TASK 6.

11  Jacklynn Traders: Appropriation Statement &

Statement of Equity
6.11.1
JACKLYNN TRADERS
APPROPRIATION STATEMENT ON 28 FEBRUARY 20.7
Jack Lynn TOTAL
Profit per the Income Statement 117 000 99 000 216 000
Partners’ salaries 100 800 72 000 172 800
Bonus: Lynn 45 000 15 000 60 000
Interest on capital - 21 600 21 600
Primary division of profits 145 800 108 600 254 400
Final division of profits [28 800] [9 600] [38 400]
STATEMENT OF OWNER’S EQUITY ON 28 FEBRUARY 20.7
CAPITAL Jack Lynn Total
Balance at the beginning of the year 300 000 100 000 400 000
Contribution of capital during the year - 50 000 50 000
Withdrawal of capital during the year [50 000] - [50 000]
Balance at the end of the year 250 000 150 000 400 000

CURRENT ACCOUNTS Jack Lynn Total

Profit per Income Statement 117 000 99 000 216 000
Partners’ salaries 100 800 72 000 172 800
Interest on capital 45 000 15 000 60 000
Bonus - 21 600 21 600
Primary distribution of profits 145 800 108 600 254 400
Final distribution of profits [28 800] [9 600] [38 400]
Drawings during the year [89 000] [78 000] [167 000]
Retained income for the year 28 000 21 000 49 000
Retained income at beginning of year 45 000 [7 000] 38 000
Retained income at end of year 73 000 14 000 87 000

6.11.2 In your opinion, should the partners be satisfied with the amount they are
each earning from the business? Explain.
Use discretion as there is no right or wrong answer. However, learners must justify their answers.
Possible answers:
 Jack earned R117 000 on an investment of R300 000 (39%). Lynn earned R99 000 on an
investment of R100 000 (99%).
 Yes, these returns are very good – far more than they would receive in a bank.
 No, they would expect more. Jack might not be happy that Lynn is earning more than he is.
Note:
The capital balances changed at the end of the year; hence the average capital was not used in
this calculation. The accuracy is not essential at this stage, but rather that the learners realise the
importance of comparing the return to what they earn in a financial institution.
TASK 6.12  KK Stores: Financial Statements & reflection
on results
KAY-KAY STORES
INCOME STATEMENT / STATEMENT OF COMPREHENSIVE INCOME
FOR YEAR ENDED 28 FEBRUARY 20.2
Note
Sales [945 000 – 5 000] 940 000
Cost of sales [560 000]
Gross profit 380 000
Income from services rendered 129 900
Fee income 92 000
Commission income [36 300 + 1 600] 37 900
Other operating income 350
Provision for bad debts adjustment 350
Gross operating income 510 250
Operating expenses [269 900]
Salaries and wages [220 000 – 550] 219 450
Advertising [13 000 + 200] 13 200
Insurance [6 600 – 400] 6 200
Bad debts 3 000
Consumable stores [5 000 – 600] 4 400
Sundry expenses [12 600 + 250] 12 850
Trading stock deficit 2 800
Depreciation 8 000
Operating profit 240 350
Interest income 1 4 300
Profit before interest expense 244 650
Interest expense / Financing cost 2 [28 800]
Net profit for the year 8 215 850

BALANCE SHEET / STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 20.2

ASSETS Note
Non-current assets 942 800
Tangible / fixed assets 3 902 000
Financial assets – Fixed deposit 40 800
Current assets 247 900
Inventories 4 207 800
Trade and other receivables 5 22 500
Cash and cash equivalents 6 17 600
Total assets 1 190 700

EQUITY AND LIABILITIES

Capital and reserves / Owners’ equity 924 850
Capital 7 900 000
Current accounts 8 24 850
Non-current liabilities 240 000
Loan from Business Partners Ltd 240 000
Current liabilities 25 850
Trade and other payables 9 25 850
Total equity and liabilities 1 190 700
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.2
1. INTEREST INCOME
from investments [4 100 – 300] 3 800
on current account 500
4 300
2. INTEREST EXPENSE
on loans 28 800
28 800

3. FIXED ASSETS Land &

Equipment Total
buildings
Carrying value at beginning 860 000 50 000 910 000
Cost 860 000 80 000 940 000
Accumulated depreciation - [30 000] [30 000]
Movements - [8 000] [8 000]
Additions at cost - - -
Disposals at carrying value - - -
Depreciation - [8 000] [8 000]
Carrying value at end 860 000 42 000 902 000
Cost 860 000 80 000 940 000
Accumulated depreciation - [38 000] [38 000]

4. INVENTORIES
Trading stock [210 000 – 2 800] 207 200
Consumable stores on hand 600
207 800
5. TRADE AND OTHER RECEIVABLES
Net trade debtors 19 950
Trade debtors 21 000
Provision for bad debts [1 050]
Income receivable / Accrued income 1 600
Prepaid expenses 950
22 500
6. CASH AND CASH EQUIVALENTS
Savings account 12 000
Bank 4 600
Cash float 1 000
17 600

7. CAPITAL Kelo Kisten Total

Balance at the beginning of the year 590 000 290 000 880 000
Contribution of capital during the year 10 000 10 000 20 000
Withdrawal of capital during the year - - -
Balance at the end of the year 600 000 300 000 900 000
8. CURRENT ACCOUNTS Kelo Kisten Total
Profit per Income Statement 114 233 101 617 215 850
Partners’ salaries 50 000 50 000 100 000
Bonus: Kisten 0 20 000 20 000
Interest on capital 59 000 29 000 88 000
Primary distribution of profits 109 000 99 000 208 000
Final distribution of profits 5 233 2 617 7 850
Drawings during the year [90 000] [110 000] [200 000]
Retained income for the year 24 233 [8 383] 15 850
Retained income at beginning of year [25 000] 34 000 9 000
Retained income at end of year [767] 25 617 24 850

9. TRADE AND OTHER PAYABLES

Trade creditors 25 100
Income received in advance / Deferred income 300
Accrued expenses / Expenses payable [200 + 250] 450
25 850

6.12.1 Work in pairs: Inspect the figures in the financial statements. Make a list of
the main points that should interest the partners. Share your list with the rest
of the class.
Various answers are possible. Allow the learners time to engage with the documents and their
discussions are more important than a right or wrong answer. Encourage them to justify their
comments.

Possible answers (Alternative valid responses acceptable):

 Gross profit is R380 000 on sales of R940 000 (40%) – learners could regard this as good or
bad – we are not given the type of products that this business deals in.
 Net profit is R215 850 on sales of R940 000 (23%).
 Expenses are R269 900 on sales of R940 000 (29%) – good or bad. They need previous figures
to do a comparison but let them engage with these figures – it is not important now whether
they say they are too high or not.
 Salaries constitute a high percentage of the total expenses (81,3%) – as we do not know what
type of business this is, it is difficult to comment but they must be aware of this.
 The owners have invested far more than has been borrowed – risk factor reduced.
 Company is solvent – can pay off their debts.
 No liquidity problems – current assets more than current liabilities. If the learners have studied
the liquidity ratios you could bring in that perhaps the current assets are too high.
 Kelo has earned R124 233 on a capital of R590 000 / R600 000 (21%). Kisten has earned R91
617 on a capital of R290 000 / R300 000 (30%).
 Returns are good in comparison to financial institutions.
TASK 6.13  Gold Reef Surf Shop: Correction of financial
statements & reflection on results
6.13.1 GOLD REEF SURF SHOP
INCOME STATEMENT / STATEMENT OF COMPREHENSIVE INCOME
FOR YEAR ENDED 28 FEBRUARY 20.6
Note
Sales [705 000 - 400] 704 600
Cost of sales [374 000]
Gross profit 330 600
Income from services rendered [116 000 + 1 200] 117 200
Other operating income 16 620
Commission income 12 300
Provision for bad debts adjustment 420
Discount received 3 900
Gross operating income 464 420
Operating expenses [232 426]
Rent expense [39 000 – 3 000] 36 000
Advertising 5 000
Consumable stores 27 700
Salary of part-time shop assistant 45 600
Wages of workshop assistant 62 000
Telephone & electricity 8 500
Insurance 4 200
Depreciation[1] 17 776
Stationery & printing 3 300
Bank charges [4 800 + 520] 5 320
Packing materials 5 700
Bad debts [900 + 230] 1 130
Sundry expenses 10 200
Operating profit 231 994
Interest income 1 6 750
Profit before interest expense 238 744
Interest expense / Financing cost [10 010 + 910[2] + 170] 2 [11 090]
Net profit for the year 8 227 654
[1]
265 000 – 95 000 + 7 660 = R177 660
177 660 x 10% = R17 776
[2]
10 010 ÷ 11 = R910
GOLD REEF SURF SHOP
BALANCE SHEET / STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 20.6
ASSETS Note
Non-current assets 336 634
Fixed assets – Equipment (265 000 + 7 660 – 17 776) 3 254 884
Financial assets – Fixed deposit (75 000 + 6 750) 81 750
Current assets 121 060
Inventories (105 300 – 610) 4 104 690
Trade & other receivables
5
(17 950 – 400 + 1 200 + 3 000 – 6 750 - 230) 14 770
Cash & cash equivalents 6 1 600
Total assets 457 694

EQUITY AND LIABILITIES

Capital and reserves / Owners’ equity 318 044
Capital 7 300 000
Current accounts 8 18 044
Non-current liabilities 73 510
Loan from Breakers Bank (54 600 + 910 – 12 000) 43 510
Loan from G Gold 30 000
Current liabilities 66 140
Trade & other payables (27 600 + 12 000) 9 39 600
Bank overdraft (25 850 + 170 + 520) 26 540
Total equity and liabilities 457 694

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.6
8. CURRENT ACCOUNTS G. GOLD R. REEF Total
Profit per Income Statement 163 991 63 663 227 654
Partners’ salaries 130 000 51 000 181 000
Partner’s bonus 20 000 0 20 000
Interest on capital 12 000 12 000 24 000
Primary distribution of profits 162 000 63 000 225 000
Final distribution of profits 1 991 663 2 654
Drawings during year (150 000 + 610) (150 610) (70 000) (220 610)
Retained income for the year 13 381 (6 337) 7 044
Retained income at beginning of year 5 000 6 000 11 000
Retained income at end of year 18 381 (337) 18 044

6.13.2 In your opinion, should the partners be satisfied with their earnings? Explain.
Learners own opinions.
Possible answers:
In total, the partners have earned a profit of R227 654 on a capital of R300 000 (76%) – this is a
good return in comparison with the financial institutions.
The partners each earned R12 000 interest on capital. This means that their partners’ capital must
have been equal.
Learners can assess the individual returns as well.
TASK 6.14  Zumzum Furnishers: Correction of financial
statements, reflection & Accounting equation
6.14.1 ZUMZUM FURNISHERS
INCOME STATEMENT / STATEMENT OF COMPREHENSIVE INCOME
FOR YEAR ENDED 28 FEBRUARY 20.7
Note
Sales [810 000 + 18 000] 828 000
Cost of sales [450 000 + 10 000] [460 000]
Gross profit 368 000
Income from services rendered [154 000 + 5 000] 159 000
Other operating income 149 000
Rent income [60 000 + 12 000] 72 000
Bad debts recovered 17 000
Commission income [63 000 – 3 000] 60 000
Gross operating income 676 000
Operating expenses [361 580]
Salaries & wages [234 000 + 5 000] 239 000
Telephone & electricity [18 500 + 900] 19 400
Repairs & maintenance [25 500 – 20 000] 5 500
Advertising 8 000
Bad debts 4 700
Depreciation [38 000 – 19 000] 19 000
Stationery & printing 4 300
Packing materials [16 400 – 8 000] 8 400
Insurance [18 720 – 1 440] 17 280
Bank charges [12 400 + 600] 13 000
Sundry expenses [51 200 – 30 000] 21 200
Trading stock deficit 1 800
Operating profit 314 420
Interest income 1 4 810
Profit before interest expense 319 230
Interest expense / Financing cost 2 [28 600]
Net profit for the year 8 290 630
ZUMZUM FURNISHERS
BALANCE SHEET / STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 20.7
ASSETS Note
Non-current assets 1 015 000
Fixed assets [920 000 + 20 000 + 19 000] 3 959 000
Financial assets – Investments [60 000 – 4 000] 56 000
Current assets 202 040
Inventory [102 000 – 10 000 – 1 800 + 8 000] 4 98 200
Trade and other receivables
[62 000 + 18 000 + 12 000 + 1 440] 5 93 440
Cash and cash equivalents [2 000 + 5 000 – 600 + 4 000] 6 10 400
Total assets 1 217 040

EQUITY AND LIABILITIES

Capital and reserves / Owners’ equity 866 140
Capital 7 800 000
Current accounts 8 66 140
Non-current liabilities 300 000
Mortgage loan: Sun Bank 220 000
Loan from B. Zuma 80 000
Current liabilities 50 900
Trade and other payables [42 000 + 5 000 + 3 000 + 900] 9 50 900
Total equity and liabilities 1 217 040

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.7
8. CURRENT ACCOUNTS A. Zuma B. Zuma Total
Profit per Income Statement 162 578 128 052 290 630
Partners’ salaries 65 000 65 000 130 000
Partner’s bonus 15 000 - 15 000
Interest on capital 24 000 24 000 48 000
Primary distribution of profits 104 000 89 000 193 000
Final distribution of profits 58 578 39 052 97 630
Drawings during year* [107 000] [119 990] [226 990]
Retained income for the year 55 578 8 062 63 640
Retained income at beginning of year 1 000 1 500 2 500
Retained income at end of year 56 578 9 562 66 140
*B. Zuma: 89 990 + 30 000

6.14.2 Write a brief explanation to the partners on how much they could each
withdraw from the business.
Various answers are possible.
 The learners could say that they could just increase their salaries and interest and withdraw
more during the year.
 However, they need to note that the cash balance is only R10 400 and if they are going to
withdraw more, it will result in a bank overdraft.
 Therefore if they need to earn more, they should aim to improve the profitability of the business
by any of the following:
- Increase sales.
- Decrease cost of sales (obtain another supplier).
- Increase the mark-up percentage.
- Decrease expenses.
- Etc.
6.14.3 GAAP principles that were violated:
GAAP principle Adjustment No.
Prudence 3
Business entity 9
Matching 1, 2, 3, 4, 5, 6, 8, 11, 12
Historical cost 7
Note: Some adjustments can be classified in more than one principle.

6.14.4 Effect of adjustments on the Accounting equation:

No. A= O+ L
+18 000 +18 000
1. 0
-10 000 -10 000
2. 0 -5 000 +5 000
3. -1 800 -1 800 0
+5 000 +5 000
4. 0
-600 -600
5. 0 -3 000 +3 000
6. 0 -900 +900
7. +20 000 +20 000 0
8. +8 000 +8 000 0
9. 0 ±30 000 0
10. +19 000 +19 000 0
11. +12 000 +12 000 0
12. +1 440 +1 440 0
13. ±4 000 0 0
14. 0 ±97 630 0
TASK 6.15  Cobra Traders: Accounting equation for
adjustments
Adjustment at the Effect on Accounting
No. financial year-end, 28 Account debit Account credit equation
February 20.3 A= O+ L
1. Rent of R10 000 for February
Income receivable Rent income +10 000 +10 000 0
is owed to the business.
2. Fee income of R2 000 has
Fee income Deferred income 0 -2 000 +2 000
been received in advance.
3. The February telephone
account of R500 has not Telephone Expenses payable 0 -500 +500
been paid.
4. Insurance premium of R800
Expenses prepaid Insurance +800 +800 0
has been paid in advance.
5. Trading stock deficit of
Trading stock deficit Trading stock -6 000 -6 000 0
R6 000 is to be written off.
6. Packing materials of R700
Consumable stores
were physically counted at Packing materials +700 +700 0
on hand
the year-end.
7. Depreciation of R9 000 is to Accumulated
be written off. Depreciation depreciation on -9 000 -9 000 0
equipment
8. Bad debts of R3 000 are to
Bad debts Debtors control -3 000 -3 000 0
be written off.
9. Provision for bad debts is to Provision for bad Provision for bad
-300 -300 0
be increased by R300. debts adjustment debts
10. Fixed asset disposal:
Transfer the cost price of
R11 000 to the asset disposal Asset disposal Equipment -11 000 -11 000 0
account.
Transfer the accumulated Accumulated
depreciation of R4 000 to the depreciation on Asset disposal +4 000 +4 000 0
asset disposal account. equipment
Enter the selling price of the
fixed asset of R8 500 (sold Debtors control Asset disposal +8 500 +8 500 0
on credit).
11. Appropriation of profits:
Provide for a salary due to ±50 00
Salary: Jones Current a/c: Jones 0 0
Partner: Jones of R50 000. 0
Provide for interest on capital
Interest on capital Current a/c: Smith 0 ±7 700 0
of R7 700 to Partner: Smith
Remaining profits of R45 000
±30 00
are shared between Jones Appropriation a/c Current a/c: Jones 0 0
0
and Smith in the ratio 2 : 1.
±15 00
Appropriation a/c Current a/c: Smith 0 0
0
TASK 6.16 RM Stationers: Financial statements, Accounting equation.
6.16.1 RM STATIONERS – YEAR-END WORKSHEET: 28 FEBRUARY 20.3
NOMINAL BALANCE SHEET
PRE-ADJUSTMENT ADJUSTMENTS
SECTION SECTION
Balance Sheet section Debits Credits Debits Credits Debits Credits Debits Credits
Capital: Radebe 170 000 170 000
Capital: Miller 170 000 170 000
Current account: Radebe 25 400 54 000 55 957
12 000
17 000
Current account: Miller 28 200 54 000 59 757
17 000
Drawings: Radebe 96 400 0
Drawings: Miller 83 400 0
Mortgage loan: XY Bank 173 200 173 200
Land and buildings 420 000 420 000
Vehicles (at cost) 148 000 148 000
Accum. dep on vehicles 93 800 10 840 104 640
Equipment (at cost) 68 000 68 000
Accum. depr on equip. 44 500 6 800 51 300
Fixed deposit: Umlazi 45 230
Bank 905 46 135
Savings: Umlazi Bank 8 320 8 320
Trading stock 122 800 560 119 000
3 240
Debtors control 21 200 180 21 020
Provision for bad debts 780 481 1 261
Bank 3 310 3 310
Petty cash 500 500
Cash float 750 750
Creditors control 47 060 47 060
SARS (PAYE) 2 560 2 560
Consumables on hand 1 900 1 900
Prepaid expenses 600 975
375
Deferred income 3 200 3 200
Accrued income 1 400 1 400
Accrued expenses 375 375
Nominal a/c’s section
Sales 800 500 800 500
Cost of sales 418 500 418 500
Debtors allowances 9 200 9 200
Salaries and wages 147 000 147 000
Advertising 5 150 600 4 550
Rent income 41 600 3 200 38 400
Commission income 39 600 1 400 41 000
Discount received 12 860 12 860
Discount allowed 1 500 1 500
Motor expenses 7 450 7 450
Bad debts 1 220 180 1 400
Interest on investments 4 070 905 4 975
Interest on bank a/c 380 380
Interest on loan 19 200 19 200
TOTALS 1 627 130 1 654 510 8 560 182 581 608 800 898 115 839 310 839 310
RM STATIONERS – YEAR-END WORKSHEET: 28 FEBRUARY 20.3 (Continued)
NOMINAL BALANCE SHEET
PRE-ADJUSTMENT ADJUSTMENTS
SECTION SECTION
Debits Credits Debits Credits Debits Credits Debits Credits
TOTALS b/f 1 627 130 1 654 510 8 560 182 581 608 800 898 115 839 310 839 310
Postage & stationery 2 460 560 3 020
Packing materials 8 740 1 900 6 840
Insurance 8 640 375 8 265
Sundry expenses 7 540 375 7 915
Trading stock deficit 3 240 3 240
Provision for b/debts adj. 481 481
Depreciation 6 800 17 640
10 840
Partners’ salaries 108 000 108 000
Partner’s bonus 12 000 12 000
Interest on capitals 34 000 34 000
Remaining profit 87 914
TOTALS 1 654 510 1 654 510 184 856 184 856 898 115 898 115 839 310 839 310
Share of remaining profit: Radebe 43 957
Share of remaining profit: Miller 43 957

6.16.1 RM STATIONERS
INCOME STATEMENT / STATEMENT OF COMPREHENSIVE INCOME
FOR YEAR ENDED 28 FEBRUARY 20.3
Note
Sales [800 500 – 9 200] 791 300
Cost of sales [418 500]
Gross profit 372 800
Income from services rendered 41 000
Commission income [39 600 + 1 400] 41 000
Other operating income 51 260
Rent income [41 600 – 3 200] 38 400
Discount received 12 860
Gross operating income 465 060
Operating expenses [209 301]
Salaries and wages 147 000
Advertising [5 150 – 600] 4 550
Discount allowed 1 500
Motor expenses 7 450
Bad debts [1 220 + 180] 1 400
Postage and office stationery [2 460 + 560] 3 020
Packing materials [8 740 – 1 900] 6 840
Insurance [8 640 – 375] 8 265
Sundry expenses [7 540 + 375] 7 915
Trading stock deficit 3 240
Provision for bad debts adjustment 481
Depreciation 17 640
Operating profit 255 759
Interest income 1 5 355
Profit before interest expense 261 114
Interest expense / Financing cost 2 [19 200]
Net profit for the year 8 241 914
RM STATIONERS
BALANCE SHEET / STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 20.3
ASSETS Note
Non-current assets 526 195
Fixed/Tangible assets 3 480 060
Financial assets:
Fixed deposit: Umlazi Bank [45 230 + 905] 46 135
Current assets 155 914
Inventory 4 120 900
Trade and other receivables 5 22 134
Cash and cash equivalents 6 12 880
Total assets 682 109

EQUITY AND LIABILITIES

Capital and reserves / Owners’ equity 455 714
Capital 7 340 000
Current accounts 8 115 714
Non-current liabilities 173 200
Mortgage loan: XY Bank 173 200
Current liabilities 53 195
Trade and other payables 9 53 195
Total equity and liabilities 682 109

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 20.3
1. INTEREST INCOME
from investments [4 070 + 905 ] 4 975
on current account 380
5 355
2. INTEREST EXPENSE
on loan 19 200
19 200

3. FIXED ASSETS Land &

Vehicles Equipment Total
buildings
Carrying value at beginning 420 000 54 200 23 500 497 700
Cost 420 000 148 000 68 000 636 000
Accumulated depreciation - [93 800] [44 500] [138 300]
Movements - [10 840] [6 800] [17 640]
Additions at cost - - - -
Disposals at carrying value - - - -
Depreciation - [10 840] [6 800] [17 640]
Carrying value at end 420 000 43 360 16 700 480 060
Cost 420 000 148 000 68 000 636 000
Accumulated depreciation - [104 640] [51 300] [155 940]

4. INVENTORIES
Trading stock [122 800 – 560 – 3 240] 119 000
Consumable stores on hand 1 900
120 900
5. TRADE AND OTHER RECEIVABLES
Net trade debtors 19 759
Trade debtors [21 200 – 180] 21 020
Provision for bad debts [780 + 481] [1 261]
Accrued income/Income receivable 1 400
Prepaid expenses [600 + 375] 975
22 134
6. CASH AND CASH EQUIVALENTS
Savings account: Umlazi Bank 8 320
Bank 3 310
Petty cash 500
Cash float 750
12 880

7. CAPITAL Radebe Miller Total

Balance at the beginning of the year 170 000 170 000 340 000
Contribution of capital during the - - -
year
Withdrawal of capital during the year - - -
Balance at the end of the year 170 000 170 000 340 000

8. CURRENT ACCOUNTS Radebe Miller Total

Profit per Income Statement 126 957 114 957 241 914
Partners’ salaries 54 000 54 000 108 000
Partner’s bonus 12 000 0 12 000
Interest on capital 17 000 17 000 34 000
Primary distribution of profits 83 000 71 000 154 000
Final distribution of profits 43 957 43 957 87 914
Drawings during the year [96 400] [83 400] [179 800]
Retained income for the year 30 557 31 557 62 114
Retained income at beginning of year 25 400 28 200 53 600
Retained income at end of year 55 957 59 757 115 714

9. TRADE AND OTHER PAYABLES

Trade creditors 47 060
SA Revenue Services (PAYE) 2 560
Income received in advance / Deferred income 3 200
Accrued expenses / Expenses payable 375
53 195
6.16.2 Effect of adjustments on the Accounting equation:
No. A O L
1. -560 -560 0
-3 240 -3 240
2. 0
+1 900 +1 900
3. +600 +600 0
4. +375 +375 0
5. 0 -3 200 +3 200
6. +905 +905 0
7. +1 400 +1 400 0
8. 0 -375 +375
-180 -180
9. 0
-481 -481
10. -17 640 -17 640 0
±108 000
±12 000
11. 0 0
±34 000
±87 914

6.16.3 The partners are worried that they will not be able to settle the immediate
debts. Do you agree? If so, what solution can you provide to solve the
problem?
The immediate debts amount to R53 195 and the business has R155 914 in current assets.
However, a large portion of the current assets is tied up in inventory. Without the inventory the
business has R35 014 to pay the R53 195. Therefore, if they do not sell the stock, they will
experience problems paying the debts.
Possible solutions:
 Take out an overdraft.
 Increase the loan.
 Reduce the stock by having a sale.
 Cash in the fixed deposit – if possible.
 Etc.

6.17.5 Post-dated cheques:

 Explain which items in financial statements are affected by these, and how they are
affected.
Creditors control will decrease.
Bank will decrease if the balance is favourable; if unfavourable bank overdraft will increase.

 Define what is meant by the term ‘post-dated cheque’.

Cheques which are dated for the future. The cheque can only be banked or deposited on the date
specified.

 Why would a business issue post-dated cheques?

The business may not have immediate funds to cover the value of the cheque.
It expects to have the available funds on the date specified on the cheque.

6.17.6  Consider your answer in 6.17.5 above and explain how the financial
statements should be adjusted at this year-end. Provide your reasons.
Add to Bank (if favourable) OR subtract from Bank (if unfavourable); Add to Creditors control.
The cheque only becomes valid only on 31 May 20.6 but the entry has already been recorded in
the CPJ for February 20.6.
To represent a true state of affairs (Prudence concept) the entry in the CPJ is reversed as the
amount has not yet been deducted from the trader’s bank account.