FAC1601 May/Jun 2017 exam paper — questions

Every question, by topic

1. Question 1(a) · Partnership financial statements · 10 marks

   MC Animal Clinic is a partnership between Dr Madoda and Dr Kwenzenjani. The information below relates to the partnership's business activities for the year ended 29 February 2016. The list of balances as at 29 February 2016 includes: Capital – Dr Madoda R438 000; Capital – Dr Kwenzenjani R325 000; Current account – Dr Madoda (debit, 1 March 2015) R11 700; Current account – Dr Kwenzenjani (credit, 1 March 2015) R8 380; Drawings – Dr Madoda R22 000; Drawings – Dr Kwenzenjani R5 800; Long-term loan from US Bank (1 March 2015) R850 000; Trade debtors control R267 565; Bank overdraft R25 300; Trade creditors control R262 350; Land and buildings R1 450 000; Equipment at cost R385 000; Accumulated depreciation on equipment (1 March 2015) R90 000; Vehicles at cost R285 000; Accumulated depreciation on vehicles (1 March 2015) R78 000; Allowance for credit losses R4 600; Profit for the year before year-end adjustments R346 380; Allowance for settlement discount granted R7 250; and Prepaid insurance expenses R8 195. Under the partnership agreement, Dr Madoda and Dr Kwenzenjani share profits and losses in the ratio 3:2 respectively, and interest is calculated at 5% per annum on the opening balances of the partners' current and capital accounts. The following year-end adjustments are required: the long-term loan from US Bank, granted on 1 December 2013 and bearing interest at 12% per annum (capitalised annually), is secured by a first mortgage over the land and buildings and is repayable together with interest on 1 December 2016; commission of R27 000 paid to Dr Kwenzenjani for securing additional clients during the year was recorded as part of general expenses; the land and buildings comprise Erf 621, Leisure Bay, Ladysmith, with improvements — the land was acquired on 1 July 2013 for R1 000 000 and a building erected at a total cost of R450 000 was completed on 1 February 2016; the accountant failed to record the sale of a vehicle with a cost price of R68 000, which was sold for R28 000 cash on 1 December 2015 and had accumulated depreciation of R14 000 on 1 March 2015; depreciation must still be provided at 5% per annum on the straight-line method for buildings, 10% per annum on the diminishing-balance method for equipment, and 20% per annum on the straight-line method for vehicles; and the carrying amount of property, plant and equipment on 29 February 2016 was correctly calculated as R1 823 425. Answers must comply with International Financial Reporting Standards (IFRS) as applicable to the partnership's business; notes to the annual financial statements and comparative figures are not required; all amounts must be rounded off to the nearest Rand; and all calculations must be shown. Calculate the total comprehensive income of MC Animal Clinic for the year ended 29 February 2016.Show the full questionShow less

2. Question 1(b) · Partnership financial statements · 17 marks

   MC Animal Clinic is a partnership between Dr Madoda and Dr Kwenzenjani. The information below relates to the partnership's business activities for the year ended 29 February 2016. The list of balances as at 29 February 2016 includes: Capital – Dr Madoda R438 000; Capital – Dr Kwenzenjani R325 000; Current account – Dr Madoda (debit, 1 March 2015) R11 700; Current account – Dr Kwenzenjani (credit, 1 March 2015) R8 380; Drawings – Dr Madoda R22 000; Drawings – Dr Kwenzenjani R5 800; Long-term loan from US Bank (1 March 2015) R850 000; Trade debtors control R267 565; Bank overdraft R25 300; Trade creditors control R262 350; Land and buildings R1 450 000; Equipment at cost R385 000; Accumulated depreciation on equipment (1 March 2015) R90 000; Vehicles at cost R285 000; Accumulated depreciation on vehicles (1 March 2015) R78 000; Allowance for credit losses R4 600; Profit for the year before year-end adjustments R346 380; Allowance for settlement discount granted R7 250; and Prepaid insurance expenses R8 195. Under the partnership agreement, Dr Madoda and Dr Kwenzenjani share profits and losses in the ratio 3:2 respectively, and interest is calculated at 5% per annum on the opening balances of the partners' current and capital accounts. The following year-end adjustments are required: the long-term loan from US Bank, granted on 1 December 2013 and bearing interest at 12% per annum (capitalised annually), is secured by a first mortgage over the land and buildings and is repayable together with interest on 1 December 2016; commission of R27 000 paid to Dr Kwenzenjani for securing additional clients during the year was recorded as part of general expenses; the land and buildings comprise Erf 621, Leisure Bay, Ladysmith, with improvements — the land was acquired on 1 July 2013 for R1 000 000 and a building erected at a total cost of R450 000 was completed on 1 February 2016; the accountant failed to record the sale of a vehicle with a cost price of R68 000, which was sold for R28 000 cash on 1 December 2015 and had accumulated depreciation of R14 000 on 1 March 2015; depreciation must still be provided at 5% per annum on the straight-line method for buildings, 10% per annum on the diminishing-balance method for equipment, and 20% per annum on the straight-line method for vehicles; and the carrying amount of property, plant and equipment on 29 February 2016 was correctly calculated as R1 823 425. Answers must comply with International Financial Reporting Standards (IFRS) as applicable to the partnership's business; notes to the annual financial statements and comparative figures are not required; all amounts must be rounded off to the nearest Rand; and all calculations must be shown. Prepare the statement of changes in equity of MC Animal Clinic for the year ended 29 February 2016. The total column may be omitted.Show the full questionShow less

3. Question 1(c) · Partnership financial statements · 10 marks

   MC Animal Clinic is a partnership between Dr Madoda and Dr Kwenzenjani. The information below relates to the partnership's business activities for the year ended 29 February 2016. The list of balances as at 29 February 2016 includes: Capital – Dr Madoda R438 000; Capital – Dr Kwenzenjani R325 000; Current account – Dr Madoda (debit, 1 March 2015) R11 700; Current account – Dr Kwenzenjani (credit, 1 March 2015) R8 380; Drawings – Dr Madoda R22 000; Drawings – Dr Kwenzenjani R5 800; Long-term loan from US Bank (1 March 2015) R850 000; Trade debtors control R267 565; Bank overdraft R25 300; Trade creditors control R262 350; Land and buildings R1 450 000; Equipment at cost R385 000; Accumulated depreciation on equipment (1 March 2015) R90 000; Vehicles at cost R285 000; Accumulated depreciation on vehicles (1 March 2015) R78 000; Allowance for credit losses R4 600; Profit for the year before year-end adjustments R346 380; Allowance for settlement discount granted R7 250; and Prepaid insurance expenses R8 195. Under the partnership agreement, Dr Madoda and Dr Kwenzenjani share profits and losses in the ratio 3:2 respectively, and interest is calculated at 5% per annum on the opening balances of the partners' current and capital accounts. The following year-end adjustments are required: the long-term loan from US Bank, granted on 1 December 2013 and bearing interest at 12% per annum (capitalised annually), is secured by a first mortgage over the land and buildings and is repayable together with interest on 1 December 2016; commission of R27 000 paid to Dr Kwenzenjani for securing additional clients during the year was recorded as part of general expenses; the land and buildings comprise Erf 621, Leisure Bay, Ladysmith, with improvements — the land was acquired on 1 July 2013 for R1 000 000 and a building erected at a total cost of R450 000 was completed on 1 February 2016; the accountant failed to record the sale of a vehicle with a cost price of R68 000, which was sold for R28 000 cash on 1 December 2015 and had accumulated depreciation of R14 000 on 1 March 2015; depreciation must still be provided at 5% per annum on the straight-line method for buildings, 10% per annum on the diminishing-balance method for equipment, and 20% per annum on the straight-line method for vehicles; and the carrying amount of property, plant and equipment on 29 February 2016 was correctly calculated as R1 823 425. Answers must comply with International Financial Reporting Standards (IFRS) as applicable to the partnership's business; notes to the annual financial statements and comparative figures are not required; all amounts must be rounded off to the nearest Rand; and all calculations must be shown. Prepare the EQUITY AND LIABILITIES sections of the statement of financial position of MC Animal Clinic as at 29 February 2016.Show the full questionShow less

4. Question 2 · Close corporations · 30 marks

   Sam and Tom are the only two members of Tom-Sam Enterprises CC, a close corporation whose financial year ends on the last day of February each year. As the CC's accounting officer, you have been given the following extract from the list of balances as at 29 February 2016: retained earnings (1 March 2015) R190 000; loan from member Sam R80 000; loan to member Tom R60 000; land and buildings at revaluation (1 March 2015) R720 000; equipment at cost R390 500; accumulated depreciation on equipment R55 950; revaluation surplus (1 March 2015) R70 000; inventory (1 March 2015) R8 950; bank (debit) R87 000; income received in advance R5 280; allowance for credit losses R3 000; SARS (income tax) debit R21 300; salaries R85 000; carriage on purchases R899; settlement discount granted R2 182; purchases R44 900; telephone expenses R4 015; remuneration to the accounting officer R10 800; allowance for settlement discount previously granted now forfeited R482; stationery consumed R5 300; and sales R216 075. Additional information: (1) the allowance for credit losses must be adjusted to R4 500, and a debtor owing the business R2 500 was declared insolvent and must be written off as irrecoverable; (2) the land and buildings were acquired in March 2011 for R650 000 and are revalued annually, with the fair value on 29 February 2016 amounting to R750 000; (3) the income tax expense for the year ended 29 February 2016 amounted to R7 100 and must still be recorded; (4) the loan from Sam was acquired on 1 March 2015 at an interest rate of 5% per annum, the loan to Tom was granted on 1 October 2015 at an interest rate of 8% per annum, and interest on all loans for the current financial year has not yet been accounted for in the CC's records; (5) each member received a salary of R2 500 per month, paid in full and included in the salaries figure above, and a total bonus for the 2016 financial year of R15 000, to be divided equally between the members, must still be paid and recorded; (6) a provision of R31 455 must still be made for depreciation on equipment; and (7) inventory on hand on 29 February 2016 amounted to R8 870. Prepare the statement of profit or loss and other comprehensive income of Tom-Sam Enterprises CC for the year ended 29 February 2016. Your answer must comply with the provisions of the Close Corporations Act, 1984, as amended, and with the International Financial Reporting Standards (IFRS) appropriate to the business of the close corporation. Notes to the annual financial statements and comparative figures are not required. Round off all amounts to the nearest Rand, and show all calculations.Show the full questionShow less

5. Question 3 · Statement of cash flows · 23 marks

   Multi Enterprises CC provides the following information. An extract from the statement of financial position as at 30 April 2016 (with 2015 comparatives) shows: members' contributions R384 000 (2015: R288 000); retained earnings R116 564 (2015: R51 300); long-term borrowings R19 200 (2015: R57 600); trade and other payables R28 800 (2015: R26 340); current portion of long-term borrowings R4 800 (2015: nil); SARS (income tax) credit balance nil (2015: R1 000); bank overdraft R6 166 (2015: nil); land and buildings at cost R259 050 (2015: R153 600); furniture and equipment at carrying amount R23 200 (2015: R33 600); listed investments R158 400 (2015: R105 600); bank debit balance nil (2015: R27 300); trade and other receivables R35 520 (2015: R27 360); accrued rental income nil (2015: R1 440); inventory R90 240 (2015: R96 000); and distribution to members payable R6 880 (2015: R20 660). An extract from the statement of profit or loss and other comprehensive income for the year ended 30 April 2016 shows: revenue R506 880; cost of sales R288 000; profit on sale of furniture and equipment R800; dividend income from listed investments R17 280; fair value adjustment on listed investments held for trading R21 120; remuneration of the accounting officer R16 800; salaries to members R60 000; depreciation on furniture and equipment R4 800; water and electricity R2 880; credit losses R3 000; general expenses R4 200; interest on the long-term loan R12 000; income tax expense R41 136; and profit for the year of R113 264. Additional information: no land and buildings were sold during the 2016 financial year, and the land and buildings acquired during the year were bought to expand the CC's operating capacity; no furniture and equipment were purchased during the 2016 financial year, and it is business policy never to sell furniture and equipment on credit. Listed investments comprise 3 520 ordinary shares in Inland Ltd, acquired on 30 April 2015 at their fair value on that date of R105 600, none of which were sold during the year under review, and 5 280 ordinary shares in Thickly Limited, acquired in July 2015 for R31 680. A profit distribution of R48 000 was allocated and paid to members during the year under review. The members' contributions were received in cash, and interest on the long-term borrowings was paid in cash. Answers must comply with the provisions of the Close Corporations Act, 1984, as amended, and with the International Financial Reporting Standards (IFRS) requirements appropriate to a close corporation's business. Notes to the annual financial statements and comparative figures are not required. All amounts must be rounded off to the nearest Rand, and all calculations must be shown. Prepare the cash flows from operating activities section of the statement of cash flows of Multi Enterprises CC for the year ended 30 April 2016, disclosing the cash generated from/(used in) operations according to the indirect method.Show the full questionShow less