Questions and Answers of Fundamental Accounting

Wayout Ltd is a company that makes denim clothes.This dividend information is available for the year ended 31 December 20x0:You are required to:1. Indicate on which dates Wayout Ltd should record
Define these terms:• Provisional payment.• Tax return.• Declaration date.• Tax assessment.• Shareholders Register.• Interim dividend.• Dividend tax.• Taxable income.
Provide three to five examples of economic decisions that people are confronted with daily.
Describe the characteristics of these forms of ownership: sole proprietor, partnership, close corporation, public company and private company, using the table below:• Name of the entity.• Number
Define the term ‘accounting’.
Explain the purpose of accounting in the business environment.
List three users (both internal and external) who might be interested in accounting information. Explain why they would require such information.
Potential investors would be interested in the past performance of a business. Provide reasons why.
List four items of financial information you consider to be important to a manager of a business that has been operating for a year.
Develop a short list of mutually exclusive categories of business based on their respective activities. Is your list collectively exhaustive?
List two advantages and two disadvantages of a free enterprise system with particular reference to what you observe in the South African business environment.
Discuss whether it is possible for a business to survive if it makes no profits.
‘If South Africa moved away from being a relatively free enterprise economy, the need for accounting information would diminish considerably.’Provide an argument to support or refute the above
Briefly define each of these disciplines in terms of their most fundamental objective:• Financial accounting. • Management accounting.• Cost accounting. • Financial management.•
To what extent is the rapid development in information technology likely to cause financial accounting education to become redundant? Provide examples.
Discuss the shortcomings of using historic cost as a measure of financial performance and position.
Discuss the four accounting principles and concepts explained.
Discuss the use of International Financial Reporting Standards (IFRS) as they relate to disclosure in annual financial statements of South African companies.
This question relates to the cost principle. If the accounting policy of an enterprise is to depreciate its vehicles at ‘a rate that is deemed to be sufficient to reduce the book value of the
List and explain three of the qualitative characteristics to which a set of financial statements should comply, according to the IFRS Conceptual Framework.
Compile a list of ‘qualities’ that you consider important for financial information.
These transactions took place in Zindile’s General Dealers for July 20x11:1. The owner increased her capital contribution by R40 000, by depositing a personal cheque in the current account of the
You are considering conducting a small business enterprise in your neighbourhood to help with financing your studies. You plan to offer your services, washing cars.If you consider the washing of a
You own a vehicle that was recently purchased for R4 000. A similar vehicle is currently on sale for R4 500.You are likely to be able to dispose of the vehicle for a net income of R3 800. By using it
Describe an asset, a liability and owner’s equity. Give two examples of items that fall into each category.
If you wished to determine the value of a business, are you likely to be more interested in its present financial position or its profits earned during the past year? Discuss.
These source documents were written out during August by the accountant of Deep Di, a business engaged in dying materials and leather.You are required to:1. Process the transactions using the
When these transactions take place, what source documents are likely to be used in recording the transactions in your records? Original or duplicate?1. Purchased a vehicle on credit.2. Paid wages.3.
Record these transactions using the accounting equation. Your entries must show the effect on the accounting equation.1. Amos Ncobo invested R8 700 into a repair business, Ncobo’s Fast Fix.2.
On 1 January 20x1, Dr Jack Lane opened a surgery in Wynberg, Cape Town and engaged in these transactions:1 Opened a bank account under the business name of Dr Jack Lane and paid in an amount of R50
Using the information in Question 4.7, record these adjusting entries at month-end.Adjusting entries1. Depreciate machinery by R100.2. Depreciate vehicles by R200.3. Stationery unused is worth
Record the amounts resulting from these transactions on the accounting equation. Your entries must show the effect on the accounting equation. Comment on the financial performance and financial
Barry Nel started a business Auto Boss, specialising in repairs and services to vehicles. Record these transactions for his first month of trading on the accounting equation. Your entries must show
Continuing with the example of Auto Boss from Question 4.10, assume that the balances after all the transactions were:These adjusting entries must still be processed:1 Rent expense includes R1 140
Define what the terms ‘debit’ and ‘credit’ represents and explain their purpose in drafting an account.
Prepare the accounting model indicating the names of the three primary accounts, the names of the two sides of each account and the sides on which they will increase and decrease.
Complete this table by filling in the missing amounts: No. 1 2 3 4 5 6 Opening inventory R1 200 R3 500 R2 100 R3 120 ? R350 Purchases for the period R8 900 R7 300 R10 450 ? R1 370 R5 240 Sales for
A business sells inventory for R3 000 (which shows a discount of 10% on normal selling price).You are required to:1. Calculate the normal selling price.2. Calculate the cost of inventory sold,
A vendor bought goods for R1 630.20 (VAT incl.).• Expenditure of R307.80 (VAT incl.) was incurred in order to bring the goods to the required condition for sale.• The goods were sold for R2
Footlite Limes marks its goods up by 50%. The business sells an item of inventory for R3 000, which represents a discount of 10% on normal selling price before VAT.You are required to:1. Calculate
This table gives the rand amounts for various sales, all of which are subject to VAT at 14%. Complete the table by filling in the missing figures: Cost price R100 ? R280 ? % mark-up
Here is the post-closing trial balance of Novice Radio (who specialise in two-way radio equipment) as at 31 December 20x7:Novice Radio trades exclusively in expensive high-quality two-way
Joe Bhengu uses the FIFO method to account for inventory in his retail business.Opening inventory on 1 January 20x1 consists of:Transactions for January:1. Sold two printers for R450 each.2. Bought
Here are some selected transactions for Valley Enterprises:• Bought inventory on credit, R1 000.• Bought inventory for cash, R600.• Sold inventory on credit, R300 (cost R200).• Sold inventory
Record these amounts in an asset account. Determine the balance of the account. Increase R800 R600 R900 Decrease R200 R100
The following are some examples of typical business transactions:1. Purchased office equipment on credit.2. The owner contributed capital.3. Purchased office furniture for cash.4. Received amounts
A consortium of business people decided to start a taxi business in the centre of Durban.Note 1: The consortium invested R200 000 as capital.Transactions for the month:1 Purchased a taxi on credit
1. Record the transactions in Question 4.7 and the adjusting entries in Question 4.11 in the three primary accounts of Deep Di.2. Then balance all three accounts.Data from Question 4.7.These source
Record the transactions in Question 4.6 in the three primary accounts of Ncobo’s Fast Fix. Balance all three accounts.Data from Question 4.6.Record these transactions using the accounting
In August, Lukus Bird started as a wildlife consultant. He called his business Bird Prolife Consultancy.Transactions for the month:2 Started business with R60 000 in the business’s bank account.3
Record the transactions in Question 4.8 in the three primary accounts of Dr Jack Lane. Balance all three accounts.Data from Question 4.8.On 1 January 20x1, Dr Jack Lane opened a surgery in
Record the transactions in Question 4.9 in the three primary accounts of Jumpa Taxis. Balance all three accounts.Data from Question 4.9.Record the amounts resulting from these transactions on the
On 1 September 20x1, Robert Shaw established an enterprise under the name Shaw Agencies.Transactions for the month:1. A business bank account was opened with a deposit of R24 000 from Robert,
Describe the output, input and process used in an accounting system.
Define the purpose of each of these terms:• Ledger account. • Trial balance.• Statement of profit or loss & other comprehensive income.• Statement of financial position.
Adjusting entries differ from entries that record transactions from routine source documents.1. What is the purpose of an adjusting entry?2. When would an adjusting entry normally be made?3. Provide
Lemmy Sahar owns a business called Nyoni Services that provides a service paving courtyards and driveways.These balances were from the books at the beginning of a new financial period on 1
Provide a brief explanation of each of these terms and give two examples of each:• Non-current assets. • Current assets.• Non-current liabilities. • Current liabilities
Mr Tswongo decided to start a steam cleaning business. He called his business Executive Steam Cleaners.Transactions for January:1 Mr Joe Tswongo deposited R90 000 in the bank account of the business
On 1 March, Joan Arendse (an accounting consultant) had these assets and liabilities:Transactions for March:1 Paid March rent by cheque R200.2 Purchased office supplies costing R250 on credit.
Dr James Smith has a successful dental practice. An extract was taken from his records. These balances, excluding the capital invested, were extracted for March:Transactions for March (source
Here is an alphabetical list of the assets and liabilities of Tshwete and Sons, as at 28 February 20x9:You are required to:Prepare the properly classified statement of financial position of Tshwete
On 31 July, Misty Steam Cleaners had this trial balance in their books. This is the final trial balance for the financial year:You are required to:Prepare the financial statements. Real
Spotless Dry Cleaners had these balances in their ledger accounts on 31 March 20x7.You are required to:1. Prepare a trial balance in accordance with Figure 6.5.2. Prepare the financial statements for
Record the transactions of Dr James Smith in Question 6.9 into the general journal.Data from Question 6.9.Dr James Smith has a successful dental practice. An extract was taken from his records. These
This information relates to the stationery transactions of Wiltons for the year:1 Stationery bought for cash, R200.2 Stationery bought on credit, R300.3 Stationery on hand at the end of the year,
Record the transactions of Joan Arendse in Question 6.8 into the general journal.Data from Question 6.8.On 1 March, Joan Arendse (an accounting consultant) had these assets and
Explain the need for a general journal.
Explain why withdrawals by the owner of a sole proprietor business reduce the owner’s equity but not the profit for the period.
On 1 July Sew-Easy had these balances, amongst others:These transactions, amongst others, took place during the month:4 Mary Dadla withdrew R200 in cash for personal use.7 Mary won a competition and
Norah Pillay had these assets and liabilities as at 1 December in her business, Pillay’s Poster Painting:Transactions for December:1 Received R800 in cash for posters painted.3 Paid L. Munsamy, a
These balances and totals appeared in the books of Young Beauty Salon on 1 August:The business’s financial year ended on 31 August.Transactions for August:1 Issued a cheque to pay the August rent
Joe Blogg is the owner of a bakery called Sweet & Sour that has been in operation since 1 May 20x2.The trial balance as at 31 March 20x2 reflects all the transactions recorded for the period 1
Greenlawns Garden Services (owned by R. Scott) has employed you to write up their books for September. The business specialises in landscaping and garden maintenance.These balances appeared in the
Explain why these external users will make use of financial statements:• Investors. • Lenders. • Suppliers.• Government. • Management.
Explain in your own words what is meant by the objective of financial statements. Further discuss the two underlying assumptions on which financial statements should be based, according to the
List and explain the qualitative characteristics of financial statements.
Define each of these elements as described by the accounting framework:• Asset. • Liability. • Expense. • Equity.
Discuss whether trade and other receivables meet the definition and recognition criteria of the elements of financial statements.
Do you consider it possible for a financial reporting system to report real values?
Briefly discuss what you consider the difference to be between recording and reporting in the practice of accounting.
Ashley Geldenhuys, currently a student at UWC, had a business idea after making an appointment for her learner’s licence at one of the traffic departments. She saw a gap in the market for
At the end of 19x9, two employees at Zest Manufacturing, Hannie Healthkick and Nomxolisi Loud-Racket decided to quit their jobs. They had 25 years of experience in manufacturing equipment for Xtra -
Explain the difference between a purchases account and a cost of sales account.
Complete this table by filling in the missing amounts: No. 1 2 3 4 5 Cost R100 ? R300 R240 ? Gross profit 50% mark-up 25% mark-up ? mark-up 20% profit margin 40% profit margin Selling
Which accounts are used to calculate the cost of sales under the periodic system of accounting for inventory ?
Provide reasons for including transport and packaging expenses in the inventory account whenusing the perpetual inventory system. What concepts or principles of accounting require this?
Explain the difference between a mark-up on cost and profit margin.
A vendor bought inventory for R1 430. Expenditure of R270 was incurred to bring the inventory to the required condition for sale. The inventory was sold for R2 380.You are required to:1. Calculate
Wheelies (located in Bellville) bought aluminium wheelbases from Cridel Ltd (located in Johannesburg).• Wheelies bought 300 aluminium wheelbases.• The price of each wheelbase is R200.• The
Wonder Wholesalers buys fertiliser in bulk, packages it and supplies major nursery outlets with 10-kg bags of Wonder Lawn and Wonder Flower fertilisers.Wonder Wholesalers had these accounts, amongst
Here is the trial balance before of Leisure Gardens (garden furniture retailers):Additional information:1. Bought inventory that cost R4 825, before taking into account a trade discount of 20% on
On 1 May 20x7, the assets and liabilities of Snappy Sheets, owned by John Dlomo, were:Transactions for May:3 Purchased sheets for resale and paid R1 700.6 Sold inventory for cash, R2 300.13 Purchased
Koo Traders uses the periodic inventory system to account for inventory. Opening inventory at the beginning of June 20x6 was R3 600.Transactions for June:1 Bought inventory from D. Smith
These transactions are for Sekwele Tractors, a business that sells tractors to farmers in the Eastern Cape, for the period June to August 20x9:1 On 1 June, Sekwele Tractors bought 12 tractors and
Ebrahim Patel is a wholesaler who uses the periodic inventory system to account for inventory.Transactions for February:1 Bought inventory from Rich Traders for R5 000 on credit.2 Sold inventory to
Here are some of the balances from the books of Link Stores on 1 February 20x6.Additional information:• The pricing policy is to mark inventory up by 40% on cost, which has been done consistently
Melvyn Jones uses the perpetual inventory system to record purchases and sales of inventory in his retail business, ABC Traders. He marks his inventory at cost plus 20%.Here is the abridged statement
Khumalo Retailers buys and sells two inventory items: Rio and Lima.• Inventory movements are recorded on a computerised perpetual system on a first-infirst- out (FIFO) method, at the lower of cost
Brenda Folser’s accounts, for some years past, show that the percentage of gross profit to turnover is constant.On 23 February 20x6, Brenda’s shop was burnt down, and all the inventory was

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