Accounting

seatwork
 Activity 1
Instruction:
Use the information given to prepare the Balance Sheet of Willows Traders as at 28 February 2020. The relevant notes to the Balance Sheet must be completed.
Information:
Post-Closing Trial Balance as at 28 February 2020

Balance sheet accounts section Fol Debits Credits

Capital 230 000 Additional information:

Drawings 24 700
Mortgage loan: TT Bank 200 000 1. The owner, A Shai, increased his capital on 1 December 2019 by
Land and buildings at cost 2 72000
Shop and office equipment at cost 26 940 contributing an additional R26 060 in to the current banking
Vehicles at cost 158 900 account of the business. The entry has not been recorded.
Accumulated depreciation on shop and office equipment 3 000
Accumulated depreciation on vehicles 23 500
2. The following transactions have already been recorded in the
Fixed deposit: AA Bank 12 180 books of the business:
Trading stock 32 240
Debtors control 19 080  A new computer, R3200 was purchased on 1 November 2019.
Deposit for electricity 510 
Bank 4500
A delivery vehicle, R64000, was bought on 1 January 2020
Petty cash 950  Depreciation has been calculated as follows:
Cash float 1 380
Creditors control 41000
Shop equipment, R600
Accrued income 1 450 Vehicles, R3 024
Accrued expense 1200 3. The mortgage loan from TT Bank is repayable in instalments of
Prepaid expense 3 70
Income received in advance/deferred income 1 000 R20 000 on October each year.
Savings account at AA Bank 600 4. The fixed deposit at AA Bank comprised of the following:
Consumable store on hand 500
Pension fund 2500
 R8 000 [maturity date 31 December 2020]
Medical aid fund 4 000  R4000[maturity date 15 November 2021]
Creditors for salaries 15 100
Profit and loss account (net profit) 26 000
551 800 551 800
Activity 1
Willows Traders
Balance sheet as at 28 February 2020
Assets Note
Non-current assets √435 520
Fixed assets/tangible assets 3 √431 340
Financial assets
Fixed deposit : TT Bank [12 180- 8 000] √ 4 180
Current Assets √64 540
Inventories 4 √32 740
Trade and other receivables 5 √21 410
Cash and cash equivalents 6 √10 930
Total assets √500 060
Equity & liabilities
Owner’s equity 7 √231 360
Non- current liabilities
Loan:TT Bank [200 000-20 000] √180 000
Current liabilities √88 700
Trade and other payables 8 √88 700
Total equity and liabilities √500 060
Willows Traders
3. Notes to the financial statement for the year ending 28 February 2020
Fixed assets Land and Shop Vehicles Total
buildings Equipment

Cost √272 000 √23 740 √ 94 900 √390 640

Accumulated depreciation 0 √ (2 400) √ (20 476) √ 22 876

Carrying value on 28 February 2019 √272 000 √21 340 √74 424 √367 764

Movements

Additions 0 √3 200 √ 64 000 √67 200

Depreciation 0 √ (600) √ (3 024) √ (3 624)

Carrying value on 28 February 2020 √272 000 √23 940 √135 400 √431 340

Cost 272 000 26 940 158 900 457 840

Accumulated depreciation on 28 February 2020 0 (3000) ( 23 500) (26 500)

4. Inventory

Consumable √32 740

Trading stock √32 240

Consumable stores on hand √500

5. Trade and receivables √21 410

Debtors control √ 19 080

Deposit for electricity √ 510

Accrued income √ 1450

Prepaid expense √ 370

6. Cash and cash equivalents √ 10930

Petty Cash √950

Cash Float √1380
Savings account at TT Bank √600
Current portion of fixed deposit √8 000

7. Owner’s equity
Capital balance on 28 February 2019 204 000
Additional capital contributed /capital withdrawn √ 26 060
Net profit for the year √ 26 000
Drawings √ (24 700)
Capital balance on 28 February 2020 √231 360

8. Trade and other payables √ 88 700

Creditors control √41 000
Bank overdraft √ 4 500
Pension fund √2 500
Medical aid fund √ 4 000
Creditors for salaries √14 500
Current portion of loan √20 000
Accrued expense √ 1 200
Deferred income √ 1 000
Activity 2
Navix Traders
Balance sheet as at 28 February 2020
Assets Note
Non-current assets √1308 500
Fixed/Tangible assets √1 258 000
Financial assets
Fixed deposit [80 500-30 000] √50 500
Current Assets √312 900
Inventory √166 050
Trade and other receivables √82 250
Cash and cash equivalents √64 600
Total assets √1 621 400

Equity and Liabilities

Owner’s equity √800 000
Non-current liabilities
Loan from Mono Bank [610 000-66 000] √544 000
Current liabilities
Trade and other payables (balancing figure) √277 400
Total equity and liabilities √1 621 400
Navix Traders
Notes to the financial statement for the year ending 28 February 2020
Fixed assets Land and Vehicles Equipment Total
buildings

Cost 1 068 000 240 000 227 000 1 535 000

Accumulated depreciation 0 √ (93 000) √ (130 800) √ (223 800)

Carrying value on 28 February 2019 √1 068 000 √147 000 √96 200 √1 311 200

Movements

Additions 0 0 0 0

Depreciation 0 √ (30 000) √ (23 200) √ (53 200)

Carrying value on 28 February 2020 √1 068 000 √117 000 √73 000 √1 258000

Cost 1 068 000 240 000 227 000 1 535000

Accumulated depreciation on 28 February 2020 0 (123 000) (154 000) (277 000)
Inventory √166050
Trading stock √164 300
Consumables stores on hand √1 750

Trade and receivables √82 250

Debtors control √75 000
Accrued income √6 500
Prepaid expense 750 √

Cash and cash equivalents √64 600

Bank √31 300
Cash Float √3 300
Current portion of fixed deposit √30 000

Owner’s equity
Capital balance on 28 February 2019 √799 500
Additional capital contributed /capital withdrawn √100 000
Net profit for the year 145 000
Drawings [240 000+4 500] √ (244 500)
Capital balance on 28 February 2020 √800 000
 ACTIVITY
3.1
3
57 110 √√ X 100 =31%√
184 000 1
Slight increase from the previous year. On a sale of R100, gross profit (before expenses) amounts to R31. √
3.2 57 110 √ √ X 100 =45%√
126 890 1
Increase of 5% from the previous year. Still below the target mark-up of 50%. The increase implies that the business has been trying
harder to achieve their target mark-up. Improved stock control, discounts, security, etc. may help in the future. √
3.3 15 720 √√ X 100 =8.5%√
184 000 1
Decreased considerably from 10% to 8.5%. This needs to be investigated. Possible causes: lower turnover, increased operating
expenses, not achieving target mark-up, economic conditions etc.
3.4 55 390 √√ X 100 =30.1%√
184 000 1
Increased by 3.1% in 2020. There is a need to exercise better control over expenses; turnover needs to be boosted; mark-up may
need to be reviewed; etc. √
3.5 10 320 X 100 =5.6%√
184 000 √√ 1
Decreased substantially from the previous year. On a sale of R100 net profit amounts to R5.60. The owner may not be pleased with
this. The loan should be paid off or reduced. This will have a positive effect on profitability. √
Activity 4
4.1 20 000 √ X 100 =10.8%√
(180 000+190 000) ÷2√√ √ 1

Return has decreased by 3.2% compared to last year. The 10.8% return must be compared to
current interest rates offered on investments. √

Activity 5

5.1 Current ratio: 89 500: 25 000√√ =3.6:1√

The business should be satisfying with the current ratio√

5.2 Acid test ratio: 89 500-75 000:25 000√√√ =0.6:1√

Trading stock is the least liquid of the current assets. Trading stock sold may not realise sufficient
cash to pay debts√
Activity 6

Total assets =320 000+160 000√√

=480 000

Owner’s equity =480 000-20 000√√

=460 000
Solvency ratio: =480 000:460 000√√
=1.04:1√
Total assets are higher than total liabilities. The business is solvent but solvency problems can
be experienced in future. Some action which can be taken: Pay off the loan, the owner may
invest more capital, pay off the current liabilities, etc. √
Activity 7
7.1 Gross profit % on sales:
226 400 √√ X 100 =29,78%√
760 000 1
Decreased in 2020 from 35% to 29,78%. The business should investigate the possibility of stock
losses. √
7.2 Gross profit % on cost of sales:
226 400√√ X 100 =42.43%√
533 600 1
Decreased in 2020 from 47% to 42.43%. because the expected mark-up on cost of sales is 50%,
business should investigate why it was not achieved. Possible reason: incorrect pricing, too many
clearance sales, too liberal a policy regarding trade discount√.
7.3 Net profit on sales:

60 400 √√ X 100 =7.90%√

760 000 1
Decreased in 2020 from 12% to 7.90%. More of the firm’s income is absorbed in expenses. Expenses
must be controlled√

7.4 Operating profit on sales:

66 400 √√ X 100 =8.74%√

760 000 1
Decreased in 2020 from 14% to 8.74%. more of the firm’s income is absorbed in expenses. Expenses
must be controlled. Operating efficiency has declined√
7.5 Operating expenses on sales:

160 000√√ X 100 =21.05%√

760 000 1
Increased in 2020 from 18% to 21,05%. More of the firm’s income is absorbed in expenses. There is
no correlation between sales and expenses. Because of the poor control over expenses, operating
efficiency has declined. √
7.6 Return on owner’s equity:
60 400 √ X 100 = 26.38%√
(258 000+200 000) ÷2 √√ 1

Owner will be satisfied because the return is above return on alternative investments (fixed
deposits yield 8%p. a) √
7.7 Solvency ratio:

332 000:(37 500+36 000) √√√

=4.52:1√
Improved in 2020 (4.52:1 as opposed to 3.5:1). For every R1 of outside funding the firm has R4.52
of its own funds. Total assets exceed total liabilities. Firm is solvent. √

7.8 Current ratio

82 000:36 000√√
2.27 :1√
Improved in 2020 (2.27:1 as opposed to 1.8:1). For every R1 owing the firm has R2.27 available.
Liquidity is satisfactory. √

7.9 Acid test ratio

(82 000-43 000) :36 000√√
1.08:1√
Deteriorated in 2020 (1.8:1 as opposed to 1.5:1). For every R1 owing, the firm gas R1.08 available.
Liquidity position is satisfactory.√