FAC1601 Oct/Nov 2013 exam paper — questions

Every question, by topic

1. Question 1 · Partnership financial statements · 19 marks

   Ez Lewinsky and Dez Montreal trade in partnership as EzDez Traders. Their pre-adjustment trial balance as at 30 June 2013 shows the following: capital account of Ez Lewinsky R180 000 (credit) and capital account of Dez Montreal R180 000 (credit); current account of Ez Lewinsky R51 120 (debit) as at 1 July 2012 and current account of Dez Montreal R35 280 (credit) as at 1 July 2012; drawings during the year of R45 540 for Ez Lewinsky and R28 980 for Dez Montreal; an asset replacement reserve of R34 000 as at 1 July 2012; a long-term loan from Ez Lewinsky of R73 620; furniture and equipment at cost of R450 000 with accumulated depreciation at 30 June 2013 of R72 900; inventory of R295 540; trade and other receivables of R279 000; allowances for credit losses of R17 352; trade and other creditors of R174 240; a bank overdraft of R27 900; and profit for the year before year-end adjustments of R354 888, giving trial balance totals of R1 150 180 on each side. An extract from the partnership agreement states: (1) interest on capital is calculated at 10% per annum and interest on current accounts at 10% on their opening balances, with both types of interest capitalised to the partners' current accounts; (2) interest is charged at 5% per annum on the closing balance of each partner's drawings account at the end of the financial period, and this interest must also be capitalised against the current accounts; (3) partner salaries are payable at R97 500 per annum to Ez Lewinsky and R120 000 per annum to Dez Montreal; (4) an amount equal to 15% of the profit for the year, before appropriations, must be set aside as an asset replacement reserve; and (5) profits and losses are shared equally between the partners. The following year-end adjustments must still be taken into account: (1) on 1 January 2013 Ez Lewinsky contributed a further R60 000 to the partnership, which was agreed to form part of his fixed capital account, and this transaction has already been correctly recorded in the accounting records as at 30 June 2013; (2) the salaries paid to the partners were included in the profit for the year ended 30 June 2013, amounting to R97 500 for Ez Lewinsky and R75 000 for Dez Montreal; (3) the rent payable for June 2013, at a monthly rate of R15 000, is still outstanding; (4) Ez Lewinsky granted an unsecured loan to the partnership on 1 January 2013, bearing interest at 10% per annum, with the full amount repayable on 30 June 2018; and (5) interest on the bank overdraft amounting to R2 787 still needs to be recorded. Using the information given about EzDez Traders (the partnership of Ez Lewinsky and Dez Montreal), prepare the statement of changes in equity for the year ended 30 June 2013. The statement must comply with the requirements of International Financial Reporting Standards (IFRS) as appropriate to a partnership business. Comparative figures may be ignored and the total column of the statement may be omitted. All calculations must be shown.Show the full questionShow less

2. Question 2.1 · Changes in partnership ownership and liquidation · 13 marks

   Baker Street Traders is a partnership between Holmes and Watson who share profits and losses in a 3:2 ratio. Tiger Lily, the firm's accountant, has been tasked with preparing the liquidation accounts but is unsure how to proceed with the liquidation account and has asked for assistance. The general ledger of Baker Street Traders as at 30 September 2013 shows a (incorrectly prepared) liquidation account with the following debit entries: land and buildings at cost R520 000; vehicle at cost R90 000; loss on sale of vehicle R10 000; inventory R50 000; bank (long-term loan) R100 000; debtors control R55 000; goodwill R10 000; and current account Holmes R12 500 (total R847 500). The credit entries shown are: profit on sale of land and buildings R80 000; accumulated depreciation on the vehicle R60 000; creditors control R35 000; long-term loan R100 000; asset replacement reserve R45 000; current account Watson R2 500; and a balance carried down of R525 000 (total R847 500). The following matters still need to be accounted for: firstly, the partnership had agreed with its debtors that a 20% discount would be granted if the outstanding amount was settled before 30 September 2013; on 30 September 2013, 95% of the debtors paid their outstanding amounts, and Holmes and Watson decided to write off the remaining 5% as non-recoverable. Secondly, the partnership had agreed with its creditors to obtain a 5% discount if it settled its outstanding amount on or before 30 September 2013, and the creditors were in fact paid on 30 September 2013. Thirdly, on 29 September 2013 the storage facility was damaged by a storm, destroying inventory with a cost price of R30 000; the partners agreed that Holmes would take the remaining inventory for personal use. Fourthly, the partnership hosted a farewell function for staff to mark the closure of the business, attended by musicians and other sports stars, at a total cost of R25 000; Tinker Bell, a local rock star and long-standing customer of the business, agreed to contribute 20% towards the cost of this function. Additional information: the closing balances of the capital accounts of Holmes and Watson are R300 000 and R200 000 respectively; Holmes has always maintained a debit balance in his current account while Watson has always maintained a credit balance; and the partnership does not make use of drawings accounts. Prepare the correct liquidation account in the general ledger of Baker Street Traders as at 30 September 2013, incorporating all the transactions and adjustments described, and showing all calculations. The account must be properly closed off (balanced).Show the full questionShow less

3. Question 2.2 · Changes in partnership ownership and liquidation · 5 marks

   Baker Street Traders is a partnership between Holmes and Watson who share profits and losses in a 3:2 ratio. Tiger Lily, the firm's accountant, has been tasked with preparing the liquidation accounts but is unsure how to proceed with the liquidation account and has asked for assistance. The general ledger of Baker Street Traders as at 30 September 2013 shows a (incorrectly prepared) liquidation account with the following debit entries: land and buildings at cost R520 000; vehicle at cost R90 000; loss on sale of vehicle R10 000; inventory R50 000; bank (long-term loan) R100 000; debtors control R55 000; goodwill R10 000; and current account Holmes R12 500 (total R847 500). The credit entries shown are: profit on sale of land and buildings R80 000; accumulated depreciation on the vehicle R60 000; creditors control R35 000; long-term loan R100 000; asset replacement reserve R45 000; current account Watson R2 500; and a balance carried down of R525 000 (total R847 500). The following matters still need to be accounted for: firstly, the partnership had agreed with its debtors that a 20% discount would be granted if the outstanding amount was settled before 30 September 2013; on 30 September 2013, 95% of the debtors paid their outstanding amounts, and Holmes and Watson decided to write off the remaining 5% as non-recoverable. Secondly, the partnership had agreed with its creditors to obtain a 5% discount if it settled its outstanding amount on or before 30 September 2013, and the creditors were in fact paid on 30 September 2013. Thirdly, on 29 September 2013 the storage facility was damaged by a storm, destroying inventory with a cost price of R30 000; the partners agreed that Holmes would take the remaining inventory for personal use. Fourthly, the partnership hosted a farewell function for staff to mark the closure of the business, attended by musicians and other sports stars, at a total cost of R25 000; Tinker Bell, a local rock star and long-standing customer of the business, agreed to contribute 20% towards the cost of this function. Additional information: the closing balances of the capital accounts of Holmes and Watson are R300 000 and R200 000 respectively; Holmes has always maintained a debit balance in his current account while Watson has always maintained a credit balance; and the partnership does not make use of drawings accounts. Prepare the capital account of Holmes in the general ledger of Baker Street Traders as at 30 September 2013, showing all calculations, given that the closing balance of Holmes's capital account is R300 000, that Holmes has always maintained a debit balance in his current account, and that the partnership does not make use of drawings accounts. The account must be properly closed off (balanced).Show the full questionShow less

4. Question 3.1 · Close corporations · 16 marks

   Wonderland CC was formed on 1 March 1995 when two friends, Hook and Peter, started a close corporation trading as Wonderland CC. Wonderland CC obtained the exclusive rights from a toy factory in Germany, Spielzeug Inc, to sell its toys on the South African market. To finance their operations the founders admitted an additional member, Wendy, a local millionaire, into the CC. The following information relates to the business activities of the CC for the year ended 28 February 2013. The balances as at 28 February 2013 were: member contribution Hook R468 750; member contribution Peter R468 750; member contribution Wendy R468 750; loans to member Peter R1 312 500; loans from member Wendy R562 500; land and buildings at cost R8 250 000; equipment at cost R1 781 250; accumulated depreciation on equipment at 1 March 2012 R300 000; debtors control R492 195; creditors control R467 820; retained earnings at 1 March 2012 R7 962 375; asset replacement reserve R300 000; bank (debit) R80 625; investment in Starcatcher Ltd at fair value R1 500 000; inventory at 1 March 2012 R318 750; allowance for credit losses R37 500; sales R13 120 500; purchases R4 500 000; general expenses R250 305; salaries (employees) R2 250 000; salaries (members) R1 350 000; remuneration of the accounting officer R262 500; carriage on purchases R153 750; credit losses R58 125; settlement discount received R7 875; carriage on sales R168 750; SARS (income tax) (debit) R346 125; settlement discount granted R27 570; and forfeited settlement discount granted R4 500. The following additional information must still be taken into account: provision must still be made for depreciation on equipment at 20% per annum on the diminishing balance method, and included in the equipment at cost account is a machine purchased on 1 September 2012 for R281 250 cash and put into use immediately, with no other equipment purchases or sales during the year; a debtor owing the business R23 295 was declared insolvent and his debt must be written off as irrecoverable; the allowance for credit losses must be adjusted to R23 445; interest must still be provided on the loan accounts to members at a rate of 15% per annum on the opening balances of any existing loans, with such interest capitalised, no additional loans having been granted during the year, and all loans being unsecured and immediately callable; interest is charged at 20% per annum on the opening balance of the loan from Wendy and is payable on 1 March 2013; the investment in Starcatcher Ltd consists of 50 000 ordinary shares acquired in 2012 for R1 350 000, Starcatcher Ltd being a listed company and the investment having been acquired for trade purposes, with the fair value of the investment on 28 February 2013 amounting to R1 800 000; the closing inventory amounted to R189 375 and is valued at the lower of cost or net realisable value using the first-in, first-out method; and the actual normal income tax for the financial year amounted to R1 005 630 and must still be recorded. In answering, comply with the requirements of the Close Corporations Act No 69 of 1984 and with International Financial Reporting Standards (IFRS) as appropriate to the business; notes and comparative figures are not required, and all calculations must be shown. Prepare the statement of profit or loss and other comprehensive income of Wonderland CC for the year ended 28 February 2013.Show the full questionShow less

5. Question 3.2 · Close corporations · 8 marks

   Wonderland CC was formed on 1 March 1995 when two friends, Hook and Peter, started a close corporation trading as Wonderland CC. Wonderland CC obtained the exclusive rights from a toy factory in Germany, Spielzeug Inc, to sell its toys on the South African market. To finance their operations the founders admitted an additional member, Wendy, a local millionaire, into the CC. The following information relates to the business activities of the CC for the year ended 28 February 2013. The balances as at 28 February 2013 were: member contribution Hook R468 750; member contribution Peter R468 750; member contribution Wendy R468 750; loans to member Peter R1 312 500; loans from member Wendy R562 500; land and buildings at cost R8 250 000; equipment at cost R1 781 250; accumulated depreciation on equipment at 1 March 2012 R300 000; debtors control R492 195; creditors control R467 820; retained earnings at 1 March 2012 R7 962 375; asset replacement reserve R300 000; bank (debit) R80 625; investment in Starcatcher Ltd at fair value R1 500 000; inventory at 1 March 2012 R318 750; allowance for credit losses R37 500; sales R13 120 500; purchases R4 500 000; general expenses R250 305; salaries (employees) R2 250 000; salaries (members) R1 350 000; remuneration of the accounting officer R262 500; carriage on purchases R153 750; credit losses R58 125; settlement discount received R7 875; carriage on sales R168 750; SARS (income tax) (debit) R346 125; settlement discount granted R27 570; and forfeited settlement discount granted R4 500. The following additional information must still be taken into account: provision must still be made for depreciation on equipment at 20% per annum on the diminishing balance method, and included in the equipment at cost account is a machine purchased on 1 September 2012 for R281 250 cash and put into use immediately, with no other equipment purchases or sales during the year; a debtor owing the business R23 295 was declared insolvent and his debt must be written off as irrecoverable; the allowance for credit losses must be adjusted to R23 445; interest must still be provided on the loan accounts to members at a rate of 15% per annum on the opening balances of any existing loans, with such interest capitalised, no additional loans having been granted during the year, and all loans being unsecured and immediately callable; interest is charged at 20% per annum on the opening balance of the loan from Wendy and is payable on 1 March 2013; the investment in Starcatcher Ltd consists of 50 000 ordinary shares acquired in 2012 for R1 350 000, Starcatcher Ltd being a listed company and the investment having been acquired for trade purposes, with the fair value of the investment on 28 February 2013 amounting to R1 800 000; the closing inventory amounted to R189 375 and is valued at the lower of cost or net realisable value using the first-in, first-out method; and the actual normal income tax for the financial year amounted to R1 005 630 and must still be recorded. In answering, comply with the requirements of the Close Corporations Act No 69 of 1984 and with International Financial Reporting Standards (IFRS) as appropriate to the business; notes and comparative figures are not required, and all calculations must be shown. Prepare the ASSETS section of the statement of financial position of Wonderland CC as at 28 February 2013.Show the full questionShow less