2020 Financial Accounting II. Handout ON SOCI, SOCE, SOFP AND Notes questions PDF

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FINANCIAL ACCOUNTING QUESTION PAPER...

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FINANCIAL ACCOUNTING 2 – 2020 FAC260S HANDOUT: PRESENTATION OF FINANCIAL STATEMENTS QUESTION 1

(49 MARKS)

Big Bay Limited has an authorised share capital of 2 500 000 ordinary shares of no par value, of which 600 000 had already been issued by the time the trial balance was prepared. The financial director requests your assistance in preparing the financial statements for the year ended 31 December 2011, and provides you with the following information:

2 Trial balance at 31 December 2011 Debit R Property

1 300 000

Furniture and Equipment (carrying value)

925 000

Investments

150 000

Bank

Credit R

35 000

Trade receivables

222 000

Inventory

201 000

Ordinary share capital (600 000 shares)

1 200 000

Retained earnings (1 January 2011)

210 000

Revaluation surplus (1 January 2011)

225 000

14% Loan from ABBA Bank

100 000

Trade payables

90 000

Current tax payable

152 000

Sales

4 900 000

Dividend income

55 000

Interest income

15 000

Profit on disposal of equipment

20 000

Cost of sales Distribution costs Operating costs

3 020 000 360 000 72 000

Administrative costs

330 000

Tax expense

352 000 6 967 000

6 967 000

3 Additional information: 1

On 31 December 2011 it was estimated that the inventory has a net realisable value of R180 000. No entries have yet been made for this.

2

The loan from ABBA Bank was acquired on 1 January 2010 and is repayable in full on 1 January 2012. The Interest is payable annually in arrears on 1 January. Provide for the interest outstanding on the loan for the current financial period.

3

On 31 December 2011 the property was re-valued upwards by R300 000 using the replacement value method. This revaluation still has to be recorded.

4

On 1 December 2011, Big Bay Ltd received cash for 125 000 shares issued at R2 each, and all the shares were allotted on this day. This issue has not yet been recorded.

5

On 31 December 2011 the directors declared a dividend of 20 cents per share on all the issued shares, including those issued on 1 December 2011. No entries have yet been made for this.

6

In drafting the trial balance, all the expenses of Big Bay Ltd had been allocated to the following four functions:    

7

Cost of sales, Distribution costs, Operating costs, and Administration costs.

The above costs reflected on the trial balance include the following:    

Depreciation on the sales department equipment, R55 000 Depreciation on the office furniture and equipment, R65 000 Salaries of the sales staff, R220 000 Salaries of the office staff, R200 000

REQUIRED: 1.1

Prepare general journal entries on 31 December 2011 for additional information numbers 1, 2, 3, 4 and 5. You are not required to prepare the closing transfers for the write down of inventory and ordinary dividends accounts. (Dates and narrations may be omitted.) (11)

1.2

Prepare the statement of comprehensive income of Big Bay Limited for the year ended 31 December 2011 in conformity with International Financial Reporting Standards. (Show your calculations in brackets.) (11)

1.3

Prepare the statement of changes in equity of Big Bay Limited for the year ended 31 December 2011 in conformity with International Financial Reporting Standards.

(6)

4 1.4

Prepare the statement of financial position of Big Bay Limited at 31 December 2011 in conformity with International Financial Reporting Standards. (Show your calculations in brackets.) (10)

1.5

Prepare the following notes to the financial statements of Big Bay Limited for the year ended 31 December 2011 in conformity with International Financial Reporting Standards:   

1.6

Accounting policy - Statement of compliance Revenue Profit before tax

(8)

Assume that the directors of Big Bay Ltd made a capitalisation issue to its existing shareholders on 31 January 2012 of 1 ordinary share for every 5 shares already held, at R2 each. Prepare the general journal entry for the above issue on 31 January 2012.

(3)

ANSWERS QUESTION 1

(49 MARKS)

1.1 Big Bay Ltd General Journal for December 2011 DEBIT 1

2

3

Write down of inventory (201 000 – 180 000) Inventory Interest expense (100 000 x 14% x 12/12) Accrued expenses Property

Bank (125 000 x R2)

21 000

Ordinary dividends (725 000 x R0,20) Ordinary shareholders for dividends

ü

ü

14 000 14 000

ü ü

300 000 300 000

ü ü

250 000

Ordinary stated capital 5

ü

21 000

Surplus on revaluation of Property 4

CREDIT

250 000

ü

ü

ü 145 000 145 000 (11)

ü

5 1.2

Big Bay Ltd Statement of comprehensive income for the year ended 31 December 2011 R Revenue (4 900 000 + 55 000 + 15 000)

4 970 000

ü

20 000

ü

(3 041 000)

ü

(360 000)

ü

(72 000)

ü

(330 000)

ü

(14 000)

ü

Other income Cost of sales (3 020 000 + 21 000)

Distribution cost Operating cost Administrative cost Finance cost Profit before tax

1 173 000

Taxation expense

(352 000)

Profit for the year ü

ü

821 000

Other comprehensive income Items that may not be reclassified to profit and loss:ü ü Surplus on revaluation of property

300 000

Total comprehensive income for the year ü

ü

1 121 000 (11)

1.3

Big Bay Ltd Statement of Changes in equity for the year ended 31 December 2011

Balance : 1 January 2011

Ordinary share capital

Retained earnings

Revaluation surplus

Total

R

R

R

R

1 200 000

Total comprehensive income Ordinary shares issued

QUESTION 1

225 000

1 635 000 

821 000P

300 000

1 121 000ü ü

250 000 

250 000 (145 000) P

Ordinary dividend

Balance: 31 December 2011

210 000

1 450 000

886 000

(145 000)

525 000

2 861 000 bonus (6)

6 1.4 Big Bay Ltd Statement of financial position at 31 December 2011 Assets

R

Non-current assets

2 675 000

Property, Plant & Equipment (1 600 000 + 925 000)

2 525 000

ü

Investments

150 000

ü

Current assets

687 000

Inventory (201 000 - 21 000)

ü

180 000

Trade and other receivables

222 000

ü

Cash and equivalents (35 000 + 250 000)

285 000

ü

3 362 000

Equity and Liabilities Share capital and reserves

2 861 000

ü P

Non-current liabilities

Current liabilities

501 000

Current portion of long-term loan

ü ü 104 000 P 152 000 ü ü 145 000 P

Trade and other payables (90 000 + 14 000 Interest Accrued) Current tax payable Ordinary shareholders for dividends

100 000

3 362 000 (10)

7 1.5

Big Bay Ltd Notes to the financial statements for the year ended 31 December 2011

Accounting policy Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards. ü

Revenue

R

Revenue comprises the following: 4 900 000 ü

Sales of goods Dividend income

55 000 ü

Interest income

15 000 ü

4 970 000 Profit before tax

R

The profit before tax has been computed after taking the following into account: Profit on disposal of equipment

20 000 ü

Write down of inventory

21 000 ü

Depreciation on Equipment

55 000 ü

Depreciation on Furniture

65 000 ü 420 000 ü

Employee benefits expense (220 000 + 200 000)

(8) 1.6 Big Bay Ltd General Journal for January 2012

31

Retained Earnings Ordinary stated capital

Debit

Credit

R

R

ü 290 000

ü 290 000 ü

(725 000/5 = 145 000 x R2 = R290 000) (3)

8 QUESTION 2

(48 MARKS)

[FORMAL TEST 1 - 7 MARCH 2011]

Gauteng Limited is a retail company listed on the Johannesburg stock exchange. The reporting date of the company is 28 February.

9 The trial balance of Gauteng Limited at 28 February 2011 is as follows: Debit R Ordinary share capital

Credit R 2 600 000

Revaluation surplus

350 000

Retained Earnings (1 March 2010)

299 000

15% Long-term loan

200 000

Accounts payable

171 000

SARS (provisional tax payments)

600 000

Property (at cost)

2 500 000

Furniture and Equipment (at carrying value)

1 950 000

Bank

262 000

Accounts receivable

454 000

Inventory

375 000

Sales

9 910 000

Royalties income

90 000

Interest income

40 000

Profit on sale of vehicles

50 000

Interest expense Cost of sales

15 000 6 080 000

Distribution costs

727 000

Operating costs

125 000

Administrative costs

622 000 13 710 000

13 710 000

Additional information: 1.

The authorised share capital of Gauteng Limited consists of 6 000 000 Ordinary shares of no par value.

2.

The issued share capital reflected on the trial balance consists of 2 600 000 Ordinary shares of no par value issued at R1 each. On 1 March 2010 only shares to the value of R2 000 000 had been issued. The remaining shares were issued on 1 April 2010, and properly recorded on that date.

3.

The financial director of Gauteng Limited has categorized the functions of the business into four areas. In drafting the trial balance, all the expenses have been allocated to these four functions, namely:

10     4.

The ‘Distribution costs’ reflected on the trial balance include the following:  

5.

Salaries and wages of the sales department staff of R480 000, and depreciation on the equipment of the sales department of R120 000.

The ‘Operating costs’ reflected on the trial balance include the following:  

6.

Cost of sales, Distribution costs, Operating costs, and Administration costs.

R15 000 paid to the auditors for consultation fees on the installation of a computerized accounting system, and R65 000 paid to the auditors for audit fees.

The ‘Administration costs’ reflected on the trial balance include the following:  

salaries of the office staff of R410 000 depreciation on the furniture and equipment of the office of R115 000

7.

It is the policy of Gauteng Limited to revalue the property every five years. On 28 February 2011 the property was revalued to a fair value of R2 700 000 using the replacement value method. No entries have yet been made to reflect this.

8.

The inventory was estimated to have a net realisable value of R345 000 on 28 February 2011. This still has to be recorded.

9.

Provide for the interest outstanding on the long-term loan on 28 February 2011. The Interest is payable every 6 months in arrears on 1 September and 1 March. The loan is repayable in four equal annual instalments, the first instalment having to be paid on 28 February 2012.

10.

Make provision for the income tax expense, which has been accurately calculated at R696 000 for the year ended 28 February 2011.

11.

The directors declared an ordinary dividend of R260 000 on 28 February 2011. This will be paid out to the ordinary shareholders during March 2011.

REQUIRED: 2.1

Prepare general journal entries on 28 February 2011 for the following: (Dates and narrations are not required.)

2.1.1 Consider additional information number 7 and the relevant information on the trial balance to prepare the journal entry for the revaluation of property. 2.1.2 Consider additional information number 8 and the relevant information on the trial balance to prepare the journal entry for the write down of inventory. Also prepare the closing transfer for the write down of inventory account. 2.1.3 Consider additional information number 9 and the relevant information on the trial balance to prepare the journal entry for the outstanding interest expense.

(12)

11 2.1.4 Consider additional information number 11 and the relevant information on the trial balance to prepare the journal entry for the ordinary dividend declared. Also prepare the closing transfer for the ordinary dividends account.

2.2

Prepare the statement of comprehensive income of Gauteng Limited for the year ended 28 February 2011 in compliance with International Financial Reporting Standards. (Show your calculations in brackets.) (11)

2.3

Prepare the statement of changes in equity of Gauteng Limited for the year ended 28 February 2011 in compliance with International Financial Reporting Standards.

(6)

2.4

Prepare the statement of financial position of Gauteng Limited at 28 February 2011 in compliance with International Financial Reporting Standards. (Show your calculations in brackets.) (10)

2.5

Prepare the following notes to the financial statements of Gauteng Limited for the year ended 28 February 2011 in compliance with International Financial Reporting Standards and the Companies Act:  

Revenue Profit before tax

(9)

12 QUESTION 3 Olive Street Limited is a small company listed on the JSE Securities Exchange’s AltX Listing. The trial balance of the company at 28 February 2014 is shown below. TRIAL BALANCE AT 28 FEBRUARY 2014. Debit Sale of goods

Credit 9 800 000

Rendering of services

160 000

Dividends received

40 000

Profit on sale of property plant and equipment

70 000

Cost of sales

5 500 500

Distribution cost

700 000

Administration costs

450 000

Other expenses

48 000

Share Capital

2 000 000

Retained earnings

112 000

Other comprehensive income: Gain on investment Dividends paid

20 000

Property plant and equipment

2 200 000

Investments

1 473 800

2 000

Accounts receivable

302 300

Current tax payable (provisional tax payments)

460 000

Inventory

250 100

Bank

1 455 200

Loan: Great Bank

560 000

Accounts payable

115 900 12 859 900

12 859 900

13 Additional information: 1.

The accountant has already, and correctly classified the expenses according to function.

2.

Distribution costs include the following costs: 

3.

depreciation of showroom furniture and fittings of R80 000 and

 salaries of sales personnel of R330 000. Administration costs include the following costs: 

4.

5.

depreciation of office equipment of R70 000 and

 salaries of office personnel of R320 000. The share capital comprises 200 000 shares issued at R10 each. An interim dividend of R0,10 per share was declared on 15 September 2013. A final dividend of R0,15 per share was declared on 15 March 2014. Inventory with a cost of R75 000 was estimated to have a net realisable value of R50 000 at year end. This has not been taken into account in preparing the above trial

6.

balance. The amount is considered to be material. The loan comprise the balance of R560 000 on a loan raised on 1 June 2012 from Great Bank and is due to be settled on 30 May 2014. Interest on the loan is charged at 6 % per annum, payable annually in arrears. The interest for the current year has not been paid. The existing loan facility gives the entity the discretion to refinance the loan until

7.

30 May 2016. The refinancing agreement was concluded on 25 February 2014. The current tax due to the tax authorities has been accurately calculated to be R468 000

8.

for the year. On 28 February 2014 the Gain on investment of R2 000 was reclassified out of Other

9.

Comprehensive Income to a "Profit on investment." The financial statements were authorised for issuing on 25 March 2014.

REQUIRED: The following financial statements of Olive Street Limited for the year ended 28 February 2014 in conformity with International Financial Reporting Standards: 3.1 3.2 3.3 3.4

Statement of comprehensive income, (Use the function method) Statement of changes in equity and Statement of financial position. Prepare the following notes for the year ended 28 February 2014: 3.4.1. Statement of compliance 3.4.2

Accounting policy

3.4.3

Revenue

3.4.4

Profit before tax

3.4.5

Dividends

14 QUESTION 4

(48 MARKS)

Affordable Baking Limited is a company retailing in baking supplies. The accountant has prepared the following draft trial balance at 28 February 20X9:

15 Affordable Baking Limited: Trial balance at 28 February 20X9 Debit R Land

177 250

Equipment (Carrying amount)

30 000

Vehicles (Carrying amount)

30 000

Financial assets

10 000

Inventory Accounts receivable

220 500 79 000

Electricity and water expense prepaid (1/3/20X8)

1 000

Bank

2 000

Cash float

1 000

Cost of sales expense

142 500

Depreciation expense

100 0...