Tutorial Letter 102/3/2014: Financial Accounting For Companies FAC2601

FAC2601/102/3/2014
Tutorial letter 102/3/2014
Financial Accounting for Companies
FAC2601
Semesters 1 and 2
Department Financial Accounting

Dear Student
Enclosed please find additional questions and solutions
Contact details of the module are as follows:
Telephone number: (012) 429-4238

E-mail: [email protected]
Bar code
Please use the following e-mail or SMS numbers for administrative related enquiries:
Description of enquiry Short SMS code E-mail address

Applications and registrations 43578 [email protected]
Assignments 43584 [email protected]
Exams 43584 [email protected]
Study material 43579 [email protected]
Student accounts 31954 [email protected]
myUnisa 43582 [email protected]
myLife [email protected]
Graduations [email protected]
For further assistance you can contact the College Information Coordinator:
Ms Portia Ngcobo
Telephone number: (012) 429-3925
E-mail: [email protected]
With kind regards,
LECTURERS: FINANCIAL ACCOUNTING FOR COMPANIES (FAC2601)
ANNEXURE A: ADDITIONAL QUESTIONS AND SOLUTIONS
2
FAC2601/102
ANNEXURE A: ADDITIONAL QUESTIONS AND SOLUTIONS
QUESTION 1 (37 marks) (45 minutes)
Players Ltd entered into the following transactions in the ordinary shares and options to ordinary
shares of Jacey Ltd, a company listed on the JSE Ltd. Players Ltd’s financial year ends on
31 December.
20.6
2 January Purchased 6 000 ordinary shares at 150 cents

15 February Sold 2 000 ordinary shares at 160 cents
19 March Purchased 4 000 ordinary shares at 156 cents
3 April Sold 2 000 ordinary shares at 164 cents
15 April Received one bonus ordinary share in Jacey Ltd for every five ordinary
shares held on 10 April
18 May Purchased 4 000 ordinary shares at 135 cents
23 June Sold 3 200 ordinary shares at 133 cents
11 August Purchased 1 000 ordinary shares at 140 cents
1 September Received from Jacey Ltd an option to subscribe for one ordinary share at
80 cents for every four ordinary shares held. On
31 August 20.6 the closing price per ordinary share was R1,45.
15 October Sold 4 000 ordinary shares at 130 cents
30 October Sold 500 options to ordinary shares at 48 cents
6 November Purchased 1 000 options to ordinary shares at 45 cents
10 December Sold 2 050 options to ordinary shares at 48 cents
30 December Converted 500 options to ordinary shares into ordinary shares
Additional information
1. Investment transactions are accounted for using the first-in-first-out method.
2. Options to ordinary shares in Jacey Ltd expire on 31 December 20.6.
3. The closing price on the JSE Ltd on 31 December 20.6 for an ordinary share in Jacey Ltd is
126 cents.
4. Options to shares were not acquired for hedging purposes.
REQUIRED:
Prepare the share and option accounts in respect of the investments in Jacey Ltd in the general ledger
of Players Ltd for the year ended 31 December 20.6. All general ledger accounts prepared must be
properly closed off.
3
SOLUTION 1
General ledger of Players Ltd
Investment in shares - Jacey Ltd
Price Number Amount Price Number Amount
20.6 R R 20.6 R R
02/01 Bank 1,50 6 000 9 000 15/02 Bank 1,60 2 000 3 200
15/02 Fair value Balance c/d 1,50 4 000 6 000
1
adjustment 200
6 000 9 200 6 000 9 200
15/02 Balance b/d 1,50 4 000 6 000 03/04 Bank 1,64 2 000 3 280
19/03 Bank 1,56 4 000 6 240 Balance c/d 1,50 2 000 3 000
03/04 Fair value Balance c/d 1,56 4 000 6 240
2
adjustment 280
8 000 12 520 8 000 12 520
03/04 Balance b/d 1,50 2 000 3 000 14/04 Balance c/d 1,50 2 000 3 000
Balance b/d 1,56 4 000 6 240 Balance c/d 1,56 4 000 6 240
6 000 9 240 6 000 9 240
15/04 Balance b/d 1,25 2 400 3 000 23/06 Bank 1,33 3 200 4 256
Before capita- Balance c/d 1,30 4 000 5 200
lisation issue 1,50 2 000 3 000 Balance c/d 1,35 4 000 5 400
Capitalisation
issue - 400 -
Balance b/d 1,30 4 800 6 240
Before capita-
lisation issue 1,56 4 000 6 240
Capitalisation
issue - 800 -
18/04 Bank 1,35 4 000 5 400
23/06 Fair value
3
adjustment 216
11 200 14 856 11 200 14 856
Balance b/d 1,35 4 000 5 400
11/08 Bank 1,40 1 000 1 400
31/08 Fair value
4
adjustment 1 050
9 000 13 050 9 000 13 050
5
31/08 Balance b/d 1,45 9 000 13 050 01/09 Options 1 170
5
Balance c/d 1,32 9 000 11 880
9 000 13 050 9 000 13 050
01/09 Balance b/d 1,32 9 000 11 880 15/10 Bank 1,30 4 000 5 200
Fair value
6
adjustment 80
Balance c/d 1,32 5 000 6 600
9 000 11 880 9 000 11 880
9
30/12 Options 1,25 500 625 Fair value
11
adjustment 295
5 500 7 225 5 500 7 225
31/12 Balance b/d 1,26 5 500 6 930
4
FAC2601/102
SOLUTION 1 (continued)
Investment in options - Jacey Ltd

Price Number Amount Price Number Amount
20.6 R R 20.6 R R
5
01/09 Investment 0,52 2 250 1 170 30/10 Bank 0,48 500 240
Balance c/d 0,52 1 750 910
Fair value
7
adjustment 20
2 250 1 170 2 250 1 170
30/10 Balance b/d 0,52 1 750 910 10/12 Bank 0,48 2 050 984
06/11 Bank 0,45 1 000 450 Fair value
8
adjustment 61
Balance c/d 0,45 700 315
2 750 1 360 2 750 1 360
9
10/12 Balance b/d 0,45 700 315 30/12 Investment 1,25 500 625
9
30/12 Bank 400 Fair value
10
adjustment 0,45 200 90
700 715 700 715
Calculations
R
1. Fair value of shares (2 000 x R1,60) 3 200
Carrying amount of shares sold (2 000 x R1,50) (3 000)
Fair value adjustment 200


Carrying amount of shares sold
2 400 x R1,25 (3 000)
800 x R1,30 (1 040)

Carrying amount of shares (5 200 + 5 400 + 1 400) (12 000)
Fair value adjustment 1 050
5
Number Amount
R
5. Before rights issue 9 000 x R1,45 13 050
Rights issue (9 000/4) 2 250 x R0,80 1 800
11 250 14 850
Ex-rights value per share (R14 850/11 250 shares) 1,32

Rights issue price (0,80)
Rights value 0,52
Value of options/rights (2 250 x R0,52) 1 170

Ex-rights value of shares (9 000 x R1,32) 11 880

Fair value adjustment (80)
7. Fair value of shares (500 x R0,48) 240

Carrying amount of options sold (500 x R0,52) (260)
8. Fair value of options (2 050 x R0,48) 984

Carrying amount of options sold
(1 750 x R0,52) (910)
(300 x R0,45) (135)
9. To convert options to shares

Pay cash amount (R0,80 x 500 options) 400
Transfer option value to investment in shares account (R0,45 x 500 options) 225
R1,25 x 500 options 625
10. Options not converted to shares on 31 December have no value and must be written off
(200 options x R0,45) 90
11. Fair value of shares (subsequent measurement) 6 930

(5 500 x R1,26)
Carrying amount of shares (6 600 + 625) (7 225)
6
FAC2601/102
The following list of balances on 31 December 19.9 appeared in the accounting records of All Ltd:
R
Inventories 240 000
Loans 110 000
Trade and other receivables 36 000
Trade and other payables 25 000
Provisional tax payments 30 000
Dividends payable 5 000
Deferred taxation (Cr) 2 000
Bank (Dr) 75 000
Retained earnings (31/12/19.9) 120 000
Long-term loan 150 000
Land at valuation 400 000
Buildings at cost 420 000
Machinery and equipment at cost 250 000
Motor vehicles at cost (31/12/19.8 – R280 000) 310 000
Accumulated depreciation (31/12/19.9)
- Machinery and equipment 55 000
- Motor vehicles (31/12/19.8 – R80 000) 119 500
Investments 136 000
1. Inventory is valued at the lower of cost or net realisable value.
2. Inventory consists of: R

- Raw material 100 000
- Finished products 50 000
- Consumables 30 000
- Work in progress 60 000
3. The long-term loan was incurred on 31 August 19.3 at an interest rate of 20% per annum payable
monthly in arrears. The capital portion is repayable in five equal annual instalments of R30 000
each beginning on 28 February 19.7. The loan is secured by a first mortgage bond over land and
buildings.
4. Loans consist of the following:

R
- Loan to Tram Ltd 20 000
This loan was granted on 30 June 19.9 at an interest rate of 15% per annum and no
security was provided.
- Loan to parent Tol Ltd 90 000

The loan was granted on 1 January 19.5 at an interest rate of 12% per annum
payable monthly in arrears. Tol Ltd provided security for the loan. The loan
fluctuated between R70 000 and R100 000 during the year. No fixed terms of
repayment was agreed upon.
5. Land and buildings are owner occupied and consist of land situated on Erf 10, Sunnyside, Pretoria,
a factory building and a shopping centre. The land was acquired on 1 March 19.4 for R240 000 and
was revalued for the first time during April 19.9 by Mr Pal, a sworn appraiser. The buildings were
erected during October 19.9 at a cost of R420 000, and was completed on 31 October 19.9. The
buildings were brought into use on 1 November 19.9. No depreciation is written off on land, but it is
company policy to revalue land every three years at replacement value.
7
QUESTION 2 (continued)
6. Other non-current assets are depreciated at the following rates and methods:
Buildings – 2% per annum using the reducing balance method.

Machinery and equipment – 15% per annum using the straight line method.
Motor vehicles – 25% per annum using the reducing balance method.
7. The only other transaction regarding non-current assets apart from the transaction in note 5 is the
following:
On 2 January 19.9, a motor vehicle which originally cost R40 000 and on which depreciation of
R24 000 was already written of, was traded in on a new vehicle costing R70 000.
8. Investments consist of the following:
- 60 000 Ordinary shares in Tram Ltd at a cost of R60 000. The issued share capital of Tram Ltd
consists of 80 000 ordinary shares. Each share has one vote. The market value of the
investment was R60 000 on 31 December 19.9.
- 20 000 Preference shares in Trok Ltd purchased for speculative purposes. The issued share
capital of Trok Ltd consists of 200 000 ordinary shares and 40 000 preference shares. Each
ordinary share has one vote. The shares of Trok Ltd are traded on the JSE Ltd and the market
value of the preference shares on 31 December 19.9 amounted to R2,30 per share.
- 30 000 Ordinary shares in Lorry (Pty) Ltd at a cost of R30 000. The issued share capital of
Lorry (Pty) Ltd consists of 400 000 ordinary shares. Each share has one vote. The directors
value the shares at R1,00 each. These shares are classified as assets at fair value through other
comprehensive income (not held for trading).
9. The accountant neglected to make provision for tax for the current year amounting to R60 000.
REQUIRED:
Prepare the “Asset” section of the statement of financial position of All Ltd at 31 December 19.9, as
well as the relevant notes thereto, to comply with the requirements of the Companies Act (2008) and
International Financial Reporting Standards (IFRS).
Ignore comparative figures and the accounting policy note.
8
FAC2601/102
SOLUTION 2
ALL LTD
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 19.9
ASSETS Notes R
Non-current assets 1 404 100

Property, plant and equipment 1 1 204 100
Investment in subsidiary 2 80 000
Financial assets 3 30 000
Loan to parent 4 90 000
Current assets 397 000

Inventories 5 240 000
Cash and cash equivalents 75 000
Total assets 1 801 100
ALL LTD
NOTES AT 31 DECEMBER 19.9
1. Property, plant and equipment

Machinery
and Motor
Land Buildings equipment vehicles Total
R R R R R
Carrying amount 1/1/19.9 240 000 - 232 500 200 000 672 500
Cost/valuation 240 000 - 250 000 280 000 770 000

Accumulated depreciation - - d (17 500) (80 000) (97 500)
Revaluation 160 000 - - - 160 000

Additions at cost - 420 000 - 70 000 490 000
Disposals at carrying amount - - - (16 000) (16 000)
Depreciation - f (1 400) c (37 500) e (63 500) (102 400)
Carrying amount 31/12/19.9 400 000 418 600 195 000 190 500 1 204 100
Valuation/Cost 400 000 420 000 250 000 310 000 1 380 000
Accumulated depreciation - (1 400) (55 000) (119 500) (175 900)
Land and buildings consist of erf 10 Sunnyside, Pretoria, a factory building and a shopping centre. The
land was revalued during 19.9 at replacement value by mr Pal, a sworn appraiser. A first bond over
land serves as security for the long-term loan.
c 15% x 250 000

d Balancing figure
e 25% x (280 000 – 40 000 + 70 000) – (80 000 – 24 000)
f 2% x 420 000 x 2/12
9
R
2. Investment in subsidiary 80 000
Shares at cost 60 000

Loan to subsidiary 20 000
3. Financial assets 76 000

Non-current assets
Financial assets at fair value through other comprehensive income
Unlisted 30 000
30 000 Ordinary shares in Lorry (Pty) Ltd (cost price R30 000)
Current assets
Financial assets at fair value through profit or loss – held for trading
Listed 46 000
20 000 Preference shares in Trok Ltd (cost price R46 000)
4. Loan to parent
Secured loan 90 000
The loan was granted to Tol Ltd on 1 January 19.5. Highest outstanding balance during
the year was R100 000. No fixed terms of repayment was agreed upon and interest is
calculated at 12% per annum.
5. Inventory 240 000
Raw materials 100 000

Finished goods 50 000
Consumables 30 000
Work in progress 60 000
10
FAC2601/102
The following balances were taken from the financial records of Miller Ltd at 28 February 19.9:
R
Ordinary share capital – 250 000 shares 480 000
100 000 8% Preference shares 200 000
Reserve for increased replacement value of non-current assets 6 000
Share issue expenses 1 000
Loan from McDonald Ltd 80 000
Loan from Nala Ltd 45 000
Land at cost 772 500
Bank overdraft 14 000
Profit after tax (year ended 28/2/19.9) 121 500
Fair value adjustment – financial asset at fair value through other comprehensive income
(not held for trading) 2 000
1. Miller Ltd was incorporated on 1 March 19.6 with an authorised share capital of:
- 400 000 Ordinary shares

- 120 000 8% Preference shares.
2. The long-term loan from Nala Ltd bears interest at an annual rate of 10% payable monthly in
arrears and is secured by a first bond over land. The capital portion is repayable in 10 equal annual
instalments starting on 1 December 19.8.
3. The loan from McDonald Ltd is unsecured and interest is payable at the rate of 15% per annum
payable monthly in arrears. The loan was acquired on 30 June 19.8 and is repayable in a single
instalment on 1 July 20.1.
4. Included in profit after tax is a fair value adjustment (profit) on a financial asset held for trading, to
the amount of R1 000.
The following information must still be taken into account in the order that it occurred:
1. On 28 February 19.9, 20 000 ordinary shares were issued at R1,25 each. No entries have been
recorded as yet.
2. On 28 February 19.9 the directors decided to make a capitalisation issue out of profits to ordinary
shareholders on the basis of one ordinary share for every six ordinary shares held at R1,00 each.
3. Land was revalued by a sworn appraiser, Mr Worthy, on 28 February 19.9 at a market value of
R800 000.
4. The reserve for increased replacement value of non-current assets, must be decreased to R4 000.
5. A final ordinary dividend of 8 cents per share was declared on 28 February 19.8 to all shareholders
registered on 26 February 19.9.
6. The directors decided to write off the share issue expenses against retained earnings.
11
7. On 28 February 19.9, McDonald Ltd informed Miller Ltd that the interest payments on the loan were
still outstanding. After an investigation into the matter Miller Ltd confirmed that the payments were
still outstanding. The two parties reached an agreement that the payment of the dividends which
are in arrears will take place on 1 March 19.9.
REQUIRED:
a. Prepare the “Equity and liabilities” section (including the relevant notes thereto) of the statement of
financial position of Miller Ltd at 28 February 19.9.
b. Prepare the statement of changes in equity of Miller Ltd for the financial year ended
28 February 19.9.
Both your answers should comply with the requirements of International Financial Reporting
Standards (IFRS).
Accounting policy notes are not required.
Comparative figures are not required.
12
FAC2601/102
SOLUTION 3
a. MILLER LTD
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 19.9
EQUITY AND LIABILITIES Notes R
Total equity 897 500

Share capital 1 750 000
Other components of equity 2 33 500
Retained earnings 114 000
Non-current liabilities 120 000

Long-term loan 3 120 000
Current liabilities 101 000

Trade and other payables (52 000 + 8 000) 60 000
Current portion of long-term loan 5 000
Dividends payable (20 000 + 16 000) 36 000
Total equity and liabilities 1 118 500
MILLER LTD
NOTES AT 28 FEBRUARY 19.9
1. Share capital
R
Authorised
400 000 Ordinary shares
120 000 8% Preference shares
Issued
315 000 Ordinary shares – (calculation 2) 550 000
100 000 8% Preference shares 200 000
750 000
During the accounting period 20 000 ordinary shares were issued at R1,25 per share.
2. Other components of equity
Reserves consist of:

Non-distributable reserve 27 500
Surplus on revaluation of non-current asset 27 500
Distributable reserve 6 000

Reserve for increased replacement cost of non-current assets 4 000
Mark to market reserve 2 000
33 500
13
3. Non-current liabilities
Long-term loan R
Secured
Loan – Nala Ltd
Amount outstanding 45 000
Short term portion (45 000/9 remaining instalments) (5 000)
40 000
The loan bears interest at 10% per annum payable monthly in arrears and the capital
amount is repayable in 10 equal annual instalments of R5 000 each as from
1 December 19.8 and is secured by a bond over land (refer to note).
Unsecured
Loan – McDonald Ltd
Amount outstanding 80 000
The loan bears interest at 15% per annum, payable montly in arrears and the capital amount is
repayable on 1 July 20.1.
b. MILLER LTD
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 19.9
Reserve for
Surplus on increased
8% revaluation replacement
Preference of non- cost of non- Mark to
Share share current current market Retained
capital capital assets assets reserve earnings Total
R R R R R R R
Balance: 1 March 19.8 480 000 200 000 - 6 000 - 80 500 766 500
Total comprehensive
income for the year - - 27 5001 - 2 000 113 500 143 000
Ordinary shares issued 25 000 - - - - - 25 000
Capitalisation shares
issued 45 000 - - - - (45 000) -
Share issue expenses
written-off - - - - - (1 000) (1 000)
Transfer to retained
earnings - - - (2 000) - 2 000 -
Dividends declared
- Ordinary dividends - - - - - (20 000) (20 000)
- Preference dividends - - -- - - (16 000) (16 000)
Balance:
28 February 19.9 550 000 200 000 27 500 4 000 2 000 114 000 897 500
1 (800 000 – 772 500)
14
FAC2601/102
Calculations
1. Profit for the year (adjusted)

R
Profit (given) 121 500
Interest paid (15% x 8/12 x 80 000) (8 000)
113 500
2. Ordinary share capital

Number
of
shares R
Balance 250 000 480 000
Issued on 27/2/19.9 (20 000 x R1,25) 20 000 25 000
Capitalisation issue (270 000/6 x R1) 45 000 45 000
315 000 550 000
3. Dividends
Ordinary 250 000 x 8c 20 000

Preference R200 000 x 8% 16 000
15
The following information was taken on 31 December 2011 from the accounting records of
Apple (Pty) Ltd, a manufacturing company:
Land at valuation (additional information 1) .............................................................................. 800 000

Factory buildings at cost (additional information 1) .................................................................. 960 000
Motor vehicles at carrying amount (31/12/2010) (additional information 2 & 3)........................ 420 000
Crane at cost (additional information 1 & 2) ............................................................................. 480 000
Machinery and equipment at cost (31/12/2010) (additional information 2 & 3) ........................ 360 000
Accumulated depreciation:
- Motor vehicles (31/12/2010) ................................................................................................. 280 000
- Crane (31/12/2010) .............................................................................................................. 120 000
- Machinery and equipment (31/12/2010) ............................................................................... 120 000
Investments at cost (additional information 5) .......................................................................... 32 000
Loan (additional information 6) ................................................................................................. 25 000
Inventories (additional information 4) ........................................................................................ 390 000
Trade and other receivables ..................................................................................................... 627 200
Bank overdraft .......................................................................................................................... 168 000
Trade and other payables ......................................................................................................... 195 000
Prepaid lease expenses ........................................................................................................... 4 600
The new financial manager supplied the following information in respect of transactions that occurred
during the 2011 financial year:
1. Land and buildings are owner occupied and consist of erf 135, Midrand, with a factory building
thereon. The land was acquired on 1 March 2010 for R380 000. Factory building was erected
during the current year at a cost of R960 000. The company withdrew its crane from production
for a period of 5 months during which time it was used in the process of erecting the factory
building This cost was not taken into consideration in determining the cost of R960 000 for the
erection of the building. The building was completed on 31 December 2011. The land was
revalued on 31 December 2011 at net replacement value by Mr S Coetzee, a sworn appraiser.
2. Non-current assets are depreciated as follows:
- Crane (acquired on 1 October 2009): straight-line method over 60 months.

- Machinery and equipment: 20% per annum using the reducing balance method.
- Motor vehicles: 20% per annum using the straight-line method.
- Buildings: 2% per annum using the straight-line method.
3. The following transactions in respect of non-current assets took place during the year:
- On 30 June 2011 a motor vehicle with a cost price of R60 000 and on which R30 000
depreciation was already written off at 1 January 2011 was sold for R50 000. A new
vehicle costing R102 600 (VAT included) was purchased on the same date to replace the
old vehicle.
16
FAC2601/102
- The company decided to buy an additional machine for the business. It was calculated that
the machine would have a residual value of R10 000. The cost price of the machine was
R150 000 on 1 July 2011 (date of purchase).
4. Inventories consisted of the following on 31 December 2011 (cost price):
- Raw materials R140 000

- Work in progress R200 000
- Finished goods R 50 000
At the 2011 year end the directors determined that the net realisable values of the inventories
were as follows:
- Raw material : 5% below cost

- Work in progress : 5% above cost
- Finished goods : 5% below cost
5. Investments consisted of the following on 31 December 2011:
- 7 000 Ordinary shares in Jones Ltd purchased for R15 000. These shares were classified
as an “investment through profit or loss”, purchased for speculation purposes. The issued
share capital of Jones Ltd consists of 200 000 ordinary shares. Each share has one vote.
These shares are traded on the JSE Ltd and the fair value of the shares was R3,00 each
on 31 December 2011.
- 5 000 Preference shares in Blake Ltd purchased for R17 000. The issued preference share
capital of Blake Ltd consists of 20 000 preference shares. These shares are traded on the
JSE Ltd and the fair value of the shares was R4,00 each on 31 December 2011. These
shares are classified as an “investment at fair value through other comprehensive income”
(not held for trading).
6. Loans on 31 December 2011, consisted of the following:
- Loan to Shaik (Pty) Ltd to the amount of R25 000. Interest is calculated on the loan at
15% per annum payable monthly in arrears. The loan is secured by a first mortgage bond
over the company’s immovable property. The capital portion of loan is repayable on 31
December 2015.
REQUIRED:
Prepare only the “Asset” section of the statement of financial position as well as the property, plant
and equipment note (PPE) of Apple (Pty) Ltd at 31 December 2011. Your answer should comply with
the requirements of the Companies Act (2008) and International Financial Reporting Standards
(IFRS).
The accounting policy note is not required.
All amounts exclude VAT (where appropriate), except where otherwise noted.
Ignore the total column in the property, plant and equipment note.
17
SOLUTION 4
APPLE (PTY) LTD

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011
Notes R
ASSETS
Non-current assets .......................................................................................................... 2 780 000
Property, plant and equipment......................................................................................... 1 2 735 000
Financial asset at fair value through other comprehensive income
(not held for trading) .......................................................................................................... 20 000
Loan ................................................................................................................................... 25 000
Current assets.................................................................................................................. 1 033 300

Inventories ......................................................................................................................... 380 500
Trade and other receivables .............................................................................................. 627 200
Financial asset at fair value through profit or loss ............................................................. 21 000
Deferred expenses ............................................................................................................ 4 600
Total assets ...................................................................................................................... 3 813 300
APPLE (PTY) LTD

NOTES FOR THE YEAR ENDED 31 DECEMBER 2011
Machinery
Motor and
Land Buildings vehicles Crane equipment Total
R R R R R R
Carrying amount
1/1/2011 ......................... 380 000 - 420 000 360 000 240 000 1 400 000
Cost............................... 380 000 - 700 000 480 000 360 000 1 920 000
Accumulated deprecia-
tion ................................ - - (280 000) (120 000) (120 000) (520 000)
Depreciation .................... - - (143 000) (56 000) (62 000) (261 000)
Additions to cost ............. - 960 000 90 000 - 150 000 1 200 000
Disposals at carrying
amount .......................... - - (24 000) - - (24 000)
Depreciation capitalised.. - 40 000 - (40 000) - -
Revaluation ..................... 420 000* - - - - 420 000
Carrying amount
31/12/2011 .................... 800 000 1000 000 343 000 264 000 328 000 2 735 000
Cost/Valuation .............. 800 000 1000 000 730 000 480 000 510 000 3 520 000
Accumulated depre-
ciation............................ - - (387 000) (216 000) (182 000) (785 000)
*Balancing figure
The land was revalued on 31 December 2011 at net replacement value by an sworn independent
appraiser.
18
FAC2601/102
Calculations
1. Motor vehicles
R
1.1 Cost at 1 January 2011
Carrying amount at 31 December 2010 ....................................................................... 420 000

Accumulated depreciation at 31 December 2010 ........................................................ 280 000
700 000
1.2 Depreciation for the year
(R700 000 x 20% x 6 ÷ 12) + (R730 000 x 20% x 6 ÷ 12)........................................... 143 000
1.3 Cost at 31 December 2011
Cost at 1 January 2011 ............................................................................................... 700 000

Sales at cost................................................................................................................ (60 000)
Purchases at cost (102 600 x 100/114) ........................................................................... 90 000
730 000
1.4 Accumulated depreciation on motor vehicle sold:
30 000 + (60 000 x 0.2 x 6 ÷ 12) .................................................................................. 36 000
2. Crane
R480 000 ÷ 5 years ...................................................................................................... 96 000
2.2 Depreciation capitalised
R96 000 x 5 ÷ 12 .......................................................................................................... 40 000
Thus, R40 000 debited to buildings
3. Machinery & Equipment
3.1 New machinery – depreciation
Cost price ..................................................................................................................... 150 000

Residual value .............................................................................................................. (10 000)
140 000
Depreciation: (150 000 – 10 000) x 0.2 x 6 ÷ 12 .......................................................... 14 000
19
3.2 Old machinery – depreciation

R
(360 000 – 120 000) x 0.2 48 000
3.3 Total depreciation

R
48 000 + 14 000 62 000
4. Inventory
Lower of cost or NRV R

Raw materials: 140 000 x 0.95 133 000
Work in progress: 200 000
Finished goods: 50 000 x 0.95 47 500
380 500
5. Investments
5.1 Current assets

R
7 000 x 3 21 000
5.2 Non-current assets

R
5 000 x 4 20 000
20
FAC2601/102
The following balances were extracted from the accounting records of Jens Ltd at 29 February 20.0:
R
Revenue (sales) (Including VAT @ 14%) 6 840 000
Cost of sales (Including VAT @ 14%) 2 280 000
Non-distributable reserve (1/3/19.9) 100 000
Investments at cost 310 000
Dividends paid – Preference shares 28 000
– Ordinary shares 40 000
Provisional tax paid 600 000
Dividends received – Thakalaka Ltd 2 800
Distribution costs 665 000
Administrative expenses:
Rent paid 180 000
Salaries and wages 575 000
Stationery 14 500
Auditors’ remuneration 19 000
Credit losses 90 000
Interest paid 8 800
Sales returns (Including VAT @ 14%) 228 000
Equipment at carrying amount (1/3/19.9) 360 000
Other expenses (including depreciation) 200 000
1. Thakalaka Ltd is a company listed on the JSE Ltd.
2. The company was incorporated on 1 March 19.7 and all equipment was purchased on the same
date. The company provides for depreciation at 20% per annum according to the straight-line
method.
3. Auditors’ remuneration consists of the following: R

Travelling expenses 5 000
Fee for audit 14 000
4. Included under salaries are the following amounts paid to directors:

Amount paid to chairman 10 000
Amount paid to managing director – salary 160 000
Amount paid to financial director – salary 70 000
Travelling expenses reimbursed to managing director 2 300
Travelling allowance paid to chairman 5 000
Total amount paid to managing and financial directors for attending directors’ meetings 30 000
5. It was decided to declare a final dividend of R120 000 on 29 February 20.0.
6. Normal tax of R573 356 must still be provided for.
21
7. Credit losses written off over the previous years amounted to:
R
19.9 15 000
19.8 14 300
8.1 120 000 Ordinary shares in Quattro Ltd at a cost of R200 000. The issued share capital of
Quattro Ltd consists of 200 000 ordinary shares. Each share has one vote. The market value
of the investment was R200 000 on 29 February 20.0.
8.2 20 000 Preference shares in Thakalaka Ltd at a cost of R40 000. The issued share capital of
Thakalaka Ltd consists of 30 000 ordinary shares and 30 000 preference shares. Each share
has one vote. The shares of Thakalaka Ltd are traded on the JSE Ltd and the market value of
the preference shares on 29 February 20.0 amounted to R3 each. These shares are
designated as at fair value through other comprehensive income (not held for trading).
8.3 70 000 Ordinary shares in Sugar Ltd at a cost of R70 000. The issued share capital of
Sugar Ltd consists of 4 000 000 ordinary shares. Each share has one vote. The shares of
Sugar Ltd are traded on the JSE Ltd and the market value on 29 February 20.0 amounted to
R2 each. This investment is regarded as an investment at fair value through profit or loss (held
for trading / speculative purposes) in the accounting records of Jens Ltd.
REQUIRED:
Prepare the statement of profit or loss and other comprehensive income and the applicable notes
thereto of Jens Ltd for the year ended 29 February 20.0.
Your answer should comply with the requirements of the Companies Act (2008) and International
Financial Reporting Standards (IFRS).
Ignore the note on accounting policy.
Ignore the comparative figures.
Ignore the statement of changes in equity.
22
FAC2601/102
SOLUTION 5
JENS LTD
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 29 FEBRUARY 20.0
Notes R
Revenue [(6 840 000 x 100/114) – (228 000 x 100/114)] 5 800 000
Cost of sales (2 280 000 x 100/114) (2 000 000)
Gross profit 3 800 000
Other income (2 800 + 70 000) 72 800
Distribution cost (665 000)
Administrative expenses (calculation 1) (878 500)
Other expenses (200 000)
Finance cost (8 800)
Profit before tax 1 2 120 500
Income tax expense 2 (573 356)
Profit for the year 1 547 144
Other comprehensive income for the year

Gain on financial assets at fair value through other comprehensive income 20 000
[(20 000 x 3) – 40 000]
Total comprehensive income for the year 1 567 144
23
JENS LTD
NOTES FOR THE YEAR ENDED 29 FEBRUARY 20.0
1. Profit before tax
The following disclosable items are included in profit before tax:

R
Income
Revenue consists of sale of goods 5 800 000
Fair value adjustment – Financial asset at fair value through profit and loss
[(R70 000 x 2) – R70 000] 70 000
Income from other financial assets 2 800
Listed investments – dividends 2 800
Expenses
Depreciation (calculation 2) 120 000
- Fee for audit 14 000
- Travelling expenses 5 000
Directors’ remuneration 275 000
Executive directors
- Emoluments (160 000 + 70 000 + 30 000) 260 000
Non-executive directors
- Emoluments (10 000 + 5 000) 15 000
Significant item
- Credit losses written off 90 000
2. Income tax expense R
SA Normal tax – current year 573 356
Calculations
1. Administrative expenses
R
Rent paid 180 000
Stationery 14 500
Credit losses 90 000
878 500
2. Depreciation R
Cost of equipment (100/60 x 360 000) 600 000

Depreciation (20% x 600 000) 120 000
24
FAC2601/102
The following information represents an extract from the trial balance of Stuttgart Ltd at
31 December 19.9.
R
Revenue (sales) 5 414 000
Cost of sales 4 060 200
Dividends received 17 900
Interest received 3 500
Other expenses:
- Loss on disposal of motor vehicle 8 500
- Auditor’s remuneration – for audit 10 800
- Salaries and wages 863 500
- Sundry expenses 101 600
- Municipal charges 1 380
Interest paid to Frankfurt (Pty) Ltd 9 300
Furniture and equipment:
- Cost 63 500
- Accumulated depreciation (1/1/19.9) 21 200
Dividends paid to ordinary shareholders 110 000
Machinery at cost 150 000
Sales returns 400
1. Dividends received consist of the following:
- R2 300 from Frankfurt (Pty) Ltd

- R7 600 from Manheim Ltd
- R8 000 from Koblenz Ltd
- 9 000 Ordinary shares in Koblenz Ltd purchased at R9 000 for speculative purposes. The
issued share capital of Koblenz Ltd consists of 200 000 ordinary shares. Each share has one
vote. These shares are traded on the JSE Ltd and the fair value of the shares was R2,00
each on 31 December 19.9.
- 30 000 Ordinary shares in Manheim Ltd at a cost of R40 000. The issued share capital of
Manheim Ltd consists of 40 000 ordinary shares. Each share has one vote. These shares are
traded on the JSE Ltd and the market value was R40 000 on 31 December 19.9.
- 7 000 Preference shares in Frankfurt (Pty) Ltd purchased for R15 000. The issued preference
share capital of Frankfurt (Pty) Ltd consists of 10 000 shares. The directors valued the shares
at R2,50 each on 31 December 19.9. These shares are classified as an investment at fair
value through other comprehensive income (not held for trading).
3. Stuttgart Ltd charges Manheim Ltd a management fee of R1 000 per month. This fee must still
be provided for the year ended 31 December 19.9.
25
4. Sundry expenses include amongst other the following:

R
Travelling allowance – Mr Wolfgang 4 800
Entertainment expenses – Mr Ludwig 260
Pension fund contribution – Mr Karl 6 400
Auditors’ travelling expenses 150
5. Salaries and wages include the following remuneration:

R
Mr F Heinrich – Financial director 72 000
Mr D Wolfgang – Chairman of the Board of Directors 90 000
Mr G Ludwig – Marketing director 60 000
Mr D Karl – General manager 66 000
Mr C Axel – Retired chairman of the Board of Directors (pension) 24 000
Mr C Boris – Non-executive director (loss of office on 1/1/19.9) 10 000
Directors’ fees for attending meetings at R5 000 per director per annum 15 000
337 000
6. Mr Heinrich is a director of Manheim Ltd and received R5 000 per annum for attending directors
meetings.
7. Tax for the current year to the amount of R97 045 must still be provided for.
8. On 1 October 19.9 the company purchased machinery to the value of R150 000.
9. The company’s policy is to depreciate non-current assets as follows:

Furniture and fittings at 10% per annum – reducing balance method
Machinery at 20% per annum – reducing balance method.
No depreciation has been provided for the current year and no furniture and fittings were
purchased during the current year.
10. The interest income was received from Manheim Ltd.
11. A reserve for replacement of assets to the amount of R20 000 must still be created.
REQUIRED:
a. Prepare the statement of profit or loss and other comprehensive income and the relevant notes
thereto of Stuttgart Ltd for the year ended 31 December 19.9.
b. Prepare the statement of changes in equity of Stuttgard Ltd for the year ended
31 December 19.9. Show only the following columns:
- Replacement reserve
- Retained earnings
- Mark to market reserve
Both your answers should comply with the Companies Act (2008) and the International Financial
Reporting Standards (IFRS).
26
FAC2601/102
SOLUTION 6
STUTTGART LTD
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 19.9
Notes R
Revenue (5 414 000 – 400) 5 413 600
Cost of sales (4 060 200)
Gross profit 1 353 400
Other income (23 100 + 10 300 + 9 000) 42 400
Other expenses (calculation 1) (997 510)
Finance cost (9 300)
Profit before tax 1 388 990
Profit for the year 291 945
Gain on financial asset at fair value through other comprehensive income
[(7 000 shares x R 2.50) – R15 000] 2 500
Total comprehensive income for the year 294 445
STUTTGART LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 19.9
The following disclosable items are, amongst others, included in profit before tax:
R
Income
Revenue consists of sale of goods 5 413 600

Fair value adjustment – Financial asset at fair value through profit or loss
[(9 000 x R2) – 9 000] 9 000
Income from subsidiary 23 100

- Dividends received 7 600
- Interest received 3 500
- Management fees received 12 000
Income from other financial assets

Dividends received 10 300
- From listed investments 8 000
- From unlisted investments 2 300
27
R
Expenses

- Travelling expenses 150
Loss on disposal of non-current asset 8 500
Directors’ remuneration (calculation 2) 275 800
Executive directors 142 000
- Emoluments (142 000 + 5 000) 147 000
- Less: Paid by subsidiary (5 000)
Non-executive directors 133 800
- Emoluments 99 800
- Pension 24 000
- Loss of office 10 000
2. Income tax expense 97 045
SA Normal company tax 97 045

- Current year
STUTTGART LTD
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 19.9
Reserve
for the Mark to
replacement Retained market
of assets earnings reserve
R R R
Balance at beginning of year - 783 400 -
Total comprehensive income for the year - 291 945 2 500
Transfer to reserve 20 000 (20 000) -
Dividends declared - (110 000)
Balance at end of year 20 000 945 345 2 500
28
FAC2601/102
Calculations
1. Other expenses
R
Loss on disposal of vehicle 8 500
Sundry expenses 101 600
Depreciation
Furniture and equipment [(63 500 – 21 200) x 10%] 4 230
Machinery (150 000 x 20% x 3/12) 7 500
Municipal charges 1 380
997 510
2. Directors’ remuneration
Executive Non-executive
Stuttgart Manheim Stuttgart Manheim

(parent) (subsidiary) (parent) (subsidiary)
Emoluments R R R R
Mr Heinrich
- Salary 72 000
- Fees for attending directors’ meetings 5 000 5 000
Mr Ludwig
- Salary 60 000
- Fees for attending directors’ meetings 5 000
Mr Wolfgang
- Salary 90 000
- Travelling allowance 4 800
- Fees for attending directors’ meetings 5 000
142 000 5 000 99 800 -
Pensions
Mr Axel 24 000
Loss of office
Mr Boris 10 000
29
The following balances were extracted from the accounting records of Light Bulb Ltd for the financial
year ended 29 February 2012:
R
Total sales (including VAT at 14%) (additional information 1) ............................................. 4 560 000
Administrative expenses ...................................................................................................... 1 103 000
Bank charges ................................................................................................................... 24 000
Salaries and wages (additional information 2) ................................................................. 1 000 000
Advertising ....................................................................................................................... 55 000
Auditors’ remuneration
- Fees for audit ............................................................................................................... 20 000
- Expenses ..................................................................................................................... 4 000
Distribution cost ................................................................................................................... 134 000
Operating expenses ............................................................................................................. 217 500
- Other operating expenses (including finance cost and depreciation) .......................... 185 000
- Operating lease payments ........................................................................................... 32 500
Other operating income ....................................................................................................... 19 000
Proceeds on sale of motor vehicle ....................................................................................... 42 500
Equipment at carrying amount (29/02/2012) ........................................................................ 24 000
Motor vehicles at cost .......................................................................................................... 120 000
Accumulated depreciation: Motor vehicles ......................................................................... 30 000
Investments (additional information 6) ................................................................................. 230 000
Loan to Live-Smart (Pty) Ltd ................................................................................................ 40 000
Long-term loan (Cr) .............................................................................................................. 45 000
Income tax expense ............................................................................................................. 64 000
1. Light Bulb Ltd maintains a gross profit percentage of 40% on turnover.
2. Included under salaries and wages are the following payments to top management:
R
Salaries
- Financial director ................................................................................................ 120 000
- Chairman of the board ........................................................................................ 60 000
- Marketing manager............................................................................................. 90 000
- Managing director ............................................................................................... 100 000
Travelling allowance – Managing director .................................................................. 6 000
Entertainment allowance – Marketing manager ......................................................... 3 000
Pension payments
- Financial director ................................................................................................ 12 000
- Chairman of the board ........................................................................................ 6 000
The top management were paid R625 each per meeting for attending directors’ meetings.
Four (4) meetings were held during the year.
The financial director is also the chairman of Live Smart (Pty) Ltd and received remuneration of
R55 000 for the financial year ended 29 February 2012.
30
FAC2601/102
3. During the year ended 29 February 2012, Light Bulb Ltd acquired machinery which was
obtained in terms of an operating lease agreement. The following information in respect of the
lease agreement is available:
Period of the lease : 1 October 2011 – 30 September 2015
Payment terms :
Months 1 – 24 : R6 500 per month
Months 25 – 48 : R3 500 per month
4. The long-term loan was obtained on 1 January 2010 and the capital portion is repayable in
seven equal annual instalments starting 31 August 2010. Interest on the loan is calculated at
10% per annum and is payable at the end of each financial year.
5. Other operating income consists of:

R
Dividends received from the following companies:
- Stay-Smart Ltd...................................................................................................... 10 000
- Live-Smart (Pty) Ltd.............................................................................................. 6 000
Interest received from Live-Smart (Pty) Ltd .................................................................. 3 000
19 000
6.1 The issued ordinary share capital of Live-Smart (Pty) Ltd is R80 000 (shares issued at
R2 each). Light Bulb Ltd owns 21 000 shares in Live-Smart (Pty) Ltd.
6.2 Light Bulb Ltd owns 50 000 of the 1 200 000 issued ordinary shares in Stay-Smart Ltd. The
shares were purchased for R100 000. The shares of Stay-Smart Ltd are traded on the JSE Ltd
and the market value per share was R3,00 each on 28 February 2011. The market value on
29 February 2012 was R4,00 per share and no adjustments have yet been made during this
year regarding the increased market value. These shares were obtained for speculative
purposes.
7. The non-current assets were depreciated at the following rates and methods:
Motor vehicles - 20% per annum using the reducing balance method
Equipment - 20% per annum using the straight-line method
One of the motor vehicles with a carrying amount of R40 000 on 28 February 2011 was sold on
31 August 2011. Only the proceeds have been recorded.
All the equipment was purchased on 1 March 2009 and no sales or purchases of equipment
have occurred since then.
31
REQUIRED:
a. Prepare the statement of profit or loss and other comprehensive income of Light Bulb Ltd for
the financial year ended 29 February 2012. (15½)
b. Disclose the “profit before tax” note to the statement of profit or loss and other comprehensive
income of Light Bulb Ltd for the financial year ended 29 February 2012. (16½)
Both your answers should comply with the requirements of the Companies Act (2008) and
International Financial Reporting Standards (IFRS).
32
FAC2601/102
SOLUTION 7
LIGHT BULB LTD

ENDED 28 FEBRUARY 2012
Notes R
Revenue (4 560 000 x 100 ÷ 114) .................................................................................... 4 000 000
Cost of sales (4 000 000 x 60 ÷ 100) ................................................................................ (2 400 000)
Gross profit ....................................................................................................................... 1 600 000
Other income (19 000 + 50 000 + 6 500).......................................................................... 75 500
Administrative expenses ................................................................................................... (1 103 000)
Distribution cost ................................................................................................................ (134 000)
Other operating expenses
[(217 500 – (10% x 54 000 x 6 ÷ 12) – (10% x 45 000 x 6 ÷ 12)) – 7 500] ..................... (205 050)
Finance cost (2 700 + 2 250) ............................................................................................ (4 950)
Profit before tax ............................................................................................................ 1 228 500
Income tax expense.......................................................................................................... (64 000)
Profit for the year ............................................................................................................ 164 500
Other comprehensive income for the year ................................................................... -
Total comprehensive income for the year .................................................................... 164 500
LIGHT BULB LTD

NOTE FOR THE YEAR ENDED 28 FEBRUARY 2012
1. Profit before tax is disclosed after taking the following disclosable items into account:
R
Income
Revenue ........................................................................................................................... 4 000 000

Fair value adjustment on financial assets at fair value through profit or loss
[50 000 x R1,00(R4,00 – R3,00)] ...................................................................................... 50 000
Profit on sale of non-current asset [42 500 – (40 000 – (8 000 x 6 ÷ 12))] ....................... 6 500
Income from subsidiary

- Dividends ...................................................................................................................... 6 000
- Interest.......................................................................................................................... 3 000

- Unlisted investments
- Dividends ...................................................................................................................... 10 000
Expenses
Directors’ remuneration .................................................................................................... 243 000

Executive directors ...........................................................................................................
- Emoluments [(120 000 + 100 000 + 6 000 + (2 x (625 x 4))) + 55 000] ......................... 286 000
- Pension (financial director) ............................................................................................. 12 000
Less: paid by subsidiary ................................................................................................... (55 000)
Non-executive directors .................................................................................................... 68 500
- Emoluments [60 000 + (1 x (625 x 4))] ........................................................................... 62 500
- Pension (chairman) ........................................................................................................ 6 000
Auditors’ remuneration...................................................................................................... 24 000
- Fees for audit.................................................................................................................. 20 000
- Expenses ........................................................................................................................ 4 000
Depreciation (calculation 1) .............................................................................................. 29 500
Operating lease expense .................................................................................................. 25 000
33
Calculations
1. Depreciation R
1.1 Depreciation on equipment
Carrying amount (28/2/2012) 24 000

Cost price (24 000 x 100 ÷ 40) or (24 000 x 5 ÷ 2) 60 000
Depreciation (20% x 60 000) or 24 000/2 yrs left 12 000
1.2 Depreciation on motor vehicles
1.2.1 Vehicle sold

Depreciation (20% x 40 000 x 6 ÷ 12) 4 000
(1/3/2011 – 31/8/2011)
1.2.2 Remaining vehicles
Carrying amount (29/2/2012) [120 000 – 30 000 – (40 000 – 4 000)] (54 000)
Carrying amount (1/3/2011) (100 ÷ 80 x 54 000) 67 500
Depreciation (20% x 67 500) or 54 000 x 20/80 13 500
(1/3/2011 – 29/2/2012)
1.3 Total depreciation (12 000 + 4 000 + 13 500) 29 500
2. Operating lease expense
Months 1 – 24 6 500 x 24 156 000

Months 25 – 48 3 500 x 24 84 000
240 000
240 000 ÷ 48 = 5 000 per month
01/10/2011 – 28/02/2012:
Expense recognised 5 000 x 5 (25 000)

Payments made 6 500 x 5 32 500
∴Deduction from expense 7 500
3. Long-term Loan
Balance (28/02/2012) 45 000

Remaining number of payments (28/02/2012) 5
Instalment amount 45 000 ÷ 5 = 9 000
Balance (1 March 2011) 45 000 + 9 000 = 54 000
Interest
(01/03/2011 – 31/08/2011) 54 000 x 0.1 x 6 ÷ 12 2 700
(01/09/2011 – 28/02/2012) 45 000 x 0.1 x 6 ÷ 12 2 250
4 950
34
FAC2601/102
R
2. Fair value adjustment on financial asset at fair value through profit or loss
50 000 shares x R1,00 (R4,00 – R3,00) 50 000
3. Profit on sale of non-current asset
Proceeds 42 500
Less carrying amount on date of sale (36 000)
Depreciation for the year (8 000 x 6 ÷ 12) (4 000)
Profit on sale 6 500
35
The following information was taken from the accounting records of Jobs (Pty) Ltd, a construction
company on 31 December 19.9:
R
Ordinary share capital 100 000
Retained earnings 250 000
Land at valuation 400 000
Factory buildings at cost 480 000
Motor vehicles at carrying amount (31/12/19.8) 210 000
Crane at cost 240 000
Machinery and equipment at cost (31/12/19.9) 180 000
Furniture and equipment at cost (31/12/19.9) 60 000
Accumulated depreciation:
- Motor vehicles (31/12/19.8) 140 000
- Crane (31/12/19.8) 30 000
- Machinery and equipment (31/12/19.8) 60 000
- Furniture and equipment (31/12/19.8) 15 000
Loans 40 000
Inventories 170 000
Bank overdraft 135 000
Provisional taxation paid 25 000
Deferred expenses 2 300
The accountant supplied you with the following information in respect of transactions that occurred
during the year:
1. The factory buildings are situated on erf 6, Silverton, consisting of a factory. The land was
acquired on 1/3/19.6 for R190 000. The above mentioned building was erected during the current
year at a cost of R480 000. The company withdrew its crane from production for a period of 4
months during which it was used in the process of erecting the building. The building was
completed on 31 December 19.9. The building is occupied by the owners. The land was revalued
on 31 October 19.9 at market value by Mr J Nel, a sworn appraiser.
2. Non-current assets are depreciated as follows:
- Crane (acquired on 1/7/19.8): straight-line basis over 48 months.

- Machinery and equipment: 20% per annum on the reducing balance method.
- Motor vehicles: 20% per annum on the straight-line method.
- Furniture and equipment: 10% per annum on the reducing balance method.
- Buildings: 2% per annum on the straight-line method.
3. The following transactions in respect of non-current assets took place during the year:
- On 30 June 19.9, a motor vehicle costing R50 000 and on which R25 000 depreciation was
already written off, was traded in for R40 000 on a new vehicle costing R70 000.
- On 2 January 19.9, furniture to the value of R14 000 was purchased.
36
FAC2601/102
4. Normal tax of R70 000 must still be provided for the current year.
5. Inventories consist of:
- Raw materials R 70 000

- Work in progress R100 000
Inventories are valued at cost on the first-in-first-out basis of valuation.
6. Investments consisted of the following on 31 December 19.9:
- 9 000 Ordinary shares in Bricks Ltd purchased at a cost of R18 000 for speculation purposes.
The issued share capital of Bricks Ltd consists of 200 000 ordinary shares. Each share has
one vote. These shares are traded on the JSE Ltd and the fair value of the shares was
R2,00 each on 31 December 19.9.
- 30 000 Ordinary shares in Trucks Ltd purchased for R40 000. The issued share capital of
Trucks Ltd consists of 40 000 ordinary shares. Each share has one vote. These shares are
traded on the JSE Ltd and the market value was R40 000 on 31 December 19.9.
- 7 000 Preference shares in Diesel (Pty) Ltd purchased for R15 000. The issued preference
share capital of Diesel (Pty) Ltd consists of 10 000 shares. The directors valued the shares at
R2,50 each on 31 December 19.9. These shares are classified as an investment at fair value
through other comprehensive income (not held for trading).
7. Loans consist of the following:
- Loan to Trucks Ltd to the amount of R25 000. The loan is interest free and is repayable in
2 equal annual instalments. The first instalment is payable on 31 December 20.1.
- Loan to Jason (Pty) Ltd to the amount of R15 000. Interest is calculated on the loan at 15% per
annum payable annually in arrears, and is secured by a first mortgage bond over the
company’s immovable property. The capital portion of the loan is repayable on 31 December
20.5.
REQUIRED:
Prepare the “Asset” section of the Statement of financial position as well as the relevant notes thereto
of Jobs (Pty) Ltd for the year ended 31 December 19.9.
Your answer should comply with the requirements of the Companies Act (2008) and International
Financial Reporting Standards.
37
SOLUTION 8
JOBS (PTY) LTD

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 19.9
Notes R
ASSETS
Non-current assets 1 467 000
Property, plant and equipment 1 1 369 500
Investment in subsidiary 2 65 000
Loan 15 000
Current assets 501 600
Inventories 4 170 000
Deferred expenses 2 300
Total assets 1 970 900
JOBS (PTY) LTD

NOTES FOR THE YEAR ENDED 31 DECEMBER 19.9
Machinery
Motor and
Land Buildings vehicles Crane equipment Furniture Total
R R R R R R R
Carrying amount
1/1/19.9 190 000 - 210 000 210 000 120 000 31 000 761 000
Cost 190 000 - 350 000 240 000 180 000 46 000 1 006 000
Accumulated
depreciation - - (140 000) (30 000) (60 000) (15 000) (245 000)
Depreciation - - (72 000) (40 000) (24 000) (4 500) (140 500)
Additions at cost - 480 000 70 000 - - 14 000 564 000
Disposals at carrying
amount - - (25 000) - - - (25 000)
Depreciation capitalised - 20 000 - (20 000) - - -
Revaluation 210 000* - - - - - 210 000
Carrying amount
31/12/19.9 400 000 500 000 183 000 150 000 96 000 40 500 1 369 500
Cost/Valuation 400 000 500 000 370 000 240 000 180 000 60 000 1 750 000
Accumulated
depreciation - - (187 000) (90 000) (84 000) (19 500) (380 500)
*Balancing figure
Buildings consist of a factory situated at erf 6, Silverton. The property was revalued during the year at
market value by Mr J Nel, a sworn appraiser.
38
FAC2601/102
R
2. Investment in subsidiary 65 000
Shares at cost 40 000
Loan to subsidiary 25 000
3. Financial assets
Non-current assets
Financial asset at fair value through other comprehensive income
Unlisted
7 000 Preference shares in Diesel (Pty) Ltd (cost price – R15 000) 17 500
Current assets
Financial asset at fair value through profit or loss
Listed
9 000 Ordinary shares in Bricks Ltd (cost price – R18 000) 18 000
4. Inventories 170 000
- Raw materials 70 000

- Work in progress 100 000
Calculations
R
1. Motor vehicles
1.1 Cost at 1 January 19.9
Carrying amount at 31 December 19.8 210 000

Accumulated depreciation at 31 December 19.8 140 000
350 000
[(350 000 x 20% x 6/12) + ((350 000 – 50 000 + 70 000) x 20% x 6/12)] 72 000
1.3 Cost at 31 December 19.9
Cost at 1 January 19.9 350 000

Sales at cost (50 000)
Purchases at cost 70 000
370 000
39
R
2. Crane
(240 000 / 4 years) 60 000
2.2 Depreciation capitalised
(60 000 x 4/12) 20 000

Thus, R20 000 debited to buildings
2.3 Accumulated depreciation
(240 000/4 x 6/12) 30 000
3. Furniture
3.1 Cost at 1 January 19.9
Cost at 31 December 19.9 60 000

Purchases on 2 January 19.9 (14 000)
46 000
[(31 000 + 14 000) x 10%] 4 500
4. Machinery and equipment
[(180 000 – 60 000) x 20%] 24 000
40
FAC2601/102
The following list of balances were extracted, from the accounting records of Shake-It Ltd on
29 February 2012:
R
Land and buildings at valuation (additional information 1) .................................................. 2 000 000
Ordinary share capital (shares issued at R2 each) ............................................................. 1 500 000
10% Cumulative preference shares .................................................................................... 300 000
12% Non-cumulative preference shares (additional information 3)..................................... 550 000
Proceeds of 200 000 ordinary shares issued on 31 October 2011 ..................................... 400 000
Surplus on revaluation of non-current assets ...................................................................... 250 000
15% Long-term loan obtained on 1 July 2011 (Cr) (additional information 4) ..................... 900 000
Investments (additional information 5) ................................................................................ 320 000
Gross profit for the year....................................................................................................... 4 000 000
Administrative expenses ..................................................................................................... 800 000
Distribution expenses .......................................................................................................... 80 000
Other operating expenses ................................................................................................... 120 000
Other income ....................................................................................................................... 100 000
Income tax expense ............................................................................................................ 823 900
Retained earnings (1 March 2011) ...................................................................................... 800 000
Mark to market reserve (1 March 2011) .............................................................................. 40 000
1. Land and buildings are situated on erf 557, Sandton, with an office block thereon. The property
was revalued at net replacement value on 29 February 2012 for R2 500 000 by Mr J Pietersen,
an independent sworn appraiser. No entry has yet been made regarding the revaluation.
2. Shake-It Ltd was incorporated with an authorised share capital of:
2 000 000 Ordinary shares

500 000 10% Cumulative preference shares
300 000 12% Non-cumulative preference shares
300 000 14% Redeemable preference shares
3. 25 000 12% Non-cumulative preference shares were issued on 1 September 2011 by Shake-
It Ltd at R4,00 each. This transaction has already been accounted for.
4. The finance cost on the long-term loan is payable annually in arrears. Finance cost on the
long-term loan must still be provided for. There have been no repayments to date on this loan.
1 500 Shares in Make-it Ltd. The entry for the initial investment was as follows:
R R
Dr Investments 120 000
Cr Bank 120 000
This was the only entry regarding investments during the current financial year.
These shares were classified as “investments through other comprehensive income” (not held
for trading). The shares traded on the JSE Ltd at R95,00 per share on 29 February 2012.
41
6. The following decisions were made by the directors on 29 February 2012 and must still be
recorded in the following order:
6.1 Capitalisation shares must be issued to the ordinary shareholders registered in the share
register on 29 February 2012 in the ratio of one ordinary share at R1,50 for every five ordinary
shares held.
6.2 An ordinary dividend of 10c per share was declared on 29 February 2012. The company did
not pay or declare any dividends during the previous financial year.
7. There were no further changes in the share capital during the year.
REQUIRED:
Prepare the statement of changes in equity of Shake-It Ltd for the financial year ended
29 February 2012 in order to comply with the requirements of the Companies Act (2008) and
International Financial Reporting Standards.
The total column of the statement of changes in equity need not be disclosed.
Show all calculations.
42
FAC2601/102
SOLUTION 9
SHAKE IT LTD
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 FEBRUARY 2012
10% Cumu-
lative 12% Non- Surplus
Ordinary preference cumulative on re- Mark to
share share preference valuation market Retained
capital capital share capital of assets reserves earnings Total
R R R R R R R
Balance
1 March 2011 1 500 000 300 000 450 000 250 000 40 000 800 000 3 340 000
Total comprehensive
income for the year 500 000 22 500 2 186 100 2 708 600
31 October 2011:
Ordinary shares
issued 400 000 400 000
1 September 2011:
12% Cumulative
preference shares 100 000 100 000
issued
Capitalisation shares
issued 285 000 (285 000)
Dividends declared
Preference shares (132 000) (132 000)
Ordinary shares (114 000) (114 000)
Balance
28 February 2012 2 185 000 300 000 550 000 750 000 42 500 2 430 100 6 302 600
Calculations
R
1. Dividends declared
Preference shares ...................................................................................................... 132 000
Cumulative (10% x 300 000 x 2 year) ........................................................................ 60 000
Non-cumulative (12% x 550 000) ............................................................................... 66 000
(12% x 100 000 x 6/12) ...................................................................... 6 000
Ordinary shares [(750 000 + 200 000 + 190 000) shares] x 10c ................................ 114 000
2. Capitalisation shares
[(1 500 000 ÷ 2) + 200 000 = 950 000 ÷ 5] = 190 000 shares @ 1,50 ...................... 285 000
3. 12% Non-cumulative shares issued
25 000 shares x 4,00 ................................................................................................ 100 000
4. 12% Non-cumulative preference shares – opening balance
Closing balance 29/02/2012 .................................................................................... 550 000

Shares issued during the year ................................................................................. (100 000)
Opening balance 01/03/2011................................................................................... 450 000
43
R
5. Revaluation reserve:
2 500 000 – 2 000 000 .................................................................................................. 500 000
6. Fair value adjustments on investments – Mark-to-market reserve:
Initial recognition ........................................................................................................... 120 000

Fair value at 29/02/2012: (1 500 shares x R95,00) ...................................................... 142 500
Fair value adjustment ................................................................................................... 22 500
7. Calculations of profit after tax and other comprehensive income
Gross profit for the year ............................................................................................... 4 000 000

Other income................................................................................................................ 100 000
Administrative expenses .............................................................................................. (800 000)
Distribution cost............................................................................................................ (80 000)
Other operating expenses ............................................................................................ (120 000)
Finance cost (15% x 900 000 x 8/12) ............................................................................. (90 000)
Profit before tax ............................................................................................................ 3 010 000
Income tax expense ..................................................................................................... (823 900)
Profit for the year.......................................................................................................... 2 186 100
Other comprehensive income
Revaluation surplus (2 500 000 – 2 000 000) ........................................................... 500 000
Mark to market reserve ................................................................................................ 22 500
Total comprehensive income for the year .................................................................... 2 708 600
44
FAC2601/102
The following information was obtained from the accounting records of Sun Ltd, a listed company, for
the financial year ended 30 June 20.0:
R
Ordinary share capital (issued at 50c) 1 000 000
12% Long-term loan 190 000
10% Preference shares 300 000
Machinery and equipment at cost (1/7/19.9) 160 000
Accumulated depreciation
- Machinery and equipment (1/7/19.9) 75 000
Revenue (turnover) 3 500 000
Other income 11 550
Other expenses (additional information 6 and 9) 31 960
Administrative expenses 410 650
Loan granted to Moon Ltd 60 000
Income tax expense 263 421
1. The long-term loan was incurred on 1 January 20.0 and bears interest at 12% per annum,
payable monthly in arrears.
100 000 Ordinary shares in Star Ltd, purchased at R2 each. Star Ltd’s total issued ordinary share
capital consists of 1 000 000 shares. Star Ltd’s shares are traded on the JSE Ltd and the price on
30 June 20.0 was R2.50 each. This investment was designated as at fair value through other
comprehensive income (not held for trading).
30 000 Ordinary shares in Moon Ltd at a cost of R45 000. Moon Ltd’s total issued ordinary share
capital consists of 50 000 shares. Moon Ltd’s shares trade on the JSE Ltd and the price on
30 June 20.0 was R1,50 each.
3. The loan to Moon Ltd was granted on 1 July 19.9 at an interest rate of 10% per annum, payable
monthly in arrears.
4. Sun Ltd maintained a gross profit percentage of 40% on sales during the year.
5. Administrative expenses consist of the following:

R
Directors’ remuneration – executive directors 180 000
Auditors’ remuneration
Accountant’s salary 60 000
Wages 150 000
Telephone 3 000
Water and electricity 4 200
Stationery 1 100
45
6. Other expenses consist of the following:
Interest paid
- Long-term loan 11 000
- Bank overdraft 660
Credit losses written off 1 300
Sundry expenses 19 000
7. Other income consist of the following:
Dividends received
- Star Ltd 1 200
- Moon Ltd 800
Interest received
- Current account 800
- Trade and other receivables 1 750
- Moon Ltd 6 000
Profit on sale of machinery 1 000
8. The following must still be provided for:
Depreciation on machinery and equipment at 20% per annum on the carrying amount. Machinery
with a cost of R10 000 and a carrying amount of R4 000 was sold on 2 July 19.9 for R5 000.
Depreciation is regarded as an operating expense.
9. Resolutions taken and approved at an annual general meeting held on 29 June 20.0 but not yet
executed:
An ordinary dividend of 5c per share was declared.
A asset replacement reserve of R20 000 must be created out of retained earnings.
REQUIRED:
Prepare the statement of profit or loss and other comprehensive income, statement of changes in
equity and relevant notes of Sun Ltd for the year ended 30 June 20.0 in accordance with the
provisions of the Companies Act (2008) and International Financial Reporting Standards (IFRS).
The accounting policies note is not required.
46
FAC2601/102
SOLUTION 10
SUN LTD
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20.0
Notes R
Revenue 3 500 000

Cost of sales (60% x 3 500 000) (2 100 000)
Gross profit (40% x 3 500 000) 1 400 000

Other income (800 + 1 750 + 1 000 + 6 800 + 1 200) 11 550
Administrative expenses (410 650)
Other expenses (31 960 + 16 200 – 11 000 – 660) (36 500)
Finance cost (11 400 + 660) (12 060)
Gain on financial assets at fair value through other comprehensive income 50 000
[(100 000 x 2,50) – (100 000 x R2)]
SUN LTD
NOTES FOR THE YEAR ENDED 30 JUNE 20.0
Profit before tax is disclosed after taking the following disclosable items into account:
R
Income
Revenue from the sale of goods 3 500 000
Profit on sale of non-current assets 1 000
Income from subsidiary 6 800
- Dividends received 800
- Interest received 6 000
- Listed investment – Dividends 1 200
Expenses
Directors’ remuneration 180 000
- Executive directors
Depreciation 16 200
2 Income tax expense
47
Calculation
1. Depreciation
[(Cost – Accumulated depreciation) x 20%]

= [(160 000 – 10 000) – (75 000 – 6 000) x 20%]
= [(150 000 – 69 000) x 20%]
= (81 000 x 20%)
= 16 200
2. Interest expense – long-term loan
(190 000 x 12% x 6/12)

= 11 400
SUN LTD
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20.0
10%
Preference Ordinary Asset Mark to
share share replacement market Retained
capital capital reserve reserve earnings Total
R R R R R R
Balance – beginning of year 300 000 1 000 000 - - 380 000 1 680 000
Transfer to asset replacement
reserve 20 000 (20 000) -
Total comprehensive income for
the year 688 919 738 919
50 000
Dividends
- Ordinary shares (100 000) (100 000)
(1 000 000/50c x 5c)
- Preference shares (30 000) (30 000)
(10% x 300 000)
Balance - end of year 300 000 1 000 000 20 000 50 000 918 919 2 288 919
48
FAC2601/102
The following is an extract from the trial balance of Goblet Ltd at 31 August 20.4:
R
Ordinary share capital............................................................................................................ 1 000 000
Retained earnings (1/9/20.3) ................................................................................................. 465 000
15% Redeemable preference shares .................................................................................... 400 000
Motor vehicles at carrying amount (28/2/20.4) ...................................................................... 30 625
(Cost 239 200 and accumulated depreciation 208 575)
Equipment at cost (31/8/20.4)................................................................................................ 152 000
Accumulated depreciation – Equipment (22 500 at 1/9/20.3) ................................................ 31 950
Land at cost ........................................................................................................................... 160 000
Buildings at cost..................................................................................................................... 340 000
Accumulated depreciation – Buildings ................................................................................... 102 000
Revenue ................................................................................................................................ 9 400 000
Other income ......................................................................................................................... 82 875
Other expenses (including depreciation) ............................................................................... 980 000
Administrative expenses ........................................................................................................ 2 491 000
Sales returns.......................................................................................................................... 1 200 000
Distribution costs ................................................................................................................... 750 000
Profit on sale of other financial assets (shares) .................................................................... 40 000
1. Investments consists of:
60 000 Ordinary shares in Bobbin Ltd. Bobbin Ltd’s total issued ordinary share capital consists
of 100 000 shares. Bobbin Ltd’s shares are traded on the JSE Ltd.
40 000 Ordinary shares in Sunbake Ltd. Sunbake Ltd’s issued share capital consists of 300 000
ordinary shares.
2. Goblet Ltd maintained a gross profit percentage of 60% on sales during the year.
3. The key personnel are as follows:

Goblet Ltd Bobbin Ltd
Chairmen Mr Pin Mrs Swart
Directors Messrs Blue, Pink Messrs White, Green
Marketing managers Mrs Henk Mr Harris
Financial directors Mr Dye Mr Good
Managing directors Mr White Mrs Purple
Company secretaries Mr Green Mr Orange
During the current financial year the abovementioned directors of Goblet Ltd and Bobbin Ltd
each attended four directors meetings. The directors of Goblet Ltd received R700 per meeting
and the directors of Bobbin Ltd, R350 per meeting.
49
4. Included in the salaries are the following amounts paid during the year:
Goblet Ltd Bobbin Ltd

R R
Marketing managers 110 000 90 000
Financial directors 140 000 120 000
Managing directors 160 000 140 000
Company secretaries 85 000 70 000
5. Messrs Dye and Good each received an entertainment allowance of R15 000 per annum.
6. On 1 December 20.3 equipment with an original cost price of R60 000 and accumulated
depreciation of R9 000 at the beginning of the current financial year, was sold at its carrying
amount and replaced with a new machine at a cost of R62 000.
7. On 28 February 20.4 a motor vehicle which originally cost R25 000 and on which depreciation of
R21 875 has already been written off up to that date, was traded in for R6 000 on a new vehicle
with a cost price of R35 000. All motor vehicles were purchased on 1 September 20.0.
8. The following rates of depreciation are applicable:
Equipment 15% Reducing balance method

Motor vehicles 25% Straight-line method
Buildings 5% Straight-line method
9. Administration expenses consist of the following:

R
Credit losses ................................................................................................................... 130 000
Stationery ....................................................................................................................... 45 000
Salaries and wages ........................................................................................................ 2 000 000
Fees paid to the auditor
- For travelling expenses ............................................................................................... 46 000
- For audit work done...................................................................................................... 220 000
Interest paid: long-term loan ........................................................................................... 50 000
10. Other income consists of the following:

R
Dividends received
- Bobbin Ltd .................................................................................................................... 35 000
- Sunbake Ltd ................................................................................................................. 20 000
Interest received
- Debtors ......................................................................................................................... 15 000
- Sunbake Ltd ................................................................................................................. 10 000
Profit on sale of motor vehicle ........................................................................................ 2 875
11. The redeemable preference shares are redeemable on 31 December 20.4 and is thus regarded
as a liability for the company.
12. Normal tax of R197 925 must still be provided for.
50
FAC2601/102
13. Credit losses written off over the previous two years amounted to:
R
20.3 ..................................................................................................................................... 15 000
20.2 ..................................................................................................................................... 14 300
14. Goblet’s land was revalued on 30 June 20.4 by Mr. Lion, a sworn appraiser, at market value of
R200 000.
REQUIRED:
Prepare the statement of profit or loss and other comprehensive income and applicable notes thereto
of Goblet Ltd for the financial year ended 31 August 20.4. Your answer should comply with the
requirements of the Companies Act (2008) and International Financial Reporting Standards (IFRS).
Ignore the note on accounting policy, comparative figures and the statement of changes in equity.
51
SOLUTION 11
GOBLET LTD
ENDED 31 AUGUST 20.4
Notes R
Revenue (9 400 000 – 1 200 000) 8 200 000
Cost of sales (8 200 000 x 40%) (3 280 000)
Gross profit (8 200 000 x 60%) 4 920 000
Other income (82 875 + 40 000) 122 875
Distribution costs (750 000)
Administrative expenses (2 491 000 – 50 000) (2 441 000)
Other expenses (980 000)
Finance cost [(400 000 x 15%) + 50 000] (110 000)
Other comprehensive income for the year 40 000
Gain on revaluation of land (200 000 – 160 000) 40 000
52
FAC2601/102
GOBLET LTD
NOTES FOR THE YEAR ENDED 31 AUGUST 20.4
1. Profit before tax R
Profit before tax is shown after the following disclosable items were taken into
account:
Income
Revenue from sale of goods 8 200 000
Income from subsidiary

- Dividends 35 000
Income from financial assets

- Unlisted: Dividends 20 000
Interest 10 000
Profit on disposal of non-current asset 2 875

Profit on disposal of financial asset 40 000
Expenses
- Travelling expense 46 000
Directors’ remuneration (calculation 2) 329 000

Executive directors 320 600
- Emoluments 322 000
- Less paid by subsidiary (1 400)
Non-executive directors 8 400

- Emoluments 8 400
Significant item
- Credit losses written off 130 000
2. Income tax expense
53
Calculations
1. Depreciation
1.1 Equipment
Accumula-
ted depre-
Cost ciation
R R
Balance at end of year (Balancing figure) 152 000 31 950
Movement for the year (2 000) (9 450)
Additions (62 000) (6 975)2
Depreciation on disposed equipment (1/9/20.3 – 1/12/20.3) (1 912)3
Total depreciation on disposed equipment – eliminated 60 000 10 9133
(9 000 + 1 913)
Old machines (11 475)3
Balance at beginning of year (Balancing figure) 150 000 22 500
1
Sold [(60 000 – 9 000) x 15% x 3/12)] 1 913
2
New (62 000 x 9/12 x 15%) 6 975
3
Old [90 000 – (22 500-9 000) x 15%] 11 475
20 363
1.2 Buildings
(340 000 x 5%) 17 000
1.3 Motor vehicles

New (35 000 x 25% x 6/12) 4 375
Sold (25 000 x 25% x 6/12) 3 125
Old [(239 200 – 35 000) x 25%] 51 050
58 550
1.4 Total depreciation

(58 550 + 17 000 + 20 363) 95 913
54
FAC2601/102
2. Directors’ remuneration
Executive Non-executive
Goblet Ltd Bobbin Ltd Goblet Ltd Bobbin Ltd
R R R R
Mr Pin – Fees 2 800
Mr Blue – Fees 2 800
Mr Pink – Fees 2 800
Mr Dye
- Salary 140 000
- Fees 2 800
- Entertainment allowance 15 000
Mr White
- Salary 160 000
- Fees 2 800 1 400
320 600 1 400 8 400 -
55
A manufacturing concern, Mac Ltd, entered into a finance lease agreement on 1 January 2011
whereby two machines with a total cost price of R520 000 would be leased from Jo-Brand Ltd.
The period of the lease is 3 years and the lease payments of R47 674 is payable quarterly in arrears.
Mac Ltd will obtain ownership of the machines at the end of the lease term on payment of a nominal
amount. Mac Ltd paid R25 000 legal fees for negotiating the lease agreement.
The following information applies to the lease:
Nominal interest rate: 18% per annum capitalised quarterly
The machinery will be depreciated over its expected useful lives of 4 years using the straight-line
method.
The company’s financial year end is 31 December.
The financial manager prepared the following amortisation table which you can assume is correct:
Period Date Instalment Capital Interest Balance

R R R R
520 000
1 31/03/2011 47 674 39 874 7 800 480 126
2 30/06/2011 47 674 40 472 7 202 439 655
3 30/09/2011 47 674 41 079 6 595 398 576
4 31/12/2011 47 674 41 695 5 979 356 881
5 31/03/2012 47 674 42 320 5 353 314 561
6 30/06/2012 47 674 42 955 4 718 271 605
7 30/09/2012 47 674 43 600 4 074 228 006
8 31/12/2012 47 674 44 254 3 420 183 752
9 31/03/2013 47 674 44 917 2 756 138 835
10 30/06/2013 47 674 45 591 2 083 93 244
11 30/09/2013 47 674 46 275 1 399 46 969
12 31/12/2013 47 674 46 969 705 -
REQUIRED:
a. Prepare the general journal entries (including cash transactions) of Mac Ltd for the year ended
31 December 2011 to account for the above mentioned transactions. (13)
b. Disclose the finance lease liability on the face of the statement of financial position of Mac Ltd at
31 December 2011, according to the Companies Act (2008) and International Financial
Reporting Standards. (2)
56
FAC2601/102
SOLUTION 12
a) Journal entries as at 31 December 2011:
R R
Machinery – finance lease asset ....................................................................... 25 000
Bank .................................................................................................................. 25 000
Machinery – finance lease asset ....................................................................... 520 000

Lease liability .................................................................................................... 520 000
Lease liability (A) ............................................................................................... 163 120

Interest paid (B) ................................................................................................ 27 576
Bank (C) ............................................................................................................ 190 696
Depreciation (D) ................................................................................................ 136 250

Accumulated depreciation ................................................................................. 136 250
Calculations
A: (39 874 + 40 472 + 41 079 + 41 695) OR (190 696 – 27 576)

B: (7 800 + 7 202 + 6 595 + 5 979) OR (190 696 – 163 120)
C: (47 674 x 4)
D: [(520 000 + 25 000) ÷ 4]
b) Disclosure of finance lease liability

Non-current liability
Finance lease liability (A) 183 752
Current liability
Current portion of finance lease liability (B) 173 129
Calculations
A: (356 881 – 173 129)

B: (42 320 + 42 955 + 43 600 + 44 254)
FAC2601_2014_TL_102_3_E.doc
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FAC2601/102/3/2014

Tutorial letter 102/3/2014

Financial Accounting for Companies

Department Financial Accounting

Enclosed please find additional questions and solutions

Contact details of the module are as follows:

Telephone number: (012) 429-4238

Description of enquiry Short SMS code E-mail address

With kind regards,

LECTURERS: FINANCIAL ACCOUNTING FOR COMPANIES (FAC2601)

ANNEXURE A: ADDITIONAL QUESTIONS AND SOLUTIONS

ANNEXURE A: ADDITIONAL QUESTIONS AND SOLUTIONS

QUESTION 1 (37 marks) (45 minutes)

2 January Purchased 6 000 ordinary shares at 150 cents

1. Investment transactions are accounted for using the first-in-first-out method.

2. Options to ordinary shares in Jacey Ltd expire on 31 December 20.6.

4. Options to shares were not acquired for hedging purposes.

Investment in options - Jacey Ltd

2. Fair value of shares (2 000 x R1,64) 3 280

3. Fair value of shares (3 200 x R1,33) 4 256

4. Fair value of shares (9 000 x R1,45) 13 050

Ex-rights value per share (R14 850/11 250 shares) 1,32

Value of options/rights (2 250 x R0,52) 1 170

6. Fair value of shares (4 000 x R1,30) 5 200

7. Fair value of shares (500 x R0,48) 240

8. Fair value of options (2 050 x R0,48) 984

9. To convert options to shares

11. Fair value of shares (subsequent measurement) 6 930

QUESTION 2 (30 marks) (36 minutes)

1. Inventory is valued at the lower of cost or net realisable value.

2. Inventory consists of: R

4. Loans consist of the following:

- Loan to parent Tol Ltd 90 000

Buildings – 2% per annum using the reducing balance method.

8. Investments consist of the following:

Ignore comparative figures and the accounting policy note.

Non-current assets 1 404 100

Current assets 397 000

Total assets 1 801 100

1. Property, plant and equipment

Cost/valuation 240 000 - 250 000 280 000 770 000

Revaluation 160 000 - - - 160 000

c 15% x 250 000

Shares at cost 60 000

3. Financial assets 76 000

Secured loan 90 000

5. Inventory 240 000

Raw materials 100 000

QUESTION 3 (40 marks) (48 minutes)

- 400 000 Ordinary shares

Accounting policy notes are not required.

Comparative figures are not required.

EQUITY AND LIABILITIES Notes R

Total equity 897 500

Non-current liabilities 120 000