POLYTECHNIC of NAMIBIA
FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF ACCOUNTING ECONOMICS AND
FINANCE
B. TECH ACCOUNTING AND FINANCE
FINANCIAL ACCOUNTING 201
TEST 3
QUESTION PAPER
Date:
10 MAY 2014
Duration:
2 HOURS
Total Marks:
100
INSTRUCTIONS / NOTES
1.
2.
3.
4.
This paper is made up of five (3) Questions
Answer All the questions in black/blue ink
Start each question on a new page in your answer booklet and show all your workings
Queries relating to this paper may be raised in the initial 30 minutes after the start of the paper.
Thereafter, candidates must use their initiative to deal with any perceived error or ambiguities and any
assumption made by the candidate should be clearly stated.
5. This paper consists of 2 pages excluding the cover page
EXAMINER (S):
E. Mushonga & A. Makosa
MODERATOR (S) : E. Milijala
0
Question 1
29 marks
The following balances appeared in the books of Native Ltd for the year ended 31 December
2013.
Ordinary
share
Share
Retained
capital
premium earnings
Total
Balance: 1 January 2012
500,000 1,500,000 2,000,000 4,000,000
The ordinary shares have a par value of N$1 each and the share premium originated when the
ordinary shares were issued. Profit for the year amounted to N$1 000 000 before accounting
for the following:
1. An ordinary dividend of N$500 000 was declared and approved by the board.
2. A revaluation surplus of N$150 000 was realised during the year in respect of plant.
3. Taxation for the year is N$200 000 and there is tax other comprehensive income items.
During the year ended 31 December 2013, the company made a profit of N$1 000 000 before
taking into account the following additional information.
Additional information:
1. A revaluation surplus of N$85 000 was realised on plant. Dividends for the year were
N$115 000.
2. Goods consigned to Nangula at Walvis Bay on a sale or return basis, were recognised
as revenue. It has now emerged that the goods (invoiced at N$250 000) are still at her
warehouse.
3. The company has determined that goods held by agent Nangula do not fulfill the
recognition conditions of revenue as set out in the accounting standards.
4. The company adds a mark-up of 25% on cost of all goods.
5. It also emerged that no future economic benefits may be expected from a debtor owing
N$35 000 who has left the country.
6. Taxation for the year is N$200 000 and there is no tax on other comprehensive income
items.
Required:
(a) State what conditions should be satisfied for revenue from the rendering of services to
be recognised.
(5 marks)
(b) Show the journal entry/entries to correct the effect of item 2 above regarding the
transaction with Nangula.
(4 marks)
(c) Prepare a statement of changes in equity for the year ended 31 December 2013.
(10 marks)
(d) Prepare a statement of profit or loss and other comprehensive income for the year
ended 31 December 2013.
(10 marks)
1
Question 2
21 marks
Taurus Limited manufactures video games and is currently busy with the following projects:
Project
1
2
3
4
5
R’00
R’000
R’000 R’000 R’00
0
0
Capitalised development costs
600
440
b/forward
Research and development costs
incurred during the year:
90
125
181
98
 Salaries
70
60
150
80
 Directly attributable overheads
6
12
6
 Raw material
9
20
25
12
 Market research
25
6
 Patents and licenses
5
8
Project 1:
The project is completed and commercial production commenced during the current reporting
period. The directors are certain that carrying amount of the capitalised costs will be covered
through future sales of the product. Sales of the product for the year amounted to 30 000 units.
Estimates of future sales in units are as follows:
20.2
40 000
20.3
50 000
20.4
60 000
It is estimated that no sales will take place after 20.4.
Project 2:
Initially, this project was considered to be highly profitable, but as a result of the release of a
similar Sony product which is more advanced that the envisaged product, the success of the
project is now considered to be remote.
Project 3:
In previous years R176 000 was initially recognised as an expense. Due to changes in the
market, directors are now, after thorough market research, convinced that the project will in
future earn income which will exceed the development costs. For this reason, the directors want
to reverse the write-off.
Project 4:
The project satisfies the requirements for recognition of an intangible asset from 1 January and
is estimated to continue for three years before the project is complete.
2
Project 5:
This project is new and activities have been limited to research and the formulation of product
alternatives by engineers.
REQUIRED:
(a) Show all the journal entries in respect of the above transactions for the year ended 31
December 2013.
(b) Disclose the development costs note to the financial statements reconciling the opening
balance of developing costs to the closing balance.
3