Objective test 2 In the following cases, which qualitative characteristics are not adhered to: -A sales invoice of R was not recorded. -A sales invoice of R was recorded as R5 000 sales. -Prior year sales figures are not presented in the financial statements.

Objective test 3 A sales invoice of R was not recorded. - Faithful presentation (completeness)

Objective test 4 A sales invoice of R was recorded as R5 000 sales. - Faithful presentation (free from error)

Objective test 5 Prior year sales figures are not presented in the financial statements. - Comparability

FUNDAMENTAL Qualitative characteristics 6 -Relevance - Materiality -Faithful presentation - Complete - Neutral - Free from error

Materiality 7 Information is seen to be material if the omission or misstatement there- of could have an influence on the decisions users make based on the information

ENHANCING Qualitative characteristics 8 -Comparable -Verifiable -Timely -Understandable

Example 9 Profit for the year of ABC Entity is R Explain whether the following errors are material or not: -Water and electricity expense of R100 was recorded as R10. -Water and electricity for the whole year (R10 000) was omitted from the statement of profit and loss.

Depreciation 10 Definition (Chapter 12): Recognising over the estimated useful life of an asset, the cost of an asset as an expense. DrDepreciation (P&L)xxx CrAccumulated depreciation (SFP) xxx

Depreciation 11 Purchase a vehicle on 1 Jan 20x2 for R Depreciation is written off on the straight-line basis over the estimated useful life of the vehicle (5 years). -How much depreciation will be written off each year assuming the reporting period ends on 31 December?

Depreciation 12 Cost: R R10K Year 1 Year 2 Year 3 Year 4 Year 5 Asset: Future economi c benefits Depreciate : How do we recover the FEBs?

Depreciation 13 Purchase a vehicle on 1 Jan 20x2 for R Depreciation is written off on the straight-line basis over the estimated useful life of the vehicle (5 years). -How much depreciation if the reporting period ends on 31 March 20x2? -Calculate CV on 31 March 20x2, 20x3, 20x4 etc.

1 Jan 20x2 14 DrCr 1 Jan Dr Vehicles (SFP) Cr Bank (SFP) Recognise the purchase of vehicle Assets=Liabilities+EquityClassification =0+ 0

31 March 20x2 15 DrCr 31 March Dr Depreciation (P&L) Cr Accumulated depreciation on vehicles (SFP) Recognition of depreciation expense on vehicles (R x 1/5 x 3/12) Assets=Liabilities+EquityClassification =0+ RE (Expense)

31 March 20x3, 20x4, 20x5, 20x6 16 DrCr 31 March Dr Depreciation (P&L) Cr Accumulated depreciation on vehicles (SFP) Recognition of depreciation expense on vehicles (R x 1/5) Assets=Liabilities+EquityClassification =0+ RE (Expense)

31 March 20x7 (vehicle fully depreciated by 31 Dec 20x6) 17 DrCr 31 March Dr Depreciation (P&L) Cr Accumulated depreciation on vehicles (SFP) Recognition of depreciation expense on vehicles (R x 1/5 x 9/12) Assets=Liabilities+EquityClassification =0+ RE (Expense)

18 Accumulated depreciation: Vehicles 31/3 20x2Depreciation x3Depreciation x4Depreciation x5Depreciation x6Depreciation x7 Depreciation

Carrying value March 20x – = March 20x – – = March 20x – – – =

Carrying value March 20x – – – – = March 20x – – – – = 7 500

Carrying value March 20x – – – – – = 0

The accounting equation 22 Assets=Equity+Liabilities DRCRDRCRDRCR Income CR Expenses DR

Interest paid 23 1 January 20x6: Borrow R1 million from the bank at 9% interest per year (simple interest). How much interest do we owe the bank on 31 Dec (year-end)?

Interest paid 24 1 January 20x6: Borrow R1 million from the bank at 9% interest per year (simple interest). How much interest do we owe the bank on 31 Dec (year-end)? Answer: R (R1m x 9/100 x 12/12)

31 Dec 20x6 25 DrCr 31 Dec Dr Interest expense (P&L) Cr Loan: Bank (SFP) Recognition of interest expense (R1m x 9% x 12/12) Assets=Liabilities+EquityClassification 0= RE (Expense)

Interest paid 26 1 October 20x6: Borrow R1 million from the bank at 9% interest per year (simple interest). How much interest do we owe the bank on 31 Dec (year-end)? Answer: R (R1m x 9/100 x 3/12)

31 Dec 20x6 27 DrCr 31 Dec Dr Interest expense (P&L) Cr Loan: Bank (SFP) Recognition of interest expense (R1m x 9% x 3/12) Assets=Liabilities+EquityClassification 0= RE (Expense)

Interest received 28 1 January 20x6: Invest R with B Bank at 5% interest per year (simple interest). How much interest do we earn from the bank on 31 Dec (year-end)? Answer: R (R x 5/100 x 12/12)

01 Jan 20x6 29 DrCr 01 Jan Dr Investment: B Bank (SFP) Cr Bank (SFP) Recognition of investment made in B Bank Assets=Liabilities+EquityClassification =0+ 0

31 Dec 20x6 30 DrCr 31 Dec Dr Investment: B Bank (SFP) Cr Interest income (P/L) Recognition of interest income (R x 5/100 x 12/12) Assets= Liabiliti es +EquityClassification =0+ RE (Income)

Interest received 31 1 October 20x6: Invest R with B Bank at 5% interest per year (simple interest). How much interest do we earn from the bank on 31 Dec (year-end)? Answer: R6 250 (R x 5/100 x 3/12)

31 Dec 20x6 32 DrCr 31 Dec Dr Investment: B Bank (SFP) Cr Interest income (P/L) Recognition of interest income (R x 5/100 x 3/12) Assets= Liabiliti es +EquityClassification =0+ RE (Income)

Sundry items 33 -Dividends not an expense -Owner makes land & buildings available to entity (Jnl?) Dr Landxxx Dr Buildingsxxx Cr Capitalxxx -Naming references of accounts