Question

The year-end of Mbuzana Traders, a business entity owned by Mr Zulu, is 31 December. On 1 January 2021, the statement received from the municipality showed that the company had overpaid by R2 500. Mbuzana Traders received electricity accounts for the four quarters starting 1 January 2021 and ending 31 December 2021 for R3 500, R3 570, R2 750 and R3 000 respectively. On 31 December 2021, the municipal account reflected a balance of R2 000 owing. Which one of the following alternatives represents the correct amount that must be disclosed as electricity expense in the statement of profit or loss and other comprehensive income of Mbuzana Traders for the year ended 31 December 2021?

a.R 8 500
b.R17 500
c.R13 500
d.R12 500
e.R17 320

Answer 1

The correct amount of electricity expense for Mbuzana Traders in the year ended 31 December 2021 is R13,320, after considering both the initial overpayment and the amount owing at year-end.

Step-by-step explanation:

You want to determine the correct amount of electricity expense to be disclosed in the statement of profit or loss and other comprehensive income for Mbuzana Traders for the year ended 31 December 2021. First, we add up the electricity accounts billed to the company throughout the year:

• R3,500 (Q1)
• R3,570 (Q2)
• R2,750 (Q3)
• R3,000 (Q4)

The total billed for the year is R13,820 (R3,500 + R3,570 + R2,750 + R3,000).

However, we must also consider the opening balance, which shows an overpayment of R2,500, and the closing balance, which indicates R2,000 still owing. These effect the total expense recognized in the period. The adjustment would be:

• Subtract the overpayment: R13,820 - R2,500 = R11,320
• Add the amount owing at the end of the year: R11,320 + R2,000 = R13,320

Therefore, the correct answer is R13,320, which should be reflected in the profit or loss statement. This is because the company had already made an overpayment which reduced the actual expense for the year, and the year-end balance owing increased the expense.