FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF ECONOMICS, ACCOUNTING & FINANCE

BACHELOR OF ACCOUNTING
______________________________________________________________________

FINANCIAL ACCOUNTING 310 (GFA 711S)

Date: 10 March 2023 (17.30 – 19.00 hours)

Duration: 90 Minutes
Marks: 50
TEST 1
INSTRUCTIONS
1. Answer both questions.
2. Start each question on a new page in your answer sheet and show your workings clearly.
3. Study mode and correct name of your lecturer must be shown on your answer script.
4. Questions relating to this test may be raised in the initial 30 minutes after the start
of the paper. Thereafter, candidates must use their initiative to deal with any
perceived error or ambiguities & any assumption made by the candidate should
be clearly stated.
5. Be neat, orderly, and clear in your grammar and handwriting.
6. Do not use tippex.
7. Ensure that the correct group, mode of study and Lecturer are shown on the answer
script.

Requirements - None

Examiners: Kamotho, D., Garas, E., & Kamana, R.

Moderator: Ketjinganda, A.
This paper consists of 4 pages excluding this cover page.
QUESTION 1 (30 marks)
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors lays down
criteria for the selection of accounting policies and prescribes circumstances in which
an entity may change an accounting policy. The standard also deals with accounting
treatment of changes in accounting policies, changes in accounting estimates and
correction of prior period errors.

Securex Limited manufactures security drowns for the security industry in Namibia. On
1st January 2019, Securex limited bought a license to manufacture Security drowns at a
cost of N$ 600 000.
 The cost was recognised as an intangible asset and is being amortised over its
expected finite life of 20 years to a nil residual value using the straight-line
method.
 During February 2023 while finalising the financial statements for 31 December
2022, it was discovered that Securex limited had purchased the legal rights for a
period of only 15 years. The effect of this information is material. The journals
for 2022 had already been processed based on previous information.
 Namibia revenue authority (NAMRA) allows Securex Limited to deduct the cost
of the rights over a period of 10 years on straight line method.

The following is an extract of the draft statements of changes in equity for the year
ended 31 December 2022, before making any necessary corrections.

Securex Limited
Statement of changes in Equity Retained
For the year ended 31 December 2022 Earnings (N$)
Balance 01 January 2021 800 000
Total comprehensive income 2021 270 000
Balance 31 December 2021 1 070 000
Total comprehensive income for 2022 370 000
Balance 31 December 2022 1 440 000
Other Relevant information
 There are no components of other comprehensive income.
 The corporate tax rate has remained 30% since the inception of the company.
 Journal entries for 2022 had been processed as in previous year- using 20 years
finite life.

REQUIRED Marks
A Define accounting policy and outline in sufficient details the accounting
treatment required to record the following.
i. A change in accounting policy, including definition of accounting
policy and circumstances under which an entity can change its 5

accounting policy.
2
ii. A change in accounting estimate and
3
iii. The correction of an error.
b) Show the required correcting journal entries. Narrations are required 5
c) Disclose FULLY the following in the financial statements of Securex Limited
for the year ended 31 December 2022 in accordance with the international
reporting standards. 15

i. Correction of errors
ii. Statement of financial position
QUESTION 2 (20 marks)
a)
Jambo Jets limited is a low-cost airline that employs pilots, aircrews, and directors. Details regarding their leave offered to each of these three
categories of employees are as follows.
Days leave per Average days per employee Average unused days per Average number of unused days per
employee entitled actually taken in current year employee as at employee as at 31/12/2022 that are
for each year (from current year leave) 31/12/2022 expected to be taken in 2023
Pilots 45 35 10 4
Aircrew 25 18 7 3
Directors 15 10 5 2

Leave accruing to an employee during any given year may be carried forward for one year only and is non vesting.
Details regarding the number of employees and their average annual salaries are as follows.
No. of employees during 2022 No. of employees expected to resign in 2023 Average annual salaries during 2022 in N$
Pilots 200 20 1 750 000
Aircrew 300 6 900 000
Directors 10 1 6 000 000

3
The employees who are expected to resign will probably resign very early in 2023 and are
therefore not expected to take any leave in 2023. Thus, the average number of days leave
that will be taken in 2023 has been calculated based on only those employees who are
expected to remain employed in 2023

Jambo Jets limited operates on a 5-day working week. The year ended 31 December 2022
had 365 days. The leave pay liability had a balance of N$ 2 000 000 as at 31 December
2021.

REQUIRED Marks
a) Define employee benefits and identify the major categories of employee
benefits as per International Accounting Standard No. 19 (IAS19). 5
b) Determine the leave-pay liability that would need to be recognised for
each type of employee. 10
c) Journalise the entries that would be necessary to account for paid vacation
leave for the year ended 31 December 2022. 4
Overall presentation 1

END OF QUESTION PAPER

4
SOLUTION 1
(a)
(i) Definition of an Accounting Policy:
Accounting policies are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.√
(1 mark for definition)
Change of Accounting Policy:
An entity shall change an accounting policy only if the change:
• Is required by a Standard or an Interpretation; or if it√
• Results in the financial statements providing reliable and more relevant information
about the effects of transactions, other events or conditions on the entity’s financial
position, financial performance or cash flows. √
 An entity shall account for a change in accounting policy resulting from the initial
application of a Standard or an Interpretation in accordance with the specific
transitional provisions, if any, in that Standard or Interpretation. √
 Where this does not apply, the entity shall apply the change retrospectively. This means
that the accounts must be altered so that they contain the numbers which would have
been there had the new policy always been in force. √
 However, this will not apply if it is impracticable to determine either the period-
specific effects or the cumulative effect of the change. The initial application of a policy
to revalue assets is not dealt with in this manner. √
(Any 4 points above = 4 marks)
ii) Change of Accounting Estimate:
Accordingly, are not corrections of errors or do not arise as a result of changes in
accounting policy√. The effect of a change in an accounting estimate, shall be recognised
prospectively√ (i.e. from the date of the change onward) by including it in profit or loss in
the period of the change and future periods, if relevant.
(2 points above = 2 marks)

iii) Correction of Prior Period Errors:

• Prior period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a failure to use, or misuse of,

5
 reliable information that: √
• Was available when financial statements for those periods were authorized for issue;
and√
• Could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements. √
Examples of such errors include the effects of mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud.
• Except to the extent that it is impracticable to determine either the period-specific
effects or the cumulative effect of the error, an entity shall correct material prior
period errors retrospectively in the first set of financial statements authorized for issue
after their discovery. This means that the accounts must be altered so that they
contain the numbers which would have been there had the error never occurred. The
following actions must be taken: √
• Restate the comparative amounts for the prior period(s) presented in which the
error occurred; or√
• If the error occurred before the earliest prior period presented, restate the opening
balances of assets, liabilities and equity for the earliest prior period presented. √
• Adjust the opening balance in the statement of changes in equity. √
Omissions or misstatements of items are material if they could, individually or collectively,
influence the economic decisions of users taken on the basis of the financial statements.
(Any 3 points above = 3 marks)

b) Journals – correcting entries

Debit Credit
1 January 2022
Retained earnings (Eq) (600 000/ 15 – 600 000/ 20) x70% x 3yrs 21 000 1
Deferred tax (A/L) (600 000/ 15 – 600 000/ 20) x30% x 3yrs 9 000 1
Licence: accumulated amortisation (600 000/ 15 – 600 000/ 20) x 3 yrs 30 000 0.5
(-A)
Correction of error: years prior to
2022
31 December 2022
Amortisation expense: licence (E) (600 000 / 15 – 600 000 / 20) x 1 yr 10 000 1
Licence: accumulated amortisation 10 000 0.5
(-A)
Deferred tax (A/L) 10 000 x 30% x 1 yr 3 000 0.5

6
 Income tax expense (E) 3 000 0.5
Correction of error: effect in 2022

Available 5
Maximum 5

-1/2-mark reduction for no narrations

c) Disclosure

SECUREX LIMITED 1
NOTES TO THE FINANCIAL STATEMENTS (EXTRACT) 2021 2020
FOR THE YEAR ENDED 3 1 DECEMBER 2022 N$ N$
1. Correction of error 1
The License has been amortised over a period of 20 years instead 1
of 15 years. The effect of the correction on the prior year/s is as
follows:
Effect on the statement of comprehensive income 1
Increase/ (decrease) in expenses or losses
- Amortisation (600K / 20 - 600K / 15) 10 000 1
- Tax expense (10 000 x 30%) (3 000) 1
(Increase)/ decrease in income or profits
- Profit for the year Balancing 7000 1

Effect on the statement of financial position

Increase/ (decrease) in assets
Intangible assets 2021: (600K / 20 - 600K / 15) x 3 years (30 000) (20 000) 1
2020: (600K / 20 - 600K / 15) x 2 years
(Increase)/ decrease in liabilities and equity
Deferred tax liability 2021: 30 000 x 30% 9 000 6 000 1
2020: 20 000 x 30%
Retained earnings 21 000 14 000 1

SECUREX LIMITED 1
STATEMENT OF FINANCIAL POSITION (EXTRACT)
AS AT 31 DECEMBER 2022

2022 2021 2020

Restated Restated
N$ N$ N$
ASSETS
Intangible assets 440 000 480 000 520 000 1

EQUITY AND LIABILITIES

Retained earnings - Per statement of changes in equity 1 412 000 1 049 000 786 000 1
Deferred taxation liability 24 000 18 000 12 000 1

Presentation 1

Available 15
Maximum 15

7
SOLUTION 2
a)
Employee benefits are defined as ‘all forms of consideration given by an entity in exchange
for service rendered by employees or for the termination of employment’. IAS 19.8√ (1/2 if
termination benefit is excluded)

Employee benefits are categorized as follows:

• Short-term benefits √
• Post-employment benefits √
• Other long-term benefits √
• Termination benefits. √
(√ = 1 mark each, Total = 5 marks)

b) Calculation: leave pay liability per employee category

The leave-pay liability at 31 December 2022 would be N$ 8 291 840. This liability is
reflected per category of employee in the table below:

Marks
N$
Pilots 1750 0001 / (365 x 5 / 7) 2 x 43 x (2004 – 205) 4 832 880 3.5
Aircrew 900 0001 / (365 x 5 / 7) 2 x 33 x (3004 – 65) 3 044 710 3.5
Directors 6 000 0001 / (365 x 5 / 7) 2 x 23 x (104 – 15) 414 250 3.5
8 291 840 0.5

Marks distributed as follows.

1 Annual salary 0.5

2 Number of working days in a year 0.5
3 Leave days that accrued during 2022 but which are expected to be taken in 2023 0.5
4& Number of employees at 31 December 2022 - Number of employees expected to 1
5 leave early in 2023
Correct amount 1

c) Journal: leave-pay liability

Debit Credit Marks

31 December 2022 N$ N$
Employee benefit expense (P/L) 8 291 840 1P
Leave pay liability (L) Calculation 1 8 291 840 1P
Provision for leave expected to be taken in 1
2023

Calculation 1: Leave pay liability c/b (see part a): 8 291 840 – Leave pay liability o/b
(given): 2 000 000 = 6 291 840 (1)
Presentation (1)

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END OF QUESTION PAPER & MEMORANDUM