The trial balance and additional information given below were extracted from the accounting records of Warrior Traders as at 28 February 2021, the end of the financial year. Warrior Traders Pre-adjusted trial balance on 28 February 2021 Debit (R) Credit (R) Capital 162 000 Drawings 70 000 Vehicles at cost 180 000 Equipment at cost 120 000 Accumulated depreciation on vehicles 90 000 Accumulated depreciation on equipment 38 000 Trading inventory 70 000 Debtors control 32 000 Provision for bad debts 4 000 Bank 22 000 Cash Float 2 000 Creditors control 40 000 Mortgage loan: Aris Bank (16% p.a.) 80 000 Sales 485 000 Cost of Sales 240 000 Sales returns 5 000 Salaries and wages 84 000 Bad Debts 5 000 Consumable stores 2 000 Rent expense 28 000 Motor expenses 15 000 Bad Debts recovered 2 000 Telephone 7 000 Electricity and water 11 000 Bank charges 3 000 Insurance 4 000 Interest on mortgage loan 6 000 Commision income 5 000 906 000 906 000 Adjustments and additional information: 1. According to physical stocktaking done on 28 February 2021, trading inventory on hand amounted to R68 000. 2. Consumable stores used during the financial year amounted to R1 800. 3. No entry has been made for a commission of 10% earned bit not received on 500 items that were sold for R60 each. 4. Received a cheque for R600 from an insolvent debtor, J Marsh, who was only able to pay 30% of her debt. The balance of his account must now be written off. 5. The provision for bad debts must be decreased to R1 500. 6. The telephone account for February 2021 has not yet been paid, R700. 7. The rental agreements signed with the lessor were as follows: • R30 000 for the period 01 January 2020 to 31 December 2020 • R36 000 for the period 01 January 2021 to 31 December 2021 8. The loan from Aries Bank was obtained on 01 September 2020. Provide for the outstanding interest. 9. The insurance total includes an annual premium of R1 800 that was paid for the period 01 June 2020 to 31 May 2021. 10. The bank statement for February 2021 reflected bank charges of R180 that have not yet been recorded. 11. The electricity and water account was debited with an amount of R1 000 for personal electricity account of the proprietor, that was paid with a business cheque 12. Provide for depreciation as follows: • On equipment at 15% per annum on cost • On vehicles at 25% per annum on the diminishing balance method 13. An account received from Heidi Motors to replace two tyres on the delivery vehicle of the business R2 000, has not been recorded. Required: Prepare the statement of profit or loss and other comprehensive income
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.
The
Warrior Traders
Pre-adjusted trial balance on 28 February 2021
| Debit (R) | Credit (R) | |
| Capital | 162 000 | |
| Drawings | 70 000 | |
| Vehicles at cost | 180 000 | |
| Equipment at cost | 120 000 | |
| 90 000 | ||
| Accumulated depreciation on equipment | 38 000 | |
| Trading inventory | 70 000 | |
| Debtors control | 32 000 | |
| Provision for |
4 000 | |
| Bank | 22 000 | |
| Cash Float | 2 000 | |
| Creditors control | 40 000 | |
|
Mortgage loan: Aris Bank (16% p.a.) |
80 000 | |
| Sales | 485 000 | |
| Cost of Sales | 240 000 | |
| Sales returns | 5 000 | |
| Salaries and wages | 84 000 | |
| Bad Debts | 5 000 | |
| Consumable stores | 2 000 | |
| Rent expense | 28 000 | |
| Motor expenses | 15 000 | |
| Bad Debts recovered | 2 000 | |
| Telephone | 7 000 | |
| Electricity and water | 11 000 | |
| Bank charges | 3 000 | |
| Insurance | 4 000 | |
| Interest on mortgage loan | 6 000 | |
| Commision income | 5 000 | |
| 906 000 | 906 000 |
Adjustments and additional information:
1. According to physical stocktaking done on 28 February 2021, trading inventory on hand amounted to R68 000.
2. Consumable stores used during the financial year amounted to R1 800.
3. No entry has been made for a commission of 10% earned bit not received on 500 items that were sold for R60 each.
4. Received a cheque for R600 from an insolvent debtor, J Marsh, who was only able to pay 30% of her debt. The balance of his account must now be written off.
5. The provision for bad debts must be decreased to R1 500.
6. The telephone account for February 2021 has not yet been paid, R700.
7. The rental agreements signed with the lessor were as follows:
• R30 000 for the period 01 January 2020 to 31 December 2020
• R36 000 for the period 01 January 2021 to 31 December 2021
8. The loan from Aries Bank was obtained on 01 September 2020. Provide for the outstanding interest.
9. The insurance total includes an annual premium of R1 800 that was paid for the period 01 June 2020 to 31 May 2021.
10. The bank statement for February 2021 reflected bank charges of R180 that have not yet been recorded.
11. The electricity and water account was debited with an amount of R1 000 for personal electricity account of the proprietor, that was paid with a business cheque
12. Provide for depreciation as follows:
• On equipment at 15% per annum on cost
• On vehicles at 25% per annum on the diminishing balance method
13. An
Required:
Prepare the statement of profit or loss and other comprehensive income
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