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Question

Question 1 (30 marks)

Hangula TV Services entered into the following transactions during November 2009:
1 H Hangula, the owner, opened a bank account in the name of the undertaking and deposited N$5 000.
7 Services were rendered on account, N$12 000.
15 He paid wages, N$1 600.
19 Clients invoiced on 7 November paid N$6 000 on account.
25 Rendered services for cash, N$2 500.
27 Office equipment was purchased for cash, N$1 800.
28 Purchased land for N$40 000 for the erection of a building for the undertaking for cash.
29 Received the following accounts for the month and paid cash:
Telephone N$550
Municipal services N$700.

Required
1 Enter the above transactions in the suitable general ledger accounts in the ledger of Hangula TV Services and determine the balances of the accounts. 23
2 Compile a trial balance at 30 November 2009. 7






Question 2 (50 marks)

On 28 February 2009 the following information was extracted from the books of Capricorn Sweets, a trader in sweets:
Dr Cr
N$ N$
Accounts payable 5 000
Accounts receivable 26 000
Bank (favourable) 34 000
Capital 130 200
Delivery vehicle 45 000
Discount received 600
Drawings 25 300
Freight on purchases 7 000
Freight on sales 4 000
Insurance 900
Inventory 40 000
Loan Bank Windhoek 25 000
Municipal expenses 2 400
Provision for doubtful debts 900
Purchases 60 000
Rent expense 4 200
Salaries 24 000
Sales (net) 112 600
Stationery (expense) 1 500
274 300
274 300

Additional information
1 Stationery amounting to N$1 000 was still on hand on 28 February 2009.
2 Capricorn Sweets donated N$60 cash to a local orphanage.
3 Doubtful debts of N$200 should be written off.
4 Provision for doubtful debts should be adjusted to 10% of outstanding debtors.
5 Rent was paid for 14 months.
6 The loan from Bank Windhoek was taken out on 1 July 2008 at an interest rate of 21% per annum.
7 Capricorn Sweets purchased the delivery vehicle on 1 August 2008. Depreciation should be provided for at 20% per annum on the fixed percentage on diminishing balance method.
8 Items that could not be ticked off on the bank statement: Bank charges, N$35.

Required
a. Journalise the adjustments. Give proper narrations. 24
b. Prepare a post-adjustment trial balance. 26

Question 3 (20 marks)
The following information appeared in the records of Wilhelm Day and Night at 31 December 2009:
Wilhelm Day and Night, Pre-Adjustment Trial Balance at 31 December 2009
N$ N$
Accounts payable control 13 000
Accounts receivable control 27 000
Accumulated depreciation: Vehicles 5 000
Furniture 500
Bank 1 000
Capital 80 000
Cost of sales 100 000
Doubtful debts 1 200
Drawings 4 000
Furniture (at cost) 5 000
Inventory 20 000
Land and buildings 60 000
Rent income 11 000
Salaries 37 800
Sales 170 000
Stationery 500
Vehicles (at cost) 25 000
280 500
280 500

Additional information
1 Depreciation should be provided as follows:
Vehicles at 20% per annum on the fixed percentage on the reducing balance method.
Furniture at 10% per annum on straight-line method.
2 The rent for one month is outstanding.

Required
1 Prepare the Statement of Comprehensive Income of Wilhelm Day and Night for the year ended 31 December 2009. (7)
1 Prepare the Statement of changes in equity of Wilhelm Day and Night for the year ended 31 December 2009. (3)
2 Prepare the Statement of Financial Position of Wilhelm Day and Night at 31 December 2009. (10)


END OF ASSIGNMENT

Answer 1

You have more than one problem and you have not done any of the work for any of them. It would take about 2 hours to give you solutions, and you would learn nothing. I will give you help, but not a solution, on the first problem, and that should help you solve it. The other two problems involve adjusting entries, and area that many students find confusing but is actually very logical. The third problem requires preparing three basic financial statements. If you are having trouble with these problems, consider a tutor who can help you. the following can help you on the first problem:

 

First, you have to understand the debit and credit rules. Assets are increased by debits and decreased by credits, Liabilities and Capital are increased by credits and decreased by debits. That makes the accounting equation logical. Assets = Liabilities + Capital, or Assets - Liabilities = Capital. Given that equation, every transaction involves an equal amount of debits and credits.

Recording transactions is a simple matter of deciding what took place in an exchange. You record what you received and you record what you gave up. Usually the record is made in journal entries. It makes no sense to try to memorize journal entries. The idea is to analyze what was exchanged. You received or gave up assets and you use the debit and credit rules to record that. If you get cash, you debit the cash account, but you have to credit something else. For example, in exchange for the cash you performed a service, which means you earned revenue which is an increase in capital, recorded as a credit. If you paid cash in exchange for your room rent, the rent is an expense, which is a reduction of capital, so it is recorded with a debit, and cash decreased so it is recorded as a credit. If you pay cash for a computer, you are increasing one asset, the computer, and decreasing the other asset, cash. You just have to decide what was exchanged before you worry about what to debit or credit.

You incurred a liability (gave a promise to pay later) so a liability is credited, and you received merchandise, which is an asset that is debited. Or you got your promise back because you discharged the liability, so you debit the liability and credit the cash you paid.

Similarly with capital. You issued stock for cash so you received cash (a debit) and record a credit in owners’ equity representing the owner’s interest in the business assets. Or bought back stock giving up cash (a credit) and reducing the owner’s interest in the business (a debit in a capital account). You increase capital (credit revenue) by providing a service or product. You decreases capital (debit an expense) by using up assets or services. As long as you understand what was exchanged, you can decide what to debit and credit.

You have to understand that expenses are reduction in capital and revenues are increases in capital. That is why expenses are debits and revenues are credits. You could debit or credit the capital account directly when you have an expense or revenue, but then you would not be able to see the details of how capital changed. Expenses and revenues are just temporary subdivisions of capital that enable you to prepare an income statement and see why capital changed from operating a business.

With manual journal entries, debits are always recorded first, followed by credits, with the credit account indented, as follows:

dr. Cash . . . .200
cr. . . . . .Accounts receivable . . . .200
. . Collected Jones account.

A memorandum explains what took place or includes details such as check number, computation of interest, or other information to enable auditing the journal entry.

 

With a simple problem such as the one you have, you can post the transactions directly into the ledger (T-accounts) without preparing journal entries. But if you find this difficult or confusing, journal entries first, then posting is the better approach. You will learn more.

 

Vanessa, you are in the early part of your courses. If you need help with these problems, I can help you with tutoring, but I have no time available until January 6. There are other tutors who can help you also. You need to develop a strong foundation in this basic material because that would make your future study of accounting much easier. Do not neglect these basics. Get the help you need. It will be time well spent.