UNIVERSITY OF LIMPOPO

TURFLOOP CAMPUS

FACULTY OF MANAGEMENT & LAW

SCHOOL OF ACCOUNTANCY (SoA)

DEPARTMENT OF ACCOUNTING

MODULE: CACN012 OCT/NOV: 2023

(FINANCIAL ACCOUNTING 1B)

TIME: 3 HOURS MARKS: 125

INTERNAL EXAMINERS : PROF O AYAYA PhD, CA(SA)

SECOND EXAMINERS: MR ML NKHONA CA (SA)

MS M RAMOLOBE CA (SA)

THIS PAPER CONSISTS OF 9 PAGES, INCLUDING COVER PAGE

INSTRUCTIONS:

1. Answer all the questions.

2. Write neatly and legibly.
3. Round all figures to the nearest Rand.
4. Number questions correctly at the top of each page.
5. Pencil work will not be marked.
6. Scratch out open spaces and empty pages.
 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

QUESTION 1 [65 MARKS - 117 MINUTES]

Wakati Bank Limited (hereinafter “Wakati”) is an authorised financial services and

registered credit provider. It is based in Midrand. The bank is a digital bank relying on
blockchain technology as the basis of its business model. The bank was incorporated on
1 March 2019 and has a 30 June financial year-end. As stipulated in its Memorandum of
Incorporation (MOI) filed with the Companies and Intellectual Property Commission
(CIPC), Wakati has an authorised share capital of 8 000 000 ordinary no-par value
shares and 800 000, R12, 10% non-redeemable preference shares respectively. Wakati
is NOT registered for VAT as a financial services provider. It does, however, pay normal
company tax. Since its incorporation until the financial year ended 30 June 2022, Wakati
has issued 1 200 000 ordinary no-par value shares and 250 000 10% non-redeemable
preference shares of R12 each.
The following is an extract of Wakati’s trial balance for the financial year ended 30 June
2023:
Extract from the trial balance for the financial year Credit -
ended 30/6/2023 R
10 800
Ordinary no-par value shares (1/7/2022) 000
3 000
Preference shares (1/7/2022) 000
17 450
Retained earnings (1/7/2022) 000
Shareholders for dividend - ordinary dividend (1/7/2022) 220 000

Wakati decided to expand nationally and entered the following transactions for the
financial year ended 30 June 2023:
I. Ordinary no-par value shares
Wakati offered the public 3 500 000 ordinary no-par value shares on 1 October
2022 at R16 per share. The closing date for applications was on 30 November
2022. COMWIL Ltd underwrote the share issue. Wakati and COMWIL Ltd signed
the underwriting agreement on 10 October 2022, with the underwriter’s
commission fee agreed at 7% of the entire share offer. COMWIL Ltd was paid on
5 December 2022. 3 500 000 applications from the public were received by the
closing date. The directors allotted the ordinary no-par values shares on 10
December 2022 to all successful applicants. Further share issue costs of R 400
000 were incurred and paid on 7 January 2023.

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

II. Preference shares

Wakati offered 350 000, R12, 10% non-redeemable preference shares at R12 per
share to continue raising funds for the national expansion. Feeling confident in
the expected demand for their preference shares, Wakati did not use an
underwriter. The offer was open to the public on 1 February 2023 and closed on
15 March 2023. The public took up all the shares offered once the closing date
elapsed. The preference shares were allotted to the public on 31 March 2023.
III. Debentures
Wakati ’s directors decided to issue 200 000, 10% debentures on 1 May 2023.
The debentures were issued at R28 each and will be repayable in five years at
R30 each. All the debentures were taken up on 1 May 2023, and the effective
interest rate was determined to be 11.843%. The interest on the debentures is
payable annually on 30 June each year. The portion of interest for the financial
year ended 30 June 2023 has not been paid, and the balance is owing as at 30
June 2023.
IV. Dividends
The balance on the “Shareholders for dividends” general ledger account relates
to the final ordinary dividend declared on 30 June 2022. This dividend was paid to
shareholders on 31 August 2022. Additionally, Wakati’s directors declared the
following ordinary dividends:

Date Declared Date paid Dividend per share

28 December 2022 31 January 2023 R0-36 cents per share
30 June 2023 31 August 2023 R0-32 cents per share

The directors of the company further declared preference dividends on 30 June

2023. No preference dividends were outstanding before this declaration was
made on 30 June 2023.

V. Income Tax
Wakati had a balance on their “SARS – Income Tax payable” account amounting
to R 98 500 on 1 July 2022. The income tax for the financial year ended
30 June 2023 amounted to R 1 562 500. This amount was verified as a true
reflection of the company’s income tax. During the financial year ended 30 June
2023, provisional tax payments were made as follows:
1st Provisional tax payment 31 December 2022 R 825 500

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

2nd Provisional tax payment 30 June 2023 R 825 500

The outstanding balance owed to SARS was paid on 15 July 2023.

VI. Profit before interest and tax

Wakati had a profit before tax for the financial year ended 30 June 2023,
amounting to R 19 625 000.
VII. Magendo Holdings Limited
Wakati’s director of finance is Mr M Busta. A qualified Chartered Accountant. Mr
Busta and his wife own Magendo Holdings Inc., which buys and sells
commodities, foreign exchange (Forex) and other financial investments. Magendo
Holdings Inc. is one of the companies that bought the ordinary and preference
shares and debentures offered by Wakati to the public. Mr Busta has never
disclosed that he is the co-owner of Magendo Holdings Inc., and being the
finance director placed him at an advantage in terms of these share and
debenture offers.
YOU ARE REQUIRED TO: MARKS
a) Prepare all the journal entries as they would appear in the financial [9]
records of Wakati to account for the transactions in Note I above for
the financial year ended 30 June 2023.
Communication skills: provided dates and narrations to the
journal entries. [2]
b) Prepare all the journal entries as they would appear in the financial [4]
records of Wakati to account for the transactions in Note II above for
the financial year ended 30 June 2023.
Communication skills: provided dates and narrations to the
journal entries. [1]
c) Prepare all the journal entries as they would appear in the financial [9]
records of Wakati to account for the debenture issue and interest, as
stated in Note III above, for the financial year ending 30 June 2023.
Ignore narrations to the journal entries.
Communication skills: provided dates and narrations to the [1]
journal entries.
d) Prepare the “Shareholders for Dividends Account” in the general [10]
ledger of Wakati for the financial year ended 30 June 2023 after

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

considering the information in note IV above. Show all calculations

e) Prepare the “SARS Income Tax Account” in the general ledger of [5]
Wakati for the financial year ended 30 June 2023 after considering
the information in note V above. Show all calculations
f) With reference to the Conceptual Framework for Financial Reporting, [8]
discuss how the underwriter’s commission and discount on the issue
of debentures is to be recognised in the accounting records of Wakati
for the financial year ended 30 June 2023.
g) Discuss whether the behaviour of the Director of Finance, as [5]
described, is in breach of ethics and professional conduct.
Communication skills: advanced logical arguments to support
your answer. [1]
h) Identify the key features distinguishing corporate financial reporting [10]
from those of a sole proprietorship.
I] What are the key sources of changes to the issued shared capital of a [10]
limited liability company registered in terms of the Companies Act?
Total marks for Question 1 [75]

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

QUESTION 2 [50 MARKS|75 MINUTES]

Pori Park Limited (hereafter “Pori Park”) is a South African company with a 31 October
financial year-end. Pori Park operates a Pori life sanctuary in the Limpopo Province and
organises guided animal encounters and game drives for both local and foreign tourists
visiting their sanctuary. Pori Park also buys and sells game feed to various other nature
reserves in their area. Pori Park is NOT a registered VAT vendor.
The following information is available concerning the current financial year:
Pori Park Ltd
Trial balance for the financial year ended 31 October 2023
R
Notes DR/(CR)

Accrued expenses (72 900)

Accumulated depreciation – Computer equipment VII ?
Accumulated depreciation – Machinery VI ?
Accumulated depreciation - Vehicles V ?
Allowance for expected credit losses – 31 October 2022 (72 090)
Audit fees 42 500
Bank 106 890
Bank (Overdraft) (277 950)
Cash on hand 15 300
Computer equipment at cost VII ?
Credit losses 50 644
Depreciation - Machinery VI ?
Depreciation – Vehicles V ?
Dividend paid (31 October 2023) 452 100
Dividends received from listed shares (6 900)
Purchases of game feed 900 300
Income received in advance (22 800)
Income tax expense ?
Interest received (5 960)
Interest paid on long-term borrowings 16 000
Inventory (Game feed on hand) 1 882 770
Listed investment 35 000
Long-term borrowings 1 560 000
Loss on sale of the asset VI ?
Loss on sale of investment 18 060
Machinery at cost VI ?
Other expenses VIII 309 480
Petty cash 7 500

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

Prepaid expenses 13 140

Retained earnings (31 October 2022) (256 601)
Salaries and wages (administrative staff) 150 000
Salaries and wages (drivers of game vehicles) 265 000
Salaries and wages (drivers of game feed delivery trucks) 9 610
Sales of game feed (800 000)
Services rendered (2 875 000)
Stated Capital (1 626 150)
Trade payables (697 944)
Trade receivables 1 693 000
Transport costs 21 000
Vehicle maintenance (delivery vehicles) 39 000
Vehicles at cost V ?

Additional information:
I. On 31 October 2023, the directors received notice that one of their customers was
declared insolvent. They realised that they would not receive their money and
decided to write off the balance of R 15 560 as a credit loss. This transaction has not
yet been recognised in the accounting records.
II. The allowance for expected credit losses must be adjusted to 5% of the trade
receivables balance as at financial year-end.
III. The accountant calculated that the monthly capital repayments on the long-term loan
will amount to R 72 000 from 1 November 2023 to October 2024.
IV. A physical inventory count was done on 31 October 2023. Total inventory amounted
to R 2 177 550.
V. The following details are available regarding Pori Park’s game drive vehicle fleet for
the prior and current year:
 Pori Park purchased five Land Cruisers on 10 May 2022 at R460 000 each.
 Management intends for the vehicles to be safe for tourists, so on 15 May 2022,
Pori Park incurred the following costs which were necessary to ensure that the
vehicles are safe for tourists:

Type of cost incurred Amount (Total for all five vehicles)

Additional seats and steps R 250 000
Spotlights R 40 250

 On 20 May 2022, the vehicles were loaded onto a truck and transported to Pori
Park’s Pori Life Sanctuary at a total cost of R57 500.
 The vehicles arrived at Pori Park on 30 May 2022. The vehicles were ready for
use as intended by management on this date.
 On 28 June 2022, the first group of tourists were taken out in the newly
purchased game drivers.

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

 Pori Park estimated that the vehicle’s useful life would be eight years and
considered the estimated residual value to be zero.
 Pori Park’s accounting policy is to subsequently account for depreciation using
the straight-line value method over the estimated useful lives of vehicles.
VI. The following are the details regarding Pori Park’s game feed mixing machine for the
prior and the current year:
 Pori Park purchased a game feed mixing machine on 30 July 2022 for R934 000.
On 1 November 2022, the accumulated depreciation for this machine was R52
538.
 Pori Park estimated that the machine’s useful life would be 4 years and
considered the estimated residual value to be 10% of the cost price.
 On 30 April 2023, the machine was sold for R 750 000.
 Pori Park’s accounting policy is to account for depreciation using the straight-line
value method over the estimated useful lives of machinery.
VII. The following are the details regarding Pori Park’s computer equipment:
 On 25 May 2023, Pori Park purchased 10 new state-of-the-art laptops. These
laptops will enable the game drivers to record and capture the necessary
statistics regarding the animals accurately. The laptops were delivered and ready
for use by Pori Park on 31 May 2023. The cost of each laptop was R 11 000.
 Pori Park estimated that the computer’s useful life would be 3 years and
considered the estimated residual value to be 20% of the cost price.
 Pori Park’s accounting policy is to account for depreciation using the straight-line
value method over the estimated useful lives of computers.
VIII. The “Other expenses” line item on the trial balance includes interest of R 76,440
on a long-term loan.
IX. The auditors calculated and verified the annual income tax expense of R37 500. This
transaction must still be recognised in the accounting records of the entity.

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 CACN012: FINANCIAL ACCOUNTING STANDARD EXAMINATION IB 2023

YOU ARE REQUIRED TO: MARKS

a) Prepare the disclosure note for property, plant and equipment in the [19]
notes to the financial statements of Pori Park for the financial year
ended 31 October 2023.
- Ignore the total column for the note; accounting policy notes are
NOT required.

b Prepare the following financial statements for Pori Park for the financial
) year ended 31 October 2023:
(i) Statement of profit and loss (according to the nature of [13]
financial items)
(ii) Statement of changes in equity
[3]
Communication skills: layout of financial statements [2]
c) Prepare the statement of financial position for Pori Park as at 31 [13]
October 2023

Total marks for Question 2 [50]

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