FAC1601 May/Jun 2014 exam paper — questions

Every question, by topic

1. Question 1.1 · Partnership financial statements · 12 marks

   Grove and Steenkamp started a partnership trading as GroStamino Traders, manufacturing and selling energy-enhanced supplements for athletes. The trial balance at 28 February 2014 reflects: capital – Grove R225 000; capital – Steenkamp R525 000; current account – Grove (debit) R60 000; current account – Steenkamp (credit) R80 000; mortgage R1 500 000; long-term loan – Grove R250 000; creditors control R85 000; accrued expenses (insurance) R11 500; bank overdraft R110 000; land and buildings at cost R1 750 000; equipment at cost R250 000; vehicles at cost R350 000; accumulated depreciation on equipment R75 000; accumulated depreciation on vehicles R85 000; inventory R15 000; debtors control R535 000; allowance for credit losses R5 500; petty cash R7 500; and profit for the year before year-end adjustments R15 500. The partnership agreement provides that: (1) partners share profits and losses in the ratio of their fixed capital balances; (2) interest of 7% per annum is calculated on the partners' current account balances; and (3) each partner is entitled to an annual salary of R60 000. The following year-end matters must also be taken into account: the long-term loan from ABA Bank was acquired on 1 July 2013 at 12% per annum interest, payable annually on 30 June, is secured by a first mortgage over the land and buildings, and is repayable in ten equal annual instalments starting 30 June 2014; Grove granted the partnership an unsecured loan on 1 January 2014, bearing interest at 15% per annum payable on 31 December each year (interest for the current financial year still has to be provided for), with the full capital amount repayable on 31 December 2018; during the year each partner withdrew a total of R45 000 from the partnership; and on 3 March 2014 an invoice of R25 000 was received from a local supplier for inventory delivered on 28 February 2014, which had not yet been recorded in the partnership's accounting records. Answers must comply with International Financial Reporting Standards (IFRS) appropriate to the partnership's business, comparative figures are not required, and all calculations must be shown. Prepare the EQUITY section of the statement of financial position of GroStamino Traders as at 28 February 2014.Show the full questionShow less

2. Question 1.2 · Partnership financial statements · 10 marks

   Grove and Steenkamp started a partnership trading as GroStamino Traders, manufacturing and selling energy-enhanced supplements for athletes. The trial balance at 28 February 2014 reflects: capital – Grove R225 000; capital – Steenkamp R525 000; current account – Grove (debit) R60 000; current account – Steenkamp (credit) R80 000; mortgage R1 500 000; long-term loan – Grove R250 000; creditors control R85 000; accrued expenses (insurance) R11 500; bank overdraft R110 000; land and buildings at cost R1 750 000; equipment at cost R250 000; vehicles at cost R350 000; accumulated depreciation on equipment R75 000; accumulated depreciation on vehicles R85 000; inventory R15 000; debtors control R535 000; allowance for credit losses R5 500; petty cash R7 500; and profit for the year before year-end adjustments R15 500. The partnership agreement provides that: (1) partners share profits and losses in the ratio of their fixed capital balances; (2) interest of 7% per annum is calculated on the partners' current account balances; and (3) each partner is entitled to an annual salary of R60 000. The following year-end matters must also be taken into account: the long-term loan from ABA Bank was acquired on 1 July 2013 at 12% per annum interest, payable annually on 30 June, is secured by a first mortgage over the land and buildings, and is repayable in ten equal annual instalments starting 30 June 2014; Grove granted the partnership an unsecured loan on 1 January 2014, bearing interest at 15% per annum payable on 31 December each year (interest for the current financial year still has to be provided for), with the full capital amount repayable on 31 December 2018; during the year each partner withdrew a total of R45 000 from the partnership; and on 3 March 2014 an invoice of R25 000 was received from a local supplier for inventory delivered on 28 February 2014, which had not yet been recorded in the partnership's accounting records. Answers must comply with International Financial Reporting Standards (IFRS) appropriate to the partnership's business, comparative figures are not required, and all calculations must be shown. Prepare the 'FINANCIAL LIABILITIES' note to the financial statements of GroStamino Traders for the year ended 28 February 2014.Show the full questionShow less

3. Question 2 · Changes in partnership ownership and liquidation · 20 marks

   Douglas and Moses were partners trading as DMOSS Traders, sharing profits and losses in the ratio 5:3 respectively, and they decided to admit Phill to the partnership. The balances as at 30 September 2013, the end of the financial year, were as follows: capital – Douglas R177 000; capital – Moses R160 000; current account (credit) – Douglas R21 125; current account (credit) – Moses R21 175; long-term loan R37 000; land and buildings R283 000; inventories R54 300; debtors control R42 000; creditors control R16 000; and bank (favourable) R53 000. In preparing for the change in the ownership structure of DMOSS Traders, Douglas and Moses obtained the following appraisals on 30 September 2013: a physical inventory count revealed an inventory shortage of R5 000, and part of the remaining inventory was deemed overvalued by R5 300; land and buildings were valued by a sworn appraiser at R300 000. On 1 October 2013, Phill paid R60 000 for a 20% interest in the net assets of the partnership. The new partnership will trade as DMP Traders, with Douglas, Moses and Phill agreeing on a new profit-sharing ratio of 5:3:2 respectively. Goodwill was correctly calculated as R55 500. Prepare the journal entries in the general journal of DMOSS Traders on 30 September 2013 to record the admission of Phill as a partner. Apply the accounting procedure which is based on the legal perspective. Journal entries to record the dissolution of the partnership are NOT required. All calculations must be shown.Show the full questionShow less

4. Question 3 · Close corporations · 20 marks

   Sbusiso and Aneziswa are the only two members of Eyethu CC, and the candidate has been appointed as the accounting officer of Eyethu CC for the year ended 28 February 2014. The list of balances as at 28 February 2014 is as follows: member's contribution Sbusiso R175 000; member's contribution Anezizwa R215 000; loan from member Sbusiso R165 000; SARS (income tax) R5 800 debit; creditors control R60 600; allowance for credit losses R2 200; inventory R66 000; land and buildings at cost R520 000; furniture and equipment at cost R64 000; accumulated depreciation on furniture and equipment as at 1 March 2013 R10 200; debtors control R49 500; sales R575 000; purchases R189 000; delivery expenses (in respect of sales) R7 300; rental income R8 100; sales returns R28 500; purchases returns R6 225; salaries and wages R257 600; telephone expenses R9 600; interest on loan from members R21 600; stationery consumed R4 950; water and electricity R10 725; insurance expenses R6 300; and advertising expenses R6 450. Additional information: inventory on hand on 1 March 2013 amounted to R29 000; on 31 August 2013 new furniture was purchased at a cost of R14 000 and this was correctly recorded in the accounting records; Mrs Ngwenya, a debtor with an outstanding account of R2 900, was declared insolvent and her debt must be written off as irrecoverable; the allowance for credit losses must be adjusted to R3 800; insurance premiums of R450 per month are payable one month in advance, and premiums have been paid up to 30 April 2014; each member is entitled to a monthly salary of R5 300, which was paid during the year and debited to the salaries and wages account; depreciation on furniture and equipment must still be provided for at 20% per annum on the diminishing balance method; and income tax for the year amounts to R33 465 and must still be provided for. Prepare the statement of profit or loss and other comprehensive income of Eyethu CC for the year ended 28 February 2014. The answer must comply with the requirements of International Financial Reporting Standards (IFRS) appropriate to the business of the close corporation. Notes and comparative figures are NOT required. All calculations must be shown.Show the full questionShow less

5. Question 4(a) · Statement of cash flows · 16 marks

   Jukskei Computers CC provides the following financial information. Accounts relating to the statement of financial position, comparing 31 December 2013 with 31 December 2012, are as follows: member's contribution – Christa R230 000 (2013) versus R180 000 (2012); member's contribution – Lizaan R170 000 versus R120 000; retained earnings R310 025 versus R250 000; long-term loan R80 000 versus R65 000; creditors control (trade creditors) R42 500 versus R35 000; accrued interest expense R4 000 versus nil; bank overdraft (Cr) nil versus R300; land and buildings at cost R540 000 versus R450 000; vehicles at cost R190 000 versus R95 000; furniture at cost R50 000 versus R48 000; investments at cost nil versus R70 000; accumulated depreciation on vehicles R40 000 versus R32 000; accumulated depreciation on furniture R10 000 versus R8 800; bank (Dr) R45 000 versus nil; debtors control (trade debtors) R42 500 versus R52 500; prepaid expenses (wages) R5 000 versus R3 600; inventory R74 025 versus R52 000; distribution to members payable R30 000 versus R10 000; and income tax payable R30 000 versus R70 000. The statement of profit or loss and other comprehensive income for the year ended 31 December 2013 discloses revenue of R950 000; cost of sales of R500 000; a profit on the sale of a non-current asset (furniture) of R5 000; dividend income of R525 from financial assets at fair value through profit or loss (held for trading: listed investments); marketing expenses of R100 000; administrative expenses (including salaries and wages) of R115 000; depreciation of R72 500; a loss on the sale of a non-current asset (vehicle) of R500; interest expense of R8 000; profit before tax of R159 525; and income tax expense of R45 900. Additional information: on 20 December 2013 a total profit distribution of R26 800 was recorded as due to the members; on 21 December 2013 a portion of this was paid in cash to each member, with the remaining amounts to be paid on 2 January 2014. On 31 October 2013 a vehicle with a cost price of R60 000 and accumulated depreciation of R50 000 (stated as at 1 January 2014) was sold for cash. The accounting policy of Jukskei Computers CC is to provide for depreciation on vehicles according to the diminishing balance method at 10% per annum, and on furniture according to the straight-line method at 25% per annum. Answers must comply with International Financial Reporting Standards (IFRS) appropriate to a close corporation; comparative figures and notes to the statement of cash flows are not required, and all calculations must be shown. Using the indirect method, prepare the cash flows from operating activities section of the statement of cash flows of Jukskei Computers CC for the year ended 31 December 2013.Show the full questionShow less