DEPARTMENT OF ACCOUNTANCY
ACCOUNTING 2A
ASSESSMENT OPPORTUNITY 1
4 MARCH 2019
ASSESSORS:
MS T MAHMOOD
MR Z ALLY
MS C MOENG
MODERATOR:
MR G BARNES

MARKS: 75
TIME:
112 MINUTES
THIS ASSESSMENT OPPORTUNITY PAPER CONSISTS OF 3 QUESTIONS AND 6 PAGES
(front page included).

SILENT NON-PROGRAMMABLE CALCULATORS ARE ALLOWED.

SHOW ALL CALCULATIONS.

START EVERY NEW QUESTION AT THE TOP OF A PAGE.

ANSWERS CONTAINING TIPPEX OR PENCIL WILL NOT QUALIFY FOR REMARKING.

CROSS OUT OPEN SPACES AND EMPTY PAGES.
COURSE: ACCOUNTANCY IIA
ASS1-Q1-2019
-2QUESTION 1
(20 MARKS)
(30 MINUTES)
PART A
(7 MARKS)
Candy Ltd was the leading confectionery manufacture in South Africa. The company has a 31 March 2019
year-end. All machinery are depreciated at 20 % per year on the reducing balance method.
The following cases are presented to you:
Manufacturing Equipment
Due to the increase in demand for the Candy chocolate bar, Candy Ltd had decided to build another
machine in 2019 to help keep up with this demand .In order to finance the manufacturing machine a loan
of R1 000 000 with BNF bank was taken out.
The following expenditure relates to the manufacturing machine
R
Purchase price of materials needed to build machine as per invoice (including VAT at 15%)
Legal cost to draft the loan agreement
Finance cost on loan 1 April 2018-1 June 2018
Finance cost on loan 1 June 2018 – 30 June 2018
Finance cost on loan 1 July 2018-1 February 2019
Finance cost on loan 1 February 2019-31 March 2019
Transport cost to deliver materials to warehouse for the machine
2 300 000
20 000
55 000
15 000
60 000
5 000
50 000
The loan was taken out on 1 April 2018.Expenditure relating to the building of the machine was incurred
on the 1 June 2018 and construction activities began on the 1 July 2018.
The manufacturing plant was completed on 1 February 2019 but only available for use on 1 March 2019.
The manufacturing plant has a residual value of R100 000
REQUIRED:
a) Calculate the amount that Candy Ltd can capitalise as an asset in terms of IFRS.
(4)
b) Present depreciation and finance cost for the new asset in the statement of comprehensive income
for the reporting period ended 31 March 2019.
(3)
-All amounts exclude VAT unless stated otherwise
-Show all calculations clearly as marks will be awarded.
PART B
(13 MARKS)
Candy Ltd purchased a delivery van, which has a freezer built into it. The freezer prevents chocolates from
melting during transportation. The delivery van was purchased on 1 April 2017 for R575 000 (including
VAT at 15%). The delivery van has a residual value of R20 000.
At acquisition the following were determined excluding VAT

The wheels are valued at R14 000 with an estimated useful life of 2 years and a residual value of zero
COURSE: ACCOUNTANCY IIA
ASS1-Q1-2019
-3QUESTION 1 (CONTINUED)

The freezer box is valued at R100 000 with an estimated useful life of 4 years and R5 000 residual
value. This cost is included in the total purchase price of the bicycle. The value of the freezer box is
deemed significant compared to the total value of the delivery van.

The Freezer box would require inspection every 18 months at an estimated cost of R2 500 per
inspection. The cost of the first inspection is included in the purchase price above.
On 1 October 2018 the cost of inspection for the delivery van was R4 000. Delivery vans are depreciated
at 25% per annum on the straight-line method.
REQUIRED:
Journalise the transactions above for the reporting periods ended 31 March 2019 in the accounting records
of Candy Ltd in accordance with the requirements of International Financial Reporting Standards (IFRS).
(13)
COURSE: ACCOUNTANCY IIA
ASS1-Q1-2019
-4QUESTION 2
(20 MARKS)
(30 MINUTES)
The following extract from an agreement between VAGTech Pty Ltd (VAGTech), a newly established
vehicle dealership in the north of Johannesburg and Moorad Trucking Ltd (Moorad), a supplier of state of
the art vehicle transporter trucks, is provided to you:
Description of vehicle transporter truck:
Make:
Colour:
Engine number:
Vehicle Identification number (VIN):
Registration number:
Date of first registration:
Odometer reading:
-
MAN TGX
Reflex Black
BBH786S356
MANZSS1842267
HN71SLGP
2018/15/12
115 kms
Commencement Date: 1 January 2019
Termination Date: 31st December 2023
Additional information:
VAGTech Pty Ltd entered into a contract with Moorad Trucking Ltd for the use of a vehicle transporter
truck for five years to transport vehicles from their premises to customers all around South Africa. The
truck was designed specifically for VAGTech. The truck will be kept at the premises of VAGTech. The
truck requires servicing every 15 000kms or at the very least, once a year. Should the truck require repairs,
Moorad will provide VAGTech with a replacement vehicle that will undertake the work of the vehicle that
is specified in the agreement for the duration of the repairs. Moorad has guaranteed that repairs will never
exceed a week during any 365 day period. Other than for repairs or default, Moorad cannot retrieve the
truck from VAGTech.
A clause included by Moorad in the contract states that only vehicles specified in the contract is permitted
to be transported on this truck for the period of the contract. VAGTech is able to choose the details of the
journey (speed, route, rest stops, etc.) within the parameters of the contract.
Equal annual instalments of R500 000 will be paid by VAGTech in arrears on the 31 March. The expected
useful life of the truck is 10 years. VAGTech will obtain ownership of the truck vehicle on 31 December
2023.
REQUIRED:
Discuss whether the above agreement should be classified as a lease in terms of IFRS 16
Leases?
(20)
COURSE: ACCOUNTANCY IIA
ASS1-Q1-2019
-5QUESTION 3
(35 MARKS)
52 MINUTES)
Mnandi Foods Ltd is a leading manufacturer of spices and sauces. Some spices and sauces are developed
internally, whilst other brands are purchased. You are provided with the following information for the
reporting period ended 31 December 2018:
1.
Building 1 was acquired for R1 800 000 on 1 July 2015. Since acquisition it has been rented out for
R40 000 a year to a financial institution. Mnandi Foods Ltd uses 5% of the floor space as their head
office. At acquisition transfer cost of 12% were paid. The fair value of this property determined by
an independent valuer at 31 December 2018 was R2 900 000.
Mnandi Foods Ltd is currently constructing a building (Building 2) to be used as a factory for Mnandi
Foods Ltd. A specific loan was acquired of R1 900 000 on 1 January 2018 to finance this project at
an interest rate of 25% per year. Construction was completed on 1 December 2018. The building
was available and put into use on 1 December 2018.
The following interest charges were incurred
1 January 2018 – 31 December 2018
1 January 2018 – 1 December 2018
270 000
265 417
General information relating to buildings:
•
•
Buildings are depreciated over 20 years.
Any investment properties are accounted for using the fair value method.
2.
Equipment was acquired on the 1 July 2015 for R632 500 including 15% VAT. Costs to install the
equipment amounted to R57 500 (including 15% VAT). The equipment was available for use on the
1 September 2015 and has a residual value of R5 000. Equipment is depreciated at 10% using the
diminishing balance method.
3.
On 1 November 2018, Mnandi Foods Ltd acquired the well-known brand, 4in1 Sauce for an amount of
R1 495 000 (including 15% VAT)

In addition to this, an amount of R125 000 was spent on legal fees to secure the rights to use this
brand. The legal fees were paid on 30 November 2018.

Due to the fact that Mnandi Foods Ltd’s staff had never previously been exposed to 4in1 Sauce,
extensive training (by the staff at the company from whom the 4in1 Sauce brand had been
purchased) took place during the month of November 2018. The total cost of this training amount
to R100 000.

After the training ended on 30 November 2018 the brand was available for use.

Sales of 4in1 Sauce commenced on 15 December 2018.

The 4in1 Sauce brand has an estimated useful life of fifteen years.
4. The directors of Mnandi Foods Ltd decided to enter into a contract on 1 January 2017 whereby they
will obtain the right to use machinery from Make-It Ltd. This machinery will be used to make spices.
Make-It Ltd will be responsible for the repairs and maintenance on the machinery and will have the
right to substitute the machinery, but only at the request of Mnandi Foods Ltd.
COURSE: ACCOUNTANCY IIA
ASS1-Q1-2019
-6QUESTION 3 (CONTINUED)
Mnandi Foods Ltd will not not obtain ownership of the machinery at the end of the contract. The
machinery has an estimated useful life of 10 years. Depreciation for machinery is calculated using
the straight line method.
The effective interest rate is 15%. The following correctly prepared information is provided:
Instalment
R
1 January 2017
31 December 2017
31 December 2018
31 December 2019
31 December 2020
31 December 2021
29 831
29 831
29 831
29 831
29 831
149 155
Interest
R
Capital
R
14 999
12 774
10 216
7 274
3 892
49 155
14 832
17 057
19 615
22 557
25 939
100 000
Balance
R
100 000
85 168
68 111
48 496
25 939
-
REQUIRED:
Prepare only the asset section and the following notes of the Statement of financial position of Mnandi
Foods Ltd at 31 December 2018.
-
Property, plant and equipment (total column not required)
Investment property
Intangible assets
Finance lease commitment
(35)
•
•
•
•
Round off all amounts to the nearest Rand.
Show all calculations clearly as marks may be rewarded.
All amounts exclude VAT unless specified otherwise.
Accounting policy notes are not required.