MUNHUMUTAPA SCHOOL OF COMMERCE

DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS

BACHELOR OF COMMERCE DEGREE

LEVEL 4 SEMESTER 2
EXAMINATION QUESTION PAPER
MODULE CODE AC413

MODULE NARRATION SPECIFIC FINANCIAL REPORTING

DATE
DURATION 3 HOURS

INSTRUCTIONS TO CANDIDATES:
1. Answer all Questions
2. Start a new answer on a fresh page
3. Silent non-programmable calculators may be used in the examination room

Page 1 of 4
QUESTION 1

(a) Thembisa Limited is a manufacturing company specialising in the manufacturing of

medical equipment. The company's year-end is 31 March.

Salaries
It is the policy of the company to pay the salaries to employees on the last Friday of
each calendar month. Due to cash flow problems the company will not be able to
pay the salaries until one of the debtors pays its account on 2 April 2010. The total
salary bill for March 2010 amounts to $1 500 000 and this amount will be paid to
employees on 3 April 2010.

Wages
It is the policy of the company to pay weekly wages (Monday to Friday) to employees
on every Friday. The total wages for 30 March to 3 April 2010, the 3rd being a Friday,
is $50 000.

Required:

Prepare the journal entries of Thembisa Limited for the year ended 31 March 2010
(6 marks)

(b) Name and briefly describe the categories into which employee benefits can be
classified in terms of IAS 19 – Employee Benefits. (10 marks)
(c) Discuss how IFRS 16 impacts on Lessees and Lessors (9 marks)

[Total 25 marks]

QUESTION 2

Musiyanwa Ltd is a company that farms wheat. Musiyanwa Limited is a relatively new
company in the wheat industry, having previously been in the farm equipment
manufacturing industry.
Musiyanwa Limited was awarded a government grant of $500 000.00 on 1 January 2005, the
details of which are as follows:
. $300 000 is to assist with the purchase of a new harvester;
. $200 000 is for immediate financial support and is not associated with any future costs;
. All conditions attaching to the grant have been met.
Later that day, the harvester was acquired for $900 000. The harvester has a useful life of 5
years and at the end of its useful life, Musiyanwa Limited expects to sell it for $50 000 as a
scrap metal.
Required:

Page 2 of 4
 a) Show the general journal entries for the years 31 December 2005 to 2009 using the
grant deferred income approach. (13 marks)
b) Show the general journal entries for the years ended 31 December 2005 to 2009
using the reduction of the related costs approach. (8 marks)
c) Assume on 1 January 2008 the government demands the repayment of the grant in
full as result of the organization failing to fulfill the grant conditions. Show the
accounting treatment of the repayment of the grant in the books of Musiyanwa
limited given that the grant is repaid on 1 January 2008. (4 marks)
[Total 25 marks]

QUESTION 3

(a)
In January 2017 K Limited purchased 10,000 $1 listed equity shares at a price of $2 per
share. Transaction costs were $1,000. At the end of the financial year, these shares were
trading at $2.75. A dividend of 10c per share was received on 30 August 2017.
Required:
Show the financial statement extracts at 31 December 2017 relating to this investment on
the basis that:
(i) The shares were bought for trading. (8 marks)
(ii) Conditions for FVTPL was not met (6 marks)

(b)

From the following independent events consider and determine costs to be capitalised or
treated as borrowing costs to be charged to profit or loss were appropriate:
(i) An entity borrows $5 million to fund the construction of a new building. Interest
is payable on the loan at 8%. Stage payments were due throughout the
construction period and therefore excess funds were reinvested during that
period. By the end of the project, investment income of $150,000 had been
earned and the construction took twelve months to complete. (5 marks)
(ii) An entity already has a number of general loan arrangements:
Loan 1 of $800 000, interest paid at 9%
Loan 2 of $2,000 000, interest paid at 8%
Loan 3 of $400 000, interest paid at 7.5%
The entity has commissioned a new printing press to be constructed on its
behalf. The total cost will be $800,000 and the entity will be able to fund the
purchase from its existing borrowings since it has arranged for stage payments to
be made. The construction takes six months. (6 marks)
[Total 25 marks]

Page 3 of 4
QUESTION 4
Consider the following independent cases:
1. Audit fees
2. Final ordinary dividend received. Dividends are declared on 31 December and are
payable to shareholders registered on that date. Payment is made three weeks after date of
declaration
3. Interim ordinary received. Dividends are declared on 30 June and are payable to
shareholders registered on that date. Payment is made six weeks after date of declaration.
4. Interest received on fixed deposit. Interest is payable annually in arrears.
5. Trade discount granted to customers.
6. Revenue consisting of gross sales (including VAT).
7. Royalties amounting to $100 000 are receivable from a foreign country. Payment of the
royalty is expected to be delayed.
8. A vehicle sold in terms of an instalment sales agreement.
9. A subscription fee received in respect of a magazine published monthly. The magazine
sells for $10 a copy.
10. $50 000 is received for the rendering of financial services.
Required:
State with reasons, the timing of recognition of revenue in each case so as to comply with
the requirements of International Financial Reporting Standards (IFRSs)
[Total: 25 Marks]

End of examination

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