FAC3702/201/1/2017

Tutorial letter 201/1/2017

Distinctive Financial Reporting

FAC3702

Semester 1

Department of Financial Accounting

This tutorial letter contains the suggested solution to compulsory
assignment 01 as well as the suggested examination approach.

IMPORTANT INFORMATION

Please activate your myUnisa and myLife email addresses and

ensure you have regular access to the myUnisa module site for
FAC3702 as well as to your group site.

Note: This is an online module, and therefore your module is

available on myUnisa. However, in order to support you in your
learning process, you will also receive some study material in printed
format.
 CONTENTS

Page

1  INTRODUCTION ............................................................................................................................ 3 
2  LECTURERS AND CONTACT DETAILS ...................................................................................... 3 
3  SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 01/2017 ...................................... 4 
4  SUGGESTED EXAMINATION APPROACH.................................................................................. 5 

2
 FAC3702/201

1 INTRODUCTION

Dear Student

We attach the suggested solution to compulsory assignment 01 and the suggested examination
approach.

You will notice some calculations are in brackets opposite certain items in our suggested solutions
dealing with company financial statements. These calculations are given for tuition purposes only and
consequently do not form part of the statutory disclosure requirements.

2 LECTURERS AND CONTACT DETAILS

Please use only the following e-mail address for all communication with your lecturers:

FAC3702-17-S1@unisa.ac.za

Please use only the following telephone number for all communication with your lecturers:

012 429 4268

Lecturer Office
Mrs M Evans Room 02-55, AJH van der Walt Building
Mrs M Els Room 02-58, AJH van der Walt Building
Mr D Khumalo Room 02-50, AJH van der Walt Building
Mrs M Zulu Room 02-60, AJH van der Walt Building

3
3 SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 01/2017

DEEMAN LTD

Notes to the annual financial statements for the year ended 31 December 2016

1. Property, plant and equipment

Land Building Machinery Total
R R R R
Carrying amount at beginning of year 1 000 000 3 951 250 7 025 000 11 976 250
Cost 1 000 000 4 350 000 8 260 000 13 610 000
Accumulated depreciated - (398 750) (1 235 000) (1 633 750)
Revaluation surplus 500 000 720 179 - 1 220 179
Depreciation for year - (171 429) (741 000) (912 429)
Carrying amount at end of year 1 500 000 4 500 000 6 284 000 12 284 000
Gross carrying amount/Cost 1 500 000 4 671 429 8 260 000 14 431 429
Accumulated depreciation - (171 429) (1 976 000) (2 147 429)
 
Land and buildings were revalued on 31 December 2016, by an independent sworn appraiser.

The carrying amount of the land and building, if they were carried at cost less accumulated
depreciation, would have amounted to R4 806 250 (Land: R1 000 000, Building: R 3 806 250).

2. Deferred Tax

R
Analysis of temporary differences:
Fair value adjustments:
Residential estates: Land [(4 250 000 – 3 900 000) x 80% x 28%] (78 400)
Residential estates: Building [(12 300 000 – 12 000 000) x 80% x 28%] (67 200)
Accelerated tax allowances:
Residential estates: Building [(12 000 000 – 11 400 0001) x 28%] (168 000)
Deferred tax liability (313 600)

1 [12 000 000 – (12 000 000 x 5%)]

Calculations

1. Land – Factory
Total carrying Historical
amount carrying amount
R R
Cost 02 January 2013 1 000 000 1 000 000
Carrying amount 31 December 2015 1 000 000 1 000 000
Revaluation (calc 1.1) 500 000
Carrying amount 31 December 2016 1 500 000 1 000 000

1.1. (1 000 000 – 1 500 000) = 500 000

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 FAC3702/201

SUGGESTED SOLUTION: ASSIGNMENT 01 (continued)

2. Building – Factory

Historical
Total carrying carrying
amount amount
R R
Cost 02 January 2013 (calc 2.1) 4 350 000 4 350 000
Accumulated depreciation (calc 2.2 ) (398 750) (398 750)
Carrying amount 31 December 2015 3 951 250 3 951 250
Revaluation (calc 2.3) 720 179 -
Depreciation (calc 2.4 ) & (calc 2.5 ) (171 429) (145 000)
Carrying amount 31 December 2016 4 500 000 3 806 250
2.1. 3 500 000 + 850 000 = 4 350 000
2.2. 4 350 000 / 360 x 33 = 398 750
2.3. (4 500 000 / 315 x 327) = 4 671 429 – 3 951 250 = 720 179
[(360 – 33 – 12 = 315);(360 – 33 = 327)]
2.4. 4 671 429 /327 x 12 = 171 429 OR 4 671 429 – 4 500 000 = 171 429
2.5. 4 350 000 / 360 x 12 = 145 000 OR 4 350 000 / 30 = 145 000

3. Machinery

Carrying
amount
R
Cost (calc 3.1) 8 260 000
Accumulated depreciation (calc 3.2) (1 235 000)
Carrying amount 31 December 2015 7 025 000
Depreciation (calc 3.3) (741 000)
Carrying amount 31 December 2016 6 284 000

3.1. (7 500 000 + 650 000 + 110 000) = 8 260 000

3.2. (8 260 000 – 850 000) / 120 x 20 = 1 235 000
3.3. (8 260 000 – 850 000) / 120 x 12 = 741 000 OR (8 260 000 – 850 000) / 10 = 741 000

4 SUGGESTED EXAMINATION APPROACH

Please pay attention to the following matters regarding the May / June 2017 examination paper:

1. Relative importance of certain topics in the study material

No topics in the study material are more important than others, and we will not enter into any
discussions in this regard.

You will be examined on ALL the study material as per the indicated sections in the prescribed
textbook and on ALL the tutorial letters. It is not sufficient to only work through your assignments,
because all the principles are not tested in the assignments.

Please note: Your lecturers cannot help you with missing study material. Please send
an sms to 43579 or an e-mail to despatch@unisa.ac.za with the description "Study
material".

5
SUGGESTED EXAMINATION APPROACH (continued)

2. Correct paper: FAC3702

It is your responsibility to ensure that you receive the correct paper in the examination. If you are
handed the wrong paper, you must immediately request the invigilator to hand you the correct paper.

3. Examination preparation
3.1 Study the applicable theory.
3.2 Answer as many questions as possible without looking at the solutions and thereafter mark them
yourself in order to see where you have gone wrong. This will give you an indication of the work
you possibly don't know well enough.
3.3 Throughout your studies, ask yourself why an item is treated and disclosed in a certain way.
Search for the answers to these questions in the summary of the applicable accounting standard
in the applicable learning unit.
3.4 Study all the disclosure requirements and make sure that you know how to disclose all your
answers in the correct format.

4. Examination technique
The following general techniques will be of help in the examination:
4.1 Start each question on a separate page. The examination instructions are very specific in this
regard, and you should adhere to them.
4.2 Do not write inside the margin area of the page. Do not make tick marks in your answer.
4.3 Write legibly as it makes marking easier and ensures that you do not lose marks unnecessarily.
4.4 Do not deviate from the suggested times indicated in questions. If you are unable to complete a
question within the suggested time, stop and start with the next question. It is likely that you will
earn more marks by starting on the next question than continuing with the question for which
the time has expired.
4.5 Answer what the question requires from you. First read through the REQUIRED section of each
question before you read through the contents of the question. Make sure that you answer what
is required and not what you think is required. Take note of the action words: describe,
calculate, analyse, explain, disclose. Structuring your answer into subsections with appropriate
headings will prevent you from making this kind of error.
4.6 Clearly identify subsections of answers. Structure the layout of your answer to group all
subsections of one question together. Avoid including a subsection of a question at the end of
your examination script. If you have no choice, refer to the subsection in the main body of your
answer.

4.7 Please take note of the following suggestions when answering the “required” section:

a. Discussion questions

 Please note that planning and layout is important

 Apply the applicable International Financial Reporting Standards (IFRS)
 Prepare a well-formulated answer
 Avoid repeating facts or using contradicting statements
 Make a firm argument
 Remember to make a conclusion in the end
 Don’t use SMS style writing

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 FAC3702/201

SUGGESTED EXAMINATION APPROACH (continued)

b. Disclosure/Presentation

 Identify the International Financial Reporting Standards (IFRS) being tested

 Disclose information identified according to the applicable International Financial Reporting
Standards (IFRS)
 Show comparative figures

c. Journals

 Indicate debits and credits clearly

 Always classify your journals (SFP, P/L, OCI)
 Use clear account descriptions (no abbreviations!)
 Show short calculations in the journals
 Show long calculations separately and remember to cross-reference your calculations
 Date your journals

4.8 Show all calculations. Bear in mind that sufficient calculations must be included in the
presentation of your answer to enable us to follow your logic and award marks accordingly. If you
made a calculation error and have not shown your calculations, we have nothing to work on to
award marks for the principles you have applied. It will therefore be worthwhile to spend a few
minutes writing out your calculations.
Include the calculations in your answer and not at the back of your examination script or with
other unrelated questions. The calculations must be cross referenced in your answer.
4.9 Write all answers in blue or black ink. YOU ARE NOT ALLOWED TO ANSWER IN PENCIL,
RED INK OR GREEN INK.

Further information regarding examination preparation and approach

Based on a review of the October / November 2016 examination answer scripts, we would like to
stress the following important issues with regard to this module:

1. Property, plant and equipment; investment property; intangible assets and impairment
of assets

A table indicating the historic cost and revaluation/impairment amounts is often used as basis
for the calculation of deferred tax and the carrying amounts as reflected in the financial
statements. This table is purely one of a number of calculation tools and displays no inherent
knowledge on the part of a student of the principles of revaluations, deferred tax or
impairment. Accordingly, in an examination proportionately few marks are allocated to the
calculation in a table. A greater proportion of marks are allocated to the correct disclosure
(especially the notes to the financial statements) as required in the question.
Often the amounts required for disclosure purposes can be calculated without the use of a
table. In this case, the use of a table will lead to a waste of precious time. Students should
rather do a short calculation in appropriate circumstances.
Remember to refer to the calculation if the calculation is not done in brackets on the
disclosure itself.
Disclosure requirements as per the International Financial Reporting Standards (IFRS) are a
critical part of each of the abovementioned topics. Marks are awarded for the correct layout,
information and use of calculated figures in the required accounting disclosures. Only a
layout in combination with the correct information and calculations will earn marks.

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SUGGESTED EXAMINATION APPROACH (continued)

2. Tax rate

A tax rate of 28% and a capital gains tax inclusion rate of 80% will be used in the May /
June 2017 examination.

3. General

Read the REQUIRED sections of the questions carefully and provide ALL calculations and
disclosures as required.

5. Format of the examination paper

The examination paper for May / June 2017 consists of TWO questions and the duration of the paper
is THREE hours.

6. Supplementary examinations
Please take note of the following important information regarding supplementary examinations and
remarking:

 Supplementary examinations will be conducted in October / November 2017 for students who
fail the May / June 2017 examination paper.

 To qualify for a supplementary examination, you must obtain a final mark of between 40% and
49% for the module. The final mark consists of 20% of the year mark (obtained from the
compulsory assignments) plus 80% of the examination mark.

 Only students who obtain a final mark of between 35% and 49% or between 68% and 74% in a
module may apply for the remarking of an examination answer book.

 Students will not be entitled to a supplementary examination (if applicable) on the grounds of a
remark result.

For more information, refer to the general rules for study and examinations in part 1 of the Unisa
Calendar.

7. Perseverance
We would like to encourage you to attempt your studies with enthusiasm. Keep in mind that success
can only be achieved by effort and perseverance. Every year, we find that many students do not turn
up at the examination centre. You must never inflict this disservice on yourself. Remember that if you
write, you have a chance; if you don't, you have no chance at all.

We wish you a pleasant study period.

Kind regards

Accounting III (FAC3702) LECTURERS

© UNISA 2017

FAC3702_2017_TL_201_1_E.doc