FAC2601 May/Jun 2012 exam paper — questions
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View the paper as writtenscanned pages →Question 1 · Leases · 16 marks
Webb Ltd acquired a machine from Ellis Ltd under an operating lease, with the following details available: the cash price of the machine was R90 000; the lease term runs from 1 March 2009 to 28 February 2012; the monthly lease payment is R3 000 per month for the first 12 months, after which it increases by 15% for the next 12 months, and thereafter decreases to R1 200 per month for the remaining period of the lease; the supplier guaranteed that the machine would produce 1 000 000 products per year throughout the lease term; and the lease agreement stipulated that Webb Ltd could not enter into any other lease agreements without the lessor's authorisation. You are required to show all the journal entries, per year, for the full duration of the lease agreement of Webb Ltd, specifically for the year ended 28 February 2010. Dates and calculations must be shown. Ignore any income tax implications and do not provide journal narrations.Show the full question
Question 2 · Statement of financial position · 34 marks
The books of Jameson (Pty) Ltd, as at 28 February 2010, reflect the following balances: share capital R200 000; retained earnings at 01/03/2009 of R500 000; land at cost R800 000; factory building at cost (note 4) R1 500 000; accumulated depreciation on the factory building at 28/02/2010 (note 4) of R200 000; furniture and fittings at carrying amount at 28/02/2010 (note 5) of R225 000; investments at cost (note 7) of R13 000; inventory at cost (note 6) of R150 000; trade and other receivables of R557 000; provision for credit losses of R35 500; and a bank overdraft of R270 000. Additional information from the financial director is as follows. (1) Profit after tax for the year was R2 033 909, after all necessary adjustments have been recorded. (2) The office buildings are leased by Jameson (Pty) Ltd under an operating lease with a 6-year term commencing 1 March 2009; lease payments are R11 500 per month for the first 2 years and R12 700 per month for the remaining period. (3) On 1 March 2009 Jameson (Pty) Ltd entered into a finance lease with Daniels (Pty) Ltd for a new machine with a cash selling price of R105 000 at commencement, at an interest rate of 12% per annum; lease payments are made bi-annually in arrears over 3 years; depreciation is on the straight-line method over the asset's useful life of 5 years. The amortisation schedule prepared by the financial manager shows, for each date, the payment, interest, capital and outstanding balance as follows: 01/03/2009 outstanding balance R105 000; 31/08/2009 payment R21 353, interest R6 300, capital R15 053, balance R89 947; 28/02/2010 payment R21 353, interest R5 397, capital R15 956, balance R73 991; 31/08/2010 payment R21 353, interest R4 439, capital R16 914, balance R57 077; 28/02/2011 payment R21 353, interest R3 425, capital R17 928, balance R39 149; 31/08/2011 payment R21 353, interest R2 349, capital R19 004, balance R20 144; 28/02/2012 payment R21 353, interest R1 209, capital R20 144, balance R0. (4) The factory, situated on erf 235, Midrand, is owner-occupied and was revalued by sworn appraiser Mr J Wrong on 28 February 2010 at a net replacement value of R1 430 000 (excluding land); it is depreciated on the straight-line method over 15 years and was exactly 2 years old at year end. (5) All furniture and fittings were purchased on 1 March 2008 and are depreciated at 25% per annum on the reducing-balance method; none has been sold since purchase. (6) Closing inventories on hand at 28 February 2010 consisted of raw material at cost R100 000, work in progress at cost R30 000, and finished goods R20 000, totalling R150 000. Due to the current economic situation, the net realisable value of the raw material and finished goods was 5% lower than cost, while the net realisable value of work in progress exceeded cost by R7 000. (7) Investments consist of 6 000 ordinary shares of R2,00 each in J&B (Pty) Ltd, purchased for R12 000 with transaction costs of R1 000; J&B (Pty) Limited issued 60 000 ordinary shares during the year; a fair value adjustment gain of R5 000 at year end has not yet been recorded; these shares are classified as an investment not-held-for-trading. (8) The company declared a dividend of 5c per share on 28 February 2010, paid on 31 March 2010; the total issued share capital of Jameson (Pty) Ltd at year end consisted of 18 000 ordinary shares, out of an authorised share capital of 30 000 ordinary shares. Required: Prepare the Statement of Financial Position of Jameson (Pty) Limited as at 28 February 2010, together with only the following notes: Property, plant & equipment (PPE) and Finance lease obligation. Ignore comparative figures and the accounting policy note. Show all calculations. The Statement of Financial Position and notes must comply with the requirements of the Companies Act and Generally Accepted Accounting Practice.Show the full question
Question 3 · Statement of comprehensive income · 33 marks
The books of Polo Limited, a listed company, reflect the following balances for the financial year ended 30 June 2010: loan to Prada Ltd (note 9) R165 000; investments at cost (note 8) R202 000; 11% long-term loan from Levi Ltd (note 2) R90 000; land at cost R100 000; buildings at cost R1 654 000; plant and machinery at carrying amount as at 01/07/2009 R1 457 500; furniture and equipment at carrying amount as at 01/07/2009 R310 000; accumulated depreciation on plant and machinery as at 01/07/2009 R1 192 500; accumulated depreciation on furniture and equipment as at 01/07/2009 R110 000; income/revenue (including VAT at 14%) R3 306 000; other income (note 3) R41 575; administrative expenses (notes 4 and 5) R772 600; other expenses (note 6) R68 700; and income tax expense (assume this figure is correct) R4 800. Additional information is as follows. (1) Polo Limited maintains an annual gross profit percentage of 35%. (2) The 11% long-term loan from Levi Limited originated on 1 July 2005; the capital is repayable in 8 equal annual instalments starting 30 November 2007, and interest on the loan is payable bi-annually on 30 November and 30 June each year. (3) 'Other income' already includes interest received of an unstated (to be calculated) amount from Prada Limited, R6 500 from the bank account and R1 750 from trade and other receivables, as well as dividends received of R4 700 from Armani Limited and an unstated (to be calculated) amount from Guess Limited (see note 8); Guess Limited declared and paid a dividend of 10c per share during the year. (4) 'Administrative expenses' consists of salaries and wages R750 000, stationery R1 100, telephone R2 700, auditors' remuneration for travelling expenses R3 100, auditors' remuneration for audit fees R11 500, and water and electricity R4 200. (5) The key personnel of Polo Limited and its subsidiary are: chairman of the board - Mr C for Polo Ltd and Mr A for the subsidiary; marketing manager - Mr B for Polo Ltd and no equivalent position in the subsidiary; executive director - Mr A for Polo Ltd and Mr C for the subsidiary; financial director - no equivalent position in Polo Ltd and Mr B for the subsidiary. (5.1) The salaries and wages of Polo Limited include the following remuneration paid to senior key personnel: Mr A R300 000, Mr B R250 000, and Mr C R200 000; each director also received a total compensation of R3 200 for meetings attended during the year. (5.2) The subsidiary of Polo Limited paid the following directors' remuneration: Mr A R230 000, Mr B R200 000, and Mr C R180 000. (5.3) A pension of R75 000 was paid to Mrs H, the widow of a former executive director of Polo Limited. (6) 'Other expenses' already includes interest paid on the long-term loan (note 2) of an unstated (to be calculated) amount, sundry expenses of R1 900, credit losses written off of R3 100, and interest paid on the bank overdraft of R4 200. (7) The following depreciation must still be accounted for. (7.1) All the machinery was purchased on 31 March 2008 for R2 500 000, with installation costs of R150 000; the company depreciates machinery at 20% per annum on the straight-line method. During the current financial year all the machinery was withdrawn from the production process for a period of 9 months and used in constructing the buildings; no machinery was bought or sold during the year. The following direct costs relating to the buildings were debited to the buildings account: labour R554 000 and material R1 100 000. (7.2) Buildings are written off over 25 years on the straight-line method; construction of the buildings was completed during the year and the buildings were brought into use on 1 April 2010. (7.3) On 31 March 2010, furniture and equipment with a cost price of R80 000 and accumulated depreciation of R35 000 at the beginning of the financial year was traded in at a loss of R4 500 as part payment for new equipment costing R75 000; furniture and equipment are depreciated at 10% per annum on the straight-line method. Depreciation must be calculated to the nearest Rand. (8) Investments consist of the following. (8.1) 10 000 ordinary shares in Armani Limited were purchased at a cost of R42 000; the total issued share capital of Armani Limited consists of 70 000 ordinary shares; Armani Limited's shares traded on the Johannesburg Securities Exchange at R5,50 each on 30 June 2010; these shares form part of Polo Ltd's share trading portfolio. (8.2) 80 000 ordinary shares in Guess Limited were purchased at R2 each; the total issued share capital of Guess Limited consists of 750 000 ordinary shares; Guess Limited's shares traded on the Johannesburg Securities Exchange at R2,70 each on 30 June 2010; this investment was designated as not-held-for-trading. (8.3) No entry has yet been made in respect of the revaluation of the investments described above. (9) The 15% long-term loan was made to Prada Ltd on 1 September 2009, and no capital had been repaid by year end; Polo Ltd owns 5 000 of the total issued share capital of 7 000 shares of Prada Ltd. Required: Prepare the Statement of Comprehensive Income and the profit before tax note of Polo Limited for the year ended 30 June 2010, complying with the requirements of the Companies Act and Generally Accepted Accounting Practice. Ignore comparative figures and the note on accounting policies. Show all calculations.Show the full question
Question 4 · Statement of changes in equity · 17 marks
The accounting records of Malemone Limited, at 31 March 2012, reflect the following balances: ordinary share capital of R1 200 000; 10% cumulative preference share capital of R850 000; retained earnings as at 1 April 2011 of R351 000; an office building carried at cost of R350 000 with accumulated depreciation of R70 000 as at 31 March 2012; an investment in Maraisane Limited of R300 000; a mark-to-market reserve of R100 000; and a Capital Redemption Reserve Fund of R450 000. Additional information is as follows. (1) Malemone Limited was incorporated on 1 April 2009 with authorised share capital comprising 500 000 ordinary no par value shares and 300 000 10% cumulative no par value preference shares. (2) At incorporation, 300 000 ordinary shares were issued at R4 each; on 1 July 2009, 100 000 cumulative preference shares were issued at R7,48 each; and on 1 August 2011 a further 12 000 10% cumulative preference shares were issued at R8,50 each. (3) The following equity transactions for the current financial year still need to be recorded: (3.1) on 5 April 2011, 100 000 ordinary shares were issued at R5 each, with share issue expenses of R1 000 which must be written off against retained earnings; (3.2) on 1 May 2011, a capitalisation issue was made of one new ordinary share for every five ordinary shares held, at R7,50 per share, structured to have the minimum possible effect on distributable reserves; (3.3) total comprehensive income for the year, calculated after correctly accounting for depreciation but before any revaluation of the office building, amounted to R536 700. (4) The office building was originally acquired on 1 April 2009 for R350 000 and has been depreciated at 10% per annum on the straight-line method. The company has decided to revalue the office building at the start of the year on a gross replacement basis; the cost of a similar building on 2 April 2011 was determined to be R375 000, and this revaluation has not yet been recorded. (5) On 1 October 2010, Malemone Limited purchased 50 000 ordinary shares in Maraisane Limited at a cost of R4 per share, designating the investment as a financial asset not-held-for-trading; Maraisane Limited's issued ordinary share capital totals 500 000 shares. The market value of Maraisane Limited shares on the Johannesburg Securities Exchange was R6 per share on 31 March 2011 and R7 per share on 31 March 2012, and the current year's revaluation of this investment has not yet been recorded. (6) On 20 March 2012, a final dividend of 12c per share was declared on the ordinary shares; no dividends were declared or paid in the previous financial year because no profit had been earned. You are required to prepare the Statement of Changes in Equity of Malemone Limited for the year ended 31 March 2012, complying with the requirements of the Companies Act and Generally Accepted Accounting Practice. Comparative figures may be ignored, but all calculations must be shown.Show the full question
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