UNIVERSITY EXAMINATIONS
May / June 2022
FAC2601
Financial Accounting for Companies
100 marks
2 hours
This paper consists of NINE (9) pages.
Instructions:
1.
This paper consists of THREE (3) questions.
2.
All questions must be answered.
3.
Basic calculations, where applicable, must be shown.
4.
Each question attempted must commence on a new (separate) page.
5.
PROPOSED TIMETABLE: (Avoid deviating from this as far as possible.)
Question
no
Subject
1
Multiple choice question
2
Statement of profit or loss and other
comprehensive income including the note on
profit before tax
3
Statement of changes in equity and statement
of financial position
TOTAL
Marks
10
40
Time in
minutes
12
48
50
60
100
120
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FAC2601
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QUESTION 1 (10 marks) (12 minutes)
THIS QUESTION MUST BE ANSWERED IN YOUR EXAMINATION ANSWER BOOK. EACH
QUESTION HAS ONLY ONE CORRECT ANSWER. THE MARKS PER QUESTION ARE INDICATED
IN BRACKETS AT THE END OF EACH QUESTION.
(a) An integrated report is intended to be more than a summary of information in other communications
(e.g. financial statements, a sustainability report, analyst calls, or on a website); rather, it makes
explicit the connectivity of information to communicate how value is created, preserved or eroded
over time.
Which is NOT correct?
1. Integrated reporting can be included as part of existing compliant statements?
2. Integrated reporting can be adopted by public companies and non-profit organsiations
(NGO’s)?
3. Integrated reporting is only beneficial to the providers of capital?
4. Integrated reporting address the key concepts of an organization?
(2)
(b) The capitals are stocks of value that are increased, decreased or transformed through the activities
and outputs of the organization. All renewable and non-renewable environmental resources and
processes that provide goods or services that support the past, current or future prosperity of an
organization.
Which one of the following capitals is described above?
1.
2.
3.
4.
Financial capital
Manufactured capital
Natural capital
Human capital
(2)
c) Adiwele Ltd has a financial year end of 31 March. The entity manufactures Compact Discs for resale.
The manufacturing cost per compact disc is R2 per unit. Finished units of the compact disc are sold at
R2.5 per unit. On 31 March 2021, Adiwele Ltd had 100 500 units of compact discs in stock. To sell this
products Adiwele Ltd will incur the following costs:




Sales commission of 20 cents per unit,
Additional designing costs of 25 cents per unit,
Advertising and packaging costs of 23 cents per unit,
Salaries for administrative staff of R6 000 per month.
Adiwele Ltd measures inventory at lower of cost and net realisable value as per IAS 2, Inventories
according to IFRS at year end.
What is the value of the closing inventory on 31 March 2021 as per IAS 2?
1.251 250
2. 201 000
3. 208 035
4. 136 035
5. 244 215
(2)
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QUESTION 1 (continued)
Question (d) and (e) are based on the information below.
d) Bopha Ltd, a general construction company which is based in Limpopo, has a financial year end of
31 December. Bopha Ltd was in a process of constructing a new plant which was available for use on
1 January 2022. During the 2021 financial year, it withdrew its tractor loader, purchased on 1 January
2018 from normal construction operations, for the period 1 March 2021 to 30 June 2021 and used it in
the construction of a new plant. This tractor loader had a carrying amount of 336 000 on 1 January
2021 and is depreciated at a rate 20% on straight line basis. The cost price of the new plant before
capitalization is R1 200 000.
Calculate the total cost of the new plant as at 31 December 2021. The new plant will be depreciated at
5% per annum on straight line basis when it becomes available for use.
1.
2.
3.
4.
5.
R1 196 000
R1 140 000
R1 256 000
R1 200 000
R 840 000
(2)
e) Using the information above, calculate the carrying amount of the tractor loader as at 31 December
2021
1)
R268 800
2)
R168 000
3)
R336 000
4)
R224 000
5)
R504 000
(2)
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QUESTION 2 (40 marks) (48 minutes)
The following balances were extracted from the books of Ngcobo Ltd for the financial year ended 29
February 2021:
R
Total sales (including VAT at 15%) (note 1) ........................................................ 2 300 000
Bank charges .......................................................................................................
12 850
Salaries and wages (note 2) ................................................................................
500 000
Advertising ...........................................................................................................
27 500
Auditors’ remuneration
-
Fees for audit .................................................................................................
10 000
-
Expenses .......................................................................................................
2 000
Distribution cost ...................................................................................................
67 000
Other operating expenses (including finance cost and depreciation) ..................
92 500
Lease payments (note 3) .....................................................................................
24 000
Other operating income (note 5) ..........................................................................
19 000
Proceeds on sale of motor vehicle .......................................................................
42 500
Equipment at carrying amount .............................................................................
24 000
Motor vehicles at cost (note 7) .............................................................................
120 000
Accumulated depreciation: Motor vehicles (note 7) ............................................
30 000
Investments (note 6) ............................................................................................
230 000
Loan to Maraisane Limited ...................................................................................
40 000
Long-term loan: HL Bank (Cr) (note 4) ................................................................
45 000
Income tax expense .............................................................................................
37 000
Additional information:
1.
Ngcobo Ltd maintains a gross profit percentage of 40% on turnover.
2.
Included in salaries and wages is the directors’ remuneration of R150 000 per annum.
3.
Ngcobo Ltd entered into a non-cancellable lease on 1 July 2020 to lease a printing machine for
the use of the company. The contract is a lease in terms of IFRS 16.
The following information is applicable to the lease contract:

The initial lease term is three years. An initial payment of R8 526 was made. The lease
payments are R3 000 per month for the first 6 months. The lease payments thereafter are
R2 000 per month until the end of the three years. All actual lease payments made by Ngcobo
Ltd are included in the operating expenses above.

Ngcobo Ltd has the option to extend the lease term by a further two years at R1 000. At the
commencement of the lease term Ngcobo Ltd is reasonably certain that it will exercise the
option to extend the lease term by a further two years.

5% of every lease payment goes towards covering the maintenance costs incurred by and is
to be paid for by the lessor. These values are similar to those with costs for similar
maintenance services rendered by third parties.
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QUESTION 2 (continued)

Ngcobo Ltd elected to apply the recognition exemption in respect of low value assets to this
lease agreement (IFRS 16.5). Ngcobo Ltd accounts for the lease and non-lease components
separately (IFRS 16.12).
4.
The long-term loan was obtained on 1 January 2019 from HL Bank and the capital portion is
repayable in seven equal annual instalments starting 31 August 2019. Interest on the loan is
calculated at 10% per annum and is payable at the end of each financial year.
5.
Other operating income consists of:
Dividends received from the following companies:
- Eysele Ltd ..........................................................................................
- Maraisane Ltd ....................................................................................
Interest received from Maraisane Ltd..........................................................
R
10 000
6 000
3 000
19 000
6.
Investments:
6.1
The issued ordinary share capital of Maraisane Ltd is R40 000 (shares issued at R1 each).
Ngcobo Ltd owns 21 000 shares in Maraisane Ltd.
6.2
Ngcobo Ltd owns 50 000 of the 1 200 000 issued shares in Eysele Ltd purchased for R100 000.
The shares of Eysele Ltd are traded on the JSE Limited and the market value per share was
R3,00 each on 29 February 2020. The market value on 28 February 2021 was R4,00 per share
and no adjustments have yet been made during this year regarding the increased market value.
These shares are obtained for speculative purposes.
7.
The non-current assets are depreciated at the following rates and methods:
Motor vehicles
Equipment
-
20% per annum using the reducing balance method
20% per annum using the straight-line method
One of the motor vehicles with a carrying amount of R40 000 on 29 February 2020 was sold on
31 August 2020. Only the proceeds have been recorded so far.
All the equipment was purchased on 1 March 2018 and no sales or purchases of equipment
have occurred since then.
REQUIRED:
Marks
(a) Prepare the statement of profit or loss and other comprehensive income of Ngcobo Ltd
for the financial year ended 28 February 2021. Your answer must comply with the
requirements of International Financial Reporting Standards (IFRS).
(b) Prepare the note “profit before tax” that should accompany the statement of profit or
loss and other comprehensive income of Ngcobo Ltd for the financial year ended
28 February 2021. Your answer must comply with the requirements of International
Financial Reporting Standards (IFRS).
20
20
40
Please note:
Ignore the note on accounting policy.
Comparative figures are not required.
Show all calculations.
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QUESTION 3 (50 marks) (60 minutes)
The following balances are an extract from the trial balance of Techno Care Ltd on 28 February 2021:
15% Long-term loan (note 2)
Investments (note 3)
Sales (inclusive of sales discounts) (note 4)
Administrative expenses
Distribution expenses
Other operating expenses
Other income
Retained earnings (1 March 2020)
Surplus on revaluation (1 March 2020) (note 1)
Debit/(Credit)
R
(2 700 000)
960 000
(10 257 000)
600 000
120 000
180 000
(300 000)
(2 471 700)
(1 200 000)
Additional information:
1.
Office building
Techno Care Ltd owns an office building in Sandton, which was acquired on 1 March 2015, at a
cost of R2 750 000 (Land: R750 000; Building: R 2 000 000). The property was available for use,
as intended by management, on acquisition date. The useful life of the building was estimated to
be 20 years and a residual value of R 100 000 was allocated to the building upon initial recognition.
Both the useful life and residual value of the building remained unchanged.
Techno Care Ltd adopted a policy to revalue its owner-occupied land. Revaluations are made with
sufficient regularity to ensure that the carrying amount does not differ materially from the fair value
at year-end. On 1 March 2020, Mr J Bless, an independent sworn appraiser revalued the property
for the first time and determined the fair value of the land to be R875 000.
The inexperienced accountant of Techno Care Ltd, Mr Heed, did not account for the revaluation
for the current year. He has also not taken the residual value into account when allocating the
depreciation to the buildings.
2.
Long-term loan
Techno Care Ltd entered into an unsecured long-term loan agreement on 31 August 2018. The
loan is repayable in six equal annual instalments commencing on 31 August 2019. The nominal
interest rate is 15% per annum. Interest for the current year must still be provided for in the
accounting records of Techno Care Ltd and it is payable on 5 March 2021.
3.
Investments
Included in investments at year-end on 28 February 2021 is the following investment:
Techno Care Ltd acquired 4 500 shares at R80 each in a listed company, Impact Ltd. The shares
are not held for trading but were acquired with a long-term view. The directors of Techno Care Ltd
irrevocably elected at initial recognition to classify this investment as at fair value through other
comprehensive income. The market value of the shares on the JSE Ltd at year-end on
28 February 2021 amounted to R380 000. The increase in the market value of this investment has
erroneously been recorded as though they were shares held for trading and has not yet been
corrected.
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QUESTION 3 (continued)
4.
Authorised and issued share capital
Techno Care Ltd was incorporated with an authorised share capital of:
6 000 000 Ordinary shares
1 500 000 10% Cumulative preference shares
900 000 12% Non-cumulative preference shares
The issued share capital of Techno Care Ltd on 1 March 2020 was as follows:
R
Ordinary share capital (shares issued at R2 each)
10% Cumulative preference shares
2 250 000
450 000
The following share transactions occurred during the current financial year and have not been
accounted for yet in the accounting records of Techno Care Ltd for the current year:

Techno Care Ltd issued 75 000 10% Cumulative preference shares at R4,00 per share on
1 September 2020.

On 31 October 2020 Techno Care Ltd received proceeds of R1 200 000 when 600 000 ordinary
shares were issued.

On 28 February 2021 capitalisation shares were issued to all the registered ordinary shareholders
at R1,50 per share at the ratio of one ordinary share for every five ordinary shares held.
5.
Sales for the year includes sales discounts of 2,5% that has been accounted for. The company
maintains a gross profit percentage of 35% on sales before sales discounts.
6.
An ordinary dividend of 10c per share was declared to all registered ordinary shareholders on
27 February 2021. The company did not pay or declare any dividends during the previous financial year.
7.
Normal company tax amounted to R731 185 after taking all the adjustments above into account.
REQUIRED:
Marks
(a)
(b)
Calculate the profit for the year in the statement of profit or loss and other
comprehensive income of Techno Care Ltd for the year ended 28 February 2021.
Using the information calculated in (a) above, prepare the statement of changes in
equity and an extract of the equity and liabilities section of the statement of financial
position of Techno Care Ltd for the financial year ended 28 February 2021, according
to the requirements of International Financial Reporting Standards (IFRS).
14
36
50
Please note:
Ignore all accounting policy notes.
Show all calculations.
©
UNISA 2022
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