MANAGEMENT SCIENCES

ACCOUNTING DEPARTMENT

QUALIFICATION : BACHELOR OF ACCOUNTING AND FINANCE

QUALIFICATION CODE: 23BACF LEVEL: 7

COURSE: FINANCIAL ACCOUNTING 310 COURSE CODE: GFA 711S

DATE: JULY 2017 SESSION: JULY 2017

DURATION: 3 HRS MARKS: 100

SECOND OPPORTUNITY EXAMINATION QUESTION PAPER

EXAMINER(S) ANDREW SIMASIKU

KAMOTHO DANIEL

MODERATOR: I. VAN RENSBURG

THIS QUESTION PAPER CONSISTS OF _5_ PAGES

(Excluding this front page)

INSTRUCTIONS
1. Answer ALL the questions and in blue or black ink
2. Start each question on a new page in your answer booklet & show all your workings
3. Questions relating to this examination 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

PERMISSIBLE MATERIALS
1. Examination paper- No study materials are allowed in the
examination room
2. Examination script - The examination script should be handed to the
invigilator at the end of the examination session

QUESTION 1 (20 marks)

Campus limited has a defined benefit plan. The following information relates to this plan
for the year ended 31 December 2017

Defined benefit plan asset opening balance N$ 300 000

Defined benefit plan obligation opening balance N$ 400 000
Discount rate based on market yield of high quality 10% (unchanged)
corporate bonds
Benefits paid to employees N$ 100 000
Contributions by employees into the plan assets N$ 150 000
Contribution by employer into the plan assets N$ 250 000
Current service costs at present value N$ 500 000
Present value of plan obligation as at 31 December N$ 800 000
2017
Fair value of plan assets as at 31 December 2017 N$ 600 000

There was a Nil balance on the defined benefit plan asset ceiling adjustments account as
at 01 January 2017.
The present value as at 31 December 2017 of future refunds and reductions in future
contributions is N$ 1 000 000.

Required
Provide all journal entries to the defined benefit plan for the year ended 31 December
2017. Show your workings where necessary

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Solution 1
31 December 2017 Debit Credit

DBP: Plan asset 300 000 x 10% 30 000√

EBE: Interest income on plan assets 30 000√
Interest on plan assets

EBE: Interest expense on plan obligation 400 000 x 10% 40 000√

DBP: Plan obligation 40 000√
Interest on plan obligation

DBP: Plan obligation Given 100 000√

DBP: Plan asset 100 000√
Benefits paid to employees

DBP: Plan asset Given 150 000√

Bank/ employees payable 150 000√
Contributions made by employees

DBP: Plan asset Given 250 000√

Bank 250 000√
Contributions made by employer

EBE: Current service costs Given 500 000√

DBP: Plan obligation 500 000√
Current service costs at present value

DBP: Plan obligation W1 40 000√

OCI: Actuarial gain on obligation 40 000√
Actuarial gain on obligation

OCI: Return on plan assets W2 30 000√

DBP: Plan assets 30 000√
Return (negative) on plan assets

1 mark for narrations

Workings:

W1: Re-measurement: Actuarial gain or loss on obligation

Present value of obligation at year-end Given 800 000
Less CA of obligation before re-measurement 400 000 + 40 000 + 500 000 – 100 000 (840 000)
Gain on obligation (40 000) √

W2: Re-measurement: Return on plan assets

Fair value of assets at year-end Given 600 000
Less CA of plan assets before re-measurement 300 000 + 30 000 + 150 000 + 250 000 (630 000)
– 100 000
Loss on plan assets (30 000) √

W3: Re-measurement: Asset ceiling

DBP Obligation at year-end Given: present value 800 000
DBP Plan assets at year-end Given: fair value (600 000)
Deficit/ (surplus) 200 000√
Asset ceiling check Not applicable: only applies to a surplus N/A

(√ = 1 mark each, total = 20 marks)

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QUESTION 2
Renowned Flights Ltd (RF) decided to expand their flight operations to include
neighbouring African countries. To fund this expansion, they decided to lease an aircraft
from Flight Sure Ltd (FS).
The contract was signed on 1 September 2013, after the provisions of the contract were
agreed upon by both parties on 15 August 2013. The contract stipulates the following:

 RF will have the right to use a 20-seater aircraft from 1 October 2013 supplied to
them by FS for 3 years (with a one year extension period that will most likely be
exercised);
 RF determines its own flight schedule and prices. FS will provide its own crew to
operate the aircraft on request of RF. RF can only schedule flights to Angola,
Zambia, Zimbabwe, Botswana and Namibia;
 FS is responsible for all maintenance and can only replace the current aircraft at
the request of RF;
 RF will pay R875 000 on 30 September to FS yearly as consideration for the use of
the aircraft. The implicit interest rate in the contract is 15.75%;
 RF will return the aircraft to FS at the end of its lease term and will have to restore
the interior fittings to its original condition (at an estimated PV of R125 000).
RF depreciates aircraft according to the straight-line method. The estimated useful life is
5 years.

REQUIRED:
2.1 Discuss whether the contract is, or contains a lease as per IFRS16.
2.2 Disclose the above contract in the notes to the financial statements of Renowned
Flights Ltd for the year ended 30 September 2015.
Round off all amounts to the nearest Rand.
Show all the necessary calculations as marks are awarded for these.

 In support of the disclosure consider (and prepare) the journal entries which
Renowned Flights Ltd would have processed on initial recognition as well as
during the 2015 financial year.

3
SOLUTION 2

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5
QUESTION 3 (25 marks)
Kibinda Limited
Extract from the statement of comprehensive income
For the year ended 31 December 2017

2017 2016
N$ N$
Profit before tax 155 000 225 500
Income tax expenses (55 000) (35 500)
Profit for the year 100 000 190 000
Other comprehensive income for the year 0 0
Total comprehensive income for the year 100 000 100 000

Additional information
 Issued share capital as at 01/01/2017
o 50 000 class A ordinary shares issued for N$ 50 000
o 50 000 class B ordinary shares issued for N$100 000, which participate to
the extent of 1/9 of the dividend paid to class A Ordinary shareholders
 There was a share split on 01/07/2017 of 3 class A ordinary shares for every 1 held
 Class A ordinary dividend paid on 31/12/2017 is N$ 20 000 (2016- N$ 10 000)
 There are no components of other comprehensive income in either 2017 or 2016
 There was no other movement in the equity accounts other than the movements
evident from the information provided above

Required
Prepare Extracts from the statement of comprehensive income and statement of changes
in equity as well as Earnings per share note for inclusion in the notes of the financial
statements of Kibinda Limited for the year ended 31 December 2017, in accordance with
the international financial reporting standards (IFRS).

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Solution 3

KIBINDA LIMITED
STATEMENT OF COMPREHENSIVE INCOME (EXTRACTS)
FOR THE YEAR ENDED 31 DECEMBER 2017√
Note 2017 2016
N$ N$
Profit for the year 100 000 190 000
Other comprehensive income 0 0
Total comprehensive income 100 000√ 190 000√

Basic earnings per Class A ordinary share 5 0,600√ 1,140√

Basic earnings per Class B ordinary share 5 0,200√ 0,380√

Any 6 √ = 6 marks

KIBINDA LIMITED
STATEMENT OF CHANGES IN EQUITY (EXTRACTS)
FOR THE YEAR ENDED 31 DECEMBER 2017√
Ordinary Ordinary Retained
shares: shares: earnings
Class A Class B
N$ N$ N$
Opening balance at 1/1/2016 Given 50 000√ 100 000√ xxx
Total comprehensive income Given 190 000√
Class A ordinary dividends Given (10 000) √
Class B ordinary dividend (10 000 x 1/9) (1 111) √
Opening balance at 1/1/2017 50 000√ 100 000√ xxx
Total comprehensive income Given 100 000
Class A ordinary dividends Given (20 000) √
Class B ordinary dividend (20 000 x 1/9) (2 222) √

Closing balance at 31/12/2017 50 000√ 100 000√ xxx

Any 9 √ = 9 marks

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KIBINDA LIMITED
NOTES TO THE FINANCIAL STATEMENT (EXTRACTS)
FOR THE YEAR ENDED 31 DECEMBER 2017

5. Earnings per
share

Basic earnings per Class A Ordinary

Share:

The calculation of earnings per Class A ordinary share is based on earnings of N$90
000 (2016: N$171 000) and 150 000 W1 Class A ordinary shares (2016: 150 000 W1) in
issue, after adjusting for the share split on 1 July 2017. √

Basic earnings per Class B Ordinary

Share:

The calculation of earnings per Class B ordinary share is based on earnings of N$10
000 (2016: N$19 000) and 50 000 (2016: 50 000) Class B ordinary shares in issue during the
year. √

Reconciliation of earnings: 2017 2016

N$ N$
Profit for the year 100 000 190 000
Less preference dividends (0) (0)
Basic earnings 100 000 190 000
- Class A ordinary share (X1: 100 000 x 9/10) (X0: 190 000 x 9/10) W2 90 000√ 171 000√
- Class B ordinary share (X1: 90 000 x 1/9) (X0: 171 000 x 1/9) 10 000√ 19 000√

(Any 5 √ = 5 marks)
Workings

W1: Adjusted Class A Ordinary shares

Actual Weighted
Adjusted
2017 2017 2016
Balance (beg) Given 50 000√ 50 000√ 50 000√
Share split 150 000 – 50 000 100 000√ 100 000√ 100 000√
Balance (end) 50 000 ÷ 1 x 3 150 000 150 000 150 000

W2: Fractional share of earnings belonging to Class A ordinary shares

Class A ordinary shares are allocated 9/10 of the basic earnings. This was calculated
as follows:
Let X = the share of the basic earnings belonging to the Class A ordinary shareholders
Then substitute X into the following equation:
Basic earnings = portion belonging to Class A ordinary shareholders +
portion belonging to Class B ordinary shareholders

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Basic earnings = X + 1/9 X√
Basic earnings = 9/9 X + 1/9
X Basic earnings = 10/9 X
X = Basic earnings x 9/10

(Any 5 √ = 5 marks)

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QUESTION 4 (25 Marks)
You are given the following statement of comprehensive income for the year ended 31
December 2017, drafted before adjusting the effects of the change in estimate described
in the additional information

Midlands Limited
Draft statement of Comprehensive income
For the year ended 31 December 2017
2017 2016
N$ N$
Profit before taxation 500 000 650 000
Income tax expenses (180 000) (300 000)
Profit for the year 320 000 350 000
Other comprehensive income for the year - -
Total comprehensive income for the year 320 000 350 000

Midlands limited owns vehicles (its only item of property plant and equipment) the
original details of which are shown below

Cost N$ 600 000

Purchase date 01/01/2014
Estimated useful life(on date of purchase) 8 years
Depreciation to nil residual value Straight line

On 01 January 2017, the total estimated useful life was revised to 6 years. The company
uses the reallocation method to account for the changes in estimates. The statement of
the comprehensive income had been drafted after accounting for depreciation based on
the previous estimates

The corporation tax rate is 30%

Required
a) Prepare the necessary journal entries assuming that depreciation had already been
processed in the 2017 accounting records based on old estimates
b) Prepare the notes to the financial statements of Midlands Limited for the year ended
31 December 2017 in accordance with International Financial Reporting Standards
(IFRS). Include both the statement of compliance with IFRS and the Property, Plant
and Equipment accounting policy note

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c) Prepare the statement of comprehensive income of Midlands limited for the year
ended 31 December 2017 in accordance with International Financial Reporting
Standards (IFRS). Notes are not required
d) Disclose Property, Plant and Equipment in the statement of financial position of
Midlands Limited as at 31 December 2017 in accordance with international financial
reporting standards (IFRS). Notes are not required

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Solution 4

a) Journals

Adjusting journal: Debit Credit

Depreciation W1 50 000√
Vehicles: accumulated depreciation 50 000√
Adjustment to depreciation of vehicles

For your interest:

Had no entries for depreciation yet been passed in 2017, the correct journal entry would have been:

Correct depreciation journal: Debit Credit

Depreciation 125 000

Vehicles: accumulated depreciation 125 000√
Depreciation of vehicles

(Any 3√= 3 marks each)

b) Note disclosure

MIDLANDS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017

1. Basis of preparation

1.1 The reporting entity (not required)

Midlands Limited is a company that is both incorporated and domiciled in Namibia .
The address of its registered office and principal place of business is: 5 Katutura Avenue,
Windhoek, Namibia.

1.2 Statement of compliance:

These financial statements have been prepared in accordance with IFRS. √

2. Significant accounting policies

The following is a list of the significant accounting policies, including measurement bases, which
have been applied by Midlands Limited. These accounting policies have all been consistently
applied.

2.1 Property, plant and equipment

Vehicles are depreciated over 6 years using the straight-line method. This represents a
change in estimate (see notes 3 and 4). √

3. Profit before tax

Profit before tax is stated after taking into account the following items:

2017 2016
N$ N$
Depreciation 125 000√ 75 000√

original estimate 3 75 000√

change in estimate 50 000√

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4. Change in estimate
The company changed the estimated useful life of vehicles from 8 years to 6 years.

The (increase)/ decrease caused by the change in estimate is as follows:

2017
N$
 current profits 50 000√
 future profits (50 000) √
Any 6 √ = marks

c) Statement of comprehensive income – revised using the reallocation method

MIDLANDS LIMITED
EXTRACT FROM STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017√
2017 2016
N$ N$
Profit before taxation 2017: 500K-50K 2 450 000√ 650 000√
Taxation expense 2017: 180K – 50K x 30% 165 000√ 300 000√
Profit for the year 285 000 350 000
Other comprehensive income for the year 0 0
Total comprehensive income for the year 285 000√ 350 000√

Any 6 √ = 6 marks

d) Statement of financial position – revised using the reallocation method

MIDLANDS LIMITED
EXTRACTS FROM STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2017
2017
Workings Notes N$
2016
N$
ASSETS
Property, plant and equipment 2017: W1 = ‘is’ column 20 250 000√ 375 000√
2016: W1 = ‘was’ column

Workings
W1 Change in accounting estimate (RAM) Was Is Adjustment
Date Calculations
Cost: 1/1/2014 Given 600 000
Accumulated depreciation: 31/12/2016 Was: 600 000 / 8yrs x 3yrs (225 000) √
Carrying amount: 31/12/2016 375 000 375 000
Remaining useful life Was: 8 – 3; Is: 6 – 3 5 yrs 3 yrs
Depreciation: 2017 Was: 375 000 / 5 yrs x 1 yr (75 000) √ (125 000) √ (50 000) √
Is: 375 000 / 3yrs x 1yr
Carrying amount: 31/12/2017 300 000√ 250 000√ (50 000) √
Depreciation: Future CA: 300 000 – RV: 0 (300 000)√ (250 000) √ 50 000√
CA: 250 000 – RV: 0
Carrying amount: Future final residual value 0 0 0√

(Any 10√= 10 marks )

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