You have recently been appointed as the accountant of CHIPPIE – CHIP, a registered VAT vendor that sells potato chips to various entities across the Western Cape.

The business was started 11 months ago by Chip Monk on 1 May 20x1. The financial year ends on 30 April. The business purchases potatoes from various farms in the area, after which the potatoes are peeled by internal staff. The potatoes are then placed in a specialised cutting
machine that cuts these chips into accurate sizes that are consistent with prior batches.

The business uses the perpetual system to account for inventory movements. Inventory movements are accounted for using the first-in-first-out (FIFO) method. Here is a summary of the potato chips process:

1 Potatoes are bought in 10 kg bags from surrounding farms.

2 Potatoes are then peeled by staff. A labour cost of 10 cents has been calculated for every kilogram of potatoes peeled.

3 The potatoes are then machine cut to the perfect size. (See details for machine below.)

4 After cutting, the chips are placed (to be sold) into specially manufactured 5-kg bags that allow the chips to stay fresher for longer.

5 Potato chips are then directly sold to businesses in the area at a gross margin of 33.33% on the selling price.

Due to the nature of the goods, the business will always sell the older inventory before it sells the newer/fresher inventory.

Additional information:

• On 1 May 20x1, the business bought a new machine at a total cost of R500 000 (VAT excl.).

• The depreciation policy with regard to the machine is based on the total operating hours.
– According to the manufacturer, the machine is expected to last for a total of 25 000 hours. The business has also determined that 50 kg of chips are cut per hour.
– Note: The machine is exclusively used in the manufacturing process of the potato chips.

• According to the policy of the business, stationery is recognised as an asset on the date it is bought.

• Inventory includes all costs that are incurred to bring the system to its saleable point.

• On 31 March 20x2:

– The stationery on hand balance was R520.

– The inventory on hand balance was R4050. This balance is made up of 300 5-kg bags.

– The VAT liability was R10 400.

• Fish and Chips, a receivable, had a balance of R1 710.

All amounts include VAT unless otherwise stated.

Transactions for April 20x2:

2 The owners invested an additional R50 000 into the business.

Purchased 2 000 bags of potatoes at a cost of R44 000 (VAT excl.) on credit from Potato

World, a registered VAT vendor.

Incurred delivery charges of R1 140 to deliver the potatoes to the business premises and issued cheque number 100.

Purchased 20 000 bags from Bagz at a cost of 35 cents per bag to package the 5 kg bags and issued cheque number 101. Bagz is not a registered VAT vendor.

Purchased stationery for an amount of R1 710 and issued cheque 102.

3 Paid the rent for the month and issued cheque 103, R6 840.

Purchased office equipment from Off Equ LTD on credit for R2 850.

6 Sold 1 900 bags of freshly cut chips to Da’ Green Family Restaurant on credit.

Sold 1 700 bags of freshly cut chips to Ray-Lene’s Bar and Grill on credit.

Paid Potato World 60% of the outstanding debt.

9 Took 150 bags of freshly cut chips home to donate to the fundraiser of a local school where his son attends.

13 Ray-Lene’s Bar and Grill returned 100 bags claiming that the order was for 1 600 bags of freshly cut chips instead of 1 700 bags.

Sold 300 bags of freshly cut chips to Luther Martin, a street vendor. Since Luther paid cash, a trade discount of 5% was given. The trade discount is based on the normal selling price per 5 kg bag.

15 According to the bank statement, insurance expense of R285, along with the interest expense of R570, was debited to the bank account.

Paid the outstanding VAT balance as shown at the beginning of the month by Internet bank transfer.

16 Purchased an additional 3 500 bags of potatoes from Potato World and paid the amount due by bank transfer. A 10% trade discount was received. (See transaction dated 2 April for original price.)

Incurred delivery charges of R3 500 (VAT excluded) to transport the potatoes inwards.

Delivery charges were settled in cash.

18 Sold an additional 1 200 bags of freshly cut chips to Da’ Green Family Restaurant on credit.

20 Sold an additional 1 400 bags of freshly cut chips to Ray-Lene’s Bar and Grill on credit.

24 Paid salaries and wages for the month by cheque, R43 200.

25 Received interest on investment from the Amalgamated Banks of South Africa, R13 600.

Fish and Chips, a receivable, was declared insolvent. His estate paid out 40c in the rand, with the rest being considered irrecoverable. All money receivable was received and banked at this date.

31 Bank charges as per the bank statement, R285.

Electricity for the month amounted to R1 140 and was settled by cheque 105.

Received R15 000 from Da’ Green Family Restaurant as part payment on their account.

Received 85% of the outstanding debt from Ray-Lene’s Bar and Grill.

Stationery available at the end of the month, R700 (VAT excluded).

A stock take at the end of the month revealed that 4 500 bags of freshly cut potato chips were on hand at month end. On investigation, it was determined that Cameron, a truck driver, was colluding with Ziyaad Mollagee, the stock controller, to remove inventory from the premises and sell it to an unnamed street vendor.

Paid the fuel card for the month, R1 710.

You are required to:

1. Prepare the general journal for the transactions for April 20x2.

2. Prepare the statement of profit or loss & other comprehensive income for the month ending 30 April 20x2.

3. Calculate the VAT payable/receivable for the VAT period. Use the VAT control account to distinguish between VAT output and VAT input.