Accounting 1 b
- 1. DEPARTMENT OF ACCOUNTANCY ACCOUNTING 1B AUCKLAND PARK AND SOWETO CAMPUS ASSESSORS: Mr M Dlamini Mrs S Osman Mr B Sibiya MODERATORS: Ms T Mahmood FINAL ASSESSMENT OPPORTUNITY 26 November 2016 MARKS: 125 TIME: 2 ½ HOURS THE ASSESSMENT OPPORTUNITY PAPER CONSISTS OF 4 QUESTIONS AND 12 PAGES (front page included). YOU MUST ANSWER ALL THE QUESTIONS START EVERY NEW QUESTION AT THE TOP OF A PAGE WRITE IN BLUE OR BLACK INK – NO PENCIL A NON-PROGRAMMABLE, SILENT CALCUTATOR MAY BE USED CROSS OUT OPEN SPACES AND EMPTY PAGES NO PENCIL OR TIPPEX MAY BE USED. PLEASE ANSWER IN THE CORRECT COLOR BOOK AS INDICATED AT TOP OF EACH QUESTION QUESTION TOPIC MARKS TIME 1 Provisions (Blue Book) 20 24 minutes 2 Statement of Cash Flows (Annexure A) 35 42 minutes 3 Statement of profit or loss (Green Book) 35 42 minutes 4 Statement of financial position (Orange Book) 35 42 minutes 125 150 minutes
- 2. QUESTION 1 (BLUE BOOK) (20 MARKS) (24 MINUTES) Saty (Pty) Ltd.’s current reporting period ends on 31 December 2014. The local authority sued Saty (Pty) Ltd for R2 500 000 in respect of environmental pollution. The pollution allegedly occurred during the first four months of 2014. Saty (Pty) Ltd’s legal representatives indicated in a report dated 4 December 2014, that they are of the opinion that it is more likely than not that a court will adjudicate in favour of the local authority. Environmental experts indicated on the same date that they are of the opinion that R2 500 000 represents a reliable estimate of the costs to rehabilitate the polluted environment. On 15 November 2015, the legal representatives of the respective parties settled the case outside the court. The settlement agreement inter alia stipulated that Saty (Pty) Ltd has to pay an amount of R2 800 000 for environmental pollution to the local authority on or before 15 January 2016. The payment was made on 15 January 2016. REQUIRED: a) Provide the definition and the recognition criteria of a provision and indicate with reasons if the abovementioned events satisfy the recognition criteria. (8) b) Recognise the provision in the financial records (general journal) of Saty (Pty) Ltd for the reporting period ended on 31 December 2014. (2) Note: Journal narrations and the effect of the journal entries on the accounting equation are not required. c) Present the provision in the statement of financial position of Saty (Pty) Ltd for the reporting period ending 31 December 2014. (2) d) Disclose the appropriate note to the financial statements of Saty (Pty) Ltd for the reporting period ended 31 December 2014 in which details of the provision is provided. (3) e) Provide the journal entry on 15 November 2015 to adjust the provision in accordance with the settlement agreement. (3) Note: Journal narrations and the effect of the journal entries on the accounting equation are not required. f) Recognise the payment on 15 January 2016 in the financial records (general journal) of Saty (Pty) Ltd for the reporting period ended 31 December 2016. (2) Note: Journal narrations and the effect of the journal entries on the accounting equation are not required.
- 3. QUESTION 2 (ANNEXURE A) (35 MARKS) (42 MINUTES) You are the financial director of Zoasa Limited, whose reporting period ends on 31 December 2015. You have already drafted the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Financial position. Your junior accountant partially completed the cash flow, before he got sick and you are expected to prepare the Statement of Cash Flows for the reporting period ended 31 December 2015. Assets, liabilities and equity as at 31 December 2015 and 31 December 2014: Additional information 2015 R 2014 R Land and buildings at cost 1 9 540 000 6 290 000 Mortgage bond 1 (3 725 000) (2 800 000) Plant and equipment at cost price 3 7 800 000 5 200 000 Plant payable 3 (450 000) 0 Accumulated impairment: Plant and equipment 3 (500 000) 0 Accumulated depreciation: Plant and equipment 3 (2 710 000) (2 340 000) Delivery vehicles (controlled by finance lease) 2 100 000 2 100 000 Accumulated depreciation: Delivery vehicles (840 000) (420 000) Finance lease in respect of vehicles (1 375 000) (1 755 000) Investment in subsidiary at cost price 4 2 250 000 0 Financial investment at fair value 5 2 950 000 1 650 000 Trademarks 2 3 010 000 1 800 000 Accumulated amortisation: trademarks 2 (960 000) (720 000) Long term loan (4 690 000) 0 Ordinary share capital (8 600 000) (5 000 000) Retained earnings 6 (9 530 000) (5 075 000) Bank balance – favourable 1 540 000 900 000 Call deposit 2 050 000 650 000 Trade receivables 7 750 000 6 540 000 Allowance for doubtful debts (1 240 000) (980 000) Prepaid insurance of property 120 000 85 000 Inventories 3 454 000 2 365 000 Trade payables (5 014 000) (5 680 000) Shareholders for dividends (1 000 000) (750 000) Income tax payable 7 (180 000) (160 000) 0 0 Additional information: 1. Land and buildings are presented at cost. No depreciation is written off on land and buildings. The land and buildings purchased during the current reporting period were partially financed through the increase in the mortgage bond. The capital redemption on the mortgage bond during the reporting period ended 31 December 2015 was R475 000. 2. No trademarks were sold during the current reporting period.
- 4. QUESTION 2 (continued) 3. Plant and equipment with a cost price of R1 100 000 and a carrying amount of R220 000 were withdrawn during the reporting period ended 31 December 2015 and sold for R20 000 cash. The plant and equipment withdrawn, were replaced at R1 450 000, of which a portion is still owed to the plant payable. Other plant and equipment were purchased during the current reporting period to supplement the existing capacity. At the end of December 2015, an impairment of R500 000 was recognised in respect of plant and equipment. 4. The investment in the subsidiary was acquired in accordance with a cash transaction. 5. Additional shares in the financial investment were purchased during the year in accordance with a cash transaction. The financial investment is presented on the Statement of Financial Position at fair value. 6. Retained earnings as at 31 December 2014 reconciles with retained earnings as at 31 December 2015 as follows: Retained earnings R Balance at 31 December 2014 5 075 000 Profit for the year 5 455 000 Dividend – ordinary (1 000 000) Balance at 31 December 2015 (9 530 000) 7. The following information is in respect of a few income and expense items for the reporting period ended 31 December 2015: Dr Cr Revenue/sales 20 460 000 Dividend income from subsidiary 225 000 Dividend income from financial investment 190 000 Profit on fair value adjustment to listed shares 150 000 Income tax expense for 2015 1 365 000 Interest expense on mortgage bond 295 000 Interest expense on finance lease 176 000 Interest expense on long term loan 500 000 REQUIRED: By using Annexure A, present and disclose the Statement of Cash Flows of Zoasa Limited for the reporting period ended 31 December 2015. (35) Please note: Show ALL calculations clearly as marks will be awarded. Please tear off Annexure A and place into Green answer booklet.
- 5. QUESTION 3 (GREEN BOOK) (35 MARKS) (42 MINUTES) MZ Ltd is a highly profitable company that operates in the electronics manufacturing industry. Its current reporting period ends on 31 December 2016.10.12 Additional information Dr Cr Sales 19 500 000 Cost of sales 7 600 000 Recoupment from insurer in respect of: - A plant item destroyed in a fire - Inventories destroyed in a fire 1.1 1.1 1 200 000 600 000 Proceeds on sale of plant item 1.1 700 000 Income from financial investment: - Dividends on listed shares 750 000 Income from subsidiary: - Dividends - Management fees 1 050 000 960 000 Distribution costs, administrative expenses and other expenses 1 5 960 000 Interest expense in respect of: - Mortgage bond - Finance lease loan - Bank overdraft 410 000 180 000 20 000 The following extract from the trial balance on 31 December 2016 has been provided: Additional information: 1. ‘Distribution costs, administrative expenses and other expenses’ reflects that this amount includes the following items, amongst others: R 1.1 Write off of the carrying amount of plant destroyed in a fire 1 350 000 Write-off of the cost of inventories destroyed in a fire 650 000 Derecognition of the carrying amount of plant sold 600 000 1.2 Depreciation on plant 1 450 000 Depreciation on vehicles (controlled through a finance lease) 350 000 1.3 Salaries and other benefits to employees 6 850 000 1.4 Remuneration to auditors for audit services delivered 700 000 1.5 Remuneration to non-executive directors for attending meetings 300 000 Remuneration to executive directors for attending meetings 300 000 Salaries of executive directors 3 200 000 1.6 Costs in respect of the settlement of a lawsuit 496 000 1.7 Cost of consumables purchased for utilisation electronic data processing 2 420 000
- 6. QUESTION 3 (Continued) 2. The following balances as at 31 December 2015 were also provided: Additional information Dr Cr Issued share capital – 3 000 000 ordinary shares 5 400 000 Retained earnings 3 600 000 Other current assets: Consumables on hand (These items are utilised in electronic data processing) 3.5 & 1.7 180 000 3. The following events still have to be recognised in respect of the reporting period ended 31 December 2016: 3.1 The allowance for doubtful debts still has to be increased with R1 350 000. 3.2 The cost price of specific inventory items, is R450 000 higher than the expected net realisable value thereof. This event still has to be recognised. 3.3 During 2016, it was decided to adjust the remaining useful life of trademarks with effect from 1 January 2016 from 6 years to 3 years. On 1 January 2016 the cost price of trademarks was R3 600 000 and the carrying amount, R1 800 000. The amortisation of trademarks for 2016 still has to be recognised. Amortisation on trademarks is calculated in accordance with the straight-line method, over the remaining useful life. 3.4 It was clear at the end of 2016 that a specific plant item’s carrying amount exceeded the recoverable amount with R445 000. The impairment still has to be recognised. 3.5 Consumables on hand on 31 December 2016 mounts to R255 000. These items are utilised in electronic data processing. This event still has to be recognised. (Also refer to paragraphs 1.7 and paragraph 2). 3.6 The income tax expense for the current reporting period was reliably calculated as R1 805 000 and still has to be recognised. 4. During the reporting period ended 31 December 2016, the following transactions were concluded with the shareholders: 4.1 On 30 April 2016, a dividend of R600 000 was declared and paid on 31 May 2016. 4.2 On 30 June 2016, a further 1 000 000 ordinary shares were issued to the current shareholders at R2.90 per share. 4.3 MZ Ltd’s authorised share capital comprises 5 000 000 ordinary shares.
- 7. REQUIRED: a) Prepare the Statement of Profit or Loss of MZ Limited for the reporting period ended 31 December 2016. The presentation of earnings per share is not required. (18) b) Provide the Profit before Tax note to the Statement of Profit or Loss of MZ Limited for the reporting period ended 31 December 2016. (12) c) Prepare the Statement of Changes in Equity of MZ Limited for the reporting period ended 31 December 2016. The presentation of dividend per share is not required. (5)
- 8. QUESTION 4 (ORANGE BOOK) (35 MARKS) (42 MINUTES) The new accountant of Kgalagadi Ltd is struggling to complete the balance sheet. He has asked you to assist him. The following information was prepared on 10 July 2016 by the new accountant: KGALAGADI LIMITED Balances as at 30 June 2016 Note R ASSETS Land and buildings at carrying amount 2 376 000 Furniture at carrying amount (1/7/2015) 3 70 000 Vehicles at carrying amount (1/7/2015) 3 240 000 Investments 4 34 000 Inventories 5 22 000 Receivables 20 000 R701 000 INTERESTS Capital 6 370 000 Reserves 7 20 000 Loan 8 100 000 Payables 9 14 000 Bank overdraft 224 000 R775 000 Additional information: 1. The reporting period of Kgalagadi Ltd ends on 30 June. 2. The buildings are occupied for the purposes of the activities of the entity and are accounted for in terms of the cost model. At the date of acquisition, 1 July 2014, the land was valued at R100 000 and the buildings at R300 000. Depreciation is written off on buildings at 4% per year on the straight-line method. 3. Furniture and vehicles were purchased on 1 July 2014 at a cost of R80 000 and R300 000 respectively. Depreciation is written off on furniture at 12,5% per year on cost and on vehicles at 20% per year on the diminishing balance method. The residual value on motor vehicles is R20 000 per vehicle. As at 30 June 2016, the fair value less costs to sell and value inn use of vehicles were R230 000 and R180 000, respectively. The necessary write-offs for the current year have still need to be provided for. 4. Investments consist of the following: R 10 000 ordinary shares in a listed company, Nossob Ltd 24 000 6 000 ordinary shares in Mata (Pty) Ltd Cost 10 000 On 30 June 2016, the values of the shares in Nossob Ltd and Mata (Pty) Ltd were R2.80c per share and R4 000 respectively.
- 9. 5. Inventories consist of the following: R Merchandise 547 000 6. Kgalagadi Ltd may issue 400 000 ordinary shares and 200 000 8% preference shares. On 30 June 2016, the company had already issued 250 000 ordinary shares at R180 000 and 160 000 preference shares at R190 000. No shares were issued during the current year. Preference shares form part of equity. 7. The reserves consist of the following: R Retained earnings (balance 30 June 2015) 43 000 Profit for the year ended 30 June 2016 (correctly calculated) 100 000 Replacement reserve 100 000 8. The loan was entered into on 1 July 2014 at an interest rate of 10% per year. The loan is secured by a mortgage bond on land and buildings and is repayable in yearly instalments of R20 000 from 31 December 2016. 9. Payables consist of the following: R Trade payables 240 000 SARS (tax) 50 000 REQUIRED: 1. Prepare the statement of financial position, as at 30 June 2016 Kgalagadi Ltd to comply with the minimum requirements of the Companies Act 71 of 2008 and International Financial Reporting Standards. 2. Prepare only the following notes to the statement of financial position as at 30 June 2016: Property, plant and equipment Inventories Financial assets Share capital Note: Presume any additional information you require for disclosure.
- 10. ANNEXURE A NAME: STUDENT NUMBER: ZOASA LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015 Note R Cash flow from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations 30 Dividends received 415 000 Interest paid (971 000) Income tax paid Dividends paid Net cash inflow from operating activities Cash flow from investing activities Proceeds from sale of plant and equipment 20 000 Purchase of land and buildings to expand Purchase of plant and equipment to expand Purchase of plant and equipment to replace Purchase of trademarks to expand Purchase of financial investment to expand Purchase of investment in subsidiary to expand Net cash outflow for investing activities Cash flow from financing activities Proceeds from shares issued 3 600 000 Proceeds from long term loan 5 000 000 Repayment of long term loan (310 000) Repayment of mortgage bond (475 000) Repayment of finance lease (380 000) Net cash inflow from financing activities 7 435 000 Net increase in cash and cash equivalents Cash and cash equivalents beginning of period 12 Cash and cash equivalents end of period 12
- 11. NOTES TO THE FINANCIAL STATEMENTS 30 Cash generated from operations Reconciliation of profit before tax with cash generated from operations: R Profit before tax 6 970 000 Adjusted with non-cash items accounted for in Profit before tax Adjusted with items that are presented separately in the Statement of cash flows or items which form part of other separate items Elimination of the effect of the accrual basis of accounting Cash generated from operations