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Exam 5 May 2011, answers

Financial Accounting for Companies (University of South Africa)

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FAC2601 – MAY/ JUNE 2011

Question 1

One shot Ltd

Statement of comprehensive income for the year ended 28 February 2011

Note R
Revenue (20 520 000 / 1.14) 18 000 000
Cost of sales *(10 800 000)
Gross profit (18 000 000 x 40%) 7 200 000
Other income (40 000 + 3 600 + 1 600 + 5 000 + 13 000 ) 63 200
Distribution expenses (107 200)
Administrative expenses (6 776 400 – 27 600 – 32 000) (6 716 800)
Other expenses (8 000)
Finance costs (27 600 + 32 000 + 22 500 (C3)) (82 100)
Profit before tax 1 349 100
Income tax expense 2 ( 76 000)
Profit for the year 273 100
Other comprehensive income 816 000
Gain on available for sale financial assets (80 000 – 64 000) 16 000
Gains on property revaluation (600 000 + 200 000) 800 000
Total comprehensive income for the year 1 089 100

1. Notes to the statement of comprehensive income

1. Profit before tax

Revenue
Revenue consists of sales to customers and excludes vat 18 000 000

Income from subsidiary

Interest received 5 000

Fair value adjustment 40 000

Profit on sale of vehicle 13 000
Income from other financial assets
Listed investments – held at fair value through profit and loss
Dividends received 3 600

Unlisted investment – available for sale

Dividends received 1 600

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Expenses

Directors remuneration
Executive directors 14 000
Emoluments (13 600 + 7 200 + 8 000 + 280 000 + (280 000 x 5%) 322 800
Less: paid by subsidiary ( 8 000)
Total paid by company 314 800
Non – executive directors
Emoluments 7 200

Auditors remuneration
Audit fees (9000 - 4200) 4 800
Travel expenses 4 200

Depreciation (58 000 + 48 000 + 40 000) 146 000

2. Income tax expense

SA normal tax
Current year 76 000

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Question 2

One Shot Ltd

Note R
Statement of financial position at 28 February 2011
Assets
Non- current assets 3 461 000
Property plant and equipment 1 3 201 000
Investment in subsidiary 2 180 000
Available for sale financial asset 3 80 000

Current assets 963 000

Other financial assets 3 200 000
Trade receivables 3 190 000
Inventory 4 540 000
Cash and cash equivalents 33 000

Total assets 4 424 000

Notes to the statement of financial position

1. Property, plant and equipment

Land Buildings Delivery Machinery Total

vehicle and
equipment
Carrying amount – 1 March 2010 200 000 - 70 000 200 000
Cost 200 000 - 140 000 320 000
Accumulated depreciation - - (70 000) (120 000)

Additions at cost - 1 800 000 340 000

Revaluation during the year 200 000 600 000
Depreciation for the year (48 000) (58 000) (40 000)
Disposals at carrying amount (63 000)

Carrying amount – 28 February 400 000 2 352 000 289 000 160 000 3 201 000
2011
Cost 400 000 2 400 000 340 000 320 000
Accumulated depreciation - (48 000) (51 000) (160 000)

Land and buildings are owner occupied, situated on Erf 90, Riviera. The land and buildings
were revalued on the 31 August 2010 by Mr Smit, a sworn appraiser according to the gross
replacement basis.

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2. Investment in subsidiary

Shares at cost 120 000

Loan to subsidiary 60 000
180 000

3. Other financial assets

Non- current financial assets

Available for sale financial asset
800 ordinary shares in Cringe (Pty) Ltd at directors’ valuation 80 000

Current financial assets

Trade receivables 172 000
Loans to personnel 18 000
190 000
Listed investments – held at fair value through profit and loss
4 000 ordinary shares in Babe Ltd at fair value 200 000

4. Inventory

Inventory consists of:

Raw material 16 000

Finished goods 484 000
Work in progress 40 000
540 000

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Question 3

One shot Ltd

Note
Equity and liabilities 4 396 000

Share capital 5 3 070 000

Retained earnings 710 000
Other components of equity 616 000

Non – current liabilities

Interest bearing borrowings 7 550 000

Current liabilities 759 100

SARS – vat output ( 2 520 000 – 2 020 000) 500 000

Current portion of long term loan 7 50 000
SARS (76 000 – 32 400) 43 600
Trade and other payables (22 500 + 143 000) 165 500

Total equity and liabilities 5 705 100

Notes to the statement of financial position

5.

Share capital
Authorised
1 600 000 ordinary shares of R2 each
200 000 10% non - cumulative preference shares of R5 each
100 000 12% cumulative preference shares of R4 each

Issued 3 070 000

1 300 000 ordinary shares of R2 each 2 620 000
54 000 10% non - cumulative preference shares of R5 each 270 000
45 000 12% cumulative preference shares of R4 each 180 000

5. Other components of equity

Non – distributable reserves

Revaluation surplus 800 000
Distributable reserves
Mark to market reserve 16 000
816 000

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6.

Interest bearing borrowings

Secured
12% debentures 400 000

Unsecured loan 150 000

Long term portion 200 000
Less: current portion (50 000)

550 000

The debentures are secured by a first mortgage bond over land and
buildings and are redeemable on 31 March 2014

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Question 4 (only for students that registered in 2011)

4.1

a) Amortisation table

Date Pmt Capital Interest O/S Bal

01/07/2007 360,000
31/12/2007 70,000 30,328 39,672 329,672
30/06/2008 70,000 33,670 36,330 296,002
31/12/2008 70,000 37,381 32,619 258,621
30/06/2009 70,000 41,500 28,500 217,121
31/12/2009 70,000 46,073 23,927 171,048
30/06/2010 70,000 51,151 18,849 119,898
31/12/2010 70,000 56,787 13,213 63,110

30/06/2011 70,000 63,110 6,890 0

b) Journal entries

Date Description Debit Credit

01/07/2007 Machine @ Cost (SOFP) 360,000

Finance lease liability (SOFP) 360,000

31/12/2007 Finance lease liability (SOFP) 30,328

Finance charges (SOCI) 39,672

Bank 70,000

30/06/2008 Finance lease liability (SOFP) 33,670

Finance charges (SOCI) 36,330

Bank 70,000

30/06/2008 Depreciation (SOCI) 72,000

Accumulated depreciation (SOFP) 72,000

[360 000 / 5 years]

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4.2) (Only for students that wrote supplementary exam)

One shot Ltd

Statement of changes in equity for the year ended 28 February 2011

Ordinary 10% non – 12% Retained Mark to Revaluation Total

share cumulative cumulative earnings market surplus
capital preference preference reserve
share share
capital capital
Balance – 1 March 2010 2 000 000 220 000 180 000 787 600 - -
Total comprehensive income for the year 273 100 16 000 600 000
Capitalisation issue 200 000 (200 000)
Ordinary shares issued 420 000
10% non – cumulative preference shares 50 000
issued (10 000 x 5)
Share issue expenses written off (12 000)
Preliminary expenses written off (6 000)
Dividends paid
Ordinary dividends (65 000)
10% non – cumulative preference (24 500)
dividends
12% cumulative preference dividends (43 200)

Balance – 28 February 2011 2 620 000 270 000 180 000 710 000 16 000 600 000

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