GRADE 11 TEST ON ADJUSTMENTS

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FINANCIAL STATEMENTS (80 marks; 48 minutes)

You are provided with information relating to BB Spaza, which is owned by Mrs Buthalezi.

Required:
1. Prepare the Income Statement for the year ended 28 February 20.8. (35)
2. Prepare the following notes to the Financial Statements:
2.1 Fixed assets (19)
2.2 Trade and other receivables (13)
2.3 Trade and other payables (13)

TRIAL BALANCE OF BB SPAZA AS AT 28 FEBRUARY 20.8

Balance Sheet accounts section Debit Credit
Capital 220 000
Drawings 35 500
Loan XB Lenders 37 400
Bank overdraft 36 240
Fixed deposit: Absa (6.5 % p.a.) 18 000
Fixed deposit: Nedbank (5% p.a.) 15 000
Cash float 900
Land and buildings 146 500
Trading stock 92 500
Debtors control 73 500
Creditors control 45 000
SARS (PAYE) 460
Provision for bad debts 3 300
Equipment 100 000
Accumulated depreciation on equipment 35 000
Creditors for salaries and wages 4 100
Nominal accounts section
Sales 969 000
Cost of sales 680 000
Pension contributions 5 300
Bank charges 3 700
Stationery 6 500
Salaries and wages 164 500
Rent income 18 000
Advertising 4 500
Bad debts 1 600
Sundry expenses 26 200
Interest on fixed deposit (Nedbank) 875
Commission income 4 825
1 374 200 1 374 200
Adjustments and other information:

1. Ms Buthelezi took trading stock for personal use. The price tag on the goods reflected R2 250. The mark-
up is 50% on cost. As yet no entry has been made in respect of this.

2. On 28 February 20.8 inventories were counted and the following were valued at cost:
Merchandise R90 000; Stationery R750. Make the necessary adjustments.

3. In December 20.7 an amount of R28 200 was paid to Woza CC to extend the building (R26 000) and to
repair the roof (R2 200). The entire amount was debited to Land and buildings in error.

4. A new filing cabinet for the office costing R4 000 was purchased on 1 December 20.7 and was in error
debited to the sundry expenses account. Correct the error.

5. In addition old office equipment was sold on credit for R2 000 on 1 December 20.7. This equipment
originally cost R10 000 and the accumulated depreciation on it at 28 February 20.7 was R7 600. The
bookkeeper has made no entry for this transaction. The business depreciates equipment at 20% on
diminishing balance. Make the necessary adjustments to record the disposal and to bring depreciation for
the year into account.

6. The fixed deposit at Absa was made on 1 January 20.8 and will mature on 31 December 20.8. No interest
has yet been received. Interest on this investment is not capitalised.

7. According to the fixed deposit statement interest on the fixed deposit at Nedbank has already been
received for the period 1 February 20.8 to 30 April 20.8. This fixed deposit will mature on 30 June 20.8.
Interest on this investment is not capitalised.

8. Interest on the loan is capitalised but has not yet been entered. The loan statement from XB Lenders
reflects:
Balance on 1 March 20.7 R50 000
Loan repayments during the year (R1 050 x 12) R12 600
Balance on 28 February 20.8 R44 000
Over the next financial year the loan will reduce by R6 000.

9. Advertising includes an amount of R2 700 paid for six advertisements in the Daily News newspaper. By 28
February 20.8 only three of these adverts had appeared in the newspaper.

10. The Salaries Journal for February 20.8 has not yet been posted to the General Ledger. Neither the amount
due to SARS for PAYE nor the amount due to the Pension Fund has yet been finalised or paid. Totals in
the Salaries Journal:
Gross salaries R15 500;
PAYE deduction R4 360;
Pension deduction R1 720;
The business contributes on a Rand-for-Rand basis to the pension fund.

11. The debtors’ account of D. Gilks, R600, must be written off and the provision for bad debts must be
adjusted to R3 000.

12. Interest on overdraft for February 20.8, R570, has not been entered.
 GRADE 11 TEST ON ADJUSTMENTS
MEMO

FINANCIAL STATEMENTS (80 marks; 48 minutes)

BB SPAZA
INCOME STATEMENT FOR YEAR ENDED 28 FEBRUARY 20.8
Note
Sales [969 000] 969 000
Cost of sales [680 000] (680 000)
Gross profit 289 000 
Other operating income 23 125 
Rent Income [18 000] 18 000
Commission income [4 825] 4 825
Provision for bad debts adjustment 300 
Gross operating income 312 125
Operating expenses (240 340) 
Pension contributions [5 300 + 1 720] 7 020 
Bank charges [3 700] 3 700
Stationery [6 500 – 750] 5 750 
Salaries and wages [164 500 + 15 500] 180 000 
Advertising [4 500 – 1 350 (1)] 3 150 
Bad debt [1 600 + 600] 2 200 
Sundry expenses [26 200 + 2 200 (2) - 4 000] 24 400 
Trading stock deficit [92 500 – 1 500 – 90 000] 1 000 
Depreciation [360 + 12 520 + 200] (3) 13 080 
Loss on sale of asset [10 000 – 7960 – 2 000] (4) 40 
Operating profit / loss 71 785 
Interest income [875 + 195 (5) – 125 (6)] 945 
Profit / loss before interest expense/financing cost 72 730 
Interest expense/financing cost [6 600 (7) + 570] (7 170) 
Net profit / loss for the year 65 560 
(35)

2.1 Tangible assets / Fixed assets

Land &
Equipment
Buildings
Carrying value at beginning of year 118 300  65 000 
Cost 144 300 – 26 000 118 300 100 000 
Accumulated depreciation - (35 000) 
Movements 26 000 (11 120)
Additions at cost 26 000  4 000 
Disposals at carrying value (4) - (2 040) 
Depreciation for the year [360 + 12 520 + 200] (3) - (13 080) 
Carrying value at end of year 144 300  53 880 
Cost 146 500 – 2 200 (2) 144 300 94 000 
Accumulated depreciation 0 (40 120) 
(19)
2.2 Trade and other receivables

Trade and other receivables

Net trade debtors: 71 900
Trade debtors [73 500 + 2 000 – 600] 74 900
Provision for bad debts [3 300 – 300]   (3 000)
Accrued income 195 (5)
Expenses prepaid 1 350 (1)
73 445
(13)
2.3 Trade and other payables

Creditors control 45 000

Income received in advance 125 (6)
Current portion of loan 6 000
SARS (PAYE) [460 + 4 360] 4 820
Pension Fund [620 + 1 720 + 1 720] 4 060
Creditors for salaries [4 100 + 9 420] 13 520
73 525
(13)
1. 2 700 X 3/6 = R1 350
2. Can be shown separately as repairs
3. Equipment sold: (10 000 – 7 600) X 20% X 9/12 = R360
New equipment: 4 000 X 20% X 3/12 = R200
Old equipment: (65 000 – 2 400) X 20% = R12 520
4. 10 000 – (7600 + 360) = R2 040 Book value
2 040 – 2 000 (selling price) = R40 loss on sale
5. 18 000 X 6.5% X 2/12 = R195
6. 15 000 X 5% X 2/12 (March and April) = R125
7. 50 000 – 12 600 – 44 000 = R6 600
 GRADE 11 TEST ON ADJUSTMENTS
ANSWER BOOK

FINANCIAL STATEMENTS (80 marks; 48 minutes)

1 BB SPAZA
INCOME STATEMENT FOR YEAR ENDED 28 FEBRUARY 20.9
Note
Sales 969 000

Cost of sales (680 000)

Gross profit

Other operating income

Rent income 18 000

Commission income 5 325

Gross operating income

Operating expenses

Pension contributions [5 300

Bank charges 3 700

Stationery [6 500

Salaries and wages [164 500

Advertising [4 500

Bad debt [1 600

Sundry expenses [26 200

Operating profit

Interest income [875

Profit before interest expense/financing cost

Interest expense/financing cost [6 600

Net profit for the year

(35)
 NOTES TO THE FINANCIAL STATEMENTS ON 28 FEBRUARY 20.9
2.1 Tangible assets / Fixed assets
Land &
Equipment
Buildings

Carrying value at beginning of year

Cost

Accumulated depreciation

Movements

Additions at cost

Disposals at carrying value

Depreciation for the year

Carrying value at end of year

Cost

Accumulated depreciation
(19)
2.2 Trade and other receivables
Trade and other receivables
Net trade debtors:

Trade debtors [73 500

Provision for bad debts [3 300

(13)
2.3 Trade and other payables

Creditors control 45 000

(13)