FAC1601 Oct/Nov 2018 exam paper — questions

Every question, by topic

1. Question 1(a) · Partnership financial statements · 19 marks

   The following information relates to the partnership of Dolce and Gabbana, trading as DG Traders, for the financial year ended 31 December 2017. The balances at 31 December 2017 were: fixed capital accounts – Dolce R62 500 and Gabbana R75 000; current accounts at 1 January 2017 – Dolce R2 500 debit and Gabbana R6 250 credit; long-term loan from Gabbana R50 000; trade receivables control R66 625; furniture and equipment at cost R43 750; accumulated depreciation on furniture and equipment at 1 January 2017 R4 375; allowance for credit losses R2 500; credit losses recovered R130; inventory at 1 January 2017 R100 625; purchases R250 620; interest expense on the long-term loan R2 250; stationery consumed R750; salaries and wages R8 125; rental expense R2 500; bank R66 755; and sales R343 745. Additional information: (1) the inventory balance at 31 December 2017 is R76 250; (2) R550 owed by a debtor must be written off as irrecoverable; (3) the allowance for credit losses must be adjusted upwards by R1 500; (4) on 1 May 2017 additional furniture costing R12 500 was purchased; (5) depreciation must be provided at 12% per annum on furniture and equipment using the diminishing balance method; (6) Gabbana granted the loan on 1 June 2016, interest is calculated at 5% per annum, the loan is unsecured and repayable in full on 30 June 2019, and interest for the current financial year must still be accounted for; (7) the partnership agreement stipulates that interest on capital accounts must be provided at 10% per annum, and interest on current accounts must be provided at 10% per annum on the opening balances of the current accounts; (8) from 1 July 2017 Gabbana rendered specialised services to the partnership at a salary of R2 000 per month, and the salary due to him has not yet been paid at year end; (9) on 31 December 2017 a credit sale of R20 000 occurred, with terms stipulating a 10% settlement discount if settled by 31 January 2018, which must still be recorded, noting that Dolce and Gabbana's customers usually settle within 30 days; (10) the rental expense was fixed at R200 per month for the current financial year; and (11) the partners shared profits and losses equally. Answers must comply with International Financial Reporting Standards (IFRS) appropriate to a partnership; 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 profit or loss and other comprehensive income of the partnership of Dolce and Gabbana (DG Traders) for the year ended 31 December 2017.Show the full questionShow less

2. Question 1(b) · Partnership financial statements · 15 marks

   The following information relates to the partnership of Dolce and Gabbana, trading as DG Traders, for the financial year ended 31 December 2017. The balances at 31 December 2017 were: fixed capital accounts – Dolce R62 500 and Gabbana R75 000; current accounts at 1 January 2017 – Dolce R2 500 debit and Gabbana R6 250 credit; long-term loan from Gabbana R50 000; trade receivables control R66 625; furniture and equipment at cost R43 750; accumulated depreciation on furniture and equipment at 1 January 2017 R4 375; allowance for credit losses R2 500; credit losses recovered R130; inventory at 1 January 2017 R100 625; purchases R250 620; interest expense on the long-term loan R2 250; stationery consumed R750; salaries and wages R8 125; rental expense R2 500; bank R66 755; and sales R343 745. Additional information: (1) the inventory balance at 31 December 2017 is R76 250; (2) R550 owed by a debtor must be written off as irrecoverable; (3) the allowance for credit losses must be adjusted upwards by R1 500; (4) on 1 May 2017 additional furniture costing R12 500 was purchased; (5) depreciation must be provided at 12% per annum on furniture and equipment using the diminishing balance method; (6) Gabbana granted the loan on 1 June 2016, interest is calculated at 5% per annum, the loan is unsecured and repayable in full on 30 June 2019, and interest for the current financial year must still be accounted for; (7) the partnership agreement stipulates that interest on capital accounts must be provided at 10% per annum, and interest on current accounts must be provided at 10% per annum on the opening balances of the current accounts; (8) from 1 July 2017 Gabbana rendered specialised services to the partnership at a salary of R2 000 per month, and the salary due to him has not yet been paid at year end; (9) on 31 December 2017 a credit sale of R20 000 occurred, with terms stipulating a 10% settlement discount if settled by 31 January 2018, which must still be recorded, noting that Dolce and Gabbana's customers usually settle within 30 days; (10) the rental expense was fixed at R200 per month for the current financial year; and (11) the partners shared profits and losses equally. Answers must comply with International Financial Reporting Standards (IFRS) appropriate to a partnership; 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 the partnership of Dolce and Gabbana (DG Traders) for the year ended 31 December 2017.Show the full questionShow less

3. Question 2(a) · Changes in partnership ownership and liquidation · 9 marks

   Gqom Music Entertainment's books for the financial year ended 31 December 2017 reflected the following balances: capital accounts — Cakes R75 000, Wodumo R60 000, Sampintsha R40 000; current accounts — Cakes R10 000 (credit), Wodumo R4 000 (credit), Sampintsha R2 500 (debit); revaluation surplus R30 000 (credit); property, plant and equipment R150 000; inventory R45 000; trade receivables R15 000; bank R59 500 (debit); and trade payables R53 000, with debit and credit columns both totalling R272 000. Cakes, Wodumo and Sampintsha share profits and losses in the ratio 5:3:2 respectively. On 1 January 2018 Wodumo decided to retire from the partnership. Under the partnership agreement, the amount owing to him must be transferred to a loan account repayable in 36 equal monthly instalments starting on 1 February 2018, with interest charged at 7,5% per annum on the outstanding balance at the end of the previous month. For purposes of Wodumo's retirement it was agreed that: property, plant and equipment be revalued to a market value of R180 000; an allowance for credit losses of R750 be raised against trade receivables; the balances on the current accounts be transferred to the capital accounts; Wodumo take over equipment with a carrying amount of R20 000 for R15 000; and inventory be valued at R38 000. Cakes and Sampintsha decided to continue the business, sharing profits and losses in the ratio 3:1 respectively going forward. Contra accounts must be correctly described in the ledger accounts, all calculations must be shown, and all amounts must be rounded off to the nearest rand. In the general ledger of Gqom Music Entertainment, prepare the valuation account to record the revaluation of property, plant and equipment to R180 000, the raising of an allowance for credit losses of R750, the revaluation of inventory to R38 000, and Wodumo's takeover of equipment with a carrying amount of R20 000 for R15 000.Show the full questionShow less

4. Question 2(b) · Changes in partnership ownership and liquidation · 9 marks

   Gqom Music Entertainment's books for the financial year ended 31 December 2017 reflected the following balances: capital accounts — Cakes R75 000, Wodumo R60 000, Sampintsha R40 000; current accounts — Cakes R10 000 (credit), Wodumo R4 000 (credit), Sampintsha R2 500 (debit); revaluation surplus R30 000 (credit); property, plant and equipment R150 000; inventory R45 000; trade receivables R15 000; bank R59 500 (debit); and trade payables R53 000, with debit and credit columns both totalling R272 000. Cakes, Wodumo and Sampintsha share profits and losses in the ratio 5:3:2 respectively. On 1 January 2018 Wodumo decided to retire from the partnership. Under the partnership agreement, the amount owing to him must be transferred to a loan account repayable in 36 equal monthly instalments starting on 1 February 2018, with interest charged at 7,5% per annum on the outstanding balance at the end of the previous month. For purposes of Wodumo's retirement it was agreed that: property, plant and equipment be revalued to a market value of R180 000; an allowance for credit losses of R750 be raised against trade receivables; the balances on the current accounts be transferred to the capital accounts; Wodumo take over equipment with a carrying amount of R20 000 for R15 000; and inventory be valued at R38 000. Cakes and Sampintsha decided to continue the business, sharing profits and losses in the ratio 3:1 respectively going forward. Contra accounts must be correctly described in the ledger accounts, all calculations must be shown, and all amounts must be rounded off to the nearest rand. In the general ledger of Gqom Music Entertainment, prepare the capital account of Wodumo reflecting his retirement from the partnership on 1 January 2018, including the transfer of his current account balance, his share of the revaluation, his takeover of equipment, and the transfer of the amount owing to him to a loan account repayable in 36 equal monthly instalments from 1 February 2018 at 7,5% per annum interest on the outstanding balance.Show the full questionShow less

5. Question 3 · Close corporations · 26 marks

   The following balances were taken from the accounting records of Wozanazo CC as at 30 September 2018: members' contributions - Woza R120 000 and Nazo R80 000; land and buildings at cost R700 000; equipment at cost R200 000; long-term loan from Forum Bank R100 000; loan from member Woza R95 000; loan to member Nazo R80 000; bank (debit balance) R75 000; inventory R110 000; trade receivables control R516 600; allowance for credit losses R10 300; trade payables control R370 000; accumulated depreciation on equipment R40 000; accrued expenses R15 000; prepaid expenses R11 000; interim profit distribution to members R45 000; and total comprehensive income for the year, before taking the additional information into account, of R662 300. The additional information is as follows: (1) retained earnings as at 1 October 2017 amounted to R245 000; (2) the loan from Woza is unsecured, bears interest at 10% per annum payable annually on 1 October, and is repayable in full on 31 October 2021; (3) the long-term loan from Forum Bank bears interest at 12% per annum, with the current year's interest still to be accounted for, is secured by a first mortgage over the land and buildings, and has a capital amount of R10 000 repayable on 1 November 2018; (4) a further profit distribution of R8 000 must still be made to Nazo; (5) on 30 September 2018 an investment was made in Gladiator Ltd, with 50 000 ordinary shares purchased at R2 each for R50 000 cash, and the fair value of these shares on 30 September 2018 was R60 000, with all of this still to be accounted for. Using the balances and additional information given for Wozanazo CC, prepare the statement of financial position of Wozanazo CC as at 30 September 2018. The answer must comply with the provisions of the Close Corporations Act 1984 and the requirements of International Financial Reporting Standards (IFRS). 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.Show the full questionShow less