FACULTY Economics and Management Science DEPARTMENT Accounting, Auditing & Income tax SUBJECT Financial Accounting 2B SUBJECT CODE —_| CAFE3752/3782 DATE November 2013, | DURATION 3 Hours | MARKS l 100 November exams- Regular Examiners: Ms Esther Machaya Moderator: Ms C Gamses This paper consist of seven (7) pages including the cover page PERE Instructions ‘There are four (4) questions in this paper, answer all of them. Read the instructions carefully before attempting to answer the questions. The use of correction fluid is not allowed. Only black and blue pens are allowed, no answers written in pencil will be marked. University of Namibia ExaminationsQuestion 1 30 Marks The following are the financial statements of Jack Ltd and its subsidiary Jill Ltd for the year ended 31 December 2007. STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2007 JACK LTD JILLLTD ASSETS Property, plant and equipment at carrying amount 55.000 Land and buildings 25 000 Machinery 20 000 Vehicles 10 000 Investment in Jill Lid at fair value ___74000 40 000 ordinary shares 55 000 12 500 10% Preference shares 15 000 Current account 4000 Inventories 72 500 Trade receivables 750 Total assets 149 000 EQUITY AND LIABILITIES Share capital: Ordinary (100 000/50 000 shares) 100 000 ‘Share capital:10% Preference (25 000 shares) - Mark-to-market reserve 6500 Retained earnings 22.500 Current account- Jack Ltd - Trade & other payables 20000 Total equity and liabilities 4149 000 5.000 77500, 65 000 7500 15000 15.000 107 500 50 000 25.000 25.000 2500 5.000 107 500 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 DECEMBER 2007 JACKLTD JILLLTD Revenue 45250 37 000 Cost of sales (20000) _(13 000) Gross profit 26250 24000 Other expenses (2500) (4.000) Other income received from Jill Ltd 22750 20000 Ordinary dividend 2.000 - Preference dividend 1250 - Interest received 250 - Management fees ee) - Profit before tax 28250 20000 Income tax expense 12.500) (10 000) PROFIT FOR THE YEAR 15750 10000 Other comprehensive income for the year Fair value adjustments on equity investments ____1500 : TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1725070000EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Mark-to- Retained earnings market. reserve JACK LTD JACK | JILLLTD LTD Balance at 1 January 2007 5000| 11 750/ 20000 Changes in equity for 2007 Total comprehensive income for the year: Profit for the year 15750/ 10000 Other comprehensive income for the year 1500 Ordinary dividend paid -| (6 000)| (2500) Preference dividend paid : -| (2500) Balance at 31 December 2007 6500| 32500 | 25 000 Additional inform: 1. Jack Ltd acquired the share investments in Jill Lid on 1 June 20.5, when the retained earnings of Jill Ltd was $19 500. At the acquisition date, the assets and liabilities were considered to be fairly valued and there were no unaccounted for contingent liabilities, Jack Ltd paid $50 000 for the investment in ordinary shares and $13 500 for the investment in preference shares. 2. Jack Ltd classified the equity investment in vill Ltd under IFRS 9 in the separate financial statements and recognized any fair value adjustments in the mark-to-market reserve (other comprehensive income). The fair values of the investments at 31 December 20.6 were as follows: Investment in ordinary shares $54 000 Investment in preference shares $14 500 3. Since March 2007, Jill Lid has purchased certain inventories from Jack Ltd. The selling price of the inventories is cost plus 33.33%. Included in the inventories of Jill Ltd on 31 December 20.7 are inventories purchased at an invoice price of $500 from Jack Ltd. Inventories invoiced at $1 500 were in transit to vill Ltd on 31 December 2007. Total purchases from Jack Ltd in Jill Ltd's records amounted to $7 500 before the inventories in transit had been accounted for. 4, Jack Ltd elected to measure the non-controlling interests at its proportionate share of the acquiree’s identifiable net assets at the acquisition date. 5. Ignore tax implications Required: a) Prepare the analysis of owners’ equity of vill Ld (8.5) b) Prepare the analysis of preference shareholders’ equity of Jill Ltd (4) ©) Prepare the pro forma consolidation journal entries with regards to the above transactions. Journal narrations are not required (17.5)Question 2 15 Marks. a) Two or more operating segments may be combined and presented as a single operating segment if the segments have similar economic characteristics and are similar in which aspects? 7.5 marks b) All operating segments that meet certain quantitative thresholds must be reported separately. Explain these quantitative thresholds. 7.5 marksQuestion 3 35 Marks Liver Limited is a company operating in the entertainment industry. The following draft extracts of the statement of comprehensive income and statement of financial position have been presented to you together with additional information that has not yet been taken into account in the preparation thereof: Liver Limited Draft Extracts from statement of comprehensive income For the year ended 31 December 2013 2013 2012 NS NS Profit before tax 300 000 250 000 Income tax expense (80 000) (70 000) Profit for the year 220000 ~~ 180 000 Other comprehensive income Total comprehensive income for the year 220000 _ 180000 Liver Limited Draft extracts from statement of financial position At 31 December 2013 2013 2012 2011 NS NS NS Property, plant & equipment 1217000 1391500 _ 1.566.000 * Machinery carrying amount 152 000 176 500 201 000 Equipment carrying amount 1065000 1215000 1.365000 Retained earings ___1.400000__1 180.000 1.000.000 Additional information Machinery * During 2013, the company changed the estimated residual value of its machinery from $5 000 to $10 000 and changed the total expected useful life of machinery from 10 years to 15 years. The machinery had all been purchased on 1 January 2010 at a cost of $250 000. Depreciation is provided on the straight line method. Equipment ‘© During 2013, it was discovered that the cost of an item of inventory sold on 1 July 2012 (cost: ‘$300 000), had been incorrectly debited to equipment. (i.¢.this was capitalised to equipment in error & depreciated) «The cost of the equipment was otherwise $1 200 000, all having been purchased on 1 January 2010. * The company depreciates equipment at 10% per annum to nil residual values (apportioned for part of a year where appropriate) using the straight line basis.Other information ‘The opening retained earnings as at 1 January 2012 was $1 000 000. There were no dividend declarations or transfers to or from retained earnings during 2012 and 2013, + There was no other movement in property, plant and equipment other than that which is evident from the information provided. Other than the incorrect debit, all movements in the carrying amount of property, plant and equipment since date of purchase relate to depreciation. * All amounts are considered to be material Do not recalculate tax, just use the tax given above. Required a) Calculate the effect of the change in estimate .Detailed workings are required.(5) b) Disclose the following: +The change in estimate note;(4) e * The correction of error note (4) * The statement of comprehensive income; (5) * The retained earnings in the statement of changes in equity; and (6) * The statement of financial position for the year ended as at 31 December 2013 in conformity with IFRS. (11) Accounting policies are not requiredQuestion 4 20 Marks: Hama Ltd is a company that grows organic vegetables. The following investment properties are owned by the company: Date acquired Description Cost Fair value | Fair value | 31 Dec 20.6 | 34 Dec 20.5 NS. NS NS 7 January 2070 Unoccupied land 600 000 630.000 | 610 000 ‘1 March 2011 Green House 150 000 165 000 __ 1 July 2011 Office building 275 000 287 500 : Additional information 1 Investment properties are accounted for using the fair value model 2. The unoccupied land is in Swakopmund and is held for long term capital appreciation 3 os a 8. The green house and the office building are located in Windhoek and are leased out in terms of non-cancellable operating lease agreements for a period of 5 years from the dates they were acquired. The green house and office building were leased out at a monthly rental of $2 500 and $3 000 respectively. Repairs & maintenance of $10 000 were incurred on the green house during 2011. During January 2011, an amount of $22 500 was spent to combat a sudden worm plague that broke out on the unoccupied land. During November 2011, expenditure of $10 000 was incurred for the greenhouse. This expenditure will increase the future benefits expected from the greenhouse. The above properties were valued by Mr Hamutenya, an independent sworn appraiser who has recent experience in the location and category of the properties being valued. Ignore all forms of taxes Required Disclose the above information in the notes to the financial statements of Hama Ltd for the year ended 31 December 2011 in accordance with the requirements of IFRS. Comparative amounts are not required. THE END