FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016

- SUGGESTED SOLUTION

FACULTY OF ACCOUNTING & INFORMATICS

DEPARTMENT OF FINANCIAL ACCOUNTING

DEPARTMENT OF FINANCE & INFORMATION
MANAGEMENT

FINANCIAL ACCOUNTING 2 – MODULE 1

FACN211/FACC213

MID-YEAR MAIN EXAMINATION – 2016

NO. OF PAGES : 11 (Inclusive of cover page)

EXAMINERS : Mrs A Ramlall, Mrs I Mahes, Mrs N Omar,

Mrs T Thompson, Mr B Ngiba, Mr R Mbhele

MODERATOR : Mr R Scott

SUGGESTED SOLUTION
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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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QUESTION 1 28 MARKS 50 MINUTES

PART A
1.1 Tokozani Ltd
Statement of profit or loss and other comprehensive income for the
year ended 30 June 2015 R
Revenue from sales 2 350 900
Cost of Sales (1 022 775)
Gross Profit 1 328 125
Other Income (9 000 + 1 125 + 6 300) 16 425
Other Expenses (9 000 + 90 000 + 3 000 + 53 250 + 60 000 + 11 250 + 2 450 – (362 970)
5 730 + 75 000 + 5 000 + 23 750 + 36 000)
Finance costs (5 400 + 54 000) (59 700)
Profit before tax 921 880
Income tax expense (276 564)
Profit for the year 645 316
Other comprehensive income 0
Total comprehensive income for the year 645 316

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1.2 Tokozani Ltd

Extract from Statement of financial position as at 30 June 2015. R

Non-current assets 180 250

Property, plant and equipment (220 000 + 180 000 - 125 000 – 35 000 180 250
– 23 750 – 36 000)
Current assets 185 665
Inventory 31 935
Trade and other receivables (112 500 – 3 270 – 3 500) 105 730
Cash and cash equivalents (46 950 + 1050) 48 000
TOTAL ASSETS 365 915

Non-current liabilities 450 000

Long term borrowings 450 000

Current liabilities 431 074

Trade and other payables (97 510 + 3 000 + 54 000) 154 510
Tax payable (SARS) 276 564
TOTAL LIABILITIES 881 074

PART B

On 30 September 2015, the loss is already probable and has a value which can be
measured with reliability. Confirmation of the situation was obtained on 15 October
2015. This confirmation improved the reliability of this information, as well as the
relevancy thereof to influence economic decisions. The amount is also material. The
conclusion, therefore, based on the information provided, is to agree to the treatment.

PART C

Information in respect of the model of motor cars cannot enhance the usefulness of
Information of financial statements. Although the information may be reliable,
comparable and understandable, it is not relevant because it will probably not
influence the economic decisions of users of financial statements.
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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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QUESTION 2 19 MARKS 34 MINUTES

2.1.
2.1.1 Work in progress
Net realisable value of inventories R
Sales value ( 300 000 + 30 550) x 120/100 396 660
Less: costs to complete 30 550
Less: selling costs 130 050
Net realisable value 236 060
Possible write – down
Cost 300 000
Less: net realisable value 236 060
Write – down of inventories 63 940
Work in progress is written – down by R 63 940 because the cost of
R 300 000 is greater than its NRV of R 236 060.

2.1.2 Finished goods

Possible write – down R
Cost (10 000 + 3 500 + 4 500) 18 000
Less: Net realisable value 8 450
Write – down of inventories 9 550
The finished goods are written down by R 9 550 because the cost of R18 000
is greater than the NRV of R8 450.

2.2.
Journal Entries of Taj Mahal Limited
Debit Credit
Dr. Cost of Sales (Write – down of 73 490
inventories)
Cr. Inventories (63 940 + 9 550) 73 490

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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2.3.1. Taj Mahal Limited

Notes to the financial statements for the financial year ended 31
December 2015
1. Accounting Policies
1.1.3Inventories
Inventories are valued at the lower of cost and net realisable value.
Cost is determined on the first in, first – out basis.

2.3.2. Inventories
3. Inventories consists of:
Raw material 65 000
Work in progress 236 060
Finished goods 8 450
309 510

2.3.3. Profit before tax

Profit before tax is stated after taking the following into account:
Write – down of inventory 73 490

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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QUESTION 3 23 MARKS 41 MINUTES

PART A

3.1 Big Echo Ltd

General Journal

Date Details Debit Credit

R R
31/3/2016 10 % Redeemable Preference share 240 000
capital
Retained earnings (premium) 60 000
Retained earnings (dividends) 24 000
Preference shareholders 324 000

Bank 324 000

Ordinary share capital 281 250
10 % Short term loan 42 750

Ordinary share capital (share issue costs) 8 900

Bank 8 900

Preference shareholders 324 000

Bank 324 000

How much is owed? R

Shares (240 000 x R 1) 240 000
Premium (240 000 x 25 cents) 60 000
Dividends (240 000 x R1 x 10%) 24 000
324 000

Finance plan (funds)?

Ordinary shares (125 000 x R 2.25) 281 250
10 % Short term loan 42 750
324 000

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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3.2 Big Echo Ltd

Statement of changes in equity for the year ended 31 March 2016 R

Ordinary Preference Retained Total

share share earnings
capital capital
Balance before redemption 1 000 000 240 000 520 000 1 760 000
Share issue costs (8 900) Nil Nil (8 900)
Preference Dividends declared Nil Nil (24 000) (24 000)
Issue of shares 281 250 Nil Nil 281 250
Redemption Nil (240 000) (60 000) (300 000)
Balance after redemption 1 272 350 Nil 436 000 1 708 350

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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PART B

Journal entry of New York Limited for the year ended 28 February 2016

Debit (R) Credit (R)

Bank 2 100 000
Ordinary share capital 2 100 000
Proceeds of rights issue (1:2) at R 10, 50 each (market
price R 18, 00)

WORKINGS : RIGHTS ISSUE

Number of shares issued = 400 000/2 x 1 = 200 000 shares

Proceeds of rights issue = 200 000 shares x R 10, 50 = R 2 100 000

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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QUESTION 4 17 MARKS 31 MINUTES

4.1.1
Revenue is defined as income that arises in the course of ordinary activities of an
entity.

4.1.2
Revenue from the sale of goods is recognised when the entity has transferred to the
buyer the significant risks and rewards of ownership of the goods; the entity retains
neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold; the amount of revenue can be
measured reliably; it is probable that the economic benefits associated with the
transaction will flow to the entity; and the costs incurred or to be incurred in respect
of the transaction can be measured reliably

4.2 Twin Peaks Traders R

Consignment sales 6 020

Credit sales 50 066
Invoice sales 127 329
Lay-bye sales 165 000
Total Revenue 348 415

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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WORKINGS

① Consignment sales
Sales 8 520
Unsold inventory (1 875 x 100/75) (2 500)
Recognised amount 6 020

② Credit
Opening balance Trade debtors 14 175
Sales 59 887
Closing balance Trade debtors (16 987)
Inclusive VAT 57 075
Exclusive VAT 50 066

③ Invoice sales
Inclusive VAT 145 155
Exclusive VAT 127 329

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 FINANCIAL ACCOUNTING 2 MODULE 1 – MID-YEAR MAIN EXAMINATION 2016
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QUESTION 5 13 MARKS 24 MINUTES

Statement 1 B
Statement 2 A
Statement 3 A
Statement 4 D
Statement 5 D
Statement 6 A
Statement 7 C
Statement 8 A
Statement 9 B
Statement 10 A
Statement 11 B
Statement 12 C
Statement 13 D

(13 Statements x 1 = 13 Marks)

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