NOVEMBER 2023 MAIN EXAMINATION

PROGRAMME Master of Business Administration 9

MODULE Accounting and Finance

INSTRUCTIONS TO CANDIDATES:

• Students are advised to carefully read and understand the questions before answering

them.

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

sufficient research and application. All research should be referenced, using the Harvard

referencing protocols.

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

form”, “show all workings”).

• The mark allocation is an indication of the weight and the length of the question.

• The responses must be your own work. Plagiarism is a form of academic dishonesty and

will not be tolerated.

DATE: 10 November 2023 TIME: 08h30 - 12h30

DURATION: 4 Hours MARKS: 100

Faizel Seedat
EXAMINER: MODERATOR: Tasnim Bassa
QUESTION ONE [21]
Please review the following examples and provide the journal entries required.
Show all workings.
Round your answers to the nearest Rand
(a) Dhillon Incorporated recorded a salary expense of R120,000 in the financial year
ending 30 June 2022. However, additional salaries of R10,000 had been earned by
employees, but not paid or recorded at 30 June 2022. Furthermore, there was a
request by an employee to pay his July salary in advance of R5,000. This is under
consideration by management. What adjustment will be required to close off the
books for the financial year? (2)

(b) Ponds Corporation makes adjusting entries monthly and is busy with closing off its
March records. During March the company paid R60,000 for rent and as a result at
31 March, the general ledger shows rent as a debit balance of R60,000. Rent is
charged at a rate of R12,000 per month. What adjusting entry is necessary at 31
March? (3)

(c) Net International bought packing materials to the value of R10,000 during the 2022
financial year. This was fully paid for via the company’s bank account. R6,000 was
consumed during the year and another R2,000 was considered to have defects
which were non-repairable with no right of return to the supplier. The company’s
policy is to record unused consumables at year end as inventory. What should the
closing year end journal entry be? (4)

(d) Hair and Nail Salon Pty Ltd sells six-month subscriptions for its monthly magazine
with revenue earned evenly across the months. Subscriptions sell for R800 per
subscription. On 1 January, they receive a total cash amount for 10 subscriptions. To
record this transaction, bank was debited with the total cash earned and unearned
subscription revenue (income received in advance) was credited for the same
amount. As of 31 January, what adjusting entry is necessary to close off the January
books? (5)

(e) The following information is available for Beta, a trader, for the year ended 31 March
2022.
Trade receivables at 31 March 2022 – R119,750
Provision for doubtful debts at 1 April 2021 – R2,528

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 Bad debts for the year ending 31 March 2022 were R2,050. No entry has yet been
passed.
Further to this the company policy is to provide for a doubtful debt of 2% on trade
receivables. (7)

Please provide the journal entries to account for:

i. The bad debt entry
ii. The provision for bad debt entry

QUESTION TWO [25]

AGA company manufactures and sells a product for R30 per Kg. However due to the current
economic climate the company has decided to reduce the selling price to R20 per Kg. They
would now like to analyse their position based on this price.
The data for the year 2023 is given below:
• Sales in kgs: 75,000 kgs
• Finished goods inventory at the beginning of the period: 12,000 kgs
• Finished goods inventory at the closing of the period: 17,000 kgs
Costs:
• Materials – R2 of raw material and R2 of liquid per Kg
• Labour – 0,5 hours per Kg. Labour rates are R4 per hour.
• Variable manufacturing overheads – R2 per Kg
• Fixed manufacturing overhead cost: R320,000 per year
• Variable marketing and administrative expenses: R2 per Kg of sale
• Fixed expenses: R300,000 per year
Required:
A. Income statement using absorption and variable costing methods. (20 marks)
B. Reconcile and explain the difference in net operating income under the two concepts.
(5 marks)
Show all workings.

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QUESTION THREE [39]
Company ABC is considering replacing an existing machine with a tax value of R50,000 for
a new more efficient machine at a cost of R250,000. The old machine can be sold today for
R60,000 or for R10,000 after 5 years.
The estimated life of the new machine is 5 years after which it will be sold for R40,000.
SARS taxes sale on capital assets at current rates.
Cash Flow Analysis
Continue New
Existing Machine Machine
(Per Annum) (Per Annum)

Sales 100 000 170 000

Cost of sales:
Variable 56 000 42 000
Fixed 30 000 30 000
Ignore any impacts of wear and tear.
The current tax rate is 40%
The cost of capital is 10%
Required:
Using the net present value analysis determine whether the company should continue with
the existing machine, replace the existing machine, or completely close down production?
(25)
Please substantiate your recommendation (3)
Name another investment appraisal method the company could use in evaluating investment
decisions? (1)
Show all workings

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QUESTION FOUR [25]
The following information was extracted from the statement of financial position of XYZ Ltd
as at 31 March 2019.
ASSETS 31 March 2019 31 March 2018
Land and buildings 92 500 89 000
Machinery at carrying amount 87 500 25 000
Investments 23 500 38 500
Inventory 17 000 48 000
Trade debtors 14 000 40 000
Receiver of revenue – income tax 1 000 Nil
Bank balance 3 000 1 500
Total assets 238 500 242 000
EQUITY AND LIABILITIES R R
EQUITY 156 500 94 000
Ordinary share capital 74 500 48 000
Retained earnings 82 000 46 000

LIABILITIES 82 000 148 000

Long term Borrowings 75 000 105 000
Trade creditors 6 000 35 200
Receiver of revenue – income tax Nil 4 300
Shareholders for dividends 1 000 3 500
Total equity and liabilities 238 500 242 000

Extract from the statement of comprehensive income for the year ended 31 March 2019
R
Gross profit 144 000
Dividends received 4 300
Profit on sale of machine 7 500
Depreciation (1 500)
Interest expense (18 000)
Distribution, administration and other expenses (40 300)
Taxation (42 000)
Profit for the year after taxation 54 000

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Additional information:
1. Shares were issued for cash during the year.
2. Dividends of R18 000 were declared during the current financial year.
3. On 31 October, machinery with a carrying amount of R11 000 was sold for cash. A
replacement machine as well as additional machinery was purchased for cash.
4. No long-term borrowings were made during the year.
5. Investments were sold during the year. No new investments were purchased.

Required:
Prepare the statement of cash flows of XYZ Ltd for the year ended 31 March 2019.
Use the indirect method.
Show all workings.

END OF QUESTION PAPER