CLASS EXAMPLE : SOURCE 2018 EXAM
QUESTION 1: THEORY 15 marks (18 minutes)
QUESTION 1: REQUIRED Marks
1 Provide reasons why a company issuing shares to the public would 3
consider using an underwriter and name the costs involved.
2 A company needs additional cash for a new project. Name two ways of 2
raising cash (other than through normal trading activities i.e. sales).
3 Provide the formula used to calculate Net Margin for a company. 3
4 List 2 items that should be detailed in a partnership agreement 4
5 Name the Companies general ledger account that you would close the
following off to:
5.1 Preliminary costs 1
5.2 Ordinary dividends 1
5.3 Salaries and wages expense 1
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QUESTION 2: COMPANIES 46 marks (55 minutes)
GenStor Limited is a retailer selling FMCG (fast moving consumer goods) to the public. It is
time to prepare financial reports for the year ended 31 December 2017.
The following is an extract of the Trial Balance at 31 December 2017. Certain transactions
still need to be recorded before final profit calculations can be made and reported (refer to
additional information below).
Debit Credit
Gross profit 300 000
Interest received : bank account 950
Dividend received: listed company 2 200
Sundry expenses 232 350
Depreciation: motor vehicles 24 000
Depreciation: equipment 10 000
Interest on overdue account 350
Interest on loan 12 000
Preliminary costs 1 800
Additional information:
1. Revenue for the year ended 31 December 2017 totals R800 000.
2. The following transactions still need to be recorded:
• Preliminary costs are to be written off.
• Tax expense for the year has been calculated to be R5 900.
• Preference dividend of R1 900 on redeemable preference shares has been
approved on 31 December 2017 to be paid in January 2018.
• The director’s recommend an ordinary dividend of 2c per share approved on 31
December 2017 to be paid in January. There are 100 000 issued ordinary shares
on 31 December 2017.
Debit Credit
Profit and loss summary 1 800
Preliminary costs 1 800
Tax expense 5 900
SARS liability 5 900
Ordinary
dividends 100 000 x 0.02 2 000
Shareholders for dividends 2 000
Interest on preference
shares 1 900
Shareholders for pref div 1 900
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3. Balance on retained earnings at 1 January 2017 R98 000.
4. Sundry expenses are made up of the following:
Sundry expenses
Lease expenses: copiers 12 000
Audit fee for 2017 3 300
Audit expenses (flights,
accommodation) 1 400
Salaries and wages 95 000
Salaries: executive directors 48 000
Loss on sale of asset 650
Meeting fees: executive directors 2 000
Meeting fees: non-executive directors 4 000
Other expenses 66 000
Total per Trial Balance above 232 350
QUESTION 2: REQUIRED Marks
1 Prepare journal entries for the transactions listed in item 2 above. Closing 9
entries are NOT required.
2 Prepare the Statement of Comprehensive Income for the year ended 31 11
December 2017. (Show workings for amounts).
3 And the following notes to the financial statements:
3.1 Revenue 1
3.2 Other income 3
3.3 Operating expenses (show detailed workings) 14
3.4 Finance costs 3
3.5 Taxation 1
3.6 Retained earnings 4
GenStor Limited
Statement of Comprehensive
Income
for the year ended 31 December
2017
Note
Revenue 1 800 000
Cost of Sales 500 000
Gross Profit 300 000
Other income 2 3 150
Operating expenses -268 150
Operating profit 35 000
Finance costs -14 250
Profit before tax 20 750
Taxation -5 900
Profit for the year 14 850
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Working: Operating expenses
Sundry expenses 232 350
Depreciation: motor vehicles 24 000
Depreciation: equipment 10 000
Preliminary costs 1 800
268 150
NOTES TO THE FINANCIAL
STATEMENTS
1. REVENUE
Revenue comprises net sales to customers at invoice value.
2. OTHER INCOME
This includes:
Interest received : bank account 950
Income from investments
Listed shares
- Dividends 2 200
3 150
3. OPERATING EXPENSES
Expenses include:
Auditor's remuneration 4 700
Audit fee 3 300
Expenses 1 400
Loss on sale of asset 650
Preliminary costs 1 800
Directors' emoluments 54 000
Remuneration
Executive 50 000
Services as directors 2 000
Other services 48 000
Non-executive
Services as directors 4 000
Depreciation: motor vehicles 24 000
Depreciation: equipment 10 000
Lease expenses - office equipment 12 000
4. FINANCE COSTS
Interest on overdue account 350
Interest on loan 12 000
Preference share dividend 1 900
14 250
5. TAX EXPENSE
South African normal tax for the year 5 900
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6. RETAINED EARNINGS
Opening balance 98000
Profit for the year 14 850
less: Ordinary dividends -2 000
Closing balance 110850
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