UNIVERSITY EXAMINATIONS. UNIVERSITEITSEKSAMENS. UNISA fe FAC2602 ‘October/November 2014 SELECTED ACCOUNTING STANDARDS AND SIMPLE GROUP STRUCTURES Duraton 2 Hours 400 Marks EXAMINATION PANEL AS APPOINTED BY THE DEPARTMENT Use of a non-programmable pocket calculator 1s permissible Closed book examination This examination question paper remains the property of the University of South Africa and may not be removed from the examination venue This paper consists of EIGHT (8) pages. ASE 1 This paper consists of THREE (3) questions 2 All questions must be answered 3 Basic workings, where applicable, must be shown 4. Ensure that you are handed the correct examination answer book (blue colour for Accounting) by the invigilator 5 — Each question attempted must be commenced on a new (separate) page 6 PROPOSED TIMETABLE ‘Question | ae Time in | number Subject t ___| Marks _| minutes | 1 \Group financial statements 45 54 2 |Group financial statements - journals 26 31 3 Statement of cash flows 29 35 100 1202 FAC2602 OCTINOV 2014 QUESTION 14 (45 marks) (54 minutes) Carson Ltd and Bates Ltd are part of a group of companies Both companies manufacture household equipment The following represent extracts from the financial statements of Carson Ltd and its subsidiary Bates Lid STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 2014 Carson Bates Ltd Ltd R R Assets Property at fair value 2000000 1500000 Machineryat carrying amount 500000 300000 Plant at carrying amount 1200000 800.000 Investment in Bates Ltd at farr value ~ 240 000 ordinary shares (cost pnce R1 300 000) 1.300 000 tt ~ 25 000 10% cumulative preference shares (cost pnce R40 000) 40 000 - Inventory 300 000 500 000 ‘Trade and other receivables 484 000 1.340 000 Bank ~ City Bank 200 000 6024000 “4440 600 Equity and liabilities ‘Share capital - Ordinary shares {200 000/300 000 shares) 400 000 500 000 ~ 10% Cumulative preference shares (100 000 shares) + 100 000 Revaluation surplus 800 000 450 000 Retained earrungs 3.340000 2.800 000 Trade and other payables 1 484 000 570 000 Bank overdraft ~ City Bank 20.000 6024000 “4440 000 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2014 Retained Retained eamings earnings Carson Bates Ltd Ute R R Balance at 1 November 2013 2048000 1 $45 000 Changes in equity for 2014 Total comprehensive income for the year Profi for the year 1372000 1.365000 Dividend paid. ‘Ordinary (80.000) (50.000) Preterence (60 000) Balance at 31 October 2014 T3000 “2800 000 [TURN OVER]3 FAC2602 OCTINOV 2014 QUESTION 1 (continued) Additional information 1 Acquisition at formation Carson Ltd acquired its interest in Bates Ltd on 1 November 2010. On this date the retained earnings of Bates Lid amounted to R850 000, ‘On the same day a property of Bates Ltd, which had a carrying amount of R300 000, was valued at 550000 This revaluation was recorded in the financial records of Bates Ltd It 1s the policy of the group to revalue property every two years The only other revaluation occurred on 31 October 2012 Thereafter the value remained unchanged unbi 31 October2014, Since 1 November 2010, Bates Lid has not purchased or sold any property At date of acquisition, consider the carrying amounts of all the other assets and liabilities, of Bates Ltd to be equal to the fair values thereof No dividend was declared or paid by Bates Ltd during the period 1 November 2008 to 31 October 2013 ‘Assume each ordinary share carnes one vote and that voting rights alone determine control Furthermore, it 1s also group policy to disclose goodwill at cost less impairment in the consolidated financial statements Goodwill was not impaired dunng the current year The parent guarantees the overdraft of the subsidiary's bank account Intragroup transactions Since 1 November 2010, Carson Ltd purchases all ts inventones from Bates Lid at the regular selling price determined by Bates Ltd, which is cost plus 25%. Carson Ltd's Inventory at 1 October 2013 amounted to R250 000 Carson Ltd sold a machine to Bates Ltd on 1 May 2012 for R295 000 The machine cost Carson Ltd R400 000 when it was bought on 1 May 2010 The group provides tor depreciation at 20% per annum according to the straight-line method Carson Ltd discounted R10 000 of the R15 000 bills receivable from Bates Ltd at the bank before the expiry date of 31 December 2016 The remaming bills are included in trade and other receivables and trade and other payables respectively. Carson Ltd had surplus space available in their office bullding and decided to lease the extra office space at R10 000 per month to Bates Ld, payable in advance, with effect from 1 January 2013. Bates Lid also agreed to pay a deposit equal to two months’ instalments The deposit has been recorded as trade and other receivables and trade and other payables respectively TTURN OVER]4 FAC2602 OCTINOV 2014 QUESTION 4 (continued) REQUIRED: Draft the following consolidated statements of the Carson Ltd Group as at 31 October 2014 a) The statement of changes in equity ~ only the retained earnings column, b) The statement of financial position Your answer must comply with the requirements of Intemational Financial Reporting Standards (IFRS) No! + Notes to the consolidated statements are not required + Ignore the taxation effect on unrealised profits and/or losses, as well as capital gains tax + Round off all amounts to the nearest Rand [TURN OVER]5 FAC2602 OCTINOV 2014 QUESTION 2 (26 marks) (31 minutes) ‘McLaren Ltd and Williams Ltd have had a good business relationship for a number of years, buying motor vehicles and spare parts to and from one another. The following information regarding McLaren Ltd and Williams Ltd have been provided to you STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JANUARY 2014 McLaren Williams Ltd Lid a R Revenue 1208000 1.040.000 Cost of sales (740 000) _(584 000) Gross profit 466 000 476 000 Administrative expenses (65 000) (48 000) Depreciation (130 000) 120 000) Profit before tax 271 000 ‘308 000 Income tax expense (75 880) (86 240) PROFIT FOR THE YEAR 195 120 221 760 Other comprehensive income for the year : - TOTAL COMPREHENSIVE INCOME FOR THE YEAR 195 120 221 760 Additional information 1, Due to the abovementioned mutual beneficial relationship, the board members of McLaren Lid decided to buy ordinary shares and 12% cumulative preference shares in Williams Ltd on 1 September 2013 McLaren Ltd bought the following investment in Williams Ltd at cost which was also the fair value at date of purchase’ R 42.400 Ordinary shares 930 000 10 000 12% Cumulative preference shares 28.000 On 4 September 2013 Wiliams Ltd’s owners’ equity consisted of 53 000 Ordinary shares 53.000 25 000 12% Cumulative preference shares 25 000 Retained earnings — 1 February 2013, 718 635 its the group's policy to show goodwill at cost m the financial statements Assume that the carrying amounts of all other assets and liabilities were equal to the fair values thereof ‘Assume each ordinary share cares one vote and that voting rights alone determine control 2 On 1 February 2013 the preference dividends for the previous year were in arrears All arrear preference dividends were paid on 31 January 2014 [TURN OVER]6 FAC2602 OCTINOV 2014 QUESTION 2 (continued) 3 McLaren Ltd purchased a vehicle from Willams Ltd on 1 March 2013 at cost pnce plus 20% It's a truck that McLaren Ltd uses to transport other vehicles The cost of the truck in Williams Ltd's financial records was R350000 On 30 September 2013, McLaren Ltd bought another truck from Willams Ltd at cost price plus 10% The cost of the truck was 230000 Both vehicles were classified as plant and equipment in ‘Williams Ltd's financial records Both companies depreciate vehicles at 15% per annum according to the straight-line method 5 Williams Ltd purchases all its inventones from McLaren Ltd at cost price plus 25% The accountant calculated that R105 000 of the inventory on hand at year end was purchased from McLaren Ltd since 1 September 2013 6 All income and expenses of McLaren Ltd and Williams Lid were earned evenly throughout the year, except where otherwise indicated 7 Assume a taxation rate of 28% and that all income is taxable and all expenses are tax deductible Income tax must be apportioned according to the profit before tax for the Period Ignore any other tax implications REQUIRED: Draft the following pro-forma consolidation journal entnes of the McLaren Ltd Group for the penod ended 31 January 2014, after taking the above-mentioned information into account a) Eliminate the owners’ equity at acquisition (7%) b) Eliminate the current year’s depreciation associated with the sale of the vehicle (4) ‘on 30 September 2013 ©) Eliminate the intragroup preference dividends and record the non-controlling interests in the preference dividends (4%) Note: * Indicate clearly to which company each account refers to * Journal narrations are not required. ‘Show all calculations and round off all amounts to the nearest Rand Ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax (TURN OVER}7 FAC2602 OCTINOV 2014 QUESTION 3 (29 marks) (35 minutes) The following balances were extracted from the accounting records of Fragile Ltd for the financial year ended 31 August 2014 2014 2013 R R Credits Share capttal (300 000/250 000 ordinary shares) 600000 500 000 Revaluation surplus 145000 105 000 Retained earnings — beginning of year 77938 =—-518 720 Deferred tax 20 300 14700 ‘Trade and other payables 455000 $88.00 Dividends payabie 60 000 50.000 ‘Short-term borrowings 140 000 40.000 Revenue 2985000 2 182000 Dividends received 410.000 40 000 ther income 148 000 31 000 Interest income - 44.000 Tax payable 224479 116.362 ‘Accumulated depreciation ~ plant and machinery 148000 118.000 Long-term borrowings 320000. __ 250.000 6033717 4534 782 Debits Land and buildings at valuation 940000 800 000 Plant and machinery at cost 550000 400 000 lventory 264600 160.000 Trade and other receivables 680000 500.000 Investments, 750000 $50 000 Bark 192007 150.000 Cost of sales 1849000 1 420.000 Other expenses 480000 379.500 Income tax expense ~ normal 224190 116 362 ~ deferred 5 600 - Dividends declared 85 000 Interest pard 22.320 6033 717 ‘Additional information 1 The company sold a significant portion of its investments in the current year in order to Improve its cash position. The total proceeds amounted to R300 000 Other income consists of profit on sale of investments amounting to R48 000 and a fair value adjustment on the company's investments to the value ot F100 000. 2 Included in other expenses is a loss on sale of plant and machinery of R6 000 and a depreciation expense for plant and machinery amounting to R38 000 These are the only non-cash flow tems included in other expenses [TURN OVER]8 FAC2602 OCTINOV 2014 QUESTION 3 (continued) 3 The company declared and paid an intenm dividend of 10cents per share on 28 February 2014 ‘The company issued additional shares on 1 August 2014 This was followed by the declaration of a final dividend of 20 cents per share 4 Tho increase in long-term borrowings was utlised in full to purchase addtional plant and machinery to increase the company's production capacity 5 It 1s the company’s policy to revalue its land and buildings every three years Any additional investment in land and buildings was to expand production capacity REQUIRED: Draft the statement of cash flows of Fragile Ltd, according to the direct method, for the year ended 31 August 2014, after adjusting for all entries mentioned above Your answer must comply with the requirements of Intematonal Financial Reporting ‘Standards (IFRS) Note: Round off all amounts to the nearest Rand Show all caiculations No comparative figures are required ‘The notes to the statement of cash flows are not required unis 2014