Question 2 (20 Marks)

Required: Prepare the Statement of Comprehensive Income as at: 28 February 2021. Embassy Traders Pre-adjustment Trial Balance as at: 28 February 2021

 Debit Credit Balance Sheet Accounts Section Capital 1 651 100 Drawings 132 900 Land and buildings 1 254 800 Vehicles at cost 925 000 Equipment 662 000 Accumulated depreciation on vehicles 528 000 Accumulated depreciation on equipment 369 000 Fixed deposit: Bob-bank (9% p.a.) 200 000 Trading inventory 152 000 Debtors control 174 800 Provision for bad debts 10 000 Bank 127 800 Creditors control 184 800 Mortgage loan: Bob-bank (18% p.a.) 330 000 

Nominal Accounts Section

Sales 2 075 000 Cost of sales 795 000 Sales returns 15 000 Salaries and wages 586 000 Bad debts 18 000 Stationary 30 000 Rates and taxes 58 000 Motor expenses 32 000 Advertising 23 000 Telephone 44 000 Electricity and water 66 000 Bank charges 8 000 Insurance 5 000 Interest on mortgage loan 26 000 Interest on fixed deposit 15 000 Rent income 171 600 

5 334 500 5 334 500

Adjustments and additional information

1.Trading goods, cost R1 000, were donated to a school on 27 February 2021. This transaction has not yet been recorded.

2.A physical stocktaking on 28 February 2021 showed the following inventories on hand:

• 1.Trading inventory R148 000
• 2. Stationery R4 000

1. Write off the account of debtor, R. Brown, R2 000. 2. The provision for bad debts must be decreased to R9 000.

3. Rent income amounts to R13 200 per month. Make the necessary adjustment. 4. The water and electricity account for February 2021, R7 000, was due to be paid on 3 March 2021. 5. Rates and taxes include an amount of R15 000 that was paid for the period 1 January 2021 to 3 March 2021.

6. An amount of R500 appeared in the February 2021 bank statement for bank charges. This amount was not recorded.

7. The investment in fixed deposit was made on 1 March 2019. Provide for the outstanding interest.

8. Provide for the outstanding interest on loan, R3 700.

9. A payment of R3 000 for insurance was erroneously debited to the advertising account.

10.Provide depreciation as follows:

• 1.On equipment at 10%, using the fixed instalment method.
• 2.On vehicles at 20%, using the diminishing balance method.

Question 5 (20 Marks)

The following information relates to Eston Limited:

Statements of Comprehensive Income as at: 31 December:

 2021 2020 Sales 35 000 000 30 000 000 Cost of sales (23 000 000) (20 000 000) Gross profit 12 000 000 10 000 000 Operating expenses: (5 100 000) (4 000 000) Distribution costs 1 500 000 2 500 000 Administrative expenses 2 000 000 3 100 000 Operating profit 6 900 000 6 000 000 Finance costs (400 000) (500 000) Profit before tax 6 500 000 5 500 000 Income tax (1 500 000) (1 500 000) Profit after tax 5 000 000 4 000 000 

Statements of Financial Position as at 31 December:

Assets 2021 2020 Non-current assets 20 000 000 18 000 000 Property, plant and equipment 20 000 000 18 000 000 Current assets: 12 000 000 12 000 000 Inventories 6 000 000 6 000 000 Accounts receivable 5 000 000 4 000 000 Cash and cash equivalents 1 000 000 2 000 000 Total assets 32 000 000 30 000 000 

Owners' equity and liabilities

Owners' equity 20 000 000 18 000 000 Ordinary share capital 10 000 000 10 000 000 Retained earnings 10 000 000 8 000 000 Non-current liabilities 4 000 000 6 000 000 Current liabilities 8 000 000 6 000 000 Accounts payable 8 000 000 6 000 000 Total owners' equity and liabilities 32 000 000 30 000 000 

Statements of changes in equity as at: 31 December:

 2021 2020 Balance at end of previous year 18 000 000 16 500 000 Profit for the year 5 000 000 4 000 000 Ordinary share dividends (3 000 000) (2 500 000) Balance at end of current year 20 000 000 18 000 000 

Additional information

All purchases and sales of inventories are on credit.

Eston Limited's ordinary share capital consists of 10 000 000 ordinary shares.

The market price of the shares was R5.60 on 31 December 2020 and R7.50 on 31 December 2021.

Required:

Calculate the following ratios for Eston Limited for 2021 and 2020 and comment on your answers:

5.1 Gross margin (4)

5.2 Debtors collection period (4)

5.3 Return on equity (4)

5.4 Dividend per share (4)

5.5 Debt to equity (4)