SCHOOL OF ACCOUNTING, ECONOMICS AND FINANCE

ACCOUNTING 2B (ACCT212): TEST 3

Duration: 75 minutes (additional 15 minutes reading time) Total Marks: 50

Total Pages: 6 (including this page) Date: 1 November 2022

Internal Examiners: A Algu CA (SA)

K Gurr CA (SA)
V Gregory CA (SA)
___________________________________________________________________

INSTRUCTIONS TO CANDIDATES:

1. The question paper consists of TWO questions which is set out on 6 numbered
pages. You will be given 15 minutes of reading time.

2. Your attention is drawn to the necessity to provide suitable substantiating reasons

and/ or workings in support of your answers. Where workings are presented
separately from your answer, these must be clearly referenced thereto.

3. Fill in all necessary information on the front cover of your answer booklet.

4. Answers must be written in permanent ink only – no erasable pens are

permitted. Pencil work will not be marked.

5. All parts of the question must be answered.

6. The use of a non-programmable calculator is permitted. No smart watches or cell

phones are permitted.
Question Marks Writing time
Question 1 36 54 minutes
Question 2 14 21 minutes

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School of Accounting, Economics and Finance - Accounting 212 – Test 3 – 1 November 2022

Question 1: (36 marks; 54 minutes)

Marie Limited is a company that manufacturers a range of slabs for fencing solutions.
Marie Limited has been successful and expanded operations to all provinces of South
Africa. Information from the draft annual report for the year ended 31 December 2021
is presented below:

MARIE LIMITED
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2021
2021 2020
R R
ASSETS
Non-current assets 2 180 000 1 540 000
Property, plant and equipment 2 020 000 1 330 000
Intangible assets 160 000 210 000

Current assets 1 920 000 1 560 000

Inventories 610 000 900 000
Trade and other receivables 840 000 590 000
Cash and cash equivalents 470 000 70 000
TOTAL ASSETS 4 100 000 3 100 000

EQUITY AND LIABILITIES

Capital and reserves 1 976 000 1 636 000
Ordinary share capital 600 000 600 000
Revaluation reserve 190 000 190 000
Retained earnings 1 186 000 846 000

Non-current liabilities 1 237 125 740 000

Financial Liability- Preference shares 257 125 0
Long-term borrowings 700 000 500 000
Deferred tax 280 000 240 000

Current liabilities 886 875 724 000

Trade and other payables 446 875 184 000
Provisions 80 000 0
Current tax payable 300 000 500 000
Interest payable 60 000 40 000
TOTAL EQUITY AND LIABILITIES 4 100 000 3 100 000

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School of Accounting, Economics and Finance - Accounting 212 – Test 3 – 1 November 2022

MARIE LIMITED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
2021
R
Revenue 18 500 000
Cost of sales (9 550 000)
Gross profit 8 950 000
Administration expenses (4 000 000)
Distribution expenses (3 550 000)
Operating profit 1 400 000
Finance costs (92 125)
Profit before tax 1 307 875
Income tax expense (307 875)
Profit for the period 1 000 000
Other comprehensive income 0
Total comprehensive income 1 000 000

The following additional information pertains to the year ended

31 December 2021:

Non-current Assets
• The only disposal of property, plant and equipment during the year was that of
plant and equipment which resulted in a loss on disposal of R16 500. The loss
on disposal has been included in the cost of sales amount in the statement of
profit or loss and other comprehensive income.
• Cost of sales includes amortisation of R26 500 for capitalised development
costs amortised during the year and administration expenses includes R15 000
for impairment of a purchased brand name with an indefinite useful life.
• Depreciation of R108 000 is included in cost of sales.

Shareholder Transactions
• 250 000 redeemable preference shares with a coupon rate of 10% were issued
on 1 January 2021 at R1 each. These shares are compulsorily redeemable on
31 December 2024 at a premium of R0.15 per share. The effective interest rate
is 12.85%.
• The preference dividends are declared and paid on 31 December each year
and are nondiscretionary.

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School of Accounting, Economics and Finance - Accounting 212 – Test 3 – 1 November 2022

Provisions
• Provisions relate to legal claims made against Marie Limited by a competitor
during the year ended 31 December 2021. The amount provided is based on
legal opinion at 31 December 2021 and is included in administration expenses.

Foreign Currency Transaction

• Marie Limited sold fencing to Aristo Limited, a French company for EUR65 000.
The order from the French company was received on 25 March 2021, the
fencing was loaded onto the ship in South Africa on 15 July 2021 and were
unloaded in France on 25 July 2021. The fencing was loaded on a 'customs,
insurance and freight' (CIF) basis. The fencing (which Marie Limited had in
stock at the time of the order) cost the company R315 000.
• Aristo Limited paid Marie Limited EUR30 000 on 31 October 2021 and the
remaining EUR35 000 will be paid interest-free on 31 January 2022.
• All journal entries related to the transaction with Aristo Limited have been
correctly accounted for in the financial statements shown above. Foreign
exchange gains and losses have been included in administration expenses in
the statement of comprehensive income.
• Related exchange rates are as follows:

Spot Rate
Date
EUR1: R?
25 March 2021 1 : 17.66
15 July 2021 1 : 17.03
25 July 2021 1 : 17.34
31 October 2021 1 : 17.62
31 December 2021 1 : 17.81
31 January 2022 1 : 18.16

Other information
• The 2021 financial statements of Marie Limited were approved by the directors
on 3 March 2022.
• On 27 December 2021, an ordinary dividend was declared and paid in cash.

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School of Accounting, Economics and Finance - Accounting 212 – Test 3 – 1 November 2022

REQUIRED:
Show and reference ALL workings. Round off to the nearest rand.

Marks
(a) Refer to the foreign currency transaction information between
Marie Limited and Aristo Limited. Prepare the entries in journal form in
the accounting records of Marie Limited for all matters relating to this
16
transaction for the years ended 31 December 2021 and 2022.

All the relevant dates and journal narrations are required.

(b) Prepare the operating activities section ONLY for the statement of
cash flows, using the direct method, for Marie Limited for the year
ended
31 December 2021, in accordance with IAS 7 Statement of Cash
Flows. 20

Marie Limited classifies dividends paid, and interest received and paid
as operating cash flows.

Notes are NOT required.

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School of Accounting, Economics and Finance - Accounting 212 – Test 3 – 1 November 2022

Question 2: (14 marks; 21 minutes)

Thandeka Limited (“Thandeka”) manufactures cooldrinks that are popular throughout

South Africa. The financial accountant of Thandeka Limited is concerned about how
to account for the following material events that took place during 2022. The financial
statements of Thandeka for the current year ended 31 December 2021 were approved
by the directors on 3 April 2022:

1. On 28 February 2022, Thandeka paid a dividend of R150 000. The dividend

was declared on the 15 January 2022 as the company had made substantial
profits during its financial year ended 31 December 2021.
2. A damages claim for R2 000 000 for a patent infringement had been served on
Thandeka prior to 31 December 2021. After consulting with their lawyers during
the last week of December 2021, the directors are of the opinion that the claim
will be dismissed by the courts. This opinion of the directors did not change by
3 April 2022, after further consultation with the company’s attorneys. However,
it will still involve the expenditure of considerable legal fees, some of which were
incurred prior to year-end.
3. Financial assets of Thandeka comprising listed share investments with a
carrying amount and fair value of R1 050 000 at 31 December 2021 was quoted
on the JSE at R750 000 on 3 April 2022.

REQUIRED:
Marks
Draft an email to the financial accountant of Thandeka Limited,
discussing with reasons, how each of the material events should be
dealt with in the financial statements of Thandeka Limited for the year
ended 31 December 2021, in terms of International Financial Reporting
Standards. Regarding each of the items 1 to 3 above, you are required
14
to include in your discussion:
• Whether an event after year-end exists
• Whether the event is considered to be an adjusting event or not
• The treatment of the event in the financial statements for the year
ended 31 December 2021.

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