FAC1601

Financial Accounting Reporting

 FAC1601
LECTURERS

Mr S Mnguni
Mrs B Ntoyanto-Ceki
Mr RN Ngcobo
Mr B Khanyeza

Tel No: 012 429 4176

E-mail: fac1601@unisa.ac.za
 FAC1601
FASSET CLASSES SCHEDULE

Wednesday: Introduction to the preparation of financial

12 May – 10:00 statements
Thursday
Financial statements of a sole trader
13 May – 19:00
Saturday Establishment and financial statements of a
15 May – 19:00 partnership
Sunday
Assessment preparation session
16 May – 12:00
Tuesday
Assessment 1
18 May – 00:00 – 23:59
 LEARNING UNIT 2

FINANCIAL STATEMENTS OF A SOLE PROPRIETOR

 FINANCIAL STATEMENTS OF A SOLE PROPRIETOR

CHARACTERISTICS

• Ownership by one person

This is owned by single person. The sole trader contributes the required
capital. He is not only the owner of the business but also manager of the
entire business affairs;
• Freedom of decision making
Since the individual is himself as a owner, there is no consultation required
with the co-owners and that improves decision making;
• Unlimited liability
The owner, in his/her personal capacity, is solely responsible for the debts
and liabilities of the business;;
• All the profit belongs to the owner
The success of the business rests with the owner and and he/she enjoys
all the benefits of his hard work.
 FINANCIAL STATEMENTS OF A SOLE PROPRIETOR

OVERVIEW:

The objective of financial statements is to provide information that is

useful in making economic decisions.
The International Accounting Standard (IAS) 1, objective is to ensure
comparability of presentation of that information with the entity's
financial statements of previous periods and with the financial
statements of other entities.
 FINANCIAL STATEMENTS OF A SOLE PROPRIETOR

Financial statements should comply with the requirements of IFRS;

A sole proprietor business is an accounting entity and not a legal entity;

A sole proprietor does not pay tax, the owner pay tax in their personal
capacity.
 FRAMEWORK OF THE STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME

NJOMANE TRADING STORE

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME FOR THE YEAR ENDED 28 FEBRUARY 20.9
R
Revenue 000
Cost of sales (000)
Gross profit 000
Other income 000
Profit on sale of office furniture 000
Distribution, administrative and other expenses (000)
Credit losses 000
Bank charges 000
Salaries and wages 000
Depreciation 000
Finance costs (000)
Interest on long-term loan 000
Profit for the year 000
Other comprehensive income for the year 000
Total comprehensive income for the year 000
Mr Njomane owns a corner grocery store trading as Njomane Traders. The
following information is extracted from the accounting records of the business at
31 December 20.8:

Sales R668 800

Cost of sales R236 100
Settlement discount granted R 23 100
Allowance for settlement discount granted R 15 000

Required:

Prepare the trading section in the statement of profit or loss and other
comprehensive income of Njomane Traders for the year ended 31 Dec 20.8.
The following information is extracted from the accounting records of Njomane Traders
at 31 December 20.8, the end of the financial year:

Investments at cost R100 000

Rental income R 21 600

Additional information:

Investments consist of 12 000 shares in Puma Ltd for R70 000 and 5 000 share in Zoo
(Pty) Ltd purchased for R30 000. The fair value of share in Puma Ltd was determined
as R77 500. Shares in Puma Ltd were purchased for trade purposes.

Required:

Calculate the amount to be disclosed as other income in the statement of profit or loss
and other comprehensive income at the end of the financial year.
The following information pertains to Njomane Traders at 31 December 20.8,
the end of the financial year:

Trade receivables control R20 000

Allowance for credit losses R 1 000

Additional information:

On 1 December 20.8, a debtor of the business was declared insolvent. On this

date, the debtor had a recorded balance of R5 000. This amount is included in
the above trade receivables figure of R20 000 and was not written off
immediately. On 30 December 20.8 the business received 20% of the amount
owed by the debtor from his estate. Mr Njomane did not record this cash
receipt in the books of the business. Mr Njomane also neglected to write off the
outstanding balance of the debtor’s account as irrecoverable. After this incident,
Mr Njomane Traders decided to adjust the balance of the allowance for credit
losses account to R1 500.

Required

Calculate the amount to be disclosed as credit losses in the statement of profit

or loss and other comprehensive income for the year ended 31 December 20.8.
The following balances appeared in the accounting records of Njomane Traders at 31
December 20.8, the end of the financial year:

Land and buildings R800 000

Vehicle at cost R168 000
Equipment at cost R 48 000
Accumulated depreciation: Vehicle (1 January 20.8) R 27 900
Accumulated depreciation: Equipment (31 October 20.8) R 8 000

Additional information:

• On 30 June 20.8, the business purchased a new vehicle at cost of R68 000.

• On 31 October 20.8, equipment with a cost price of R15 000 was sold for R1 000. At
that date the accumulated depreciation thereon was R9 000. Depreciation for the
current year on this equipment was correctly accounted for at R1 500. All the
transactions relating to the sale were recorded correctly.

• Depreciation for the year is yet to be provided for. It is the accounting policy of the
business to provide for depreciation as follows:

Vehicles: According to the straight-line method, at 20% per annum.

Equipment: According to the diminishing balance method, at 24% per annum.

Consider the above information for the purposes of preparation of the statement of profit
or loss and other comprehensive income of Njomane Traders.
The following information is extracted from the accounting records of Njomane Traders,
at 31 December 20.8, the end of the financial year:

Long-term loan from Shaka Bank R150 000

Interest on bank overdraft R 15 000

Additional information:

Shaka Bank granted the loan on 31 July 20.8 and interest is calculated at 15% per
annum.

Required:

Calculate the amount to be disclosed as finance costs in the statement of profit or loss
and other comprehensive income for the year ended 31 December 20.8.
NJOMANE TRADERS
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME FOR THE YEAR ENDED 31 DECEMBER 20.8
R
Revenue 645 700
Cost of sales (236 100)
Gross profit 409 600
Other income 29 100
Fair value adjustment: Listed share investment 7 500
Rental income 21 600
Distribution, administrative and other expenses (47 400)
Credit losses 4 500
Loss on sale of equipment 5 000
Depreciation 37 900
Finance costs (24 375)
Interest on long-term loan 9 375
Interest on bank overdraft 15 000
Profit for the year 366 925
Other comprehensive income for the year -
Total comprehensive income for the year 366 925
 FRAMEWORK OF THE STATEMENT OF CHANGES IN EQUITY

NJOMANE TRADERS
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DEC 20.8
Capital
Total equity
Njomane

R R
Balances at 1 March 20.8 000 000
Total comprehensive income for the year 000 000
Drawings (000) (000)
Balance at 28 February 20.9 000 000
The following information is extracted from the accounting records of
Njomane Traders, at 31 December 20.8, the end of the financial year:

Capital: Njomane R556 225

Total comprehensive income for the year R366 925

During the year Mr Njomane took inventory to the value of R10 000 for his personal
use. Mr Njomane also withdrew cash amounting to R150 000 as his salary.

Required:

Using the information above, prepare an extract of the statement of changes in

equity for the year ended 31 December 20.8.
The following information is extracted from the accounting records of
Njomane Traders, at 31 December 20.8, the end of the financial year:

Capital: Njomane R556 225

Total comprehensive income for the year R366 925

During the year Mr Njomane took inventory to the value of R10 000 for his personal
use. Mr Njomane also withdrew cash amounting to R150 000 as his salary.

Required:

Using the information above, prepare an extract of the statement of changes in

equity for the year ended 31 December 20.8.

NJOMANE TRADERS
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DEC 20.8
Capital
Njomane

R
Balances at 1 March 20.8 556 225
Total comprehensive income for the year 366 925
Drawings (160 000)
Balance at 28 February 20.9 763 150
NJOMANE TRADERS
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 20.9
R
ASSETS
Non-current assets 0000
Property, plant and equipment 0000
Unlisted share investment 0000
Current assets
Prepayments 0000
Listed share investment 0000
Total assets 0000

EQUITY AND LIABILITIES

Total equity 0000
Capital 0000
Other components of equity 0000
Total liabilities 0000
Non-current liabilities 0000
Long-term borrowings 0000
Current liabilities 0000
Trade and other payables 0000
Current portion of long-term borrowings 0000
Bank overdraft 0000
Total equity and liabilities 0000
The following balances appeared in the accounting records of Njomane Traders at 31
December 20.8, the end of the financial year:

Land and buildings R800 000

Vehicle at cost R168 000
Equipment at cost R 48 000
Accumulated depreciation: Vehicle (1 January 20.8) R 27 900
Accumulated depreciation: Equipment (31 October 20.8) R 8 000

Additional information:

• On 30 June 20.8, the business purchased a new vehicle at cost of R68 000.

• On 31 October 20.8, equipment with a cost price of R15 000 was sold for R1 000. At
that date the accumulated depreciation thereon was R9 000. Depreciation for the
current year on this equipment was correctly accounted for at R1 500. All the
transactions relating to the sale were recorded correctly.

• Depreciation for the year has not yet been provided for. It is the accounting policy of
the business to provide for depreciation as follows:

Vehicles: According to the straight-line method, at 20% per annum.

Equipment: According to the diminishing balance method, at 24% per annum.

Consider the above information for the purposes of preparation of the statement of
financial position of Njomane Traders as at 31 December 20.8.
NJOMANE TRADERS
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.8 (extract)
R
ASSETS Note
Non-current assets
Property, plant and equipment 1 943 700
 PRESENTATION OF NOTES

NJOMANE TRADERS
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.8

1. Property, plant and equipment

Land & Equip-
Vehicles Total
buildings ment
R R R R

Carrying amount at 1 Jan 20.8 800 000 72 100 47 500 919 600
Cost 800 000 100 000 63 000 963 000
Accumulated depreciation - (27 900) (15 500) (43 400)

Additions - 68 000 - 68 000

Disposals - - (6 000) (6 000)
Depreciation for the year - (26 800) (11 100) (37 900)

Carrying amount at 31 Dec 20.8 800 000 113 300 30 400 943 700
Cost 800 000 168 000 48 000 1 016 000
Accumulated depreciation - (54 700) (17 600) (72 300)
Extract from the trial balance of Njomane Traders at 31 December 20.8:

Investments at cost R100 000

Additional information:

Investments consist of 12 000 shares in Puma Ltd for R70 000 and 5 000 shares in Zoo
(Pty) Ltd purchased for R30 000. The fair value of share in Puma Ltd was determined at
R77 500.

Required:

Prepare an extract of the statement of financial position of Njomane Traders as at

31 December 20.8
Extract from the trial balance of Njomane Traders at 31 December 20.8:

Trade receivables control R20 000

Allowance for credit losses R 1 000
Accrued income R 800

Additional information:

R5 000 owed by a debtor must be written off as irrecoverable and the allowance for credit
losses must be adjusted to R1 500.

Required

Prepare an extract of the statement of financial position of Njomane Traders as at

31 December 20.8
Extract from the trial balance of Njomane Traders at 31 December 20.8:

Administrative expenses R15 000

Additional information:

Included in the administrative expenses is an amount of R6 500 relating to insurance

expense. The premiums are payable in advance and the January 20.9 premium is
included in this figure.

Required

Prepare an extract of the statement of financial position of Njomane Traders as at 31

December 20.8.
Extract from the trial balance of Njomane Traders at 31 December 20.8:

Investments at cost R100 000

Additional information:

Investments consist of 12 000 shares in Puma Ltd for R70 000 and 5 000 share in Zoo
(Pty) Ltd purchased for R30 000. The fair value of share in Puma Ltd was determined as
R77 500. Shares in Puma Ltd were purchased for trade purposes.

Required:
Prepare an extract of the statement of financial position of Njomane Traders as at 31
December 20.8.
NJOMANE TRADERS
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 20.9 (extract)
R
ASSETS Note
Non-current assets 973 700
Property, plant and equipment 1 943 700
Unlisted share investment 30 000
Current assets 92 300
Trade and other receivables R[(20 000 – 5 000 – 1 500) + 800] 14 300
Prepayments 500
Listed share investment 77 500

Total assets 1 066 000

The following information is extracted from the accounting records of
Njomomane Traders, at 31 December 20.8, the end of the financial year:

Capital: Njomane R556 225

Total comprehensive income for the year R366 925

During the year Mr Njomane took inventory to the value of R10 000 for his personal
use. Mr Njomane also withdrew cash amounting to R150 000 as his salary.

Required:

Using the information above, prepare an extract of the statement of changes in

equity for the year ended 31 December 20.8.

NJOMANE TRADERS
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DEC 20.8
Capital
Njomane

R
Balances at 1 March 20.8 556 225
Total comprehensive income for the year 366 925
Drawings (160 000)
Balance at 28 February 20.9 763 150
NJOMANE TRADERS
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DEC 20.8
Capital
Njomane

R
Balances at 1 March 20.8 556 225
Total comprehensive income for the year 366 925
Drawings (160 000)
Balance at 28 February 20.9 763 150

NJOMANE TRADERS
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.8 (extract)

R
EQUITY AND LIABILITIES
Total equity 763 150
Capital: Mr Njomane 763 150
The following information is extracted from the accounting records of Njomane
Traders, at 31 December 20.8, the end of the financial year:

Trade payables control R149 475

Settlement discount granted R 2 500
Allowance for settlement discount received R 6 000
Interest on loan (Not paid yet) R 9 375
Long-term loan from Shaka Bank R150 000

Required:
Using the information above, prepare an extract of the statement of financial
position as at 31 December 20.8.
NJOMANE TRADERS
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.8
R
ASSETS Note
Non-current assets 973 700
Property, plant and equipment 1 943 700
Unlisted share investment 30 000
Current assets 92 300
Trade and other receivables R[(20 000 – 5 000 – 1 500) + 800] 14 300
Prepayments 500
Listed share investment 77 500

Total assets 1 066 000

EQUITY AND LIABILITIES R

Total equity 763 150
Capital: Mr Njomane 763 150
Total liabilities 302 850
Non-current liabilities 150 000
Long-term borrowings 150 000
Current liabilities 152 850
Trade and other payables R(149 475 – 6 000 + 9 375) 152 850

Total equity and liabilities 1 066 000