Joel Amupolo, and his business partners Mr. Goabeb and Mrs. Paulus, former classmates and alumnus of NUST, are very proud of their business — Oshiweb Chicken Feeds (Pty) Ltd (OCF hereafter). The company owns chicken feeds factory situated in Oshakati, and was incorporated on 01 January 2010. Their business has grown tremendously over the last few years. They recently appointed a new financial accountant in their team, Ms. Sherry Leonard, a close relative of Mr. Goabeb who graduated top of NUST bachelor of accounting programme in April 2018.
Ms. Leonard requires your assistance with the following matters which arose during the financial year ended 31 December 2018:
- Payroll queries
Ms. Leonard did her internship at one of the big four auditing firms in Windhoek for three months. After graduating she worked for a printing company in Walvis Bay for the last few months before joining OCF in early December 2018, but she doesn’t have any direct experience in accounting for payroll related transactions. This is because she was never assigned that section of the audit during her time at the audit firm or at the printing company. Her OCF accounting team had not processed any payroll entries for the month of December. On 5 January 2019, she reviewed the OCF’s electronic bank statement and identified the following payments made:
| Date | Description | Note | Amount N$ |
| 25 December 2018 | Various payments made directly to employees | 3,405,600 | |
| 25 December 2018 | OCF Defined benefit plan | i | 167,000 |
| 31 December 2018 | Receiver of revenue: Income- tax | 1,259,384 | |
| 31 December 2018 | Unemployment insurance fund (UIF) | ii | 64,300 |
| 03 January 2019 | Alexander Forbes | iii | 395,800 |
| 03 January 2019 | Discovery Medical Holdings | iv | 313,000 |
Notes:
- Only senior executives qualify for membership to the OCF Defined benefit plan, and the contributions to the fund are made by OCF. It forms part of the executive’s total cost to
- Unemployment insurance fund (UIF) contributions are statutory contributions to a government administered insurance fund that both the employer and the employee are required to contribute to in equal parts, and is calculated with reference to gross salaries (i.e. 50:50 contribution).
- Employees may elect to contribute up to 12% of the gross salaries to the Alexander Forbes provident fund (a post-employment defined contribution retirement fund). OCF does not contribute to this fund
- The payment to Discovery Medical Holdings in respect of medical aid contributions comprises: N$200,000 employer contributions, N$110 000 employee contributions and N$3 000 employee contributions for the Vitality benefit offered by Discovery to its
Leave pay
Ms. Leonard received a summary report in respect of employees’ leave balances from the Human Resources department on 31 December 2018.
The summary report has been included as Annexure A.
REQUIRED:
(a) Assist Ms. Leonard by preparing the journal entries which she will need to process to record the payroll for the month ended 31 December 2018 to the extent that the information provided allows you to do.
- Round all workings to the nearest N$ in your calculations and journals
- Include relevant amounts and calculations where necessary as marks will be awarded for
- Include journal narrations.
- Clearly indicate where an account is situated in the financial statements, i.e. statement of financial position (SFP); profit or loss (SP/L); other comprehensive income (SOLI); or statement of changes in equity (SCE)
- Where effective and efficient communication: narrations; correct statements are indicated, a mark will be awarded
(11 marks)
(b) Calculate the amount of leave pay which should be accrued and/or provided for by Oshiweb Chicken Feeds (Pty) Ltd (OCF) in respect of the outstanding leave balances for the year ended 31 December2018.
- Round all workings to the nearest N$
- Include all calculations as marks will be awarded for them.
- Effective and efficient communication: structured calculations; easy to follow thought process will be awarded a mark
(14 marks)
Annexure A – Summary report: OCF leave balances at 31 DECEMBER 2018
| Salary band (employment level | Number of employee on salary band | Leave entitlement per employee (days) | Leave balance for level per employee (days) | Accumulating? | Vesting? | Average annual gross salary at 31 December2018 | Average annual cost to company at 31 December2018 | Expected increases: 2018 |
| Executive | 3 | 30 | 7 | Yes | Yes | N$550,000 | N$650,000 | 3% |
| Management | 4 | 20 | 5 | Yes | No | N$300,000 | N$350,000 | 4% |
| Admin | 7 | 20 | 3 | No | Yes | N$175,000 | N$200,000 | 5% |
| Factory | 20 | 15 | 1 | No | No | N$80,000 | N$100,000 | 5% |
- All employees work for 5 days a week; that is 260 days per annum
- Where leave accumulates, it accumulates for a maximum of one year.
- Vested leave is paid out in the first month of the new financial year.
- Average sick leave balance per employee: 25 days
1 Answer