Week+9 - FINANCIAL ACCOUNTING(ACC1006S SUGGESTED SOLUTIONS...

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FINANCIAL ACCOUNTING (ACC1006S) SUGGESTED SOLUTIONS TUTORIALS HANDED IN ON 5 OCTOBER 200 9 TUTORIAL 18 (Suggested Solution) 1. 3 Marks I do not agree with your statement that you would have R7 400 000 in your pocket if you sold all the assets of the business. The assets of Safe and Sound have been funded by outside lenders (liabilities) and through equity. The claim that you would have on the assets is calculated as R7 400 000 (assets) – R3 960 000 (liabilities) = R3 440 000. Owner’s wealth is measured in terms of the claim that the owner has against the assets of the business. 2. 4 Marks Accumulated profit 29/2/08 Drawings 300 000 1/3/07 Balance 2 780 000 Profit and Loss 550 000 Balance * 1 930 000 2 780 000 2 780 000 1/3/08 Balance 1 930 000 * Assets 7 400 000 Less Liabilities (460 000) (3 500 000) = Equity 3 440 000 Less capital 1 510 000 [1 400 000 + 110 000] Accumulated profit 1 930 000 3. 5 Marks The change in assets was a result of the following: Increase in equity through capital contribution 110 000 Decrease in equity through drawings (300 000) Decrease in equity through business operations (net loss) (550 000) Increase in current liabilities 140 000 Increase in non-current liabilities 2 000 000 Net increase in assets 1 400 000 4. 3 Marks The purpose of the Income statement is to show the financial performance of a business over a specified period. The income statement shows the net profit/loss generated by the business (income less expenses) . The Income statement ONLY includes those items that affect the net asset value of the business not through transactions with the owner i.e. through business operations. I do not agree with the inclusion of drawings in the Income Statement as an expense item. Drawings of R300 000 represents a decrease in net asset value through transactions with the owner and NOT through business operations and is therefore not an expense Page 1 of 6
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5. 3 Marks (max) By leaving out the electricity owing of R2 300 as per the electricity bill received from Eskom, you have not treated this item correctly in your financial records. GAAP requires the Income Statement and statement of financial position to be prepared using the accrual concept. Under the accrual basis, the effects of transactions are recognised when they occur.
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