Programme BCom in Accounting

Module Financial Accounting 3B

Module Code FNA320/420
NQF Level 7
Credits 20
Assessment Type Individual Assignment Memo
Semester 2nd
Due Date 26 August 2022

Total marks 50
Pass mark 50%
Weighting 10%
Examiner STHEMBISO MANGANYI
Moderator FREEMAN MHUNDURU

This Question paper consists of 4 pages including the cover page.

INSTRUCTIONS:
Read the following instructions CAREFULLY:
1. Assignments must be presented in the correct format. Your assignment should be typed –
Arial font 12; 1.5 spacing; Justified (ctrl + J))
2. Ensure that your details and the name of your campus are clearly indicated on the cover page
of your assignment.
3. Please note that it is your responsibility to retain copies of your assessments
4. Use the Harvard method of Referencing for citing your sources.
5. Use current research sources, preferably not older than five years.
6. A CheckforPlagiarism report MUST be attached to each assignment submission.
7. It is in your own interest to present your work neatly.

Financial Accounting 3B Individual Assignment Page 1 of 5

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 QUESTION 1 (50 marks)

Black Limited sells inventory to its parent, White Limited at cost price plus 125% mark-up.
• Closing inventories in the records of White Limited on 30 June 2022 amount to R157 500.
• Net realisable value of inventory on hand in the books of While limited amounts to
R107 500 on 30 June 2022.
• Ignore tax implications
Required
1.1 Clearly illustrate how write-down of inventory will be with regard to the above (15)
information, showing inventory at selling price, value according to the group, net
realisable value, write-down in White Limited’s records, Unrealised profit from the
group’s perspective and additional elimination of unrealised profit required through
pro forma consolidation journal.

Inventory Value according Net realisable

At selling price (Cost
to the group value
to White)

R157 500 R70 000 R107 500

(157 000 x 100/225)

Write-down in White Limited’ records R50 000

Unrealised Profit from R87 500

the group’s perspective

Additional elimination of unrealised profit required R37 500

through pro forma consolidation journal

1.2 Show how the journal entry would be recorded in the books of White Limited on 30 (10)
June 2022 in accordance with IAS 2. And also show pro forma consolidation journal
for the group.

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 White Limited’s records
Dr. Cr.
Cost of sales (P/L) √ 50 000√
Inventory (SFP)√ 50 000√
Inventories written down to their NRV√
Pro forma Consolidation journal Dr. Cr.
Cost of sales (P/L) √ 37 500√
Inventories√ 37 500√
Elimination of unrealised profit in the closing inv. √
1.3 Show how the pro forma journal entry/ies would be in the books of White Limited (10)
Group as of 30 June 2022, assuming that White Limited did not recognise the write-
down to net realisable value in its individual records
Pro forma consolidation Journals Dr. Cr.
Cost of sales (S)(P/L) √ 87 500√
Inventories (P)(SFP) √ 87 500√
Elimination of unrealised profit in the closing inv. √

No further journals to be made because the NRV is more than the value according to the group.
In terms of IAS 2 Inventories, inventories shall be valued at the lower of cost price and net
realisable value. In this case, NRV is more, therefor we ignore.
√√√√√ (Do not allocate these 5 marks if more journals are provided).

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 QUESTION 2 (25 marks)

The following is the extract from trial balance of Green Limited, subsidiary of Yellow Limited for
the year ended 31 December 2021.
Dr/(Cr)
Inventory on hand: 31/12/2020 50 000
Sales (1 025 000)
Purchases 350 000
Depreciation 25 000
Rent income (40 000)
Dividend paid 11 000
Other expenses 300 000
Income tax expense 145 000

Additional information.
• Yellow Limited acquired its interest in Green limited on the 1st May 2021.
• The average monthly sales of Green Limited accrued evenly throughout the year.
• Included in the R25 000 of depreciation, R15 000 relates to the new equipment acquired
after acquisition of Green Limited.
• Green Limited has inventory on hand of R150 000 on the 31st of December 2021.
• Rent income was accrued to Green Limited from the 1st of July 2021
• Other expenses have accrued uniformly during the year.
• There are no other income and expenses other than those evident on the above extract.
Required
2.1 Show allocation of statement of profit or loss items of Green Limited for Pre- (25)
acquisition and Post-acquisition period.

Total 1/1/2021 1/5/2021

to to
30/4/2021 31/12/2021
Sales 1 025 000 341 667√ 683 333√
Inventory 1/1/2021 50 000√
350 000√
400 000√

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 Inventory 31/12/2021 -150 000√
Cost of sales (= 24.3902% of sales) -250 000√ -83 333√ -166 667√
Gross Profit (=75.6098% of sales) 775 000√ 258 334√ 516 666√
Rent income 40 000 40 000√
Depreciation -25 000 -10 000√ -15 000√
Other expenses -300 000 -100 000√ -200 000√
Profit before Income tax 490 000 148 334√ 341 666√
Income tax -145 000 -43 895√ -101 105√
Profit for the year 345 000 104 439√√ 240 561√√

∞End of Question Paper∞

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