Q1

Q 1.1 Inventories

Subsequent measurement of inventory

Inventories are to be measured at the lower of cost or net realisable value. IAS 2.9 1.0
Net realisable value is defined as the estimated selling price in ordinary course of business less estimated costs of 1.0
completion and estimated selling costs. IAS 2.6 0.5
The purpose for which the inventory is held must be taken into account. 1.0
When testing for write downs, each inventory item should generally be tested separately. IAS 2.29 1.0
If the net realisable value is less than its carrying amount, we write the inventory down to its net realisable value. IAS 2.28 1.0

Measurement
Carrying amount of inventory:
Trophies (148 x 1 250) = 185 000 185,000 1.0
Silver plated awards (109 x 480) = 52 320 52,320 1.0
Inventory at cost 237,320

Net realisable value of inventory:

Estimated selling value (60 x 1 440) + (22 x 600) + (88 x 1 000) + (87 x 400) 222,400 4.0
Less: Estimated selling cost (88 + 87) = 175; (175 x 10) = 1 750 + 3 200 = 4 950 -4,950 2.0
Less: Estimated cost to complete 0 0.5
Inventory at net realisable value to be disclosed in the Statement of Financial Position under Current Assets 217,450 1.0

Write down of inventory to be presented in the Statement of Profit or Loss and Other Comprehensive Income 19,870 1.0
Write down of inventory expense (237 320 - 217 450) = 19 870 1.0

Q 1.2 17.0
Umbane Limited Max 15.0
Notes to the financial statements
for the year ended 30 September 2020

2.2 Inventories
Inventory is measured at the lower of cost and net realisable value. 1.0
Cost is determined on the specific identification formula. 1.0
2.0
Q 1.3 Statement of Cash Flows
Direct Method
Umbane Limited
Statement of Cash Flows for the year ended 30 September 2020

R
Cash flows from Operating Activities 380,100 0.5
Cash received from customers (522 400 + 8 675 000 - 684 300 + 16 380) 8,529,480 1.5
Cash paid to suppliers and employees (W1) (7,740,650) 0.5
Cash generated from operations 788,830 0.5
Interest paid (43,000) 0.5
Interest received 11,250 0.5
Dividends paid (250 000 x 0.85) (212,500) 1.0
Taxation Paid (42 350 + 128 820 - 6 690) (164,480) 1.5
Cash flows from Investing Activities ###
Fixed Investment (300,000) 0.5
Additions to plant - Expansion of operating capacity (1,600,000) 1.0

Cash flows from Financing Activities 1,835,000

Share issue - (6 435 000 - 4 600 000) = 1 835 000 1,835,000 1.0

Net Increase/(Decrease) in Cash 315,100 0.5

Bank overdraft at the beginning of the year (89,600) 1.0
Cash and Cash Equivalents at the end of the year 225,500 0.5

Presentation 2.0
Workings

W1. Cash paid to suppliers and employees

1.1 Calculation of Purchases (237 320 + 6 246 000 - 181 900) 6,301,420 1.5

1.2 Calculation of Cash paid to Suppliers (126 400 + 6 301 420 - 189 520) 6,238,300 1.5

2. Cash paid to Operating Expense Suppliers and Employees 1,502,350

Operation Expenses 1,952,200 0.5
Credit losses recovered 16,380
Depreciation (465,000) 0.5
SARS - VAT (13 570-12 340) (1,230) 1.0

Cash paid to suppliers and employees 7,740,650

5.0

Presentation 2.0

Total 37.0
Question 2

Q 2.1 Calculation of taxable profit and current income tax expense

2019
R
Profit before tax 854,000 0.5

Permanent differences -50,860

Non-deductible expenses - Fines and interest 6,140 0.5
Non-taxable income - Dividends -57,000 0.5
Temporary differences -74,140
Depreciation - Machinery - (752 000 - 320 000)/8 = 54 000 54,000 1.5
Wear and Tear on Machinery - (752 000 x 20%) -150,400 1.0
Non-capital profit on finance lease ((320 000 - ((320 000/8) x 1.5)) = 260 000) (280 000 - 260 000) = 20 000 -20,000 2.0
Finance income on lease, 280 000 x 12.35% -34,580 1.0
Lease instalment on machine - Given 76,000 0.5
Provision for warranty - Closing balance 31,800 0.5
Provision for warranty - Opening balance (31 800 + 11 960) -42,960 1.0
Prepaid agent fees - Opening balance 12,000 0.5

Taxable Profit/(Loss) - Current year 729,000 0.5

Current income tax at 28% 204,120 1.0

11.0
Q 2.2 Deferred tax
W1. Calculation of Deferred tax

Machinery CA TB TD DT
Balance 31/10/2019 611,000 300,800 (310,200) (86,856) Liability 3.0
Depreciation/W&T (54,000) (150,400) (96,400) (26,992) 1.5
Trf to Receivable (260,000) 0 260,000 72,800 1.0
Balance 31/10/2020 297,000 150,400 (146,600) (41,048) Liability

Net investment in lease CA TB TD DT

Balance 31/10/2019 0 0 0 0
Addition 238,580 0 (238,580) (66,802) 1.5
Balance 31/10/2020 238,580 0 (238,580) (66,802) Liability

Year-end accruals CA TB TD DT Alternative CA TB TD DT

Opening balance 0 0 0 Balances 0 0 0
Provision for warranty (42,960) 0 42,960 12,029 (42,960) 0 42,960 12,029 1.0
Prepaid agent fees 12,000 0 (12,000) (3,360) 12,000 0 (12,000) (3,360) 1.0
Balance 31/10/2019 (30,960) 0 30,960 8,669 Asset (30,960) 0 30,960 8,669
Movement (840) 0 840 235
Provision for warranty 11,160 0 (11,160) (3,125) (31,800) 0 31,800 8,904 1.0
Prepaid agent fees (12,000) 0 12,000 3,360 0 0 0 0 1.0
Balance 31/10/2020 (31,800) 0 31,800 8,904 Asset (31,800) 0 31,800 8,904

11.0
Q 2.3
Kukhulu Limited
Notes to the financial statements for the year ended 31 October 2020

2020 2019
6. Deferred income tax asset/(liability) R R
The closing balance is constituted by the effects of:
- Year-end accruals 8,904 8,669 1.0
- Property, plant and equipment -41,048 -86,856 1.0
- Leases -66,802 0 1.0
-98,946 -78,187

3.0
Q 2.4
Convertible Debentures
The issuer of the financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability,
a financial asset or an equity instrument in accordance with the substance of the contractual agreement and the definitions of
a financial liability, a financial asset or an equity instrument. IAS 32.15 2.0
An unavoidable obligation to deliver cash results in a financial liability. 1.0
There is a contractual obligation to deliver cash, namely the interest on the debentures up the 30 June 2025, and this
obligation represents a financial liability. 1.0
The compulsory conversion to Class A shares gives rise to an equity instrument since the company's own shares
involves no contractual obligation to deliver cash. 1.0
There is no contractual obligation to deliver another financial asset. 0.5
The company has no obligation to deliver a variable number of its own shares. 0.5
The debentures are convertible in a fixed for fixed ratio (4 Shares for each debenture) 1.0

Conclusion
A compound financial instrument is a non-derivative financial instrument that from an issuer's perspective contain both
- A financial liability and an equity instrument 1.0
The debentures will therefore be classified as a compound instrument as they contain both. 1.0

Calculations
W1. Calculation of financial liability component
Interest annuity - n = 5; i=15.05%; FV=0; PMT=-R1 980 000; Compute PV= R6 629 417 2.0
No redemption 0.5
Total liability = R6 629 417 0.5

W2. Calculation of Equity component

Fair value of issue (7 500 x R2 500) = R18 750 000 18,750,000 1.0
Less: Financial liability -6,629,417 0.5
Equity portion 12,120,583 0.5

14.0

Maximum 10.0

Total 35.0
Q3
Pro-forma journal entries

31/12/2019
Share capital (SCE) 350,000 0.5
Retained earnings (SCE) 386,000 0.5
Investment in Ithole Ltd (SFP) 580,000 0.5
Non-controlling interest (SCE) 184,000 0.5
Goodwill (SFP) 28,000 0.5
Workings: (736 000 x 25%) = 184 000; 580 000 + 184 000 - 736 000 = 28 000 2.5

Retained earnings (SCE) 10,000 0.5

Non-controlling interest (SCE) 10,000 0.5
Workings: (426 000 - 386 000 ) = 40 000; 40 000 x 25% = 10 000 1.5

Retained earnings (SCE) 8,000 0.5

Goodwill (SFP) 8,000 0.5
Workings: Given

Sales (P/L) 111,600 0.5

Cost of Sales (P/L) 111,600 0.5
Workings: Given

Cost of Sales (P/L) 7,800 0.5

Inventory (SFP) 7,800 0.5
Workings: (33 800 x .3/1.3) = 7 800 1.5

Machinery at cost (SFP) 257,500 0.5

Accumulated Depreciation: Machinery (SFP) 240,000 0.5
Loss on sale of non-current assets (P/L) 17,500 0.5
Workings: (318 500 - (576 000 - 240 000)) = 17 500; 576 000 - 318 500 = 257 500 2.5

Depreciation (P/L) 5,000 0.5

Accumulated Depreciation: Machinery (SFP) 5,000 0.5
Workings: ((576 000/6) = 96 000; 240 000/96 000 = 2.5; (318 500/(6 - 2.5)) = 91 000; 96 000 - 91 000 = 5 000 3.5

Taxation expense (P/L) 1,316 0.5

Deferred taxation (SFP) 1,316 0.5
Workings: (17 500 - 7 800 - 5 000) x 28% = 1 316 2.0

Non-controlling interest (SCE) 3,000 0.5

Profit before tax - Dividend income (P/L) 9,000 0.5
Dividends paid (SCE) 12,000 0.5
Workings: (12 000 x 25%) = 3 000 1.0

Non-controlling share of profit (P/L) 16,846 0.5

Non-controlling interest (SCE) 16,846 0.5
Workings: (107 000 - 34 000 - 7 800 + (7 800 x 28%)) x 25% = 16846 3.0

30.0