QUESTION 3 (16 marks; 24 minutes)
Creamy Chocolate Traders is a trading business owned and managed by Mr. Cadbury. You are provided with an extract from the pre-adjustment trial balance as at 28 February 20.24:
R R
Debit Credit
Vehicles at cost 645 000
Accumulated depreciation: vehicles -1 March 20.23 156 250
Fixed deposit: Peoples Bank (8% per annum) 300 000
Inventory – 1 March 20.23 450 000
Receivables 275 000
Interest income 14 000
Rent income 112 000
Credit losses 80 000
Insurance 68 100
Salaries 137 500
Additional information:
1. Insurance includes R18 900, which was paid for four months from 1 January
20.24 to 30 April 20.24. The monthly insurance premiums are equal.
2. Rent income was received for the period 1 March 20.23 to 30 April 20.24. The rent income remained unchanged for the period.
3. Interest on the fixed deposit at Peoples Bank only reflects interest from 1 March
20.23 to 30 September 20.23.
4. Depreciation for the year ended 28 February 20.24 must be calculated as follows:
• Motor vehicles: 25% per annum according to the straight-line method with a residual value of R20 000.
5. An additional amount for credit losses, amounting to R10 000 must be written off.
6. The one employee, Mr. Flake, was not paid his salary of R12 500 per month for February 20.24. Mr. Flake will be paid for February 20.24 during the first week of March 20.24.
QUESTION 3: REQUIRED
(a) Journalise the above-listed adjustments for the year ended 28 February 20.24. Journal narrations are not required. Marks
16
Total Marks 16
You have to comply with the IFRS Accounting Standards. Assume that all current IFRSs have always been in existence. Clearly show all calculations and work to the nearest Rand. Assume all items and amounts to be material, unless the contrary is evident from the information given.
Adjustments Journal for Creamy Chocolate Traders for the year ended 28 February 20.24:
1. Insurance Adjustment:
- Insurance expense: R18,900 / 4 months = R4,725
- Insurance expense for the year: R4,725 * 12 = R56,700
Insurance expense Dr. R56,700
Prepaid insurance Cr. R56,700
2. Rent Income Adjustment:
- Rent income for the year: R112,000 / 12 * 13 = R122,667
Rent income Dr. R10,667
Unearned rent income Cr. R10,667
3. Interest Income Adjustment:
- Interest income for the year: R300,000 * 8% = R24,000
Interest income Dr. R9,000
Interest income received Cr. R9,000
4. Depreciation Adjustment:
- Depreciation expense for motor vehicles: (R645,000 - R20,000) * 25% = R156,250
Depreciation expense Dr. R156,250
Accumulated depreciation Cr. R156,250
5. Credit Losses Adjustment:
- Additional credit losses to be written off: R10,000
Credit losses Dr. R10,000
Allowance for credit losses Cr. R10,000
6. Salaries Adjustment:
- Salary payable to Mr. Flake for February 20.24: R12,500
Salaries Dr. R12,500
Salary payable Cr. R12,500
This is the adjusted Trial Balance as at 28 February 20.24.