28 February 20.24:
Revenue:
Sales 1,180,000
Rent Income 19,500
Total Revenue 1,199,500

Cost of Sales (472,000)
Fuel Expense (162,571)
Salaries Expense (188,000)
Depreciation Expense (148,438)
Bad Debts Expense (34,200)
Total Expenses (1,005,209)

Net Profit 194,291

c) Statement of Changes in Equity for the year ended 28 February 20.24:

Capital at 1 March 20.23 2,863,563
Add: Net Profit 194,291
Less: Drawings (26,000)
Capital at 28 February 20.24 3,031,854

d) Statement of Financial Position as at 28 February 20.24:

Assets:
Bank 787,455
Inventory 165,000
Land and Buildings 2,500,000
Furniture and Equipment 214,600 (260,000 - 45,400)
Total Assets 3,667,055

Equity and Liabilities:
Capital 3,031,854
Long Term Loan 360,000
Trade and Other Payables 296,800 (320,000 - 23,200)
Total Equity and Liabilities 3,688,654