FACULTY ECONOMICS AND MANAGEMENT SCIENCES

DEPARTMENT SCHOOL OF ACCOUNTING

SUBJECT FINANCIAL ACCOUNTING 1 A(AFE 3691)
MARKS 170 MARKS
ASSESSSMENT INDIVIDUAL ASSIGNMENT (Full-time and Part-time students only)

Instructions to all students:

1. This assignment is compulsory for all students registered for the full time and
part time cohorts. This assignment consists of six (6) questions, answer all the
questions.

2. This assignment consists of eleven (11) pages, including the cover page.

3. This assignment should NOT be done in groups.

4. The due date for this assignment is 03 JUNE 2020. Late assignments will be subjected
to a penalty of -5%. (Submissions to be done by group leaders)

5. Assignments may ONLY be submitted on MOODLE, email submission or any other

alternative submission will NOT BE ACCEPTED.

6. Due to COVID-19 circumstances and to adhere to social distancing and related

combating measures, no hand delivered submission will be accepted.

7. UNAM-General Regulations; 7.1.7 -Plagiarism: Plagiarism is intellectual theft in the

sense that another person’s creative work, composition, and ideas are appropriated
by another person without permission and without proper acknowledgement of the
original source. It constitutes serious academic fraud. Furthermore, it involves among
other:

a. Copying without quotation marks or paraphrase without acknowledgement

from someone else’s writing;

b. Using someone else’s facts or ideas without acknowledging them;

c. Submitting assignments for one course or module that the student had
submitted for credit for another course or module without the express
permission of both lecturers. The University of Namibia has strict rules to
enforce the Policy. The Policy on Plagiarism is available within the respective
Faculties/Centres/Library, and on the UNAM Website: http://www.unam.na.
Plagiarism is a serious offence. You are not allowed to copy the work of other
students. Anyone who will be found guilty will not be assessed. E.g. you will
obtain a 0%

8. The assignment must be typed.

9. Show all your calculations and all figures should be expressed in NAMIBIAN
DOLLARS (N$)

10. All answers must be rounded off to the nearest figure.

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QUESTION 1 (55 MARKS)

The following information pertains to The Petit Paris Ltd:

The Petit Paris Ltd was incorporated on 01 January 2012 with authorized share capital
consisting of:
1 000 000 12% preference shares of no par value,
70 000 10% redeemable of N$ 3 each; and
2 000 000 ordinary shares of N$ 2 each

The following balances appeared in the accounting records of The Petit Paris Ltd on 01
January 2017:
Issued share capital: N$
1 000 000 Ordinary share capital of N$ 2 each 2 000 000
70 000 10% Redeemable preference share capital of N$ 3 each 210 000
500 000 12% Stated preference share capital of no par value 1 000 000
Reserves:
Share premium 275 000
Retained earnings 1 875 255
Assets:
Bank 2 505 105
Property, plant and equipment 750 000
Investment 500 000

During the year of 2017, the following transactions took place:

1. The company offered 500 000 ordinary shares and 250 000 12% preference shares to
the public.
2. The full public offer is underwritten by Croissant Brokers Underwriters Ltd for a 5%
underwriter’s commission.
3. The offer for the subscription of shares opened on 01 May 2017 and closed on
27 May 2017.
4. The ordinary shares were offered at a premium of 50c per share, and the
12% preference shares were offered at N$ 2 each.
5. The public subscribed for 300 000 12% preference shares, and 400 000 ordinary
shares and the full amounts payable, were received on the closing date of
27 May 2017.
6. All shares were issued on 11 June 2017, the necessary refunds were made and all
transactions with the underwriter were also concluded on this date.
7. All expenses relating to the issue of shares must be written off against the share
premium account.
8. The 10% redeemable preference shares are redeemable at premium of 50c per share
on 30 October 2017, at the option of the company. In view of the redemption, the board
of directors decided to issue 70 000 ordinary shares at a premium of N$1,50 per share.
The new issue was fully taken up on issue. All transactions took place on 30 October

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 2017. The redemption premium should be written off against the share premium
account.

9. On 30 November 2017, at a general meeting of the company it was decided that, in

order to protect the liquidity of the company, there will be no cash pay-outs of
dividends. Instead the company will issue capitalization shares to shareholders in the
ratio of one capitalization share for every five preference shares held and two
capitalization shares for every ten ordinary shares held. The preference shares should
be capitalized at N$ 2.50 per share. This is to be arranged that there is a minimum
effect on distributable reserves such as retained earnings. It was also decided to
convert the 12% preference shares of no par value into preference shares having a
par value of N$ 1 each.

10. The company declared an after-tax profit of N$ 876 203

11. The company has a 31 December year-end.

REQUIRED:
1. Is The Petit Paris Ltd a public company. Justify your answer. (2 marks)
2. Record the above transactions (relating to the issue of shares, redemption of shares
and the capitalisation issue) in the General Journal of The Petit Paris Ltd (20 marks)

3. Prepare the following accounts in the general ledger as at 31 December 2017:

(13 marks)
2.1 Retained earnings
2.2 Ordinary share capital
2.3 12% Preference share capital

4. Prepare the Statement of changes in equity for the year ended 31 December 2017 for
The Petit Paris Ltd (15 marks)
5. Name the four types of profit companies that exist as well as the abbreviation that
should appear at the end of each one’s. (4 marks)
6. Describe a reason why you would prefer to incorporate your business as a company
instead of trading as a sole proprietor. (1 mark)

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QUESTION 2 (22 MARKS)
Kim Dash and Kanye East are partners in a business called K&K, a classy dog parlour in one
of the upmarket suburbs of Cape Town. K&K has a December year end. Up to recently Kim
and Kanye were not only business partners, but also madly in love and engaged to be married.
However, a few weeks ago Kanye realised that Kim is having an affair with the shop owner
across the street from K&K. This broke his heart and he broke off the engagement
immediately. Kim and Kanye then decided to dissolve K&K, as they found it difficult to see
each other at work after this ordeal. K&K’s last day of business was 30 June 2019.

Kim & Kanye’s partnership agreement states the following terms and conditions:

 Kim & Kanye share profits and losses in the ratio of 6:4;
 Capital accounts earn interest at 12% per annum and is calculated on opening
balances;
 Current accounts do not earn interest;
 Kim is a specialist dog hair stylist, so she earns a salary of N$20 000 per month while
Kanye earns N$10 000 per month;
 Interest is charged on drawings at 15% per annum.

The trial balance for the previous financial year ended 31 December 2018 is given below:
Note Debit Credit
(Namibian (Namibian
Dollars) Dollars)
Capital account: Kim 140 000
Capital account: Kanye 1 160 000
Current account: Kim 16 000
Current account: Kanye 19 000
General reserve 20 000
Land and buildings - cost 2 350 000
Equipment - cost 1 30 000
Equipment – accumulated depreciation 1 30 000
Bank 145 500
Loan: Bankned Ltd 3 160 000
Debtors 32 500
Consumable stock 12 000
Creditors 25 000
TOTAL 570 000 570 000

Additional information:

1. During the year, Kanye inherited money from his uncle and he used his inheritance to
contribute an additional N$150 000 capital to K&K on 1 March 2019. The partnership
used the full amount of the additional capital contribution to buy state-of-the-art
equipment which enabled them to wash and cut dogs’ hair faster and more efficient than
before.

The equipment was delivered on 15 March 2019 but was only fully installed and ready
for use on 31 March 2019.

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 Equipment is depreciated over 5 years using the straight-line method. The residual value
for this equipment was estimated to be N$15 000. All old equipment was sold for
N$5 000 on 1 May 2019.

2. As per K&K’s policy, land and buildings are not depreciated.

3. The loan from Bankned earns interest at 10% per annum (payable monthly). Annual
capital repayments of N$10 000 are made on 1 May of each year. All payments and
interest has been correctly accounted for up to 30 June 2019.

4. The draft financial statements for the period ended 30 June 2019 shows a preliminary
profit of N$132 750, however, this includes salary withdrawals by Kim of N$40 000 on
1 February 2019 and N$30 000 by Kanye on 1 April 2019. Furthermore, none of the
events noted in note 1 above were accounted for in this preliminary profit.

5. It was decided to transfer the balances of the current accounts to the respective capital
accounts of the partners, before the dissolution entries were passed.

Dissolution of the partnership (30 June 2019):

 Debtors amounted to N$22 000 at the end of June. The partners offered a 5%
discount to all debtors if they settled their accounts by 30 June 2019. All debtors
took up this offer except for one of the older clients who’s account will not be
recovered, amounting to N$3 000.

 All creditors and the loan to the bank were settled by 30 June 2019. Creditors
amounted to N$14 000.

 The inventory on hand on 30 June 2019 at cost price amounted to N$13 500. All
inventories were bought by a competitor of K&K for N$9 400.

 Land and buildings was sold for N$1 million before estate agent fees. The lawyers
deducted the estate agent fees of 7.5% before transferring the proceeds to K&K’s
bank account.

 The recently installed equipment was sold for N$130 000.

REQUIRED

(a)
Prepare the capital accounts of the partners in the general ledger in order
to calculate the amount that must be paid to each partner upon the
dissolution of the partnership. You may assume that there were enough
cash funds available to settle outstanding capital balances. (22 marks)

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QUESTION 3 (30 MARKS)
Croissant, Muffin and Crème Danish are in partnership and share profits in the ratio 3:2:1. On
30 April 2020 Croissant decides to withdraw from the partnership. At this stage the balance
sheet of the partnership is as follows:
CROISSANT, MUFFIN AND CRÈME DANISH
Statement of Financial position as at 30 April 2020

ASSETS N$
NON-CURRENT ASSETS:

Land and buildings 42 000

Equipment 12 000
Goodwill 6 000

CURRENT ASSETS 158 000

TOTAL ASSETS 216 000

EQUITY:
CAPITAL AND RESERVES
Capital:
Croissant 100 000
Muffin 40 000
Crème Danish 60 000

General Reserves 18 000

TOTAL EQUITY 216 000

For the purpose of Croissant’s withdrawal, the following was decided:

1. Land and buildings are worth N$78 000.this valuation is only for the purpose of
Croissant’s withdrawal from the partnership.
2. Goodwill is valued at N$96 000 for the purpose of Croissant’s withdrawal from the
partnership but it must be retained at N$ 6 000 in the books of the new partnership.
3. The general reserve must be retained in the books.
4. The new profit-sharing ratio between Muffin and Crème Danish will be 4:1
5. Croissant will, as a repayment of his loan account, take equipment with a caring
amount of N$ 8 000 as well as a cash amount of N$ 40 000. The remaining balance
will be taken over by Muffin and Crème Danish in their personal capacities and will be
paid according to the new profit-sharing ratio.

YOU ARE REQUIRED TO:

Prepare the capital accounts of the partners in column format and balance the accounts
properly.

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QUESTION 4 (30 MARKS)

Guess and Bvlgari were equal partners in a firm of architects, providing architectural services
to residents in Windhoek and across Namibia.
Their trial balance at 31 January 2020 was as follows:
TRIAL BALANCE AT 31 DECEMBER 2019
Account description Dr Cr
Creditors 136 000
Debtors 384 000
Bank 55 200
Capital – Guess 160 000
Capital – Bvlgari 160 000
Current account – Guess 60 000
Current account – Bvlgari 32 000
Equipment at cost 149 600
Accumulated depreciation 24 000
Provision for credit losses 16 800
588 800 588 800

On 1 January 2020, Guess and Bvlgari approached Tom Ford, who owned his own
architectural firm with the idea of forming a private company, Prestige Designs Pty (Ltd).
They all agreed to the idea and set out the following conditions relating to the formation of the
company:
(1) They would continue to use the same set of accounting records as previously used by
Guess and Bvlgari;
(2) The assets and liabilities of Guess and Bvlgari were agreed to be fairly stated on the
statements of financial position, with the exception of debtors, which were considered
to be overvalued by N$6 000.
(3) Work-in-progress of Guess and Bvlgari at 31 December 2019 was valued at
N$160 000.
(4) Tom Ford would contribute his assets and liabilities at the following agreed valuations:

N$
Debtors (net of a credit losses provision of N$17 200) 154 800
Equipment (original cost N$72 000) 44 000
Creditors 64 000
Bank 20 000
Work-in-progress 72 000
(5) The current accounts of Guess and Bvlgari are to become short-term loan accounts in
the company. An amount of N$24 000 of the equity of Tom Ford is also to be
established as a short-term loan account in the new company.
(6) There was no goodwill attributable to either of the two businesses.
(7) The company is formed with an authorised share capital of 500 000 shares of no-par
value. Guess and Bvlgari are to be allocated share capital according to the balances
in their capital accounts in the partnership. Tom Ford is to be allocated share capital
according to the balance on the capital account in the sole proprietorship. All the
shares are issued at a price of N$1 per share.

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YOU ARE REQUIRED TO:
(a) Provide the journal entries on formation of Prestige Designs (Pty) Ltd.
(b) Prepare the statement of financial position of Prestige Designs (Pty) Ltd at 1 January
2020.

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QUESTION 5 (10 MARKS)

Beulah Trading is an entity with a 30 June year-end. The entity manufactures school shoes.
Shoes that are manufactured by Beulah Trading are transferred to the sales department at a
mark-up of 30% on cost.

The following costs were recorded in the books of Beulah Trading for the year ended 30
June 2019:

N$
Raw materials inventory on 1 July 2018 45 000
Raw materials purchased 156 400
Labour cost 89 000
Raw materials inventory on 30 June 2019 67 900
Depreciation 4 500
Power and water consumption 7 500
Insurance 2 350
Maintenance 749
Selling and general administrative costs 1 950
Work-in-progress on 1 July 2018 15 000
Work-in-progress on 30 June 2019 9 300

The records of the sales department showed the following:

N$
Inventory on 1 July 2018 (150 pairs) 167 000
Inventory on 30 June 2019 (80 pairs) 68 000

 1 500 pairs of shoes with a selling price of N$ 460 000 were sold during the year by the
sales department.

REQUIRED:
Prepare the following general ledger accounts: (10)
 Raw materials.
 Work-in-progress.
 Finished goods.
 Allowance for unrealised profit.

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QUESTION 6 (23 MARKS)
The following Trial Balance at 30 June 2019 was extracted from the ledger accounts of
PP DISTRIBUTORS CC.
ACCOUNT DESCRIPTION DR CR

Members salaries 30 000

Members contribution 450 000
Sales 1 675 000
Cost of Sales 897 000
Retained Earnings: 01 July 2018 54 200
Interim profit Distribution : Piet 45 000
: Plessis 45 000
Loan to members: Plessis 80 000
Allowance for credit losses 4 600
Investment: West Rand Mines (Pty) Ltd 205 000
Inventories : Trade Inventories 107 500
: Consumable Inventories 13 000
: Packaging Material 17 000
Land and Buildings 520 000
Motor Vehicles 180 000
Furniture 77 000
Equipment 120 000
Prepaid tax: Inland revenue 40 000
Accounts receivable 95 000
Accrued expense 11 600
Accumulated depreciation: Furniture 21 000
Accumulated depreciation: Equipment 19 000
Investment Income 10 300
Long term loan: Bouland Bank 310 000
Accounts Payable 106 500
Bank 25 600
Petty cash 600
Bad debts 1 400

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 Salaries and wages 101 000
Distribution costs 77 000
Other operating expenses 62 000
Loan from member: Piet 96 900
Finance costs 20 000
2 759 100 2 759 100

Additional Information:-
1. The corporation has two members, Piet and Plessis who holds equal interest.
2. At the members meeting conducted in March 2019 it was resolved that:-
 Members will be paid a further profit distribution of N$ 25 000 each at year end.
 Due to an increase in operations a new Motor vehicle had to be acquired. On the 01
April 2019 a vehicle with a cost price of N$ 180 000 was acquired. No vehicles existed
prior to this acquisition. The correct entries were processed to record the purchase of
the vehicle.
 No assets were sold during the year.
 The loan from Piet, accrues interest at a rate of 8% per annum. No fixed repayment
terms were agreed upon and the loan is unsecured. Interest has not be taken into
account yet.
 No interest will be levied on Loans to member: Plessis, as it has always been done in
the past. No interest accrual will be made for the year ended 30 June 2019.
 Land and Buildings was revaluated for the first time this year. Jacobus Oosthuizen, a
sworn valuator was appointed to value the property and he attached a value of
N$ 740 000 at 30 June 2019.
3. Depreciation for the current year has not been accounted for. It has been the policy of the
entity to depreciate assets as follows:-
a. Furniture : 20 % p.a on reducing balance basis
b. Equipment : 10% p.a on straight line basis
c. Motor Vehicles: 20% p.a on straight line basis

4. Total taxation expense for the year was calculated to be N$ 67 500, but no entry has been
made to record this yet.
5. A debtor with a balance of N$ 550 must still be written off as irrecoverable. Allowance for
credit losses must be adjusted to 6% of the outstanding debtors at year end.

YOU ARE REQUIRED

1. Prepare the Statement of comprehensive income of PP Distributors for the year ended 30
June 2019. No notes are required. (12.5)

2. Prepare the ASSETS section of the Statement of financial position at 30 June 2019. (10.5)

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