EZ Revision
Accounting Grade 11
2012 edition
Name: _________________________________
Compiled by Barbara Williamson
EZ Learn Books cc Tel/Fax (011) 4623550, Cell 082 322 0005
Website www.ezlearn.co.za, E-mail [email protected]
Postnet Suite #100, Private Bag X1, Jukskei Park, 2153
CK 1987/008514/23, Member Barbara Williamson
2012 edition
Barbara Williamson 2010, ISBN-13 978-0-9802631-0-7
All rights reserved. No part of this book may be reproduced or
transmitted in any form or by any means, electronic or mechanical,
including photocopying, recording, or any information storage or
retrieval system, without permission in writing from EZ Learn Books CC.
Contents
1. How to make the most of this guide ............................... 1
2. Analysing ethical behaviour .............................................. 5
3. VAT calculations .................................................................... 6
4. Reconciliations ................................................................... 12
5. Disposal of tangible assets ................................................ 30
6. Periodic inventory system .................................................. 46
7. Manufacturing accounts ................................................. 56
8. Cash budgets ..................................................................... 88
9. Partnerships ....................................................................... 110
10. Non-profit organisations ................................................. 150
11. Internal auditing ............................................................... 174
With special thanks to the
Independent Examinations Board (IEB)
and the
Department: Basic Education (DBE)
for permission to publish their question papers. All memoranda are the responsibility of the author.
1. How to make the most of this guide
www.ezlearn.co.za 1
1. How to make the most of this guide This revision guide has been specially designed to help you prepare for your year end
examination. If you work through it carefully, using the suggestions given here, you
should find that you are able to walk into the exam at the end of the year with
confidence!
Exam papers from past years have been divided up into the different sections taught.
Each of chapter starts out with crash course notes to help you get started. This means
that when you discover that your understanding of a particular area is weak, you can
focus on that section as it is taught during the year, as well as during revision just
before exams when you want to brush up on everything you have been taught.
Your revision plan
Completing the exercises A revision plan has been specially devised for you, taking into account when you
would have studied the different sections, your holidays and exam times etc., and
working within these parameters to ensure that you cover a variety of questions on a
regular basis so as not to forget any particular section. It is very important that you
stick to this revision plan as closely as possible. If you fall behind for any reason, catch
up in the order given, NOT by trying to work ahead and then going back to fill in the
gaps.
The first time you complete a question from a particular chapter, you should work
through the crash course notes, making sure that you understand everything along
the way (if you don’t, I would suggest you go back to your text book for more
detailed explanations – EZ Accounting would be good if you like the EZ approach, or
any other text book that you may be using).
When you feel ready, attempt your question set by the revision plan. Note the time
allowed, and try to keep to this. When the time is up, complete the question in a
different colour, and note the actual time taken once you have completed the
question in full. This will help you to be aware of the time constraints you are expected
to work within, while allowing you to finish the question so that you can see how much
you are able to complete without time constraints.
Try not to refer to the memo at all until you have completed the question in full. If you
get really stuck, you may peek at the solutions at the back of the book, but I would
suggest that when you do this you change the colour of the pen or pencil with which
you are working. The reason for this is that if you don’t, it is very easy to peek lots and
think you’ve hardly peeked at all. You will then think you know what you are doing, as
it is very easy to understand when the answer is literally staring you in the face! The
bad news is that in an exam there is no chapter of solutions, and you will definitely
come unstuck. If, on the other hand, you change the colour of your pen or pencil
each time you have to peek, it is very easy to see how well (or terribly badly) you
know your work – if it is very pretty and colourful, that’s great, but you know you still
have lots of work to do!
Be sure also to mark your work very carefully after completing each question, so that
you can figure out your mistakes quickly, while the information is still fresh in your mind.
When you find an error and understand what you did wrong, make a note of it on
your “My Mistakes” page given in each chapter, so that you can refer to this before
attempting another question from that section in future and learn from your mistakes.
If used properly these mistakes pages will also make a very valuable revision tool in
preparation for tests and exams.
EZ Revision – Accounting Grade 11
Learn the EZ way! 2
Following your plan The revision planner on the next few pages is based on the assumption that you are
covering the sections in the same order as in EZ Accounting. If you cover work in a
different order, you will of course have to switch some of the exercises as you can’t
practice something you have not yet learnt. The key word is switch, not ignore!
Replace what you cannot do with an exercise on the work you have covered,
making sure that you continue to work through two exercises per week. Tick off the
exercises as you do them – you will enjoy seeing the progress you make!
During the weeks you are at school and should be working, it is very important to set
aside specific times to complete the exercises planned below. Plan two time
allocations of approximately half an hour that suit you and are realistic. If you know
you finish school late on a Monday, and have sport in the afternoon as well as some
other evening activity, this is not a good day to choose! A quiet Sunday afternoon
might be a better idea. Try to ensure that the two days you choose are spread across
the week, so that you are completing a revision exercise every three or four days. If
this is really not possible, then yes, you can set aside a double slot over the weekend,
but this is not ideal.
There will of course be some times when you have the best intentions, but
circumstances get the better of you and you are not able to complete the necessary
revision. Just make sure that you catch up as quickly as possible, and don’t let this
happen too often! Completing all these exercises throughout the year as suggested
will be much more beneficial than being lazy during the first term, working like mad in
the second term, and then doing nothing in the third term, for example. Although you
may have finished all the exercises either way, the end result will definitely not be the
same.
If you find that you would like to complete more than the required two exercises per
week, go ahead. Just ensure that you continue in the same order as given in the plan
below. When you run out of exercises and would like more work to practice, ask your
teacher, or e-mail me ([email protected]). Don’t delay working earlier in the
year so that you “have more to practice before exams”!
Two plans are given here, based on whether you follow the government or private
school terms. No exercises have been set during holidays and from the time your final
exams begin, but this does NOT mean that you don’t have to do any work! It simply
means that you should structure your own study plan for this time, to allow for times
when you may go away on a family holiday for a week, for example. You can use this
time to redo exercises you struggled with earlier, or additional exercises from class or
the website (www.ezlearn.co.za). Use the blank space given to plan what you will do
during this time. On the other hand, questions have been set throughout the times
you will be writing mid year exams. This is because you can’t stop working on your
accounting at any time – keep going, even if you have just written the accounting
exam! Of course, you may want to restructure your plan slightly at these times, but
don’t slack off!
Remember that the better you hope to do in your year end exam, the more work you
need to put in during the year. Although you may not now like the idea of working
throughout the year, if you discipline yourself to do stick to your revision plan you will
relieve a lot of the pressure you would otherwise experience later in the year. The
choice is yours ...
1. How to make the most of this guide
www.ezlearn.co.za 3
Revision planner How to use this planner Set aside specific time(s) each week to complete the given exercises, and stick to
this e.g. Saturday afternoon.
Identify your plan i.e. 3 term or 4 term, and follow that one.
Exercises have not been allocated for your holidays, but it would obviously benefit
you to set yourself work to do at these times if you are struggling with certain
sections. Space has been provided for you to record what you do.
Time yourself carefully, and note the time you took to complete the exercise (if
you go over time, remember to change colour to help you see how much you
could actually do in the time given). Note: time allocations given are based on
the time you will get based on the new FET curriculum requirements.
Tick off exercises as you complete them. This will help you to see how much you
have achieved over time, and will hopefully motivate you!
Week
Private school calendar Government school calendar
Exercise Time Time
taken Exercise Time
Time
taken
22 Jan – 4 Feb 3.1. VAT 8 min 3.1. VAT 8 min
30 Jan – 5 Feb
6 – 12 Feb 4.1. Recon 23 min 4.1. Recon 23 min
13 – 19 Feb
20 – 26 Feb 4.2. Recon 22 min 4.2. Recon 22 min
27 Feb – 4 Mar
5 – 11 Mar 5.1. TA 30 min 5.1. TA 30 min
12 – 18 Mar
19 – 25 Mar 4.3. Recon 20 min 4.3. Recon 20 min
26 Mar – 1 April 5.2. TA 35 min
2 – 8 April 4.4. Recon 15 min
9 – 15 April 5.2. TA 35 min
16 – 22 April 4.4. Recon 15 min
23 - 29 April 3.2. VAT 12 min
30 April – 6 May 3.2. VAT 12 min 6.1. Per 30 min
7 – 13 May 6.1. Per 30 min 4.5. Recon 10 min
7.1. Man 30 min
14 – 20 May 7.1. Man 30 min 4.5. Recon 10 min
7.2. Man 7 min
21 – 27 May 4.5. Recon 10 min 5.3. TA 18 min
7.2. Man 7 min 7.3. Man 18 min
28 May – 3 June 5.3. TA 18 min 6.2. Per 12 min
7.3. Man 18 min 7.4. Man 20 min
4 – 10 June 6.2. Per 12 min 7.5. Man 10 min
7.4. Man 20 min 8.1. Bud 35 min
11 – 17 June 7.5. Man 10 min 7.6. Man 24 min
8.1. Bud 35 min 8.2. Bud 36 min
18 – 24 June 7.6. Man 24 min 4.6. Recon 15 min
8.2. Bud 36 min 8.3. Bud 25 min
25 June – 1 July 4.6. Recon 15 min
8.3. Bud 25 min
2 – 8 July
9 – 15 July
5.4. TA 24 min
7.7. Man 30 min
8.4. Bud 20 min
EZ Revision – Accounting Grade 11
Learn the EZ way! 4
16 – 22 July
6.3. Per 22 min 5.4. TA 24 min
9.1. Part 30 min 7.7. Man 30 min
9.2. part 25 min
23 – 29 July
8.5. Man 24 min 6.3. Per 22 min
9.3. Part 30 min 8.4. Bud 20 min
9.4. Part 40 min
30 July - 5 Aug
7.8. Man 11 min 9.1. Part 30 min
9.5. Part 30 min 9.2. part 25 min
9.6. Part 11 min
6 – 12 Aug
7.9. Man 40 min 8.5. Man 24 min
8.6. Bud 16 min 9.3. Part 30 min
9.7. Part 16 min
13 – 19 Aug 7.8. Man 11 min
9.4. Part 40 min
20 – 26 Aug 9.5. Part 30 min
9.6. Part 11 min
27 Aug – 2 Sep
7.9. Man 40 min
8.6. Bud 16 min
9.7. Part 16 min
3 – 9 Sep
3.3. VAT 10 min
7.10. Man 50 min
9.8. Part 32 min
10 – 16 Sep
3.3. VAT 10 min 6.5. Per 30 min
7.10. Man 50 min 4.7. Recon 25 min
9.8. Part 32 min 9.9. Part 60 min
17 – 23 Sep
6.5. Per 30 min 5.5. TA 35 min
4.7. Recon 25 min 10.1. NPO 18 min
9.9. Part 60 min 10.2. NPO 35 min
24 - 30 Sep
5.5. TA 35 min 6.4. Per 9 min
10.1. NPO 18 min 9.10. Part 47 min
10.2. NPO 35 min 10.3. NPO 17 min
1 - 7 Oct
6.4. Per 9 min
9.10. Part 47 min
10.3. NPO 17 min
8 – 14 Oct
7.12. Man 18 min 7.12. Man 18 min
10.4. NPO 27 min 10.4. NPO 27 min
11.1. Aud 7 min 11.1. Aud 7 min
15 – 21 Oct
9.11. Part 32 min 9.11. Part 32 min
10.5. NPO 20 min 10.5. NPO 20 min
11.2. Aud 20 min 11.2. Aud 20 min
22 – 28 Oct
8.7. Bud 16 min 8.7. Bud 16 min
9.12. Part 58 min 9.12. Part 58 min
10.6. NPO 20 min 10.6. NPO 20 min
11.3. Aud 24 min 11.3. Aud 24 min
29 Oct – 4 Nov
8.8. Bud 60 min 8.8. Bud 60 min
9.13. Part 30 min 9.13. part 30 min
10.7. NPO 27 min 10.7. NPO 27 min
10.8. NPO 30 min 10.8. NPO 30 min
Good luck for your year end exam!
www.ezlearn.co.za 5
4. Reconciliations
The point of a reconciliation is to check that your records agree with those of a third
party – the bank or a creditor (i.e. to reconcile them) to ensure that no errors have
been made and to update your records.
In an exam This may be asked as an adjustment to be taken into account in preparing
financial statements.
The adjustment will usually involve bank charges etc., which have still to be taken
into account. You will have to add the amount to the relevant account (e.g. Bank
Charges) and adjust the Bank account balance.
The adjustment may specify a post-dated cheque either received or issued, which
has already been recorded by the business. You will have to reverse the entry in
the Bank account and the Debtors or Creditors Control account, as the money
has not yet actually been received / paid.
You may be required to complete the Bank or Creditors’ Reconciliation
Statement. Follow the steps laid out below.
What to do … 1. Use each piece of information in the order in which it is given, to save you having
to go back and reread information later. You will have an answer sheet laid out
for you, enabling you to enter items as you deal with each bit of information. Each
piece is dealt with as described below.
2. Record relevant information in business records (cash journals / bank account or
creditors’ ledger)
3. Record relevant information in the reconciliation statement – this acts as an
extension of the bank or creditor’s statement and shows all entries they have not
yet taken into account.
4. Check that totals in our records and reconciliation statement agree.
Balances and totals
The bank or creditor account balance at the beginning of the month must be
entered into the Bank or Creditor’s account in the General or Creditors’ Ledger if
this is required, or used as your starting balance in your calculation. The bank
amount may be given, but if it is not, it can be calculated from the previous
month’s Bank Reconciliation Statement as the balancing figure.
The statement balance at the end of the month must be entered into the
Reconciliation Statement. A bank balance will appear from the banks point of
view i.e. credit a favourable balance.
The cash journals’ sub totals must be used to start calculating the final journal
totals when doing a bank reconciliation.
Discrepancies (see diagram on next page)
Any items in the statement but not already recorded, must be recorded in the
business records.
Any items in the business’ books but not in the statement must be entered into
the Reconciliation Statement.
Items in the previous Reconciliation Statement which do not yet appear in the
current statement must be shown in the new Reconciliation Statement (unless
cheques are stale or cancelled – see below)
Business errors are corrected in the business records.
Bank or creditor errors are reflected in the Reconciliation Statement
Learn the EZ way! 6
BANK OR CREDITOR’S STATEMENT BANK OR CREDITOR’S ACCOUNT
(CRJ and CPJ / Creditors’ ledger)
Entries in the statement but not in your
books
Bank: stop orders, direct deposits by
customers, bank charges, dishonoured
cheques etc.
Creditor: recent invoices or credit notes,
interest charged etc.
Entries in your books, but not the
statement
Bank: outstanding deposits and
cheques not yet cashed
Creditor: Returns not yet acknowledged
etc.
Entries in last month’s reconciliation
statement, but not yet in the current
statement (representing previous entries
in your books but not in the bank
statement)
RECONCILIATION STATEMENT
Representing what the bank or creditor
must still do. Remember that the bank
statement will treat amounts oppositely
to the business – a favourable balance
will show as a debit in the business
books, but as a credit on the bank
statement!
BANK ACCOUNT
(CRJ and CPJ)
CREDITOR’S ACCOUNT
(Creditor’s’ ledger)
Additional notes Dishonoured cheques
When a cheque is dishonoured, you will simply have to REVERSE the original
transaction, because although you originally thought you had received the payment,
you did not actually get the money.
Original transaction
CRJ
Debit bank
Credit debtors
Reversal when cheque is
dishonoured
CPJ
Debit debtors
Credit bank
Post dated cheques
Post dated cheques issued will have been recorded when written, and appear
in the Bank Reconciliation Statement with the other outstanding cheques.
Post dated cheques received should not have been recorded or deposited at
all. If they have been entered and deposited in error, they will have been
dishonoured by the bank (see treatment above).
Stale / cancelled cheques issued
Cheques which had been issued but are now stale (more than 6 months old) or
have been lost and must be cancelled, are cancelled in the CRJ. They will then
no longer appear in the Bank Reconciliation Statement.
If a new cheque is issued it must be recorded in the CPJ and shown in the Bank
Reconciliation Statement.
The cheque is returned by the bank (bounces), as it cannot be paid.
This might be because there is no money in the person’s account, or
for some other reason e.g. it was not filled out correctly.
To make them agree, the
obvious thing to do is add into
each side those entries that are
not yet there
The totals of the bank statement and the
bank account after these additional
transactions are taken into account should
agree but be opposite, so by adding in
the bank account balance, the bank
reconciliation totals should balance.
www.ezlearn.co.za 7
My mistakes
Learn the EZ way! 8
www.ezlearn.co.za 9
4.1. DoE 2007 SG Question 2 (38 marks; 23 minutes)
The following information appears in the books of Fralize Stores for
May 2007.
Required:
1. Use the information below to complete the Cash Receipts Journal and the Cash
Payments Journal for May 2007. Total the bank columns only. (26)
2. Prepare the Bank Reconciliation Statement on 31 May 2007. (12)
NOTE: it is the policy of the business to correct errors in the cash journals, wherever
possible.
Information:
1. The bank account in the ledger reflects an unfavourable balance of R1 535 on
1 May 2007.
2. The provisional totals of the cash journals for May 2007 are:
Cash receipts journal
Bank R34 190
Sundry accounts R34 190
Cash payments journal
Bank R32 500
Sundry accounts R32 500
3. Cheque no. 235 for R416 was issued to BB Stores and entered in April for
stationery purchased. This cheque was lost and payment was stopped. It was
replaced with cheque no. 444. No entry has been made for this cheque which is
still in the post.
4. A comparison with the bank statement from Lion Bank for May 2007 with the
cash journals reflects the following differences:
4.1. A debtor, C Magape, deposited R860 directly into the business bank account
as part payment of his account.
4.2. An unpaid cheque of R566, received from a debtor, L van Zyl, was returned by
the bank, marked ‘refer to drawer’.
4.3. A stop-order in favour of Rasbanski Insurers for R800 comprises the following:
4.3.1. insurance of the business buildings and contents, R680.
4.3.2. Insurance of the owner’s private vehicle, R120. The business pays this on
behalf of the owner.
4.4. Lion Bank debited the current bank account of Fralize Stores with bank
charges of R310 and interest of R75.
4.5. A deposit on 31 May 2007, R4 234, did not appear on the bank statement.
4.6. The following cheques have not been presented for payment yet:
4.6.1. No. 432 for R633
4.6.2. No. 439 for R451
Learn the EZ way! 10
4.7. The bank statement reflects an unfavourable balance of R3 470 on
31 May 2007.
1. Cash receipts journal of Fralize Stores – May 2007 CRJ6 (7)
Doc D Details Bank Sundry accounts
Amount Details Fol
30 Total 34 190 34 190
2. Cash payments journal of Fralize Stores – May 2007 CPJ6 (19)
Doc D Details Bank Sundry accounts
Amount Details Fol
30 Total 32 500 32 500
3. Bank reconciliation statement of Fralize Stores – 31 May 2007
Debit Credit
38 marks
www.ezlearn.co.za 11
4.2. IEB 2007 SG Question 3 (37 marks; 22 minutes)
The bookkeeper of Grey Medical Supplies has gone on leave and you have been
asked to prepare the bank reconciliation statement at the end of the month of
March 2007.
Required
1. Show the amounts that would appear in the Cash Receipts Journal and Cash
Payments Journal in the table provided in the answer booklet. The provisional
totals for the CRJ (R11 560) and the CPJ (R12 520) have been put in for you in
your answer booklet. (11)
2. Calculate the Bank account balance in the General Ledger as at
31 March 2007 using the table provided in your answer book. (4)
3. Prepare the Bank Reconciliation Statement as at 31 March 2007. (10)
4. Answer the questions that follow. (12)
Information
1. Bank reconciliation statement as at 28 February 2007
Debit Credit
Cr balance as per bank statement 5 560
Cr outstanding deposits 6 490
Dr cheques not yet presented for payment
No. 897 (28 December 2006) 875
No. 991 (23 February 2007) 1 525
No. 994 (25 February 2007) 8 760
No. 996 (26 February 2007) 3 240
Cr balance as per bank account 2 350
14 400 14 400
2. The bank statement reflected a favourable balance of R14 685 on
31 March 2007.
3. On comparing the bank statement with the cash journals the following
differences were noted:
3.1. The following entries appeared in the bank statement only:
3.1.1. A deposit for R6 490.
3.1.2. Cheque no. 991 for stationery purchased from Sharp Stationers.
3.1.3. The bank charges for March amounted to R255.
3.1.4. Interest on favourable balance amounted to R215.
3.1.5. A stop order to Eagle Insurers for insurance premium amounted to R1 300.
Included in this insurance premium is R250 for the owner's personal vehicle.
3.1.6. A direct deposit for R3 000 received from the tenant being rent for his office.
3.2. The following information appeared in the cash journals only:
3.2.1. A deposit for R4 560 on the 31 March 2007.
3.2.2. The following cheques had not yet been presented for payment:
Cheque no. 1202 for R2 310 issued to George Suppliers.
Cheque no. 1207 being A. Smith's salary cheque for R5 710.
3.3. Other information:
3.3.1. Cheque no. 897 is stale and must be cancelled. The cheque was issued to
Hillcrest Aged as a donation.
3.3.2. A cash cheque no. 994 was lost in the post. The cheque was issued for stock
purchased. A new cheque no. 1220 was issued to Needles and Pins. No
entries have yet been made.
Learn the EZ way! 12
1. Amounts that would appear in the cash journals (11)
Cash receipts
journal
Cash payments
journal
11 560 12 520
2. Calculation of Bank Balance in the ledger of Grey Medical Suppliers (4)
3. Bank reconciliation statement as at 31 March 2007 (10)
Debit Credit
Questions During February 2007 Grey Medical Supplies sent a cash cheque to Needles and Pins
for stock purchased. Needles and Pins claim that they never received the cheque
and have asked for a new cheque to be sent to them. You have investigated this
and have noticed that the cheque had been cashed and it appeared in the March
Bank Statement.
4.1. Explain what you think could have happened to the cheque that was sent to
Needles and Pins. (2)
4.2. How will this problem affect Grey Medical Supplies profits? (2)
4.3. What are the dangers of sending a cash cheque in the post? (4)
4.4. Give two ways that a business can go about reducing the possibility of being
exposed to cheque fraud. (4)
37 marks
www.ezlearn.co.za 13
4.3. DoE November 2007 Question 1 (35 marks; 20 minutes)
Bravo Traders sells goods for cash and accepts credit cards. On 31 May 2007 Bravo
Traders compared the Bank Statement for May 2007 from Safe Bank with the Bank
Reconciliation Statement on 30 April 2007 as well as with the Cash Receipts Journal
and Cash Payments Journal for May 2007.
Required:
Study the information provided and answer the questions which follow.
Information:
The following information appeared in the Bank Reconciliation Statement of
Bravo Traders on 30 April 2007:
Credit balance as per Bank Statement R10 911
Outstanding deposit dated 29 April 2007 R1 500
Outstanding cheques:
No. 597 dated 22 November 2006 R600
No. 686 dated 18 April 2007 R7 250
No. 721 dated 15 June 2007 R2 800
Debit balance as per bank account in the ledger R1 761
The comparison of the Bank Statement for May 2007 with the Bank Reconciliation
Statement and the Cash Receipts and Cash Payments Journals for May 2007,
revealed the following differences:
Item 1 The Bank Statement reflected an unfavourable balance of R1 550 on
31 May 2007. Item 2 The outstanding deposit of R1 500 appeared on the Bank Statement for May
2007. Item 3 Cheque No. 597 for R600 is stale. It had been issued to the Red Cross
Hospital as a donation. Cheque No. 753 was issued on 31 May 2007 to
replace the donation, but the donation was increased by R400. This cheque
has not been entered in the books yet and is in the post. Item 4 Cheque No. 686 for R7 250 appeared on the Bank Statement, but not in the
journals of May 2007. Item 5 Cheque No. 760 for R3 245 appeared in the Cash Payments Journal, but not
on the Bank Statement. Item 6 The Bank Statement reflected a dishonoured cheque for R720. This had
originally been received from R Rod in settlement of his debt of R750. Item 7 The Bank Statement reflected a monthly stop order representing the
monthly repayment of R2 500 on a loan from Alfa Bank. Item 8 The Bank Statement received from Safe Bank reflected an amount of R3 120
in respect of bank charges. Item 9 The Bank Statement reflected interest on a fixed deposit of R1 340 which
had been directly deposited into the current account of the business. Item 10 A deposit of R5 700 appeared in the CRJ on 31 May 2007, but not in
the Bank Statement.
Learn the EZ way! 14
Questions to be answered
1. Consider the items listed above. Indicate by means of a cross (X) in the table
provided in the answer book, whether these items will be entered in the:
Cash Receipts Journal (CRJ)
Cash Payments Journal (CPJ)
or indicate whether no entry will be made in the journals when reconciling the
Cash Journals with the Bank Statement. Also provide the TWO missing amounts.
Item 1 has been done as an example for you. (12)
Item CRJ CPJ No entry Amount
Item 1
X R1 550
Item 2
R1 500
Item 3.1.
R600
Item 3.2.
Item 4
R7 250
Item 5
R3 245
Item 6
Item 7
R2 500
Item 8
R3 120
Item 9
R1 340
Item 10
R5 700
2. Prepare the Bank Reconciliation Statement on 31 May 2007. (14)
Bravo Traders
Bank reconciliation statement on 31 May 2007
Balance as per bank ______________________
Balance per ledger _________________________
(Please turn over – question continued on next page)
www.ezlearn.co.za 15
3. Bravo Traders paid bank charges of R3 120 to Safe Bank in May 2007. The owner,
Wayne Bravo, noticed the following cartoon in a newspaper that drew his
attention to the problem of high bank charges in South Africa.
Wayne Bravo also noticed the following newspaper article. Three paragraphs
have been extracted for you.
Consumers will benefit from an inquiry into bank charges
Business report: 21 April 2006, based on an article by Ethel
Hazelhurst Johannesburg - Banking is a facility many people
do not like paying for and banks are often criticised by their
clients, so news that the competition commission will hold a
public inquiry into bank charges will be welcomed.
Like any other business, banks are entitled to maximise profits
and it may be that local banks perform better because they
are more efficient than their international competitors.
The main victims are those who can't afford to bank. People
who earn small, irregular amounts can't pay the fees levied on
banking transactions. This excludes millions of people from
participating in business activities.
Learn the EZ way! 16
3.1. Are bank clients in this country justified in complaining about bank charges?
Briefly explain in your own words. (3)
3.2. If you were the manager of Safe Bank, how would you justify charging Bravo
Traders fees of R3 120 in May? State THREE points. (6)
35 marks
www.ezlearn.co.za 17
4.4. Barbara Williamson 2007 (30 marks; 15 minutes)
The bank statement of Shaista’s Shoe Shop for May 2004 has been received by the
business and compared to the business records. A number of discrepancies have
been noted, and Shaista has asked you to explain why this is so.
Differences between the bank statement and business records
1. The bank statement shows a credit balance on 31 May 2004 of R3 200, whereas
the bank account in the general ledger shows a debit balance of R1 500 on this
day.
2. The bank statement includes the following items that do not appear in the May
journals:
Sundry bank charges and interest totalling R120
A cheque for R2 500 post-dated for 1 June is reflected as unpaid. (A
replacement cheque has already been received from the customer, and will
be deposited on 1 June. Shaista says it should not be cancelled in the business
journals, as this would be a waste of time).
A cheque for R3 000 has been dishonoured as the debtor had forgotten to
sign it. The debtor must still be contacted.
A deposit of R250 that was actually made by Shaista into her personal bank
account, but had been credited to the business account in error.
3. The cash journals include the following items that do not appear on the bank
statement:
A deposit of R9 430 made by the business on 31 May 2004
Cheque 429 for R700 (15 November 2003)
Cheque 630 for R800 (20 June 2004)
Cheque 635 for R1 200 (28 May 2004)
Cheque 636 for R600 (this cheque has been lost, and the creditor has asked
that it be cancelled. A new cheque will be issued during June).
The bookkeeper forgot to enter the amount for cheque 637 when it was
issued on 28 May 2004. This cheque does not appear on the bank statement.
4. The salaries journal includes the following cheques that do not appear on the
bank statement:
Cheque 640 for R5 600
Cheque 643 for R7 200
5. Cheque 625 is reflected as R775 on the bank statement and R725 in the cash
payments journal. The cheque was issued for an amount of R725.
6. Cheque 629 is reflected as R370 on the bank statement and R320 in the cash
payments journal. The cheque was issued for an amount of R370.
Learn the EZ way! 18
Required
1. Explain why you would expect to find differences between the bank statement
and business journals. (4)
2. Draw up the bank reconciliation statement on 31 May 2004 to illustrate your point.
Show all your calculations in brackets. (26)
Shaista’s Shoe Shop
Bank reconciliation statement on 31 May 2004
Debit Credit
30 marks
www.ezlearn.co.za 19
4.5. IEB November 2007 Paper 1 Question 6 (13 marks; 10 minutes) The bank reconciliation statements below was prepared by a Grade 11 learner.
Information: Bank statement of Tyson Traders as at 30 September 2007
Debit Credit
Cr balance as per bank statement 4 117
Dr outstanding deposit 8 762
Cr outstanding cheques
No. 609 (12 April 2007) 876
No. 712 (24 September 2007) 8 900
No. 803 (26 September 2007) 4 500
No. 810 (6 October 2007) 960
No. 813 (7 October 2007) 1 346
Cr balance as per bank account 1 988
Additional information from the question paper 1. The bank statement reflected an unfavourable balance at the end of
September.
2. Cheque no. 609 was for a donation to a sports club that had closed down. The
cheque needs to be cancelled.
3. The bookkeeper was unsure how to treat the following items (adjust the bank
account amount where necessary):
3.1. A stop order to pay for the cellular phone contract of R149 per month
3.2. Cheque no. 803 appeared correctly on September's bank statement as
R5 400. Correct the error.
3.3. A cheque for R1 500 dated 15 October 2007 was received from a debtor.
3.4. The bank returned J. Clarke’s cheque for R4 400. The cheque was dishonoured
due to insufficient funds. The cheque was in settlement of his account of
R4 500.
3.5. Cheque 712 was lost in the post. No entry has been made for cancelling the
cheque and reissuing a new cheque no. 900.
Required: 1. Calculate the correct bank account balance for the general ledger. (5)
Incorrect balance (1 988)
2. Correct the bank reconciliation statement using the information. (8)
Debit Credit
____ balance as per bank statement
____ outstanding deposit
____ outstanding cheques
____ balance as per bank account
13 marks
Learn the EZ way! 20
4.6. Barbara Williamson Paper 1 2009 (20 marks; 15 minutes)
Andile Mlotshwa, owner of Mlotshwa Motors, received the business bank statement
dated 28 February 2009. The bank account in the general ledger shows a credit
balance of R34 000. Unfortunately the final bank statement balance has not printed
clearly.
Information:
1. The receipts for 27 and 28 February, R35 000, were deposited on 28 February, but
do not yet appear on the bank statement.
2. Cheque 320 for R5 000 was issued to the SPCA on 1 August 2008.
3. Cheque 394 issued to Mark’s Motor Manufacturers for spare parts on
20 February, R19 000, has not yet been cashed.
4. Cheque 395 for R4 500 appeared correctly on the bank statement, but has
been entered in the journals as R5 500.
5. Cheque 398 issued to O’Hagan Rentals for the March rent, R25 000, was dated
5 March 2009.
6. A cheque for R12 000 was received from Bhika Buyers, dated 31 March 2009. No
entry has been made for this.
7. The bank statement shows a deposit made by Masedi Paile, a customer, for
R30 000 on 10 February. This was a deposit on a vehicle she had just purchased.
8. The bank statement shows an unpaid cheque. It was originally received from
J Bradlow for R20 000, but was dishonoured as the written and numerical
amounts disagreed.
9. The bank statement shows the following charges: a stop order for insurance,
R3 000, bank charges totalling R300 and interest on overdraft, R200.
Required:
1. Calculate the correct bank account balance (10)
2. Draw up the bank reconciliation statement on 28 February 2009. (10)
Debit Credit
20 marks
www.ezlearn.co.za 21
4.7. Barbara Williamson 2009 (30 marks; 25 minutes)
Jessica Molefe owns Diva Jewellery. The bank statement dated 28 February 2008 has
been received and compared to the business’s accounting records.
Information
1. On 28 February the bank statement reflected a credit balance of R8 000, while
the bank account in the general ledger had a debit balance of R23 160.
2. The following information appeared on the bank statement but not in the
February journals:
2.1. The outstanding deposit of R3 000 reflected on the January bank reconciliation
statement appeared on the bank statement on 1 February 2008.
2.2. Bank charges of R150 appear on the bank statement.
2.3. Simone Nduna deposited R6 500 directly into the business’s bank account.
2.4. A cheque originally received from Lusanda Oliphant for R10 000 in settlement
of her account has been dishonoured by the bank as she forgot to sign it.
3. Sam Taule, the owner of BabyPhat Diamonds, called to ask that cheque 518 for
R5 000 be stopped, as it had been lost. A new cheque (no. 535) must be issued.
4. The following transactions were recorded in the February journals but are not yet
reflected on the bank statement:
4.1. Zanele Zungu deposited R2 500 into the business’s bank account by EFT on
27 February and faxed proof of payment to Jessica. This is not yet reflected on
the February bank statement.
4.2. Cheque 529 for R3 990 has not yet been cashed, as it is dated 31 March 2008.
5. Cheque 531 for R2 000 appeared on the bank statement as R20 000. The bank
has been notified of the error.
Required 1. Calculate the correct bank account balance in the general ledger. (4)
23 160
2. Draw up the bank reconciliation statement on 28 February 2008. (8)
Debit Credit
Balance as per bank statement
Outstanding deposits
Outstanding cheques
Correction of bank error
Balance as per bank account
Learn the EZ way! 22
3. Cheque 529 was for an invoice for jewellery bought from BabyPhat Diamonds.
3.1. Calculate the input VAT that would have been shown on this invoice. (3)
3.2. If the business uses a mark-up of 150%, calculate the exclusive selling price
when the jewellery was sold on 27 February. (4)
3.3. Calculate the VAT due to SARS as a result of this purchase and sale of
jewellery. (4)
4. Jessica, the owner, sold this jewellery (see no. 3 above) for cash and did not
issue an invoice to the customer, Nombuso Mathibela. When the stock clerk
queried the missing stock, Jessica told him the stock had been damaged and
thrown away.
4.1. How is Jessica benefiting from this fraudulent transaction? (2)
4.2. To whom is Jessica accountable for her actions in this case? (2)
4.3. Discuss the transparency of her actions. (3)
30 marks
www.ezlearn.co.za 23
5. Disposal of tangible assets
Depreciation At the end of the year, depreciation must be calculated for assets such as vehicles
and equipment. It may be calculated:
On cost: cost price x % depreciation = depreciation for the year
On carrying value / book value / diminishing balance: (cost price –
accumulated depreciation) x % depreciation = depreciation for the year.
Debit Credit
Depreciation
(Statement of Income)
Accumulated depreciation on vehicles
/ equipment (Statement of Financial
Position)
Asset disposal When an asset such as vehicles or equipment is sold, you have to take into account
both the cost price as well as the accumulated depreciation. It is therefore not a
straightforward transaction. To make things easier, an Asset Disposal account is
created, and all the amounts involved are transferred to this account. The profit or loss
can then be calculated in this account.
In an exam This can appear as an adjustment in preparing financial statements, or you may be
asked to draw up the ledger accounts.
The transaction may have been left out completely (record the entire transaction
from scratch, following the steps below)
The transaction may have been partially recorded (take this into account and
only record that which was NOT recorded)
Part of the transaction may have been recorded incorrectly (reverse the incorrect
entry and then record the transaction properly)
ALWAYS use T-accounts to record asset disposal if you are not asked to draw up the
ledger accounts, as this adjustment can get very complicated. T-accounts will help to
ensure you remember to record everything correctly, and will help you draw up your
Tangible Assets note to the financial statements much more easily!
Step 1
Open the cost (Vehicles / Equipment) and Accumulated Depreciation accounts with
the given balances in T-accounts, or the General Ledger if required. (If using T-
accounts, leave some space above the balance in case you want to recreate what
happened during the year by taking into account transactions which were recorded
and are therefore included in the balance.)
Learn the EZ way! 24
Step 2
Calculate and record the depreciation on the asset sold for the current year,
remembering to calculate it for the correct number of months until it was sold.
The required information could be given to you in two ways:
The accumulated depreciation on the item up to the beginning of the year may
be given to you. In this case, calculate depreciation as normal for this item only.
The purchase date of the item may be given to you. In this instance, you will
have to work out the accumulated depreciation up to the beginning of the
year as well as for the current year. Draw up a simple table and then calculate
the depreciation for each year of the asset’s life as follows:
Year end date Depreciation
(Year 1) (Amount of depreciation for correct number of months)
(Year 2) (Depreciation for year)
… (Depreciation for year)
(Date sold in current
year)
(Amount of depreciation for correct number of months) –
record this amount
TOTAL: (Total depreciation to be written off to asset disposal –
see point 3)
Step 3
Transfer all relevant amounts to Asset Disposal:
Cost price of sold item
Accumulated depreciation on sold item (accumulated depreciation to
beginning of current year PLUS current depreciation just calculated and
recorded!)
Selling price of sold item (contra account is bank if sold for cash, debtors if sold
on credit, creditors if traded in)
Remember to record these in ALL the contra accounts at the same time!!
Step 4
Calculate the balancing figure in Asset Disposal and record it as the Profit or Loss on
Sale of Asset. (HINT: to easily see if it is a profit or loss, look at which side of the Profit or
Loss on Sale of Asset account it appears – a credit is a profit, a debit a loss).
Don’t forget! If the asset was traded in, record the purchase of the new asset in the asset
account.
At the year end calculate the depreciation on the remaining assets, both old
and new.
OLD: use the balance in the cost account, excluding any new purchases. If
depreciation is to be calculated on the diminished balance / carrying value,
calculate the balance in the Accumulated Depreciation Account and
subtract this from the balance in the cost to find the book value of the old
assets. Calculate depreciation at the required rate (%) for the full year.
NEW: Use only the cost price, regardless of the method of calculating
depreciation. Calculate depreciation at the required rate (%) for the correct
number of months that the asset has been owned.
Add these two (OLD and NEW) figures together to find depreciation for the year
and record this. (Depreciation on the sold asset has already been recorded).
If completing General Ledger accounts, balance all the Statement of Financial
Position accounts, and close off the Nominal Accounts to Profit and Loss.
www.ezlearn.co.za 25
Financial Statements
Statement of Income
Other operating income
Profit on sale of asset
Operating expenses
Loss on sale of asset
Depreciation
Statement of Financial Position
NON CURRENT ASSETS
Tangible assets (note 1)
CURRENT ASSETS
Trade and other receivables (includes adjusted debtors figure)
Cash and cash equivalents (includes adjusted bank figure)
CURRENT LIABILITIES
Trade and other payables (includes adjusted creditors figure)
Notes to the financial statements
1. Tangible assets
When drawing up this note, ALWAYS take the figures directly from your T-accounts (or
General Ledger accounts if these were required) for the cost price and the
accumulated depreciation. Make sure that you use ALL the figures ONCE.
For each column of the Tangible Assets note, use the following two accounts. Tick off
each amount as you use it to ensure you don’t forget anything!
Cost (Vehicles / Equipment account)
1. Balance b/d
3. Bank / Creditors
4. Asset disposal
7. Balance b/d
Accumulated depreciation
5. Asset disposal
2. Balance b/d
6. Depreciation (on SOLD item during
year)
6. Depreciation (year end on OLD & NEW)
8. Balance b/d
Cost 1
Accumulated depreciation (2)
Carrying value at beginning of year
1 – 2
Movements
Additions at cost 3
Disposals at carrying value (4-5)
Depreciation for the year (6+6)
Carrying value at end of year 1-2+3-(4-5)-(6+6)
EQUALS 7-8
Cost 7
Accumulated depreciation (8)
Learn the EZ way! 26
My mistakes
www.ezlearn.co.za 27
5.1. DoE 2006 HG Question 7 (50 marks; 30 minutes)
1. Cosmos Taxi Service
Ron Lucas is the sole owner of Cosmos Taxi Service. He started business on
1 March 2002. On that day he introduced land and buildings into the business at a
value of R300 000 and he bought three similar taxis for R330 000 (i.e. R110 000 each).
Cosmos Taxi Service did not buy or sell any vehicles during the first three financial
years.
Required:
The following for the year ended 28 February 2006, the last day of the fourth financial
year:
1.1. Asset disposal account (8)
1.2. Accumulated depreciation on vehicles (13)
1.3. Note to the Statement of Financial Position: Fixed assets
(The total column is not required) (17)
Information:
2005
May 31
Cosmos Traders sold one taxi for R45 000 cash. This vehicle was purchased
on 1 March 2002 for R110 000. The vehicle is depreciated annually at the
rate of 20% p.a. on cost price.
Aug 31 A new taxi was purchased on credit from Mamelodi Motors for R200 000.
Oct 31 A new garage was built at a cost of R60 000 and repairs were done to the
roof of the office for R12 000.
2006
Feb 28
The policy for depreciation has not changed since Cosmos Taxi Service
started business operations. Depreciation on vehicles is calculated at 20%
p.a. on cost price.
Learn the EZ way! 28
1.
1.1. Dr General ledger of Cosmos Taxi Service Cr
Asset disposal
1.2. Accumulated depreciation on vehicles 2005
Mar
1 Balance b/d 198 000
1.3. Note to the Statement of Financial Position
Fixed assets / tangible assets Land and
buildings Vehicles
Cost at beginning of the year 300 000
Accumulated depreciation (0) (198 000)
Movements
Additions 200 000
Disposals
Depreciation
Cost at end of the year
Accumulated depreciation
(Please turn over for 2. Jupiter Taxi Service)
www.ezlearn.co.za 29
2. Jupiter Taxi Service
Syd Allan runs a competing taxi business called Jupiter Taxi Service.
He is concerned that his revenue from taxi fares has not met his budget of R1 500 000
and that the fuel and repair costs have exceeded his budget of R710 000.
He has extracted the following information from his ledger, the fixed assets register
and other records on 28 February 2006, the last day of the financial year.
Required:
Consider the information provided below. Explain whether or not Syd should be
concerned about any problem or aspect relating to each vehicle. Quote amounts to
support your opinion. (12)
Information:
Taxi 1 Taxi 2 Taxi 3
Name of driver Freddy Robbie Shirley
Date purchased 1 March 1995 1 March 2003 1 March 2005
Cost price of
vehicle R45 000 R180 000 R300 000
Accumulated
depreciation R44 999 R36 000 R60 000
Amount of revenue
brought in R618 300 R222 800 R279 900
Kilometres covered
for the past year 68 700 km 69 200 km 31 100 km
Fuel and repair
costs for the year R439 680 R290 640 R136 840
Fuel and repair
costs per kilometre R6,40 R4,38 R4,40
Learn the EZ way! 30
2. Explain whether or not Syd should be concerned about any problem or aspect
relating to each vehicle. Quote amounts to support your opinion.
Taxi 1:
Taxi 2:
Taxi 3:
50 marks
www.ezlearn.co.za 31
5.2. Barbara Williamson 2007 (60 marks; 35 minutes)
Sharika Bhoodhia is very proud of herself as she has drawn up her financial statements
for the year ended 28 February 2008 all on her own, and her business shows a
pleasing profit of R45 000. However, when she shows them to you, you notice that the
profit on sale of asset shown in the Statement of Income is very high at R20 000, and
no depreciation is shown under operating expenses. When you discuss this with her,
she explains that the profit is the amount she received for the vehicle that was traded
in for the new vehicle, and she has not calculated depreciation because it is not an
amount that was actually paid.
Information: 1. The following (correct) balances appeared in the books of Bhoodhia Traders on
1 March 2007:
Vehicles R100 000
Accumulated depreciation on vehicles R 60 000
2. On 30 June 2007 an old delivery vehicle was traded in for R20 000 when a new
vehicle was purchased at a price of R120 000. The old vehicle had originally cost
R70 000 and had accumulated depreciation of R49 000 on 1 March 2007.
3. Depreciation should be calculated at 20% p.a. on the carrying value.
Required: 1. Explain to Sharika
1.1. Why her profit on sale of asset is incorrect (4)
1.2. The importance of calculating and recording depreciation. (3)
2. Show the following general ledger accounts as they should appear for the
period 1 March 2007 to 28 February 2008:
1.1. Vehicles (6)
Learn the EZ way! 32
1.2. Accumulated depreciation on vehicles (15)
1.3. Depreciation (6)
1.4. Asset disposal (8)
2. Draw up the correct the Vehicles column of the Tangible Assets note to the
Statement of Financial Position on 28 February 2008. (13)
Vehicles
Cost
Accumulated depreciation
Carrying value (1 March 2007)
Movements
Carrying value (28 February 2008)
Cost
Accumulated depreciation
3. Calculate the correct net profit for the year. (5)
60 marks
www.ezlearn.co.za 33
5.3. DoE Exemplar 2007 Question 4.1. (29 marks; 18 minutes)
You are provided with information relating to Maduna & Son Traders.
Required:
1. Calculate depreciation on vehicles for the year ended 28 February 2007. (7)
2. Prepare the Asset Disposal account on 31 December 2006. (9)
3. Complete the note to the Statement of Financial Position for fixed assets on 28
February 2007. A total column is not required. Some of the figures have already
been entered for you. (13)
Information:
1. Depreciation on vehicles is calculated at 20% p.a. on the straight line method.
Depreciation on equipment for the year amounts to R11 400.
2. The following balances appeared in the ledger on 1 March 2006:
Vehicles at cost R880 000
Accumulated depreciation on vehicles R250 000
Equipment at cost R336 000
Accumulated depreciation on equipment R257 000
3. Bought new equipment on credit for R105 000 on 1 November 2006.
4. Paid Urban Technics the following on 28 February 2007:
R8 000 for installing a sound system in a vehicle.
R3 000 for repairing the air-conditioning system in the vehicle.
5. Traded in a vehicle at Pretoria Motors on 31 December 2006. The trade-in value
offered by Pretoria Motors was R32 000, while the cost of the new vehicle was
R180 000. The balance of R148 000 due to Pretoria Motors ill be paid over the
next six months.
Details of the old vehicle traded in were obtained from the fixed assets register:
FIXED ASSETS REGISTER
Vehicle: Toyota Corolla Model: 2003
Date bought: 1 May 2003 Date sold: 31 December 2006
Cost price: R144 000
Depreciation written off:
28 Feb 2004 R24 000
28 Feb 2005 R28 800
28 Feb 2006 R28 800
R81 600
31 Dec 2006 ?
Learn the EZ way! 34
1. Calculate depreciation on vehicles for the year ended 28 February 2007.
2. Ledger of Maduna & Son Traders
Asset disposal
3. Notes to the Statement of Financial Position on 28 February 2007
Tangible assets
Land and
buildings Vehicles Equipment
Carrying value at the beginning of the year 255 600 79 000
Cost 255 600 336 000
Accumulated depreciation - (257 000)
Movements
Additions -
Disposals -
Depreciation -
Carrying value at the end of the year 255 600 602 400
Cost 255 600 924 000
Accumulated depreciation - (321 600)
29 marks
www.ezlearn.co.za 35
5.4. IEB Exemplar 2007 Paper 1 Q4 (40 marks; 24 minutes)
Required:
This question consists of two parts. Part A involves the Tangible Assets note and Part B
is a theory question.
Part A
From the information that follows, draft the notes to the Statement of Financial
Position of Natal Carpets for the year ended / as at 28 February 2007. (35)
Natal Carpets
Pre-adjustment trial balance as at 28 February 2007
Statement of Financial Position accounts section
Equipment 82 000
Accumulated depreciation: equipment (1/3/2006) 9 600
Vehicles 102 000
Accumulated depreciation: vehicles (1/3/2006) 50 400
Adjustments and additional information:
1. NB! This adjustment needs to be read in conjunction with adjustments 2 and 3.
Both vehicles and equipment are depreciated as a percentage of the cost
price.
Use information provided in adjustment 2 to calculate the rate at which vehicles
are depreciated. (If you are unable to calculate the rate with which to
calculate the depreciation on vehicles, then use the rate of 25% on cost. This is
not the correct rate.)
2. Natal Carpets has two identical vehicles originally bought on the same day.
One of the vehicles was sold on 31 January 2007 for R16 000 on credit, and at a
loss of R450. This entry has still to be processed.
3. New equipment costing R50 000 was purchased and correctly entered on
1 December 2006. (Equipment is depreciated at a rate of 10% on cost).
Tangible / fixed assets
Vehicles Equipment Total
Carrying value
Carrying value
Learn the EZ way! 36
Part B
There is a thin line between what an asset is, and what an expense is.
Why do we not treat vehicles as an expense, and write the full purchase price off
against revenue (income) in a single year? Give two reasons. Explain what the main
difference is between assets and expenses. (5)
40 marks
www.ezlearn.co.za 37
5.5. Barbara Williamson Paper 1 2009 (50 marks; 35 minutes)
Kyle’s Kool Karts is a business that manufactures go-karts. On 31 December 2008 stray
fireworks caused a factory fire which destroyed a number of pieces of machinery.
Fortunately the factory and its contents are insured, and these pieces were replaced
on 2 January 2009.
Required:
1. Complete the following general ledger accounts for the year ended
28 February 2009:
1.1. Machinery (6)
1.2. Accumulated depreciation on machinery (18)
1.3. Asset disposal (showing the machinery destroyed and insurance payout) (9)
2. Draw up the tangible assets note to the financial statements on
28 February 2009. (13)
3. Answer the questions that follow.
Information:
1. Balances in the general ledger on 1 March 2008:
Machinery R 400 000
Accumulated depreciation on machinery 240 000
2. Machinery is depreciated at 20% p.a. on cost.
3. The fire destroyed machinery that had originally cost R90 000, and had
accumulated depreciation of R30 000 on 28 February 2008.
4. The insurance company paid out R40 000 for the loss of machinery due to fire.
5. The burnt machinery was replaced with new machinery costing R96 000 cash
on 2 January 2009.
6. Depreciation must be calculated at the year end.
1. Dr General ledger of Kyle’s Kool Karts Cr
1.1. Machinery (6)
1.2. Accumulated depreciation on machinery (18)
Learn the EZ way! 38
1.3. Asset disposal (9) 2008
Dec 31
2008
Dec 31
2. Notes to the financial statements on 28 February 2009
Tangible assets (13)
Cost
Accumulated depreciation on machinery
Carrying value at 1 March 2008
Movements
Additions at cost
Disposals at carrying value
Depreciation for the year
Carrying value at 28 February 2009
Cost
Accumulated depreciation
Questions
Kyle is concerned that the fire has cost the business R56 000, being the difference
between the insurance payout and the cost of new machinery.
3.1. What is the actual loss to the business? (1)
3.2. Explain why there is this difference between the actual loss and the cash
outlay incurred. (3)
50 marks