2. Objective test 2 In the following cases, which qualitative characteristics are not adhered to: -A sales invoice of R50 000 was not recorded. -A sales invoice of R50 000 was recorded as R5 000 sales. -Prior year sales figures are not presented in the financial statements.

3. Objective test 3 A sales invoice of R50 000 was not recorded. - Faithful presentation (completeness)

4. Objective test 4 A sales invoice of R50 000 was recorded as R5 000 sales. - Faithful presentation (free from error)

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

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

7. 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

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

9. Example 9 Profit for the year of ABC Entity is R50 000. 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.

10. 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

11. Depreciation 11 Purchase a vehicle on 1 Jan 20x2 for R50 000. 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?

12. Depreciation 12 Cost: R50 000 R10K Year 1 Year 2 Year 3 Year 4 Year 5 Asset: Future economi c benefits Depreciate : How do we recover the FEBs?

13. Depreciation 13 Purchase a vehicle on 1 Jan 20x2 for R50 000. 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.

14. 1 Jan 20x2 14 DrCr 1 Jan Dr Vehicles (SFP)50 000 Cr Bank (SFP) 50 000 Recognise the purchase of vehicle Assets=Liabilities+EquityClassification + 50 000 - 50 000 =0+ 0

15. 31 March 20x2 15 DrCr 31 March Dr Depreciation (P&L) 2 500 Cr Accumulated depreciation on vehicles (SFP) 2 500 Recognition of depreciation expense on vehicles (R50 000 x 1/5 x 3/12) Assets=Liabilities+EquityClassification - 2 500=0+ RE (Expense)

16. 31 March 20x3, 20x4, 20x5, 20x6 16 DrCr 31 March Dr Depreciation (P&L) 10 000 Cr Accumulated depreciation on vehicles (SFP) 10 000 Recognition of depreciation expense on vehicles (R50 000 x 1/5) Assets=Liabilities+EquityClassification - 10 000=0+ RE (Expense)

17. 31 March 20x7 (vehicle fully depreciated by 31 Dec 20x6) 17 DrCr 31 March Dr Depreciation (P&L) 7 500 Cr Accumulated depreciation on vehicles (SFP) 7 500 Recognition of depreciation expense on vehicles (R50 000 x 1/5 x 9/12) Assets=Liabilities+EquityClassification - 7 500=0+ RE (Expense)

18. 18 Accumulated depreciation: Vehicles 31/3 20x2Depreciation 2 500 20x3Depreciation 10 000 20x4Depreciation 10 000 20x5Depreciation 10 000 20x6Depreciation 10 000 20x7 Depreciation 7 500 50 000

19. Carrying value 19 31 March 20x2 50 000 – 2 500 = 47 500 31 March 20x3 50 000 – 2 500 – 10 000 = 37 500 31 March 20x4 50 000 – 2 500 – 10 000 – 10 000 = 27 500

20. Carrying value 20 31 March 20x5 50 000 – 2 500 – 10 000 – 10 000 – 10 000 = 17 500 31 March 20x6 50 000 – 2 500 – 10 000 – 10 000 – 10 000 - 10 000 = 7 500

21. Carrying value 21 31 March 20x7 50 000 – 2 500 – 10 000 – 10 000 – 10 000 - 10 000 – 7 500 = 0

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

23. 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)?

24. 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: R90 000 (R1m x 9/100 x 12/12)

25. 31 Dec 20x6 25 DrCr 31 Dec Dr Interest expense (P&L) 90 000 Cr Loan: Bank (SFP) 90 000 Recognition of interest expense (R1m x 9% x 12/12) Assets=Liabilities+EquityClassification 0=+90 000+ - 90 000 RE (Expense)

26. 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: R22 500 (R1m x 9/100 x 3/12)

27. 31 Dec 20x6 27 DrCr 31 Dec Dr Interest expense (P&L) 22 500 Cr Loan: Bank (SFP) 22 500 Recognition of interest expense (R1m x 9% x 3/12) Assets=Liabilities+EquityClassification 0=+22 500+ - 22 500 RE (Expense)

28. Interest received 28 1 January 20x6: Invest R500 000 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: R25 000 (R500 000 x 5/100 x 12/12)

29. 01 Jan 20x6 29 DrCr 01 Jan Dr Investment: B Bank (SFP) 500 000 Cr Bank (SFP) 500 000 Recognition of investment made in B Bank Assets=Liabilities+EquityClassification +500 000 -500 000 =0+ 0

30. 31 Dec 20x6 30 DrCr 31 Dec Dr Investment: B Bank (SFP) 25 000 Cr Interest income (P/L) 25 000 Recognition of interest income (R500 000 x 5/100 x 12/12) Assets= Liabiliti es +EquityClassification +25 000=0+ RE (Income)

31. Interest received 31 1 October 20x6: Invest R500 000 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 (R500 000 x 5/100 x 3/12)

32. 31 Dec 20x6 32 DrCr 31 Dec Dr Investment: B Bank (SFP) 6 250 Cr Interest income (P/L) 6 250 Recognition of interest income (R500 000 x 5/100 x 3/12) Assets= Liabiliti es +EquityClassification +6 250=0+ RE (Income)

33. 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