Student No: 217017316

Question 1

A.

Details Debit credit

15 July 2019

Foreign Debtors 872070

Sales 872070

Sale of inventory

Cost of sales 200000

Inventory 200000

Recording the cost of the inventory sold

31 October 2019

Foreign debtors 103245

Foreign exchange gain (50000 x 19.5063 -872070) 103245

Translation of foreign debtors on payment date

Bank 585189

Foreign debtors (30000 x 19.5063) 585189

Receipt of payment from Ghost limited -first instalment

31 December 2019

Foreign debtors 369772

Trade payables (20000 x 18.4886) 369772

Outstanding amount at year end

Foreign exchange loss 20354

Foreign debtors (20000 x 18.4886- (872070+103245-585189) 20354

Translation of foreign debtor at year end

1 January 2020

Foreign debtors 21584

Foreign exchange gain (20000 x 19.5678- (872070+103245- 21584

585189-20354)

Translation of foreign debtor on payment date

Bank 391356
 Foreign debtor (20000 x 19.5678) 391356

Receipt of payment from Ghost limited- second instalment

Student No: 217017316

B.

CAPSULE LIMITED

Statement of cash flows

For the year ended 31 December 2019 (direct method)

Cash flows from operating activities

Cash receipt from customers 20660000
Cash paid to suppliers and employees -9674000
Cash generated from operations 10986000
Interest paid (40000 + 68811 – 20000) -88811
Dividend paid (300000 x 10% x R1) -30000
Taxation paid -560000
Cash flows from investing activities 894000
Development expenditure 20000
Disposal from sale of PPE (90000 – 68000 – 12000) 10000
Additions (62000 + 460000 + 342000) 864000
Cash flows from financing activities 900000
Repayment of long-term borrowing (200000 – 500000) 300000
Proceeds from share issue (1200000 – 600000) 600000
Net cash(outflow)/inflow 338000
Cash and cash equivalents: opening balance 70000
Cash and cash equivalents: closing balance 408000

Cash receipts from customers

Trade receivables

Balance b/d 620000 Bank 20660000

Revenue 20800000 Balance c/d 760000
21420000 21420000
Balance b/c 760000

Cash paid to suppliers and employees

Inventory

Balance b/d 900000 Cost of sales 9792000

Trade payables 9784000 Balance c/d 892000
10684000 10684000
 Balance b/d 892000

Student No: 217017316

Trade payables

Bank 9674000 Balance b/d 190000

Balance c/d 300000 Inventory 9784000
9974000 9974000
Balance b/d 300000

Current tax payable

Bank 560000 Balance b/d 520000

Balance c/d 500000 Tax expense 540000
1060000 1060000

Deferred tax

Balance c/d 260000 Balance b/d 240000

Tax expense 20000
260000 260000

C. Liability:

• a present obligation of the entity

• to transfer an economic resource

• as a result of past events

Equity:

• The residual interest in the assets of the entity after deducting all itsliabilities.

Application of the above definitions on the initial issue of preference shares:

Liability:

• Since Perseverance Limited’s preference shares are compulsorily redeemable, the entity

has a present obligation to redeem the preference shares.

• The settlement of this obligation will result in a transfer of economic resources in the form

of cash of C420 000 (in respect of the issue price of the shares: C300 000, the premium:
Student No: 217017316

C30 000 and the annual dividends: C30 000 x 3 years = C90 000).

• The past event is the issue of these shares on 1 January 2019.

The preference shares therefore meet the definition of a liability not that one of equity.

D.

To: Directors

From: Accounting student

Date: 31 December 2019

RE: Adjusting and non-adjusting

This memorandum is aimed at addressing the change in residual and useful life as to whether it is an
adjusting or non-adjusting event.

Event after the reporting period

An event after the reporting period is defined as:

• Those events that are favourable or unfavourable

• That occur between the end of the reporting period and the date when the annual financial

statements are authorised for issue

The change in residual and useful life took place after year end 1 March 2020, but the annual
financial statements were approved by the directors on the 3rd of March 2020.

Adjusting / Non-adjusting event

Two types of events can be identified:

• Those that provide evidence of conditions that existed at the end of the reporting period

(adjusting events after the reporting period)

• Those that are indicative of conditions that arose after the reporting period (non-adjusting

events after the reporting period)

The change in useful life and residual value is a non-adjusting event because it will take place after
the reporting financial year end which is 2020.
Student No:217017316

❖ The change will be accounted for in the accounting records on the next reporting financial year
2020.

There are no journal entries for 2019 since there are no adjusting event made for 2019, therefore
only disclosure is required.

I hope all the information provided will help in accounting for changes in residual and useful life.

Kind regards

Accounting student

QUESTION 2

A.

An investor controls an investee if and only if an investor has the following:

• Power over the investee

• Exposure, or rights to, variable returns from its involvement with the investee.
• The ability to use its power over the investee to affect the amount of the investors return

POWER

This is when an investor has existing rights that give it the current ability to direct the relevant
activities (that is the activities that significantly affect the investees return).

When assessing whether any entity has power over an investee only substantive rights are
considered. Protective rights are not taken into account.

Substantive rights

For a right to be substantive it needs to be:

• Exercisable when decisions about the direction of the relevant activities need to be made (in
most cases the rights need to be currently exercisable)
• The holder must have the practical ability to exercise the rights.

Dutch Berry and Wootworths have agreed that any key decisions that could possibly affect the
operations of Dutch Berry would necessitate the involvement of at least one director of Wootworths.

RETURNS

An investor is exposed, or has rights to, variable returns from its involvement with the investee
when the investors return from involvement have the potential to vary as a result of the investees
performance.

Dutch Berry has committed itself to sell 200 000 bottles of grape juice (normally 90% of its capacity)
to Wootworths at a price that will be negotiated each year.

Link between power and returns

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In addition to having power over the investee and exposure or rights to variables returns, an investor
must have the ability to use its power to affect its returns from its involvement with the investee.

Any decisions that impact the production or quality of the grape juice ear-marked to be sold to
Wootworths would require the unanimous consent of both parties.

ASSESSING CONTROL

The application guidance of IFRS 10 gives very detailed guidance of the factors that should be taken
into account in assessing the determination of control.

The purpose and design of the design

An investor shall consider this in order to identity

• The relevant activities

Dutch Berry is the primary supplier of sparkling grape juice to Wootworths.
• How decisions about the relevant activities are made
any key decisions that could possibly affect the operations of Dutch Berry would necessitate
the involvement of at least one director of Wootworths.
• Who has the current ability to direct those activities,
Dutch Berry and wootworths who is actively involved in ensuring that Dutch Berry makes the
best quality grape juices with no illegal additives and substances
• Who receives returns from those activities
Dutch gets the money from the sales of bottles of grape juices and wootworths gets 90%
capacity of bottle of grape juice.

Therefore, wootworths has control over Dutch Berry

ii) In the annual financial statements, the R300 000 paid to Dutch berry by Wootworths would be
recorded as investments in subsidiaries in Wootwoorths statements of financial position. As
Wootworth acquired 90% of Dutch capacity, its subsidiary. Therefore, Wootworth’s consolidated
financial statements would include the 90% of its subsidiary capacity.

B)

Small and medium-sized entities (SME) are entities that:

• do not have public accountability.

What is public accountability?

Debt/equity instruments are publicly traded, or the company is in the process of issuing such
instruments or

one of its primary businesses is to hold assets in a fiduciary capacity (i.e. having the legal authority
and duty to make financial decisions) for a broad group of outsiders.
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Mr Dlamini is a sole owner of cheza-e-YamYam and there is no evidence of debt or equity

instruments publicly traded or in the process of issuing instruments therefore the entity has no
public accountability.

• publish general purpose financial statements for external users

The entity publishes annual financial statements for internal and external purposes

C.

The treatment suggested by the financial director does not comply with the international financial
reporting standard because fines does not fall under retained earnings. The fine must recognised
and disclosed on the statement of comprehensive income under expenses.