QUESTION 5 (40 MARKS)

(48 MINUTES)
Incwadi Publishing Ltd is a leading publisher of indigenous books that is incorporated under
the Companies Act of 2008. Incwadi Publishing Ltd and all its suppliers are registered VAT
vendors and VAT is calculated at a rate of 15%. Incwadi Publishing Ltd uses the perpetual
inventory system.
The following information was extracted from Incwadi Publishing Ltd’s records for the
reporting period ended 31 March 2017.

Additional Dr Cr
information
Share capital – 1 April 2016 1. 20 500 000
Retained earnings - 01 April 2016 12 550 000
Sales 5 450 000
Cost of sales 2 005 000
Directors remuneration 1 240 000
Proceeds on insurance claim – inventory 170 000
damage
Auditors remuneration 650 000
Depreciation 425 000
Other expenses 1 050 000

The following items are yet to be recognised in the accounting records of Incwadi
Publishing Ltd:
1. The share capital of Incwadi Publishing Ltd on 1 April 2016 comprises the following:

Ordinary share 5% Preference share

capital capital
Number of issued shares 6 000 000 1 000 000
Share capital R15 000 000 R5 500 000

On 1 October 2016, a 1-for-6 rights issue was offered and issued to the ordinary
shareholders at R3.00 per share. Furthermore an additional 500 000 5% preference shares
were issued for R5.50 on the same day. Share issue costs of R86 250 and R57 500
respectively for the ordinary shares and preference shares were incurred. (Assume all
shares above were allotted on 1 October 2016).

On 31 March 2017 an ordinary dividend of 30c per share was declared. It is likely that the
dividend will be paid on 30 May 2017.

2. Incwadi Publishing Ltd holds 75% of the issued shares in Phewa Printing (Pty) Ltd.
Management fees of R750 000 and dividends of R870 000 were received from Phewa
Printing (Pty) Ltd during the reporting period.

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3. Equipment with a cost of R500 000, accumulated depreciation of R250 000 and
accumulated impairment of R100 000 was sold for R241 500 during the year. The sale has
not been recognised in the accounting records of Incwadi Publishing Ltd.

4. On 15 January 2017, Incwadi Publishing Ltd’s insurer, First For Business Ltd, finally gave an
indication in writing that they would be paying for a long outstanding insurance claim of R494
500 on a vehicle that was stolen in the previous financial year. However, the payment had
not been received on 31 March 2017.

5. The table below is an extract of the amortisation schedule for a loan from Corner Bank:

Date Instalment Interest Balance

1 April 2016 1 000 000
30 September 2016 (100 000) 65 000 965 000
31 March 2017 (100 000) 45 000 910 000
30 September 2017 (100 000) 40 000 850 000
31 March 2018 (100 000) 35 000 785 000

No transactions have been recognised with respect to the loan during the financial year. All
the instalments were paid as and when they became due.
6. An inspection of the inventory on 31 March 2017 revealed that inventory with a cost of
R2 254 000 can only be sold for R2 000 000.

7. The income tax expense for the reporting period ended 31 March 2017 was accurately
calculated as R209 000 and has not been accounted for.

Required

a) Present the Statement of profit or loss for the financial year ended 31 March 2017 in
compliance with IFRS including the earnings per share. (22)
b) Present Statement of changes in equity for the financial year ended 31 March 2017. The
Total column is not required. (11)
c) Describe the difference between an ordinary resolution and a special resolution, and list
five cases where a special resolution is required. (7)
Note:
- Accounting policy notes are not required.
- Show all calculations and reference clearly.
- Comparative figures are not required.
- Round off to the nearest Rand amount where applicable.
- EPS should be rounded off to the nearest cents.

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QUESTION 5 (SOLUTION – 40 MARKS)
PART A (22 MARKS)
Incwadi Publishing Ltd
Statement of profit or loss for the financial year ended 31 March 2017 
R
Revenue 5 450 000 
Cost of sales (w1) (2 089 000) 3c
Gross profit 3 361 000
Other Income (w2) 490 000 2c
Income from subsidiaries (750 000 + 870 000) 1 620 000 2c
Distribution costs
Administration expenses (w3) (3 365 000) 4c
Other costs
Finance costs (65 000 + 45 000) (110 000) 2c
Profit before tax 1 996 000
Income tax expense (209 000) 
Profit for the year 1 787 000 (p)

Earnings per share (p) 22c 6c

Earnings per share calculation

Earnings R
Profit for the year 1 787 000 (p
)

5% Preference dividends (343 750) 2

(5 500 000 x 5%x12/12) + (500 000 x R5.50 x 6/12 x 5%)
1 443 250
Weighted number of shares
Issued at the beginning of the year 6 000 000 
Issued on 1 October 2016 (1 000 000*6/12) 500 000 
6 500 000
Therefore EPS (R1 443 250/6 500 000) 22c (p
)

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PART B (11 MARKS)
Incwadi Publishing Ltd
Statement of changes in equity for the financial year ended 31 March 2017 
Ordinary 5% Preference Retained
share capital share capital earnings

Balance on 31 March 2016 15 000 000  5 500 000  12 550 000 

Changes in equity
Issue of share capital 3 000 000  2 750 000 

Share issue costs (75 000)  (50 000) 

Ordinary dividends (2 100 000) 

(7 000 000 x 30c)
5% Preference dividends (343 750) (p)
((5 500 000 x 5% x 12/12) +
(500 000 x 5.5 x 6/12))
Profit for the year 1 787 000 (p)
Balance on 31 March 2017 17 925 000 8 200 000 11 893 250

Calculations/Workings

1. Cost of sales
Given 2 005 000 
Insurance claim proceeds - inventory (170 000) 
Write down to NRV (2 254 000 – 2 000 000) 254 000 
2 089 000

2. Other Income
Insurance claim proceeds – stolen vehicle (494 500)*100/115 430 000 
Profit on disposal – equipment (241 500*100/115 – (500 000 – 250 000 60 000 
- 100 000)
490 000

3. Distribution, Administration & Other expenses

Auditors remuneration 650 000 
Directors’ remuneration 1 240 000 
Depreciation 425 000 
Other expenses 1 050 000 
3 365 000

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PART C (7 MARKS)

An ordinary resolution requires more than 50% of the voting rights exercised in respect of a
matter (1) and a special resolution requires more than 75% of the voting rights exercised in
respect of a matter.
A special resolution is required for: (any of five items below) (5)
 Amending the MOI;
 Ratifying a consolidated version of the MOI;
 Ratifying the actions of directors, where directors exceeded their powers;
 Approving the issue of shares or options to directors;
 Approving the issue of shares to the public if it represents more than 30% 0f
the votes;
 Authorising the provision of financial assistance for the purchase of shares;
 Authorising directors’ loans;
 Authorising loans to related and interrelated companies;
 Authorising directors’ remuneration;
 Approving the winding up/liquidation of the company; and
 Any other matters as required by the MOI.