FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF ACCOUNTANCY
NATIONAL DIPLOMAS: COST AND MANAGEMENT
ACCOUNTING, FINANCIAL INFORMATION SYSTEMS AND
INTERNAL AUDITING
Subject:
Financial Accounting 2.2 –
Assessment 1
Code:
BAAAY2A
Date:
29 August 2022
Duration:
2h00 hours
Total:
Maximum 50 Marks
Examiner:
Mr. M Mosai
Internal Moderator
Mrs. R Havenga
INSTRUCTIONS:
1. Answer all the questions. This is class assessment closed book
summative assessment.
2. All the answers must be made on Examination Book.
3. The paper consists of 5 pages including the cover page and
answering space provided.
Bidvest Waste Disposal Limited (‘’Bidvest’’) is a company that handles the collection and
disposal of toxic waste from various hospitals and private companies in the country. It
operates mainly in the Gauteng province deploying its trucks and personnel in its 20
depository centers where the administration of the collection and disposal of toxic waste is
managed. The company’s financial reporting period ends on the 31 December.
The directors of the company need your assistance in processing the following information
into their financial records for the reporting period ended 31 December 2021 before the
statements can be authorised to the general public for issue.
1. PROVISIONS, CONTINGENCIES – IAS37 AND EVENTS AFTER REPORTING
PERIOD – IAS10:
20 MARKS
Note 1: Multiple Choice Questions
1.1 Which of the following does define the term “provision”?
(a) A deferred liability
(b) A liability of uncertain timing or amount
(c) A contingent liability
(d) A contractual liability
1.2 An onerous contract is a contract in which __________ of meeting the obligations
under the contract __________ the economic benefits expected to be received
under it.
(a) Sunk costs; exceed
(b) Unavoidable costs; exceed
(c) Opportunity costs; are less than
(d) Avoidable costs; are less than
1.3 Which of the following statements does more likely define the term
“restructuring”?
(a) Significant change in the scope of a business undertaken by an entity
(b) Significant change in the manner in which that business is conducted
(c) Significant change in political and legal environment that regulates
reporting matters of an entity
(d) a or b
(e) All of the above
1.4 An entity shall not recognise a contingent liability __________.
(a) Unless an entity has a present liability as a result of a past event
(b) Unless it is probable that an outflow of resources embodying economic
benefits will be required to settle this liability
(c) Unless a reliable estimate can be made of the amount of this liability
(d) None of the above
Articles
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Note 2: Case Study
On 28 December 2021, one of the company’s transporting a load of toxic waste turned over
during a storm and spilt its load. The waste seeped into the ground on the side of the road to
several hundred meters. There is currently no particular law prescribing over matters of this
nature in the country. However, there was a public cry by the local residents and concerned
environmentalist that the contamination would spread to a nearby vegetables farm.
Due to immense negative publicity, Bidvest directors published a statement in the Sunday
Times on the 30 December 2021 that the company would remove the contaminated soil and
replace it with new soil by the 15 February 2022.
The directors are unable to estimate the cost of rehabilitee the contaminated area. This is
the first time that this particular chemical has been spilt and expert environmental
consultants are also unable to provide an estimate. A detailed investigation will need to be
carried out by the environmental consultants to determine the extent of the damage that has
occurred. The investigation is to be carried out during early February 2022 and concluded on
the 31 March 2022. The publication date of the financial statements is on the 30 April 2022.
Required from you to:
Discuss how the directors of Bidvest should recognize and disclose the above situation in
the financial statements for the financial reporting period ending 31 December 2021. Your
discussion and explanation should be in accordance with Provisions, contingencies – IAS37
and Events after reporting period – IAS10.
2. SHARE CAPITAL: EQUITY INSTRUMENTS AND FINANCIAL LIABILITIES 30 MARKS
The following information is available for Cousins Limited for the years ended 31 December
2020 and 2021:
 Equity balances extracted from the statement of financial position at 31 December
2019:

Ordinary share capital

15% Redeemable preference share capital

Revaluation surplus

Retained earnings
R 4 000 000
1 900 000
420 000
8 400 000
 Profit for the current year ended 31 December 2021 amounts to R2 700 000 (2020:
R1 750 000).
 The only item of other comprehensive income that arose during the 2021 financial
year end was a revaluation surplus of R175 000, net of tax. There was no other
movement in the revaluation surplus over the two years ended 31 December 2021.
 Information regarding the ordinary share capital:
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 The authorised shares capital has remained unchanged since incorporation at
6 000 000 shares.
 The ordinary share capital in issue at 1 January 2020 consisted of 2 500 000
shares of no par value.
 On 1 April 2020, 800 000 additional ordinary shares were issued at R5 per
share. The share issue costs for this issue were R35 000. These costs are
non-deductible for tax purposes.
 On 1 September 2020 100 000 ordinary shares were issued to existing
shareholders. The issue price per share was R7 when the market price per
share was R10. All 100 000 shares offered were taken up on that day.
 On 30 June 2021 a capitalisation issue took place where 2 ordinary shares
were issued for every 8 shares in issue. The current market price per share
was R8.
 An ordinary dividend of R0,10 per share was declared on 31 December 2020
and R0,15 per share on 31 December 2021.
 Information regarding the preference share capital:
 The preference share capital in issue at 1 January 2020 consisted of
1 500 000 redeemable 15% preference shares of no par value. There are
500 000 unissued non-redeemable shares still available. In terms of the
Memorandum of Incorporation to the company the preference shares are
redeemable at a premium of the issue price at the option of the company any
time after 1 July 2020.
 The discretionary preference dividends were paid on 30 November in both
years.
 On 1 December 2020 the directors decided to redeem R500 000 of the
preference shares at a premium of 5%. In order to finance the redemption,
the company issued 8% R1 debentures on this date.
 The directors are satisfied that the company’s assets, fairly valued exceed its
liabilities and that the company will be able to pay its debts as they become due.
Required:
a) Prepare all journal entries relating to the years ended 31 December 2020 and 2021.
b) Prepare Cousins Limited statement of changes in equity for the year ended 31
December 2021 in accordance with Financial Reporting Standards. Comparative
figures are required.
END OF ASSESSMENT 1 2022
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