UNIVERSITY OF LIMPOPO

FACULTY OF MANAGEMENT AND LAW

SCHOOL OF ACCOUNTANCY

DEPARTMENT OF FINANCIAL ACCOUNTING

DEGREE AND DIPLOMA EXAMINATION 18 AUG 2023

MODULE: CACN012 PAPER: P1

(FINANCIAL ACCOUNTING IB)

TIME: 2,15 HOURS MARKS: 75

FIRST INTERNAL EXAMINER: PROF O. AYAYA PhD, CA(SA)

SECOND INTERNAL EXAMINER: MR. ML KKHONA CA(SA)

SECOND INTERNAL EXAMINER: MS M. RAMOLOBE CA (SA)

THIS MEMO CONSISTS OF 9 PAGES, INCLUDING THE COVER PAGE

INSTRUCTIONS:

1. Students are to answer all the questions

2. Students are to write neatly and legibly.
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

QUESTION 1 [30 MARKS│36 MINUTES]

Instructions: Please select and write the correct answer in the answer booklet
I.A company exchanges its old machine and R2 310,000 cash for a new machine. The
old machine has a book value of R1,890,000 and a fair value of R2,100,000 on
the exchange date. The cost of the new machine would be recorded at

a. R4,200,000.
b. R4,410,000.
c. R3,990,000.
d. cannot be determined
[2 marks]

II.In 2022, Rathink Limited reported net sales of R3 500 000, profit for the period of R1
440 000, and a depreciation expense of R120 000. Rethink also reported
beginning total assets of 1 000 000, ending total assets of R1,500,000, plant
assets of R960,000, and accumulated depreciation of R600,000. Rathink’s
asset turnover is

a. 3.5 times.
b. 2.8 times.
c. 2.3 times.
d. 1.2 times.
[2 marks]
III.Nick Klaus Limited has decided to sell one of its old machines on 30 June 2023. The
machine was purchased for R160,000 on 1 January 2019 and was depreciated
on a straight-line basis for 10 years with no residual value. If the machine was
sold for R52 000, what was the amount of the gain or loss recorded at the time
of the sale?

a. R36,000.
b. R108,000.
c. R44,000.
d. R92,000.
[2,5 marks]

IV.Dean’s Copy Shop bought equipment for R150 000 on 1 January 2021. Dean
estimated the useful life to be 3 years with no residual value, and the straight-
line depreciation method will be used. On 1 January 2022, Dean decided that
the business would use the equipment for a total of 5 years. What is the revised
depreciation expense for 2022?

a. R50 000
b. R20 000
c. R25 000
d. R37 500
[2 marks]

V. . Salamia Limited hired Klerk Construction to construct an office building for

R11,200,000 on land costing R2 800 000, which Salamia Limited owned. The
building was completed and ready to be used on 1 January 2022, and it has a

2|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

useful life of 40 years. The price of the building included land improvements
costing R840,000 and property costing R1 000 000. However, it excluded
quantity surveyor and architect’s fees of R20 000 and R60 000, respectively.
The useful lives of the land improvements and the personal property are 10
years and 5 years, respectively. Salamia Company uses component
depreciation, and the company uses straight-line depreciation for other similar
assets. What is the net amount reported for the building on Salamia Company’s
31 December 2022 statement of financial position?
a. R10,731 000
b. R10 603 250
c. R9 184 500
d. R10 920 000
[3 marks]
VI.Which of the following statements is true regarding depreciation?
a. External auditors select the method believed to be most appropriate and
consistent with other companies in the same industry.
b. The statement of profit or loss is impacted by depreciation through the
accumulated depreciation account, and the statement of financial position is
impacted by depreciation expense.
c. Once a company chooses a depreciation method, it should apply the same
method consistently over the entire useful life of the asset.
d. All of these answer choices are correct.
[1 mark]
VII.Sanyo Limited purchased office equipment for R200 000 and estimated a residual
value of R40 000 at the end of its 5-year useful life. The constant percentage to
be applied against the carrying amount each year if the declining-balance
method is used is
a. 20%.
b. 25%.
c. 28%.
d. 40%.
[2 marks]
VIII.Robin (PTY) Limited acquires a piece of land on which it intends to build a factory to
produce its primary product of cornflakes. The land is listed on the private
property website for sale at R4 600 000, but Robin’s identified a property
practitioner to negotiate with the owner at a commission. The property
practitioner negotiated a sales price of R4 300 000. The land contains an old
office building flattened at R290 000. However, Robin sold old materials from a
ruined house for R40 000. Transfer duty on the property was R310 000. Robin
pays a commission to the property practitioner of R230,000 and an attorney’s
fee of R60,000. Robin had insufficient savings to cover the transaction costs
and the seller’s price. The bank paid A bond attorney R25 000, and a loan
mobilisation fee of R6 000 was due. On its statement of financial position at 31
December 2022, what amount will Robin Limited record as the cost of the land?
a. R4 990 000
b. R4 550 000
c. R5 181 000
d. R5 240,000
[4 marks]

3|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

IX.At year-end, Diana incorporated has 4,000 units of Yolanda, 4,000 units of DC Ten,
and 6,000 units of panga in its ending inventory. Specific per-unit data with
respect to each product follows:
Yoland DC Ten Panga
Historical cost R55 R70 R98
Net realisable value 48 77 94

What amount will Dana report for ending inventory using lower-of-cost-or-net
realisable value?
a. R1 036 000.
b. R1 056 000.
c. R1 088 000.
d. R1 116 000.
[2 marks]
X. On 31 December 2021, Daewoo Inc. reported total assets of R405,590,000 and net
profit of R100 670 000 for the current year. Daewoo determined that inventory
was overstated by R3,200,000 at the beginning of 2022 (this was not
corrected). What is Daewoo’s corrected amount for total assets for 2021?
a. R304 938 000.
b. R402 390 000.
c. R408 790 000.
d. R506 260 000
[1 mark]
XI.India Eastern Cape Limited’s computation of the cost of goods sold is:

Beginning inventory R 10 960 000

Add: Cost of goods purchased 48 614 000
Cost of goods available for sale 59 574 000
Ending inventory 9 040 000
Cost of goods sold R 50 534 000

The average days to sell inventory for India Eastern Cape Limited is
a. 72.3 days.
b. 75.1 days.
c. 79.2 days.
d. 65.3 days.
[3.5 marks]
XII.The 2022 financial statements of Vittuko Company reported a beginning inventory of
R973 000 ending inventory of R1 023 000 and a cost of goods sold of R7 984
000 for the year. Vittuko’s inventory turnover for 2022 is
a. 4.0 times.
b. 7.8 times.
c. 8.2 times.
d. 8.0 times.
[2,5 marks]
XIII.Kigleo Incorporated’s records indicate the following information for the year:
Inventory 11 July 2022 R 660 000
Purchases 2 700 000
Net sales 3 600 000

4|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

On 30 June 2023, a physical inventory determined that the ending inventory of

R720 000 was in the warehouse. Kigleo’s gross profit on sales has remained
constant at 30%. Kigleo suspects some new employees may have taken some
of the inventory. On 30 June 2023, what is the estimated cost of missing
inventory?
a. R120 000
b. R240 000
c. R360 000
d. R840 000
[2,5 marks]

5|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

Question 2a: 12 marks plus 3 for column headings

Tabular analysis of capital expenditures
Item^ Land^ Building^ Land Others Account titles for
improvement^ ^ other ^
(i) ^2 250 000
(ii) ^4 000
(iii) ^150 000
(iv) ^140 000
(v) ^290 000
(vi) ^50 000
(vii) ^6 000

(viii) ^9 000

(ix) ^59 000

(x) ^70 000 Fire loss ^
(xi) ^54 000 ^15 000 Interest expense^
(xii) ^44 000

(xiii) ^43 000

(xiv) ^8 000

(xv) ^7 400 000

(xvi) ^460 000

(xvii) ^4 800 Municipal rates and

taxes^
(xviii) ^(30 000) ^Fire loss

(xix) ^ (35 000)

Total 2 521 000 7 943 000 460 000 59 800

6|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

Question 2b= 10 marks

TO: Company Secretary

From: Student
DATE: 18 August 2023

CLASSIFICATION OF BUSINESS EXPENDITURES

An expenditure is classified as a revenue expenditure if it maintains the operating efficiency

and expected productive life of the asset and primarily benefits the current accounting period.
√ Revenue expenditures are usually small amounts that occur frequently throughout the
asset's life and are often called ordinary repairs. √

An expenditure is classified as a capital expenditure if it increases (rather than maintains)

operating efficiency, productive capacity, or expected useful life √ and therefore benefits more
than one accounting period. √Capital expenditures are usually large amounts that occur
infrequently during the asset's life. √Capital expenditures can be further classified as either
additions or improvements. √

The distinction between capital expenditure and revenue expenditure is not always clear-cut.
The purchase of an asset with a relatively insignificant cost (for example, the purchase of an
R100 wastebasket with a 5-year useful life) may meet the criteria for classification as a capital
expenditure, √even though it is similar in many ways to a revenue expenditure (small amount,
more frequent occurrence). √The accounting constraint of materiality would indicate that this
item could be recorded as an expense (more expedient) since it is not material enough to
influence the decision of a reasonably prudent creditor or investor. √

Signature.

7|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

Solution Question 3 (20 marks.)

(a)= 6marks; 1 mark for the format Del Monte Leisure Boat (PTY) Limited^
Bank Reconciliation^
30June 2023
Cash balance per bank R ^ 70,000
Add: (1) Deposit in transit ^ 50,000
120,000
Less: (4) Outstanding or unprocessed EFTs ^ (58 000)
Adjusted cash balance per book R62 000

Cash balance per book R ^ 46 670

Add: (5) Accounts Payable Error R ^ 630
(7) Collect R20,000 note and interest R600 ^ 20 600 21 230
67 900
Less: (2) Check printing ^ (600)
(6) refer to card holder- credit card ^ (5 300) (5 900)
Adjusted cash balance per book R 62 000
Note: Item (iii) is not a reconciling item.

(b)= 9 marks

Date Details REF Dr Cr

R R
30 June Accounts Receivable(SoFP)^ ^ 5 300
Cash(SoFP)^ 5 300
(To record unclear credit card settlement
of a debt due from a customer) ^
30 June Miscellaneous Expense (SoPL)^ ^600
Cash (SoFP) ^ 600
(To record credit card charges) ^
30 June Cash(SoFP)^ 20 600
Notes Receivable (SOFP)^ ^ 20 000
Interest Revenue^ ^ 600
(To record collection of note receivable
and interest by the bank) ^
30 June Cash(SoFP)^ ^630
Accounts Payable(SoFP) ^ 630
(To correct an error in recording EFT
No. 138) ^

8|Page
 CACN011: FINANCIAL ACCOUNTING IA Test 1 2023

(c)=5 marks
MEMORANDUM

To: Chief Operations Manager^

From: Student^
Date: 18 August 2023^

RE: The role of a bank in internal control over cash

The use of a bank contributes significantly to good internal control over cash. A company
safeguards its cash by using a bank as a depository and clearinghouse for remittances
received and disbursement. √Using a bank account minimises the currency that must be kept
on hand. √It also facilitates cash control because the business and the bank maintain a double
record of all bank transactions. √The asset account Cash maintained by the company is the
“flipside” of the bank’s liability account for that company. A bank reconciliation is comparing
the bank’s balance with the company’s balance and explaining the differences to make them
agree. √

Many companies have more than one bank account. For efficiency of operations and better
control, retailers like Matahari Department Store (IDN) and Wumart (CHN) often have regional
bank accounts.

Notes:

1. Journal entries are evaluated as adjusting entries under the cash and cash equivalent
measurement. Students still lack understanding of correcting and adjusting entries.

2. Internal control over cash: The question on bank reconciliations examines bank
reconciliation as a tool for controlling cash. The sub-question on cash and cash equivalent
helps students critically consider banking operations as a tool for control over cash. The
question also tests communication skills. Students should be able to express themselves.

3. Overall communication skills questions are allocated 15 marks.

4. The question on PPE deals with financial reporting problems without delving into journal
entries. Students’ understanding of what constitutes depreciation basis is tested in a
structured way. Students' understanding of capitalizable and non-capitalizable cost is vital in
scoring high on question 2.

5. Multiple choice questions accounts for 30/75 marks. This is 40% of the aggregate marks. The
questions tests data analysis skills and concepts in depreciation accounting and inventory
estimation.

9|Page