FACULTY OF ACCOUNTING AND INFORMATICS

Department of Financial Accounting

Department of Finance & Information Management

2019

April Test

Financial Accounting 3 – Module 1

INSTRUCTIONAL
PROGRAMME : ND: ACCOUNTING (NDACC3; NDACT2)
ND: ACCOUNTING (ECP) (NDACF1, NDATF1)
ND: COST & MANAGEMENT ACCOUNTING (NDCMA3; NDCSA2)
ND: COST & MANAGEMENT ACCOUNTING (ECP) (NDCAF2)
ND: TAXATION (NDTAX3)
ND: TAXATION (ECP) (NDTXF1)
ND: INTERNAL AUDITING (NDIAU3)
ND: INTERNAL AUDITING (ECP) (NDIAF1)
ND: FINANCIAL INFORMATION SYSTEMS (NDFIS2)

INSTRUCTIONAL OFFERING : FINANCIAL ACCOUNTING 3 - MODULE 1

SUBJECT CODE: FACC313; FACN311
DATE: APRIL 2019
DURATION : 120 minutes
TOTAL MARKS: 65
NUMBER OF PAGES : 10
EXAMINERS: Mrs T Thompson, Mr R Scott
MODERATOR (internal) – Mr M Vanker
MODERATOR (external) – Mrs A Baijnath

SUGGESTED SOLUTION

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QUESTION 1 (15 MARKS: 28 MINUTES)

1.1 AB2 Ltd

The question is whether the development cost can be treated as an asset.

Definition
An asset is a resource – the prototype is a resource.
Under the control of the entity - the prototype is under control of AB2
As a result of a past event – the prototype has been developed in the
past .
From which future economic benefits are expected to flow to the entity – the
new vehicle is expected to produce income .

Recognition criteria
An asset is recognised when it is probable that the future economic benefits will
flow to the entity - the new vehicle is expected to produce income.
The asset has a cost or value that can be measured reliably – R13.5
million.

Conclusion
The development cost of R 13.5 million is to be recognised as an asset as it
meets the definition and the recognition criteria have also been met .

(8 marks)

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1.2.1 B

1.2.2 A

1.2.3 D

1.2.4 B

1.2.5 D

1.2.6 B

1.2.7 C

(7 marks)

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QUESTION 2 (25 MARKS: 45 MINUTES)

2.1 Nxumalo & Khumalo Ltd

Statement of profit or loss and other comprehensive income for the year
ended 30 September 2018 R

Revenue from sales 4 320 000

Cost of Sales (2 132 536)
Gross Profit 2 187 464
Other expenses (1 625 964)
Profit before tax 561 500
Income tax expense (561 500 x 30%) (168 450)
Profit for the year 393 050
Other comprehensive income 0
Total comprehensive income for the year 393 050
(15 marks)
2.2 Nxumalo & Khumalo Ltd
Extract from Statement of financial position as at 30 September 2018 R
Current assets 540 420
Inventory 22 344
Trade and other receivables 398 076
Cash and cash equivalents 120 000

Current liabilities 431 770

Trade and other payables 190 360
Short term borrowings 34 800
Taxation payable 168 450

(10 marks)

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 WORKINGS – For part marks
① Revenue from sales 4 320 000
Sales 4 364 400
Returns inwards (44 400)
② Cost of Sales 2 132 536
Opening inventory 501 720
Purchases 1 210 800
Railage inwards (499 200 + 70 360) 569 560
Inventory loss (insurance) (127 200)
Closing inventory (22 344)
(2)
③ Other expenses 1 625 964
Rental of premises expense 102 000
Maintenance of equipment expense 58 800
Electricity and water paid 214 920
Printing and Stationery expense (8 220 + 540) 8 760
Advertising expense 55 200
Commission paid 69 120
Insurance expense (82 800 – 69 000) 13 800
Consumable stores expense (130 800 – 540) 130 260
Telephone expense 8 220
Salaries and Wages expense 594 000
Depreciation expense (18 120 + 189 000) 207 120
Credit losses (36 000 + 564) 36 564
Loss due to fire 127 200
(6)
④ Depreciation 207 120
Motor vehicles (181 200 x 10% x 12/12 18 120
Furniture and fittings [(1 344 000 – 84 000) x 15% x 12/12] 189 000

⑤ Trade and other payables 190 360

Creditors 120 000
Railage inwards accrued 70 360
(2)

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 ⑥Property, plant and equipment Motor Furniture & Total
vehicles Fittings
Carrying amount (1/10/2017) 163 080 1 260 000 1 423 080
Cost price 181 200 1 344 000 1 525 200
Accumulated depreciation (18 120) (84 000) (1 021 120)
Additions 0 0 0
Disposals 0 0 0
Depreciation (18 120) (189 000) (207 120)
Carrying amount (30/09/2018) 144 960 1 071 000 1 215 960
Cost price 181 200 1 344 000 1 525 200
Accumulated depreciation (36 240) (273 000) (309 240)

⑦ Trade and other receivables 398 076

Insurance prepaid 69 000
Debtors 329 076
Balance 365 640
Allowances for credit losses (10 % x 365 640) (36 564)
(4)
⑧ Credit losses 36 564
Balance 36 000
Adjustment 564

⑨ Insurance expense 13 800

Balance 82 800
Prepaid (10 months – 1/10/2018 – 31/7/2019) (69 000)

⑩ Income tax payable (30% x 561 500) 168 450

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QUESTION 3 25 MARKS: 45 MINUTES)

Kamdaboo Ltd
Statement of Cash Flows for the year ended 31 December 2018 R

Cash flows from Operating Activities 274 080

Cash receipts from customers 4 541 775
Cash paid to suppliers and employees (3 624 195)
Cash generated from operations Note 2 917 580
Taxation paid (317 250)
Interest paid (123 750)
Dividends paid (202 500)

Cash flows from Investing Activities (1 110 000)

Proceeds from sale of Plant 300 000
Proceeds from sale of Vehicle 90 000
Additions to Land and Buildings (750 000)
Additions to Plant (405 000)
Additions to Vehicles (345 000)

Cash flows from Financing Activities 900 000

Proceeds from issue of ordinary shares (2 250 000 – 1 500 000) 750 000
Increase in long-term loan (900 000 – 750 000) 150 000

Increase in cash and cash equivalents 64 080

Balance at beginning of the year 174 060
Balance at end of the year 238 140
(21)

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Kamdaboo Ltd
Notes to the financial statements for the year ended 31 December 2018

Reconciliation of profit before tax and cash generated from operations

R
Profit before tax 728 865
Adjustments/Reversals of:
Interest paid 123 750
Profit on sale of Plant (75 000)
Loss on disposal of Vehicle 30 000
Depreciation 150 000
Decrease in Debtors 34 275
Decrease in Creditors (44 385)
Increase in Inventory (29 925)

Cash generated from operations 917 580

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 WORKINGS - for part marks

Cash receipts
Balance 434 925 Bank 4 541 775
Sales 4 507 500 Balance 400 650
4 942 425 4 942 425
Balance
Cash paid
Inventory 544 875 Creditors 229 095
Bank 3 624 195 Cost of Sales 3 102 885
General Expenses 447 000
Creditors 184 710 Inventory 574 800
4 353 780 4 353 780
Inventory 574 800 Creditors 184 710
General expenses ( 750 750 – 123 750 – 150 000 – 30 000)
Land and Buildings
Balance 750 000 Balance 1 500 000
Bank 750 000
1 500 000 1 500 000
Balance 1 500 000
Long term loan
Balance 900 000 Balance 750 000
Bank 150 000
900 000 900 000
Balance 900 000

Taxation
Bank 317 250 Balance 20 640
Balance 31 380 Income statement 327 990
348 630 348 630
Balance 31 380

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 Dividends
Bank 202 500 Balance 90 000
Balance 112 500 Income statement 225 000
315 000 315 000
Balance 112 500

Plant at carrying amount

Balance 600 000 Disposal 225 000
Bank 405 000 Depreciation 105 000
Balance 675 000
1 005 000 1 005 000
Balance 675 000
Disposal
Carrying amount 225 000
Profit 75 000
Proceeds 300 000
Vehicles at cost price
Balance 510 000 Disposal 210 000
Bank 345 000 Balance 645 000
855 000 855 000
Balance 645 000
Accumulated depreciation: Vehicles
Disposal 90 000 Balance 225 000
Balance 180 000 Depreciation 45 000
270 000 270 000
Balance 180 000
Disposal: Vehicle
Vehicles at cost price 210 000 Accumulated depreciation:Veh 90 000
Loss 30 000
Bank 90 000
210 000 210 000

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