nAmiBIA UniVERSITY OF SCIEnCE AnD TECH n OLDGY

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE

QUALIFICATION: BACHELOR OF ACCOUNTING

QUALIFICATION CODE: 07BAC LEVEL: 7

COURSE CODE: FAC611s COURSE NAME: FINANCIAL ACCOUNTING 201

SESSION: JUNE 2016 PAPER: THEORY AND CALCULATIONS

DURATION: 3 HOURS MARKS: 100

FINAL EXAMINATION QUESTION PAPER

EXAMINER(S) P. Maliti, E. Mushonga, J. van Wyk, C. Mahindi and A. Makosa

MODERATOR: M. Dikuua

INSTRUCTIONS 1. Answer ALL the questions.

2. Write clearly and neatly.

3. Number the answers clearly.

PERMISSIBLE MATERIALS

1. Scientific calculators

2. 3.

THIS QUESTION PAPER CONSISTS OF _5_ PAGES (Including this front page)

Question 1 (Property, plant and equipment and Intangible assets) (SO Marks)

Bidfish Ltd is a Namibian fishing company. On 1 June 2013, the company acquired a plant at a cost

of N$2 200 000. Prior to the acquisition, on 01 January 2012, the company had also purchased a

patent of certain technology for the preservation of horse mackerel at a cost of N$100 000. The

patent's estimated useful life was 5 years while that of plant was 10 years. Both items have nil

residual values.

Bidfish Ltd elects to measure property, plant and equipment using the revaluation model and the

intangible assets at their fair value. The current value of intangible assets is determined with

reference to an active market. Revaluations of intangible assets take place at the beginning of the

reporting period and accumulated amortisation is written off against the carrying value of the

intangible asset at revaluation (the net replacement value method).

On the other hand revaluations of property, plant and equipment is done at the end of the reporting

period and accounted for using the gross replacement value method. The revaluation surplus arising

from both property plant and equipment and intangible assets is realised to Retained Earnings on an

annual basis.

Over the past three years, Bidfish Ltd appointed independent valuators, Excellent Valuers Ltd (EVL)

to assess the value of the plant and also determine the current values of similar patents with a

remaining useful life of five years. The following values were determined by the valuers in line with

the market information available:

Date

Fair value of the plant Current values of similar patents Date Fair Vale Date Fair value 31 December 2013 N$2 500 000 01 January 2013 N$150 000 31 December 2014 N$1100 000 01 January 2014 N$130 000 31 December 2015 N$2 300 000 01 January 2015 N$80 000

No impairment indicators were observed during the financial years noted above.

YOU ARE REQUIRED TO:

a) Prepare all the journal entries for the years ended 31 December 2013 up to 31 December

2015 arising from PPE and intangible assets transactions. (41 marks)

b) Prepare a note to the financial statements disclosing the movement of intangible assets at

the beginning of, up to the end of the year ended 31 December 2015, to comply with

International Financial Reporting Standards. (9 marks)

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Question 2 (IFRS 5) (30 marks)

Businesses are often faced with challenging decisions whether to discontinue a part of their overall

business or close an entity. IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations

provides guidance on the accounting treatment in such situations.

Kitchen Decor Ltd, whose financial year end is 31 December every year, is a company that sells

kitchen fitting in the domestic market. The company has three (3) manufacturing plants based in

Windhoek, Rehoboth and Mariental. Due to change in customer tastes, there have been a

deterioration in the performance of the Rehoboth division in the last 12 months. At a Board meeting

on 14 December 2015, the Directors of Kitchen Decor decided, reluctantly, to cease manufacturing

at the Rehoboth division and sell the factory. The staff, customers and suppliers were immediately

informed and a press release was put in the Namibian newspaper. The managing director has

approached you as the financial accountant and has directed you that the Rehoboth operations

should be shown as a discontinued operation in the financial statements for the year ending 31

December 2015. Due to the declining business performance of the Rehoboth division on 1 October

2015, Kitchen Decor Ltd increased production capacity at its Windhoek division. The following are

the extracts from Kitchen Decor Ltd Statement of profit or loss and other comprehensive income:

31 Dec. 2015 31 Dec. 2014

Windhoek Rehoboth Mariental Total Total

N$000 N$000 N$000 N$000 N$000

Revenue 30000 19 000 4500 53 500 61000

Cost of sales (23 SOD) (23 180) (3 375) (50 055) (51800)

Gross profit/(loss) 6 500 (4180) 1125 3 445 9 200

Operating expenses (1800) (1100) (225) (3 125) (2 400)

Profit/(loss) before tax 4 700 (5 280) 900 320 6 800

YOU ARE REQUIRED TO:

a) Explain the meaning of a 'non-current asset for held sale and a discontinued operation.

(8 marks)

b) Explain whether the Managing Director's directive to report Rehoboth as a discontinued

operation is justifiable. (5 marks)

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c) Assuming the managing director's directive has been followed, re-draft the extracts from the

Statement of profit or loss and other comprehensive income for the year ended 31

December 2015 (including comparatives) in accordance with the requirements of I FRS 5, and

draft a suitable note relating to discontinued operations which would appear in the notes to

the financial statements. (14 marks)

d) On 1 October 2015 the Directors of Kitchen Decor Ltd decided to sell a machine, used within

the Mariental operation and which was an excess to what is required. The machine had a

cost of N$60 000 on 1 January 2013 and was expected to sell for N$25 000. A buyer was

found on 20 December 2015 at that price, although the sale was not completed until after

the year end. On 1 October 2015, the machine met the 'held for sale' criteria of IFRS 5. The

company charges depreciation on plant and equipment at 20% on cost.

Explain how the above transaction should be treated in the financial statements for the year

ending 31 December 2015. (3 marks)

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Question 3 (Investment Property) (20 Marks)

Wellness Limited produces a thick, foul-smelling medicine that has been found to be excellent in

warding off Hester in Wonderland Syndrome {HIWS), or micropsia, which is a disorienting

neurological condition which affects human visual perception. Patients with this disease perceive

humans, parts of humans, animals, and inanimate objects as substantially smaller than in reality.

Wellness Limited's factory operated from a building that it owned, situated in Mandume Street in

Windhoek. On 30 June 2015, however, the factory building was swallowed by a giant sinkhole

caused by a tropical storm.

This factory building had been purchased on 1 January 2015 for N$2 000 000 and was thought to

have a total useful life of 20 years and a residual value of nil.

Thankfully this happened at night while the building was empty. Wellness Limited was also fortunate

in that it owned another property three roads away in Independence Avenue. This other property

was, at the time, leased to Eduardo Ronaldo under an operating lease.

Eduardo was generally late in paying his lease rentals, and this natural disaster gave Wellness

Limited a perfect opportunity to evict him with immediate effect so that they could move their

factory into the undamaged building:

• Was purchased on 1 January 2015 for N$300 000

• Had a fair value of N$550 000 on 30 June 2015 and N$1 000 000 on 31 December 2015;

• Had a total estimated useful life of 6 years, estimated from the date of purchase;

• Had an estimated residual value of nil.

Wellness Limited measures:

• Its property, plant and equipment using the cost model; and

• Its investment properties on the fair value model.

YOU ARE REQUIRED TO:

a) Journalise the above transactions in Well ness Limited's general journal for the year ended 30

June 2015. {16 marks)

b) Define fair value and explain how it is calculated. {4 marks)

END OF QUESTION PAPER

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