Redraft the corrected statement of comprehensive income

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Reference no: EM131196092

ACCOUNTING ASSIGNMEN-

QUESTION

Creative minds, a bookshop in Port Elizabeth, employed a new bookkeeper from 1 January 2010. The bookkeeper has asked a number of unusual questions and the owners are concerned that amounts presented in the Statement of comprehensive income may not be correct. They have asked you to look into the matter.

You discover that the Statement of comprehensive income for the year ended 31 December 2010, as presented below, has been prepared on a CASH BASIS (each item represents actual cash paid or received during the year).

Creative Minds Statement of comprehensive income for the year ended 31 December 2010
	R	R
Sales		420 000
Less Inventory purchased		(230 000)
Gross profit		190 000
Less expenses		(151 905)
Rent expenses	39 040
Stationery expense	18 420
Insurance expenses	5 445
Interest expense	24 750
Repairs expense	6000
Salaries and wages expenses	43 320
Electricity expense	8 510
Telephone expense	6 420
Profit		38 095

Additional information: On further investigation you discover the following:

a) All inventory was purchased for cash.

b) The bookkeeper had calculated sales by adding the cash sales of R300 000 to the cash received from debtors of R120 000.

c) The business had, among others, the following balances as at 31 December 2009:

Vehicles	100 000
Accumulated depreciation on vehicles	60 000
Prepaid rent	3 200
Accrued interest	4 500
Stationery on hand	3 000
Trade receivables	21 000
Inventory	33 200
Accrued electricity	500

d) The business had outstanding debtors of R35 000 at 31 December 2010. You identified that certain of these debtors had been outstanding for some time. It was decided to write off these debtors, amounting to R3 200, as bad debts.

e) The vehicles had been purchased on 1 January 2007 (were ready for use on the same date) and have a useful life of five years after which they will have a negligible residual value. Fixtures and fittings amounting to R90 000 were purchased and were ready for use on 1 March 2010. They will have a useful life of 10 years, after which they will be sold for R6 000.

f) The business had taken out a loan of R200 000 on 1 February 2008. The loan agreement states that the loan will be repaid annually in equal instalments over ten years starting on 1 February 2009.Interest will be paid every three months in arrears from 30 April 2008.Interest at 15% has consistently been charged on the loan.

g) Rent is paid in advance on the last day of the month. The rental agreement states that the monthly rental increases by 10% on 1 December each year.

h) The bank balance in the general ledger as at 31 December 2010 was R28 200.

i) Stationery amounting to R1 600 was on hand as at 31 December 2010.

j) A physical inventory count revealed that inventory amounting to R77 200 was on hand as at 31 December 2010.

k) Electricity of R650 and telephone of R480 for December 2010 had not yet been paid.

YOU ARE REQUIRED TO:

1. Prepared the following accounts in the general ledger of Creative Minds for the year ended 31 December 2010:

a) Inventory

b) Trade receivables

c) Sales income

d) Rent expense

e) Prepaid rent

f) Stationery expense

g) Stationery asset

2. Prepare the adjusting journal entries to record points (e), (f) and (k) of the additional information.

3. Redraft the corrected statement of comprehensive income for Creative Minds for the year ended 31 December 2010.

4. Complete the total assets (non-current and current) section of the statement of financial Position for Creative Minds as at 31 December 2010.

Reference no: EM131196092

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