FINANCIAL REPORTING 1

ACC2011S/2111S

2022

TUTORIAL PACK

Questions Date due

1, 2*, 3 1 Aug, 10h00
4, 5*, 6 8 Aug, 10h00
7, 8*, 9 15 Aug, 10h00
10, 11*, 12 22 Aug, 10h00
13, 14*, 15 29 Aug, 10h00
16, 17*, 18 12 Sep, 10h00
19, 20*, 21 19 Sep, 10h00
22, 23*, 24 26 Sep, 10h00
25* 3 Oct, 10h00
26, 27*, 28 10 Oct, 10h00
29, 30, 31 17 Oct, 10h00

* The bolded question each week indicates the reflection question.

See pages 3 & 4 for an explanation of the reflection question system.
 ADVICE ON HOW TO USE TUTORIAL QUESTIONS EFFECTIVELY

The questions contained in this pack form a vital component of your learning in this course. Here is
our best advice about how to get the most out of them:
• Bear in mind that the main objectives of the online lessons are to introduce and explain concepts,
place those concepts in context, and give you the basic tools with which to build a solid conceptual
foundation. This conceptual is essential for success in this course, but you also need to develop
beyond that: you must learn how to answer questions for tests and exams. If you do it right,
attempting the tutorial questions will develop this skill, so that you are able to consolidate your
conceptual understanding and then display it on the assessments.
• For the first question each week, there is a guide available on Vula, which is designed to help if
you are not sure how to interpret information in the question, or if you don't know how to start
answering it, or if you just feel a little lost. If so, access and then read though the guide before
attempting an answer. It is designed to give you direction and help you to begin to develop your
confidence to apply the theory you've learned to an actual question.
• If you are very confident with the material, then you may wish to begin with the questions for
submission, and see how you do with them. If all goes well, perhaps you can leave the practice
questions until the time comes to revise for a test or the exam. However, if you are not feeling
confident, you should do the practice questions before attempting the questions for submission.
First, attempt them without looking at the suggested solutions. Ideally, you would only look at the
suggested solutions to the practice questions after completing your own attempt, as a way to
evaluate how well you did.
• If you get stuck with any of the questions, first try to think hard about what you have learned and
how it might help. If you still don’t know how to proceed, try to fix the gaps in your understanding
by revisiting the relevant online lesson, reading the textbook, asking a question on the Forums,
or booking a consultation.
• When producing the answers you are required to submit, never leave a question blank, even if it
is just a small part of a larger question. It is not an acceptable excuse to say you didn’t know how
to produce an answer, because the real learning occurs when you are struggling through the most
challenging parts of a question. Also, if you wish to avoid panicking in the tests and exam, you
must develop the coping techniques for answering a the hardest parts of questions.
• Whenever you are answering questions, focus on what concepts are being tested, and what are
the basic or fundamental issues. Don’t let yourself get lost in the detail.
• As you work through the questions, make notes and summaries of areas that you are struggling
with, to refer to later. After submitting, come to the following tutorial session with all of the
questions you can think of (and have written down) to help you understand the material better.
• As soon as possible after you receive the suggested solutions to the questions for submission,
compare your answers to the suggested solution, and, if a mark allocation is given, mark your
answer. This is extremely helpful as it shows you how marks are really earned, exposes the flaws
in your understanding, and teaches you key techniques such as layout, etc. The Reflection
Question system, described on the next two pages, is designed to teach you how to do this.
• By the time you get to the test or exam, you should have dealt with the conceptual issues, taken
corrective action where necessary, and developed good techniques for answering questions, so
that you are in the best possible position to show the examiner that you have a solid understanding
of the material. When it comes to revising for a test or exam, trying to learn solutions off by heart
will not help you, as you will not develop your conceptual understanding, which is what we always
try to test. In setting tests and exams, we work hard to present you with novel scenarios that
require you to use your understanding, rather than a memorised, formulaic approach.
• If possible, discuss your work with your peers. Explaining a section is a good way of finding out
how much you really understand, and will also help you prepare for discussion-type questions.
Listening to your study partner’s explanations will also help you. However, if you work together
with someone when answering tutorial questions, you should never look at your partner’s work,
to make sure that you never, even inadvertently, make the mistake of copying them. Copying a
tut submission is plagiarism and a very serious disciplinary offence.

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REFLECTION QUESTION SYSTEM

One question each week (the second of the three) is the reflection question for the week.

By 10h00 on Monday 1 August, you are required to submit a scan of your handwritten answers to
the three W01 CO1 questions. However, beginning on Monday 8 August, and every Monday of the
semester after that, you are required to submit the following three things:
• a scan of your handwritten answers to the three questions about the material you learned in
the week before
• a scan of the second question you submitted the week before (the reflection question),
marked by you using the detailed suggested solutions that will have been made available to
you. Mark in a different colour ink, and should be clear, and indicate the total mark at the top
of the page.
• a scan of your reflection piece based on what you have learned by marking the previous
week’s reflection question

The reflection piece is designed to help you become more self-aware of your learning, and should:
• be handwritten, and at least 80 words long, with the word count indicated at the end.
• where you lost marks, clearly identify each error, and then:
o describe what kind of error it is: e.g. conceptual, calculation, copying, counting,
presentation, format, terminology, careless, etc. (This is not a complete list, but it captures
most kinds of errors.)
o if it is a conceptual error, correctly describe the concept that you previously misunderstood
o if it is another kind of error, describe how you will make sure that you do not make this sort
of error in future
• if you did not lose any marks, or if the discussion of your errors used less than 80 words, then
clearly list and describe the key concepts contained in the reflection question

An example of a reflection piece (using material from Financial Accounting) appears below.

Suppose that the reflection question and the suggested solution last week were as follows:

On 1 September 2013, a business raised a loan which must be repaid in five annual instalments
starting on 31 August 2014. Interest at 10% p.a. is paid every four months in arrears on the first day
of January, May and September. The pre-adjustment trial balance at the year-end, 30 November
2016, indicates a credit balance on the loan of R360 000.

You are required to: prepare the interest expense account as it would appear in the general ledger
for the year ended 30 November 2016.

Interest expense (P/L)

1/1/16 Bank (A) W3 (½) 16 000 1/12/15 Accrued interest 12 000
1/5/16 Bank (A) W3 (½) 16 000 expense (L) (½) W2
1/9/16 Bank (A) W3 (½) 16 000 31/10/16 Profit / loss (P/L) (½) 45 000
31/10/16 Accrued interest 9 000
expense (L) W4 (½)
57 000 57 000
-1 for missing or incorrect dates
-½ for missing or incorrect bracketed account information

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W1. Outstanding loan as at 1/12/2015: R360 000 ÷ 3 remaining repayments (1) x 4 (1) = R480 000
W2. Reversal on 1/12/2015: R480 000 (W1) x 10% (1m) x 3/12 (1) = R12 000
W3. Payments on 1/1, 1/5 and 1/9/2016: R480 000 x 10% x 4/12 (1m) = R16 000
W4. Adjustment on 31/10/2016: R360 000 x 10% (1) x 3/12 (1) = R9 000

Here is my answer which I submitted last week, and have now marked since receiving the solution:

And here is my reflective piece based on the marking:

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GRADING OF TUTORIAL SUBMISSIONS
Your tutor will check your entire tutorial submission (this consists of answers to the current week’s
questions, the marked reflection question and the reflection piece), and will allocate you a mark as
follows:
2: for submitting full answers to the current week’s questions; a correctly marked reflection
question from the previous week, and a reflection piece that meets all of the requirements
listed above
1: for a submission in which any one of the above elements is inadequate
0: for a submission in which more than one of the above elements is inadequate, or any one of
them is entirely missing
In the case of the first submission of the semester, you will not yet have produced a reflection
question, and so the mark will be based on only the current week’s questions. These marks will be
recorded and your average will constitute 1% of your final mark for the course. Also, it is a DP
requirement to have a 1 or 2 for 75% or more of the tutorial submissions.

All elements of your submission must be entirely your own work. Plagiarism will be identified
and will result in a penalty and/or a case before the UCT Disciplinary Tribunal.

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 ACC2011S/2111S FINANCIAL REPORTING 1 ACC2011S/2111S FINANCIAL REPORTING 1
W01 CO1 – QUESTION 1 W01 CO1 – QUESTION 2

Ignore VAT Ignore VAT (26 MARKS : 31 MINUTES)

Infinity&Beyond Ltd is listed on the JSE Securities Exchange and specialises in providing adventure
holidays to the moon. The company was formed on 1 July 2017 with an authorised share capital of
10 000 000 Class A shares and 2 000 000 Class B shares. Class A shares have voting rights and
no right to a fixed distribution. Class B shares have no voting rights and the right to a fixed distribution
of 8% of the face value of R5. The financial year-end is 30 June.
Share issues in the 2018 financial year
On 1 July 2017, Buzz Lightyear and Woody, the subscribers to the memorandum, subscribed and
paid for a total of 1 000 000 Class A shares at a price per share of R2. On 1 August 2017, 3 000 000
Class A shares were offered to the public at a share issue price of R15. On 15 September 2017, the
closing date for share applications, the Class A shares were oversubscribed by 35%. The directors
decided not to issue any oversubscribed shares. On 30 September 2017 the shares were issued
and share issue costs amounting to R1 900 000 were paid. Until the current financial year, these
had been the only share issues that had taken place.
Share issues in the 2020 financial year
Buzz Lightyear and Woody, along with the other directors, decided that they needed to purchase
another three space shuttles in order to cope with the increased number of people around the world
booking for adventure holidays to the moon. To finance this expansion they decided to make two
more public share offers. On 1 October 2019, the company offered to the public 4 000 000 Class A
African Décor Ltd sells African furniture and art to markets in South Africa, Australia and Europe.
African Décor Ltd has just one class of shares, which have voting rights and a right to a dividend on
liquidation. You have been provided with the following information:
African Décor Ltd: Statement of financial position (extract)
as at 31 December
2020 2019
Equity
Share capital – Class A ? 45 200 000
Additional information
The directors of the company wanted to expand business into Asia and decided to raise funds
through a share issue. Shares were offered to the public on 1 May 2020 for an issue price of R6 per
share. The closing date for applications was 31 July 2020. The total of R48 000 000 was received
from the public during the period 1 May to 31 July 2020, which meant the offer was undersubscribed
by 20%. The share issue was underwritten for an underwriter’s commission of 2%, which was paid
on 10 August 2020. Other share issue costs amounting to R300 000 were paid on the same date.
You are required to:

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shares at a price of R62.00 each and 500 000 Class B shares at a price of R5.50 each. 1. Calculate the number of shares that were issued on 15 August 2020. (2 marks)

Both share issues were underwritten by Out of Space Underwriters for an agreed commission of 7%. 2. Consider the additional information above.
On 15 November 2019, the closing date for share applications, the Class B shares had been fully
subscribed, and 85% of the Class A shares had been applied for by the public. On 31 January 2020, 2.1 Prepare the Application and Allotment account as it would appear in the general ledger
all shares were issued to the relevant parties. of African Décor Ltd for the year ended 31 December 2020. (4 marks)
2.2 What accounting element does the Application and Allotment account represent?
Share issue costs (excluding underwriter’s commission) amounted to R1 365 000. 80% of these Explain your answer, using the Conceptual Framework definition of that element.
share issue costs related to the issue of Class A shares. The underwriter’s commission and other (5 marks)
share issue costs were paid in cash on the date that the shares were issued.
3. Consider the additional information above.
You are required to:
3.1 Would the underwriter’s commission be paid even if the underwriter didn’t have to
purchase shares in African Décor Ltd? Explain your answer. (3 marks)
1. Prepare all the general journal entries to record the public share offer in the 2018 financial
year. You are not required to record share issue costs or the issue to the subscribers to the 3.2 On what date does African Décor Ltd have an obligation for the underwriter’s
memorandum. Show dates and narrations. (7 marks) commission? Explain your answer. (2 marks)
3.3 Are share issue costs expenses? Explain. (2 marks)
2. Calculate the opening balance of the Share capital: Class A account on 1 July 2019.
(2 marks) 3.4 Prepare the closing entry(ies) for the underwriter’s commission and other share issue
costs incurred during the year ended 31 December 2020. Ignore narrations. (4 marks)
3. Calculate the gross proceeds raised from the shares issued in the 2020 financial year.
(2 marks) 4. Calculate the closing balance of Share capital – Class A as at 31 December 2020. (3 marks)

4. How many shares in Infinity&Beyond Ltd did Out of Space Underwriters receive on 31 January
2020 as a result of the underwriting agreement? (1 mark)

5. Prepare the general journal entries to record the underwriter’s commission and other share
issue costs for the shares issued in the 2020 financial year. Include dates and closing entries.
Ignore narrations. (8 marks)
 ACC2011S/2111S FINANCIAL REPORTING 1 PART B (10 MARKS : 12 MINUTES)

W01 CO1 – QUESTION 3 Ignore VAT

PART A (27 MARKS: 32 MINUTES) Early Bird Ltd is authorised to issue 100 000 Class A shares. Class A shares have voting rights and
do not have the right to a fixed dividend. On 31 May 2020, Early Bird Ltd offered 30 000 Class A
You are required to: answer the following questions, using the mark allocation as an indication of shares at R9 each to the public. Applications for 40 000 Class A shares were received by 10 July
the level of detail required. 2020, the closing date for share applications. The directors decided to issue the oversubscribed
shares. The shares were issued on 25 July 2020. The share issue had been underwritten by
1. The assets of a company belong to the shareholders and not to the company itself. Indicate Woodworm Bank for an agreed commission of 4%.
whether this statement is TRUE or FALSE. (1 mark)
This was the only share issue during the 2020 financial year. The balance on the Share Capital:
2. What is the minimum amount of a company’s shares that you must own if you wish to pass a Class A account as at 1 August 2019 was R236 000 CR. Early Bird Ltd has a year-end of 31 July.
general resolution on your own? (1 mark) All closing entries are processed at year-end.

3. Explain the difference between the role of a shareholder and the role of a director in a company. You are required to:
(2 marks)
1. Prepare the Share Capital: Class A account as it would appear in the general ledger of
4. A company is which of the following entities: a legal person; a natural person; a juristic person. Early Bird Ltd for the year ended 31 July 2020. (5 marks)
(Choose more than one if more than one is correct.) (2 marks)
2. Copy the table below and show how the above information will appear in the pre-adjustment,
5. Briefly explain the term ‘perpetual succession’. Name one business form in South Africa that post-adjustment and post-closing trial balances of Early Bird Ltd as at 31 July 2020. Use
has perpetual succession, and another that does not. (3 marks) “DR” or “CR” to indicate a debit or credit balance. Where there is a nil balance in a column for
an account, insert a dash (“-”). (5 marks)
6. What does it mean if an owner of a business has “limited liability”? (1 mark)
Pre-adj TB Post-adj TB Post-closing TB
7 There are 5 types of companies. One type is a public company. Name 3 more types. Share capital: Class A
(3 marks) Underwriter’s commission

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Application & allotment
8. What does the designation “(Pty) Ltd” behind a company’s name indicate? (1 mark)

9. The name of a public company will end with ‘Ltd’. Indicate what the name of the following types ACC2011S/2111S FINANCIAL REPORTING 1
of companies will end with: W02 CO2 – QUESTION 4
a. Personal liability company
b. State owned enterprise (2 marks)
Ignore VAT
Assume a dividends tax rate of 20%
10. What is the essential difference between a private company and a public company? (1 mark)
You have been provided with an extract of the financial statements of Elephant Ltd and are required
11. Are all public companies in South Africa listed on the JSE? (1 mark)
to answer certain questions.
12. Explain how the role of an auditor protects the public interest. (2 marks)
Elephant Ltd: Statement of financial position (extract)
as at 31 December 2020
13. Explain the distinction between the primary and the secondary markets for shares. Which of
2020 2019
these does the JSE provide? (3 marks)
Equity
Share capital: Class A ? 35 000 000
14. Briefly explain the difference between who receives cash when shares are “issued” versus when
Share capital: Class B 740 000 500 000
they are “sold”. (2 marks)
Retained earnings 104 000 000 67 000 000
15. Describe the role of an underwriter in a public share offer. (2 marks) ? 102 500 000
Liabilities
Long- term loan (15%) 90 000 000 21 000 000
Trade payables 450 000 800 000
Bank overdraft 4 000 12 000
90 454 000 21 812 000
 Extract of the notes to the financial statements ACC2011S/2111S FINANCIAL REPORTING 1
for the year ended 31 December 2020
W02 CO2 – QUESTION 5
Authorised share capital
15 000 000 Class A shares Ignore VAT
300 000 Class B shares Assume a dividends tax rate of 20%

Class A shares: Voting rights and no right to a fixed distribution Whippet Ltd: Extract of statement of financial position
Class B shares: No voting rights and a right to a preferred, cumulative, fixed distribution of 10% of as at 30 June 2019
the face value of R5. In years where a tranche of Class B shares is issued, dividends on that
tranche will be apportioned based on the number of months between the date of issue and the Equity
date of declaration. Share capital: Class A 87 000
Share capital: Class B 28 000
Additional information Retained earnings 670 000
785 000
1. 10 000 000 Class A shares were in issue on 31 December 2019. The directors decided to offer
2 000 000 Class A shares at an issue price of R11.60 during the 2020 financial year. Applications Authorised share capital
were received during the period 1 March 2020 to 15 May 2020, and the share issue was 30%
oversubscribed. On 1 June 2020, all the shares that were applied for were issued. 400 000 Class A shares: Voting rights and no right to a fixed distribution
100 000 Class B shares: No voting rights, the right to a fixed cumulative distribution of 5% of a face
2. The first Class B share issue took place during the 2013 financial year: the issue price was R5 value of R2, preferred to Class A distributions. In years where a tranche of Class B shares is
per share and share issue costs amounted to R20 000. The directors decided to issue more issued, dividends on that tranche will be apportioned based on the number of months between
Class B shares during the 2020 financial year. The Class B shares were issued to the the date of issue and the date of declaration.
shareholders on 1 July 2020 for R6 each. Class B dividends are declared on 31 December and
30 June if the company meets the solvency and liquidity test. Additional information

3. Total share issue costs of R1 200 000 were incurred in 2020, of which 95% related to the Class A x Class A shares were issued on 1 January 2011 for a price of 80c each. Share issue costs
share issue. amounted to R3 000. There have been no other issues of Class A shares.

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4. The directors declared a dividend of 25 cents per Class A share on 31 December 2020. The last x 14 000 Class B shares were issued on 1 July 2011. Share issue costs amounted to R2 000.
Class B dividend had been declared on 31 December 2018 and was paid on 28 February 2019. There were no other issues of Class B shares before 30 June 2010.
All dividends declared in the 2020 financial year were to be paid to shareholders on 15 March
2021. x On 1 January 2020, the company issued another 7 000 Class B shares, for R3 each. Share
5. On 31 December 2020, 40% of Class A shareholders and 80% of Class B shareholders (for all issue costs were R1 000.
tranches of shares issued) were South Africa-resident companies.
x On 30 June 2020, the company declared a dividend of 20 cents per Class A share.
You are required to:
x The most recent dividend before this had been declared on 30 June 2018.
1. Refer to additional information point 1. x 20% of Class A shareholders and 40% of Class B shareholders are SA-resident companies.
Prepare the share capital note to the financial statements of Elephant Ltd for the year ended
31 December 2020, for Class A shares only.
You are required to:
2. Refer to additional information point 2.
Calculate the number of Class B shares that were issued during the 2013 financial year. 1. Calculate the total dividends declared on 30 June 2020. Clearly show your calculations for the
Class A dividend separately from your calculations for the Class B dividend. (5 marks)
3. Refer to additional information points 2 and 3.
2. Prepared the journal entry to record the dividends declared on 30 June 2020. (8 marks)
Calculate the number of Class B shares that were issued on 1 July 2020.
3. Explain briefly the Companies Act requirements that must be met in order for a company to be
4. Refer to additional information point 4.
entitled to pay cash dividends to shareholders. (2 marks)
Prepare the closing entries that would have been processed by Elephant Ltd on 31 December
2020 for the dividends declared during the year.

5. Refer to the additional information point 5.

Show how the obligations in respect of dividends declared will be reported in the statement
of financial position of Elephant Ltd as at 31 December 2020.
 ACC2011S/2111S FINANCIAL REPORTING 1
W02 CO2 – QUESTION 6 You are required to:

Ignore VAT (30 MARKS: 36 MINUTES) 1. Calculate the net asset value of the company on 30 June 2019 and 30 June 2020. (2 marks)
Assume a dividends tax rate of 20%
2. Prepare the Share capital: Class A account as it would appear in the general ledger of Toy
Toy Town Ltd is a company that owns several successful toy stores around South Africa. The Town Ltd for the 2020 financial year. Ignore dates. (7 marks)
company has a June year-end. You have been provided with the following extract of the statement
of financial position as at 30 June 2020. 3. Calculate the number of Class B shares that were issued during the 2020 financial year.
(3 marks)
Toy Town Ltd: Statement of financial position (extract)
as at 30 June 2020 4. Prepare the general journal entries to record the declaration of dividends and the dividend
payments to shareholders during the 2020 financial year. Ignore narrations and closing
Additional entries. (13 marks)
2020 2019
information
5. Prepare the retained earnings account as it would appear in the general ledger of Toy Town
Ltd for the 2020 financial year. (5 marks)
Total assets R244 500 000 R132 500 000

Equity and liabilities ACC2011S/2111S FINANCIAL REPORTING 1

Share capital: Class A a, b & d ? 47 000 000
Share capital: Class B a, c & d 2 000 000 1 000 000 W03 CO3 – QUESTION 7
Retained earnings e ? 80 000 000
Long-term loan (9% per annum) 4 000 000 4 500 000
Assume a dividends tax rate of 20%
Assume a company income tax rate of 28%
Total equity and liabilities ? 132 500 000
Trains R Us Ltd is a listed company that manufactures and sells toy trains to wholesalers and to the

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Additional information
public at its own retail outlets. You have been provided with the following extracts from the notes to
a. The notes to the statement of financial position as at 30 June 2020 showed that Toy Town Ltd the 2019 and 2020 financial statements.
had an authorised share capital of:
x 50 000 000 Class A shares with voting rights, and no right to a fixed distribution Trains R Us Ltd: Notes to the financial statements of position (extract)
x 12 000 000 Class B shares with no voting rights, but a right to a fixed, cumulative annual as at 28 February 2019
distribution of 12% of a face value of R2, preferred to Class A dividends. In years where a
tranche of Class B shares is issued, dividends on that tranche will be apportioned based on Authorised share capital
the number of months between the date of issue and the date of declaration. 10 000 000 Class A shares: Voting rights, no right to a fixed distribution
2 000 000 Class B shares: No voting rights, the right to a fixed cumulative distribution of 10% of a
b. Prior to the 2020 financial year, the business had only one prior Class A share issue, at a price
face value of R2, preferred to Class A distributions.
of R9.60. Total share issue costs for that issue had been R1 000 000. On 31 May 2020,
3 125 000 new Class A shares were issued. The share issue was undersubscribed and the
underwriter, Risky Business, had to take up 25% of the shares offered to the public. The Issued share capital as at 28 February 2019
underwriter’s commission was 8%. Other share issue costs amounted to 88 cents per share 1 000 000 Class A shares
issued. The gross proceeds from the share issue was R15 625 000. 500 000 Class B shares

c. Prior to the 2020 financial year, the business had only one prior Class B share issue, at a price Trains R Us Ltd: Statement of financial position (extract)
of R2.50 per share. Total share issue costs for that issue had been R50 000. On 1 February
as at 29 February 2020
2020, a new issue of Class B shares was made at an issue price of R3 per share. On 15 January
2020, the closing date for applications, the offer had been oversubscribed by 30%. The directors 2020 2019
decided not to issue the oversubscribed shares. Share issue costs amounted to R20 000. Share capital: Class A ? 10 000 000
Share capital: Class B 950 000 950 000
d. Class A dividends of 20 cents per share were declared on 1 May 2020. All dividends were paid Retained earnings ? 38 900 540
on 30 June 2020. Class B dividends had last been declared on 1 May 2017. 40% of Class A Revaluation surplus 2 330 000 1 750 000
shareholders, and all of Class B shareholders, are SA-resident companies.
Total equity ? 52 150 540
e. Profit for the year amounted to R16 500 000.
 Additional information Alatha Construction Ltd: Notes to the financial statements (extract)
for the year ended 30 June 2019
1. The directors decided to issue shares in order to raise capital for an expansion into the Australian
Share capital Authorised Issued
market. On 1 June 2019, 1 500 000 Class A shares were offered to the public at an issue price
Class A shares 1 000 000 500 000
of 900c. The share issue was underwritten by Risk Takers Underwriters. The contract between
Trains R Us Ltd and Risk Takers Underwriters stipulated a commission of 6% and that such Additional information
commission would be paid on the day that the shares were issued. Applications for the shares
closed on 31 July 2019. The public applied for 80% of the shares, which were issued on 15 August 1. Profit before tax for the 2020 financial year was R1 800 000. Included in the calculation of profit
2019. Share issue costs (other than the underwriter’s commission) amounting to R72 000 were before tax was exempt income of R300 000 and non-deductible expenses of R120 000. SARS
paid on 16 August 2019. taxed R60 000 of receipts that were not recognised as income for the 2020 year. R200 000 of
expenses, though tax deductible, were not deductible in full: only 90% of these expenses could
be deducted.
2. On 30 June 2019, the directors declared a dividend of 40 cents per Class A share. The most
recent previous dividend on any class of shares had been declared on 30 June 2017. On 30 June 2. On 15 March 2020, Alatha Construction Ltd received a tax refund from SARS for the amount
2019, 20% of Class A shareholders and 60% of Class B shareholders were SA-resident due to the company on 30 June 2019. Provisional tax payments during the 2020 financial year
companies. Dividends were paid on 1 August 2019. were as follows:
31 December 2019 R240 000
3. The profit before tax for the year ended 29 February 2020 amounted to R15 028 000. This 30 June 2020 R230 000
includes R1 200 000 of income that is exempt from income tax, and R3 400 000 of expenses that
3. 300 000 Class A shares were offered to the public on 1 September 2019 at a price of R4 per
are not deductible for income tax purposes. However, Trains R Us Ltd is entitled to claim tax share. The share issue was underwritten by Ndawonde Merchant Bank at an agreed
deductions for R900 000 of spending that has not been expensed in the 2020 year. commission of 8%. This was the only substantial share issue cost. The public applied for
280 000 shares. The closing date for applications was 1 December 2019, and the shares were
4. The revaluation surplus is in respect of land. issued on 1 January 2020.

4. The directors declared a Class A dividend of 75 cents per Class A share on 30 June 2020.
You are required to:
You are required to:

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Prepare the statement of changes in shareholders’ equity of Trains R Us Ltd for the year ended
29 February 2020. 1. Prepare the SARS (Income tax) account of Alatha Construction Ltd as it would appear in the
general ledger for the year ended 30 June 2020. (9 marks)
2. Prepare the statement of changes in equity of Alatha Construction Ltd for the year ended
ACC2011S/2111S FINANCIAL REPORTING 1 30 June 2020. (9 marks)
W03 CO3 – QUESTION 8 PART B (10 MARKS : 12 MINUTES)

PART A (18 MARKS : 22 MINUTES) Sojus (Pty) Ltd has a year-end of 31 October.

Ignore VAT In April 2019, the directors of Sojus (Pty) Ltd determined that the business had cash on hand that
Assume a company income tax rate of 28% was surplus to operating requirements, and decided to invest the cash by buying shares on the JSE
until such time as they needed the money to build a new branch in 2021.
Alatha Construction Ltd sells building equipment to construction businesses in the Western Cape
Province of South Africa. You have been provided with the following: On 12 April 2019, Sojus (Pty) Ltd purchased 20 000 Class A shares in Maybru Ltd for 3610c each.
To date, Sojus (Pty) Ltd has not sold any of these shares, nor have they purchased any more.
Alatha Construction Ltd: Statement of financial position (extract)
as at 30 June 2019 On 20 October 2019, Maybru Ltd declared a dividend of 135c per share, to be paid on 4 November
2019 2019, to shareholders registered on 30 October 2019. Maybru Ltd has not declared any dividends
Current assets since then.
SARS (Income tax) 46 000
The closing price of Maybru Ltd’s Class A shares was 3720c per share on 31 October 2019, and
Equity 3650c per share on 31 October 2020.
Share capital: Class A 1 000 000
You are required to:
Retained earnings 1 600 000 Show how the above information would be reported in the statement of financial position and the
statement of comprehensive income of Sojus (Pty) Ltd, for both the 2019 and the 2020 financial
years. You do not need to show the effect on the bank or retained earnings accounts. (10 marks)
 ACC2011S/2111S FINANCIAL REPORTING 1
W03 CO3 – QUESTION 9
PART A (10 MARKS: 12 MINUTES)
Assume a dividends tax rate of 20%
Makealot Ltd (Makealot) is a SA-resident company with a year-end of 31 October. Makealot owns
shares in another company, Karoo Ltd (Karoo). These are Class B shares, which pay a cumulative
dividend of 8% of a face value of R4. In years when a tranche of Class B shares is issued, dividends
on that tranche will be apportioned based on the number of months between the date of issue and
the date of declaration. The shares are listed on the JSE and have been in issue since 2016. Karoo
has not issued any further Class B shares. On 31 October 2019, Makealot reported its investment
in Karoo at a carrying amount of R3 720 000.
PART B (22 MARKS: 26 MINUTES)
Planet Ltd is a listed company that manufactures and sells telescopes1 to wholesalers and to the
public at its own retail outlets. Planet Ltd has a 28/29 February financial year-end.
Additional information
1. Jupiter (Pty) Ltd is a SA-resident company that also has a financial year-end of 28/29 February.
Jupiter (Pty) Ltd owns 300 000 of the Class A shares of Planet Ltd as a trading investment. It
acquired these shares in two transactions: it acquired 100 000 shares in the secondary market
on 1 April 2019 for 820c each; and it made a further investment of 200 000 shares in the primary
market on 15 August 2019, when shares were offered to the public by Planet Ltd for 900 cents.
2. The closing share price of Planet Ltd on 29 February 2020 was 850c.

Karoo has had serious cash flow problems, and since paying a dividend on 30 June 2017 was not
legally able to declare any dividends for several years. Fortunately, the situation has improved and,
anticipating an increase in the share price, Makealot purchased 300 000 more of Karoo’s Class B
shares for cash on 30 April 2020. Karoo finally declared a dividend on both classes of its shares on
30 June 2020, which was paid on 27 July 2020.
3. On 30 June 2019, the directors of Planet Ltd declared a dividend of 40 cents per Class A share.
The most recent previous dividend on Class A shares had been declared on 30 June 2017.
Dividends were paid on 1 August 2019.
You are required to:

Information about the share price of Karoo’s Class B shares was as follows: 1. Prepare the general journal entry(ies) necessary to record additional information point 2 in
the books of Planet Ltd on 29 February 2020. Dates and closing entries are not required. If
Date Share price
no journal entry is required, explain why not. (2 marks)
31 October 2019 310c

10
30 April 2020 320c 2. Prepare the Investment asset account as it would appear in the books of Jupiter (Pty) Ltd
for the year ended 29 February 2020. (6 marks)
30 June 2020 480c

27 July 2020 384c

31 October 2020 390c 3. Prepare all the general journal entry(ies) in the books of Jupiter (Pty) Ltd for the year ended
29 February 2020 in respect of dividends declared by Planet Ltd. Provide dates, narrations,
and closing entries.
You are required to:

1. Identify the two kinds of income that Makealot earns from its investment in Karoo. Calculate 4. Show how the investment in Planet Ltd’s shares would be reported in the statement of
the amount of each kind of income for the year ended 31 October 2020. (8 marks) financial position as at 29 February 2020 and the statement of comprehensive income
for the year ended 29 February 2020 of Jupiter (Pty) Ltd. Your answer should include the
2. Would Makealot report any dividends tax expense associated with its investment in Karoo section in which the line-item(s) will appear. It is not necessary to show the effect on the bank
during the year ended 31 October 2020? If so, what is the amount of the expense? If not, explain and retained earnings accounts. (5
why not. (2 marks) marks)

5. Overall, did the share investment in Planet Ltd generate wealth for Jupiter (Pty) Ltd during
the year ended 29 February 2020? (1 mark)

1
An instrument for making distant objects appear larger and therefore nearer and which is commonly used to view
the solar system at night
 ACC2011S/2111S FINANCIAL REPORTING 1
W04 PPE1 – QUESTION 10
Ignore VAT
Round off figures to the nearest rand
Cape Flying Club Ltd (CFC) trains commercial pilots. The business uses the cost model to measure
aircraft (aeroplanes). During the year ended 31 December 2020, the following transactions took
place:
1) On 1 September 2020, CFC paid R610 000 for a light aircraft, which was delivered on 1 October
2020, when transport costs of R40 000 were paid. The aircraft required a flight certificate before
it could be flown. The certificate was issued free of charge on 31 October 2020, but the chief
trainer was on maternity leave, so the aircraft was brought into use on 30 November 2020. The
aircraft body is considered to make up 80% of the cost of the aircraft, and is depreciated on the
diminishing balance method at a rate of 14.3% p.a. It has an estimated useful life of 15 years,
and a residual value of R50 000. The engine makes up the remaining 20% of the cost of the
aircraft, and has an estimated useful life of 5 000 flying hours and a residual value of R20 000.
By 31 December 2020, the aircraft had flown for 300 hours.
2) The annual aircraft maintenance check cost R20 000 and was completed and paid for on
1 December 2020. On that date, R30 000 was also paid for a new GPS navigation system that
was installed in the aircraft that day. The GPS system has no residual value, and an estimated
useful life of 2 years, over which the benefits will be used evenly.
11
You are required to:
1. Refer to point 1
1.1. Prepare the general journal entry/ies required to record the events on 1 September 2020
and 1 October 2020. Show dates. Ignore narrations.
1.2. Explain your treatment of the transport costs in your answer to part 1.1 above.
2. Refer to point 2
2.1. Prepare the general journal entry/ies required to process the payments on 1 December
2020 for the annual maintenance check and for the GPS system. Show dates. Ignore
narrations.
2.2. Briefly explain your treatment of the two items in your answer to 2.1 above.
3. Refer to points 1 and 2
3.1. Prepare the adjusting journal entry/ies that would be processed on 31 December 2020 in
respect of depreciation. Ignore narrations and closing entries.
3.2. Show how the aircraft will be reported in the statement of financial position of CFC as at
31 December 2020.
3.3. How would your answer to 3.2 change if on 31 December 2020 the fair value less costs to
sell of the entire aircraft was R600 000 and the value in use was R580 000?
ACC2011S/2111S FINANCIAL REPORTING 1
W04 PPE1 – QUESTION 11
PART A (9 marks: 11 minutes)
Assume a VAT rate of 15%
Assume all suppliers are VAT vendors, unless told otherwise
Assume all prices include VAT, except on zero-rated or exempt supplies
Okiep Mining Ltd is a mining company that mines copper in the North-West province. As its existing
copper resources are beginning to run low, the company is constantly looking for new copper
deposits to mine. The financial year end of the company is 31 December. You have been provided
with the following additional information:
On 1 January 2019, the company purchased a piece of land next to one of its existing mines for R13
800 000 (including VAT). The company paid cash for the land on this date. Based on geological
surveys, the company expected to be able to extract 500 000 tons of copper ore from the land, after
which the copper reserves would be depleted. The company expects to mine the land for 12 years
after which the land can be sold for an estimated net selling price of R4 000 000 (excluding VAT).
The company uses the units of production method to depreciate mining land.
After buying the land, the company spent an additional R570 000 (excluding VAT) on removing
topsoil so that the land could be mined. The removal of the topsoil took place over a period of 2
months and was completed and paid for on 26 March 2019. The land was ready for use on
31 March 2019. Mining began on this date. By 31 December 2019, 25 000 tons of copper ore had
been extracted from the land.
You are required to:
Prepare ALL the general journal entries that would have been processed by Okiep Mining Ltd in
respect of land for the year ended 31 December 2019. Show dates. Ignore narrations. (9 marks)
PART B
Ignore VAT
Company C, a business based in Cape Town, has a 31 December year-end. On 1 August 2018,
Company C ordered machinery from Company D, a business based in Gauteng. The purchase price
of the machinery was R370 000. On the date of the order, Company C paid 35% of the purchase
price via internet transfer as a deposit to secure the order. The machinery was loaded onto the
delivery truck on 15 August 2018. On this date control of the machinery passed from Company D
to Company C. Due to road closures as a result of heavy winter rains in the Free State, the delivery
truck’s arrival in Cape Town was delayed by four days. The delivery truck arrived at the premises of
Company C on 31 August 2018. On this date, transport costs and packaging costs amounting to
R43 000 were paid to the transport company, and the outstanding balance owing to Company D was
settled. The machine was ready for use on 31 August 2018.
The future economic benefits from using the machinery are expected to flow to the company evenly
over 10 years, and the machinery’s residual value is R54 500.
You are required to:
1. Prepare the general journal entries to record the transactions that occurred on the dates
underlined. Show dates. Ignore narrations. If no journal entry is required on one of the
underlined dates, state this fact, and explain why not. (7 marks)
 2. Copy the table below and use it to show how the above information will appear in the pre- PART B (6 marks: 7 minutes)
adjustment, post-adjustment and post-closing trial balances of Company C as at
31 December 2019. Use “DR” or “CR” to indicate a debit or credit balance. Where there is a nil Ben, a friend of yours, is the junior accountant at Rewind (Pty) Ltd and has asked for your advice on
balance in a column for an account, insert a dash (“-”). (8 marks) the treatment of PPE, as this was not Ben’s strongest point while studying. You have been provided
with the following information regarding vehicles at 31 December 2019, the financial year-end:
Pre-adj TB Post-adj TB Post-closing TB
Current carrying amount R680 000
PPE: Machinery
Fair value less costs to sell R563 000
Accumulated depreciation: Value in use R578 000
machinery
Ben says the following to you: “I know that if I was dealing with inventory, I would write the inventory
Depreciation expense down to the net realisable value, which is much like fair value less costs to sell. I think the principle
would be the same for PPE, so I am going to write vehicles down to R563 000. What do you think?”

You are required to: Explain whether you agree or disagree with Ben. Your answer must include
ACC2011S/2111S FINANCIAL REPORTING 1 the general reason that accountants impair assets, and the specific reasons that they impair items
of PPE in the way that they do. (6 marks)
W04 PPE1 – QUESTION 12

PART A (22 marks: 26 minutes) ACC2011S/2111S FINANCIAL REPORTING 1

Ignore VAT
W05 PPE2 – QUESTION 13
Assume a market-related interest rate of 12%
Round off all figures to the nearest rand (23 Marks: 28 Minutes)
Ignore VAT
Granger Ltd has a 30 June financial year-end and manufactures an impressive range of pens. In
order to produce a new type of pen, Granger purchased a machine on 1 July 2018 from Luna (Pty) Health First (Pty) Ltd (Health First) has a year-end of 30 September. The following information
Ltd, who have allowed Granger to pay R728 000 for the machine on 30 June 2019. This is beyond was contained in the non-current asset register on 1 October 2019:

12
normal credit terms. Granger paid R5 000 cash on 1 July 2018 to install the machine. Granger has
determined that this machine will be used by them for 6 years and the residual value is R150 000. PROPERTY, PLANT AND EQUIPMENT (PPE)
They will depreciate the machine at 21.78% on the diminishing balance method. as at 1 October 2019

On 1 January 2020, Granger spent R15 000 cash to purchase a new part which enables the machine PPE consists of vehicles only. All vehicles are measured using the cost model.
to operate more efficiently. The new part will be depreciated on the straight-line basis over its
expected useful life of 2 years, after which it will be scrapped. Vehicles
Gross carrying amount R7 230 000
You are required to: Accumulated depreciation R3 923 500
Total residual value R1 625 000
1. Prepare the journal entry(ies) that would appear in the general journal of Granger Ltd on 1 July
2018 relating to the purchase of the machine. Provide narrations. (4 marks)
2. Prepare the journal entry(ies) that would appear in the general journal of Granger Ltd on 30 June Additional information: Vehicles
2019 relating to the payment for the machine. Provide narrations. (4 marks) 1. All vehicles owned by the business on 1 October 2019 had been bought on 1 April 2016 and
3. Prepare the general journal entry(ies) required on 1 January 2020 for Granger Ltd to record the were brought into use on that date. Vehicles are depreciated on the straight-line method over
purchase of the new part. Ignore dates and narrations. (2 marks) an estimated useful life of 5 years.
4. Refer to your answers to required 1 and required 3 above. Identify with reasons your treatments 2. On 1 September 2020, one of Health First’s trucks was sold for R300 000 cash. This truck
of the installation costs on 1 July 2018 and the cost of the new part on 1 January 2020. had cost R903 750 and had a residual value of R186 000.
(4 marks)
3. On 30 September 2020, a new delivery truck was delivered to the premises of Health First in
5. Calculate the depreciation expense for the year ended 30 June 2020. (5 marks) Gauteng. The purchase price was R1 218 000 and was paid in cash. The new delivery truck
6. Show how the machine will appear on the statement of financial position of Granger Ltd as at had a residual value of R278 000 and was brought into use once an anti-hijacking device had
30 June 2020. (3 marks) been installed on 15 October 2020 at a cost R5 890. The anti-hijacking device has the same
estimated useful life as the truck itself, which is 5 years.
 4. On a daily basis, Health First provides staff with transport to and from their homes. On ACC2011S/2111S FINANCIAL REPORTING 1
30 September 2020, the carrying amount of the minibus used for this purpose was R135 000,
the value in use was R131 000 and the fair value less costs to sell was R131 800. W05 PPE2 – QUESTION 15
5. Other than those mentioned above, there were no acquisitions or disposals of vehicles during
the 2020 financial year. (37 Marks: 44 Minutes)

Ignore VAT
You are required to:
Our forests, our future (Pty) Ltd is a private fire-fighting company that assists farmers, plantation
1. Prepare all the general journal entry/ies necessary to record the sale of the delivery truck owners and the government in preventing and controlling fires. You have been asked to assist with
on 1 September 2020. Ignore dates, narrations and year-end closing entries. (10 marks) the preparation of the financial statements for the year ended 30 June 2020. You have been
provided with the following information:

2. Prepare the PPE reconciliation note for vehicles only for the year ended 30 September 1. The Property, plant and equipment (PPE) of Our forests, our future (Pty) Ltd consists of
2020. (13 marks) Equipment and Vehicles, which are measured using the cost model. The PPE reconciliation
note for the year ended 30 June 2019 contained the following information:

ACC2011S/2111S FINANCIAL REPORTING 1 Balances at 1 July 2019 Equipment Vehicles

Gross carrying amount 1 200 000 2 500 000
W05 PPE2 QUESTION 14 – SUGGESTED SOLUTION Accumulated depreciation ? (968 000)
Carrying amount ? 1 532 000
(16 marks: 19 minutes)
2. The equipment consists of a water machine used to extinguish fires. The water machine had
Ignore VAT been purchased on 1 July 2015 (the start of the business). The machine is depreciated on the
units of production method, using an estimated useful life of 200 000 hours. The water machine
Xolani’s Educational Supplies (Pty) Ltd (XES) manufactures a range of classroom equipment. The has no residual value. By 30 June 2019, the water machine had been used for 125 000 hours.
company’s year-end is 30 June. You have been given the following information regarding land.
x Land is measured on the revaluation model and is not depreciated. Land is revalued every 3. On 1 September 2019 the company ordered a new part for the water machine. The part would

13
two years. allow the company to dramatically increase the distance over which the water could be sprayed.
x The company’s only item of land was purchased on 1 September 2014, for a cost of The part cost R350 000 and could be used for 70 000 hours. The company paid for the part on
R3 600 000, and has been revalued as follows: 15 September 2019. On 1 October 2019 the part arrived from Japan and was delivered to the
company on the same day, at an additional delivery cost of R15 000 which was paid for by
Date of revaluation Fair value cheque. On 1 November 2019, the part was installed at an installation cost of R35 000, paid that
day. The part was ready for use on 1 November 2019. The company only started using the water
30 June 2016 R4 000 000 machine again on 1 December 2019. The part will be able to be sold at the end of its estimated
useful life for R55 000.
30 June 2018 R3 700 000

30 June 2020 R3 000 000 4. From 1 July 2019 to 31 August 2019 the water machine had been used for 18 000 hours. During
September and October, the water machine was used for 5 000 hours per month. The water
machine was not used during November and was used for a total of 28 000 hours from
1 December 2019 to 30 June 2020.
You are required to:
5. Vehicles consist of two identical fire trucks (Fire truck A and B), both purchased and ready for
1. Assume that on 15 June 2019, XES sells the land for R3 750 000 cash, and that the directors use on 1 July 2015 (the start of the business). The vehicles will be used evenly over their
of XES prefer to keep retained earnings as high as possible. Prepare all the journal entries estimated useful life of 10 years. The residual value for EACH vehicle amounts to R40 000. No
required to process the sale of the land. Ignore dates and narrations, but include closing entries. additions or disposals had been made prior to 1 July 2019.
(10 marks)
6. 9. Fire truck A was sold on 1 December 2019 for R690 000. On 1 February 2020 the company
2. Assume that XES has not sold the land, and instead the land’s fair value is established to be paid R1 450 000 for a new truck with an estimated useful life of 8 years. The fire truck was
R3 000 000 on 30 June 2020. Prepare the PPE reconciliation note for land as it would appear delivered and ready for use on the same day. The company estimates that a similar 8-year-old
in the notes to XES’s financial statements for the year ended 30 June 2020. (6 marks) fire truck could be sold for R55 000 if repairs of R5 000 are carried out on the fire truck.

7. On 30 June 2020, Fire truck B was damaged when a runaway fire unexpectedly changed
direction. After the damage had been assessed, it was estimated that Fire truck B could be sold
for R645 000, assuming repairs amounting to R45 000 were done. The value in use of fire
truck B amounted to R590 000.
 3. On 30 September 2019, the business owned two identical vehicles, vehicle A and vehicle B.
Both vehicles were brought into use on 1 October 2018. Vehicles are depreciated on the
You are required to: straight-line method.
1. Prepare ALL the general journal entries for the year ended 30 June 2020 to record the
transactions in point 3 of the information provided above. Dates are required but no narrations 4. On 30 April 2020, Vehicle A was sold for 20% more than the carrying amount of the vehicle on
or closing entries are required. (5 marks) the date of sale.

2. Calculate the depreciation expense for equipment for the year ended 30 June 2020. 5. On 30 September 2020, Vehicle B had a value in use of R285 000 and a fair value less costs to
(6 Marks) sell of R280 000.

3. Prepare the general journal entries to record the transaction in point 7 of the information
6. The carrying amount of vehicles was R845 000 on 30 September 2020. Any vehicles acquired
provided above. Narrations, dates and closing entries are not required. Show all relevant
information used in calculating the amount used in the journal entry. (5 marks) were done so on the last day of the financial year.

4. Prepare the PPE Reconciliation Note of Our forests, our future (Pty) Ltd for the year ended 7. Loans of R80 000 were raised during the year ended 30 September 2020.
30 June 2020, for both classes of PPE. You are NOT expected to provide a total column.
(21 marks) 8. The company issued 100 000 Class A shares during the year ended 30 September 2020. Share
issue costs amounted to R20 000. As at 30 September 2020, these costs had not been paid.
ACC2011S/2111S FINANCIAL REPORTING 1
W06 SCF1 – QUESTION 16 You are required to:

Ignore VAT Prepare the investing activities section and financing activities section of the statement of cash
flows of HealthZone (Pty) Ltd for the year ended 30 September 2020.
HealthZone (Pty) Ltd has a year end of 30 September. You have been provided with the following
extracts of the 2019 and 2020 post-closing trial balances:

14
ACC2011S/2111S FINANCIAL REPORTING 1
HealthZone (Pty) Ltd: post-closing trial balances W06 SCF1 – QUESTION 17
as at 30 September
2020 2019 Ignore VAT (18 Marks: 22 Minutes)
Share capital: Class A 1 700 000 1 000 000
Tractor World Ltd has a year end of 31 July. You have been provided with the following information:
PPE: Land 1 320 000 650 000
Tractor World Ltd: Statement of financial position (extract)
PPE: Vehicles ? 870 000
as at 31 July
Accumulated depreciation: Vehicles ? 138 000 2020 2019
Accumulated impairment: Vehicles ? 0 Non-current assets:
Loan: FBN Bank 250 000 400 000 Property, plant and equipment R1 595 050 R4 450 000
Revaluation surplus 245 000 180 000 Investments R1 050 000 R875 000

Additional information
Current assets:
1. It is company policy to purchase all items of PPE for cash.
Bank - R32 560

2. Land is not depreciated. Land is measured on the revaluation model. No land was sold during
the financial year ended 30 September 2020.
Current liabilities

Bank overdraft R54 390 -

 All machinery in the asset register on 1 September 2019 had been purchased on 1 November 2017
Additional information and had a total residual value of R400 000. On 31 March 2020, machinery with a cost of R430 000
x The only class of property, plant and equipment is equipment. The balance on the and a residual value of R145 000 was sold for cash at a loss of R12 250. No other machinery was
PPE: Equipment account on 1 August 2019 was R10 000 000. sold during the 2020 year.

x All equipment controlled by the business on 1 August 2019 had been purchased on 1 August
2016 and had a total residual value of R750 000. On 1 August 2019 this equipment was
expected to generate benefits evenly over its total estimated useful life of 5 years.
x On 1 May 2020, new equipment costing R340 000 was purchased for cash. The new equipment
has a residual value of R60 000 and is expected to be used for a total of 70 000 hours. On
31 July 2020, the equipment had been used for 3 000 hours.
x On 31 July 2020, a piece of equipment was sold for cash at a profit of R67 050.
x The Investments account represents investments in shares. During the 2020 financial year,
Tractor World Ltd sold investments with a carrying amount of R300 000 for a loss R80 000. This
loss was subtracted from the fair value adjustment at year-end to report a net investment gain
of R150 000 in the statement of comprehensive income for the year.
You are required to:
1. Calculate the depreciation expense of Tractor World Ltd for the year ended 31 July 2020.
(4 marks)
Land
Apart from machinery, the other class of PPE is land. The revaluation model is used to measure
land, which is not depreciated. During the year ended 31 August 2020, the revaluation surplus for
land increased from R400 000 to R750 000. This was despite a transfer of R150 000 from
revaluation surplus to retained earnings after a plot of land with a carrying amount of R2 150 000
was sold for a loss reported in profit or loss of R17 000. The notes to the financial statements for the
year ended 31 August 2020 contained the following information for land:
2020 2019
Gross carrying amount 12 600 000 10 900 000
Share capital
On 1 February 2020, Phikelela Ltd offered 500 000 shares to the public at a price of 2500c each.
The share issue was underwritten at an agreed commission of 3%. On 1 April 2020, the closing date
for applications, the application for shares had been oversubscribed by 15%. The directors chose to
issue the oversubscribed portion. On 1 June 2020, the shares were issued, and the underwriter’s
commission was paid. Other share issue costs amounted to R160 000, 30% of which was still owing
on 31 August 2020. This was the only share issue during the 2020 year.

Loan
2. Prepare the investing activities section of the statement of cash flows of Tractor World Ltd for
On 31 August 2019 and 31 August 2020, the long-term loan account had a balance of R350 000 and

15
the year ended 31 July 2020. Show calculations clearly. (11 marks)
R240 000 respectively. No further loans had been taken out during the year ended 31 August 2020.
3. Prepare the last three lines of the statement of cash flows of Tractor World Ltd (the reconciliation
You are required to:
of cash and cash equivalents) for the year ended 31 July 2020. (3 marks)

Prepare the investing activities and financing activities sections of the statement of cash flows
of Phikelela Ltd for the year ended 31 August 2020. Show cash flows for machinery and land
ACC2011S/2111S FINANCIAL REPORTING 1 separately. (20 marks)
W06 SCF1 – QUESTION 18

Ignore VAT (11 Marks: 13 Minutes)

Phikelela Ltd is listed on the JSE. The following information relates to its financial year ended
31 August 2020.

Machinery
The cost model is used to measure machinery, which is depreciated on the straight-line method over
an estimated useful life of five years. The notes to the financial statements for the year ended
31 August 2020 contained the following information for machinery:

2020 2019
Gross carrying amount 2 320 000 1 900 000
Accumulated depreciation ? 550 000
 ACC2011S/2111S FINANCIAL REPORTING 1
ACC2011S/2111S FINANCIAL REPORTING 1
W07 SCF2 – QUESTION 20
W07 SCF2 – QUESTION 19
Parts A, B and C are independent questions
You have been provided with the following for Elula Ltd:
PART A (6 marks: 7 minutes)
Elula Ltd: Statement of financial position (extract) A business had the following transactions:
as at the financial year-end 1. On 31 August 2020, the business sold inventory for R6 500 cash (cost R2 300).
Year 2 Year 1 2. On 31 August 2020, the business settled R15 000 of trade payables.
R R 3. On 31 August 2020, the business received the telephone bill for August 2020 amounting to
Trade receivables 12 000 9 000 R3 000. The bill was paid on 10 September 2020.
4. On 31 August 2020, the business recognised an impairment loss amounting to R3 200.
Inventories 20 000 28 000
Accrued rent income 500 400 For each of the above transactions, you are required to:
Trade payables 10 000 12 000
Prepaid operating expenses 800 200 x If the transaction does not lead to an inflow/outflow of cash, indicate “no effect”
x If the transaction does lead to an inflow/outflow of cash:
Accrued operating expenses 8 400 8 800
o Indicate whether it will lead to an inflow or outflow of cash.
o Indicate the amount of the inflow or outflow of cash.
Elula Ltd: Statement of comprehensive income (profit or loss section only)
o Indicate whether it will be disclosed as part of the “cash from customers” or “cash paid to
for Year 2 suppliers and employees” amount in the statement of cash flows for the year ended
R 31 August 2020.
Sales income 92 000
Cost of sales expense (49 000) PART B (3 marks: 4 minutes)
Gross profit 43 000
Net operating costs (19 000) In its statement of comprehensive income for the year ended 31 August 2020, a business reported
stationery expense of R12 400, and in its statements of financial position, it reported stationery on
Operating profit 24 000

16
hand of R2 500 on 31 August 2020, and R4 500 on 31 August 2019.
Finance costs (2 000)
Taxation expense (4 000) You are required to:
Profit for year 18 000
Calculate how much cash the business paid for stationery during the year ended 31 August 2020.

Net operating costs include: PART C (4 marks: 5 minutes)

x Depreciation expense 3 000 Bell Ltd: Statement of financial position (extract)

x Impairment loss 1 000 as at 31 August 2020
3 000 2020 2019
x Rent income
Current assets
x Bad debts expense 1 400
Trade receivables R215 000 R321 000
x Profit on sale of non-current asset 3 100
Accrued rent income R4 000 -
x Salaries and wages expense 7 000
x Interest income 1 200 Additional information

The following income and expenses arose in the year ended 31 August 2020:
You are required to: Sales income R1 500 000
Rent income R48 000
1. Calculate the amount of cash received from customers for Year 2. Bad debts expense (R65 000)

2. Prepare the cash generated from operations subsection of the statement of cash flows of You are required to:
Elula for Year 2. (You will later be taught that the only method you currently know for preparing 1. Calculate the cash received from sales customers in the 2020 financial year. (2 marks)
this subsection is called the direct method.)
2. Calculate the cash received from rental customers in the 2020 financial year. (1 mark)
3. Calculate TOTAL cash received from customers in the 2020 financial year. (1 mark)
 ACC2011S/2111S FINANCIAL REPORTING 1
ACC2011S/2111S FINANCIAL REPORTING 1
W07 SCF2 – QUESTION 21
W08 SCF3 QUESTION 22
Ignore VAT

Snow Adventures Ltd: Statement of comprehensive income (10 marks: 12 minutes)

for the year ended 30 June 2020
Statement of comprehensive income of Kayak Adventures Ltd
(in rands) for the year ended 30 June 2020
Sales income 300 000
Cost of sales (124 000) Sales income 150 000
Gross profit 176 000 Cost of sales expense (62 000)
Net operating costs (82 000) Gross profit 88 000
Operating profit 94 000 Net operating costs (41 000)
Finance costs (12 000) Operating profit 47 000
Profit before tax 82 000 Finance costs (6 000)
Taxation expense (22 000) Profit before tax 41 000
Profit for the year 60 000 Taxation expense (11 000)
Profit for the period 30 000
Snow Adventures Ltd: statement of financial position (extract)
as at 30 June
(in rands) 2020 2019 Statement of financial position of Kayak Adventures Ltd (extract)
Inventory 3 000 5 000 as at 30 June 2020
Trade receivables 25 000 7 000 2020 2019
Prepaid operating expenses 8 000 6 000 Trade receivables 12 500 3 500
Accrued commission income 1 000 4 000 Inventory 1 500 2 500
Bank 5 000 2 000 Trade payables 11 000 9 000
Trade payables 22 000 18 000 Accrued operating expenses 2 500 5 000

17
Accrued operating expenses 5 000 10 000
Accrued interest income 2 500 1 500 Additional information

Additional information Net operating costs include:

Depreciation expense R6 000
Net operating costs for the 2020 financial year include: Bad debts expense R2 000
Loss on sale of PPE R3 000
Depreciation expense R12 000 Rent expense R8 500
Bad debts expense R5 000 Interest income R5 000
Rent expense R28 000
Profit on sale of PPE R3 000 You are required to:
Bad debts recovered R2 000
Commission income R28 000 1. Prepare the cash generated from operations subsection of the Statement of Cash Flows for
Interest income R15 000 Kayak Adventures Ltd for the year ended 30 June 2020 using the indirect method.
(8 marks)
You are required to:
2. Explain your treatment of the increase in trade receivables in preparing the cash generated
Prepare the cash generated from operations subsection of the statement of cash flows of Snow from operations subsection in your answer to part 1 above. (2 marks)
Adventures Ltd for the year ended 30 June 2020. (You will later be taught that the only method you
currently know for preparing this subsection is called the direct method.) (17 marks)
 Tornado Ltd: Profit and loss section of the statement of comprehensive income
ACC2011S/2111S FINANCIAL REPORTING 1 for the year ended 31 December 2019
Notes R
W08 SCF3 QUESTION 23 Sales 2 400 000
Less: Cost of sales (1 200 000)
(13 marks: 16 minutes) Gross profit 1 200 000
Net operating costs (iii) (986 375)
1. The cash generated from operations subsection of a statement of cash flows may be prepared Operating profit 213 625
using the indirect method. Identify: Interest expense (70 125)
Profit before tax 143 500
a. The line-item that is the starting point of the cash generated from operations subsection
Taxation expense (40 180)
on the indirect method. (1 mark)
Profit for year 103 320
b. The line-item that is the endpoint of the cash generated from operations subsection on the
indirect method. (1 mark) Tornado Ltd: Statement of changes in equity (extract)
c. Which of your above answers – (a) or (b) – would be the same if we had asked instead for the year ended 31 December 2019
about the cash generated from operations subsection on the direct method? (1 mark) Share Retained Total
capital earnings
2. What is the correct treatment of bad debts recovered in the cash generated from operations
Balance at 31 December 2018 ? R150 000 R600 000
subsection using the indirect method? Briefly explain your answer. (4 marks)
Total comprehensive income R103 320 R103 320
3. What is the correct treatment of a decrease in trade receivables in the cash generated from Dividends (R42 750) (R42 750)
operations subsection using the indirect method? Briefly explain your answer. (4 marks) Issue of shares ?
Balance at 31 December 2019 ? R210 570 ?
4. The statement of comprehensive income and the statement of cash flows both report financial
performance, but on different bases of accounting. Identify the basis used by each statement. Tornado Ltd: Notes to the financial statements
(2 marks) for the year ended 31 December 2019

i) Receivables and prepayments 2019 2018

ACC2011S/2111S FINANCIAL REPORTING 1 Trade receivables R118 500 R60 300

18
SARS (Income tax) Nil R4 700
W08 SCF3 QUESTION 24 Prepaid operating expenses R13 750 R19 250

(25 marks: 30 minutes) ii) Payables and accruals 2019 2018

Trade payables R136 800 R77 500
Ignore VAT SARS (Income tax) R5 400 Nil
Assume a dividends tax rate of 20% SARS (Dividends tax) R2 800 R1 500
Accrued interest expense R4 300 R5 100
The following information was extracted from the financial records of Tornado Ltd for the financial Shareholders for dividends R20 000 R21 000
year ended 31 December 2019:
iii) Net operating costs include the following:
Tornado Ltd: Extract from the statement of financial position Employee costs R726 300
as at 31 December Depreciation expense R82 500
2019 2018 Profit on sale of PPE R100 000
Notes R R Interest income R20 000
Current assets
Inventory 177 500 139 000
Receivables and prepayments (i) 132 250 84 250 You are required to:
Bank Nil 71 750
1. Prepare the operating activities section of the statement of cash flows, using the indirect
Current liabilities method. (14 marks)
Payables and accruals (ii) 165 000 100 000
Bank overdraft 28 500 Nil 2. Prepare cash generated from operations subsection of the statement of cash flows on the
direct method. (11 marks)
Note: it is important to read the different requirements correctly. In particular, apart from the different
methods, note that part 1 requires the entire Operating activities section; whereas part requires only
the CGFO subsection.
 ACC2011S/2111S FINANCIAL REPORTING 1 Greenfields (Pty) Ltd: Statement of comprehensive income
for the year ended 30 September 2017
W09 SCF4 QUESTION 25 R
[This was the only question on the 2017 Test 2 paper.] Sales income 3 241 875
Ignore VAT Cost of sales expense (1 181 250)
Assume a company income tax rate of 28% and a dividends tax rate of 20% Gross profit 2 060 625
Net operating costs (874 375)
Greenfields (Pty) Ltd (GF) manufactures and sells garden furniture. The business is based in Paarl Operating profit 1 186 250
Industria in the Western Cape and has a financial year-end of 30 September 2017. You have been Interest expense ?
provided with the following information: Profit before tax ?
Taxation expense ?
Greenfields (Pty) Ltd: Statements of financial position Profit for year ?
as at 30 September
2017 2016 Additional information
Non-current assets:
Property, plant & equipment (PPE) 760 000 568 000 1. The company’s taxable income for the year ended 30 September 2017 was equal to profit before
Investment: Enviro Ltd ? 400 000 tax (i.e. nothing—not even dividend income—caused a difference between taxable income and
profit before tax). During the year ended 30 September 2017, GF made provisional tax
Current assets: payments of R200 000 on 28 March 2017, and R120 000 on 25 September 2017.
Trade receivables 302 500 286 000
Inventory 198 000 264 200 2. On 30 September 2017, the directors of GF declared a final dividend. This was the only dividend
SARS (income tax) ? 5 200 declared during the year ended 30 September 2017. The most recent previous dividend had
Bank 0 353 500 been declared on 30 September 2016. Dividends are paid one month after declaration date.

Total assets ? 1 876 900 3. GF has a spare office which has been rented out to an independent bookkeeper for the past two
years. Rent is received in advance on the last day of every month. The rental fee increases by
10% from 1 June each year. Rent is recorded as income when received.

19
Equity:
Share capital: Class A 100 000 100 000
Retained earnings 1 087 000 583 000 4. GF owns Class B shares in Enviro Ltd. These shares pay a cumulative dividend of 7% of the
face value of 300c. GF first purchased some of these shares on 30 June 2016. GF purchased
Non-current liabilities: a further 180 000 of these shares on 31 January 2017. All Class B shares purchased by GF
Loans 400 000 600 000 have been in issue since 2013. GF purchased them on the JSE which has provided the following
share price information for Enviro Ltd’s Class B shares:
Current liabilities:
Trade payables 323 000 367 000 30 June 2016 320c
Accrued operating expenses 14 500 15 200 30 September 2016 400c
Accrued interest expense 5 900 7 200 31 January 2017 380c
Rent income received in advance ? 4 500 31 March 2017 370c
Shareholders for dividends 264 960 184 000 30 September 2017 385c
SARS (dividends tax) 23 040 16 000
Bank overdraft ? 0 5. On 28 February 2017, Enviro Ltd declared a dividend on its Class B shares. The dividend was
paid on 31 March 2017. The last dividend declared by Enviro Ltd was on 28 February 2015.
Total equity and liabilities ? 1 876 900
6. Vehicles are measured using the cost model, and expected to generate benefits evenly over a
period of 5 years. Vehicles are sold and purchased for cash. On 1 May 2017, a vehicle with a
cost of R120 000 was sold for R23 600. This vehicle had been depreciated on the assumption
that the residual value was zero. On 1 October 2016, the accumulated depreciation relating to
this vehicle had been R86 000.

7. GF made loan repayments during the year ended 30 September 2017 amounting to R250 000.
 ACC2011S/2111S FINANCIAL REPORTING 1
8. Net operating costs for the year ended 30 September 2017 included the following:
W10 LIA – QUESTION 26
R
Bad debts expense 32 000
Note to students: this question mostly involves a revision of the Liabilities material from Financial
Depreciation expense 138 000
Accounting, but you are now expected to include the new FR1 material in answering this sort of
Salaries and wages expense 240 000
question. In particular, you should mention the type of obligation (see Lesson 1), identify the
Electricity expense 42 000
obligating event as the event after which the business has no practical ability to avoid the obligation
Stationery expense 78 500
Investment gain or loss ? (see Lesson 2), and use the recognition criteria as described in IAS37 (see Lesson 4).
Profit or loss on sale of vehicle ?
Bad debts recovered 6 000 Ignore VAT
Dividend income ?
Rent income ? Selma Andre is a freelance photographer based in Cape Town. Her business is called Photos for
Africa (Pty) Ltd. Her usual jobs include weddings, graduations and other special events. She charges
You are required to: R4 000 per day, for which her customers receive a complete collection of all of the digital photos she
took. Photos for Africa (Pty) Ltd has a financial year-end of 31 December.
1. The statement of cash flows and the statement of comprehensive income both report financial
performance, but with a key difference. Identify and explain this difference. (3 marks) Selma insists on a 40% deposit when a booking is made. By 31 December 2020 she had received
deposits for five days of work during January 2021. Selma keeps her own books and recorded the
2. Prepare the retained earnings account as it would appear in the general ledger of Greenfields deposits as sales income when they were received.
(Pty) Ltd for the year ended 30 September 2017. Ignore dates. (4 marks)
You are required to:
3. Prepare the SARS (income tax) account as it would appear in the general ledger of Greenfields
(Pty) Ltd for the year ended 30 September 2017. (7 marks)
1. Prepare the adjusting general journal entry/ies required on 31 December 2020 to report the
above information correctly. Ignore dates and narrations. (3 marks)

20
4. Calculate the amount included in the net operating costs of Greenfields (Pty) Ltd for the year
ended 30 September 2017, relating to each of the following:
(a) Dividend income (4 marks) 2. Explain in detail why the element you have credited in part 1 above should be recognised. You
(b) Investment gain or loss (indicate whether the business made a gain or loss) (4 marks) are required to use the element definition and recognition criteria. (9 marks)

5. Prepare the statement of cash flows of Greenfields (Pty) Ltd for the year ended 30 September 3. State whether you think the deposits affected Selma’s wealth in the 2020 financial year. Briefly
2017, using the direct method. Show and reference your workings clearly. (50 marks) justify your answer. (3 marks)

6. Suppose that you were asked to prepare the statement of cash flows of Greenfields (Pty) Ltd
for the year ended 30 September 2017, using the indirect method. Describe and explain how ACC2011S/2111S FINANCIAL REPORTING 1
the information about rent in additional information point 3 would affect the cash generated
from operations subsection. (3 marks) W10 LIA – QUESTION 27
Ignore VAT
(Total: 75 marks)
Nar (Pty) Ltd (Nar) is a wholesaler of fireworks, supplying toy stores and novelty shops around South
Africa. You have been provided with the following information relating to the financial year ended
31 December:

1. In December 2019, Nar’s marketing director signed a contract on behalf of the company which
has committed Nar to supplying fireworks for free to an event in support of Animal Rescue. The
usual selling price of these fireworks would be R41 600. Nar uses a usual mark-up of 30% on
cost. When the accountant questioned the wisdom of the marketing director’s decision, she
responded that if the business breached the contract now, the legal costs and the public
relations consequences would cost Nar at least R100 000. No journal entries have yet been
processed in respect of this contract.
 2. The marketing director also explained that the reason Nar is supporting Animal Rescue is for
some good publicity to counteract the news that Nar is being sued by a group of dog owners.
The group has filed a lawsuit against Nar, claiming that their dogs suffered trauma when the
company’s fireworks were used at an event in May 2019. Nar’s lawyers advise that the chances
of Nar being required to pay damages are as follows: 10% chance of R10 million; 10% chance
of R5 million; 10% chance of R1 million. There is a 70% chance that Nar will have to pay nothing.
3. Nar’s sales contracts include a 12-month guarantee: if defective fireworks are returned within
one year of purchase, Nar will replace them free of charge. On 31 December 2019, Nar
estimated that in the 2020 financial year, the cost of replacing fireworks sold in 2019 would
amount to 3% of 2019’s cost of sales expense.
You are required to:
1. Refer to information point 1. Prepare any adjusting journal entry(ies) necessary on
31 December 2019 for of Nar (Pty) Ltd to report the contract signed by the marketing director. If
you do not believe an adjusting journal entry is necessary, state this. Whether or not you believe
an adjusting journal entry is necessary, briefly explain your answer. Your explanation should
not refer to the Conceptual Framework definition or the recognition criteria. (5 marks)
Note: the lessons for the week did not discuss the debit side of the entry you require. You should
be able to work it yourself, however, by thinking about the definition of an expense.
2. Refer to information point 2. Describe how the lawsuit should be recognised in the financial
21
statements of Nar (Pty) Ltd for the year ended 31 December 2019. Briefly explain your answer.
Your explanation should not refer to the Conceptual Framework definition or the recognition
criteria. (3 marks)
3. Refer to information point 3. The guarantee should be recognised as a provision in the
statement of financial position of Nar (Pty) Ltd as at 31 December 2019. Define a provision, and
explain in detail how the guarantee meets the definition. Your answer should include the
relevant definition in the Conceptual Framework, but should not discuss the recognition criteria.
(6 marks)
ACC2011S/2111S FINANCIAL REPORTING 1
W10 LIA – QUESTION 28
You are required to: answer the question(s) in each of the following scenarios. Note that the mark
allocation is a guide to the length of your answers.
A. Warranties
A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of
the warranty the manufacturer undertakes to make good, by refund or replacement, manufacturing
defects that become apparent within a period of three years from the date of sale. Past experience
suggests that about 10% of goods are returned, either for refund or replacement. What is the correct
accounting treatment of the business’s obligation to repair or replace the products it sells?
(9 marks)
B. Major future expenditure on PPE
Some large items of property, plant & equipment (PPE) require major expenditure in future, in
addition to normal ongoing maintenance. For example, every few years a ship needs dry-docking,
and the lining of an industrial furnace needs replacing. When the PPE is initially acquired, is a liability
recognised in respect of such expenditure? If not, what is the correct accounting treatment of this
sort of expenditure? (7 marks)
C. Environmental damage
A business operates a factory on land which has been contaminated by the chemicals used by the
business in the manufacturing process. There is no legal or other obligation for the enterprise to
clean up the contamination. Does the business have a liability for this environmental damage?
(2 marks)
D. Site restoration costs
A mining company operates a mine in a country where legislation requires that, on completion of
mining operations, the site must be restored. The cost of restoration includes the replacements of
the overburden (the ground above the location of the minerals), which has had to be removed before
mining operations could commence. As this is an open cast mine (as opposed to a deep shaft mine),
the remainder of the restoration cost arises only as the ore is mined. Describe and briefly explain
when a liability will be recognised for (a) replacing the overburden and (b) the remainder of the
restoration; and whether any liabilities recognised would be classed as provisions. (4 marks)
E. Future staff training
The government introduces a number of changes to the income tax system. As a result of these
changes, a firm in the financial services sector will be required to pay a training services company
next year to train a large number of its salespeople on the new tax system. Without this training the
sales force would not be able to continue selling the enterprise’s products. The firm is therefore
unable to avoid the training expenditure. Is a liability recognised at the end of the current year?
(4 marks)
F. Future goods to be supplied below cost
A restaurant gives away 100 vouchers at the year-end to sell meals for just R30. The restaurant’s
costs per meal are R50. The vouchers expire in 12 months, and the business expects about 90% to
actually use the vouchers. Should a liability be recognised at the end of the current year for the
anticipated loss on the meals to be provided in the future? If so, is it a provision, and how do you
think it should be measured? (7 marks)
 ACC2011S/2111S FINANCIAL REPORTING 1
ACC2011S/2111S FINANCIAL REPORTING 1
W11 ANA – QUESTION 30
W11 ANA – QUESTION 29
PART A
[From the 2019 Final Exam] (10 MARKS : 12 MINUTES)
[From the 2017 Supplementary Exam] (8 MARKS : 10 MINUTES)

You are currently busy with a Financial Reporting course at the University of Cape Town. A friend, Guevara Ltd owns shares in Castro Ltd. In order to monitor its investment in Castro Ltd, Guevara
Malika, writes the following email to you asking for your assistance with an investment opportunity. wishes to perform a Du Pont analysis of Castro Ltd, which has recently been expanding its operations
substantially. The following ratios are available for Castro Ltd’s financial years ended 31 December
2017 and 2016:
To: FRstudent@gmail.com
From: Malika@gmail.com 2017 2016
Subject: Assistance needed Total asset turnover 1.0 times 1.6 times
Net margin 21.2% 18.3%
Equity multiplier 2.8 times 2.1 times
Hello,

You are required to:

I hope you are well.

I’ve been given an opportunity to purchase shares in a small company and I am trying to do a bit of
financial analysis before making a decision. I remember that a Du Pont analysis is somehow linked
to ROE but I cannot remember how it is linked or why it is important. I’ve calculated the following
ratios, but I’m not sure what they tell me about the business.
Financial ratios
Perform a Du Pont analysis of Castro Ltd’s financial year ended 31 December 2017. Calculate the
key ratio that has not been provided, for the 2017 and 2016 financial years, rounded to one decimal
place. Then comment on the business’s overall performance, as well as the key drivers of overall
performance, by comparison with the previous year. Your answer should mention the aspects that
each ratio above measures, any potentially significant risks revealed by your analysis, and any other
comments that you think an investor may be interested to know. (8 marks)

22
2019 2018
Total asset turnover (TAT) 1.72 2.48 PART B
Return on assets 24.1% 32.7% Ignore company income tax
Net margin 14.0% 13.2%
A good friend of yours is trying to decide which of the following two businesses (Company A or
Equity multiplier 1.32 1.43 Company B) to invest in and has asked you a few questions.
Return on equity (ROE) 31.8% 46.8%
Working capital cycle 84.0 82.7 Company A Company B
Assets 5m 5m
Equity 5m 3m
Can you please help me?
Liabilities - 2m
Sales income 6m 6m
Thanks and regards,
Profit before interest 1m 1m
Malika
Interest is charged on all liabilities at 9% p.a. Your friend is tempted to purchase shares in
You are required to: Company A because he believes that the shareholders in Company A are earning a higher profit
after interest.
Respond to Malika’s email. You do not need to include an email header, but you should use the style
and tone appropriate to an email. Your response should include the following: Required:

1. Briefly explain why a Du Pont analysis is important. (1 mark) 1. Calculate the profit after interest for Company A and Company B
2. Referring only to the ratios that are used in a Du Pont analysis, comment on the change in the 2. Calculate the return on equity for Company A and Company B
company’s performance between 2018 and 2019. Your comments should cover the three drivers 3. Calculate the equity multiplier for Company A and Company B. What does the equity multiplier
of ROE in approximately equal detail, and should also describe how together these drivers have indicate about the businesses?
affected the overall business performance. (9 marks) 4. Do you agree with your friend that he should invest in Company A? Briefly justify your answer.
Indicate clearly the pros and cons of the choice between Company A or Company B.
 ACC2011S/2111S FINANCIAL REPORTING 1 Consolidated
W11 ANA – QUESTION 31 income statement
For the years ended 31 March
After the questions below, you will find the statements of comprehensive income, financial position
and cash flows of The Foschini Group Limited (TFG) for the year ended 31 March 2019. According THE FOSCHINI GROUP LIMITED AND ITS SUBSIDIARIES
to the company website, “The Foschini Group Limited (TFG) is a diverse group with a portfolio of 29
leading fashion retail brands – @home, @homelivingspace, American Swiss, Archive, Charles &
Keith, Colette, Connor, Donna, Duesouth, Exact, Fabiani, The FIX, Foschini, G-Star RAW, Hi, Restated*
Hobbs, Johnny Bigg, Markham, Mat & May, Phase Eight, Relay Jeans, Rockwear, SODA Bloc, 2019 2018
Note Rm Rm
Sportscene, Sterns, Tarocash, Totalsports, Whistles and yd.” (Source: http://www.tfglimited.co.za).

Revenue 23 37 128,2 31 463,0

You are required to:
Retail turnover 34 101,4 28 519,5
Cost of turnover (15 820,8) (13 557,5)
Interpret and understand the financial statements
Gross profit 18 280,6 14 962,0
1. A friend says to you: “I’m surprised to see that TFG has a financial statement called the ‘Income Interest income 24 1 764,0 1 755,8
Statement’. I thought that the income statement doesn’t exist anymore”. Respond to your friend. Other income 25 1 262,8 1 187,7
2. What do you think is the difference in principle between TFG’s “revenue” and “retail turnover”? Net bad debt (992,8) (837,5)
Trading expenses 26 (15 986,8) (12 941,5)
3. What do you think “trading expenses” refers to?
4. Give another name for “finance costs”. Operating profit before acquisition costs and finance costs 4 327,8 4 126,5
Acquisition costs – (79,4)
5. Why are finance costs disclosed separately after operating profit in the income statement?
Finance costs 27 (749,9) (696,6)
6. Calculate the percentage change in TFG’s profit between 2018 and 2019 and also the
Profit before tax 3 577,9 3 350,5
percentage change in the group’s total comprehensive income. What single line-item largely
Income tax expense 28 (939,3) (942,3)
explains the significant difference between these two percentage changes?
Profit for the year 2 638,6 2 408,2
7. Write down the approximate amount of total assets in words.
8. How would you find out more about the share capital of TFG in 2019? Attributable to:
9. How much tax did TFG owe on 31 March 2019? Equity holders of The Foschini Group Limited 2 638,4 2 406,9
10. What method does TFG use to prepare its statement of cash flows? Non-controlling interest 0,2 1,3

11. Why do you think there is so little detail in the cash generated from operations subsection? Profit for the year 2 638,6 2 408,2

Earnings per ordinary share (cents) 29

Review the financial statements
Total
12. What was TFG’s largest single item of expense in 2019? Basic 1 141,7 1 070,2
13. Was TFG solvent and liquid in 2019? Diluted (basic) 1 131,3 1 060,0

14. What were TFG’s three largest asset classes on 31 March 2019? * Refer to note 39 for the impact of the changes in accounting policies.

15. Which was TFG’s larger liability on 31 March 2019: trade payables or interest-bearing debt?
16. In 2018 and 2019, do you think TFG was expanding operations? Explain.
17. Not counting shares issued through share incentive schemes, in what year did TFG last issue
shares, and how much funding did the group raise from the share issue? Explain.
18. By referring to the statement of cash flows, describe the over-arching story of TFG’s
generation and utilisation of cash in the 2019 year.

Perform ratio analysis

19. If you were to calculate financial ratios for TFG for the 2019 financial year, against what
benchmarks might you choose to compare your findings? (Provide 3 typical benchmarks)
20. Calculate return on equity (ROE) for TFG for the 2018 and 2019 financial years. Round your
answers to two decimal places.
21. Using Du Pont analysis, show how the three key drivers of ROE changed between the 2018
and 2019 financial years. Round your answers to two decimal places.
22. Provide comments on your Du Pont analysis above. Your answer should include at least three
separate comments about ROE and about each of the three key drivers of ROE.

TFG Audited consolidated annual financial statements 2019

www.tfglimited.co.za 21
 Consolidated statement Consolidated statement
of comprehensive income of financial position
For the years ended 31 March As at 31 March

THE FOSCHINI GROUP LIMITED AND ITS SUBSIDIARIES THE FOSCHINI GROUP LIMITED AND ITS SUBSIDIARIES

Restated* Restated* Restated*

2019 2018 2019 2018 2017
Rm Rm Note Rm Rm Rm

Profit for the year 2 638,6 2 408,2 ASSETS

Non-current assets
Other comprehensive income (loss): Property, plant and equipment 2 2 820,0 2 861,9 2 469,0
Items that will never be reclassified to profit or loss Goodwill and intangible assets 3 8 590,1 7 667,2 4 675,9
Actuarial gain on post-retirement defined benefit plan – 34,2 Deferred taxation asset 4 1 045,7 663,6 515,4
Deferred tax on items that will never be reclassified to profit or loss – (9,6) 12 455,8 11 192,7 7 660,3
Items that are or may be reclassified to profit or loss
Current assets
Movement in effective portion of changes in fair value of cash flow hedges 32,7 27,2
Inventory 5 7 680,9 6 900,6 5 603,8
Foreign currency translation reserve movements 935,8 (555,7)
Trade receivables – retail 6 7 439,8 7 373,6 6 843,3
Deferred tax on items that are or may be reclassified to profit or loss (8,9) (8,6) Other receivables and prepayments 7 1 147,6 821,8 771,0
Concession receivables 8 174,3 296,8 246,1
Other comprehensive income (loss) for the year, net of tax 959,6 (512,5)
Cash and cash equivalents 9 1 111,0 1 206,1 878,5
Total comprehensive income for the year 3 598,2 1 895,7 17 553,6 16 598,9 14 342,7
Total assets 30 009,4 27 791,6 22 003,0
Attributable to:
Equity holders of The Foschini Group Limited 3 598,0 1 894,4 EQUITY AND LIABILITIES
Non-controlling interest 0,2 1,3 Equity attributable to equity holders of The Foschini Group Limited
Share capital 10 3,3 3,3 3,1
Total comprehensive income for the year 3 598,2 1 895,7 Share premium 4 098,2 4 098,2 1 625,4
Treasury shares 11 (748,1) (660,3) (634,2)
* Refer to note 39 for the impact of the changes in accounting policies.
Dividend reserve 12 1 065,4 994,4 878,1
Hedging surplus (deficit) 13 33,8 10,0 (8,6)
Foreign currency translation reserve 14 121,7 (814,1) (258,4)
Put option reserve 15 (84,4) (86,0) (82,8)
Post-retirement defined benefit plan reserve 16 (34,2) (34,2) (58,8)
Retained earnings 9 851,6 9 610,2 8 933,1
14 307,3 13 121,5 10 396,9
Non-controlling interest – 4,5 4,2
Total equity 14 307,3 13 126,0 10 401,1

LIABILITIES
Non-current liabilities
Interest-bearing debt 17 6 017,4 4 825,7 4 442,2
Put option liability 15 81,0 72,7 74,7
Cash-settled share incentive scheme – – 6,8
Operating lease liability 18 363,5 335,1 255,7
Deferred taxation liability 4 933,7 829,4 337,9
Post-retirement defined benefit plan 16 233,8 215,8 233,1
7 629,4 6 278,7 5 350,4

Current liabilities
Interest-bearing debt 17 3 196,0 4 524,9 3 307,0
Trade and other payables 19 4 535,0 3 724,3 2 836,7
Operating lease liability 18 22,5 30,7 15,2
Taxation payable 319,2 107,0 92,6
8 072,7 8 386,9 6 251,5
Total liabilities 15 702,1 14 665,6 11 601,9
Total equity and liabilities 30 009,4 27 791,6 22 003,0

* Refer to note 39 for the impact of the changes in accounting policies.

22 20
Consolidated cash flow ACC2011S/2111S FINANCIAL REPORTING

statement FR1 2022 FORMULA SHEET

For the years ended 31 March

THE FOSCHINI GROUP LIMITED AND ITS SUBSIDIARIES 1. Return on equity = Profit x 100
Total equity

2. Total asset turnover = Revenue

Restated* Total assets
2019 2018
Note Rm Rm
3. Net margin = Profit x 100
Revenue
Cash flows from operating activities
Operating profit before working capital changes 33 5 420,8 5 029,7 4. Equity multiplier = Total assets
Increase in working capital 33 (743,1) (937,2)
Total equity
Cash generated from operations 33 4 677,7 4 092,5
Interest income 15,7 48,0
Finance costs (749,9) (696,6)
Taxation paid 34 (947,1) (960,2)
Dividends paid 35 (1 756,1) (1 627,2)

Net cash inflows from operating activities 1 240,3 856,5

Cash flows from investing activities

Purchase of property, plant and equipment and intangible assets (942,4) (896,6)
Acquisition of assets through business combinations – (2 898,9)
Acquisition of management buy-out – (41,3)
Proceeds from sale of property, plant and equipment and intangible assets 32,3 40,4
Proceeds from disposal of businesses 38 41,7 –

Net cash outflows from investing activities (868,4) (3 796,4)

Cash flows from financing activities

Shares purchased in terms of share incentive schemes (274,3) (231,6)
Proceeds on issue of share capital – 2 473,0
Proceeds from sale of shares in terms of share incentive schemes 46,7 91,7
(Decrease) increase in interest-bearing debt 36 (319,2) 1 067,9

Net cash (outflows) inflows from financing activities (546,8) 3 401,0

Net (decrease) increase in cash and cash equivalents during the year (174,9) 461,1
Cash and cash equivalents at the beginning of the year 1 206,1 878,5
Cash held in non-controlling interest (6,4) –
Effect of exchange rate fluctuations on cash held 86,2 (133,5)

Cash and cash equivalents at the end of the year 9 1 111,0 1 206,1

* Refer to note 39 for the impact of the changes in accounting policies.

TFG Audited consolidated annual financial statements 2019

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