please sir assist in the following question

The following information appeared in the books of Pluto Super Stores.
Trial balance of Pluto Super Stores on 29 February 2012
Details Debit Credit
Capital 70 390
Equipment (cost) 95 600
Provision for depreciation on Equipment 15 600
Vehicle (cost) 187 000
Provision for depreciation on Vehicles 20 000
Trade receivables 16 200
Provision for doubtful debts 1 500
Inventory 1 March 2011 25 800
Loan: Sanlam Building society (20% p.a) 65 000
Sales 932 600
Purchases 620 000
Returns inwards 2 600
Returns outwards 2 500
Rent Income 23 000
Interest on loan 4 500
Salaries 157 300
Discount allowed 1 680
Bad debts 1 800
Bad debts recovered 900
Advertising 18 000
Donations 1 010
Total 1 131 490 1 131 490
Page 12 of 12
Additional information
1. Inventory on 29 February 2012, N$24 600.
2. Sales of goods on credit for F. Oupa, N$10 000 was omitted from the books.
3. S Shippiki who owes Pluto Super Stores N$1 200 is insolvent. Her estate pays
20c in the dollar and the rest is to be written off as bad debts.
4. The provision of doubtful debts is to be adjusted to 5% of the remaining debtors.
5. The loan was increased on 1 December 2011 by N$15 000 to N$65 000. On 29
February 2012, there was still interest outstanding on the loan.
6. The rent income for the first 6 months was N$2 000 per month. The rent income
increased by 10% p.a on 1 September 2011.
7. Pluto Super Stores signed an advertising contract for N$18 000 with the NBC to
screen twelve advertising flashes – one per month. The amount of N$18 000 was
paid on 1 October 2011. The first flash has been screened in the same month.
8. Depreciation is charged on vehicles at 20%p.a on cost and on equipment at 15%
reducing balance method. Depreciation is charged on a monthly basis. New
equipment, N$25 000, was bought on 1 November 2011.
a) Prepare the statement of comprehensive income for the year ended 29 February 2012. (25
b) Explain the concept that was applied in adjustment no. 5. Explain the effect on applying the
concept in the statement of comprehensive income for the year ended 29 February 2012. (4
c) The owner of Pluto Super Stores tells you that a friend promises to buy goods to the value
of N$20 000 from the store. This transaction cannot be recorded in the books of the
business. Name the principle being applied, and explain why the transaction cannot be
recorded (5 Marks)

asked Mar 5, 2017 in Trial Balance, Profit & Loss Account and Balance Sheet by Todd (14 points) 795 views

1 Answer

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Please find the solution on the link
Matching Concept has been applied to adjustment No.5.  According to this concept all the expenses which have been spent on earning the revenues during the year should be matched against the revenue.  Since an amount of Rs.6250 has not been paid but pertains to this year, should be brought into account this year.
Revenue Recognisation Principle: According to this principle, revenue is recognised only when the amount becomes legally payable to the business.  Since it is only a promise, nothing has been purchased, it cannot be recorded in the books of accounts.
answered Mar 15, 2017 by jbsclasses (3,971 points)