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Questions and Answers
What is the total salary paid to Peter for the year 2022?
What is the allowance for credit losses amount as of 31 December 2022?
R2 675
The depreciation on office furniture and equipment was correctly accounted for in the financial records.
False
Interest is charged on drawings at a rate of ___% per year.
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Match the following terms with their definitions:
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How should Peter's capital increase be corrected in the financial records?
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What adjustments must be made to the debtors control account in relation to Pan's salary?
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What is the purpose of providing interest on the opening balances of the current accounts?
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Describe how the profit for the year is allocated between Peter and Pan.
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What is the impact of not accounting for depreciation of office furniture and equipment in the financial statements?
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Study Notes
Trial Balance
- The trial balance for Captain Hook Stationers shows the company's financial position as of December 31, 2022.
- The trial balance includes assets (R1 327 835), liabilities (R522 632), and equity (R1 181 023).
Additional Information
- The additional information highlights several errors in the company's accounting records.
- Peter's capital was increased by R30 000 on January 1, 2022, and this was incorrectly recorded.
- Pan's salaries were incorrectly recorded in the debtors control account.
- Interest on capital, current accounts, and drawings needs to be calculated and adjusted.
Peter's Current Account
- The current account reflects Peter's personal financial transactions with the business.
Statement of Changes in Equity
- The statement of changes in equity shows how the company's equity has changed during the year.
- Equity consists of the partners' capital contributions and retained earnings.
- The statement of changes in equity includes adjustments for errors, interest, and profit.
Calculation Details
- Interest on capital: R150 000 x 15% = R22 500
- Interest rate on a current account: R120 000 x 7.5% = R9 000
- Interest on Peter’s drawings: R35 000 x 5% = R1 750
- Interest on Pan’s drawings: R65 000 x 5% = R3 250
- Depreciation expense: R525 000 x 10% = R52 500
Trial Balance
- The trial balance shows the balances of various accounts as at 31 December 2022.
- The trial balance includes assets, liabilities, equity, income, and expenses.
- Assets: Office furniture and equipment, accumulated depreciation on office furniture and equipment, inventory, bank, debtors control, and allowance for credit losses
- Liabilities: Long-term loan, creditors control
- Equity: Capital: Peter, Capital: Pan, Current account: Peter, Current account: Pan, Drawings: Peter, Drawings: Pan
- Income: Profit for the year
- Total assets of R1 343 545 must equal total liabilities and equity of R1 343 545
Additional Information
- Additional information details specific adjustments that need to be made to the trial balance.
Adjustments
- Peter's incorrect capital increase of R30 000 must be adjusted (R150 000 - R120 000 = R30 000)
- Pan's incorrect salary recording needs to be adjusted
- Interest must be calculated on capital, current accounts and drawings
- Profit and losses will be shared based on the ratio of capital contributed at the beginning of the fiscal year
Capital Adjustments
- Calculate the interest earned on capital for both Peter and Pan
- Peter's capital interest = R150 000 x 15% = R22 500
- Pan's capital interest = R150 000 x 15% = R22 500
Current Account Adjustments
- Calculate the interest earned on current accounts for both Peter and Pan
- Peter's current account interest = R4 500 x 7.5% = R337.50
- Pan's current account interest = R12 000 x 7.5% = R900
Drawings Adjustments
- Calculate the interest charged on drawings for both Peter and Pan
- Peter's drawings interest = R35 000 x 5% = R1 750
- Pan's drawings interest = R65 000 x 5% = R3 250
Salaries Adjustments
- Calculate the total salaries paid to Pan and adjust accordingly
- Pan's salary = R4 500 x 12 (months) = R54 000
Depreciation Adjustments
- Calculate the depreciation on office furniture and equipment based on the straight-line method
- Depreciation = R525 000 x 10% = R52 500
Profit Sharing Ratio
- Determine the profit sharing ratio based on the initial capital contributions of Peter and Pan
- Peter's capital = R120 000
- Pan's capital = R150 000
- Profit sharing ratio: Peter 4/7 : Pan 3/7
Current Account of Peter
- The current account of Peter is a record of his transactions during the financial year. It will involve adding all income and subtracting all expenses.
- The current account will show the balance of his account as at 31 December 2022.
Statement of Changes in Equity
- The statement of changes in equity summarizes the changes in the equity of the business during the financial year.
- It includes adjustments to capital, profit allocation, and current accounts.
- The statement will show the total equity of the partnership as at 31 December 2022.
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Description
This quiz explores the trial balance as of December 31, 2022, for Captain Hook Stationers, highlighting its assets, liabilities, and equity. Additionally, it delves into errors found in the accounting records, adjustments in Peter's capital, and the statement of changes in equity. Test your understanding of financial positions and corrections in accounting practices.
