FAC1601

Financial Accounting
Reporting
 FAC1601
E-Tutors
Mr SD Hlophe
Mr L Macala
Ms M Maleka
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Ms PF Mkhize

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E-mail FAC1601 lecturers: fac1601@unisa.ac.za
FAC1601 Class 15 May 2024

STUDY UNITS:
6: Financial Statements: Close corporations
7: Introduction to companies
 STUDY UNIT 6

CLOSE CORPORATIONS
Key Principles of Unit 6
EXERCISE 6.3

After the bookkeeper had recorded the transactions during the year, he handed you the following trial balance and additional
information with regard to Trade Acc CC:

TRADE ACC CC
TRIAL BALANCE AS AT 31 DECEMBER 20.15
Debit Credit
R R
Land and buildings at cost 95 000
Furniture and equipment at cost 33 000
Vehicles at cost 21 000
Accumulated depreciation: Furniture and equipment (1 January 20.15) 6 700
Accumulated depreciation: Vehicles (1 January 20.15) 8 400
Inventory (1 January 20.15) 54 600
Mortgage 50 000
Trade receivables control 20 500
Allowance for credit losses (1 January 20.15) 955
Bank 24 000
Trade payables control 37 100
SARS (income tax) 6 900
Sales 319 950
Purchases 224 700
Import duty on purchases 1 550
Railage on purchases 2 500
Repairs and maintenance 1 315
Assessment rates 1 710
Commission on sales 1 500
Delivery expenses 650
Salaries and wages 36 615
Stationery consumed 520
Credit losses 460
Loss on sale of equipment 220
Insurance expenses 475
Water and electricity 2 100
Dividends received 450
Settlement discount received 1 000
Investment 10 000
Loan from member: A Adam 10 000
Loan from member: C Charles 8 000
Interest expenses (in respect of loans) 9 660
Member's contribution: A Adam 40 000
Member's contribution: B Ben 35 000
Member's contribution: C Charles 25 000
Retained earnings (1 January 20.15) 6 220
Allowance for settlement discount granted (1 January 20.15) 200
548 975 548 975
 STUDY UNIT 7

Introduction to Companies
 Key Principles of Unit 7
• Type of companies
❏ Theory - activity 7.1 - 7.4 of FAC1601 study guide
• Share Capital
❏ Authorised
❏ Ordinary shares vs Preference shares
❏ Transaction recording pertaining to issue of shares
❏ Allotment Schedule
❏ Capitalisation shares
❏ Underwriting of shares
• Dividends
❏ Explain dividends
❏ How to calculate dividends
❏ Record dividend transactions
• Debentures
❏ Recording of transaction pertaining to issue of debentures
❏ Calculate and record the interest and discount or premium on
debentures
 Share Capital
• Authorised is the maximum amount of share capital the company is
allowed to issue to its shareholders as per its memorandum of
incorporation (MOI)
• Issued is the total value of shares the company has issued to its
shareholders.
• Ordinary shares is equity instruments which gives voting rights vs
Preference shares are financial instruments used by the company to raise
capital in return for dividends to shareholders.
• Capitalisation shares is issuing of shares to existing shareholders at a
specific ratio usually at a discounted rate.
• Underwriting of shares - costs incurred for the administration issuing of
shares.
• Allotment Schedule - after the closing date for application of shares, the
shares are allotted and the oversubscribed are refunded. Allotment
schedule is used to retain control of the allotment of shares.
• Transaction recording pertaining to issue of shares
 Dividends
• Dividends are the returns (the distribution of profit) on a shareholder
investment in a company.
• There are two type of dividends i.e. ordinary dividends and preference
dividends.
• Preference shareholders have a preferential right to dividends above the
right of ordinary shareholders and cumulative preference shareholders
maintain the right to dividends even if a dividend is not declared in a
financial period (pg 149 FAC1601 study guide)
Dividends
 Dividends (Solution)
Ordinary Dividends = 400 000 * 0.05
= R20 000
Preference Dividends = 100 000 * 12%
= R12 000

Total dividend = R32 000

Disclosure
 Debentures
• Form of raising capital by issuing debt instruments to the public in form of
debentures

Example
Zee Ltd issued 100 8% debentures of R1000 each at a discount of 4% on 5 January
20.16. The debentures are redeemable at par on 31 December 20.19 and interest is
payable annually on year-end, which is 31 December. Land and buildings with a historical
cost of R300 000 serve as security for the debenture issue.

REQUIRED
Journalise the transactions in the accounting records of Zee Ltd for the year ending
31 December 20.16 and disclose the note on debentures in the financial statements of
Zee Ltd on 31 December 20.16.
 Debentures(Solution)
Debit Credit

R R

20.16 96 000
Jan 5 Bank (100 x R1000 x 96%)
Discount on debentures 4 000
8% debentures 100 000
Issue of debentures at a discount

Dec 31 Interest on debentures (8% x R100 000) 8 000

Bank 8 000
Interest paid to debenture holders

Dec 31 Interest on debentures (R4 000/4) 1 000

Discount on debentures
Matching discount with interest paid over the period of the 1 000
debentures
FAC1602
Financial Accounting
Reporting
 STUDY UNIT 5

CLOSE CORPORATIONS
STATEMENT OF MEMBERS NET
INVESTMENTS
FAC1602 Question: Close Corporation

Mohlaletse CC is a wedding and venue arrangement services company operating

around the Sekhukhune District Municipality of Limpopo province. Makola and Bulelwe
are the two founders and members of this registered a close corporation and obtained
municipal approval to expand the business into proving cooked meals from an
establishment in the community.

The following extract of balances as at 31 December 2021 from the

accounting records of Mohlaletse CC is presented to you for
assistance:

Loan to Makola 17 900

Member’s contribution: Fetakgomo ?
Member’s contribution: Makola 164 100
Member’s contribution: Bulelwe 135 500
Retained earnings (1 January 2021) 381 900
Trade debtors control 161 500
Trade creditors control 158 700
Loan from Makola 104 500
Bank (favourable) 2 876 100
Long-term loan (Mohlaletse Fund) 4 806 900
SARS (income tax) liability 111 300
Vehicles at cost 1 940 400
Accumulated depreciation: Vehicles (1 January 2021) 287 600
Furniture at cost 53 000
Accumulated depreciation: Furniture (1 January 2021) 16 800
Equipment at cost 1 293 600
Accumulated depreciation: Equipment (1 January 2021) 491 800
Inventory 1 014 900
Profit before tax (before taking into account 2 659 800
the additional information)

Additional information

1. On 1 January 2021, a renowned wedding planner and choreographer by the name

of Fetakgomo was admitted to the CC in July 2021 to assist in developing a new
wedding themes and contemporary wedding dance moves. In addition to the
R35 000 cash contribution, Fetakgomo further contributed music equipment and
an old delivery vehicle to the value of R99 000 and R39 000 respectively.
2. On 30 June 2021 one of the music system (music equipment) got damaged by an
inexperienced local DJ from Zebediela and was not reparable. This system was
 acquired at a cost of R120 000 on 1 May 2019 and an accumulated depreciation
of R66 100 on 30 June 2021 (R50 000 at 1 January 2021). The equipment was
insured and an insurance pay-out equal to the carrying amount of the equipment
was paid to the close corporation. The accountant credited the insurance pay-out
to the SARS(income tax) account.
5. On 30 September 2021, a profit distribution of R55 000 was made to each member
of the close corporation. These amounts should be regarded as loans from
members with interest charged and capitalised at 15% per annum. This
transaction is yet to be accounted for.
6. The loan from Makola was advanced to the CC in December 2020 and is repayable
on 31 May 2022.

6. The income tax assessment, received from SARS on 4 January 2022, indicated
that the normal income tax for the 2021 financial year amounted to R388 000.

7. Bulelwe experienced personal financial problems during the year and borrowed
R21 000 from the close corporation. The loan was granted to Bulelwe on 1
December 2021 at an interest rate of 18% per annum. The interest on this loan is
capitalised. This transactions is still to be recorded.

8. Depreciation for the year ended 31 December 2021 was correctly calculated as
R78 000, R3 400 and R185 000 for vehicles, furniture and equipment respectively.

Required:
Q1 - Which one of the following alternatives represents the correct amount of
member’s contributions from the new member Fetakgomo to be included in the
statement of changes in net investments of members of Mohlaletse CC for the year
ended 31 December 2021?

Q2 - Assume the correct members contribution from Fetakgomo is R100 000. Which
one of the following alternatives represents the correct total member’s
contributions to be included in the statement of changes in net investments of
members of Mohlaletse CC for the year ended 31 December 2021?

Q3 - Which one of the following alternatives represents the correct total

comprehensive income for the year to be disclosed in the statement of changes in
net investments of members of Mohlaletse CC for the year ended 31 December
2021?

Q4 - Assume the correct total comprehensive income for the year is R2 500 000.
Which one of the following alternatives represents the correct retained earnings to
be disclosed in the statement of changes in net investments of members of
Mohlaletse CC for the year ended 31 December 2021?
Q5 - Which one of the following alternatives represents the correct loans to members to
be disclosed in the statement of changes in net investments of members of Mohlaletse CC
for the year ended 31 December 2021?

Q6 - Which one of the following alternatives represents the correct loans from members to
be disclosed in the statement of changes in net investments of members of Mohlaletse CC for
the year ended 31 December 2021?

Q7 - Which one of the following alternatives represents the correct carrying for vehicles to be
disclosed in the statement of financial position of Mohlaletse CC at 31 December 2021?

Q8 - Which one of the following alternatives represents the correct carrying for
furniture to be disclosed in the statement of financial position of Mohlaletse CC at 31 December
2021?

Q9 - Which one of the following alternatives represents the correct carrying for equipment to be
disclosed in the statement of financial position of Mohlaletse CC at 31 December 2021?

Q10 - Which one of the following alternatives represents the correct interest income to be
disclosed in the statement of profit or loss and other comprehensive income of Mohlaletse CC at 31
December 2021?

Q11 - Which one of the following alternatives represents the correct interest expense to be
disclosed in the statement of profit or loss and other comprehensive income of Mohlaletse CC at
31 December 2021?
 SOLUTION:

QUESTION 1:

FETAKGOMO CONTRIBUTION:

CASH – R35,000
EQUIPMENT – R99,000
VEHICLE – R39,000

TOTAL: R173,000
QUESTION 2:

TOTAL MEMBERS CONTRIBUTION:

FETAKGOMO – R100,000
MAKOLA – 164,100
BULELWE – R135,500

TOTAL MEMBERS CONTRIBUTION = R399,600

QUESTION 3:

TOTAL COMPREHENSIVE INCOME FOR THE YEAR:

YOUR NEED TO GO THROUGH ALL THE ADDITIONAL INFORMATION AND ASK

YOURSELF WHICH ITEMS EFFECT PROFIT AND LOSS (INCOME / EXPENSES)

OPENING BALANCE – R2,659,800

INSURANCE PAYOUT (ERROR) – R53,900
INTEREST ON LOAN FROM MEMBER – (R6,188)
(55,000X3) *15% *3/12
INCOME TAX EXPENSE – (R388,000)
INTEREST ON LOAN TO MEMBER(BULELWA) – R315
(21,000*18%*1/12)
DEPRECIATION (R78,000+R3,400+R185,000) – (R266,400)

TOTAL COMPREHENSIVE INCOME = R2,053,428

QUESTION 4:

RETAINED EARNINGS

OPENING RETIANED EARNINGS – R381,900

+ PROFIT FOR THE YEAR – R2,500,000
- DISTRIBUTION TO MEMBERS – (R165,000)

CLOSING RETAINED EARNINGS = R2,716,900

QUESTION 5:

LOANS TO MEMBERS

OPENING BALANCE - R17,900 (LOAN TO MAKOLA)

+ LOAN TO BULELWA – R21,000
+ INTEREST ON LOAN CAPITALIZED – R315

LOANS TO MEMBERS CLOSING BALANCE – R39,215

QUESTION 6:

LOANS FROM MEMBERS

OPENING BALANCE (LOAN FROM MAKOLA) – R104,500

+ DISTRIBUTIONS TO MEMBERS (55,000X3) – R165,000
+ INTEREST CAPITALIZED ON MEMBERS LOAN – R6,188

CLOSING BALANCE LOAN FROM MEMBERS – R275,688

QUESTION 7:

CARRYING AMOUNT VEHICLES

COST: CLOSING (GIVEN) – R1,940,400

ACC DEPRECIATION:
OPENING BALANCE – R287,600
+ DEPRECIATION FOR THE YEAR – R78,000
CLOSING BALANCE = R365,600

CA = COST – ACC DEPRECIATION

= 1,940,400 – R365,600
= R1,574,800
QUESTION 8:

CARRYING AMOUNT FURNITURE

COST: CLOSING (GIVEN) – 53,000

ACC DEPRECIATION:
OPENING BALANCE – R16,800
+ DEPRECIATION FOR THE YEAR – R3,400
CLOSING BALANCE = R20,200

CA = COST – ACC DEPRECIATION

= R53,000 – R20,200
= R32,800
QUESTION 9:

CARRYING AMOUNT EQUIPMENT

COST: CLOSING (GIVEN) – R1,293,600

ACC DEPRECIATION:
OPENING BALANCE – R491,800
+ DEPRECIATION FOR THE YEAR – R185,000
- ADJUSTMENT FOR EQUIPMENT DAMAGED – (R66,100)
CLOSING BALANCE = R610,700

CA = COST – ACC DEPRECIATION

= R1,293,600 – R610,700
= R682,900
QUESTION 10:

INTEREST INCOME = R315

QUESTION 11:

INTEREST EXPENSE = R6,188

FAC1602 Question: Close Corporation

Mohlaletse CC is a wedding and venue arrangement services company operating

around the Sekhukhune District Municipality of Limpopo province. Makola and Bulelwe
are the two founders and members of this registered a close corporation and obtained
municipal approval to expand the business into proving cooked meals from an
establishment in the community.

The following extract of balances as at 31 December 2021 from the

accounting records of Mohlaletse CC is presented to you for assistance:

Loan to Makola 17 900

Member’s contribution: Fetakgomo ?
Member’s contribution: Makola 164 100
Member’s contribution: Bulelwe 135 500
Retained earnings (1 January 2021) 381 900
Trade debtors control 161 500
Trade creditors control 158 700
Loan from Makola 104 500
Bank (favourable) 2 876 100
Long-term loan (Mohlaletse Fund) 4 806 900
SARS (income tax) liability 111 300
Vehicles at cost 1 940 400
Accumulated depreciation: Vehicles (1 January 2021) 287 600
Furniture at cost 53 000
Accumulated depreciation: Furniture (1 January 2021) 16 800
Equipment at cost 1 293 600
Accumulated depreciation: Equipment (1 January 2021) 491 800
Inventory 1 014 900
Profit before tax (before taking into account the
2 659 800
additional information)

Additional information

1. On 1 January 2021, a renowned wedding planner and choreographer by the name

of Fetakgomo was admitted to the CC in July 2021 to assist in developing a new
wedding themes and contemporary wedding dance moves. In addition to the
R35 000 cash contribution, Fetakgomo further contributed music equipment and
an old delivery vehicle to the value of R99 000 and R39 000 respectively.
2. On 30 June 2021 one of the music system (music equipment) got damaged by an
inexperienced local DJ from Zebediela and was not reparable. This system was
 acquired at a cost of R120 000 on 1 May 2019 and an accumulated depreciation
of R66 100 on 30 June 2021 (R50 000 at 1 January 2021). The equipment was
insured and an insurance pay-out equal to the carrying amount of the equipment
was paid to the close corporation. The accountant credited the insurance pay-out
to the SARS(income tax) account.
5. On 30 September 2021, a profit distribution of R55 000 was made to each member
of the close corporation. These amounts should be regarded as loans from
members with interest charged and capitalised at 15% per annum. This
transaction is yet to be accounted for.
6. The loan from Makola was advanced to the CC in December 2020 and is repayable
on 31 May 2022.

6. The income tax assessment, received from SARS on 4 January 2022, indicated
that the normal income tax for the 2021 financial year amounted to R388 000.

7. Bulelwe experienced personal financial problems during the year and borrowed
R21 000 from the close corporation. The loan was granted to Bulelwe on 1
December 2021 at an interest rate of 18% per annum. The interest on this loan is
capitalised. This transactions is still to be recorded.

8. Depreciation for the year ended 31 December 2021 was correctly calculated as
R78 000, R3 400 and R185 000 for vehicles, furniture and equipment respectively.

Required:

Q1 - Which one of the following alternatives represents the correct amount of

member’s contributions from the new member Fetakgomo to be included in the
statement of changes in net investments of members of Mohlaletse CC for the year
ended 31 December 2021?

Q2 - Assume the correct members contribution from Fetakgomo is R100 000. Which
one of the following alternatives represents the correct total member’s
contributions to be included in the statement of changes in net investments of
members of Mohlaletse CC for the year ended 31 December 2021?

Q3 - Which one of the following alternatives represents the correct total

comprehensive income for the year to be disclosed in the statement of changes in
net investments of members of Mohlaletse CC for the year ended 31 December
2021?

Q4 - Assume the correct total comprehensive income for the year is R2 500 000.
Which one of the following alternatives represents the correct retained earnings to
be disclosed in the statement of changes in net investments of members of
Mohlaletse CC for the year ended 31 December 2021?
Q5 - Which one of the following alternatives represents the correct loans to
members to be disclosed in the statement of changes in net investments of
members of Mohlaletse CC for the year ended 31 December 2021?

Q6 - Which one of the following alternatives represents the correct loans from
members to be disclosed in the statement of changes in net investments of
members of Mohlaletse CC for the year ended 31 December 2021?

Q7 - Which one of the following alternatives represents the correct carrying for
vehicles to be disclosed in the statement of financial position of Mohlaletse CC at 31
December 2021?

Q8 - Which one of the following alternatives represents the correct carrying for
furniture to be disclosed in the statement of financial position of Mohlaletse CC at
31 December 2021?

Q9 - Which one of the following alternatives represents the correct carrying for
equipment to be disclosed in the statement of financial position of Mohlaletse CC at
31 December 2021?

Q10 - Which one of the following alternatives represents the correct interest income
to be disclosed in the statement of profit or loss and other comprehensive income of
Mohlaletse CC at 31 December 2021?

Q11 - Which one of the following alternatives represents the correct interest
expense to be disclosed in the statement of profit or loss and other comprehensive
income of Mohlaletse CC at 31 December 2021?