UNIVERSITY OF THE WESTERN CAPE
TEST 2
22 April 2023
MODULE NAME
: FINANCIAL ACCOUNTING 241
MODULE CODE
: FIA241
DURATION
: 3 hours (180 Minutes)
TOTAL MARKS
: 100
Examiner
: Ms. A Anwary
Internal moderator
: Ms. B Williams
Departmental chairperson
: Mrs B Raymond
QUESTION
1
2
3
4
5
TOTAL
MARKS
11
24
20
31
14
100
MINUTES
19.8
43.2
36
55.8
25.2
180
EXAMINER’S INSTRUCTIONS:
1. Answer all the questions.
2.
3.
4.
5.
Answers must be in blue or black ink. Pencil will not be marked.
Show all workings clearly and to the nearest rand.
Reference all workings appropriately.
Start a new question on a separate page.
GENERAL INSTRUCTIONS:
This test paper consists of 7 printed pages (including cover sheet); please ensure that you have all of them.
Please ensure that your Student Number is clearly printed on the examination answer booklet/s and that you
have completed the attendance form (control form).
You may not have any books, writing paper, notes, manuscripts, electronic media (cellphones, smart
devices, laptops, etc.) in your possession, unless otherwise stipulated in this examination question paper.
Please ensure that all your answer booklets are collected by an invigilator at the end of the examination
session. Answer booklets must be intact when collected by the invigilator. No stapled, paper clipped or
glued booklets will be accepted.
Please answer all questions (unless indicated otherwise). It is in your interest to write in a legible manner.
1
Question 1
(11 Marks; 19.8 Minutes)
Over the moon Limited processes and packages a variety of milk, cream and cheese. The company has
a 31 December year end.
Over the moon Limited purchased 1 000 litres of unpasteurised milk on 1 October 2022 for R50 000,
half of which had been used in the production of long-life milk during October 2022 and sold to
supermarkets during October and November 2022. The remaining 500 litres was frozen for future use.
On 1 December 2022, a consumer suffered serious food poisoning and alleged that it was caused by the
long-life milk produced by Over the moon Limited. The consumer took legal action against Over the
moon Limited regarding the poisoning. Over the moon Limited is not insured against the potential losses
that may result from claims of this nature.
Due to public interest, the case went to the court almost immediately. Indications during the court
proceedings, held in late December 2022 were that Over the moon Limited was responsible for the
poisoning and would probably be found guilty. It was found that the long-life milk was poisoned
because the milk used in its manufacture had been contaminated. At 31 December 2022, after many
consultations with legal counsellors, the settlement costs were estimated to be in the range of R200 000
and R250 000 and this outcome was highly probable.
It proved difficult at 31 December 2022 to estimate and predict any further claims that may arise from
other consumers as a result of the contamination.
Due to the negative publicity arising from the court case, Over the moon Limited decided not to plead
against the inevitable guilty verdict and to willingly pay all costs, in the interest of maintaining a positive
public image.
Required:
1. Discuss, how, if at all, the event should be recognized, measured and disclosed in the financial
statements of Over the moon Limited for the year ended 31 December 2022. (8 Marks)
2. Assuming that the R200 000 was to be recorded in the books of Over the moon Limited as a
provision, please process the required entry. (2 Marks)
Presentation
(1 mark)
2
QUESTION 2
(24 MARKS; 43.2 MINUTES)
IGNORE VAT
Protea Limited (“Protea”) entered into two separate revenue transactions with two different customers
on 1 January 2022, the details of which, determined at contract inception, are presented below:
Contract 1: Customer Jacques
A contract was entered into with a customer to deliver flower seeds to the customer on 1 January 2022.
The contract amount agreed was R282 000 before any discounts. The client requested a 15% early
settlement discount, if payment is made on 31 January 2022. Protea agreed to the customer’s proposal
and would allow the 15% discount if payment was made before or on 31 January 2022, it was considered
probable at contract inception that it would be allowed and that the customer would take advantage of
the early settlement discount.
Payment was received on 2 February 2022.
Contract 2: Customer Boucher
On 1 January 2022, a contract was entered into to deliver flower pots to the customer on
31 December 2023. The contract amount agreed was R580 000 due and payable on 1 January 2022.
General information:
The appropriate discount rate, determined at contract inception, is 12% per annum.
The effect of financing arrangements is considered to be significant where
applicable. The financial year end of Protea Limited is 31 December.
Required:
1) Define the difference between Income and Revenue in terms of IFRS 15. (3 Marks)
2) For each of the contracts above, you are required to calculate the transaction price. (5 Marks)
3) For each of the contracts above provide all the journal entries for the financial year ending
31 December 2022. (12 Marks)
4) What is difference between a contractual asset and a receivable? (When you would you use
contractual asset and when would you use accounts receivable.) (2 Marks)
Presentation
(2 marks)
3
Question 3
(20 Marks; 36 Minutes)
a. The directly attributable costs that should be included in the cost of an item of PPE are only
those costs that are necessary in order to get the asset to a location and condition that enables it
to be used.
b. It can happen that the initial cost of acquiring an item of PPE could include certain estimated
future costs.
c. It is possible to use one measurement model for one class of PPE and another measurement
model for another class of PPE.
d. Items that meet the definition of PPE will always be recognized and presented as non-current
assets in the statement of financial position.
e. An item of PPE is always initially measured at cost.
f.
An item of PPE, the acquisition of which is to be paid in instalments, is initially measured at its
cost, being the sum of these future instalments.
g. The term useful life which reflects the asset’s economic life (its potential life from the
perspective of the market) is used in the measurement of depreciation.
h. Depreciation on an item of PPE ceases (stops) during periods in which the asset is idle.
i.
Depreciation on an item of PPE starts when the asset is first brough into use.
j.
Items of PPE must be tested for impairment at the end of every financial year.
k. There are two models to choose from when subsequently measuring PPE, namely the cost
model and revaluation model.
Required:
1. Indicate whether the above statements are true or false. If false provide a brief explanation.
(18 marks)
Presentation, logical flow and clarity
(2 marks)
4
Question 4
(31 Marks; 55.8 minutes)
IGNORE VAT
The following trial balance was extracted from the accounting records of Furn-natics (Pty) Ltd, a
furniture manufacturer based in Parow, Cape Town.
Balances as at 31 December 2022
Share Capital
Retained Earnings
Fixed Deposit 30 day
Trade Receivables
Trade Payables
Bank
Plant and Machinery (Cost)
Plant and Machinery (Accumulated Depreciation) at 1 January 2022
Building Cost
Building (Accumulated Depreciation) at 1 January 2022
Furniture
Furniture (Accumulated Depreciation) at 1 January 2022
Revenue
Cost of Sales
Inventory
Administrative Expenses
Distribution Costs
Other Expense
Interest Income
Current Tax Asset
DR
CR
100 000
1 500 000
80 000
50 000
150 000
30 000
600 000
200 000
1 875 000
375 000
320 000
64 000
700 035
327 565
372 565
140 000
87 000
177 500
12 000
6 000
The following entries have not yet been recorded:
1. Buildings were revalued by a sworn appraiser on 1 January 2022. The revalued amount was
R1 900 000. The building is depreciated on a straight line basis over 20 years. The building was first
recognised as an asset on 1 January 2018. The entity revalues assets based on the net replacement value.
It is the entity's policy to realise the revaluation surplus through use.
2. On 30 June 2022, additional office furniture of R200 000 was purchased on credit.
3. Depreciation for the year has not been recorded. Furniture is depreciated on the diminishing balance
method at a rate of 20% per annum. Plant and Machinery is depreciated over a useful life of 5 years
using the straight line method, with a residual value of R100 000
4. One evening a staff member forgot to close the office window and the furniture was damaged by the
rain. The recoverable amount of the furniture was R150 000 at 31 December 2022.
6. An amount of R6 780 was paid on 1 October 2022 for an annual subscription to “The Future of
Furniture” monthly magazine.
5
Required:
1) Prepare the journal entries to record the revaluation of the buildings using the net replacement
value method for the year ended 31 December 2022. (12 Marks)
2) Prepare the Property, Plant and Equipment note for the year ended 31 December 2022. A total
column is not required (16 Marks)
Presentation
(3 marks)
6
Question 5
(14 Marks; 25.2 Minutes)
Juba (Pty) Ltd owns a machine used in their fruit processing factory. The details for this machine in the
note for PPE (Property, plant and machinery) for the year ended 30 June 2022 were as follows:
Cost
Accumulated Depreciation
Accumulated Impairment
Carrying Value
300 000
(150 000)
(34 000)
116 000
Machinery is carried using the cost model and is depreciated on a straight line basis over a useful life
of 10 years. The machine had 5 years remaining of its useful life, and a nil residual value at 30 June
2022.
During the 2022 financial year, the rand had strengthened against the currencies of the countries to
which the company exported, and orders had fallen dramatically. Also the output of the machine had
not met initial estimates, leading to the impairment recorded above.
A year later, things have improved considerably, and there has been a change in the estimates used to
determine the assets recoverable amount, since the impairment loss was recognized.
At 30 June 2023 the following data was compiled:
Selling price of the machine in an active market 50000
Sales commission payable to the agent 5 000
Dismantling and removal costs 8 500
Value in use cash flows are:
Year
2024
2025
2026
2027
Future Cash Flows
35 200
37 000
39 800
42 984
Present value of Cash Flows
33 845
34 210
35 378
36 743
Required:
1. Calculate the recoverable amount of the machine for the year ended 30 June 2023. (4 Marks)
2. Calculate the carrying value of the machine, prior to any adjustment. (2 Marks)
3. Calculate the value of the impairment loss, if any, for the year ended 30 June 2023. (8 Marks)
Round currency amounts to the nearest Rand value.
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