Question 5.3
The following pre-adjustment trial balance appeared in the records of Dina’s Translating Services on 31 December 20.23 (the end of the reporting period).
Dr balances Cr balances
R R
Capital 934 100
Drawings 2 700
Buildings at cost price 790 200
Vehicles at cost price 159 800
Furniture 12 700
Accumulated depreciation – vehicles 17 000
Receivables 19 900
Bank overdraft 5 000
Payables 27 500
Services rendered 9 900
Insurance 1 200
Rent income 15 200
Stationery 1 600
Salaries and wages 19 000
Telephone 1 600
508 700 508 700
The following information has not been taken into account in the above figures:
1. Insurance for 20.23 amounted to R120 per month.
2. Depreciation must be calculated as follows:
Vehicles-20% per annum using the diminishing balance method.
Furniture-25% per annum using the straight line method. The office furniture was bought on 1 July 20.23 and has a residual value of R700.
3. Rent was received for four months in advance for an office used by a friend of Dina. Dina’s friend is an accountant and she uses the office since 1 January 20.23 to render accounting services.
Required:
a) The following ledger accounts for the year ending 31 December 20.23:
Insurance
Depreciation
Rent income
b) Journalise all the closing transfers for the year ending 31 December 20.23
Show all your calculations
a) Ledger Accounts:
1. Insurance:
Insurance expense for the year = R120/month * 12 months = R1,440
Insurance
31 Dec 20.23 Credit R 1,440
2. Depreciation:
Vehicles: R159,800 * 20% = R31,960
Furniture: (R12,700 - R700) * 25% = R3,000
Depreciation
31 Dec 20.23 Debit R 34,960
Acc Dep - Vehicles
31 Dec 20.23 Debit R 31,960
Acc Dep - Furniture
31 Dec 20.23 Debit R 3,000
3. Rent Income:
Rent income received for 4 months = R15,200 * 4 = R60,800
Rent Income
31 Dec 20.23 Debit R 60,800
b) Journal Entries:
1. Insurance expense adjustment:
Insurance Expense Debit R 1,440
Insurance Credit R 1,440
2. Depreciation adjustment:
Depreciation Expense Debit R 34,960
Acc Dep - Vehicles Credit R 31,960
Acc Dep - Furniture Credit R 3,000
3. Rent income adjustment:
Rent Income Debit R 60,800
Rent Received in Advance Credit R 60,800