SECONDARY SCHOOL IMPROVEMENT PROGRAMME

(SSIP) 2024

GRADE 11

SUBJECT: ACCOUNTING

LEARNER NOTES

SESSION 1- 5

(Page 1 of 80 pages)
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TABLE OF CONTENTS

SESSION TOPIC PAGE

Bank reconciliation
1 3-21

2 Creditors reconciliation
22-39

Tangible Assets
3 40-53

Tangible Assets
4 54-62

Partnership Ledger Accounts

5 63-80

© Gauteng Department of

Education SESSION 1: BANK RECONCILIATION

INTRODUCTION

Bank reconciliation is a process of matching the cash journals and the bank account
prepared by the business with the bank statement received from the bank. The purpose is to
ensure that figures in the records of the bank and the business are correct and are in
agreement.

Bank Reconciliation forms part of the internal control process where different sets of
information are compared, differences are identified, investigated and corrected.

The purpose of the Bank Reconciliation

• Identify differences
• Identify errors, and omissions
• Verify the accuracy of all transactions recorded.
• Improve internal control by minimizing fraud or errors

Bank Reconciliation enables the business or individual to keep track of the following:
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◼ Outstanding deposits ◼ Bank charges/ service fees

◼ Electronic transfers made by the ◼ Electronic transfers /direct deposits in
business or person favour of the business
◼ Interest earned on the credit balance ◼ Interest on overdraft

Concepts unique to Bank Reconciliation

Current Bank An account from which money can be drawn immediately without
Account notice, payments can be made through electronic transfers or debit
card.
Bank charges Amounts deducted by the bank as payment for the services it
provides. Bank charges are reflected on the bank statement.
Bank overdraft Allows the current account holder to withdraw funds that exceed the
facility available balance. Banks offer funds at a stipulated limit.
Interest on Interest charged by the bank money withdrawn in excess of the
overdraft credit bank balance or overdraft or unfavourable bank balance.
Interest on current Interest earned by the current account holder whose account
account reflects a favourable bank balance.
Electronic funds Electronic transfer of money from one bank account to another,
transfer (EFT) without direct interaction of the bank staff.

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Comparison between the bank statement and the current bank account

Records of the business Records of the bank

◼ Cash transactions recorded in the CRJ and ◼ The bank sends a statement of account
CPJ. to the business showing a record of all
transactions that took place, withdrawals
and deposits.

◼ Cash received and deposited is reflected on ◼ The Bank credits all deposits made by the
debit side of the bank account. the business.

Assets of the business increase Liability to the bank increase

◼ Payments made by the business are ◼ Payments, withdrawals, debit orders reflected on
the credit side of the bank made by the business are recorded on account. the debit
side of the bank statement.
Assets decrease Liability decreases

◼ A favourable balance is reflected on the ◼ A favourable bank balance is reflected

debit side of the bank account on the credit side of the bank statement

◼ An unfavourable bank balance (bank ◼ An unfavourable bank balance is overdraft) is

reflected on the credit side of reflected on the debit side of the bank
the bank account statement

Bullet two and three are applicable to a FAVOURABLE bank account

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WORKED EXAMPLE: BANK RECONCILIATION

LOFTUS TRADERS

REQUIRED:

Use the information provided to prepare the following

1.1 Updated Cash Receipts Journal and Cash Payment Journal for December 2023.
1.2 Bank account for December 2023.
1.3 Bank reconciliation Statement for December 2023.

INFORMATION:

A. Extract from the Bank Reconciliation Statement for 30 November 2023

Outstanding EFT no. 600 (28 November 2023) R2 680
Favourable balance as per Bank account 14 940

NOTE:
• Outstanding EFT no. 600 appeared on the December 2023 Bank Statement.

B. Provisional totals from cash journals

• Cash receipts Journal- R120 000
• Cash payments journal- R95 910

C. The following information appearing in December 2023 Bank Statement from Pam Bank
did not appear in the cash Journals for December 2023.
CRJ
• A direct deposit from debtor J Duma for R2 190, to settle his account of R2 500.
BRS
• Pam Bank credited Loftus Traders with an additional interest of R1 000. This amount was
supposed to be interest due to the owner’s personal account.
CPJ
• Cash deposit fee - R210, Cash candling fees - R1 035
CRJ

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• Received an EFT of R5 400 from Malherbe Aircons for a refund to the business.
CRJ
• EFT amounting to R1 930 is a payment from T Helberg, a debtor, who was previously
declared insolvent.
CRJ
• Pam Bank credited Loftus Traders with R720 interest on current account.
CPJ
• R2 400 was deducted through a stop order, the payment was made to WW Finance, it is an
instalment for the trailer.
CPJ
• A debit order of R1 680 to Gecko Insurers for the business insurance.

BRS
• Bank Statement balance on 31 December 2023: R?

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LIST OF POSSIBLE ERRORS, DIFFERENCES AND OMMISSIONS

Entries on Bank Statement Records Corrected or Updated

Credit Entries
Entries appearing in the Bank Statement only,

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• Interest on current account will be recorded in CRJ.

• Direct deposits
• Internet deposits
Debit Entries
• Interest on overdraft
• Stop orders and Debit orders Entries appearing in the Bank Statement only,
• Bank charges will be recorded in CPJ.
 Service fees
 Levy on debit transactions  Credit
card costs, etc.

Entries in Cash Journals Records Corrected or Updated

Cash Receipts Journal
• Amounts received incorrectly recorded (Include Overstated Understated
EFT’s) Difference should be Difference should be
 Overstated recorded in the CPJ recorded in the CRJ
 Understated

Cash Payments Journal

• Amounts paid incorrectly recorded (Include Overstated Understated
EFT’s) Difference should be Difference should be
 Overstated recorded in the CRJ recorded in the CPJ
 Understated

Errors of overstating and understating are normally picked up when:

• Bank Statement is compared against the Journals
• When financial records are audited internally

ONLINE BANKING

Online Banking is also known as internet banking, virtual banking. It is a system that
enables customers of a bank or other financial institutions to conduct a range of financial
transactions through the financial institutions website or mobile application. This has become
a common way to access bank accounts.

ADVANTAGES OF ONLINE/INTERNET BANKING

• Do not have to stand in queues to pay accounts/not restricted to business

hours/timesaving.
• Do not have to walk around with cash hence less fraud/theft.
• Maintain your own internet banking limits.

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• Payments/receipts can be made immediately/account is updated immediately.

• Send proof of payment to a beneficiary immediately.
• Convenient or easy to use.
• Cheaper bank charges

DISADVANTAGES OF ONLINE/INTERNET BANKING

Potential disadvantages of online banking are:

• lack of face-to-face customer support

• cash deposit services and a risk of technology failures
• security breaches
• Possibility of overspending

Internal control processes that should be implemented to safeguard cash are:

• Ensure deposits are done on regular basis

• Rotate duties and times of banking to avoid creating a pattern
• Provide security when going to bank ,at least two people should go
• Divide duties ,the person who receives cash cash cannot be the person who banks or
prepare the financial records.
• Use the collection companies to collect cash on a daily/regular basis.
• Check documentation ,receipts against deposit slips
• Senior personnel should check via internet banking / deposit slips that deposits reflected

daily.
• Request SMS from bank for all transactions.
• Encourage debtors to make direct transfers
(EFT). The internal auditor
• use of electronic notification of cash/bank is responsible for
deposits improving internal
control processes

ACTIVITY 1: RECONCILIATIONS

EXTRACTED FROM EC NOV 2023 (40 marks; 30 minutes)

AQUA STORES
The information relates to August 2023. The owner, Flavo, uses the official bank
statement which is available on the 26th of each month, to complete the monthly bank
reconciliation process.

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REQUIRED:

1.1.2 Calculate the correct Bank Account balance on 31 August 2023.

1.1.3 Prepare the Bank Reconciliation Statement on 31 August 2023.

1.1.4 Explain any TWO different internal control measures that Flavo can implement, based on a
problem you identified in the information provided. List the problem identified and the
possible internal control measures in the table provided in the ANSWER BOOK.

INFORMATION:

A. Extract from the Bank Reconciliation Statement on 31 July 2023:

Outstanding deposits: Dated 17 July 2023 R 27 600

Dated 27 July 2023 21 900
Outstanding EFT’s: No. 662 7 530
No. 663 11 290
Unfavourable balance as per Bank Account 7 440

NOTE
• The deposit on the 17 July for cash sales, was reflected on the August bank statement as R20
000. The balance must be written off, as the cashier in charge no longer works here.
• EFT No. 662 for stationery purchased, appeared on the August bank statement with the correct
amount of R3 750.
• All other entries were correctly captured on the August bank statement

B. On 31 August 2023, the provisional totals in the cash journals were:

Cash Receipts Journal Cash Payments Journal
R 117 600 R 126 200

C. Extract of the Bank Statement on 26 August 2023:

DETAILS AMOUNT
Deposit: M. Shaba R 9 000
Cash handling Fees 270
Debit order: BC Municipality 2 360
EFT Charges 230
Deposit S. Deley 4 160
Debit order: BC Municipality 2 360
EFT: George Garage 1 340
Koel Insurers 1 860

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• The deposit from M. Shaba is for the monthly rent income.

• The debit order to BC Municipality was for rates and taxes.
Note that payment was duplicated on the statement in error. The bank will rectify this on
the next statement.
• The deposit from debtor S. Deley is in settlement of his account of R4 500.
• The EFT to George Garage was for petrol for Flavo’s private vehicle. He neglected to hand
over the slip to the bookkeeper to record the transaction.
• The payment to Koel Insurers is for the business insurance.

D.Entries in the August 2023 cash journals that did not appear on the August bank
statement are the following:
• Deposit on 28 August 2023, R22 750
• EFT No. 816 for R3 370
• EFT No. 817 for R9 180

E. Bank statement balance on 26 August 2023: R ?

ACTIVITY 1: RECONCILIATIONS

1.1.1 CASH RECEIPTS JOURNAL

DETAILS OF SUNDRY ACCOUNT AMOUNT
TOTAL b/f 117 600

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CASH PAYMENTS JOURNAL

DETAILS OF SUNDRY ACCOUNT AMOUNT
TOTAL b/f 126 200

1.1.2 Calculate the correct Bank Account Balance.

1.1.3 BANK RECONCILIATION STATEMENT ON 31 AUGUST 2023

DEBIT CREDIT

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1.1.4 Explain any TWO different internal control measures that Flavo can
implement, based on a problem you identified in the information provided.
PROBLEM IDENTIFIED TWO INTERNAL CONTROL MEASURES

ACTIVITY 2: CONCEPTS AND BANK RECONCILIATION (51 marks; 40 minutes)

2.1 CONCEPTS

State whether the following statements are TRUE or FALSE. Write only
TRUE or FALSE next to the question number in the ANSWER BOOK (3)

2.1.1 Costs charged in respect of EFTs do not form part of the bank charges.

2.1.2 A credit balance on the Bank Statement reflects a positive bank balance.

2.1.3 Interest debited on the Bank Statement will be recorded in the Cash
Receipts Journal.

2.2 Answer the following questions:

(6)
2.2.1 Explain to Mabuto, the owner of Butros Traders, why it is important that
he prepares the Bank Reconciliation Statement at the end of each
month. Provide THREE reasons.
2.2.2 What does the abbreviation EFT stand for? (2)

2.2.3 List FOUR advantages of internet banking. (8)

2.2.4 Jane, the bookkeeper, has been assigned the duty of processing and
controlling all EFTs. Provide TWO reasons why the internal auditor should be
concerned about this.
(4)

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2.3 BANK RECONCILIATION

BUTROS TRADERS

The information below relates to Butros Traders for the year ended 31 March 2023.

REQUIRED:

2.3.1 Calculate the correct totals for both the Cash Receipts Journal and
the Cash Payments Journal of March 2023.
NOTE: Details are not required. (11)
2.3.2 Prepare the Bank Account in the General Ledger for March 2023. (6)

2.3.3 Prepare the Bank Reconciliation Statement on 31 March 2023. (11)

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INFORMATION:

A. The Cash Journals had the following totals for the bank column on 31 March
2023, before the Bank Reconciliation was completed:

Cash Receipts Journal R477 400

Cash Payments Journal R413 500

B. Extract from the Bank Reconciliation Statement on 28 February 2022:

Balance as per Bank Statement ???

Outstanding deposit R 84 700

Outstanding EFTs

No. 415 (28 February 2023) R6000

No. 416 (28 February 2023) R28 500

Favourable balance as per Bank Account R299

600

C. Additional information relating to the Bank Reconciliation Statement on 28

February 2022:

• The outstanding deposit of R84 700 appeared on the March 2023 Bank
Statement.
• EFT no. 415 for R6 000 appeared on the March 2023 Bank Statement.
• EFT no. 416 appeared on the March 2023 Bank Statement with the correct
amount of R62 500. The amount recorded in the journal for February 2023 was
incorrect

D. Entries in the Cash Journals for March 2023 that do not appear on the Bank
Statement for March 2023:

• EFT no. 480 for R25 000. This was for textbooks and a laptop for the owner’s
son.
• EFT no. 481 for R18 000 for the repairs to the business vehicle.
• A cash deposit for the week ended 31 March 2023 of R124 500
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E. Entries that appear on the March 2023 Bank Statement from Alli Bank, that do not
appear in the Cash Journals for March 2023:

Date Details R Balance

18 Mar Debit order 225 : Tee Insurers - 34 212 000 (Cr)

000

18 Mar Debit order 388 : Taa Insurers - 34 178 000 (Cr)

000

22 Mar Ekurhuleni Municipality (EFT) - 52 126 000 (Cr)

000

25 Mar L. Naidoo (EFT from tenant) 28 000 154 000 (Cr)

28 Mar Delta Bank 96 750 250 750 (Cr)

30 Mar Service fees -1750 249 000 (Cr)

30 Mar Interest 400 249 400 (Cr)

NOTE:

• Debit order 225 was for the business’s monthly insurance premium to Tee
Insurers.
• Debit order 388 appeared on the business’s Bank Statement on 18 March 2023.
The business does not have an insurance policy with Taa Insurers. The bank
agreed that the error will be corrected on the next Bank Statement.
• The deposit from Delta Bank was for the fixed deposit of R90 000 that has
matured

ACTIVITY 2: CONCEPTS AND BANK RECONCILIATION

2.1: CONCEPTS

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2.1.1

2.1.2

2.1.3

2.2.1 Explain to Mabuto, the owner of Butros Traders, why it is important

that he prepares the Bank Reconciliation Statement at the end of
each month. Provide THREE reasons.

2.2.2 What does the abbreviation EFT stand for?

2..2.3 List FOUR advantages of internet banking.

2.2.4 Jane, the bookkeeper, has been assigned the duty of processing and
controlling all EFTs.Provide TWO reasons why the internal auditor
should be concerned about this.

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2.2: BANK RECONCILIATION

CASH RECEIPTS JOURNAL CASH PAYMENTS JOURNAL

Totals 477 400 totals 413 500

BANK ACCOUNT

BANK RECONCILIATION STATEMENT of BUTROS TRADERS -31 MARCH 2023

DEBIT CREDIT

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ACTIVITY 3: RECONCILIATIONS GP NOVEMBER 2021 (40 marks; 32 minutes)

3.1 BANK RECONCILIATION

REQUIRED:

Study the information taken from the accounting records of Sahara Traders and complete the following
instructions.

3.1.1 Complete the Bank Account in the General Ledger, by making the necessary entries directly into
the Bank Account.
NOTE: FOLIOS ARE NOT REQUIRED
3.1.2 Prepare the Bank Reconciliation Statement as at 30 November 2023.
3.1.3 Briefly explain the purpose of preparing a bank reconciliation statement.
3.1.4 List TWO internal control measures a business can implement to control cash in the business.

INFORMATION:
The bookkeeper from Sahara Traders compared the Bank Statement received from NBF during
November 2023, with the October 2023 Bank Reconciliation Statement and the Cash Journals for
November 2023 and found the following differences:

i. The Bank Account in the General Ledger showed an unfavourable provisional balance of
ii. R9 228, whilst the Bank Statement showed an unfavourable balance of R16 768 on iii.
30 November 2023.
iv. A deposit of R2 190 received on 25 November for sales was entered in the Cash Receipts
Journal as R2 910.
v. A debtor, T. Rhino, transferred R1 000 directly into the Bank Account of Sahara Traders in
settlement of his account of R1 100.
vi. The annual insurance premium in respect of the owner’s personal vehicle was paid by means of a
debit order, R1 440. vii. Bank charges totalling R80 and interest charged on the debit
balance, R60 appeared only on the Bank Statement. viii. An EFT for R5 820 made to pay for
trading stock purchased appeared as R5 280 in the relevant journal. Upon investigation it was
discovered that the bookkeeper had incorrectly recorded the amount. ix. A deposit of R4 190
made by S. Cheetah for the office space he rents from Sahara Traders was recorded on the Bank
Statement as R4 290. The amount was correctly recorded in the CRJ.
x. The bank has incorrectly debited Sahara Traders account with interest of R7 000 instead of
R700. xi. The following information in the November 2023 Cash Journals did not appear on
the Bank Statement for November 2023:
• Outstanding deposit, R6 000
• EFT 333 for R6 500 for a payment of a creditor, WW Stores

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ACTIVITY 3: RECONCILIATIONS (40 marks; 32 minutes)

3.1.1 GENERAL LEDGER OF SAHARA TRADERS

Bank B 10
Date Details Amount Date Details Amount
2023 2023
Nov 30 Nov 30

3.1.2 Bank Reconciliation Statement of Sahara Traders on 30 November 2023

DEBIT CREDIT

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3.1.3 Briefly explain the purpose of preparing a bank reconciliation statement. (2)

3.1.4 List TWO internal control measures a business can implement to control (2)
cash in a business.

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SESSION 2: CREDITORS RECONCILIATION

Creditors’ reconciliation is an internal control measure that highlights the differences

between a Creditor’s balance in the creditors’ ledger of a business and the monthly
statement received from a creditor (an external set of information).

This process ensures that the creditors’ accounts are properly maintained and controlled.

The second type of reconciliation involves comparing the Creditors Control Account in
the General Ledger against the Creditors List and correcting differences thereof.
Creditors Control Account: The General Ledger account that contains all related totals
from the relevant Subsidiary Journals. The account balance allows one to verify the
accuracy of Creditors lists total.

Reconciliation of Creditors List and Creditors Control

Records prepared internally

(Creditors List vs Creditors Control)
Creditor A Creditors Control Account
Creditors List R3 000 Balance c/d R11 000
Balances of creditors are obtainable
Creditorfrom
B
creditors ledger List
Creditors account of each creditor
R2 500
- +
Creditor C
After reconciling the creditors control and the
R1 200 creditors list the balances must be the same
Creditor D
Creditors control R 4 300
Totals of
entries affecting creditors are obtained
from
Thethe subsidiary
total is: journals
-
3 000 + 2 500 +1 200 +4 300 + =R11 000

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The two Ledger accounts are prepared by the

business. [General Ledger and Subsidiary
Ledger]

Totals of the two must be the same,

because they are prepared from the same
information They both increase on the
credit side and decrease on debit side

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ANALYSIS OF ERRORS FROM ABOVE TRANSACTIONS:

Type of error Procedure to follow

1.Overcast /overstated o The Creditors Journal has been closed off ,the amount
will be corrected in the General Journal
o The List of creditors is not affected by this transaction
2.Error in posting o Calculate the difference and correct only the account of
the creditor.

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3.Incorrect entry o Correct only the area affected by the error.

SUGGESTED SOLUTION

Note: The creditors control and the creditors list are generated by the business.

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The grade 11 exams and assessments will be

restricted to reconciliation of Creditors Ledger and
Creditors Statement

RECONCILIATION OF CREDITORS LEDGER AND CREDITORS STATEMENT

Internal records (Creditors Ledger) is compared to Creditors Statement

Creditors Ledger (Internal)

Debit Credit
- + Creditor’s ledger account-
prepared by the business
Creditor’s Statement is an
external document prepared
by the Supplier (Creditors).
Creditors Statement Total of the two must
(External) reconcile
Debit Credit
+ -

Suppliers regard the business as a debtor that’s why we compare different

NOTE sides, debit side of creditors ledger is compared against credit side of creditors
statement

These typical reasons explain why the balance on the statement received from a
creditor is different from the Creditor’s ledger account balance:

 The statement date differs from the closing date in the Creditors Ledger.

 Transactions (purchases; returns/allowances; payments; discounts) could have

been omitted or entered incorrectly in the Creditors Ledger account and/or the
statement of account.

 A discount could have been deducted on the Creditors ledger account but not
accepted by the creditor.
 Posting and/or recording errors in either the creditor’s ledger and/or the statement.

 Addition or subtraction errors in either the creditor’s ledger and/or the statement.

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The Reconciliation process involves the following steps:

Step1: Compare the credit (+) column of the Creditors Ledger with the debit (+) column of
the statement.

Creditors Ledger Statement of

Account
Invoices Invoices

Step 2: Compare the debit (–) column of the Creditors Ledger with the credit (–) column of
the statement.

Creditors Ledger Statement of Account

Debit notes Credit notes
Cheques are Receipts
Discount received Discount allowed

compar ed with

Step 3: Tick the amounts that appear in both the Creditors Ledger and the statement.
Circle the amounts that appear in only the Creditors Ledger or the statement.

Step 4: Errors and/or omissions in the Creditors Ledger must be corrected by the business.

Step 5: Errors and/or omissions on the statement must be recorded in the Creditor’s
Reconciliation Statement. The Creditor must be notified of this error/omission so
that it can be corrected on the next statement.

PROCEDURE FOR CORRECTING ERRORS

ERROR CORRECTION

 Incorrect entry in the Creditors Ledger , e.g.  Correct on the debit side of the
wrongly credited the account Creditors Ledger to cancel the entry
 Overstated amount on the debit side of Creditors  Calculate the difference and record it on
Ledger the credit side
 Understated amount on the debit side of  Calculate the difference and record it on
Creditors Ledger the debit side (same side)
 Returns entered as purchases in the creditors  Double the amount and record on the debit
ledger (on credit side of Ledger ) side of the Creditors Ledger

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 The creditors ledger may reflect transactions that took place after the issue date reflected in the
creditors statement,the statement should be updated with such figures by the creditor.In our
books this entry will be recorded in the Creditors Reconciliation.
 Ommissions in both records ,record the entry in both records, this is normally applicable to the
reconciliation of Creditors list and creditors control ( Internal records)
The errors suchs as understating ,overstating ,incorrect entries etc.can also be identified on
the statements received from creditors .

WORKED EXAMPLE 2: CREDITORS RECONCILIATION

SONDELA TRADERS
REQUIRED:

A template that must be used to compile a report is attached in the answer book.

A report compiled by an accountant and auditor will address the following:

Reconciliation of the Creditor’s Ledger Account of Chitheka Wholesalers (9)

in the books of Sondela Traders and the statement account for January
2024 received from the Chitheka Wholesalers.

INFORMATION
A. CREDITORS LEDGER OF SONDELA TRADERS
Chitheka Wholesalers (CL3)
DATE DETAILS FOL DEBIT CREDIT BALANCE
January 1 Account rendered 36 900
05 Invoice no.125 4 860
07 Debit note 970 2 400
13 EFT 302 35 060
Discount received 1 700
22 Invoice no.150 18 978
25 Invoice no.170 12 600
30 Invoice no.185 8 700 47 678

5
B. Statement received from Chitheka Wholesalers

Chitheka Wholesalers Acc no 30267993

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44 Cockatoo Road 29 January 2024

Nigel 1496

DEBTOR SONDELA TRADERS

DATE TRANSACTIONS DEBIT CREDIT BALANCE
January 01 Opening Balance 36 900

05 Invoice no.125 6 660

07 Credit notes 970 2 400
13 EFT 302 35 060
20 Invoice no.1350 9 600
22 Invoice no.150 18 978
25 Invoice no.170 12 600
29 Interest on overdue account 240 47 518

ADDITIONAL INFORMATION

(i) Invoice no.125 on 5 January 2024 was incorrectly recorded as R 4 860 in the
creditor’s ledger of Sondela Traders.
(ii) Sondela Traders qualified for a discount on the payment made on 13 January 2024 as per
agreement. Chitheka Wholesalers forgot to deduct it and apologized indicating it will be
brought into consideration on the next statement.
(iii) Invoice no. 1350 for R 9 600 on the statement received was an error made by
Chitheka Wholesalers. This invoice was not issued to Sondela Traders
(iv) Credit note no.970 was recorded incorrectly by Sondela Traders.
(v) Invoice no.185 does not appear on the statement as it was issued after the
statement date.

Creditors Statement of
ledger of Account
Sondela
Traders
Incorrect 47 678 47 518
Balances
1800 The error is in the ledger, an invoice amount was
(i) understated, therefore add the difference
(1700) The error was done by the supplier, who forgot to
(ii) record discount. (Discount will be subtracted).

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(9 600) The error was by the supplier, they recorded an

(iii) invoice that related to another supplier, in correcting
this we subtract the incorrectly recorded invoice.
A credit note will be subtracted when recording in
(4 800) the Ledger, but the business made a mistake by
(iv) or adding this amount (as if it was an invoice) The
- 2 400 – 2 400 account must be reduced by recording the amount
twice.
The invoice was omitted as the purchase took place
(v) 8 700 after the statement was sent, therefore we record
the entry on the statement.
The interest of R240 charged by a creditor appears
(vi) 240 only in the statement, we need to update our
records. (interest will increase the amount owed)
Similar balances are referring to reconciled
44 918 44 918 differences.

ACTIVITY 1: CREDITORS RECONCILIATION

GAUTENG - FEBRUARY 2022 (11 marks)

LEGEND SUPPLIERS

Legend Suppliers is owned by Terry Naicker. The business has been supplying cleaning material
to various organization for 5 years, they purchase most of their stock on credit from Mahloko
Suppliers. The financial records are for 31 January 2024.

REQUIRED:

1.1 Explain why the balance of the Creditors’ Ledger account in the General Ledger is (2)
different from the balance of statement of account.

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1.2 Use the table provided to indicate changes to the:

(9)
• Creditors' Ledger Account in the books of Legend Suppliers
• Creditors' Reconciliation Statement on 31 January 2024

INFORMATION:

A. Creditors' Ledger Account in the books of Legend Suppliers

MAHLOKO SUPPLIERS (CL6)

DEBIT CREDIT BALANCE
2024 1 Balance b/d
Jan 12 Invoice 220 116 640
EFT 033 48 600
18 Debit Note 702 12 360
Invoice 289 58 920
Invoice 333 36 000
24 Debit Note 877 11 640
25 Journal voucher 585 7 680
31 EFT 112 111 120 140 640

B. Statement of account from Mahloko Suppliers

Legend Suppliers 85 Tonk Meter Road

25 January 2024
DEBIT CREDIT BALANCE
2024 1 Balance
January 12 Invoice 220 116 640
Receipt 742 48 600
18 Credit Note 791 9 000
Invoice 333 36 000
22 Invoice 395 15 000
24 Credit Note 888 11 640 195 600

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Errors, omissions, and other information:

(a) Invoice 289 was incorrectly reflected in the account of Mahloko Suppliers in the
Creditors' Ledger. These goods were purchased from Mahlangu Suppliers.

(b) Credit Note 791 was recorded incorrectly on the statement of account.
This relates to the correct entry for Debit Note 702 in the Creditors'
Ledger
(c) Invoice 395 on the statement of account
was for goods ordered by Legend
Suppliers.

(d) Mahloko Suppliers also purchased goods on credit from Legend Suppliers. Legend
Suppliers has transferred a debit balance from the Debtors' Ledger (Journal voucher 585).
Mahloko Suppliers will include this on the next statement. (e) The transaction on 24
January 2024 is for merchandise returned to
Mahloko Suppliers.

(f) The statement of account reflects transactions up to 24 January 2024.

ACTIVITY 1: CREDITORS RECONCILIATION AND INTERNAL CONTROL

1.1 In your report explain why the balance of the Creditors’ Ledger account in the
General Ledger is different from the balance of statement of account.

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ACTIVITY 2: GAUTENG NOVEMBER 2021-ADAPTED

CREDITORS’ RECONCILIATION

A Statement of Account received from a creditor, Green Apple Traders on 31 October 2023, indicates
that Fresh Fruit Mart owes them R14 530. According to the Creditors’ Ledger of Fresh Fruit Mart, the
amount owing to Green Apple Traders. is R13 789.

REQUIRED:
2.1.1 Use the table provided in your ANSWER BOOK to RECONCILE the difference between (8)
the creditor’s Statement of Account and the Creditors’ Ledger of the business

2.1.2 An internal auditor of Fresh Fruit Mart discovered that goods to the value of R6 500
ordered from PK Stores were not delivered to the premises of the business. An
investigation revealed that the person in charge of placing the orders and receiving
goods, ordered the goods for his personal use.

A An internal auditor of Fresh Fruit Mart discovered that goods to the value of R6 (2) 500
ordered from PK Stores were not delivered to the premises of the business. An investigation
revealed that the person in charge of placing the orders and receiving goods, ordered the
goods for his personal use

B Provide TWO internal control measures that should be applied to (2)

prevent this from happening again.
INFORMATION:
After an investigation the following were brought to light:

a. An EFT made to Green Apple Traders. was not received in time to allow a discount. Fresh
Fruit Mart assumed they would receive a R450 discount and had entered it in their books as
such.

B. Goods to the value of R980 returned to Green Apple Traders was recorded in the Creditors’
Statement as R890.

An invoice received for goods bought from Green Apples Traders for R700 was incorrectly
C.
entered in the Creditors’ Ledger of Fresh Fruit Mart as a debit note.

The Creditors’ Statement received shows interest on the overdue account of R251. No entry
has been made with regards to this transaction in the Creditors’ Ledger of Fresh Fruit Mart.
D.
The following transactions took place after the Creditors’ Statement was printed and emailed
to Fresh Fruit Mart:

E. • An invoice of R3 400 for goods purchased on 29 October 2023

• An EFT of R1 950, made in part payment of the account on 30 October 2023

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CREDITORS’ RECONCILIATION OF FRESH FRUIT MART ON 3 1 OCTOBER 2023

Statement of Account from Creditors’ Ledger of Fresh
Green Apple Traders Fruit Mart
Incorrect balance 14 530 13 789
A.
B.
C.
D.
E.

Correct balance

A. What action should be taken by the management against this (2)

employee? Provide TWO points.

B. Provide TWO internal control measures that should be applied to (2)

prevent this from happening again.

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ACTIVITY 3 (EC NOVEMBER 2023)

CREDITORS RECONCILIATION

Simple Stores buys goods on credit from Nandu Suppliers. A statement of account
was received on 28 August 2023. The balance did not correspond with the balance on
the Creditors Ledger account of Nandu Suppliers.

REQUIRED:

Complete the table provided in the ANSWER BOOK, to show the effect of each (12)
error or omission. Indicate an increase (+) or decrease (-) next to each amount.

INFORMATION:

Balance of the Creditor’s Ledger account of Nandu R40 100

Suppliers in the books of Simple Stores
Balance as per the statement received from Nandu R21 020
Suppliers

ERRORS AND OMISSIONS:

A. Simple Stores reflected a credit invoice of R8 800 in the Creditors Ledger account of
Nandu Suppliers. This was for goods purchased from Nandosile Dealers.

An allowance of R1 740 for damaged goods returned was recorded as an invoice

in B. the creditor’s ledger account of Nandu Suppliers.

An invoice for R15 200 was incorrectly reflected as R12 500 on the statement
C. received from Nandu Suppliers.

Simple Stores recorded a 10% discount on an EFT payment of R9 600. This did
not D. appear on the statement. Nandu Suppliers stated that the discount should have
been 5% and will include this on the next statement.

Nandu Suppliers did not deduct the 10% trade discount on a credit invoice for
goods purchased. The correct net amount of R11 160 was recorded in the
creditor’s ledger E. account in the books of Simple Stores.

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An invoice for goods purchased for R6 300 on 30 August 2023 was not on the
statement from Nandu Suppliers. The statement date is 28 August 2023.
F

CREDITOR LEDGER STATEMENT FROM NANDU

ACCOUNT OF SUPPLIERS
NANDU SUPPLIERS
Balance 40 100 21 020
A.

B.

C.

D.

E.

F.

Correct
balance

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ACTIVITY 4: CREDITORS’ RECONCILIATION (25 marks; 20 minutes)

Gauteng June 2023

SUNRAYS NURSERIES

The owner of Sunrays Nurseries, Ms Flowers, requested your help in a reconciliation of a creditor’s
account from creditor Rose Traders. Ms Flowers is of the opinion that her business only owes R3 266
to Rose Traders and she is therefore upset that the statement she received reflects an amount of
R16 727 outstanding.

REQUIRED:

4.1 Prepare the corrected account for Rose Traders in the Creditors' Ledger of
Sunrays Nurseries. (14)

4.2 Prepare the Creditors' Reconciliation Statement on 30 April 2023. (11)

INFORMATION:
A. The following account appeared in the Creditors' Ledger of Sunrays Nurseries on 30 April
2023:
Details Debit Credit Balance

April
1 Balance 2 000 2 000
3 Receipt 417 600 2 600
6 Invoice 338 3 850 6 450
10 EFT 1048 3 630 2 820
Discount (EFT 1048) 330 2 490
11 Invoice 619 1 870 620
Debit note 72 297 323

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15 Invoice 342 5 200 5 523

20 Debit note 75 350 5 173
24 EFT 1059 2 420 2 753
Discount (EFT 1059) 242 2 511
26 Invoice 2301 4 400 6 911
30 EFT 1067 4 050 2 861
Discount (EFT 1067) 405 3 266

B On 30 April 2023 Ms Flowers received the following statement from Rose Traders:

Details Debit Credit Balance

April
1 Balance 2 000 2 000
6 Invoice 338 (Sales) 3 850 5 850
10 Receipt 1104 (Payment received) 3 630 2 220
Discount allowed on receipt 1104 363 1 857
11 Credit note 143 (Allowance) 270 1 587
15 Invoice 342 (Sales) 5 720 7 307
19 Invoice 347 (Sales) 2 310 9 617
20 Credit note 145 (Allowance) 350 9 267
24 Receipt 1112 (Payment received) 2420 6 847
Discount allowed on receipt 1112 121 6 726
29 Invoice 351 (Sales) 10 001 16 727

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C. The entry on 3 April 2023 in the account of Rose Traders in the Creditors' Ledger is incorrect, the
amount was received from a debtor, Palm Tree.

D. Ms Flower has an arrangement with Rose Traders that a 10% discount will be received on each
payment made (see entries on 10th and 24th).

E. Invoice 619 for R1 870 on 11 April 2023 in the account of Rose Traders in the Creditors' Ledger, is
in respect of stock sold to Plants Galore on credit.

On 11 April 2023 an entry for R297 (debit note 72) was made in the Creditors' Allowance Journal
F.
dealing with an allowance from Rose Traders. It has been established that this entry has been
correctly made in the Creditors' Ledger.

An error was made when posting the entry on 15 April from the Creditors' Journal to the account of
G. Rose Traders. The amount is correct on the statement received.

Invoice 347 on 19 April 2023 on the statement from Rose Traders was in respect of another
customer, Reaping Rose.
H.
Invoice 2301 for R4 400 on 26 April in the account of Rose Traders in the Creditors' Ledger was
erroneously posted to this account, instead of to the account of Bark Traders.
I.
The sales of R10 001 reflected on 29 April 2023 in the statement from Rose Traders was definitely
for Sunrays Nurseries.
J.
A posting error occurred in the books of the business, for the discount (EFT 1067) on the 30 th which
still has to be corrected.
K.
Certain entries do not appear on the statement as the statement was sent on 27 April 2023, while
the Creditors' Ledger continues till 30 April 2023
L.

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4.1 CREDITORS' LEDGER OF SUNRAYS NURSERIES

ROSE TRADERS

Details Debit Credit Balance

April
30 Incorrect Balance 3 266

Creditors' Reconciliation Statement of Sunrays Nurseries on 30 April 2023

4.2
Details Balance
April
30 Balance as per Creditors Statement 16 727

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Internal controls relating to creditors include:

 Adequate segregation (separation) of duties with regards to creditors’ transactions.
(.g.the same person should not order and receive goods.)
 The clerk receiving the items from creditors must check the delivery note against the
order form to ensure that all items ordered were delivered.
 All documents (invoices; debit notes etc.) relating to credit transactions must be
correctly processed in the proper journals.
 Paying creditors on time to take advantage of settlement discounts and to avoid
interest being charged.
 Transactions involving purchase of goods from creditors should be authorised
 Check accuracy of invoices from creditors
 Invoices to be processed (stamped) before payment

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SESSION 3: TANGIBLE ASSETS

INTRODUCTION

Tangible assets are physical items owned by a business such as equipment, buildings, and
vehicle. They are not intended for resale but to be used for daily operations of the business
to generate profit

The value of Tangible assets such as vehicles and equipment depreciate because of wear
and tear resulting from daily use and the value of land and buildings appreciates if the
property is well maintained.
Tangible assets are not easily converted to cash compared to current assets such as
debtors, inventory and cash and cash equivalents.

CONCEPTS UNIQUE TO TANGIBLE ASSETS

Depreciation A reduction in the value of an asset over time due in particular to wear and
tear.
Accumulated Is the total amount ‘of depreciation deducted from the fixed asset since its
Depreciation acquisition.
Carrying value / Original cost price less the depreciation that has accumulated over the
book value period in which the asset has been in the business.

Age of Assets Businesses should monitor their assets to identify assets that need to be
replaced. Assets that are old due to wear and tear should be replaced with
efficient assets.
Replacement It refers to how often the business determines a fixed asset will be
Rate replaced.
Replacement When a fixed asset has to be replaced, the business needs to look if it is
Value of Assets worth replacing the old asset and what it will cost them to buy the new
asset.
Lifespan of assets Estimated length of time the asset can reasonably be used to generate income
and be of benefit to the business.

ACQUISITION OF ASSETS

• Factors to be considered when new equipment is acquired (bought).

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• The existing equipment has become old / out of date.

• Running costs of current assets may be too high.
• The business wants to keep up to date with new technology.
ASSET REGISTER
Is the list of assets that belong to the entity. The purpose of fixed asset register is to keep
track of the book value of assets and determine the depreciation to be calculated and
recorded for management and taxation purpose.

The business should keep every transaction relating to an asset in the fixed asset register.
Each asset owned by the business should have a detailed entry page in the register
ASSET REGISTER FORMAT

ASSET REGISTER
Mzansi Traders
Item : Delivery Vehicle STV 565 GP
Date of purchase : 2020 March 01
Cost price : R120 000
Purchased from : Speedy Motors
Rate of depreciation : 20%p.a. on cost
Date Current Accumulated Carrying value
Depreciation Depreciation
2021-02-28 24 000 24 000 96 000$$
2022-02-28 24 000 48 000 72 000
2023-02-28 24 000 72 000 # 48 000
2024-02-29 24 000*** 96 000 24 000##

Cost price –Accumulated depreciation =Carrying Value

120 000 -24 000 = 96 000

DETAILS OF ASSETS RECORDED IN THE ASSET REGISTER

• Date of purchase • Rate of depreciation

• Cost Price • Book value
• Details of the seller • Life expectancy
• Type and model • Method of depreciation
• Serial number • Depreciation
• Receipt/Invoice • Accumulated depreciation

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DEPRECIATION METHODS

FIXED METHOD DIMINISHING BALANCE

 Takes place over the useful life of the asset at  Writing off depreciation on the carrying
a fixed rate. (e.g.over 5 years at 20% p.a.) value at a fixed percentage
(e.g., 15% p.a.)
 Writing off takes place over a longer
period.

WORKED OUT EXAMPLE: COST PRICE METHOD

INFORMATION
The financial year ends on the last day of February each year. Bought
a delivery van for R360 000 on 1 March 2023.

REQUIRED
Calculate depreciation on 28 February 2024 at 20% p.a. on cost price

ANSWER

360 000 x 20% x 12/12= 72 000

ACTIVITY 1: DEPRECIATION USING COST PRICE METHOD

INFORMATION
The financial year ended on 31 December 2023.
Balance of the Equipment account in the General Ledger on 1 January 2023: R180 000.
Bought a new cash register for R10 000 on 1 July 2023.

REQUIRED
Calculate depreciation on 31 December 2023 at 10% p.a. on cost price.

ANSWER SHEET

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WORKED EXAMPLE: DIMINISHING BALANCE METHOD

INFORMATION
The following balances appear on 1 March 2023 as follows:
Equipment R80 000
Accumulated depreciation on equipment R8 000.

REQUIRED
Calculate depreciation on 28 February 2024 at 10% p.a. on the diminishing balance method.

ANSWER
Cost price –Accumulated Depreciation = Carrying Value
80 000 – 8 000 = 72 000
72 000 x 10% = 7 200

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ACTIVITY 2: DEPRECIATION USING DIMINISHING BALANCE METHOD

INFORMATION
• Balances appear in the books on 1 March 2022 as follows:
o Equipment R80 000
o Accumulated depreciation on equipment R15 200
• Bought new equipment for R192 000 on 1 November 2022.

REQUIRED
Calculate depreciation on 28 February 202 3 at 10% p.a. on the diminishing balance method.
ANSWER SHEET

EXAMPLE 3: TANGIBLE ASSETS REQUIRED:

3.1 Prepare the ledger accounts using the given balances on 1 March 2023.
3.2 Calculate the depreciation to be written off on vehicles and equipment for the financial year
ending 29 February 2024.
3.3 Calculate the carrying amounts of vehicles and equipment on 29 February 2024.

INFORMATION:
On 1 March 2023 the following balances appear in the books of Astrin Traders:

Vehicles (at cost price) R1 600 000

Equipment (at cost price) 760 000
Accumulated depreciation on Vehicles 300 000
Accumulated depreciation on Equipment 273 600

Adjustments and additional information:

(a)During the financial year a new vehicle and new equipment were purchased and paid via EFT.
The following information relates to the transactions:

Details Date purchased Cost price

Vehicles 1 August 2023 R720 000
Equipment 1 January 2024 R547 200

Depreciation must be written off as follows:

• On vehicles at 10% per annum on cost price.

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• On equipment at 20% per year on the diminishing balance method.

General ledger of Astrin Traders

Balance sheet accounts section
Vehicles
2023 1 Balance 1 600 000
Mar. b/d
Aug. 1 Bank CPJ 720 000

2 320 000

Equipment
2023
Mar. 1 Balance b/d 720 000
CP
Aug. 1 Bank J 547 200

1 307 200

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Accumulated depreciation on equipment

2023
Mar. 1 Balance b/d 300 000
2024
Feb. 29 Depreciation GJ 202 000
160 000 + 42 000)
502 000

Accumulated depreciation on vehicles

2023
Mar. 1 Balance b/d 273 600
2024 29
Feb. Depreciation GJ 115 520
97 280 + 18 2400)
389 120

Nominal accounts section

Depreciation
2024 Acc. 2024
Feb. 29 depreciation on GJ 20 2000 Feb. 29 Profit and loss GJ 317 520
vehicles account
Acc.
depreciation on GJ 115 520
equipment

317 520 317 520

3.2 Calculations:
Vehicles
Used for the entire year:

R1 600 000 x 10/100 x 12/12 = R160 000

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New vehicles purchased:

1 August 2023 – 29 February 2024:

R720 000 x 10/100 x 7/12 = R42 000

Equipment used for the entire year:

(R760 000 – R273 600) x 20/100 x 12/12 = R97 280

New equipment purchased during the year:

1 January 2024 – 29 February 2024:

(R547 200 – R0) x 20/100 x 2/12 = R18 240

3.3 Calculate the carrying amounts of vehicles and equipment on 29 February

2024
Carrying value of vehicles on 29 February 2024:
Cost price – Accumulated depreciation
= R2 320 000 – R502 000
= R1 818 000
Carrying amount of equipment on 29 February 2024:
Cost price – Accumulated depreciation
= R1 307 200 – R389 120
= R918 080

DISPOSAL OF TANGIBLE ASSETS

Fixed assets are not purchased for the purpose of resale in the normal course of
running a business, however if the owner no longer requires the asset he may
decide to dispose or sell it.

In an event an asset is sold the ,the business will have to derecognise or remove
the assets from the financial assets of the business.

What are the reasons for disposing Tangible Assets?

• The existing asset is too old or has outlived its useful life
• Vehicles may have been involved in accidents

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• Damaged assets that cannot be used by a business anymore

• Asset may be obsolete
• The existing asset is too old or has outlived its useful life

Different methods of disposing assets

Methods of disposing Tangible Assets Account affected

 Asset can be sold for cash  Bank account
 Asset can be sold on credit  Debtors Control
 They can be donated  Donation
 Taken for personal use by the owner  Drawings
 They can be traded-in  Creditors Control
 Scrapped  Write off, no payment
 Assets can be written off because of  Insurance claim
damages approved/Accrued income

Assets are disposed at a:

Price sold for Carrying value Profit/Loss
R50 000 R50 000 No Profit No Loss
R88 000 R64 000 R24 000 Profit
R105 000 R120 000 R15 000 Loss

FORMAT OF AN ASSET DISPOSAL ACCOUNT AND ASSET ACCOUNT

DR Asset Account CR
Mar 1 Balance b/d @cost xxxx Mar 31 Asset disposal @cost xxx
Bank /Creditors Control Balance c/d @cost xxx
@cost
xxxx xxxx
Balance b/d @cost xxxx xxxx

DR Asset Disposal CR
Mar 1 Equipment / Vehicle xxxx Mar 31 Accumulated
depreciation xxx on
equipment
Bank /Debtors xxx
Profit on sale of Control/Creditors Control / asset is recorded
Donation/Drawings on the debit side

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Loss on sale of asset xx

xxxx xxxx

FORMAT –NOTE ON TANGIBLE ASSETS

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Note 3 - Fixed/Tangible assets

Land & Vehicles/
Buildings Equipment
Carrying value at the
beginning of the financial xxxx xxxx
year
Cost xxxx xxxx
Accumulated depreciation Nil (xxx)
Movements
Additions at cost xxxx xxxx
Disposals at carrying value (xxx) (xxx) Tangible assets are recorded
Depreciation Nil (xxx) at a carrying value and
reduce the balance of assets
Carrying value at the end of
xxxx xxxx
the financial year
Cost xxxx xxxx These balances will exclude
Accumulated depreciation Nil (xxx) the asset that has been
disposed off

EXAMPLE: SALE OF ASSET DURING ACCOUNTING PERIOD

INFORMATION

The financial year of Zizzy Traders ends on 29 February 2024.

The following balances appeared on 1 March 2023:

• Equipment R40 000

• Accumulated depreciation on equipment R 11 200

On 31 August 2023 Zizzy Traders sold an old typewriter on credit to George for R1 050. The
original price was R2 200.
The total amount written off for depreciation at the end of the previous financial year was R800.
Depreciation is calculated at 20% per annum at cost price.

REQUIRED

• Show how the transaction will be recorded in the General Ledger

• Prepare note 3 on Tangible assets

SOLUTION – ASSET SOLD DURING THE YEAR

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GENERAL LEDGER OF ZIZZY TRADERS

Equipment
2023 2024
GJ
Mar 1 Balance b/d 40 000 Feb 29 Asset disposal 2 200
Balance c/d 37 800
40 000 40 000

2024 Balance b/d 37 800

Mar 1

2 200 x 6/12 x 20% = 220 Remaining (40 000 - 2 200) x 20% =7 560
asset:
800 + 220 = 1 020 Sold asset: 2 200 x 6/12 x 20% = 220

NOTE: Depreciation is calculated at the end of the accounting period, it will only be calculated
during the year if an asset is sold. Depreciation on remaining assets will be
calculated at the end of year.

Depreciation
2024 Accumulated 2024
Profit and
Feb 29 depreciation on GJ 7 780 Feb 29 GJ 7 780
Loss
equipment

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Debtors control
2023 GJ
Aug 31 Asset disposal 1 050

Asset disposal
20203 2023 Accumulated
Aug 31 Equipment GJ 2 200 Aug 31 depreciation on GJ **1 020
equipment
Debtors control GJ 1 050
Loss on sale of GJ 130
asset
2 200 2 200

Loss on sale of an asset

2023 2023
Profit and Loss GJ 130
Aug 31 Asset disposal GJ 130 Aug 31

NOTE 3 ON TANGIBLE ASSETS

Equipment
Carrying value at the beginning of the financial year 28 800
Cost 40 000
Accumulated depreciation (11 200)
Movements
Additions at cost - Cost –Acc Dep –
Current Dep
Disposals at carrying value (1 180) 2 200 -800 -220 =1 180
Depreciation (7 780)
Carrying value at the end of the financial year 19 840
Cost 37 800 40 000 - 2 200
Accumulated depreciation (17 960) 11 200 +7 780 -800-
220

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ACTIVITY 3 : TANGIBLE ASSETS GAUTENG P2 JUNE 2023

KG TRADERS
You are provided with information relating to KG Traders on 30 June 2023, the nd of the accounting
period:

REQUIRED:

Use the information given to complete the following:

3.1.1 Depreciation on vehicles for the year ended 30 June 2023. Use the table
Provided as a guide. (16)

3.1.2. Asset Disposal Account in the General Ledger (8)

3.1.3 Prepare Note 3 on Tangible Assets. Show calculations where necessary (19)

INFORMATION:

Balances on 1 July 2022

Accumulated Carrying
Cost
depreciation value
Land and buildings 400 000 ( 0) 400 000
Vehicles 300 000 (76 000) 224 000

TRANSACTIONS

30 September 2022
• Extension to the building at the cost of R120 000
• Repairs to the storeroom cost the owner R25 000

31 December 2022
• Traded in an old vehicle for R55 000 on a new vehicle for R150 000 from Jozi Motors.
The vehicle was bought on 1 July 2020 or R100 000.
Calculation of Depreciation
• On vehicles at 20% per annum on book value

3.2 INTERNAL CONTROL OF ASSETS

REQUIRED:
Answer the question related to the case study below.

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INFORMATION:

Jeanette Row s is the owner of Hair Online, an online store which sells hair products delivered to
your do r. Jeanette recently bought a building in Springs which she uses as the office as well as
the storage facility. The business has
2 mini vans, which Jeanette purchased second hand: each with their own driver, 1 laptop and 1
printer. Jeanette has asked for your help with the following:

3.2.1 Jeanette is aware that most assets lose value due to normal wear and tear.
Which fixed asset does not normally depreciate at the end of the financial year?
Briefly explain why this asset does not depreciate. (2)

3.2.2 Jeanette takes the laptops home every day for her children to use so they can access their online
lessons.
Explain how the depreciation will be dealt with for these laptops. Refer to the applicable GAAP
principle in your answer. (3)
3.2.3 Jeanette noticed that one of the mini van’s kilometer readings is higher than it should be. Give
ONE practical solution on how she can solve this issue. (2)

ANSWER SHEET 3.1.1 DEPRECIATION

Amount for this year

NEW:

SOLD:

Year:1

Year:2

Year:3 Total:

OLD:

Total depreciation for the year:

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3.1.2
Dr Asset Disposal Account N6 Cr

3.1.3 Fixed Assets Land and Vehicles

buildings
Carrying value 1/7/2022

Cost
Accumulated depreciation
Movements
Additions

Disposals
Depreciation
Carrying value 30/6/2023

Cost
Accumulated depreciation

3.2 INTERNAL CONTROL OF ASSETS

3.2.1 Jeanette is aware that most assets lose value due to normal wear and tear.
Which fixed asset does not normally depreciate at the end of the financial year?
Briefly explain why this asset does not depreciate.

(2)

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3.2.2 Jeanette takes the laptops home every day for her children to use so they can
access their online lessons. Explain how the depreciation will be dealt with for these
laptops. Refer to the applicable GAAP principle in your answer.

(3)

3.2.3 Jeanette noticed that one of the mini van’s kilometer reading is higher than it should
be. Give ONE practical solution on how she can solve this issue.

(2)

Management or internal control of tangible assets

 Purchases of assets should be authorised by management
 An internal auditor must ensure that proper records and documentation relating to
fixed assets are in place.

 All fixed assets should be recorded in a Fixed Asset Register.

(Each asset will have a separate register)
 Receipts /invoices should be proof of purchase for insurance and external audit
purpose

 Fixed assets purchased must be labelled / bar coded or a serial number given for
identification and asset verification.

 Regular stock taking of assets and comparing against the asset register

 Signing in and out of assets to track where they are and who used them

 The movement of assets must be recorded in a logbook, e.g., vehicles

All fixed assets must be insured against fire, theft, etc.


 Install tracking devices in motor vehicles and other assets.

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SESSION 4: TANGIBLE ASSETS

WORKED EXAMPLE: ASSETS BOUGHT AND SOLD DURING THE YEAR

INFORMATION

The financial year of BBB Traders ends on 29 February 2024.

The following balances appeared on 1 March 2023:

SOLUTION - ASSETS BOUGHT AND SOLD DURING THE YEAR
Calculation for carrying value for new and remaining assets:

Total Assets Sold Asset Remaining Assets

Cost 312 000 - 76 000 = 236 000

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Acc Depreciation (104 000) - (34 200) * = (69 800)

Carrying Value 208 000 - 41 800 = 166 200

Calculate Depreciation for each category of assets:

Sold Old New

41 800 x 20% x 6/12 = 4 180* 166 200 x 20% = 33 240 200 000 x 3/12 x 20%=10 000
Total Depreciation: 4 180 + 33 240 + 10 000 = 47 420

GENERAL LEDGER OF BBB TRADERS

VEHICLES
2023 2024
Balance GJ
Mar 1 b/d 236 000 Feb 29 Asset disposal 76 000
2023
Balance c/d 360 000
Dec 1 Bank 200 000
436 000 436 000
2024
Mar 1 Balance b/d 360 000

Note: Each amount is recorded at cost in the Asset Account.

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NOTE: When you sell an asset you need to remove the cost price of the asset and the
accumulated depreciation from the books of the business.

Asset disposal

2023 2023 Accumulated

Aug 31 Vehicle GJ 76 000 Aug 31 depreciation on GJ *38 380
vehicle
Profit on sale of
an asset GJ 9 580 Debtors control CRJ 47 200
85 580 85 580

NOTE 3 ON TANGIBLE ASSETS Calculations

Vehicles
Carrying value at the beginning of the financial
208 000
year
Cost 312 000
Accumulated depreciation (104 000)
Movements
Additions at cost 200 000 76 000 - 34 200 - 4 180
Disposals at carrying value (37 620) = 37 620

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Depreciation (47 420) 4 180 + 33 240 +

10 000
= 47 420
Carrying value at the end of the financial year 322 960 312 000 -76 000 +
Cost 436 000 200 000
= 436 000
Accumulated depreciation (113 040) 104 000 + 47 420-
34 200 – 4 180
=113 040

ACTIVITY 1 (EC P1 NOVEMBER 2023)

FIXED (TANGIBLE) ASSETS

The information relates to SANDI BROTHERS for the financial year ended 28 February 2023
REQUIRED:

Calculate the missing figures indicated by (i) to (iii) on the Fixed Asset Note. (12)

INFORMATION:

A. Note to the Statement of Financial Position:

FIXED ASSETS BUILDINGS VEHICLES EQUIPMENT

Carrying value (1 March 2022) 1 190 000 360 000
Cost (i) 1 950 000 970 000
Accumulated depreciation 0 (760 000) (610 000)
Movements
Additions 500 000 0 270 000
Disposals 0 (ii) 0
Depreciation 0 (270 000) (iii)
Carrying value (28 Feb. 2023)
Cost 6 150 000
Accumulated depreciation

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B. Additional Information

• Depreciation is calculated as follows:

Equipment – 10% p.a. on carrying value.
Vehicles – 15% p.a. on cost.

• During the financial year, extensions to the buildings were completed.

• An old vehicle, cost price R300 000, was sold at carrying value on 31 August 2022.
The accumulated depreciation on this vehicle was R240 000 on 1 March 2022.

• New equipment was purchased on 1 November 2022.

WORKINGS ANSWER
(i) Cost price of buildings on 1 March 2022

(ii) Carrying value of the vehicle sold

(iii) Total depreciation on equipment

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ACTIVITY 2: GP NOV 2023 P1

FIXED ASSETS NOTE

GOODY SHOE TRADERS

You are provided with the following information from the records of Goody Shoe
Traders. The financial year end is 31 December 2023.

REQUIRED:

2.1.1 Calculate the total depreciation on equipment for the year ended
31 December 2023. (4)

2.1.2 Complete the Fixed Assets Register for the vehicle sold. (5)

2.1.3 Calculate the depreciation on the old vehicles for the year ended
31 December 2023. (4)

2.1.4 Complete the Fixed Assets Note to the Financial Statements on

31 December 2023. (12)

INFORMATION:

INFORMATION:
A. Extract of a Pre-adjustment Trial Balance of Goody Shoe Traders. List of
balances on 31 December 2023

Vehicles 2 680 000

Equipment 810 000
Accumulated depreciation on vehicles 1 060 000
Accumulated depreciation on equipment 240 000

B. Equipment

• New equipment with a cost price of R120 000 was purchased on 1 October 2023. No
entries have been made.

• Equipment is depreciated at 20% p.a. using the cost price method.

C. Vehicles

• One of the delivery vehicles was sold for R190 000 on 1 July 2023. The vehicle was

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purchased on 1 July 2021 for R320 000.

• Vehicles are depreciated at 10% p.a. using the diminishing balance method.

2.1.1
Depreciation on equipment AMOUNT

Old Equipment:

New Equipment:

Total depreciation for the year:

2.1.2

Extract of fixed asset register of goody shoe traders for vehicles sold

EXTRACT OF FIXED ASSET REGISTER OF GOODY SHOE TRADERS FOR VEHICLES SOLD

Delivery vehicle (sold) COST PRICE = R320 000

Current Accumulated Carrying

Date depreciation depreciation value Calculation
31 Dec 2021 16 000 16 000
31 Dec 2022
1 Jul 2023

2.1.3
Depreciation on old vehicles AMOUNT

SOLD

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OLD

Total depreciation for the year:

VEHICLES EQUIPMENT
Carrying value at the beginning of the year
Cost 2 680 000 810 000
Accumulated depreciation (1 060 000) (240 000)
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of the year
Cost
Accumulated depreciation

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ACTIVITY 3: EC NOVEMBER 2022 P1

LULU TRADERS
The following information relates to the financial year ended 30 June 2023.

REQUIRED:

Calculate the missing figures denoted by (i) to (iv) on the fixed asset note (14)

INFORMATION:

A. FIXED ASSET NOTE:

LAND AND
BUILDINGS EQUIPMENT VEHICLES
Carrying value on 1July 2022 3 000 000 (ii) 800 000
Cost 3 000 000 420 000 1 080 000
Accumulated depreciation (160 000) (280 000)
Additions at cost 760 000 160 000
Disposal at carrying value (iv)
Depreciation for the year (iii)
Carrying value on 30 June 2023
Cost (i) 580 000 720 000
Accumulated depreciation

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B. Information from the fixed asset register:

• Depreciation on equipment is calculated at 10% p.a. on the diminishing
balance.
• New equipment was purchased on 1 October 2022.
• Depreciation on vehicles is calculated at 15% p.a. on cost.
• A delivery vehicle was sold for R112 000 cash on 1 March 2023. The cost
price was R360 000 and accumulated depreciation on 1 July 2022
amounted to R216 000.

Calculate the missing figures in the fixed asset note:

Workings Answer
i

ii

iii

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iv

SESSION 5: PARTNERSHIP LEDGER ACCOUNTS FORMS OF OWNERSHIP

Forms of
ownership

Sole Close-
Partnership Company
proprietorship corporation

Public Private

Forms of ownership
It is the simplest form of ownership that is owned by one person. It is
Sole proprietorship suitable for businesses that require little capital and can be managed by
/Trader one person, examples are coffee shop, bakery, printers etc.

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Partnership It is a legal agreement between two or more persons not exceeding

twenty, in a commercial or professional environment whereby skills, assets
are combined with the aim of earning and sharing profit or losses.
Public company Is formed by an association of people with a common profit motive, It has a
legal status and it is formed by shareholders not fewer than seven.
Private company Is formed by an association of people with a common profit motive, It has a
legal status and it is formed by one or more shareholders not exceeding
fifty.
Close corporation It is a simple and inexpensive form of business that has a legal status .It is
suitable for one or more entrepreneurs but not exceeding ten members.

Reasons for converting Sole proprietorship to Partnership

 The sole proprietorship may become too big for one person to manage or handle.
 More capital can be needed and a new partner may provide such capital.
 Additional skills and expertise may be required.
 The costs of the sole trader will be reduced or shared with the partner.  Expand the
business and maximise profits.

Partnership Agreement

Is the contract between the partners. The partnership agreement can be verbal or in writing.
The written agreement is preferable to prevent any future differences of opinion between the
partners.

The following information is contained in the partnership agreement:

 The name of the business and the names of partners.
 The nature and objective of the business, e.g. a product or service to be provided.
 The amount and type of capital contributed by the business.
 Will stipulate the amount of drawings which can be taken by each partner.
 The ratio or way profits and losses are shared between the partners.
 The right of the partner to a salary, bonus, commission, interest on capital contributed, and
the amounts payable in respect of these expenses.
 Admission of new partners or withdrawal, retirement or death of existing partner.
 Whether the financial statements of the partnership will require an audit.  Control or
authority each partner has (managerial status)  Internal control measures such as

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safeguarding of assets.

NOTE: When forming a partnership its preferable to get a lawyer to draw up a

contract or partnership agreement

Legal status of a partnership

Legally a partnership agreement binds the partners, but a partnership is not a legal person. It
cannot sue or be sued, only the partners will be sued.

Advantages and disadvantages of sole trader and partnership

Sole proprietorship
Advantages Disadvantages
 It is easy and inexpensive to set up.  The owner has unlimited liability, he is
 The owner is entitled to all the profits. responsible for all the debts of the
 The owner makes decisions concerning the business.
business.  Their capital and assets is usually limited,
 The owner has personal interest in the they can’t borrow large sums of money
business. from the banks or other lenders.
 It lacks continuity, normally when the
owner dies or declared insolvent the
business dissolves.
 It’s difficult to attract competent employees
because prospects for promotion or
personal growth are restricted or limited.

Partnership
Advantages Disadvantages

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 Easy and inexpensive to establish.  The partners have unlimited liability to

 Partners may possess specific assets and their capital contributions.
expertise that can be used to the benefit the  It lacks continuity, in the event of death,
business. resignation, insolvency of a partner the
 Responsibilities are spread among two or partnership is dissolved.
more partners.  Disagreements may have the effect of
 The business risks are shared, that increases delaying the decision-making.
the security for partners.  The partnership has greater capacity to
expand but the contributions are limited to
the funds that can be raised by each
partner.
 All partners are bound by contracts
entered into by one partner, an incapable
partner can cause financial loss to the
business.

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EXAMPLE 1
KWA- MANINGI STORES
The following information is extracted from the financial records of Kwa-Maningi stores the partners
are K.Kubheka and S.Sibanda, the end of the financial year is 28 February 2023.

REQUIRED
• Open the accounts in the General ledger
• Journalise the year –end adjustments and post to the General ledger
• Journalise the closing entries and post to the General ledger [No need to balance the
Capital account]

Information from General Ledger of Kwa-Maningi Stores on 28 February 2023

Capital: Kubheka 100 000
Capital: Sibanda 50 000
Current account: Kubheka (01 March 2022) Cr 5 500
Current account : Sibanda (01 March 2022) Cr 2 600
Drawings :Kubheka 30 000
Drawings :Sibanda 28 000

The net profit for the year amounts to R120 000.

The partnership agreement stipulates the following:

1. Salary allowance to Kubheka amounts to R42 000.
2. Salary allowance to Sibanda amounts to R21 000.
3. Profits and losses are to be shared between Kubheka and Sibanda in the ratio 2:1

EXPECTED SOLUTION

GENERAL JOURNAL OF KWA-MANINGI STORES: FEBRUARY 2023

Doc Date Details Fol Debit Credit
V1 28 Salary: Kubheka N7 42 000
Current account: Kubheka B5 42 000
Salary due according to partnership agreement
V2 Salary: Sibanda N8 21 000
Current account: Sibanda B6 21 000
Salary due according to partnership agreement
Closing transfers
Appropriation F3 63 000
Salary account: Kubheka N7 42 000
Salary account: Sibanda N8 21 000

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Transfer of salaries

GENERAL JOURNAL OF KWA-MANINGI STORES: FEBRUARY 2023

Doc Date Details Fol Debit Credit

Appropriation F3 57 000
Current account :Kubheka B5 *38 000
Current account :Sibanda B6 *19 000
Transfer income in profit sharing ratio
Profit and loss account F2 120 000
Appropriation account F3 120 000
Net profit transferred to Appropriation account
Current account: Kubheka B5 30 000
Drawings :Kubheka B3 30 000
Transfer of drawings to current account
Current account: Sibanda B6 28 000
Drawings :Sibanda B4 28 000
Transfer of drawings to current account
*Calculation for remaining profit :
120 000 – 42 000- 21 000 = 57 000
Kubheka :57 000 x 2/3 = 38 000 Sibanda :57 000 x 1/3 = 19 000

GENERAL LEDGER OF KWA-MANINGI STORES

BALANCE ACCOUNTS SECTION

Dr CAPITAL : KUBHEKA B1 Cr
2022 01 Balance b/d 100 000
March

Dr CAPITAL : SIBANDA B2 Cr
2022 01 Balance b/d 50 000
March

NOTE: There were no changes to capital contributed during the accounting period.

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Dr DRAWINGS ACCOUNT: KUBHEKA B3 Cr

2023 28 Balance b/d 30 000 2023 28 Current a/c : GJ 30 000
Feb Feb Kubheka

Dr DRAWINGS ACCOUNT : SIBANDA B4 Cr

2023 28 Balance b/d 28 000 2023 28 Current a/c : GJ 28 000
Feb Feb Kubheka

Dr CURRENT ACCOUNT : KUBHEKA B5 Cr

2023 Drawings: Kubheka GJ 30 000 2022 01 Balance b/d 5 500
Feb 28 March
Balance c/d 55 500 2023 28 Salary :Kubheka GJ 42 000
Feb
Appropriation GJ 38 000

85 500 85 500
2023 01 Balance c/d 55 500
March

Dr CURRENT ACCOUNT : SIBANDA B6 Cr

2023 28 Drawings: Sibanda GJ 28 000 2022 01 Balance b/d 2 600
Feb March
Balance c/d 14 600 2023 28 Salary :Sibanda GJ 21 000
Feb
Appropriation GJ 19 000

42 600 42 600
2023 01 Balance c/d 14 600
March

Interest on Capital

 It is compensation to partners for capital contributed to the partnership.

 Provision made for the interest on capital should be made according to the partnership
agreement.
 The interest on Capital is not classified as an operating expense, it is an appropriation of the
profit.
 The provision for interest on capital will be made even if the business can run at a loss.

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EXAMPLE 2
The financial year of Kwa-Maningi stores ends on 31 December 2023.The rate of interest is 12% p.a.

REQUIRED
• Calculate the interest on capital for partners Joe and Sam and record in the General Journal.

INFORMATION
Capital: Joe (01January 2023) 150 000
Capital: Sam (01January 2023) 100 000

EXPECTED ANSWER

Calculation of interest on capital

Joe Sam
150 000 X12% = 18 000 100 000 x 12% = 12 000

GENERAL JOURNAL OF KWA-MANINGI STORES: 31 DECEMBER 2023

Doc Date Details fol Debit Credit
V1 31 Interest on Capital N9 18 000
Current account: Joe B5 18 000
Current account: Sam B6 12 000
Provision for interest on capital at 12% p.a.
Appropriation F3 30 000
Interest on Capital N9 30 000
Closing transfer

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Bonus to partners

Bonus is an extra payment made to the employee by the management usually as:
 Reward for outstanding/good work
 Compensation for something (Dangerous work)
 Share out profits of a good year’s trading
 Improve in the skills by employees – improve service delivery.
 The business can give a bonus to the employee who rendered the service that will save money to
the business.

 Partners can receive a bonus for good services rendered to the partnership in addition to their
share of the profit.
 Bonuses are not regarded as operating expenses, but they are distribution from the profits.
 Bonuses to partners should be stipulated in the partnership agreement.
Calculation of Bonuses

The following methods are applied when the bonus is calculated:

 Expressed as a percentage of the net profit.
 A fixed amount.
 A percentage of salaries of partners.

EXAMPLE 3

The following information is extracted from the financial records of ABC Traders with partners
A.Sekele and N.Mbatha on 29 February 2024, the end of the financial year. REQUIRED
1. Draw up the following accounts in the general ledger, balance and close them off properly:
• Current Account: A. Sekele
• Current Account: N. Mbatha
• Appropriation Account
2. Prepare note 7 and note 8

Information from General Ledger of ABC Traders on 29 February 2024

Capital: A. Sekele 300 000
Capital: N. Mbatha 200 000
Current account: A. Sekele (01 March 2023) Dr 9 500
Current account: N. Mbatha (01 March 2023) Cr 12 000
Drawings: A. Sekele 60 000
Drawings: N. Mbatha 70 000

The net profit for the year amounts to 190 500.

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The partnership agreement stipulates the following:

4. Salary allowance to A. Sekele amounts to R45 000 p.a.
5. Salary allowance to N. Mbatha amounts to R45 000 p.a.
6. Both partners are entitled to a bonus of 90% of their monthly salaries.
7. The interest on capital amounts to 12 % p.a.
8. Profits and losses are to be shared between A. Sekele and N. Mbatha in the ratio 2

EXPECTED ANSWER

GENERAL LEDGER OF ABC STORES

BALANCE SHEET SECTION
Dr CURRENT ACCOUNT: SEKELE B6 Cr
2023 01 Balance b/d 9 500 2024 29 Salary: Sekele GJ 45 000
March Feb
2024 29 Drawings a/c: GJ 60 000 Bonus: Sekele GJ 3 375
Feb Sekele [45 000 ÷ 12] x 90%
Balance c/d 37 375 Interest on capital GJ 36 000
Appropriation GJ 22 500

106 875 106 875

2024 01 Balance c/d 37 375
March

Dr CURRENT ACCOUNT: MBATHA B5 Cr

2024 Drawings: Mbatha GJ 70 000 2023 01 Balance b/d 12 000
Feb 29 March
Balance c/d 25 625 2024 29 Salary: Mbatha GJ 45 000
Feb
Interest on capital GJ 24 000
Bonus: Mbatha
[45 000 ÷ 12] x 90% GJ 3 375
Appropriation GJ 11 250

95 625 95 625

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2024 01 Balance c/d 25 625

March

FINAL ACCOUNTS SECTION

Dr APPROPRIATION ACCOUNT F3 Cr
2024 2024
Feb 29 Salary: Sekele GJ 45 000 Feb 29 Profit and loss GJ 190 500
GJ
Salary: Mbatha 45 000
Bonus: Sekele GJ 3 375
Bonus: Mbatha GJ 3 375
Interest on capital 60 000
[24 000+ 36 000] GJ
Current a/c: Sekele GJ 22 500
Current a/c: GJ 11 250
Mbatha
190 500 190 500

CALCULATIONS
Sharing of profits
190 500 – 45 000 - 45 000 - 3 375- 3 375 -24 000-36 000 = 33 750
Share the remaining profit
Sekele Mbatha
(33 750 x 2) ÷ 3 (33 750 x 1) ÷ 3
= 22 500 11 250

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ACTIVITY 1
REXEL STORES

The following balances /totals appeared in the books of Rexel Stores on 29 February 2024, the end of the
financial year. The partners are Alex and Rex.

REQUIRED

1. Draw up the following accounts in the general ledger, balance and close them off properly:
• Current Account: Alex
• Current Account: Rex
• Appropriation Account

2. Prepare note 7 and note 8

All the calculations must be converted to the nearest rand.

INFORMATION A:
Information from General Ledger of Rexel Stores on 29 February 2024
Alex Rex
Capital (01 March 2023) 160 000 100 000
Current account: (01 March 2023) Cr 7 000 Cr 6 500
Drawings 250 800 157 500
Profit and loss 427 000

INFORMATION B:
No entries have been made for the following transactions:
• Rex registered his personal Van worth R40 000 in the same partnership on
01 September and requested that this be regarded as an additional contribution. His partner Alex
agreed.
• A salary cheque of R14 000 for February 2024 issued to Rex was erroneously posted into the
Drawings account of Alex.

INFORMATION C:
The partnership agreement stipulates the following:
• The partners are entitled to the monthly salaries, Alex R14 500, and Rex R14 000.The salary of Alex
was increased by R60 000 per annum on 01 December 2023.
• The interest on capital must be provided for at 15% p.a.
• The balance of the profit and loss is to be shared in proportion to capital balances on 29 February
2024

ACTIVITY 1

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GENERAL LEDGER OF REXEL STORES: 29 FEBRUARY 2024

BALANCE SHEET ACCOUNTS SECTION

Dr CURRENT ACCOUNT: ALEX B5 Cr

Dr CURRENT ACCOUNT: REX B6 Cr

FINAL ACCOUNTS SECTION

Dr APPROPRIATION ACCOUNT F3 Cr

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NOTES TO THE BALANCE SHEET ON 29 FEBRUARY 2024

R R R
7.Capital Accounts Alex Rex Total

8.Current Accounts Alex Rex Total

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ACTIVITY 2

SG TRADERS

You are provided with the information relating to SG Traders. The partners are Grey and Simon.
REQUIRED
1. Calculate the correct Net Profit
2. Prepare the following accounts in the ledger for the financial year ended 28 February 2023.
• Current Account: Grey
• Current Account: Simon
• Appropriation Account

INFORMATION
1. The following balances appeared in the Ledger on 28 February 2023
• Capital: Grey, R500 000
• Capital: Simon, R300 000
• Current Account: Grey (on 01 March 2022) R22 000 (favourable)
• Current Account: Simon (on 01 March 2022) R14 000 (unfavourable)
• Drawings: Grey (R110 000)
• Drawings: Simon (R100 000)
• Equipment R150 000
• Accumulated depreciation on equipment (on 01 March 2022), R65 000

2. The bookkeeper calculated the net profit to be R420 000, but the following adjustments had not
been recorded.
• Bank charges per the February 2023 bank statements, R800
• Interest on fixed deposit per February statement, R1 300
• Depreciation of equipment at 10% on the diminishing balance method.
• Trading stock taken by partner Grey on 28 February 2023, the selling price was R2 400 and the cost
price was R1 800.

3. The partnership agreement provides the following:

• Salary to Grey, R11 000 per month
• Salary to Simon, R10 000 per month
• Interest on capital at 10% p.a., Simon had increased his capital by R80 000 halfway through the
financial year, this has not been recorded.
• The remaining profits are to be shared between Grey and Simon in the ratio 3:2

ACTIVITY 2

GENERAL LEDGER OF SG TRADERS :28 FEBRUARY 2023

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Dr CURRENT ACCOUNT: GREY B5 Cr

Dr CURRENT ACCOUNT: SIMON B6 Cr

FINAL ACCOUNTS SECTION

Dr APPROPRIATION ACCOUNT F3 Cr

CALCULATION OF THE CORRECT NET PROFIT

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GAAP CONCEPTS
GAAP – Accounting principles that businesses should follow when preparing the financial statements and
financial information. The purpose is to provide accurate information to the users of the Financial
statements.
CONCEPT EXPLANATION

Going Concern The concept is based on the assumption that the business will continue to
operate in the foreseeable future. The financial statements assume no intention
to liquidate or close the business.

Matching or Accrual Income earned during a particular financial period and expenses incurred in
concept generating the income, must be brought into account (matched) during the
specific financial period when they occur not when the cash for the transaction is
paid or received.

Prudence Losses must be provided for as soon as they are

anticipated, but profits are not recognised until they are realised. In simple
words, it is safer to understate than to overstate profits. An accountant must
report in the most pessimistic or conservative manner.

Historic cost The concept covers the valuation of tangible assets that have been purchased or
acquired by the business. The tangible assets are to be valued at historical cost,
i.e., the amount paid on acquisition.

Materiality Financial statements should disclose all items that are material or important
enough to affect evaluation or decisions.

Business entity The financial affairs of a business must be kept separate from the financial affairs
of the affairs of the owners.

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ACTIVITY 3

The information given below is extracted from the books of Simunye Traders, a partnership business with
Neo and Rocks as partners. The financial period ends on the last day of February each year.

Balances / totals on 29 February 2024

Capital: Neo R208 000
Capital: Rocks 184 000
Current account: Neo (01 March 2023) (Cr) 2 500
Current account: Rocks (01 March 2023) (Dr)11 200
Drawings: Neo 87 500
Drawings: Rocks 91 000

The net profit for the year, before the transactions below have been taken into account, amounted to R208
000.

The following entries must still be taken into account:

• Neo made cash contribution on 29 February 2024, the proportion of his capital balance to Rocks is 3:2
after the contribution. No entry was made for this transaction in the books. The capital contribution of
Rocks remains unchanged.
• Rocks returned the merchandise which was unsuitable for his personal use, before the stocktaking was
completed, the cost price is R500.The records were not updated on goods returned.
• The salary of 6 500 paid to Neo for February 2024 was posted to the salaries and wages account by
mistake and treated as a business expense. The error must be corrected.

The partnership agreement provides for the following:

A. Each partner is entitled to the salary of R6 500 per month.
B. Interest on capital balances at the beginning of the financial year amounts to 8% p.a. On 01 December
2023 the partners increased the interest on capital to 12 % p.a.
C. The remaining profits and losses must be shared in proportion to their capital balances at the beginning
of the year.

ACTIVITY 3

Notes to the Balance Sheet on 29 February 2024

R R R
CAPITAL ACCOUNT Neo Rocks Total
Balance on 01 March 2023
Contribution of capital during the financial year
Withdrawal of capital during the year
Balance on 29 February 2024

CURRENT ACCOUNTS Neo Rocks Total

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Appropriation of net profit

Salaries
Interest on capital
Primary division of profits
Final division of profits
Profit per income statement
Drawings during the year
Retained income /loss for the year
Balance on 01 March 2023
Balance on 29 February 2024

Dr APPROPRIATION ACCOUNT F3 Cr

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