ANNEXURE A: EXERCISE 7.6: Financial statements The following information relates to Njabulo Traders Limited: TRIAL BALANCE AS AT 28 FEBRUARY 20.8 R Share capital: ordinary shares..................................................................... 160 000 Share capital: preference shares................................................................. 100 000 Revaluation surplus (1 March 20.7)............................................................. 10 000 Retained earnings (1 March 20.7)............................................................... 5 000 Mortgage..................................................................................................... 80 000 Trade payables control................................................................................ 70 000 Trade receivables control ............................................................................ 150 000 Inventory (1 March 20.7) ............................................................................. 90 000 SARS (Income tax) (Cr) .............................................................................. 15 000 Sales........................................................................................................... 975 000 Purchases................................................................................................... 700 000 Salaries and wages..................................................................................... 95 450 Bank overdraft............................................................................................. 15 000 Interest on bank overdraft ........................................................................... 2 000 Interest on mortgage ................................................................................... 8 550 Investments at cost ..................................................................................... 45 000 Land and buildings (at valuation)................................................................. 158 000 Vehicles (at cost)......................................................................................... 60 000 Furniture and equipment (at cost) ............................................................... 52 000 Stationery.................................................................................................... 3 000 Dividend income.......................................................................................... 5 000 Allowance for credit losses.......................................................................... 5 000 Freight on purchases................................................................................... 6 000 Freight on sales........................................................................................... 4 000 Settlement discount received ...................................................................... 4 000 Settlement discount allowed........................................................................ 3 000 Commissions paid....................................................................................... 9 000 Auditor's remuneration ................................................................................ 6 000 Directors' remuneration ............................................................................... 15 000 Insurance .................................................................................................... 6 000 Sundry expenses ........................................................................................ 18 000 Sales returns............................................................................................... 5 000 Accumulated depreciation: Vehicles (1 March 20.7).................................... 10 000 Accumulated depreciation: Equipment (1 March 20.7) ................................ 12 000 FAC1601/TL102/3/2022/B 4 Additional information 1. Njabulo Traders Ltd was registered on 1 March 20.1 with an authorised share capital of 600 000 ordinary shares and 50 000 12% preference shares. The issued ordinary shares were issued at R0,40 per share and preference shares R1 per share. 2. Closing inventory at 28 February 20.8 amounts to R95 000. 3. The allowance for credit losses must be adjusted to R7 500. 4. Investments consist of the following: • 25 000 ordinary shares in Bososo Trade Ltd purchased at R1 each. On 28 February 20.8, the shares in Bososo Trade Ltd traded at R1,50 per share on the JSE. • 40 000 ordinary shares in Watson (Pty) Ltd purchased at R0,50 per share. 5. Land and buildings consist of a shop located at 6 Ndlovu Road, KwaMashu. An independent sworn appraiser revalues land and buildings biennial. 6. The mortgage was obtained on 1 March 20.7 and is secured by a first mortgage over land and buildings. The interest on the mortgage is charged at 16% per annum and instalments amounting to R5 000 are payable annually with the effect from 31 August 20.8. 7. Included in sundry expenses is an amount of R2 000 representing a loss on the sale of redundant equipment. 8. The dividend income relates to R2 000 and R3 000 received from Bososo Ltd and Watson (Pty) Ltd respectively. 9. Provision must be made for the following: • Depreciation: − Vehicles at 20% per annum on cost − Furniture and equipment at 10% per annum on the diminished balance • Dividend of 5 cents per share on the ordinary shares • An amount of R500 for auditor's remuneration • An amount of R40 000 for income tax for the current year REQUIRED a) Prepare the following for Njabulo Traders Ltd to comply with the IFRS and requirements of the Companies Act 71 of 2008. Ignore comparative figures: (i) The statement of profit or loss and other comprehensive income for the year ended 28 February 20.8. (ii) The statement of changes in equity for the year ended 28 February 20.8. (iii) The statement of financial position as at 28 February 20.8. b) Prepare the notes to the financial statements for the year ended 28 February 20.8. FAC1601/TL102/3/2022/B 5 SOLUTION 7.6 a) (i) NJABULO LIMITED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 20.8 Notes R Revenue R(975 000 – 3 000 – 5 000) 7 967 000 Cost of sales (697 000) Inventory (1 March 20.7) 90 000 Purchases R(700 000 – 4 000) 696 000 Freight on purchases 6 000 792 000 Inventory (28 February 20.8) (95 000) Gross profit 270 000 Other income 17 500 Dividend income: listed share investment 2 000 Unlisted share investment 3 000 Fair value adjustment: listed investment [R(1,50 – 1,00) x 25 000] 12 500 287 500 Distribution, administrative and other expenses (175 450) Freight on sales 4 000 Commission expense 9 000 Salaries and wages 95 450 Stationery 3 000 Credit losses R(7 500 – 5 000) 2 500 Insurance expense 6 000 Sundry expenses R(18 000 – 2 000) 16 000 Auditor's remuneration R(6 000 + 500) 6 500 Directors' remuneration 15 000 Loss on sale of equipment 2 000 Depreciation ➀ 2, 3 16 000 Finance costs (14 800) Interest on bank overdraft 2 000 Interest on mortgage 6 12 800 Profit before tax 97 250 Income tax expense (40 000) Profit for the year 57 250 Other comprehensive income for the year - Total comprehensive income for the year 57 250