FIAC6211 - Workbook 2023

IIE Workbook FIAC6211
FINANCIAL ACCOUNTING (FIAC6211)

WORKBOOK 2023
(First Edition: 2018)
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© The Independent Institute of Education (Pty) Ltd 2023 – Page 1 of 88

Table of Contents
Using this Guide ........................................................................................................ 4
Introduction ............................................................................................................... 5
Module Resources .................................................................................................... 6
Module Purpose ........................................................................................................ 6
Module Outcomes ..................................................................................................... 6
Learning Unit 1: Conceptual Framework for Financial ............................................... 7
What is the conceptual framework?........................................................................... 8
Revision Exercises .................................................................................................. 14
Learning Unit 2: IAS 1 ............................................................................................. 16
1 Objective and Components of Financial Statements ........................................ 16
2 Responsibility for Preparation and Presentation of Financial Statements ......... 16
3 Components of Financial Statements ............................................................... 17
4 Overall Considerations ..................................................................................... 17
5 Statement of profit or loss and other comprehensive income and relevant notes .
......................................................................................................................... 20
6 Directors’ remuneration .................................................................................... 23
7 Revision Exercises ........................................................................................... 27
Learning Unit 3: IFRS 15 ......................................................................................... 35
1 Definitions ........................................................................................................ 35
2 Recognition ...................................................................................................... 36
3 Presentation ..................................................................................................... 42
4 Effective date ................................................................................................... 42
1 Definitions ........................................................................................................ 46
2 Measurement of inventories ............................................................................. 46
3 Cost of inventories ........................................................................................... 47
4 Net realisable value .......................................................................................... 48
5 Recognition as an expense…………………………………………………………. 49
6 Disclosure………………………………………………………………………………49
Learning Unit 5: IAS 16 ........................................................................................... 56
1 Objective .........................................................................................................566
2 Definitions .......................................................................................................566
3 Recognition of property, plant and equipment .................................................577
4 Measurement at recognition ............................................................................577
5 Subsequent expenditure .................................................................................. 59
6 Depreciation ..................................................................................................... 59
7 Derecognition ................................................................................................... 60
8 Disclosure ........................................................................................................ 60
1 Definitions ........................................................................................................ 70
2 Measurement ................................................................................................... 71
3 Reimbursements .............................................................................................. 71

4 Disclosure ........................................................................................................ 72
Revision Exercises .................................................................................................. 72
1 Definitions .......................................................................................................766
2 Specific issues ................................................................................................777
3 Disclosure .......................................................................................................777
4. Revision exercises…………………………………………………………………….78
1 Statement of Cash Flows ................................................................................. 81
2 How to approach a question ............................................................................. 83
Bibliography ............................................................................................................ 88

Using this Guide

This guide has been developed to support your use of the prescribed material for this
module. There may be occasions when the prescribed material does not provide
sufficient detail regarding a particular idea or principle. In such instances, additional
detail may be included in the guide. This guide should not, however, be used as a
stand-alone textbook, as the bulk of the information that you will need to engage with
will be covered in the prescribed material. You will not pass this module if you only use
the module guide to study from.
Various activities and revision questions are included in the learning units of this guide.
These are designed to help you to engage with the subject matter as well as to help
you prepare for your assessments.
This module guide contains further important information on what the module
encompasses and what you can expect to learn from this module. A module pacer is
also provided with guidance on what will be covered during the semester and the timing
of each topic. This must be used by you to plan for every lecture in advance by doing
pre-reading on the topic so as to be prepared for the lecture.

Introduction
The purpose of this module is to provide an introduction to International Financial
Reporting Standards (IFRS). The module focuses on the presentation of financial
statements according to IFRS and the way in which different elements in the financial
statements, such as property, plant and equipment should be disclosed. This course
serves as a practical and comprehensive introduction to concepts and principles of
presenting financial statements in line with IFRS requirements.
The module will focus on:
• Knowledge and understanding of integrated International Financial Reporting

Standards to prepare journal entries, notes to the financial statements and other
relevant disclosure.
• Knowledge and understanding of integrated International Financial Reporting
Standards to prepare annual financial statements of a company.
Financial Accounting is a very important aspect of both your studying and working
career and is one of the four subjects that you will need to pass in CTA in order to
graduate and commence your articles. Financial Accounting in second year forms the
vital foundation to third year Financial Accounting and ultimately CTA, so you need to
establish an excellent foundation during this year.
Financial Accounting 2A consists of the following learning units:
• Conceptual framework for financial reporting

• Presentation and disclosure of annual financial statements (IAS 1)
• Revenue (IFRS 15)
• Provisions, contingent liabilities and contingent assets (IAS 37)
• Inventory (IAS 2)
• Property, plant and equipment (IAS 16)
• Events after the reporting period (IAS 10)
• Employee benefits (IAS 19)
• Cash flow statements (IAS 7)

Module Resources
Prescribed Book for this Koppeschaar, ZR., Rossouw, J., van Wyk, HA.,
Module Sturdy, J., Gaie-Booysen, FF., Papageorgiou, K.,
Smith, C., van der Merwe, CM., Schmulian, A. 2017.
Introduction to IFRS. 9th ed. Pretoria: Lexis Nexis.
(PM)
ISBN: 9780409057157
Recommended Additional Gripping GAAP – Your Guide to International Financial
Reading Reporting Standards (latest edition) by Service, C.L.
Lexis Nexis: Durban.
Lubbe, I., Modack, G., Watson, A. Financial

Accounting IFRS Principles. 4th edition. Oxford
University Press: Southern Africa.
The following titles include information related to this

module and may be consulted as additional resources.
Digital and Web Some useful web links include the following:
Resources • http://www.accountingcoach.com
• http://www.cimaglobal.com/
Module Purpose
The purpose of this module is for students to explore the application of selected
International Financial Reporting Standards (IFRS) culminating in the preparation of a
set of annual financial statements of companies in accordance with IFRS.
Module Outcomes
MO1 Demonstrate an understanding of selected International Financial Reporting
Standards (IFRS).
MO2 Demonstrate an understanding of the statutory requirements in preparing the
annual financial statements.
MO3 Accurately prepare the annual financial statements of a company using the
structure and content of IAS 1 which includes the statement of profit or loss
and other comprehensive income, statement of financial position, statement
of changes in equity and the statement of cash flows.
MO4 Apply knowledge of the accounting process in a business environment.

Learning Unit 1: Conceptual Framework for Financial

Reporting
Learning Objectives: My notes
• Discuss the qualitative characteristics of useful
financial information.
• Define the elements of financial statements.
• Identify whether an item meets the definition of an
element of the financial statements.
• Define the recognition criteria of the elements of the
financial statements.
• Identify whether an element of the financial
statements meets the recognition criteria.
Prescribed material used for this learning unit:
• Chapter 1: The framework of accounting in
Koppeschaar et al. (2017).
Study the following subsections in Chapter 1:
o Background
o Scope
o The objective of general purpose financial
reporting (chapter 1)
o Qualitative characteristics of useful financial
information (chapter 2)
o Financial statements and the reporting entity
(Chapter 3)
o The elements of financial statements (Chapter
4)
o Recognition and derecognition (chapter 5)
o Measurement (chapter 6)
o Presentation and disclosure (chapter 7)
o Concepts of capital and capital maintenance
(chapter 8)

What is the conceptual framework?
Financial statements are prepared & presented by many entities around the world to a
variety of external users. They appear similar, but there are variations caused by
different legal, social & economic circumstances of the countries concerned. This has
led to a variety of definitions, recognition criteria, measurement principles & disclosure
in the preparation of financial statements.
The IASB, through the Conceptual Framework, aims to limit these differences by
aligning regulations, standards & procedures relating to the preparation & presentation
of financial statements.
The purpose of the conceptual framework is therefore to outline the concepts that
underlie the preparation & presentation of financial statements for external users.
The conceptual framework is not an IFRS & therefore does NOT override
other IFRS statements
Chapter 2
Chapter 1
Qualitative Chapter 3
The objective of
characteristics of Financial statements
general-purpose
useful financial & the reporting entity
financial reporting
information
Chapter 8 The Chapter 4

Concepts of capital & Conceptual The elements of
capital maintenance financial statements
Framework
Chapter 7 Chapter 5
Chapter 6
Presentation and Recognition and
Measurement
disclosure derecognition
Chapter 1: The objective of general-purpose financial reporting

To provide financial information about the reporting entity that is useful to existing &
potential investors, lenders & other creditors in making decisions about providing resources
to an entity.
Information reported on includes:
• Economic resources & claims;

• Financial performance reflected by accrual accounting;

• Financial performance reflected by past cash flows;

• Changes in economic resources & claims;
• Changes in economic resources & claims not resulting from financial
performance.
Chapter 2: Qualitative characteristics of useful financial information

These are the characteristics that make the financial information useful to users.
A distinction is made between FUNDAMENTAL & ENHANCING characteristics.
The fundamental characteristics are critical to the representation of the financial
information & include:
Faithful
Relevance
representation
Complete
Predictive value
Neutral
Confirmatory value Free from error
Relevance Financial Information is relevant if it can make a difference to

decisions made by users.
Financial information may have:
• Predictive value: information that can be used as an input to processes used
to predict future outcomes.
• Confirmatory value: information that provides feedback about previous
evaluations
The relevance of information is measured by its MATERIALITY. Information is material

if its omission or misstatement could influence the economic decisions of users. It is
an entity-specific value based on the nature and size of the item relative to the financial
statements.
Faithful
Representation To be useful the financial information must faithfully represent
the information that is purports to represent. Faithful
representation includes 3 key characteristics:
• Completeness: information includes all necessary descriptions & events to

enable users to understand the financial information presented.
• Neutrality: there is no bias in the selection or presentation of financial
information.

• Free from error: there are no errors or omissions in the description & process
used to produce the financial information.
The enhancing characteristics are less critical, but highly desirable to the
representation of the financial information & include:
Comparability Verifiability
Information may be compared Information represents the
with other entities, other periods, economic phenomena it purports
etc. to represent.
Understandability
Timeliness
Information is comprehensible to
Information is available in time to
those who have a reasonable
influence decisions.
understanding of business
The cost constraint on useful financial reporting
The cost of reporting financial information should be justified by the benefits of

reporting that information. Differences in reporting may be appropriate because of size
of entity, public v private, user’s needs or other relevant factors.
Chapter 3: Financial statements & the reporting entity

Objective & scope of financial statements
The objective of financial statements is to provide financial information about the
reporting entity’s assets, liabilities, equity, income and expenses that is useful to users
of financial statements in assessing future prospects and in assessing managements
stewardship of the entity’s economic resources.
Information is provided in:
• the statement of financial position by recognising assets, liabilities & equity;
• the statement of financial performance by recognising income and expenses;
• other statements & notes by presenting and disclosing information about:
Reporting period
Financial statements are prepared for a specified period (reporting period).
Comparative information for a least 1 preceding period must be presented. Information
about possible future transactions and events should be included if it relates to existing
items in the financial statements & if it will be useful to users.
Going concern assumption
Financial statements are normally prepared on the assumption that the entity is a going
concern & will continue operating in the foreseeable future
The reporting entity
The reporting entity is the entity that is required or chooses to prepare financial
statements. It could be more than 1 entity. it does not have to be a legal entity.
Consolidated & unconsolidated financial statements

Consolidated financial statements provide information about the assets, liabilities,

equity, income and expenses of the parent and its subsidiaries as a single reporting
entity.
Unconsolidated financial statements are designed to prepare financial information
about the parent’s assets, liabilities, equity, income and expenses, and not those of
the subsidiary.
Chapter 4: The elements of financial statements

The elements of the financial statements are:
• assets, liabilities & equity relating to an entity’s financial position AND
• income and expenses relating to an entity’s financial performance
The elements of financial statements

Financial statements portray the financial effects of transactions by grouping them into
categories according to their economic characteristics. These categories are termed
the elements of financial statements
Financial
position
Expenses Assets
Elements
Income Liabilities
Perform-
Equity
ance
Financial position
The elements directly related to financial position are assets, liabilities & equity.
Assets A present economic resource controlled by the entity as a result of past
events.

An economic resource is a right that has the potential to produce

economic benefits.
3 components to the definition:
• right;
• potential to produce economic benefits;
• control.
Liabilities A present obligation of the entity to transfer an economic resource as a

result of past events.
3 criteria must be met for a liability to exist:
• entity has an obligation;
• obligation is to transfer an economic resource;
• obligation is a present obligation that exists as a result of past
events.
Assets & liabilities: Unit of account

The unit of account is the right or group of rights, the obligation or group of obligations
or the group of rights & obligations, to which the recognition criteria & measurement
concepts are applied.
A unit of account is selected to provide useful information.
Example: A group of assets & liabilities may be identified as a single unit if they will be
disposed of in a single transaction.
Equity Residual interest in the assets of an enterprise after deducting all the
liabilities.
Financial performance
The elements directly related to performance are income and expenses
Income Increase in assets or decreases in liabilities that result in increases in
equity, other than those relating to contributions from holders of equity
claims.
Expenses Decrease in assets or increases in liabilities that result in decreases in

equity, other than those relating to distributions to holders of equity
claims.
Chapter 5: Recognition & derecognition

Recognition is the process of capturing items in the statement of financial position or
statement of financial performance.
Recognition criteria
Only items that meet the definition of an asset, liability or equity are recognised in the
statement of financial position & similarly only items that meet the definition of income
or expense are recognised in the statement of financial performance.
In addition to meeting the definitions, items are only recognised when their recognition
provides users with information that is both relevant & can be faithfully represented.
Derecognition
Derecognition is the removal or part removal of a recognised asset or liability from the
statement of financial position.

Chapter 6: Measurement
Measurement is the process of determining the monetary amounts at which the
elements will be recognised in the financial statements.
Measurement bases
Historical cost Current value

• Assets: value of the costs incurred in Provides monetary information to reflect
acquiring or creating the asset. conditions at the measurement date.
• Liabilities: Value of the consideration Measurement bases include:
received or incurred to take on the • fair value;
liability less the transaction costs.
• value in use
• current cost
Factors to consider when selecting a measurement basis

• Relevance;
• Faithful representation;
• Enhancing qualitative characteristics & the cost constraint;
• Factors specific to initial measurement;
• More than 1 measurement basis.
Chapter 7: Presentation & disclosure

Information about assets, liabilities, equity, income & expenses is communicated
through presentation and disclosure in the financial statements of an entity.
Classification
Sorting of assets, liabilities, equity, income & expenses based on shared
characteristics for presentation & disclosure.
• Assets & liabilities: Applied to the unit of account selected but may sometimes be
separated based on current & non-current.
• Income & expenses: either in the statement of profit & loss or in other
comprehensive income.
Aggregation
Aggregation is the adding together of assets, liabilities, equity, income & expenses
that have shared characteristics & are included in the same classification.
Aggregation makes information more useful by summarising large volumes of detail.
Chapter 8: Concept of capital and capital maintenance

Capital is synonymous with the net assets or equity of an entity. The selection of an
appropriate concept is based on the needs of the users
.
Financial capital maintenance
Under this concept profit is only earned if the financial amount of the net assets at the
end of the period exceeds the amount at the beginning of the period, excluding any
distributions to owners or contributions from owners during the period.
Physical capital maintenance

Under this concept profit is only earned if the physical productive capacity of the entity
at the end of the period exceeds the physical productive capacity at the beginning of
the period, excluding any distributions to owners or contributions from owners during
the period.
The physical capital maintenance concept requires the adoption of the current cost
basis of measurement.
The principal difference between the 2 concepts is the treatment of the effects of
changes in the prices of assets and liabilities.
Revision Exercises
Revision Exercise 1
The annual financial statements of Tim Traders for the 31 December 2021 financial
year end was audited in January 2022. At the end of the company’s financial year, the
accountant estimated that the audit would cost R27 000. However, the invoice for the
audit work done, was received at the end of January 2022, and amounted to R32 000.
The accountant is of the opinion that this cost should be recognised as an expense in
the 2021 financial year, because it is a cost that relates to the 2021 financial year even
though the audit work took place during 2022.
Required:
Discuss, in terms of the Conceptual Framework for Financial Reporting, whether you
agree with the accountant that the audit cost should be expensed for the year ended
31 December 2021.
Revision Exercise 2
Mr. Sandler, the accounting officer of Solar Panel Ltd, queried the following journal
entry that was processed in the accounting records of Solar Panel Ltd for the financial
year ended 31 December 2021:
DR CR
R R
Insurance (P/L) (expense) 120 000
Insurance loss (SFP) (liability) 120 000
On requesting the supporting invoices for the insurance expense, the financial
accountant, Mr. Kent, explained that since the company’s claims have been low, the
insurance policy had been cancelled as of 30 June 2021. Mr. Kent was concerned that
an expense may need to be processed for possible losses in the future (for example
theft, damages etc), therefore he processed the above journal entry. The monthly
premiums previously paid to the insurance company was R20 000.
Required:

Discuss, with reference to the Conceptual Framework for Financial Reporting, the
recognition of the insurance loss liability as at 31 December 2021.
Revision Exercise 3
Shoppers Delight Ltd is a retailer operating in the fast-moving consumer goods

industry, and its financial year end is 30 June.
Due to the COVID-19 social distancing requirements, businesses have to ensure they
limit the number of customers entering their stores. A digital signage solution company,
Moving Target Ltd, has developed a technology that counts the number of customers.
The ‘digital footfall counter’ keeps track of the number of customers entering and
leaving the store and that number is compared to the stores’ capacity. The counter
monitors the number of customers entering and leaving the premises and works
together with digital signage which communicates to waiting customers, what the
stores’ capacity is at any given time.
Shoppers Delight Ltd placed an order for the digital footfall counter together with the
digital signage, which can be purchased as a package, for all its stores in the country
on 25 May 2020. It paid R75 000 on the date the order was placed. The delivery and
installation of the digital counter and signage was 10 July 2020.
Required:
1. Discuss in terms of the Conceptual framework for financial reporting, whether

the payment to Moving Target Ltd can be recognised as an asset in the financial
statements of Shoppers Delight Ltd for the year ended 30 June 2020.
Your answer must comply with the requirements of the International Financial
Reporting Standards (IFRS).

Learning Unit 2: IAS 1

• Apply the objectives of financial statements.
• Apply the components of financial statements.
• Apply the general features in the preparation of
• Prepare the statement of profit or loss and other
comprehensive income and relevant notes.
• Prepare the statement of changes in equity.
• Prepare the statement of financial position and
relevant notes.
• Chapter 2: Presentation of financial statements in
o Background
o Objective and components of financial
statements
o General features
o Statement of profit or loss and other
comprehensive income
o Statement of changes in equity
o Statement of financial position
1 Objective and Components of Financial

Statements
• IAS 1 covers the presentation of financial statements, which includes the layout
of the financial statements, as well as the considerations that have to be taken
into account when preparing the financial statements.
• The objective of financial statements is to provide financial information regarding

the position (statement of financial position), the results for the financial year
(statement of profit or loss and other comprehensive income) and cash flows of
the business in order to provide the end users with sufficient information to make
financial and business decisions.
2 Responsibility for Preparation and Presentation of

Financial Statements
Board of directors is responsible for the preparation and presentation of financial
statements.

3 Components of Financial Statements

Includes:
• A statement of financial position;

• A statement of profit or loss and other comprehensive income;
• A statement of changes in equity;
• A statement of cash flows;
• Accounting policies and explanatory notes;
• A statement of financial position at the beginning of the earliest comparative
period.
Enterprises are encouraged to present a financial review by management which

describes and explains:
• The main features of the enterprise’s financial performance and financial

position; and
• The principal uncertainties it faces.
This may include:

• Factors determining and influences on performance (e.g. changes in the
environment);
• Funding policy; and
• Strengths and resources not reflected in the statement of financial position
• Additional statements such as:
o Environmental statements; and
o Value added statements
4 Overall Considerations
4.1 Fair presentation and compliance with accounting
statements
Fair presentation
• Financial statements should present fairly the financial position, financial

performance and cash flows of an enterprise. The appropriate application of
accounting statements, with additional disclosure will virtually always achieve fair
presentation.
• Inappropriate accounting treatments are not rectified by disclosure.
Compliance
• If financial statements comply with all the accounting statements, this fact must
be disclosed.
• In the extremely rare circumstances when management concludes that
departure from a requirement in an accounting statement is necessary to achieve
a fair presentation, an enterprise should disclose:
- That management has concluded that fair presentation is achieved;

- That it has complied in all material respects with applicable accounting

except that it has departed from a statement in order to achieve fair
presentation.
- The statement from which the enterprise has departed, the nature of the
departure, including the treatment that the statement would require, the
reason why the treatment in that statement would be misleading in the
circumstances and the treatment adopted; and
- The financial impact of the departure on the enterprise’s net profit or loss,
assets, liabilities, equity and cash flows.
• When an accounting statement is applied before its effective date, that fact
should be disclosed.
4.2 Accounting policies
• Management should select and apply an enterprise’s accounting policies so that

the financial statements comply with all the requirements of each applicable
accounting statement.
• Where there are no specific requirements, management should develop policies
to ensure that the financial statements provide information that is:
- Relevant; and
- reliable.
4.3 Going concern
• When preparing financial statements, management should make an assessment

of an enterprise’s ability to continue as a going concern. Financial statements
should be prepared on a going concern basis unless management:
- Intends to liquidate the enterprise; or
- Intends to cease trading.
• An enterprise must disclose:

- Uncertainties related to events or conditions which may cast significant
doubt upon the enterprise’s ability to continue as a going concern; and
- The fact if financial statements are not prepared on a going concern basis.
4.4 Accrual basis

An enterprise should prepare its financial statements, except for cash flow information,
under the accrual basis of accounting.
4.5 Consistency of presentation

The presentation and classification of items in the financial statements should be
retained from one period to the next, unless:
- A significant change in the operations or a review of its financial statement
presentation demonstrates that the change will result in a more appropriate
presentation; or
- A change in presentation is required by an accounting statement.
When changes in presentation are made, comparative information must be

reclassified.

4.6 Materiality and aggregation
• Each material item should be presented separately in the financial statements.

Immaterial amounts should be aggregated with amounts of a similar nature or
function and need not be presented separately.
• Materiality:
- Information is material if its non-disclosure could influence economic
decisions; and
- Materiality is determined by either the nature or size of the item.
4.7 Off-setting
Off-setting is not allowed except for the following:
• Assets and liability may be off-set when required or permitted by an accounting
statement; and
• Income and expense items should be off-set when:
- An accounting statement requires or permits it; or
- Gains, losses and related expenses arising from the same or similar
transactions and events are not material.
4.8 Comparative information
• Comparative information is required (unless an accounting statement permits

or requires otherwise) for:
- All numerical information; and
- Narrative and descriptive information when it is relevant to understanding
the current period’s financial statements.
• When the presentation or classification of items is amended, comparative

amounts should be reclassified. Disclose the:
- Nature;
- amount; and
- reason for reclassification.
• If impracticable to reclassify comparative amounts, disclose:

- The reason for not reclassifying; and
- The nature of changes that would have been made if amounts were
reclassified.
4.9 Structure and Content

Identification of financial statements, reporting period and timeliness:
1. Financial statements should be clearly identified and distinguished from other

information in the same published document.
Disclose:
• Each component of financial statements;
• Name of enterprise;
• If individual or group statements are presented;
• Statement of financial position date or period covered;
• Currency; and

• Level of precision (e.g. R’000) (ensure relevant information is not lost).
Reporting period
Financial statements should be presented at least annually. Should the statement of

financial position date change, disclose:
• Reason; and
• fact that comparative amounts are not comparable.
Timeliness
Financial statements must be issued within six months of the statement of financial
position date.
5 Statement of profit or loss and other

comprehensive income and relevant notes
This statement consists of two parts:
5.1 Profit or loss for the year

Includes all incomes and expenses for an accounting period unless a statement
requires otherwise.
5.2 Other comprehensive income for the year

This includes:
- revaluation surpluses and deficits;
- actuarial gains and losses recognised directly in equity;
- gains and losses arising from the translation of the financial statements of a
foreign entity;
- gains or losses on remeasuring financial assets of fair value through other
comprehensive income;
- gains and losses on cash flow hedges;
- share of gain (loss) on property revaluation of associates.
5.3 The following list of items should appear on the face of

the SOPL-OCI as a minimum:
• Revenue;
• Finance cost;
• Share of after-tax profits and losses of associates and joint ventures accounted
for using the equity method;
• Income tax expense;
• Profit or loss;
• Other comprehensive income;
• Profit or loss attributable to owners of the parent;
• Profit or loss attributable to minority interest (non-controlling interest).

ABC LTD
Statement of profit or loss and other comprehensive income
for the year ended
Notes R
Revenue 1
Cost of sales ( )
Gross profit
Other income
Distribution expenses ( )
Administration expenses ( )
Other expenses ( )
Finance cost ( )
Profit before tax 1
Income tax expense 2 ( )
Profit for the year
Other comprehensive income for

the year, net of tax
Gains on financial assets of fair value through
other comprehensive income
Revaluation surplus
Income tax relating to components of other
Total comprehensive income for the year
Profit attributable to:

Owners of the parent
Total comprehensive income attributable to:

Owners of the parent
Earnings per share:

Basic and diluted

ABC LTD
Notes for the year ended ………
R
1. Profit before tax is disclosed after taking the following
disclosable items into account, amongst others:
Income
Revenue consists of:
Continuing operations – turnover X
Fair value adjustment – financial asset at fair value through profit X

or loss
Profit on the sale of non-current assets X
Profit on financial instruments X
Income from subsidiaries X

- Dividends X
- Interest X
- Management and other fees X
- Other specified income X
Income from other financial assets

Listed investments – financial asset at fair value through profit or X
loss
- Dividends X
- Interest X
- Other income X
Unlisted investments – financial asset at fair value through other X

- Dividends X
- Interest X
- Other income X
Expenses
Significant (material) items X

Fair value adjustment – financial asset at fair value through profit X
or loss
Loss on the sale of non-current assets X
Loss on financial instruments X
Depreciation on non-current assets X
Remuneration for:
Management services X
Technical services X
Administrative services X
Secretarial services X
X

Staff cost
Auditors’ remuneration X
- Auditing fees X
- Fees for other services, e.g. accounting services X
- Expenses X
2. Income tax expense
SA Normal tax X
- Current year X
- Deferred X
3. Remuneration of directors’ and prescribed officers
Name Directors Salary Other Pension Loss of Less: Paid Total

fees benefits fund office by
subsidiaries
R R R R R R R
Other benefits
Name Travel / Entertainment etc Total
R R
6 Directors’ remuneration
S30(4) of the Companies Act, 2008 sets out the financial statement disclosure
requirements in respect of directors remuneration. When we disclose, we distinguish
between:
• Executive directors;
• Non-executive directors;
• Prescribed officers.

6.1 Executive directors

Executive directors are directors that are involved in the day-to-day management of
the company, e.g.:
• Managing director
• Marketing director
• Financial director
• Etc.
6.2 Non-executive directors

These are directors who have no involvement in the day-to-day running of the
company, e.g.:
• Chairman;
• Directors without any specific function.
6.3 Prescribed officers

A prescribed officer exercises general executive control or regularly participates to a
material degree in the exercise of general executive control of the business, and
manages the whole, or a significant portion of the business and its activities, e.g.
Company secretary.
When we disclose executive, non-executive directors and prescribed officers, we

distinguish between:
• Directors’ fees;
• Salaries;
• Other benefits;
• Pension;
• Compensation for loss of office.
6.4 Directors’ fees
• Fees for attending directors’ meetings.
6.5 Salaries
• Salaries/fees;
• Bonuses and performance related payments.
6.7 Other benefits

• Allowances (e.g. Travel and entertainment allowance);
• Estimated monetary value of benefits received.
NB. Expenses which have been reimbursed to the directors are NOT disclosable.

6.8 Pensions
• Directly paid to past and present directors;
• Companies monthly pension fund contributions to a recognised pension fund.
6.9 Compensation for loss of office

The payments will be for:
• Loss of office;
• Retirement of office.
This won’t include payments for breach of contract, or restraint of trade.
6.10 Disclosure
Included in the note “Remuneration of directors and prescribed officers”.

INCOME FROM
INVESTMENTS
Investment
Investments in
In
Other Financial
Subsidiary
Assets
Investment Investment
In In
Listed Company Unlisted Company
For each type of investment show

• Dividends received;
• Interest received; and
• Other income

7 Revision Exercises
Revision Exercise 1
The following is an extract from the trial balance of Aqua Ltd at 31 August 2021:
R
Ordinary share capital 1 000 000
Retained earnings (1/9/2020) 465 000
15% Redeemable preference shares of R1 each 400 000
Vehicles at carrying amount (notes 8,9)
(Cost R239 200 and accumulated depreciation R208 575) 30 625
Equipment at cost (notes 7,9) 152 000
Accumulated depreciation – Equipment (R22 500 at 1/9/2020) 31 950
Land at cost 160 000
Buildings at cost 340 000
Accumulated depreciation - Buildings 102 000
Investments (note 1) 160 000
General reserve 150 000
Revenue (note 2,3) 9 400 000
Other income (note 11) 82 875
Other expenses (including depreciation) 980 000
Administration expenses (notes 4,5,6,10) 2 491 000
Sales returns 1 200 000
Distribution costs 750 000
Profit on sale of other financial assets (shares) 40 000
Additional Information
1. Investments consists of:
• 60 000 Ordinary shares of R2 each in Marine Ltd. Marine Ltd’s total issued
ordinary share capital consists of 100 000 shares. Marine Ltd’s shares are traded
on the Johannesburg Securities Exchange.
• 40 000 Ordinary shares of R1 each in Cobalt Ltd. Cobalt Ltd’s issued share
capital consists of 300 000 shares.
2. Aqua Ltd maintained a gross profit percentage of 60% on sales during the year.
3. Aqua Ltd sells merchandise and sales are net of VAT.
4. The key personnel are as follows:
Aqua Ltd Marine Ltd

Chairmen Mr Blue Mrs. Swart
Directors Mr Cyan, Mr Indigo Mr White, Mr
Scarlet
Regional managers Mrs. Mauve Mr. Harris
Financial directors Mr Dye Mr. Good

Managing directors Mr. White Mrs. Purple

General secretaries Mr. Green Mr. Orange
During the current financial year, the above-mentioned directors of Aqua Ltd and
Marine Ltd each attended four director’s meetings. The directors of Aqua Ltd received
R700 per meeting and the directors of Marine Ltd R350 per meeting.
5. Included in the salaries paid during the year are the following amounts:
Aqua Ltd Marine Ltd

R R
Regional managers 110 000 90 000

Financial directors 140 000 120 000
Managing directors 160 000 140 000
General secretaries 85 000 70 000
6. Mr Dye and Mr Good each received an entertainment allowance of R15 000 per
annum.
7. On 1 December 2020 equipment with an original cost price of 60 000 and

accumulated depreciation of R9 000 at the beginning of the year, was sold at its
carrying amount and replaced with a new machine at a cost of R62 000.
8. On 28 February 2021 a vehicle which originally cost R25 000 and on which
depreciation of R21 875 has already been written off up to that date, was traded in for
R6 000 on a new vehicle with a cost price of R35 000. All vehicles were purchased on
1 September 2017.
9. The following rates of depreciation are applicable:
Equipment 15% reducing balance method

Vehicles 25% straight line method
Buildings 5% straight line method
10. Administration expenses include the following:
R
Credit losses 130 000
Stationery 45 000
Salaries and wages 2 000 000
Fees paid to auditor
- For traveling expenses 46 000
- For audit work done 220 000
Interest paid 50 000
50 0
11. Other income consists of the following:
R
Dividends received
- Marine Ltd 35 000
- Cobalt Ltd 20 000
Interest received

- Debtors 15 000
- Cobalt Ltd 10 000
Profit on sale of vehicle 2 875
12. The redeemable preference shares are redeemable on 31 December 2021 and are
thus regarded as a liability for the company.
13. Normal tax of R197 925 must still be provided for.
14. Assume depreciation is an administrative expense.
Required:
Draw up the statement of profit or loss and other comprehensive income and applicable
notes of Aqua Ltd for the financial year ended 31 August 2021.
Your answer must comply with the requirements of the Companies Act, 2008 and
International Financial Reporting Standards (IFRS).
Ignore the note on accounting policy, comparative figures and the statement of
changes in equity.
Revision Exercise 2
The following balances were extracted from the books of Whirlpool Ltd for the financial
year ended 28 February 2021:
R
Total sales (including VAT at 15%) (note 1) 4 600 000
Administrative expenses: 1 103 000
Bank charges 24 000
Salaries and wages (note 2) 1 000 000
Advertising 55 000
Auditors’ remuneration:
• - Fees for audit 20 000
• - Expenses 4 000
Distribution cost 134 000
• Other expenses (including finance cost and depreciation) 185 000
Other operating income (note 4) 19 000
Proceeds on sale of motor vehicle 35 000
Equipment at carrying amount (note 6) 24 000
Motor vehicles at cost (note 6) 120 000
Accumulated depreciation – Motor vehicles 30 000
Loan to Sunflower (Pty) Ltd 40 000
Long-term loan (Cr) (note 3) 45 000
Income tax expense 64 000

Additional information:
1. Whirlpool Ltd maintains a gross profit percentage of 40% on turnover.
2. Included under salaries and wages are the following payments to top
management:
Salaries: R
• - Financial director (Mrs Sombrero) 120 000
• - Chairman of the board (Mr Pinwheel) 60 000
• - Marketing manager (Mr Lynx) 90 000
• - Managing director (Mrs Barnard) 100 000
Travelling allowance – Managing director 6 000
Entertainment allowance – Marketing manager 3 000
Pension payments:
• - Financial director 12 000
• - Chairman of the board 6 000
The top management were paid R625 each per meeting for attending directors’
meetings. Four (4) meetings were held during the year.
The financial director is also the chairman of Sunflower (Pty) Ltd and received
remuneration of R55 000 for the financial year ended 28 February 2021.
3. The long-term loan was obtained on 1 January 2019 and the capital
portion is repayable in seven equal annual instalments starting 31 August
2019. Interest on the loan is calculated at 10% per annum and is payable
at the end of each financial year.
4. Other operating income consists of:
Dividends received from the following companies R

• Gamma Ltd 10 000
• Sunflower (Pty) Ltd 6 000
Interest received from Sunflower (Pty) Ltd 3 000
19 000
5. Investments
5.1 The issued ordinary share capital of Sunflower (Pty) Ltd is R80 000 (shares
issued at R2 each). Whirlpool Ltd owns 21 000 shares in Sunflower (Pty) Ltd.
5.2 Whirlpool Ltd owns 50 000 of the 1 200 000 issued shares in Gamma Ltd
purchased for R100 000. The shares of Gamma Ltd are traded on the JSE Ltd
and the market value per share was R3 each on 28 February 2020. The market
value on 28 February 2021 was R4 per share and no adjustments have yet
been made during this year regarding the increased market value. These
shares were obtained for speculative purposes.
6. The non-current assets were depreciated at the following rates and methods:
- Motor vehicles – 25% per annum using the straight-line method.

- Equipment – 20% per annum using the straight-line method.
One of the motor vehicles with a cost of R40 000 was sold at its’ carrying
amount on 31 August 2020. Only the proceeds have been recorded so far.
All the equipment was purchased on 1 March 2018 and no sales or purchases
of equipment have occurred since then.
Assume depreciation expense is an administrative expense.
Required:
1. Prepare the statement of profit or loss and other comprehensive income of

Whirlpool Ltd for the financial year ended 28 February 2021 according to the
requirements of the Companies Act, 2008 and International Financial Reporting
Standards (IFRS).
Comparative figures are not required.
Show all calculations.
2. Disclose the “profit before tax” note for the statement of profit or loss and other
comprehensive income of Whirlpool Ltd for the financial year ended 28
February 2021 according to the requirements of the Companies Act, 2008 and
Revision Exercise 3
The following list of balances appeared, amongst others, in the books of Mario Ltd on
28 February 2021:
R
Land and buildings at valuation (note 1) 2 000 000
Ordinary share capital (shares issued at R2 each) 1 500 000
10% Cumulative preference shares 300 000
12% Non-cumulative preference shares (note 2) 550 000
Proceeds of 200 000 ordinary shares issued on 31 October 2020 400 000
15% Long-term loan obtained 1 July 2020 (Cr) (note 3) 900 000
Gross profit for the year 4 000 000
Administrative expenses 800 000
Distribution expenses 80 000
Other operating expenses 120 000
Other income 100 000
Income tax expense 823 900
Retained earnings (1 March 2020) 800 000
Mark to market reserve (1 March 2020) 40 000
1. Mario Ltd was incorporated with an authorised share capital of

2 000 000 Ordinary shares

500 000 10% Cumulative preference shares
300 000 12% Non-cumulative preference shares
300 000 14% Redeemable preference shares
2. 25 000 12% Non-cumulative preference shares at R4.00 each were issued on

1 September 2020 by Mario Ltd.
3. Finance cost on the long-term loan must still be provided for. There have been
no repayments to date on this loan.
4. Investments consist, amongst others, of the following:
1 500 shares in Luigi Ltd. The entry with initial investment was as follows:
R R
Dr. Investments 120 000
Cr. Bank 120 000
(This was the only entry regarding investments during the current financial
year)
These shares were classified as “investments through other comprehensive
Income” (not held for trading). The shares traded on the JSE Ltd at
R95 per share on 28 February 2021.
5. The following decisions were made by the directors on 28 February 2021 and
must still be recorded in the following order:
5.1 Capitalisation shares must be issued to the ordinary shareholders registered in

the share register on 28 February 2021 in the ratio of one ordinary share at
R1.50 for every five ordinary shares held.
5.2 An ordinary dividend of 10c per share was declared on 28 February 2021.
The company did not pay or declare any dividends during the previous financial
year.
6. There were no further changes in the share capital during the year.
Required:
Prepare the statement of changes in equity of Mario Ltd for the financial year ended
28 February 2021 according to the requirements of the Companies Act, 2008 and
Note: You do not have to disclose the total column of the statement of changes in
equity.

Revision Exercise 4
The following information was obtained from the books of Cooper (Pty) Ltd, a building
company, on 31 December 2021:
R
Share capital 200 000
Retained earnings 500 000
Land at cost 800 000
Factory buildings at cost 960 000
Motor vehicles at carrying value (31/12/2020) – Purchased 01/01/2019 420 000
Crane at cost 480 000
Accumulated depreciation
- Cranes (31/12/2020) 60 000
Investments at cost 65 000
Loans (note 6) 30 000
Inventory 340 000
Trade and other receivables 627 000
Provision for credit losses 25 200
Bank overdraft 270 000
Trade and other payables 372 000
Deferred operating lease payments 4 600
Additional information
The financial director that provided the above information to you also provided the
following information:
1. The factory buildings are situated at plot 180, Winkelspoort, and consist of a
factory and office block. The land was purchased on 1 April 2016 for R800 000.
The buildings were erected during the current year at a cost of R960 000 (only
material costs). The company withdrew its crane for 4 months during the year
from the production process and used it in the construction of these buildings.
The buildings were completed on 31 December 2021. The buildings are owner-
occupied.
2. The following transaction in respect of motor vehicles took place during the year:
On 30 September 2021, a motor vehicle with a cost price of R100 000 and on
which R55 000 depreciation has been written off to date of sale, were traded in
for R80 000 on a new vehicle that cost R140 000.
3. Depreciation on non-current assets is calculated as follows:
• The crane that was purchased on 1 July 2020 is depreciated over 48 months using
the straight line method.
• Motor vehicles 20% per annum using the straight line method.
• Buildings 2% per annum using the straight line method.
4. Inventories consist of:

R
• Raw materials 140 000
• Work in progress 200 000
The net realisable value of raw materials at year end was R110 000.
5. Investments consist of the following:
• 10 000 Ordinary shares of R2.50 each in Penny Ltd purchased for R30 000. The
authorised share capital of Penny Ltd. is 40 000 shares of which 15 000 shares
were issued. On 31 December 2021, the market value of the shares that Cooper
owns was R30 000.
• 25 000 Ordinary shares of R1.00 each in Bloom Ltd purchased for R35 000 for
speculative purposes. Bloom Ltd issued 400 000 shares of R1 each. Each share
has one vote. These shares traded on the JSE at R4 per share on 31 December
2021.
6. Loans comprise of the following:
• A loan amounting to R30 000 to Penny Ltd. The loan bears interest at 15% per
annum, paid on 31 December each year. The loan is repayable on 31 December
2026.
Required:
Prepare the “Assets” section of the statement of financial position and relevant notes
of Cooper (Pty) Ltd at 31 December 2021 according to the requirements of the
Companies Act, 2008 and International Financial Reporting Standards (IFRS).
Comparative figures and accounting policy notes are not required.

Learning Unit 3: IFRS 15

• Apply the definitions of IFRS 15.
• Calculate revenue accurately using the five-step
revenue model.
• Identify when revenue should be recognised in the
annual financial statements.
• Disclose revenue in the annual financial statements
of companies.
• Chapter 10: Revenue from contracts with customers
in Koppeschaar et al. (2017).
o Defined terms
o Five-step revenue model
o Presentation
1 Definitions
Revenue: Income arising in the course of an entity’s ordinary activities.
Contract: Agreement between 2 or more parties that creates enforceable rights and
obligations.
Contract asset: Entity’s right to consideration in exchange for goods or services

that the entity has transferred to a customer when that right is conditioned on
something other than the passage of time (for example, the entity’s future
performance).
Contract liability: Entity’s obligation to transfer goods or services to a customer

for which the entity has received consideration (or the amount is due) from the
customer.
Performance obligation: A promise in a contract to transfer to the customer either:

• A good or service that is distinct; OR
• A series of distinct goods or services that are substantially the same and that
have the same pattern of transfer to the customer.
Stand-alone selling price: Price an entity would sell a promised good or service
separately to a customer.
Transaction price: Consideration an entity expects in exchange for transferring

promised goods or services to a customer, excluding amounts collected on behalf of
3rd parties.

2 Recognition
IFRS 15 establishes a 5 step model that will apply to revenue earned from a contract
with a customer regardless of the type of revenue transaction or the industry.
Step 1 Identify the contract/(s) with the customer
Step 2 Identify the performance obligations in the contact
Step 3 Determine the transaction price
Step 4 Allocate the transaction price to the performance obligations
Step 5 Recognise revenue when performance obligation is satisfied
Step 1: Identify the contract/(s) with a customer
A contract with a customer only exists if ALL of the following criteria are met:
• All parties have approved the contract (in writing, orally, or implied).
• Each party can identify their rights in terms of goods or service to be transferred.
• Payment terms can be identified.
• Contract has commercial substance.
• It is probable that the entity will collect the consideration receivable.
The above criteria are assessed at inception of the contract and only reassessed if
there is a significant change in facts and circumstances.
Combination of contracts
Two or more contracts entered into at or near the same date with the same customer
may be combined if ANY of the following criteria are met:
• Contracts are negotiated as a package with a single commercial objective; OR
• Consideration payable on 1 contract is dependent on the price or performance
of the other contract; OR
• The goods or services in the contract are a single performance obligation.

Contract modifications
A contract modification is a change in the scope or price (or both) of a contract,

approved by all parties to the contract.
A change is only accounted for as a contract modification if it has been approved, and
creates new or changes, existing enforceable rights and obligations.
Contract modifications are accounted for as a separate contract if, and only if:
• The contract scope changes due to the addition of distinct goods or services,
and
• The change in contract price reflects the stand-alone selling price of the distinct
good or service.
Modifications that are NOT accounted for as a separate contract are accounted for as
either a:
• Replacement of the original contract with a new contract (if the remaining goods
or services under the original contract are distinct from those already transferred
to the customer);
• Continuation of the original contract (if the remaining goods or services under the
original contract are distinct from those already transferred to the customer, and
the performance obligation is partially satisfied at modification date);
• Mixture of above if elements of both exist.
Step 2: Identify the performance obligations
Performance obligations are the contractual promise by an entity, to transfer to a

customer, distinct goods or services, either individually, in a bundle, or as a series over
time.
Activities of the entity that do not result in a transfer of goods or services to the
customer (e.g. certain internal administrative ‘set-up activities’) are not performance
obligations of the contract with the customer and do not give rise to revenue.
Goods or services are distinct if both of the following conditions are met:
• The customer can benefit from the goods or services on their own or together
with other resources that are available to the customer; and
• The entity’s promise to transfer the goods or services is separately identifiable
from other promises in the contract.
Goods or services may include, but are not limited to:

• Sale of goods;
• Resale of goods;
• Resale of rights to goods or services;
• Performing a contractually agreed task;
• Providing goods or services when necessary or when requested (e.g. software
updates or delivery on demand);
• Providing a service (directly or through an agent);
• Granting rights to goods or services in the future;
• Constructing, manufacturing or developing an asset for a customer;

• Granting licenses;
• Granting options to acquire additional goods or services.
Revenue is recognised when an entity has satisfied a performance obligation by

transferring a promised good or service to a customer. An asset is transferred when
the customer has control of the asset. Performance obligations may be transferred
over a period of time if:
• The customer simultaneously receives and consumes the benefits; OR
• The entity’s performance creates or enhances an asset that the customer
controls; OR
• The entity’s performance does not create an asset with an alternative use (to the
entity) and the entity has the enforceable right to receive payment for
performance to date.
Step 3: Determine the transaction price
The transaction price is the amount of consideration an entity expects to be entitled to

in exchange for transferring the promised goods or services (excluding amounts
collected on behalf of third parties, e.g. sales taxes or value added taxes).
The transaction price may be affected by the nature, timing, and amount of
consideration, including:
• Variable consideration;
• Significant financing components;
• Non-cash consideration;
• Amounts payable to the customer (e.g. refunds and rebates).
Variable consideration
The entity must estimate the amount of consideration it expects to receive in exchange
for transferring the goods or services. Consideration may vary due to discounts,
rebates, refunds, credits, concessions, incentives, performance bonuses, penalties,
and contingent payments.
At each reporting date the entity must estimate (and update) the amount of variable
consideration using either:
• Expected value method: based on probability weighted amounts within a range
(i.e. for large number of similar contracts);
• Single most likely amount: the amount within a range that is most likely to
eventuate (i.e. where there are few amounts to consider);
• Variable consideration is only recognised if it is highly probable that a subsequent
change in its estimate would not result in a significant revenue reversal (i.e. a
significant reduction in cumulative revenue recognised).
An entity must recognise a refund liability if it expects to refund some or all of the
consideration to a customer.
Significant financing components

Consideration is adjusted for the effects of the time value of money, if the timing of
payments in the contract provides either the customer or the entity with a significant

benefit of financing the transfer of goods or services to the customer. The transaction
price is adjusted to reflect the cash selling price at the point in time control of the goods
or services is transferred.
A significant financing component can either be explicit or implicit. Factors to consider

include:
• Difference between the promised consideration and the cash selling price; and
• Combined effect of interest rates and length of time between transfer of control
of the goods or services and payment.
A significant financing component does not exist when:

• The timing of the transfer of control of the goods or services is at the customer’s
discretion; OR
• The consideration is variable with the amount or timing based on factors outside
of the control of the parties; OR
• The difference between the consideration and cash selling price arises for other
non-financing reasons (i.e. performance protection).
The discount rate used must reflect credit characteristics of the party receiving the
financing and any collateral/security provided. A significant financing component is not
identified if the entity expects that the period between transfer of goods or services and
payment is 1 year or less.
Non-cash consideration
Consideration may include non-cash amounts. These are measured at fair value. If the
amount cannot be estimated the non-cash consideration is the stand-alone selling
price of the goods or services promised less cash consideration.
Amounts payable to the customer
Includes cash paid (or expected to be paid) to the customer (or the customer’s
customers) as well as credits or other items such as coupons and vouchers.
These amounts are accounted for as a reduction in the transaction price, unless
payment is in exchange for a good or service received from the customer. Such
payments are treated as a normal purchase from a supplier.
If consideration payable to a customer is accounted for as a reduction in the transaction

price, the reduction in revenue is recognised when either of the following occurs:
• The entity recognises revenue for the transfer of the goods or services; OR
• The entity promises to pay the consideration.

Step 4: Allocate the transaction price to the performance obligations
The transaction price (determined in Step 3) is allocated to each performance

obligation (determined in Step 2) based on the stand-alone selling price of each
performance obligation. If the stand-alone selling price(s) are not observable, they are
estimated.
Approaches to estimate may include:

• Adjusted market assessment approach;
• Expected cost plus a margin approach; and
• Residual approach (i.e. residual after observable stand-alone selling prices of
other performance obligations have been deducted). This method may only be
used if the entity sells the same goods or services to different customers at a
broad range of and the entity has not yet established a price for these goods or
services (not previously sold stand-alone).
Allocation of a discount
A customer receives a discount where the sum of the stand-alone selling price
of each performance obligation exceeds the consideration payable. Discounts
are allocated on a proportionate basis, unless there is observable evidence that
the discount relates to one or more specific performance obligation(s).
Discounts are only allocated after meeting all of the following criteria:
• The goods or services (or bundle thereof) in the performance obligation are
regularly sold on a stand-alone basis, and at a discount;
• The discount is substantially the same in amount to the discount that would be
given on a stand-alone basis.
Allocating variable consideration
Variable consideration is allocated entirely to a performance obligation (or a distinct

good or service within a performance obligation), if both of the following are met:
• The terms of the variable consideration relate specifically to satisfying the
performance obligation (or transferring the distinct good or service within the
performance obligation); and
• The allocation of the variable consideration is consistent with the principle that the
transaction price is allocated based on what the entity expects to receive for
satisfying the performance obligation (or transferring the distinct good or service
within the performance obligation).

Step 5: Recognise revenue when performance obligation is satisfied
The transaction price allocated to each performance obligation (determined in Step 4)

is recognised as/when the performance obligation is satisfied, either
• Over time, or
• At a point in time.
An asset is considered to be transferred when the customer obtains control of the

asset. Control is the ability to direct the use of the asset and to receive the benefits
from it including:
• Using the asset to produce goods or services;
• Using the asset to enhance the value of other assets;
• Using the asset to settle liabilities or reduce expenses;
• Selling or exchanging the asset;
• Pledging the asset as security for a loan;
• Holding the asset.
Control may be transferred over time or at a point in time.
Performance obligation satisfied over time

An entity transfers control of goods or services over time and therefore satisfies a
performance obligation if one of the following criteria is met:
• The customer simultaneously receives and consumes the benefits provided by
the entity’s performance; OR
• The entity’s performance creates or enhances an asset controlled by the
customer;
• The entity’s performance does not create an asset with an alternative use to the
entity, and the entity has an enforceable right to payment for performance
completed to date.
Performance obligations satisfied at a point in time
Revenue is recognised at a point in time if the criteria for recognising revenue over
time are not met. Revenue is recognised when the entity transfers control of the asset
to the customer.
Factors to consider when assessing transfer of control:

• The entity has present right to payment for the asset;
• The customer has legal title to the asset;
• The entity has physically transferred the asset;
• The customer has the significant risks and rewards of ownership;
• The customer has accepted the asset.

Measuring progress towards complete satisfaction of a performance obligation
For each performance obligation settled over time an entity recognises revenue by
measuring the progress towards complete satisfaction of that performance obligation
to depict the goods and services transferred.
A single method to measure progress should be selected for each performance

obligation and should be consistently applied to similar performance obligations.
Progress is measured at the end of each reporting period.
Appropriate measures include:
• Output methods: e.g. surveys of performance completed to date, appraisals of

results achieved, milestones reached, units produced/delivered etc.;
• Input methods: e.g. resources consumed, labour hours, costs incurred, time
lapsed, machine hours, etc., excluding costs that do not represent the seller’s
performance.
3 Presentation
When either party has performed on a contract, the contract must be recognised in the
statement of financial position, as a contract asset or as a contract liability.
4 Effective date
IFRS 15 was due to be implemented for annual reporting periods beginning on or after
1 January 2017. In May 2015 the IASB deferred the effective date till 1 January 2018.
Earlier application is permitted.
Revision Exercise 1
On 1 January 2021 Cellkom secured a large contract with a customer to supply mobile
phones to its (the customer’s) employees. The contract included two years’ worth of
unlimited access to the network. The contract price was R5 000 per unit which is
payable immediately. At the end of the two-year contract, the phones will be retained
by the customer. Cellkom usually charges a monthly fee of R200 per month per unit
for unlimited network access and R1 000 for the mobile phone.
The year end of the company is 31 December. Assume the mobile phones were
delivered and network access was made available on 1 January 2021.
Required:
Using the information provided and quantify how revenue should be recognised in
accordance with IFRS 15 during 2021 and at 31 December 2021.

Mrs. B. Attery also took out an insurance policy on the electric car with Ensure Ltd to
insure the vehicle for a monthly fee of R1 250.
Use the five-step model approach for revenue recognition.
Ignore the impact of the time value of money.
Revision Exercise 2
Due to the volatile fuel price and the motor industry becoming more environmentally
conscious, Musk Ltd opened a motor dealership in Woodmead, selling electric cars.
As of 1 July 2018, Musk Ltd started selling the Missan Leaf for R474 900, including a
three year/ 90 000 km service plan. Musk Ltd marks up the sale of the electric cars at
20% on the cost of the vehicles.
The cost of each service within the three year/ 90 000 km service plan is R12 400. The
cost of the service is marked up at 25% on the labour and necessary parts required for
the service.
The selling price of a Missan Leaf without the service plan is R468 600. In order for the
guarantee on the Missan Leaf to be valid, the electric car is required to be serviced
every 22 500 km.
On 15 January 2019, Mrs B. Attery signed a purchase offer for the Missan Leaf for
R474 900. She subsequently entered into a loan agreement with Hybrid Bank to pay
for the purchase of the electric car. The purchase offer stated that Mrs. B. Attery will
take delivery of the Missan Leaf on 15 February 2019 when Musk Ltd would receive
the amount of R474 900 from Hybrid Bank.
On 15 February 2019, Musk Ltd processed the following journal entry in their
accounting records with regards to the sale:
R R
DR CR
Bank (SFP) 474 900
Sale of vehicle (P/L) 474 900
Mrs. B. Attery also took out an insurance policy on the electric car with Ensure Ltd to
insure the vehicle for a monthly fee of R1 250.
In terms of the loan agreement, Mrs B. Attery will pay a deposit of 30% of the total sale
price on 15 February 2019. Thereafter, she will pay monthly instalments of R4 940 in
arrears over a three-year period. The effective rate of interest on the loan is 15% per
annum. Mrs. B Attery brought the Missan Leaf in for its’ first service with Musk Ltd
during May 2019.

Required:
Discuss, in accordance with IFRS 15, Revenue from Contracts with Customers, how
the sale of the Missan Leaf to Mrs. B. Attery should be recognised and measured in
the annual financial statements of Musk Ltd for the financial year ended 30 June 2019.
Your answer must comply with the requirements of International Financial Reporting
Standards (IFRS).
Show all calculations as marks are awarded for calculations.
Revision Exercise 3
South Tours Ltd is a South African company operating in the travel and tourism sector.
The year end is 28 February 2019. South Tours Ltd offers safari tours for both local
and international tourists. The company is also a retailer of second-hand game viewing
vehicles.
You have been approached by the financial manager of South Tours Ltd. to provide
advice on the recognition of the revenue of South Tours Ltd. for the year ended 28
February 2019, based on the following information:
1. During the year ended 28 February 2019, 15 game viewing vehicles were sold
at a selling price of R700 000 each, inclusive of VAT. The following information
relates to the sale of the game viewing vehicles:
R
Cash sales 9 100 000
Credit sales 1 400 000
On 25 February 2019, two vehicles with a total selling price of R1 400 000 (VAT
inclusive) were sold to Mr. Douglas. Mr. Douglas paid for these vehicles on 28
March 2019 and the vehicles were transferred to him. Mr. Douglas is responsible
for the maintenance and insurance of the vehicles from the date that legal title is
transferred. The transfer of ownership of the other vehicles sold for cash
1. Cash Sales: Problem VAT
occurred on 28 February 2019. Theory: Definition of transaction price
Application:
Conclusion: 9,100,00*100/115
2. Credit Sales: When to recognize revenue
Theory: Performance obligation completed (Transfer of control)
Application: 1. When risks and rewards transfer legal title
Conclusion: 28 March X.19
3. Booking fees: When to recognize revenue
3. Booking & Conservation fees
2. South Tours Ltd undertakes safari tours for their customers. The duration of the
safari tours ranges between one and two weeks. Game park bookings and
conservation fees are paid one month in advance. The following information
relates to the safari tours starting during February 2019 and March 2019:
R
Tour fees received in cash for a two-week safari tour starting on 40 000
22 February 2019.
Transaction price allocated to game park bookings and 12 500
conservation fees.
Transaction price allocated to safari tour. 27 500
Tour fees received in cash for a 10-day guided tour starting on 30 000
22 March 2019.
Transaction price allocated to game park bookings and 10 000
conservation fees.
Transaction price allocated to safari tour. 20 000
Revision Exercise 4
Sale with a right of return
On 2 March 2021, Dahlia Ltd sold 1 100 wheelbarrows to Builderz Express for R255
each. The mark up for each wheelbarrow was 50% on the cost price. Builderz Express
may return any of the wheelbarrows for a refund if they are in a good condition before
31 March 2021. Revenue is recognised when Builderz Express purchases the
wheelbarrows. Based on historical experience, Dahlia Ltd estimates that Builderz
Express will return 5% of the wheelbarrows. On 31 March 2021, 5% of the wheel
barrows were returned to Dahlia Ltd.
Required:
Prepare the journal entries to reflect the transaction at 2 March 2021 as well as 31
March 2021


• Apply the definitions of IAS 2.
• Measure inventories using valuation techniques.
• Calculate the cost of inventories.
• Calculate the net realisable value of inventories.
• Present inventories in the annual financial
statements.
• Disclose inventories in the note to the annual
• Chapter 3: Inventories in Koppeschaar et al. (2017).
o Background;
o Nature of inventories;
o Measurement of inventories;
o Application of cost allocation techniques and
cost formulas;
o Cost of inventories;
o Determining net realisable value.
1 Definitions
What are Inventories?
Inventories are assets:
• Held for sale in the ordinary course of business;

• In the process of production with a view to sale;
• In the form of materials or supplies to be consumed in the production process or
in the rendering of services.
2 Measurement of inventories
Inventories should be measured at the lower of cost and net realisable value. The most
widely used methods of valuing inventories are:
• First-in-first-out;
• Weighted average;
• Specific identification.
Standard cost is also allowed as long as the standard cost approximates the actual
cost. The retails method which values inventory at selling price less an average profit
margin is also allowed, as long as it approximates the actual cost.

3 Cost of inventories
Costs of Cost of
purchase conversion
Other costs
Costs of purchase
This includes the purchase price, import duties and other taxes, transport and other
handling costs.
Trade discounts, rebates and other similar items are deducted in determining the cost
of purchase.
Cost of conversion
Costs directly related to converting materials into finished products, including direct
labour, variable production overheads and fixed production overheads.
Variable production overheads vary directly, or nearly directly, in relation with

production volume, such as indirect labour and indirect material.
Direct labour and variable production overheads are classified as direct costs since
these costs are directly traceable to products and vary with production volume.
Fixed production overheads are those indirect costs of production that remain relatively
constant regardless of the volume of production, such as depreciation, maintenance
of factory buildings, and the cost of factory management and administration. Fixed
overheads are allocated to products using an allocation basis since these costs are
not directly traceable to products and do not vary with production volumes.
• Allocation of fixed production overheads
This is based on the normal capacity of production facilities. Normal capacity is

the production expected to be achieved on average over a number of periods or

seasons under normal circumstances, taking into account the loss of capacity due
to planned maintenance.
The amount of fixed production overheads allocated to each product is not

increased due to low production or idle plant. Unallocated production overheads
are recognized as an expense in the period in which they are incurred. In periods
of abnormally high production, the amount of fixed production overheads allocated
to overheads is decreased so that inventories are not measured above cost.
Budgeted allocation rate = Budgeted production overheads

Budgeted activity level
Allocating overheads = Budgeted allocation rate x Actual activity level
Over/Under recovery = Difference between allocated and actual overheads
At year end, what is recorded as inventory is the allocated overheads and not the
actual overheads. Therefore, a correction needs to be made since allocated
overheads consist of a budgeted component and actual figures need to be
reported on.
If less overheads were allocated than what was actually incurred, there was an
under recovery and this is an expense in the P/L. The journal entry to account for
the under recovery would be as follows:
Dr Cost of sales
Cr Manufacturing overheads control account
Under recovery of production overheads.
The inverse applies for an over recovery, if normal capacity applies.
Other costs
Costs incurred in bringing the inventories to their present location and condition.
Cost excludes abnormal wastage due to abnormal production hours lost, storage costs
(unless necessary for next production process), administrative overheads and selling
costs.
4 Net realisable value

Net realisable value (NRV) is:
Estimated selling price which could be realised in the ordinary course of business
LESS
Estimated costs of completion of the product and costs to make the sale
Estimated costs to complete and make the sale include:
• Costs to complete the inventories;

• Trade and other discounts allowed;

• Advertising;
• Sales commission;
• Packaging costs;
• Transport costs.
5 Recognition as an expense
When inventories are sold, the carrying amount of those inventories shall be
recognized as an expense in the period in which the related revenue is recognized.
The amount of any write-down of inventories to net realisable value and all losses of
inventory shall be recognize as an expense in the period in which the write down or
loss occurs.
Any reversal of a write-down of inventories, resulting from an increase in net realisable

value, shall be recognized as a reduction in the amount of inventories recognized as
an expense in the period in which the reversal occurs.
6 Disclosure
Accounting policy
Measurement and cost basis used.
Statement of financial position

Carrying value of inventory classified as follows:
Work-in-
progress
Merchandise Materials
Consumables Finished
goods
Statement of profit or loss and comprehensive income (P/L)
The following should be disclosed in the Profit Before Tax note:

• Inventories recognised as an expense during the period.
• Inventory write-downs or reversals.
Revision Exercise 1
Build Limited manufactures cupboard doors using materials purchased from a local
supplier.
Work in progress and finished goods are valued as follows:

- The raw materials required to manufacture cupboard doors are purchased

from a local supplier. All materials required to manufacture the cupboard
doors are purchased from the same supplier, as the supplier has a good
business relationship with Build Limited, and provides the materials required
at a discounted rate.
- It is the policy of Build Limited to pay their factory workers the same hourly
rate. The factory workers are required to record their hours spent during the
manufacturing process on a job card, which is then inserted into the payroll
system.
- Overheads are allocated to the cost of inventory based on direct labour hours
worked.
The accountant prepared the following draft accounts as at 28 February 2021:
Raw materials (R) Work in progress Finished goods (R)

(R)
Direct materials 50 000 100 000 280 100
Direct labour 81 200
Manufacturing ?
overheads
Direct labour hours incurred for the financial year ended 28 February 2021 was as
follows:
Work in progress 1 800
The following is an extract of the trial balance for the financial year ended 28 February
2021
R
Direct materials 430 100
Direct labour 306 600
Administrative overheads 58 200
Depreciation on manufacturing equipment 15 000
Factory supervisor’s salary 48 000
Water and electricity – production 22 000
Other production overheads 40 000
Distribution costs 18 000
All work in progress was manufactured in February 2021 and Build Limited has a
normal capacity of 2 000 direct labour hours. Actual manufacturing overheads incurred
amounted to R130 000.
Required:
1. Calculate the production overhead rate to be used in assigning overheads to

work in progress and finished goods in accordance with IAS 2. Round the rate
to the nearest Rand.

2. Disclose inventory in the statement of financial position of Build Limited as at

28 February 2021.
Standards (IFRS).
Show all calculations as marks will be awarded.
Revision Exercise 2
Dexter Ltd is a manufacturing entity and the following information for the year
ended 31 December 2021 is available:
R
Revenue 378 125
Selling expenses 3 780
Raw material purchases 123 750
Transport costs – raw materials 350
Fixed production overhead costs 57 063
Variable production overhead costs 69 095
Inventories consist of the following

Opening Closing Net realisable
inventories inventories value
R R R
Raw materials 48 125 20 625 19 938
Packaging materials 2400 2 200 1 993
Work in progress 20 625 35 063 27 500
Finished goods 55 000 28 188 41 250
1. Raw materials and work in progress are valued according to the first-in-first-out
(FIFO) method.
2. Finished goods and consumables are valued using the weighted average
method.
3. Fixed production overhead costs are allocated at R25 per unit and is based on
the normal production capacity of 2 000 units. Actual units manufactured were 1
800.
Required:
Use the above information to prepare the annual financial statements of Dexter Ltd for
the year ended 31 December 2021. Your answer should include the statement of profit
or loss and other comprehensive income, statement of financial position and relevant
notes.
Standards (IFRS).
Show all calculation

Revision Exercise 3
Part A
Stem Limited is a manufacturing company in its first year of operations and has a
December financial year end. Stem Limited manufactures one product and has 500
units of finished goods of this product on hand at 31 December 2021.
The junior accountant is uncertain of how to treat the fixed manufacturing overheads
and has debited the fixed manufacturing overhead costs for the year to a suspense
account. The following information has been provided:
Finished goods (closing balance)

- Direct labour and other variable conversion costs (R3 per R1 500
unit)
- Direct material (R2 per unit) R1 000
Fixed manufacturing overheads suspense account R20 000

Budgeted sales 19 000 units
Budgeted production 20 000 units
Actual production 25 000 units
Actual sales 24 500 units
Fixed manufacturing overhead costs are allocated to products using budgeted

production volume. The 500 units on hand at 31 December 2021 were sold for an
amount of R3 500 after year-end but before the approval of the financial statements.
Required:
1. For part A, calculate the amount at which finished goods will be disclosed in the
statement of financial position as at 31 December 2021.
Part B
Petal Limited, a subsidiary company of Stem Limited, had work-in-progress on hand

at 31 December 2021 with a cost of R235 000 (correctly calculated). The work-in-
progress requires an additional R12 000 costs to be incurred in order to be completed.
The company plans to complete the work-in-progress and sell it at a mark-up of 15%
on cost. Selling costs are estimated at R42 000.
The company had a raw material balance of R20 000 at 31 December 2021. The
amount
Required:
2. For part B, calculate the amount at which work-in-progress will be disclosed in the
statement of financial position as at 31 December 2021

Standards (IFRS).
Round all amounts to the nearest Rand.
Revision Exercise 4
Chem Ltd, is a company that manufactures chemical cleaning products for the
domestic and industrial markets. The company is a VAT vendor, and its financial year
end is 31 December. The following information was made available to the financial
accountant of Chem Ltd for the financial year ended 31 December 2019, to be used in
the preparation of the annual financial statements.
• Raw materials on hand on 31 December 2018, were 500 litres at a cost of R9

per litre.
• During the current financial year, 16 000 litres of raw materials were purchased
for an amount of R175 800.
• Transportation costs of R1 200 were incurred to transport the raw materials to
the premises of Chem Ltd.
• It is expected that there will be a 1% loss of raw materials during the
production process due to evaporation.
• During December 2019, 430 litres of raw materials were wasted in the
production process due to a malfunction of one of the engines. The cost
incurred to repair the engine amounted to R4 750.
• The balance of raw materials as at 31 December 2019, is 300 litres.
• The factory supervisor earns a salary of R190 000 per annum.
• The wage cost of R170 000 was incurred as follows: factory workers 75%,
cleaning staff in the factory 5%, administrative workers in the head office 20%.
• Storage costs of R980 were incurred to store the finished goods until they were
sold.
• Water and electricity incurred for the current financial year amounted to R48
000, of which 80% is variable and 20% is fixed.
• No work in progress was on hand at the end of the year.
• The number of units produced and sold for the current financial year amounted
to the following:
Units produced Units sold

Budgeted 12 500 -
Actual 11 700 10 700
• The budgeted fixed production overhead costs amounted to R265 000.

• Chem Ltd uses the weighted average cost formula to calculate the cost of its
inventories.
• The selling price per unit produced and completed is R75.
• The sales commission on each unit sold is R15.
The replacement cost for the raw materials per litre is R12.
Required:
1. Prepare the Inventory note to the financial statements of Chem Ltd for the
year ended 31 December 2019.

Comparative amounts are not required.
Revision Exercise 5
Elysees Ltd is a company that imports and retails luxury goods from France.
Theyhave retail outlets at various high-end shopping centres throughout South
Africa. As the financial accountant for Elysees Limited, you have been tasked
with establishing the correct carrying amount of the inventory for the financial
year ended 31 August 2021.
Inventory
Due to the recent economic recession and in a bid to boost sales in the local
environment, Elysees Limited began manufacturing faux leather handbags and
shoes for resale to middle income consumers. The following information is
available for the financial year ended 31 August 2021:

Details
Raw material purchased for the year (in metres) 75 000
Raw material issued to production during the year (in metres) 52 500
Raw material per unit produced (in metres) 1
Direct labour per hour (Rands) R8
Actual production hours for the year 138 000
Variable manufacturing overheads 127 500
Budgeted fixed manufacturing overheads 900 000
Normal production capacity (hours per month 15 000
Selling price (per unit) R900
Delivery cost (per unit) R25
Sales commission 15% of
selling price
• There was no raw material in inventory at the beginning of the financial year.
• The cost of raw materials purchased for the year amounted to R2 841 750.
• At 31 August 2021, 30% of the finished goods was still on hand.
• There was no opening or closing work-in-progress inventory for the
financial year.
• Fixed manufacturing overheads are allocated to the cost of inventory

basedon direct labour hours worked.
Required:
Calculate the following balances that will be disclosed in the statement of financial
position of Elysees Limited as at 31 August 2021:
a) Raw materials
b) Finished goods
Round all amounts to two decimal places.


• Calculate the cost price of property, plant and
equipment purchased, exchanged or constructed.
• Calculate depreciation of property, plant and
equipment using the straight-line method, diminishing
balance method and units of production method.
• Measure property, plant and equipment using the cost
model.
• Derecognise property, plant and equipment.
• Present property, plant and equipment in the annual
• Disclose property, plant and equipment in the note to
the annual financial statements.
• Chapter 8: Property, plant and equipment in
o Nature of PPE
o Background
o Recognition
o Depreciation
o Subsequent measurement (cost model)
o Derecognition
o Disclosure
1 Objective
Property, plant and equipment are defined as:
Tangible assets held for use in the production or supply of goods or services, for
rental to others or for administrative purposes and are expected to be used during
more than 1 accounting period.
Two principle accounting issues in accounting for property, plant and equipment:
• Timing of recognition
• Measurement (initial and subsequent).
2 Definitions
• Carrying amount: amount at which asset is recognised after deducting
accumulated depreciation and impairment losses.
• Cost: cash or cash equivalents paid AND/OR the fair value of other
consideration given to acquire an asset.
• Depreciable amount: cost less residual value.
• Depreciation: systematic allocation of the depreciable amount over the useful
life.

• Entity-specific value: present value of cash flows an entity expects to arise from
the continuing use of an asset and from its disposal at the end of its useful life.
• Fair value: price that would be received to sell an asset in an orderly transaction
between market participants at the measurement date.
• Residual value: estimated net amount that would currently be obtained from
disposal.
• Useful life: period over which an asset is expected to be used by an entity or
the number of production units expected to be obtained from the asset.
3 Recognition of property, plant and equipment

The recognition criteria for an asset are:
• It is probable that future economic benefit associated with the item will flow to
the entity.
• Cost of the asset can be reliably measured.
4 Measurement at recognition
Initial expenditure
Initially measured at cost. Cost includes those costs necessary to bring the asset to a
location and condition suitable for intended use, including:
• Purchase price, including import duties and non-refundable purchase taxes less
trade discounts.
• Directly attributable costs including employee benefit costs, site preparation costs,
delivery and handling costs, installation and assembly, professional fees and
testing costs to ensure the asset is operating (less net proceeds from selling any
items produced e.g. samples).
• Estimated cost of dismantling and removing the asset and restoring the site on
which it is located (only if a provision in terms of the recognition criteria of IAS 37
are met).
Cost excludes:
• Initial operating costs;

• Administration and other general overheads;
• Costs of moving the asset to another venue;
• Abnormal wastage;
• Staff training;
• Costs of opening new facilities;
• Costs of introducing a new product or service.

Deferred payment terms
Cost price is the cash price equivalent at recognition date. If payment is deferred
beyond normal credit terms, the difference between the cash price equivalent (PV of
the amount payable) and the total payment is recognised as interest over the credit
period.
DR Asset (cash cost equivalent)

DR Interest accrued (amortise over period of agreement)
CR Payables (total amount payable)
Exchange of items
Where an asset is exchanged the acquired item is measured at FV of the asset

given up, unless the FV of the asset received is more evident. If FV is not
ascertainable for either asset then CV of the asset given up is used.
If the exchange is deemed to have no commercial substance, then the cost of the
asset acquired is the same as the CV of the asset given up. An exchange is
deemed to have no commercial substance if the future cash flows associated with the
exchanged asset are not expected to be materially different from the original.
Exchange of assets:
Measurement
If transaction has commercial

substance use: If transaction has NO commercial
substance substance OR FV of both
FV of asset given up OR FV of asset assets is not reliably deteminable
received if this is more evident. use:
CV of asset given up
Only if reliably determinable
An exchange is deemed to have no commercial substance if the future cash flows

associated with the exchanged asset are not expected to be materially different from
the original.

5 Subsequent expenditure
Subsequent expenditure is only recognised as an asset if future economic benefits
will flow to the enterprise in excess of the original expected future benefits AND the
cost can be measured.
Day to day servicing
Always expensed
Replacement of part
If part of an asset needs to be replaced, the part replaced should be derecognised and
the replacement part capitalised.
Regular major inspections
If an asset needs major inspections at regular intervals, the cost of each new inspection
should be capitalised, and the CV of the previous inspection should be derecognised.
If the initial cost included an unquantified amount for inspection, an estimate may be
used.
6 Depreciation
Property, plant and equipment is depreciated over its estimated useful life. Each part
of the asset that is significant in relation to the total cost should be depreciated
separately.
• Commences when asset is available for use.

• Ceases at the earlier of the date when the asset is classified as “available for
sale” or when the asset is derecognised.
• Does not cease if the asset is temporarily not in use.
Depreciable amount is determined after deducting the estimated residual value. When
an asset is revalued, the revalued amount is written off over the remaining useful life.
The most common methods of depreciation are:
• Straight-line method
• Diminishing balance method
• Units of production method
Land and buildings are accounted for separately. In most instances, land has an
unlimited useful life and therefore should not be depreciated. If the cost of land includes
restoration, this cost should be depreciated over the period that benefits will be
received.
If the useful life, residual value or depreciation method are changed, they are
accounted for as a change in accounting estimate as per IAS 8 (backdated to beginning
of year).

7 Derecognition
The carrying amount of an asset should be derecognised:
• on disposal; OR
• when no future economic benefits are expected from its use or disposal.
8 Disclosure
Accounting policy note
• measurement basis;
• depreciation methods;
• useful lives or depreciation rates.
Statement of profit or loss and other comprehensive income (P/L)

• Depreciation;
• profits or losses on realisation, scrapping or disposal.
Statement of financial position
• Reconciliation of the gross carrying amount and accumulated depreciation at the

beginning and end of year showing:
• additions
• disposals at carrying value
• depreciation
Revision Exercise 1
Delta Ltd acquired manufacturing plant at a cost of R11 400 000 (including VAT). A
trade discount of 10% is applicable. The following additional costs were incurred prior
to bringing the asset into use:
R
Delivery 100 000
Installation costs 50 000
Engineers fees relating to the installation 15 000
Testing to ensure the plant was operating efficiently 60 000
Losses before the plant achieved optimal efficiency 70 000
Advertising of the new products produced 10 000
The products produced during the testing phase were sold for R21 000. Commission
of R1 000 was paid to generate these sales.
Required
Calculate the cost of the manufacturing plant.

Revision Exercise 2
Green Ltd is a manufacturing company and is manufacturing rugby balls for Bok Ltd.
Green Ltd uses machine Super 00, purchased on 1 January 2020 for R1 million, for
the manufacturing of the rugby balls.
Machine Super 00 comprises of three components. Details of the components are as

follows:
Residual
Cost Useful life value
Component R (Years) R
Super 1 500 000 5 40 000
Super 2 300 000 4 None
Super 3 200 000 2 None
Total 1 000 000
The components can function independently but are used as a unit. Components are
independently replaced at the end of their useful life.
On 30 September 2021, part 22 of component Super 2 broke down unexpectedly. The

part was replaced at a cost of R110 000. Management estimated that the original cost
of part 22 was R100 000.
On 31 December 2021, at the end of its useful life, component Super 3 was replaced
at a cost of R210 000.
Costs of day-to-day servicing of the machine amounted to R45 000 during 2021(2020:
R42 000).
During 2021 the useful life and residual value of the components were reassessed,
and they were considered not to have changed.
Required:
Prepare the journal entries necessary to account for all aspects of property, plant and
equipment for the years ended 31 December 2020 and 2021.
Your solution must comply with the requirements of International Financial Reporting
Standards (IFRS).
Revision Exercise 3
Beta Ltd operates a furnace which originally cost R20 000 000 including R4 000 000
in respect of the cost of the furnace lining. The useful life of the furnace is 20 years.
The lining will need replacing every 5 years. There is no residual value. The original

purchase of the furnace took place on 1 January 2016. The 1st lining was replaced on
1 January 2021 at a cost of R5 000 000. The current year end is 31 December 2021.
Required:
Calculate the total depreciation for the year ended 31 December 2021 and the carrying
value of the furnace to be disclosed in the PPE note at 31 December 2021.
Revision Exercise 4
Bentley Ltd owned an aeroplane with a CV of R3 000 000 on 1 January 2021. The CV
is allocated as follows:
• Aeroplane structure R2 000 000, remaining useful life of 10 years, nil residual
value.
• Aeroplane engine R1 000 000, remaining useful life of 2 years, nil residual value.
The engine originally cost R1 200 000 but was scrapped on 1 October 2021 as a result
of technical problems experienced. This engine was replaced on the same date at a
cost of R1 500 000. It is expected to have a useful life of 3 years and a nil residual
value.
Required:
Prepare the journal entries relating to the aeroplane for the year ended 31 December
2021.
Revision Exercise 5
On 1 January 2020, the risks and rewards of ownership of a new Lear jet passed to
Flight Ltd. The jet, which is to provide international mobility to the company’s most
senior executives, cost R40 million (excluding VAT). The company intends keeping the
jet until it is obsolete (i.e. 20 years) at which time it is expected to have no residual
value. Although the invoice did not provide an analysis of the purchase price, it can
reasonably be allocated as follows:
Engines 20 000 000 Estimated useful life 10 years with no residual value
Airframe 14 000 000 Estimated useful life 20 years with no residual value
Furniture and fittings 4 000 000 Estimated useful life 5 years with no residual value
Inspection costs 2 000 000 Such inspections are required by aviation authorities
every two years
40 000 000

On 30 June 2021, for reasons of convenience, the company undertook the requisite
inspection six months earlier than required by the aviation authorities. The cost of the
inspection was R2 200 000 and the next scheduled inspection is 30 June 2023.
Required:
1. Compute the amount of depreciation to be expensed by Flight Ltd in respect of

the jet for the year ended 31 December 2020
2. Briefly outline how Flight Ltd shall account for the inspection cost during 2021, in
accordance with IAS 16 Property, plant and equipment.
Revision Exercise 6
On 1 January 2021 Aries Ltd acquired a fishing vessel costing R650 000. The
estimated useful life is 12 years. The vessel has to be inspected every 3 years. The
estimated cost of the 1st inspection is R50 000. The company has identified the
inspection cost as a separate component in terms of IAS 16.
Required:
Calculate the total depreciation for the year ended 31 December 2021.
Revision Exercise 7
Alpha Ltd bought a machine on 1 January 2020 for R1 600 000. The machine has to
be inspected every 6 000 hours which means that a major inspection will have to be
carried out every 2 years.
The estimated cost of a major inspection is R150 000. The machine has an estimated
useful life of 8 years.
Required:
1. Calculate the depreciation and carrying amount of the machine for 2020 and 2021
if everything goes according to plan.
2. If, due to several factors, the inspection needed to be done after 20 months instead
of the planned two years and the cost of the first physical inspection amounted to
R200 000, show how this matter will be disclosed in the note on property, plant
and equipment for the year ended 31 December 2021. The machine is the only
asset of the entity.
Revision Exercise 8
Xerox Ltd is constructing a new building on rented premises. In terms of the agreement
the building must be dismantled at the end of the lease period.

Total costs to erect building 1 000 000

Transfer fees and duties 90 000
Expected dismantling and removal costs 120 000
Discount rate (after tax of 30%) 6.3%
Useful life of the building 24 years
Required:
Calculate the cost of the building.
Revision Exercise 9
Orly Limited is a company with a 30 April financial year end. The following information
relates to the assets of the company:
Machine
On 15 July 2020, Orly Limited placed an order for a new hydraulic machine for R800
000. The hydraulic machine was imported, and import duties amounting to R10 000
was incurred. Orly Limited also paid an installation fee of R12 000. The machine was
installed and ready for use, as intended by management, on 1 August 2020. On
acquisition date (1 August 2020) an expected useful life of 8 years and a residual value
of R50 000 were allocated to the machine.
The machine requires a major inspection every 24 months. On acquisition date, the
total cost of the inspection of the machine was estimated to be R30 000. On 1 April
2021, the hydraulic motor of the machine was damaged, which required the major
inspection to be immediately performed on that date at a total cost of R34 000. The
remaining useful life and residual value of the machine remained unchanged
throughout the period.
Delivery vehicle
A delivery truck was purchased on 30 June 2020 for an amount of R1 368 000
(excluding VAT). The vehicle consists of significant separately identifiable
components, namely: engine, tyres and the body framework and other parts.
The total cost has been allocated to the components on the following basis:
Engine: 20% of cost

Tyres: 10% of cost
Body framework and other parts:70% of cost
Depreciation on the engine is written off based on the total estimated kilometres (kms)
of 100 000. Depreciation on the tyres is written off based on the total estimated kms of
25 000. Depreciation on the body framework and other parts is written off over the
expected useful life of 10 years on the reducing balance method. The body framework
has a residual value of R52 500.

On 28 February 2021, the delivery truck had travelled a total distance of 25 000 kms.
On 1 March 2021, the tyres had to be replaced at a cost of R125 000. On 30 April
2021, the delivery truck had travelled a total distance of 30 000 kms.
Additional information
- Machinery is accounted for according to the cost model.

- Depreciation on assets is written off in accordance with the straight-line
method over the estimated useful lives of the assets.
Required:
Prepare the property, plant and equipment note of Orly Limited for the financial year
ended 30 April 2021.
The total column in the property, plant and equipment note is not required.
Your answer must comply with the requirement of International Financial Reporting
Standards (IFRS).
Show all calculations. Ignore comparative amounts.
Revision Exercise 10
Chuck Limited is a packaging and distribution enterprise with a February financial year
end. The following information relates to the assets of the company:
Land and buildings
Chuck Limited purchased land and buildings for R22 000 000 (VAT inclusive) in 2019.
The transfer of the land and buildings was concluded on 1 December 2019. The seller
agreed that Chuck Limited may pay them on 1 December 2020. The seller’s normal
payment terms are two months after the transfer date. Chuck Limited calculated the
land to be 20% of the total purchase cost. The useful life of the building was estimated
to be 20 years.
Buildings is depreciated on a straight-line basis over the useful life of the asset.
The current market interest rate is 12% p.a.
Computer equipment
On 30 April 2020, computer equipment with an original cost of R120 000 (VAT
exclusive) and on which accumulated depreciation of R72 000 was already written off
up until 1 March 2020, was traded in at its carrying amount for new computer
equipment costing R210 000 (VAT exclusive).

Balances in respect of computer equipment at 1 March 2020:

DR / (CR)
R
Computer equipment 840 000
Accumulated depreciation on computer equipment (240 000)
Computer equipment is depreciated at 20% per annum using the reducing balance
method.
Inventory
Balances in respect of inventory for the financial year ended 28 February 2021:
Opening Closing inventories Net realisable
inventories R value
R R
Raw materials 35 000 15 000 14 500
Work-in-progress 15 000 25 500 20 000
Finished goods 40 000 20 500 30 000
Packaging 1 500 1 100 1 000
materials
Extract from the statement of profit or loss and other comprehensive income for the
financial year ended 28 February 2021:
R
Revenue 1 550 000
Administration expense 75 000
Distribution expenses 220 000
Selling expenses 120 000
Transport cost – raw material 800
Advertising expenses 8 000
Variable production overhead costs 90 000
Fixed production overhead costs 110 000
Budgeted fixed production overhead costs amounted to R85 000 and are allocated
based on a normal capacity of 2 000 units produced. The actual number of units
produced was 2 500 units.
Required:
1. Prepare the property, plant and equipment note to be disclosed in the annual
financial statements of Chuck Limited for the financial year ended 28
February 2021.
2. Calculate the under/over recovery of fixed production overheads for the

financial year ended 28 February 2021.
3. Calculate the value of cost of sales for the financial year ended 28 February
2021.

Standards (IFRS).
Ignore the total column in the property, plant and equipment note.
Chuck Limited is registered for VAT. Assume a VAT rate of 14%.
Revision Exercise 11
Baggage Solutions Ltd manufactures top of the range luggage bags that are extremely
light weight, strong and durable. The company specialises in trolley bags, and these
can be sold separately or as part of a set. The company’s financial year end is 31
March.
The following information is available as at 31 March 2021.
Land and buildings

Baggage Solutions Ltd purchased land with a warehouse from Property Direct for R9
444 375, and the transfer of the land and building was concluded on 1 July 2019. The
normal payment terms of Property Direct is 2 months after transfer date. The
agreement between Baggage Solutions Ltd and Property Direct states that payment
for the property should occur on 1 July 2020.
The land constitutes 20% of the purchase price of the property. The useful life and
residual value of the warehouse is 25 years and R900 000 respectively.
On 1 April 2020 the fair value of the property is R8 700 000.
Vacuum forming machine

The machine was purchased on 1 April 2018, for R525 000. It is used to mould the
shape of the trolley bag by forming a vacuum in the plastic through extreme heat. The
machine has an estimated useful life of 10 years.
On 30 November 2020, due to unscheduled loadshedding, the ceramic heater in the

machine malfunctioned and had to be replaced. The ceramic heater is a significant
component of the machine. The new heater cost R24 450 and its estimated useful life
is 3 years.
The accountant is expecting the next inspection cost to be R26 320 and wants to
recognise a provision for this amount on 31 March 2021.
Warranty

Baggage Solutions Ltd sells all trolley bags with a warranty which covers the cost of
repairs for any defects within the first year of purchase. Past experience and future
expectations indicate the following pattern of probable repairs:
% of goods sold Nature of defects Cost of repairs if all

items had defects
R
85% No defects nil
12% Minor defects 275 000
3% Major defects 550 000
In the prior year, a provision was raised for R75 500. Repair costs incurred and paid
during the current year that relates to the prior year sales of trolley bags, amounted to
R67 500. No further repair costs are expected to be incurred which relates to the prior
year sales.
Law suit
During the current year, a customer instituted a claim against Baggage Solutions Ltd
for damages and loss suffered of R85 000 during a business flight from George to
Pretoria. He arrived in Pretoria to find his luggage and all his electronic equipment
stored in it, damaged beyond repair. The legal advisors of Baggage Solutions Ltd, are
of the opinion that it is possible that the entity will be found liable. The trial will be
finalised in the following year. There is no possibility of claiming this amount from a
third party resulting in reimbursement.
• The pre-tax market related interest rate is 9.5%.
• The revaluation model is applied to both land and buildings. Revaluations are
performed at the beginning of the year.
• The cost model is applied to all other items of property, plant and equipment.
Required:
1. Prepare the journal entries to account for the revaluation of the land and
buildings of Baggage Solutions Ltd for the year ended 31 March 2021. Support
your answer with calculations where necessary.
2. Discuss how the replacement of the ceramic heater should be accounted for in
the financial records of Baggage Solutions Ltd for the year ended 31 March
2021. Support your answer with calculations where necessary.

3. Discuss whether or not you agree with the accountant to raise a provision for
the estimated cost of the future major inspection in the financial statement of
Baggage Solutions Ltd as at 31 March 2021.
4. Prepare the following notes to the financial statements of Baggage Solutions

Ltd for the year ended 31 March 2021.
• Property, plant and equipment (total column not required)

• Provisions
• Contingent liability
Your answer must comply with the requirements of International Financial

Ignore any VAT consequences.

Workbook FIAC6211

• Measure provisions and contingencies in the annual
financial statements of companies.
• Record provisions and contingencies in the annual
financial statements of companies.
• Disclose information about provisions and
contingencies relating to nature, timing, amount and
uncertainties.
• Chapter 15: Provisions, contingent liabilities and
contingent assets in Koppeschaar et al. (2017).
o Background
o Relationship between provisions and
contingent liabilities
o Identification of liabilities, provisions and
contingent liabilities
o Provisions
o Contingent liabilities
o Contingent assets
1 Definitions
Provision Contingent liability Contingent asset
Definition: Liability of Definition: A possible Definition: A possible asset
uncertain timing or amount. obligation as a result of a arising from past events
past whose existence will whose existence will only
A liability is a present only be confirmed by be confirmed by uncertain
obligation arising from past uncertain future events not future events not wholly
events which is expected to within the control of the within the control of the
result in an outflow of entity. entity.
economic resources.
OR Disclose in a note as a
Recognised when: contingent asset if it is
• entity has a present A present obligation as a probable that there will be
obligation as a result of result of a past event NOT an inflow of economic
a past event; recognised because it is benefits.
• it is probable that there not probable that there will
will be an outflow of be an outflow of resources
economic resources; OR a reliable estimate
• a reliable estimate can cannot be made.
be made.
Disclose in a note as a
2 Types of obligations : contingent liability unless
possibility of outflow of

Workbook FIAC6211
• legal - a party has the economic resources is

right to summons the remote.
entity to perform. An
obligation enforced by
law is created.
• constructive – not
legally enforceable, but
is inescapable as a
result of external factors
or management policies
and decisions.
Provide for onerous

contracts – when the
fulfilment of the contract
leads to a loss for the entity.
Do NOT provide for future

operating losses or costs –
do not refer to events that
have already taken place,
but to events that are still to
occur in the future.
A provision may only be

used for expenses for which
the provision was originally
raised.
2 Measurement
• Best estimate at reporting date.
• Risks, uncertainties, time value of money and future events must be taken into
account.
3 Reimbursements
• If part of provision will be reimbursed by a 3rd party, the income and
corresponding asset should only be recognised if it is virtually certain that the
reimbursement will be received.
• The asset must be disclosed separately from the liability, however the expense
leg of the provision and the related income leg of the related reimbursement may
be offset against each other.

Workbook FIAC6211
4 Disclosure
For each class of provision disclose
• A brief description of the provision, and the expected timing of any outflow of
economic benefits.
• Any significant uncertainty about the amount or timing of the expense must be
stated.
• Expected reimbursements must be stated, as well as the amount of any asset
recognised in respect of it.
• CV beginning and end of period.
• Additional provisions made in period and increases in existing provisions.
• Amounts used and offset against the provision during the period.
• Unused amounts reversed.
• Increase as a result of the passage of time and the effect of a change in the
discount rate.
Comparative information is not required
For each class of contingent liability disclose a brief description of the liability and an
estimate of the financial effect (if possible), uncertainties relating to the amount or
timing and any possible reimbursements. The same disclosure applies to contingent
assets.
Revision Exercises
Revision Exercise 1
Aqua Ltd is an exclusive beauty spa situated on the Kwa-Zulu-Natal south coast.
During the 2020 financial year, the board of directors decided to significantly reduce
the maintenance personnel of the company. On 28 February 2020, the balance of the
provision raised for severance packages for these redundant employees amounted to
R168 000. During the current financial year, severance packages amounting to R200
000 have been paid to these redundant employees according to their service contracts.
On 21 January 2021, a client instituted a claim of R80 000 against Aqua Ltd after she
was burnt by a product used during a facial. There are numerous signs placed in the
spa advising clients to be cautious when choosing a product if their skin is sensitive
and prone to breakouts. The legal advisors of Aqua Ltd are of the opinion that the claim
will be unsuccessful. The legal costs to defend the claim are estimated at R18 000.
During January 2020, the building in which the spa is located was damaged due to a
fire that broke out. All clients had to evacuate, as the building was severely damaged.
At the time, management estimated that R60 000 would have to be paid to these clients
to compensate them for cancellation of bookings and the overall inconvenience
caused. During the financial years ended 28 February 2020 and 28 February 2021
amounts of R25 000 and R20 000 respectively, were paid to these clients. On 28

Workbook FIAC6211
February 2021, the financial director established that no further payments were due to
these clients.
Required:
Disclose the above-mentioned information in the notes to the annual financial

statements of Aqua Ltd for the year ended 28 February 2021 according to the
requirements of IAS 37 Provisions, contingent liabilities and contingent assets.
Standards (IFRS).
Accounting policy notes are not required.
Revision Exercise 2
Gold Ltd is a large mining company which operates in South Africa and other parts of
Africa. In order to remain compliant with environmental regulations, the company has
become conscious of costs to be incurred to preserve the areas in which the company
operates.
Legislation stipulates that a mining company must repair all damage caused by their
operations to the environment at their own cost as soon as mining activities have
ceased. It was determined that damage has been caused evenly over the period of the
mines activity.
Gold Ltd is currently in the process of commissioning a new mine close to the Midrand
area. The total damage to the surrounding area as a result of mining activities was
reliably estimated during the commencement of activities at a future amount of R90
000. The mining activities commenced on 1 January 2020 and the estimated date
when activities will cease is 31 December 2023.
The market-related interest rate for calculation purposes is 14%.
The effect of time value of money is seen as material for the financial statements of
the company.
Required:
1. Disclose the above information in the relevant note to the financial statements of
Gold Ltd for the year ended 31 December 2021 according to the requirements of
IAS 37 Provisions, contingent liabilities and contingent assets.

Workbook FIAC6211
2. Prepare the journal entries to account for the provision of environmental cost for
the financial year ended 31 December 2020 only.
Standards (IFRS).
Accounting policy notes are not required.
Comparative figures are required.
Journal narrations are not required.
Revision Exercise 3
Wanderlust Limited is a tour operator that provides package holidays to local and
international destinations. The company entered into a number of contracts with
airlines to enable their customers to fly to their desired destinations. On 24 December
2021, the cabin crew of one of the airlines began a prolonged strike. As a result, holiday
packages had to be cancelled.
There is no law requiring Wanderlust Limited to pay compensation, but it is common
practice to compensate passengers when their flights are cancelled.
A typical payout for a similar cancellation is R2 000 000 compensation to the affected
passengers.
Wanderlust Limited year end is 31 December, and its financial statements are
authorised for issue on 15 February each year.
Required:
1. Discuss whether a provision should be recognised in respect of the

compensation to be paid to passengers in the financial statements of Wanderlust
Limited for the financial year ended 31 December 2021.
2. Disclose the abovementioned scenario in the notes to the financial statements

of Wanderlust Limited for the financial year ended 31 December 2021.
Your answer must comply with the requirements of International Financial


Workbook FIAC6211
Revision Exercise 4
Knight Limited is a manufacturing company. The company’s manufacturing plant
releases toxic substances that will contaminate the land surrounding the plant unless
collected and stored safely. The local authorities approved the building of the plant,
provided the company undertakes to build safe storage tanks for the toxic substances
and to remove these after a period of 20 years and restore the environment to its
original condition.
The plant was commissioned on 1 January 2020. On that date, it was determined that
it would cost approximately R30 000 000 at future prices to remove the tanks and
restore the environment after a period of 20 years. The nominal after-tax discount rate
amounts to 10.8%.
The financial year end for Knight Limited is 30 June.
Required:
Disclose the provision for environmental costs in the notes to the financial statements
of Knight Ltd for the financial year ended 30 June 2021 according to the requirements
of IAS 37.
Comparative figures are required.


• Recognise adjusting events after the reporting period.
• Recognise non-adjusting events after the reporting
period.
• Recognise events relating to dividends.
• Recognise events relating to going concern.
• Measure adjusting events after the reporting period.
• Measure non-adjusting events after the reporting
period.
• Disclose information relating to events after the
reporting period.
• Chapter 6: Events after the reporting period in
o Background
o Date of authorisation of the issue of financial
statements
o Dividends
o Going concern
1 Definitions
Events after the reporting period are those events, favourable and unfavourable, that
occur between the end of the reporting period and the date on which the financial
statements are authorised for issue.
The date on which the financial statements are authorised for issue is the date on
which they are approved by the board of directors, or, if the financial statements have
to be submitted to a supervisory board (non-executive directors) the date on which
management authorises the issue of the financial statements to the board.
Two types of events are identified:
• Adjusting: Provide more evidence of conditions that existed at reporting date,

irrespective of whether or not the fact was actually known at the end of the
reporting period.
• Non-adjusting: Indicative of conditions that arose after the reporting date.
Unrelated to conditions that existed at the end of the reporting date.

Adjusting events Non-adjusting events
Amounts must be updated and adjusted in Amounts recognised in the financial

the financial statements to reflect the new statements are not adjusted as the
information. condition did not exist at the reporting date.
2 Specific issues
Dividends
• Dividends declared after the reporting date, but before authorisation date, are
NOT recognised as a liability as there is no present obligation to pay the dividend.
Disclosure in the notes to the financial statements needs to be made.
• Disclose in note:
- Dividend declared,
- Dividend per share
If the declaration is made before the reporting date, an obligating event is created, an
adjustment in the financial statements needs to be made.
Going concern
Financial statements should NOT be prepared on the going concern basis if the entity
intends to either:
• liquidate OR
• cease trading OR
• has no realistic alternative but to do so.
If the going concern assumption is no longer appropriate, financial statements need to

be prepared on a liquidation basis. Specific disclosures of IAS 1 must be complied with
if:
• the financial statements are not prepared on a going concern basis; or

• management is aware of material uncertainties relating to events or conditions that
may cast significant doubt on the entity’s ability to continue as a going concern.
3 Disclosure
An entity must disclose the date on which the financial statements were authorised for
issue and who gave that authorisation.

An entity must update disclosures relating to conditions that existed at reporting date
if the entity receives additional information after the reporting date about those
conditions that existed at reporting date.
If adjusting event, include in the financial statements as adjustments to assets and

liabilities and accompanying income and expense items.
If non-adjusting events are material the following must be disclosed in the notes:
• Nature of the event;

• Financial effect or a statement that the financial effect cannot be determined.
Revision Exercise 1
The financial statements of Perry Ltd are being finalised for the financial year ended
30 April 2021. Prior to presenting the financial statements to the board of directors for
final approval on 10 July 2021, the following matters need to be addressed:
1. A claim amounting to R75 000 was instituted against Perry Ltd on 1 April 2021 in
terms of a product guarantee given by Perry Ltd on its products. On 10 July 2021
it is still uncertain if the claim will be successful, and the extent of the costs remain
uncertain.
2. Perry Ltd determined during June 2021 that a debtor, Kirsten Ltd, which owes an
amount of R10 000 to Perry Ltd at 30 April 2021, is currently experiencing financial
difficulties and will probably not be able to settle its debt. After further investigation
it came to light that the problem has already existed for the past six months, but
as Perry Ltd was unaware of this, the company continued granted credit to Kirsten
Ltd. The result is that an amount of R17 500 was owed by Kirsten Ltd at 30 June
2021.
3. Perry Ltd has a debtor, Kam Ltd which owes Perry Ltd R27 500 at 30 April 2021.
During May 2021, Kam Ltd’s premises were destroyed by a flood and all the assets
as well as the accounting records were destroyed. Kam Ltd was not insured.
However, during May 2021 the directors of Kam Ltd negotiated with its holding
company to settle the debts of Kam Ltd. Kam Ltd is not certain if these debts will
be settled. At the time of the flood, the outstanding amount according to Perry
Ltd’s records was R32 000.
4. On 30 April 2021 Perry Ltd had 400 “product A” units on hand at a cost of R8 000.
During May 2021 Perry Ltd determined that half of the “product A” inventory items
on hand at 30 April 2021 had defects due to manufacturing errors resulting from a
problem encountered with the use of Machine 4. The costs to repair the machine
will be R7 500 and the defective inventory items can be sold for R2.50 each.

Required:
State, in each of the above cases, whether an adjusting or non-adjusting event
occurred and briefly discuss how the event will affect the financial statements of Perry
Ltd for the financial year ended 30 April 2021. Provide reasons for your answers.
Standards (IFRS).
Revision Exercise 2
As the auditor of the under-mentioned company, you are provided with the following
information regarding Baker Ltd. The director of this company has asked your
assistance in accounting for this transaction in order to comply with the requirements
of International Financial Reporting Standards (IFRS). The financial year end is 28
February 2021.
Baker Ltd is a listed retailer and wholesaler of baking products. The vast majority of
Baker Ltd.’s business includes the supply of flour and cocoa to local supermarkets in
the Ulundi region. On 15 April 2021, one of the supermarkets, which was responsible
for 80% of Baker Ltd.’s profit and 75% of Baker Ltd.’s sales, announced that it is not
going to renew its contract with Baker Ltd for the supply of baking products. The
renewal date of the contract is 31 August 2021. Baker Ltd is in the process of finalising
its financial statements for the year ended 28 February 2021. Stock exchange
regulations require that the financial statements should be published on or before 31
May 2021.
Required:
Discuss the appropriate accounting treatment in accordance with IAS 10 Events after
the reporting period and IAS 1 Presentation of financial statements of the
abovementioned information of Baker Ltd for the financial year ended 28 February
2021.
Revision Exercise 3
Energiser Electricity Ltd is a supplier of prepaid electricity meters in South Africa. Its
product range includes the supply of electricity meter boxes and electricity tokens.
The financial statements of Energiser Electricity Ltd for the year ended 31 December
2019 were presented to the board of directors on 31 March 2020 to be authorised for
issue. Uncertainty still exists on the following matters that have taken place after the
reporting date:

1. On 15 March 2020, the board of directors of Energiser Electricity Ltd declared

and approved a dividend of R80 000, to all existing ordinary shareholders. The
dividend will be paid on 4 April 2020.
2. Boost Ltd, a debtor of Energiser Electricity Ltd, was placed in liquidation on 10

January 2020 after having experienced financial difficulties for a period of six
months. Boost Ltd owed Energiser Electricity Ltd an amount of R90 000, which
was included in trade and other receivables at the reporting date in the
financial statements of Energiser Electricity Ltd. Booster Ltd.’s liquidator
notified all creditors on 15 March 2020 that the estimated liquidation dividend
would be 25c for every Rand.
3. On 18 January 2020, one of the accountants resigned from Energiser Electricity

Ltd with immediate effect. Upon further investigation, the entity concluded that
this individual had been defrauding the entity by making payments to himself,
from Energiser Electricity Ltd.’s bank account, in relation to fictitious rental
invoices amounting to R25 000. With the help of the South African Police Service,
the individual was tracked down and the misappropriated cash was repaid to the
entity on 25 January 2020.
Required:
1. Identify each event as an adjusting or non-adjusting event and briefly discuss

the effect of each event on the financial statements of Energiser Electricity
Ltd for the financial year ended 31 December 2019. If the event requires an
adjustment in the annual financial statements, prepare the journal entry to be
recorded.

Journal narrations are not required.

Workbook FIAC6211

• Discuss the benefits of cash flow information.
• Define cash, cash equivalents, cash flows, operating
activities, investing activities and financing activities.
• Prepare a statement of cash flows using the direct
method.
• Prepare a statement of cash flows using the indirect
method.
• Chapter 4: Statement of cash flows in Koppeschaar
et al. (2017).
o Background
o Objective of a statement of cash flows
o Elements of the statement of cash flows
1 Statement of Cash Flows

Direct Method
A Ltd
Statement of cash flows for the year ended 31 December 2021
Cash Flows from Operating Activities
Cash receipts from customers xxxx

Cash paid to suppliers and employees (xxxx)
Cash generated from operations xxxx
Interest received xxxx
Interest paid (xxxx)
Dividends received xxxx
Dividends paid (xxxx)
Normal tax paid (xxxx)
Net cash inflow/outflow from operating activities xxxx
Cash Flows from Investing Activities
Investment to maintain production capacity (xxxx)

Replacement of non-current assets xxxx
Investment to expand production capacity (xxxx)
Additions to non-current assets xxxx
Proceeds from the sale of non-current assets xxxx
Net cash inflow/outflow from investing activities xxxx
Cash Flows from Financing Activities
Proceeds from the issue of shares xxxx

Workbook FIAC6211
Proceeds from long-term loans xxxx

Redemption of redeemable preference shares (xxxx)
Net cash inflow/outflow from financing activities xxxx

Net increase/decrease in cash and cash equivalents xxxx
Cash and cash equivalents at beginning of period xxxx
Cash and cash equivalents at end of period xxxx
Indirect Method
A Ltd
Statement of cash flows for the year ended 31 December 2021
R R
Cash Flows from Operating Activities
Profit before tax xxxx
Adjustments for:
Depreciation xxxx
Loss on sale of non-current assets xxxx
Profit on sale of non-current assets (xxxx)
Investment income (xxxx)
Interest expense xxxx
Changes in working capital xxxx
Decrease/(increase) in inventory xxxx
Decrease/(increase) in trade and other receivables xxxx
(Decrease)/increase in trade and other payables xxxx
Cash generated from operations xxxx
Interest received xxxx
Interest paid (xxxx)
Dividends received xxxx
Dividends paid (xxxx)
Normal tax paid (xxxx)
Net cash inflow/outflow from operating activities xxxx
Cash Flows from Investing Activities
Investment to maintain production capacity (xxxx)

Replacement of non-current assets xxxx
Investment to expand production capacity (xxxx)
Additions to non-current assets xxxx
Proceeds from the sale of non-current assets xxxx
Net cash inflow/ outflow from investing activities xxxx
Cash flow from financing activities

Proceeds from the issue of shares xxxx
Proceeds from long-term loans xxxx
Redemption of redeemable preference shares (xxxx)
Net cash inflow from financing activities xxxx

Net increase/decrease in cash and cash xxxx
equivalents

Workbook FIAC6211
Cash and cash equivalents at beginning of period xxxx

Cash and cash equivalents at end of period xxxx
2 How to approach a question

OPERATING ACTIVITIES:
Basic format:
Owing at beginning of period xxx

Add: Amount per statement of profit or loss and other comprehensive income xxx
Less: Owing at end of period (xxx)
Cash amounted to cash flow xxx
Interest paid:
Look in the statement of financial position if anything is owing at the beginning of the
period, if yes, do ‘basic format’ calculation. If no, use the amount in the statement of
profit or loss and other comprehensive income.
Interest received:
Look in the statement of financial position if anything is owing to us at the beginning and
end of the period. If yes, do ‘basic format’ calculation. If no, use the figure from the
statement of profit or loss and other comprehensive income.
Dividends paid:
Look at shareholders for dividends or dividends payable in the statement of financial

position for dividends owing. If yes, do ‘basic format’ calculation.
If no, use the amount in the statement of changes in equity.
Dividends received:
Look under current assets if anything is owing to us. If yes, ‘basic format’ calculation. If
no, use the amount in the statement of profit or loss and other comprehensive income.
Tax paid:
Look at SARS (South African Revenue Services) or tax payable in the statement of
financial position to see if we owe anything. If yes, do ‘basic format’ calculation. If no,
use the amount in the statement of profit or loss and other comprehensive income.

Workbook FIAC6211
INVESTING ACTIVITIES
• Use proceeds (what you were paid for it) on sale of assets, not the profit/loss.
(Sometimes you are required to use the profit/loss to calculate the proceeds)
• Look at movements in fixed assets for additions and replacements.
• Look at movements in investments (an increase in an investment means you have

spent money- an OUTFLOW).
FINANCING ACTIVITIES
• Look at movements in share capital.
• Look at repayments and acquisitions of loans and debentures (be careful to

consider the short- term and long -term portion of a loan when trying to calculate
what amount has been paid/received).
Revision Exercise 1
The following information was extracted from the statement of profit or loss and other
comprehensive income for the year ended 31 December 2021 of Daisy Ltd:
R
Sales 750 000
Less cost of sales (420 000)
Gross profit 330 000
Add other income: 16 500

Credit losses recovered 2 500
Rental income 14 000
Less admin and selling expenses: 135 100

Consumables 1 800
Salaries and wages 42 000
Electricity 18 000
Rates 28 000
Insurance 16 000
Stationery 5 000
Depreciation 1 800
Credit losses 1 500
Less finance costs:

Interest on loan – Bee Bank 700
Profit before tax 210 700

Workbook FIAC6211
Additional Information:
1. Extract from the trial balance:
2021 2020
R R
Inventory 80 720 95 055
Debtors 219 252 147 440
Accrued rental income 2 500 -
Prepaid stationery expense 1 400 700
Creditors 145 715 108 050

Provision for credit losses 12 000 11 000
Accrued administrative expenses - 28 270
Accrued interest on loan 1 500 -
2. Interest of R4 500 received from an investment was incorrectly posted to the rental
income account. This error still needs to be corrected.
Required:
Calculate the net cash flow generated by operations, using the direct method.
Standards (IFRS).
Revision Exercise 2
You have been presented with the following information relating to Maple Ltd, a listed
company, in order to draft the statement of cash flows:
Maple Ltd
Statement of financial position as at 30 June 2021
2021 2020
R R
ASSETS
Non-current assets
Property, plant and equipment 250 824 208 924
Investments 14 251 12 184
265 075 221 108
Current assets
Inventory 46 655 32 625
Trade and other receivables 68 387 60 345
Cash and cash equivalents 2 833 3 011
117 875 95 981
TOTAL ASSETS 382 950 317 089

Workbook FIAC6211
EQUITY AND LIABILITIES

Share capital 15 650 15 650
Revaluation surplus 95 192 78 760
Retained earnings 95 476 83 790
Total equity 206 318 178 200
Non-current liabilities
Long-term borrowings 49 308 34 423
Current liabilities
Trade and other payables 45 270 36 033
Taxation payable 42 739 37 351
Dividends payable 6 291 6 291
Short-term portion of long-term
borrowings 33 024 24 791
127 324 104 466
Total liabilities 176 632 138 889
TOTAL EQUITY AND LIABILITIES 382 950 317 089
Maple Ltd
Statement of profit or loss and other comprehensive income for the year ended
30 June 2021
2021
R
Revenue 296 077
Cost of sales (154 027)
Gross profit 142 050
Other income 3 760
Other expenses (103 125)
Finance cost (9 920)
Profit before tax 32 765
Income tax expense (9 174)
PROFIT FOR THE YEAR 23 591
Other comprehensive income for the year – revaluation 16 432
of property
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 40 023
Maple Ltd
Notes to the financial statements for the year ended 30 June 2021
1. Included in profit before tax are the following items:
2021
R
Depreciation 18 647
Profit on disposal of plant and equipment 283
Dividends received 1 213
Interest received 2 264
Impairment loss on investments 2 500
Credit losses written off 5 586

Workbook FIAC6211
The following additional information is available:
2. The proceeds from the disposal of plant and equipment amounted to R989 during
the current year. It is estimated that R18 000 of the plant acquisitions will be used to
expand production capacity.
3. No investments were sold during the current year.
4. Included in trade and other receivables, and in trade and other payables is the
following:
2021 2020
R R
Interest receivable 150 100
Interest payable 508 412
5. Dividends of R11 905 were declared and paid on 30 June 2021.
Required:
Draft the statement of cash flows of Maple Ltd for the year ended 30 June 2021, after
correcting and adjusting for all entries mentioned above, by using the direct method.
Standards (IFRS).

Bibliography
IFRS July 2016; IFRS 15 Revenue
IFRS July 2015: The Conceptual Framework for Financial Reporting
IFRS July 2015: IAS 2 Inventories
IFRS July 2015: IAS 16, Property, plant and equipment
IFRS July 2015: IAS 37 Provisions, contingent liabilities and contingent assets
IFRS July 2015 IAS 10 Events after the reporting date
IFRS July 2015: IAS19 Employee benefits
GAAP Handbook 2016
Descriptive Accounting, 19th edition
Introduction to IFRS 7th edition
IFRS 2018: The Conceptual Framework for Financial Reporting
Descriptive Accounting 21st edition

FIAC6211 - Workbook 2023

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IIE Workbook FIAC6211

FINANCIAL ACCOUNTING (FIAC6211)

The Independent Institute of Education (Pty) Ltd is registered

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Using this Guide

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The module will focus on:

• Knowledge and understanding of integrated International Financial Reporting

Financial Accounting 2A consists of the following learning units:

• Conceptual framework for financial reporting

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Lubbe, I., Modack, G., Watson, A. Financial

The following titles include information related to this

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Learning Unit 1: Conceptual Framework for Financial

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What is the conceptual framework?

Chapter 8 The Chapter 4

Chapter 1: The objective of general-purpose financial reporting

Information reported on includes:

• Economic resources & claims;

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• Financial performance reflected by past cash flows;

Chapter 2: Qualitative characteristics of useful financial information

Confirmatory value Free from error

Relevance Financial Information is relevant if it can make a difference to

The relevance of information is measured by its MATERIALITY. Information is material

• Completeness: information includes all necessary descriptions & events to

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The cost constraint on useful financial reporting

The cost of reporting financial information should be justified by the benefits of

Chapter 3: Financial statements & the reporting entity

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Consolidated financial statements provide information about the assets, liabilities,

Chapter 4: The elements of financial statements

The elements of financial statements

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An economic resource is a right that has the potential to produce

Liabilities A present obligation of the entity to transfer an economic resource as a

Assets & liabilities: Unit of account

Expenses Decrease in assets or increases in liabilities that result in decreases in

Chapter 5: Recognition & derecognition

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Historical cost Current value

Factors to consider when selecting a measurement basis

Chapter 7: Presentation & disclosure

Chapter 8: Concept of capital and capital maintenance

Physical capital maintenance

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Shoppers Delight Ltd is a retailer operating in the fast-moving consumer goods

1. Discuss in terms of the Conceptual framework for financial reporting, whether

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Learning Unit 2: IAS 1

1 Objective and Components of Financial

• The objective of financial statements is to provide financial information regarding

2 Responsibility for Preparation and Presentation of

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3 Components of Financial Statements

• A statement of financial position;

Enterprises are encouraged to present a financial review by management which