ACCOUNTING

GRADE 11

PARTNERSHIPS
PARTNERSHIPS

• A legal agreement between two or more persons but not more than 20.
• The owners are known as Partners.
• They form a partnership by drawing up a Partnership Agreement.
❖ Name of business
❖ Product or service provided
❖ Capital contribution
❖ Sharing of profits and losses
❖ The amount of drawings taken by each partner
❖ The right of a partner to salary and interest on capital
❖ Admission n of new partners
❖ Whether or not the books will be audited and by whom
• The advantage of a partnership is that there is more capital and less administrative
expenses.
• The disadvantage is that the partners are jointly and severally liable for the debts of the
business.
• The capital contribution is reflected as a ratio.
• Each of the owners has a Capital, Drawings and a Current account.
• The owners earn interest on their current accounts.
• The partners can also earn a salary. Withdrawal of salaries is debited to the Drawings
account and salary entitled to the partner: Debit Salary: (name of partner) and credit Current
account; (name of partner)
• The partners’ salaries and interest on capital is closed off to the Appropriation account.

CAPITAL ACCOUNT
• The partnership capital account is an equity account in the accounting records of a
partnership.
• It contains the following types of transactions:
❖ Initial and subsequent contributions by a partner in the partnership, in the form of either
cash or
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Bank Capital Account: A + + 0

❖ the market value of other assets (Land and building, vehicles, equipment and may
be trading stock purchased on behalf of the partnership)
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Land and building/ Capital Account: A
vehicle/ equipment/ + + 0
Trading stock

2
 GENERAL LEDGER OF PINEAPPLE TRADERS
DR CAPITAL ACCOUNT: PINE CR
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2015 28 Bank (partner 2014 01
Feb withdraws capital Mar Balance b/d
contribution)
Balance c/d # Bank (contributes CRJ
capital contribution)
# Equipment/Vehicle GJ
(assets contributed
to business and
regarded as capital
contribution)
# Trading Stock GJ
(partner purchase
stock on behalf of
business and
regarded as capital
contribution)

2015
Mar 01 Balance b/d
# depends on when the transaction takes place

CURRENT ACCOUNT
• Salary earned by the partner
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Salary: A Current account: A 0 + 0

• Bonuses earned by the partner

EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Bonuses To Partners Current Account: A 0 + 0

• Interest on capital earned by the partner

EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Interest on Capital Current Account: A 0 + 0

• Used to record the profits/losses retained in the business by the partners

3
• Profits
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Appropriation account Current account: A 0 + 0

• Losses
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Current Account: A Appropriation account 0 + 0

• The drawings of the partner for the financial year

EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Current account: A Drawings account: A 0 + 0

• The balance of this account can fluctuate and may either be a debit balance or a credit
balance
DR CURRENT ACCOUNT: PINE CR
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2014 01 2015 29 Salary: Pine (salary
Mar Balance** b/d Feb partner entitled to)
2015 28
Feb Drawings: Pine Bonus
Balance c/d Interest on capital
Appropriation

2015
Mar 01 Balance b/d
** The balance at the beginning and the end of the year can be either a debit or credit balance.

DRAWINGS
• The drawings accounts serve exactly the same purpose as the drawings account for a sole
trader.
• Each partner’s drawings are recorded in a separate account.
• Drawings can be for the following:

• Cash
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Drawings account: A Bank - - 0

4
• Trading stock
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Drawings account: A Trading stock - - 0

• Stationery (Other expenses)

EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Drawings account: A Stationery (Other 0 + 0
expenses)
• Salary/Bonuses payments
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Drawings account: A Bank - - 0

• At the end of an accounting period, each partners drawings are cleared to his current
account.
❖ Current account – Debit
❖ Drawings account – Credit
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Current account: A Drawings account: A 0 + 0

DR DRAWINGS ACCOUNT: PINE CR

DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2015 29 2015 29 Prepaid Expense
Feb Balance b/d Feb (any salary amount
paid to partner for
the next financial
year)
Telephone Current account:
Pine
Bank (this includes
salaries and
bonuses paid to
partners)

INTEREST ON CAPITAL
• Interest on Capital is to be paid to partners only if it is specifically agreed upon
• Interest is to be paid only out of profits.
• Where there is a loss, no interest should be paid on capital, even if the partnership
agreement provides for the same.

5
• Calculated on:
❖ Opening Balance known
o Where the Capital a/c balances at the beginning of the accounting period are known
and there is no change in the balance throughout the period, the interest is calculated
on the opening balance.
❖ Closing balance known
o Where the Capital a/c balances at the end are known and no other information is
available, or where the information relating to transactions affecting the capital account
are known without the information relating to the date/period of occurrence, we
calculate the interest based on the closing balance.
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Interest on capital Current account: A 0 + 0
• At the end of the accounting period the Interest on capital account is closed off to the
Appropriation Account
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Appropriation account Interest on Capital 0 + 0

DR INTEREST ON CAPITAL CR
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2015 28 Current account: 2015 28 Appropriation
Feb Pine Feb account
Current account:
Apple

BONUS TO PARTNERS
• Partnership agreements often provide for a bonus to the managing partner based on a
percentage of net profit for the period and

• Is included in the STATEMENT OF COMPREHENSIVE INCOMEas an allocation of net

profit.
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Bonuses to Partners Current Account: A 0 + 0

• At the end of the accounting period the Bonuses to Partners account is closed off to the
Appropriation Account
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Appropriation account Bonuses to Partners 0 + 0

6
 DR BONUSES TO PARTNERS CR
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2015 28 Current account: 2015 28 Appropriation
Feb Pine Feb account
Current account:
Apple

SALARIES TO PARTNERS
• Is a compensation for services rendered by a partner to the partnership full time,
• the partnership agreement usually makes a provision for the payment of salary to such
partner.

• This salary must be paid even when funds are insufficient and is recorded as an expense
item in the income statement.
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Salary: A Current account: A 0 + 0

• At the end of the accounting period the Salary: Partner account is closed off to the
Appropriation Account
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Appropriation account Salary: A 0 + 0

DR SALARY: PINE CR
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2015 28 Current account: 2015 28 Appropriation
Feb Pine (salary partner Feb account
is entitled to)

DIVISION OF PROFITS /LOSSES

➢ A partner’s income, loss, deductions, credits & other items are determined in accordance
with the partnership agreement
➢ The Partnership Law provides that the profits and losses of the partnership are to be divided
in accordance with the partners’ agreement.
➢ If no agreement is made between and among the partners, profits and losses are to be
divided according to their original capital contributions.
➢ Should the partners agree to divide the profits only, losses, if any are to be divided in the
same manner as that of dividing profits.
➢ However, should the partners agree to divide the losses only, profits, if any shall be divided
by the partners according to their original capital contributions.

7
➢ The many possible methods of dividing net income or loss among partners may be
summarized as follows:
o Equally
o In an unequal or arbitrary ratio
o In the ratio of partners' capital account balances on a particular date, or in the ratio of
average capital account balances during the year.
o Allowing interest on partners' capital account balances and dividing the remaining net
income or loss in a specified ratio.
o Allowing salaries to partners and dividing the remaining net income or loss in a
specified ratio.
o Bonus to managing partner based on net income.

• Profits
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Appropriation account Current account: A 0 + 0

• Losses
EFFECT ON ACCOUNTING
EQUATION
ACCOUNT DEBIT ACCOUNT CREDIT
A = E L
+
Current Account: A Appropriation account 0 + 0

APPROPRIATION ACCOUNT
DR APPROPRIATION ACCOUNT CR
DATE DETAILS FOL AMOUNT DATE DETAILS FOL AMOUNT
2015 28 2015 28
Feb Salary: Pine Feb Profit and loss
Salary: Apple
Interest on capital
Bonus to Partners
Current acc: Pine
Current acc: Apple

8
WORK WITH ACTIVITY 1

REQUIRED

1. Complete the ledger accounts of PineApple Traders as per answer book

2. Do you think the business has proper internal control procedures? Give a reason for
your answer.

Balances on 1 March 2014

R
Capital: Pine 300 000
Capital: Apple 200 000
Current account: Pine (Dr) 5 000
Current account: Apple (Cr) 15 000
• The Statement of Comprehensive Incomeshowed a net profit of R936 000 on 28 February
2015.
• Pine took goods worth R1 500 per month for his private use from 31 March 2014 and
thereafter on the last day of each month.
• On the same dates Apple took goods worth R6 000 each month.

No entries were made in the books of these transactions.

• The private telephone account of R2 400 was paid with a business cheque on behalf of
Apple on 31 August 2014. This cheque was posted to the Telephone account.

Additional information and stipulations of the partnership agreement:

• The partners are entitled to an annual salary of R300 000. Of this R275 000 was paid by
31 January 2015 per cheque to each of them, and was recorded in the partners’ drawings
accounts.

• The partners earned a bonus of R30 000 each at the end of the financial year.

• Both partners are entitled to a 15% interest per annum on their capital contribution at the first
day of the financial year. On 28 February 2015 Apple deposited R100 000 into the
partnership’s bank account to increase his capital. The capital account of Pine stayed
unchanged.

• The remaining profit must be divided in the ratio of the partners’ capital account balances on
the last day of the financial year.

9
WORK WITH ACTIVITY 1

GENERAL LEDGER OF PINEAPPLE TRADERS

Dr. CAPITAL ACCOUNT PINE Cr.

Dr. CAPITAL ACCOUNT APPLE Cr.

Dr. CURRENT ACCOUNT PINE Cr.

Dr. CURRENT ACCOUNT APPLE Cr.

Dr. DRAWINGS PINE Cr.

Dr. DRAWINGS APPLE Cr.

10
Dr. PARTNERS BONUS Cr.

Dr. INTEREST ON CAPITAL Cr.

Dr. SALARIES PINE Cr.

Dr. SALARIES APPLE Cr.

Dr. APPROPRIATION Cr.

2. Do you think the business has proper internal control procedures? Give a reason
for your answer.

11
ACTIVITY 1

The following information was extracted from the accounting records of BarOne Traders
(partners B Barney and O Onellie) for the year ended 28 February 2015.

REQUIRED

1.1 You are required to draw up the following ledger accounts in the General Ledger of
BarOne Traders:
1.1.1 Current account: B Barney
1.1.2 Drawings: B Barney
1.1.3 Appropriation account

1.2 It was agreed that B Barry will compile the books of the business. O Onellie decided to
attend a financial course during the year. He realised that O Onellie was not recording
documents properly, especially journal vouchers for the withdrawal of drawings made by
him. B Barney approaches you for advice.

1.2.1 Explain to the partners why internal control is important in a business

1.2.2 Provide the partners with a list of FIVE internal procedures that that should consider
1.2.3 Explain business ethics to the partners. Include in your answer the consequences on
unethical business practices.

Balances on 28 February 2015

R
Capital: B Barney 800 000
Capital: O Onellie 600 000
Current account: B Barney (1 Mar 2014) (Cr.) 24 800
Current account: O Onellie (1 Mar 2014) (Cr.) 13 840
Drawings: B Barney 432 000
Drawings: O Onellie 432 000

Adjustments and additional information

1. Before stocktaking B Barney took merchandise at cost, R4 000, together with stationery
at cost, R500, for his own use. The necessary entries have been made in the general
journal but no postings have yet been made to the General ledger.

2. Each partner is entitled to s salary of R36 000 per month. All salaries were paid to the
partners. A Bonus of R50 000 each was paid to the partners on 28 February 2015

3. The partners are entitled to interest on their capital. The partners have increased the
interest rate on their capital accounts from 12% p.a. to 15% p.a. with effect from 1
December 2014.

4. Net Income as per Profit and Loss account, R1 860 000

5. Partners shared profits in the same ratio as their capital contributions.

12
ACTIVITY 1
GENERAL LEDGER OF BARONE TRADERS
Dr. CURRENT ACCOUNT: B BARNEY Cr.

Dr. DRAWINGS B BARNEY Cr.

Dr. APPROPRIATION Cr.

CALCULATIONS
B Barney O Onellie
Salaries

Interest on capital:

Ratios

13
1.2.4 Explain to the partners why internal control is important in a business

1.2.5 Provide the partners with a list of FIVE internal procedures that that should
consider

1.2.6 Explain business ethics to the partners. Include in your answer the
consequences on unethical business practices.

14
ACTIVITY 2

You are provided with information relating to Pebble Stone Traders at the year-end
30 June 2015. The business is owned by Pebble and Stone. The partnership agreement states
that the partners will contribute equally in the running of the business. However, Stone leaves
every day at 13:00 because she states that she has to attend to her two children who are still at
school.

REQUIRED

2.1 Draw up the following ledger accounts:

2.1.1. Current account of Pebble
2.1.2. Current account of Stone
2.1.3. Appropriation account

2.2 Give your opinion on the following:

2.2.1 The drawings of Pebble as compared to Stone.
2.2.2 The distribution of profits/losses at the end of the year.
2.2.3 Complete the table in your answer books on the effect of the accounting equation.

INFORMATION

The Pre-adjustment trial balance on 30 June 2015 includes the following balances:
R
Capital: Pebble 200 000
Capital: Stone 280 000
Current account: Pebble 1 July 2014 (Cr) 165 200
Current account: Stone 1 July 2014 (Cr) 131 600
Drawings: Pebble 768 000
Drawings: Stone 592 800

After attending to the items listed below, the bookkeeper has calculated the net profit for the
year as R1 320 000.

The following entries have not yet been made by the bookkeeper, as he was afraid of making a
mistake:
• Pebble increased his capital on 1 January 2015 by transferring land worth R400 000 into
the name of the business.
• Stone also withdrew trading stock worth R2 000 each month for her personal use.

The following error has also been made by the bookkeeper:

Stone increases his capital on 1 January 2015 by contributing R220 000 cash. This was
recorded as a loan to the business by mistake.

The partnership agreement provides for the following:

• Salary to Pebble of R60 000 per month. All salaries were paid.
• Salary to Stone of R28 000 per month. All salaries were paid
• Interest on capital at 10% per year on the closing balances.
• Bonus of 10% of profits paid to each partner after the calculation of salaries and interest on
capital
• Any remaining profits or losses to be shared equally between the partners

15
ACTIVITY 2

GENERAL LEDGER OF PEBBLE STONE TRADERS

Dr. CURRENT ACCOUNT: PEBBLE Cr.

Dr. CURRENT ACCOUNT: STONE Cr.

Dr. APPROPRIATION Cr.

PEBBLE STONE
Salaries

Interest on capital:

16
Bonus

Ratios

2.2.1 Give your opinion on the following: The drawings of Pebble as compared to
Stone

2.2.2 Give your opinion on the following: The distribution of profits/losses at the end of
the year.

2.2.3 Complete the Table

EFFECT ON
ACCOUNTING
Transaction Account Debit Account Credit
EQUATION
A = E + L
Partner contributes cash
as capital
Partners contributes asset
as capital
Partner purchases trading
stock on behalf of
business and regards it as
capital contribution
Partner decreases capital
contribution
Interest on capital

Salaries to partner - paid

Salaries to partner –
entitled to
Bonus to partner - paid

Bonus to partner entitled

to
Partner withdraws cash

Partner withdraws trading

stock
Division of profits

Division of losses

17
ACTIVITY 3

REQUIRED

3.1 Draw up the following ledger accounts in the General ledger of Bashu Supplies on
28 February 2015. Close off or balance the accounts.

3.1.1. Current account: Bahia

3.1.2. Drawings: Shuja
3.1.3. Salaries: Bahia
3.1.4. Interest on capital
3.1.5. Appropriation Account

3.2 Answer the following questions

3.2.1 Shuja wishes to withdraw his salary for the March 2015 in February 2015. He wishes to
use it to pay for his son’s dental procedure. If you were his partner, how would you
react?
3.2.2 Bahia wishes to draw up a Code of Ethics for the business. Refer to the King Code
below and advise her accordingly. Highlight the important principles pertaining to ethics,
Explain each term.

INFORMATION

The following balances appeared, inter alia, in the books of Bashu Supplies on 1 March 2014:
R
Capital: Bahia 480 000
Capital: Shuja 240 000
Current account: Bahia (Cr) 40 000
Current account: Shuja (Cr) 60 000

ADDITIONAL INFORMATION
• During the year Bahia took merchandise to the total value of R10 830 from trading stock
for his personal use. Shuja took merchandise per month to the value of R600 from
trading stock as well as stationery for the total value of R120 for his personal use.

• Cash withdrawals during the year, including salaries to partners:

Bahia R187 320
Shuja 155 000

The partnership agreement stipulates the following:

• Each partner is entitled to 15% p.a. interest on capital contribution before appropriation of
profits. Note that Shuja increased his capital by R240 000 on 1 September 2014.

• Bahia receives a monthly salary of R12 000 and Shuja an annual salary of R90 000. All
salaries had already been paid to the partners.

• The partners agreed to a bonus of R15 000 each.

• The remaining net income of R90 000 must be appropriated according to capital
contribution at the beginning of the year.

18
The King code & business codes of ethics

Read the following information:

There have been many cases reported in the media relating to fraud and poor management of
companies. High profile international cases concerned companies such as Enron, Worldcom
and Parmalat, while in South Africa some examples include Leisurenet, Beige and Saambou.

The South African government has been pro-active by appointing a respected judge, Mervyn
King, to set up the King Commission to devise recommendations to avoid poor corporate
practice in future. The King Commission has issued two reports to date, the second of which
covered a Code of Corporate Practices and Conduct, referred to as the King Code.
The Code covers all aspects of good governance including accountability, transparency and
responsible management. Although the King Code focuses on companies, it is common
sense that these principles should also apply to all types of businesses. Such has been the
positive response to the recommendations of the King Commission, it is reasonable to expect
that these could find their way to the law-books in future. Teachers are advised to monitor
press releases in order to keep up to date with these matters.
It is now becoming common practice for businesses to compile their own codes of business
practice that are aligned to their mission statements. These codes of business practice will
give guidance to all members of the organisation in dealing with stakeholders and the wider
community. Any business, which does not have a harmonious relationship with the outside
world, is likely to find that it will not be able to sustain itself into the future.

A code of ethics for a business

People in business are not always trustworthy. When you asked them when are they going to
pay their account you know they will say the familiar words: “The cheque is in the post.”
Although business people know the right way of doing business they will be dishonest or be
silent about information that can have a negative influence on their business. We use words
like fairness, reasonable, thoroughly and decently to describe a person’s conduct during
negotiations of deal. We know what is the right conduct and behaviour but we sometimes
bend it to make the deal. This is the reason why businesses have rules how to behave for
their staff – Code of ethics. Ethics are sets of ideals, which may take the form of rules of
conduct that, provide the distinction between right and wrong behaviour. (The principles and
practice of auditing, Puttick, Van Esch, 1963, p 29)`

Every profession has a code of ethics. In this code of ethics the employee of this profession
recognizes his/her responsibilities to the public, to clients, to colleagues and to employers.
The purpose of a code of ethics is to guide employees in performing professional services.

19
ACTIVITY 3

GENERAL LEDGER OF BASHU

Dr. CURRENT ACCOUNT BAHIA Cr.

Dr. DRAWINGS SHUJA Cr.

Dr. SALARIES BAHIA Cr.

Dr. INTEREST ON CAPITAL Cr.

Dr. APPROPRIATION Cr.

20
 BAHIA AHUJA
Interest on capital

Ratio

3.2.1 Shuja wishes to withdraw his salary for the March 2009 in February 2009. He
wishes to use it to pay for his son’s dental procedure. If you were his partner,
how
would you react?

3.2.2 Bahia wishes to draw up a Code of Ethics for the business. Refer to the King Code
below and advise him accordingly.

21
 FINANCIAL STATEMENTS OF A PARTNERSHIP

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

GAAP represents a body of knowledge that consist of both the written rules that govern
accountants in their reporting duty. Knowledge is consistently been added to GAAP. The
following are the basic principles of GAAP:

Entity The financial affairs of a Going This principle refers to the fact
business must be kept concern that the operations of an
separately from the accounting entity will continue for
financial affairs of the the foreseeable future.
owner.
Historical The assets that are Prudence The concept prudence implies that
cost purchased by the business financial statements be prepared
are recorded at cost. conservatively.
Only income that has been earned
without any doubt will be shown
whereas expenses will rather be
shown too high than too low.
This results in the net income
being shown as low as possible.
Matching This principle ensures that Materiality Transactions which are not
income and cost incurred Important items must be
in generating incomes specifically shown in financial
(expenses) are recorded in statements whereas unimportant
the same accounting items need not be stressed.
period. Published financial statements of
e.g. at the end of the companies will therefore contain
financial year telephone is less information than the detailed
paid only for 11 months statements and consequently can
then, the telephone be understood by more people.
account must be adjusted
to include all 12 months.

FINANCIAL STATEMENTS
Groups of people / institutions Reason for the interest in financial statements
interested in the financial
statements
• Owner/proprietor • The financial success of the business especially the
profits.
• Potential owner(s) • Whether it will be potentially viable to invest in this
business.
• Banking institutions • Lenders of funds are interested if the business has
sufficient assets/funds to cover their loans
• Employees and their trade unions • Interested whether it provides job security and whether
• South African Revenue Services the employee is earning a fair wage/salary
• Taxation purposes – whether the correct taxes are paid
• External auditor of the business on the profits of the business.
• To ensure proper books are kept for the financial year.

22
ACTIVITY BASELINE ACTIVITY

4.1 Give your opinion on why financial statements should have the following
characteristics.
Desirable characteristic Opinion:

1 Understandability: Why must financial

statements be understandable to the
ordinary man in the street?
2 Relevance Why is information relevant to
the user and how does it influence
economic decisions?
3 Reliability: Why must financial
statements be reliable?

4 Comparability: Why must financial

statements be comparable, i.e. from one
business to another, or one time period to
another?
5 Fairness: Why must financial statements
be prepared in such a way that they do not
advantage any particular stakeholder, i.e.
why must they be fair to all?
6 Timeliness: Why should financial
statements be published timeously?

4.2 This table is incorrect. You are required to match the example in the left-hand
column with the appropriate concept in the right-hand column.
[Business Entity, Historical Cost, Prudence, Matching, Materiality, Going concern]
Examples of year-end adjustments Appropriate principle applied
A Trading stock is reflected at R23 500 in the financial
statements of the partnership. The trading stock will
sell at R35 250 in the next financial year
B Postage stamps purchased for R250 is recorded as
Sundry Expenses.
C One of the partners receives R1,5 million as part of
his inheritance. The amount is not recorded in the
books o the partnership
D The partnership has purchased dental equipment
for R1,7 million. Technology is changing virtually
everyday. The equipment will be useless to anyone
in the future. Therefore the partnership decides to
depreciate it over its useful life time of 8 years.
E The Statement of Comprehensive Incomeof the
partnership will reflect the telephone account with
the amount paid for the11 months and the accrual
amount.
F Land and Building is recorded in the Statement of
Financial Positionfor R300 000 for the past 5 years.
It was recently appraised at R2,3 million.

23
YEAR-END ADJUSTMENTS

PROVISION FOR BAD DEBTS

• A certain percentage is determined to write off the accounts of those debtors that do not
settle their accounts
• 1 year provision for bad debts written off is regarded as a loss
• Therefore the provision for bad debts adjustment account is regarded as an expense
account (-E)
• And the Provision for bad Debts is regarded as an Asset with a credit balance (-A)
• Thereafter the amount to be written off may increase or decrease from the previous year.

Example:
Extract from Trial Balance
Debtors R48 600

Adjustment:
It was decided to create a provision for bad debts at 5% of total debtors.

SOLUTION
5% of R48 600 = R2 430

GENERAL LEDGER OF AC TRADERS

Dr. PROVISION FOR BAD DEBTS (B) Cr.
2015 28 Provision for Bad Debts 2 430
Feb Adjustment
Dr. PROVISION FOR BAD DEBTS ADJUSTMENT (N) Cr.
2015 Provision for Bad 2015
Feb 28 debts 2 430 Feb 28 Profit and loss account 2 430

EFFECT ON ACCOUNTIN EQUATION

Source Account debit Account credit A = E + L
document
Journal Provision for bad Provision for bad - - 0
Voucher debts Adjustment debts

INCREASE IN THE PROVISION FOR BAD DEBTS

Example:

Extract from Trial Balance

Debtors R56 400
Provision for bad debts R 2 430

Adjustment:
The provision for bad debts must be adjusted to 5% of total debtors

SOLUTION
5% of R56 400 = R2 820
-R2 430 (minus last year’s Provision for Bad Debts)
R 390 (This means that the Provision for Bad Debts must increase by
R390)

24
 GENERAL LEDGER OF AC TRADERS
Dr. PROVISION FOR BAD DEBTS Cr.
2015 2014
Feb 28 Balance c/d 2 820 Mar 01 Balance b/d 2 430
2015 Provision for Bad Debts
Feb 28 Adjustment 390
2 820 2 820
2015
Mar 01 Balance b/d 2 820
Dr. PROVISION FOR BAD DEBTS ADJUSTMENT (N) Cr.
2015 Provision for Bad 2015
Feb 28 debts 390 Feb 28 Profit and loss account 390

EFFECT ON ACCOUNTING EQUATION

Source document Account debit Account credit A = E + L
Journal Voucher Provision for bad debts Provision for bad debts - - 0
Adjustment

DECREASE IN THE PROVISION FOR BAD DEBTS

Example:
Extract from Trial Balance
Debtors R42 800
Provision for bad debts R 2 430
Adjustment:
The provision for bad debts must be adjusted to 5% of total debtors

SOLUTION
5% of R42 800 = R2 140
-R2 430 (minus last year’s Provision for Bad Debts)
R 290 (This means that the Provision for Bad Debts must decrease by
R290)
GENERAL LEDGER OF AC TRADERS
Dr. PROVISION FOR BAD DEBTS Cr.
2015 Provision for Bad 2014
Feb 28 Debts Adjustment 290 Mar 01 Balance b/d 2 430

Balance c/d 2 140

2 430 2 430
2015
Mar 01 Balance b/d 2 140
Dr. PROVISION FOR BAD DEBTS ADJUSTMENT (N) Cr.
2015 Profit and loss 2015
Feb 28 account 290 Feb 28 Provision for Bad debts 290
NOTE: the Provision for Bad Debts Adjustment Account will then reflect as an INCOME

EFFECT ON ACCOUNTING EQUATION

Source document Account debit Account credit A= E+ L
Journal Voucher Provision for bad debts Provision for bad debts + + 0
Adjustment

25
WORK WITH ACTIVITY 2 ON THE COMPLETION OF FINANCIAL STATEMENTS

REQUIRED

1. Complete the spread sheet on the adjustments

2. Prepare the final accounts of Lazen Traders

INFORMATION

LAZEN TRADERS
PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2015

Debit Credit
Statement of Financial PositionAccounts Section
Capital: L Laila 900 000
Capital: Z Zenele 600 000
Current account: L Laila 125 000
Current account: Z Zenele 5 500
Drawings: L Laila 288 000
Drawings: Z Zenele 272 500
Land and buildings 1 304 000
Vehicles 680 000
Equipment 150 000
Accumulated depreciation on vehicles (1 March 2014) 180 000
Accumulated depreciation on equipment (1 March 2014) 56 000
Fixed deposit: Encore Bank 100 000
Trading stock 126 500
Debtors’ control 56 000
Provision for bad debts 1 800
Bank 80 497
Creditors control 119 800
Loan: Money Bank ?

Nominal Accounts Section

Sales 1 875 800
Debtors’ allowances 15 500
Cost of sales 685 000
Stationery 8 500
Packing material 9 603
Salaries and wages 188 400
Rent income 118 400
Discount received 6 600
Interest on fixed deposit 3 600
Bad debts 4 500
Discount allowed 3 200
Insurance 80 400
Water and electricity 42 600
Sundry expenses 21 300
4 122 000 4 122 000

26
ADJUSTMENTS
1. The physical stocktaking of trading stock on 28 February 2015 is R121 000

2. The physical stocktaking of stationery on 28 February 2015 is R500

3. Provide depreciation at 10% p.a. on vehicles using the diminishing balance method and
20% p.a. on equipment on cost price. Equipment with a cost price of R30 000 was sold
for R18 000 on 28 February 2015. The accumulate depreciation of the asset sold was
R14 000 on the date of sale. No entries were made for this transaction.

4. The account of debtor, B Hind, R400 must be written off as irrecoverable

5. Debtor, C Chad, deposited R1 500 directly into bank account. It was discovered that his
account was written off as bad debts previously.

6. Repairs to the building, R4 000 was erroneously debited to the land and building
account.

7. The interest on fixed deposit is 7,5% p.a. Interest is still owing

8. The rent income was received for March and April 2015. The rent Income increased by
R800 from 1 September 2014
9. Included in the Insurance is an amount of R26 400 per annum paid on 31 August 2014.
10. The water and electricity account, R1 400, for February is still outstanding
11. The provision for bad debts must be adjusted to R1 662
12 The details of an employee were left out of the Salaries Journal for February by
mistake.
His details are as follows:
Gross salary: R120 000 per annum
PAYE deduction: 18%
Pension Fund:7,5 % of gross salary
Medical Aid: R980
UIF: 1% of gross salary
The business contributes:
R1,50 to the pension fund for every R1 paid by the employee.
The business also contributes to the medical aid on rand for rand basis.
UIF: 1%
13. Interest on Loan has been Capitalised to the Loan amount.
Balance Beginning of Year R300 000
Bank (including interest) R165 000
Balance end of year R180 000
It is estimated that R120 000 of the capital portion will be paid for the next financial year
14. Partnership Agreement
14.1 Each partner earned a salary of R240 000 p.a.
14.2 The partners earned interest of 10% p.a. on their capital balances
14.3 Each partner was paid a bonus of R5 000 each.
14.4 The remaining profits/losses are shared between the partners according to the
balances on their capital accounts on 28 February 2015.

27
WORK WITH ACTIVITY: EXAMPLE ON THE COMPLETION OF FINANCIAL STATEMENTS
ADJUSTMENTS CALCULATIONS ACCOUNT ACCOUNT INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT
Trading stock Deficit R126 500 – R121 000 Trading stock Trading Stock Operating expenses Note – Inventories
The physical stocktaking of trading stock = R5 500 deficit Trading stock deficit – R5 Trading stock
on 28 February 2015 is R121 000 500 R121 000
Consumable stores on hand R500 Consumable Stationery Operating Expenses Note – Inventories
The physical stocktaking of stationery on stores on hand Stationery Consumable stores on
28 February 2015 is R500 R8 500 – R500 = R8 000 hand R500
Depreciation R680 000 – R180 000
Provide depreciation at 10% p.a. on = R500 000 Depreciation Accumulated Operating expenses Note – Fixed Assets /
vehicles using the diminishing balance 10 500 000 12 depreciation on Depreciation Tangible assets
method and 20% p.a. 𝑋 𝑋
100 1 12 vehicles R50 000+ R30 000
on equipment on cost price. = R50 000 = R80 000 [see note below]
Equipment with a cost price of R30 000 20 150 000 12 Depreciation Accumulated
was sold for R18 000 on 28 February 𝑋 𝑋 depreciation on
100 1 12
2015. The accumulate depreciation of the = R30 000 equipment
asset sold was R14 000 on the date of Dr. R30 000 Asset Disposal Profit on sale of Operating Income Note – Fixed Asset
sale. No entries were made for this Cr. R18 000 + R14 000 asset Profit on sale of asset R2 Disposal at carrying value
transaction. =R32 000 000 R30 000 – R14 000 =
R32 000 – R30 000 R16 000
=R2 000
Bad debts R400 Bad debts Debtors Control Operating expenses Note – Trade and other
The account of debtor, B Hind, R400 Bad debts receivables
must be written off as irrecoverable R4 500 + R400 Debtors Control
= R4 900 R56 000 – R400
=R55 600
Bad debts recovered R1 500 Bank Bad debts Other Operating income Note – Cash and
Debtor, C Chad, deposited R1 500 recovered Bad debts recovered R1 equivalent
directly into bank account. It was 500 Bank
discovered that his account R80 497+
was written off as bad debts previously. R1 500
Correction of error R4 000 Repairs to Land and Operating expenses Note – Fixed assets /
Repairs to the building, R4 000 was building building Repairs to building R4 Tangible assets
erroneously debited to the land and 000 Land and building
building account. [see note below]
Income Accrued 7,5 100 000 12 Income Accrued Interest on fixed Note – Interest income Note – Trade and other
The interest on fixed deposit is 7,5% p.a. 𝑋 𝑋 deposit On fixed deposit receivables
100 1 12
Interest is still owing = R7 500 R3 600 + Income Accrued
R7 500 – R3 600 R3 900 =R7 500 R3 900
= R3 900 To income statement

28
 ADJUSTMENTS CALCULATIONS ACCOUNT ACCOUNT INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT
Income received in advance R800 X 8 = R6 400 Rent Income Income received Other Operating income Note – Trade and other
The rent income was received for March R118 400 – R6 400 in advance Rent Income payables
and April 2015. The rent Income =R112 000 ÷ 14 = R8 000 R118 400 –R17 600 Income received in
increased by R800 R8 000+R800 = R8 800 = R100 800 advance
from 1 September 2014 R8 800 X 2 = R17 600 R17 600
Expenses prepaid R26 400 ÷ 12 Expenses Insurance Operating expenses Note – Trade and other
Included in the Insurance is an amount of = R2 200 X 6 prepaid Insurance receivables
R26 400 per annum paid on = R13 200 R80 400 – R13 200 Expenses prepaid
31 August 2014. =R67 200 R13 200
Expenses Accrued R1 400 Water and Expenses Operating expenses Note – Trade and other
The water and electricity account, R1 electricity Accrued Telephone payables
400, for February is still outstanding R42 600+R1 400 Expense Accrued
= R44 000 R400
1. Provision for bad debts R1 800 – R1 662 = R138 Provision for Provision for Other Operating Income Note – Trade and other
The provision for bad debts must be bad debts bad debts Provision for bad debts receivables
adjusted to R1 662 adjustment adjustment Provision for bad debts
R138 R55 400 – R1 662
= R53 738
Salaries Journal R120 000÷12 =R10 000 Operating Expenses Notes Trade and other
The details of an employee were Payables
left out of the Salaries Journal for 18%XR10 000 =R1 800 SARS (PAYE) SARS (PAYE)
February by mistake. R1 800
His details are as follows: 7,5%XR10 000 =R750 Pension fund Pension fund
R750 + R1 125
Gross salary: R120 000 per annum Salaries = R1 875
PAYE deduction: 18% R980 Medical Aid Salaries Medical Aid
Pension Fund:7,5 % of gross salary R10 000 R980 + R980
Medical Aid: R980 R1 680
UIF: 1% of gross salary 1% X R10 000 = R100 UIF UIF R100 + R100 = R200
R10 000 – R1 800 – R750 – Creditors for Creditors for Salaries
The business contributes: R980 – R100 = R6 370 Salaries
R1,50 to the pension fund for every R1 R750 X 1,5 = R1 125 Pension fund Pension fund Pension Fund
paid by the employee. contribution Contribution
The business also contributes to the R980 Medical aid Medical aid Medical aid contribution
medical aid on rand for rand basis. contributions
UIF: 1% R100 UIF UIF Operating expenses
Contributions UIF contribution

29
ADJUSTMENTS CALCULATIONS ACCOUNT ACCOUNT INCOME STATEMENT BALANCE SHEET
DEBIT CREDIT
Interest on loan R180 000 + R165 000 – Interest on loan Loan: Money Bank Notes to financial Non-Current Liabilities
Interest on Loan has been Capitalised to R300 000 statements – R180 000 – R120 000
the Loan amount. =R345 000 – R300 000 Interest Expense = R60 000
Balance Beginning of Year R300 000 =R45 000 R45 000
Bank (including interest) R165 000 R120 000 Loan: Money Instalment on loan Current Liabilities
Balance end of year R180 000 Bank Instalment on loan
It is estimated that R120 000 of the R120 000
capital portion will be paid for the next
financial year
Partnership Agreement
Partners’ Salaries R240 000 Salaries: Current account:
Each partner earned R240 000 p.a. L Laila L Laila
Appropriation Salaries:
L Laila
R240 000 Salaries: Current account:
Z Zanele Z Zanele
Appropriation Salaries: Notes : Current Account
Z Zanele
Interest on Capital 10 900 000 12 Interest on Current account:
𝑋 𝑋
The partners earned interest of 10% p.a. 100 1 12 capital L Laila
= R90 000 Appropriation Interest on capital
10 600 000 12 Interest on Current account:
𝑋 𝑋
100 1 12 capital Z Zanele
= R60 000 Appropriation Interest on capital
Bonus to Partners R5 000 Bonus to Current account:
Each partner was paid a bonus of R5 000 Partners L Laila
each Appropriation Bonus to Partners
R5 000 Bonus to Current account:
Partners Z Zanele
Appropriation Bonus to Partners
Sharing of profits/losses 800 530 – 240 000 – Appropriation Current account: Notes
The remaining profits/losses are shared 240 000 – 150 000 – L Laila Current account
between the partners according to the 10 000 = R160 530 Appropriation Current account:
balances on their capital accounts on 900 000 : 600 000 = 3 : 2 Z Zanele
28 February 2015. R160 530 ÷ 5 X 3 =
R96 318
R160 530 ÷ 5 X 2 =
R64 212

30
FINAL ACCOUNTS
GENERAL LEDGER OF LAZEN TRADERS
FINAL ACCOUNTS SECTION
TRADING ACCOUNT F1

PROFIT AND LOSS F2

APPROPRIATION ACCOUNT F3
ACTIVITY 4
You are provided the information of Raspberry Traders, with partners R Raspedi and B Berryman. The
accounting period is from 1 March 2015 to 28 February 2015.

REQUIRED
4.1 Prepare the following final accounts in the general ledger
4.1.1 Trading Account
4.1.2 Profit and loss Account
4.1.3 Appropriation Account
4.2 Calculate the percentage for the provision for bad debts. Comment on the percentage and
provide solutions to the partnership on reducing this percentage.
4.3 The Bank account reflects an amount of R199 170. The partners want to increase the working
capital. Provide the partners with two different options on how to increase the working capital and
the consequences thereafter.

RASPBERRY TRADERS
POST-ADJUSTMENT TRIAL BALANCE OF ON 28 FEBRUARY 2015
DEBIT CREDIT
BALANCE SHEET ACCOUNT SECTION
Capital account R Raspedi 1 200 000
Current account B Berryman 900 000
Current account R Raspedi 93 272
Current account B Berryman 62 448
Drawings account R Raspedi 324 000
Drawing account B Berryman 276 000
Land and buildings 2 300 000
Equipment 540 000
Accumulated depreciation on equipment 108 000
Fixed Deposit: AB Bank (14% p.a.) 200 000
Trading stock 148 500
Debtors control 68 000
Provision for bad debts 1 700
Creditors control 85 000
Bank 199 170
Loan: AB Bank 12% 300 000
Accrued Income 5 500
Prepaid expenses 12 400
Accrued Expenses 1 640
Income received in advance 18 000
SARS (PAYE) 2 400
UIF 150
NOMINAL ACCOUNTS SECTION
Sales 2 224 900
Cost of sales 788 500
Debtors allowances 11 600
Rent income 90 000
Interest on fixed deposit 11 000
Bad debts recovered 1 090
Profit on sale of asset 400
Interest on loan 43 200
Trading stock deficit 2 340
Provision for bad debts adjustment 340
Sundry expenses 80 340
Wages and salaries 180 000
UIF contributions 340
Depreciation 56 000
Insurance 36 000
Bank charges 23 450

32
 Discount allowed 9 600
Donations 3 000
Pension Fund contributions 3 200
Electricity 44 200
Stationery 5 000
5 100 000 5 324 000

Additional information

1. The partnership agreement stipulated that:

1.1 Partners were entitled to 15% interest per annum on their capital. R Raspedi increased
his capital on 1 March 2014 by R300 000. This was properly recorded.

1.2 Partner R Raspedi was entitled to an annual salary of R300 000 and partner B Berryman
to a monthly salary of R20 000.

1.3 A bonus of R12 000 each was paid out on 28 February 2015

1.4 Profits and/or losses are shared in proportion 3:2

ACTIVITY 4

CALCULATIONS
R RASPEDI B BERRY MAN
SALARY

INTEREST ON CAPITAL

BONUSES TO PARTNERS

RATIO

33
 GENERAL LEDGER OF RASPBERRY TRADERS
Dr. TRADING ACCOUNT Cr.

Dr. PROFIT AND LOSS ACCOUNT Cr.

Dr. APPROPRIATION Cr.

34
 4.2 Calculate the percentage for the provision for bad debts. Comment on the percentage and
provide
solutions to the partnership on reducing this percentage.

Comment:

Solutions: Internal control of debtors

4.2 The Bank account reflects an amount of R199 170. The partners want to increase the working
capital. Provide the partners with two different options on how to increase the working capital and the
consequences thereafter.
Borrowing

Consequences:

Increasing capital contribution:

35
FINANCIAL STATEMENTS

WORKWITH ACTIVITY 3

INFORMATION

LAZEN TRADERS
PRE-ADJUSTMENT TRIAL BALANCE ON 28 FEBRUARY 2015

Debit Credit
Balance Sheet Accounts Section
Capital: L Laila 900 000
Capital: Z Zenele 600 000
Current account: L Laila 125 000
Current account: Z Zenele 5 500
Drawings: L Laila 288 000
Drawings: Z Zenele 272 500
Land and buildings 1 304 000
Vehicles 680 000
Equipment 150 000
Accumulated depreciation on vehicles (1 March 2014) 180 000
Accumulated depreciation on equipment (1 March 2014) 56 000
Fixed deposit: Encore Bank 100 000
Trading stock 126 500
Debtors’ control 56 000
Provision for bad debts 1 800
Bank 80 497
Creditors control 119 800
Loan: Money Bank ?

Nominal Accounts Section

Sales 1 875 800
Debtors’ allowances 15 500
Cost of sales 685 000
Stationery 8 500
Packing material 9 603
Salaries and wages 188 400
Rent income 118 400
Discount received 6 600
Interest on fixed deposit 3 600
Bad debts 4 500
Discount allowed 3 200
Insurance 80 400
Water and electricity 42 600
Sundry expenses 21 300
4 122 000 4 122 000

36
ADJUSTMENTS
1. The physical stocktaking of trading stock on 28 February 2015 is R121 000

2. The physical stocktaking of stationery on 28 February 2015 is R500

3. Provide depreciation at 10% p.a. on vehicles using the diminishing balance method and
20% p.a. on equipment on cost price. Equipment with a cost price of R30 000 was sold
for R18 000 on 28 February 2015. The accumulate depreciation of the asset sold was
R14 000 on the date of sale. No entries were made for this transaction.

4. The account of debtor, B Hind, R400 must be written off as irrecoverable

5. Debtor, C Chad, deposited R1 500 directly into bank account. It was discovered that his
account was written off as bad debts previously.

6. Repairs to the building, R4 000 was erroneously debited to the land and building
account.
7. The interest on fixed deposit is 7,5% p.a. Interest is still owing
8. The rent income was received for March and April 2015. The rent Income increased by
R800 from 1 September 2014
9. Included in the Insurance is an amount of R26 400 per annum paid on 31 August 2014.
10. The water and electricity account, R1 400, for February is still outstanding
11. The provision for bad debts must be adjusted to R1 662
12 The details of an employee were left out of the Salaries Journal for February by
mistake.
His details are as follows:
Gross salary: R120 000 per annum
PAYE deduction: 18%
Pension Fund:7,5 % of gross salary
Medical Aid: R980
UIF: 1% of gross salary
The business contributes:
R1,50 to the pension fund for every R1 paid by the employee.
The business also contributes to the medical aid on rand for rand basis.
UIF: 1%
13. Interest on Loan has been Capitalised to the Loan amount.
Balance Beginning of Year R300 000
Bank (including interest) R165 000
Balance end of year R180 000
It is estimated that R120 000 of the capital portion will be paid for the next financial year
14. Partnership Agreement
14.1 Each partner earned a salary of R240 000 p.a.
14.2 The partners earned interest of 10% p.a. on their capital balances
14.3 Each partner was paid a bonus of R5 000 each.
14.4 The remaining profits/losses are shared between the partners according to the
balances on their capital accounts on 28 February 2015.

37
FINANCIAL STATEMENTS
L LAILA AND Z ZANELE
LAZEN TRADERS
STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 28 FEBRUARY 2015
Note R
Sales
Cost of sales
Gross profit
Other operating income

Gross operating income

Operating expenses

Operating profit (loss)

1

2
Net profit (loss) for the year

38
L LAILA AND Z ZANELE - LAZEN TRADERS
STATEMENT OF FINANCIAL POSITIONAT 28 FEBRUARY 2015
ASSETS Note R
NON-CURRENT ASSETS
Fixed / Tangible assets 3
Financial assets – Fixed Deposit
CURRENT ASSETS
Inventories 4
Trade & other receivables 5
Cash & cash equivalents 6
TOTAL ASSETS

EQUITY & LIABILITIES

OWNER’S EQUITY
Capital 7
Current accounts 8
NON-CURRENT LIABILITIES
Loan from GP Bank
Loan from
CURRENT LIABILITIES
Trade & other payables 8
Bank overdraft
Current portion of loan (NB could be placed in Note 8)
TOTAL EQUITY & LIABILITIES

NOTES TO THE FINANCIAL STATEMENTS AT 28 FEBRUARY 2015

1 INTEREST INCOME
On fixed deposit
On savings account
On current account
On overdue debtors

2 INTEREST EXPENSE
On loans from
On overdraft
On overdue creditors

39
3 FIXED/TANGIBLE ASSETS Land & Vehicles Equipment Total
buildings
Carrying value beginning of year
Cost
Accumulated depreciation
Movement
Additions
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation

4 INVENTORIES
Trading stock
Consumable stores on hand

5 TRADE & OTHER RECEIVABLES

Trade debtors
Provision for bad debts
Net trade debtors
Expenses prepaid
Income accrued (receivable)
Deposit for water and electricity

6 CASH & CASH EQUIVALENTS

Fixed deposit (maturing within 12 months)
Savings account
Bank
Cash float
Petty Cash

40
 7 CAPITAL ACCOUNTS L LAILA Z ZANELE Total
Balance at beginning of year
Contributions of capital during the year
Withdrawal of capital during the year
Balance at end of year

8 CURRENT ACCOUNTS L LAILA Z ZANELE Total

Net profit as per Statement of
Comprehensive Income
Partners’ salaries
Interest on capital
Partners’ bonuses
Primary distribution of profit
Final distribution of profit
Drawings for the year
Undrawn profits for the year
Balance at beginning of year
Balance at end of year

9 TRADE & OTHER PAYABLES

Trade creditors
Expenses accrued (payable)
Income received in advance (deferred)
Creditors for salaries
Pension Fund
Medical Fund
South African Revenue Services(PAYE)
UIF

41
FINANCIAL STATEMENTS

ACTIVITY 5

The following information appeared in the books of Zayden Traders with partners Z Zayd and D Denver.
The business uses the perpetual inventory system and sells the trading stock at a mark-up of 300%

REQUIRED

5.1 Prepare the Statement of Comprehensive Incomefor the year ended 28 February 2015.
5.2 Prepare the Statement of Financial Positiontogether with all the notes on 28 February 2015.

ZAYDEN TRADERS
TRIAL BALANCE OF ON 28 FEBRUARY 2015
DEBITS CREDITS
Capital account: Z Zayd 960 000
Capital accounts: D Denver 800 000
Current account: Z Zady (1 March 2014) 144 000
Current account: D Denver (1 March 2014) 110 000
Drawings account: Z Zayd 388 000
Drawings account: D Denver 324 000
Land and buildings 1 600 000
Vehicles 720 000
Equipment 240 000
Accumulated depreciation on vehicles (1 March 2014) 144 000
Accumulated depreciation on equipment (1 March 2014) 45 600
Fixed Deposit: MM Bank 6% p.a. 350 000
Trading stock 64 800
Debtors control 56 200
Provision for bad debts 900
Bank 116 413
Creditors control 72 600
Loan: Fund Bank 12% p.a. 134 400
NOMINALACCOUNTSSECTION
Sales 2 300 000
Cost of sales 575 000
Debtors allowances 7 900
Rates 33 000
Water and Electricity 36 600
Insurance 44 400
Bad debts 5 500
Repairs 12 300
Telephone 26 717
Stationery 8 400
Salaries and Wages 260 000
Bank Charges 15 200
Interest on overdraft 1 600
Interest on overdue creditors account 470
Rent income 146 000
Bad Debts Recovered 2 400
Interest on fixed deposit 14 000
Interest on current account 8 400
Interest on overdue debtors account 4 200
4 886 500 4 886 500

42
Adjustments and additional information
1. The following transactions have not been recorded:
1.1 A credit note received from Mpo Services for trade discount omitted on repairs done,
R300.
1.2 A credit note issued to Allie Traders for goods returned not according to sample, R2 400
2. A physical stocktaking showed that the following were on hand on 28 February 2015:
Trading stock R63 000
Stationery 600
3. Provide for depreciation:
• on vehicles at 20% per annum on cost. Take into account that a new vehicle was
purchased on 1 December 2014 for R320 000. The purchase price of this vehicle is
already recorded in the books.
• On equipment at 10% per annum on diminishing balance method.
• Old equipment with a cost price of R40 000 was sold for cash R32 000 on
31 August 2014. The accumulated depreciation of the equipment sold was R7 600 on
1 March 2014. No entries were made in the books for this transaction.
4. On 18 February 2015 a first and final dividend of 25c in the Rand was received from the
insolvent estate of a debtor, Z Zilch, who owed R1 200. The amount received was
recorded in the Cash Receipts Journal and it was posted, but no further entries have
been made.
5. Debtor, G Goodman, deposited R2 400 directly into bank account. It was discovered that
his account was previously written off as bad debts. No entries were made in the books.
6. After the Pre-adjustment trial balance had been drawn up, Zayden Traders received a
Bank Statement for February 2015 with the following information:
Credit on Bank account: Interest on current account, R70
Debit on Bank account: Cash handling fees, R650
Service fees, R350 Unpaid cheque received from F Freddie, a debtor, R1 200
7. The provision for bad debts must be adjusted to 3% of good debtors.
8. Donations, R8 000 were made to the local Children’s Home was erroneously debited to
the drawings account of Z Zayd.
9. The following accounts for February 2015 were received, but not yet paid:
Telephone, R1 520
Rates for 11 months were paid.
Water and electricity, R1 340
10. Insurance includes an annual premium of R24 000 for the period 1 December 2014 to 30
November 2015.
11. The business had a fixed deposit at 6 % interest per annum. The Fixed deposit amount
appeared in the books as follows:
FIXED DEPOSIT B19
2014
Feb 28 Balance b/d 300 000
Sep 1 Bank CPJ 50 000
A fixed Deposit of R100 000 will mature on 31 August 2015.

43
12. A set of offices was let from 1 January 2014 for R10 000 per month for the first year.
Zayden Traders increased the rent on 1 January 2015 to R11 500 per month.

13 The bookkeeper left out the gross salary of an employee for February 2015.
The details from the Salaries Journal for February 2015 are as follows:
R
Gross salary 20 000
PAYE deductions 3 600
Medical aid deductions from employees 800
[The business contributes R1,50 for every Rand contributed by
the employee
Pension fund 1 500
[The business contributes on a Rand-for-Rand basis
Unemployment Insurance Fund (UIF) ?
Both employee and business contribute 1% of gross salary
Skills development Levy (SDL) ?
The business contribute 1% of gross salary

Note: All contributions by the business are debited to the Salary account. The
employee will be paid in the first week of March 2015

14 A summary of the loan statement from Fund Bank reflected the following:
Balance on 1 March 2014 R180 000
Total payments including interest R 45 600
Interest on loan capitalized R ?
Closing balance on 29 February 2015 R156 000

The business will pay R36 000 of its capital portion during the next financial year.

15 Stipulations of partnership agreement:

15.1 Partners are entitled to interest on capital at 8% per annum. Partner Z Zayd increased
his contribution on 1 September 2014 by R160 000
15.2 The following salaries must be allocated to the partners:
Zayd, R25 000 per month
Denver, R300 000 annually
15.3 The partners each earned a bonus of R25 000 each.
15.4 Zayd and Denver share profits/losses in the ratio of 3:2

44
Z ZAYD AND D DENVER
ZAYDEN TRADERS
STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 28 FEBRUARY 2015
Note R
Sales
Cost of sales
Gross profit
Other operating income

Gross operating income

Operating expenses

Operating profit (loss)

1

2
Net profit (loss) for the year

45
Z ZAYD AND D DENVER
ZAYDEN TRADERS
STATEMENT OF FINANCIAL POSITIONAT 28 FEBRUARY 2015
ASSETS Note R
NON-CURRENT ASSETS
3

CURRENT ASSETS
4
5
6
TOTAL ASSETS

EQUITY & LIABILITIES

OWNER’S EQUITY
7
8
NON-CURRENT LIABILITIES

CURRENT LIABILITIES
8

TOTAL EQUITY & LIABILITIES

Z ZAYD AND D DENVER

ZAYDEN TRADERS
NOTES TO THE FINANCIAL STATEMENTS AT
1 INTEREST INCOME

2 INTEREST EXPENSE

46
3 FIXED/TANGIBLE ASSETS Land &
Vehicles Equipment Total
buildings
Carrying value beginning of year
Cost
Accumulated depreciation
Movement
Additions
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation

Vehicles Asset Disposal Equipment Accumulated

depreciation on
equipment

4 INVENTORIES

5 TRADE & OTHER RECEIVABLES

47
6 CASH & CASH EQUIVALENTS

7 CAPITAL ACCOUNTS Z ZAYD D DENVER Total

8 CURRENT ACCOUNTS Z ZAYD D DENVER Total

ZAYD DENVER
Salaries

Interest on Capital

Bonus

Ratio 3 : 2

48
9 TRADE & OTHER PAYABLES

ACTIVITY 6

The given information appeared in the books of BC Traders with partners B Bukiwe and C
Chand .

REQUIRED
6.1 Prepare the Statement of Comprehensive Incomefor the year ended 28 February 2015.
6.2 Prepare the Statement of Financial Positiontogether with the notes 0n 28 February 2015

BCTRADERS
PRE- ADJUSTED TRIAL BALANCE ON 28 FEBRUARY 2015
Balance Sheet account section Debit Credit
Capital: B Bukiwe 600 000
Capital: C Chand 450 000
Current account: B Bukiwe 1 Mar 2014 226 020
Current account: C Chand 1 Mar 2014 120 870
Drawings: B Bukiwe 150 000
Drawings: C Chand 159 000
Land and Building 1 140 000
Vehicles (1 March 2014) 540 000
Equipment (1 March 2014) 216 000
Accumulated depreciation on vehicles (1 March 2014) 136 200
Accumulated depreciation on equipment (1 March 2014) 54 300
Mortgage Loan: SA Bank 186 000
Fixed Deposit: GP Bank 90 000
Trading stock 231 900
Debtors control 107 550
Provision for bad debts 4 950
Creditors control 117 735
Bank 48 000

49
 Nominal accounts section
Sales 2 635 650
Cost of sales 1 544 400
Debtors Allowances 67 650
Stationery 22 530
Repairs to building 12 900
Bad debts 3 630
Pension fund contributions 19 200
Telephone 11 100
Insurance 13 830
Salaries 259 200
Bank charges 14 130
Provision for bad debts adjustment 675
Asset disposal 36 000
Rent income 79 800
Interest on current account 2 820
4 651 020 4 651 020

ADJUSTMENTS

1. A debtor, A Mxinwa, returned unsuitable goods to the value of R15 000 on 27 February
2015. These goods were especially marked at 25% on cost. No entries were made for
this transaction.

2. A credit invoice received from Zens Traders has not yet been recorded in the books. The
following details appeared on the invoice:

R
Trading stock 9 000
Less 15% trade discount 1 350
7 650
Carriage on purchases 750
8 400

3. A physical stocktaking on 28 February 2015 showed the following stock on hand:

Trading stock, R239 700
Stationery, R3 120

4. J Justice, a debtor whose debt had been written off during October 2014, paid the
amount of R1 500 on 26 February 2015. This amount was credited against Debtors
control.

5. The provision for bad debts had to be increased by R765. On 27 February 2015 the
bookkeeper made the following entry in the General Journal and posted it:
Debit Credit
Provision for bad debts 675
Provision for bad debts 675
adjustment

50
6. The details of an employee who was employed on 22 February 2015 were omitted from
the Salaries journal for February by mistake. Payments will be made on 1 March 2015.
The following details are applicable:
Employee Employer’s contribution
Gross PAYE Pension UIF Pension fund UIF SDL
salary fund
R7 200 1 440 600 72 employer 1% of gross salary
contributes R1,50 This is added to
for every R1 salaries

7. Repairs to the roof of the building, R15 000, have been debited to Land and Building by
mistake.

8. Loan statement received from SA Bank reflected the following

R
Balance on 1 March 2014 300 000
Total payments including interest 114 000
Interest on loan capitalized ?
Closing balance on 29 February 2015 240 000

The mortgage bond is payable annually in instalments amounts of R60 000.

9. Part of the building has been let since 1 August 2014 for R9 975 per month.

10. Interest on fixed deposit amounts to R13 500 per annum. The investment was made on
31 August 2014.

11. Insurance includes a premium of R7 200 which was paid for the period 1 January 2015 to
30 June 2015.

12. R1 900 is still owed for telephone.

13. Depreciation is calculated as follows:

13.1 On equipment at 20% p.a. on cost.

13.2 On vehicles at 15% p.a. on the diminishing balance. A vehicle (cost price, R135 000 and
accumulated depreciation on 1 March 2014, R102 000) was sold for cash on 31 August
2014 for R36 000. The bookkeeper recorded the transaction by debiting Bank and
crediting Asset disposal with R36 000.

14. The partnership agreement makes provision for the following:

14.1 The partners to receive a monthly salary of R12 000 each. A bonus of R6 000 each was
paid.
14.2 Partners are entitled to interest on capital at 16% p.a. (B Bukiwe increased her capital by
R150 000 on 1 September 2014 and C Chand decreased his capital by R150 000 on 1
December 2014).
14.3 Profits or losses are shared equally.

51
ACTIVITY 6
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY
2015
Note R
Sales
Cost of sales
Gross profit
Other operating income

Gross operating income

Operating expenses

Operating profit (loss)

1

2
Net profit (loss) for the year

52
STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2015
ASSETS Note R
NON-CURRENT ASSETS
3

CURRENT ASSETS
4
5
6
TOTAL ASSETS

EQUITY & LIABILITIES

OWNER’S EQUITY
7
8

NON-CURRENT LIABILITIES

CURRENT LIABILITIES
8

TOTAL EQUITY & LIABILITIES

NOTES TO THE FINANCIAL STATEMENTS AT

1 INTEREST INCOME

2 INTEREST EXPENSE

53
3 FIXED/TANGIBLE ASSETS Land &
Vehicles Equipment Total
buildings
Carrying value beginning of year
Cost
Accumulated depreciation
Movement
Additions
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation

4 INVENTORIES

5 TRADE & OTHER RECEIVABLES

6 CASH & CASH EQUIVALENTS

54
 7 CAPITAL ACCOUNTS B BUKIWE C CHAND Total

8 CURRENT ACCOUNTS B BUKIWE C CHAND Total

Interest on Capital B Bukiwe C Chand

9 TRADE & OTHER PAYABLES

55