Reference no: EM133486274

Financial Accounting

QUESTION 1

Atlas Ltd., a South African company, specialises in importing and distributing high- tech machinery components for the manufacturing sector. The company sources these components from a renowned American supplier and sells them to various manufacturers across South Africa. Atlas Ltd.'s financial year-end is 30 June.

On 02 January 2023, Atlas Ltd. made a deposit of R100 000 to secure the purchase of machinery components valued at R500 000. These components are crucial to Atlas Ltd.'s inventory and are highly sought after by their clientele. The terms of the sale are FOB (Free on Board) shipping point. The inventory was loaded onto a boat on 01 May 2023, and its expected arrival at the Cape Town harbour was on 30 June 2023.

On 25 June 2023, the machinery components arrived at the Cape Town harbour without any issues. However, Atlas Ltd.'s warehouse is located in Johannesburg. Thus, it required an additional 5 days to transfer the inventory from the harbour to the warehouse, where it would then be ready for sale.

On 30 June 2023, the machinery components were delivered to and received by the warehouse, accompanied by an unpaid invoice from Speedy Logistics amounting to R20 000. Atlas Ltd. settled the invoice on 10 July 2023.

Ignore VAT, taxes, and foreign exchange rates for this question.
Assume that Atlas Ltd uses the periodic recording system when recording inventory.

REQUIRED:

Evaluate the deposit of R100 000 made by Atlas Ltd. on 02 January 2023, in accordance with the conceptual framework, definitions, and recognition criteria established for financial statements and explain how Atlas Ltd. should recognise the deposit of R100 000 in its financial statements on 02 January 2023. Follow the instructions below to structure your response:
• Identify the relevant financial statement element that applies to the deposit.
• Provide a clear definition of the selected financial statement element.
• Apply the information provided to the element's definition and recognition criteria.
• Conclude by explaining how Atlas Ltd. should recognise the deposit of R100 000 in its financial statements based on your analysis.

Briefly discuss on the meaning of FOB shipping point and confirm the date when Atlas Ltd takes ownership of the inventory.

Briefly discuss when Atlas Ltd. should record the inventory as an asset in their records.

Briefly discuss how Atlas Ltd. should record on 30 June 2023 the payment to be made on 10 July 2023 to Speedy Logistics for the transportation costs. You should consider the timing and nature of the payment.

Prepare the general journal entries to record the transactions in Atlas Ltd. On the following dates:
1.5.1 02 January 2023
1.5.2 01 May 2023
1.5.3 30 June 2023
1.5.4 10 July 2023

QUESTION 2

You work for a company called "Fashion Emporium", a retail business that specialises in selling clothing. The company's financial year-end is 30 June 2023.

On 01 January 2023, Fashion Emporium had 1 000 units of jeans in inventory at a cost of R100 per unit. During the month of January 2023, the company purchased an additional 2 000 units of jeans at a cost of R110 per unit. The company sold 2 500 units of jeans on credit during January 2023 for R150 per unit.

Fashion Emporium offers a trade discount of 10% on all sales to customers who purchases more than 10 units of jeans. In addition, the company offers a settlement discount of 2% to customers who pay their bills within 15 days of the invoice date.

Additional information:
Assume that all transactions are on credit and that Fashion Emporium uses a perpetual inventory system. Assume all jeans are homogeneous. Ignore VAT for this question. Round off to the nearest Rand where applicable.

REQUIRED:

Calculate the cost of goods sold for January 2023 using the weighted average method.

Calculate the trade discount allowed for sales of jeans in January 2023, assuming that all sales transactions were sold in batches of 10 items and more per sale transaction.

Assume that all sales were paid within 15 days. Calculate the settlement discount allowed for sales of jeans in January 2023.

QUESTION 3

ABC Books is a small bookshop located in the heart of Cape Town. The company specialises in selling rare and vintage books to collectors and enthusiasts. ABC Books has a 28 February financial year-end. During January 2023, the company made the following transactions:

Date	Item	Action	Quantity
1 Jan 2023	To Kill a Mockingbird	Purchase	20
10 Jan 2023	To Kill a Mockingbird	Return	(3)
15 Jan 2023	The Great Gatsby	Purchase	15
20 Jan 2023	To Kill a Mockingbird	Sale	(12)
25 Jan 2023	The Great Gatsby	Sale	(10)

Details:
• On 1 January 2023, ABC Books purchased 20 copies of "To Kill a Mockingbird" at a cost of R200 per book, on credit from a supplier.
• On 10 January 2023, ABC Books returned 3 copies of "To Kill a Mockingbird" to the supplier, as they were found to be damaged.
• On 15 January 2023, ABC Books purchased 15 copies of "The Great Gatsby" at a cost of R250 per book, in cash from a different supplier.
• On 20 January 2023, ABC Books sold 12 copies of "To Kill a Mockingbird" at a price of R350 per book, receiving payment in cash.
• On 25 January 2023, ABC Books sold 10 copies of "The Great Gatsby" at a price of R400 per book, receiving payment in credit.

REQUIRED:

Record the above transactions for ABC Books for the month of January 2023, in the following general ledger accounts:
• Cost of sales and
• Inventory
Assume ABC Books uses the perpetual recording method to record inventory and calculates the cost of sales using the first-in-first-out (FIFO) method.
Ignore VAT and tax for this question. Dates are not required. Show all calculations.

QUESTION 4

SmartFarm (Pty) Ltd is a technology-driven agriculture company that focuses on sustainable farming practices and crop optimisation. The company has a 31 December financial year-end.

You are presented with the following pre-adjustment trial balance of SmartFarm (Pty) Ltd:

Pre-adjustment trial balance of SmartFarm (Pty) Ltd as at 31 December 2023
Account	Notes	Debit (R)	Credit (R)
Bank (overdraft)			2 000
Capital			670 000
Drawings		48 000
Interest income	2		6 750
Inventories - 01/01/2023	1	100 000
Investment	2	90 000
Farming equipment		4 000 000
Trade Payables			80 000
Purchases		700 000
Trade Receivables		120 000
Rent expense	3	65 000
Rent income	4		260 000
Retained earnings - 01/01/2023			3 720 600
Salaries	5	520 000
Sales			960 000
Stationery expense	6	50 000
Miscellaneous expenses		6 350
		5 699 350	5 699 350

Notes:
1. Inventory:
SmartFarm (Pty) Ltd conducted a physical inventory count on 31 December 2023 and identified closing inventory of R160 000. No inventory losses or damages were reported during the count. The trial balance has not been updated with this information.

2. Investment / Interest revenue:
Interest on the investment is received every quarter. For the last quarter of 2023, the interest amounted to R2 250 and was received on 10 January 2024. The accountant has yet to process this transaction.

3. Rental expense:
Included in the pre-adjustment trial balance is 13 months' worth of rental expenses. The rent for January 2024 has already been paid on 29 December 2023. The monthly rental expense has remained fixed and unchanged over the past 2 years.

4. Rental income:
According to a sub-letting agreement, SmartFarm (Pty) Ltd receives rental income amounting to R20 000 per month. The rent for January 2024 was already received on 31 December 2022. The pre-adjustment trial balance currently represents 13 months' worth of rental income.

5. Salaries:
SmartFarm (Pty) Ltd provides annual bonuses to its employees. As per company policy, bonuses are paid on 1 January of the following financial year. Bonuses are calculated at a rate of 4% of the total salary expenses account as of 31 December of the current financial year. The bonus calculation has not yet been performed and thus is not yet accounted for.

6. Stationery:
All stationery purchases are expensed during the year. As of 31 December 2023, the accountant noted that there was unused stationery amounting to R10 000 on hand. No adjustments were made yet.

Additional information:
Apart from Notes 1-6, assume that all other accounts in the pre-adjusted trial balance are complete and accurately accounted for, for the financial year ended 31 December 2023.

REQUIRED:

Prepare an extract of the Statement of Financial Position for SmartFarm (Pty) Ltd for the financial year ended 31 December 2023, displaying only the Current Assets and Current Liabilities. Totals are required. Notes to the statement are not required.

QUESTION 5

Shoe Haven (Pty) Ltd is a retail store that specialises in footwear and related accessories. The company's current financial year ended on 30 June 2023.

You are presented with an extract of the pre-adjustment trial balance of Shoe Haven (Pty) Ltd for the financial year ended 30 June 2023:

Account	Debit (R)	Credit (R)
Capital		100 000
Drawings	3 500
Trade receivables	154 000
Inventory	70 000
Bank	40 000
Trade payables		33 000
Sales		550 000
Cost of sales	385 000
Total	?	?

The following information has not been accounted for during the financial year ended 30 June 2023:

1. On 1 June 2023, Shoe Haven (Pty) Ltd received R11 200 from Mr. Banda to settle his account balance.

2. On 28 June 2023, Mr. Happy, the Director (and one of the founding members) of Shoe Haven (Pty) Ltd took a pair of sneakers out of the inventory warehouse for himself. The sneakers had a cost value of R3 000 and could have been sold for R3 900.

3. On 30 June 2023, the company decided to write off a debtor, Miss Jones, as irrecoverable. She owed R2 800.

4. On 30 June 2023, the company made a reliable estimate that, after classifying Miss Jones as a bad debt expense, 4% of the trade receivable balance remaining as of 30 June 2023 should be recognised as a doubtful debt.

REQUIRED:

Prepare adjusting general journal entries to record the information (1-4) in Shoe Haven (Pty) Ltd's accounting records for the financial year ended 30 June 2023.
Instructions:
• Include all necessary headings and sub-headings in your journals.
• Provide workings where necessary.
• Assume that there were no other transactions for the year.
• Dates and narrations may be ignored.

Prepare general ledger entries for the following accounts of Shoe Haven (Pty) Ltd for the financial year ended 30 June 2023, taking into consideration the above information (1-4):
Bad debts expenses
Trade Receivables
Allowance for Doubtful Debts
Profit and loss account

Instructions:
• Include all necessary headings and sub-headings for your ledgers.
• Post the closing entries to the general ledger accounts.
• Provide workings where necessary.