FAC1601 May/Jun 2013 exam paper — questions

Every question, by topic

1. Question 1 · Partnership financial statements · 20 marks

   Williston Traders is a partnership between Bussie and Bettie, and the information below relates to its business activities for the year ended 28 February 2013. The trial balance as at 28 February 2013 reflects: Capital: Bussie R200 000; Capital: Bettie R100 000; Current account: Bussie (credit, 1 March 2012) R30 000; Current account: Bettie (debit, 1 March 2012) R5 000; Drawings: Bussie R4 800; Drawings: Bettie R3 200; Creditors control R56 300; Bank (debit) R36 617; Land and buildings at cost R253 000; Equipment at cost R94 000; Vehicle at cost R98 000; Accumulated depreciation: Equipment (1 March 2012) R29 400; Accumulated depreciation: Vehicles (1 March 2012) R12 250; Inventory (1 March 2012) R15 500; Debtors control R20 500; Petty cash R1 500; Investment at cost R100 000; Loan to Bussie R99 000; Loan from Bettie R98 000; Asset replacement reserve R30 000; Sales R649 000; Purchases R320 000; Salaries R132 000; Interest on loan to Bussie R9 075; Water and electricity R4 700; Settlement discount granted R3 800; Stationery R5 000; Telephone expense R6 208; Insurance R8 000; and Freight on sales R3 200. The partnership agreement provides that Bussie and Bettie share profits and losses in the ratio 2:1 respectively, that interest is calculated at 10% per annum on the opening balances of the partners' capital and current accounts, and that both partners are entitled to a monthly salary of R5 000 each. Additional information: Bussie and Bettie are the only staff members of Williston Traders; on 28 February 2013 inventory on hand amounted to R10 000; on 31 May 2012 equipment with a cost price of R24 000 and accumulated depreciation of R14 000 (as at 1 March 2012) was sold on credit for R12 000, and the transactions relating to this sale still need to be recorded; depreciation still has to be provided for on vehicles at 25% per annum on the straight-line method and on equipment at 10% per annum on the diminishing-balance method; Bettie granted an unsecured loan to the partnership on 1 January 2013, on which interest at 15% per annum is charged and capitalised to the loan, with the total amount plus interest repayable on 31 December 2025; the partnership granted Bussie a loan on 1 January 2010, repayable on 31 December 2020, with interest charged at 11% per annum payable annually on 31 December, and Bussie paid the interest due on 31 December 2012, which was recorded in the partnership's accounting records; and the investment consists of 25 000 ordinary shares in Klipbak Ltd, purchased on 10 June 2012, with the fair value of these shares on 28 February 2013 determined at R88 000. Prepare the statement of profit or loss and other comprehensive income of Williston Traders for the year ended 28 February 2013, ensuring that your answer complies with the requirements of International Financial Reporting Standards as applicable to the partnership's business. Notes and comparative figures are not required, but all calculations must be shown.Show the full questionShow less

2. Question 2.1 · Close corporations · 15 marks

   Ofentse and Nasa are the members of Contacts Factory CC. The information below relates to the business activities of the close corporation for the year ended 30 June 2012. The pre-adjustment trial balance extract at 30 June 2012 shows: member's contribution – Ofentse R122 000; member's contribution – Nasa R122 000; land and buildings at cost R100 000; equipment at cost R89 000; vehicles at cost R108 000; accumulated depreciation on equipment R24 119; accumulated depreciation on vehicles R7 200; long-term loan R50 000; inventory R38 520; debtors control R35 800; creditors control R20 054; bank (debit) R12 700; retained loss as at 1 July 2011 of R28 760; profit before tax R92 807; SARS (income tax) debit balance R10 400; and an interim profit distribution of R15 000. Additional information: (i) the long-term loan was obtained from SA Bank on 2 July 2011, with interest payable bi-annually on 31 December and 30 June at 18% per annum (already provided for); the capital portion is repayable in annual instalments of R8 000 each plus a final instalment of R10 000, the first instalment falling due on 31 December 2012; (ii) during the year the close corporation advanced an interest-free loan of R38 000 to Nasa, which was incorrectly debited to the administrative expense account – the loan is fully repayable on 31 December 2012; (iii) a second-hand delivery vehicle costing R108 000 was purchased on 2 March 2012, and no other non-current assets were bought or sold during the year; (iv) depreciation for the year has already been provided as R7 209 on equipment and R7 200 on vehicles; (v) on 2 January 2012 the close corporation entered into an insurance contract with Multi Insurers under which the annual premium of R6 000 is payable in advance – the R6 000 premium was paid but this transaction has not yet been recorded; (vi) on 30 June 2012 the close corporation purchased 37 000 shares in Magriza Ltd at R5 per share (the market value on that date) for speculative purposes; and (vii) the SA normal tax for the year, amounting to R25 460, must still be recorded. All figures required for the three items below must be prepared in compliance with the Close Corporations Act No 69 of 1984 and International Financial Reporting Standards, with all calculations shown and comparative figures not required. Prepare the statement of financial position of Contacts Factory CC as at 30 June 2012.Show the full questionShow less

3. Question 2.2.1 · Close corporations · 7 marks

   Ofentse and Nasa are the members of Contacts Factory CC. The information below relates to the business activities of the close corporation for the year ended 30 June 2012. The pre-adjustment trial balance extract at 30 June 2012 shows: member's contribution – Ofentse R122 000; member's contribution – Nasa R122 000; land and buildings at cost R100 000; equipment at cost R89 000; vehicles at cost R108 000; accumulated depreciation on equipment R24 119; accumulated depreciation on vehicles R7 200; long-term loan R50 000; inventory R38 520; debtors control R35 800; creditors control R20 054; bank (debit) R12 700; retained loss as at 1 July 2011 of R28 760; profit before tax R92 807; SARS (income tax) debit balance R10 400; and an interim profit distribution of R15 000. Additional information: (i) the long-term loan was obtained from SA Bank on 2 July 2011, with interest payable bi-annually on 31 December and 30 June at 18% per annum (already provided for); the capital portion is repayable in annual instalments of R8 000 each plus a final instalment of R10 000, the first instalment falling due on 31 December 2012; (ii) during the year the close corporation advanced an interest-free loan of R38 000 to Nasa, which was incorrectly debited to the administrative expense account – the loan is fully repayable on 31 December 2012; (iii) a second-hand delivery vehicle costing R108 000 was purchased on 2 March 2012, and no other non-current assets were bought or sold during the year; (iv) depreciation for the year has already been provided as R7 209 on equipment and R7 200 on vehicles; (v) on 2 January 2012 the close corporation entered into an insurance contract with Multi Insurers under which the annual premium of R6 000 is payable in advance – the R6 000 premium was paid but this transaction has not yet been recorded; (vi) on 30 June 2012 the close corporation purchased 37 000 shares in Magriza Ltd at R5 per share (the market value on that date) for speculative purposes; and (vii) the SA normal tax for the year, amounting to R25 460, must still be recorded. All figures required for the three items below must be prepared in compliance with the Close Corporations Act No 69 of 1984 and International Financial Reporting Standards, with all calculations shown and comparative figures not required. Prepare the note on property, plant and equipment of Contacts Factory CC for the year ended 30 June 2012.Show the full questionShow less

4. Question 2.2.2 · Close corporations · 4 marks

   Ofentse and Nasa are the members of Contacts Factory CC. The information below relates to the business activities of the close corporation for the year ended 30 June 2012. The pre-adjustment trial balance extract at 30 June 2012 shows: member's contribution – Ofentse R122 000; member's contribution – Nasa R122 000; land and buildings at cost R100 000; equipment at cost R89 000; vehicles at cost R108 000; accumulated depreciation on equipment R24 119; accumulated depreciation on vehicles R7 200; long-term loan R50 000; inventory R38 520; debtors control R35 800; creditors control R20 054; bank (debit) R12 700; retained loss as at 1 July 2011 of R28 760; profit before tax R92 807; SARS (income tax) debit balance R10 400; and an interim profit distribution of R15 000. Additional information: (i) the long-term loan was obtained from SA Bank on 2 July 2011, with interest payable bi-annually on 31 December and 30 June at 18% per annum (already provided for); the capital portion is repayable in annual instalments of R8 000 each plus a final instalment of R10 000, the first instalment falling due on 31 December 2012; (ii) during the year the close corporation advanced an interest-free loan of R38 000 to Nasa, which was incorrectly debited to the administrative expense account – the loan is fully repayable on 31 December 2012; (iii) a second-hand delivery vehicle costing R108 000 was purchased on 2 March 2012, and no other non-current assets were bought or sold during the year; (iv) depreciation for the year has already been provided as R7 209 on equipment and R7 200 on vehicles; (v) on 2 January 2012 the close corporation entered into an insurance contract with Multi Insurers under which the annual premium of R6 000 is payable in advance – the R6 000 premium was paid but this transaction has not yet been recorded; (vi) on 30 June 2012 the close corporation purchased 37 000 shares in Magriza Ltd at R5 per share (the market value on that date) for speculative purposes; and (vii) the SA normal tax for the year, amounting to R25 460, must still be recorded. All figures required for the three items below must be prepared in compliance with the Close Corporations Act No 69 of 1984 and International Financial Reporting Standards, with all calculations shown and comparative figures not required. Prepare the note on financial assets of Contacts Factory CC for the year ended 30 June 2012.Show the full questionShow less

5. Question 3.1 · Companies: shares and dividends · 6 marks

   Alizwa Ltd was incorporated on 20 June 2005 with authorised share capital consisting of 400 000 ordinary shares and 150 000 8% preference shares. By 31 July 2013, after the transactions described below had taken place, the issued share capital stood at 250 000 ordinary shares amounting to R500 000 and 80 000 8% preference shares amounting to R200 000. As at 31 July 2012 only 200 000 ordinary shares had been issued; the remaining 50 000 ordinary shares were issued on 2 January 2013 for a fair consideration of R100 000. This issue was underwritten by Monique Financial Services at a commission of 1.5%, all the shares were allotted to the public, and the underwriting commission was paid. At incorporation, Alizwa Ltd had issued 40 000 8% preference shares for a fair consideration of R40 000; the remaining preference shares were issued and allotted to the public on 1 February 2013 for a fair consideration of R120 000. On 31 July 2013 the board resolved to issue capitalisation shares to the ordinary shareholders in the ratio of one new share for every four ordinary shares already held, at a fair consideration of R156 250; on that date the retained earnings account showed a credit balance of R350 000. Preference shareholders are to be paid their dividends in cash. Calculations must be shown. Record, in the general journal of Alizwa Ltd, the issue and underwriting of the 50 000 ordinary shares on 2 January 2013, including the commission paid to Monique Financial Services.Show the full questionShow less

6. Question 3.2 · Companies: shares and dividends · 8 marks

   Alizwa Ltd was incorporated on 20 June 2005 with authorised share capital consisting of 400 000 ordinary shares and 150 000 8% preference shares. By 31 July 2013, after the transactions described below had taken place, the issued share capital stood at 250 000 ordinary shares amounting to R500 000 and 80 000 8% preference shares amounting to R200 000. As at 31 July 2012 only 200 000 ordinary shares had been issued; the remaining 50 000 ordinary shares were issued on 2 January 2013 for a fair consideration of R100 000. This issue was underwritten by Monique Financial Services at a commission of 1.5%, all the shares were allotted to the public, and the underwriting commission was paid. At incorporation, Alizwa Ltd had issued 40 000 8% preference shares for a fair consideration of R40 000; the remaining preference shares were issued and allotted to the public on 1 February 2013 for a fair consideration of R120 000. On 31 July 2013 the board resolved to issue capitalisation shares to the ordinary shareholders in the ratio of one new share for every four ordinary shares already held, at a fair consideration of R156 250; on that date the retained earnings account showed a credit balance of R350 000. Preference shareholders are to be paid their dividends in cash. Calculations must be shown. Record, in the general journal of Alizwa Ltd, all transactions relating to the capitalisation issue of ordinary shares on 31 July 2013 (one capitalisation share for every four ordinary shares held, at a fair consideration of R156 250, with retained earnings standing at R350 000) as well as the cash dividends paid to the preference shareholders.Show the full questionShow less

7. Question 4 · Statement of cash flows · 20 marks

   Monaco Traders is the entity under review. The statement of financial position balances as at 31 December 2011, with 2010 comparatives, were: land and buildings at cost R1 147 500 (2010: R567 905); machinery at carrying amount R482 145 (2010: R600 030); investments – fixed deposit R100 000 (2010: R62 000); loans to partners R52 500 (2010: R74 250); drawings accounts R77 000 (2010: R38 000); inventory R51 390 (2010: R30 480); debtors control R94 704 (2010: R93 750); prepaid water and electricity R0 (2010: R15 600); accrued rental income R10 200 (2010: R0); bank (debit) R182 761 (2010: R405 000); capital accounts R1 249 500 (2010: R1 131 635); current accounts R254 730 (2010: R290 800); revaluation surplus on land and buildings R40 000 (2010: R0); long-term loan R249 750 (2010: R201 000); current portion of long-term loan R27 750 (2010: R0); loan from partner R168 000 (2010: R150 000); allowance for credit losses R5 550 (2010: R4 500); accrued interest expense R6 600 (2010: R0); and creditors control R196 320 (2010: R109 080). The extract from the statement of profit or loss and other comprehensive income for the year ended 31 December 2011 showed cost of sales R420 750, gross profit R478 890, rental income R20 400, investment income (interest income) R15 300, interest expense R30 750, distribution expenses R226 804, credit losses R8 550, administrative and other expenses (including water and electricity) R155 521, and depreciation R91 035. Additional information: all inventory is purchased and sold on credit; cash paid to creditors for purchases was correctly calculated as R354 420; during the year improvements were made to the buildings, all paid in cash and capitalised, and the land and buildings were revalued on 30 December 2011 by Mr Mbujo, an independent sworn appraiser; on 31 May 2011 machinery was sold at carrying amount for cash; and the loan from the partner was acquired on 31 December 2010, bears interest at 12% per annum which is capitalised, and is repayable on 31 December 2016. Prepare the statement of cash flows of Monaco Traders for the year ended 31 December 2011. The answer must comply with the requirements of International Financial Reporting Standards, and the cash generated from or used in operations must be disclosed according to the direct method. All calculations must be shown, and comparative figures are not required.Show the full questionShow less

8. Question 5.1 · Changes in partnership ownership and liquidation · 5 marks

   Salom and Papiki trade in partnership as SAPA Traders, sharing profits and losses equally. On 30 July 2012 the equity of SAPA Traders consisted of capital of R84 000 (Salom R42 000; Papiki R42 000) and an asset replacement reserve of R20 000. Salom and Papiki decided to admit Dineo as a new partner with effect from 1 August 2012. Dineo will contribute R25 000 in cash together with a vehicle worth R43 000 in order to acquire a third of the net asset share of the partnership. Salom and Papiki agreed to relinquish one-fifth of their share in profits or losses to Dineo, in the ratio 3:1 respectively. The partnership's assets were revalued for the purpose of admitting Dineo, and a valuation loss of R14 000 was correctly calculated. Calculate the new profit-sharing ratio of Salom, Papiki and Dineo.Show the full questionShow less

9. Question 5.2 · Changes in partnership ownership and liquidation · 9 marks

   Using the same facts about SAPA Traders - Salom and Papiki admitting Dineo from 1 August 2012, Dineo contributing R25 000 cash and a vehicle worth R43 000 for a third of the net asset share, Salom and Papiki relinquishing one-fifth of their profit share to Dineo in the ratio 3:1, and a correctly calculated valuation loss of R14 000 arising from the revaluation of assets - calculate the goodwill arising on Dineo's admission to the partnership.Show the full questionShow less

10. Question 5.3 · Time value of money · 4 marks

    Shela has just registered a construction company and has recently concluded a two-year contract to maintain the roads infrastructure in all areas under the Moretele Municipality. He employed three members of the community at a monthly salary of R12 500 each. Shela is concerned that his employees may have no income to live on once the tender contract ends; his financial service advisor suggested the employees save part of their monthly income towards future retirement, and Shela also wants to save cash towards a future property purchase. Shela's employees agreed to contribute monthly to a fund that earns 12% interest per annum, compounded monthly, so that after two years each employee will receive R60 000 cash from the fund. It was agreed that Shela will contribute 40% and the employees 60% of the required monthly contributions, with Shela paying these monthly contributions directly to the fund. Calculate the amount of cash that Shela must deduct from each employee's salary per month.Show the full questionShow less

11. Question 5.4 · Time value of money · 2 marks

    Still regarding Shela's savings arrangement for his employees (each employee to receive R60 000 after two years from a fund earning 12% per annum compounded monthly, with Shela contributing 40% and the employees 60% of the monthly contributions), calculate the amount of cash that Shela must invest at 12% interest per annum, compounded annually, in order to be able to purchase property for R700 000 after ten years.Show the full questionShow less