Financial Accounting 121 (FRK 121)
Module Test 1
27 August 2022
Examiners:
Moderator:
FRK121 and FRK122 Lecturers
Mr K Lambourn
THIS PAPER CONSISTS OF FIVE UNRELATED QUESTIONS.
SAVE AND SUBMIT EACH QUESTION ON CLICKUP AFTER COMPLETION.
THE COMPLETE QUESTION PAPER MUST BE HANDED IN.
COMPLETE THE EXAMINATION AND TEST REGISTER BELOW:
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TAKE NOTE OF THE UNIVERSITY’s REGULATIONS
(https://www.up.ac.za/yearbooks/2022/rules/document/general-academicregulations-and-student-rules-2022)
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QUESTION 1
(15 marks; 30 minutes)
MoVac manufactures and sells a vaccine for monkeypox. MoVac is currently the only
manufacturer of a vaccine for monkeypox in South Africa. The entity recognises the need for
a domestic manufacturer of vaccines to enable the country to respond to epidemics and
vaccine-preventable diseases.
The current financial year-end of MoVac is 31 December 2022. The entity uses the
perpetual inventory system and makes use of control accounts for debtors and creditors.
The entity is not a registered Value Added Tax (VAT) vendor. VAT can be ignored
throughout this question.
REQUIRED
1.1)
1.2)
Prepare the entries in the general journal of MoVac to correctly record the sale
of the delivery vehicle on 1 October 2022.
(10)
Prepare the “Property, plant and equipment” note of MoVac for ONLY the
machinery for the year ended 31 December 2022.
(5)
NOTE:
- Take note of the journal narrations provided in the answer sheet.
- The total column for the “Property, plant and equipment” note is not required.
INFORMATION
The following information has been obtained from the accounting records of MoVac for the
year ended 31 December 2021:
Debit
R
2 100 000
Vehicles
Accumulated depreciation on vehicles
Machinery
Accumulated depreciation on machinery
Credit
R
650 000
?
2 070 000
The accounting policy of MoVac states that all property, plant and equipment is measured at
historical cost less accumulated depreciation and accumulated impairment losses (cost
model). Depreciation is calculated as follows.
-
Vehicles: Straight line method at 20% per year.
Machinery: Production unit method based on an estimated number of 1 000 000
vaccines.
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VEHICLES
MoVac owns seven (7) refrigerated delivery vehicles. These delivery vehicles are used to
transport the vaccines to various locations across the country. On 1 October 2022, MoVac
sold one of the delivery vehicles to FedUp for R390 000. FedUp paid 60% of the purchase
price in cash and agreed to settle the outstanding amount on 31 March 2023.
This delivery vehicle sold was originally purchased on 1 November 2021 for R450 000. This
delivery vehicle has a current estimated residual value of R0 and was ready for use as
intended by management on 1 December 2021.
The inexperienced bookkeeper recorded only the following entry for the sale of the delivery
vehicle in the general journal of MoVac on 1 October 2022:
Debit
R450 000
Vehicles
Asset realisation
Transfer cost of vehicle sold
Credit
R450 000
MACHINERY
MoVac required a new state-of-the-art machine to produce vaccines. On 1 February 2021,
MoVac imported a new machine from Germany at €305 000 (€ = Euro). On purchase date
the exchange rate amounted to 1 € = R20.00. The purchase price was paid in cash on
purchase date. MoVac incurred the following additional costs:
Date
15 February 2021
20 February 2021
28 February 2021
1 March 2021
3 March 2021
Cost
Import duties
Transportation cost to production facility
Installation cost
Printing cost for MoVac logo on machine
Staff training cost
Amount
R810 000
R70 000
R20 000
R1 000
R9 000
The machine was ready for use as intended by management on 28 February 2021. The
production manager of MoVac estimated that the machine will produce 1 000 000 vaccines
over its useful life. The current estimated residual value of the machine amounts to
R100 000.
The production schedule reflected the following number of vaccines produced during the
respective financial years:
Year-end
31 December 2021
31 December 2022
Number produced
300 000 vaccines
150 000 vaccines
During 2022, a competitor entered the market for vaccine production. As a result, the
demand for MoVac’s vaccines reduced significantly. On 31 December 2022, an independent
sworn appraiser valued the machine at R3 500 000 (recoverable amount). An impairment
loss of R395 000 was correctly calculated and recorded in the accounting records of MoVac
for the year ended 31 December 2022.
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QUESTION 2
(15 marks; 30 minutes)
Jura Sic is the owner of a business entity, Marvellous Stars, which sells souvenirs based
on famous movies. Marvellous Stars is not registered as a Value Added Tax (VAT) vendor
and VAT is not applicable on any of the transactions. The year-end of Marvellous Stars is
31 December.
REQUIRED
2.1)
2.2)
With reference to the journal narrations provided, record the necessary
journal entries in the general journal of Marvellous Stars for the year ended
31 December 2021.
(11)
Prepare the “Other intangible assets” note that will accompany the financial
statements of Marvellous Stars for the year ended 31 December 2021.
(4)
INFORMATION
The following balances were obtained from the accounting records of Marvellous Stars as at
31 December 2021:
Software
Accumulated amortisation on software (31/12/2021)
Loan – GRABSA Bank
Expenses payable (01/01/2021)
Amortisation
Interest expense
Debit
R
450 000
Credit
R
240 000
270 000
28 800
90 000
43 200
Additional information:
1.
Due to the widespread national demand for souvenirs, Marvellous Stars decided to sell
their products online. On 1 May 2019, a software development company was paid
R450 000 for a website (software) to allow customers to order and pay for products
online. The website was ready for use on this date and the useful life was estimated to
be 5 (five) years. It is the accounting policy of Marvellous Stars to amortise an
intangible asset over its estimated useful life using the straight-line method. The
bookkeeper correctly recorded the amortisation on this software for the year ended
31 December 2021.
2.
A loan of R450 000 was specifically raised from GRABSA Bank on 1 May 2019 to pay
the software development company for the website. Interest at 12% per annum is
payable annually in arrears, commencing on 30 April 2020. The interest rate is market
related. The loan is repayable in 5 (five) equal annual instalments, commencing on
30 April 2020. The bookkeeper correctly recorded the interest on the loan on
31 December 2020, but forgot to reverse the accrual on 1 January 2021. The
expenses payable on 1 January 2021 included only interest expense. All interest
payments and loan repayments were made on time and accurately calculated and
recorded by the bookkeeper.
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3.
Due to the increasing popularity of mobile applications, Marvellous Stars requested the
same software development company to develop a mobile application (software) for
customers to place orders and pay using their mobile devices. An amount of R180 000
was paid in cash for this mobile application on 1 October 2021. The mobile application
was launched on the same day and the useful life was estimated at 5 (five) years. The
bookkeeper did not record the purchase of this software or the amortisation on this
software for the year ended 31 December 2021.
4.
Since the introduction of the mobile application, approximately 90% of customers
began using the mobile application instead of the website to place orders. Marvellous
Stars engaged the services of a legal firm that specialises in software valuations. On
31 December 2021, the sworn appraiser of the legal firm valued the website
(software) at R100 000 (recoverable amount). This transaction has not yet been
recorded in the accounting records of Marvellous Stars.
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QUESTION 3
(5 marks; 10 minutes)
Potato Express is a trading entity that sells potatoes to the local
community of Mogwadi. The entity purchases its potatoes on credit
from FreshVeg, who in turn extends a 90-day payment period to
Potato Express.
Potato Express is not a registered VAT vendor and maintains a
constant gross profit percentage during the year. The entity applies
the periodic inventory system and uses the First-in, First-out (FIFO)
method of inventory valuation. The current financial year-end of
Potato Express is 28 February 2022.
REQUIRED
3.1)
3.2)
3.3)
Calculate the net cost of the potatoes purchased by Potato Express during
April 2021.
(1)
Calculate the net cost (after the discount) of the potatoes purchased by Potato
Express during December 2021.
(1)
Calculate the value of the closing inventory of Potato Express as at
28 February 2022.
(3)
INFORMATION
1.
On 1 March 2021, the entity had 150 bags of potatoes to the value of R10 500 on hand.
2.
During the financial year ended 28 February 2022, the entity purchased the following
number of bags of potatoes from FreshVeg:
Normal purchase price
per bag
April 2021
100
R55
The entity returned six (6) of the 100 bags of potatoes due to inferior quality.
Month
July 2021
Number of bags
80
R60
October 2021
60
R50
The entity returned two (2) of the 60 bags of potatoes due to inferior quality.
3.
December 2021
150
The entity received a bulk discount of R5 per bag.
R75
February 2022
R65
70
During the financial year ended 28 February 2022, a total of 522 bags of potatoes were
sold for R44 370.
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QUESTION 4
(5 marks; 10 minutes)
REQUIRED
4.1)
4.2)
4.3)
4.4)
Calculate the value of the theoretical inventory of Mondi Traders as at
14 May 2022 by preparing a trading statement for the period 1 March 2022 to
14 May 2022.
(2)
Calculate the percentage (%) with which Mondi Traders is over- or underinsured on 28 February 2022.
(1)
Calculate the value of the insurance claim that Mondi Traders can claim from
the insurance company if there was no over- or under-insurance.
(1)
Calculate the value of the insurance claim that Mondi Traders can claim from
the insurance company by applying the over- or under-insurance principle.
(1)
INFORMATION
On 15 May 2022, a fire destroyed all the inventory in the storeroom of Mondi Traders. It is
the policy of the entity to perform a physical stocktake every six months, on 28 February and
31 August of every year.
The value of the inventory on hand as at 28 February 2022 amounted to R156 250, however,
Mondi Traders normally insures its inventory for R125 000. Mondi Traders maintains a
constant gross profit percentage of 25% (on sales).
Inventory that could be sold for R55 000 was in the display room and was not destroyed by
the fire. Mondi Traders did, however, sell some of the damaged inventory for R6 000.
Additional information:
The following information was extracted from the financial records of Mondi Traders for the
period 1 March 2022 to 14 May 2022:
Sales
Net purchases
Freight on purchases
Freight on sales
R
450 000
315 000
8 500
3 500
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QUESTION 5
(10 marks; 20 minutes)
Pens Unlimited manufactures high quality ball
point pens. The business is not registered as a
VAT vendor. The perpetual inventory system is
applied, and inventory is valued according to
the First-in, First-out (FIFO) method.
According to www.madehow.com, ball point pens are made to order in mass quantities. The
manufacturing process includes ink compounding, metal component formation, plastic
component moulding, piece assembly, packaging, labelling, and shipping. In more advanced
manufacturing plants, pens can go from raw materials to finished products in less than five
minutes.
REQUIRED
5.1)
Match the alphabet letters (A-F) given in the general ledger (refer to point 1 of
the INFORMATION) to the description provided in column B.
Column A
A
B
C
D
E
F
5.2)
(3)
Column B
1.
Cost of raw materials transferred for use in the production
process during the month.
2.
Raw materials sold to other suppliers.
3.
Raw materials bought for which credit invoices serve as
source documents.
4.
Raw materials bought for which cash invoices serve as
source documents.
5.
Cost of raw materials available for use in the production
process at the start of the month.
6.
Raw materials that can be used in the production process
to manufacture pens in July 2022.
7.
Raw materials received in an unsatisfactory condition that
were sent back to suppliers.
8.
Finished goods, ready to be sold.
9.
Raw materials that were written off due to damage during
the production process.
10.
Costs that include raw material and direct labour paid in
cash.
Prepare the correcting entry in the general journal of Pens Unlimited to account
for the direct labour incurred for June 2022 (refer to point 2 of the
INFORMATION).
(2)
5.3)
Calculate the primary cost for June 2022.
(1)
5.4)
Prepare the “Work-in-progress” account in the general ledger of Pens
Unlimited for June 2022.
(4)
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INFORMATION
1.
The following general ledger account was correctly prepared in the general ledger of
Pens Unlimited for June 2022:
2022
Jun
1
30
Jul 1
2.
Balance (A)
b/d
Bank (B)
Creditors control (C)
Balance
R
7 400
281 600
17 000
306 000
A new bookkeeper was appointed at the start of the month. According to the
bookkeeper, the total salaries and wages expense for the month amounted to R821 000
of which R530 000 was for salaries of managers and administrative staff. The
inexperienced bookkeeper recorded the following entry in the general journal of Pens
Unlimited for June 2022:
Work-in-progress
Direct labour
3.
b/d
Raw materials
R
2022
Jun
48 000 30
Creditors control (D)
195 000
Work-in-progress (E)
63 000
Balance (F)
c/d
306 000
17 000
Debit
R530 000
Credit
R530 000
The new bookkeeper provided you with the following correct, but incomplete information
that was extracted from the accounting records of Pens Unlimited at the end of
June 2022:
Work-in-progress - Opening balance (1 June 2022)
Work-in-progress - Closing balance (30 June 2022)
Work-in-progress transferred to Finished goods
Manufacturing overheads
R32 000
R24 000
R677 100
?
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