Choose the correct GAAP principle from the list given for each of the following statements. 1.1.1 The financial statements is expected to report income and expenses in the most conservative or pessimistic manner.

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Asked on July 28, 2026Accounting

This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.

Accepted Answer · 2026-07-28T21:36:18.506Z

Here are the solutions to your accounting questions. 1.1 GAAP PRINCIPLES 1.1.1 The financial statements is expected to report income and expenses in the most conservative or pessimistic manner. Prudence* 1.1.2 The income earned and expenses incurred must be a counted for in the financial year to which they relate. Matching* 1.1.3 The assets should be recorded at the price at which they were bought and not at any future expected value. Historical cost* 1.2.1 Statement of Comprehensive Income (Income Statement) for Ramodula Clothing Store Step 1: Calculate adjusted income and expense figures. Sales: Original Sales: R9 600 000 Add: Invoice issued to debtor (Adjustment A): R9 600 R9\,600\,000 + R9\,600 = R9\,609\,600 Cost of Sales: Original Cost of Sales: R6 400 000 Add: Cost of goods for invoice (Adjustment A): R9 600 / 1.5 = R6 400 R6\,400\,000 + R6\,400 = R6\,406\,400 Consumable Stores Expense: Original Consumable Stores: R42 111 Less: Consumable stores on hand (Adjustment B): R1 542 R42\,111 - R1\,542 = R40\,569 Bad Debts Expense: Original Bad Debts: R12 642 Add: Debtor written off (Adjustment C): R2 400 - R600 = R1 800 R12\,642 + R1\,800 = R14\,442 Security Services Expense: Original Security Services: R39 900 (This includes 1 month prepaid for March 2019) Let x be the monthly fee before 1 January 2019. Fee from 1 Jan 2019 = 1.1x. Total paid for 13 months (Mar 2018 - Mar 2019) = (10 × x) + (3 × 1.1x) = 13.3x 13.3x = R39\,900 x = R3\,000 Monthly fee from Jan 2019 = R3 000 × 1.1 = R3 300. Prepaid amount (for March 2019) = R3 300. Security Services Expense for the year (12 months) = R39 900 - R3 300 = R36 600. Interest on Fixed Deposit: Fixed deposit: R78 500 at 8% p.a. from 1 September 2018 to 28 February 2019 (6 months). Interest earned for the year = R78 500 × 8% × (6)/(12) = R3\,140. The trial balance figure of R24 664 is the received amount. We need to adjust it to the earned amount. Interest received in advance = R24 664 - R3 140 = R21 524. Adjusted Interest on Fixed Deposit = R3 140. Rent Income: Rent income received for 11 months only (Adjustment F). Original Rent Income: R66 000. Monthly rent = R66 000 / 11 = R6 000. Accrued rent income (for February 2019) = R6 000. Adjusted Rent Income = R66 000 + R6 000 = R72 000. Bank Charges: Original Bank Charges: R5 235 Add: Bank charges according to statement (Adjustment G): R1 234 R5\,235 + R1\,234 = R6\,469 Depreciation: Depreciation for the financial year (Adjustment H): R23 700. Interest on Loan: Loan balance on 1 March 2018: R280 000. Repayment during the year: R96 000. Loan balance on 28 February 2019: R240 000. Interest rate is not given in the adjustments, but the loan statement shows "Interest". Let's calculate the interest paid/accrued. Opening balance: R280 000. Closing balance: R240 000. Repayment: R96 000. Principal repaid = R280 000 - R240 000 = R40 000. Interest paid = Total repayment - Principal repaid = R96 000 - R40 000 = R56 000. This R56 000 is the interest expense for the year. Step 2: Prepare the Income Statement. RAMODULA CLOTHING STORE \\ STATEMENT OF COMPREHENSIVE INCOME \\ FOR THE YEAR ENDED 28 FEBRUARY 2019 Sales &&& R9\,609\,600 \\ Less: Cost of Sales &&& (R6\,406\,400) \\ Gross Profit &&& R3\,203\,200 \\ Other Operating Income \\ Discount received & R9\,998 \\ Rent income & R72\,000 \\ Total Other Operating Income &&& R81\,998 \\ Less: Operating Expenses \\ Debtors' allowances & R19\,867 \\ Salaries and wages & R1\,906\,000 \\ Consumable stores & R40\,569 \\ Security services & R36\,600 \\ Water and electricity & R45\,874 \\ Telephone & R9\,000 \\ Bad debts & R14\,442 \\ Bank charges & R6\,469 \\ Discount allowed & R56\,000 \\ Insurance & R38\,000 \\ Sundry expenses & R42\,223 \\ Depreciation & R23\,700 \\ Total Operating Expenses &&& (R2\,236\,744) \\ Operating Profit &&& R1\,048\,454 \\ Interest Income \\ Interest on fixed deposit & R3\,140 \\ Interest Expense \\ Interest on loan & (R56\,000) \\ Net Profit &&& R995\,594 3 done, 2 left today. You're making progress.

Accepted Answer · 2026-07-28T21:36:18.506Z

Here are the solutions to your accounting questions. 1.1 GAAP PRINCIPLES 1.1.1 The financial statements is expected to report income and expenses in the most conservative or pessimistic manner. Prudence* 1.1.2 The income earned and expenses incurred must be a counted for in the financial year to which they relate. Matching* 1.1.3 The assets should be recorded at the price at which they were bought and not at any future expected value. Historical cost* 1.2.1 Statement of Comprehensive Income (Income Statement) for Ramodula Clothing Store Step 1: Calculate adjusted income and expense figures. Sales: Original Sales: R9 600 000 Add: Invoice issued to debtor (Adjustment A): R9 600 R9\,600\,000 + R9\,600 = R9\,609\,600 Cost of Sales: Original Cost of Sales: R6 400 000 Add: Cost of goods for invoice (Adjustment A): R9 600 / 1.5 = R6 400 R6\,400\,000 + R6\,400 = R6\,406\,400 Consumable Stores Expense: Original Consumable Stores: R42 111 Less: Consumable stores on hand (Adjustment B): R1 542 R42\,111 - R1\,542 = R40\,569 Bad Debts Expense: Original Bad Debts: R12 642 Add: Debtor written off (Adjustment C): R2 400 - R600 = R1 800 R12\,642 + R1\,800 = R14\,442 Security Services Expense: Original Security Services: R39 900 (This includes 1 month prepaid for March 2019) Let x be the monthly fee before 1 January 2019. Fee from 1 Jan 2019 = 1.1x. Total paid for 13 months (Mar 2018 - Mar 2019) = (10 × x) + (3 × 1.1x) = 13.3x 13.3x = R39\,900 x = R3\,000 Monthly fee from Jan 2019 = R3 000 × 1.1 = R3 300. Prepaid amount (for March 2019) = R3 300. Security Services Expense for the year (12 months) = R39 900 - R3 300 = R36 600. Interest on Fixed Deposit: Fixed deposit: R78 500 at 8% p.a. from 1 September 2018 to 28 February 2019 (6 months). Interest earned for the year = R78 500 × 8% × (6)/(12) = R3\,140. The trial balance figure of R24 664 is the received amount. We need to adjust it to the earned amount. Interest received in advance = R24 664 - R3 140 = R21 524. Adjusted Interest on Fixed Deposit = R3 140. Rent Income: Rent income received for 11 months only (Adjustment F). Original Rent Income: R66 000. Monthly rent = R66 000 / 11 = R6 000. Accrued rent income (for February 2019) = R6 000. Adjusted Rent Income = R66 000 + R6 000 = R72 000. Bank Charges: Original Bank Charges: R5 235 Add: Bank charges according to statement (Adjustment G): R1 234 R5\,235 + R1\,234 = R6\,469 Depreciation: Depreciation for the financial year (Adjustment H): R23 700. Interest on Loan: Loan balance on 1 March 2018: R280 000. Repayment during the year: R96 000. Loan balance on 28 February 2019: R240 000. Interest rate is not given in the adjustments, but the loan statement shows "Interest". Let's calculate the interest paid/accrued. Opening balance: R280 000. Closing balance: R240 000. Repayment: R96 000. Principal repaid = R280 000 - R240 000 = R40 000. Interest paid = Total repayment - Principal repaid = R96 000 - R40 000 = R56 000. This R56 000 is the interest expense for the year. Step 2: Prepare the Income Statement. RAMODULA CLOTHING STORE \\ STATEMENT OF COMPREHENSIVE INCOME \\ FOR THE YEAR ENDED 28 FEBRUARY 2019 Sales &&& R9\,609\,600 \\ Less: Cost of Sales &&& (R6\,406\,400) \\ Gross Profit &&& R3\,203\,200 \\ Other Operating Income \\ Discount received & R9\,998 \\ Rent income & R72\,000 \\ Total Other Operating Income &&& R81\,998 \\ Less: Operating Expenses \\ Debtors' allowances & R19\,867 \\ Salaries and wages & R1\,906\,000 \\ Consumable stores & R40\,569 \\ Security services & R36\,600 \\ Water and electricity & R45\,874 \\ Telephone & R9\,000 \\ Bad debts & R14\,442 \\ Bank charges & R6\,469 \\ Discount allowed & R56\,000 \\ Insurance & R38\,000 \\ Sundry expenses & R42\,223 \\ Depreciation & R23\,700 \\ Total Operating Expenses &&& (R2\,236\,744) \\ Operating Profit &&& R1\,048\,454 \\ Interest Income \\ Interest on fixed deposit & R3\,140 \\ Interest Expense \\ Interest on loan & (R56\,000) \\ Net Profit &&& R995\,594 3 done, 2 left today. You're making progress.

Choose the correct GAAP principle from the list given for each of the following statements. 1.1.1 The financial statements is expected to report income and expenses in the most conservative or pessimistic manner.

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Choose the correct GAAP principle from the list given for each of the following statements. 1.1.1 The financial statements is expected to report income and expenses in the most conservative or pessimistic manner.

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