FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting

DEPARTMENT Accountancy
CAMPUS(ES) APK, SWC
MODULE NAME Accounting 1B
MODULE CODE ACC01B1/REK1B01
SEMESTER Second
ASSESSMENT OPPORTUNITY, Final Assessment
MONTH AND YEAR November 2019

ASSESSMENT DATE 14 November 2019 SESSION 12:30 – 15:00

ASSESSOR(S) Mr M Dlamini
Mr B Sibiya
Mrs M Ncalo
MODERATOR(S) Mahmood Tasneem
DURATION 2h30 (150 min) TOTAL MARKS 125

NUMBER OF PAGES OF QUESTION PAPER (Including cover page) 8

INFORMATION/INSTRUCTIONS:
This is a closed-book assessment.
 There are 3 questions. Answer all the questions
 Answer each question in a separate book/Annexure.
 Read the questions carefully and answer only what is required.
 Number your answers clearly and correctly as per the question paper.
 Write neatly and legibly on both sides of the paper in the answer book, starting on the first
page.
 Write in blue or black ink – No pencil or tippex may be used
 A non-programmable, silent calculator may be used
_________________________________________________________________________
QUESTION TOPIC MARKS TIME

1. Statement of cash flows (Blue) 30 36 minutes

2. Statement of financial position (Green) 30 36 minutes
3. Revenue,Provisions, Profit & Loss (Orange) 65 78 minutes
125 150 minutes

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QUESTION 1 (30 MARKS)

You are the financial director of Sting Limited, whose reporting period ends on 31 December
2018. You have already drafted the Statement of Comprehensive Income, the Statement of
Changes in Equity and the Statement of Financial position.

Your junior accountant partially completed the cash flow, before he got sick and you are
expected to prepare the Statement of Cash Flows for the reporting period ended 31 December
2018.

Assets, liabilities and equity as at 31 December 2018 and 31 December 2017:

Additional 2018 2017
information R R
Land and buildings at cost 1 4 770 000 3 145 000
Mortgage bond 1 (1 862 500) (1 400 000)
Plant and equipment at cost price 3 3 900 000 2 600 000
Plant payable 3 (225 000) 0
Accumulated impairment: Plant and equipment 3 (250 000) 0
Accumulated depreciation: Plant and equipment 3 (1 355 000) (1 170 000)
Delivery vehicles (controlled by lease liability) 1 050 000 1 050 000
Accumulated depreciation: Delivery vehicles (420 000) (210 000)
Lease liability in respect of vehicles (687 500) (877 500)
Investment in subsidiary at cost price 4 1 125 000 0
Financial investment at fair value 5 1 475 000 825 000
Trademarks 2 1 505 000 900 000
Accumulated amortisation: trademarks 2 (480 000) (360 000)
Long term loan (2 345 000) 0

Ordinary share capital (4 300 000) (2 500 000)

Retained earnings 6 (4 765 000) (2 537 500)

Bank balance – favourable 770 000 450 000

Call deposit 1 025 000 325 000
Trade receivables 3 875 000 3 270 000
Allowance for doubtful debts (620 000) (490 000)
Prepaid insurance of property 60 000 42 500
Inventories 1 727 000 1 182 500

Trade payables (2 507 000) (2 840 000)

Shareholders for dividends (500 000) (375 000)
Income tax payable 7 (90 000) (80 000)
0 0

Additional information:

1. Land and buildings are presented at cost. No depreciation is written off on land and
buildings.

The land and buildings purchased during the current reporting period were partially
financed through the increase in the mortgage bond.
The capital redemption on the mortgage bond during the reporting period ended
31 December 2018 was R237 500.

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2. No trademarks were sold during the current reporting period.

3. Plant and equipment with a cost price of R550 000 and a carrying amount of R110 000
were withdrawn during the reporting period ended 31 December 2018 and sold for R10
000 cash.

The plant and equipment withdrawn, were replaced at R725 000, of which a portion is
still owed to the plant payable. Other plant and equipment were purchased during the
current reporting period to supplement the existing capacity.

At the end of December 2018, an impairment of R250 000 was recognised in respect of
plant and equipment.

4. The investment in the subsidiary was acquired in accordance with a cash transaction.

5. Additional shares in the financial investment were purchased during the year in
accordance with a cash transaction. The financial investment is presented on the
Statement of Financial Position at fair value.

6. Retained earnings as at 31 December 2017 reconciles with retained earnings as at

31 December 2018 as follows:

Retained
earnings
R
Balance at 31 December 2017 2 537 500
Profit for the year 2 727 500
Dividend – ordinary (500 000)
Balance at 31 December 2018 4 765 000

7. The following information is in respect of a few income and expense items for the
reporting period ended 31 December 2018:

Dr Cr
Revenue/sales 10 230 000

Dividend income from subsidiary 112 500

Dividend income from financial investment 95 000
Profit on fair value adjustment to listed shares 75 000

Income tax expense for 2018 682 500

Interest expense on mortgage bond 147 500

Interest expense on lease liability 88 000
Interest expense on long term loan 250 000

REQUIRED:

By using Annexure A, present and disclose the Statement of Cash Flows of Sting Limited for
the reporting period ended 31 December 2018. (30)

Please note: Show ALL calculations clearly as marks will be awarded.

3
QUESTION 2 (30 MARKS)

REPS (Pty) Ltd’s is in the process of finalising their financial statements for the period ending
31 December 2018. The accountant resigned and the owner has asked you to help him finalise
the financial statements.

REPS (Pty) Ltd and all its suppliers are registered VAT vendors and VAT is calculated at 15%.

REPS (Pty) Ltd uses the perpetual inventory system to recognise transactions in respect of
trade inventories. The cost of trade inventories is calculated by using the FIFO cost formula.

On 31 December 2018, the below mentioned balances, amongst others, appeared in the trail
balance of REPS (Pty) Ltd.

Account description Additional DR (CR)

information R
Trade inventories 1,2 905 000
Trade receivables 2 1 750 800
Trade payables (800 500)

Bank (1/1/2018) 3 465 000

Investment in Subsidiary 3 3 000 000

Investment in Listed Shares (Roofs Ltd) 4 5 020 000

Investment property (31/12/2017) 5 10 500 000
Loan 6 6 000 000
Plant and Equipment 7 11 000 000
Accumulated depreciation – Plant & 7 (6 269 918)
Equipment(31/12/17)
Retained earnings: (1/1/2018) 8 (9 119 329)
Ordinary share capital – 2 000 000 shares 9 (6 000 000)
(31/12/2017)
VAT input 68 250
VAT output (115 640)

Additional information
1. On 15 December 2018 trade inventories were sold on credit to Receivable FreshDJ.
The invoice price is R184 920 (including VAT). According to REPS (Pty) Ltd inventory
records, the cost of the goods sold is R95 200(excluding Vat). This transaction still has
to be recognised.

2. On 31 December 2018, the net realisable value of inventory was R800 000. This
transaction still has to be recognised.

3. The number of issued ordinary shares of SJI (Pty) Ltd are 600 000 ordinary shares.
REPS (Pty) Ltd obtained the shares as follows:
Date: 01/12/2018

4
 Number of shares purchased: 340 000 ordinary shares
Cost: R3 000 000.
Transaction costs: R500 000. This transaction still has to be recognised.

4. The fair value of the investment in listed shares (in Roofs Ltd) increased during 2018
with R80 000 and still has to be appropriately recognised.

5. The fair value of the investment property is, as at 31 December 2017, determined at
R10 500 000. The fair value of the investment property is, as at 31 December 2018,
determined at R10 000 000.
6. The loan, reflects interest at 12% per year, repayable in 25 bi-annual instalments of
469 360, with the first instalment payable on 30 June 2018. Below is the extract of the
repayment schedule:

Instalment
Date Total Capital Interest @ 12% Capital
per year amount
outstanding

02/01/2018 6 000 000

30/06/2018 Instalment 1 469 360 109 360 360 000 5 890 640
31/12/2018 Instalment 2 469 360 115 922 353 438 5 774 718
30/06/2019 Instalment 3 469 360 122 877 346 483 5 428 235
31/12/2019 Instalment 4 469 360 143 666 325 694 5 102 541

No interest or payment has been recognised.

7. Plant & Equipment:

Depreciation on plant & equipment is calculated at a rate of 25% per year on the
diminishing balance method.
On 31 December 2018, the recoverable amount of plant was R100 000. The above
still have to be recognised.
As at 31 December 2017, the cost price of the plant in the trial balance R2 500 000
and the accumulated depreciation is R2 316 666.
8. Profit for the year ending 31 December 2018 is R1 603 000.

9. On 22 May 2018, REPS (Pty) Ltd issued and allotted 2 000 000 ordinary shares at R1 per
share. The cost arising from the issue of shares were R189 750 (including VAT). No other
ordinary shares were issued during the current financial reporting period.

10. On 15 December 2018, REPS (Pty) Ltd declared a final dividend of 05c per ordinary share,
which will be paid on 31 January 2019. This transaction has not yet been recognised.

REQUIRED:
(a) Present the applicable balances and related transactions in the statement of financial
position of REPS (Pty) Ltd for the reporting period ended 31 December 2018. (30)

5
QUESTION 3 (65 MARKS)

PART A (50 MARKS)

Ezomnotho (Pty) Ltd is a stokvel established in Tembisa. The stokvel collects money from its
members each month, and then lends some of that money to its members as loans at an
interest, and invest in other small entities. On 31 December each year, the members cash out
a portion of the money and use it to buy groceries, and then members start collecting cash
again in January. The entity is a registered private company with CIPC. The entity also has a
31 December year-end

Ezomnotho’s secretary, sis Sbongile, the company’s record keeper, gave you a notebook
where transactions are recorded. When a member joins, they pay the joining fee and then
membership fees are paid from the same month. Membership fees are paid at the beginning
of each month for that month.

When members cancel during the year, they are not charged a penalty fee, but they are
refunded only 50% of membership fees paid during that year.

Monthly fees paid by members depend on a member’s status (Bronze, Silver, Gold and
Platinum. Joining fees and monthly fees for 2019 are provided below:

Satus Joining fee Monthly fee

Bronze R1 500 R300
Silver R2 000 R 600
Gold R2 500 R1 000
Platinum R3 000 R1 200

Membership fees and joining fees are all considered revenue.

Transactions:

1. On 15 January 2019, the entity received R10 000 for membership fees not paid in
December 2018.

2. On 31 December 2018, the entity had received R150 000 worth of membership fees for
2019 January

3. New members joining in the current year were as follows:

Status Number Date

Platinum 8 1 December
All membership fees from these members were collected accordingly for the 2019 Financial
year.

4. The only members that resigned during the year were as follows, together with
cancellation dates:

Status Number Date

Bronze 4 30 November
Gold 7 28 February
These members’ fees were all received and taken into account correctly. Their cancellation
fees were paid on the dates they cancelled

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5. 120 Gold status members paid their January 2020 membership fees on 1 December
2019

6. As at 31 December 2019, 160 members on the Platinum status had not yet paid
memberships for December.

7. Ezomnotho also has a 15% interest in Ekasi (Pty) Ltd. Income earned from Ekasi during
the current year was R36 000, relating to management fees and R4 000 from dividends.

8. Ezomnotho (Pty) Ltd holds a 60% interest in Bathu (Pty) Ltd, a company that makes
stylish shoes. On 31 December 2019, Bathu declared a dividend of R150 000.

9. Interest earned from loans made to members was R84 000.

10. The following expenses related to Ezomnotho during the year:

Expense R
Rent expense 170 000
Depreciation 34 000
Amortisation 35 200
Salaries 60 000
Interest expense on debit bank balance 10 800
Audit fees 20 000
Tax expense 153 000

On 15 December 2019, while the entity was distributing groceries, a fight amongst members
ensued. Sis Dorris, one of the members, was hit with a bottle on her head, and lost her life.

One of the neighbours informed sis Sbongile that sis Dorris’ family is planning to sue the entity
for R500 000 for damages and loss of income. As at 31 December, the entity had not yet
received summons from the attorneys.

Ncalo attorneys, representing Ezomnotho (Pty) Ltd are of the view that it is not probable that
the entity will be found guilty by the court, and that the family should sue the individual who
threw the bottle.

REQUIRED:

1. Journalise transactions 1 to 6 above. (21)

NB: Provide Journal narrations and dates.

2. Assuming revenue and cost of sales amounts of R1 609 000 and R543 000,
respectively, and ignoring the information in transaction 1 to 6, prepare the statement of
Profit or Loss for the period ended 31 December 2019. The following notes should also
be prepared: (16)

NB: Do not prepare any notes

3. Discuss the accounting treatment of the lawsuit against the entity. (13)

7
PART B (15 MARKS)

During the current year, due to load shedding problems in Tembisa, Ezomnotho acquired 100
generators to rent out to households. In terms of the agreement, households rent these
generators for 3 months or longer for a monthly fee of R1 500 per month, at the begining of
each month. On 1 May 2019, Ezomnotho had a competition whereby their stokvel members
had to go and “spread the word” on the generators. The member who would bring the most
customers would get extra groceries in December.

On 1 June, as a result of the competition, 56 households rented generators for the winter
season (1 June to 31 August). Clients signed their contracts on 1 June 2019, a background
was done on them to assess their ability to pay for the generators for the 3 month period. On
the same day, after they made their first payments, they were all able to take the generators
home with them. On 31 August 2019, all 56 households returned the generators in good
condition.

REQUIRED:
1. Discuss only step 1 of the recognition and measurement of revenue from contracts
with customers in the records of Ezomnotho (Pty) Ltd for the 56 generators rented
out for the year ended 31 December 2019.

8
ANNEXURE A
NAME:
STUDENT NUMBER:
STING LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018
Note R
Cash flow from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations 30
Dividends received 207 500
Interest paid (485 500)
Income tax paid
Dividends paid
Net cash inflow from operating activities

Cash flow from investing activities

Proceeds from sale of plant and equipment 10 000
Purchase of land and buildings to expand
Purchase of plant and equipment to expand
Purchase of plant and equipment to replace
Purchase of trademarks to expand
Purchase of financial investment to expand (725 000)
Purchase of investment in subsidiary to expand (1 125 000)

Net cash outflow for investing activities

Cash flow from financing activities

Proceeds from shares issued 1 800 000
Proceeds from long term loan 2 500 000
Repayment of long term loan (155 000)
Repayment of mortgage bond (237 500)
Repayment of lease liability (190 000)

Net cash inflow from financing activities 3 717 500

Net increase in cash and cash equivalents

Cash and cash equivalents beginning of period 12
Cash and cash equivalents end of period 12

NOTES TO THE FINANCIAL STATEMENTS

9
30 Cash generated from operations

Reconciliation of profit before tax with cash generated from operations:

R
Profit before tax 3 485 000
Adjusted with non-cash items accounted for in Profit before tax
Depreciation: Plant and equipment 625 000
Depreciation: Vehicles 210 000

Adjusted with items that are presented separately in the Statement of

cash flows or items which form part of other separate items

Elimination of the effect of the accrual basis of accounting

Increase in prepaid expenses (35 000)
Increase in inventories (1 089 000)

Cash generated from operations

10