FAC3702/201/2/2014
Tutorial letter 201/2/2014
Distinctive Financial Reporting
FAC3702
Semester 2
Department of Financial Accounting
This tutorial letter contains the suggested solution to compulsory
Assignment 01 as well as the suggested examination approach.
IMPORTANT INFORMATION
Please activate your myUnisa and myLife email addresses and
ensure you have regular access to the myUnisa module site for
FAC3702 as well as to your group site.
Note: This is an online module, and therefore your module is
available on myUnisa. However, in order to support you in your
learning process, you will also receive some study material in printed
format.
CONTENTS
Page
1
INTRODUCTION .......................................................................................................................... 3
2
LECTURERS AND CONTACT DETAILS ..................................................................................... 3
3
SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 01 .............................................. 4
4
SUGGESTED EXAMINATION APPROACH ................................................................................ 7
2
FAC3702/201
1
INTRODUCTION
Dear Student
We attach the suggested solution to Assignment 01 and the suggested examination approach.
You will notice some calculations are in brackets opposite certain items in our suggested solutions
dealing with company financial statements. These calculations are given for tuition purposes only and
consequently do not form part of the statutory disclosure requirements.
2
LECTURERS AND CONTACT DETAILS
Please use only the following e-mail address for all communication with your lecturers:
FAC3702-14-S2@unisa.ac.za
Please use only the following telephone number for all communication with your lecturers:
012 429 4268
Lecturer
Mrs M Evans
Mr M Mokgobinyane
Mrs M Els
Mrs F Jaffer
Mrs B Nel
Office
Room 02-55, AJH van der Walt Building
Room 02-57, AJH van der Walt Building
Room 02-58, AJH van der Walt Building
Room 02-43, AJH van der Walt Building
Room 02-43, AJH van der Walt Building
3
3
SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 01
3.1 FUN & GAMES LTD
NOTES FOR THE YEAR ENDED 30 JUNE 2013
1. Profit before tax
Income
Fair value adjustment (calc 3.1 & 4.1)
Rental income (15 000 x 5)
Profit on exchange of asset (calc 5.2)
R
1 605 000
75 000
25 000
Expenses
Depreciation (calc 2.4 & calc 5.1)
Direct operating expenses with regards to investment property that is earning rental
income (5 500 x 5)
90 741
27 500
2. Property, plant and equipment
Carrying amount at beginning of the year
Cost
Accumulated depreciation
Additions (calc 6)
Derecognition (calc 5)
Depreciation (calc 2.4 & 5.1)
Revaluation surplus (calc 1.1 & 2.3)
Carrying amount at the end of the year
Gross carrying amount
Accumulated depreciation
Land
R
750 000
750 000
150 000
900 000
900 000
-
Buildings
R
795 333
845 000
(49 667)
(40 741)
445 408
1 200 000
1 240 741
(40 741)
Motor
vehicle
R
200 000
250 000
(50 000)
175 000
(150 000)
(50 000)
175 000
175 000
-
Total
R
1 745 333
1 845 000
(99 667)
175 000
(150 000)
(90 741)
595 408
2 275 000
2 315 741
(40 741)
An independent sworn appraiser revalued the land and buildings on 30 June 2013.
The carrying amount of the land and buildings if they were carried at cost less accumulated
depreciation and impairment losses amounted to R1 520 500 (land: R750 000; building: R770 500
(calc 2)).
3. Investment property
Carrying amount at the beginning of the year
Additions - acquisitions
- subsequent expenditure capitalised
Fair value adjustment (calc 3.1 & 4.1)
Carrying amount at the end of the year
Land
R
1 000 000
50 000
1 050 000
Buildings
R
1 195 000
750 000
1 555 000
3 500 000
An independent sworn appraiser revalued the land and buildings on 30 June 2013.
4
Total
R
2 195 000
750 000
1 605 000
4 550 000
FAC3702/201
ASSIGNMENT 01 (solution continued)
3.2. Deferred tax relating to land and buildings on 30 June 2013
R
Owner occupied property:
Land [900 000 – 750 000 (exempt difference) x 28% x 66,6%]
Building [1 200 000 – 770 500 (exempt difference) x 28%]
Investment property:
Land [1 050 000 – 1 000 000 (exempt difference) x 28% x 66,6%]
Building [3 500 000 – 1 945 000 (exempt difference) x 28% x 66,6%]
Deferred tax liability
27 972
120 260
9 324
289 976
447 532
Calculations
1.
Property 1 – Illovo land
Historical cost
R
Revaluation
R
Tax
base
R
Exempt
difference
R
750 000
750 000
-
-
750 000
150 000
-
150 000
-
-
900 000
750 000
150 000
-
750 000
Carrying
amount
R
Cost at
1 July 2010
Revaluation
(calc 1.1)
Carrying
amount at
30 June 2013
(calc 1.2)
1.1
1.2
900 000 – 750 000 = 150 000
(900 000 – 750 000) x 66,6% x 28% = 27 972
2.
Property 1 – Illovo building
Carrying
Histoamount rical cost
R
R
845 000
845 000
(49 667)
(49 667)
Cost at 1 July 2010
Depreciation (calc 2.1)
Carrying amount at
30 June 2012
(calc 2.2)
795 333
Revaluation (calc 2.3)
445 408
Depreciation
(calc 2.4 – 2.6)
(40 741)
Carrying amount at
30 June 2013
(calc 2.7)
1 200 000
2.1
2.2
2.3
2.4
2.5
795 333
-
Temporary
difference
R
Revaluation
R
-
Tax
base
R
-
Exempt
difference
R
845 000
(49 667)
445 408
-
795 333
-
(24 833)
(15 908)
-
(24 833)
770 500
429 500
-
770 500
150 000
Deferred
tax
liability
R
27 972
Temporary
difference
R
Deferred
tax
liability
R
429 500
120 260
(845 000 – 100 000) / 30 x 2 = 49 667
[(795 333 – 845 000 (exempt difference)) x 28%] = 13 907
(1 200 000 – 100 000) x 28 / 27 = 1 140 741 + 100 000 = 1 240 741
1 240 741– 795 333 = 445 408
(1 240 741 – 100 000) / 28 = 40 741 OR 1 240 741 – 1 200 000 = 40 741
(845 000 – 100 000) / 30 = 24 833
5
ASSIGNMENT 01 (solution continued)
2.6
2.7
40 741 – 24 833 = 15 908 OR 445 408 / 28 = 15 907, rounded to 15 908
[(1 200 000 – 770 500 (exempt difference)) x 28%] = 120 260
Alternative to calculations 2.3 and 2.4 if depreciation is calculated before revaluation:
•
•
(1 200 000 – 100 000) / 27 = 40 741
(1 200 000 + 40 741) = 1 240 741 – 795 333 = 445 408
3.
Property 2 – Cape Town land
Cost at 1 November 2012
Fair value adjustment (calc 3.1)
Carrying amount at 30 June 2013
(calc 3.2)
Carrying
amount
R
1 000 000
50 000
Tax base
R
-
Exempt
difference
R
1 000 000
-
1 050 000
-
1 000 000
9 324
Exempt
Tempodifferary difference
rence
R
R
1 195 000
750 000
1 945 000
-
Deferred
tax
liability
R
1 050 000 – 1 000 000 = 50 000
[(1 050 000 – 1 000 000 (exempt difference)) x 66,6% x 28%] = 9 324
4.
Property 2 – Cape Town building
Cost at 1 November 2012
Additions
Carrying amount at 31 March 2013
Fair value adjustment (calc 4.1)
Carrying amount at 30 June 2013
(calc 4.2)
Tax base
R
-
3 500 000
-
1 945 000
4.1
4.2
3 500 000 – 1 945 000 = 1 555 000
[(3 500 000 – 1 945 000 (exempt difference)) x 66,6% x 28%] = 289 976
5.
Motor vehicle
Cost at 1 July 2011
Depreciation (calc 5.1)
Carrying amount at 30 June 2012
Depreciation (calc 5.1)
Derecognition - exchange transaction
Carrying amount at 30 June 2013
5.1
5.2
250 000 / 5 = 50 000
Profit on exchange of asset: 175 000 – 150 000 = 25 000
6.
Delivery vehicle
Cost at 30 June 2013
Carrying amount at 30 June 2013
6
Deferred
tax
liability
R
50 000
3.1
3.2
Carrying
amount
R
1 195 000
750 000
1 945 000
1 555 000
Temporary difference
R
1 555 000
289 976
R
250 000
(50 000)
200 000
(50 000)
(150 000)
-
R
175 000
175 000
FAC3702/201
4
SUGGESTED EXAMINATION APPROACH
Please pay attention to the following matters regarding the October/November 2014 examination
paper:
1.
Relative importance of certain topics in the study material
No topics in the study material are more important than others, and we will not enter into any
discussions in this regard.
You will be examined on ALL the study material as per the indicated sections in the prescribed book
and on ALL the tutorial letters. It is not sufficient to only work through your assignments, because all
the principles are not tested in the assignmen.
Please note: Your lecturers cannot help you with missing study material. Please send
an sms to 43579 or an e-mail to despatch@unisa.ac.za with the description "Study
material".
2.
Correct paper: FAC3702
It is your responsibility to ensure that you receive the correct paper in the examination. If you are
handed the wrong paper, you must immediately request the invigilator to hand you the correct paper.
3.
Examination preparation
3.1 Study the applicable theory.
3.2 Answer as many questions as possible without looking at the solutions and thereafter mark them
yourself in order to see where you have gone wrong. This will give you an indication of the work
you possibly don't know well enough.
3.3 Throughout your studies, ask yourself why an item is treated and disclosed in a certain way.
Search for the answers to these questions in the summary of the applicable accounting standard
in the applicable learning unit.
3.4 Study all the disclosure requirements and make sure that you know how to disclose all your
answers in the correct format.
4.
Examination technique
The following general techniques will be of help in the examination:
4.1 Start each question on a separate page. The examination instructions are very specific in this
regard, and you should adhere to them.
4.2 Do not write inside the margin area of the page. Do not make tick marks in your answer.
4.3 Write legibly as it makes marking easier and ensures that you do not lose marks unnecessarily.
4.4 Do not deviate from the suggested times indicated in questions. If you are unable to complete a
question within the suggested time, stop and start with the next question. It is likely that you will
earn more marks by starting on the next question than continuing with the question for which
the time has expired.
7
SUGGESTED EXAMINATION APPROACH (continued)
4.5 Answer what the question requires from you. First read through the REQUIRED section of each
question before you read through the contents of the question. Make sure that you answer what
is required and not what you think is required. Take note of the action words: describe,
calculate, analyse, explain, disclose. Structuring your answer into subsections with appropriate
headings will prevent you from making this kind of error.
4.6 Clearly identify subsections of answers. Structure the layout of your answer to group all
subsections of one question together. Avoid including a subsection of a question at the end of
your examination script. If you have no choice, refer to the subsection in the main body of your
answer.
4.7 Please take note of the following suggestions when answering the “required” section:
a. Discussion questions
•
•
•
•
•
•
•
Please note that planning and layout is important
Apply the applicable International Financial Reporting Standards (IFRS)
Prepare a well-formulated answer
Avoid repeating facts or using contradicting statements
Make a firm argument
Remember to make a conclusion in the end
Don’t use SMS style writing
b. Disclosure/Presentation
•
•
•
Identify the International Financial Reporting Standards (IFRS) being tested
Disclose information identified according to the applicable International Financial Reporting
Standards (IFRS)
Show comparative figures
c. Journals
•
•
•
•
•
•
Indicate debits and credits clearly
Always classify your journals (SFP, P/L, OCI)
Use clear account descriptions (no abbreviations!)
Show short calculations in the journals
Show long calculations separately and remember to cross-reference your calculations
Date your journals
4.8 Show all calculations. Bear in mind that sufficient calculations must be included in the
presentation of your answer to enable us to follow your logic and award marks accordingly. If you
made a calculation error and have not shown your calculations, we have nothing to work on to
award marks for the principles you have applied. It will therefore be worthwhile to spend a few
minutes writing out your calculations.
Include the calculations in your answer and not at the back of your examination script or with
other unrelated questions. The calculations must be cross referenced in your answer.
4.9 Write all answers in blue or black ink. YOU ARE NOT ALLOWED TO ANSWER IN PENCIL,
RED INK OR GREEN INK.
8
FAC3702/201
SUGGESTED EXAMINATION APPROACH (continued)
Further information regarding examination preparation and approach
Based on a review of the May/June 2014 examination answer scripts, we would like to stress the
following important issues with regard to this module:
1. Property, plant and equipment; investment property; intangible assets and impairment
of assets
A table indicating the historic cost and revaluation/impairment amounts is often used as basis
for the calculation of deferred tax and the carrying amounts as reflected in the financial
statements. This table is purely one of a number of calculation tools and displays no inherent
knowledge on the part of a student of the principles of revaluations, deferred tax or
impairment. Accordingly, in an examination proportionately few marks are allocated to the
calculation in a table. A greater proportion of marks are allocated to the correct disclosure
(especially to the notes to the financial statements) as required in the question.
Often the amounts required for disclosure purposes can be calculated without the use of a
table. In this case, the use of a table will lead to a waste of precious time. Students should
rather do a short calculation in appropriate circumstances.
Remember to refer to the calculation if the calculation is not done in brackets on the
disclosure itself.
Disclosure requirements as per the International Financial Reporting Standards (IFRS) are a
critical part of each of the abovementioned topics. Marks are awarded for the correct layout,
information and use of calculated figures in the required accounting disclosures. Only a
layout in combination with the correct information and calculations will earn marks.
2. Tax rate
A tax rate of 28% and a capital gains tax inclusion rate of 66,6% will be used in the
October/November 2014 examination.
3. General
Read the REQUIRED sections of the questions carefully and provide ALL calculations and
disclosures as required.
5.
Format of the examination paper
The examination paper for October/November 2014 consists of TWO questions and the duration of the
paper is TWO hours.
6.
Supplementary examinations
Please take note of the following important information regarding supplementary examinations and
remarking:
•
Supplementary examinations will be conducted in May/June 2015 for students who failed the
October/November 2014 examination paper.
•
To qualify for a supplementary examination, you must obtain a final mark of between 40% and
49% for the module. The final mark consists of 10% of the year mark (obtained from the
compulsory assignments) plus 90% of the examination mark.
9
SUGGESTED EXAMINATION APPROACH (continued)
•
Only students who obtain a final mark of between 35% and 49% or between 68% and 74% in a
module may apply for the remarking of an examination answer book.
•
Students will not be entitled to a supplementary examination (if applicable) on the grounds of a
remark result.
For more information, refer to the general rules for study and examinations in part 1 of the Unisa
Calendar.
7.
Perseverance
We would like to encourage you to attempt your studies with enthusiasm. Keep in mind that success
can only be achieved by effort and perseverance. Every year, we find that many students do not turn
up at the examination centre. You must never inflict this disservice on yourself. Remember that if you
write, you have a chance; if you don't, you have no chance at all.
We wish you a pleasant study period.
Kind regards
Accounting III (FAC3702) LECTURERS
© UNISA 2014
FAC3702_2014_TL_201_2_E.doc
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