UNIVERSITY EXAMINATIONS, UN.VERSITEITSEKSAMENS UNISA le FAC2602 May/June 2016 SELECTED ACCOUNTING STANDARDS AND SIMPLE GROUP STRUCTURES Duration — 2 Hours 100 Marks EXAMINATION PANEL AS APPOINTED BY THE DEPARTMENT Use of a non-programmable pocket calculator 1 perinissible Closed book examination This examination question paper remains the property of the Unwersity of South Africa and may not be removed from the examination venueUNIVERSITY EXAMINATIONS. Duration Use of a non-programmable pocket calculator is permissible FAC2602 UNIVERSITEITSEKSAMENS UNISA ie May/June 2016 SELECTED ACCOUNTING STANDARDS AND SIMPLE GROUP STRUCTURES 2 Hours EXAMINATION PANEL AS APPOINTED BY THE DEPARTMENT Closed book examination 100 Marks 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 seven (7) pages NB: 1 This paper consists of FOUR (4) questions 2 Allquestions must be answered 3 Basic workings, where applicable, must be shown 4 Ensure that you are handed the correct examination answer book (blue for Accounting) by the invigilator 5 — Each question attempted must be commenced on a new (separate) page 6 PROPOSED TIMETABLE Question Time in | Number Subject Marks _| minutes | 1__|Group financial statements 36 43 2 |Group financial statements 22 27 3 ___ [Statement of cash flows 36 43 4 |Multipie chores questions 6 7 700 720 [TURN OVER]2 FAC2602 MAY/JUN 2016 QUESTION 1 (36 marks)(43 minutes) The following are the tral balances of Iron Ltd and Ore Ltd as at 31 March 2016 Iron Ore Ltd Ltd R R Credits Share capital — Ordinary shares (200 000 / 50 000 shares) 200 000 100 000 - 8% Cumulative preference shares 50.000 20 000 (50 000 / 20 000 shares) Revaluation surplus 180 000 50 000 Retained earnings ~ 1 April 2015 210000 88 000 Sales 3900000 2.00000 Other income 167 200 15 950 Trade and other payables 1056 130 491.340 Accumulated depreciation 543 000 495 000 6306330 _3760 290 Debits Land and buildings 500000 400.000 Plant and machinery 908000 800 000 Inventory 195000 230 000 Cost of sales 2020000 1.085.000 Administrative expenses 313.000 88.000 Depreciation 152.000 102 800 Staff costs. 588 000 600 000 Interest paid 16.000 1200 Income tax expense 158 330 178 906 Trade and other receivables 845 500 206 084 Bank 55.000 59 200 Dividends paid 45.000 9100 Investment in Ore Ltd at cost price = 40.000 Ordinary shares 500 000 - + 8000 8% Cumulative preference shares 10.500 6306330 _ 3760200 Additional information 1 Iron Ltd acquired its interest in Ore Ltd on 31 October 2015 On this date the carrying amount of Ore Ltd's assets and liabilities were deemed to be equal to the fair value thereof The revaluation surplus amounted to R50 000 at date of acquisition policy of the group to revalue land and buildings every three years. Was the Furthermore, it 1s also group policy to disclose goodwill at cost less impawment in the consolidated financial statements Goodwill was not impaired during the current year [TURN OVER)3 FAC2602 MAY/JUN 2016 QUESTION 1 (continued) 2 10 Both companies classified the 8% cumulative preference share capital as equity Al date of acquisition, the cumulative preference dividends of Ore Ltd were not in arrears The sales of Ore Ltd are seasonal _From 1 November 2015 to the end of the financial year, sales amounted to R833.333 The income tax expense for the same penod amounted to R47 044 Cost of sales must be allocated in proportion to the sales Included in administrate expenses of Ore Lid 1s a loss of R14 500 relating to a copy machine that was scrapped at the end of the current financial year Ore Ltd purchased machinery from Iron Ltd on 1 March 2016 at a cost of R65 000 On this date the carrying amount of the machine was R45 000 1n the accounting records of ron Ltd itis the group's policy to recognise depreciation on plant and machinery on the straight-line method at a rate of 20% per annum Assume that all other income and expenditure of Ore Lid were eamed and incurred evenly throughout the year Assume that the profit after tax of Ore Ltd for the period 1 April 2015 to 31 October 2015 was R367 866 ‘Since the date of acquisition, Iron Ltd purchased some of its inventory from Ore Ltd at cost plus 26% Intragroup sales amounted to R200 000 dunng the year Included in closing inventory of Iron Ltd is inventory to the value of R30 000 which was purchased from Ore Ltd Ore Ltd declared a dividend of 15 cents per ordinary share al the end of the financial year Assume each ordinary shave carries one vote and that voting ngnts alone determine control ‘The issued share capital of both companies remained unchanged since mcorporation REQUIRED Marks Prepare the consolidated statement of profit or loss and other comprehensive | 36 Income of the Iron Ltd Group for the year ended 31 March 2016 Please note: Your answer must comply with the requirements of International Financial Reporting Standards (IFRS) Notes to the consolidated statement of profit or loss and other comprehensive Income and comparatwe figures are not required Round off all amounts to the nearest Rand (36) [TURN OVER]4 FAC2602 MAYiJI QUESTION 2 (22 marks)(27 minutes) JUN 2016 Lucky Ltd is a company that manufactures tin cans for the packaging of food Fish Ltd sources sardines from the Middle East and sells it to retail stores The Fish Ltd Group was founded on 1 June 2013, when Fish Ltd purchased 80% of the 500 000 ordinary shares in Lucky 1 Since the date of acquisition, Lucky Ltd sells tin cans to Fish Ltd at a favourabl cost plus 20% On 1 June 2014 Fish Ltd had the following inventones on hand Lig le rate of [Inventory item R Sardines 455 000 Tin cans — obtained from Lucky Ltd 300 000 Tin cans — obtained from Middle East suppliers 260 000] Current year sales by Lucky Ltd to Fish Ltd amounted to R600 000 At year end Fish Lid only had 40% of the current year sales on hand 2 On 1 February 2014, Lucky Ltd sold a property to Fish Ltd for R1 400 000 Lucky Ltd onginally purchased this property tor R1 200 000 On 1 February 2014 the proporty was, revalued with an amount of R300 000, but the accountant of Lucky Lid never a for the revaluation iecounted. 3 On 1 March 2015, Fish Ltd sold a machine with a carrying amount of R360 000, for R400 000 to Lucky Ltd It 1s group's policy to depreciate machinery at 20% per annum according to the reducing balance method 4 On 31 May 2015, Lucky Lid declared a dividend of 30c per ordinary share The accountant has not yet provided for these dividends, neither was Fish Ltd notified of the dividends REQUIRED Marks Draft the following pro-forma consoldation joumal entnes of the Fish Ltd Group fo the year ended 31 May 2015, after taking the above-mentioned information into account a) Elimination of the unrealised profit ncluded in the opening inventory b) Elimination of the unrealised profit or loss on the sale of the property ¢) Elimination of the unrealised profit or loss on the sale of the machine, as well as the current year’s depreciation associated with the sale of the machine 4) Provision for the dividends payable €) Elimination of the unrealised profit included in closing inventory Please note: Narrations are required and indicate clearly to which company each account refers to 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 r (3%) (4) (7%) [TURN OVER]5 FAC2602 MAY/JUN 2016 QUESTION 3 (36 marks)(43 minutes) The following balances appear in the accounting records of Dawn Lid for the financial year ended 30 September 2015 2014 R R Debits Property, plant and equipment 850000 543 400 Financial assets at fair value through profit or loss 625000 512.000 Inventory. terre 7 668500 558 900 Trade and other receivables es 507100 887 500 Bank i 108 500 : 2759100 2501 800 Credits eee Share capital... 560000 500.000 12% Debentures. 7 250000 100000 Other components of equity a : 462000 392000 Retained earnings : 73336 50000 Long-term borrowings 7 7 202.680 175.000 Taxation payable ss 104500 168.000 Short-term portion of long-term borrowings - 24100 39.400 Dividends payable 58284 — 120000 Trade and other payables sett . 732600 637800 Provisions. i + 291600 291 600 Bank overdraft i 28.000 2759 100 _ 2501 800 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2015 R 1 250.000 {845 900) . ~ 404100 Other income ae i 73.500 Staff costs (110 000) Otherexpenses sw : vs (283.000) Finance costs a (25 800) Profit before tax.. 108 800 Income tax expense 30 464) Profit for the year 78.336 Additional information 1, The company sold one of its vehicles dunng the year at a profit of R28 000 The vehicle had a carrying amount of R33 000 and a residual value of R30 000 on date of sale The vehicle was immediately replaced with two other identical vehicles at a cost of R89 000 each There were no other sales of property, plant and equipment during the year [TURN OVER]6 FAC2602 MAY/JUN 2016 QUESTION 3 (continued) 2 Its the policy of the company to revalue land every three years At the end of the current financial year, the land was revalued by R70000 Any other additions to Property, plant and equipment during the year were to expand the company's operations 3 The balance of trade and other receivables was arnved at after taking into account an allowance for credit losses of R17 600 (2014 R32 750) 4 The debentures were issued as follows + 31 October 2013 - 12 % R100 000 redeemable after five years + 1 May 2015 - 12% R150 000 redeemable in five equal annual installments with the first installment payable on 1 May 2018 5 Dawn Ltd sold some of its fmancial assets during the year at a loss of R2 000 These assets were acquired at a cost of R14 000, which was also the fair value at the date of sale 6 Other expenses include, amongst others, the loss on sale of investments and depreciation of R45 000 for the year 7 Other income 1s made up of dividend income, a recovery of credit losses and profit on sale of assets 8 Dawn Ltd made a payment of R88 000 to the South African Revenue Services for provisional tax This amount was incorrectly posted to the trade and other payables account 9 The company declared and paid a dividend of RSS 000 at the end of the financial year REQUIRED Marks Draft the statement of cash flows of DawnLtd, according to the direct method, forthe | 36 year ended 30 September 2015, after taking into account the additional information ‘given Be Please note Your answer must comply with the requirements of Intemational Financial Reporting Standards (IFRS) Round all amounts to the nearest Rand Show all caloulations No comparative figures are required ‘The notes to the statement of cash flows are nat required (TURN OVER]7 FAC2602 MAY/JUN 2016 QUESTION 4 (6 marks)(7 minutes) REQUIRED Answer the following $ multiple choice questions Select only one answer per question 1 An entity that controls another entity is called a (2) parent associate subsidiary controllee Rone 2 Select the incorrect statement For an investor to control an investee, the following, amongst other things, must be applicable (2) the investor must have power over the investee the investor must be able to use its power to affect returns the investor must have exposure or nights to returns from the investee the investor must have more than 50% shareholding in the investee Q bona jelect the incorrect statement Group statements do not have to be presented by a arent when, amongst other things (2) z the parent's debt or equity instruments are not traded in a public market the ultimate parent produces consolidated financial statements the parent will disclose the investment as per IFRS 39 the parent itself is a wholly-owned parent sons ° ‘UNisa 2016