Sinso Phakathi has a general dealer store in the Ixopo area that he has been operating for a few years. The following information was provided by sinso for the financial year ended 28 February 2021: Pre-adjustment tral balance at 28 February 2021 Debit - R Credit -R Land and bulldings Equipment at cost Accumulated Depreciation: Equipment 1 March 2020 Inventory: trade goods -1 March 2020 Trade receivabies 604 000 195 000 32 100 109 500 81 630 Bank 20 220 Capital - Sinso Drawings Long term borrowing: Niks Finanoe (15% per year) 626 400 130 530 65 000 Trade payables 69 400 Sales 853 470 80 400 5 000 Rent income Purchases retums Purchases 409 660 Sales returns 6 800 Settlement discounts received 5 150 Settlement discounts granted 4 720 Advertising 14 800 Consumables 10 960 Insuranoe 5 850
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Additional information:
1. A physical stock-take on 28 February 2021 revealed the following:
• Trade goods on hand was valued at R96 000; and
• Consumable stores on hand were R1 830.
2. Advertising included an amount of R 2 160 for advertisement to appear in print from 1 November 2020 to 30 April 2021.
3.
R30 000. The purchase was recorded and is included in the above balances.
4. The long term borrowing from Niks’ Finance was granted on 1 May 2020. The borrowing is payable in full on 31 April 2025. Provide for the outstanding interest.
5. The tenant has already paid the rent for March 2021. Note that the monthly rent was increased by 10% effective on 1 December 2020.
6. A debit order of R800 for the insurance of Sifiso’s home was erroneously allocated to the business insurance account. A correction is required.
7. A debtor who owed R1 600 has been declared insolvent and his estate paid out 70 cents in the Rand on all debts. The balance of the account must be written off as irrecoverable. Entries must be made to record the receipt of money from the estate and the write-off of the remaining balance.
8. Create an allowance for credit losses equal to 5% of remaining outstanding debtors.
Required:
Prepare the following for Sifiso’s Stolo for the financial year ended 28 February 2021:
The statement of profit or loss and other comprehensive income.
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