COLLEGE OF ACCOUNTING SCIENCES

TEST 2: 18 MAY 2021

READING

PAPER 5: FAC4861/NFA4861/ZFA4861
ADVANCED FINANCIAL ACCOUNTING I

Time and Duration: 1 hour with 15 minutes reading time.

(40 Marks)

EXAMINATION PANEL AS APPROVED BY THE DEPARTMENT.

Please ensure that you have completed the cover of the answer book for this question in full i.e.name,
surname, address, student number, code of paper and test number.

This FAC4861/NFA4861/ZFA4861 (ADVANCED FINANCIAL ACCOUNTING I) question paper

consists of 3 pages and is out of 40 marks.

THE USE OF A NON-PROGRAMMABLE CALCULATOR IS PERMISSIBLE.

This test paper remains the property of the University of South Africa.

PLEASE NOTE:

• The test is a limited open-book test: Students are allowed to consult the 2020/2021 version of the
SAICA Handbook or any version published in one of the previous years during the test session.
• It is your responsibility as a student to ensure that you have the necessary resources to
successfully complete the test. UNISA does not have control over load shedding and network
downtime and will therefore not be able to accommodate the remediation of these issues.
• Please ensure that you use the time allocation as stipulated i.e. 15 minutes reading time and 60
minutes writing time.
• If you are writing all five modules, please submit within the time stipulated i.e. 13:30 for the
morning session and 17:30 for the afternoon session. If you are not writing all five modules,
(writing 1 or 2 modules) please submit immediately after the 60 minutes writing time has lapsed,
you will be allocated 10 minutes to upload your script.
• This test paper remains the property of the University of South Africa.
• Please ensure that you have completed your details in full i.e. name, surname, student number,
code of paper and test number on your script before submission.
• All tests and examinations should be answered in ENGLISH only.
• Late and emailed submissions will NOT BE MARKED

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 Page 2 of 3 FAC4861/NFA4861/ZFA4861
TEST 2

QUESTION 1 40 marks

IGNORE ALL TAX AND VAT IMPLICATIONS

You are a chartered accountant that is trusted at your firm. You have been seconded by the Managing
Partner to assist Zile Holdings Ltd (ZH) with the financial statements for the year ended
28 February 2021 as ZH’s financial manager does not have much knowledge in financial instruments.
ZH is in the business of supplying and servicing health care equipment across South Africa and its head
office is in the Eastern Cape, South Africa. With the covid-19 pandemic requiring urgent health care
equipment to be provided the company has been performing well.

The company’s strategy is to expand into other countries within Africa. Upon review of the work
performed by the financial manager you noted that the following transactions were only partly accounted
for, or not accounted for at all, and that it requires your attention:

(a) Bonds

ZH acquired 10 000 R130 bonds from CNL Holdings on 1 March 2020 at a discount of 5%. The
face value of the bond is R1 300 000. The bonds mature on 28 February 2025 and will be
redeemed at their face value. The coupon interest rate on the bonds is 10% per annum paid
annually in arrears on 28 February.

On 1 March 2020, the bonds were not credit-impaired and credit risk was considered to be low.
The 12-month expected credit loss was R15 000 on 01 March 2020 and R16 500 on
28 February 2021. The market rate of similar instruments is 13%. Transaction costs incurred
amounted to R25 000.

The bonds are held within a business model with the objective to collect contractual cash flows of
interest and the principal amount.

(b) Trade receivables

ZH had trade receivables that amounted to R13 300 000 as at year end. The trade receivables do
not have a significant financing component. Upon enquiry with the financial manager you
discovered that the company determined the 12 months expected credit losses amounted to
R230 000 and the lifetime expected credit loss amounted to R750 000. The financial manager
recognised the 12 months expected credit losses and the lifetime expected credit losses in
determining the final amount of receivables at year end.

(c) Convertible debentures

ZH has been receiving a lot of orders from the neighbouring African countries and as a result, the
board resolved to open a branch in Botswana. After assessing the capital and operational costs
associated with this expansion, the company issued 5 400 debentures with a nominal amount of
R12 000 000 at a fair value of R2 000 per debenture on 1 March 2020. Quarterly interest payments
of R210 000 are payable in arrears from the first quarter ending on 31 May 2020 and the
debentures will mature on 28 February 2024. The contract stipulated that each debenture is
convertible at the option of the debenture holder into 30 ordinary shares for every four debentures
held. Should the conversion option not be exercised, the debentures will be redeemed at their
nominal amount.

ZH incurred and paid transaction costs of R920 000 on 1 March 2020. A market related interest
rate on 1 March 2020, for similar debentures without conversion rights, is 13% per annum, paid
quarterly in arrears.

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 Page 3 of 3 FAC4861/NFA4861/ZFA4861
TEST 2

(d) Ordinary shares

On 01 March 2020, ZH had share capital of R5 000 000, and on the 18th of January 2021 ZH
issued an additional 10 000 ordinary shares to CNL Holdings at a fair value of R100 each.

ZH incurred the following costs when issuing the ordinary shares:

• The agent that was handling the transaction charged a brokerage fee of R23 000.
• The advisor involved in the transaction charged R10 500.

©
UNISA 2021

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