LO 5 Preparation

Present the SFP:

We paid R 10 000 to ABC Ltd for Advertising.

The accountant accidentally recorded it under Rental Expense.

• Rental Expense: -10 000

  Advertising: +10 000

• Retained Earnings: -10 000

  Advertising: +10 000

• Retained Earnings: 0 (no change)

• Retained Earnings: -10 000

  Bank: -10 000

Answer explanation

On the SPLOCI you would recognize:

Other Expenses:

Rental Expense (-10 000)

Advertising (+10 000)

But the profit for the year would not change. Therefore there will be no change in Retained Earnings on the SFP.

Calculate the current year's depreciation expense:

Vehicle A was bought 4 years ago, and management estimated that it can be used for 120 000km.

The current values of the vehicle are:

Cost: R 250 000

Accumulated Depreciation (start of year): R 102 007

Odometer Reading (start of year): 48 997km

Odometer Reading (end of year): 79 302km

• 63 135

• 165 213

• 154 463

• Not enough information

Answer explanation

Present the SFP:

The entity sold inventory to a customer for cash.

Assume the following values are correct:

Selling price: R 15 000

Cost price: R 9 500

• Sales: +15 000

  Cost of Sales: +9 500

• Bank: +15 000

  Inventories: -9 500

  Retained Earnings: +5 500

• Bank: +15 000

  Inventories: -9 500

  Retained Earnings: +15 000

  Cost of Sales: -9 500

• Retained Earnings: 0 (no change)

  Bank: +15 000

  Inventories: -15 000

Answer explanation

The journals would be:

Dr. Bank (SFP) - 15 000

Cr. Sales (P/L) - 15 000

Dr. Cost of Sales (P/L) - 9 500

Cr. Inventories (SFP) - 9 500

Since they want the SFP, we need to calculate the profit for the year.

15 000 (sales) - 9 500 (cost of sales) = 5 500 (profit)

The SFP would therefore show:

Bank: +15 000

Inventories: -9 500

Retained Earnings: +5 500

Calculate how many years have we owned the Vehicle:

Cost price: 300 000

Residual Value: 50 000

Accumulated Depreciation: 187 500

Useful Life: 10 years

• 5 years

• 7,5 years

• 7 years

• Not enough information

Answer explanation

Prepare the trading section of the SPLOCI:

We paid R 4 700 to our landlord to rent office space.

The accountant accidentally processed the following journal entry:

Dr. Office Building (SFP) - 4 700

Cr. Bank (P/L) - 4 700

• Bank: 0 (no change)

  Office Building: -4 700

  Rental Expense: +4700

• Bank: -4700

  Rental Expense: +4700

• No change

• Office Building: -4700

  Rental Expense: +4700

Answer explanation

The correcting journal is:

Dr. Rental Expense (P/L) - 4 700

Cr. Office Buildings (SFP) - 4 700

But the question asked for the TRADING SECTION of the SPLOCI.

This adjustment will not affect the trading section.

Prepare the SFP:

We paid R 4 700 to our landlord to rent office space.

The accountant accidentally processed the following journal entry:

Dr. Office Building (SFP) - 4 700

Cr. Bank (P/L) - 4 700

• Bank: 0 (no change)

  Office Building: -4 700

  Retained Earnings: -4 700

• Bank: -4700

  Office Buildings: -4 700

• No change

• Office Building: -4700

  Rental Expense: +4700

Answer explanation

The correcting journal is:

Dr. Rental Expense (P/L) - 4 700

Cr. Office Buildings (SFP) - 4 700

This question asked for the SFP.

So the Expense will reduce the RETAINED EARNINGS.

What is this?

• Post-closing trial balance

• Pre/Post-adjustment trial balance

• SPLOCI

• SFP

Answer explanation

There's a sneaky Depreciation expense in there, which means that all the P/L accounts aren't closed off.

That makes it a post-adjustment trial balance.

Present the SFP as at 31 Dec 2022:

John's Machines has a loan at FBN Bank with the following details:

Balance (31 Dec 2022): R 1 120 000

Interest Expense for 2022: R 130 000

Interest Expense for 2023: R 112 000

Payment for 2023: R 580 000

• Retained Earnings = (130 000)

  Loan: FBN = 652 000

  Current portion of loan = 468 000

• Interest Expense = 130 000

  Loan: FBN = 1 120 000

• Retained Earnings = (112 000)

  Loan: FBN = 540 000

  Current portion of loan = 580 000

• Retained Earnings = (112 000)

  Loan: FBN = 652 000

  Current portion of loan = 468 000

Answer explanation

The current portion of a loan is the CAPITAL we will pay next year.

So the payment of 580 000 minus next year's interest of 112 000 = 468 000 capital payment.

The current portion is therefore 468 000 and the non-current portion is 652 000.

Present the Current Assets section of the SFP?

We sold Vehicle A on 31 Mar 2023.

We bought the car on 1 Jan 2016 for R 147 500.

It had an estimated residual value of R 25 000 and a useful life of 10 years.

After selling the vehicle the entity's SPLOCI showed a loss on sale of R1 400

• Cash & cash equivalents: 57 287

• Cash & cash equivalents: 32 287

• PPE: -147 500

  Cash & cash equivalents: 57 287

• PPE: -147 500

  Cash & cash equivalents: 32 287

  Retained Earnings: -1 400

Answer explanation

When you enter the exam, what do you do first?

• Read carefully through the information

• Read the required

• Highlight all the dates

• Start stressing, because the question you 'knew' they weren't going to ask is Q1 & Q2

Answer explanation

1. 1.) Read the required

2. 2.) Draw the format of the required

3. 3.) Read the information with a highlighter

4. 4.) As you read, do your calculations on a separate page.

5. 5.) Write in your answers on the required and REFERENCE YOUR CALULATIONS.