FACULTY OF BUSINESS AND MANAGEMENT SCIENCES

ASSIGNMENT COVER SHEET

Name & Surname: ______________________ ICAS No: _________________________

Qualification: __________________ Year: _______ Module Name: __Accounting 732 __

Specialization: _________________________ Assignment Due Date: _______________

ID Number: __________________ Date submitted: __________ Semester: _______________

MARK EXAMINER’S MODERATOR’S

ASSESSMENT CRITERIA REMARKS
ALLOCATION MARK MARKS
MARKS FOR CONTENT
QUESTION ONE 50
QUESTION TWO 20
QUESTION THREE 20
QUESTION FOUR
QUESTION FIVE
TOTAL 90
MARKS FOR TECHNICAL ASPECTS
1. TABLE OF CONTENTS 2
Accurate numbering according to the
numbering in text and page numbers
2. LAYOUT AND SPELLING 3
Font – Calibri 12
Line Spacing -1.0
Margin should be Justified
3. REFERENCE 5
According to the Harvard Method
TOTAL MARKS 10
TOTAL MARKS FOR ASSIGNMENT 100
EXAMINER’S COMMENTS

MODERATOR’S COMMENTS

Name of the Examiner : ______ Name of the Moderator: _______________

Signature of Examiner: __________________ Signature of Moderator: __________________
Date : ___________________ Date: ____________________
Instructions and guidelines

NB: 1. Candidates are advised to read the guide lines in the study guide.

2. Assignment questions are on page 3.

3. For reference use prescribed, recommended books and other resources you may come
across.

4. Correct Harvard referencing carries (5 Marks).

The purpose of an assignment is to ensure that the Student is able to:

 Use methods of enquiry and research in a disciplined field.

 Interpret and evaluate text.

 Have a sound understanding of key principles and theories, rules and awareness.

 Solve unfamiliar problems using correct procedures as well as investigate and critically analyse
information and report thereof.

 Present and communicate information reliably and coherently.

Instructions and guidelines for writing assignments

1. Use the correct cover page provided by the institution.

2. All essay type assignments must include the following:
2.1 Table of contents
2.2 Introduction
2.3 Main body with subheadings
2.4 Recommendations and Conclusions
2.5 Bibliography
3. The length of the entire assignment must have minimum of 10 pages. Typed with font size 11
Calibri. 1.5 spacing
4. The quality of work submitted is more important than the number of assigned pages.
5. Copying is a serious offence which attracts a severe penalty and must be avoided at all costs. If
any student transgresses this rule, the lecturer will retain the assignments and ask the affected
students to resubmit a new assignment which will be capped at 50%.
6. Use the Harvard referencing method.
7. Please note that these guidelines are not applicable to quantitative subjects like Accounting and
Statistics.
QUESTION ONE (50 MARKS)

On 1 January 2014, Diamond ltd acquired 80% of the equity share capital of Gold ltd. The
consideration was satisfied by a share exchange of two shares in Diamond ltd for every three
acquired shares in Gold ltd. At the date of acquisition, shares in Diamond ltd and Gold ltd had a
market value of R3 and R2.50 each respectively. Diamond ltd will also pay cash consideration of
27.5 cents on 1 January 2015 for each acquired share in Gold ltd. Diamond ltd has a cost of capital
of 10% per annum. None of the consideration has been recorded by Diamond ltd. Below are the
summarised draft financial statements of both companies.

Statements of profit or loss and other comprehensive income for the year ended 30 September 2014
Statements of financial position as at 30 September 2014

The following information is relevant:

(i) At the date of acquisition, the fair values of Gold Ltd.’s assets and liabilities were equal to their
carrying amounts with the exception of Gold Ltd’s property, which had a fair value of R4 million
above its carrying amount. For consolidation purposes, this led to an increase in depreciation
charges (in cost of sales) of R100 000 in the post-acquisition period to 30 September 2014. Gold
ltd has not incorporated the fair value property increase into its entity financial statements. The
policy of the Diamond ltd group is to revalue all properties to fair value at each year end. On 30
September 2014, the increase in Diamond Ltd’s property has already been recorded, however, a
 further increase of R600 000 in the value of Gold Ltd’s property since its value at acquisition and
30 September 2014 has not been recorded.

(ii) On 30 September 2014, Diamond ltd accepted a R1 million 10% loan note from Gold ltd.

Sales from Diamond ltd to Gold ltd throughout the year ended 30 September 2014 had
consistently been R300 000 per month. Diamond ltd made a mark-up on cost of 25% on all
these sales. R600 000 (at cost to Gold ltd) of Gold Ltd.’s inventory at 30 September 2014 had
been supplied by Diamond ltd in the post-acquisition period.

(iii) Diamond ltd had a trade receivable balance owing from Gold ltd of R1.2 million as at 30
September 2014. This differed to the equivalent trade payable of Gold ltd due to a payment by
Gold ltd of R400 000 made in September 2014 which did not clear Diamond Ltd.’s bank account
until 4 October 2014. Diamond Ltd.’s policy for cash timing differences is to adjust the parent’s
financial statements.

(iv) Diamond Ltd.’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose Gold Ltd.’s share price at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.

(v) Due to recent adverse publicity concerning one of Gold Ltd.’s major product lines, the goodwill
which arose on the acquisition of Gold ltd has been impaired by R500 000 as at 30 September
2014. Goodwill impairment should be treated as an administrative expense.

(vi) Assume, except where indicated otherwise, that all items of income and expenditure accrue
evenly throughout the year.

REQUIRED:

a) Prepare the consolidated statement of profit or loss and other comprehensive income for
Diamond ltd for the year ended 30 September 2014. (20)

b) Prepare the consolidated statement of financial position for Diamond ltd as at 30 September
2014. (24)

Diamond ltd is in the process of recording the acquisition of another subsidiary, Dilemma, and
has identified two items when reviewing the fair values of Dilemma’s assets. The first item
relates to R1 million spent on a new research project. This amount has been correctly charged
to profit or loss by Dilemma, but the directors of Diamond ltd have reliably assessed the fair
value of this research to be R1.2 million. The second item relates to the customers of Dilemma.
The directors of Diamond ltd believe Dilemma has a particularly strong list of reputable
 customers which could be ‘sold’ to other companies and have assessed the fair value of the
customer list at R3 million.

REQUIRED:

State whether (and if so, at what value) the two items should be recognised in the consolidated

Statement of financial position of Diamond ltd on the acquisition of Dilemma. (6)

QUESTION TWO (20 MARKS)

2.1 IAS 17 paragraph 13 states that “Lease classification is made at the inception of the lease…..”

Sishi Ltd entered into a lease agreement in terms of which a machine with a fair value of R250 450
was acquired in exchange for five annual lease payments of R69 600 in arrears. In addition, Sishi
Ltd will pay R20 000 at the end of year 5 to take ownership of the machine. The machine is
expected to have a total useful life of 5 years. The interest rate implicit in the lease is 13.82% p.a.
This is the rate that discounts the future minimum lease payments of R69 600 and the guaranteed
payment of R20 000 at the end of year 5 to equal to the fair value of R250 450.

REQUIRED:
2.1.1 What class of lease is this (Finance OR Operating)? Support your answer. (3)
2.1.2 Prepare the journal entries to account for the lease in the books of Sishi Ltd (17)
NOTE: For annual lease payments on the first year journal is required
Show all workings

QUESTION THREE (20 MARKS)

Madihlaba Ltd had the following capital structure at 30 June 2014, its prior reporting date:

Share type Number of shares

Class A shares (issued at R1 each) 1 000 000

Class B shares (10% cumulative dividend) issued at 50c each 400 000

During the period ending 30 June 2015, the entity issued 300,000 new Class A shares to the existing
shareholders as capitalization shares on 1 January 2015, and issued a further 200,000 Class A shares
at their fair value of R2 each on 1 April 2015.
The following extract was obtained from the statement of changes in shareholders’ equity:

30/6/2015 30/6/2014
R'000 R'000

Retained income opening balance 3 080 2 000

Profit/(Loss) for the period 1 700 1 400
Less: Class B dividends (20) (20)
Less: Class A dividends (450) (300)

Retained income closing balance 4 310 3 080

REQUIRED:
3.1 Calculate basic earnings OR earnings attributable to ordinary shareholders for 2015. (6)
3.2 Calculate the Weighted Average Number of Ordinary Shares (WANOS). (8)
3.3 Hence calculate the Basic Earnings per share (EPS) for Class A shares. (6)