Accounting 100 QB14.
8_2023 (2017 AO4)
QUESTION 8 (35 MARKS)
Perfect Pixie Entity is a pet fashion and accessories brand selling high end products to wholesalers
and to retail customers. Perfect Pixie Entity’s reporting period ends on 30 June, and they make use
of the periodic inventory system. Perfect Pixie Entity and all their suppliers are VAT vendors
according to the VAT Act and VAT is calculated at 15%.
Perfect Pixie Entity applies a gross profit percentage of 30% on cost price. However for the month
of June 20.17 Perfect Pixie Entity sold their goods at a 10% discount on sales price.
The following is an extract out of the trial balance for 1 July 20.16 to 31 May 20.17 and relates to
trade inventory of Perfect Pixie Entity:
R R
Date of balance
Dr Cr
Trade inventory 31 June 20.16 750 000
Sales 30 May 20.17 16 653 000
Purchases 30 May 20.17 14 500 000
Returns (out) 30 May 20.17 850 000
Freight (in) 30 May 20.17 51 000
Freight (out) 30 May 20.17 47 000
The following transactions took place during the month of June 20.17 and have not yet been
recognised in the accounting records of Perfect Pixie Entity:
1. Perfect Pixie Entity sold inventory on credit to Dogbox on 15 June 20.17 and issued sales
invoice #10045A for R2 421 900.
2. On 18 June 20.17 Perfect Pixie Entity bought inventory from Stylish Woof for an invoice price of
R690 000. The goods were delivered to the premises of Perfect Pixie Entity on 20 June 20.17.
3. Upon inspection of the goods bought, it was determined that some of the items were not
according to specification and goods with an invoice price of R345 000 were returned on 22
June 20.17, before payment was made. Stylish Woof issued a credit note on the same day.
4. On the evening of 30 June 20.17 there was a break-in at the store. On the morning of 1 July
20.17, after a detailed inspection of the inventory, the following was noted:
a. Inventory with a cost of R36 000 was still on hand after the theft.
b. Perfect Pixie Entity’s trade inventory is insured for R115 000. The insurer has not yet
confirmed if they will be paying an insurance compensation.
5. It was reliably estimated that the inventory on hand can only be sold for an expected value of
R24 000 (excl. VAT).
Accounting 100 QB14.8_2023 (2017 AO4)
REQUIRED:
a) Calculate the insurance compensation that Perfect Pixie Entity can expect to receive
from their insurer for the theft of their inventories in the event that the insurer agrees
to the claim. (10)
b) Prepare the journal entries to recognise the above transactions as well as the closing
off journal entries using the periodic inventory system for the year ended 30 June
20.17. (Closing off to the Profit or Loss and Retained Earnings accounts is not
required). (25)
Note:
Round calculated amounts to the nearest Rand where applicable.
Round percentages to the nearest percentage (%) where applicable.
Accounting 100 QB14.8_2023 (2017 AO4)
QUESTION 8 (SUGGESTED SOLUTION)
a) Value of insurance claim (10 MARKS)
i. Value of inventory before theft
Opening inventories R750 000
Purchases 14 001 000
Purchases R14 500 000
Purchases (R690000 x 100/115) 600 000
Returns (out) (850 000)
Returns (out) (R344 000 x 100/115) (300 000)
Freight (in) 51 000
Total purchases 14 001 000
Closing inventories (balancing figure) (141 000)
Cost of sales 14 610 000
Sales: 1 July 20.16 – 31 May 20.17
12 810 000
R16 653 000 x 100/130
Sales: June 20.17: R2 421 900 x
1 800 000
100/115 x 100/90 x 100/130
14 610 000
ii. Value of insurance claim
Closing trade inventories at the time of the event (R141 000) > insured amount
(R100 000) – therefore average clause does apply
Insured amount Cost of inventories stolen
x
Cost of inventories at the time of theft 1
R100 000 R141 000 – R36 000
x
R141 000 1
= R74 468 (3c) x 1.15
= R85 638 (4c)
Accounting 100 QB14.8_2023 (2017 AO4)
b) Journals on the periodic inventory system (25 marks)
Note: To earn a mark in the journal, both the accounts and the amount have to be correct. if
there is no journal narration -1 mark, if the classification is not provided or is incorrect -1 mark,
and if no indication of the account -1 mark.
20.17 Dr Cr
15 Jun Receivable: Dogbox (SFP) 2 421 900
Sales (P/L) 2 106 000
VAT output (SFP) 315 900
Recognise credit sales of inventories during June
20.17
20.17 Dr Cr
20 Jun Purchases (P/L) 600 000
VAT input (SFP) 90 000
Payable: Stylish Woof (SFP) 690 000
Recognise purchase of inventories during June
20.17
20.17 Dr Cr
22 Jun Payable: Stylish Woof (SFP) 345 000
Returns (out) (SFP) 300 000
VAT input (SFP) 45 000
Recognise returns (out) of inventories during June
20.17
20.17 Dr Cr
30 Jun Loss due to inventory theft (P/L) 105 000
Purchases (P/L) 105 000
Recognize the loss of inventories due to theft
R141 000 (p)– R36 000
20.17 Dr Cr
30 Jun Cost of sales (P/L) 750 000
Trade Inventories (SFP) 750 000
Close off the opening inventories by transferring the
asset inventories opening balance to cost of sales
expense
20.17 Dr Cr
30 Jun Cost of sales (P/L) 105 000 p
Loss due to inventory theft (P/L) 105 000 p
Close off the loss against cost of sales
Accounting 100 QB14.8_2023 (2017 AO4)
20.17 Dr Cr
30 Jun Returns (out) (P/L) 1 150 000
Purchases (P/L) 1 150 000
Close off returns (out) against purchases
850 000 + 300 000
20.17 Dr Cr
30 Jun Purchases (P/L) 51 000
Freight (in) (P/L) 51 000
Close off freight (in) against purchases
20.17 Dr Cr
30 Jun Cost of sales (P/L) 13 896 000
Purchases (P/L) 13 896 000
Close off purchases against cost of sales
14 500 000 + 600 000 – 105 000 – 1 150 000 +
51 000
20.17 Dr Cr
30 Jun Trade inventories (SFP) 36 000
Cost of sales (P/L) 36 000
Recognise closing inventories by transferring a
portion of the expense cost of sales to the asset
inventories
20.17 Dr Cr
30 Jun Loss due to write down of inventories to NRV (P/L) 12 000
Trade inventories (SFP) 12 000
Recognise the write-down of the cost of certain
inventory items to the net realisable value thereof
20.17 Dr Cr
30 Jun Cost of sales (P/L) 12 000
Loss due to write down of inventories to NRV
12 000
(P/L)
Close off loss due to write down of inventories to
NRV to cost of sales
