Financial

Reporting &
Regulatory
Frameworks
(FRRF)

ICB ASSIGNMENT 3

QUESTION PAPER

APR 2023 TO MAR 2024

THIS PAPER CONSISTS OF 1 ASSIGNMENT

ASSIGNMENT 3: 5 QUESTIONS

INSTRUCTIONS:

1. ICB Assignments form part of the formative mark and are to be completed in an open book environment.
2. This Question Paper Book contains all the questions for Assignment 3.
3. All questions are to be completed in the Assignment Answer Book.
4. Check that you have the correct number of pages.
5. Please be neat, as illegible handwriting cannot be marked. You must write in blue or black ink. In practice it is
unacceptable for Bookkeepers to use correcting fluid (Tipp-ex). Marks will be deducted for the use of correction fluid.
6. All questions must be completed.
7. This question paper must NOT be returned to the ICB. You must retain this Assignment Question Paper Book.
8. Upon completion of your Assignment, remember to submit (upload) your Assignment Answer Book onto MACCI.

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 FINANCIAL REPORTING & REGULATORY FRAMEWORKS (FRRF)
ICB ASSIGNMENT 3 QUESTION PAPER – APR 2023 TO MAR 2024

ASSIGNMENT 3

QUESTION 1 LEASES

Nautical (Pty) Ltd entered into an instalment sale agreement to acquire a motor vehicle on 1 July 2019. Details
relating to the instalment sale agreement include:

Cash price of motor vehicle 420 300

Annual instalments 94 500
ISA lease term 5
First instalment payable 30/06/2020
Last instalment payable 30/06/2024
Deposit paid 108 000
Interest rate implicit in the lease 15.6041 %

Required:

Prepare the following in respect of Nautical’s instalment sale agreement:

1.1. Amortisation table for the entire period of the lease.

1.2. Journal entries for the entire period of the lease (ignore depreciation adjustments on the motor vehicle).

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 FINANCIAL REPORTING & REGULATORY FRAMEWORKS (FRRF)
ICB ASSIGNMENT 3 QUESTION PAPER – APR 2023 TO MAR 2024

QUESTION 2 TAXATION

The management of Bells Ltd have requested that you assist them in the calculation of current and deferred
taxation for the year ended 31 January 2021. You are presented with the following information:

• A current tax rate of 28 % applies.

• Bells reported trading profits of R 2 913 600 for the year ended 31 January 2021.
• Estimated tax on profits for the year ended 31 January 2020 was R 154 600. SARS has calculated the tax for
2017 to be R 169 700, which has been fully paid.
• During the 2021 year-end, a capital gain of R 156 900 was made on the sale of a piece of land. The capital
gains inclusion rate is 80 %.
• The accountant of Bells prepared the following schedule, but has asked that you complete the computation of
temporary differences and deferred tax:

Carrying amount Tax base Temporary differences Deferred tax asset (Dr) /
R R R (liability) (Cr)
Opening balance (168 900)
Property, plant & equipment 980 000 720 000 ?? ??
Electricity accrual (15 460) (15 460) ?? ??
Leave pay accrual (25 000) - ?? ??
Income received in advance (8 900) - ?? ??
Allowance for doubtful debts (36 000) (36 000) ?? ??

Total ??

Required:

2.1. Calculate the balances of current and deferred tax to be recognised in the financial statements of Bells Ltd
for the year ended 31 January 2021.

2.2. Prepare the adjusting journal entries to record the effects of taxation for the year ended 31 January 2021.

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 FINANCIAL REPORTING & REGULATORY FRAMEWORKS (FRRF)
ICB ASSIGNMENT 3 QUESTION PAPER – APR 2023 TO MAR 2024

QUESTION 3 STATEMENT OF CASH FLOWS

You have been presented with the statement of financial position and statement of profit or loss of Chique Ltd for
the year ended 28 February 2021.

Chique Ltd
Statement of financial position as at 28 February 2021
2021 2020
R R
Assets
Non-current assets
Property, plant and equipment 759 200 566 800
Financial assets − investment in shares 120 000 172 000
879 200 738 800
Current assets
Inventory 252 800 185 000
Trade receivables 76 000 97 400
Bank - 36 800
328 800 319 200
Total assets 1 208 000 1 058 000

Equity and liabilities

Equity
Share capital 324 000 280 000
Revaluation reserve 109 200 109 200
Retained earnings 280 600 223 400
713 800 612 600
Non-current liabilities
Finance lease obligations 170 000 150 400
Deferred tax 33 400 24 600
203 400 175 000
Current liabilities
Current tax liability 22 000 30 400
Bank overdraft 33 600 -
Provisions 40 200 90 000
Finance lease obligations 112 600 44 200
Trade payables 82 400 105 800
290 800 270 400
Total equity and liabilities 1 208 000 1 058 000

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 FINANCIAL REPORTING & REGULATORY FRAMEWORKS (FRRF)
ICB ASSIGNMENT 3 QUESTION PAPER – APR 2023 TO MAR 2024

Chique Ltd
Statement of profit or loss for the year ended 28 February 2021
2021 2020
R R
Revenue 1 396 000 1 028 000
Cost of sales (1 024 000) (682 000)
Gross profit 372 000 346 000
Other income 117 800 19 400
Operating expenses (388 600) (178 000)
Finance costs (14 000) (11 800)
Profit before taxation 87 200 175 600
Income tax expense (30 000) (44 600)
Profit for the year 57 200 131 000

Additional information:

• Of the total PPE additions, R 120 800 relates to finance leases taken out in the current year.
• During the year, PPE was disposed of for R 185 600. On the date of disposal, this PPE had a cost of
R 130 000 and accumulated depreciation of R 36 000.
• Depreciation charge for the current year was R 80 000.
• Investments with a carrying value of R 68 000 were sold. No other investment acquisitions or disposals
were made during the year.
• Included in ‘other income’ is (excluding any items included in the information above):
− Dividends received: R 6 400.
− Profit on disposal of investment: R 11 200
− Movement in fair value of investments: R 16 000.
• On 1 July 2020, additional ordinary shares were issued at R 1.00 per share.
• All movements in provisions have been included as part of cost of sales.

Required:

Prepare the statement of cash flows for Chique Ltd for the year ended 28 February 2021, in accordance with
IAS7 using the direct method.
Comparatives are not required.

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 FINANCIAL REPORTING & REGULATORY FRAMEWORKS (FRRF)
ICB ASSIGNMENT 3 QUESTION PAPER – APR 2023 TO MAR 2024

QUESTION 4 PROPERTY, PLANT AND EQUIPMENT & IMPAIRMENT

Target Ltd holds plant with a carrying value of R 120 400 at 31 July 2020 (the year end date).

The carrying value of plant is as follows:

R

Cost 170 000

Accumulated depreciation (32 800)
Accumulated impairment (16 800)
Carrying value 120 400

The plant had a remaining useful life of 4 years at 31 July 2020, and has a nil residual value.

At 31 July 2021, recoverable amount of the plant is estimated as:

R

Value in use 98 000

Fair value less costs to sell 110 000

Required:

Calculate the carrying value of plant at 31 July 2021 and prepare the journal entry to record any impairment loss
or reversal of impairment loss.

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 FINANCIAL REPORTING & REGULATORY FRAMEWORKS (FRRF)
ICB ASSIGNMENT 3 QUESTION PAPER – APR 2023 TO MAR 2024

QUESTION 5 REVENUE

Zulu Limited is a construction company operating in KZN. During the 2020 year, Zulu commenced work on three
contracts. Details of the three contracts are as follows:

Contract 1 Contract 2 Contract 3

Commencement date 01/05/2020 01/01/2020 01/08/2020
Total sales value R 4.8 million R 150 000 R 3.6 million
Expected duration (years) 2 2 3
Expected costs R 3.9 million R 80 000 R 2.8 million

At 31 December 2020, the year-end date, details of the three contracts were as follows:

Contract 1 Contract 2 Contract 3

Expected total costs R 4.05 million R 72 000 R 2.8 million
% completion 30% 40% 20%
Cumulative costs incurred R 1.8 million R 30 000 R 850 000
Cash received to date R 1.7 million R 38 000 R 1.4 million

Notes:

1. Determination of percentage of completion at the year-end date.

The percentage completion of contracts 1 and 3 were determined by an independent surveyor. The
percentage completion of contract 2, given its relative size and materiality in comparison to the other two
contracts, was determined by Zulu’s Chief Financial Officer.
2. Additional costs.
The increase in the expected total costs relating to Contract 1 related to preconstruction site clearing work,
incurred in 2020, which were not considered in the initial cost estimate at the inception of the contract. The
decrease in the expected total costs relating to Contract 2 related to initial site preparation work for which
actual costs came in R 8 000 less than anticipated.
3. Disclosures in the financial statements are usually at the nearest thousand Rand (R’000).

Required:

As far as the information allows, prepare extracts of the following financial statements of Zulu Limited:

• Statement of comprehensive income for the year ended 31 December 2020

• Statement of financial position as at 31 December 2020

Ignore VAT and the time value of money. The performance obligation will be satisfied over time.

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