Question

Question 6 [26] The following information relates to Scorpius Dealers: Partial pre-adjustment trial balance for the year ending 31 December 2019 R R Balance sheet section Capital 145 000 Drawings 25 000 Land and buildings 110 530 Vehicles 5 870 Accumulated depreciation: Vehicles 2 610 Equipment 3 040 Accumulated depreciation: Equipment 440 Trading inventory (1 January 2019) 27 000 Trade receivables 40 180 Bank 24 480 Trade payables 34 640 Additional information 1. A physical stocktake was performed on 31 December 2019. The value of the stock on this date was R27 750. Depreciation must be provided for as follows: • Vehicles at a rate of 20% using the straight-line method. • Furniture and fittings at a rate of 10% on the diminishing balance. A debtor, owing R180, was declared insolvent and the debt needs to be written off as irrecoverable. After consideration of the trade receivables (debtors), it is decided to include an allowance for credit losses equal to 1% of outstanding debts. The insurance premium was not paid during December 2019 owing to the public holidays. The premium for December 2019 was R800 and was paid only in January 2020. Scorpius sublets a portion of its offices. Owing to the public holidays, the R5 200 rental income for December 2019 has not yet been received. 7. The profit for the year AFTER the adjustments above amounts to R56 546. Required: Prepare the statement of financial position for Scorpius Dealers as at 31 December 2019.

Answer 1

We have been provided following trial balance :

Particulars	Debit	Credit
Capital		145,000
Drawing	25,000
Land & building	110,530
Vehicles	5,870
Accumulated depreciation Vehicle		2,610
Equipment	3,040
Accumulated depreciation equipment		440
Trading Inventory (1 Jan 2019)	27,000
Trade Receivable	40,180
Bank	24,480
Trade Payables		34,640
Total	236,100	182,690

The total debit side and credit side of Trial balance is not matching. The obvious miss would be Profit during the year which works out to 53,410 (236100-182690)

Let us first work out impact of adjustments on profit :

Profit & Loss	53,410
Add : Increase in Stock	750
Less : Bad-debt	(180)
Less : Provision for credit losses	(400)
Less : Insurance Premium	(800)
Add: Rental Income	2,500
Add : Reduction in vehicle depreciation	1,266
Profit After Adjustments	56,546

In respect of depreciation we have been asked that for vehicle depreciation needs to be applied @20% straight line & furniture fitting @10% diminishing balance method. We do not have any item of furniture and fitting. Also no detail is made available that what is the current policy of depreciation, life of vehicle, when vehicle was acquired hence we are not in a position to calculate the change required in depreciation.

However we have been informed that profit after all adjustment would is 56,546 hence we can assume the balancing number to derive profit 56.546 would be depreciation impact i.e. (56546-(53410+750-180-400-800+2500) which gives us 1,266.

On the above basis we can prepare statement of financial statement as under :

Scorpius Dealers
Statement of Financial Position
31st December 2019
Assets
Fixed Assets
Land & building		110,530
Equipment	3,040
Less : Accumulated depreciation equipment	(440)	2,600
Vehicles	5,870
Accumulated depreciation Vehicle (2610-1266)	(1,344)	4,526
Total Fixed Assets (Net)		117,656
Current Assets
Trading Inventory (31 Dec 2019)		27,750
Trade Receivable	40,180
Less: Bad-debt	(180)
Less : Provision for credit losses	(400)	39,600
Receivable for Rent		2,500
Bank		24,480
Total Current Assets		94,330
Total Assets		211,986
Liabilities
Current Liabilities (34,640+800)		35,440
Total Current Liabilities		35,440
Capital
Capital	145,000
Less : Drawing	(25,000)
Add: Profit during the year	56,546	176,546
Total Capital & Liabilities		211,986