Question 6.4

Question

SBJ Distributors had the following balances in their records at the end of their reporting period, 28 February 20.24.
Adjustment no.
Debit
R Credit
R
Land and Buildings 750 000
Investments 100 000
Furniture at carrying amount 1 80 000
Receivables 25 000
Bank 73 000
Capital 689 000
Sales 508 000
Purchases 132 400
Sales Returns 12 000
Rent income 7 168 000
Wages & Salaries 6 124 600
Cleaning materials 3 8 000
Sundry expenses 9 000
Interest income 2 18 000
Insurance expense 4 9 000
Inventories 01/03/20.23 5 50 000
Drawings 10 000
1 383 000 1 383 000

Additional information:
1. No depreciation has yet been written of for the year. It is the entity’s policy to write off depreciation on furniture at 20% per annum on the diminishing balance method.
2. The investment was made for a full year, but interest was received for only nine months.
3. Cleaning materials worth R5 000 were on hand 28 February 20.24.
4. At the end of the period R 1 000 was owed on insurance premiums.
5. Inventory on 28 February 20.24 amounted to R 39 000.
6. Wages and salaries include an amount of R 4 000 which was lent to an employee. The amount will be repaid during March 20.24.
7. Rent Income, R 168 000, includes R 24 000 for the first two months of the next financial period (February 20.25).
8. Ignore Value Added Tax (VAT) for the question.

REQUIRED:

a) The statement of profit or loss for the year ending 28 February 20.24
b) The statement of changes in equity for the year ended 28 February 20.24
c) The statement of financial position as at 28 February 20.24

Answer 1

a) Statement of Profit or Loss for the year ending 28 February 20.24:

Sales: 508 000
Less: Sales Returns: (12 000)
Net Sales: 496 000

Rent Income: 168 000
Interest Income: 18 000

Total Revenue: 682 000

Cost of Goods Sold:
Purchases: 132 400
Add: Opening Inventory: 50 000
Less: Closing Inventory: (39 000)
Cost of Goods Sold: 143 400

Gross Profit: 538 600

Operating Expenses:
Wages & Salaries: 124 600
Less: Amount lent to employee: (4 000)
Net Wages & Salaries: 120 600
Cleaning Materials: 8 000
Insurance Expense: 9 000
Sundry Expenses: 9 000

Total Operating Expenses: 146 600

Net Profit before Depreciation & Interest: 392 000

Depreciation Expense (20% on Furniture): 16 000

Net Profit before Interest: 376 000

Interest Expense: 0 (Assuming no interest was paid)

Net Profit after Interest: 376 000

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

Capital at beginning of year: 689 000
Add: Net Profit: 376 000
Less: Drawings: (10 000)

Capital at end of year: 1 055 000

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

Assets:
Land and Buildings: 750 000
Investments: 100 000
Furniture at carrying amount: 96 000
Receivables: 25 000
Bank: 73 000
Total Assets: 1 044 000

Liabilities:
Capital: 1 055 000

Equity & Liabilities: 1 055 000