FAC31AT RPL

STUDY PACK

Page 1 of 73
 QUESTION 1 30 Marks

The following information relating to Pine Limited and Apple Limited is presented
to you:
Pine Limited is a clothing manufacturer located in the Western Cape province. During
the current year, Pine Limited decided to enter into a lease transaction to acquire two new
sewing machines from Apple Limited. The two sewing machines have the total present
value of lease instalments amounting to R 661 250 (VAT inclusive). Below are the
details of the lease contract for the sewing machines:

Details of the lease agreement are as follows:

• Date of commencement is 1 October 2018.
• The lease term is 4 years.
• The interest rate implicit in the lease agreement is 12.5%.
• Four payments of R 195 558 are made annually in advance from 1 October 2018.
• Ownership of the sewing machines will be transferred to Pine Limited at the end of the
lease.
• Apple Limited financed the VAT.

ADDITIONAL INFORMATION:
• Depreciation on sewing machines is written off at 20% per annum on a straight-line
basis.
• South African Revenue Services allow wear and tear on similar machines at 25% (no
apportionment).
• VAT rate of 15% and income tax rate of 28% are applicable.
• Pine Limited will use the sewing machines for qualifying purposes in terms of the VAT
Act. Pine Limited and Apple Limited are registered VAT vendors.
• The profit before tax of Pine Limited for the current year 31 December 2018 after
taking the lease transactions into account is R 910 000.
• The profit before tax of Apple Limited for the current year 31 December 2018 after
taking the lease transactions into account is R 2 000 000.
• The financial year end of Pine Limited and Apple Limited is 31 December.

Page 2 of 73
YOU ARE REQUIRED TO:
1. Prepare the amortization table. (5.5 marks)
2. Calculate the current tax and deferred tax expense of Pine Limited for the year ending
31 December 2018. (6.5 marks)
3. Calculate the current tax and deferred tax expense of Apple Limited for the year ending
31 December 2018. (4.5 marks)
4. Prepare all the journal entries of Pine Limited for the year ending 31 December 2018.
(9.5 marks)
5. Calculate deferred tax balance of Pine Limited at 31 December 2018 using the
statement of financial position approach. (4 marks)
NB: COMPARATIVE FIGURES ARE NOT REQUIRED
ACCOUNTING POLICIES ARE NOT REQUIRED
SHOW ALL CALCULATIONS

Page 3 of 73
 QUESTION 2 30 Marks

The following information concerning Slow Limited is presented to you:

Slow Limited is a company that is involved in the sound and stage hire business. The
company has a 31 December year-end. The company is a registered VAT vendor. The
accountant asked you to assist him with the calculation for deferred taxation and current
tax for 2018 and 2017 and provided you with the following information:

EXTRACT FROM STATEMENT OF FINANCIAL POSITION

2018 2017
R R
Dr/(Cr) Dr/(Cr)
Credit losses - Provision for bad debts (25 000) (15 000)
Trade payables (90 000) (70 000)

EXTRACT FROM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

2018 2017
R R
Penalties – late payment of PAYE 10 000 5 000
Donations – non deductible 5 000 6 000
Credit losses – provision for bad debts 10 000 15 000
Provision for leave pay 15 000 0
Dividends received (10 000) (20 000)
Depreciation – all assets ? ?
Profit/ (loss) on sale of asset ? ?
Profit before tax (550 000) (540 000)

Buildings
• Buildings was purchased for R115 000 (Including VAT) and brought into use on
1 January 2017.
• The directors provide for depreciation using the straight line method over four
years and South African Revenue Service allows no wear and tear.
Computer equipment
• The computer equipment was bought on 30 April 2017 for R575 000 (including
VAT) and was ready for use as intended by management on 1 July 2017.
• The directors decided to depreciate this computer equipment over a period of 3
years using the straight-line method.

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 • South African Revenue Service allows wear and tear on this computer equipment
at 50% in the first year it was brought into use and then 30% for year 2 and 20%
for year 3 with no apportionment.
Vehicles
• The company bought a delivery vehicle on 1 January 2017 for R287 500
(including VAT) and brought it into use on the same date.
• The directors decided to depreciate this delivery vehicle over five years using the
straight-line method and South African Revenue Service allows wear and tear of
20% per annum with no apportionment.
• On 30 June 2018, the company sold this delivery vehicle for a cash amount of
R345 000 (including VAT). The base cost of the delivery vehicle is R270 000.
• On 1 July 2018, the company bought a new delivery truck for R431 250
(including VAT).
• The company decided to depreciate the truck over 5 years using the straight-line
method and the SARS agreed to write off wear and tear of 25% per annum with
no apportionment.
ADDITIONAL INFORMATION
• The SARS allows a 20% deduction for the provision of doubtful debts (allowance
for credit losses).
• Trade and other payables includes an amount of R15 000 relating to a provision
for leave pay. This amount is only allowed as a tax deduction once the cost is
actually paid.
• The tax rate applicable to each year is:
2017 – 30% and prior years
2018 – 28%
• Capital gains are taxed at an inclusion rate of 50% and VAT rate is at 15%.
• The balance of the deferred tax liability account on 1 January 2018 was a credit of
R46 400 due to taxable timing differences arising from property, plant and
equipment and provisions.
Profit before tax was calculated after all of the above transactions had been included.

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There were no other transactions relating to deferred taxation other than those provided
above.

YOU ARE REQUIRED TO:

1. Calculate current tax expense and deferred tax for Slow Limited for the year ended
31 December 2018. (16.5 Marks)
2. Prepare and disclose the income tax expense and tax reconciliation note to the
statement of profit or loss and other comprehensive income of Slow Limited for the year
ended 31 December 2018. (8 Marks)
3. Prepare and disclose the deferred tax note of Slow Limited at 31 December 2018 using
the statement of financial position approach. (5.5 Marks)

NB: COMPARATIVE FIGURES ARE REQUIRED

ACCOUNTING POLICIES ARE NOT REQUIRED
SHOW ALL CALCULATIONS

Page 6 of 73
 QUESTION 3 25 Marks

The following information relates to the property, plant and equipment of Pure
Limited:
Pure Limited a registered VAT vendor is a leading supplier and manufacturer of medical
equipment. The financial year end of the company is December.

1. Computer equipment

On 1 January 2017, Pure Limited bought ten identical computers at a cost of R250,000
in total. On 30 June 2018, two computers were sold to employees for R35 000 each. To
replace the sold computers, the company purchased three computers on 1 August 2018
and the cost breakdown of the three computers is as follows:

• Cost price R240 000

• Delivery cost R15 000
• Branding cost R5 000
• Administration cost R3 000
Computer equipment is depreciated at 25% per annum on the straight-line basis.

2. Machinery

The company acquired machinery on 1 January 2015 at a cost of R747 500 (including
VAT). On 1 January 2015, Pure Limited further paid R20 000 for delivery cost and R30
000 for installation of this machinery. This machinery was available for use on 1 January
2015 but was brought into use on 1 February 2015. The machinery is depreciated over
five years on the reducing balancing method.

3. Land and building

The land and building were purchased on 1 January 2013, the cost of land was R500 000
and R1 500 000 for the building. The land is situated at Erf 876, Industria, Benoni,
Gauteng Province. The revaluation was done on 1 January 2018 by Mr. J. D. Mthombeni
a sworn appraiser using the net replacement value method. The net replacement values
using the land price index were as follows at 1 January 2018:

Land R650 000

Page 7 of 73
Building R2 500 000
On 31 December 2018, informal settlers started occupying the area around location of
the building which led to a significant decline in the building value but the land value
remained unchanged. On 31 December 2018, the company decided to undertake an
impairment test to determine the recoverable amount of the building. The impairment
report results are as follows:

• Fair value was R850 000 and cost to sell amounted to R150 000.
• Value in use was R900 000.
The building is depreciated at 5% per annum on the straight-line basis. No wear and tear
is allowed on the land and buildings.

ADDITIONAL INFORMATION

• Pure Limited elected an elimination restatement method of adjusting the carrying

amount. method.
• The company will realise revaluation on disposal of the asset.
• The normal tax rate has remained unchanged for years at 30%
• VAT is at the rate of 15%.
• Capital gains are taxed at an inclusion rate of 50%
YOU ARE REQUIRED:

1. Prepare and disclose the property, plant and equipment note in the annual financial
statements of Pure Limited as at 31 December 2018 in accordance with International
Financial Reporting Standards and the Companies Act of 2008.
(19.5 Marks)
2. Prepare and disclose the revaluation surplus note on property, plant and equipment
in the annual financial statements of Pure Limited as at 31 December 2018.
(5.5 Marks)
NB: COMPARATIVE FIGURES ARE NOT REQUIRED
ACCOUNTING POLICIES ARE NOT REQUIRED
SHOW ALL CALCULATIONS
TOTAL COLUMN ON REQUIRED 1 NOT REQUIRED

Page 8 of 73
 QUESTION 4 15 Marks

The following information concerning Tea Limited is presented to you:

TEA LIMITED
EXTRACT FROM STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR 31 DECEMBER 2018
2018 2017
R R
Profit for the year ?? ??
Other comprehensive income for the year 0 0
Total comprehensive income for the year ?? ??
Basic earnings per share 0, 95 0, 90
Basic diluted earnings per share 0, 95 0, 90

TEA LIMITED
EXTRACT FROM STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR 31 DECEMBER 2018
Dividends per ordinary share 0, 12 0, 15

Weighted average number of shares:

Number of equity shares Actual 2018 2017
Balance 1 January 140 000 120 000 100 000
Rights issue – for value 31/6/2018 0 0 0
140 000 120 000 100 000
Rights issue – no value 31/6/2018 0 0 0
140 000 120 000 100 000
Capitalisation issue – no value 2 for 10 20 000 20 000 20 000
Balance 31 December 2018 160 000 140 000 120 000

ADDITIONAL INFORMATION
• Tea Limited was incorporated in 1 January 2015 and immediately issued 100 000
ordinary shares to its shareholders.
• On 1 January 2015, the company further issued 100 000 10% cumulative, non-
redeemable preference shares at R3 each share. No other preference shares were
issued after this issue.
• It has been established that the bookkeeper incorrectly calculated the actual and
weighted average number of shares. This has resulted in an incorrect calculation

Page 9 of 73
 of basic earnings per share, dividends per share and diluted basic earnings per
share. Basic earnings to ordinary shareholders were correctly calculated.
• The company declared ordinary dividends every year since incorporation.
• There was a rights issue on 30 June 2018, offering 2 ordinary shares for every
10 ordinary shares held on this date at an ordinary share issue price of R5 when
the market price was R10 per ordinary share. All shares were taken up.
• There was a capitalisation issue on 30 November 2017 of 2 ordinary shares for
every 10 ordinary shares held.
• There are 20 000 share options in existence, each of which allows the holder of 1
share option to acquire 4 ordinary shares at a strike price of R5 per share. The
average market price per ordinary share is R7. The share options have already
vested but not expired. These share options have been in issue for 4 years.
• There are no components of other comprehensive income.
• The normal tax rate for both years was 30%.

YOU ARE REQUIRED TO:

1. Prepare and disclose basic earnings per share, basic diluted earnings per share and
ordinary dividend per share in the relevant extracts from the financial statements of
Tea Limited for the years ended 31 December 2018 in accordance with
International Financial Reporting Standards. (15 Marks)
COMPARATIVES FIGURES ARE REQUIRED
SHOW ALL CALCULATIONS

Page 10 of 73
 QUESTION 1 30 Marks

The following information concerning Sour Limited is presented to you:

Sour Limited is a movie production company located in KwaZulu-Natal. It has entered

into a finance lease contract with Grape Production Limited for the use of a mobile food
truck for catering of actors. The present value of the truck is R 1 265 000 (VAT inclusive).

Details of the truck lease agreement are as follows: Contact 1

• Date of commencement is 1 January 2018.

• The interest rate implicit in the lease is 15% per annum.
• Five payments of R 328 147 are made annually in arrear from 1 January 2018.
• Ownership of the truck will not be transferred to Sour Limited at the end of the lease.
• Sour Limited financed the VAT.
• The lease term is 5 years.

Lease of computer equipment – Contract 2

Sour Limited leased a computer equipment considered as a low-value asset from Grape
Production Limited for 36 months on 1 August 2018. In terms of this lease, all substantial
risks and rewards of ownership relating to this computer equipment are assumed by
Grape Production Limited.

The payment terms of the instalments are as follows:

• R 1 380 (VAT inclusive) is payable in the first 6 months at the end of each month.
• R 2 300 (VAT inclusive) is payable in the subsequent 18 months each month at the
end of each month.
• R 3 680 (VAT inclusive) is payable in the last 12 months each month at the end of
each month.

Page 11 of 73
ADDITIONAL INFORMATION:

• Grape Production Limited and Sour Limited depreciate all its vehicles at 25% per
annum on a straight-line basis and computer equipment at 20% per annum also on a
straight-line basis.
• South African Revenue Services (SARS) allows wear and tear on similar trucks and
computer equipment at 33⅓% per annum (no apportionment).
• VAT rate of 15% and income tax rate of 28% are applicable.
• Sour Limited use both the truck and computer equipment for qualifying purposes as
per the VAT Act.
• Sour Limited and Grape Production Limited are registered VAT vendors.
• The current financial year of Sour Limited and Grape Production Limited is 31
December.

YOU ARE REQUIRED TO:

1. Prepare the amortization table – Contract 1. (5 marks)

2. Prepare all the journal entries of Grape Production Limited for the year ending
31 December 2018 (excluding current tax and deferred tax journal entries).
- Contract 1 and Contract 2 (8.5 marks)
3. Prepare all the journal entries of Sour Limited for the year ending 31 December 2018
(excluding current tax and deferred tax journal entries).
– Contract 1 and Contract 2 (10.5 marks)
4. Calculated the deferred tax balance of Grape Production Limited on 31 December 2018
using the statement of financial position approach. (3.5 marks)
5. Calculated the deferred tax balance of Sour Production Limited on 31 December 2018
using the statement of financial position approach. (2.5 marks)
NB: COMPARATIVE FIGURES ARE NOT REQUIRED
ACCOUNTING POLICIES ARE NOT REQUIRED
SHOW ALL CALCULATIONS

Page 12 of 73
 QUESTION 2 30 Marks

The following information concerning Box Limited is presented to you:

Box Limited is involved in the prospecting and selling of gemstones. The year-end of the
company is February. The accountant supplied you with the following information:
LIST OF BALANCES FROM STATEMENT OF FINANCIAL POSITION
2019 2018 2017
R R R
Dr/(Cr) Dr/(Cr) Dr/(Cr)
Provision for credit losses (9 000) (11 000) 0
Income received in advance (100 000) (50 000) (30 000)
Trade payables (60 000) (70 000) 0

LISTS OF INCOME AND EXPENSES FROM THE STATEMENT OF COMPREHENSIVE

INCOME
2019 2018
R R
Dr/(Cr) Dr/(Cr)
Dividends received (15 000) (20 000)
Interest received (5 000) (10 000)
Depreciation on office building 5 000 5 000
Donations – non-deductible 8 000 10 000
Penalties – late submission of VAT 0 4 000
Traffic fines – non-deductible 7 000 0
Provision for credit losses (2 000) 11 000
Research costs – capital nature 30 000 0
Depreciation – all assets ? ?
(Profit)/ loss on sale of assets ? ?

ASSET REGISTER FOR THE YEAR ENDED 28 FEBRUARY 2017:

Delivery vehicles Office building
R R
Dr/(Cr) Dr/(Cr)
Cost price 1 000 000 50 000
Date of purchase 1/09/2016 1/03/2017
Depreciation rate and method 10% - straight line 10% - straight line
Wear and tear – no apportionment 20% - straight line Not allowed

Page 13 of 73
ADDITIONAL INFORMATION:

1. A delivery vehicle with a cost price of R225 000 was sold for R275 000 on 30 April
2018. On 31 August 2018, a vehicle with a cost price of R25 000 was written off after
being involved in an accident. This motor vehicle was uninsured. The base cost of all
assets sold equals the cost price.
2. The company started providing for credit losses in 2018. The South African Revenue
Service allows an annual deduction of 25% on the allowance for credit losses.
3. On 1 March 2018, the company incurred research costs amounting to R30 000. The
South African Revenue Services allows research costs of a capital nature to be written
off over 4 years.
4. On 28 February 2017, the company had an assessed tax loss amounting to R350 000.
5. Accounting profit before tax was R650 000 for the year ended 28 February 2019 (2018:
R600 000)
6. The tax rate is 35% for the current year and 40% for the prior years.
7. Capital gains are taxed at an inclusion rate of 50%.
8. There were no other items causing temporary or other differences arising from the
information given.

YOU ARE REQUIRED

1. Calculate the taxable income, current tax, deferred tax and rate change for Box Limited
for the year ended 28 February 2019. (18 Marks)
2. Prepare and disclose the income tax expense and tax reconciliation note to the statement
of profit or loss and other comprehensive income of Box Limited for the year ended
28 February 2019. (8 Marks)
3. Calculate the deferred tax balance as at 28 February 2019 using the statement of
financial position approach. (4 Marks)

COMPARATIVE FIGURES ARE REQUIRED

ACCOUNTING POLICIES ARE NOT REQUIRED
SHOW ALL CALCULATIONS

Page 14 of 73
 QUESTION 3 25 Marks

The following information concerning Sand Limited is presented to you:

Sand Limited, is the leading supplier and manufacturer of medical equipment in South
Africa and is a registered VAT vendor. The company’s financial year end is 31 December.
The Asset Manager of Sand Limited extracted an Asset schedule from Mob Accounting
system at 1 January 2018 the details of the schedule were as follows:

Carrying
Asset Accumulated Residual amount @
description Purchase date Cost price deprecation value 1 Jan 2018
Land 1 January 2017 R500 000 Nil Nil R500 000
Building 1 January 2016 R1 500 000 (R150 000) Nil R1 350 000
Machinery 1 January 2017 R800 000 (R70 000) R100 000 R730 000
Computer 1 July 2017 R200 000 (R20 000) Nil R180 000
Delivery 30 October 2018 R517 500 ? Nil ?
vehicle (include VAT)

ADDITIONAL INFORMATION:

1. On 1 January 2018, the management of Sand Limited decided to revalue the land
and building. The land and buildings are situated at Erf 876, Industria, Boksburg,
Gauteng Province. Mr. John Nkosi a professional sworn valuator was hired to
perform the valuation on the elimination restatement method (net replacement
value) and the net replacement values are as follows:
• Land R550 000 (land price index)
• Building R1650 000
2. On 31 December 2018 the recoverable amount of the machinery was as follows:
• Fair value R480 000 and the selling cost is R30 000.
• Value in use was 590 000.
3. On 30 June 2018, a computer with a cost price of R25 000 was sold for R35 000.
On the same day a new computer that is compatible with the new software was
purchased at a cost price of R50 000 with no residual value.

Page 15 of 73
 4. On 30 October 2018, Sand Limited purchased a delivery vehicle for the use of
senior executives as a pool car. The ownership of the delivery vehicle remains
with the company and the order meter reading at 31 December 2018 was as
follows:
31 December 2018 25000 km’s

Total guarantee kilometres by the manufacture is 150 000.

5. Accounting policies as stated in the financial statements:

• Land is not depreciated and building is depreciated on straight line over 20 years.
South African Revenue Services allow wear and tear on building over 4 years on
a straight line basis (no apportionment).
• Machinery is depreciated on straight line over 10 years and computers are
depreciated on straight line over 5 years. No wear and tear is allowed for
machinery and computers.
• Delivery vehicle is depreciated on the actual usage method. No wear and tear is
allowed for delivery vehicle.
• Method used to adjust the carrying amount is elimination restatement method and
the management intends to use all its property, plant and equipment into the
foreseeable future.
• The capital gain inclusion rate is 50% and the normal tax rate is 30%.
• VAT is at 15%.

Page 16 of 73
YOU ARE REQUIRED:

1. Prepare and disclose the property, plant and equipment note in the annual financial
statements of Sand Limited as at 31 December 2018 in accordance with International
Financial Reporting Standards and the Companies Act of 2008. (15 Marks)

2. Prepare and disclose the revaluation surplus note on property, plant and equipment in the
annual financial statements of Sand Limited as at 31 December 2018. (6 Marks)

3. Prepare and disclose the deferred taxation note on property, plant and equipment in the
annual financial statements of Sand Limited as at 31 December 2018. (4 Marks)

NB:
COMPARATIVE FIGURES ARE NOT REQUIRED
ACCOUNTING POLICIES ARE NOT REQUIRED
SHOW ALL CALCULATIONS
TOTAL COLUMN ON REQUIRED 1 NOT REQUIRED

Page 17 of 73
QUESTION 4 15 Marks

The following information concerning Soft Limited is presented to you:

SOFT LIMITED
EXTRACTS FROM THE STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018
2018 2017
R R
Profit for the year before taxation 1 000 000 590 000
Taxation for the year (200 000) (90 000)
800 000 500 000
Other comprehensive income for the year 0 0
Total comprehensive income for the year 800 000 500 000

ADDITIONAL INFORMATION:
• On 30 June 2016, the closing balances of the following shares were:
o 600 000 Ordinary shares issued R1 000 000
o 100 000 10% cumulative convertible preference shares R100 000
• The dividends paid on the 10% cumulative convertible preference shares were
dealt with as normal dividend pay-outs in the Statement of changes in equity and
not as a finance charge expense.
• Due to a cash flow problem, Soft Limited did not provide for or paid out the
preference dividends for the 2017 financial year although it provided for and paid
out the ordinary dividends. Soft Limited paid out both the 2017 and 2018
financial years’ preference dividends in 2018.
• On 1 January 2017, the directors decided to issue 300 000 ordinary shares at
R2,50 per share.
• On 1 May 2018, the directors decided to make a capitalisation issue of ordinary
shares of 2 new ordinary shares for every 5 ordinary shares held.
• All the 10% cumulative convertible preference shares were convertible into
ordinary shares at the option of Soft Limited. The directors decided that the
preference shares were to be converted in the ratio of 4 new ordinary share for
every 5 cumulative convertible preference shares held, and as follows:
o Fifty percent on 30 June 2018

Page 18 of 73
 o Fifty percent on 30 June 2019

YOU ARE REQUIRED TO:

1. Prepare and disclose basic earnings per share and basic diluted earnings per share
in the relevant extracts from the financial statements of Soft Limited for the years
ended 30 June 2018 in accordance with International Financial Reporting Standards
and JSE listing requirements. (15 Marks)
COMPARATIVES FIGURES ARE REQUIRED
SHOW ALL CALCULATIONS

Page 19 of 73
QUESTION 1 30 Marks

REQUIRED 1

AMORTIZATION TABLE
Period Instalment Bal - beg Interest Bal-end
661 250) (½)
2018 (195 558) (½) 465 692 58 212(½) 523 904(½)
2019 (195 558) (½) 328 346 41 043(½) 369 389(½)
2010 (195 558) (½) 173 831 21 729(½) 195 560(½)
2011 (195 558) (½) 0 0 0

(5.5 marks)

REQUIRED 2

PINE LIMITED
CURRENT AND DEFERRED TAX EXPENSE:
Profit before tax R910 000
Temporary differences (R130 692)
Depreciation R28 750 (½p)
(R575 000)/5 (½)x 3/12(½))
Interest expense R14 553 (√)
(R58 212 x 3/12)
Lease payment (R173 995) (√)
[R195 558 – (R86 250(½) x 1/4)(½)]
Taxable profit R779 308
Current tax R218 206(√p)
Deferred tax R36 594(√p)
(6.5 marks)

REQUIRED 3

APPLE LIMITED
CURRENT AND DEFERRED TAX EXPENSE
Profit before tax R2 000 000
Temporary differences R15 692
Wear and Tear allowance (R165 313) (√)
(R661 250*25%)
Finance income (R14 553) (√p)
(R58 212*3/12) (½)
Lease instalment receipts R195 558 (√p)
Taxable profit R2 015 692
Current tax R564 394(½p)
Deferred tax (R4 394) (½p)
(4.5 marks)

Page 20 of 73
REQUIRED 4

PINE LIMITED
GENERAL JOURNAL FOR THE YEAR ENDING 31 DECEMBER 2018

Details Debit Credit

R R
Right-of-use asset 575 000(½)
VAT Input 86 250(√)
Lease liability 661 250(½)

Bank 86 250(√)
VAT Input 86 250(½)

Lease liability 195 558(½)

Bank 195 558(½)

Interest expense 14 553(√p)

Lease liability 14 553(√p)
(R58 212 x 3/12)

Depreciation 28 750(½p)
Accumulated depreciation 28 750(½p)
(575 000)/5 x 3/12)

Income tax expense 218 206(½p)

SARS 218 206(½p)

Income tax expense 36 594(½p)

Deferred tax liability 36 594(½p)

(9.5 marks)

REQUIRED 5

PINE LIMITED
DEFERRED TAX BALANCE ON 31 DECEMBER 2018
(Deferred tax
Carrying Temporary liability)/Deferred
Description value Tax base difference tax asset
Right-of-use 546 250(√) (546 250) (152 950) (½p)
asset
Lease liability (480 245) (√) -64 688 415 557 116 356(½p)
Deferred tax liability 36 594(√p)
(4 marks)

Page 21 of 73
 QUESTION 2 30 Marks

REQUIRED 1

Tax calculation
2018 2017
R R
Profit before taxation as stated 550 000(½) 540 000(½)

Permanent differences (5 000) 16 000

Dividends received (10 000) (½) (20 000) (½)

Penalties – late payment of PAYE 10 000(½) 5 000(½)
Donations- non deductible 5 000(½) 6 000(½)
Depreciation – buildings 25 000(½) 25 000(½)
Capital profit on sale (300 000-250 000) (50 000) √P 0
Taxable capital gains (300 000-270 000) x 50%) 15 000√P 0

Temporary differences (16 583) (154 667)

Depreciation 229 167(½) 133 333(½)

Wear and tear (293 750) (½) (300 000) (½)
Add: Provision – credit losses (closing) 25 000(½) 15 000(½)
Less: Provision – credit losses (opening) (15 000) (½) 0
Add: Provision – allowance (closing) (5 000) (½) (3 000) (½)
Less: Provision – allowance (opening) 3 000(½) 0
Add: Provision – leave pay (closing) 15 000(½) 0
Less: Provision – leave pay (opening) 0 0
Non capital profit on sale (75 000) (½) 0
Recoupment 100 000(½) 0
Taxable income 528 417 401 333
Tax rate 28% 30%
Current tax (528 417 x 28%) (401 333 x 30%) 147 957(½P) 120 400(½P)
Deferred tax (16 583 x 28%) (154 667 x 30%) 4 643(½P) 46 400(½P)
(15.5)

Page 22 of 73
DISCLOSURE:

REQUIRED 2

SLOW LIMITED
EXTRACT NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
2018 2017
R R
Income tax expense 149 507 166 800

Normal tax
Current tax expense 147 957(½P) 120 400(½P)

Deferred tax
Current year 4 643(½P) 46 400(½P)
Prior year deferred tax balance – Rate change (3 093)(½P) 0
(2.5)

Tax rate reconciliation

2018 2017
R R
Profit before tax 550 000 540 000
Applicable tax rate 28% 30%
Tax at standard rate 154 000 162 000
Dividends received (2 800) (½) (6 000) (½)
Penalties – late payment of PAYE 2 800(½) 1 500(½)
Donations 1 400(½) 1 800(½)
Depreciation - buildings 7 000(½) 7 500(½)
Capital profit (14 000) (½P) 0
Taxable capital gains 4 200(½P) 0
Prior year deferred tax balance – Rate change (3 093) (½P) 0
Tax expense 149 507 166 800
Effective tax rate(149 507/550 000) (166 800/540 000) 27% 31%
(5.5)

Principle marks
P* Principle mark awarded if amount is transferred correctly from calculation.
P** Principle mark awarded if amount is calculated correctly calculated as tax expenses divided by
profit before tax.
P^ Principle mark awarded if amounts calculated on taxable income / temporary differences, at
correct rates.

Page 23 of 73
REQUIRED 3

Deferred tax liability/ (asset)

The closing balance is constituted by the effects of:

Deferred tax closing

Carrying Temporary balance
Date amount Tax base difference 28%/30%
2017 R R R R
Property, plant and equipment 616 667(½) 450 000(½) 166 667 50 000 credit –
Liability(½)
Credit losses 15 000(½) 3 000(½) (12 000) 3 600 debit – Asset
Deferred tax balance 46 400 credit - Liability
31/12/2017
Rate change (2/30*46 400 3 093 debit – Asset(½)
liability)
Restated balance 1/01/2013 43 307 credit - Liability
2018
Property, plant and equipment 587 500(½) 381 250(½) 206 250 57 750 credit – Liability
Credit losses 25 000(½) 5 000(½) (20 000) 5 600 debit - Asset
Leave pay 15 000(½) 0 (15 000) 4 200 debit - Asset
Deferred tax balance 47 950 credit - Liability
31/12/2018
(5.5)

CALCULATIONS
Deferred tax
closing
Carrying Tax Temporary balance
Date Amount Base difference 28%/30% Movement
R R R R R
Cost price 01/01/2017 250 000 250 000
Purchase 500 000 500 000
Depreciation/ wear & tear (50 000) (50 000) 166 667 50 000 credit 50 000 debit
Depreciation/ wear & tear (83 333) (250 000)
Carrying amount 616 667 450 000 166 667 50 000 credit
31/12/2017
Rate change (2/30x50 000) 3 333 debit 3 333 credit
Depreciation/ wear & tear (25 000) (50 000) 64 583 18 083 credit 18 083 debit
Depreciation/ wear & tear (166 667) (150 000)
Depreciation/ wear & tear (37 500) (93 750)
Sale (175 000) (150 000) (25 000) 7 000 debit 7 000 credit
Purchase 375 000 375 000
Carrying amount 587 500 381 250 206 250 57 750 credit
31/12/2018

Page 24 of 73
Provision for bad debts and leave pay
Date Carrying Tax Temporary Deferred tax Movement
Amount Base difference closing
balance
28%/30%
R R R R R
Opening balance 01/01/2018 0 12 000 12 000 3 600 debit 0
Rate change (2/30x3 600) 240 credit 240 debit
Movement (15 000x28%)- 15 000 4 200 debit 4 200 credit
leave
Movement (8 000x28%)- bad 0 0 8 000 2 240 debit 2 240 credit
debts
Carrying amount 0 35 000 35 000 9 800 debit
31/12/2018

(c) CALCULATIONS
Profit/ Recoupment
Carrying Value Tax Value
R R
Cost 250 000 250 000
Depreciation/Wear and tear (50 000) (50 000) 2017
Depreciation/Wear and tear (25 000) (50 000) 2018
Carrying value/Tax value 175 000(½) 150 000(½)
Selling price 300 000 250 000 limited to cost
Profit / Recoupment 125 000 100 000

R R
Accounting profit 300 000-175 000 125 000
Capital profit 300 000 – 250 000 50 000
Non capital profit 250 000 – 175 000 75 000
Rate change= R240 debit - (R3 333) credit = (R3 093) credit
(1)

Page 25 of 73
 QUESTION 3 25 Marks

REQUIRED 1

PURE LIMITED
EXTRACT FROM NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018

PROPERTY, PLANT AND EQUIPMENT

Computer
Land Buildings Equipment Machinery
R R R R
Carrying amount at beginning of year 500 000 1 125 000 187 500 280 000
Gross carrying amount (at cost) 500 000 1 500 000(½) 250 000(½) 700 000
Accumulated depreciation 0 (375 000)√P (62 500) (½) (420 000) √P
Depreciation 0 (166 667) √P (82 813) ½P (140 000) ½P
Acquisitions 0 0 255 000√P 0
Disposals 0 0 (31 250) √P 0
Impairment loss 0 (58 333) √P 0 0
Revaluation 150 000√P 0 0 0
Carrying amount at end of year 650 000 900 000 328 437 140 000
Gross carrying amount (at valuation / cost) 650 000½P 1 500 000√P 455 000½P 700 000½P
Accumulated depreciation 0 (600 000)½P (126 563)½P (560 000)½P

The land is situated at Erf 876, Industria, Benoni, Gauteng Province. (½)

The property, plant and equipment were revalued by Mr J.D. Mthombeni, an

independent sworn appraiser, on 1 January 2018. (½)

If property, plant and equipment were carried at cost less accumulated depreciation, the
carrying amount would have amounted to R1 868 437. (½P)

Land and buildings are revalued on market value using the land price index. (½)
(15.5)

REQUIRED 2

Non distributable reserves

2018
R
Reserve on revaluation of property, plant and equipment.
Revaluation of property, plant and equipment during the year 150 000
Land 150 000 √P
Transfer to deferred taxation (22 500)
Land (150 000 x 50% x 30%) (22 500)√P
Balance at end of year 127 500
(2)

Page 26 of 73
CALCULATIONS

1. Land
Details Historical Revaluation Revaluation
cost amount surplus
R R R
Cost- 1/1/2013 500 000 650 000 150 000(½)

2. Computer equipment

Cost@1/1/2017 250 000

Depreciation 250 000*25% = 62 500 (62 500)
CA@1/1/2018 187 500
Depreciation- 250 000/10*2 = 50 000 (6 250)
Disposed 50 000*25%*6/12 = 6250
Depreciation – 250 000 -50 000 = 200 000 (50 000)
Old 200 000*25% = 50 000
Depreciation – 240 000 + 15 000 = 255 000 (26 563)
New 255 000*25%*5/12
Depreciation-2018 (82 813). W1
CA@31/12018 (250 000 + 255 000)- (62500 + 82 813 + 31 250) 328 437

Additions = 240 000 + 15 000 = 255 000(½)

Disposal = 250 000/10* 2 = 50 000 cost price – 12 500 – 6 250 = 31 250(½)
Depreciation = 6 250 + 50 000 + 26 563 = 82 813(½)
Carrying value = 250 000 + 255 000 – 50 000 = 455 000
Accumulated depreciation = 62 500 + 82 813 – 18 750 = 126 563(½)

3. Machinery

Cost@1/1/2015 747 500*100/115 = 650 000 +20 000+30 000. 700 000
Depreciation 700 000/5 = 140 000 (140 000)
CA@31/12/2015 560 000
Depreciation 560 000/4 = 140 000 (140 000)
CA@31/12/2016 420 000
Depreciation 420 000/3 =140 000 (140 000)
CA@31/12/2017 280 000
Depreciation 280 000/2 = 140 000 (140 000) (½)
CA@31/12/2018 140 000

Cost price = 650 000 + 20 000 + 30 000 = 700 000(½)

Page 27 of 73
4. Buildings

Building
Cost@1/1/2013 1 500 000
Depreciation 1500 000/20*5 years (375 000) (½)
CA@31/12/2017 1 125 000
Revaluation surplus 1 375 000(½)
CA@01/01/2018 2 500 000

Building
CA@1/1/2018 2 500 000
Depreciation 2 500 000/15 (166 667)
CA@31/12/2018 2 333 333
Recoverable amount
The higher of: 900 000
FV less cost sell 850 000 - 150 000 = 700 000(½)
Value in use 900 000(½)

Impairment loss 2 333 333 - 900 000 = 1 433 333(½)

Reverse: Revaluation (OCI) (1 375 000 – 91 667) (1 283 333) (½)
Impairment loss (P/L) 1 125 000 – 75 000 = 1 050 000 – 900 000 (150 000) (½)
CA@31/12/2018 900 000

Impairment loss = 150 000 – 91 667 = 58 333(½P)

(7.5)

Page 28 of 73
 QUESTION 4 15 Marks

(a) DISCLOSURE

TEA LIMITED
EXTRACT FROM STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR 31 DECEMBER 2018
2018 2017
R R
Profit for the year 163 000 138 000
Other comprehensive income for the year 0 0
Total comprehensive income for the year 163 000 138 000
Basic earnings per share 0, 97(½P) 0, 83(½P)
Basic diluted earnings per share 0, 83(½P) 0, 70(½P)
Principle marks
P*- Principle mark awarded if amount is transferred correctly from the calculations/workings.
TEA LIMITED
EXTRACT FROM STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR 31 DECEMBER 2018
Dividends per ordinary share 0, 13(½P) 0, 15(½P)
Adjusted dividends per ordinary share 0, 13 0, 14(½P)
Principle marks
P*- Principle mark awarded if amount is transferred correctly from the calculations/workings.
TEA LIMITED
EXTRACT FROM NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR 31 DECEMBER 2018

Earnings per share

Basic earnings per share

The calculation of basic earnings per share is based on earnings of R133 000 (2017:
R108 000) (½P) and on weighted average of 137 455 (2017: 130 909) shares (½P) after
the rights issue on 30 June 2018 and capitalisation issue on 30 November 2017. The
basic earnings per share for 2017 have been adjusted accordingly (½P)
Basic diluted earnings per share
The calculation of basic diluted earnings per share is based on earnings of R133 000
(2017: R108 000) (½P) and on weighted average of 160 312 (2017: 153 766) shares after
share options. (½P) The basic diluted earnings per share for 2017 have been adjusted
accordingly (½P).

Page 29 of 73
Reconciliation of basic earnings
2018 2017
R R
Profit for the year 163 000 138 000
Preference dividends (30 000)(1) (30 000)(1)
Basic earnings 133 000 108 000
(1) 100 000*R3*10% (½)

(b) CALCULATIONS
Number of equity shares Actual 2018 2017
Balance 1 January 100 000
Capitalisation issue – no value 2 for 10 0 0 20 000
120 000 120 000 120 000
Rights issue – for value 31/6/2018 12 000(1) 6 000(2) 0
132 000 126 000 120 000
Rights issue – for no value 31/6/2018 12 000(1) 11 455(3) 10 909(4)
Balance 31 December 2018 144 000 137 455 130 909
(1) 120 000/10held*2 shares = 24 000 shares
24 000*R5/R10 = 12 000 issue for value
24 000 – 12 000 = 12 000 issue no value(½)
(2) 12 000*6/12(½)
(3) 12 000/132 000*126 000(½)
(4) 12 000/132 000*120 000(½)

Number of dilutive shares Actual 2018 2017

Balance 31 December 2018 144 000 137 455 130 909
Share options 80 000(1) 22 857(2) 22 857(2)
224 000 160 312 153 766
(1) 20 000/1*4
(2) 80 000*R5/R7 = 57 143 shares for value(½)
80 000 – 57 143 = 22 857 shares for no value(½)

Page 30 of 73
Basic earnings per share
Basic earnings per share 2018 = 133 000/137 455 = 0, 97 (½)
Basic earnings per share 2017 = 108 000/130 909 = 0, 83 (½)

Basic diluted earnings per share

Basic earnings per share 2018 = 133 000/160 312 = 0, 83 (½)
Basic earnings per share 2017 = 108 000/153 766 = 0, 70 (½)

Dividend per ordinary share

Dividend per ordinary share 2018 = 19 200/144 000 = 0, 13 (½)
Dividend per ordinary share 2017 = 18 000/120 000 = 0, 15 (½)
Adjusted dividend per ordinary share 2017 = 18 000/130 909 = 0, 14

Basic earnings 2018 = 0, 95*140 000 shares = R133 000(½)

Basing earnings 2017 = 0, 90*120 000 shares = R108 000(½)

Ordinary dividends declared 2018 = 160 000 shares*0, 12 = R19 200(½)

Ordinary dividends declared 2017 = 120 000 shares*0, 15 = R18 000(½)
(15 Marks)

Page 31 of 73
Page 32 of 73
FAC31BT RPL
STUDY PACK

Page 33 of 73
 QUESTION 1 30 Marks

The following information concerning Sam Limited and Sipho Limited is presented
to you: On 1 April 2015, Sam Limited decided to expand its operations by acquiring an
80% interest in Sipho Limited for R1 200 000. On this date, the trial balance of Sipho
Limited reflected the following balances:

- Share capital R940 000

- Retained earnings R520 000
On 31 March 2019, the trial balance of each of the companies reflected the following
balances:

Sam Sipho
Limited Limited
R R
Assets
Investment in Sipho Limited 1 200 000 -
Property, plant and equipment 1 195 750 1 400 000
Deferred tax asset 13 000
Inventory 366 000 900 000
Accounts receivable 95 000 280 000
Bank and cash 42 000 65 000

Equity and liabilities

Share capital 1 000 000 940 000
Retained earnings on 1/4/2018 400 000 700 000
Revaluation reserve on 1/4/2018 30 000 -
Deferred tax liability 18 000 -
Accounts payable 78 000 90 000
Tax payable 53 000 215 000
Profit for the year 1 479 750 733 000
- Revenue 3 490 000 2 500 000
- Cost of sales (1 221 500) (1 000 000)
- Other income 500 000 -
- Other operating expenses (610 750) (450 000)
- Finance cost (44 000) (4 000)
- Taxation (634 000) (313 000)
Dividends paid (160 000) (20 000)

Page 34 of 73
ADDITIONAL INFORMATION
1. The accounting policies of the two companies are identical.
2. On 1 April 2015 the identifiable assets and liabilities of Sipho Limited were considered
to be fairly valued.
3. The directors of the parent have chosen to measure the non-controlling interest at the
acquisition date at its fair value of R292 000
4. Assume each share has only one voting right and the percentage of voting rights of
the parent is therefore in accordance with the percentage interest held by the parent
in the shares.
5. It is Sam Limited’s accounting policy to account for investments in subsidiaries at cost
in its separate financial statements.
6. On 1 October 2018 Sam Limited sold a machine, with a carrying amount of R50 000,
to Sipho Limited for R100 000. Both companies depreciated assets at 20% per
annum, on the straight line method.
7. Inter-group inventory sales by Sipho Limited to Sam Limited, at the agreed profit
margin of 15% on sales, amounted to R600 000 for the year ended 31 March 2019.
8. On 31 March 2019 the closing inventory of Sam Limited was R366 000 and on
31 March 2018 it was R250 000.
9. Sipho Limited rented offices from Sam Limited at a rate of R5 000 per month from
1 January 2019.
10. The tax rate is 30%.
11. Assume that there will be sufficient future taxable profits to recognise any resulting
deferred tax asset.

Page 35 of 73
YOU ARE REQUIRED TO:

1. Prepare the analysis of equity of Sipho Limited for the year ended 31 March 2019.
(8 Marks)
2. Prepare the Consolidated Statement of Comprehensive Income of Sam Group Limited
for the year ended 31 March 2019. (10 Marks)
3. Prepare the Consolidated Statement of Change in Equity of Sam Group Limited for the
year ended 31 March 2019. (4 Marks)
4. Prepare the Consolidated Statement of Financial Position of Sam Group Limited for
the year ended 31 March 2019. (8 Marks)

COMPARATIVES FIGURES ARE NOT REQUIRED

NO JOURNAL ENTRIES REQUIRED
SHOW ALL CALCULATIONS

Page 36 of 73
QUESTION 2 30 Marks

The following information concerning Gate Limited is presented to you:

GATE LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
R R
Turnover 3 000 000 3 500 000
Cost of sales (1 000 000) (1 000 000)
Gross profit 2 000 000 2 500 000
Other operating expenses (350 000) (400 000)
Total comprehensive income before tax 1 650 000 2 100 000
Income tax expense (495 000) (630 000)
Total comprehensive income before tax 1 155 000 1 470 000
Other comprehensive income 0 0
Total profit and comprehensive income 1 155 000 1 470 000

ADDITIONAL INFORMATION:
1. During the current year, the company change its accounting policy with regard to
inventory valuation from last in first out (LIFO) to weighted average to provide a
reasonable estimate of cost price.
Inventory Valuation Method 2019 2018 2017
R R R
Weighted Average – New 110 000 172 000 120 000
Last in First Out – Old 95 000 140 000 85 000

2. The board of directors decided to change the method of providing for depreciation
on machinery to the reducing balance method at 20% per annum for the beginning
of the 2019 financial year. No machinery has been sold nor purchased since 2016.
The date of purchase of the machinery is 1 July 2016. The company uses the
reallocated method for any adjustment to the carrying amount of an asset. The
original depreciation has been recorded in other expenses for both the 2019 and
2018 years.

Page 37 of 73
 Machinery R253 000 (Inclusive of VAT)
Residual value R20 000
Wear and tear 20% per annum
Useful life 10 years’ straight line
3. The South African Revenue Service has agreed to reopen the previous year’s tax
assessment and accepted the new method of inventory valuation from the 2017
financial year.
4. SA's Normal tax rate has remained at 30% for the past three years and VAT is at
15%.
5. Dividends declared 2019: R18 000 (2018: R20 000)
6. Opening retained earnings at 1 January 2020 is R1 950 000.
YOU ARE REQUIRED TO:

1. Prepare the statement of comprehensive income of Gate Limited for the year ended
31 December 2019. (7.5 Marks)
2. Prepare the statement of change in equity of Gate Limited at 31 December 2019.
(7 Marks)
3. Prepare the following accounting policy and disclosure notes to the financial statements
of Gate Limited for the year ended 31 December 2019.
Profit before taxation (3 Marks)
Change in accounting estimate (1.5 Marks)
Change in accounting policy (11 Marks)
SHOW ALL CALCULATIONS
COMPARATIVE FIGURES ARE REQUIRED

Page 38 of 73
 QUESTION 3 25 Marks

The following information concerning Jet Limited is presented to you:

Jet Limited started with the construction of a soccer stadium on 1 January 2010.

The details of the project are as follows:

Total estimated cost: R20 000 000
Expected date of completion: 31 December 2012

The following expenses were incurred during the year ended 31 December 2010:
1 January 2010 1 April 2010 1 July 2010 1 October 2010
to to to to
31 March 2010 30 June 2010 30 September 2010 31 December 2010
R1 600 000 R1 200 000 R1 400 000 R1 700 000

On 1 January 2010, Jet Limited obtained a bank overdraft to the value of R10 000 000 to
finance the construction of the soccer stadium. Interest on the bank overdraft is charged
at 10% per annum. The bank overdraft will be repaid in full in 2010.

Interest on bank overdraft is as follows:

1 January 2010 to 30 June 2010 R275 000
1 July 2010 to 31 December 2010 R290 000

Interest capitalisation is capitalised/ compounded quarterly. Interest received will be

deposited in the normal trading account of the company. The directors of Jet Limited have
decided to adopt a policy to capitalise interest on qualifying assets. The soccer stadium
is a qualifying asset.

Page 39 of 73
YOU ARE REQUIRED TO:

1. Calculate the amount of interest to be capitalised by Jet Limited for the year ended
31 December 2010. (8 Marks)
2. Prepare and disclose the following notes to the financial statements of Jet Limited for the
year ended 31 December 2010: (6 Marks)
• Finance charges.
• Property, plant and equipment
3. Prepare the journal entries of Jet Limited for the year ended 31 December 2010.
(6 Marks)
4. Calculate the amount of interest that Jet Limited would be able to be capitalised if they
did not get the R10 000 000 bank overdraft to finance the construction but made use of
specific loan. The specific loan interest rate is 14% per annum and excess funds from
the specific loan can be invested at 8% per annum. (5 Marks)
SHOW ALL CALCULATIONS

Page 40 of 73
 QUESTION 4 15 Marks

The following information concerning Bell Limited is presented to you:

Bell Limited is a South African company that sells imported tablets. On 1 January 2019,
Bell B Limited ordered 200 of the newest tablets at a total invoice price of $ 300,000 from
a United States of America company. The shipping documentation states that the risk
and rewards will pass to the buyer in terms of Cost, Insurance, and Freight (C.I.F) terms
and conditions.

On 15 January 2019, the tables were completely manufactured and packed for delivery.
The tablets were delivered over the ship’s rail at the port of shipment on 1 February 2019
in Chicago, United States of America. The tablets were offloaded on 15 February 2019 in
Durban, South Africa.

Interest is charged at 12% from the date when the risks and rewards of ownership pass
to the buyer. In terms of the credit agreement the interest accrued will be paid on
28 February 2020. The tablets will be sold at a 20% markup on the selling price.
On 31 December 2019, 150 tablets had been sold. During the year 2019, 10 tablets were
stolen and had to be written off.

The payment terms of the tablets bought on credit are as follows:

First payment: 31 July 2019 $100 000
Second payment: 01 February 2020 $100 000
Third payment: 28 February 2020 the balance of the credit provided.

Foreign exchange rates:

1 January 2019 R1 = $0.40 15 February 2019 R1 = $0.45
15 January 2019 R1 = $0.55 31 July 2019 R1 = $0.20
31 January 2019 R1 = $0.45 31 December 2019 R1 = $0.50
1 February 2019 R1 = $0.30 28 February 2020 R1 = $0.30

Page 41 of 73
It can be assumed that the foreign exchange rate changed at a constant rate.

YOU ARE REQUIRED TO:

1. Prepare the journal entries of Bell Limited for the year ended 31 December 2019 for the
above transactions. (15 Marks)

SHOW ALL CALCULATIONS

QUESTION 1 30 Marks
Calculations:

Analysis of the equity of Sipho Limited

Total Sam Limited Sam Limited Non

80% controlling
At Since Interest
20%
At acquisition R R R R
1/4/2015
Share Capital 940 000 752 000(½) 188 000
Retained Earnings 520 000 416 000(½) 104 000
Equity 1 460 000 1 168 000 292 000
Goodwill 32 000 32 000(½) -
1 492 000 1 200 000 292 000

Since acquisition to beginning

of reporting period
Retained Earnings 153 750 123 000 30 750(½)
(700 000-520 000-
37 500(½)+11 250(½))
322 750
Current Reporting Period
Profit for the year 720 820 576 656 144 164(½)
(733 000 +37 500(½)-11 250(½)-
54 900(½)+16 470(½))
Dividends paid (20 000) (16 000) (4 000) (½)

TOTAL 2 346 570 1 200 000 683 656 462 914

(6)
Inter-company profit in inventory to eliminate:

2019: R366 000 x 15/100 = R54 900(½)

2018: R250 000 x 15/100 = R37 500 (½)

Page 42 of 73
Tax amount

2019: R54 900 x 30% =R16 470(½)

2018: R37 500 x 30% =R11 250(½)
(2)

Sam Limited Group

Consolidated Statement of Comprehensive Income for the year 31 March 2019
R Calculations
R
Revenue 5 390 000 3 490 000 + 2 500 000 – 600 000(½)
Cost of sales (1 638 900) 1 221 500+ 1 000 000 – 600 000(½) +
54 900(½P*) - 37 500(½P*)
Gross profit 3 751 100
Other income 419 000 500 000 – 16 000(½P^) –
50 000(½P*) – 15 000(½)
Other operating expenses (1 040 750) 610 750 + 450 000 – 5 000(½P*) –
15 000(½)
Finance charges (48 000) (½) 44 000 + 4 000
Profit before tax 3 081 350
Taxation (928 280) 634 000 + 313 000 + 11 250(½P*) –
16 470(½P*) – 15 000(½P*) +
1 500(½P*)
Profit for the year 2 153 070
Other comprehensive income -
for the year
Total comprehensive income 2 153 070
for the year

Profit attributable to:

Owners of the parent 2 008 906(½P*)
Non-controlling interest 144 164(½P^)
2 153 070
Total comprehensive income
attributable to:
Owners of the parent 2 008 906(½P*)
Non- controlling interest 144 164(½P^)
2 153 070

(9)

Machine calculations:

R100 000 – R50 000 =R50 000 profit(½)

Tax: R50 000 X 30% = R15 000
Depreciation: R50 000 x 20% x 6/12 = R5 000(½)
Tax: R5 000 x 30% = R1 500 (1)

Page 43 of 73
Awarding principle marks in statement of comprehensive income:

P* - Principle mark can be awarded if the inter-company profit is transferred correctly from calculation
or student has correct answer.
P^ - Principle mark can be awarded if amount is carried forward correctly from the analysis

Sam Limited Group

Consolidated Statement of Change in Equity for the year 31 March 2019

Non
Share Retained Revaluation Controlling
Capital Earnings Reserve Interest
R R R R
Balance 1 April 2018 1 000 000 523 000 (1) 30 000 322 750

Total comprehensive 2 008 906 144 164

income for the year
- Profit for the year 2 008 906 144 164(½P*)
(½P*)
- Other comprehensive - -
income
Ordinary dividend declared (160 000)(½) (4 000P^) (½)
Balance 31 March 2019 1 000 000 2 371 906 30 000(½) 462 914
(½)

(1) 123 000(½P^) + R400 000(½) = R523 000

(4)

Awarding principle marks in statement of changes in equity:

P* - Principle mark can be awarded if amount is transferred correctly from statement of comprehensive
income.
P^ - Principle mark can be awarded if amount is carried forward correctly from the analysis.

Page 44 of 73
Sam Limited Group
Consolidated Statement of Financial Position on 31 March 2019

R Calculations
R
ASSETS

Non-current assets 2 582 750

Property, plant and equipment 2 550 750 1 195 750 + 1 400 000 - 50 000(½P*)
+ 5 000(½P*)
Goodwill 32 000(½)

Deferred tax 24 970 18 000 – 13 000(½P*) - 16 470(½P*) –

15 000(½P*) + 1 500 (½P*)

Current Assets 1 693 100

Inventory 1 211 100 366 000 + 900 000 – 54 900(½P*)

Accounts receivable 375 000(½) 95 000 + 280 000
Bank and cash 107 000(½) 42 000 + 65 000

Total assets 4 300 820

EQUITY AND LIABILITIES

Equity 3 401 906

Equity attributable to owners of

the parent

Share capital 1 000 000(½P^)

Retained earnings 2 371 906(½P^)
Revaluation reserve 30 000(½P^)

Non-controlling interest 462 914(½P^)

Liabilities

Non-current liabilities -

Deferred tax liability -

Current Liabilities 436 000

Accounts payable 168 000(½) 78 000 + 90 000

Page 45 of 73
 Tax payable 268 000(½) 53 000 + 215 000

Total liabilities 4 300 820

(8)

Awarding principle marks in statement of financial position:

P* - Principle mark can be awarded if amount is transferred correctly from the calculation.
P^ - Principle mark can be awarded if amount is transferred correctly from statement of changes in
equity.

Page 46 of 73
QUESTION 2 30 Marks

REQUIRED 1

GATE LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
R R
Turnover 3 000 000 3 500 000
Cost of sales (1 017 000) (1 003 000)
(1 000 000 + 17 000(½)) (1 000 000 + 3 000(½))
Gross profit 1 983 000 2 497 000
Other operating expenses (350 000 + 10 000(½)) (360 000) (½P) (400 000) (½)
Total comprehensive income before tax 1 623 000 2 097 000
Income tax expense (495 000 – 5 100(½) – 3 000(½)) (486 900) (629 100)
(630 000 – 900(½))
Total comprehensive income before tax 1 136 100 1 467 900
Other comprehensive income 0 0
Total profit and comprehensive income 1 136 100 1 467 900

REQUIRED 2

GATE LIMITED
STATEMENT OF CHANGE IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
2019 2018
R R
Balance 1 January 2019 835 400 (612 500)
Change in accounting policy 22 400√ 24 500√
Retained earnings/(loss) as previously stated 813 000√P 637 000) √P
Total comprehensive income 1 136 100(½P) 1 467 900(½P)
Dividends declared (18 000) (½) (20 000) (½)
Balance: 31 December 2019 1 953 500 835 400

Page 47 of 73
REQUIRED 3

GATE LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

a) Profit before tax

Profit before tax is stated after taking the following (income)/ expense into account:

Notes 2019 2018

R R
Depreciation 30 000(½) 20 000(½)
Original 20 000(½) 20 000(½)
Change in estimate 1 10 000(½) 0(½)

b) Change in accounting estimate

The depreciation method was change from 10% straight line to 20% reducing balance
method. (½P)
The increase/ (decrease) in profits caused by the change is as follows:
2019
R
Current year (10 000) (½P)
Future years 10 000(½P)

Page 48 of 73
c) Change in accounting policy

During the year, the company change its accounting policy with regard to inventory
valuation from last in first out method to weighted average method to provide a reasonable
estimate of cost price√P. The change in accounting policy was accounted for
retrospectively and comparatives amounts have been appropriately restated. √P

The effect of the change in accounting policy is as follows:

2019 2018
R R
Net effect on statement of comprehensive income items
Increase/ (decrease) in expenses
Cost of sales 17 000(½P) 3 000(½P)
Tax expense (5 100) (½) (900) (½)
(Increase)/decrease in profits/income 11 900 2 100
Net effect on the statement of financial position
Increase in assets
Inventory 15 000(½) 32 000(½)
(R172 000 - R140 000) - 2018
(R110 000 - R95 000) - 2019
(Increase)/decrease in liabilities and equity
Receiver of revenue - SARS (4 500) (½P) (9 600) (½P)
(R10 500 - R900) - 2018
(R10 500 - R900 - R5 100) - 2019
Retained earnings – closing balancing (10 500) (22 400)
Adjustment against retained earnings at beginning of 2018 (24 500)√P

CALCULATIONS

Calculation for change in accounting policy for inventory

2019 2018 2017
R R R
Weighted Average – New 110 000 172 000 120 000
Last in first out – Old 95 000 140 000 85 000
Closing inventory- Increase 15 000(½) 32 000(½) 35 000(½)

Cost of sales – (increase) /decrease (17 000) (½) (3 000) (½) 35 000(½)
Opening inventory – increase 32 000 35 000 0
Closing inventory – decrease 15 000 32 000 35 000

Gross profit – (decrease)/increase (17 000) (3 000) 35 000

Taxation – (decrease)/increase (5 100) (½) (900) (½) 10 500(½)
Net effect – profit – (decrease)/increase (11 900) (2 100) 24 500

Page 49 of 73
Change in accounting estimate

Delivery vehicle
WAS IS ADJUSTMENT
R R R
Cost (excluding VAT) 220 000
Accumulated Depreciation (50 000)
(R220 000 – R20 000)/10 years*2.5 years
Carrying value 31/12/2018 170 000 170 000
Residual value (20 000) (20 000)
Depreciable amount 1/1/2019 150 000 150 000
Depreciation – 7.5 years (20 000) (30 000) (10 000) (½)
(½) (½)
Carrying amount 31/12/2019 130 000 120 000
Future depreciation (110 000) (100 000) 10 000(½)
(½) (½)
Residual value – end of useful life – Carrying value 20 000 20 000 0

CALCULATION OF OPENING RETAINED EARNINGS - 2019

Opening retained earnings 2019 R
Closing retained earnings – 2019 1 950 000
Profit 2019 (1 155 000)
Dividends declared 2019 18 000
Opening retained earnings – 2019 813 000(½)
Dividends declared 2018 20 000
Profit 2018 (1 470 000)
Opening retained earnings – 2018 (637 000) (½)

Page 50 of 73
 QUESTION 3 25 Marks

REQUIRED 1
Calculation of borrowing costs to be capitalised – bank overdraft
Date Calculation R
1/01/2010 – 31/03/2010 (0 + R1 600 000)/2*10%*3/12(½) 20 000(½)
1/04/2010 – 30/06/2010 R1 620 000*10%*3/12(½) 40 500(½)
R1 200 000/2*10%*3/12(½) 15 000(½)
1/07/2010 – 30/09/2010 R2 875 500*10%*3/12(½) 71 888(½)
R1 400 000/2*10%*3/12(½) 17 500(½)
1/10/2010 – 31/12/2010
R4 364 888*10%*3/12(½) 109 122(½)
R1 700 000/2*10%*3/12√ 21 250√
Interest to be capitalised 295 260

OR

Date Calculation R
1/01/2010 – 31/03/2010 (0 + R1 600 000)/2*10%*3/12√ 20 000√

1/04/2010 – 30/06/2010 (R1 620 000 + R2 820 000)/2*10%*3/12√ 55 500√

1/07/2010 – 30/09/2010 (R2 875 500 + R4 275 500)/2*10%*3/12√ 89 388√

1/10/2010 – 31/12/2010 (R4 364 888 + R6 064 888)/2*10%*3/12√ 130 372√

Interest to be capitalised 295 260

REQUIRED 2

JET LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
Finance charges

Finance charges include the following items:

R
Total finance charges 565 000√
Borrowing costs capitalised (295 260) √P
269 740√P

Property, plant and equipment

R
Carrying amount at the beginning of the year 0
Gross carrying amount 0
Accumulated depreciation 0
Costs incurred (1) 5 900 000√
Borrowing costs capitalised 295 260√P
Carrying amount at the end of the year 6 195 260

Page 51 of 73
 Gross carrying amount at end of the year 6 195 260√P
Accumulated depreciation 0
(1) R1 600 000 + R1 200 000 + R1 400 000 + R1 700 0000

REQUIRED 3

JOURNAL ENTRIES OF JET LIMITED

R R
DEBIT CREDIT
31 December 2010
Plant 5 900 000√
Bank 5 900 000√
Construction expenses incurred
31 December 2010
Interest paid 565 000√
Bank 565 000√
Interest paid for the year
31 December 2010
Plant 295 260√P
Interest paid 295 260√P
Interest capitalized for the year

REQUIRED 4
Calculation of borrowing costs to be capitalised – specific loan
R R
Interest paid 1 400 000√
R10 000 0000*14%

Interest received (569 000)

(R10 000 000 + R8 400 000)/2*8%*3/12 184 000√
(R8 400 000 + R7 200 000)/2*8%*3/12 156 000√
(R7 200 000 + R5 800 000)/2*8%*3/12 130 000√
(R5 800 000 + R4 100 000)/2*8%*3/12 99 000√
Interest capitalised 831 000

Page 52 of 73
 QUESTION 4 15 Marks
LOAN/EXCHANGE DIFFERENCES
DETAILS AMOUNT FEC RATE CA DATE
Loan $300 000 $0.30 R1 000 000 01/02/2019
Interest accrued $18 000 $0.25 R72 000 31/07/2019
Payment ($100 000) $0.20(½) (R500 000) 31/07/2019
Balance $218 000 R572 000 31/07/2019
Restated figure $218 000 $0.20 R1 090 000 31/07/2019
FEC loss R518 000 31/07/2019
$218 000 R1 090 000
Interest accrued $10 900 $0.35 R31 143
Restated figure $228 900 R1 121 143

Balance $228 900 $0.50 R457 800 31/12/2019

FEC gain R663 343 31/12/2019
Interest $300 000 x 12% x 6/12 = $18 000(½)
1/2/2019 to 31/7/2019 $18 000 x ($0.3 + $0.2)/2 = R72 000
Interest $218 000 x 12% x 5/12 = $10 900(½)
31/7/2019 to 31/12/2019 $10 900 x ($0.2 + $0.5)/2 = R31 143

JOURNAL ENTRIES OF BELL LIMITED

DEBIT CREDIT
01/02/2019
Inventory 1 000 000√
Foreign creditor 1 000 000√
Recognition of inventory bought ($300 000/0.30)
31/07/2019
Foreign exchange loss 166 667(½)
Foreign creditor 333 333(½)
Bank 500 000(½)
Payment of 1st instalment to foreign creditor
31/07/2019
Interest paid 72 000(½P)
Foreign creditor 72 000(½P)
Provision for interest accrued for six months
31/12/2019
Foreign creditor ($200 000/0.3 - $200 000/0.5 266 667(½)
Foreign exchange gain 266 667(½)
FEC gain recognized
31/12/2019
Interest paid 31 143(½P)
Foreign creditor 31 143(½P)
Provision for interest accrued at year end
31/12/2019
Foreign creditor ($18 000 + $10 900)/0.5 – R72 000 - R31 143 45 343(½)
Foreign exchange gain
FEC gain recognized 45 343(½)
31/12/2019
Cost of sales (150/200*1 000 000) 750 000√
Inventory 750 000√
Cost of goods sold

Page 53 of 73
Bank (750 000 x 100/80) 937 500√
Revenue 937 500√
Revenue from sale of goods
31/12/2019
Inventory written off (10/200 * 1000 000) 50 000√
Inventory 50 000√
Inventory written off

Page 54 of 73
 QUESTION 1 30 Marks
The following information was extracted from the books of Mash Limited for the year ended
31 December 2023.

Mash Limited
Statement of profit or loss and other comprehensive income
For the year ended 31 December 2023
2023 2022
R R
Revenue 8 119 973 6 568 371
Cost of sales (6 235 460) (4 815 546)
Gross profit 1 884 513 1 752 825
Other income 60 312 7 630
Other operating costs (479 374) (380 419)
Finance charges (912 500) (866 000)
Profit before tax 552 951 494 036
Taxation (165 885) (148 210)
Profit for the year 387 065 345 825
Other comprehensive income for the year 0 0
Total comprehensive income for the year 387 065 345 825

The above statement of comprehensive income was prepared before taking into account the
changes below.

ADDITIONAL INFORMATION

During the year the directors decided to change its accounting policy to borrowing costs and
adopted the alternative capitalisation treatment to a plant as required by IAS 23 so as to give
reliable and more relevant estimate of financing cost.

A summary of interest expense is provided:

2023 2022 2021

R R R
Interest paid 912 500 866 000 188 000
Interest capitalised 437 994 478 000 116 000

South African Revenue Service allows a deduction for interest actually paid during the year.
Deferred tax is provided on a comprehensive basis.

On 31 December 2023, the directors came across an error in the 2022 annual financial
statements. The provision for credit losses at the end of 2022, of R13 000, was recorded as
R31 000 in operating costs.

On 1 January 2023, the total useful life of machine was reassessed to 4 years. The machine was
purchased on 1 January 2021 for R287 500 (including VAT). Depreciation is written off at 20%

Page 55 of 73
per year and SARS allows wear and tear at 25% per annum. No provision for depreciation has
been made in the current year.

The tax rate has remained at 30% since 2021 and VAT at 15%.

The opening balance for retained earnings on 1 January 2022 amounted to R390 000 (1 January
2023: R739 825).

Dividends declared 2023: R15 000 (2022: R10 000)

YOU ARE REQUIRED TO:

1. Prepare the statement of profit or loss and other comprehensive income of Mash Limited for
the year ended 31 December 2023, according to generally accepted accounting practice.
(10 Marks)
2. Prepare the statement of changes in equity of Mash Limited for the year ended 31 December
2023, according to generally accepted accounting practice. (8 Marks)
3. Prepare and disclose the following notes to the financial statement of Mash Limited for the
year ended 31 December 2023:
• Changes in accounting policy. (9 Marks)
• Prior year error. (3 Marks)

COMPARATIVE FIGURES ARE REQUIRED.

SHOW ALL CALCULATIONS.

Page 56 of 73
 QUESTION 2 25 Marks

Maxbuild Limited had a December year end. The following information has been extracted from
the financial statements at 31 December 2023:

Maxbuild Limited
Statement of Financial Position as at 31 December 2023
2023 2022
R R
ASSETS
Non-current assets
Property, plant and equipment 8 857 000 9 453 000
Deferred taxation 955 000 2 474 000
Current assets
Inventories 15 933 000 15 100 000
Trade accounts receivable 17 480 000 14 252 000
Cash and cash equivalents 11 902 000 9 762 000
TOTAL ASSETS 55 127 000 51 041 000

EQUITY AND LIABILITIES

Capital and reserves
Issued capital and reserves 39 357 000 35 789 000
Non-current liabilities
Liabilities – interest bearing 44 000 69 000
Current liabilities
Trade accounts payable 16 406 000 15 183 000
Shareholders for dividends 32 000 0
TOTAL EQUITY AND LIABILITIES 55 127 000 51 041 000

Maxbuild Limited
Statement of Comprehensive Income for the year ended 31 December 2023
2023
R

Revenue 104 561 000

Profit from operations 5 330 000

Investment income 758 000
Finance charges ( 57 000)
Profit before tax 6 031 000
Income tax expense (2 045 000)
Profit for the period 3 986 000

Page 57 of 73
Maxbuild Limited
Statement of changes in equity for the year ended 31 December 2023
Share Retained Total
capital earnings
R R R

Opening balance 29 312 000 6 477 000 35 789 000

Profit for the period 3 986 000 3 986 000
Dividends declared (418 000) (418 000)
Closing balance 29 312 000 10 045 000 39 357 000

ADDITIONAL INFORMATION:

1. Property, plant and equipment consisted of the following:

Carrying amount Carrying amount

31 December 2023 31 December 2022
R R

Buildings 32 000 279 000

Computer and office equipment 345 000 492 000
Vehicles 2 057 000 1 645 000
Plant and machinery 6 423 000 7 037 000
8 857 000 9 453 000

2. Depreciation included in operating profit:

o Computer and office equipment R185 000
o Buildings R247 000
o Vehicles R626 000
o Plant and machinery R941 000

3. Computer and office equipment with a carrying amount of R6 000 and vehicles
with a carrying amount of R2 000 were sold during the year.

4. Operating profit include profit on the disposal of assets amounting to R38 000.

5. New property plant and equipment were acquired to maintain operations.

6. Trade and other receivables include:

2023 2022

o Trade receivables R19 480 000 R17 127 000

o Provision for doubtful debt (R2 000 000) (R3 000 000)
o South African Revenue Services R0 R125 000

Page 58 of 73
 7. Trade and other payables include:
2023 2022

o Trade payables R8 991 000 R10 119 000

o Accruals R6 670 000 R5 064 000
o South African Revenue Services R33 000 R0

YOU ARE REQUIRED TO:

1. Prepare the cash-flow statement of Maxbuild Limited, using the direct method, for the year
ended 31 December 2023 so as to comply with Generally Accepted Accounting Practice
(Include the note to reconcile the profit before tax to the cash generated from
operations). (25 Marks)

SHOW ALL CALCULATIONS.

Page 59 of 73
 QUESTION 3 30 Marks
On 1 January 2021, the date on which Pun Limited acquired the 80% interest in Sun Limited, the
equity of Sun Limited consisted of:

Share capital R50 000

Mark-to-market reserve R1 500
Retained earnings R400 000
The following represents the abridged financial statements of Pun Limited and its subsidiary Sun
Limited.

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2023

Pun Limited Sun Limited

R R
ASSETS
Non-current assets 2 973 300 1 964 100
Property, plant and equipment 2 398 300 1 869 100
Investment in Sun Limited: - cost price 425 000 0
Financial assets 60 000 65 000
Loan receivable 90 000 30 000

Current assets 700 000 535 000

Trade receivables 400 000 325 000
Inventory 280 000 210 000
Bank – current account with Fin Bank 20 000 0

Total assets 3 673 300 2 499 100

EQUITY AND LIABILITIES

Equity 2 198 300 974 100
Share capital 500 000 50 000
Mark-to-market reserve 30 000 20 000
Retained earnings 1 668 300 904 100

Non-current liabilities 1 330 000 1 415 000

Long-term borrowings 1 330 000 1 415 000

Current liabilities 145 000 110 000

Trade and other payables 145 000 60 000
Bank overdraft – current account with Trod Bank 0 50 000

Total equity and liabilities 3 673 300 2 499 100

Page 60 of 73
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE
YEAR ENDED 31 DECEMBER 2023

Pun Limited Sun Limited

R R
Revenue 3 000 000 3 000 000
Cost of sales (1 400 000) (1 950 000)
Gross profit 1 600 000 1 050 000
Other income 35 000 2 000
Other expenses (341 500) (443 500)
Finance cost (3 000) (3 000)
Profit before tax 1 290 500 605 500
Income tax expense (212 800) (169 400)
PROFIT FOR THE YEAR 1 077 700 436 100
OTHER COMPREHENSIVE INCOME
Mark-to-market reserve (fair value adjustment on investment) 10 000 8 000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1 087 700 441 100

EXTRACT FROM THE

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023

Mark-to-market reserve Retained earnings

R R
Pun Sun Pun Sun
Limited Limited Limited Limited
Balance at 1 January 2023 20 000 12 000 610 600 508 000
Total comprehensive income for the year
- Profit for the year 1 077 700 436 100
- Other comprehensive income 10 000 8 000
- Dividends declared and paid (20 000) (40 000)
Balance at 31 December 2023 30 000 20 000 1 668 300 904 100

Page 61 of 73
ADDITIONAL INFORMATION:

• At the acquisition date the directors were of the opinion that the non-controlling interest’s
shares were worth R137 500, based on current share industry prices.
• Other income in Pun Limited consisted of dividend income from Sun Limited of R32 000
and finance income of R3 000 respectively.
• Assume that the identifiable assets acquired and the liabilities assumed at acquisition date
are shown at their acquisition date fair values, as determined in terms of IFRS3.
• It is the group’s policy to measure any non-controlling interest at its fair value.
• Pun Limited granted the loan to Sun Limited on 30 June 2023. This loan bears interest at
a market related interest rate of 10% per annum and is repayable on 30 June 2024.
• All financial assets are classified as available-for-sale financial assets. Such financial
assets are carried at fair value and all changes in fair value are recognized directly in
equity.
• Sun Limited sold inventory to Pun Limited. The amount of sales between the two
companies amounted to R400 000. Sun Limited maintained a constant gross profit
percentage of 35% on sales.
• Pun Limited has the following inventories on hand that were purchased from Sun Limited
31 December 2022 R30 000
31 December 2023 R40 000
• On 1 January 2022 Pun Limited purchased plant from Sun Limited at carrying amount plus
premium of R9 000. Sun Limited had purchased this plant on 1 January 2019 for R110
000. Pun Limited agreed with the remaining life of the plant. Depreciation on plant is at
the rate of 10% per annum on the reducing balance method with a residual value of R10
000. Depreciation is included as part of other expenses.
• Assume tax rate 30%

REQUIRED

1. Prepare the analysis of equity of Sun Limited for the year ended 31 December 2023
(15 Marks)
2. Prepare the Consolidated Statement of Comprehensive Income of Pun Group Limited for the
year ended 31 December 2023 (9 Marks)
3. Prepare the Consolidated Statement of Change in Equity of Pun Group Limited for the year
ended 31 December 2023 (6 Marks)

NO JOURNAL ENTRIES REQUIRED

SHOW ALL CALCULATIONS

Page 62 of 73
 QUESTION 4 15 Marks
Neptune Limited, a South African company, placed an order for 10 dough mixers with Poseidon
plc that is situated in America on 1 July 2022.

On 1 August 2022 Poseidon plc shipped the mixers to Neptune Ltd in South Africa D.D.P.
(Delivered Duty Paid). On 1 September 2022 the ship carrying the container with the industrial
mixers, docked in Port Elizabeth harbour. On 1 October 2022 the container cleared from customs.

Further costs were paid on 1 November 2022 to the equipment into operation. The breakdown of
the further costs was as follows:
• Installation costs of R150 000.
• Costs of training staff to use the new machinery, R70 000.
On 1 December 2022 the mixers were finally available for use and were first brought into use on
1 January 2023. The mixers have a useful life of 10 years. Depreciation is to be provided on the
straight-line method.

The financial agreements for payment of the machine were the following:

• Purchase price of the industrial mixers for Neptune Limited was $50 000 each.

• Interest is calculated from the date that Neptune Limited took the significant risks and rewards
associated with ownership over from Poseidon plc. The agreed interest rate is 12% p.a. The
interest is payable when the machine is paid for in full.

• Neptune Ltd paid the total outstanding amount to Poseidon plc on 30 June 2023.

The financial year-end of Neptune Ltd is 30 June.

The following foreign exchange rates are applicable:

1 July 2022 $1 = R9.00 1 August 2022 $1 = R9.50

1 September 2022 $1 = R10.00 1 October 2022 $1 = R10.50
1 November 2022 $1 = R11.00 1 December 2022 $1 = R11.50
1 January 2023 $1 = R12.00 30 June 2023 $1 = R14.50

It can be assumed that the foreign exchange rate changed at a constant rate.

REQUIRED

Page 63 of 73
 1. Prepare all the relevant journal entries of Neptune Limited regarding the above
transactions for the financial year ended 30 June 2023. (15 Marks)

QUESTION 1 30 Marks

REQUIRED 1

Calculations:

CHANGE IN ACCOUNTING POLICY

2023 2022 2011
R R R
Finance charges expense 912 500 866 000 188 000
Finance charges expense after capitalised (balancing figure) 474 506 388 000 72 000
Finance charges capitalised/ Decrease in finance charges 437 994(½) 478 000(½) 116 000(½)
Increase in taxation 131 398(½) 143 400(½) 34 800(½)
Increase in profit 306 596 334 600 81 200

CHANGE IN ESTIMATE

Current depreciation R250 000 x 20% = R50 000

New depreciation R150 000/2 years= R75 000√

(4)

MASH LIMITED

STATEMENT OFPROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE
YEAR ENDED 31 DECEMBER 2023

2023 2022
R R
Revenue 8 119 973 6 568 371
Cost of sales (6 235 460) (4 815 546)
Gross profit 1 884 513 1 752 825
Other income 60 312 7 630
Other operating costs (404 374) (362 419)
2022 (R380 419 - R18 000) √
2023 (R479 374 - R75 000) √
Finance charges (474 506)√P (388 000)√P
Profit before tax 1 065 945 1 010 036
Taxation (319 783)√P (303 011)√P
Profit for the year 746 162 707 025
Other comprehensive income for the year 0 0
Total comprehensive income for the year 746 162 707 025

Page 64 of 73
 (6)

REQUIRED 2

MASH LIMITED

STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2023

RETAINED
EARNINGS
R
Balance on 1 January 2022 471 200√
Change in accounting policy 81 200√P
Retained earnings as previously stated 390 000√
Profit for the year 707 025(½)P
Dividends paid (10 000)(½)
Balance on 1 January 2023 1 168 225
Retained earnings as previously stated 739 825√
Change in accounting policy 415 800√P
Correction of error 12 600√P
Profit for the year 746 162(½)P
Dividends paid (15 000) (½)
Balance 31 December 2023 1 899 387
(8)

REQUIRED 3

Change in accounting policy

During the year the company changed its accounting policy from expensing borrowing costs to
capitalizing borrowing costs to qualifying assets. √P This gives reliable and more relevant financial
information. The change is accounted for retrospectively and comparative amounts are restated.
√P

The effect of the change is as follows:

2023 2022
R R
Effect on statement of comprehensive income

Increase/ (decrease) in expenses

Finance cost (437 994)½ (478 000) ½
Tax expense 131 398½ 143 400½
(Increase)/decrease in profits (306 596) (334 600)

Page 65 of 73
Effect on statement of financial position

Increase/ (decrease) in assets

Plant 1 031 994√P 594 000√P
2022 (116 000+478 000)
2023 (594 000+437 994)

Increase/ (decrease) in liabilities and equity

Deferred tax
2022 (34 800+143 400) 309 598√ 178 200√
2023 (178 200+ 131 398)
Retained earnings closing balance 722 396 415 800

Adjustment to retained earnings at beginning of year R81 200√P

(9)

Correction of error

The provision for salaries were recorded at the wrong amount and included in operating costs.
The comparative amounts have been appropriately restated. The effect of the correction on the
2023 results is as follows √P

2022
R
Effect on statement of comprehensive income
Decrease in expenses 18 000
Increase in tax (5 400) ½
Increase in profits 12 600½

Effect on statement of financial position

Decrease in current liabilities expenses 18 000

Increase in tax (5 400) ½
Increase in profits 12 600½
(3)

Page 66 of 73
 QUESTION 2 25 Marks

Maxbuild Limited

Cash flow statement for the year ended 31 December 2023

Cash flow from operating activities 3 530 000

Cash received from customers (1P) 102 208 000
Cash paid to suppliers and employees (1P) (98 625 000)
Net cash obtained from operations 3 583 000
Investment income (1/2) 758 000
Finance cost (1/2) (57 000)
Dividends paid (418 000 – 32 000) (1) (386 000)
Taxation paid (1P) (368 000

Cash flow from investing activities (1 365 000)

Investments to maintain operating capacity (1 365 000)
Replacement of computer and office equipment (1/2P) (44 000)
Replacement of vehicles (1/2P) (1 040 000)
Replacement of plant and machinery (1/2P) (327 000)
Proceeds on disposal of property, plant and equipment (1/2P) 46 000

Cash flows from financing activities (25 000)

Interest bearing borrowings repaid (1) (25 000)

Net decrease in cash for year 2 140 000

Cash and cash equivalents at beginning of year 9 762 000
Cash and cash equivalents at end of year 11 902 000

CALCULATIONS

Cash received from customers

Revenue 104 561 000
Increase in debtors (1) (2 353 000)
102 208 000

Cash paid to suppliers and employees

Cost of sales and other expenses (R104 561 000 – R5 330 000) (1) 99 231 000
Add non-cash items and separately items disclosed separately
- Depreciation (1/2) (1 999 000)
- Profit on disposal of property, plant and equipment (1/2) 38 000
- Provision for doubtful debts (1) 1 000 000
Increase in accruals (1) (1 606 000)
Increase in inventory (1) 833 000
Decrease in creditors (1) 1 128 000
98 625 000

Page 67 of 73
 R

Taxation
Opening balance deferred tax (1/2) (2 474 000)
Closing balance deferred tax (1/2) 955 000
Movement in deferred tax (1 519 000)
Taxation from income statement (1) 2 045 000
Current tax 526 000
SARS opening balance (1/2) (125 000)
SARS closing balance (1/2) (33 000)
368 000

Property, plant and equipment

Buildings:
Opening balance 279 000
Depreciation (247 000)
Closing balance (32 000)
Buildings acquired 0

Computer and office equipment:

Opening balance 492 000
Depreciation (185 000)
Disposal (6 000)
Closing balance (345 000)
Computer and office equipment acquired (1) 44 000

Vehicles:
Opening balance 1 645 000
Depreciation (626 000)
Disposal (2 000)
Closing balance (2 057 000)
Vehicle acquired (1) 1 040 000

Plant and machinery:

Opening balance 7 037 000
Depreciation l (941 000)
Closing balance (6 423 000)
Plant and machinery acquired (1) 327 000

NOTE TO THE CASH FLOW STATEMENT:

Reconciliation of profit before taxation with cash generated from operations

Profit before taxation 6 031 000

Add: Non-cash items:
- Depreciation (1/2) 1 999 000
- Investment income (1/2) (758 000)
- Finance cost (1/2) 57 000
- Profit on disposal of assets (38 000)

Page 68 of 73
 - Provision for doubtful debts (1/2) (1 000 000)
Changes in working capital:
- Decrease in inventory (1/2) (833 000)
- Increase in creditors (1/2) (1 128 000)
- Increase in accruals (1/2) 1 606 000
- Increase in debtors (1/2) (2 353 000)
Net cash from operations 3 583 000

QUESTION 3 30 Marks
CALCULATIONS

Interest paid = R60 000x10%x6/12= R3 000

Inter- company loan = R3 000/0.5 (6 months)/0.10= R60 000

PLANT

Sun Pun Unrealised Deferred

Limited Limited Profit Taxation
Group R R
R R
Cost 1/1/2007 110 000
Accumulated Depreciation
(110 000-10 000)/10 (10 000)
(100 000-10 000)/10 (9 000)
(91 000-10 000)/10 (8 100)
Carrying value 31/12/2021 82 900 91 900 9 000 2 700
Residual value (10 000) (10 000) 0 0
Depreciable amount – 10% 72 900 81 900 9 000 2 700
Depreciation – 2022 (7 290) (8 190) (900) (270)
Carrying value 31/12/2022 75 610 83 710 8 100 2 430
Depreciation – 2023 (6 561) (7 371) (810) (243)
Carrying value 31/12/2023 69 049 76 339 7 290 2 187

INVENTORY

2022 - Closing inventory R30 000

Selling price R30 000 R19 500/0.65
Cost R19 500 R30 000x0.65
Mark up R10 500 R30 000x0.35

Mark up adjustment R10 500 R30 000-R19 500

2023 – Closing inventory R40 000

Selling price R40 000 R26 000/0.65
Cost R26 000 R40 000x0.65
Mark up R14 000 R40 000x0.35

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Mark up adjustment R14 000 R40 000-R26 000

ANALYSIS OF EQUITY – SUN LIMITED

80% 80% Pun Limited 20%

Since
Total Pun Retained Market to Non
Limited Earnings market Controlling
Reserve Interest
At acquisition R R R R R
01/01/2021
Share Capital 50 000 40 000(½) 10 000(½)
Retained Earnings 400 000 320 000(½) 80 000(½)
Market to market reserve 1 500 1 200(½) 300(½)
Equity (net assets) 451 500 361 200 90 300
Goodwill 111 000 63 800(½) 47 200(½)
Consideration plus non- 562 500 425 000 137 500
controlling interest
Since Acquisition
To beginning of reporting period
Retained Earnings 94 980 75 984(½P) 18 996(½P)
(508 000-400 000(½)-
8 100(½)+2 430(½)-10 500(½)+3 150(½))
Market to market reserve 10 500 8 400(½) 2 100(½)
(12 000-1 500(½))
75 984 8 400 158 596
Current Reporting Period
Current year profit 431 217 344 974(½P) 86 243(½P)
(436 100+810(½)-243(½)+10 500(½)-
3 150(½)-14 000(½)+4 200(½))
Mark to market reserve 8 000 6 400(½) 1 600(½)
Dividends declared (40 000) (32 000) (½) (8 000) (½)
Year end balances 1 067 197 425 000 388 958 14 800 238 439
(15)

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 PUN LIMITED GROUP
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023

R
Revenue (3 000 000 + 3 000 000-400 000(½)) 5 600 000
Cost of sales (1 400 000 + 1 950 000-400 000(½)-10 500(½)+14 000(½)) (2 953 500)
Gross profit 2 646 500
Other income (35 000+2 000-32 000(½)-3 000(½)) 2 000
Other expenses (341 500+ 443 500-810(½)) (784 190)
Finance cost (3 000+3 000(½)-3 000(½)) (3 000)
Profit before tax 1 861 310
Income tax expense (212 800 + 169 400+3 150(½)-4 200(½)+243(½)) (381 393)
PROFIT FOR THE YEAR 1 479 917
OTHER COMPREHENSIVE INCOME
Mark-to-market reserve - fair value adjustment on investment (10 000(½) + 8 000(½)) 18 000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1 497 917

PROFIT ATTRIBUTABLE TO:

Owners of the parent 1 393 674(½P)
Non-controlling interest 86 243(½P)
1 479 917

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Owners of the parent 1 410 074(½P)
Non-controlling interest (86 243+1 600) 87 843(½P)
1 497 917

(9)

PUN LIMITED GROUP

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023
Mark-to- Non-
Share Retained market controlling
capital earnings reserve interest Total
R R R R R
Balance at 1 January 2023 500 000 686 584 (3) 28 400 (2) 158 596 (1) 1 373 580
Total comprehensive income for the year 0 1 373 674 16 400 79 843 1 469 917
- Profit for the year 1 393 674 86 243(½) 1 479 917
(½P)c
- Other comprehensive income 16 400 (4) 1 600(½) 18 000
Dividends declared (20 000) (½) (8 000) (½) (28 000)
Balance at 31 December 2023 500 000 2 060 258 44 800 238 439 2 843 497
(1) 137 500+18 996+2 100(½P)
(2) 20 000(½P) + 8 400(½P)
(3) 610 600(½) +75 984(½P)
(4) 10 000(½) + 6 400(½P)

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 (6)

NOT REQUIRED - COMPLETENESS

PUN LIMITED GROUP

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023

R
ASSETS
Non-current assets 4 502 497
Property, plant and equipment (2 398 300 + 1 869 100-7 290) 4 260 110
Financial assets (60 000 + 65 000) 125 000
Deferred taxation (4 200+2 430-243) 6 387
Goodwill 111 000

Current assets 1 281 000

Trade receivables (400 000 + 325 000) 725 000
Inventory (280 000 + 210 000-10 500+10 500-14 000) 476 000
Loan receivable (90 000+30 000-60 000) 60 000
Bank – current account with Fin Bank 20 000

TOTAL ASSETS 5 783 497

EQUITY AND LIABILITIES

Equity – Owners of the parent 2 605 058
Share capital 500 000
Mark-to-market reserve 44 800
Retained earnings 2 060 258

Non-controlling interest 238 439

Non-current liabilities 2 685 000

Long term borrowings (1 330 000 + 1 415 000-60 000) 2 685 000

Current liabilities 255 000

Trade and other payables (145 000 + 60 000) 205 000
Bank overdraft – current account with Trod Bank 50 000

TOTAL EQUITY AND LIABILITIES 5 783 497

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 QUESTION 4 15 Marks

GENERAL JOURNALS OF NEPTUNE LTD

Date Details DR CR
1/10/2022 Equipment ($500 000 x 10.50) 5 250 000√
Creditor: Hades plc 5 250 000√

1/11/2022 Equipment: cost 150 000√

Bank 150 000√
(Installation R150 000 )

1/11/2022 Training expenses (p/l) 70 000√

Bank 70 000√
(Not part of asset costs)

30/6/2023 Interest 562 500½P

Creditor: Hades plc 562 500½P
($500 000 x 12%)*9/12 = $45 000 x 12.50) √
(10.50 + 14.50)/2 = 12.50√

30/6/2023 Exchange rate loss 2 090 000√

Creditor: Hades plc 2 090 000√
Creditor: $500 000 + $45 000 = $545 000x R14.50
= R7 902 500
Account: R5 812 500

30/6/2023 Creditor 7 902 500½P

Bank 7 902 500½P
Creditor: $500 000
Interest $45 000
Creditor’s balance: $545 000√
$545 000 x 14.50 = R7 902 500

30/06/2023 Depreciation: Equipment 315 000½P

Acc. Depreciation: Equipment 315 000½P
(5 250 000 + 150 000)/10years *7/12√
(15)

√ = 1 mark

^ = ½ mark

P = principle mark

Total: 15½ - max. 15

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