MODULE 2

Assignment 2

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Learning outcome:

LO7: Practice recording financial transactions and completing journal entries.

Name: Mabedle Livingstone Mashele

1. Instructions and guidelines (Read carefully)
Instructions
1. Insert your name and surname in the space provided above, as well as in the file name.
Save the file as: First name Surname Assignment 2 – e.g. Lilly Smith Assignment 2. NB:
Please ensure that you use the name that appears in your student profile on the Online
Campus.

2 Write all your answers in this document. There is an instruction that says, “Start writing
here” under each question. Please type your answer there.

3 Submit your assignment in Microsoft Word only. No other file types will be accepted.

4 Do not delete the plagiarism declaration or the assignment instructions and

guidelines. They must remain on your assignment when you submit.

PLEASE NOTE: Plagiarism cases will be penalised according to the Head Tutor’s and
GetSmarter's discretion.

IMPORTANT NOTICE: Please ensure that you have checked your course calendar for the due
date for this assignment.

Guidelines
1 There are seven pages and two questions in this assignment.

2 Make sure that you have carefully read and fully understood the questions before
answering them. Answer the questions fully but concisely and as directly as possible.
Follow all specific instructions for individual questions (e. g. “list”, “in point form”).

3 Answer all questions in your own words. Do not copy any text from the notes, readings
or other sources. The assignment must be your own work only.

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 Plagiarism declaration:

1. I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that
it is one’s own.
2. This assignment is my own work.
3. I have not allowed, and will not allow, anyone to copy my work with the intention of
passing it off as his or her own work.
4. I acknowledge that copying someone else’s assignment (or part of it) is wrong, and
declare that my assignments are my own work.

2. Mark allocation
Each question receives a mark allocation. However, you will only receive a final percentage
mark and will not be given individual marks for each question. The mark allocation is there
to show you the weighting and length of each question.

Question 1: Inventory methods and margins 20

Question 2: Journal entries 30

TOTAL 50

3. Questions
Assignment instructions
Complete questions 1 and 2 in this document. Make sure you have read Modules 1 and 2
before completing this assignment.

Note: Make sure that you show all your workings within the assignment when calculations
are required.

Question 1 (20 marks)

Bruno has been running a very successful online toy shop specialising in vintage miniature
cars from all over the world, which he sources from collectors and auctions. As his business
is not very large and he does not want to install complex accounting systems he is using the
periodic method to account for his inventory.

During the current year the business had sales of R125 000, and at year-end when Bruno
performed an inventory count he still had inventory with a cost of R12 000 on hand. The
business had an opening balance of R20 000 of inventory on hand at the beginning of the
year. (Ignore all VAT implications.)

Purchases of inventory for the year can be summarised as follows:

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 Month Unit cost Quantity Total Cost
January R540 12 R 6 480
February R650 23 R 14 950
March R100 40 R 4 000
April R3 000 1 R 3 000
May R240 8 R 1 920
June R500 10 R 5 000
July R8 000 2 R 16 000
August R25 200 R 5 000
September R300 12 R 3 600
October R270 7 R 1 890
November R640 10 R 6 400
December R280 5 R 1 400
TOTAL R 69 640

1.1 What is Cost of sales for the year? (Max. 4 lines) (3 marks)

Start writing here: COS on periodic inventory valuation, takes inventory at the beginning of a
period, adds new inventory purchases during the period, and deducts ending inventory.
Formula: Opening + Purchases - Closing = Cost of Goods Sold (COGS)
COS: Opening R20 000 + Purchases R69 640 – Closing Inventory (R12 000) = R77 640

1.2 What is Gross profit for the year? (Max. 3 lines) (2 marks)

Start writing here: Profit after subtracting all costs related to selling of a product/service.
Formula: Sales – Cost Of Goods Sold (COGS).
Gross Profit: Sales R125 000 – COS R77 640 = R47 360

1.3 What is the Gross margin for the year? (Max. 4 lines) (3 marks)

Start writing here: Profitability of a business after subtracting the cost of goods sold from the
revenue. The amount of money a company retains for every incremental rand earned.
Formula: (Sales – Cost of Good Sold = Gross Profit) / Sales
Gross Margin: Gross Profit R47 360 / Sales R125 000 = 0.37 (37%).

1.4 What is the mark-up on cost of selling the inventory? (Max. 4 lines) (3 marks)

Start writing here: Mark-up cost is a percentage difference between the actual cost and the
selling price.
Formula: (Selling price – Cost price) / Cost price X 100
Make-up Cost: (Selling price R125 000 - Cost price R77 640) / R77 640 X 100 = 0.609 (61%).

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1.5 A collector has given Bruno a 10% discount on a collection of 15 cars. Would this increase
or decrease his gross margin when selling these cars, assuming the selling price remains the
same? Explain why. (Max. 2 lines) (2 marks)

Start writing here: Increase, as the discount on costs would have a positive impact on the
Gross Profit ‘bought for less but sold at the same price’, leading to an increase in Gross
margin.

1.6 Name two ways in which he could increase the gross margin on his business. (Max. 2
lines) (2 marks)

Start writing here: Order more of the 10% discount on a collection of 15 cars.Run deals &
specials on higher margin items since these products make a higher profit per unit sold.

1.7 What three journal entries are required to correctly record inventory in the accounting
records at year-end? (Max. 9lines) (5 marks)

Purchase Journal Debit Credit

Purchases R69 640
Bank R69 640
Sales Journal
Bank R125 000
Sales R125 000
Inventory Journal
Inventory R12 000 (20000 + 69640 – 77 760)
Cost of Goods Sold (COGS) R77 640
Purchases R89 640

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 Question 2 (30 marks)
Tumi runs a small florist called Flower Power (Pty) Ltd in Pretoria and during the month of
May 2018 the following transactions took place:

Date Details

1/5 Contributed R10 000 in the form of equipment to the business (Voucher no:
JV1)

10/5 Purchased equipment on credit from Makro for R3 450 (Invoice number
ECT201) (VAT inclusive)

15/5 Took home R500 of inventory for personal use (Voucher no: JV2) (VAT
exclusive)

16/5 Purchased inventory with a cost of R2 875 on credit from Layla’s Lilies
(Invoice number 2654) (VAT inclusive)

18/5 Sold inventory on credit for R920 (VAT inclusive) to Royal Roses (Invoice
number: FP0436)

19/5 Tumi returned inventory with a cost price of R230 (VAT inclusive) to Layla’s
Lilies (Credit note number CN845)

29/5 Received her telephone bill from Telkom of R862.50 for the month of April
(VAT inclusive) (Invoice number VMC0413)

Record each of these transactions in the appropriate journals using the templates provided
below:

Creditors journal of Flower Power (Pty) Ltd – May 2018 CJ1

Sundries
Creditors VAT
Inv. No Date Details Folio control input Purchases Amount Details Folio
ECT201 10/5 Makro CL1 R3450 R450 R3000 R3450 Purchased Equipment AE01
2654 16/5 Layla’s Lilies- CL2 R2875 R375 R2500 R2875 Purchased Inventory AI01
VMC0413 29/5 Telkom CL3 R862.50 R112.50 R750 R862.50 Telephone bill ET01

R7187.
R7187.5 R937.5 R6250 5
(10 marks)

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Debtors journal of Flower Power (Pty) Ltd - May 2018 DJ1

Inv. No Date Details Folio Debtors control VAT output Sales

FP0436 18/5 Royal Roses D1 R920 R120 R800

R920 R120 R800

(4 marks)

Creditors allowances journal of Flower Power (Pty) Ltd - May 2018 CAJ1
Sundries
C/N Creditors VAT Purchases
No Date Details Folio control output returns Amount Details Folio
2654 1/5 Layla’s Lilies CL2 R230 R30 R200 R230 Inventory cr. return AI

R230 R30 R200 R230

(4 marks)

General journal of Flower Power (Pty) Ltd - May 2018 GJ1

Date Vch. Details (name of general ledger a/c) Folio Debit Credit
1/5 JVI Capital brought in equipment (Asset-) GL1 R10000
Capital Tumi (Equity) R10 000
15/5 JV2 Owner’s Drawings on inventory (Equity) GLE2 R500
Inventory taken per personal use (Asset) R500
18/5 FP0436 Inventory sold – (Asset) GL3 R920

(12 marks)

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