FAC1601/103/3/2014

Tutorial letter 103/3/2014

FAC1601
Financial Accounting Reporting

Semesters 1 & 2

Department of Financial Accounting

IMPORTANT INFORMATION:
This tutorial letter contains important information
about your module.
 FAC1601/103

CONTENTS
Page

ANNEXURE A : MAY 2014 AND OCTOBER 2014 EXAMINATION ................................................................2

Format and marking methodology ........................................................................................4
Suggested examination technique .......................................................................................4
ANNEXURE B : ASSIGNMENT 03 - (Not to be submitted) .............................................................................6
ANNEXURE C : SOLUTION TO ASSIGNMENT 03 ......................................................................................13
ANNEXURE D : ASSIGNMENT 04 - (Not to be submitted) ...........................................................................31
ANNEXURE E : SOLUTION TO ASSIGNMENT 04 .......................................................................................37
ANNEXURE F : ADDITIONAL QUESTIONS ................................................................................................47
ANNEXURE G : SOLUTIONS TO THE ADDITIONAL QUESTIONS .............................................................54
ANNEXURE H : TIME VALUE OF MONEY TABLES ....................................................................................59

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 FAC1601/103

INTRODUCTION

Dear Student

Find herewith information pertaining to the May 2014 and October 2014 examinations, assignments
03 and 04 with solutions as well as additional questions with answers

As far as administrative enquiries are concerned, we would again like to emphasize paragraph 3 of Tutorial
Letter 101/3/2014.

Assignments 03 and 04

Due to the time constraint as a result of the semester system, assignments 03 and 04 must NOT be
submitted. The solutions thereto are included in this tutorial letter to ensure that you have sufficient
opportunity to work through all your study material before the examination date.

Additional questions

For the purpose of preparation for the examination in May 2014, additional questions and the suggested
solutions to these questions are also included in this tutorial letter. The questions asked do NOT indicate the
scope of work to be studied for the examination. All of the study material is important and everything must be
studied. UNISA lecturers will not supply students with other examination papers or solutions.

With kind regards,

Mr MT Hlongoane (Module leader)

Mrs FM Osman
Mr A Eysele
Mr J van Staden
Mrs B Ntoyanto-Ceki
Mr S Mnguni

LECTURERS: FAC1601 – FINANCIAL ACCOUNTING REPORTING

Module telephone number: (012) 429-4176

Module e-mail address: fac1601@[Link]

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ANNEXURE A: MAY 2014 AND OCTOBER 2014 EXAMINATION

Format and marking methodology

The May 2014 and October 2014 examination papers will consist out of five questions. All of these questions
must be answered. No multiple choice or theoretical questions will be asked, but you must be able to apply
the acquired theoretical knowledge in practical questions. Although Assignments 01 and 02 consist of
multiple choice questions, the solutions provided indicate how to answer them if asked as long questions.
For this reason, the scope of Assignments 01 and 02 must also be studied when you prepare for the
examination.

To pass the module you require a final mark of 50%, which is calculated as follows:

(10% x mark obtained for compulsory assignments) + (90% x mark obtained in the examination)

Please note that the above calculation is only applicable if you have obtained at least 40% in the
examination. If you do not obtain at least 40% in the examination, you will automatically fail and your final
mark will be the mark you have obtained in the examination. For more information regarding the above,
please refer to Tutorial Letter 101/3/2014, paragraph 8.2.

Marks are usually allotted for entries, and not for totals. Consequential marks are also allotted. You will thus
not be penalised if you have used a figure which you have calculated incorrectly to complete a question. For
example, if you had to prepare a ledger account, and your balance differs from the balance in the
memorandum because you have made errors with the entries in the account, you will still obtain marks for
your balancing entries, provided that you have calculated the balance and disclosed it correctly according to
the entries you have made. Another example would be if you have calculated the total comprehensive
income/loss for a year incorrectly. You will still obtain calculation marks for the section(s) of the calculation
that were correct. If you further had to transfer this incorrect total comprehensive income/loss figure to the
statement of changes in equity, you will also obtain the disclosure marks in the statement of changes in
equity if you have disclosed the figure correctly according to your calculation.

Keep in mind that marks may be allotted for financial statement lay-out and terminology. Keep your formats
strictly according to those given in the prescribed study material.

Your examination answer book will consist of “three column paper” (such as the paper that is available from
the Central Sales Division of the University). Please answer the examination paper in either blue or black ink.

Suggested examination technique

• Ensure that you know and understand the prescribed study material well. Work through as many
examples as possible. This will enable you to utilise the examination time effectively.

• Due to limited time in the examination or in order to cover the syllabus as far as possible, you might
be required to prepare only a section or sections of a financial statement. Ensure that you know the
formats of the financial statements well enough to do so. A financial statement in the incorrect format
(heading, lay-out and terminology) might not be marked. Where a statement with an incorrect format
is not marked, marks will be allocated for calculations only.

• When required to prepare a financial statement, you are usually also required to make year-end
adjustments e.g. to take depreciation or prepaid/accrued amounts into account. Ensure therefore
that you know how to record year-end adjustments. If necessary, you can also refer to the relevant
sections in the FAC1502 study material.

• You may answer the questions in any order. Just ensure that you number the questions clearly and
commence each question on a new (separate) page.

• Read through the "REQUIRED" section of a question first. Hereby you can determine how you
should utilise the given information whilst preparing your answer.

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Do NOT waste time by:

- Underlining headings.
- Using a correction pen (e.g. Tipp-Ex). You will save time by rather crossing out a mistake and by
writing the correct information/amount either above or next to the error.
- Using a ruler. Work free hand.
- Highlighting figures.
- Writing your student number, name, etc. in the examination answer book.
- Providing a table of contents.
- Writing "turn over" at the bottom of the pages of the examination answer book. The markers will
page through your examination answer book several times to ensure that all your answers have
been marked.
- Numbering the pages of the examination answer book.
- Writing out the word: "Question". The letter "Q" in front of the number of a question will be sufficient.
- Writing out the cents (RXX,00), when there are no cents in the given information.
- Writing out your answers in rough. No examination time is provided for the rewriting of answers.

What you MUST do:

- Make sure that you are writing the correct examination paper.

- Commence each question on a new (clean) page. A question that was started in the middle of a
page and which was not clearly indicated can by mistake be seen as part of another question and
consequently not be marked.

- Show all your calculations. If the answer of your calculation is incorrect, you can still obtain marks for
the correct section(s) of the calculation. For example, if a calculation carries 3 marks and comprises
of 6 amounts of half a mark each which must be added (a^ + b^ + c^ + d^ + e^ + f^), you will obtain
2½ marks if you have added 5 of the 6 amounts correctly, provided that you have shown the
calculation. If you had to do a calculation, and you have shown only the answer, the calculation
marks will not be awarded if the answer was incorrect. Show your calculations as close as possible
to your answers.

- Try to adhere to the proposed timetable. Do not spend time on unnecessary activities such as
checking why your statement of financial position does not balance or whether you have added your
totals correctly. Marks are seldom allotted for totals. Do not prepare answers that were not required
as such answers will not be marked.

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ANNEXURE B: ASSIGNMENT 03 (Not to be submitted)

COMPLETE BY:

SEMESTER 1: 20 MARCH 2014

SEMESTER 2: 28 AUGUST 2014

Please take note that this assignment must NOT be submitted. The solution to the assignment is included in
this tutorial letter to enable you to mark it yourself.

This section of the work must under no circumstances be regarded as less important for examination
purposes.

This assignment covers study units 1 to 6.

The assignment is compiled as follows:

Time
Question Subject Marks
(minutes)
1 Partnership: Statement of profit or loss and other comprehensive income 30 36
2 Partnership: Journal entries – Change in ownership structure 43 52
3 Close corporation: Financial statements 45 54
4 Company: Journal entries – Issue of shares 42 50
160 192

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QUESTION 1 (30 marks)(36 minutes)

The following information pertains to a partnership, trading as Do Di Traders:

1. Balances as at 31 March 20.2:

R
Capital: D Do (1 April 20.1) ........................................................................................................ 300 000
Capital: D Di (1 April 20.1) ......................................................................................................... 250 000
Current account: D Do (Dr) (1 April 20.1) ................................................................................... 27 500
Current account: D Di (Cr) (1 April 20.1) .................................................................................... 15 000
Drawings: D Do (cash) ............................................................................................................... 65 000
Drawings: D Di (cash) ................................................................................................................ 55 000
Office furniture at cost ................................................................................................................ 190 000
Vehicles at cost.......................................................................................................................... 200 000
Accumulated depreciation: Office furniture (30 September 20.1) ............................................... 73 200
Accumulated depreciation: Vehicles (31 March 20.1) ................................................................ 10 800
Long-term loan (unsecured) ....................................................................................................... 125 000
Debtors control .......................................................................................................................... 100 000
Creditors control ........................................................................................................................ 74 000
Bank (overdraft) ......................................................................................................................... 9 800
Allowance for credit losses ........................................................................................................ 2 550
Stationery inventory (31 March 20.1) ......................................................................................... 3 250
Sales.......................................................................................................................................... 462 800
Inventory (31 March 20.1) .......................................................................................................... 42 500
Profit on sale of office furniture .................................................................................................. 3 480
Delivery expenses (in respect of sales)...................................................................................... 3 450
Settlement discount granted ...................................................................................................... 5 620
Purchases .................................................................................................................................. 391 643
Delivery expenses (in respect of purchases) ............................................................................. 6 500
Sales returns.............................................................................................................................. 7 000
Purchases returns ...................................................................................................................... 2 585
Settlement discount received ..................................................................................................... 1 523
Rental expense .......................................................................................................................... 27 000
Bank charges ............................................................................................................................. 1 475
Depreciation (office furniture) ..................................................................................................... 1 280
Interest expense (paid on long-term loan).................................................................................. 21 250
Salaries and wages ................................................................................................................... 155 000
Telephone expenses ................................................................................................................. 3 620
Maintenance and repairs (office furniture).................................................................................. 1 250
Fuel and sundry vehicle expenses ............................................................................................. 14 400
Stationery (purchased)............................................................................................................... 2 540
Marketing fees ........................................................................................................................... 5 460

2. Additional information

2.1 Stationery on hand at 31 March 20.2 - R450.

2.2 Inventory on hand at 31 March 20.2 - R39 700.

2.3 On 30 September 20.1 office furniture with a cost price of R20 000 was sold for R15 000. On the
same date office furniture to the amount of R40 000 was purchased on credit, in order to replace
furniture that was sold. All the necessary accounting entries in respect of these transactions were
correctly accounted for.

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QUESTION 1 (continued)

2.4 The following (outstanding) amounts have not yet been provided for:

2.4.1 Depreciation

• On the office furniture – at 20% per annum on the diminishing balance method.
• On the vehicles – according to the straight-line method. The expected lifespan of each vehicle is
estimated to be 10 years. The residual value thereof is estimated at R20 000. No vehicles were
acquired or disposed of during the year.

2.4.2 The long-term loan was acquired from ABA Bank on 1 April 20.1 at 18% interest per annum. The
loan is unsecured and is repayable in 10 equal annual instalments from 1 April 20.2.

2.5 Credit losses of R5 000 must be written off. The closing balance of the allowance for credit losses
account must be increased with R2 200.

2.6 The partnership agreement stipulates that:

2.6.1 The partnership must create separate drawings and current accounts for each partner.

2.6.2 Interest on capital must be calculated at 8,5% per annum on the opening balances of the capital
accounts.

2.6.3 Interest on current accounts must be calculated at 15% per annum on the opening balances of the
current accounts.

2.6.4 A salary of R15 000 per annum must be paid to D Di. The salary has been paid and is included in
the salaries and wages account.

2.7 Drawings still to be accounted for:

• D Do – trading inventory, R2 500

• D Di – stationery inventory, R235

At the end of each financial year the drawings accounts must be closed off against the applicable
current accounts.

REQUIRED:

Prepare the statement of profit or loss and other comprehensive income of Do Di Traders for the year ended
31 March 20.2 in compliance with International Financial Reporting Standards (IFRS), appropriate to the
business of the partnership.

Notes and comparative figures are NOT required.

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QUESTION 2 (43 marks)(52 minutes)

John and Shoes were in a partnership and traded as JS Traders. John and Shoes shared in the profits or
losses of JS Traders in the ratio of 5:3 respectively. John and Shoes decided to admit Mosheu to the
partnership. Before any valuation-adjustments and goodwill were recorded, the following statement of
financial position was prepared at 28 February 20.1, the financial year-end of JS Traders:

Balances as at 28 February 20.1

R
Capital: John ................................................................................................................................ 87 500
Capital: Shoes ............................................................................................................................. 52 500
Furniture and equipment .............................................................................................................. 80 000
Inventories ................................................................................................................................... 30 000
Debtors control ............................................................................................................................ 20 000
Creditors control .......................................................................................................................... 15 000
Bank (Dr) ..................................................................................................................................... 25 000

In preparation of the change in the ownership structure of JS Traders, John and Shoes obtained the
following appraisals on 28 February 20.1:

1. Debtors control - R19 000. (Create an allowance for credit losses to the amount of R1 000.)

2. Inventories - R35 000.

3. Furniture and equipment at market (fair) value - R100 000.

After the valuation adjustments and goodwill were recorded, Mosheu was admitted to the partnership on
1 March 20.1. The new partnership trades as JSM Traders and the profit sharing ratio between
John, Shoes and Mosheu is [Link] respectively. On 1 March 20.1, Mosheu paid R50 000 into the bank
account of the partnership for a 20% interest in the net assets (equity) of the new partnership.

REQUIRED:

2.1 Prepare the journal entries in the general journal of JSM Traders on 28 February 20.1 to prepare
for the admission of Mosheu as a partner, and to record the dissolution of the partnership. Apply
the accounting procedure which is based on the legal perspective. Narrations are NOT required.
(25)

2.2 Prepare the journal entries in the general journal of JSM Traders on 1 March 20.1 to record its
formation. Apply the accounting procedure which is based on the legal perspective.
(18)
Narrations are NOT required.

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QUESTION 3 (45 marks)(54 minutes)

The following information pertains to Afri Traders CC:

1. Balances as at 28 February 20.2:

R
Member’s contribution: A Adam ............................................................................................... 140 000
Member’s contribution: P Point ................................................................................................ 210 000
Retained earnings (1 March 20.1)............................................................................................ 56 600
Asset replacement reserve ...................................................................................................... 82 000
Loan from A Adam ................................................................................................................... 70 000
Distribution to member: A Adam .............................................................................................. 32 000
Distribution to member: P Point ............................................................................................... 48 000
Loan to P Point ........................................................................................................................ 50 000
Allowance for credit losses ...................................................................................................... 3 000
Land and buildings at cost ....................................................................................................... 210 000
Equipment at cost .................................................................................................................... 165 000
Investment at fair value ............................................................................................................ 125 000
Trading inventory ..................................................................................................................... 140 500
Consumable inventory ............................................................................................................. 6 200
Long-term loan: AUS Bank ...................................................................................................... 60 000
Bills receivable ......................................................................................................................... 20 150
Bills payable ............................................................................................................................ 15 360
Accumulated depreciation: Equipment ..................................................................................... 62 320
Accrued expenses ................................................................................................................... 6 800
Prepaid expenses .................................................................................................................... 3 500
Bank (overdraft) ....................................................................................................................... 25 120
Petty cash ................................................................................................................................ 700
Debtors control ........................................................................................................................ 50 290
Creditors control ...................................................................................................................... 16 180
Profit or loss before tax ............................................................................................................ 174 380
South African Revenue Services (Income tax) (Dr).................................................................. 70 420

2. Additional information

2.1 The depreciation on equipment for the year amounted to R41 250.

2.2 There were no disposals of, or additions to the land and buildings and equipment during the
financial year.

2.3 On 1 March 20.1, Afri Traders CC purchased 50 000 ordinary shares at R1 each in UFO Limited. On
28 February 20.2 the shares traded at R2,50 per share.

2.4 The loan from A Adam is unsecured and the first instalment of R15 000 must be paid on
28 February 20.3.

2.5 The actual SA normal income tax for the financial year amounted to R50 570 and must still be
recorded.

2.6 A further distribution of R40 000 must be made to the members.

2.7 The long-term loan from AUS Bank was obtained on 1 March 20.0 at 15% interest per annum and is
secured by a first mortgage bond over land and buildings. The capital amount of the loan must be
repaid on 28 February 20.9.

2.8 The loan to P Point is immediately callable.

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QUESTION 3 (continued)

REQUIRED:

In respect of Afri Traders CC, prepare:

3.1 The statement of changes in net investment of members for the year ended
28 February 20.2. (9)

3.2 The statement of financial position as at 28 February 20.2. (23)

3.3 Only the following notes for the year ended 28 February 20.2:

3.3.1 Property, plant and equipment (6)

3.3.2 Financial assets (3)
3.3.3 Financial liabilities (4)

Your answers must comply with the provisions of the Close Corporations Act, No 69 of 1984, and the
requirements of International Financial Reporting Standards (IFRS), appropriate to the business of the close
corporation.

Comparative figures are NOT required.

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QUESTION 4 (42 marks) (50 minutes)

Max4 Ltd is a company which was registered on 1 May 20.1 with an authorised share capital of 200 000
ordinary shares.

The company offered 20 000 ordinary shares at R40 000 to the founders of the company. All of these shares
were taken up and paid for on 31 May 20.1. These transactions have been recorded in the accounting
records of Max4 Ltd.

On 1 June 20.1, the directors decided to offer 100 000 ordinary shares to the public at R225 000. The
company applied to the JSE Limited for a listing. The whole issue was underwritten by City Merchant Bank
Ltd at 3% commission, calculated on the total offer price.

On 1 August 20.1, applications for 180 000 ordinary shares were received. In order to retain control, the
following allocation scheme was approved and ratified at a meeting of the board of directors:

(A) Applications for 100 and 200 shares each were granted in full.
(B) In the case of applications for 500 to 1 000 shares each, only half was granted.
(C) In the case of applications for over 1 000 shares each, only a quarter was granted.

The following is a breakdown of the applications that were received:

Number of shares per Number of applications

Number of shares
application received
100 500 50 000
200 50 10 000
500 40 20 000
1 000 20 20 000
2 000 25 50 000
3 750 8 30 000
643 180 000

The application for the JSE Limited listing was granted and during the first week of listing the share price of
Max4 Ltd was R3,20 per share after which it gradually decreased to R2,90.

On 11 September 20.2, the world markets tumbled which negatively influenced the export market of the
company. The exchange price of the shares of Max4 Ltd dropped to R2,05. Additional capital was urgently
needed to expand the business of the company. The board of directors decided to offer the 80 000 unissued
ordinary shares to the public at R160 000.

Underwriting was arranged with City Merchant Bank at 4% commission, calculated on the total offer price.
Applications for only 60 000 shares were received on 30 November 20.2. All the necessary transactions
pertaining to this issue were made and recorded on 30 November 20.2.

REQUIRED:

Record the journal entries in the general journal of Max4 Ltd for the transactions from 1 June 20.1 to
30 November 20.2.

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ANNEXURE C: SOLUTION TO ASSIGNMENT 03

QUESTION 1 (30 marks)

DO DI TRADERS
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED
31 MARCH 20.2
R
Revenuec 450 180
Cost of sales (394 335)
Opening inventory (1 April 20.1) 42 500
Purchases d 385 035
Delivery expenses 6 500
434 035
Closing inventory (31 March 20.2) (39 700)
Gross profit^ 55 845
Other income 3 480
Profit on sale of office furniture 3 480
59 325
Distribution, administrative and other expenses (247 600)
Delivery expenses – sales 3 450
Rental expense 27 000
Bank charges 1 475
Salaries and wages (155 000 - 15 000) 140 000
Telephone expenses 3 620
Maintenance and repairs: Office furniture 1 250
Fuel and sundry vehicle expenses 14 400
Marketing fees 5 460
Stationery consumed e 5 105
Depreciation f & g 38 640
Credit losses h 7 200
Finance costs (22 500)
Interest on long-term loan i 22 500
Loss for the year (210 775)
Other comprehensive income for the year -
Total comprehensive loss for the year (210 775)

Calculations

c Revenue R

Sales 462 800

Sales returns (7 000)
Settlement discount granted (5 620)
450 180
d Purchases

Purchases R
Purchases returns 391 643
Drawings: D Do (2 585)
Settlement discount received (2 500)
(1 523)
385 035

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QUESTION 1 (continued)

e Stationery consumed
R
Opening inventory 3 250
Purchases 2 540
Closing inventory (450)
Drawings: D Di (235)
5 105

f Depreciation (office furniture)

y Cost price of the office furniture at the beginning of the year:

R
Cost price at the end of the year 190 000
Office furniture sold – 30/9/20.1 20 000
210 000
Office furniture purchased – 30/9/20.1 (40 000)
Cost price at the beginning of the year 170 000

OR
(Reconstructed for calculation purposes)

Dr Office furniture Cr
20.1 R 20.1 R
Apr 1 Balance * b/d 170 000 Sep 30 Realisation 20 000
Sep 30 Creditors control 40 000 20.2
Mar 31 Balance ** c/d 190 000
210 000 210 000
20.2
Apr 1 Balance ** b/d 190 000

* Balancing entry
** Given in list of balances

y Office furniture in possession for the whole year (opening balance minus office furniture sold during the
year):
(170 000 – 20 000) = 150 000

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QUESTION 1 (continued)

Depreciation on the office furniture in possession for the whole year

(150 000 – 73 200) = 76 800 (carrying amount)

76 800 x 20%^ = 15 360

Comment

The accumulated depreciation of the office furniture that was sold, was already eliminated from the
accumulated depreciation account by way of a journal on the date of the sale. Therefore, the amount of
R73 200 at 30 September 20.1 pertains only to the office furniture that Do Di Traders had in its
possession for the full year, namely R150 000.

y Total amount of depreciation on office furniture:

R
Depreciation on the office furniture that was sold during the year (given) 1 280
Depreciation on the office furniture that was purchased during the year
40 000 x 20% x 6/12 4 000
Depreciation on the office furniture in possession for the full year 15 360
20 640

5 Depreciation (vehicles)

(200 000 – 20 000) ÷ 10 = 18 000

There is only one depreciation account in the general ledger. The amount that must be disclosed in the
statement of profit or loss and other comprehensive income is (20 640 + 18 000) = 38 640.

h Credit losses

The credit loss that must be disclosed in the statement of profit or loss and other comprehensive
income is equal to:

Credit loss (list of balances) + increase in the allowance for credit losses (additional information 2.5)
= (5 000 + 2 200) = 7 200

The closing balance of the allowance for credit losses account on 31 March 20.2 is therefor
= (2 550 + 2 200) = 4 750

i Interest on long-term loan

R
(125 000 x 18%) 22 500 *
Less: amount already paid (from list of balances) (21 250) **
Amount still payable 1 250

Comments:

* Expense for the year that must be disclosed in the statement of profit or loss and other
comprehensive income.

** R1 250 is included in the “Trade and other payables” amount on the statement of financial
position as at 31 March 20.2.

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QUESTION 1 (continued)

The statements of changes in equity, financial position and the notes to the financial statements were not
required, but in order to give a complete picture of the disclosure requirements in terms of International
Financial Reporting Standards (IFRS).

DO DI TRADERS
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 20.2
Capital Current accounts Appro- Total
D Do D Di D Do D Di priation equity
R R R R R R
Balances at 1 April 20.1 300 000 250 000 (27 500) 15 000 - 537 500
Total comprehensive loss for
the year (210 775) (210 775)
Salary to partner 15 000 (15 000) -
Interest on capital c 25 500 21 250 (46 750) -
Interest on current accounts d (4 125) 2 250 1 875 -
Partners’ share of total
comprehensive loss e (147 627) (123 023) 270 650 -
Drawings f (67 500) (70 235) (137 735)
Balances at 31 March 20.2 300 000 250 000 (221 252) (139 758) - 188 990

Calculations

c Interest on capital

D Do: 300 000 x 8,5% = 25 500

D Di: 250 000 x 8,5% = 21 250

d Interest on current accounts

D Do: 27 500 (dr) x 15% = 4 125 (receivable)

D Di: 15 000 (cr) x 15% = 2 250 (payable)

e Partners’ share of total comprehensive loss

Calculation of loss to be appropriated:

R
Total comprehensive loss for the year (210 775)
Salary to D Di (15 000)
Interest on capital (46 750)
Interest on current accounts 1 875
Loss to be appropriated (270 650)

When the ratio according to which the profits/losses between the partners must be appropriated is not given,
then the partners’ capital contributions are used to calculate the ratio.

Therefore: Capital: D Do : Capital: D Di

300 000 : 250 000

300 000 + 250 000 = 550 000

D Do’s share is:

300 000
× 270 650
550 000

= 147 627 (rounded)

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QUESTION 1 (continued)

D Di’s share is:

250 000
× 270 650
550 000

= 123 023 (rounded)

f Drawings
D Do D Di
R R
Balance (from the list of balances) 65 000 55 000
Salary: D Di 15 000
Trading inventory/stationery inventory 2 500 235
67 500 70 235

DO DI TRADERS
STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20.2
Note R
ASSETS
Non-current assets 268 640
Property, plant and equipment 2,3 268 640
Current assets 130 400
Inventories (39 700 + 450) 2 40 150
Trade and other receivables (100 000 – 5 000 – 4 750) 2,4 90 250

Total assets 399 040

EQUITY AND LIABILITIES

Total equity 188 990
Capital* (300 000 + 250 000) 550 000
Current accounts* (221 252 + 139 758) (361 010)
Total liabilities 210 050
Non-current liabilities 112 500
Long-term borrowings 2,5 112 500
Current liabilities 97 550
Trade and other payables (74 000 + 1 250) 2,5 75 250
Current portion of long-term borrowings 2,5 12 500
Other financial liabilities 2,5 9 800

Total equity and liabilities 399 040

* Refer to statement of changes in equity.

DO DI TRADERS
NOTES FOR THE YEAR ENDED 31 MARCH 20.2

Accounting policy

1. Basis of presentation

The annual financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) appropriate to the business of the partnership. The annual financial statements have been
prepared on the historical cost basis, modified by the revaluation of financial assets and financial liabilities at
fair value through profit or loss.

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QUESTION 1 (continued)

2. Summary of significant accounting policies

2.1 Property, plant and equipment

Property, plant and equipment are initially recognised at cost price. The office furniture and vehicles are
measured at historical cost less accumulated depreciation and accumulated impairment losses.

Depreciation on office furniture and vehicles are provided for at a rate deemed to be sufficient to reduce the
carrying amount of the assets over their estimated useful lives to their estimated residual values. The
depreciation rates are as follows:

Office furniture: 20% per annum according to the diminishing-balance method.

Vehicles: 10% per annum according to the straight line method.

Depreciation is charged to the profit or loss for the period. Gains or losses on disposal are determined by
comparing the proceeds with the carrying amount of the asset. The net amount is included in the profit or
loss for the period.

2.2 Financial assets

Financial assets are recognised in the partnership’s statement of financial position when the partnership
becomes a party to the contractual provisions of an instrument.

Financial instruments are initially measured at cost which is the fair value plus transaction costs, except for
“Financial assets at fair value through profit or loss” which is measured at cost, transaction costs excluded.

2.3 Inventories

Inventories are initially measured at cost and subsequently valued at the lower of cost or net realisable
value. Cost is calculated using the first-in, first-out method. Net realisable value is the estimated selling price
in the ordinary course of business less any costs of completion and disposal.

2.4 Financial liabilities

Financial liabilities are recognised in the partnership’s statement of financial position when the partnership
becomes a party to the contractual provisions of the instrument. The classification depends on the purpose
for which the financial liabilities were obtained.

2.5 Revenue

Revenue is measured at the fair value of the consideration received or receivable. Revenue from the sale of
goods consists of the total net invoiced sales, excluding value added tax and settlement discount granted.
The revenue from sales is recognised when the risk and rewards of ownership is transferred to the customer.

3. Property, plant and equipment

Office
furniture Vehicles Total
R R R
Carrying amount at 1 April 20.1 89 600 189 200 278 800
Cost 170 000 200 000 370 000
Accumulated depreciation (80 400) c (10 800) (91 200)
Additions 40 000 - 40 000
Disposals (11 520) d - (11 520)
Depreciation for the year (20 640) (18 000) (38 640)
Carrying amount at 31 March 20.2 97 440 171 200 268 640
Cost 190 000 200 000 390 000
Accumulated depreciation (92 560) e (28 800) (121 360)

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 FAC1601/103

QUESTION 1 (continued)

4. Financial assets
Current financial assets R

Trade and other receivables: 90 250

Debtors control (100 000 – 5 000) 95 000
Allowance for credit losses (2 550 + 2 200) (4 750)

5. Financial liabilities
R
Non-current financial liabilities
Long-term borrowings: 125 000
Unsecured loan: The loan agreement was entered into on 1 April 20.1 at 18% interest per
annum
Long-term loan 125 000
Current portion of long-term loan (12 500)
Non-current portion 112 500

Current financial liabilities 97 550

Trade and other payables: 75 250
Creditors control 74 000
Interest payable on long-term borrowings (refer to calculation i, i.r.o. statement of
comprehensive income) 1 250
Current portion of long-term borrowings 12 500
Other financial liabilities:
Financial liabilities at fair value through profit or loss: 9 800
Bank overdraft 9 800

Calculations

c Accumulated depreciation: Office furniture (beginning of year)

Accumulated depreciation: Office furniture

Dr (reconstructed for calculation purposes) Cr
R R
Realisation account (Total amount Balance* b/d 80 400
of depreciation written back) d 8 480 Depreciation (office furniture sold) 1 280
Balance c/d 73 200
81 680 81 680
* Balancing entry

d Total amount of depreciation written back (in respect of office furniture sold)

Carrying amount of office furniture sold + Profit on sale of office furniture = Selling price
Carrying amount + 3 480 = 15 000
Carrying amount = (15 000 – 3 480)
= 11 520
Accumulated depreciation = Cost price – Carrying amount
Accumulated depreciation = 20 000 – 11 520
= 8 480

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 FAC1601/103

QUESTION 1 (continued)

OR

Cost price – Accumulated depreciation (AD) = Carrying amount

20 000 – Accumulated Depreciation = 11 520
– Accumulated Depreciation = (11 520 – 20 000)
– Accumulated Depreciation = – 8 480
Accumulated Depreciation = 8 480

OR
Realisation account
Dr (reconstructed for calculation purposes) Cr
R R
Office furniture at cost 20 000 Accumulated depreciation * 8 480
Profit on sale of office furniture 3 480 Bank 15 000
23 480 23 480
* Balancing entry

Comment:

All the accumulated depreciation pertaining to the office furniture that was sold, namely R8 480, was
eliminated by debiting the accumulated depreciation account with R8 480, and crediting the realisation
account with R8 480. The closing balance of the accumulated depreciation account, namely R73 200 thus
pertains only to the office furniture in possession for the whole financial year, namely the office furniture with
a cost price of R150 000.

e Accumulated depreciation: Office furniture (end of year)

(80 400 + 20 640 – 8 480) = 92 560

OR
R
Balance from list of balances 73 200
Depreciation on office furniture in possession – refer calculation f
i.r.o. statement of profit or loss and other comprehensive income 15 360
Depreciation on office furniture purchased – refer calculation fi.r.o.
statement of profit or loss and other comprehensive income 4 000
92 560

20
 FAC1601/103

QUESTION 2 (43 marks)

2.1

JS TRADERS
GENERAL JOURNAL
Debit Credit
20.1 R R
Feb 28 Furniture and equipment (100 000 – 80 000) 20 000
Inventories (35 000 – 30 000) 5 000
Valuation account 25 000
Recording of the valuation adjustments in preparation of the change in
ownership structure of the partnership
Valuation account 1 000
Allowance for credit losses 1 000
Creation of an allowance for credit losses in preparation of the change in the
ownership structure of the partnership
Valuation account 24 000
Capital: John (5/8 x 24 000) 15 000
Capital: Shoes (3/8 x 24 000) 9 000
Balance of the valuation account transferred to the capital accounts of John
and Shoes according to their profit-sharing ratio
Goodwill c36 000
Capital: John (5/8 x 36 000) 22 500
Capital: Shoes (3/8 x 36 000) 13 500
Recording of goodwill in preparation for the admission of Mosheu
Transferral account 216 000
Furniture and equipment 100 000
Goodwill 36 000
Inventories 35 000
Debtors control 20 000
Bank 25 000
Transfer of the balances of the assets accounts to the transferral account to
record the dissolution of the partnership
Capital: John (87 500 + 15 000 + 22 500) 125 000
Capital: Shoes (52 500 + 9 000 + 13 500) 75 000
Creditors control 15 000
Allowance for credit losses 1 000
Transferral account 216 000
Transfer of the balances of the equity, liability and allowance accounts to the
transferral account to record the dissolution of the partnership
(25)

Comment:

Alternatively, the first two (2) journal entries can be shown as one entry.

Debit Credit
20.1 R R
Feb 28 Furniture and equipment (100 000 – 80 000) 20 000
Inventories (35 000 – 30 000) 5 000
Allowance for credit losses 1 000
Valuation account 24 000
Recording the valuation adjustments in preparation of the change in ownership
structure of the partnership

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 FAC1601/103

QUESTION 2 (continued)

Calculations

c Goodwill acquired

Fair value of the equity (net assets) of the new partnership – Equity of the new partnership
250 000 n – 214 000 o
= 36 000

n Fair value of the equity (net assets) of the new partnership

Capital contribution of Mosheu x the inverse of Mosheu’s share in the fair value of the equity (net assets)
of the new partnership
50 000 x 5 = 250 000
Comment:
The share of Mosheu = 20%. The inverse thereof is 100/20 = 5.

o Equity of the new partnership

[(87 500 + 15 000) + (52 500 + 9 000) + 50 000]

= 214 000

The following general ledger was not required but is shown for explanatory purposes:

JS TRADERS
GENERAL LEDGER

Dr Furniture and equipment Cr

20.1 R 20.1 R
Feb 28 Balance b/d 80 000 Feb 28 Transferral account 100 000
Valuation account 20 000
100 000 100 000

Dr Inventories Cr
20.1 R 20.1 R
Feb 28 Balance b/d 30 000 Feb 28 Transferral account 35 000
Valuation account 5 000
35 000 35 000

Dr Debtors control Cr
20.1 R 20.1 R
Feb 28 Balance b/d 20 000 Feb 28 Transferral account 20 000

Dr Allowance for credit losses Cr

20.1 R 20.1 R
Feb 28 Transferral account 1 000 Feb 28 Valuation account 1 000

Dr Goodwill Cr
20.1 R 20.1 R
Feb 28 Capital: John (5/8 x 36 000) 22 500 Feb 28 Transferral account 36 000
Capital: Shoes (3/8 x 36 000) 13 500
36 000 36 000

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 FAC1601/103

QUESTION 2 (continued)

Dr Bank Cr
20.1 R 20.1 R
Feb 28 Balance b/d 25 000 Feb 28 Transferral account 25 000

Dr Capital: John Cr
20.1 R 20.1 R
Feb 28 Transferral account 125 000 Feb 28 Balance b/d 87 500
Valuation account 15 000
Goodwillc 22 500
125 000 125 000

Dr Capital: Shoes Cr
20.1 R 20.1 R
Feb 28 Transferral account 75 000 Feb 28 Balance b/d 52 500
Valuation account 9 000
Goodwillc 13 500
75 000 75 000

Dr Creditors control Cr
20.1 R 20.1 R
Feb 28 Transferral account 15 000 Feb 28 Balance b/d 15 000

Dr Valuation account Cr
20.1 R 20.1 R
Feb 28 Allowance for credit losses 1 000 Feb 28 Inventories
Capital: John (5/8 x 24 000) 15 000 (35 000 – 30 000) 5 000
Capital: Shoes (3/8 x 24 000) 9 000 Furniture and equipment
(100 000 – 80 000) 20 000
25 000 25 000

Dr Transferral account Cr
20.1 R 20.1 R
Feb 28 Furniture and equipment 100 000 Feb 28 Capital: John 125 000
Goodwill 36 000 Capital: Shoes 75 000
Inventories 35 000 Creditors control 15 000
Debtors control 20 000 Allowance for credit losses 1 000
Bank 25 000
216 000 216 000

23
 FAC1601/103

QUESTION 2 (continued)

2.2

JSM TRADERS
GENERAL JOURNAL
Debit Credit
20.1 R R
Mar 1 Furniture and equipment (125 000/200 000 x 100 000) 62 500
Goodwill (125 000/200 000 x 36 000) 22 500
Inventories (125 000/200 000 x 35 000) 21 875
Debtors control (125 000/200 000 x 20 000) 12 500
Bank (125 000/200 000 x 25 000) 15 625
Creditors control (125 000/200 000 x 15 000) 9 375
Allowance for credit losses (125 000/200 000 x 1 000) 625
Capital: John 125 000
Recording the capital contribution of John
Furniture and equipment (75 000/200 000 x 100 000) 37 500
Goodwill (75 000/200 000 x 36 000) 13 500
Inventories (75 000/200 000 x 35 000) 13 125
Debtors control (75 000/200 000 x 20 000) 7 500
Bank (75 000/200 000 x 25 000) 9 375
Creditors control (75 000/200 000 x 15 000) 5 625
Allowance for credit losses (75 000/200 000 x 1 000) 375
Capital: Shoes 75 000
Recording the capital contribution of Shoes
Bank 50 000
Capital: Mosheu 50 000
Recording the capital contribution of Mosheu
(18)

The following general ledger was not required but is shown for explanatory purposes.

JSM TRADERS
GENERAL LEDGER

Dr Furniture and equipment Cr

20.1 R
Mar 1 Capital: John 62 500
Capital: Shoes 37 500
100 000

Dr Goodwill Cr
20.1 R
Mar 1 Capital: John 22 500
Capital: Shoes 13 500
36 000

Dr Inventories Cr
20.1 R
Mar 1 Capital: John 21 875
Capital: Shoes 13 125
35 000

24
 FAC1601/103

QUESTION 2 (continued)

Dr Debtors control Cr
20.1 R
Mar 1 Capital: John 12 500
Capital: Shoes 7 500
20 000

Dr Allowance for credit losses Cr

20.1 R
Mar 1 Capital: John 625
Capital: Shoes 375
1 000

Dr Bank Cr
20.1 R
Mar 1 Capital: John 15 625
Capital: Shoes 9 375
Capital: Mosheu 50 000
75 000

Dr Capital: John Cr
20.1 R 20.1 R
Mar 1 Creditors control 9 375 Mar 1 Furniture and equipment 62 500
Allowance for credit losses 625 Goodwill 22 500
Balance c/d 125 000 Inventories 21 875
Debtors control 12 500
Bank 15 625
135 000 135 000
20.1
Mar 1 Balance b/d 125 000

Dr Capital: Shoes Cr
20.1 R 20.1 R
Mar 1 Creditors control 5 625 Mar 1 Furniture and equipment 37 500
Allowance for credit losses 375 Goodwill 13 500
Balance c/d 75 000 Inventories 13 125
Debtors control 7 500
Bank 9 375
81 000 81 000
20.1
Mar 1 Balance b/d 75 000

Dr Capital: Mosheu Cr
20.1 R
Mar 1 Bank 50 000

Dr Creditors control Cr
20.1 R
Mar 1 Capital: John 9 375
Capital: Shoes 5 625
15 000

25
 FAC1601/103

QUESTION 3 (45 marks)

3.1

AFRI TRADERS CC
STATEMENT OF CHANGES IN NET INVESTMENT OF MEMBERS FOR THE YEAR ENDED
28 FEBRUARY 20.2
Asset
Members’ replace- Loan Loan
contribu- Retained ment from to
tions earnings reserve member member Total
R R R R R R
Balances at 1 March 20.1 350 000 56 600 82 000 70 000 (50 000) 508 600
Total comprehensive income
for the year 123 810c 123 810
Distribution to members (120 000)d (120 000)
Balances at
28 February 20.2 350 000 60 410 82 000 70 000 (50 000) 512 410

Non-current liability 55 000

Current liability 15 000

(9)

Calculations

c Total comprehensive income for the year

R
Profit before tax 174 380
Income tax expense (50 570)
123 810

d Distribution to members

(32 000 + 48 000 + 40 000) = 120 000

26
 FAC1601/103

QUESTION 3 (continued)

3.2

AFRI TRADERS CC
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 20.2
R
Note
ASSETS
Non-current assets 312 680
Property, plant and equipment 3 312 680
Current assets 413 190
Inventories (140 500 + 6 200) 146 700
Trade and other receivables (50 290 – 3 000 + 20 150) 4 67 440
Prepayments 3 500
Other financial assets (125 000 + 50 000) 4 175 000
Cash and cash equivalents 4 700
Current tax receivable (70 420 – 50 570) 19 850
Total assets 725 870
EQUITY AND LIABILITIES

Total equity 492 410

Members’ contributions 350 000
Retained earnings 60 410
Other components of equity 82 000
Total liabilities 233 460
Non-current liabilities 115 000
Long-term borrowings (60 000 + 55 000) 5 115 000
Current liabilities 118 460
Trade and other payables (16 180 + 6 800 + 15 360) 5 38 340
Current portion of long-term borrowings 5 15 000
Other financial liabilities 5 25 120
Distribution to members payable (120 000 – 80 000) 40 000
Total equity and liabilities 725 870
(23)
3.3

AFRI TRADERS CC
NOTES FOR THE YEAR ENDED 28 FEBRUARY 20.2 (EXTRACT)

3. Property, plant and equipment

Land and
buildings Equipment Total
R R R
Carrying amount at 1 March 20.1 210 000 143 930 353 930
Cost 210 000 165 000 375 000
Accumulated depreciation - (21 070) (21 070)
Depreciation for the year - (41 250) (41 250)
Carrying amount at 28 February 20.2 210 000 102 680 312 680
Cost 210 000 165 000 375 000
Accumulated depreciation - (62 320) (62 320)
(6)
The land and buildings serve as security for the long-term loan.

27
 FAC1601/103

QUESTION 3 (continued)

4. Financial assets
R
Current financial assets
Trade and other receivables: 67 440
Bills receivable 20 150
Debtors control 50 290
Allowance for credit losses (3 000)

Other financial assets: 175 700

Loans and receivables: Loans to members: These loans are unsecured and are
immediately callable 50 000
Financial assets at fair value through profit or loss:
Held for trading: Listed investment: 50 000 ordinary shares of R1 each in UFO Limited
(consideration R50 000) 125 000
Cash and cash equivalents: 700
Petty cash 700
(3)

5. Financial liabilities
R
Non-current financial liabilities
Long-term borrowings: 115 000
Long-term loan: The loan was acquired from AUS Bank on 1 March 20.0 at 15% 60 000
interest per annum. The loan is repayable on 28 February 20.9.
The loan is secured by a first mortgage bond over land and buildings.
Loan from member: The loan was acquired from A Adam and is unsecured. An
amount of R15 000 is repayable on 28 February 20.3
Loan from member: 70 000
Current portion of loan from member (15 000)
Non-current portion 55 000

Current financial liabilities

Trade and other payables: 38 340
Creditors control 16 180
Accrued expenses 6 800
Bills payable 15 360
Current portion of long-term borrowings (loans from members) 15 000
Other financial liabilities:
Financial liabilities at fair value through profit or loss: 25 120
Bank overdraft 25 120

(4)

28
 FAC1601/103

QUESTION 4 (42 marks)

MAX4 LIMITED
GENERAL JOURNAL
Debit Credit
20.1 R R
Jun 1 Underwriter’s commission (225 000 x 3%) 6 750
City Merchant Bank Ltd 6 750
3% underwriter’s commission due on R225 000 in terms
of the underwriter’s agreement
Aug 1 Bank [(225 000 ÷ 100 000 shares) x 180 000 shares] 405 000
Application and allotment: Ordinary shares 405 000
Receipt of application money from the public
Application and allotment: Ordinary shares 225 000
Share capital: Ordinary shares 225 000
Allotment of 100 000 ordinary shares
Application and allotment: Ordinary shares
[(225 000÷100 000) x 80 000] 180 000
Bank 180 000
Application money repaid to unsuccessful applicants
City Merchant Bank 6 750
Bank 6 750
Underwriter’s commission paid
20.2
Nov 30 Underwriter’s commission (160 000 x 4%) 6 400
City Merchant Bank Ltd 6 400
4% underwriter’s commission due on R160 000 in terms
of the underwriter’s agreement
Bank [160 000 x (60 000 ÷ 80 000)] 120 000
Application and allotment: Ordinary shares 120 000
Receipt of application money from the public
Application and allotment: Ordinary shares (60 000 x R2,00) 120 000
Share capital: Ordinary shares 120 000
Allotment of 60 000 shares
City Merchant Bank Ltd [(160 000 ÷ 80 000) x 20 000] 40 000
Share capital: Ordinary shares 40 000
Allotment of 20 000 shares to City Merchant Bank Ltd
Bank (40 000 – 6 400) 33 600
City Merchant Bank Ltd 33 600
Balance paid by City Merchant Bank Ltd

29
 FAC1601/103

ANNEXURE D: ASSIGNMENT 04 (Not to be submitted)

COMPLETE BY:

SEMESTER 1: 17 APRIL 2014

SEMESTER 2: 25 SEPTEMBER 2014

Please take note that this assignment must NOT be submitted. The solution to the assignment is included in
this tutorial letter to enable you to mark it yourself.

This section of the work must under no circumstances be regarded as less important for examination
purposes.

This assignment covers study units 7 – 10.

This assignment is compiled as follows:

Time
Question Subject Marks
(minutes)
1 Close corporation: Statement of cash flows 36 44
2 Analysis and interpretation of financial statements 46 55
3 Dependent branches: Branch inventory account 22 26
4 Time value of money 10 12
114 137

30
 FAC1601/103

QUESTION 1 (44 minutes)

The following information pertains to Metzo CC:

1. List of ledger account balances

28 Feb 20.2 28 Feb 20.1
R R
Member’s contribution: M Met ............................................................... 210 000 187 500
Member’s contribution: Z Zo ................................................................. 200 000 177 500
Retained earnings ................................................................................. 37 000 14 000
Long-term loan (obtained from Blitz Bank) ............................................ 50 000 80 000
Land and buildings at cost .................................................................... 310 000 290 000
Machinery and equipment at carrying amount ...................................... 159 000 149 000
Inventory ............................................................................................... 45 000 37 000
Debtors control ..................................................................................... 62 000 53 000
Bank ..................................................................................................... 5 000 (Cr) 3 000 (Dr)
Creditors control ................................................................................... 30 000 27 000
South African Revenue Services (income tax) ...................................... 9 000 (Cr) 13 000 (Cr)
Distribution to members payable........................................................... 32 000 28 000
Accrued expenses (wages) ................................................................... 7 000 5 000
Prepaid expenses (insurance) .............................................................. 4 000 –

2. Additional information
2.1 Depreciation on machinery and equipment to the amount of R27 000 was disclosed in the statement of
profit or loss and other comprehensive income for the year ended 28 February 20.2.
2.2 During the year machinery and equipment with a carrying amount of R15 000 was sold for cash at a
loss of R5 000.
2.3 Land and buildings with a carrying amount of R30 000 were sold for cash at the same amount.
2.4 All purchases of property, plant and equipment pertained to replacements and were paid in full.
2.5 The actual normal income tax for the financial year ended 28 February 20.2 amounted to R41 610.
2.6 On 28 February 20.2, the members recorded a profit distribution to the amount of R36 000 for the year.
2.7 The profit after tax for the year ended 28 February 20.2 amounted to R59 000.
2.8 The interest expense on the long-term loan was disclosed as R8 500 in the statement of profit or loss
and other comprehensive income.
2.9 The additional members’ contributions were made in cash.

REQUIRED:

Prepare the statement of cash flows of Metzo CC for the year ended 28 February 20.2, to comply with the
requirements of International Financial Reporting Standards (IFRS), appropriate to the business of the close
corporation. The cash generated from/(used in) operations-section must be disclosed according to the
indirect method.

Comparative figures and notes to the statement of cash flows are NOT required.

31
 FAC1601/103

QUESTION 2 (46 marks)(55 minutes)

The following information pertains to Sandy CC:

1. Balances as at 28 February
20.2 20.1
R R
Property, plant and equipment ........................................................................................ 85 391 89 562
Unlisted investments ....................................................................................................... 7 500 7 500
Listed investments (at fair value through profit or loss) ................................................... 128 700 117 000
Inventories ...................................................................................................................... 41 375 29 411
Debtors control ............................................................................................................... 55 105 40 244
Loans to members (12% p.a immediately callable) ......................................................... 13 500 6 200
Petty cash ....................................................................................................................... 1 000 1 000
Members’ contributions ................................................................................................... 28 187 36 964
Retained earnings ........................................................................................................... 48 718 32 611
Asset replacement reserve ............................................................................................. 142 789 125 150
Long term loan ................................................................................................................ 32 000 35 000
Creditors control ............................................................................................................. 68 807 52 760
Bank overdraft ................................................................................................................ 12 070 8 432

2. The following information was extracted from the statement of profit or loss and other comprehensive
income:
20.2 20.1
R R
Sales............................................................................................................................... 415 029 320 402
Cost of sales ................................................................................................................... 290 520 213 601
Dividend income ............................................................................................................. 11 618 8 610
Rental expense ............................................................................................................... 15 000 10 400
Water and electricity ....................................................................................................... 5 600 4 900
Salaries and wages ........................................................................................................ 40 667 55 803
Interest expense ............................................................................................................. 10 945 7 622

3. The following information was extracted from the statement of financial position:

Financial assets
20.2 20.1
Non-current financial assets: R R
Financial assets available for sale: Unlisted investment ................................................. 7 500 7 500
Current financial assets
Trade and other receivables:
Debtors control ............................................................................................................ 55 105 40 244
Other financial assets:
Loans and receivables: Loans to members:
The loans are unsecured and bears interest at 12% per annum. The loans are
immediately callable..................................................................................................... 13 500 6 200
Financial assets at fair value through profit or loss:
Held for trading: Listed investments ............................................................................. 128 700 117 000
Cash and cash equivalents: ......................................................................................... 1 000 1 000
Bills .............................................................................................................................. 1 000 1 000

Financial liabilities
20.2 20.1
Current financial liabilities R R
Other financial liabilities:
Financial liabilities at fair value through profit or loss: ................................................. 12 070 8 432
Bank overdraft ............................................................................................................ 12 070 8 432

32
 FAC1601/103

QUESTION 2 (continued)

Additional information:

1. The following amounts are included in the cost of sales figure mentioned above:
20.2 20.1
R R
Inventory: beginning of the year ....................................................... 29 411 27 466
Inventory: end of the year ................................................................ 41 375 29 411

2. All purchases and sales are on credit.

3. Trade debtors amounted to R38 126 and trade creditors to R48 310 in 20.0.

4. The income tax expense for the 20.0 financial year amounted to R19 175 (20.1 – R 11 000).

REQUIRED:

2.1 Calculate the profitability ratios for 20.1 and 20.2. (18)

2.2 Calculate the liquidity ratios for 20.1 and 20.2. (20)

2.3 Calculate the solvency ratios for 20.1 and 20.2. (6)

33
 FAC1601/103

QUESTION 3 (22 punte)(26 minutes)

The following information pertains to the Green and Yellow branches of Rainbow CC:

1. Transactions for the year ended 31 December 20.2

Green Yellow
R R
Inventory sent to branch at cost ..................................................................................... 102 600 140 620
Inventory returned to head office at selling price ............................................................ 9 445 3 750
Net cash sales ............................................................................................................... 50 450 102 400
Credit sales .................................................................................................................... 78 750 93 000
Cash transferred to head office ...................................................................................... 30 000 78 500
Payments by debtors ..................................................................................................... 58 275 101 700
Returns by debtors ........................................................................................................ 7 504 4 100
Credit losses written off.................................................................................................. 1 200 1 650

2. Additional information

2.1 All the inventory is purchased by the head office. The inventory is supplied to the Green branch at cost
plus 25% and to the Yellow branch at a mark-up which equals 20% on the selling price.

2.2 The following inventory was on hand at selling price:

At 31 December 20.1:
R
Green ................................................................................................................................. 31 500
Yellow ................................................................................................................................ 36 000

At 31 December 20.2:
R
Green ................................................................................................................................. 22 400
Yellow ................................................................................................................................ 21 200

2.3 During August 20.2 a cash sale was held by the Green branch where inventory was sold at selling price
less 20%. The net proceeds from the sale amounted to R7 520. This amount is included in the cash
sales of the branch.

2.4 On 31 October 20.2 the Yellow branch transferred inventory with a selling price of R1 350 to the Green
branch.

2.5 Whilst checking its records, the head office ascertained that inventory with a cost price of R4 500 which
was forwarded to the Yellow branch on 1 December 20.2 was inadvertently invoiced to the Green
branch. This error must still be corrected.

REQUIRED:

Prepare the branch inventory account (at selling price) in respect of each branch in the accounting records of
Rainbow CC, properly balanced at 31 December 20.2.

Calculations must be rounded off to the nearest Rand.

34
 FAC1601/103

QUESTION 4 (10 punte)(12 minutes)

Mr SiphiweTshabalala wants to register his daughter Jabu, currently 15 years of age, for a BCompt degree
at UNISA in 4 years’ time. The duration of the course is 3 years. The estimated cost of the first year of study
including textbooks is R35 700 and must be paid by Mr Tshabalala. The rest of the years of study will be
funded by a bursary from SAFA.

Mr Tshabalala is concerned whether he will have enough funds available to enroll his daughter for the first
year of study and has approached his lifelong friend, Mr Bakkies Botha for advice. The following are the
investment options suggested by Mr Botha:

• Invest in an ordinary annuity by way of a monthly contribution;

• Invest money, currently available in a savings account, in an investment account.

After careful consideration Mr Tshabalala made the following investments decisions:

• Mr Tshabalala will contribute R3 500 on a monthly basis towards an ordinary annuity;

• Mr Tshabalala will invest R10 000 he earned as a bonus on scoring a goal against Mexico in the
opening match of the 2010 World Cup. The R10 000 is currently available in his savings account.

REQUIRED:

4.1 Calculate the amount that will be received by Mr Tshabalala in 4 years’ time if he invests the
funds currently available in his savings account at an interest rate of 8% per annum
compounded quarterly.

4.2 Taking into account the result obtained in 4.1 above; calculate an amount that must be invested
half-yearly for 4 years, to yield the remaining balance towards the study fees of Mr Tshabalala’s
daughter. The investment will be made at Soccer Bank at an interest rate of 12% per annum
compounded, half yearly.

All calculations must be shown.

35
 FAC1601/103

ANNEXURE E: SOLUTION TO ASSIGNMENT 04

QUESTION 1 (36 marks)

METZO CC
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 20.2
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax (59 000 + 41 610) 100 610
Adjustments for:
Depreciation 27 000
Loss on sale of machinery and equipment 5 000
Interest expense 8 500
141 110
Increase in inventory (45 000 – 37 000) (8 000)
Increase in debtors control (62 000 – 53 000) (9 000)
Increase in creditors control (30 000 – 27 000) 3 000
Increase in accrued wages (7 000 – 5 000) 2 000
Increase in prepaid insurance (4 000 – 0) (4 000)
Cash generated from operations 125 110
Interest paid (8 500)
Income tax paid (13 000 + 41 610 – 9 000) (45 610)
Distribution to members paid (28 000 + 36 000 – 32 000) (32 000)
Net cash from operating activities 39 000

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in property, plant and equipment to maintain operating
capacity (102 000)
Replacement of land and buildings c (50 000)
Replacement of machinery and equipment d (52 000)
Proceeds from sale of land and buildings 30 000
Proceeds from sale of machinery and equipment e 10 000
Net cash used in investing activities (62 000)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from members’ contributions f 45 000
Repayment of long-term loan (80 000 – 50 000) (30 000)
Net cash from financing activities 15 000
Net decrease in cash and cash equivalents (8 000)
Cash and cash equivalents at beginning of year 3 000
Cash and cash equivalents at end of year (5 000)

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QUESTION 1 (continued)

Calculations

c Replacement of land and buildings

R
Land and buildings at cost (28 February 20.2) 310 000
Add: Land and buildings sold (cost) 30 000
Less: Land and buildings at cost (28 February 20.1) (290 000)
Land and buildings purchased 50 000

d Replacement of machinery and equipment

R
Machinery and equipment at carrying amount (28 February 20.2) 159 000
Add: Depreciation 27 000
Machinery and equipment sold (carrying amount) 15 000
Less: Machinery and equipment at carrying amount (28 February 20.1) (149 000)
Machinery and equipment purchased 52 000

e Proceeds from sale of machinery and equipment

Paragraph 2.2 of the additional information states that machinery and equipment with a carrying
amount of R15 000 was sold for cash at a loss of R5 000. Therefore, the selling price is (15 000 –
5 000 ) = R10 000 .

f Proceeds from members’ contributions

R
Members’ contributions (28 February 20.2) (210 000 + 200 000) 410 000
Less: Members’ contributions (28 February 20.1) (187 500 + 177 500) (365 000)
45 000

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 FAC1601/103

QUESTION 2

NB: FOR ADDITIONAL CALCULATIONS REFER TO THE STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME AND STATEMENT OF FINANCIAL POSITION BELOW:

2.1 Profitability ratios

Return on equity
20.2 20.1
Profit before tax R63 915 100 R36 686 100
x 100 = x : x
Total equity R219 694 1 R194 725 1

= 29,09% : 18,84%

The return on equity improved in 20.2 in comparison with 20.1. The improvement of the return in equity ratio
can most probably be attributed to a decrease in operating costs and an increase in sales.

Return on total assets

20.2 20.1
Profit before interest and tax R74 860 c 100 R44 308 d 100
x 100 = x : x
Total assets R332 571 1 R290 917 1

= 22,51% : 15,23%

c (136 127 – 61 267) = R74 860

d (115 411 – 71 103) = R44 308

The return on total assets improved in 20.2 in comparison with 20.1. The improvement can be an indication
that the assets of the entity were more efficiently deployed by the management of the entity.

Gross profit percentage

20.2 20.1
Gross profit R124 509 100 R106 801 100
x 100 = x : x
Sales R415 029 1 R320 402 1

= 30,00% : 33,33%

The gross profit percentage has declined. Management should determine the reason which could, for
example, be due to the intent to increase sales by lowering the selling price of the trading inventory, or due
to an increase in the cost price of the purchased trading inventory.

Profit margin
20.2 20.1
Profit before tax R63 915 100 R36 686 100
x 100 = x : x
Sales R415 029 1 R320 402 1

= 15,40% : 11,45%

The improvement in the profit margin is most probably the result of lower operating costs.

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 FAC1601/103

QUESTION 2 (continued)

Financial leverage
20.2 20.1
Return on equity = 29,09% : 18,84%
Return on total assets 22,51% 15,23%
= 1,29 : 1,24

The small improvement in the financial leverage can be an indication of the more efficient use of the entity’s
funds.

Leverage effect
20.2 20.1
Return on equity 29,09% 18,84%
Less: Return on total assets (22,51%) (15,23%)
6,58% 3,61%

The members of Sandy CC received good returns on their investment and the increase in the leverage
effect is an indication that the entity’s money was used more efficiently.

2.2 Liquidity ratios

Current ratio
20.2 20.1
Current assets R239 680 R193 855
= :
Current liabilities R80 877 R61 192

= 2,96 : 1 : 3,17 : 1

The acceptable norm of the current ratio of an entity is 2:1. The current ratio of Sandy CC is well above the
norm but the ratio is deteriorating which could probably be an indication of short-term financial problems.

Acid test ratio

20.2 20.1
Current assets less closing inventory R198 305c R164 444d
= :
Current liabilities R80 877 R61 192

= 2,45 : 1 : 2,69 : 1
c (239 680 – 41 375) = 198 305
d (193 855 – 29 411) = 164 444

The ideal acid test ratio is 1:1 which indicates that an entity can settle its short-term obligations without
relying on the sale of its inventory. The acid test ratio for Sandy CC weakened in 20.2 but it is still well
above the norm of 1:1.

Trade receivables collection period

20.2 20.1
Average trade receivables R47 674 c 365 R39 185 d 365
x 365 = x : x
Credit sales R415 029 1 R320 402 1

= 41,93 days : 44,64 days

c (55 105 + 40 244) ÷ 2 = 47 674
d (40 244 + 38 126) ÷ 2 = 39 185

Sandy CC improved the period at which it collected money from its debtors. The result of this could better
be determined if it is compared with the period at which the entity is expected to settle its trade creditors
accounts.

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 FAC1601/103

QUESTION 2 (continued)

Trade payables payment period

20.2 20.1
Average trade payables R60 783,50 c 365 R50 535 d 365
x 365 = x : x
Credit purchases R302 484 e 1 R215 546 f 1

= 73,35 days : 85,57 days

c (68 807 + 52 760) ÷ 2 = 60 783
d (52 760 + 48 310) ÷ 2 = 50 535
Purchases for the year
Cost of sales – Opening inventory + Closing inventory = Purchases for the year
e (290 520 – 29 411 + 41 375) = 302 484
f (213 601 – 27 466 + 29 411) = 215 546
Sandy CC settled its creditor’s accounts 12 days sooner in 20.2 than in 20.1. However, it is still favourable
to the entity as it is much longer than the term in which debtors settled their accounts.

Inventory turnover rate

20.2 20.1
Cost of sales R290 520 R213 601
= :
Average inventory R35 393 c R28 438,50 d

= 8,21 times : 7,51 times

c (29 411 + 41 375) ÷ 2 = 35 393
d (27 466 + 29 411) ÷ 2 = 28 438
The inventory turnover rate slightly increased in 20.2. This can be attributed to an increase in sales.

Inventory-holding period
20.2 20.1
Average inventory R35 393 365 R28 439 365
x 365 = x : x
Cost of sales R290 520 1 R213 601 1

= 44,47 days : 48,60 days

Sandy CC has improved its inventory holding period due to the increase in sales in 20.2

2.3 Solvency ratios

Debt-equity ratio
20.2 20.1
Total debt R112 877 100 R96 192 100
x 100 = x : x
Total equity R219 694 1 R194 725 1

= 51,38% : 49,40%
The debt-equity ratio increased in 20.2 in relation to 20.1. This is an indication that the entity has increased
its debt financing.

Times interest earned ratio

20.2 20.1
Profit before interest and tax R74 860 R44 308
= :
Finance costs R10 945 R7 622

= 6,84 times : 5,81 times

There is an improvement in the times interest earned ratio in 20.2 in relation to 20.1 which can be attributed
to the increase in profit.

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 FAC1601/103

QUESTION 2 (continued)

ADDITIONAL CALCULATIONS

SANDY CC
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY
20.2 20.1
R R
ASSETS
Non-current assets 92 891 97 062
Property, plant and equipment 85 391 89 562
Financial assets 7 500 7 500

Current assets 239 680 193 855

Inventory 41 375 29 411
Trade and other receivables 55 105 40 244
Other fianancial assets 142 200 123 200
Cash and cash equivalents 1 000 1 000
Total assets 332 571 290 917

EQUITY AND LIABILITIES

Total equity 219 694 194 725
Member’s contributions 28 187 36 964
Retained earnings 48 718 32 611
Other components of equity 142 789 125 150

Total liabilities 112 877 96 192

Non-current liabilities 32 000 35 000
Long-term borrowings 32 000 35 000
Current liabilities 80 877 61 192
Trade and other payables 68 807 52 760
Other financial liabilities 12 070 8 432
Totale equity and liabilities 332 571 290 917

SANDY CC
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY
20.2 20.1
R R
Revenue 415 029 320 402
Cost of goods sold (290 520) (213 601)
Gross profit 124 509 106 801
Other income 11 618 8 610
136 127 115 411
Administrative and other expenses (61 267) (71 103)
Finance costs (10 945) (7 622)
Profit before tax 63 915 36 686
Income tax expense (19 175) (11 000)
Profit for the year 44 740 25 686
Other comprehensive income for the year - -
Total comprehensive income for the year 44 740 25 686

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 FAC1601/103

QUESTION 3 (22 marks)

RAINBOW CC
GENERAL LEDGER

Dr Branch inventory (at selling price) Cr

Green Yellow Green Yellow
20.2 R R 20.2 R R
Jan 1 Balance b/d 31 500 36 000 Dec 31 Inventory to branch
Dec 31 Inventory to branch (Returns) d 7 556 3 000
(Deliveries at cost) 102 600 140 620 Branch adjustment
Branch adjustment (Mark-up on
(Mark-up on returns) e 1 889 750
deliveries) c 25 650 35 155 Bank (Cash sales) 50 450 102 400
Branch debtors Branch debtors
control (Returns) 7 504 4 100 control (Credit sales) 78 750 93 000
Yellow - branch Branch adjustment
inventory (Inventory 1 080 (Mark-down on
transferred) g sales) f 1 880
Branch adjustment Green - branch
(Mark-up on inven- inventory (Inventory
tory transferred) h 270 transferred) g 1 080
Green - branch Branch adjustment
inventory (Inventory (Mark-up on inven-
incorrectly invoiced) 4 500 tory transferred) h 270
Branch adjustment Yellow - branch
(Mark-up on inven- inventory (Inventory
tory incorrectly incorrectly invoiced) 4 500
invoiced) i 1 125 Branch adjustment
Branch adjustment (Mark-up on inven-
(Inventory surplus*) 200 tory incorrectly
invoiced) i 1 125
Branch adjustment
(Inventory shortage*) 54
Balance c/d 22 400 21 200
168 604 221 700 168 604 221 700
20.3
Jan 1 Balance b/d 22 400 21 200

*Balancing figure

Calculations

Green Yellow

Assume cost (CP) = 100 Assume selling price = 100

Mark-up (MU) = 25 Mark-up = 20
Selling price (SP) 125 Cost price 80

c Mark-up on deliveries

Green Yellow

CP = R102 600 CP = R140 620

MU = R102 600 x 25/100 MU = R140 620 x 20/80
= R25 650 = R35 155

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 FAC1601/103

QUESTION 3(continued)

d Returns

Green Yellow
SP = R9 445 SP = R3 750
CP = R9 445 x 100/125 CP = R3 750 x 80/100
= R7 556 = R3 000

e Mark-up on returns

Green Yellow
SP = (R9 445 – R7 556) SP = (R3 750 – R3 000)
= R1 889 = R750
[OR] [OR]
SP = R9 445 x 25/125 SP = R3 750 x 20/100
= R1 889 = R750

f Mark-down on sales

Assume original SP = 100

Mark-down = 20
Sold at = 80

SP = R7 520 [OR] SP = R7 520 x 100/80

Mark-down = R7 520 x 20/80 = R9 400
= R1 880 Mark-down = (R9 400 – R7 520)
= R1 880

Original CP = R9 400 x 80/100

= R7 520

The mark-down was given on the selling price, and not on the cost.

g Inventory transferred

Green Yellow
SP = R1 350 SP = R1 350
CP = R1 350 x 100/125 CP = R1 350 x 80/100
= R1 080 = R1 080

h Mark-up on inventory transferred

Green Yellow
SP = R1 350 SP = R1 350
MU = (R1 350 – R1 080) MU = (R1 350 – R1 080)
= R270 = R270
[OR] [OR]
MU = R1 350 x 25/125 MU = R1 350 x 20/100
= R270 = R270

i Mark-up on inventory incorrectly invoiced

Green Yellow
CP = R4 500 CP = R4 500
MU = R4 500 x 25/100 MU = R4 500 x 20/80
= R1 125 = R1 125

NB: Percentage on the cost for the Yellow branch

20 100
= x = 25%
80 1

The percentage on the cost is 25% for both Green and Yellow.

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 FAC1601/103

QUESTION 4 (10 marks)

4.1 Future value of investment:

Factor as per table (Table 1): 8% ÷ 4 = 2%

2% over 16 periods
1,373

Amount at the end (FV): R10 000 x 1,373 = R13 730

4.2 Present value of an annuity:

Future value of an annuity: (R35 700 – R13 730) = R21 970

Factor as per table (Table 2): 12% ÷ 2 = 6%

6% over 8 periods
9,897

Present value of the annuity: R21 970 ÷ 9,897 = R2 219 (rounded)

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 FAC1601/103

ANNEXURE F: ADDITIONAL QUESTIONS

Please take note that these additional questions must NOT be submitted. The solution to the assignment is
included in this tutorial letter to enable you to mark it yourself.

This section of the work must under no circumstances be regarded as less important for examination
purposes.

This assignment covers study units 1 – 10.

This assignment is compiled as follows:

PROPOSED TIMETABLE (avoid deviating from this as far as possible)

Time in
Question Subject Marks
minutes
Partnerships:
1 Preparation of the statement of profit or loss and other 20 24
comprehensive income
Close corporation:
Statement of financial position
2 26 31
Notes on property, plant and equipment
Notes on financial assets
Introduction to companies:
3 General journal entries for share issues and the calculation 14 17
of preference dividends
4 Preparation of the statement of cash flows – Partnerships 20 24
Time value of money
5 20 24
Partnerships: Changes in ownership structure
TOTAL 100 120

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 FAC1601/103

QUESTION 1 (20 marks)(24 minutes)

Williston Traders is a partnership with Bussie and Bettie as partners. The following information pertains to
the business activities of the partnership for the year ended 28 February 2013:

1. Trial balance as at 28 February 2013

R
Capital: Bussie ..................................................................................................................................... 200 000
Capital: Bettie ...................................................................................................................................... 100 000
Current Account: Bussie (Cr; 1 March 2012) ....................................................................................... 30 000
Current Account: Bettie (Dr; 1 March 2012) ......................................................................................... 5 000
Drawings: Bussie ................................................................................................................................. 4 800
Drawings: Bettie................................................................................................................................... 3 200
Creditors control .................................................................................................................................. 56 300
Bank (Dr) ............................................................................................................................................. 36 617
Land and buildings at cost ................................................................................................................... 253 000
Equipment at cost ................................................................................................................................ 94 000
Vehicle at cost ..................................................................................................................................... 98 000
Accumulated depreciation: Equipment (1 March 2012) ........................................................................ 29 400
Accumulated depreciation: Vehicles (1 March 2012) ........................................................................... 12 250
Inventory (1 March 2012) ..................................................................................................................... 15 500
Debtors control .................................................................................................................................... 20 500
Petty cash ............................................................................................................................................ 1 500
Investment at cost ................................................................................................................................ 100 000
Loan to Bussie ..................................................................................................................................... 99 000
Loan from Bettie .................................................................................................................................. 98 000
Asset replacement reserve .................................................................................................................. 30 000
Sales.................................................................................................................................................... 649 000
Purchases ............................................................................................................................................ 320 000
Salaries ................................................................................................................................................ 132 000
Interest on loan to Bussie .................................................................................................................... 9 075
Water and electricity ............................................................................................................................ 4 700
Settlement discount granted ................................................................................................................ 3 800
Stationary ............................................................................................................................................ 5 000
Telephone expense ............................................................................................................................. 6 208
Insurance ............................................................................................................................................. 8 000
Freight on sales ................................................................................................................................... 3 200

2. Terms of the partnership agreement

2.1 The partners Bussie and Bettie share profits/losses in the ratio of 2:1 respectively.

2.2 Interest is calculated at 10% per annum on the opening balances of the partners’ capital and current
accounts.

2.3 Both partners are entitled to a salary of R5 000 per month.

3. Additional information

3.1 Bussie and Bettie are the only staff members of Williston Traders.

3.2 On 28 February 2013 the inventory on hand amounted to R10 000.

3.3 On 31 May 2012, equipment with a cost price of R24 000 and accumulated depreciation of R14 000
(on 1 March 2012) was sold on credit for R12 000. Transactions relating to the sale are still to be
recorded.

3.4 Depreciation must still be provided for as follows:

Vehicles: 25% per annum according to the straight line method

Equipment: 10% per annum according to the diminishing balance method

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 FAC1601/103

QUESTION 1 (continued)

3.5 Bettie granted an unsecured loan to the partnership on 1 January 2013. According to the terms of
the agreement, interest at 15% per annum will be charged and capitalised annually to the loan. The
total amount plus interest will be paid on 31 December 2025.

3.6 The partnership granted Bussie a loan on 1 January 2010. The loan is repayable on
31 December 2020. The interest is charged at 11% per annum and is payable annually on
31 December. Bussie paid the interest on 31 December 2012 and it was recorded in the accounting
records of the partnership.

3.7 Investments consist of 25 000 ordinary shares in Klipbak Ltd, purchased on 10 June 2012. On
28 February 2013 the fair value of the shares held in Klipbak Ltd was determined at R88 000.

REQUIRED:

Prepare the statement of profit or loss and other comprehensive income of Williston Traders for the year
ended 28 February 2013.

Your answer must comply with the requirements of International Financial Reporting Standards (IFRS) as
applicable to the business of the partnership.

Notes and comparative figures are NOT required.

Show all calculations.

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 FAC1601/103

QUESTION 2 (26 marks)(31 minutes)

Ofentse and Nasa are the members of Contacts Factory CC. The following information pertains to the
business activities of the close corporation for the year ended 30 June 2012:

1. Extract from the pre-adjustment trial balances as at 30 June 2012

R
Member’s contribution: Ofentse .................................................................................................. 122 000
Member’s contribution: Nasa ...................................................................................................... 122 000
Land and buildings at cost .......................................................................................................... 100 000
Equipment at cost ....................................................................................................................... 89 000
Vehicles at cost........................................................................................................................... 108 000
Accumulated depreciation: Equipment ........................................................................................ 24 119
Accumulated depreciation: Vehicles ........................................................................................... 7 200
Long-term loan............................................................................................................................ 50 000
Inventory ..................................................................................................................................... 38 520
Debtors control ........................................................................................................................... 35 800
Creditors control ......................................................................................................................... 20 054
Bank (Dr) .................................................................................................................................... 12 700
Retained loss (1 July 2011) ........................................................................................................ 28 760
Profit before tax .......................................................................................................................... 92 807
SARS (income tax) (Dr) .............................................................................................................. 10 400
Interim profit distribution.............................................................................................................. 15 000

2. Additional information:

2.1 The long-term loan was acquired from SA Bank on 2 July 2011. Interest is payable bi-annually on
31 December and 30 June at a rate of 18% per annum and has already been provided for. The capital
portion of the loan is repayable in annual instalments of R8 000 each and a final installment of
R10 000. The first instalment is payable on 31 December 2012.

2.2 During the year Contacts Factory CC made a loan advance of R38 000 to Nasa. This amount was
debited to the administrative expense account. According to the loan agreement, the loan is interest
free and is fully repayable on 31 December 2012.

2.3 A second-hand delivery vehicle with a cost price of R108 000 was purchased on 2 March 2012. No
other non-current assets were purchased or sold during the financial year.

2.4 Depreciation for the current financial year has been provided for as follows:

Equipment – R7 209.
Vehicles – R7 200

2.5 On 2 January 2012 Contacts Factory CC concluded an insurance contract with Multi Insurers.
According to the contract, the premium is payable annually in advance. An amount of R6 000, being
the annual premium was paid. This transaction should still be recorded in the accounting records of
Contacts Factory CC.

2.6 On 30 June 2012, Contacts Factory CC purchased 37 000 shares in Magriza Ltd at R5 per share,
being the market value on that date. These shares were purchased for speculative purposes.

2.7 The SA normal tax for the year amounts to R25 460 and should still be recorded in the accounting
records.

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 FAC1601/103

QUESTION 2 (continued)

REQUIRED:

Prepare the following in respect of Contacts Factory CC to comply with the provisions of the
Close Corporations Act, No 69 of 1984, and the requirements of International Financial Reporting Standards.

2.1 Statement of financial position as at 30 June 2012. (15)

2.2 The following notes for the year ended 30 June 2012:

2.2.1 Property, plant and equipment (7)

2.2.2 Financial assets (4)

All calculations must be shown. [26]

Comparative figures are not required

49
 FAC1601/103

QUESTION 3 (14 marks)(17 minutes)

Alizwa Ltd was incorporated on 20 June 2005 with the following authorised share capital:

• 400 000 ordinary shares

• 150 000 8% preference shares

The issued share capital on 31 July 2013, after the under mentioned transactions took place was as follows:

• 250 000 ordinary shares – R500 000

• 80 000 8% preference shares – R200 000

On 31 July 2012 only 200 000 ordinary shares were in issue, whilst the remaining shares were offered to the
public on 2 January 2013 at a fair consideration of R100 000. This issue was underwritten by Monique
Financial Services at 1.5% commission. All shares were allotted to the public and the commission was paid
to the underwriter.

At incorporation Alizwa Ltd issued 40 000 8% preference shares at a fair consideration of R40 000. The
remainder of preference shares were issued and allotted to the public on 1 February 2013 for a fair
consideration of R120 000.

On 31 July 2013, the board of Alizwa Ltd decided to issue capitalisation shares to ordinary shareholders in
the ratio of one share for every four ordinary shares held at a fair consideration of R156 250. On this date
Alizwa Ltd had a credit balance of R350 000 in the retained earnings account. Preference shareholders’
dividends will be paid in cash.

REQUIRED:

3.1 Record the issue and underwriting of the ordinary shares on 2 January 2013 in the general
journal of Alizwa Ltd. (6)

3.2 Record all transactions pertaining to the capitalisation issue of ordinary shares and the
dividends paid to preference shareholders in the general journal of Alizwa Ltd. (8)

All calculations must be shown. [14]

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 FAC1601/103

Question 4 (20 marks)(24 minutes)

The following information relates to Monaco Traders:

1. Balances as per the statement of financial position as at 31 December 2011:

2011 2010
R R
Land and buildings at cost..................................................... ..................................... 1 147 500 567 905
Machinery at carrying amount................................................ .................................... 482 145 600 030
Investments – Fixed deposit................................................... .................................... 100 000 62 000
Loans to partners................................................................... ..................................... 52 500 74 250
Drawings accounts................................................................. .................................... 77 000 38 000
Inventory................................................................................ ..................................... 51 390 30 480
Debtors control...................................................................... ..................................... 94 704 93 750
Prepaid water and electricity................................................. ...................................... - 15 600
Accrued rental income........................................................... ..................................... 10 200 -
Bank (Dr)..................................................................................................................... 182 761 405 000
Capital accounts.................................................................... ..................................... 1 249 500 1 131 635
Current accounts.................................................................... .................................... 254 730 290 800
Revaluation surplus – Land and buildings............................. ..................................... 40 000 -
Long-term loan....................................................................... ..................................... 249 750 201 000
Current portion of long-term loan........................................... ..................................... 27 750 -
Loan from partner................................................................ ....................................... 168 000 150 000
Allowance for credit losses.................................................... ..................................... 5 550 4 500
Accrued interest expense...................................................... ..................................... 6 600 -
Creditors control.................................................................... ..................................... 196 320 109 080

2. Extract from the statement of profit or loss and other comprehensive income for the year
ended 31 December 2011
R
Cost of sales ................................................................................................................................. 420 750
Gross profit ................................................................................................................................... 478 890
Rental income ............................................................................................................................... 20 400
Investment income: interest income .............................................................................................. 15 300
Interest expense ........................................................................................................................... 30 750
Distribution expenses .................................................................................................................... 226 804
Credit losses ................................................................................................................................. 8 550
Administrative and other expenses (including water and electricity) ............................................. 155 521
Depreciation.................................................................................................................................. 91 035

3. Additional information

3.1 All inventories are purchased and sold on credit.

3.2 Cash paid to creditors (for purchases) was correctly calculated as R354 420.

3.3 During the current financial year there were improvements effected to the buildings. All costs were paid
for in cash and capitalised. Land and buildings were revalued on 30 December 2011 by Mr Mbujo, an
independent sworn appraiser.

3.4 On 31 May 2011, machinery was sold at carrying amount for cash.

3.5 The loan from the partner was acquired on 31 December 2010. Interest is charged at 12% per annum
and is capitalised. The loan is repayable on 31 December 2016.

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 FAC1601/103

QUESTION 4 (continued)

REQUIRED:

Prepare the statement of cash flows of Monaco Traders for the year ended 31 December 2011. Your answer
should comply with the requirements of International Financial Reporting Standards (IFRS) as applicable to
the business of the partnership. The cash generated from or used in operations must be disclosed according
to the DIRECT METHOD.

All calculations must be shown.

Comparative figures are NOT required.

52
 FAC1601/103

QUESTION 5 (20 marks)(24 minutes)

PART A:

Salom and Papiki are in partnership trading as SAPA Traders and they shared profits and losses equally. On
30 July 2012 the equity of SAPA Traders was as follow:

y Capital (Salom, R42 000; Papiki, R42 000) R84 000

y Asset replacement reserve R20 000

Salom and Papiki decided to admit Dineo from 1 August 2012. Dineo will contribute R25 000 cash and a
vehicle worth R43 000 to acquire a third of the net asset share of the partnership. Salom and Papiki agreed
to relinquish 1/5 of their share in profits or losses to Dineo in the ratio of 3:1 respectively. Assets were
revalued for the purpose of admitting Dineo to the partnership and a valuation loss of R14 000 was correctly
calculated.

REQUIRED:

1. Calculate the new profit sharing ratio of Salom, Papiki and Dineo. (5)
2. Calculate goodwill. (9)

PART B:

Shela has just registered a construction company and has recently concluded a two year contract to
maintain roads infrastructure in all areas under the Moretele Municipality. He employed three members from
the community at a monthly salary of R12 500 each. Shela is concerned that his employees may not have
income to survive at the end of his tender contract. According to the financial service advisor, the employees
may save part of their monthly income for future retirement. Shela also wants to save some cash for future
purchase of a property.

Shela’s employees agreed to contribute monthly to a fund, which earns 12% interest per annum,
compounded monthly. After two years each employee will receive R60 000 cash from the fund. It was
agreed that Shela will contribute 40% and the employees 60%. These monthly contributions will be paid
directly to the fund by Shela.

REQUIRED:

1 Calculate the amount of cash that Shela must deduct from each employee’s salary per month.

2. Calculate the amount of cash that Shela must invest at 12% interest per annum in order to be
able to purchase property for R700 000 after ten years, if interest is compounded annually.

All calculations must be shown.

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 FAC1601/103

SOLUTIONS TO ADDITIONAL QUESTIONS

QUESTION 1 (20 marks)

WILLISTON TRADERS
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2013
R
Revenue (649 000 – 3 800) .................................................................................................... 645 200
Cost of sales (15 500 + 320 000 – 10 000) ............................................................................ (325 500)
Gross profit ........................................................................................................................... 319 700
Other income .......................................................................................................................... 13 140
Interest income: Loans and receivables: Loan to Bussie c ................................................. 10 890
Profit on sale of non-current assets: Equipment d ............................................................. 2 250
Distribution, administrative and other expenses...................................................................... (69 318)
Salaries to employees (132 000 - 132 000) ......................................................................... -
Water and electricity ............................................................................................................ 4 700
Stationary ............................................................................................................................ 5 000
Telephone ............................................................................................................................ 6 208
Insurance ............................................................................................................................. 8 000
Freight on sales ................................................................................................................... 3 200
Depreciation e .................................................................................................................... 30 210
Loss on financial assets at fair value through profit or loss: Held for trading:
Listed investments (30 000 - 18 000) ................................................................................... 12 000
Finance costs.......................................................................................................................... (2 450)
Interest on loan from Bettie f .............................................................................................. 2 450
Profit for the year .................................................................................................................. 261 072
Other comprehensive income for the year ......................................................................... -
Total comprehensive income for the year .......................................................................... 261 072

Calculations

c Interest income: Loans and receivables: Loan to Bussie

9 075 + (99 000 x 2/12 x 11%) = 10 890 OR

99 000 x 11% = 10 890

d Profit on sale of non-current assets: Equipment

R
Selling price 12 000
Less: Carrying amount (9 750)
Cost price 24 000
Accumulated depreciation (14 000)
Depreciation 2013 (250)
Profit on sale 2 250

e Depreciation

Vehicles
98 000 x 25% = 24 500
Equipment
Equipment sold
(24 000 – 14 000) x 10% x 3/12 = 250
Equipment used throughout the year
(94 000 – 24 000) – (29 400 – 14 000) x 10% = 5 460
Total depreciation on equipment (250 + 5 460) = 5 710
Total depreciation expense (24 500 + 5 710) 30 210

f Interest on loan from Bettie

(98 000 x 2/12 x 15%) = 2 450

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QUESTION 2 (26 marks)

1.1
CONTACTS FACTORY CC
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012
R
ASSETS
Non-current assets .................................................................................................................. 265 681
Property, plant and equipment ............................................................................................... 265 681
Current assets .......................................................................................................................... 300 320
Inventories ............................................................................................................................. 38 520
Trade and other receivables .................................................................................................. 35 800
Prepayments (6 000 x 6/12) ................................................................................................... 3 000
Other financial assets (185 000 + 38 000) ............................................................................. 223 000
Total assets .............................................................................................................................. 566 001

EQUITY AND LIABILITIES

Total equity............................................................................................................................... 302 587
Members’ contributions .......................................................................................................... 244 000
Retained earnings .................................................................................................................. ➀ 58 587
Total liabilities .......................................................................................................................... 389 520
Non-current liabilities ............................................................................................................. 42 000
Long-term borrowings (50 000 - 8 000) .................................................................................. 42 000
Current liabilities..................................................................................................................... 221 414
Trade and other payables ...................................................................................................... 20 054
Short term portion of long term loan ....................................................................................... 8 000
SARS (income tax) (25 460 – 10 400) .................................................................................. 15 060
Bank overdraft (12 700 – 6 000 – 185 000) ............................................................................ 178 300
Total equity and liabilities ....................................................................................................... 566 001
(15½)

Calculations

➀ Retained earnings
(-28 760 + 92 807 + 38 000 - 3 000 - 25 460 – 15 000) = 58 587

CONTACTS FACTORY CC

NOTES FOR THE YEAR ENDED 30 JUNE 2012

1.2.1 Property, plant and equipment

Land and
buildings Equipment Vehicles Total
R R R R
Carrying amount: Beginning of period/year 100 000 72 090 – 172 090
Cost 100 000 89 000 – 189 000
Accumulated depreciation – (16 910) – (16 910)
Additions – – 108 000 108 000
Depreciation for the period/year – (7 209) (7 200) (14 409)
Carrying amount: End of period/year 100 000 64 881 100 800 265 681
Cost 100 000 89 000 108 000 297 000
Accumulated depreciation – (24 119) (7 200) (31 319)

(7)

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1.2.2 FINANCIAL ASSETS

CURRENT FINANCIAL ASSETS

Trade and other receivables 35 800
Other financial assets
Loans and receivables: Loan to Nasa 38 000
Financial assets at fair value through profit or loss:
37 000 ordinary shares in Magriza Ltd (cost – R185 000) 185 000
(3½)
[26]

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QUESTION 3 (14 marks)

3.1

ALIZWA LIMITED
GENERAL JOURNAL

2013 R R
Jan 1 Bank 100 000
Application and allotment: Ordinary shares c 100 000
Receipt of application money from the public
Jan 1 Application and allotment: Ordinary shares 100 000
Share capital: Ordinary shares 100 000
Allotment of 50 000 ordinary shares
Underwriter’s commissiond 1 500
Bank 1 500
Payment of the underwriter’s commission

3.2
2010
Feb 28 Retained earnings f 156 250
Share capital : ordinary shares 156 250
Capitalisation of ordinary shares

Preference dividends e 11 200

Bank 11 200
Dividends declared

Calculations

c Application ordinary shares d Underwriter’s commission

50 000 x R2 = R100 000 R100 000 x 1,5% = R1 500

e Preference dividend f Ordinary dividends

40 000 x R2 x 8% = R6 400 250 000 x ¼ = R62 500
62 500 x R2,5 = R156 250
40 000 x R3 x 8% x 6/12 = R4 800
Total preference dividend =R11200

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QUESTION 4 (20 marks)

MONACO TRADERS
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2011
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipt from customers c901 386
Cash paid to suppliers and employees d(721 145)
Cash generated from operations 386 645
Interest received 15 300
Interest paid R(30 750- 18 000 – 6 600) (6 150)
Drawings (77 000)
Proceeds of loans and receivables: Loan to partner (74 250 – 52 500) 21 750
Net cash from operating activities 134 141
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in property, plant and equipment to expand operating capacity
Improvement of land and buildings (1 147 500 – 567 905 - 40 000) (539 595)
Proceed on sale of machinery 326 850
Acquisition of financial assets: fixed deposit (100 000 – 62 000) (38 000)
Net cash used in investing activities (550 745)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from partners capital contributions (1 249 500 – 1 131 635) 117 865
Proceeds from long-term borrowing (249 750 +27 750 - 201 000) 76 500
194 365
Net decrease in cash and cash equivalents (222 239)
Cash and cash equivalents at beginning of year 405 000
Cash and cash equivalent at end of year 182 761

Calculations

c [899 640 +93 750 - (8 550 + 4 500 - 5 550 ) - 94 704 + (20 400 - 10 200)] = 901 386
d [(354 420 + 226 804 + (155 521 - 15 600 )] = 721 145
e (600 030 - 91 035 - 482 145 ) = 26 850

Alternative calculations
R
1. Cash received from customers
Opening balance (debtors) 93 750
Revenue 899 640
Credit losses [8 550 - (5 550 - 4 500)] (7 500)
Closing balance (debtors) (94 704)
891 186
Other incomes
Rental income (20 400 - 10 200) 10 200
901 386

2. Cash paid to suppliers and employees

Cash paid to creditors (given) 354 420
Distribution expenses 226 804
Administrative and other expenses (155 521 - 15 600) 139 921
721 145

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QUESTION 4 (continued)

3. Proceeds on sale of machinery

Dr Machinery: at carrying value Cr

2011 R 2011 R
Jan 01 Balance b/d 600 030 May 31 Realisation account* *26 850
Depreciation 91 035
Dec 31 Balance c/d 482 145
600 030 600 030

*balancing figure

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QUESTION 5 (20 marks)

PART A

1. Calculation of the profit-sharing ratio of Salom, Papiki and Dineo

Salom: 1/2 - (1/5 x 3/4 ) = 1/2 - 3/20 = 7/20

Papiki: 1/2 - (1/5 x 1/4 ) = 1/2 - 1/20 = 9/20

Dineo: 3/20 + 1/20 = 4/20

The profit-sharing ratio of Salom, Papiki and Dineo will be [Link] respectively.

2. Calculation of goodwill

Salom: [42 000 + (1/2 x 20 000) - (1/2 x 14 000) ] = 45 000

Papiki: [42 000 + (1/2 x 20 000) - (1/2 x 14 000) ] = 45 000
Lilly: (25 000 + 43 000) = 68 000

68 000 x 3 – (45 000 + 45 000 + 68 000)

(204 000 – 158 000) = 46 000

OR

Capital accounts (Salom & Papiki) 84 000

Asset replacement reserve 20 000
Goodwill (14 000)
Capital: Lilly 68 000
New capital structure of partnership 158 000

R68 000 x 3 = 204 000

*Less (158 000)
Goodwill 46 000

PART B

1. Annuity payments:
i = 12% ÷ 12 = 1%
n = 2 x 12 = 24
FVA = R60 000

Factor as per table 2: 26.97 (I = 1%, n = 24)

Annuity payment = FVA

FVAIF
= R6 0000
26.97
= R2 224.69
Therefore R1 334.82 (R2 224.69 x 60 %) will be deducted from employees monthly salary.

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QUESTION 5 ( continued)

PART B

2. Present value of investment

i = 12%
n = 10
FV = R700 000
PV =?

Present value interest factor as per table 3: 0.322 (I = 12%, n = 12)

Amount invested = FV x PVIF

= R700 000 x 0.322
= R225 400

OR

i = 12%
n = 10
FV = R700 000
PV =?

Future value interest factor as per table 1: 3,106 (i = 12%, n = 10)

Amount to be invested = = FV
FVIF
= R700 000
3.106
= R225 370

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A
ANNEXURE H
H: TIME VALUE OF MO
ONEY TABLES

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