University of Fort Hare Together in Excellence NKUHLU DEPARTMENT OF ACCOUNTING ACCOUNTING 1B ACC121E / ACC121 OPPORTUNITY ASSESSMENT 4 41 August 2014 ASSESSORS: MrM. Bomba Mr S.M. Msakatya Mrs L.H. Mtshwelo. MODERATOR: Mrs U Heath TIME: 2 HOURS MARKS: 100 + THIS OPPORTUNITY ASSESSMENT CONSISTS OF 3 QUESTIONS AND 6 PAGES (front page included), + SILENT PROGRAMMABLE CALCULATORS ARE ALLOWED. * SHOW ALL CALCULATIONS + START EVERY QUESTION AT THE TOP OF A PAGE. + ROUND OFF ALL YOUR MONETARY CALCULATIONS TO THE NEAREST RAND ¢ BREACH OF THE EXAMINATION RULES OF THE UNIVERSITY OF FORT HARE MAY BE SEVERELY PUNISHABLE, MARKS, TIME Question 4 Theory 20 24 2 ‘Companies 40 48 3 Partnership 40 48 TOTALS 400 120Question 1 20 marks (24 minutes) 1 Briefly explain 5 differences between Partnership and Private Company. Your answer should be in a tabular format. (10) The board of directors recommended R2 per share to be declared as dividends and shareholders wants R3 per share to be declared as dividends, Explain in terms of the 2008 Companies Act which amount will be declared as dividends and why? (3) In terms of the 2008 Companies Act, directors can declare a dividend only if they are satisfied that the company will be both liquid and solvent after such declaration. Explain what is meant by Liquid and Solvent? (4) If the assets after paying the dividends are R15000000 and liabiliies are R20 000 000. Can the directors continue paying the dividends and why? (3) (20)Question 2 40 marks (48 minutes) The information below was extracted from the books of MeLinda Ltd for the year ended 30 April 2044. McLinda Ltd Extract of the Trial Balance as at 20 April 2014 Additional | 2014 2013 information | R 2 ‘Share capital: Class A [42385 | 8220090 000 000 Share capital: Class 8 [4284 ? 220 000 Retained earnings [6&7 2 [ 720 000 [40% Redeemable preference shares 1,285 2 0 ‘Special Reserve 7 2 200 000 Long term loan 450 000 500000 investments 450.000, 150 000 Additional informatio: 1. MoLinda Ltd have the following authorised share capital: 1.000 000 Class A shares 250 000 Class B shares 375 000 10% Redeemable preference shares Class A shares: Voting rights, no right to a fixed distribution Class B shares: No voting rights, right to a fixed distribution of 30 cents per share, non-cumulative distribution, non-redeemable. 10% Redeemable preference shares: No voting rights and are compulsory redeemable in 5 years’ time from dale of issue at R5 per share, 2. By30 April 2013, MeLinda Lid had issued the following shares: 800 000 Class A shares. 100 000 Class B shares No redeemable preference shares 3, On 1 June 2013, MoLinda Ltd offered 150.000 Class A shares to the public. The’ share issue was fully subscribed. On 15 July 2013, the shares were issued to the Public. The share issue was underwritten at a total commission of R112 00. Other share issue costs excluding underwriter’s commission amounted to 20 cents per share issued. The undenwriter’s commission and share Issue costs were paid on 30 July 2013, The accountant recorded correctly all the necessary journal entries but did not record any journal(s) affecting the underwriters commission. 4, On 1 September 2013, McLinda Ltd offered the remaining Class B shares to the public at 2.50 per share. The minimum subscription was set at R300 000. The share issue was not undenwrtten and only 100 000 shares were bought by the public.Question 2 Continued: 5. On 1 December 2013, the existing shareholders of Class A shares were given rights to buy 1 redeemable preference shares at R5 each for every 2 Class A shares. 100% ‘exercised their rights on 31 December 2013, The profit for the year amounted to R450 000. On 30 April 2044, the directors declared a dividend of 40 cents per share for Class A shares and 15 cents per share for Class B shares. Every year at year end the business transfer R100 000 from retained earings to special reserve for the plant they want to purchase in 2020 year end. ‘You are required to: a) b) Calculate the issue price of the Class A shares Issued on the15 July 2013, (6) Prepare the general joumal entries required in respect of the underwriter's commission. (6) Prepare all the general journal entries that would have been processed by McLinda Ltd to record 4 and 5 above. Ignore narrations. Show all workings. (10) Prepare the journal entry to record dividend declared on 30 April 2014. (6) Prepare the equity section of the statement of financial position for the year ended 30 April 2014. Comparative figures are required. (12)Question 3 40 marks (48 minutes) Fayde, Algor and Thor are in a partnership, trading as Fatt Traders. Fayde, Algor and Thor share profits and losses of partnership in the ratio of 9:6:5 respectively. Fayde decided to withdraw from the partnership with effect from 30 June 20.14, due to his recent health condition, ‘The other partners could not live without their partnership business and as such they decided to continue with the partnership on new terms and conditions to be stipulated in the new partnership agreement. ‘The partnership statement of financial position as at 30 June 20.14 is as follows: Fatt Traders ‘Statement of financial position as at 30 June 20.14 Historic cost Accumulated depreciation Carrying amount Assets R R R Non-current 630.000 29000 607 000 Land 185 000 155 000 Buildings 230 000 9000 221 000 Equipment 420 000 15.000 105 000 Vehicles 75000 5.000 70 000 Goodwill 50.000 50 000 Current assets 485.000 Inventories 120.000 Trade and other receivables 140.000 Bank. 225 000 Total assets 1 086.000 Equity and liabilities Equity 675000 Capital: Fayde 238.000 Capital: Algor 136 000 Capital: Thor 302 000 Liabilities 411.000 Trade and other payables 206 000 Current account: Fayde : 100.000 Current account: Thor 105 000 Total equity and liabilities 086.699Question 3 continued: Additional information: 1) Following Fayde's decision to withdraw from the partnership, the efforts to determine the fair values were made and such efforts resulted in the values presented below: Land R160 000.00 Buildings R226 000.00 Equipment R110 000.00 Vehicles R60 000.00 Goodwill R30 000.00 Alll other assets and liabilities were considered to be fairly valued 2) The new partnership agreement between Algor and Thor provided as follows: 2.1 Algor and Thor will in future share in profits and losses as equal partners, 2.2 As agreed with Fayde, 60% of the amount due and payable to him will be converted Into a loan to the new partnership, while 40% will be paid to him in cash 2.3 Goodwill will no longer be disclosed in the records of the new partnership You are required to: a) Record the valuation adjustments in the general journal before Fayde's withdrawal (14) b) Prepare the capital accounts of the partners in columnar form (7) c) Show the asset section of the statement of financial position of Fatt Traders immediately after the withdrawal of Fayde. (8) Note: narrations are Not required for journal entries