QUESTION 1 The following information was obtained from the accounting records of
ID: 2337230 • Letter: Q
Question
QUESTION 1
The following information was obtained from the accounting records of Williams Limited, a distribution of vehicle motor parts:
WILLIAMS LIMITED
TRIAL BALANCE ON 31 DECEMBER 20.11
DEBIT R
CREDIT R Declared capital: 150 000 ordinary shares without par value 2 325 000 12% Preference shares capital: 200 000 shares at R1 each 200 000 Retained earnings (1 January 20.11) 1 320 000 General reserve (1 January 20.11) 418 700 8% Mortgage loan from Investec 1 500 000 Trade creditors 10 000 Land and buildings (at cost) 2 800 000 Office equipment (at cost) 280 000 Delivery vehicles (at cost) 1 200 000 Accumulated depreciation on office equipment 122 500 Accumulated depreciation on delivery vehicles 480 000 Trade debtors 977 500 Allowance for credit losses (1 January 20.11) 52 000 Inventory 920 000 Cash and cash equivalents 1 100 000 SARS: normal tax (provisional tax payments) 201 000 Sales 5 700 000 Cost of sales 3 800 000 Distribution expenses 303 000 Administrative expenses 324 000 Other operating expenses 102 700 interest on mortgage loan paid 120 000
Additional information and adjustments:
1. The company’s authorised share capital consists of: 500 000 ordinary shares with no par value 200 000 12% preference shares at R1 par value. 2. On 1 December 20.11, the directors of the company decided to use their general authorisation to issue shares by issuing the following shares to the public: 100 000 ordinary shares at R1.50 each.
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300 000 12% preference shares at par value. This was the only share issue during the year and has not yet been recorded.
3. Annual depreciation has not yet been provided for. The company’s accounting policy states that depreciation is written off as follows: Office equipment 25% dminishing balance method Delivery vehicles 25% straight-line method The company does not provide for depreciation on land and buildings. Office equipment exclusively used for administrative purposes and delivery vehicles used in the distribution of vehicle parts. The company did not purchase or dispose of any office or delivery vehicles during the year.
4. The company purchased land and buildings (stand 34, Sandton) in 2009 for R2 800 000 by taking out a mortgage loan from Investec. The company’s accounting policy states that land and buildings should be revalued. Mr Damon Hill, a sworn appraiser, revalued the land and buildings for the first time on 31 December 20.11 at a fair value of R3 500 000. No entries pertaining to the revaluation have been recorded. 5. Interest on the mortgage loan of R120 000 was calculated correctly and has already been paid. 6. The company’s credit controller, Mr Juan Montoya, performed an analysis of the company’s debtors on 31 December 20.11. The analysis indicated that R102 000 of the outstanding debtors are expected not to be recoverable. The allowance for credit losses should be adjusted accordingly. Credit losses are considered part of the operating expenses. 7. The shareholders approved a final ordinary dividend of 50c per share 0n 31 December 20.11. 8. It was decided on 31 December 20.11 to transfer a further R11 300 to the general reserve. This transaction has not yet been recorded. The normal income tax rate is currently 28% and the rate for withholding tax on dividends (dividend tax) is 15%. Required: (comparative amounts are not required.)
Prepare the following in accordance with the requirements of International Financial Reporting Standards (IFRS) and the Companies Act (71 of 2008):
(a) Statement of profit or loss and other comprehensive income for the year ended 31 December 20.11 according to function of expenses. (b) Statement of changes in equity for the year ended 31 December 20.11. (c) Disclose the note for Property, plant and equipment note for the year ended 31 December 20.11.to comply with the requirements of IFRS and Companies Act.
Explanation / Answer
a Statement of Profit and loss and other comprehensive income Account Titles Amount R Sales 5,700,000 Cost of sales 3,800,000 Gross Profit 1,900,000 Operating Expenses: Distribution Expenses 603,000 Administrative Expenses 363,375 Other operating expenses 204,700 Total Operating expenses 1,171,075 Operating Profit 728,925 Non-operating expenses: Interest on Mortgage loan 120,000 Profit Before Tax 608,925 Tax @ 28% 170,499 Profit after tax 438,426 Transfer to general reserve 11,300 Net profit 427,126 Working Note: Depreciation on Office Equipment Office equipment at cost 280,000 Less: Accumulated Depreciation 122,500 Office equipment net 157,500 Depreciation @ 25% 39,375 Administrative expenses 324,000 Add: Depreciation on office equipment 39,375 total 363,375 Depreciation on Delivery Vehicles Delivery Vehicles at cost 1,200,000 Depreciation @ 25% 300,000 Distribution expenses 303,000 Add: Depreciation on delivery vehicles 300,000 total 603,000 Other Operating expenses 102,700 Add: Provision for uncollectible receivables 102,000 Total 204,700 b Statement for Changes In Equity Ordinary Shares Preference Shares Retained Earnings Revaluation Reserve General Reserve Total Opening Balance 2,325,000 200,000 1,320,000 3,845,000 Add: - Additional Capital Issued during the year 150,000 300,000 450,000 Revaluation reserve created 700,000 700,000 General reserve Created 11,300 11,300 Net Profit 427,126 427,126 Less: - Dividend Declared on Ordinary shares (125,000) (125,000) Dividend on Preference Shares (60,000) (60,000) Total 2,475,000 500,000 1,562,126 700,000 11,300 5,248,426 c Disclosure note on Property, plant and equipment Land and Building Land and Building is stated at fair value. Fair value is done for the first time as per the accounting policies. Fair valuation is done by independent appraiser. Office Equipment and Delivery Vehicles Office Equipment and Delivery Vehicles is stated at cost less accumulated depreciation
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