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FAC2602/202/2/2012
Tutorial Letter 202/2/2012 Selected Accounting Standards and Simple Group Structures Semester 2 Department of Financial Accounting Important information:
This tutorial letter contains important information about your module.
Bar code
FAC2602
2
CONTENTS 1
GENERAL ................................................................................................................................
3
2
EXAMINATION TECHNIQUE ................................................................................................4
3 A B C D E
ANNEXURES SOLUTION TO ASSIGNMENT 03/2012 ........................................................................................ OCTOBER 2011 EXAMINATION PAPER ..................................................................................... SOLUTION TO OCTOBER 2011 EXAMINATION PAPER ........................................................... MAY 2012 EXAMINATION PAPER ............................................................................................... SOLUTION TO MAY 2012 EXAMINATION PAPER ................................................................
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17
26
35
44
FAC2602/202
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1 GENERAL Dear Student, Attached hereto please find the solutions to assignment 03/2012, as well as the two previous examinations papers and solutions. It is in your own interest to work through the suggested solutions in conjunction with the assignments and your own answers. Revise your tutorial matter and the assignments regularly. By repeatedly working through these questions, you will improve your knowledge of the subject. You can make use of a SMS to ask your FAC2602 lecturers academic questions. Use 083 142 10119 (this is a special sms number). Format of sms must be: FAC2602 student number message. Yours faithfully, AA van Rooyen (Mrs) S Gani (Mrs) M Pholo (Mrs) A Rampershad (Mr) C Wolfaardt (Mrs) LECTURERS: ACCOUNTING II (FAC2602) CONTACT DETAILS Tel no: (012) 429-4234 E mail: [email protected]
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2 EXAMINATION TECHNIQUE Study the following examination technique tips to improve your examination technique. It is derived from general problems and mistakes students make, arising from previous examinations. 2.1 Each of the three questions in the October 2012 exam paper should be answered on a
separate page and numbered clearly. The examination instructions in this regard are speci-fic.
2.2 Illegible handwriting makes marking difficult. As a result unnecessary marks may be lost.
Make sure your handwriting is legible. 2.3 In many instances, accounts, statements or calculations were not provided, incomplete or
not provided with logical cross cross-referencing or identifiable headings. We suggest that calculations are shown on the left hand side page and answers to the questions on the right hand side page of your examination book.
Clear, logical and legible calculations to substantiate an answer to a question are essential
in an examination. Unfortunately a disregard for this still results in marks being lost. Even though a final amount may be wrong, you can still earn marks for parts of a calculation performed and showed correctly.
2.4 Try not to deviate from the suggested time-table. (This is the guideline of the maximum
amount of time a student should spend on each question). If you are unable to complete a question in the suggested time, leave the question and carry on with the next question. The reason for this is to obtain the maximum marks per question in the minimum time. During the May 2012 exam many students did not even attempt question 3 as they ran out of time. It has been found that students earn more marks by attempting the next question when they run out of time, than they do when they spend additional time on the question where the required time is up.
2.5 First read through the ”required” section of each question before you read through the
contents of the question. Make sure you answer what is required. 2.6 Do not waste unnecessary time trying to balance financial statements, as these totals
usually count only a few or no marks. 2.7 When drafting annual financial statements, start with the framework of the statement which
is required. Then do (and show) the calculations and complete the framework by using the calculated and given information.
2.8 A pocket calculator may be used, but the calculation must still be shown to ensure that you
still earn some marks. (No programmable calculators with alpha-numeric keyboards will be allowed).
2.9 Always write your answers in ink, not in pencil, even if you are doing calculations.
FAC2602/202
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3 ANNEXURES
ANNEXURE A:
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ANNEXURE A: SOLUTION ASSIGNMENT 03/2012 QUESTION 1 1.1 VIOLET LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2011 R Gross profit [700 000^ + 600 000^ + 880 000 – 880 000� – (45 000 x 25/125)�] 1 291 000 Other expenses (80 000^ + 65 000^ – 16 000� + 480 000^ + 82 000^) (691 000) Finance costs [7 500^ + (3 500^ – 2 100)�] (8 900)
Profit before tax 591 100 Income tax expense (104 888^ + 58 660^) (163 548)
PROFIT FOR THE YEAR 427 552 Other comprehensive income � -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 427 552
Profit attributable to:
Owners of the parent^ 410 868 Non-controlling interest^ 16 684
427 552
Total comprehensive income attributable to: Owners of the parent^ 410 868 Non-controlling interest^ 16 684
427 552
1.2 1.2.1 Property, plant and equipment
[(800 000^ + 600 000^ + (600 000 ^ + 400 000^ – 80 000�) – (320 000 ^ + 175 000^ – 8 000� – 16 000)�]
1 849 000
1.2.2 Inventory (60 000^ + 45 000^ – 9 000�) 96 000
1.2.3 Retained earnings (577 000^ + 2 700� + 410 868^ – 50 000�) 940 568
1.2.4 Non-controlling interest (25 000�� + 300�� + 10 000� + 16 684� – 2 000�)
49 984
FAC2602/202
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QUESTION 1 (continued) Calculations: 1. Analysis of ordinary owners’ equity of Tulip Ltd
Total
Violet Ltd – 90%*
Non-
controlling Interest –
10% At acquisition
At acquisition
Since acquisition
Share capital Revaluation surplus (500 000 – 450 000) Retained earnings
R 120 000
50 000 80 000
R 108 000
45 000 72 000
R R 12 000
5 000 8 000
Investment in Tulip Ltd
250 000 225 000 250 000
25 000
Goodwill 25 000
Since acquisition to beginning of current year Retained earnings
3 000
2 700
300
Balance 1/4/08 At acquisition Profit on sale Depreciation (80 000 x 20% x 6/12)
155 000 (80 000) (80 000)
8 000
Revaluation surplus (150 000 balance 1/4/10 – 50 000 balance at acquisition)
100 000 90 000 10 000
Current year Profit for the year
166 840
150 156
16 684
Calculation 2 Depreciation (80 000 x 20%)
150 840 16 000
Ordinary dividend (40 000 x 50c) (20 000) (18 000) (2 000)
499 840 134 856 RE 90 000 OCE
49 984
* 36 000/40 000 shares = 90% 2. Profit of Tulip Ltd
R Gross profit 600 000 Administration fees paid (240 000) Interest paid (3 500) Other expenses (82 000) Depreciation (65 000)
Profit before tax 209 500 Income tax expense (58 660)
150 840
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QUESTION 2 ICE LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2010 R Revenue (800 000 + 860 000 – 250 000) Cost of sales
1 410 000 (329 000)
�^
Opening inventory (60 000 + 78 000 – 10 000) Purchases (300 000 + 290 000 – 250 000)
128 000 340 000
�^ �^
Closing inventory (66 000 + 84 000 – 11 000)
468 000 (139 000)
�^
Gross profit Other expenses [284 600 + 237 400 + 22 000 + 15 000 – (20 000 x 20%)] Finance cost [(3 600 – 1 200) + 5 000]
1 081 000 (555 000)
(7 400)
��� ��
Profit before tax Income tax expense (62 810 + 86 710)
518 600 (149 520)
�
PROFIT FOR THE YEAR Other comprehensive income
369 080 -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 369 080
Profit attributable to:
Owners of the parent^ Non-controlling interest (42 258� + 6 000� – 2 000�)
322 822 46 258
369 080
Total comprehensive income attributable to: Owners of the parent^ Non-controlling interest
322 822 46 258
369 080
FAC2602/202
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QUESTION 2 (continued) ICE LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 AUGUST 2010
Ordinary share capital
R
Prefe- rence capital
R
Reva- luation surplus
R
Retained earnings
R Total
R
Non-controlling
interest R
Total equity
R
Balance at 31/8/2009 Changes in equity for 2010 Total comprehensive income for the year Ordinary dividends Preference dividends
�250 000 �180 000
�^140 000
� 46 400
^322 822 ^(50 000) ^(18 000)
� 616 400
322 822 (50 000) (18 000)
84 600
46 258 ^(2 100) ^(6 000)
� 701 000
369 080 (52 100) (24 000)
Balance at 31/8/2010 250 000 180 000 140 000 301 222 871 222 122 758 993 980
� 100 000 + 40 000 � 34 000^ – 20 000 (profit on machinery�) + (20 000� x 20% x 6/12 depreciation) + 30 400^ � 7 000 + 7 600 + 10 000 + 60 000��
10
QUESTION 2 (continued) Calculations: 1. Analysis of owners’ equity of Snow Ltd Ordinary shares
Total
Ice Ltd – 80%* Non-controlling interest –
20% At acquisition
At acquisition
Since acquisition
Share capital Investment in Snow Ltd
R 35 000
R ^28 000 ^30 000
R R 7 000
Goodwill 2 000
Since acquisition to beginning of current year Retained earnings
38 000
30 400
RE
7 600
Balance 1/9/2009 Unrealised profit in closing inventory (60 000 x 20/120)
48 000
^(10 000)
Revaluation surplus Current year Profit for the year
50 000
211 290
40 000
169 032
OCE RE
10 000
42 258
Calculation 3 Unrealised profit in opening inventory Unrealised profit in closing inventory (66 000 x 20/120)
212 290
^10 000
^(11 000)
Ordinary dividend Preference dividend
�(10 500) �(10 000)
(8 400) (8 000)
RE RE
(2 100) (2 000)
313 790 40 000 183 032
OCE RE
62 758
* shares00070
shares00056 = 80%
FAC2602/202
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QUESTION 2 (continued) 2. Analysis of owners’ equity of Snow Ltd Preference shares
Total Ice Ltd – 40%* Non-
controlling interest – 60%
At acquisition
Since acquisition
At acquisition Share capital Investment in Snow Ltd
R
100 000
R
^40 000 ^40 000
R R
60 000
Goodwill Nil
Current year Profit attributable Dividend paid
10 000 (10 000)
4 000 (4 000)
6 000 (6 000)
100 000 - 60 000
* shares 000 50
shares 000 20 = 40%
3. Profit of Snow Ltd
Sales Cost of sales
R ^860 000 (284 000)
Opening inventory Purchases Closing inventory
^78 000 ^290 000 ^(84 000)
Gross profit Management fee Other expenses Depreciation Interest paid - debentures - bank overdraft - loan
576 000 ^(12 000)
^(237 400) ^(15 000) ^(3 600) ^(5 000) ^(4 000)
Income tax expense
299 000 ^(86 710)
Profit for the year 212 290
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QUESTION 3
Dr R
Cr R
Share capital – Ordinary shares� Goodwill�
Investment in Snow Ltd� Non-controlling interest�
35 000 2 000
30 000 7 000
Share capital – Preference shares�
Investment in Snow Ltd� Non-controlling interest�
Elimination of owners’ equity of Snow Ltd at acquisition
100 000
40 000 60 000
Retained earnings – Ice Ltd� Plant and machinery – Snow Ltd� Accumulated depreciation - Snow Ltd� Depreciation – Ice Ltd� Retained earnings – Ice Ltd� Elimination of unrealised profits and depreciation associated with the sale of the machine
20 000
6 000
20 000
4 000 2 000
Cost of sales/Gross profit – Snow Ltd�
Inventory – Ice Ltd� Retained earnings – Opening balance – Snow Ltd�
Cost of sales/Gross profit – Snow Ltd� Elimination of unrealised profits in closing and opening inventories
11 000
10 000
11 000
10 000
FAC2602/202
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QUESTION 4 TOMBA LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 2007 R R Cash flow from operating activities� Cash receipts from customers Cash paid to suppliers and employees
353 800
(248 200)
Net cash generated by operations Dividends paid (calculation 3) Normal tax paid (calculation 4)
105 600 (80 000) (10 600)
Net cash inflow from operating activities Cash flow from investing activities� Investment to maintain production capacity
(16 000)
15 000
Replacement of machinery ��(16 000) Proceeds from sale of non-current assets Proceeds from sale of investments
�5 000 �4 000
Net cash outflow from investing activities Cash flow from financing activities� Redemption of long-term loan (130 000 – 110 000)
�(20 000)
(7 000)
Net cash outflow from financing activities (20 000)
Net decrease in cash and cash equivalents Cash and cash equivalents beginning of year
(12 000) �28 000
Cash and cash equivalents end of year �16 000
Calculations: 1. Cash receipts from customers
Balance b/d Sales
R ^30 800
^359 000
Bank* Balance c/d
R 353 800 ^36 000
389 800 389 800
*Balancing figure 2. Cash paid to suppliers and employees Balance (inventory) b/d Bank* Balance (payables) c/d
R ^38 000 248 200 ^14 800
Balance (payables) b/d Cost of sales Administrative and selling expenses Balance (inventory) c/d
R ^22 600
^152 400
^96 000 ^30 000
301 000 301 000
*Balancing figure
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QUESTION 4 (continued) 3. Dividends paid
Unpaid amounts at beginning of year Amounts debited to income Unpaid amounts at end of year
R ^20 000
�100 000 ^(40 000)
80 000
4. Taxation paid
Unpaid amounts at beginning of year Amounts debited to income Unpaid amounts at end of year
^7 600 �7 830 ^(4 830)
10 600
Machinery at cost price
Balance (inventory) b/d Bank (purchases)*
R ^24 600 16 000
Bank (sold) Balance c/d
R ^11 000 ^29 600
40 600 40 600
*Balancing figure
FAC2602/202
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QUESTION 5 SHARP LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2008 R R Cash flow from operating activities Profit before tax (calculation 1) Adjustments for: Profit on sale of equipment Other income – dividends received Depreciation Finance costs
^�493 750
^(18 750) ^(93 750) ^503 750
^25 000
Increase in working capital (calculation 2)
910 000 162 500
Decrease in inventory Increase in trade and other payables Increase in trade and other receivables (62 500 – 2 500)
16 250 206 250 (60 000)
Net cash generated by operations Dividends received (93 750 – 18 750) Interest paid (25 000 – 6 250) Dividends paid (calculation 3) Normal tax paid (calculation 4)
1 072 500 �75 000 �(18 750) (218 750) (201 250)
Net cash inflow from operating activities Cash flow from investing activities Investment to maintain production capacity
(1 250 000)
708 750
Replacement of equipment (given) �(1 250 000) Investment to expand production capacity (1 406 250)
Additions to equipment (calculation 5) �(1 406 250)
Proceeds on sale of non-current assets (250 000 + 18 750 profit) �268 750 Purchase of investments (875 000 – 687 500) �(187 500) Net cash outflow from investing activities (2 575 000) Cash flow from financing activities Proceeds on issue of shares (3 600 000 – 2 375 000) Net cash inflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents beginning of year
��1 225 000
1 225 000 (641 250) ^106 250
Cash and cash equivalents end of year ^(535 000)
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QUESTION 5 (continued) Calculations: 1. Profit before tax
Sales Cost of sales
R 2 187 500 (875 000)
Gross profit Profit on sale of equipment Other income – dividends received
1 312 500 18 750 93 750
Distribution expenses Administration expenses Other expenses Finance costs
1 425 000 (125 000) (562 500) (218 750)
(25 000)
Profit before tax 493 750
2. Change in working capital Decrease in inventory (78 750 – 62 500) ^16 250 Increase in trade and other receivables (375 000 – 312 500) ^(62 500) Decrease in prepaid expenses (12 500 – 10 000) ^2 500 Increase in trade and other payables (250 000 – 43 750) ^206 250
162 500
3. Dividends paid Unpaid amounts at beginning of year Amounts debited against profit Unpaid amounts at end of year
^62 500
^312 500 ^ (156 250)
218 750
4. Taxation paid Unpaid amounts at beginning of year Amounts debited against profit Unpaid amounts at end of year
^75 000
^207 500 ^ (81 250)
201 250
5. Property, plant and equipment at carrying amount
Balance (3 125 000 – 875 000) Revaluation (187 500 – 125 000) Replacement Additions (2 656 250 – 1 250 000)
b/d
R ^2 250 000
^62 500 ^1 250 000 ^1 406 250
Sales at carrying amount Depreciation (500 000 + 3 750) Balance (5 218 750 – 1 003 750)
c/d
R ^250 000
^503 750
^4 215 000
4 968 750 4 968 750
FAC2602/202
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ANNEXURE B:
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ANNEXURE B: OCTOBER 2011 EXAMINATION PAPER
(Adapted for the 2012 syllabus changes) This paper consists of eight (8) pages. NB: 1. This paper consists of THREE (3) questions. 2. Answer all the questions. 3. Show all the basic workings, where applicable. 4. Make sure that you get the correct examination answer book (blue for Accounting) from the
invigilator. 5. Start the answer to each question on a new (separate) page. 6. PROPOSED TIMETABLE
Question number
Topic Marks Time in minutes
1 Group financial statements 40 48
2 Group financial statements 25 30
3 Statements of cash flows 35 42
100 120
FAC2602/202
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QUESTION 1 (40 marks) (48 minutes) The following are the trial balances of Dora Ltd and Boots Ltd for the year ended 28 February 2011:
Dora Ltd R
Boots Ltd R
Credits Share capital Ordinary shares (300 000 shares;200 000 shares) ............................ 450 000 320 000 8% Preference shares (75 000 shares;50 000 shares) ...................... 150 000 100 000 Retained earnings ................................................................................ 885 000 225 000 Revenue ............................................................................................... 2 000 000 1 500 000 Trade and other payables .................................................................... 320 500 60 500 Dividends received ............................................................................... 25 600 - Loan from parent company................................................................... - 200 000 Interest received .................................................................................. 16 000 - Accumulated depreciation: plant and equipment .................................. 425 000 295 000 Bank – Swiper Bank ............................................................................. - 50 000 Tax payable .......................................................................................... 343 648 110 180 Administrative fees received from Boots Ltd ........................................ 250 000 -
4 865 748 2 860 680
Debits Investments in Boots Ltd at fair value 160 000 ordinary shares (cost price R350 000) .................................. 350 000 - 10 000 preference shares (cost price R30 000) ................................ 30 000 - Property at cost .................................................................................... 1 082 700 750 000 Plant and equipment at cost ................................................................ 850 000 682 800 Bank – Swiper Bank ............................................................................. 80 000 - Inventory at 28 February 2011 ............................................................. 120 000 125 000 Cost of sales ......................................................................................... 900 000 480 000 Trade and other receivables ................................................................ 120 000 50 000 Staff costs............................................................................................. 300 000 165 000 Administrative fees paid ....................................................................... - 250 000 Interest paid .......................................................................................... 2 500 14 000 Loan to subsidiary company ................................................................ 200 000 - Income tax expense ............................................................................. 128 548 110 880 Administrative expenses ...................................................................... 450 000 125 000 Ordinary dividends paid ........................................................................ 60 000 30 000 Preference dividends paid .................................................................... 12 000 8 000 Depreciation ......................................................................................... 180 000 70 000 4 865 748 2 860 680
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QUESTION 1 (continued) Additional information: 1. Dora Ltd acquired its total shareholding in Boots Ltd on 1 March 2008, when the retained
earnings of Boots Ltd was R20 000. On the date of acquisition, it was decided that the property of Boots Ltd should be valued upwards by 10%. The revaluation was never recorded in the books of Boots Ltd. On 1 December 2009, Dora Ltd sold property to Boots Ltd at its carrying amount of R200 000. Boots Ltd has not purchased or sold any other property since the acquisition.
It is group policy to show goodwill at cost less impairment in the consolidated financial
statements. Goodwill was not impaired during the year. 2. Boots Ltd is in the business of selling backpacks. On 1 March 2009, the management of
Boots Ltd took a decision to buy its entire line of inventory from Dora Ltd. On 28 February 2010, all inventories on hand of Boots Ltd had been bought from Dora Ltd, and consisted of 800 backpacks at a cost to Dora Ltd of R100 each. Dora Ltd sold its inventories to Boots Ltd at a profit of 25% on cost price. Sales from Dora Ltd to Boots Ltd amounted to R400 000 during the year ended 28 February 2011.
3. On 1 June 2009, Boots Ltd sold sewing machines with a carrying amount of R120 000 to
Dora Ltd at a profit of R40 000. The policy of the group is to write off plant and machinery at 20% per annum according to the reducing-balance method.
4. Dora Ltd lent an amount of R200 000 to Boots Ltd on 1 September 2010 at an interest rate
of 9% per annum. All interest due was received by Dora Ltd by 28 February 2011. No repayments of capital were due at 28 February 2011.
5. Dora Ltd guarantees the bank overdraft of Boots Ltd. REQUIRED: 1.1 Draft the consolidated statement of profit or loss and other comprehensive income of the
Dora Ltd Group for the year ended 28 February 2011, in accordance with Generally Accepted Accounting Practice. Ignore comparative figures and ignore the effect of taxation on any unrealised profits and/or losses, as well as capital gains tax. Notes to the financial statements and journal entries are not required. Do all calculations to the nearest Rand. (24)
1.2 Calculate the following items as they will appear on the consolidated financial
statements of the Dora Ltd Group as at 28 February 2011:
- Property, plant and equipment (5) - Goodwill (5) - Inventory (2) - Retained earnings beginning of year (4)
FAC2602/202
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QUESTION 2 (25 marks) (30 minutes) The following balances were extracted from the trial balance of Multiple Ltd and its subsidiary Choices Ltd for the year ended 30 June 2011: Multiple
Ltd R
Choices Ltd R
Sales ....................................................................................................... Cost of sales ........................................................................................... Income from investments (including dividend income) ............................ Other expenses ....................................................................................... Interest paid on borrowings ..................................................................... Income tax expense ................................................................................ Ordinary dividends paid .......................................................................... Preference dividends paid....................................................................... Issued capital Ordinary shares (400 000 shares;250 000 shares) ............................... 10% cumulative preference shares (100 000 shares) ........................... Retained earnings – 1 July 2010 .............................................................
2 000 000 1 360 000
27 000 400 000
1 500 68 740 30 000
-
400 000 -
120 000
1 200 000 840 000
6 000 240 000
11 250 32 130
8 000 20 000
250 000 100 000
62 000 Additional information: 1. Multiple Ltd acquired the following from Choices Ltd on 1 February 2011: - 51% of the ordinary shares for R210 000, and - 100% of the preference shares for R110 000. There were arrear preference dividends of R10 000 at the date of acquisition. 2. All income and expenses of Choices Ltd were earned evenly throughout the year, except
where otherwise stated. 3. Sales of Choices Ltd for the first 9 months of the financial year were earned evenly, but
increased by 25% in April and also remained at this level for May. In June 2011, sales peaked at R165 000 due to a year end advertising campaign. The gross profit margin on sales increased to 32% after the acquisition date in order to comply with Multiple Ltd’s policies.
4. On 1 March 2011, Choices Ltd invested R50 000 on advice from their financial advisor.
Choices Ltd’s income from investments is solely attributable to this investment. On 1 July 2011, Multiple Ltd received interest of R3 500 on an investment, which was for the
month of June 2011. This transaction has not yet been taken into account. 5. On 1 October 2010, Choices Ltd borrowed R150 000 at an interest rate of 10% per annum.
Total interest paid amounted to R11 250. 6. On 30 June 2011, Choices Ltd declared and paid an ordinary dividend of R8 000. 7. Assume a taxation rate of 28% and that all income are taxable and expenses are tax
deductible.
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QUESTION 2 (continued) REQUIRED: After taking the abovementioned information into account, calculate only the following items that will be needed should the consolidated financial statements of the Multiple Ltd Group for the year ended 30 June 2011 be drafted: 2.1 The sales of Choices Ltd for the period 1 July 2010 to 31 January 2011. 2.2 Assuming that the sales of Choices Ltd for the period 1 February 2011 to 30 June 2011
were R500 000, calculate the gross profit for the period 1 July 2010 to 31 January 2011. 2.3 Assuming that the gross profit of Choices Ltd for period 1 February 2011 to 30 June 2011 is
R180 000, calculate the profit after tax for the period 1 July 2010 to 31 January 2011. 2.4 The income from investments in the consolidated statement of profit or loss and other
comprehensive income of the Multiple Ltd Group at 30 June 2011. 2.5 Assuming that the profit after tax for the period 1 July 2010 to 31 January 2011 is R23 000,
calculate the goodwill at acquisition of the ordinary shares. (5 marks each)
FAC2602/202
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QUESTION 3 (35 marks) (42 minutes) The following balances appeared in the books of Sendai Ltd for the financial year ended 30 June: Additional
information 2011
R 2010
R Debits Property, plant and equipment .......................................................Financial assets at fair value ..........................................................Inventories ......................................................................................Trade receivables ................................................................Prepaid expenses ................................................................Dividends receivable ................................................................Cash and cash equivalents ............................................................
2,3 4
4 670 000
181 000 315 000 239 200
5 800 15 000
276 500
4 080 000
154 000 267 000 363 000
- 12 000
235 000 5 702 500 5 111 000
Credits Share capital – Ordinary shares (3 135 000/2 670 000 shares) ......................................................Revaluation surplus ................................................................Other components of equity ...........................................................Retained earnings ................................................................Long-term borrowings – ABC Bank ................................Long-term borrowings – Finance lease obligation ..........................Debentures .....................................................................................Trade and other payables ..............................................................Short-term borrowings – ABC Bank ................................Short-term borrowings – Finance lease obligation (55 835 + 60 022);(48 316 + 51 939) ................................South African Revenue Service ......................................................
1
3
5
3
3 135 000 80 000 15 000
990 504 71 579
133 888 90 000
755 755 125 917
115 857 189 000
2 670 000 - -
690 022 197 496 249 745 450 000 374 500 105 982
100 255 273 000
5 702 500 5 111 000
Additional information: 1. Total comprehensive income for the year ended 30 June 2011 is R475 482. The following
items are included in this total comprehensive income: R Finance cost (including interest on the finance lease) ..........................................Interest income .....................................................................................................Profit on sale of non-current asset: machinery ......................................................Depreciation – machinery .....................................................................................Depreciation – vehicles .........................................................................................Administrative expenses .......................................................................................Other expenses .....................................................................................................Dividends received ................................................................................................Income tax expense ..............................................................................................Gain on financial assets held through profit or loss (refer additional information 4) ........................................................................................................Other comprehensive income: - Gain on financial assets not-for-sale (refer additional information 4) .................- Gain on revaluation of property ..........................................................................
85 000 40 000 22 500
525 000 75 000 80 000 20 000 13 500
147 965
12 000
15 000 80 000
24
QUESTION 3 (continued) 2. Property, plant and equipment consist of the following:
2011 R
2010 R
Property at valuation/cost ................................................... Machinery ...........................................................................
800 000 3 345 000
720 000 3 030 000
Cost price .......................................................................... Accumulated depreciation .................................................
4 365 000 (1 020 000)
3 855 000 (825 000)
Vehicles .............................................................................. 525 000 330 000 Cost price .......................................................................... Accumulated depreciation .................................................
660 000 (135 000)
390 000 (60 000)
4 670 000 4 080 000
A machine, with an original cost price of R600 000, was sold on 31 March 2011 for
R292 500. The machine was immediately replaced with a new and more advanced machine. No other sales or purchases of machinery took place during the current year. During 2011 the company extended their delivery department and as a result new vehicles were purchased. To finance this extended programme the directors decided to issue shares and use part of the proceeds for this project. No other vehicles were bought or sold during the current year. 3. Sendai Ltd entered into a finance lease agreement on 30 June 2010 to finance the
purchase of machinery (expanding production). Amortisation table (you can accept this as correct)
Instalment R
Interest R
Capital R
Balance R
30 June 2010 .............................. 31 December 2010 ..................... 30 June 2011 .............................. 31 December 2011 ..................... 30 June 2012 .............................. 31 December 2012 ..................... 30 June 2013 ..............................
74 566 74 566 74 566 74 566
74 566 74 566
26 250 22 626 18 731 14 543 10 042
5 202
48 316 51 939 55 835 60 022
64 524 69 364
350 000 301 684 249 745 193 910 133 888
69 364 Nil
4. Financial assets consist of:
2011 R
2010 R
10 000 Ordinary shares in Landman Ltd at fair value [classified as not-held-for-trading (previously available-for-sale)] ...............
65 000
50 000
20 000 Ordinary shares in Voda City Ltd (classified as financial assets at fair value through profit and loss) ............................................................................................
116 000
104 000 The fair values of the above financial assets were restated at year end.
FAC2602/202
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QUESTION 3 (continued) 5. Trade and other payables consist of:
2011 R
2010 R
Trade payables ............................................................................ Income received in advance (rental) ............................................ Accrued expenses (interest) ........................................................ Accrued expenses (water and electricity) ....................................
693 735 23 520
- 38 500
304 500 21 000 14 000 35 000
755 755 374 500
6. A final dividend of R80 000 was declared and paid on 30 June 2011. 7. Ignore all tax implications on ‘other comprehensive income’ items. REQUIRED: Draft the statement of cash flows (using the indirect method) of Sendai Ltd for the financial year ended 30 June 2011 according to Generally Accepted Accounting Practice. Show all calculations. No notes to the statement of cash flows are required. Ignore comparative figures.
© UNISA 2011
26
ANNEXURE C:
FAC2602/202
27
ANNEXURE C: SOLUTION OCTOBER 2011 EXAMINATION PAPER QUESTION 1 DORA LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2011 R ASSETS Non-current assets 2 717 300 Property, plant and machinery [(1 082 700^ + 750 000^ + 850 000^ + 682 800^ + 55 000^ – 40 000^) – (425 000^ + 295 000^ – 6 800^ – 6 000^)]
2 673 300
Goodwill (34 000 + 10 000) 44 000 Current assets 420 000 Inventory (120 000^ + 125 000^ – 25 000�) 220 000 Bank (80 000 – 50 000) 30 000 Trade and other receivables (120 000 + 50 000) 170 000
Total assets 3 137 300
EQUITY AND LIABILITIES Total equity 2 302 472
Equity attributable to owners of the parent 2 058 488 Share capital (450 000 + 150 000) 600 000 Retained earnings 1 458 488 Non-controlling interest 243 984 Current liabilities 834 828 Trade and other payables (320 500 + 60 500) 381 000 Tax payable (343 648 + 110 180) 453 828
Total equity and liabilities 3 137 300
28
QUESTION 1 (continued) DORA LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2011
R Revenue (2 000 000^ + 1 500 000^ – 400 000^) 3 100 000 Cost of sales [900 000^ + 480 000^ + (125 000 x 25/125)�– (800 x R100 x 25%)�– 400 000^]
(985 000)
Gross profit 2 115 000 Other income (25 600^ – 24 000^ – 1 600^) + (16 000^ – 9 000*^) 7 000 Administrative expenses (450 000^ + 125 000^) + (300 000^ + 165 000^) + (180 000^ + 70 000^ – 6 800^)
(1 283 200)
Finance costs (2 500^ + 14 000^ – 9 000*��) (7 500)
Profit before tax 831 300 Income tax expense (128 548^ + 110 880^) (239 428)
PROFIT FOR THE YEAR 591 872 Other comprehensive income -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 591 872
*(200 000 x 6/12 x 9%) �Profit attributable to:
Owners of the parent (591 872 – 63 184) 528 688 Non-controlling interest (58 384 – 1 600 + 6 400) 63 184 591 872
�Total comprehensive income attributable to:
Owners of the parent (591 872 – 63 184) 528 688 Non-controlling interest (58 384 – 1 600 + 6 400) 63 184 591 872
DORA LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2011
Ordinary share capital
Prefe-rence share capital
Retained earnings
Total
Non-controlling
interest
Total equity
Balance at 1/3/2010 450 000 150 000 1 001 800� 1 601 800 193 200� 1 795 000 Changes in equity for 2011 Total comprehensive income for the year
528 688 528 688
63 184
591 872
Ordinary dividends (60 000) (60 000) (6 000) (66 000) Preference dividends (12 000) (12 000) (6 400) (18 400)
Balance at 31/3/2011 450 000 150 000 1 458 488 2 058 488 243 984 2 302 472
� 885 000^ – (800 x R100 x 25%)� + 136 800 � 79 000 + 34 200 + 80 000
FAC2602/202
29
QUESTION 1 (continued) Calculations: 1. Analysis of owners’ equity of Boots Ltd
Ordinary shares Total Dora Ltd – 80%
Non-controlling interest –
20% At
acquisition Since
acquisition
At date of acquisition
R
R
R
R
Share capital 320 000^ 256 000 64 000 Revaluation surplus* 55 000� 44 000 11 000 Retained earnings 20 000^ 16 000 4 000
395 000 316 000 79 000 Investment in Boots Ltd 350 000�
Goodwill 34 000
Since acquisition until beginning of current year
Retained earnings 171 000 136 800 34 200
Balance 1/3/2010 225 000� At acquisition (20 000)^ Profit on sale of machine (40 000)^ Depreciation on machine 6 000�
Current year Profit for the year 291 920 233 536 58 384
Refer calculation 2 285 120 Depreciation on machine 6 800�
Preference dividends (8 000) (6 400) � (1 600) Ordinary dividends (30 000) (24 000) (6 000)
819 920 339 936 163 984
* Property at cost Bought property 1 December 2009
R 750 000
(200 000) Property at cost at date of acquisition 550 000
Revaluation (550 000 x 10%) 55 000
30
QUESTION 1 (continued)
Preference shares Total
Dora Ltd – 20% Non-
controlling interest –
80%
At acquisition
Since acquisition
At date of acquisition
R
R
R
R
Share capital 100 000^ 20 000 80 000
Investment in Boots Ltd 30 000�
Goodwill 10 000
Since acquisition until beginning of current year Profit for the year Dividends paid
8 000 (8 000)
1 600 (1 600)
6 400 (6 400)
Current year
Profit for the year 8 000 1 600 �6 400
Dividends paid (8 000) (1 600) (6 400)
100 000 - 80 000
2. Profit of Boots Ltd for the current year
R Revenue 1 500 000 ^ Cost of sales (480 000) ^
Gross profit 1 020 000 Administrative expenses (125 000) ^ Administration fees paid (250 000) ^ Depreciation (70 000) ^ Staff costs Finance costs
(165 000) (14 000)
^ ^
Profit before tax 396 000 Income tax expense (110 880) ^
Profit for the year 285 120
FAC2602/202
31
QUESTION 2 2.1 Sales
Assuming that sales is x, then sales for 9 months must be 9x, and a sales increase of 25% must be 1.25x. Therefore, solve for x:
9x + 1.25x + 1.25x + R165 000 = R1 200 000 11,5x = R1 200 000 – R165 000 x = R1 035 000/11,5 x = R 90 000 9 months same� R90 000� 2 months increase of 25%� 1 month R165 000� Therefore sales between 1 July and 31 January equals R90 000 x 7� = R630 000. 2.2 Gross profit 1 July 2010 to 30 June 2011 Sales R1 200 000 – Cost of sales R840 000 = Gross profit R360 000� 1 February 2011 to 30 June 2011 Sales R500 000 (given) Gross profit R500 000 x 32% = R160 000� Cost of sales R500 000 (sales) – R160 000 (gross profit) = R340 000� 1 July 2010 to 31 January 2011 Sales R1 200 000 – R500 000 = R700 000� Cost of sales R840 000 – R340 000 = R500 000� Gross profit R700 000 (sales) – R500 000 (cost of sales) = R200 000 2.3 Profit for the period 1 July 2010 to 31 January 2011
Gross profit Income on investments Other expenses (240 000 x 7/12) Interest paid on borrowings (150 000 x 4/12 x 10%)
R 180 000
- (140 000)
(5 000)
� � ��
Income tax expense (35 000 x 28%)
35 000 (9 800)
�
Profit after tax 25 200
2.4 Income on investments (consolidated)
Income on investments (27 000 + 6 000) Dividends received from Choices [(8 000 x 51%) + 20 000] Accrued interest on investment
R 33 000
(24 080) 3 500
�� �� �
12 420
32
QUESTION 2 (continued) 2.5 Goodwill on acquisition of ordinary shares
Share capital – ordinary shares Retained earnings at 1 July 2010 Profit given for 1 July 2010 to 31 January 2011 Arrear preference dividends Preference dividends 1 July 2010 to 31 January 2011 (10 000 x 7/12)
R 250 000
62 000 23 000
(10 000) (5 833)
^ ^ � � �
319 167
51%^ of R319 167 162 775 Investment in Choices Ltd (210 000) ̂
Goodwill 47 225
FAC2602/202
33
QUESTION 3 SENDAI LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2011 �Cash flow from operating activities Profit before tax (calculation 1) Adjustments for: Profit on sale of machinery Depreciation (525 000^ + 75 000^) Interest received Dividends received Gain on financial asset held through profit or loss Finance costs
528 447
(22 500) 600 000 (40 000) (13 500) (12 000) 85 000
^ ^ ^ ^ ^
Increase in working capital (calculation 2) ^Increase in inventory ^Increase in trade and other payables ^Decrease in trade and other receivables ^Increase in prepaid expenses
1 125 447 465 255 (48 000) 395 255 123 800
(5 800)
Net cash generated by operations Interest received Dividends received (12 000^ + 13 500^ – 15 000^) Interest paid (85 000^ + 14 000^) Dividends paid Normal tax paid (calculation 3)
1 590 702 40 000 10 500
(99 000) (80 000)
(231 965)
^ ^
Net cash inflow from operating activities �Cash flow from investing activities Investment to maintain production capacity
(1 110 000)
1 230 237
^
�Replacement of equipment [(4 365 000^ – (3 855 000^ – 600 000�)]
(1 110 000)
Investment to expand production capacity (270 000)
�Additions to vehicles (660 000^ – 390 000^) (270 000)
Proceeds on sale of non-current assets 292 500
Net cash outflow from investing activities (1 087 500) �Cash flow from financing activities Proceeds on issue of shares (3 135 000^ – 2 670 000^) Long-term borrowings – ABC Bank repaid (calculation 4) Long-term borrowings – Finance lease (calculation 5) Debentures repaid (450 000^ – 90 000^) Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents beginning of year
465 000 (105 982) (100 255) (360 000)
(101 237)
41 500 235 000�
Cash and cash equivalents end of year 276 500�
34
QUESTION 3 (continued) Calculations: 1. Profit before tax Total comprehensive income Gain on financial asset not-for-sale Gain on revaluation of asset Profit for the year Taxation
R 475 482^ (15 000)� (80 000)� 380 482 147 965^
Profit before tax 528 447
2. Change in working capital
Increase in inventory (267 000 – 315 000) (48 000)� Decrease in trade and other receivables (239 200 – 363 000) 123 800� Increase in prepaid expenses (5 800)� Increase in trade and other payables [755 755^ – (374 500^ – 14 000� accrued interest)]
395 255
Cash inflow 465 255
3. Taxation paid Unpaid amounts at beginning of year Amounts debited against profit Unpaid amounts at end of year
273 000^ 147 965^
(189 000)^ 231 965
4. Long-term borrowings – ABC Bank repaid Short-term borrowings – 2010 Long-term borrowings – 2010 Long-term borrowings – 2011 Short-term borrowings – 2011
105 982^ 197 496^ (71 579)^
(125 917)^
105 982
5. Long-term borrowings – Finance lease Short-term borrowings – 2010 Long-term borrowings – 2010 Long-term borrowings – 2011 Short-term borrowings – 2011
100 255^ 249 745^ (133 888)^ (115 857)^
100 255
FAC2602/202
35
ANNEXURE D:
36
ANNEXURE D: MAY 2012 EXAMINATION PAPER
This paper consists of eight (8) pages. NB: 1. This paper consists of THREE (3) questions. 2. Answer all the questions. 3. Show all the basic workings, where applicable. 4. Make sure that you get the correct examination answer book (blue for Accounting) from the
invigilator. 5. Start the answer to each question on a new (separate) page. 6. PROPOSED TIMETABLE
Question number
Topic Marks Time in minutes
1 Group financial statements 58 70
2 Group financial statements 13 15
3 Statements of cash flows 29 35
100 120
FAC2602/202
37
QUESTION 1 (58 marks) (70 minutes) The following balances appear in the books of Goldtek Ltd and Cointek Ltd for the financial year ended 29 February 2012: Debits
Goldtek Limited
R
Cointek Limited
R Land and buildings at valuation ............................................................. Machinery at cost .................................................................................. Bills receivable ...................................................................................... Current account: Cointek Ltd ................................................................. Bank ...................................................................................................... Investments in Cointek Ltd at fair value: 112 000 Ordinary shares (cost price R136 000) ................................ 20 000 Preference shares (cost price R23 000) .............................. Inventories (including raw materials) ..................................................... Trade and other receivables .................................................................. Other expenses ..................................................................................... Income tax expense .............................................................................. Rent: Cointek Ltd ................................................................................... Finance cost .......................................................................................... Dividends paid (ordinary and preference shares) .................................. Dividends paid (preference shares) .......................................................
1 680 000 536 000
30 800 42 400
5 426
136 000 23 000 22 400
140 343 48 334 56 183
2 400 5 280
46 100 -
264 000 219 000
- - -
- -
24 800 80 400
7 440 42 000
- 960 -
2 400
2 774 666 641 000
Credits Share capital – ordinary shares (880 000 Goldtek shares; 160 000 Cointek shares) ........................... 8,75% Preference shares (12 000 shares) ............................................ 6% Preference shares (40 000 shares) ................................................. Retained earnings – 1 March 2011 ....................................................... 10% Debentures .................................................................................... Current account: Goldtek Ltd ................................................................. Accumulated depreciation – machinery ................................................. Accumulated depreciation – buildings ................................................... Current tax payable ............................................................................... Dividends received ................................................................................ Trade and other payables ..................................................................... Other income ......................................................................................... Bank overdraft ....................................................................................... Revaluation surplus – 1 March 2011 ..................................................... Gross profit ............................................................................................ Bills payable: Goldtek Ltd ...................................................................... Rent: Goldtek Ltd .................................................................................. Finance income .....................................................................................
1 760 000
24 000 -
40 000 52 800
- 125 200 304 000
43 200 1 200
77 000 55 706
- 90 600
200 000 - - 960
160 000
- 40 000 12 200
- 40 000 46 000 36 000 21 600
- 53 520
- 12 080 50 000
156 000 11 200
2 400 -
2 774 666 641 000
38
QUESTION 1 (continued)
Additional information:
1. Goldtek Ltd acquired its total interest in Cointek Ltd on 1 July 2007 for R159 000. On that date the retained earnings of Cointek Ltd amounted to R7 200 and the revaluation surplus to R4 000. The share capital of Cointek Ltd has remained unchanged since 1 July 2007. At the date of acquisition the dividends of the preference shares were not in arrears.
In addition to the abovementioned, Goldtek Ltd determined the purchase price of the shares by revaluing a vacant stand (included in land and buildings) by R16 000 on date of acquisition of Cointek Ltd.
The only other revaluation occurred on 1 January 2010 when both companies revalued their land and buildings again.
It is group policy to show goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired during the current year.
2. The operations of the two companies are similar in that both Goldtek Ltd and Cointek Ltd
are involved in the manufacture and refining of minerals. Owing to this an agreement exists between the two companies in which Goldtek Ltd purchases all its raw materials from Cointek Ltd at cost plus 25%. The following information is available from Goldtek Ltd: R Raw material inventories 1 March 2011 .............................................................. Raw materials purchased during the year ............................................................ Raw material inventories 29 February 2012 ........................................................
6 400 400 400
9 600 3. No preference dividends were or are in arrears.
4. All finance costs paid by Cointek Ltd were paid to Goldtek Ltd.
5. Cointek Ltd sent a cheque for R2 400 to Goldtek Ltd on 26 February 2012. This cheque
was only received by Goldtek Ltd on 4 March 2012.
6. The parent and the subsidiary do not bank with the same financial institution.
7. Sales of Goldtek Ltd for the year amounted to R1 200 000 (at a profit mark-up of 20% on cost) and R780 000 for Cointek Ltd (at a profit mark-up of 25% on cost).
8. Goldtek Ltd discounted all the bills receivable from Cointek Ltd at the bank before the expiry date.
FAC2602/202
39
QUESTION 1 (continued)
REQUIRED:
1.1 Draft the consolidated annual financial statements (consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and the consolidated statement of financial position) of the Goldtek Ltd Group for the year ended 29 February 2012, in accordance with Generally Accepted Accounting Practice.
Ignore comparative figures and ignore the effect of taxation on any unrealised profits and/or
losses, as well as capital gains tax. Notes to the financial statements are not required. Do all calculations to the nearest Rand. (52) 1.2 Draft only the following pro forma consolidated journal entries of the Goldtek Ltd Group at
29 February 2012:
1.2.1 Elimination of the unrealised profit in the closing inventory. 1.2.2 Elimination of the unrealised profit in the opening inventory.
No narrations are required, but indicate clearly to which company each account refers to. (6)
40
QUESTION 2 (13 marks) (15 minutes)
The following information was extracted from the financial records of the Xingu Ltd Group at 31 March 2012: 1. Yalu Ltd became a subsidiary of Xingu Ltd on 10 January 2002.
2. On 1 October 2009 Yalu Ltd sold machine A with a carrying amount of R400 000 to
Xingu Ltd at a profit of R80 000. 3. On 1 January 2012 Xingu Ltd sold machine B with a carrying amount of R120 000 for
R140 000 to Yalu Ltd. 4. The policy of the group is to write-off plant and machinery over 4 years according to the
straight-line method. REQUIRED: After taking the abovementioned information into account draft the following pro forma consolidation journal entries of the Xingu Ltd Group for the year ended 31 March 2012: 2.1 Eliminate the unrealised profit on the sale of machines A and B. (4½) 2.2 Eliminate all the previous years’ depreciation associated with the sale of machine A. (3) 2.3 Eliminate the current years’ depreciation associated with the sale of machines A and B.
(5½) Narrations are required and indicate clearly to which company each account refers to. Show all calculations but ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax.
FAC2602/202
41
QUESTION 3 (29 marks) (35 minutes) The following balances appear in the books of Racing Rocket Limited for the financial year ended 29 February: 2012
R 2011
R Land and buildings ................................................................................. Plant and equipment .............................................................................. Investments ............................................................................................ Inventory ................................................................................................ Trade receivables .................................................................................. Prepaid expenses .................................................................................. Dividends receivable .............................................................................. Bank .......................................................................................................
1 200 000 600 000 180 700 102 000 106 450
3 000 5 200
1 500
300 000 225 000 153 000 130 000 43 000
2 000 2 000
-
2 198 850 855 000
Share capital .......................................................................................... 12% Debentures of R200 each .............................................................. Revaluation surplus on land ................................................................... Retained earnings .................................................................................. 7% Long-term borrowings ...................................................................... 14% Long-term borrowings .................................................................... Accumulated depreciation – plant and equipment ................................. Tax payable – SARS .............................................................................. Short-term portion of long-term borrowings............................................ Dividends payable .................................................................................. Trade and other payables ...................................................................... Accrued interest on long-term borrowings ............................................. Bank overdraft ........................................................................................
200 000
- 50 000 83 450
712 500 -
209 700 31 000
237 500 20 000
647 970 6 730
-
200 000 100 000
- 65 300
- 20 000
110 500 20 000 40 000 15 000
212 800 1 200
70 200
2 198 850 855 000
42
QUESTION 3 (continued) STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 2012 2012
R 2011
R Revenue................................................................................................... 1 300 000 735 000 Cost of sales ............................................................................................ (400 000) (214 800)
Gross profit .............................................................................................. Expenses .................................................................................................
900 000 (848 125)
520 200 (489 620)
Directors’ remuneration ............................................................................ Salaries and wages .................................................................................. Other expenses ........................................................................................ Auditors’ remuneration ............................................................................. Depreciation ............................................................................................. Loss on sale of plant and equipment ....................................................... Finance charges ......................................................................................
150 000 300 000 150 000
43 000 115 000 18 000 72 125
120 000 200 000 63 000 40 000 53 000 1 500 12 120
Other income Dividends on investments ......................................................................
15 000
8 000
Profit before tax ....................................................................................... Income tax expense .................................................................................
66 875 (18 725)
38 580 (10 802)
Profit for the year ..................................................................................... 48 150 27 778 Other comprehensive income .................................................................. 50 000 -
Total comprehensive income for the year ................................................ 98 150 27 778
The following additional information is available: 1. During the year, Racing Rocket Limited executed an aggressive strategy to expand its
operations and acquired additional land and buildings as well as plant and equipment. No land and buildings were sold during the current year. In order to fund its growth strategy a loan was taken out on 1 March 2011. Only interest is payable in the first year, thereafter four equal annual payments of capital and interest are due starting on 28 February 2013. The loan from the previous year was fully settled during the current year.
2. The debentures were also redeemed at par on 30 June 2011.
3. The company sold two items of plant and machinery during the year and replaced them with
machinery costing R115 000. The first machine with an original cost price of R45 000 was sold for R30 000, incurring a loss of R5 000. A further loss was incurred on the sale of the second machine, which had originally cost R38 000. The balance of the machinery acquired was to expand the company’s operations.
FAC2602/202
43
QUESTION 3 (continued) 4. The company directors realised that they had surplus space available after the further
acquisition of land and buildings and decided to rent out spare office space at R7 500 per month, payable in advance, with effect from 1 May 2011. They did not communicate this to the accountant, Mr Spaceout, and he posted all rental receipts to the ‘Revenue account’. The tenant defaulted on the payment due on 1 February 2012, and only paid this on 2 March 2012. None of these entries have been corrected to date.
5. Mr Spaceout was unaware that there had been further rates payable as a result of the
additions to land and buildings on 1 March 2011. He received a final demand on 15 February 2012 to pay an amount of R12 000 on or before 31 March 2012. No entries have been made in this regard to date.
6. Trade payables at 29 February 2012 included a provision of bonuses of R10 000 for
Mr Spaceout, which the directors decided to reverse. They informed him of this at his performance appraisal on 1 February 2012, but he has not processed this adjustment to date.
7. An interim ordinary dividend of 10 cents per share was paid on 31 August 2011 when there
were 200 000 ordinary shares in issue. On 31 January 2012 a further 50 000 ordinary shares were issued for R50 000, but Mr Spaceout posted this receipt to the ‘Revenue account’. In view of the anticipated decrease in forecasted profits due to Mr Spaceout’s errors, the directors decided to reduce the final dividend per share by 60% of the interim dividend per share. They officially declared this on 4 February 2012 and Mr Spaceout did provide for this.
REQUIRED: Draft only (1) the cash flow from operating activities and (2) cash flow from investing activities sections from the statement of cash flows of Racing Rocket Limited for the year ended 29 February 2012, after correcting and adjusting for all entries mentioned above, using the indirect method, in compliance with Generally Accepted Accounting Practice. Ignore comparative figures but show all calculations.
© UNISA 2012
44
ANNEXURE E:
FAC2602/202
45
ANNEXURE E: SOLUTION MAY 2012 EXAMINATION PAPER QUESTION 1 1.1 GOLDTEK LTD GROUP CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 2012 Revenue (1 200 000^ + 780 000^ – 400 400^) Cost of sales [(1 200 000 x 100/120)� + (780 000 x 100/125) � – 1 280^ + 1 920^ – 400 400^)]
R
1 579 600 (1 224 240)
Gross profit Other income (55 706 + 2 400 + 1 200 – 2 400 – 1200) Other expenses (48 334 + 7 440 + 2 400 – 2 400) Net finance cost
355 360 �55 706 �(55 774) �(5 280)
Finance cost (5 280 – 960 + 960) Finance income (960 – 960) ^
(5 280) -
Profit before tax Income tax expense (56 183^ + 42 000^)
350 012 (98 183)
PROFIT FOR THE YEAR 251 829 Other comprehensive income -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 251 829
Profit attributable to:
Owners of the parent 219 141 Non-controlling interest 32 688
251 829
Total comprehensive income attributable to: Owners of the parent 219 141 Non-controlling interest (32 208^ – 720^ + 1 200^) 32 688
251 829
46
QUESTION 1 (continued) GOLDTEK LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 FEBRUARY 2012
Ordinary shares
R
Prefe- rence
shares R
Revalua- tion
surplus R
Retained earnings
R
Total R
Non-controlling
interest R
Total R
Balance at 1/3/2011 Changes in equity for 2012 Total comprehensive income Ordinary dividends Preference dividends
^1 760 000
^24 000
111 600
�
42 604
^219 141 �(44 000) �(2 100)
� � �
1 938 204
219 141 (44 000) (2 100)
�86 276
^32 688
�(1 200)
� 2 024 480
251 829 (44 000) (3 300)
Balance at 28/2/2012 1 760 000 24 000 111 600 215 645 2 111 245 117 764 2 229 009
� 90 600^ + 21 000^ = 111 600 � 24 000 x 8,75% = 2 100 � 46 100 – 2 100 (preference dividends) = 44 000 � 40 000^ + 2 604^ = 42 604 � 56 160 + 1 116 + 9 000 + 20 000 = 86 276
FAC2602/202
47
QUESTION 1 (continued) GOLDTEK LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 29 FEBRUARY 2012 ASSETS Non-current assets
R
2 195 760 Property, plant and equipment (1 680 000^ + 264 000^ – 304 000^ – 36 000^ + 536 000^ + 219 000^ – 125 200^ – 46 000^) 2 187 800 �Goodwill (4 960 + 3 000) 7 960 Current assets
293 449
Inventory (22 400^ + 24 800^ – 1 920^) Trade and other receivables (30 800^ +140 343^ + 80 400^ – 11 200*^ + 2 400^) Cash and cash equivalents
45 280 242 743
^5 426
Total assets 2 489 209
EQUITY AND LIABILITIES Total equity
2 229 009
Equity attributable to owners of the parent 2 111 245 Share capital – 880 000 ordinary shares Preference shares (12 000 shares) Other components of equity Retained earnings
^1 760 000 ^24 000
^111 600 ^215 645
����Non-controlling interest ^117 764
Non-current liabilities 10% Debentures
^52 800 Current liabilities
207 400
Trade and other payables (77 000^ + 53 520^ + 11 200 – 11 200*) Current tax payable (43 200^ + 21 600^) Bank overdraft
130 520 64 800
^12 080
Total equity and liabilities 2 489 209
* Elimination of intragroup bills
48
QUESTION 1 (continued) Calculations:
3. Analysis of ordinary owners’ equity of Cointek Ltd Ordinary shares
Total
Goldtek Limited – 70%* Non-
controlling interest –
30%
At acquisition
At acquisition
Since acquisition
RE
Since acquisition
OCE
Share capital Revaluation surplus Retained earnings Revaluation surplus – vacant stand
160 000 4 000 7 200
16 000
^ ^ ^ ^
112 000 2 800 5 040
11 200
48 000 1 200 2 160
4 800
Investment in Cointek Ltd
187 200 131 040 136 000
�
56 160
Goodwill 4 960 �
Since acquisition to beginning of current year Retained earnings
3 720
2 604
1 116
Balance 1/3/2011 At acquisition Unrealised profit in opening inventories (6 400 x 25/125)
12 200 (7 200)
(1 280)
^ ^ �
Revaluation surplus (calculation 3)
30 000
��
21 000
9 000
Current year 107 360 75 152 32 208
Profit for the year (calculation 4) Unrealised profit in opening inventories Unrealised profit in closing inventories (9 600 x 25/125)
108 000
1 280
(1 920)
��^ ^ �
Preference dividends (40 000 x 6%)
(2 400) � (1 680) (720)
325 880 76 076 21 000 97 764
* Goldtek Ltd purchased 112 000 shares in Cointek Ltd, which issued 160 000 shares. 112 000 x 100 = 70% interest. 160 000 1
FAC2602/202
49
QUESTION 1 (continued) 2. Analysis of preference owners’ equity of Cointek Ltd Preference shares
Total Goldtek Ltd – 50%*
Non-controlling interest –
50% At
acquisition Since
acquisition
At acquisition Share capital Investment in Cointek Ltd
40 000
�
20 000 23 000
�
20 000
Goodwill 3 000 �
Current year Profit for the year attributable to preference shares (40 000 x 6%) Dividend paid
2 400 (2 400)
^ ^
1 200 (1 200)
1 200 (1 200)
40 000 - 20 000
shares 000 40
shares 000 20 = 50%
3. Revaluation surplus R Balance at 28 February 2012 At acquisition (4 000 + 16 000)
50 000 (20 000)
Increase in revaluation surplus since acquisition 30 000
4. Profit for the year Gross profit 156 000 Rent: Goldtek Ltd 2 400 Finance costs (960) Other expenses (7 440)
Profit before tax 150 000 Income tax expense (42 000)
108 000
50
QUESTION 1 (continued) 1.2 Pro-forma consolidation journal entries for the year ended 29 February 2012
Dr
Cr
1.2.1 R R ^Cost of sales – Cointek Ltd� 1 920 ^Inventory – Goldtek Ltd� 1 920 Elimination of unrealised intragroup profit included in closing inventory of Goldtek Ltd (9 600 x 25/125)
1.2.2 ^Retained earnings – Cointek Ltd� 1 280 ^Cost of sales – Cointek Ltd� 1 280 Elimination of unrealised intragroup profit included in opening inventory of Goldtek Ltd (6 400 x 25/125)
� Exam tips
� Make sure you know the format of the financial statements, namely the statement of
financial position, the statement of profit or loss and other comprehensive income and the statement of changes in equity. Marks are awarded for the proper disclosure or the wording and these are unnecessary marks to forfeit.
� In a consolidation question, where all the statements are required, many of the marks will be marked through. This means that even if the figure you calculated in the statement of profit or loss and other comprehensive income attributable to non-controlling interests is incorrect but you have carried it down correctly to the statement of changes in equity, this could be a mark earned.
� Students forget to show their calculations. If one looks at the solution it is clear to see that marks are awarded for the individual figures. You will not earn the marks by merely showing a total figure that is incorrect. This also applies in the statement of changes in equity: students have not given the calculations to show how they arrive at the balance, thereby forfeiting many easy marks.
� In the analysis of owner’s equity, the adjustments for the opening and closing inventory are normally calculated correctly but it is a concern that students are uncertain of whether they should be adding or deducting the amounts. Students need to make sure they have the brackets in the correct place. In other words make sure you understand what amounts need to be added to the profit and what amounts need to be deducted. Many marks are lost when signs are wrong.
� In the analysis it is worrying that many students still do not put the correct investment amount, namely R136 000. This amount is given in the question and yet students disclose other figures. This is a careless mark to lose.
FAC2602/202
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QUESTION 1 (continued)
� Some students still combine the analysis of owner’s equity for the ordinary shares and the preference shares. If you refer to the study guide you will note that the analysis for the ordinary shares and the analysis for the preference shares are never combined. The parent company is likely to own different percentages ordinary and preference shares, so the allocation of the items in the analysis between the parent and non-controlling interest will be impossible at two different percentages.
� Pro-forma consolidation entries always carry marks and these journals have been
extensively dealt with in the study guide, the CDs and the DVD. Prof-forma consolidation entries should be studied and if they are asked in a question it should be easy marks. Please study the journals and also note that marks are awarded for narrations so please do not omit when asked to disclose.
� Where it is not indicated on the journal entry which company should be debited or credited
it is not possible to award a mark, as this indicates uncertainty.
� On the statement of financial position, marks have been awarded for the wording such as “goodwill” and “non-controlling interests”. The one problem is that students write these headings under the wrong sections, for example “non-controlling interests” will be disclosed under liabilities. Make sure you know what items belong where in the statements! The second problem is that the students do not even know the correct terms. Many times marks are awarded for the proper disclosure or the wording and these are unnecessary marks to forfeit.
� On the statement of financial position calculations are again left out and marks are unnecessarily lost. Please disclose all calculations, even if it be in a bracket on the face of the statement.
52
QUESTION 2
Dr R
Cr R
2.1 Retained earnings – Yalu Ltd^ Plant and machinery/Machinery – Xingu Ltd^ Elimination of unrealised profits associated with the sale of machine A^ Profit on sale of machine/Net income – Xingu Ltd^ (140 000^ – 120 000^) Plant and machinery/Machinery – Yalu Ltd^ Elimination of unrealised profits associated with the sale of machine B on 1 January 2012^
80 000^
20 000
80 000
20 000
2.2 Accumulated depreciation – Xingu Ltd^ Retained earnings – Yalu Ltd^ Elimination of unrealised depreciation associated with the sale of machine A^ [80 000^ x (6 + 12 months^)/12 months x 25%^]
30 000
30 000
2.3 Accumulated depreciation – Xingu Ltd^ Depreciation – Yalu Ltd^ Elimination of unrealised depreciation associated with the sale of machine A^ [80 000^ x 12 months/12 months x 25%^] Accumulated depreciation – Yalu Ltd^ Depreciation – Xingu Ltd^ Elimination of unrealised depreciation associated with the sale of machine B^ [20 000^ x 3 months/12 months^ x 25%^]
20 000
1 250
20 000
1 250
� Exam tips
� Make sure that you show all your calculations. You can see from this mark plan that half
marks are allocated for numbers that are part of a calculation. For instance at section 2.2, even if you did not know the depreciation rate is 25%, you can still earn a half mark for the R80 000 if you knew this was to be used as part of the calculation, AND wrote it down!
� Read the required thoroughly and make sure you answer ALL that is required. Here narrations were specifically required and you would lose valuable easy marks by not putting the narration as part of your answer.
FAC2602/202
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QUESTION 2 (continued)
� It is important to study journal entries. When consolidating journal entries are required, the account name and the company it relates to must be written down to earn marks.
� Make sure you know how to calculate the amount of months depreciation should be
calculated for. During the May 2012 exam many students struggled with this. � Do you understand that the unrealised depreciation should be calculated using the
unrealised profit amount and not the asset cost price? It is because the unrealised profit is realised as the asset is used by die entity. During the May 2012 exam many students struggled with this.
54
QUESTION 3 RACING ROCKET LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 29 FEBRUARY 2012
R R Cash flow from operating activities ^Profit before tax (calculation 1) ^Adjustments for: Depreciation Finance charges Loss on sale of plant and equipment Investment income
22 375
^115 000 ^72 125 ^18 000
^ (15 000)
Operating profit before changes in working capital ^Changes in working capital
212 500 393 220
Decrease in inventory (130 000^ – 102 000^) Increase in trade receivables (106 450^ + 7 500^ – 43 000^) Increase in prepaid expenses (3 000^ – 2 000^) Increase in payables (647 970^ + 12 000^ – 10 000^ – 212 800^)
28 000 (70 950) (1 000)
437 170
Cash generated from operations Income from investments (15 000^ – 5 200^ + 2 000^) Finance charges (72 125^ – 6 730^ + 1 200^) Dividends paid (calculation 2) Normal taxation paid (calculation 3)
605 720 11 800
(66 595) (25 000) (7 725)
Net cash from operating activities Cash flow from investing activities ^Investment to maintain production capacity
(115 000)
518 200
Replacement of plant and equipment (given) �(115 000)
^Investment to expand production capacity (1 193 000)
Additions to land and buildings (calculation 4) Additions to plant and equipment (calculation 5)
(850 000) (343 000)
Proceeds from sale of plant and equipment 30 000 (given) �+ 19 200 (calculation 7) Purchase of investments (180 700^ – 153 000^)
49 200
(27 700)
Net cash outflow from investing activities (1 286 500)
NOT REQUIRED FOR EXAM PURPOSES Cash flow from financing activities Proceeds on issue of shares (250 000 – 200 000) Proceeds from long-term borrowings (712 500 + 237 500) Redemption of debentures Repayment of long-term borrowings (20 000 + 40 000)
50 000 950 000
(100 000) (60 000)
Net cash inflow from financing activities 840 000
Net increase in cash and cash equivalents Cash and cash equivalents beginning of year
71 700 (70 200)
Cash and cash equivalents end of year 1 500
FAC2602/202
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QUESTION 3 (continued) Calculations: 1. Profit before tax
Given Rental for February 2012 accrued Shares issued correction Bonus Mr Spaceout Rates accrued
R 66 875^
7 500^ (50 000)^ 10 000^
(12 000)^ 22 375
2. Dividends paid
Unpaid amounts at beginning of year Amounts debited against profit: Interim dividend: 200 000 ^shares x 10 cents^ Final dividend: 250 000 ^shares x 4 cents^ (10 cents - 60%) Unpaid amounts at end of year
^15 000
20 000 10 000
^(20 000)
25 000
3. Tax paid
Unpaid amounts at beginning of year Amounts debited against profit Unpaid amounts at end of year
^20 000 ^18 725
^(31 000)
7 725
4. Land and buildings at cost
Balance b/d Revaluation Additions
R ^300 000 ^50 000
*850 000
Balance c/d
R ^1 200 000
1 200 000 1 200 000
*Balancing figure 5. Plant and equipment at cost
Balance b/d Replacement Additions*
R ^225 000 ^115 000 *343 000
Sale of 1st asset (given) Sale of 2nd asset (given) Balance c/d
R ^45 000 ^38 000
^600 000
683 000 683 000
*Balancing figure
56
QUESTION 3 (continued) 6. Accumulated depreciation: Plant and equipment
Acc depr on 1st asset sold [45 000 (cost) – 35 000 (CV)] Acc depreciation on 2nd asset sold Balance c/d
R 10 000
*5 800
209 700
Balance b/d Depreciation (given)
R 110 500 115 000
225 500 225 500
*Balancing figure 7. Calculation of proceeds on sale of 2nd asset Carrying value = R38 000^ (cost given) – R5 800^ (balancing figure in calc 6)
= R32 200 Loss on sale = R18 000^ (total loss given) – R5 000^ (loss on sale of 1st asset) = R13 000 Therefore, proceeds on sale of 2nd asset = R32 200 – R13 000 = R19 200
� Exam tips
� Make sure you know the format or framework of the statement of cash flows. The direct or
indirect method can be asked in the exam and you will lose many valuable marks by not knowing both methods.
� Start at the top with the “profit before tax”. Make sure you use the relevant figures inside the given information, in this instance the profit before tax figure in the statement of profit or loss and other comprehensive income. Then go through the additional information and ensure that all relevant amounts and calculations are added to your calculation. This is where you will for instance pick up the R7 500 rental accrued. Do this with every line item in the statement of cash flows. At the end go back to the statement of financial position and statement of profit or loss and other comprehensive income provided, to ensure all amounts that needed to be incorporated, are in fact. This is how you will for instance pick up that there is a revaluation surplus that needs to be incorporated in the land and buildings calculation.
� Make sure you have the brackets in the statement right. In other words make sure you understand what items increase cash and what items decrease cash, as students loose many marks when signs are wrong.
� Do you understand why the profit for tax is adjusted for certain items? It is because these items do not have a cash implication. Depreciation for instance, is not an expense paid for with cash.
FAC2602/202
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QUESTION 3 (continued)
� To make sure you get the brackets right, you need to understand the principles behind the changes in working capital, for instance. If inventory decreased from 2011 to 2012, it means less inventory was purchased, so less cash was paid over, so cash could increase.
� If it makes it easier for you to understand the inflow or outflow of cash, you can draw up more T-accounts for calculations. For example:
Dividends receivable
Balance b/d Dividend on investments - income
R 2 000
15 000
Bank Balance c/d
R *11 800
5 200
17 000 17 000
*Balancing figure
� When working out the plant and equipment additions and replacements, first determine if you can get along by just doing the T-account at cost. In this instance it gave you the additions amount. But as you also needed the proceeds on the sale of the second asset, you needed to draw up the accumulated depreciation T-account as well to work out the accumulated depreciation of the asset sold.
FAC2602_2012_TL_202_2_E.doc