FACULTY OF ACCOUNTING AND INFORMATICS

DEPARTMENT OF FINANCIAL ACCOUNTING

2023
YEAR-END MAIN EXAMINATION
MARKING-GUIDE

INSTRUCTIONAL PROGRAMME: ADPAC1

INSTRUCTIONAL OFFERING: ADVANCED FINANCIAL FOR SMES
SUBJECT CODE: ADCSC702
DATE: 13 NOVEMBER 2023
DURATION: 3 HOURS
TIME: 14H00
TOTAL MARKS: 100
NUMBER OF PAGES: 6 (INCLUDING COVER PAGE)
EXAMINER: MR CM CHONCO
INTERNAL MODERATOR DR R RAMSARGHEY
MODERATOR: MR P LUTHULI
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QUESTION MARKS
1 41
2 38
3 21
TOTAL 100

1
QUESTION 1 [41]

Calculations

1. Finance Lease:
Present value of annual lease payments = R55 000 x4,23054 = R232 680 (lease liability)
Right-of-use asset = R232 680 + R3 500 = R236 180

Amortisation schedule:

Finance
Opening Balance Cost Capital repaid Instalment Closing Balance
2021 R232 680 R25 595 -R29 405 -R55 000 R203 274
2022 R203 274 R22 360 -R32 640 -R55 000 R170 635
2023 R170 635 R18 770 -R36 230 -R55 000 R134 404
2024 R134 404 R14 784 -R40 216 -R55 000 R94 189
2025 R94 189 R10 361 -R44 639 -R55 000 R49 550
2026 R49 550 R5 450 -R49 550 -R55 000 R0

Depreciation of the right-of-use asset: R236 180 /6 = R39 363

Carrying amount of the machine on 31 December 2022: R236 180 – R39 363 x2 = R157 454.

2. Operating lease
2022 2023 Total
Operating lease payments R60 000 R80 000 R140 000
Maintenance costs (R7 000) (R7 000) (R14 000)
Total R53 000 R73 000 R126 000

Operating lease expense per annum R63 000 R63 000 R126 000
(R126 000/2 = R63 000)
Accrued expense R10 000 (10 000) 0

3. Employee benefits
Total cost payable by the company for the financial year_ 2022 = R125 000X18 = R2 250 000
Leave accrual:
Number of employees on 31 December 2022 18
Less employees expected to resign (2)
Remaining employees 16
Employees expected to use leave carried forward 50%x16 8

Days unused per employee (15-10) 5

Total days to be used next year 5 x 8 40 days

Total cost per working day = R125 000 /260 = R480,769 per day
Leave accrual for 2022: R480,769 per day x 40 days R19 230,77

Total employee benefits for the year 2022 = R2 250 000 + R19 230,77 = R2 269 230,77

2
 4. Sale of inventory
01 November 2022
Revenue from sale $25 890 x R17,00/$ = R440 130
Debtor R440 130

31 December 2022
Translating foreign debtor to functional currency at closing rate: $25 890 x R17,80/$=

R460 842

Foreign exchange gain = R460 842 – R44 130 = R20 712

Cost of sales R195 000 (given)

1.1. Adjusted Profit before tax for the year ended 31 December 2022:
calc
Profit before adjustments R2 500 000 given
Sale of inventory R440 130 (3) 4.
Cost of Sales -R195 000 (2) 4.
Foreign exchange gain R20 712 (4) 4.
Finance costs -R22 360 (3) 1.
Depreciation -R39 363 (4) 1.
Operating lease -R63 000 (4) 2.
Maintenance costs -R7 000 (2) 2.
Employee benefits -R2 269 231 (4) 3.
Adjusted Profit before tax R361 888,23

1.2. Jompi (Pty) Ltd

Extract from the statement of financial position as at 31 December 2022
ASSETS R Calc
Non-current Assets xxxx
Right-of-use asset 157 454 (3) 1.

Current Assets xxxx

Foreign debtor 460 842 (3) 4.

TOTAL ASSETS XXXX

EQUITY AND LIABILITIES

Owner’s equity xxx

Liabilities
Non-current Liabilities
Lease liability 134 404 (3) 1.

Current Liabilities
Lease liability 36 230 (3) 1.
Accrued operating lease expense 10 000 (3) 2.

Leave accrual 19 231

TOTAL EQUITY AND LIABILITIES XXXX

3
QUESTION 2 [38]

Calculations

1. Plant

Carrying amount on 31 December 2020

R3 500 000- R3 500 000/7 = R3 000 000

Depreciation for 2021 (R500 000)

Carrying amount on 31 Dec 21 R2 500 000
Recoverable amount 1 242 000
Value in use R1 220 500
Fair value less cost to sell R1 242 000 (R1 350 000-R1 350 000x8%)
Impairment (R1 258 000)
Carrying amount R1 242 000

The machine is impaired as the recoverable amount is less than the carrying amount.

Depreciation for 2022 (R310 500) (R1 242 000/4)

Carrying amount R931 500

2. Deferred tax calculation

Asset Carrying Tax Base Temporary Deferred Income tax
Amount Differences Tax Movement
L/(A) Dr/ (Cr)
Plant_2021 R1 242 000 R700 000 R542 000 R151 760
Plant_2022 R931 500 0 R931 500 R260 820 R109 060

2.1. Toso (Pty) Ltd

Notes to annual financial statements for the year ended 31 December 2022. (Calc 1)
Plant
R
Carrying Amount_01 Jan 2021 300 000
Cost Price 3 500 000 (1)
Accumulated depreciation & impairment (500 000) (2)

Movements_2021 (1 758 000)

Depreciation (500 000) (2)
Impairment (1 258 000) (4)

Balance_31 Dec 2021 1 242 000

Cost Price 3 500 000 (1)
Accumulated depreciation & impairment (2 258 000) (2)

Movements_2022 (310 500)

Depreciation (310 500) (3)

4
 Balance_31 Dec 2021 931 500
Cost Price 3 500 000 (1)
Accumulated depreciation & impairment (2 568 500) (2)

2.2. Deferred tax (calc 2)

2022 Balance R260 820 (3)
2021 Balance R151 760 (3)

2.3. Current tax

Profit before tax R4 580 000
Non-deductible amounts
Fines R13 000 (1)
Penalties R6 800 (1)
Temporary differences -R389 500
Depreciation R310 500 (2)
Wear and Tear -R700 000 (2)

Taxable profit R4 210 300 (1)

Current tax@28% R1 178 884 (1)

Or

Profit before tax R4 580 000

Non-deductibles

Fines 13 000

Penalties 6 800

Taxable accounting profit R4 599 800

Income tax @28% R1 287 944

Deferred tax movement -R109 060

Current tax R1 178 884

2.4. The company qualifies as a medium size enterprise as it has more than 50 employees and
generated a revenue that is less than R170 million.
This is a private company with no public accountability. It can therefore use the IFRS for SMEs
as it meets the scoping requirements. (3)

2.5. This is a private company with public interest score that is below 350. It can therefore choose
to be audited or reviewed provided that the financial statements were not internally
prepared. (3)

5
QUESTION 3 [21]

3.1. Currently there is no specific full IFRS or IFRS for SMEs applicable to the cryptocurrency. This
transaction can be treated as inventory if the company holds it for sale in the ordinary course
of business which is applicable to SFAX (Pty) Ltd. (2)
The following journal entries would be used to record the transactions:
Dr Cr
01 June 2022
Inventory_ (F/P) R2 800 000
Bank_F/P R2 800 000 (2)
Initial recognition of cryptocurrency

31 December 2022
Write down of cryptocurrency _P/L R630 480
Inventory_ F/P R630 480 (2)
Write down of cryptocurrency.

Fair value less cost to sell = R2 308 000 – R2 308 000X8% = R2 169 520.
Impairment = R2 800 000 – R2 169 520 = R630 480.

3.2. This is a non-adjusting event as the competitor entered the market after year end. The impact of
this is going to be disclosed within the notes to financial statements by showing the following: (2)
Nature of the non-adjusting event: competitor introducing an alternative product, and this is
material to the users of financial statements. (1)
Financial impact: Inventory is going to be impaired or written down by (R200 – R290) x 10 000 =
R900 000 (2)

3.3. This is an adjusting event (1). This indicates that the debtor was already struggling at year end
and is therefore indicative of condition that existed at the reporting date (2). Bad debt should be
recognised in the statement of profit/ loss = R39 000 x25% = R9 750 (1). Debtors balance is going
to be reduced by R9 750(1).

3.4. Students must apply the deontology ethical philosophy (1). Must clearly and sufficiently show the
ability to deal with ethical dilemmas (4). Marks will be allocated based on how students respond
to ethical dilemmas, 2 marks each point.