UNIVERSITY OF VENDA DEGREE AND DIPLOMA EXAM MAIN EXAM. JUNE/JULY 2011 COURSE : FINANCIAL ACCOUNTING TITLE : COMPANY FINANCIAL STATEMENTS CODE : ACC 2541 MARKS :100 Examiner : NDOU M.P. Moderator : Munzhelele NF TIME: 3 HOURS INSTRUCTIONS: 1. Answer all questions. 2. Silent calculators may be used. 3. Write neatly and legibly. 4, Show all your calculations/workings. 5. Start each question on a new page.Question 1 Group Statements (30 Marks) On 1 January 2008 Hobo Ltd purchased 75 % of the ordinary shares in Solo Ltd for R90 000. At that stage Solo Ltd's equity consisted of the following: R1 ordinary shares R100 000 Retained earnings 20.000 The condensed statements of comprehensive income of the two entities for the year ended 31 December 2011 are as follows: ‘Hobo Lid_| Solo Lid Revenue 400000 | 255 000 Cost of sales (240.000) _| (153 000) Gross profit 7160000 | 102 000 Depreciation (20.000) | (8 000) ther expenses (60.000) | (34 000) Profit before tax 80.000 | 60 000 Tncome tax expense (40.000) | (30000) Profit for year ‘R40 000 | R30 000 The condensed statement of changes in equity of the two entities for the year ended 31 December 2011 is as follows: Retained earnings. Hobo Lid_| Solo Lid Balance on 31 December 2070 58.000___| 50.000. Profit for the period. 40.000 | 30.000. Ordinary dividend (000) | - Balance on 31 December 2011 ‘R90 000 | R50 000 ‘On 31 December 2011 the following items, inter alia, appeared in the two entities’ statement of financial sition: ‘Hobo Lid | Solo Lid Plant: cost price ‘R200.000 | R50 000 ‘Accumulated depreciation (80.000) | (32 000) ‘R120 000 _| R48. 000 Taventory at cost ‘R40 000 | R12 000 Additional information: 1. Included in Hobo Ltd’s plant is a machine sold on 1 January 2009 by Solo Ltd to Hobo Ltd. Solo Ltd made a profit of R30 000 on this transaction and the machine was classified as equipment in Solo Ltd's records. Plant and equipment is depreciated at 10% per year on cost price. 2, Since May 2009 Hobo Ltd has purchased its entire inventory from Solo Ltd at the normal selling prices, determined by Solo Ltd at cost plus 25 %. Total sales from Solo Ltd to Hobo Ltd for the year ended 2011 amounted to R148 000. 3. At31 December 2010 the inventories on hand of Hobo Ltd was R3 000 (valued at cost price for Hobo itd). 4, Ignore the tox adjustments resulting from the elimination of unrealized profit.Required: 1. Prepare the pro forma journal entries for Hobo Ltd group. (10) 2. Prepare the condensed consolidated statement of comprehensive income and consolidated statement of changes in equity of Hall Ltd group for the year ended 31 December 2011. (14) 3. Disclose the following items as they shall appear in the consolidated statement of financial position of Hall Ltd group at 31 December 2011. . Plant . Inventories (6) Question 2 Change in Accounting policy, Estimates and Correction of errors (25 Marks) The following Statements of comprehensive Income were prepared for Univen Ltd, prior to voluntary decision to change the accounting policy for the valuation of inventory from the First-in-First-out formula to the weighted-average formula: Year ended 31 Dec. 2011 | Year ended 31 Dec. 2010 ‘Sales RI3.500, R10 000, Cost of sales 8300, 3.600 Gross profit 5200 4400 ‘Other operating expenses 2700, 2400 Profit before tax 2.500 2.000 [Taxation 730. 600 Profit for the year RI 750 RL 400 The information regarding the change in accounting policy in respect of inventories is as follows: Inventories (closing) 2011 2010 2009 Inventory valuation ‘New method (weighted average) 1500 1000 800 Old method (FIFO) 1200 750 620 The retained earnings balance at 31 December 2009 amounted to R2 000, and there were no dividends declared or paid during the past three years. The normal tax rate applicable to all three years was 30%. Required: L Prepare the journal entry entries to be processed for the year ended 31 December 2011 to record the effect of the change in accounting policy. 7) Prepare the note disclosure for the change in accounting policy, as required in terms of IASB, in the financial statements for the year ended 31 December 2011. (18)Question 3 Inventories 20° Marks Coo! Time Ltd began operations on 1 January 2008. The following costs were incurred during the year 32 December 2010: Raw materials purchased 150.000 Wages 300.000 Variable production overheads (25% administrative and remainder are for manufacturing) 250.000 Fixed production overheads 600 000 The level of normal production was expected to be 120 000 for the year ended 31 December 2010 whereas the actual level of production was 100 000 units for this period. 15 % of the raw material has not yet been transferred to the manufacturing process during the year. Work in process represents 25 % of the total manufacturing costs at 31 December 2010. 75 % of those goods that were finished have been sold as at 31 December 2008. The goods sold were sold at cost plus a 10 % mark-up. ‘At year end, it was apparent that the entire balance of finished goods could be sold for R450 000, the entire balance of work in process could be sold for 250 000 (assuming that the work in process will be completed at a further cost of RSS 000 and selling costs of R6 000 will be incurred), and the entire balance of raw materials could be sold “as is” for R30 000 (no further costs will be incurred). Required: 1. Calculate the cost per classification of inventory at 31 December 2010 so as to comply with the requirements of Statements of GAAP. (11) 2. Calculate the net realizable values per classification of inventory at 31 December 2010 so ‘as to comply with the requirements of Statements of GAAP. 4) 3. Prepare the notes related to all matters of inventories in the financial statements of Cool Time Ltd for the year ended 31 December 2010 so as to comply with the requirements of Statements of GAAP. (5)Question 4 Earnings and Dividend per share (25 Marks) Mphela Ltd was incorporated in 2007 with an authorized share capital of R200 000 ordinary shares of 500 cents each and 500 000 10 % participating preference shares of 100 cents each. The authorized share capital was issued in full on the date of incorporation. The ordinary shares were subdivided into 100 cents shares on 30 June 2010. An additional 10 000 ordinary shares were issued on 1 July 2010 for cash at a premium of 50 cents per share after complying with all the necessary legal requirements. A capitalization issue of one share for every two shares held was made on 30 December 2010. The participating preference shareholders share in dividends in the ratio 1: 9 of the total dividends attributable to ordinary shareholders. The 2008 preference dividend was proposed, declared and paid in 2009 and no ordinary dividend was paid in 2008. The following information was extracted from the consolidated statement of comprehensive income of the Mphela Ltd Group for the year 31 December 2010: 2010 2009 Profit before tax R1552857 R135 714 Income tax expense (465.857) (400714) Profit for the year 1087000 935000 Profit attributable to: ‘Owners of the parent 960 000 850.000 Non-controlling interest 127000 85.000 1087000 935000 The following dividends were paid by Mphela Ltd for the years ended 31 December 2009 and 31 December 2010: 2010 2009 Ordinary dividends (31 December) 320 000 260000 Preference 120000 130.000 440 000 390 000Required: 1. Calculate and disclose the earnings per share and dividend per share in the consolidated financial statements of the Mphela Ltd Group for the year ended 31 December 2010 so as to comply with requirements of Statements of Generally Accepted Accounting Practice. (25) Total Marks: 100