FACULTY OF ACCOUNTING AND INFORMATICS

Department of Financial Accounting

Department of Finance & Information Management

2024
Financial Accounting 2 – Module 1
TEST 1

INSTRUCTIONAL
PROGRAMME: ND: Accounting (FAI DIACC1; FAI NDACF1
ND: Accounting (ECP) (FAI NDACF1)
ND: Cost & Management Accounting (FAI NDCMA3)
ND: Cost & Management Accounting (ECP) (FAI NDCAF2)
ND: Taxation (FAI NDTAX3)
ND: Taxation (ECP) (FAI NDTXF1)
ND: Internal Auditing (FAI DIIAU1; FAI NDIAU3)
ND: Internal Auditing (ECP) (FAI NDIAF1)
ND: Office Management & Technology (NDOMT2; NDOMN1)
INSTRUCTIONAL OFFERING: Financial Accounting 2 – Module 1
SUBJECT CODES: FCTN221; FACB201; FACC223; FACN221 & FACB201
DATE: 22 March 2024
DURATION: 90 minutes
TOTAL MARKS: 50
NUMBER OF PAGES: (Including Cover)
EXAMINERS: Mr B T Ngiba, Mr S Abbana & Mr S Cele
MODERATOR: Dr H Maama

INSTRUCTIONS:
1. Answer all the questions in English.
2. Use of arithmetic calculator is permitted.

Question Description of Topic Marks Time (minutes)

1 Question 1 (Conceptual Framework) 10 15

2 Question 2 (Presentation of Financial Statements: IAS1) 25 50

3 Question 3 (Inventories: IAS 2) 15 25

90

1
QUESTION 1 (10 MARKS: 15 MINUTES)

1.1 The application of the criteria, if the transaction satisfies the criteria of the definition
of a liability (present obligation, past event, and transfer of economic benefits) and
must be applied to the context of the business.
Definition - "A present obligation of the entity to transfer an economic
resource as a result of past events"✓
Present obligation – The company concluded warranty agreements with its major
retailers, which creates a possible obligation upon the company from the moment
the goods are sold to the retailers. The warranty obligation is in place only when
the goods are sold to the customer and there is risk of the end users (customers
of the retailer) will return the goods in terms of the warranty agreement. The date
from which the present obligation exists is the date goods are
sold to retailers. ✓
Transfer of economic benefit – If goods are returned by the retailers in terms of the
warranty agreement, then there exists the potential that economic benefits,
whether replacement goods or the cost of repairs will be transferred from the
company. ✓
Past event – The past event is not the signing of the warranty agreement but the
sale of the goods to the retailers – if no goods are sold then there is no risk of the
company having the obligation to fulfill its warranty obligations. ✓

The warranty agreement satisfies all the criteria of the definition of a liability with
effect from the date, goods are sold to retailers and can therefore be
classified as a liability. ✓

2
1.2 The application of the criteria, if the transaction satisfies the criteria of the
definition of income (past event, result from carrying on business, inflow of
economic benefits and increase in equity) and must be applied to the context of
the business.

Definition – “increases in assets or decreases in liabilities that result in

increases in the residual interest, other than those relating to contribution
from holders of equity claims. ✓

Increase in assets – The interest received from the customer represents an

increase in assets (cash) to the business – treated as other income (not part of
core business). ✓

Increase in equity – Interest received results in an increase in equity ✓, other than

a contribution from the shareholder. ✓

The transaction satisfies all the criteria of the definition of income and can therefore
be classified as income. – treated as other income ✓

3
QUESTION 2 (25 Marks: 50 Minutes)

2.1 Statement of Comprehensive Income

Script Spider
Statement of Comprehensive Income for the year ended 28 February 2023
R’s
Revenue (1 822 500 + 225 000 + 59 500) 2 107 000✓
Sales (2 130 950 x (100/115) (1 853 000 - 30 500) 1 822 500 ✓✓p
Cost of Sales (565 000) ✓
Gross profit 1 257 500
Other Income (225 000✓ + 59 500✓ + 30 500✓) 315 000

Other Expenses (660 000) ✓✓p

(200 000 + 25 000 + 35 000 + 50 000 + 200 000 + 150 000)

Finance Cost (85 000) ✓

Profit before taxation 827 500
Taxation (175 000 + 5 000) (180 000) ✓
Profit for the year 647 500
Other Comprehensive Income 15 000 ✓
Total Comprehensive Income for the year 662 500✓p

4
Statement of Changes in Equity
Script Spider
Statement of Changes in Equity for the year ended 28 February 2023

Details Ordinary Revaluation Retained Total

Share Capital Surplus Earnings
Balance at *275 000 ✓ - 200 000 475 000
1 March 2022
Total Comprehensive - 15 000 ✓p 647 500 ✓p 662 500
Income
New Share Issue 250 000 ✓ - - 250 000

Dividends declared - - (375 000) ✓ (375 000)

Balance at 525 000 15 000 472 500 1 012 500

28 February 2023
*525 000 – 250 000 = 275 000

2.2 Profit before taxation note

Script Spider
Notes to the financial statements for the year ended 28 February 2023
Note: Profit Before Taxation
Profit before tax is stated after accounting for the following items:

R's
Expenses: Depreciation on Plant & Machinery 150 000 ✓
Auditors remuneration 5 000 ✓
Impairment loss 2 500 ✓
Foreign Exchange loss 2 500 ✓
Director's remuneration: 120 000
- Salary 100 000✓
- Travel 20 000✓

Operating lease (7 500 + 25 000) 32 500 ✓

5
 Income: Dividend Income 225 000 ✓
Interest Income 59 500 ✓
Profit on sale of plant 30 500 ✓
(10 x ½ marks)

2.3 Taxation expense note

Script Spider
Notes to the financial statements for the year ended 28 February 2023

Note: Taxation
R's
South African normal taxation - current year 175 000 ✓
Under provision - prior period 5 000 ✓

6
QUESTION 3 (15 MARKS: 27 MINUTES)

Part A

Details Amount
(R’s)
Purchase price (100 x 15 000 x 10) 15 000 000 ✓
Import duties 1 500 000 ✓
Transport costs 100 000 ✓
Trade discount (100 x 1000 x 10) (1 000 000) ✓
Administrative overheads -
Total cost of inventory 15 600 000 ✓

Part B

2022:

Dr Inventory write-down/ cost of sales ✓ 1 732 500

Cr Inventory (SOFP) 1 732 500 ✓

Being write of inventory to NRV

Details Amount
(R’s)
Cost (R156 000 X 45) 7 020 000
✓
Less Net Realisable Value (5 287 500)
✓
Estimated selling price (R120 000 X 45) 5 400 000
Less: cost to sell (112 500)
Write down on inventory 1 732 500
✓

7
2023:
Dr Inventory (SOFP) 577 500

Cr Cost of sales/Reversal of write-down on inventory ✓ 577 500 ✓

Details Amount
(R’s)
Carrying value (R5 287 500/45 = 117 500 x 15) 1 762 500✓
Less: Net Realisable Value (2 431 875 limited to cost R2 340 000) (2 340 000)
✓
Estimated selling price (R170 000 X 15) 2 550 000
Less: cost to sell (118 125)
Reversal of write-down on inventory 577 500✓