QUESTION 1 (45,5 marks)

This question consists of two unrelated parts.

PART A (35,0 marks; 53 minutes)

ANSWER QUESTION 1 PART A IN A SEPARATE 4 PAGE BOOK

AGRIFARM TRADERS distributes seeds to farms and nurseries in South Africa. The
entity has a 31 March financial reporting date.

The seeds are purchased from various local suppliers. Agrifarm Traders does not
take advantage of any settlement discounts. The seeds are purchased in bulk, and
then repackaged into packets of 100 seeds, which are then sold at a 20% mark-up on
cost. The entity uses the First-In-First-Out (FIFO) method of inventories valuation, and
records its inventories using the perpetual inventories system.

Agrifarm Traders offers a settlement discount of 6% for customers who settle the
invoice within 30 days of the invoice date. Based on experience, 60% of customers
take the discount, and 40% do not. The entity only sells on credit.

The entity has a fixed customer base. Sales representatives travel to the farms and
nurseries to take new orders, follow up on the seeds that were previously sold, and
introduce customers to new seeds and seed technology. These sales representatives
receive a basic monthly salary, as well as commission based on seeds that they have
sold.

The following trial balance has been made available to you as at 31 March 20X17:

Account name Note DR CR

R R
Vehicles: Cost 1 664 000
Machinery: Cost 220 000
Computer equipment: Cost 85 000
Accumulated depreciation: 01/04/20X16 1&2
- Vehicles 332 000
- Machinery 66 000
- Computer equipment 14 167
Investment: 50 000 shares in Seeds South Africa Ltd 3 91 500
Loan: Organic Technology (Pty) Ltd 4 ?
Bank 5 25 322
Trade debtors control 6 227 867
Allowance for settlement discount allowed 6 13 481
Allowance for expected credit losses: 01/04/20X16 6 25 218
Inventories 7 146 875
Trade creditors control 345 312
Salary control: 01/04/20X16 8 18 293
Pre-paid expenses: Insurance - 01/04/20X16 975
Capital 982 781
Revenue ?

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FRK 100 Year Test 2 2017
 Cost of sales ?
Dividend income 3 8 750
Profit on sale of asset 1 2 500
Bank charges 5 2 585
Credit losses 6 ?
Salaries, commission and wages 8 623 190
Other expenses 218 306
Interest income 4 ?
Insurance 5 11 583
Total ? ?

Additional information:

1. A vehicle was sold on 31 August 20X16. The vehicle was originally purchased for
R125 000 on 1 October 20X13 and had a carrying amount of R62 500 as at
1 April 20X16. The accountant calculated the profit on sale of the vehicle as the
difference between the proceeds received on the sale, and the carrying amount of
the vehicle as at 1 April 20X16. The accountant did transfer the cost and
accumulated depreciation as at 1 April 20X16 to the asset disposal account.
Vehicles are depreciated using the straight-line method over a total useful life of 5
years. The vehicle has an estimated insignificant current residual value.

2. Accumulated depreciation at 31/03/20X17 is as follows:

R
Vehicles (excluding the vehicle sold in point 1) 464 800
Machinery 110 000
Computer equipment 42 500
617 300

There were no other changes in property, plant and equipment other than those
specified.

3. The investment in Seeds South Africa Ltd (“Seeds South Africa”) was first made in
October 20X14, when 35 000 shares were purchased at R1,50 per share. An
additional 15 000 shares were purchased on 28 September 20X16 at R2,25 per
share. The shares were trading on the JSE Limited at R1,65 each on
31 March 20X16, and at R2,75 each on 31 March 20X17. Seeds South Africa
declared an interim dividend of R0,25 per share on 31 August 20X16, and a final
dividend of R0,40 per share on 15 March 20X17.

4. Organic Technology (Pty) Ltd is a start-up company that specializes in seed

technology. Agrifarm Traders granted a loan of R55 000 to Organic Technology
(Pty) Ltd on 1 October 20X15. The loan bears interest at a nominal rate of 9% per
annum, compounded quarterly. The loan is repaid in equal, quarterly repayments
of interest and capital over a period of 5 years. Repayments have been received
from 31 December 20X15. Agrifarm Traders believes that Organic Technology
(Pty) Ltd will be able to settle the outstanding amount of the loan.

5. The bank statement for the last week of March 20X17 was received on
5 April 20X17. After a comparison to the subsidiary journals, the following items

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FRK 100 Year Test 2 2017
 were identified on the bank statement that had not yet been accounted for in the
accounting records:

5.1. The balance according to the bank statement as at 31 March 20X17 was
R15 690 (credit).
5.2. Bank charges of R235.
5.3. A deposit of R42 300 was received from a customer, A. Nagel, on
28 March 20X17. This was in settlement of his invoice dated
15 February 20X17. Mr. Nagel was not expected to take discount.
5.4. Insurance debit order of R1 053 on 30 March 20X17. Insurance is paid
monthly in advance. The insurance contract runs from 1 May to 30 April
each year. The monthly insurance premium increased by 8% from the
previous year.

6. The following information relates to trade debtors:

6.1. Total receipts from customers (excluding point 5.3) amounted to R3 500 960
for the financial year ended 31 March 20X17.
6.2. B. Freeman, a farmer, was declared insolvent on 10 January 20X17. This
customer’s account has been outstanding for more than a year. An amount
of R1 000 (representing R0,40 in the Rand) was received from his lawyers
on 15 February 20X17, and correctly recorded. This amount is included in
the total given in point 6.1 above. The remaining amount outstanding was
written off on 15 February 20X17, and was also correctly recorded.
6.3. The trade debtor’s book was reviewed by the owner and the financial
manager. They both agreed that the allowance for expected credit losses
should be R23 500.
6.4. Settlement discount actually allowed during the financial year ended
31 March 20X17 amounted to R97 323.
6.5. The balances for Trade debtors control and Allowance for settlement
discount allowed as at 1 April 20X16 were R302 650 and R9 614
respectively.

7. The following information relates to inventories:

7.1. The balance given in the trial balance is the balance on the inventories
system before the physical inventory count was performed.

The count was performed on 31 March 20X17. The following differences

were identified:
Packets per Packets Cost
inventories per price
system inventories per
count seed
R
Violet de Provence Artichoke seeds 200 198 1,80
Giant edible sunflower seeds 65 60 3,00

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FRK 100 Year Test 2 2017
 The reason for the missing packets is still to be investigated. Although the
amounts were small, the owner still wants the financial statements to reflect
the correct quantities.

7.2. One of the sales consultant’s vehicles was stolen while he was delivering
seeds to customers on 10 March 20X17. He was using his personal vehicle.
The total invoice value (sales price) of the seeds that were stolen amounted
to R37 500. The entity is insured for inventories to the value of R150 000.
According to the inventories system on the day of the theft, the inventories
balance amounted to R165 769. The claim was submitted to the insurance
company on 15 March 20X17. Sales are recorded as soon as they leave
Agrifarm Trader’s premises. The customer has been issued with a credit
note, and this has been accounted for correctly. No further entries have
been made.

7.3. Germination tests are performed on all seeds at year end to test the ongoing
quality of the seeds. An exotic new seed, the Long Island Brussel Sprout
seed, was purchased in November 20X15. This seed hasn’t been selling,
and due to its age, its germination capacity has greatly reduced. The owner
believes that he will be able to sell this stock at 10% below its cost. The
entity has 5 packets of these seeds on hand, at a cost of R24 per seed.
These seeds are included at full cost price in the inventories balance on the
trial balance.

8. The owner of the entity reviews and approves the commission schedule of the
previous month of the sales representatives in the first week of the following month.
The commission is then paid on the 15th of that month. Commission for
March 20X17, amounting to R23 412 (net amount after employees’ tax of 18% had
been deducted) was paid to the sales representatives on
15 April 20X17. The employees’ tax was also paid to SARS on 15 April 20X17. The
commission for March 20X16, of R18 293, was paid on 15 April 20X16, and was
recorded in the Salaries, commission and wages expense account in the general
ledger.

REQUIRED:

Prepare the statement of profit or loss and other comprehensive income of Agrifarm
Traders for the year ended 31 March 20X17, in accordance with International Financial
Reporting Standards. (35,0)

NOTE: - Round all final amounts to the nearest Rand.

- VAT can be ignored.

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FRK 100 Year Test 2 2017
PART B (10,5 marks; 16 minutes)

ANSWER QUESTION 1 PART B IN A SEPARATE 4 PAGE BOOK

The owner of AGRIFARM TRADERS is interested in the concept of “renewable

energy” (energy that is created from natural resources, for example, the sun) as a form
of taking care of the environment.

While reading up on the latest developments in the agricultural industry, he came

across the following article:

“The Sun Exchange is a marketplace where you can purchase solar cells (electrical
devices that convert the energy of light directly into electricity1) and have them power
businesses and communities in the sunniest locations on earth. You lease your solar
cells purchased through The Sun Exchange to hospitals, factories, schools and other
end-users, earning you decades of solar powered rental income wherever you are in
the world.

The Sun Exchange hosts what we call a 'crowd-sale' of solar cells. It works a bit like
crowd-funding in that the project will only go ahead once all the solar cells have been
sold.
We arrange the solar equipment contracts for you and arrange the revenue collection
and distribution systems so you can earn a passive stream of income powered by the
sun.
Browse open projects to start buying solar cells.”2

The owner immediately browsed the available open projects, selected one that he felt
passionate about, signed up and purchased 500 solar cells at a total cost of 6,70565
btc (Bitcoin).

The project that he selected has only been open for 1 month and has already sold
93% of the total solar cells that were required for this project. The solar cells can be
transferred at any time to another party.

The purchase was made on 5 April 20X17.

The current btc (Bitcoin) to Rand exchange rate is 1 btc = R18 641.

1
Wikipedia
2
www.thesunexchange.com

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FRK 100 Year Test 2 2017
REQUIRED:

1. Calculate the Rand value of one solar cell. (1,5)

Note: Round calculations to the nearest Rand

2. Discuss, in terms of The Conceptual Framework for Financial Reporting 2010,

whether the purchase of the 500 solar cells can be recognised in the financial
statements of Agrifarm Traders for the year ended 31 March 20X18. (9,0)

Note: You only need to discuss the debit leg of the transaction.

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FRK 100 Year Test 2 2017
QUESTION 2 (39,5 marks; 59 minutes)

ANSWER QUESTION 2 IN A SEPARATE 4 PAGE ANSWER BOOK

KINGSLEY TRADERS is a distributor of Mofaya Energy Drink (“Mofaya”) and operates

from its warehouse in Khaya Sands. The entity buys finished products from
manufacturers and sells these to small shops and wholesalers operating in the
Johannesburg area.

The entity is a VAT vendor. Sales are made on a cash basis after adding a mark-up
of 30% on cost. The entity makes use of the periodic inventories system and the First-
In-First-Out (FIFO) inventories valuation method.

The following is Kingsley Traders pre-adjustment trial balance at 28 February 20X17:

Note DR CR
Account name R R
Land: Cost 1 3 920 000
Buildings: Cost 1 7 650 000
Vehicles: Cost 2 500 000
Vehicle purchase: Nuevo 4 ?
Accumulated depreciation: Buildings 1
(01/03/20X16) 688 500
Accumulated depreciation: Vehicles 3
(01/03/20X16) 192 570
Inventories 5 ?
Bank: Oos Bank (As per the bank statement:
28/02/20X17) 2 325 119
Capital: (01/03/20X16) 8 068 364
Trade and other payables 5 149 736
Allowance for settlement discount received 5 ?
VAT Control 378 492
Instalment sales agreement: Oos Bank 4 ?
Sales 5 ?
Cost of sales 5 ?
Other expenses 786 672
Proceeds from the sale of vehicles 2 40 000

Additional information:

1. Land and buildings were revalued for the first time on 1 March 20X16 to
R15 000 000 by L. Fizzy, an independent sworn appraiser. Land accounted for 30%
of the calculated revaluation surplus.

The land and buildings were first acquired on 30 November 20X13 and were ready
for use as intended by management on this date. Upon review of the preliminary
trial balance on 28 February 20X17, Mr. Kingsley noticed for the first time that the
accountant has been calculating depreciation on the buildings, since the buildings

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FRK 100 Year Test 2 2017
 have been ready for use as intended by management, without taking the estimated
current residual value into account. The accounting policy of the entity is to calculate
depreciation on buildings using the straight-line method over its total estimated
useful life of 25 years, with an estimated current residual value of R450 000. Both
the estimated current residual value and total estimated useful life have since
remained unchanged.

2. The entity purchased two delivery vehicles for the first time on 30 November 20X13,
namely Vehicle Entrega and Vehicle Vendido. On 1 June 20X16, Mr. Kingsley sold
Vehicle Vendido (purchased at an original cost of R140 000 (excl. VAT)) for a cash
amount of R40 000 (excl. VAT). The vehicle had an odometer reading of 45 800 km
on 1 June 20X16. VAT implications have been correctly accounted for. The entity
calculates depreciation on all vehicles using the unit of production method over the
total estimated useful life of 200 000 kilometres per vehicle. The total estimated
useful life has remained unchanged.

3. The vehicle log book has been provided to you, detailing the cumulative kilometres
travelled at the end of each period:

01/03/20X16 28/02/20X17
Entrega 98 700 km 122 000 km
Vendido 21 300 km -
Nuevo (see note 4) - 14 000 km

4. A new vehicle, Vehicle Nuevo, was purchased on 1 June 20X16. This new vehicle
was financed by an instalment sales agreement through Oos Bank. The following
terms were reached between the entity and Oos Bank:
● The agreement bears interest at a nominal rate of 9% per annum, compounded
quarterly;
● Instalments of R15 000 are payable quarterly for a period of five years from
31 August 20X16;
● At the end of the term of the agreement, the final instalment will include a
residual payment of R45 000; and
● The amount financed excludes VAT. The entity claimed Input VAT on the
vehicle on the date of purchase and recorded the VAT transaction correctly in
the general ledger.

5. The entity purchases Mofaya Energy Drink cans from Fire Cola in cases. Each
case contains 24 cans of 340ml each. Each case is purchased at R40,80
(incl. VAT) per case. The purchase price has remained unchanged for the last two
years. Fire Cola allows a 10% early settlement discount on all credit purchases
within 25 days from invoice date. This is the only supplier that allows early
settlement discounts. It is the entity's policy to take advantage of early settlement
discounts offered by suppliers where possible.

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FRK 100 Year Test 2 2017
 Kingsley Traders’ inventory transaction report for the period 1 March 20X16 to
28 February 20X17 has been made available to you:

Cases purchased during the period 96 550 cases

Cases sold during the period 132 456 cases
Cases on hand at 28 February 20X17 6 455 cases

At year end, the entity had settled its account with Fire Cola except for an invoice
for 3 670 cases which were delivered on 21 January 20X17. This was the last
purchase that was made for the financial year ended 28 February 20X17. All other
invoices were paid within the discount period and correctly accounted for. Fire
Cola is the only supplier to the entity that allows credit.

REQUIRED:

1. Calculate the profit/loss of Kingsley Traders for the year ended 28 February
20X17 in accordance with International Financial Reporting Standards. (18,0)

2. Prepare the statement of financial position of Kinglsey Traders as at

28 February 20X17 in accordance with International Financial Reporting
Standards. (16,0)

3. Calculate the amount paid by the entity to the South African Revenue Service
(SARS) in respect of VAT during the 20X17 financial year:

- Assume a balance of R412 855 (credit) on 01/03/20X16 on the entity’s VAT

control account;

- Assume that all input VAT and output VAT was correctly recorded during
the financial year ended 28 February 20X17.

- Assume that input VAT could be claimed on all “Other expenses” in the trial
balance. (5,5)

NOTE: - Round all final amounts to the nearest Rand;

- Comparative amounts are not required.

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FRK 100 Year Test 2 2017