FAC2601 Oct/Nov 2010 exam paper — questions

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  1. Question 1.1 · Statement of comprehensive income · 18 marks

    For the financial year ended 30 September 2010, Games Manufacturers Limited's books show the following (amongst other things). Income comprised: sale of toy trains on credit (including 14% VAT) R798 000 (note 1); sale of toy trains for cash (including 14% VAT) R1 140 000 (note 1); services rendered to clients (including 14% VAT) R456 000 (note 1); rental income from machinery (including 14% VAT) R399 000; interest received on the bank account R8 360; and interest received on the loan to Chris Limited R11 540 (note 2). Expenses comprised: cost of sales (note 3) – amount not given, to be calculated; administrative expenses R4 300; audit fees R13 400 (note 4); salaries and wages R596 000 (note 5); depreciation on machinery R36 500 (note 6); distribution cost R17 530; interest paid (note 8) – amount not given, to be calculated; and income tax expense R72 742. Additional information: (1) Income – (1.1) the inexperienced accountant neglected to reverse the VAT on the sales figures above; (1.2) the main business activity of Games Manufacturers Limited is the sale and servicing of toy trains; (1.3) Merch Games, a debtor owing R34 200 to Games Manufacturers Limited, qualified for a 10% settlement discount if she paid before 15 October 2010, and she paid the full outstanding amount on 29 September 2010, with the discount still to be accounted for; (1.4) on 15 October 2010 a contract worth R1 million was awarded to Games Manufacturers Limited for manufacturing a range of toy trains. (2) The issued share capital of Chris Limited is R50 000, made up of shares with a par value of R2,50 each; Games Manufacturers Limited owns 13 000 of these shares, bought for R48 750, and the directors believe the fair value of these shares was still R48 750 at year end. (3) The company's gross profit is 25% of turnover. (4) Auditors' remuneration of R13 400 consists of auditors' remuneration R2 000, fees for advice given to management R7 820, and travelling costs of the auditor R3 580. (5) Salaries and wages of R596 000 include: salary of Mr Nel, the managing director, R140 000; salaries of Mr Smit and Mr Els, two non-executive directors, totalling R230 000; salaries and wages of workers R125 000; salary of Mr Ben, the marketing manager, R60 000; pension fund contributions of 7,5% of directors' salaries amounting to R27 750; directors' fees for attending directors' meetings (non-executive directors) R4 000; entertainment allowance for the managing director R6 000; and travelling cost for Mr Nel R3 250. Mr Ben is also managing director of Games Manufacturers Limited's subsidiary, from which he received a separate salary of R180 000. (6) Additional machinery costing R75 000 was bought on 1 March 2010 and its depreciation still needs to be accounted for; machinery is depreciated at 20% per annum on the straight-line basis, and there were no other machinery purchases or disposals during the year. (7) Any expense not classified as administrative or distribution cost must be treated as another operating expense. (8) A long-term loan of R90 000 was taken out on 1 January 2008, with the capital portion repayable in five equal annual instalments starting 1 September 2008; interest is calculated at 15% per annum, payable annually on 1 October, and must still be provided for. (9) Games Manufacturers Limited owns 120 000 of the 2 500 000 issued shares in Train Limited, bought for R302 000; these JSE-traded shares had a market value of R2,60 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made for the increase, and they are designated as available-for-sale. (10) Games Manufacturers Limited owns 100 000 of the 2 400 000 issued shares in Jet Limited, bought for R250 000; these JSE-traded shares had a market value of R2,50 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made, and they were acquired for speculative purposes. (11) Land with a cost price of R1 million was revalued to a replacement value of R1,5 million on 1 December 2009 by Mr Suid, a sworn appraiser, but no entry has yet been made in the books to record this. Using all the information given about Games Manufacturers Limited for the financial year ended 30 September 2010, prepare the company's Statement of comprehensive income in compliance with the Companies Act and Generally Accepted Accounting Practice. Comparative figures and notes may be ignored, but all calculations must be shown.Show the full question

  2. Question 1.2 · Statement of comprehensive income · 11 marks

    For the financial year ended 30 September 2010, Games Manufacturers Limited's books show the following (amongst other things). Income comprised: sale of toy trains on credit (including 14% VAT) R798 000 (note 1); sale of toy trains for cash (including 14% VAT) R1 140 000 (note 1); services rendered to clients (including 14% VAT) R456 000 (note 1); rental income from machinery (including 14% VAT) R399 000; interest received on the bank account R8 360; and interest received on the loan to Chris Limited R11 540 (note 2). Expenses comprised: cost of sales (note 3) – amount not given, to be calculated; administrative expenses R4 300; audit fees R13 400 (note 4); salaries and wages R596 000 (note 5); depreciation on machinery R36 500 (note 6); distribution cost R17 530; interest paid (note 8) – amount not given, to be calculated; and income tax expense R72 742. Additional information: (1) Income – (1.1) the inexperienced accountant neglected to reverse the VAT on the sales figures above; (1.2) the main business activity of Games Manufacturers Limited is the sale and servicing of toy trains; (1.3) Merch Games, a debtor owing R34 200 to Games Manufacturers Limited, qualified for a 10% settlement discount if she paid before 15 October 2010, and she paid the full outstanding amount on 29 September 2010, with the discount still to be accounted for; (1.4) on 15 October 2010 a contract worth R1 million was awarded to Games Manufacturers Limited for manufacturing a range of toy trains. (2) The issued share capital of Chris Limited is R50 000, made up of shares with a par value of R2,50 each; Games Manufacturers Limited owns 13 000 of these shares, bought for R48 750, and the directors believe the fair value of these shares was still R48 750 at year end. (3) The company's gross profit is 25% of turnover. (4) Auditors' remuneration of R13 400 consists of auditors' remuneration R2 000, fees for advice given to management R7 820, and travelling costs of the auditor R3 580. (5) Salaries and wages of R596 000 include: salary of Mr Nel, the managing director, R140 000; salaries of Mr Smit and Mr Els, two non-executive directors, totalling R230 000; salaries and wages of workers R125 000; salary of Mr Ben, the marketing manager, R60 000; pension fund contributions of 7,5% of directors' salaries amounting to R27 750; directors' fees for attending directors' meetings (non-executive directors) R4 000; entertainment allowance for the managing director R6 000; and travelling cost for Mr Nel R3 250. Mr Ben is also managing director of Games Manufacturers Limited's subsidiary, from which he received a separate salary of R180 000. (6) Additional machinery costing R75 000 was bought on 1 March 2010 and its depreciation still needs to be accounted for; machinery is depreciated at 20% per annum on the straight-line basis, and there were no other machinery purchases or disposals during the year. (7) Any expense not classified as administrative or distribution cost must be treated as another operating expense. (8) A long-term loan of R90 000 was taken out on 1 January 2008, with the capital portion repayable in five equal annual instalments starting 1 September 2008; interest is calculated at 15% per annum, payable annually on 1 October, and must still be provided for. (9) Games Manufacturers Limited owns 120 000 of the 2 500 000 issued shares in Train Limited, bought for R302 000; these JSE-traded shares had a market value of R2,60 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made for the increase, and they are designated as available-for-sale. (10) Games Manufacturers Limited owns 100 000 of the 2 400 000 issued shares in Jet Limited, bought for R250 000; these JSE-traded shares had a market value of R2,50 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made, and they were acquired for speculative purposes. (11) Land with a cost price of R1 million was revalued to a replacement value of R1,5 million on 1 December 2009 by Mr Suid, a sworn appraiser, but no entry has yet been made in the books to record this. Based on the same information for Games Manufacturers Limited for the financial year ended 30 September 2010, present the note on profit before tax that would accompany the Statement of comprehensive income, in accordance with the Companies Act and Generally Accepted Accounting Practice.Show the full question

  3. Question 1.3.1 · Statement of comprehensive income · 2 marks

    For the financial year ended 30 September 2010, Games Manufacturers Limited's books show the following (amongst other things). Income comprised: sale of toy trains on credit (including 14% VAT) R798 000 (note 1); sale of toy trains for cash (including 14% VAT) R1 140 000 (note 1); services rendered to clients (including 14% VAT) R456 000 (note 1); rental income from machinery (including 14% VAT) R399 000; interest received on the bank account R8 360; and interest received on the loan to Chris Limited R11 540 (note 2). Expenses comprised: cost of sales (note 3) – amount not given, to be calculated; administrative expenses R4 300; audit fees R13 400 (note 4); salaries and wages R596 000 (note 5); depreciation on machinery R36 500 (note 6); distribution cost R17 530; interest paid (note 8) – amount not given, to be calculated; and income tax expense R72 742. Additional information: (1) Income – (1.1) the inexperienced accountant neglected to reverse the VAT on the sales figures above; (1.2) the main business activity of Games Manufacturers Limited is the sale and servicing of toy trains; (1.3) Merch Games, a debtor owing R34 200 to Games Manufacturers Limited, qualified for a 10% settlement discount if she paid before 15 October 2010, and she paid the full outstanding amount on 29 September 2010, with the discount still to be accounted for; (1.4) on 15 October 2010 a contract worth R1 million was awarded to Games Manufacturers Limited for manufacturing a range of toy trains. (2) The issued share capital of Chris Limited is R50 000, made up of shares with a par value of R2,50 each; Games Manufacturers Limited owns 13 000 of these shares, bought for R48 750, and the directors believe the fair value of these shares was still R48 750 at year end. (3) The company's gross profit is 25% of turnover. (4) Auditors' remuneration of R13 400 consists of auditors' remuneration R2 000, fees for advice given to management R7 820, and travelling costs of the auditor R3 580. (5) Salaries and wages of R596 000 include: salary of Mr Nel, the managing director, R140 000; salaries of Mr Smit and Mr Els, two non-executive directors, totalling R230 000; salaries and wages of workers R125 000; salary of Mr Ben, the marketing manager, R60 000; pension fund contributions of 7,5% of directors' salaries amounting to R27 750; directors' fees for attending directors' meetings (non-executive directors) R4 000; entertainment allowance for the managing director R6 000; and travelling cost for Mr Nel R3 250. Mr Ben is also managing director of Games Manufacturers Limited's subsidiary, from which he received a separate salary of R180 000. (6) Additional machinery costing R75 000 was bought on 1 March 2010 and its depreciation still needs to be accounted for; machinery is depreciated at 20% per annum on the straight-line basis, and there were no other machinery purchases or disposals during the year. (7) Any expense not classified as administrative or distribution cost must be treated as another operating expense. (8) A long-term loan of R90 000 was taken out on 1 January 2008, with the capital portion repayable in five equal annual instalments starting 1 September 2008; interest is calculated at 15% per annum, payable annually on 1 October, and must still be provided for. (9) Games Manufacturers Limited owns 120 000 of the 2 500 000 issued shares in Train Limited, bought for R302 000; these JSE-traded shares had a market value of R2,60 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made for the increase, and they are designated as available-for-sale. (10) Games Manufacturers Limited owns 100 000 of the 2 400 000 issued shares in Jet Limited, bought for R250 000; these JSE-traded shares had a market value of R2,50 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made, and they were acquired for speculative purposes. (11) Land with a cost price of R1 million was revalued to a replacement value of R1,5 million on 1 December 2009 by Mr Suid, a sworn appraiser, but no entry has yet been made in the books to record this. State the two categories of events after the reporting date recognised under IAS10 (AC107).Show the full question

  4. Question 1.3.2 · Statement of comprehensive income · 1 marks

    For the financial year ended 30 September 2010, Games Manufacturers Limited's books show the following (amongst other things). Income comprised: sale of toy trains on credit (including 14% VAT) R798 000 (note 1); sale of toy trains for cash (including 14% VAT) R1 140 000 (note 1); services rendered to clients (including 14% VAT) R456 000 (note 1); rental income from machinery (including 14% VAT) R399 000; interest received on the bank account R8 360; and interest received on the loan to Chris Limited R11 540 (note 2). Expenses comprised: cost of sales (note 3) – amount not given, to be calculated; administrative expenses R4 300; audit fees R13 400 (note 4); salaries and wages R596 000 (note 5); depreciation on machinery R36 500 (note 6); distribution cost R17 530; interest paid (note 8) – amount not given, to be calculated; and income tax expense R72 742. Additional information: (1) Income – (1.1) the inexperienced accountant neglected to reverse the VAT on the sales figures above; (1.2) the main business activity of Games Manufacturers Limited is the sale and servicing of toy trains; (1.3) Merch Games, a debtor owing R34 200 to Games Manufacturers Limited, qualified for a 10% settlement discount if she paid before 15 October 2010, and she paid the full outstanding amount on 29 September 2010, with the discount still to be accounted for; (1.4) on 15 October 2010 a contract worth R1 million was awarded to Games Manufacturers Limited for manufacturing a range of toy trains. (2) The issued share capital of Chris Limited is R50 000, made up of shares with a par value of R2,50 each; Games Manufacturers Limited owns 13 000 of these shares, bought for R48 750, and the directors believe the fair value of these shares was still R48 750 at year end. (3) The company's gross profit is 25% of turnover. (4) Auditors' remuneration of R13 400 consists of auditors' remuneration R2 000, fees for advice given to management R7 820, and travelling costs of the auditor R3 580. (5) Salaries and wages of R596 000 include: salary of Mr Nel, the managing director, R140 000; salaries of Mr Smit and Mr Els, two non-executive directors, totalling R230 000; salaries and wages of workers R125 000; salary of Mr Ben, the marketing manager, R60 000; pension fund contributions of 7,5% of directors' salaries amounting to R27 750; directors' fees for attending directors' meetings (non-executive directors) R4 000; entertainment allowance for the managing director R6 000; and travelling cost for Mr Nel R3 250. Mr Ben is also managing director of Games Manufacturers Limited's subsidiary, from which he received a separate salary of R180 000. (6) Additional machinery costing R75 000 was bought on 1 March 2010 and its depreciation still needs to be accounted for; machinery is depreciated at 20% per annum on the straight-line basis, and there were no other machinery purchases or disposals during the year. (7) Any expense not classified as administrative or distribution cost must be treated as another operating expense. (8) A long-term loan of R90 000 was taken out on 1 January 2008, with the capital portion repayable in five equal annual instalments starting 1 September 2008; interest is calculated at 15% per annum, payable annually on 1 October, and must still be provided for. (9) Games Manufacturers Limited owns 120 000 of the 2 500 000 issued shares in Train Limited, bought for R302 000; these JSE-traded shares had a market value of R2,60 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made for the increase, and they are designated as available-for-sale. (10) Games Manufacturers Limited owns 100 000 of the 2 400 000 issued shares in Jet Limited, bought for R250 000; these JSE-traded shares had a market value of R2,50 each on 30 September 2009 and R3,00 each on 30 September 2010, with no adjustment yet made, and they were acquired for speculative purposes. (11) Land with a cost price of R1 million was revalued to a replacement value of R1,5 million on 1 December 2009 by Mr Suid, a sworn appraiser, but no entry has yet been made in the books to record this. With reference to additional information point 1.4 (the R1 million manufacturing contract awarded to Games Manufacturers Limited on 15 October 2010), identify which category of event after the reporting date this represents under IAS10 (AC107).Show the full question

  5. Question 2 · Statement of changes in equity · 28 marks

    The books of Be Aware Limited, as at 30 June 2010, reflect the following balances, with note references shown: stated capital (notes 2, 3, 5.2 and 7) - amount unknown; 12% cumulative preference shares (notes 1, 4 and 5.1) R100 000; 10% redeemable preference shares (note 4) R20 000; reserve for replacement of non-current assets (note 5.4) R45 000; capital redemption reserve fund (note 5.2) - nil; proceeds from 20 000 ordinary shares issued on 31 December 2009, R28 000; retained earnings at 1 July 2009, R40 000; 10% long-term loan R40 000; investments (note 6) R70 000; and profit for the year (note 6) R200 000. Additional information is as follows. (1) At incorporation, Be Aware Limited's authorised share capital comprised 400 000 ordinary shares of R1,20 each, 125 000 12% cumulative preference shares of R4 each, and 50 000 10% redeemable preference shares of R1 each. (2) At incorporation the company issued 100 000 ordinary shares for R140 000. (3) On 30 June 2008 the directors resolved to issue a further 80 000 shares at R1,40 each. (4) No preference shares were issued during the previous financial year. (5) During the current financial year the following transactions took place, all approved by the directors: (5.1) on 1 January 2010, 6 250 12% cumulative preference shares were issued at R4,04 each; (5.2) on 30 May 2010 capitalisation shares were issued to all ordinary shareholders in the ratio of one ordinary share at par for every four ordinary shares already held, funded solely from the capital redemption reserve fund; (5.3) on 1 June 2010 share issue expenses of R8 000 were written off in a manner designed to have the smallest possible effect on distributable reserves; (5.4) the reserve for replacement of non-current assets was increased by R35 000. (6) Investments comprise: (6.1) Only Limited, a company listed on the Johannesburg Securities Exchange, in which 10 000 ordinary shares were bought for speculative purposes at R5 each, with a market value of R8 per share at 30 June 2010; and (6.2) Lonely (Pty) Limited, an unlisted company whose shares are classified as available-for-sale, in which 20 000 ordinary shares were bought at R1 each, with the directors valuing the total holding at R40 000 on 30 June 2010. No entries for either of these investment transactions have yet been recorded in Be Aware Limited's books. (7) On 1 June 2010 the directors resolved to convert the ordinary shares into no-par-value shares. (8) On 30 June 2010 the directors declared an ordinary dividend of 10c per share, this being the first dividend declared or paid, as none had been declared or paid in the prior financial year. You are required to prepare the Statement of changes in equity of Be Aware Limited for the financial year ended 30 June 2010, complying with the Companies Act and Generally Accepted Accounting Practice. Show all calculations, but comparative figures may be omitted and the total column is not required.Show the full question

  6. Question 3 · Statement of financial position · 40 marks

    The following list of balances was extracted from the books of Maklik Limited on 30 June 2010: land at cost (as at 1 July 2009, per note 1.1) R100 000; land and buildings at cost (per notes 1.2 and 1.3) R2 500 000; machinery at cost R800 000; furniture and equipment at carrying amount (as at 1 July 2009) R200 000; investments R400 000; loan to Swop Limited R80 000; trade and other receivables R375 000; inventory R910 000; dividends receivable R18 000; trade and other payables R340 000; sundry expenses (per note 1.4) R150 000; cash at bank R60 000; and profit for the current year before tax and depreciation R930 000. Additional information is as follows. Note 1 deals with property, plant and equipment. Note 1.1: the land comprises erf 200, Nelspruit, and was valued on 30 June 2010 at R200 000 by Mr Ken, an independent sworn appraiser; the land is not an investment property. Note 1.2: the land and buildings comprise a shopping centre and offices situated on erf 100, Nelspruit; the building was completed on 2 January 2010 and is depreciated at 2% per annum on the straight-line basis; the buildings were erected to let out shops and offices; land and buildings are revalued using the fair value model; direct costs debited to the cost of land and buildings were raw materials R1 800 000 and labour R600 000, totalling R2 400 000. Note 1.3: the fair value of the land and buildings referred to in note 1.2 was R2 550 000 on 30 June 2010, per Mr Ken's valuation. Note 1.4: the accountant was uncertain how to treat certain costs incurred during the erection of the buildings in note 1.2, and recorded them as sundry expenses; these were the cost of dismantling old buildings from the premises R60 000, advertising and marketing costs of the new shopping centre R50 000, and the installation cost of an escalator R40 000, totalling R150 000. Note 1.5: all machinery was purchased on 31 December 2008 for R600 000, with installation costs on that date of R200 000; depreciation on machinery is provided at 20% per annum on the reducing-balance method; during the current financial year all machinery was withdrawn from the production process for a period of three months and used instead in the construction of the buildings. Note 1.6: on 31 December 2009, furniture and equipment that originally cost R100 000 and had already been in use for four years at the start of the year was traded in at a loss of R5 000 as part payment for new equipment worth R80 000; furniture and equipment is depreciated at 10% per annum on the straight-line basis; accumulated depreciation on furniture and equipment on 1 July 2009 was R200 000; no other furniture and equipment was purchased or sold during the year. Note 2 deals with investments, which consist of: (2.1) 120 000 ordinary shares in Swop Limited at a cost of R200 000 - the issued share capital of Swop Limited consists of 200 000 ordinary shares of R1 each, each share carrying one vote, and the market value of this investment was R200 000 on 30 June 2010; (2.2) 20 000 12% preference shares in Tops Limited at a cost of R60 000 - the issued share capital of Tops Limited consists of 30 000 ordinary shares of R5 each and 30 000 preference shares of R2 each, each share carrying one vote, the shares of Tops Limited are traded on the Johannesburg Security Exchange, the market value of the preference shares on 30 June 2010 was R5 each, and these shares were mainly acquired for the purpose of making a short-term profit; (2.3) 70 000 ordinary shares in Sun Limited at a cost of R140 000 - the issued share capital of Sun Limited consists of 4 000 000 ordinary shares of R1 each, each share carrying one vote, the shares of Sun Limited are traded on the Johannesburg Security Exchange, the market value on 30 June 2010 was R5 each, and this investment is treated in the books of Maklik Limited as an available-for-sale investment; the three investments together total R400 000. Note 2.4: no entry has yet been recorded in respect of any of the investments in the books of Maklik Limited as at 30 June 2010. Note 3 sets out that inventory on 30 June 2010 consists of raw materials at cost R200 000, work in progress at cost R500 000, handling costs of finished goods R20 000, storage costs of finished goods R40 000, and finished goods at cost R150 000, totalling R910 000; the net realisable value of the raw materials is currently 10% lower than their original cost price. Using all of the information given about Maklik Limited above, prepare the 'Asset' side of the Statement of financial position, together with the relevant supporting notes, of Maklik Limited as at 30 June 2010, in compliance with the requirements of the Companies Act and Generally Accepted Accounting Practice. Comparative figures and the notes regarding accounting policy may be ignored. All calculations must be shown.Show the full question

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