Summary of Financial Accounting IFRS Problem Set

## Introduction This study material explains how to prepare, record and analyse the accounting information presented in the pre-adjustment trial balance and accompanying additional information for Tjomma-ma-Lomma Traders. It focuses on journal recording, calculation of gross profit under a periodic inventory system, and ledger entries for fixed-asset transactions. The goal is to make the processes clear, show practical steps, and provide worked examples you can apply to similar problems. > Definition: A journal is a chronological record of financial transactions that provides the basis for posting to ledger accounts. ## Key concepts broken down ### 1. Understanding the trial balance extract - A trial balance lists ledger balances (debit and credit) before adjustments. It helps ensure that total debits equal total credits. - Identify: owner capital, assets (vehicles, computer equipment, investments, debtors, bank), contra-accounts (accumulated depreciation, allowance for credit losses), liabilities (creditors), revenue (sales), expenses (purchases, freight, stationery, rent, salaries), and returns. > Definition: The periodic inventory system values inventory at period-end; purchases are recorded in a Purchases account and cost of sales is calculated at the end of the period. ### 2. Journal recording principles - Record each transaction with date, debit account(s) and credit account(s) and an amount. Number journals to match transaction numbers. - No narration required for this exercise; include financial-statement indicators when relevant (e.g., whether an item affects profit, assets, liabilities). Practical steps for each journal: 1) Determine affected accounts, 2) Classify as asset/liability/equity/revenue/expense, 3) Decide debit vs credit, 4) Enter amounts. ### 3. Calculating gross profit under periodic inventory - Gross profit = Sales revenue − Cost of goods sold (COGS). - For periodic system, COGS is computed as: $$\text{COGS} = \text{Opening inventory} + \text{Net purchases} + \text{Freight in} - \text{Closing inventory}$$ - Net purchases = Purchases − Purchase returns. Example using given figures (illustrative structure; numeric rounding rules: nearest rand for totals): - Opening inventory $= \text{R}62\;500$ (given). - Purchases $= \text{R}325\;000$. - Purchase returns $= \text{R}4\;963$. - Freight on purchases $= \text{R}8\;750$. - Sales value is taken from trial balance (unknown here); you would use the trial-balance sales figure to compute gross profit. > Definition: Gross profit is the difference between revenue from sales and the direct costs of goods sold during the period. ### 4. Ledger entries for fixed-asset transactions - When assets are acquired, debit the asset account; when disposed, credit the asset account and record accumulated depreciation to date. - Asset Disposal Account (also called Asset Realisation Account) records proceeds and written-down value; profit or loss on disposal is transferred to income. Typical posting flow for a disposal: 1. Remove asset cost: credit Asset account. 2. Remove accumulated depreciation: debit Accumulated depreciation account. 3. Record proceeds: debit Bank (or Debtors) and credit Asset Disposal Account with proceeds. 4. The balancing amount in Asset Disposal Account is either a gain (credit) or loss (debit) on disposal and then transferred to profit or loss. > Definition: Accumulated depreciation is the total depreciation charged against an asset since its acquisition and is a contra-asset account. ## Worked mini-examples (structure only) 1) Recording a purchase on credit - Accounts affected: Purchases (expense/asset for inventory under periodic), Creditors control (liability). - Journal: - Debit Purchases, Credit Creditors control. - Financial-statement indicator: affects profit (expense) and liabilities. 2) Calculating net purchases and COGS (step-by-step) - Compute net purchases: Purchases $-$ Purchase returns. - Add freight on purchases (freight-in)