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FAC2601/102/3/2016
Tutorial letter 102/3/2016 Financial Accounting for Companies FAC2601
Semesters 1 and 2 Department Financial Accounting
IMPORTANT INFORMATION:
This tutorial letter contains important information about your module.
2
Dear Student Enclosed please find additional questions and solutions. These questions and solutions are similar to the questions you can expect to be included in the exams and must be thoroughly worked through. Contact details of the module are as follows: Telephone number: (012) 429-4238 E-mail: [email protected] Please use the following e-mail addresses or SMS numbers for administrative related enquiries:
Description of enquiry Short SMS code E-mail address
Applications and registrations 43578 [email protected]
Assignments 43584 [email protected]
Exams 43584 [email protected]
Study material 43579 [email protected]
Student accounts 31954 [email protected]
myUnisa myLife
43582 [email protected] [email protected]
Graduations [email protected]
For further assistance you can contact the: CAS Student Information Hub
Tel: (012) 429-4211 With kind regards, LECTURERS: FINANCIAL ACCOUNTING FOR COMPANIES (FAC2601) ANNEXURE A: ADDITIONAL QUESTIONS AND SOLUTIONS
FAC2601/102
3
ANNEXURE A: ADDITIONAL QUESTIONS AND SOLUTIONS
QUESTION 1 (30 marks) (36 minutes) The following list of balances on 31 December 19.9 appeared in the accounting records of All Ltd: Inventories Loans Trade and other receivables Trade and other payables Provisional tax payments Dividends payable Deferred taxation (Cr) Bank (Dr) Retained earnings (31/12/19.9) Long-term loan Land at valuation Buildings at cost Machinery and equipment at cost (31/12/19.9) Motor vehicles at cost (31/12/19.8 – R280 000) Accumulated depreciation (31/12/19.9) - Machinery and equipment - Motor vehicles (31/12/19.8 – R80 000) Investments
R 240 000 110 000 36 000 25 000 30 000 5 000 2 000
75 000 120 000 150 000 400 000 420 000 250 000 310 000
55 000
119 500 136 000
Additional information 1. Inventory is valued at the lower of cost or net realisable value. 2. Inventory consists of: R
- Raw material 100 000 - Finished products 50 000 - Consumables 30 000 - Work in progress 60 000
3. The long-term loan was incurred on 31 August 19.3 at an interest rate of 20% per annum payable
monthly in arrears. The capital portion is repayable in five equal annual instalments of R30 000 each beginning on 28 February 19.7. The loan is secured by a first mortgage bond over land and buildings.
4. Loans consist of the following:
R - Loan to Tram Ltd 20 000
This loan was granted on 30 June 19.9 at an interest rate of 15% per annum and no security was provided.
- Loan to parent Tol Ltd 90 000 The loan was granted on 1 January 19.5 at an interest rate of 12% per annum
payable monthly in arrears. Tol Ltd provided security for the loan. The loan fluctuated between R70 000 and R100 000 during the year. No fixed terms of repayment was agreed upon.
5. Land and buildings are owner occupied and consist of land situated on Erf 10, Sunnyside, Pretoria,
a factory building and a shopping centre. The land was acquired on 1 March 19.4 for R240 000 and was revalued for the first time during April 19.9 by Mr Pal, a sworn appraiser. The buildings were erected during October 19.9 at a cost of R420 000, and was completed on 31 October 19.9. The buildings were brought into use on 1 November 19.9. No depreciation is written off on land, but it is company policy to revalue land every three years at market value.
4
QUESTION 1 (continued) 6. Other non-current assets are depreciated at the following rates and methods: Buildings – 2% per annum using the reducing balance method. Machinery and equipment – 15% per annum using the straight-line method. Motor vehicles – 25% per annum using the reducing balance method. 7. The only other transaction regarding non-current assets apart from the transaction in note 5 is the
following:
On 2 January 19.9, a motor vehicle which originally cost R40 000 and on which depreciation of R24 000 was already written of, was traded in on a new vehicle costing R70 000.
8. Investments consist of the following: - 60 000 Ordinary shares in Tram Ltd at a cost of R60 000. The issued share capital of Tram Ltd
consists of 80 000 ordinary shares. The market value of the investment was R60 000 on 31 December 19.9.
- 20 000 Preference shares in Trok Ltd purchased for speculative purposes. The issued share
capital of Trok Ltd consists of 200 000 ordinary shares and 40 000 preference shares. The shares of Trok Ltd are traded on the JSE and the market value of the preference shares on 31 December 19.9 amounted to R2,30 per share.
- 30 000 Ordinary shares in Lorry (Pty) Ltd at a cost of R30 000. The issued share capital of
Lorry (Pty) Ltd consists of 400 000 ordinary shares. The directors valued the shares at R1,00 each. These shares are classified as assets at fair value through other comprehensive income (not held for trading).
9. The accountant neglected to make provision for tax for the current year amounting to R60 000. REQUIRED: Prepare the “Asset” section of the statement of financial position of All Ltd at 31 December 19.9, as well as the relevant notes thereto, to comply with the requirements of International Financial Reporting Standards (IFRS). Ignore comparative figures and the accounting policy note.
FAC2601/102
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SOLUTION 1 ALL LTD STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 19.9 ASSETS Notes Non-current assets
R
1 404 100
Property, plant and equipment 1 Investment in subsidiary 2 Financial assets 3
1 204 100
80 000 120 000
Current assets
397 000 Inventories 4 Trade and other receivables Financial assets 3
Cash and cash equivalents
240 000 36 000 46 000
75 000
Total assets
1 801 100
ALL LTD NOTES AT 31 DECEMBER 19.9 1. Property, plant and equipment
Land
Buildings
Machinery
and equipment
Motor vehicles
Total Carrying amount 1/1/19.9
R 240 000
R
-
R 232 500
R 200 000
R
672 500 Cost/valuation Accumulated depreciation
240 000
-
- -
250 000
(17 500)
280 000 (80 000)
770 000 (97 500)
Revaluation Additions at cost Disposals at carrying amount Depreciation Carrying amount 31/12/19.9
160 000
- - -
-
420 000 -
(1 400)
- - -
(37 500)
-
70 000 (16 000)
(63 500)
160 000 490 000 (16 000)
(102 400)
400 000 418 600 195 000 190 500 1 204 100 Valuation/Cost Accumulated depreciation
400 000
-
420 000
(1 400)
250 000 (55 000)
310 000
(119 500)
1 380 000 (175 900)
Land and buildings consist of erf 10 Sunnyside, Pretoria, a factory building and a shopping centre. The land was revalued during 19.9 at market value by mr Pal, a sworn appraiser. A first bond over land serves as security for the long-term loan (refer note xx). 15% x 250 000 Balancing figure 25% x (280 000 – 40 000 + 70 000) – (80 000 – 24 000) 2% x 420 000 x 2/12
6
SOLUTION 1 (continued) 2. Investment in subsidiary
R
80 000 Shares at fair value Loan to subsidiary
60 000 20 000
3. Financial assets
166 000 Non-current assets
Financial assets at fair value through other comprehensive income: - Unlisted 30 000 Ordinary shares in Lorry (Pty) Ltd (cost price R30 000)
Loan to parent Secured loan The loan was granted to Tol Ltd on 1 January 19.5. Highest outstanding balance during
the year was R100 000. No fixed terms of repayment were agreed upon and interest is calculated at 12% per annum.
Current assets
Financial assets at fair value through profit or loss – held for trading: - Listed 20 000 Preference shares in Trok Ltd (cost price R46 000)
30 000
90 000
46 000
4. Inventory
240 000
Raw materials Finished goods Consumables Work in progress
100 000 50 000 30 000 60 000
FAC2601/102
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QUESTION 2 (40 marks) (48 minutes) The following balances were taken from the financial records of Miller Ltd at 28 February 19.9:
R Ordinary share capital – 250 000 shares 480 000 100 000 8% Preference shares 200 000 Share issue expenses 1 000 Retained earnings (1/3/19.8) 80 500 Loan from McDonald Ltd 80 000 Loan from Nala Ltd 45 000 Land at cost 772 500 Trade and other payables 52 000 Bank overdraft 14 000 Profit after tax 121 500 Fair value adjustment – financial asset at fair value through other comprehensive income (not held for trading) 2 000 Additional information 1. Miller Ltd was incorporated on 1 March 19.6 with an authorised share capital of: - 400 000 Ordinary shares - 120 000 8% Preference shares. 2. The long-term loan from Nala Ltd bears interest at an annual rate of 10% per annum payable
monthly in arrears and is secured by a first bond over land. The capital portion is repayable in 10 equal annual instalments starting on 1 December 19.8.
3. The loan from McDonald Ltd is unsecured and interest is payable at the rate of 15% per annum
payable monthly in arrears. The loan was acquired on 30 June 19.8 and is repayable in total on 1 July 20.1.
4. Included in profit after tax is a fair value adjustment (profit) on a financial asset held for trading, to
the amount of R1 000. The following information must still be taken into account in the order that it occurred: 5. On 28 February 19.9, 20 000 ordinary shares were issued at R1,25 each. No entries have been
recorded as yet. 6. On 28 February 19.9, the directors decided on a capitalisation issue to be funded out of profits, to
ordinary shareholders on the basis of one ordinary share for every six ordinary shares held at R1,00 each.
7. Land was revalued by a sworn appraiser, Mr Worthy, on 28 February 19.9 at a market value of
R800 000. 8. A final ordinary dividend of 8 cents per share was declared on 28 February 19.9 to all shareholders
registered on 26 February 19.9. 9. The directors decided to write off the share issue expenses against retained earnings.
8
QUESTION 2 (continued) 10. On 28 February 19.9, McDonald Ltd informed Miller Ltd that the interest payments on the loan
were still outstanding. After an investigation it was found that it was omitted by mistake. The two parties reached an agreement that the payment of the interest which are in arrears will take place on 1 March 19.9.
REQUIRED: a. Prepare the “Equity and liabilities” section (including the relevant notes thereto) of the statement
of financial position of Miller Ltd at 28 February 19.9. b. Prepare the statement of changes in equity of Miller Ltd for the financial year ended
28 February 19.9. Both your answers should comply with the requirements of International Financial Reporting Standards (IFRS). Accounting policy notes are not required. Comparative figures are not required.
FAC2601/102
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SOLUTION 2 a. MILLER LTD STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 19.9
EQUITY AND LIABILITIES Notes Total equity
R
891 500
Share capital 1 Other components of equity 2 Retained earnings
750 000 29 500
112 000
Non-current liabilities
120 000
Long-term loan 3 120 000
Current liabilities
101 000
Trade and other payables (52 000 + 8 000) Current portion of long-term loan Dividends payable (20 000 + 16 000)
60 000 5 000
36 000
Total equity and liabilities 1 112 500
MILLER LTD NOTES AT 28 FEBRUARY 19.9 1. Share capital
Authorised 400 000 Ordinary shares 120 000 8% Preference shares Issued 315 000 Ordinary shares – (calculation 2) 100 000 8% Preference shares
R
550 000 200 000
750 000
During the accounting period 20 000 ordinary shares were issued at R1,25 per share.
2. Other components of equity Other components consist of:
R
Surplus on revaluation of non-current asset 27 500 Mark-to-market reserve 2 000
29 500
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SOLUTION 2 (continued) 3. Non-current liabilities Long-term loan Secured Loan – Nala Ltd Amount outstanding Short-term portion (45 000/9 remaining instalments)
R
45 000 (5 000)
40 000
The loan bears interest at 10% per annum payable monthly in arrears and the capital amount is repayable in 10 equal annual instalments of R5 000 each as from 1 December 19.8 and is secured by a bond over land (refer to note xx). Unsecured Loan – McDonald Ltd
80 000
The loan bears interest at 15% per annum, payable montly in arrears and the capital amount is repayable on 1 July 20.1.
b. MILLER LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 19.9
Share capital
8% Preference
share capital
Surplus on revaluation
of non-current assets
Mark-to-market reserve
Retained earnings
Total
Balance: 1 March 19.8 Total comprehensive income for the year Ordinary shares issued Capitalisation shares issued Share issue expenses written-off Dividends declared - Ordinary dividends - Preference dividends
R
480 000 -
25 000 45 000
- - -
R
200 000 - - - - - -
R -
27 500 - - - - --
R -
2 000 - - - - -
R
80 500
113 500 -
(45 000)
(1 000)
(20 000) (16 000)
R
760 500
143 000 25 000
-
(1 000)
(20 000) (16 000)
Balance: 28 February 19.9 550 000 200 000 27 500 2 000 112 000 891 500
(800 000 – 772 500)
FAC2601/102
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SOLUTION 2 (continued) Calculations 1. Profit for the year (adjusted) Profit (given) Interest paid (15% x 8/12 x 80 000)
R 121 500
(8 000)
113 500
2. Ordinary share capital
Number of
shares
R
Balance Issued on 27/2/19.9 (20 000 x R1,25) Capitalisation issue (270 000/6 x R1)
250 000 20 000 45 000
480 000 25 000 45 000
315 000 550 000
3. Dividends Ordinary 250 000 x 8c Preference R200 000 x 8%
R
20 000 16 000
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QUESTION 3 (32 marks) (38 minutes) The following information was taken on 31 December 2011 from the accounting records of Apple Ltd, a manufacturing company:
R
Land at valuation (additional information 1) ............................................................................ Factory buildings at cost (additional information 1) ................................................................. Motor vehicles at carrying amount (31/12/2010) (additional information 2 & 3) ....................... Crane at cost (additional information 1 & 2) ............................................................................ Equipment at cost (31/12/2010) (additional information 2 & 3) ................................................ Accumulated depreciation: - Motor vehicles (31/12/2010) ............................................................................................... - Crane (31/12/2010) ............................................................................................................ - Equipment (31/12/2010) ..................................................................................................... Investments at cost (additional information 5) ......................................................................... Loan (additional information 6) ............................................................................................... Inventories (additional information 4) ...................................................................................... Trade and other receivables ................................................................................................... Bank overdraft ........................................................................................................................ Trade and other payables ....................................................................................................... Prepaid lease expenses .........................................................................................................
800 000 960 000 420 000 480 000 360 000
280 000 120 000 120 000 32 000 25 000
390 000 627 200 168 000 195 000
4 600 Additional information The new financial manager supplied the following information in respect of transactions that occurred during the 2011 financial year: 1. Land and buildings are owner occupied and consist of erf 135, Midrand, with a factory building
thereon. The land was acquired on 1 March 2010 for R380 000. A factory building was erected during the current year at a cost of R960 000. The company withdrew its crane from production for a period of 5 months during which time it was used in the process of erecting the factory building. This cost was not taken into consideration in determining the cost of R960 000 for the erection of the building. The building was completed on 31 December 2011. The land was revalued on 31 December 2011 at market value by Mr S Coetzee, a sworn appraiser.
2. Non-current assets are depreciated as follows: - Crane (acquired on 1 October 2009): straight-line method over 60 months. - Equipment: 20% per annum using the reducing balance method. - Motor vehicles: 20% per annum using the straight-line method. - Buildings: 2% per annum using the straight-line method. 3. The following transactions in respect of non-current assets took place during the year: - On 30 June 2011, a motor vehicle with a cost price of R60 000 and on which R30 000
depreciation had been written off on 1 January 2011 was sold for R50 000. A new delivery vehicle costing R102 600 (VAT included) was purchased on the same date to replace the old vehicle.
FAC2601/102
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QUESTION 3 (continued) - The company decided to buy additional equipment for the business. It was calculated that
the equipment would have a residual value of R10 000. The cost price of the equipment was R150 000 on 1 July 2011 (date of purchase).
4. Inventories consisted of the following on 31 December 2011 (cost price): - Raw materials R140 000 - Work in progress R200 000 - Finished goods R 50 000 At the 2011 year end the directors determined that the net realisable values of the inventories
were as follows: - Raw material : 5% below cost - Work in progress : 5% above cost - Finished goods : 5% below cost 5. Investments consisted of the following on 31 December 2011: - 7 000 Ordinary shares in Jones Ltd purchased for R15 000. These shares were classified
as an “investment at fair value through profit or loss”, and were purchased for speculation purposes. The issued share capital of Jones Ltd consists of 200 000 ordinary shares. These shares are traded on the JSE and the fair value of the shares was R3,00 each on 31 December 2011.
- 5 000 Preference shares in Blake Ltd purchased for R17 000. The issued preference share
capital of Blake Ltd consists of 20 000 preference shares. These shares are traded on the JSE and the fair value of the shares was R4,00 each on 31 December 2011. These shares are classified as an “investment at fair value through other comprehensive income” (not held for trading).
6. The loan on 31 December 2011, consisted of the following: - Loan to Shaik (Pty) Ltd to the amount of R25 000. Interest is calculated on the loan at
15% per annum and is payable monthly in arrears. The loan is secured by a first mortgage bond over the company’s immovable property. The capital portion of loan is repayable on 31 December 2015.
REQUIRED: Prepare only the “Asset” section of the statement of financial position as well as the property, plant and equipment note (PPE) of Apple Ltd at 31 December 2011. Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Comparative figures are not required. The accounting policy note is not required. All amounts exclude VAT (where appropriate), except where otherwise noted. Ignore the total column in the property, plant and equipment note.
14
SOLUTION 3 APPLE LTD STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011
Notes ASSETS Non-current assets .......................................................................................................
R
2 780 000
Property, plant and equipment ...................................................................................... 1 Financial assets (25 000 + 20 000) .................................................................................
2 735 000 45 000
Current assets ..............................................................................................................
1 033 300
Inventories ...................................................................................................................... Trade and other receivables ........................................................................................... Financial assets ..............................................................................................................
380 500 627 200 21 000
Deferred expenses ......................................................................................................... 4 600
Total assets ................................................................................................................... 3 813 300
APPLE LTD NOTES FOR THE YEAR ENDED 31 DECEMBER 2011 1. Property, plant and equipment
Land
Buildings
Motor
vehicles
Crane
Equipment
Total
Carrying amount 1/1/2011 ........................
R
380 000
R
-
R
420 000
R
360 000
R
240 000
R
1 400 000
Cost .............................. Accumulated deprecia- tion ...............................
380 000
-
-
-
700 000
(280 000)
480 000
(120 000)
360 000
(120 000)
1 920 000
(520 000)
Depreciation ................... Additions to cost ............ Disposals at carrying amount ......................... Depreciation capitalised . Revaluation ....................
- -
- -
420 000*
- 960 000
-
40 000 -
(143 000) 90 000
(24 000)
- -
(56 000) -
-
(40 000) -
(62 000) 150 000
- - -
(261 000) 1 200 000
(24 000)
- 420 000
Carrying amount 31/12/2011 ...................
800 000
1000 000
343 000
264 000
328 000
2 735 000
Cost/Valuation ............. Accumulated depre- ciation ...........................
800 000
-
1000 000
-
730 000
(387 000)
480 000
(216 000)
510 000
(182 000)
3 520 000
(785 000)
*Balancing figure The land was revalued on 31 December 2011 at market value by an sworn independent appraiser.
FAC2601/102
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SOLUTION 3 (continued) Calculations 1. Motor vehicles 1.1 Cost at 1 January 2011
Carrying amount at 31 December 2010 ...................................................................... Accumulated depreciation at 31 December 2010 .......................................................
R
420 000 280 000
700 000
1.2 Depreciation for the year
(R700 000 x 20% x 6 ÷ 12) + (R730 000 x 20% x 6 ÷ 12) ..........................................
143 000
1.3 Cost at 31 December 2011
Cost at 1 January 2011 .............................................................................................. Sales at cost .............................................................................................................. Purchases at cost (102 600 x 100/114) ..........................................................................
700 000 (60 000) 90 000
730 000
1.4 Accumulated depreciation on motor vehicle sold:
30 000 + (60 000 x 0,2 x 6 ÷ 12) .................................................................................
36 000 2. Crane 2.1 Depreciation for the year
R480 000 ÷ 5 years ....................................................................................................
96 000
2.2 Depreciation capitalised
R96 000 x 5 ÷ 12 ........................................................................................................
40 000
Thus, R40 000 debited to buildings
3. Equipment 3.1 New equipment – depreciation Cost price ................................................................................................................... 150 000 Residual value ............................................................................................................ (10 000)
140 000
Depreciation: (150 000 – 10 000) x 0,2 x 6 ÷ 12 ......................................................... 14 000
16
SOLUTION 3 (continued) 3.2 Old equipment – depreciation
R (360 000 – 120 000) x 0,2 48 000
3.3 Total depreciation
R 48 000 + 14 000 62 000
4. Inventory
Lower of cost or NRV R Raw materials: 140 000 x 0,95 133 000 Work in progress: 200 000 Finished goods: 50 000 x 0,95 47 500
380 500
5. Investments 5.1 Current assets
R 7 000 x 3 21 000
5.2 Non-current assets
R 5 000 x 4 20 000
FAC2601/102
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QUESTION 4 (30 marks) (36 minutes) The following balances were extracted from the accounting records of Purco Ltd at 30 June 20.6: Land at cost .......................................................................................................................... Buildings at cost .................................................................................................................... Plant and machinery at carrying amount (1 July 20.5) ........................................................... Furniture and equipment at carrying amount (1 July 20.5) ..................................................... Accumulated depreciation - Plant and machinery (1 July 20.5) ....................................................................................... - Furniture and equipment (1 July 20.5) ................................................................................. Investments ........................................................................................................................... Provisional tax payments ...................................................................................................... Bank overdraft ....................................................................................................................... Ordinary share capital ........................................................................................................... 6% Cumulative preference share capital ............................................................................... 8% Non-cumulative preference share capital ........................................................................ Retained earnings (1 July 20.5) ............................................................................................. Preliminary expenses ............................................................................................................ Share issue expenses ........................................................................................................... 10% Long-term loan .............................................................................................................. Profit (for the current year) before tax and depreciation ......................................................... Loan to Quattro Ltd (repayable 30 June 20.10) ..................................................................... Trade and other receivables .................................................................................................. Inventories ............................................................................................................................ Trade and other payables .....................................................................................................
R 1 000 000 1 878 400 2 432 000
400 000
768 000 200 000 400 000 80 000
675 000 3 000 000
500 000 300 000 800 000 30 000 12 000
1 000 000 1 000 000
150 000 748 500 950 000 133 400
Additional information 1. The authorised share capital of the company is as follows: 2 500 000 Ordinary shares 1 000 000 10% Redeemable preference shares 1 500 000 6% Cumulative preference shares 1 500 000 8% Non-cumulative preference shares 2. The issued share capital of the company is as follows: 1 500 000 Ordinary shares 500 000 6% Cumulative preference shares issued on 1 July 20.0 600 000 8% Non-cumulative preference shares issued on 1 April 20.6 3. 500 000 Ordinary shares were issued on 31 March 20.6 at R2 per share. 4. The following transactions should still be recorded in this order: 4.1 Land was revalued on 1 May 20.6 at replacement value for R1 500 000 by Mr Value, a sworn
appraiser. 4.2 SA normal tax for the current year amounts to R161 150. 4.3 Preliminary and share issue expenses must be written off against retained earnings. 4.4 A capitalisation issue of one ordinary share for every ten ordinary shares held at R2 per share
must still be done. 4.5 Ordinary dividends of 5 cents per share were declared on 30 June 20.6. No dividends were
declared or paid by the company during the previous financial year.
18
QUESTION 4 (continued)
5. The following information regarding property, plant and equipment is available:
5.1 All the machinery was purchased on 31 March 20.4 for R3 000 000. Installation costs amounted to R200 000. The company provides for depreciation on machinery at 20% per annum on the reducing balance method. During the current financial year all the machinery was withdrawn from the production process for a period of 3 months and used in the construction of the buildings. No sales or purchase transactions of machinery took place during the current financial year. The following direct cost relating to the buildings was debited to buildings:
Labour R 678 400 Material R1 200 000
5.2 Land and buildings, consisting of factory buildings and offices in Sunward Park, Erf 323, are owner occupied. The building was completed on 2 January 20.6 and is depreciated at 2% per annum using the straight-line method.
5.3 On 31 March 20.6 furniture and equipment with an original cost price of R100 000, that had been depreciated by R40 000 up to the beginning of the financial year, was traded in at a loss of R5 000 as part payment for new equipment costing R80 000. Furniture and equipment are depreciated at 10% per annum on the straight-line method.
6. Investments consist of the following:
6.1 120 000 Ordinary shares in Quattro Ltd at a cost of R200 000. The issued share capital of Quattro Ltd consists of 200 000 ordinary shares of R1 each. The market value of the investment was R200 000 on 30 June 20.6.
6.2 20 000 Preference shares in Thakalaka Ltd at a cost of R60 000. The issued share capital of Thakalaka Ltd consists of 30 000 ordinary shares and 30 000 preference shares. The shares of Thakalaka Ltd are traded on the JSE and the market value of the preference shares on 30 June 20.6 was R2,50 each. These shares were acquired principally for the purpose of selling it in the short term.
6.3 70 000 Ordinary shares in Sugar Ltd at a cost of R140 000. The issued share capital of Sugar Ltd consists of 4 000 000 ordinary shares. The shares of Sugar Ltd are traded on the JSE and the market value on 30 June 20.6 was R3 each. This investment is regarded as an investment held for trading in the accounting records of Purco Ltd.
7. Inventories at 30 June 20.6 consisted of: Raw materials .............................................................................................................. Work in progress .......................................................................................................... Finished goods ............................................................................................................
R 300 000 400 000 250 000
REQUIRED:
Prepare the “Asset” section of the statement of financial position, as well as the relevant notes of Purco Ltd as at 30 June 20.6 to comply with the requirements of International Financial Reporting Standards (IFRS).
Ignore comparative figures and the note on accounting policy.
All calculations must be shown.
FAC2601/102
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SOLUTION 4 PURCO LTD EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20.6 ASSETS Notes Non-current assets
R
6 143 600
Property, plant and equipment 1 Investment in subsidiary 2
5 793 600 350 000
Current assets
1 958 500
Inventories 3 Trade and other receivables Financial assets 4
950 000 748 500 260 000
Total assets 8 102 100
PURCO LTD NOTES FOR THE YEAR ENDED 30 JUNE 20.6 1. Property, plant and equipment
Land R
Buildings R
Plant and machinery
R
Furniture and
equipment R
Total R
Carrying amount 1 July 20.5 1 000 000 - 2 432 000 400 000 3 832 000
Cost Accumulated depreciation
1 000 000 -
- -
3 200 000 (768 000)
600 000 (200 000)
4 800 000 (968 000)
Revaluation Additions at cost (1 878 400 + 121 600) Disposals at carrying amount Depreciation capitalised Depreciation
500 000 - - - -
- 2 000 000
- -
(20 000)
- - -
(121 600) (364 800)
- 80 000
(52 500) -
(59 500)
500 000 2 080 000
(52 500) (121 600) (444 300)
Carrying amount 30 June 20.6 1 500 000 1 980 000 1 945 600 368 000 5 793 600
Valuation/cost Accumulated depreciation
1 500 000 -
2 000 000 (20 000)
3 200 000 (1 254 400)
580 000 (212 000)
7 280 000 (1 486 400)
Land and buildings comprise of erf 323, Sunward Park, with factory buildings and an office block on it. The land was revalued during 20.6 by Mr. Value, a sworn appraiser, at replacement value. 2. Investment in subsidiary
R 350 000
Shares at fair value Loan to subsidiary
200 000 150 000
3. Inventories
950 000
Raw materials Work in progress Finished goods
300 000 400 000 250 000
4. Financial assets
Listed investments:
260 000
20 000 Preference shares in Thakalaka Ltd at fair value (20 000 x R2,50) 70 000 Ordinary shares in Sugar Ltd at fair value (70 000 x R3)
50 000 210 000
20
SOLUTION 4 (continued) Calculations 1. Buildings 1.1 Additions
R
2 000 000
Direct cost – given Depreciation capitalised
1 878 400 121 600
1.2 Depreciation – current year (2 000 000 x 2% x 6/12)
20 000
2. Plant and machinery 2.1 Cost – opening balance (2 432 000 + 768 000)
R
3 200 000
2.2 Depreciation – current year (2 432 000 x 20%)
486 400
2.3 Depreciation capitalised (486 400 x 3/12)
121 600
2.4 Accumulated depreciation – closing balance (768 000 + 121 600 + 364 800)
1 254 400
3. Furniture and equipment 3.1 Depreciation on machinery traded in – current year (100 000 x 10% x 9/12)
R 7 500
3.2 Accumulated depreciation on machinery traded in (40 000 + 7 500)
47 500
3.3 Carrying amount of machinery traded in (100 000 – 47 500)
52 500
3.4 Depreciation on equipment – current year [(500 000 x 10%) + (80 000 x 10% x 3/12)]
52 000
3.5 Total depreciation – current year (7 500 + 52 000)
59 500
3.6 Cost – closing balance (600 000 – 100 000 + 80 000)
580 000
3.7 Accumulated depreciation – closing balance (200 000 – 47 500 + 59 500)
212 000
FAC2601/102
21
QUESTION 5 (35 marks) (42 minutes) The following information represents an extract from the trial balance of Stuttgart Ltd at 31 December 19.9.
R Revenue (sales) 5 414 000 Cost of sales 4 060 200 Dividends received 17 900 Interest received 3 500 Other expenses: - Loss on disposal of motor vehicle 8 500 - Auditor’s remuneration – for audit 10 800 - Salaries and wages 863 500 - Sundry expenses 101 600 - Municipal charges 1 380 Interest paid to Frankfurt (Pty) Ltd 9 300 Furniture and equipment: - Cost 63 500 - Accumulated depreciation (1/1/19.9) 21 200 Retained earnings (1/1/19.9) 783 400 Dividends paid to ordinary shareholders 110 000 Machinery at cost 150 000 Sales returns 400 Additional information 1. Dividends received consist of the following:
- R2 300 from Frankfurt (Pty) Ltd - R7 600 from Manheim Ltd - R8 000 from Koblenz Ltd
2. Investments consist of the following:
- 9 000 Ordinary shares in Koblenz Ltd purchased at R9 000 for speculative purposes. The issued share capital of Koblenz Ltd consists of 200 000 ordinary shares. These shares are traded on the JSE and the fair value of the shares was R2,00 each on 31 December 19.9.
- 30 000 Ordinary shares in Manheim Ltd at a cost of R40 000. The issued share capital of
Manheim Ltd consists of 40 000 ordinary shares. These shares are traded on the JSE and the market value was R40 000 on 31 December 19.9.
- 7 000 Preference shares in Frankfurt (Pty) Ltd purchased for R15 000. The issued preference
share capital of Frankfurt (Pty) Ltd consists of 10 000 preference shares. The directors valued the shares at R2,50 each on 31 December 19.9. These shares are classified as an investment at fair value through other comprehensive income (not held for trading).
3. Stuttgart Ltd charges Manheim Ltd a management fee of R1 000 per month. This fee must still
be provided for, for the year ended 31 December 19.9.
22
QUESTION 5 (continued) 4. Sundry expenses include amongst other the following items:
R Travelling allowance – Mr Wolfgang Entertainment expenses – Mr Ludwig Pension fund contribution – Mr Karl Auditor’s travelling expenses
4 800 260
6 400 150
5. Salaries and wages include the following remuneration:
R Mr F Heinrich – Financial director Mr G Ludwig – Marketing director Mr D Karl – Regional manager Mr C Axel – Retired chairman of the Board of Directors (pension) Mr C Boris – Non-executive director (loss of office on 1/1/19.9) Directors’ fees for attending meetings at R5 000 per director per annum
120 000 78 000 90 000 24 000 10 000 15 000
337 000
6. Mr Heinrich is a director of Manheim Ltd and received R5 000 per annum for attending directors
meetings. 7. Tax for the current year to the amount of R97 045 must still be provided for. 8. On 1 October 19.9 the company purchased machinery to the value of R150 000. 9. The company’s policy is to depreciate non-current assets as follows:
Furniture and fittings at 10% per annum – reducing balance method Machinery at 20% per annum – reducing balance method. No depreciation has been provided for the current year and no furniture and fittings were purchased during the current year.
10. The interest income was received from Manheim Ltd. REQUIRED: a. Prepare the statement of profit or loss and other comprehensive income and the relevant notes
thereto of Stuttgart Ltd for the year ended 31 December 19.9. b. Prepare the statement of changes in equity of Stuttgard Ltd for the year ended
31 December 19.9. Show only the following columns: - Retained earnings - Mark-to-market reserve Both your answers should comply with the requirements of International Financial Reporting Standards (IFRS). Comparative figures are not required. The accounting policy note is not required.
FAC2601/102
23
SOLUTION 5 STUTTGART LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 19.9
Notes Revenue (5 414 000 – 400) Cost of sales
R 5 413 600
(4 060 200)
Gross profit Other income (23 100 + 10 300 + 9 000) Other expenses (calculation 1)
1 353 400 42 400
(997 510) Finance cost (9 300)
Profit before tax 1 Income tax expense 2
388 990 (97 045)
Profit for the year Other comprehensive income for the year Gain on financial asset at fair value through other comprehensive income [(7 000 shares x R 2,50) – R15 000]
291 945
2 500
Total comprehensive income for the year 294 445
STUTTGART LTD NOTES FOR THE YEAR ENDED 31 DECEMBER 19.9 1. Profit before tax The following disclosable items are, amongst others, included in profit before tax: Income Revenue from the sale of goods Fair value adjustment – Financial asset at fair value through profit or loss [(9 000 x R2) – 9 000] Income from subsidiary
R
5 413 600 9 000
23 100
- Dividends received - Interest received - Management fees received
7 600 3 500
12 000
Income from other financial assets Dividends received
10 300
- From listed investments - From unlisted investments
8 000 2 300
24
SOLUTION 5 (continued) Expenses Auditors’ remuneration
R
10 950
- Fee for audit - Travelling expenses
10 800 150
Depreciation (calculation 1) 11 730 Loss on disposal of non-current asset Staff cost
8 500 863 500
2. Remuneration of directors and prescribed officers Name
Directors’
fees R
Salary R
Other
benefits R
Pension
fund R
Loss of office
R
Less: Paid by sub-sidiaries
R
Total R
Executive directors Mr F Heinrich 10 000 120 000 (5 000) 125 000 Mr G Ludwig 5 000 78 000 83 000 Non-executive directors Mr D Wolfgang 5 000 4 800 9 800 Prescribed officers Mr D Karl 90 000 6 400 96 400 Past directors (non-executive)
Mr C Axel 24 000 24 000 Mr C Boris 10 000 10 000
20 000 288 000 4 800 30 400 10 000 (5 000) 348 200
Other benefits
Name Travel R
Total R
Mr D Wolfgang 4 800 4 800
3. Income tax expense 97 045
SA Normal company tax - Current year
97 045
STUTTGART LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 19.9
Retained earnings
Mark-to-market reserve
Balance at beginning of year Total comprehensive income for the year Dividends declared
R 783 400 291 945
(110 000)
R -
2 500
Balance at end of year 965 345 2 500
FAC2601/102
25
SOLUTION 5 (continued) Calculations 1. Other expenses Loss on disposal of vehicle Auditors’ remuneration Salaries and wages Sundry expenses Depreciation Furniture and equipment [(63 500 – 21 200) x 10%] Machinery (150 000 x 20% x 3/12) Municipal charges
R 8 500
10 800 863 500 101 600
4 230 7 500 1 380
997 510
26
QUESTION 6 (32 marks) (38 minutes) The following balances were extracted from the accounting records of Light Bulb Ltd for the financial year ended 29 February 2012:
R Total sales (including VAT at 14%) (additional information 1) ............................................ 4 560 000 Administrative expenses .................................................................................................... 1 103 000
Bank charges ................................................................................................................. 24 000 Salaries and wages (additional information 2) ................................................................ 1 000 000 Advertising ..................................................................................................................... 55 000 Auditors’ remuneration - Fees for audit ............................................................................................................. 20 000 - Expenses ................................................................................................................... 4 000
Distribution cost ................................................................................................................. 134 000 Operating expenses ........................................................................................................... 217 500
- Other operating expenses (including finance cost and depreciation) .......................... 185 000 - Operating lease payments ......................................................................................... 32 500
Other operating income ..................................................................................................... 19 000 Proceeds on sale of motor vehicle ..................................................................................... 42 500 Equipment at carrying amount (29/02/2012) ...................................................................... 24 000 Motor vehicles at cost ........................................................................................................ 120 000 Accumulated depreciation: Motor vehicles ........................................................................ 30 000 Investments (additional information 6)................................................................................ 230 000 Loan to Live-Smart (Pty) Ltd .............................................................................................. 40 000 Long-term loan (Cr) ............................................................................................................ 45 000 Income tax expense ........................................................................................................... 64 000
Additional information 1. Light Bulb Ltd maintains a gross profit percentage of 40% on turnover. 2. Included under salaries and wages are the following payments to top management:
Salaries - Financial director (Mrs Good) ...................................................................................... - Chairman of the board (Mr Nice) ................................................................................. - Marketing manager (Mr Cool) ..................................................................................... - Managing director (Mrs Perfect) .................................................................................. Travelling allowance – Managing director ........................................................................... Entertainment allowance – Marketing manager .................................................................. Pension payments - Financial director ........................................................................................................ - Chairman of the board ................................................................................................
R
120 000 60 000 90 000
100 000 6 000 3 000
12 000 6 000
The top management were paid R625 each per meeting for attending directors’ meetings.
Four (4) meetings were held during the year. The financial director is also the chairman of Live Smart (Pty) Ltd and received remuneration of
R55 000 for the financial year ended 29 February 2012.
FAC2601/102
27
QUESTION 6 (continued) 3. During the year ended 29 February 2012, Light Bulb Ltd acquired machinery which was
obtained in terms of an operating lease agreement. The following information in respect of the lease agreement is available:
Period of the lease : 1 October 2011 – 30 September 2015 Payment terms : Months 1 – 24 : R6 500 per month Months 25 – 48 : R3 500 per month 4. The long-term loan was obtained on 1 January 2010 and the capital portion is repayable in
seven equal annual instalments starting 31 August 2010. Interest on the loan is calculated at 10% per annum and is payable at the end of each financial year.
5. Other operating income consists of:
Dividends received from the following companies: - Stay-Smart Ltd .................................................................................................... - Live-Smart (Pty) Ltd ............................................................................................ Interest received from Live-Smart (Pty) Ltd .................................................................
R
10 000 6 000 3 000
19 000
6. Investments consist of the following: 6.1 The issued ordinary share capital of Live-Smart (Pty) Ltd is R80 000 (shares issued at
R2 each). Light Bulb Ltd owns 21 000 ordinary shares in Live-Smart (Pty) Ltd. 6.2 Light Bulb Ltd owns 50 000 of the 1 200 000 issued ordinary shares in Stay-Smart Ltd. The
shares were purchased for R100 000. The shares of Stay-Smart Ltd are traded on the JSE and the market value per share was R3,00 each on 28 February 2011. The market value on 29 February 2012 was R4,00 per share and no adjustments have yet been made during this year regarding the increased market value. These shares were obtained for speculative purposes.
7. The non-current assets were depreciated at the following rates and methods: Motor vehicles - 20% per annum using the reducing balance method Equipment - 20% per annum using the straight-line method One of the motor vehicles with a carrying amount of R40 000 on 28 February 2011 was sold on
31 August 2011. Only the proceeds have been recorded. All the equipment was purchased on 1 March 2009 and no sales or purchases of equipment
have occurred since then.
28
QUESTION 6 (continued) REQUIRED: a. Prepare the statement of profit or loss and other comprehensive income of Light Bulb Ltd for
the financial year ended 29 February 2012. (15½) b. Disclose the “profit before tax” note concerning the statement of profit or loss and other
comprehensive income of Light Bulb Ltd for the financial year ended 29 February 2012. (16½) Both your answers should comply with the requirements of International Financial Reporting Standards (IFRS).
FAC2601/102
29
SOLUTION 6 LIGHT BULB LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2012
Notes R Revenue (4 560 000 x 100 ÷ 114) .................................................................................. Cost of sales (4 000 000 x 60 ÷ 100) ..............................................................................
4 000 000 (2 400 000)
Gross profit ..................................................................................................................... Other income (19 000 + 50 000 + 6 500) ........................................................................ Administrative expenses ................................................................................................. Distribution cost .............................................................................................................. Other operating expenses .............................................................................................. [(217 500 – (10% x 54 000 x 6 ÷ 12) – (10% x 45 000 x 6 ÷ 12)) – 7 500] Finance cost (2 700 + 2 250) ..........................................................................................
1 600 000 75 500
(1 103 000) (134 000) (205 050)
(4 950)
Profit before tax .......................................................................................................... 1 Income tax expense........................................................................................................
228 500 (64 000)
Profit for the year .......................................................................................................... 164 500 Other comprehensive income for the year ................................................................. -
Total comprehensive income for the year .................................................................. 164 500
LIGHT BULB LTD NOTE FOR THE YEAR ENDED 28 FEBRUARY 2012 1. Profit before tax is disclosed after taking the following disclosable items into account: Income Revenue ............................................................................................................................. Fair value adjustment on financial assets at fair value through profit or loss ....................... [50 000 x R1,00(R4,00 – R3,00)] Profit on sale of non-current asset (42 500 – 36 000) .........................................................
R
4 000 000 50 000
6 500
Income from subsidiary - Dividends ....................................................................................................................... - Interest ...........................................................................................................................
6 000 3 000
Income from other financial assets - Listed investments Dividends ........................................................................................................................
10 000 Expenses Staff cost ............................................................................................................................
1 000 000 Auditors’ remuneration ........................................................................................................ 24 000
- Fees for audit ................................................................................................................... - Expenses .........................................................................................................................
20 000 4 000
Depreciation (calculation 1) ................................................................................................ Operating lease expense ....................................................................................................
29 500 25 000
30
SOLUTION 6 (continued) 2. Remuneration to directors and prescribed officers Name
Directors’
fees R
Salary R
Other
benefits R
Pension
fund R
Loss of office
R
Less: Paid by sub-sidiaries
R
Total R
Executive directors Mrs Good 2 500 175 000 12 000 (55 500) 134 500 Mrs Perfect 2 500 100 000 6 000 108 500 Non-executive directors Mr Nice 2 500 60 000 6 000 68 500 Prescribed officers
Mr Cool 90 000 90 000
7 500 425 000 6 000 18 000 (55 500) 401 500
Other benefits
Name Travel R
Total R
Mrs Perfect 6 000 6 000
Calculations 1. Depreciation R 1.1 Depreciation on equipment
Carrying amount (28/2/2012) Cost price Depreciation
(24 000 x 100 ÷ 40) or (24 000 x 5 ÷ 2) (20% x 60 000) or 24 000/2 yrs left
24 000 60 000 12 000
1.2 Depreciation on motor vehicles 1.2.1 Vehicle sold
Carrying amount (28/2/2011) Depreciation (1/3/2011 – 31/8/2011) Carrying amount (31/8/2011)
(20% x 40 000 x 6 ÷ 12)
40 000 4 000
36 000
1.2.2 Remaining vehicles
Carrying amount (29/2/2012) Carrying amount (1/3/2011) Depreciation (1/3/2011 – 29/2/2012)
[120 000 – 30 000 – (40 000 – 4 000)] (100 ÷ 80 x 54 000) (20% x 67 500) or 54 000 x 20/80
(54 000) 67 500 13 500
1.3 Total depreciation
(12 000 + 4 000 + 13 500)
29 500
FAC2601/102
31
SOLUTION 6 (continued) 2. Operating lease expense R
Months 1 – 24 6 500 x 24 156 000 Months 25 – 48 3 500 x 24 84 000
240 000
240 000 ÷ 48 = 5 000 per month
01/10/2011 – 29/02/2012: Expense recognised 5 000 x 5 (25 000) Payments made 6 500 x 5 32 500
Deduction from expense 7 500
3. Long-term loan
Balance (29/02/2012) 45 000 Remaining number of payments (29/02/2012) 5 Instalment amount 45 000 ÷ 5 = 9 000 Balance (1 March 2011) 45 000 + 9 000 = 54 000 Interest (01/03/2011 – 31/08/2011) 54 000 x 0,1 x 6 ÷ 12 2 700 (01/09/2011 – 29/02/2012) 45 000 x 0,1 x 6 ÷ 12 2 250
4 950
4. Fair value adjustment on financial asset at fair value through profit or loss
50 000 shares x R1,00 (R4,00 – R3,00) 50 000 5. Profit on sale of non-current asset
Proceeds 42 500 Less carrying amount on date of sale (36 000)
Carrying amount (01/03/2011) 40 000 Depreciation for the year (8 000 x 6 ÷ 12) (4 000)
Profit on sale 6 500
32
QUESTION 7 (30 marks) (36 minutes) The following information was taken from the accounting records of Jobs Ltd, a construction company on 31 December 19.9:
R Ordinary share capital 100 000 Retained earnings 250 000 Land at valuation 400 000 Factory buildings at cost 480 000 Motor vehicles at carrying amount (31/12/19.8) 210 000 Crane at cost 240 000 Equipment at cost (31/12/19.9) 180 000 Furniture at cost (31/12/19.9) 60 000 Accumulated depreciation: - Motor vehicles (31/12/19.8) 140 000 - Crane (31/12/19.8) 30 000 - Equipment (31/12/19.8) 60 000 - Furniture (31/12/19.8) 15 000 Investments at cost 73 000 Loans 40 000 Inventories 170 000 Trade and other receivables 313 600 Bank overdraft 135 000 Provisional taxation paid 25 000 Trade and other payables 186 000 Deferred expenses 2 300 Additional information The accountant supplied you with the following information in respect of transactions that occurred during the year: 1. The factory buildings are situated on erf 6, Silverton, consisting of a factory. The land was
acquired on 1/3/19.6 for R190 000. The above mentioned building was erected during the current year at a cost of R480 000. The company withdrew its crane from production for a period of 4 months during which it was used in the process of erecting the building. This cost was not taken into consideration in determining the cost of R480 000 for the erection of the building. The building was completed on 31 December 19.9. The building is occupied by the owners. The land was revalued on 31 October 19.9 at market value by Mr J Nel, a sworn appraiser.
2. Non-current assets are depreciated as follows: - Crane (acquired on 1/7/19.8): straight-line basis over 48 months. - Equipment: 20% per annum on the reducing balance method. - Motor vehicles: 20% per annum on the straight-line method. - Furniture: 10% per annum on the reducing balance method. - Buildings: 2% per annum on the straight-line method. 3. The following transactions in respect of non-current assets took place during the year: - On 30 June 19.9, a motor vehicle costing R50 000 and on which R25 000 depreciation was
already written off, was traded in for R40 000 on a new vehicle costing R70 000. - On 2 January 19.9, furniture to the value of R14 000 was purchased.
FAC2601/102
33
QUESTION 7 (continued) 4. Normal tax of R70 000 must still be provided for the current year. 5. Inventories consist of: - Raw materials R 70 000 - Work in progress R100 000
Inventories are valued at cost on the first-in-first-out basis. 6. Investments consisted of the following on 31 December 19.9: - 9 000 Ordinary shares in Bricks Ltd purchased at a cost of R18 000 for speculation purposes.
The issued share capital of Bricks Ltd consists of 200 000 ordinary shares. These shares are traded on the JSE and the fair value of the shares was R2,00 each on 31 December 19.9.
- 30 000 Ordinary shares in Trucks Ltd purchased for R40 000. The issued share capital of
Trucks Ltd consists of 40 000 ordinary shares. These shares are traded on the JSE and the market value was R40 000 on 31 December 19.9.
- 7 000 Preference shares in Diesel (Pty) Ltd purchased for R15 000. The issued preference
share capital of Diesel (Pty) Ltd consists of 10 000 shares. The directors valued the shares at R2,50 each on 31 December 19.9. These shares are classified as an investment at fair value through other comprehensive income (not held for trading).
7. Loans on 31 December 19.9 consisted of the following: - Loan to Trucks Ltd to the amount of R25 000. The loan is interest free and is repayable in
2 equal annual instalments. The first instalment is payable on 31 December 20.1. - Loan to Jason (Pty) Ltd to the amount of R15 000. Interest is calculated on the loan at 15% per
annum payable annually in arrears. The loan is secured by a first mortgage bond over the company’s immovable property. The capital portion of the loan is repayable on 31 December 20.5.
REQUIRED: Prepare the “Asset” section of the Statement of financial position as well as the relevant notes thereto of Jobs Ltd for the year ended 31 December 19.9. Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Comparative figures are not required. The accounting policy note is not required.
34
SOLUTION 7 JOBS LTD STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 19.9 Notes ASSETS Non-current assets
R
1 467 000
Property, plant and equipment 1 Investment in subsidiary 2 Financial assets 3
1 369 500 65 000 32 500
Current assets 501 600
Inventories 4 Trade and other receivables Financial assets 3
170 000 313 600 18 000
Deferred expenses 2 300
Total assets 1 970 900
JOBS LTD NOTES FOR THE YEAR ENDED 31 DECEMBER 19.9 1. Property, plant and equipment
Land
Buildings
Motor vehicles
Crane
Equipment
Furniture
Total
Carrying amount 1/1/19.9
R
190 000
R -
R
210 000
R
210 000
R
120 000
R
31 000
R
761 000
Cost Accumulated depreciation
190 000 -
- -
350 000
(140 000)
240 000
(30 000)
180 000
(60 000)
46 000
(15 000)
1 006 000
(245 000)
Depreciation Additions at cost Disposals at carrying amount Depreciation capitalised Revaluation
- - - -
210 000*
- 480 000
-
20 000 -
(72 000) 70 000
(25 000)
- -
(40 000) - -
(20 000) -
(24 000) - - - -
(4 500) 14 000
- - -
(140 500) 564 000
(25 000)
- 210 000
Carrying amount 31/12/19.9
400 000
500 000
183 000
150 000
96 000
40 500
1 369 500
Cost/Valuation Accumulated depreciation
400 000 -
500 000 -
370 000
(187 000)
240 000
(90 000)
180 000
(84 000)
60 000
(19 500)
1 750 000
(380 500)
*Balancing figure Buildings consist of a factory situated at erf 6, Silverton. The property was revalued during the year at market value by Mr J Nel, a sworn appraiser.
FAC2601/102
35
SOLUTION 7 (continued) 2. Investment in subsidiary
R 65 000
Shares at fair value Loan to subsidiary
40 000 25 000
3. Financial assets
Non-current assets Financial asset at fair value through other comprehensive income: - Unlisted 7 000 Preference shares in Diesel (Pty) Ltd (cost price – R15 000) Secured loan The loan was granted to Jason (Pty) Ltd The loan is repayable on 31 December 20.5 and interest Is calculated at 15% per
annum, payable annually in arrears. Current assets Financial asset at fair value through profit or loss: - Listed 9 000 Ordinary shares in Bricks Ltd (cost price – R18 000)
17 500
15 000
18 000 4. Inventories
170 000 - Raw materials - Work in progress
70 000
100 000 Calculations 1. Motor vehicles 1.1 Cost at 1 January 19.9 Carrying amount at 31 December 19.8 Accumulated depreciation at 31 December 19.8
R
210 000 140 000
350 000
1.2 Depreciation for the year [(350 000 x 20% x 6/12) + ((350 000 – 50 000 + 70 000) x 20% x 6/12)]
72 000
1.3 Cost at 31 December 19.9 Cost at 1 January 19.9 Sales at cost Purchases at cost
350 000 (50 000) 70 000
370 000
36
SOLUTION 7 (continued) 2. Crane 2.1 Depreciation for the year (240 000 / 4 years)
R
60 000
2.2 Depreciation capitalised (60 000 x 4/12)
20 000
Thus, R20 000 debited to buildings 2.3 Accumulated depreciation (240 000/4 x 6/12) 3. Furniture 3.1 Cost at 1 January 19.9 Cost at 31 December 19.9 Purchases on 2 January 19.9
30 000
60 000 (14 000)
46 000
3.2 Depreciation for the year [(31 000 + 14 000) x 10%]
4 500
4. Equipment 4.1 Depreciation for the year [(180 000 – 60 000) x 20%]
24 000
FAC2601/102
37
QUESTION 8 (21 marks) (26 minutes) The following list of balances was extracted, from the accounting records of Shake-It Ltd on 29 February 2012: Land and buildings at valuation (additional information 1) ................................................. Ordinary share capital (shares issued at R2 each) ............................................................ 10% Cumulative preference shares ................................................................................... 12% Non-cumulative preference shares (additional information 3) .................................... Proceeds of 200 000 ordinary shares issued on 31 October 2011 .................................... Surplus on revaluation of non-current assets .................................................................... 15% Long-term loan obtained on 1 July 2011 (Cr) (additional information 4) ..................... Investments (additional information 5) ............................................................................... Gross profit for the year ..................................................................................................... Administrative expenses ................................................................................................... Distribution expenses ........................................................................................................ Other operating expenses ................................................................................................. Other income .................................................................................................................... Income tax expense .......................................................................................................... Retained earnings (1 March 2011) .................................................................................... Mark-to-market reserve (1 March 2011) ............................................................................
R 2 000 000 1 500 000
300 000 550 000 400 000 250 000 900 000 320 000
4 000 000 800 000 80 000
120 000 100 000 823 900 800 000 40 000
Additional information 1. Land and buildings are situated on erf 557, Sandton, with an office block thereon. The property
was revalued at net replacement value on 29 February 2012 for R2 500 000 by Mr J Pietersen, an independent sworn appraiser. No entry has yet been made regarding the revaluation.
2. Shake-It Ltd was incorporated with an authorised share capital of: 2 000 000 Ordinary shares 500 000 10% Cumulative preference shares 300 000 12% Non-cumulative preference shares 300 000 14% Redeemable preference shares 3. 25 000 12% Non-cumulative preference shares were issued on 1 September 2011 by Shake-
It Ltd at R4,00 each. This transaction has already been accounted for. 4. The finance cost on the long-term loan is payable annually in arrears. Finance cost on the
long-term loan must still be provided for. There have been no repayments to date on this loan. 5. Investments consist of the following: 1 500 Shares in Make-it Ltd. The entry for the initial investment was as follows:
R R
Dr Investments 120 000
Cr Bank 120 000
This was the only entry regarding investments during the current financial year.
These shares were classified as “investments through other comprehensive income” (not held for trading). The shares traded on the JSE at R95,00 per share on 29 February 2012.
38
QUESTION 8 (continued) 6. The following decisions were made by the directors on 29 February 2012 and must still be
recorded in the following order: 6.1 Capitalisation shares must be issued to the ordinary shareholders registered in the share
register on 29 February 2012 in the ratio of one ordinary share at R1,50 for every five ordinary shares held.
6.2 An ordinary dividend of 10c per share was declared on 29 February 2012. The company did
not pay or declare any dividends during the previous financial year. 7. There were no further changes in the share capital during the year. REQUIRED: Prepare the statement of changes in equity of Shake-It Ltd for the financial year ended 29 February 2012 in order to comply with the requirements of International Financial Reporting Standards (IFRS). The total column of the statement of changes in equity need not be disclosed. Show all calculations.
FAC2601/102
39
SOLUTION 8 SHAKE IT LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 FEBRUARY 2012
Ordinary share capital
R
10% Cumu-lative
preference share capital
R
12% Non-cumulative preference
share capital R
Surplus on re-
valuation of assets
R
Mark-to-market
reserves R
Retained earnings
R Total
R
Balance 1 March 2011
1 500 000
300 000
450 000
250 000
40 000
800 000
3 340 000
Total comprehensive income for the year 31 October 2011: Ordinary shares issued 1 September 2011: 12% Cumulative preference shares issued Capitalisation shares issued Dividends declared Preference shares Ordinary shares
400 000
285 000
100 000
500 000
22 500
2 186 100
(285 000)
(120 000) (114 000)
2 708 600
400 000
100 000
(120 000) (114 000)
Balance 28 February 2012
2 185 000
300 000
550 000
750 000
62 500
2 467 100
6 314 600
Calculations R 1. Dividends declared Preference shares ........................................................................................................
120 000
Cumulative (10% x 300 000 x 2 year) ........................................................................... Non-cumulative (12% x 450 000) ................................................................................. (12% x 100 000 x 6/12) .........................................................................
60 000 54 000 6 000
Ordinary shares [(750 000 + 200 000 + 190 000) shares] x 10c ................................... 114 000 2. Capitalisation shares
[(1 500 000 ÷ 2) + 200 000 = 950 000 ÷ 5] = 190 000 shares @ 1,50 .......................... 285 000 3. 12% Non-cumulative shares issued
25 000 shares x 4,00 .................................................................................................. 100 000 4. 12% Non-cumulative preference shares – opening balance
Closing balance 29/02/2012 ....................................................................................... 550 000 Shares issued during the year ................................................................................... (100 000) Opening balance 01/03/2011 ..................................................................................... 450 000
40
SOLUTION 8 (continued) R 5. Revaluation reserve:
2 500 000 – 2 000 000 ................................................................................................ 500 000
6. Fair value adjustments on investments – Mark-to-market reserve:
Initial recognition ......................................................................................................... 120 000 Fair value at 29/02/2012: (1 500 shares x R95,00) ..................................................... 142 500
Fair value adjustment .................................................................................................. 22 500
7. Calculations of profit after tax and other comprehensive income
Gross profit for the year .............................................................................................. 4 000 000 Other income .............................................................................................................. 100 000 Administrative expenses ............................................................................................ (800 000) Distribution cost .......................................................................................................... (80 000) Other operating expenses .......................................................................................... (120 000) Finance cost (15% x 900 000 x 8/12) ........................................................................... (90 000)
Profit before tax .......................................................................................................... 3 010 000 Income tax expense ................................................................................................... (823 900)
Profit for the year ........................................................................................................ 2 186 100 Other comprehensive income Revaluation surplus (2 500 000 – 2 000 000) .......................................................... 500 000 Mark to market reserve .............................................................................................. 22 500
Total comprehensive income for the year ................................................................... 2 708 600
FAC2601/102
41
QUESTION 9 (30 marks) (36 minutes) The following information was obtained from the accounting records of Sun Ltd, a listed company, for the financial year ended 30 June 20.0:
R Ordinary share capital (issued at 50c) 1 000 000 12% Long-term loan 190 000 10% Preference shares 300 000 Retained earnings (1/7/19.9) 380 000 Machinery and equipment at cost (1/7/19.9) 160 000 Accumulated depreciation - Machinery and equipment (1/7/19.9) 75 000 Revenue (turnover) 3 500 000 Other income 11 550 Other expenses (additional information 6 and 9) 31 960 Administrative expenses 410 650 Investments at cost 245 000 Loan granted to Moon Ltd 60 000 Income tax expense 263 421 Additional information 1. The long-term loan was incurred on 1 January 20.0 and bears interest at 12% per annum,
payable monthly in arrears. 2. Investments consist of the following:
100 000 Ordinary shares in Star Ltd, purchased at R2 each. Star Ltd’s total issued ordinary share capital consists of 1 000 000 shares. Star Ltd’s shares are traded on the JSE and the price on 30 June 20.0 was R2.50 each. This investment was designated as at fair value through other comprehensive income (not held for trading). 30 000 Ordinary shares in Moon Ltd at a cost of R45 000. Moon Ltd’s total issued ordinary share capital consists of 50 000 shares. Moon Ltd’s shares trade on the JSE and the price on 30 June 20.0 was R1,50 each.
3. The loan to Moon Ltd was granted on 1 July 19.9 at an interest rate of 10% per annum, payable
monthly in arrears. 4. Sun Ltd maintained a gross profit percentage of 40% on sales during the year. 5. Administrative expenses consist of the following:
R Remuneration of directors and prescribed officers 180 000 Auditors’ remuneration - Travelling expenses 350 - Fee for audit 12 000 Accountant’s salary 60 000 Wages 150 000 Telephone 3 000 Water and electricity 4 200 Stationery 1 100
42
QUESTION 9 (continued) 6. Other expenses consist of the following: R Interest paid - Long-term loan 11 000 - Bank overdraft 660 Credit losses written off 1 300 Sundry expenses 19 000 7. Other income consist of the following: Dividends received - Star Ltd 1 200 - Moon Ltd 800 Interest received - Current account 800 - Trade and other receivables 1 750 - Moon Ltd 6 000 Profit on sale of machinery 1 000 8. The following must still be provided for:
Depreciation on machinery and equipment at 20% per annum on the carrying amount. Machinery with a cost of R10 000 and a carrying amount of R4 000 was sold on 2 July 19.9 for R5 000. Depreciation is regarded as an operating expense.
9. Resolutions taken and approved at an annual general meeting held on 29 June 20.0 but not yet
executed:
An ordinary dividend of 5c per share was declared. REQUIRED: Prepare the statement of profit or loss and other comprehensive income, statement of changes in equity and applicable notes of Sun Ltd for the year ended 30 June 20.0 in accordance with the requirements of International Financial Reporting Standards (IFRS). Comparative figures are not required. The accounting policies note is not required.
FAC2601/102
43
SOLUTION 9 SUN LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20.0
Notes Revenue Cost of sales (60% x 3 500 000)
R
3 500 000 (2 100 000)
Gross profit (40% x 3 500 000) Other income (800 + 1 750 + 1 000 + 6 800 + 1 200) Administrative expenses Other expenses (31 960 + 16 200 – 11 000 – 660)
1 400 000
11 550 (410 650) (36 500)
Finance cost (11 400 + 660) (12 060)
Profit before tax 1 Income tax expense 2
952 340 (263 421)
Profit for the year Other comprehensive income for the year Gain on financial assets at fair value through other comprehensive income [(100 000 x 2,50) – (100 000 x R2)]
688 919
50 000
Total comprehensive income for the year
738 919
SUN LTD NOTES FOR THE YEAR ENDED 30 JUNE 20.0 1. Profit before tax The following disclosable items are included in profit before tax: Income Revenue from the sale of goods Profit on sale of non-current assets
R
3 500 000 1 000
Income from subsidiary 6 800
- Dividends received - Interest received
800 6 000
Income from other financial assets - Listed investment – Dividends
1 200
Expenses Staff cost (180 000 + 60 000 + 150 000) Auditors’ remuneration
390 000 12 350
- Fee for audit - Travelling expenses
12 000 350
Depreciation 16 200
2. Income tax expense SA Normal tax – current year
263 421
44
SOLUTION 9 (continued) Calculations 1. Depreciation [(Cost – Accumulated depreciation) x 20%] = [(160 000 – 10 000) – (75 000 – 6 000) x 20%] = [(150 000 – 69 000) x 20%] = (81 000 x 20%) = 16 200 2. Interest expense – long-term loan (190 000 x 12% x 6/12) = 11 400 SUN LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20.0
10% Preference
share capital
Ordinary share capital
Mark-to-market reserve
Retained earnings
Total Balance – beginning of year Total comprehensive income for the year Dividends - Ordinary shares (1 000 000/50c x 5c) - Preference shares (10% x 300 000)
R
300 000
R
1 000 000
R -
50 000
R
380 000
688 919
(100 000)
(30 000)
R
1 680 000
738 919
(100 000)
(30 000)
Balance - end of year 300 000 1 000 000 50 000 938 919 2 288 919
FAC2601/102
45
QUESTION 10 (30 marks) (36 minutes) The following is an extract from the trial balance of Goblet Ltd at 31 August 20.4: Ordinary share capital .......................................................................................................... Retained earnings (1/9/20.3) ............................................................................................... 15% Redeemable preference shares ................................................................................... Motor vehicles at carrying amount (28/2/20.4) ..................................................................... (Cost R239 200 and accumulated depreciation R208 575) Equipment at cost (31/8/20.4) .............................................................................................. Accumulated depreciation – Equipment (R22 500 at 1/9/20.3) ............................................ Land at cost ......................................................................................................................... Buildings at cost .................................................................................................................. Accumulated depreciation – Buildings ................................................................................. Revenue .............................................................................................................................. Other income ....................................................................................................................... Other expenses (including depreciation) .............................................................................. Administrative expenses ...................................................................................................... Sales returns ....................................................................................................................... Distribution costs ................................................................................................................. Profit on sale of other financial assets (shares) ...................................................................
R
1 000 000 465 000 400 000 30 625
152 000 31 950
160 000 340 000 102 000
9 400 000 82 875
980 000 2 491 000 1 200 000
750 000 40 000
Additional information 1. Goblet Ltd maintained a gross profit percentage of 60% on sales during the year. 2. The key personnel are as follows:
Chairmen Directors Regional managers Financial directors Managing directors General secretaries
Goblet Ltd (Parent)
Mr Pin Messrs Blue, Pink
Mrs Henk Mr Dye
Mr White Mr Green
Bobbin Ltd (Subsidiary)
Mrs Swart Messrs White, Green
Mr Harris Mr Good
Mrs Purple Mr Orange
During the current financial year the abovementioned directors of Goblet Ltd and Bobbin Ltd each attended four directors meetings. The directors of Goblet Ltd received R700 per meeting and the directors of Bobbin Ltd, R350 per meeting.
3. Included in the salaries are the following amounts paid during the current financial year:
Regional managers Financial directors Managing directors General secretaries
Goblet Ltd
R 110 000 140 000 160 000 85 000
Bobbin Ltd
R 90 000 120 000 140 000 70 000
4. Messrs Dye and Good each received an entertainment allowance of R15 000 per annum. 5. On 1 December 20.3, equipment with an original cost price of R60 000 and accumulated
depreciation of R9 000 at the beginning of the current financial year, was sold at its carrying amount and replaced with a new machine at a cost of R62 000.
46
QUESTION 10 (continued) 6. On 28 February 20.4 a motor vehicle which originally cost R25 000 and on which depreciation of
R21 875 has already been written off up to that date, was traded in for R6 000 on a new vehicle with a cost price of R35 000. All motor vehicles were purchased on 1 September 20.0.
7. The following rates of depreciation are applicable:
Equipment 15% Reducing balance method Motor vehicles 25% Straight-line method Buildings 5% Straight-line method
8. Administration expenses consist of the following:
R Credit losses ................................................................................................................. 130 000 Stationery ..................................................................................................................... 45 000 Salaries and wages ...................................................................................................... 2 000 000 Fees paid to the auditor - For travelling expenses ............................................................................................. 46 000 - For audit work done .................................................................................................... 220 000 Interest paid: Long-term loan ........................................................................................ 50 000
9. Other income consists of the following:
R Dividends received - Bobbin Ltd .................................................................................................................. 35 000 - Sunbake Ltd (Goblet Ltd owns 10% share in this listed company) .............................. 20 000 Interest received - Debtors ...................................................................................................................... 15 000 - Sunbake Ltd ............................................................................................................... 10 000 Profit on sale of motor vehicle....................................................................................... 2 875
10. The redeemable preference shares are redeemable on 31 December 20.4 and is thus regarded
as a liability for the company. 11. Normal tax of R197 925 must still be provided for. 12. Credit losses written off over the previous two years amounted to:
R 20.3 ................................................................................................................................... 15 000 20.2 ................................................................................................................................... 14 300
13. Goblet’s land was revalued on 30 June 20.4 by Mr. Lion, a sworn appraiser, at market value of
R200 000. REQUIRED: Prepare the statement of profit or loss and other comprehensive income and applicable notes thereto of Goblet Ltd for the financial year ended 31 August 20.4. Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Ignore the note on accounting policy, comparative figures and the statement of changes in equity.
FAC2601/102
47
SOLUTION 10 GOBLET LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 20.4
Notes Revenue (9 400 000 – 1 200 000) Cost of sales (8 200 000 x 40%)
R
8 200 000 (3 280 000)
Gross profit (8 200 000 x 60%) Other income (82 875 + 40 000) Distribution costs Administrative expenses (2 491 000 – 50 000) Other expenses Finance cost [(400 000 x 15%) + 50 000]
4 920 000 122 875
(750 000) (2 441 000)
(980 000) (110 000)
Profit before tax 1 Income tax expense 2
761 875 (197 925)
Profit for the year 563 950
Other comprehensive income for the year 40 000
Gain on revaluation of land (200 000 – 160 000)
Total comprehensive income for the year 603 950
48
SOLUTION 10 (continued)
GOBLET LTD NOTES FOR THE YEAR ENDED 31 AUGUST 20.4
1. Profit before tax Profit before tax is shown after the following disclosable items were taken into
account: Income Revenue from sale of goods Income from subsidiary - Dividends received Income from financial assets - Listed: Dividends Interest
R
8 200 000
35 000
20 000 10 000
Profit on disposal of non-current asset Profit on disposal of financial asset Expenses Auditors’ remuneration
2 875
40 000
266 000
- Fee for audit - Travelling expense
220 000 46 000
Depreciation (calculation 1)
95 913
Staff cost
2 000 000
Significant item - Credit losses written off
130 000
2. Remuneration of directors and prescribed officers Name
Directors’
fees R
Salary R
Other
benefits R
Pension
fund R
Loss of office
R
Less: Paid by sub-sidiaries
R
Total R
Executive directors Mr White 4 200 160 000 (1 400) 162 800 Mr Dye 2 800 140 000 15 000 157 800 Non-executive directors Mr Pin 2 800 2 800 Mr Blue 2 800 2 800 Mr Pink 2 800 2 800 Prescribed officers Mrs Henk 110 000 110 000 Mr Green 85 000 85 000
15 400 495 000 15 000 (1 400) 524 000
Other benefits
Name
Entertainment allowance
R
Total
R
Mr Dye 15 000 15 000
FAC2601/102
49
SOLUTION 10 (continued)
3. Income tax expense SA Normal tax – current year
197 925
Calculations 1. Depreciation 1.1 Equipment
Cost
R
Accumula-ted depre-
ciation R
Balance at end of year (given) Movement for the year
152 000 (2 000)
31 950 (9 450)
Additions Depreciation on disposed equipment (1/9/20.3 – 1/12/20.3) Total depreciation on disposed equipment – eliminated (9 000 + 1 913) Old machines
(62 000)
60 000
(6 975)2 (1 912)3 10 9133
(11 475)3
Balance at beginning of year (Balancing figure) 150 000 22 500
1Sold [(60 000 – 9 000) x 15% x 3/12)] 2New (62 000 x 9/12 x 15%) 3Old [(90 000 – (22 500-9 000)) x 15%]
1 913 6 975
11 475
20 363
1.2 Buildings (340 000 x 5%)
17 000
1.3 Motor vehicles New (35 000 x 25% x 6/12) Sold (25 000 x 25% x 6/12) Old [(239 200 – 35 000) x 25%]
4 375 3 125
51 050
58 550
1.4 Total depreciation (58 550 + 17 000 + 20 363)
95 913
50
QUESTION 11 (15 marks) (18 minutes) A manufacturing concern, Mac Ltd, entered into a finance lease agreement on 1 January 2011 whereby two machines with a total cost price of R520 000 would be leased from Jo-Brand Ltd. The period of the lease is 3 years and the lease payments of R47 674 is payable quarterly in arrears. Mac Ltd will obtain ownership of the machines at the end of the lease term on payment of a nominal amount. Mac Ltd paid R25 000 legal fees for negotiating the lease agreement. The following information applies to the lease: Nominal interest rate: 18% per annum capitalised quarterly The machinery will be depreciated over its expected useful lives of 4 years using the straight-line method. The company’s financial year end is 31 December. The financial manager prepared the following amortisation table which you may assume is correct:
Period Date Instalment Capital Interest Balance
R R R R
520 000
1 31/03/2011 47 674 39 874 7 800 480 126
2 30/06/2011 47 674 40 472 7 202 439 655
3 30/09/2011 47 674 41 079 6 595 398 576
4 31/12/2011 47 674 41 695 5 979 356 881
5 31/03/2012 47 674 42 320 5 353 314 561
6 30/06/2012 47 674 42 955 4 718 271 605
7 30/09/2012 47 674 43 600 4 074 228 006
8 31/12/2012 47 674 44 254 3 420 183 752
9 31/03/2013 47 674 44 917 2 756 138 835
10 30/06/2013 47 674 45 591 2 083 93 244
11 30/09/2013 47 674 46 275 1 399 46 969
12 31/12/2013 47 674 46 969 705 -
REQUIRED: a. Prepare the general journal entries (including cash transactions) of Mac Ltd for the year ended
31 December 2011 to account for the above mentioned transactions. (13) b. Disclose the finance lease liability on the face of the statement of financial position of Mac Ltd at
31 December 2011, according to International Financial Reporting Standards (IFRS). (2)
FAC2601/102
51
SOLUTION 11 a) Journal entries as at 31 December 2011:
R R Machinery – finance lease asset ........................................................................ 25 000 Bank .................................................................................................................. 25 000
Machinery – finance lease asset ........................................................................ 520 000 Lease liability ..................................................................................................... 520 000
Lease liability (A) ................................................................................................ 163 120 Interest paid (B) ................................................................................................. 27 576 Bank (C) ............................................................................................................. 190 696
Depreciation (D) ................................................................................................. 136 250 Accumulated depreciation .................................................................................. 136 250
Calculations A: (39 874 + 40 472 + 41 079 + 41 695) OR (190 696 – 27 576) B: (7 800 + 7 202 + 6 595 + 5 979) OR (190 696 – 163 120) C: (47 674 x 4) D: [(520 000 + 25 000) ÷ 4] b) Disclosure of finance lease liability Non-current liability Finance lease liability (A) 183 752 Current liability Current portion of finance lease liability (B) 173 129 Calculations A: (356 881 – 173 129) B: (42 320 + 42 955 + 43 600 + 44 254)
52
QUESTION 12 (16 marks) (19 minutes) The following information is supplied to you in respect of a machine acquired by Big-Ben Limited from Lighthouse Limited, in terms of an operating lease agreement: The cash price of the machine is R180 000. The lease term is from 1 March 2011 to 28 February 2015. The monthly lease payment is R6 000 per month for the first 24 months, where after it is increased by 10% for the next 12 months, and thereafter decreased to R2 400 per month till the end of the lease term. The lease agreement stipulates that the company may not enter into any other lease agreements without authorisation by the lessor. The financial year end of Big-Ben Limited is 28 February. REQUIRED: Show all the journal entries per year in the accounting records of Big-Ben Limited for the full duration of the lease agreement. All dates and calculations must be shown. Ignore all income tax implications. No journal narrations are required.
FAC2601/102
53
SOLUTION 12 Equalisation of operating lease payments:
(6 000 x 24) + [(6 000 x 110%) x 12] + (2 400 x 12) 48
(144 000 + 79 200 + 28 800) 48 = R5 250 per month Annual prepayment 1 March 2011 to 29 February 2012 and 1 March 2012 to 28 February 2013:
R For 12 months (5 250 x 12) .................................................................................................... 63 000 Actually paid (6 000 x 12) ...................................................................................................... 72 000
Prepayment per annum ......................................................................................................... 9 000
Annual prepayment 1 March 2013 to 28 February 2014:
R For 12 months (5 250 x 12) .................................................................................................... 63 000 Actually paid (6 600 x 12) ...................................................................................................... 79 200
16 200
Shortfall 1 March 2014 to 28 February 2015:
R For 12 months (5 250 x 12) .................................................................................................... 63 000 Actually paid (2 400 x 12) ...................................................................................................... 28 800
34 200
Journal entries:
Dr R
Cr R
Year ended 29 February 2012 Operating lease expense (SPL) ............................................................................. 63 000 Prepayment (SFP) ................................................................................................. 9 000 Bank (SFP) ....................................................................................................... 72 000
Year ended 28 February 2013 Operating lease expense (SPL) ............................................................................. 63 000 Prepayment (SFP) ................................................................................................. 9 000 Bank (SFP) ....................................................................................................... 72 000
Year ended 28 February 2014 Operating lease expense (SPL) ............................................................................. 63 000 Prepayment (SFP) ................................................................................................. 16 200 Bank (SFP) ....................................................................................................... 79 200
Year ended 28 February 2015 Operating lease expense (SPL) ............................................................................. 63 000 Prepayment (SFP) ............................................................................................ 34 200 Bank (SFP) ....................................................................................................... 28 800
54
QUESTION 13 (17 marks) (20 minutes) The following information was obtained from the accounting records of Cornerstone Ltd on 31 March 2015: R Share capital – Ordinary shares ....................................................................................... 1 200 000
– 10% Cumulative preference shares ......................................................... 850 000 Retained earnings (1 April 2014) ........................................................................................ 651 000 Office building at cost ......................................................................................................... 350 000 Accumulated depreciation – office building (1 April 2014) .................................................. 70 000 Investment in Brickwork Ltd ................................................................................................ 300 000 Mark-to-market reserve (1 April 2014) ................................................................................ 100 000 Additional information 1. Cornerstone Ltd was incorporated on 1 April 2012 with an authorised share capital of:
- 500 000 Ordinary shares - 300 000 10% Cumulative preference shares.
2. 300 000 Ordinary shares were issued at R4 each at incorporation. On 1 July 2012, 100 000
cumulative preference shares were issued at R7,48 each.
On 1 August 2014, Cornerstone Ltd issued 12 000 10% cumulative preference shares at R8,50 per share.
3. The following transactions relating to the equity of the company must still be recorded in the
current financial year: 3.1 100 000 Ordinary shares were issued on 5 April 2014 at R5 each. Share issue expenses
amounted to R1 000. The share issue expenses must be written off against retained earnings. 3.2 On 1 May 2014, a capitalisation issue of one new ordinary share for every five ordinary shares
held was made from available profits, at R7,50 per share. 3.3 Total profit after tax for the year, after the correct depreciation has been calculated and
accounted for, was R536 700. 4. An office building was acquired on 1 April 2012 for R350 000. The building is depreciated at
10% per annum according to the straight-line method. Cornerstone Ltd adopted the policy to revalue office buildings every two years after initial
recognition.
The company revalued the office building at the beginning of the current financial year at gross replacement cost. The cost of a similar new building on 2 April 2014 was determined to be R375 000. This revaluation has not yet been recorded.
5. On 1 October 2013, Cornerstone Ltd purchased 50 000 ordinary shares of Brickwork Ltd at a
cost price of R4 per share. The investment was designated as a financial asset at fair value through other comprehensive income. Brickwork Ltd has an issued ordinary share capital of 500 000 ordinary shares.
FAC2601/102
55
QUESTION 13 (continued)
The market value of the ordinary shares in Brickwork Ltd on the JSE Ltd was as follows:
31 March 2014 R6 per share 31 March 2015 R7 per share
The fair value adjustment of this investment for the current year has not yet been recorded.
6. On 20 March 2015, a final dividend of 12c per ordinary share was declared by Cornerstone Ltd.
No dividends were declared or paid by Cornerstone Ltd in the previous financial year. REQUIRED: Prepare the statement of changes in equity of Cornerstone Ltd for the financial year ended 31 March 2015, in agreement with the requirements of International Financial Reporting Standards (IFRS). Ignore comparative figures. Show all calculations. The total column of the statement of changes in equity can be ignored.
56
SOLUTION 13
CORNERSTONE LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2015
Share capi-tal: Ordinary
shares R
Share capi-tal: Cumula-tive prefe-
rence shares R
Retained earnings
R
Revaluation surplus:
Property, plant and equipment
R
Mark to market reserve
R Total
R
Balance at 1 April 2014 1 200 000 748 000 651 000 - 100 000 2 699 000 Total comprehensive income for the year:
Profit for the year 536 700 536 700 Other comprehensive income 20 000 50 000 70 000 Issue of shares - Ordinary shares 500 000 500 000 - Preference shares 102 000 102 000 - Capitalisation 600 000 (600 000) - Dividends - Preference shares (156 400) (156 400) - Ordinary shares (57 600) (57 600) Share issue expenses (1 000) (1 000)
Balance at 31 March 2015 2 300 000 850 000 372 700 20 000 150 000 3 692 700
Calculations
1. Issued shares
Ordinary shares issued (100 000 shares x R5) R500 000
2. Capitalisation of shares
Ordinary shares capitalised [(100 000 + 300 000) shares 5 x R7,50] R600 000
3. Revaluation of office buildings
Revaluation surplus [(375 000 x 0.8) – (350 000 x 0.8)] R 20 000 OR [(375 000 – (375 000 x 10% x 2)) –
(350 000 – (350 000 x 10% x 2))]
4. Fair value adjustment of investment
Fair value adjustment [(50 000 x (7 – 6)] R 50 000
5. Dividends
Preference dividends Previous year: (748 000 x 10%) R 74 800
Current year: (748 000 x 10%)
(102 000 x 10% x 8 12)
R 74 800 R 6 800
R 81 600
OR
Current year: (748 000 x 10% x 4 12)
[(748 000 + 102 000) x 10% x 8 12]
R 24 933 R 56 667
R 81 600
Ordinary dividends [(80 000 + 400 000] x 12 cents R 57 600
6. Cumulative preference shares issued:
12 000 x R8,50 R102 000
FAC2601/102
57
QUESTION 14 (14 marks) (17 minutes) Design Ltd is a manufacturer of leather shoes and bags. The following information for the year ended 31 December 2014, is available: R Revenue................................................................................................................................. 756 250 Administrative expenses ........................................................................................................ 206 250 Selling expenses .................................................................................................................... 7 560 Raw material purchases ......................................................................................................... 247 500 Transport costs – raw materials ............................................................................................. 700 Fixed production overhead costs ............................................................................................ 114 125 Variable production overhead costs ....................................................................................... 138 190 Inventories consist of the following:
Opening
Inventories R
Closing
Inventories R
Net realisable
value R
Raw materials ........................................................................... 96 250 41 250 39 875 Packaging materials ................................................................. 4 800 4 400 3 985 Work in progress ...................................................................... 41 250 70 125 55 000 Finished goods ......................................................................... 110 000 56 375 82 500 Additional information 1. Raw materials and work in progress are valued according to the first in, first out (FIFO) method. 2. Finished goods and consumables are valued using the weighted average method. 3. Fixed production overhead costs are allocated at R50 per unit and is based on the normal
production capacity of 2 000 units. REQUIRED: Show how the above information must be disclosed in the annual financial statements of Design Ltd for the year ended 31 December 2014. Your answer should include the statement of financial position, the statement of profit or loss and other comprehensive income and the relevant notes. Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). The accounting policy note is not required. Show all calculations.
58
SOLUTION 14
Calculations
1. Inventories Raw
material R
Work in progress
R
Finished goods
R Opening balance 96 250 41 250 110 000 Plus: Purchases / Transfers 247 500 303 200 512 515 Plus: Other costs 700 238 190* - Less: Sales / Transfers (303 200)2 (512 515)2 (566 140)2
Closing balance 41 2501 70 1251 56 375
* 138 190 + (R50 x 2 000) 1 Raw materials and work in progress held for use in the production of inventories are not
written down below cost if the finished product in which they will be incorporated, are expected to be sold at or above cost.
2 Balancing figure.
2. Cost of sales R
Finished goods 566 140 Fixed production overhead costs: under recovery (114 125 – 100 000*) 14 125 Consumables written off to net realisable value (4 400 – 3 985) 415
580 680
* 2 000 x R50
DESIGN LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014
R Revenue 756 250 Cost of sales (580 680)
Gross profit 175 570 Other expenses (7 560)
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 Note R
ASSETS Current assets Inventories 3 171 735
NOTES FOR THE YEAR ENDED 31 DECEMBER 2014 R
2. Profit before tax Profit before tax includes the following item: Consumables written off to net realisable value 415 3. Inventories Raw materials 41 250 Work in progress 70 125 Finished goods 56 375 Consumables 3 985
171 735
FAC2601_2016_TL_102_3_E.doc
