JUNE 2021 MAIN EXAMINATION

TAKE HOME EXAMINATION QUESTION PAPER

PROGRAMME Bachelor of Commerce Degree

MODULE Accounting 3

BCG_ACC3_28 June 2021_S1

INSTRUCTIONS TO CANDIDATES:

• Students are required to carefully read and fully understand the questions before

answering them.

• Students must answer the questions fully but concisely and as directly as possible using

sufficient research and application.

• Students should follow all specific instructions for individual questions (e.g., “list”, “in

point form”, “show all workings”).

• The mark allocation is there to show you the weighting and length of each question.

• The assessment must be your own work only, plagiarism cases will be investigated.

• Students are to read the examination requirements, rules and instructions on the Home

Page of the Regent Online platform.

• An additional 15 minutes have been granted for set up and reading time.

DATE: 28 June 2021 TIME: 08h30 - 12h30

DURATION: 4 Hours MARKS: 100

EXAMINER: Joossub F MODERATOR: Bassa T

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QUESTION ONE [20]
Design It Limited signed a contract with Akiso Limited (the customer) on the 1 January 2020. The
terms of the contract included the following:

- Design It Limited would supply and install a stage in the amphitheatre on the 1 March 2020
after which it would be required to supply and install the equipment for the stage including the
surround sound system.
- The customer promised consideration of R245 000 payable by the 30th of April 2020 at the
latest after both the stage and the required equipment are installed.
- The contract is cancellable in the event of non-performance.
- The stand-alone selling prices for the supplied and fitted products are as follows:
- Stage R150 000
- Equipment R95 000

- Design It Limited supplied and installed the stage on the 1st of March as agreed and the
equipment on the 7th of April. Control over the stage and the equipment passes to Akiso
Limited on this day. Amount owing by Akiso Limited is paid over on the 29th of April 2020.

Required:
1. Prepare the journal entries for the year ended 30th of June 2020 in respect of the above
transactions in the books of Design It Limited. (12)
2. What five criteria must be met to ensure a contract exists? (5)
3. What is a wholly unperformed contract? (3)

QUESTION TWO [35]

Ben, a good friend of yours, started his serving his articles at AccountingInc. His manager requested
him to research a few queries on deferred tax for a client. Ben, is distressed as Derred Tax is the
one section that he could not fully grasp during his studies. He has therefore called you to help with
the following queries:
1. When should a deferred tax asset or a deferred tax liability be recognised? (3)
2. Give 3 instances which will give rise to a deferred tax asset? (3)
3. What rate should be used to calculate deferred tax? (1)
4. Are there any circumstances where the timing difference will not be recognised? (2)
5. How should deferred tax be disclosed on the Statement of Financial Position (1)
6. Medicare Limited is a company that operates in the pharmaceutical industry,
manufacturing vaccines. Due to the current pandemic and the urgent and immediate

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 need for vaccines to protect against COVID 19, the company decided to replace its existing
plant, which is only 2 years old, with a new plant capable of manufacturing this COVID 19
vaccine.

Details of the old plant are as follows:

Details Amount (R)

Cost 450 000
Accumulated depreciation (67 500)
Carrying amount 31 December 2019 382 500

ADDITIONAL INFORMATION

1. Depreciation is written off at 15% per annum on a straight-line basis on the old plant with
zero residual values. Wear and tear is over 5 years on the full cost of the plant, not
apportioned from the date the plant was brought into use.
2. On the 30 June 2020, the old plant was withdrawn and sold for an amount of R461 000.
3. On the 1 July 2020, the new plant with a cost of R800 000 was brought into use.
4. The directors of Medicare Limited, decided to depreciate the plant over 4 years on a straight-
line basis.
5. The company had a profit before tax of R1 000 000 before taking the above into account.
6. Dividend income of R30 000 (exempt from tax) and fines of R9 000 (not tax deductible) are
included in the profit of R1 000 000.
7. The insurance company decided to do a double debit for insurance premiums in December
this year relating to December and for January, the next year. The amount relating to January
2021 was R8 000.
8. SARS allows prepaid expenses as deduction in the year in which they were paid.
9. The company received Rent income for January 2021 in December 2020 and SARS regards
this as income received in 2020.Amount received R12 000.
10. Normal tax rate is at 28%.

REQUIRED

a) Calculate the profit on the sale of the old plant. (3)

b) Calculate the carrying amount of the new plant at the end of December 2020 (3)
c) Calculate the current normal tax and for the year ending 31 December 2020 (9)
d) Prepare the Income Tax expense Note for the year ending 31 December 2020 (4)

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e) Prepare the journal entries for current and deferred tax for the year ended
31 December 2020 (6)

QUESTION THREE [20]

PART A
Merrybones Limited owned and leased out a building in Hands Road, Midbody surburb and correctly
classified this as an investment property on the 31 December 2019. As a result of the worldwide
pandemic and resultant downturn in economic conditions, tenants were forced to close and move
out.
On the 30 June 2020 Merrybones Limited decided to move into their building.
The fair value of the building was R10 000 000 on the 31 December 2019. On the 30 June 2020, the
building had a fair value of R10 500 000 and a remaining useful life of 10 years.

Required:
Prepare journal entries to the record the change in use above. (11)

PART B

In 2020, Merrybones Limited spent the following amounts on another of its investment properties, a
building located in the Vidu province. The tenants of the building are a supermarket, a clothing store
and a Electronics equipment store.
- The roof of the building was slightly damaged in a storm and Merrybones Limited had to pay
R85 000 to replace it. A section of the roof, with a carrying amount of R15 000, was scrapped.
- Rates assessment for 2020 amounted to R12 500.

Required:
Record the above transactions as journal entries for Merrybones Limited (9)

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QUESTION FOUR [25]
Beautify Limited, an established and well-known brand, selling make up and facial products,
acquired Roland Limited, another popular brand well known in the industry. Roland Limited was
acquired for R35 000 000 which was paid in full on the 1st of January 2020, the date of acquisition.
Legal fees of R550 000 were spent in acquiring this brand. The legal fees were paid on the 31st of
March 2020. The Roland stores were closed to allow for staff training on the brand which amounted
to R1 650 000. Training took place in March and April 2020 to allow for trading from the 1st of June
2020. Sales of this brand commenced from the 1 June 2020.
Beautify Limited’s head accountant, Gorgeous, went on maternity leave therefore the deputy
accountant has been holding the fort. The deputy accountant, Sally, received an email from the CEO
of Beautify Limited, requesting information on the purchase of this new brand. The CEO is not an
accountant and is therefore confused with the accounts presented to him. As Sally, is so busy with
the day-to-day operations, she has requested you to write back to the CEO providing the answers to
his queries.

REQUIRED:

Write a memo to the CEO of Beautify Limited outlining the following:

4.1 What is the definition of an intangible asset? (3)

4.2 What is the recognition criteria of an intangible asset? (2)
4.3 Discuss with reason whether Roland Limited can be recognized as an Intangible asset with
reference to IAS 38. (12)
4.4 What is the correct accounting treatment for Roland Limited in the financial statements of
Beautify Limited. (8)

END OF QUESTION PAPER

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