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FACULTY: FACULTY OF ECONOMICS AND MANAGEMENT SCIENCES

SCHOOL: SCHOOL OF ACCOUNTING

SUBJECT: FI NANCIAL ACCOUNTI NG 3A

SUBJECT CODE: AFE 387L

DATE: MAYIUNE 2019

MARKS: 100

TIME ALLOWED: 180 MINUTES

NORMAL EXAMINATIONS
EXAMINER: MRS. B DHLAMINI

MODERATOR: PROF L. STEYN

INSTRUCTION TO STUDENTS:

1. ANSWERAI.I. THE QUESTIONS

2. YOU MAY USE A NORMAL/FINANCIAL CATCULATOR
3. THiS EXAM CONSISTS OF FIVE (s)QUESTIONS
4. ROUND OFF TO TWO DECIMAIS (WHERE APPLICABTE)
5. TH|S QUESTTON pApER CONSISTS OF SEVEN PAGES (7) PACES INCLUDING THE
FRONT COVER

UNIVERSITY OF NAMIBIA
Ouestion 1 145 marksl
The following are the trial balances of the companies within the P Ltd for the year ended 31
December 20.1-8
P Ltd sl ttd s2 Ltd s3rtd
DrlCr DrlCr DrlCr DrlCr
s s $ s
Property, plant and equipment 534 200 390 900 253 100 268 400
lnvestment in S1 Ltd at fair value 190 000
lnvestment in 52 Ltd at fair value 50 000
lnvestment in 52 Ltd at fair value 100 000
lnvestment in 53 Ltd at fair value 2L2000
Loan to P Ltd 200 000
Trade receivables 165 000 24000 9 000 8s 500
Inventories L42500 40 000 ls 000 6s 300
Cash and cash equivalents 102 500 (33 o0o) 13 000 s2 800
Share capital - shares

-200 000 and 100 000 shares (2oo ooo) (1oo ooo)
-90 000 and 150 000 shares (eo ooo) (1s0 000)
Retained earnings - L January 2018 (474 0OO) (116 ooo) (e4 ooo) (35s 400)
Mark - to - market reserve
(Only investment in 51 Ltd Ltd) (30 000)
Fair value gain on equity investment
(Only investment in 51 Ltd Ltd) (s 000)
Gross profit (3s2 4oo) (410 000) (148 000) (108 300)
Other income (70 000) (7 s00) (40 ooo) (220o0)
Other expenses 44 500 148 000 24000 15 500
lncome tax expense 98 000 73 000 4s 900 26 000
Finance costs 15 300 8 700
Dividend paid 2s 000 15 000 30 000
Long - term borrowings (36s ooo) (L22oo0)
Trade and other payables (32 5oo) (84 400) (18 ooo) (so soo)

Additional information
1. P Ltd acquired 80 000 shares in 51 Ltd on 1 October 20L7 when the retained earnings
amounted to 568 000. Land that was reflected in the accounting records of 51 Ltd at
SL20 000 was valued at S165 000 for purposes of the acquisition. The remaining
assets and liabilities were considered to be fairly valued and there were no
unaccounted for contingent liabilities.
2. P Ltd acquired a 55% interest in 53 Ltd on 1 March 2015 when the retained earnings
of 53 Ltd amounted to 5225 000.
3. Sl Ltd acquired 22500 shares in 52 Ltd on lJanuary 2018.
4. 53 Ltd acquired 36 000 shares in 52 Ltd on lJanuary 2018.
5. For the acquisitions of both the interest in 52 Ltd and the interest in 53 Ltd there
were no unidentified assets, liabilities or contingent liabilities and the assets and
liabilities were considered to amount to be fairly valued.
 6' P ltd, 51 Ltd and s3 Ltd classified their equity investments under
1FRS 9 in the
separate financial statements and recognised any fair value adjustments
in the mark
- to - market reserve (other comprehensive income).
7' P Ltd elected to measure the non - controlling interests of the acquiree
at its
proportionate share of identifiable net assets at the acquisition
date.
8' Goodwill was not considered to be impaired from the time that the investments
were acquired to the end of the current reporting period.
9. The following intragroup transactions took place within the group during
the year
ended 31 December 2018:
9.1 From 1 July 20L6 p Ltd purchased inventories from 53 Ltd
at cost plus 25%.
lncluded in the closing inventories of p Ltd on 3L December 2018 were
inventories of S40 000 (31 December 2017: S70 000) that were purchased
fromS3 Ltd.
9'2 s3 Ltd made a loan of S2oo 000 to P Ltd on 1 July 2018. The loan
is repayable in
five equal instalments from 1 july 2019. 53 Ltd charges L0% interest on
the loan
per annum. lncluded in finance costs of P Ltd is interest paid
od
S1O 000 to 53 Ltd
for the period lJuly 201g t0 31 December 201g.
9.3 P Ltd charges its subsidiary, s1 Ltd, a management fee of
Sa 000 per month.
9.4 s2 Ltd sold machinery with a carrying amount of 000 to
5150 s1 Ltd on 1 April
2018. The selling price was S19o ooo. The useful life of the machinery
of five
years has remained unchanged. The companies within the group
depreciate
machinery on the straight - line method over the useful life of the asset.
The
machinery was originally purchased on 1 April 2015.
9.5 P Ltd has guaranteed the bank overdraft of 51 Ltd.
10. The company tax is 28%.

Required:
a' Prepare pro forma journal entries to record the above transactions (narrations
are
required)
b' Prepare the consolidated statement of profit and loss and other comprehensive
income and a consolidated statement of changes in equity of the p Ltd
Group for the
year ended 3L December 201g.

Shine Limited man ufactures fu rniture oils products, which it sells to retailers
around the
country. The following balances were extracted from its financial statements
at 30 June
2018:

SHINE LIMITED

2018 2017
s s
10% Redeemable preference shares
64 7L6
Retained earnings 30 747 80 000
Accounts payable 8 000 10 000
Administration expenses accrued 2 000
Current tax payable L2925 10 000
Shareholders for dividends 2 000
lnventory 111 s00 131 500
Accounts receivable 90 000 20 000
Distribution expenses prepaid 3 000 2 000
Deferred tax asset 22 500 20 000

SHINE L!MITED
EXTRACT FROM STATEMENT OF COMREHENSIVE INCOME FOR THE YEAR ENDED
30 JUNE 2018
2018
s
Profit before tax 53 276
lncome tax expense 0e 47sl
Profit for the year 33 74L
Other comprehensive income 0
Totol comprehensive income 33 74L

Ad d iti o n a I i nfo rm oti on :

o The profit before tax is stated after taking into account the following expense:

s
Cost of sales 120 000
Profit on sale of plant 3 000
Bad debts 1 s00
Depreciation 15 000
Finance costs Ls 784

a Inventory is sold at a mark - up of 110% on cost.

a The finance costs comprised interest on a mortgage loan and finance costs
relating to the preference.
The preference shares are measured at amortised cost using an effective rate of
7L.255%.50 000 10% preference shares issued Sl were subject to a compulsory
redemption at a premium of ? %on30 June 2018.
a Dividends were declared in the current year.
a No additional ordinary or preference shares were issued during the year.

Required:

Prepare the operating activities and financing activities sections only of the statement of
cash flows of Shine Limited for the year ended 30 June 2018, using the direct method.

Notes are not required.

Part A:

Employee benefits are defined as the exchange of consideration

given by the entity
a.
for services rendered by an employee. True or false? Justify your answer'
meets the
b. A retrenchment package offered to employees, payable within 3 months,
is defined
definition of a short - term benefit since a short - term employee benefit
as an employee benefit 'expected to be settled wholly before twelve months after
the end of the annual reporting period in which the employees render the
related
service' IAS 19.8 True or false? Justify your answer'
c. An employee is a member of a defined contribution fund to which their employer
makes monthly. The plan is administered and managed by Confucius Life
Group
Limited. The employee believes that the company's choice of using a defined
contribution plan secures his current income in the event of retirement. ls
the
employee's understanding correct? Justify your answer'
d. Due to worsening economic conditions, an employer company has decided to
a lump
terminate the services of a group of employees. The employees will receive
sum payment as part of their employment termination. The company's accountant
believes this payment would be recognised as a post - employment benefit
liability
your
since it would be paid to him after his employment. True or false? Justify
answer.

Required:
Provide brief answers to each of the above questions'

Part B:
Topdown Limited is involved in manufacturing gizmos (these are the parts
used in
convertibles that allow the roof to open and close)'
o Topdown limited has appropriately 1 000 employees, all of whom are covered by the
company's defined benefit pension plan'
o Employees are expected to work for an average of 15 years at Topdown Limited'
o The following information pertains to this pension plan:
s
Plan assets: 1 JanuarY 2018 300 000
Plan obligation: l
JanuarY 20LB 400 000
100 000
Current service costs
Contributions paid during the year 200 000
Discount rate throughout 2018 and2OLT isL5%
Benefits paid to members during the year 100 000
Plan assets: fair value at 31 December 2018 400 000
Plan obligation: present value at 31 December 2018 s00 000
Past service costs from amendment in plan description 450 000

Required:
provide the journals to account for the defined benefit plan for the year ended 31
December 2018in IAS 19 Employee benefits.
Question 4 (15 marks)
Reflection Limited is a listed company manufacturing mirrors. The financial results for the
year ending 2018 are:

a Profit before tax is s30 000 in 2018 (20L7: szo ooo and 2015: s14 000)
a Dividend income received during the was S10 000 (2077: S10 000 and 2016:
Sro oool
lnformation relating to property, plant and equipment:

20L5 20L6 20L7 20L8

Carrying amount 70 000 64 000 48 000 36 000
Tax base 90 000 70 000 s0 000 30 000
There are no other differences between the accounting profit and taxable profit
other than those evident from the information given.
a There is insufficient evidence for Reflection Limited to realise deferred tax asset.
a The tax rate is constant at30%

Required:
a. Prepare the current income tax and deferred income tax calculations for years ended
2018. 17l
b. Prepare the tax- related journals for the year ended 31 December 2018' (5)
c. Prepare the income tax expense and deferred tax note for the years 31- December
2018. (21

Question 5 (15 marks)

Mediworld Limited, a specialised leasing company, enters into a lease contract with lmage
Clinics Limited on 1 July 2016 for the lease of specialised radiology equipment. The contract
stipulates that the lease is for five years and is non - cancellable.

The equipment was purchased by Mediworld Limited on l July 2016 for $497 996, which is
also the fair value at the commencement of the lease. The equipment has an estimated
useful life of six years and an estimated residual value of SgO OOO. The equipment is
depreciated on a straight - line basis.
The lease agreement has a purchase option that gives the option to purchase the
equipment at the end of the fifth year for S20 000.

Five lease payments of 51.50 000 are to be made annually, in arrear, the first being made on
30 June 20L7. Each payment of 5150000 includes SfS000 for the maintenance of the
equipment, borne by the lessor.

The interest rate implicit in the agreement is L2%. The following present value table is
provided:
PV factor
Annuity in arrears of 51 for five years, discounted at 12% 3.6048
Present of 51 in five vears. discounted at 12% 0.5674
Reouired:
a. Prove that the rate implicit in the lease is L2%.
b. Prepare the journal entries in the accounting records of Mediworld Limited for the
years ending 30 June 2OL7 and 30 June 2018, recording the gross receivable and the
unearned finance income.
c. Prepare the journal entries in the accounting records of Mediworld Limited for the
years ending 30 June 2Ot7 and 30 June 2018, recording the net receivable.
lgnore tox.