22 2022

MODULE NAME: MODULE CODE:

FINANCIAL ACCOUNTING 2A FIAC6211

ASSESSMENT TYPE: ASSIGNMENT 1 (PAPER ONLY)

TOTAL MARK ALLOCATION: 100 MARKS

TOTAL HOURS: 10 HOURS

By submitting this assignment, you acknowledge that you have read and understood all the rules as
per the terms in the registration contract, in particular the assignment and assessment rules in The IIE
Assessment Strategy and Policy (IIE009), the intellectual integrity and plagiarism rules in the
Intellectual Integrity Policy (IIE023), as well as any rules and regulations published in the student
portal.

INSTRUCTIONS:

1. No material may be copied from original sources, even if referenced correctly, unless it is a
direct quote indicated with quotation marks. No more than 10% of the assignment may
consist of direct quotes.
2. Save a copy of your assignment before submitting it.
3. Assignments must be typed unless otherwise specified.
4. All work must be adequately and correctly referenced.
5. Begin each section on a new page.
6. This is an individual assignment.

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Question 1 (Marks: 60)

Baggage Solutions Ltd manufactures top of the range luggage bags that are extremely light weight,
strong and durable. The company specialises in trolley bags, and these can be sold separately or as
part of a set. The company’s financial year end is 31 March.

The following information is available as at 31 March 2021.

Land and buildings

Baggage Solutions Ltd purchased land with a warehouse from Property Direct for R9 444 375, and the
transfer of the land and building was concluded on 1 July 2019. The normal payment terms of
Property Direct is 2 months after transfer date. The agreement between Baggage Solutions Ltd and
Property Direct states that payment for the property should occur on 1 July 2020.

The land constitutes 20% of the purchase price of the property. The useful life and residual value of
the warehouse is 25 years and R900 000 respectively.

On 1 April 2020 the fair value of the property is R8 700 000.

Vacuum forming machine

The machine was purchased on 1 April 2018, for R525 000. It is used to mould the shape of the trolley
bag by forming a vacuum in the plastic through extreme heat. The machine has an estimated useful
life of 10 years.

On 30 November 2020, due to unscheduled loadshedding, the ceramic heater in the machine
malfunctioned and had to be replaced. The ceramic heater is a significant component of the machine.
The new heater cost R24 450 and its estimated useful life is 3 years.

The accountant is expecting the next inspection cost to be R26 320, and wants to recognise a
provision for this amount on 31 March 2021.

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Warranty

Baggage Solutions Ltd sells all trolley bags with a warranty which covers the cost of repairs for any
defects within the first year of purchase. Past experience and future expectations indicate the
following pattern of probable repairs:

% of goods sold Nature of defects Cost of repairs if all items had

defects
R
85% No defects nil
12% Minor defects 275 000
3% Major defects 550 000

In the prior year, a provision was raised for R75 500. Repair costs incurred and paid during the
current year that relates to the prior year sales of trolley bags, amounted to R67 500. No further
repair costs are expected to be incurred which relates to the prior year sales.

Lawsuit
During the current year, a customer instituted a claim against Baggage Solutions Ltd for damages and
loss suffered of R85 000 during a business flight from George to Pretoria. He arrived in Pretoria to
find his luggage and all his electronic equipment stored in it, damaged beyond repair. The legal
advisors of Baggage Solutions Ltd, are of the opinion that it is possible that the entity will be found
liable. The trial will be finalised in the following year. There is no possibility of claiming this amount
from a third party resulting in reimbursement.

Additional information:

• The pre-tax market related interest rate is 9.5%.

• The revaluation model is applied to both land and buildings. Revaluations are performed at
the beginning of the year.
• The cost model is applied to all other items of property, plant and equipment.

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Required:

Q.1.1 Prepare the journal entries to account for the revaluation of the land and buildings of (16)
Baggage Solutions Ltd for the year ended 31 March 2021. Support your answer with
calculations where necessary.

Q.1.2 Discuss how the replacement of the ceramic heater should be accounted for in the (10)
financial records of Baggage Solutions Ltd for the year ended 31 March 2021.
Support your answer with calculations where necessary.

Q.1.3 Discuss whether or not you agree with the accountant to raise a provision for the (7)
estimated cost of the future major inspection in the financial statement of Baggage
Solutions Ltd as at 31 March 2021.

Q.1.4 Prepare the following notes to the financial statements of Baggage Solutions Ltd for (27)
the year ended 31 March 2021.

• Property, plant and equipment (total column not required)

• Provisions
• Contingent liability

Your answer must comply with the requirements of International Financial Reporting
Standards (IFRS).
Show all calculations as marks are awarded for calculations.
Round all amounts to the nearest Rand.
Comparative figures are not required.
Ignore any VAT consequences.

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Question 2 (Marks: 30)

Part A

Energiser Electricity Ltd is a supplier of prepaid electricity meters in South Africa. Its product range
includes the supply of electricity meter boxes and electricity tokens.

The financial statements of Energiser Electricity Ltd for the year ended 31 December 2019 were
presented to the board of directors on 31 March 2020 to be authorised for issue. Uncertainty still
exists on the following matters that have taken place after the reporting date:

1. On 15 March 2020, the board of directors of Energiser Electricity Ltd declared and approved a
dividend of R80 000, to all existing ordinary shareholders. The dividend will be paid on 4 April
2020.

2. Boost Ltd, a debtor of Energiser Electricity Ltd, was placed in liquidation on 10 January 2020
after having experienced financial difficulties for a period of six months. Boost Ltd owed
Energiser Electricity Ltd an amount of R90 000, which was included in trade and other
receivables at the reporting date in the financial statements of Energiser Electricity Ltd.
Booster Ltd.’s liquidator notified all creditors on 15 March 2020 that the estimated liquidation
dividend would be 25c for every Rand.

On 18 January 2020, one of the accountants resigned from Energiser Electricity Ltd with immediate
effect. Upon further investigation, the entity concluded that this individual had been defrauding the
entity by making payments to himself, from Energiser Electricity Ltd.’s bank account, in relation to
fictitious rental invoices amounting to R25 000. With the help of the South African Police Service, the
individual was tracked down and the misappropriated cash was repaid to the entity on 25 January
2020.

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Part B

Chem Ltd, a subsidiary of Energiser Electricity Ltd is a company that manufactures chemical cleaning
products for the domestic and industrial markets. The company is a VAT vendor and its financial year
end is 31 December. The following information was made available to the financial accountant of
Chem Ltd for the financial year ended 31 December 2019, to be used in the preparation of the annual
financial statements.

Inventory

• Raw materials on hand on 31 December 2018, were 500 litres at a cost of R9 per litre.
• During the current financial year, 16 000 litres of raw materials were purchased for an amount
of R175 800.
• Transportation costs of R1 200 were incurred to transport the raw materials to the premises of
Chem Ltd.
• It is expected that there will be a 1% loss of raw materials during the production process due to
evaporation.
• During December 2019, 430 litres of raw materials were wasted in the production process due
to a malfunction of one of the engines. The cost incurred to repair the engine amounted to R4
750.
• The balance of raw materials at 31 December 2019 is 300 litres.
• The factory supervisor earns a salary of R190 000 per annum.
• The wage cost of R170 000 was incurred as follows: factory workers 75%, cleaning staff in the
factory 5%, administrative workers in the head office 20%.
• Storage costs of R980 were incurred to store the finished goods until they were sold.
• Water and electricity incurred for the current financial year amounted to R48 000, of which
80% is variable and 20% is fixed.
• No work in progress was on hand at the end of the year.
• The number of units produced and sold for the current financial year amounted to the
following:
Units produced Units sold
Budgeted 12 500 -
Actual 11 700 10 700

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• The budgeted fixed production overhead costs amounted to R265 000.

• Chem Ltd uses the weighted average cost formula to calculate the cost of its inventories.
• The selling price per unit produced and completed is R75.
• The sales commission on each unit sold is R15.

The replacement cost for the raw materials per litre is R12.

Required:

Q.2.1 Use the information from Part A and do the following: (15)

Identify each event as an adjusting or non-adjusting event and briefly discuss the effect
of each event on the financial statements of Energiser Electricity Ltd for the financial
year ended 31 December 2019. If the event requires an adjustment in the annual
financial statements, prepare the journal entry to be recorded.

Your answer must comply with the requirements of the International Financial
Reporting Standards (IFRS).

Show all calculations as marks are awarded for calculations.

Round all amounts to the nearest Rand.
Journal narrations are not required.

Q.2.2 Prepare the Inventory note to the financial statements of Chem Ltd for the year ended (15)
31 December 2019, from the information in Part B
Your answer must comply with the requirements of the International Financial
Reporting Standards (IFRS).
Show all calculations as marks are awarded for calculations.
Round all amounts to the nearest Rand.
Comparative amounts are not required.

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Question 3 (Marks: 10)

Shoppers Delight Ltd is a retailer operating in the fast-moving consumer goods industry, and its
financial year end is 30 June.

Due to the COVID-19 social distancing requirements, businesses have to ensure they limit the number
of customers entering into their stores. A digital signage solution company, Moving Target Ltd, has
developed a technology that counts the number of customers.

The ‘digital footfall counter’ keeps track of the number of customers entering and leaving the store
and that number is compared to the stores’ capacity. The counter monitors the number of customers
entering and leaving the premises and works together with digital signage which communicates to
waiting customers, what the stores’ capacity is at any given time.

Shoppers Delight Ltd placed an order for the digital footfall counter together with the digital signage,
which can be purchased as a package, for all its stores in the country on 25 May 2020. It paid R75 000
on the date the order was placed. The delivery and installation of the digital counter and signage was
10 July 2020.

Required:

Discuss in terms of the Conceptual framework for financial reporting, whether the payment to
Moving Target Ltd can be recognised as an asset in the financial statements of Shoppers Delight Ltd
for the year ended 30 June 2020.

Your answer must comply with the requirements of the International Financial Reporting
Standards(IFRS).

END OF PAPER

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