Accounting II

TUTORIAL PACK
ACCN 2000 & 2009
BLOCK 1
MARGO STEELE SCHOOL OF ACCOUNTING
COMMERCE, LAW AND MANAGEMENT FACULTY
ACCN 2000A/2009A
Provisional Tutorial Schedule for Acc 2 – 2024 (Block 1)
NOTE: Most questions refer to the IFRS for SMEs tutorial book (e.g., 1.1) with the solutions in your
tutorial pack, questions not in tutorial book (e.g., S1/Q1) will be found in your tutorial pack followed by
the solution. Unseen tutorials are to be completed during the weekly scheduled tutorial session.

Week Week Topic Tut questions Difficulty Corrections

Number Starting Level
Date
1 12 No tutorial - - -
February
2024
2 19 Acc 1 Revision 2023 Final Acc 1 Exam – Medium -
February 100 marks
2024
3 26 Scope, 1.1: True or False Core -
February concepts and excluding point 7
2024 pervasive (Week 3 – Tut 1)
principles 1.13: Fishy Fashions Advanced -
(Week 3 – Tut 2)
1.14: PF Chang Advanced -
(Week 3 – Tut 3)
S1/Q1: Cheza-e-yam Medium -
yam (Week 3 – Tut 4)
Unseen: Medium -
S2/Q1: Royal addicted
(Week 3 – Tut 5)
4 4 March Preparation 1.2: Miscellaneous Hard Ignore the
2024 and except query 2 foundational
presentation (Week 4 – Tut 1) questions, note for
of financial test and exam
statements purposes, question
will not be
scaffolded in this
manner.
1.3: Oscar’s A, B & C Medium Ignore the
only (Week 4 – Tut 2) foundational
questions, note for
test and exam
purposes, question
will not be
scaffolded in this
manner.

Page 1 of 3
 Week Week Topic Tut questions Difficulty Corrections
Number Starting Level
Date
1.4: Helena’s Medium Ignore info in
(Week 4 – Tut 3) question relating to
Notes to the
Financial
Statements
(Extract).
1.5: Kevin Consultants Easy -
query 1,2 & 4 only
(Week 4 – Tut 4)
Unseen: Medium Ignore the
1.6: Research raider foundational
(Week 4 – Tut 5) questions, note for
test and exam
purposes, question
will not be
scaffolded in this
manner.
5 11 March Property, plant 3.1: True or false 2, 3, 5, Easy -
2024 and 6 only
equipment (Week 5 – Tut 1)
Unseen: Medium Ignore the
3.2: Calculating foundational
depreciation questions, note for
(Week 5 – Tut 2) test and exam
purposes, question
will not be
scaffolded in this
manner.
3.4: Clean air Hard Ignore all
(Week 5 – Tut 3) information relating
to tax authorities
and deferred tax.
However, consider
the VAT implications
(this was covered in
first year).

Plant acquisition
date is 28 February
20x1.
6 18 March Property, plant 3.1: True or false 4,7,10 Easy -
2024 and only
equipment (Week 6 – Tut 1)

Page 2 of 3
 Week Week Topic Tut questions Difficulty Corrections
Number Starting Level
Date
(note 21 3.3: Miscellaneous Medium -
March Query 1, 3, 4, 6, 7 only
2024 is a (Week 6 – Tut 2)
public Unseen: Hard -
holiday, a S17 Q1: Macarons by
combined Macey (Week 6 – Tut 3)
tut will be
conducted,
date &
details to
TBA)
7 25 March No tutorial - -
2024 TEST WEEK
28 March 2024– 5 April 2024: Mid-term Vacation/Study/Research break

Page 3 of 3
 Date Exam Duration Session Venue
November 2023 3h00 hours 9h00-12h00 Flower Hall

---------------------------------------------------------------------------------------------------------------------------
University of the Witwatersrand, Johannesburg

Course or topic No(s) ACCN1005A and ACCN1006A

Course or topic name(s) Accounting I

Paper number & title

Examination/Test to be November Exam 2023

held during month(s) of

Year of Study
FIRST

Degrees/Diplomas for which BACHELOR OF COMMERCE IN

this course is prescribed ACCOUNTING/INFORMATION
SYSTEMS/GENERAL/LAW

Faculty presenting candidates CLM

Internal examiner(s) This is intentionally left blank.

and telephone extension
number(s)

External examiner(s) This is intentionally left blank.

Open Book Test NO

Electronic Devices/Computers. Please Financial calculator

indicate if any devices will be used during
the test and if so what device/devices will
be used?

Questions per book QUESTIONS 1 and 2 - BLUE BOOK

QUESTION 3 - PINK BOOK

Marks 100 marks

Time allowance 150 minutes writing time and additional 30
minutes reading time
Instructions
• Answers must be written in Black/Blue Pen, Pencil is not allowed.
• Do not use Tippex.
• Marks will be deducted for writing in the incorrect book as indicated above.
• The test consists of 10 pages (back-to-back) excluding the cover page, please check the
number of pages.
Accounting I Exam 2023 100 marks (180 minutes)

Question 1 34 marks (51 minutes)

Please note the following:

• Ignore VAT
• Show all workings clearly.
• Round all amounts to the nearest Rand where applicable.
• Round all decimals to two decimal places where applicable.

Munya (Pty) Ltd is a company that specializes in aluminium products in the Gauteng
area. The audited financial statements are provided below:
Statement of financial position of Munya as at 30 June 2023.
2023 2022
R R
ASSETS
Non-current assets 530 150 442 216
Property, Plant and Equipment 501 648 417 848
Investments 28 502 24 368

Current assets 235 750 191 962

Inventory 93 310 65 250
Trade and other receivables 136 774 120 690
Cash and cash equivalents 5 666 6 022

TOTAL ASSETS 765 900 634 178

EQUITY 412 636 356 400

Share capital 31 300 31 300
Revaluation surplus 190 384 157 520
Retained earnings 190 952 167 580

Non-current liabilities
Long-term borrowings 98 616 68 846

Current liabilities 254 648 208 932

Trade and other payables 90 540 72 066
Taxation payable 85 478 74 702
Dividends payable 12 582 12 582
Short-term portion of long-term borrowings 66 048 49 582

Total liabilities 353 264 277 778

TOTAL EQUITY AND LIABILITIES 765 900 634 178

Page 1 of 10 ACCN1005A/ACCN1006A Exam November 2023

Statement of profit or loss and other comprehensive income for the year ended 30
June 2023
2023
R
Revenue 592 154
Cost of sales (308 054)
Gross profit 284 100
Other income 7 520
Other expenses (206 250)
Finance costs (19 840)
Profit before tax 65 530
Income tax expense (18 348)
Profit for the year 47 182
Other comprehensive income – Revaluation of property 32 864
Total comprehensive income for the year 80 046

Notes to the financial statements for the year ended 30 June 2023
1. Included in profit before tax are the following items:
2023
R
Depreciation 37 294
Profit on disposal of plant and equipment 566
Dividends received 2 426
Interest received 4 528
Impairment loss on investments 5 000
Bad debts expense 11 172

The following additional information is available. This information was taken into
account when preparing the above financial statements:
2. The proceeds from the disposal of plant and equipment amounted to R1 978
during the current year. It is estimated that R36 000 of the plant acquisitions will
be used to expand product capacity.
3. No investments were sold during the year.
4. Included in trade and other receivables, and in trade and other payables are
the following:
2023 2022
R R
Interest receivable 300 200
Interest payable 1 016 824

5. Dividends of R23 810 were declared on 30 June 2023.

Page 2 of 10 ACCN1005A/ACCN1006A Exam November 2023

 You are required to: Marks
(a) Prepare the statement of Cash of flows of Munya for the year ended 33
30 June 2023 using the direct method.

Layout 1
TOTAL 34

Question 1: 34 marks

Page 3 of 10 ACCN1005A/ACCN1006A Exam November 2023

Question 2 16 marks (24 minutes)

Jabulile Ltd is a manufacturing company and is manufacturing soccer balls for Bafana
Ltd. Jabulile Ltd uses machine X 100 Super, purchased on 1 January 2021 for R1
million, for the manufacturing of the soccer balls.
Machine X100 Super comprises of three components. Machine X100 was kept in one
account comprising of the three components. Details of the components are as
follows:
Component Cost Useful life (Years) Residual value
R R
Component 1 500 000 5 40 000
Component 2 300 000 4 nil
Component 3 200 000 2 nil
Total 1 000 000

The components can function independently but are used as a unit. Components are
independently replaced at the end of their useful life.
On 30 September 2022, a part of component 2 broke down unexpectedly. The part
was replaced at a cost of R110 000. The useful life of the new component was 4 years.
Management estimated that the original cost of the broken part was R100 000.
On 31 December 2022, at the end of its useful life, component 3 was replaced at a
cost of R210 000.
Costs of day-to-day servicing of the machine amounted to R45 000 during 2022 (2021:
R42 000).
During 2022 the useful life and residual value of the components were reassessed,
and they were considered not to have changed.

You are required to: Marks

a Prepare the journal entries necessary to account for all aspects of 16
property, plant and equipment for the year ended 31 December 2022.

Total 16

Question 2: 16 marks

Page 4 of 10 ACCN1005A/ACCN1006A Exam November 2023

Question 3 50 marks (75 minutes)

Question 3 consists of 3 Parts; these parts are not related.

Part A 23 marks (35 minutes)

The MPS Appliance shop is owned and managed by Mandla, Pilay and Smith and are
in a partnership sharing profits and losses in the ratio 3:2:1. The financial year is from
1 July to 30 June. The partnership was formed in 2019. The MPS Appliance shop is
located in Johannesburg central and customers are mostly students. Small fridges,
microwave ovens and air fryers are the most popular appliances among students.

The partnership has grown over the years as students prefer to make their own meals
than buying take aways which are not cost effective. Students can open accounts and
pay for their appliances bought over a period as agreed upon. Mandla is responsible
for students’ accounts and has built relationships with students over the years to sell
appliances.

Below is an extract of the final Trial balance at 30 June 2023 after all
closing entries have been processed:

Debit Credit
Account
Rand Rand
Accounts Payable 124 000
Accounts Receivable 165 089
Bank 498 467
Inventory 210 444
Land and Buildings 900 000
Accumulated Depreciation: Buildings 30 000
Loan from Mandla 145 000
Capital Account Mandla 400 000
Capital Account Pillay 250 000
Capital Account Smith 120 000
Current Account Mandla 380 000
Current Account Pillay 260 000
Current Account Smith 65 000
1 774 000 1 774 000

Additional Information:

1. The Partnership agreement provides for the following:

• Each of the partners is entitled to an annual salary as follows:

• Mandla R180 000
Pillay R120 000
Smith R60 000

Page 5 of 10 ACCN1005A/ACCN1006A Exam November 2023

 • Interest on capital is calculated at 5.5% per annum on the balances at the end
of each year.

• Interest on drawings is charged at 6.5% per annum only if the current

year drawings for a particular partner exceeds their respective salaries
and interest on capital for that year.

2. During the financial year the partners drew the following amounts from the
partnership:
Mandla R120 000
Pillay R 85 000
Smith R105 000

3. The partnership borrowed R183 000 from Mandla on 1 July 2022. Interest on the
loan is calculated at 8% per annum, which is credited to Mandla’s current account
on the last day of the financial year. The interest has already been reflected as
an expense in the Statement of profit or loss. R38 000 of the loan was repaid to
Mandla on 31 December 2022.

4. The profit for the year was R750 000 before any appropriations to the partners
were done.

5. There were no contributions from the partners during the financial year.

You are required to: Marks

Prepare the Statement of Changes in Equity of MPS Appliance Shop

(a) for the year ended 30 June 2023. 23
Show all workings.
Round to the closest Rand.

Total Part A: 23 marks

Page 6 of 10 ACCN1005A/ACCN1006A Exam November 2023

Part B 15 marks (22 minutes)

Strandfoam Limited is a South African company manufacturing foam for mattresses.

The company was established in 1958 in Gordons Bay in the Western Cape. The
company has expanded over the years and opened branches in all the provinces. The
financial year end is 30 June.

The following is an extract of Strandfoam Limited’s Trial balance, with credit

balances indicated in brackets:

Account Name Balance at Balance at

30/6/2022 30/6/2021
Rand Rand
Sales (15 300 000) (14 069 000)
Cost of sales 9 690 000 8 523 000
Operating expenses 1 560 000 1 569 000
Interest expense 57 000 49 000
Current tax expense 970 400 690 300
Property, plant, and equipment 18 870 000 4 689 000
Accounts receivable 1 789 000 926 900
Inventory 3 565 000 4 998 000
Ordinary Shareholders Equity (21 500 000) (19 500 000)
Long-term loan (3 450 000) (3 450 000)
Accounts payable (4 231 300) (1 754 200)
Operating expenses payable (567 000) (650 000)
Dividend payable (250 000) (200 000)

Additional Information

1. Strandfoam Limited has the following favourable balances as at 30 June 2022:

R
Green Bank Current Account 1 799 900
Green Bank Savings Account 3 650 000
Cash and cash equivalents 2 567 000
Cash Deposits 780 000

2. 90% of the total sales were on credit for the reporting periods under review.
3. All purchases were on credit.

Page 7 of 10 ACCN1005A/ACCN1006A Exam November 2023

 You are required to: Marks
(a) Calculate the Gross profit percentage of Strandfoam Limited for the 2
2022 reporting period.

(b) Calculate the Acid test ratio of Strandfoam for the 2022 reporting 3
period.

(c) Calculate the Return on equity ratio of Strandfoam for the 2022 3
reporting period. Use averages in the calculation if applicable.

(d) Calculate the collection period for accounts receivable of Strandfoam 4

for the 2022 reporting period. Provide an interpretation of the collection
period for accounts receivable. Use averages in the calculation if
applicable.
(e) Calculate the Accounts payable turnover ratio of Strandfoam for the 3
2022 reporting period. Use averages in the calculation if applicable.

Round to the nearest two decimals.

Show all workings.

Total Part B: 15 marks

Page 8 of 10 ACCN1005A/ACCN1006A Exam November 2023

Part C 12 marks (18 minutes)

You were hired by Egoli Clothing, a sole proprietorship, owned by Mr Tobias Masinga
to assist the business in answering questions of a technical accounting nature. A list
of transactions was given to you of three inventory-related transactions relating to
March 2023. Mr Masinga has asked you to study these transactions and provide him
with answers on how to calculate and/or record these transactions. These transactions
are not related to each other.

Transaction 1
The owner took four items of clothing from the inventory for personal use and has
asked you to assist with the calculation of the cost price of these items. These
particular items of inventory usually sell for an amount of R378 per item. The gross
profit percentage made from this product is 72%.

You are required to:

1.1 In relation to transaction 1, calculate the cost price of the 2 marks

inventory items. Round off to the nearest Rand. Ignore
VAT.
1.2 In relation to transaction 1, prepare the journal entry to 3 marks
correctly account for the items taken for personal use
Narrations are required. Ignore VAT.

Transaction 2
The business is using the FIFO basis and operates a perpetual system of inventory.
The details of stock movements for the last week of March are as follows:

Date Number of items Cost price per

item
27 March - Opening stock 2 700 R219
27 - 31 March purchased 1 250 R267
27 - 31 March items sold 2 559 ?

You are required to:

2.1 Calculate the total cost price of closing stock on hand at 31 4 marks
March 2023. Round to the closest Rand.

Page 9 of 10 ACCN1005A/ACCN1006A Exam November 2023

Transaction 3
Inventory cost R24 300 was identified as damaged during a stock count performed on
31 March. The estimated selling price of the damaged goods amounts to R21 820.
The owner believes that advertising costs of R1 457 would have to be incurred in order
to sell the damaged goods. The owner needs assistance with how to account for this
event. Round to the closest Rand.

You are required to:

3.1 Prepare the journal entry that must be recorded in respect 3 marks
of the damaged goods. Narrations are not required. Ignore
VAT. Round to the closest Rand.

Total Part C: 12 marks

Question 3: Total Parts A, B and C: 50 marks

Page 10 of 10 ACCN1005A/ACCN1006A Exam November 2023

 ACC I EXAM 2023 MARK PLAN

Student Number:
Row:
Seat:
Venue:

Mark Key: In solution

P Full mark
R Consequential mark - only when the principle is applied correctly
O NO MARK AWARDED, incorrect

QUESTION 1
Mark
Prepare the statement of Cash of flows of Munya for the year ended 30 June 2023 using the direct method.
awarded

Munya Ltd
Statement of cash flows for the year ended 30 June 2023 1

R
Cash flow from operating activities
Cash receipts from customers (wk 1) 564 998 1
Cash paid to supplier and employees (wk 2) (470 616) 1
Cash generated from operations 94 382
Dividends received 2 426 0,5
Investment income (4 528 + 200 - 300) 4 428 1
Interest paid (19 840 + 824 - 1 016) (19 648) 1
Dividends paid (12 582 + 23 810 - 12 582) (23 810) 1
Tax paid (74 702 + 18 348 - 85 478) (7 572) 1
Net cash from operating activities 50 206

Cash flow from investing activities

Investment to maintain production capacity
Replacement of plant (wk 3) (53 642) 0,5
Investment to expand production capacity
Additions to plant (36 000) 1
Proceeds on sale of plant (wk 3) 1 978 0,5
Purchase of investments (wk 3) (9 134) 0,5
Net cash used in investing activities (96 798)

Cash flow from financing activities

Increase in loans (wk 4) 46 236 0,5
Net cash from financing activities 46 236
Net decrease in cash and cash equivalents (356) 1
Cash and cash equivalents at the beginning of the
6 022 0,5
period
 Cash and cash equivalents at the end of the period 5 666 1

Workings: R
1 Cash receipt from customers
Opening balance trade receivables 120 690 0,5
Less: Interest receivable (200) 0,5
Add: Revenue 592 154 0,5
Less: Credit losses (11 172) 0,5

Confirm if attempted
Less: Interest receivable at period end 300 0,5
Less: Closing balance trade receivables (136 774) 0,5
564 998

2 Cash paid to suppliers and employees

Cost of sales 308 054 0,5
Less:Opening inventory (65 250) 0,5
Add: Closing inventory 93 310 0,5
Purchases 336 114
Add: Opening trade and other payables 72 066 0,5
Less: Interest payable at beginning of period (824) 0,5
Less: Closing trade and other payables (90 540) 0,5
Add: Interest payable at end of period 1 016 0,5
Purchases paid (Bank) 317 832
Add: Expenses 206 250 1
Adjust non-cash items
Depreciation (37 294) 1
Impairment losses (5 000) 1
Credit losses (11 172) 1
470 616

3 Additions to property, plant and equipment

Opening balance at carrying amount 417 848 0,5

Additions: Expansions 36 000 1
Additions: replacement (balancing figure) 53 642 1
Disposal (1 978 - 566) 1 412 1
Depreciation (37 294) 0,5
Revaluation 32 864 1
Closing balance at carrying amount 501 648

4 Increase in loans
Closing balance (98 616 + 66 048) 164 664 1
Opening balance ( 68 846 + 49 582) (118 428) 1
46 236
5 Investments
Opening balance 24 368 0,5
Additions (Balancing figure) 9 134 1
Impairment (5 000) 1
Closing balance 28 502
Presentation 1

Available 34 Link back to master sheet

Max 34 0

QUESTION 2
Mark
Prepare the journal entries necessary to account for all aspects of property, plant and equipment for the year ended 31 December 2022
awarded

Date Account description Dr Cr

01-Jan-21 Machinery (SFP) 1 000 000 Journal (correct dr/cr, account description)
Bank (SFP) 1 000 000 Amount
Purchase of machine X100 Super
31-Dec-21 Depreciation (P/L) (92 000 + 75 000 + 100 000) 267 000 Journal (correct dr/cr, account description)
Accumulated depreciation: Machinery (SFP) 267 000 Amount (working)
Depreciation for the year
Component 1:
(500 000 - 40 000)/ 92 000
5
Component 2: 300 000/4 = 75 000 75 000
Component 3: 200 000/2 = 100 000 100 000

Repairs & maintenance (P/L) 42 000 Journal (correct dr/cr, account description)
Bank (SFP) 42 000 Amount
Cost of day to day servicing
30-Sep-22 Depreciation (P/L) 18 750 Journal (correct dr/cr, account description) 1
Accumulated depreciation: Machinery (SFP) 18 750
Depreciation of broken part of component 2
Workings:
100 000/4 1
x9/12 = 18 750 1
Loss on derecognition (P/L) (100 000 - 43 750) 56 250 Journal (correct dr/cr, account description) 1

Confirm if attempted
Accumulated depreciation: Machinery (SFP) 43 750
Machinery (SFP) 100 000 1
Write-off of broken part of component 2
Workings:
Accumulated depreciation: Broken part
100 000 x 21/48 = 43 750 OR 100000/4 + 18750 1
 Machinery (SFP) 110 000 Journal (correct dr/cr, account description) 1
Bank (SFP) 110 000
Capitalisation of new part
31-Dec-22 Depreciation (P/L) (92 000 + 6 875 + 100 000) 198 875 Journal (correct dr/cr, account description) 1
Accumulated depreciation: Machinery (SFP) 198 875
Depreciation for the year
Workings:
Component 1: (500 000 - 40 000)/5 = 92 000 1
Component 2: =50000 0,5
Old: (300 000 - 100 000)/4 1
New: 110 000 x
3/48 = 6 875 1
Component 3:200 000/2 = 100 000 0,5
Machinery (SFP) 210 000 Journal (correct dr/cr, account description) 1
Bank (SFP) 210 000 Amount 1
Capitalisation of new part
Repairs & maintenance (P/L) 45 000 Journal (correct dr/cr, account description) 1
Bank (SFP) 45 000 Amount 1
Cost of day to day servicing

Available 16 Link back to master sheet

1 Max 16 0

QUESTION 3 - Part A Mark

Prepare the Statement of Changes in Equity of MPS Appliance Shop for the year ended 30 June 2023. awarded
(a)
Comments Capital Current Profit
Appropriation Total
Mandla Pillay Smith Mandla Pillay Smith
R R R R R R R R
Balance at 01/07/2022 Given 400 000 400 000 1
250 000 250 000 1
120 000 120 000 1
Balance at 1/07/2022 Balancing 107 643 107 643 1
Balancing 93 092 93 092 1
Balancing 51 146 51 146 1
Profit for the period Given 750 000 750 000 1
Salaries Given 180 000 - 180 000 1
Given 120 000 - 120 000 1
Given 60 000 - 60 000 1
Interest on capital 22 000 13 750 6 600 - 42 350
 400 000 x
0.055 = 1
22000
250 000 x
0.055= 1
13750
120 000 x
0.055= 1
6600
Interest on drawings Working 2 - 6 825 6 825 1
Interest on loan Working 1 13 120 13 120 1
Share of remaining profit 177 238 177 238 1
=354475
1
*3/6
118 158 118 158
1
=354475
1
*2/6
59 079 59 079
1
=354475
1
*1/6
354 475

- 354 475

Confirm if attempted
Drawings Given - 120 000 -120 000 1
Given - 85 000 -85 000 1
Given - 105 000 -105 000 1
Balance at 30/06/2023 400 000 250 000 120 000 380 000 260 000 65 000 - 1 475 000

380 000 260 000 65 000 1 475 000

Working 1: Interest on Loan
(183 000*8/100 13120
*6/12) + ((183 000-
Mandla Loan Interest 38000)*8/100*6/12)

Working 2: Interest on Drawings

Mandla
Salaries & Interest on capital CY drawings Difference
=180000+22000 = 202000 - 120 000 82 000

Salaries & Interest on capital > CY drawings, so no interest on

drawings

Pillay
Salaries & Interest on capital CY drawings Difference
=120000+13750 = 133750 - 85 000 48 750
 Salaries & Interest on capital > CY drawings, so no interest on
drawings

Smith
Salaries & Interest on capital CY drawings Difference

=60000+6600 = 66600 - 105 000 -38400

Salaries & Interest on capital <
Current year drawings, so
interest on drawings
MUST be levied.
Interest on Smith's Drawings = -105000*0.065 - 6 825
for the year

Available 24 Link back to master sheet

Max 23 0

QUESTION 3 - Part B
Mark
awarded

(a) Calculate the Gross profit percentage of Strandfoam Limited for the 2022 reporting period.

2 022
Gross Profit %
Sales - 15 300 000
COS 9 690 000
Gross Profit - 5 610 000

Sales - 15 300 000 1

=Gross Profit / Sales X 100 36,67% 1

(b) Calculate the Acid test ratio of Strandfoam for the 2022 reporting period
Acid Test Ratio

Current Assets
(1 789 000+ 3 565 000+ 8 796 900) 14 150 900

Acc Rec 1 789 000

Bank 8 796 900

Inventory 3 565 000 1

 Acc Pay 4 231 300
Operating expenses payable 567 000
Dividends payable 250 000
Current Liabilities
'(4 231 300+ 567 000+ 250 000) 5 048 300 1

= (Current Assets - inventory)/Current liabilities

2,10 C 1

2.10:1

Confirm if attempted
(c) Calculate the Return on equity ratio of Strandfoam for the 2022 reporting period.
Return on Equity
= Profit after tax/Average ordinary shareholders equity
Profit after Tax (5 610 000- 1 560 000 - 57 000 - 970
400) 3 022 600 1

Average Ordinary Shareholders Equity

'(21 500 000 + 19 500 000)/2 20 500 000 1

0,15 OR 14,74% C 1

(d) Calculate the collection period for accounts receivable of Strandfoam for the 2022 reporting period. Provide an interpretation of the collection period for accounts receivable.
Collection period for Acc Rec

Net Sales on Credit (15 300 000 * 90%) 13 770 000 1

Average Acc Rec (1 789 000 + 926 900)/2 1 357 950 1
= Net Sales on Credit/Average Acc Rec 10,14 1

Collection Period for Acc Rec

=365/Acc Rec Turnover ratio 36,00 days C 1

(e) Calculate the Accounts payable turnover ratio of Strandfoam for the 2022 reporting period.
Payment period for Acc Pay

Net Purchases on Credit 8 257 000

COS =OI + Purchases - CI Purchases 8 257 000 1
9 690 000 = 4998 000 + x - 3 565 000 COS 9 690 000
Average Acc Pay (4 231 300+ 1 754 200)/2 2 992 750 1
= Net Purchases on Credit/Average Acc Pay 2,76 C 1

Available 15 Link back to master sheet

Max 15 0
 QUESTION 3 - Part C Mark
awarded

1,1 In relation to transaction 1, calculate the cost price of the inventory items. Round off to the nearest Rand. Ignore VAT. 2 marks

Calculation of Cost Price

Cost 28%
GP 72%
SP 100%

SP per item 378

Cost per item 106 =378 *28/100 1
CP of 4 Items 423 = 106 * 4 items 1

1,2 In relation to transaction 1, prepare the journal entry to correctly account for the withdrawal of these items? Narrations are required. Ignore VAT. 3 marks
Dr Cr
Drawings 423 1
Inventory/trading stock 423 1
Owner took 4 items for personal use 1

2,1 Calculate the total cost price of closing stock on hand at 31 March 2023. 4 marks
Cost per
Items
item

Confirm if attempted
OI 2700 219
Purchases 1250 267
Sold 2559

Total cost of CI 1391 364 629

1250 1
267 333 750 1
141 1
219 30 879 1

3,1 Prepare the journal entry that must be recorded in respect of the damaged goods. Narrations are not required. Ignore VAT. 3 marks

NRV or estimate selling price less disposal

Selling price 21 820
Advertising cost 1 457 1
NRV 20 363
Cost 24 300
Write down (Cost -NRV) 3 937

Dr Cr
Cost of Sales 3937 1
Inventory/trading stock 3937 1
Stock/Inventory write off

Available 12 Link back to master sheet

1 Max 12 0
S1/Q1: Cheza-e-Yam Yam

Company information

Cheza-e-YamYam (Pty) Ltd is a newly established, proudly South African, food outlet which
has become increasingly popular over the last 5 years. The concept of the food outlet is based
on the unique traditions of South Africans. The name “Cheza-e-YamYam” which is derived
from the words “shisa nyama”, a term used in many South African communities to describe a
barbecue or braai, at which people come together to grill meat on an open fire. “Shisa nyama”
is a Zulu phrase and, literally, means to "burn meat".

The sole owner of Cheza-e-YamYam, Mr Dlamini, has great vision for his company and has an
innovative strategy in place to achieve this. In order to achieve this, he aims to ensure market
share is won by making meals affordable and having regular promotions to attract customers
constantly. Mr Dlamini also prides himself on selling new and exciting beverages, desserts,
side meals and entity- branded merchandise which he believes will also increase market share
significantly.

The entity operates from a total of 5 outlets, situated within the country. The entity also has
a small building in the Johannesburg CBD from which its administration takes place. The entity
publishes annual financial statements for internal and external purposes.

Required:
A. Based on the back- ground information, discuss if Cheza-e-YamYam (Pty) Ltd (5)
can use IFRS for SME’s as a reporting framework in terms of the scope of IFRS
for SME’s.

Page 1 of 1
S2/ Question 1- Royal addicted

Royal Addicted Pty Limited is a luxury fashion store in South Africa which is owned by two
dentists, Atiyyah and Zeenat. The two colleagues started the company a few years ago as they
both loved the fashion sense of royal families around the world. Atiyyah and Zeenat visit Paris,
Milan, Barcelona and London on a regular basis to import clothing for their fashion lines. The
entity currently has two collections, namely, the Kate Collection which is the ladies’ range and
the Charlotte Collection which is the little girls’ range. Royal Addicted’s flagship store is
situated in Hyde Park Johannesburg. The entity also sells all their merchandise via an online
platform. The year-end of the entity is 31 December.

In November 2015, the owners of the business collectively decided to purchase an industrial
pressing iron to be used in the Hyde Park store. The pressing iron was purchased from an
overseas supplier that gave Royal Addicted a flexible repayment option. The supplier
agreement allowed the entity to either pay for the pressing iron upfront at a price of R7 500,
where ownership would be passed immediately. Alternatively, Royal Addicted could settle
the supplier on 1 November 2016 at a price of R 12 000, where ownership would be passed
only when payment has been made. Royal Addicted chose the second payment option and
used the pressing iron in the store since 1 November 2015. From 1 November 2015 - 1
November 2016, the entity had sole use of the pressing iron and also repaired the pressing
iron when an electric fault existed. Atiyyah and Zeenat insist that the pressing iron should
only be recognised as an asset on 1 November 2016 at an amount of R 12 000, since
ownership had only legally passed on this date.

The above transaction is not a lease transaction.

Required:

(i) State if you agree with Atiyyah and Zeenat regarding the recognition of the (1)
pressing iron on 1 November 2016.

(ii) Give a brief explanation for your answer above. Your explanation should only (4)
cover the term “control” from definition of an asset in terms of section 2-
concepts and pervasive principles.

Page 1 of 1
 Q1.1
Time: 30 min
Marks 20
Level Core

1 C&D A small or medium-sized entity is one which does not have public accountability and which 2
prepares general purpose financial statements.

2 B, C & D IFRS for SME's provides a definition of 'public accountability' (s1.3). The definition does not 2
make reference to trade unions or codes on corporate governance.

3 C An entity which is publicly accountable cannot prepare financial statements using IFRS for 2
SME's (s1.1 & s1.3). It will only be regarded as publicly accountable if it holds assets in a
fiduciary capacity for a large group of outsiders and if this is not merely incidental to their
primary business (s1.4).

4 A IFRS for SME's do not supersede the laws and regulations of the jurisdiction of the 2
reporting entity. As such, an entity which would otherwise be entitled to prepare financial
statements using IFRS for SME's cannot do so if this is precluded by the relevant laws and
regulations in the entity's home country (P13). Similarly, if an entity does not meet the
definition of a 'small or medium-sized entity' it cannot claim to prepare financial
statements in compliance with IFRS for SME's, even if it is permitted to do so in terms of
the relevant laws and regulations of the country in which it is based.

5 C&D Refer to Regulation 27 (Companies' Regulations, 2011). 2

6 C Companies which may prepare financial statements using IFRS for SME's are entitled to 2
prepare financial statements using full IFRS instead (s3a, Regulation 27). Similarly,
companies with a public interest score of less than 100 not subject to prescribed standards
may prepare financial statements using IFRS or IFRS for SME's (s3b, Regulation 27).
Regulation 26 requires the public interest score to be computed at the end of each
financial year for the purpose of determining the applicable financial reporting standards
per Regulation 27 (s2, Regulation 26).

7 A, B, C, D Refer to s2 of the IFRS for SME's (IGNORE THIS QUESTION) 2

&E

8 A, C & E Refer to s2.15 2

9 A&C Section 2.20 states that a liability may arise from either a legal or a constructive obligation. 2
This obligation may be settled in several ways including, for example, the payment of cash
or other resources or replacement of one obligation with another (s2.21).

Page 1 of 4
 Q1.1
10 D The IFRS for SME's defines equity as the residual interest in the net assets of the reporting 2
entity (s2.22). Share capital is one example of equity. Other examples include the
ownership interests of partners in a partnership or other equity stakes in an
unincorporated entity.

Page 2 of 4
 Q1.13: Fishy Fashions (Pty) Ltd

Time: 10 min
Marks 7
Level Advanced

A: Recognition of an asset

The machine should be recognised as an asset if it meets the definition and recognition
criteria for an asset as per section 2 of IFRS for SMEs. Per section 2.15 (a) of IFRS for SME's,
an asset is defined as a

1. resource: The machine is a resource to the company for the majority of its useful life, 9
out of 10 years 1

2. Controlled by the entity: The question that should be asked to determine control is
whether or not FISHY FASHIONS has the benefits of the asset and can prevent others from
those benefits. In addition, it is important in establishing control whether the entity bears
the significant risks of ownership. As the rental agreement is for 9 years and the useful life of
the asset is 10 years, FISHY FASHIONS will obtain the majority of its benefits and it will be
able to prevent others from accessing those benefits (through the exclusive rental
agreement). In addition, as FISHY FASHIONS is responsible for paying the insurance on the
machine, it is, in effect, undertaking the significant risk associated with ownership of the
machine. The insurance represents a significant risk associated with ownership, as it is a
payment for the recovery of the asset in the event of loss, damage or malfunction. FISHY
FASHIONS does, therefore, control the machine. 1
Past event: The past event is the signing of the rental agreement 1
Inflow of future economic benefits: FISHY FASHIONS will obtain economic benefits from the
machine in the form of revenue from the sale of valves. 1

Recognition criteria:

Probability of inflow of future economic benefits: Based on past experience and current
orders FISHY FASHIONS estimates that it will sell the valves at a profit in the future. It is more
likely than not that future economic benefits will flow to the entity. 1
Cost/value measured reliably: The amount of the rental is stipulated in the rental agreement
as CU8 000 per month. 1

Even though the machine is rented, it does still meet the definition and recognition criteria
for an asset and should be recognised as such in the financial statements of Fishy Fashions. 1
Please note: the above example deals with a rental agreement that is classified as a
finance lease. Leases will be covered under section 20 of IFRS for SMEs. It is important to
understand that the substance of the rental agreement and not its legal form is looked at
when deciding whether the machine is an asset of the business. It is important that you
understand why the machine is an asset from a conceptual point of view.

Page 3 of 4
 Q1.14: PF Chang (Pty) Ltd

Time: 9 min
Marks 6
Level Advanced

A: Recognition of liability
A liability for independent review fees should be recognised only if the definition of a liability
and the recognition criteria are met. The definition of a liability per section 2.15 (b) of IFRS
for SME's is as follows:

1. a present obligation: No past event has taken place at 31 December 20x3 as the
independent review work only started on 1 January 20x4, so no present obligation exists as
at 31 December 20x3. 1
2. arisen from a past event: Performance of the independent review work. 1
3. the settlement of which is expected to result in an outflow of resources embodying future
economic benefits: The outflow of resources would be the payment of the independent
review fee. 1

The independent review fee does not meet the definition of a liability thus the journal entry
processed by the accountant is incorrect. 1

Recognition criteria: (discussed for completeness although definition not met)

Probability of outflow of resources: It is more likely than not that the independent review
fee will be paid based on prior years’ experience. 1
Cost/value reliably measured: The cost of the independent review fee is estimated at CU375
000 based on past experience. 1
Alternate Answer
Present obligation: By law, all companies have to be independently reviewed annually, thus
a present obligation exists at 31 December 20x3 for F KONG Limited to be independently
reviewed. 1
Past event: The operation of the company during 20x4 which leads to the independent
review having to be performed 1
Outflow of resources embodying future economic benefits: The outflow of resources would
be the payment of the independent review fee. 1
The independent review fee meets the definition of a liability and a liability was correctly
recognised by the accountant at 31 December 20x3. 1

The recognition criteria discussion will be the same as above. 2

Note: Independent review fee provisions are a contentious issue in practice and the
different views above are applied by different accounting and independent reviewing
firms in practice.

Page 4 of 4
Section 1/ Q1 Solution

According to S1 an entity may apply the IFRS for SMEs reporting framework if it is an SME √
SMEs are those entities which:
(a) Do not have public accountability, and [Refer: paragraph 1.3] √
(b) Publish general purpose financial statements for external users. √

An entity has public accountability if:

Its debt or equity instruments are traded in a public market or it is in the process of issuing
such instruments for trading in a public market or

It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary
businesses

The entity does not have public accountability as:

Its debt and equity are not traded in a public market- Mr Dlamini is the sole owner of the
entity. √
Further, no information suggest that it is in the process of issuing such instruments on a
public market. √
The entity also does not hold assets in a fiduciary capacity for a group of outsiders as its
primary business-The entity's primary business is a fast food business. √

The entity does publish general purpose financial statements -The entity publishes annual
financial statements for internal and external purposes. √

The entity thus meets the definition of an SME and therefore may use IFRS for SMEs as a
reporting framework. √
The entity needs to also consider the country's regulatory ( companies act) requirements
in respect of reporting frameworks. √

Available 8
Max 5
 Q1.2: Miscellaneous

Time: 58 min
Marks 39
Level Introductory

A: Query 1- Panic (Pty) Ltd

Section 3.15 of IFRS for SMEs requires that an entity present separately each material class of
similar items. 1
Items can be dissimilar on the bases of their function or their nature. 1
Omissions or misstatements of items are material if they could, individually or collectively,
influence the economic decisions of users made on the basis of financial statements. The
nature or size or both of the item could be a determining factor. (S3.16) 1
Information provided in the financial statements must be relevant. Information which is
material is thus relevant. 1
Thus the requirement of IFRS for SMEs to present separately amounts for different classes of
assets and liabilities lies in the fact that such presentation is relevant to the user's
understanding of the financial statement as these items are materially different in their
nature or function to warrant separate disclosure.
2

C: Query 3: Confused (Pty) Ltd

Distinction between current and non-current assets and liabilities
Section 2.5 of IFRS for SMEs requires that an entity provide relevant information when
preparing its financial statements for decision-making purposes. Information is considered
relevant when it is capable of influencing the economic decisions of users by helping them
evaluate past, present or future events or confirming or correcting their past evaluations
(s2.5) 1
The classification of assets and liabilities into current and non-current provides users with an
indication of the liquidity of the assets and liabilities. 1
More specifically, it allows users to assess how long the entity will take to convert an asset
into cash through its use or through its sale, and how long the entity will take to settle its
liabilities. 1
Section 4.4 of IFRS for SMEs also states that an entity can present assets and liabilities in order
of liquidity if this provides information that is more relevant and reliable. 1

D:Query 4- Clueless (Pty) Ltd

Classification of Inventory
Section 4.5 of IFRS for SMEs states that an entity shall classify assets as current when: 1

a. it expects to realise the asset, or intends to sell or consume it, in the entity's normal
operating cycle or
b. it holds the asset primarily for the purpose of trading or
c.it expects to realise the asset within twelve months after the reporting date or
d. the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used
to settle a liability for at least twelve months after the reporting date.
Inventory is a business asset that usually is expected to be realised within twelve months of a
reporting date. 1

Page 1 of 9
 Q1.2: Miscellaneous

If however, it is expected to be sold after twelve months of the reporting date, as may be the
case regarding the customised gadgets owing to the process of customisation, then
consideration needs to be given to whether the gadget meet any of the other criteria. 1
Inventory is realised within the entity's normal operating cycle. So, even though the process
of customisation could result in the inventory being sold after 12 months of the reporting
date, inventory is still classified as a current asset and presented as such on the face of the
statement of financial position 2

E: Query 5- Helpme(Pty) Ltd

Helpme(Pty) Ltd
Extract of the Statement of financial position as at 31 December 20x5
Notes 2015
CU
ASSETS
Non-current Assets
Property, plant and equipment 350 000 0,5
Intangible assets 45 000 0,5
Current Assets
Inventories 2 206 770 0,5
Trade and other receivables 3 147 600 0,5
Cash 21 700 0,5
Total assets
EQUITY AND LIABILITIES
Non-current liabilities
Long- term portion of interest bearing debt 10 000 1
Current liabilities
Current portion of interest bearing debt 2 000 1
Trade and other payables 4 160 800 0,5

Extract from the notes to the financial statements for the year ended 31 December 20x5

2 Inventories 20x5
Raw materials 39 000 0,5
Work-in-progress 78 000 0,5
Finished goods 89 770 0,5
206 770

3 Trade and other receivables

Trade Debtors 67 500 0,5
Accrued Income 34 500 0,5
Prepaid expenses 45 600 0,5
147 600

4 Trade and other payables

Trade creditors 78 500 0,5
Deferred Income 35 400 0,5
Accrued expenses 46 900 0,5
160 800

Page 2 of 9
 Q1.2: Miscellaneous

Format 2,5

F: Query 6- Hopeless (Pty) Ltd

Hopeless (Pty) Ltd
Extract of the Statement of comprehensive income for the year ended 31 December 20x5
Notes 20x5
R
Revenue 450 000 0,5
Finance costs -3 000 0,5
Profit before tax 2 200 000 0,5
Tax expense -56 000 0,5
Profit for the year 144 000

Extract from the notes to the financial statements for the year ended 31 December 20x5

20x5
2 Profit before tax
The following items have been recognised as income
or (expenses) in determining profit before tax:
Profit on sale of machinery 5 000 1
Depreciation 80 000 1
Employee benefits 120 000 1
Advertising and stationery 9 000
Water and electricity 11 200

Format 2

G: Query 7-Needy (Pty) Ltd

Section 5.11 of IFRS for SMEs requires that an entity classifies expenses either by their nature
or in terms of their function within the business. 0,5
The selection of the appropriate classification depends on whichever method provides more
relevant and reliable information 0,5
The classification of expenses by nature (for example depreciation, transport costs, printing
and stationery) is simpler and is more suited to smaller businesses
1
Classification by function requires that an entity identify different functions within the
business such as sales, administration and distribution. 1
If the function method is used, expenses need to be allocated to the various functions that
they fit. For example, the commission that is paid to sales agents would be allocated to "sale
expenses."
1
Since the function method indicates amounts relating to the various key activities within the
business, it usually provides information that is more relevant. This, however, must be
considered in light of the fact that the allocation of an expense to its function may be
arbitrary in which case information may be unreliable.
1

Page 3 of 9
 Q1.3: Oscar's (Pty) Ltd

Time: 39 min
Marks 26
Level Introductory

A: Statement of Comprehensive Income for the year ended 31 December 20x5

Oscar's (Pty) Ltd

Statement of Comprehensive Income for the year ended 31 December 20x5
Notes 20x5
CU
Revenue 986 000 0,5
Cost of sales -616 250 0,5
Gross Profit 369 750
Other income (55 000- 5 000) 50 000 1
Selling expenses -34 875 0,5
Distribution expenses -27 565 0,5
Administration expenses -79 860 0,5
Finance costs -4 500 0,5
Profit before tax 272 950
Taxation expense -77 042 0,5
Profit for the period 195 908
Other Comprehensive income -
Total Comprehensive income 195 908

Workings: See below 6

B: Statement of Financial Position as at 31 December 20x5

Oscar's (Pty) Ltd

Statement of Financial Position as at 31 December 20x5
Notes 20x5
CU
ASSETS
Non-current assets
Property, plant and equipment (156 000 + 25 000 + 340 000) 521 000 1,5

Current assets
Inventories (230 000 + 6 000 ) 236 000 1,5
Trade and other receivables (45 000 + 102 000 +12 000) 159 000 0,5
Bank and cash (21 700 - 12 000) + 11 300 21 000 2
416 000
Total Assets 937 000

EQUITY AND LIABILITIES

Capital and reserves
Stated capital 250 000 0,5
Retained earnings 449 800 0,5
Total equity 699 800
Non-current liabilities
Long-term loan 45 000 0,5

Page 4 of 9
 Q1.3: Oscar's (Pty) Ltd

Current liabilities
Trade and other payables (89 000 + 95 000 + 5 000 + 3 200) 192 200 0,5

Total equity and liabilities 937 000

C: Statement of changes in equity for the year ended 31 December 20x5

Stated Retained
Capital Earnings Total
Balance on 01 Jan 20x5 250 000 253 892 503 892 1
Total
comprehensive
income for the
period 195 908 195 908 1
Balance on 31 December 20x5 250 000 449 800 699 800

Workings
W1- Allocation of expenses

Selling Admin Distribution

Consumable
stores (13 000-6
000) - - 7 000 2
Water and
electricity
(20:30:50) 640 960 1 600 1
Depreciation 18 235 2 605 31 260 1
Salaries and
wages; other
expenses (48
000+ 32 000) 16 000 24 000 40 000 2
34 875 27 565 79 860

Page 5 of 9
 Q1.4: Helena's (Pty) Ltd

Time: 18 min
Marks 12
Level Introductory

A: Critical analysis of financial statements

The question states that a draft set of financial statements was prepared. However, only the
statement of comprehensive income, statement of financial position and notes to the
financial statements were prepared. A complete set of financial statements would also
include the statement of changes in equity and the statement of cash flows.(S3.17 of IFRS for
SMEs) 1

Except when this IFRS permits or requires otherwise, an entity shall disclose comparative
information in respect of the previous comparable period for all amounts presented in the
current period’s financial statements. An entity shall include comparative information for
narrative and descriptive information when it is relevant to an understanding of the current
period’s financial statements.(S3.14 of IFRS for SMEs)- in this regard no comparative
information has been given in the draft set of financial statements. 1

An entity shall display the following information prominently, and repeat it when necessary
for an understanding of the information presented: (S3.23)
(a) the name of the reporting entity and any change in its name since the end of the
preceding reporting period: the name of the entity has not been displayed
(b) whether the financial statements cover the individual entity or a group of entities :this
will be covered in more detail when doing consolidations
(c) the date of the end of the reporting period and the period covered by the financial
statements: this has not been presented for any of the financial statements presented.
(d) the presentation currency: there is no indication that rands is the presentation currency.
An "R" should be included at the top of the figures disclosed and
(e) the level of rounding, if any, used in presenting amounts in the financial statements: this
is not applicable as there appears to be no rounding 2

An entity shall disclose the following in the notes: (S3.24)

(a) the domicile and legal form of the entity, its country of incorporation and the address of
its registered office (or principal place of business, if different from the registered office):the
country of incorporation and the address of the entity's registered office has not been
indicated. 1
An entity shall present current and non-current assets, and current and non-current
liabilities, as separate classifications in its statement of financial position except when a
presentation based on liquidity provides information that is reliable and more relevant
(S4.4): the draft financial statements have not made a distinction between current and non-
current assets and liabilities 1
The Statement of Compliance note should indicate that the financial statements have been
prepared in accordance with the International Financial Reporting Standards for Small and
Medium-Sized Entities issued by the International Accounting Standards Board. It should also
indicate that the financial statements are presented in South African Rands. 2

Page 6 of 9
 Q1.4: Helena's (Pty) Ltd

The basis of preparation note should read as follows: the financial statements have been
prepared under the historic cost convention .
The preparation of financial statements in conformity with IFRS for SMEs requires the use of
estimates and assumptions that affect the reported amount of assets and liabilities on the
statement of financial position, as well as income and expenses, on the statement of
comprehensive income. The estimates and assumptions are based on management’s best
knowledge. 2
The portion of the long-term loan that becomes payable in the following financial year
should be classified under current liabilities and the balance under non-current liabilities. 1

The profit before tax note should disclose the impairment of machinery, the reversal of
impairment, the staff costs, the profit made on the sale of intangible assets and the write-
down of inventory. 1

Page 7 of 9
 1.5 Kevin Consultants
Time: 31 min
Marks 21
Level Introductory

Query 1: ABC Stores

The client does not appear to have prepared a complete set of financial statements. 1
In terms of 3.17, a complete set of financial statements includes:
>> a statement of financial position; 1
>> a single statement of comprehensive income showing profit and loss and other comprehensive
income or a separate income statement and statement of comprehensive income; 1
>> a statement of changes in equity; 1
>> a statement of cash flows and 1
>> supporting notes, including accounting policies. 1
Comparative information must also be provided (s3.14 & s3.20). 1

It is, however, permissible to prepare a single statement of income and retained earnings if the only
changes to equity during the period were the result of profit or losses, dividends, correction of errors
or changes in accounting policy (s3.18). 1
Similarly, if there are no items of comprehensive income, then only an income statement needs to be
presented (s3.19). 1

Query 2: The Car Shed

Minimum disclosure
Details Amount requirement Notes

Share capital 1 000,00  0,5

Trade and other payables 45 000,00  0,5
Provision for warranties 15 000,00  0,5
Deferred tax liability 7 000,00  2 0,5
Amounts owing to tax authorities 8 000,00  0,5
76 000,00

Plant 45 000,00  1 0,5

Machinery 19 500,00  1 0,5
Inventory 3 000,00  0,5
Trade receivables 4 500,00  0,5
Prepayments 2 500,00  0,5
Forward contracts 1 000,00  0,5
Deferred tax asset 500,00  2 0,5
76 000,00

Notes

1: The amounts could be aggregated with additional information provided in the notes (s4.2e; s4.11a). 1
2: If the deferred tax balances relate to the same tax authority and will be settled net, the amounts
should be offset (s29). 1

Page 8 of 9
 1.5 Kevin Consultants

Query 4: Smith and Smith Books

The company has entered into a binding agreement for a major disposal of assets or a group of assets
and associated liabilities. 1
In terms of s4 of the IFRS for SME's the following should be disclosed:
>> A description of the assets or group of assets and liabilities to be disposed. 1
>> A description of the facts and circumstances of the sale or plan. 1
>>The carrying amount of the assets to be disposed of and liabilities to be transferred 1

As the transaction is only expected to occur during the second quarter of the next financial year, it is
unlikely that s32 of the IFRS for SME's will be applicable.

Page 9 of 9
 Question 3.1: Multiple Choice: PPE
Time: 12 min
Marks 8
Level Core

2 B The only cost that may be capitalised is the cost to replace the lift. Section 17 requires that for 2
additional costs to be capitalised, the definition and recognition criteria of an asset are to be met:
that it is probable that there will be an inflow of economic benefits and the cost can be reliably
measured (17.4). The lift to be replaced meets the definition and recognition criteria of an asset
and should be capitalised. Borrowing costs are specifically excluded from being capitalised per
section 17.11(e).

3 A, C & D The costs that may be capitalised in accordance with Section 17.10 are the costs of the 2
machinery, transport costs and costs incurred in testing the machinery. These costs are incurred
in bringing the asset to the location and condition necessary for its use. Section 17 specifically
does not allow the capitalisation of loan-raising fees and operating losses incurred.

5 B The depreciation to be recorded in 2014 is (cost- residual value)/5 years = (250 000- 20 000)/5= 2
46 000

6 C The plant is to be depreciated using the units of production method over the expected units of 2
production of 200 000 000 kl. The entity is required to apply the depreciation method which best
matches the consumption of the economic benefits of the asset(s17.22).

Page 1 of 4
 Question 3.4: Clean Air (Pty) Ltd
Time: 116 min
Marks 77
Level Intermediate

A: Journal entries
Land
No journal entries as land is not depreciated 1
Details Dr Cr
Depreciation 5 020 099 1
Impairment 2 607 952 1
Accumulated depreciation and impairment loss - manufacturing facility 2 688 000 1
Accumulated depreciation and impairment loss - warehouse facility 576 000 1
Accumulated depreciation and impairment loss - administrative building 195 000 1
Accumulated depreciation and impairment loss - plant 3 629 732 1
Accumulated depreciation and impairment loss - motor vehicles 358 667 1
Accumulated depreciation and impairment loss - furniture and fittings 180 652 1
Recognising depreciation and impairment for 20x5
Bank 12 200 000 1
Insurance proceeds 12 200 000 1
Recognising insurance proceeds on plant
Bank 220 000 1
Loss on sale of vehicle 152 000 1
Motor vehicle 372 000 1
Recognising the disposal of the motor vehicle
B: Notes to the financial statements - property, plant and equipment
Manufactu

Administra
warehous

Furniture
e facility
ring and

Building

vehicles

fittings
Motor

Plant

Total
Land

tive

and

Carrying
Amount 01 1 800 000 85 392 000 7 020 000 1 244 667 842 609 8 648 482 104 947 758
April 20x4 1
Cost 1 800 000 96 000 000 7 800 000 1 860 000 1 565 217 14 260 870 123 286 087 10
Accumulated
0 -10 608 000 -780 000 -615 333 -722 609 -5 612 388 -18 338 329
Depreciation 12

Movements
Depreciation 0 -3 264 000 -195 000 -358 667 -180652 -1 021 780 -5 020 099 6
Impairment 0 0 0 0 -2 607 952 -2 607 952 2
Additions 520 000 520 000
Disposal -372 000 -372 000
Carrying
Amount 31 1 800 000 82 128 000 6 825 000 1 034 000 661 957 5 018 750 97 467 707
March 20x5 1
Cost 1 800 000 96 000 000 7 800 000 1 660 000 1 565 217 14 260 870 123 086 087 2
Accumulated
0 -13 872 000 -975 000 -626 000 -903 261 -9 242 120 -25 618 380 2
Depreciation
Presentation 1

Page 2 of 4
 Question 3.4: Clean Air (Pty) Ltd
Workings
Manufacturing and Warehouse facility

Cost = CU12 000 000 (materials including transport of materials) + CU38 500 000 (labour costs) + CU42 000 000
(directly attributable overhead costs) + CU0 (general overhead costs not included s17.11) + CU0 (borrowing costs s
17.11) + CU3 500 000 (site preparation costs) = CU96 000 000 3
Manufacturing facility = 96 000 000 x 70% = 67 200 000 1
Warehousing facility = 96 000 000 x 30% = 28 800 000 1

Depreciation - manufacturing facility = CU67 200 000/ 25 years = CU2 688 000 1
Depreciation - warehousing facility = CU28 800 000/ 50 years = CU576 000 1

Carrying amount manufacturing facility 1 April 20X4 = [67 200 000 - (67 200 000/25)x 3.25 years]= CU58 464 000 1

Carrying amount warehousing facility 1 April 20X4 = [28 800 000 - (28 800 000/50)x 3.25 years]= CU26 928 000 1

Administrative building
Cost = CU7 800 000 1
Carrying amount 1 April 20X4 = 7 800 000 x 36/40 years = CU7 020 000 1
Depreciation 20X5 = 7 800 000/40 = CU195 000 1

Plant
Cost = CU16 400 000 x (100/115) = CU14 260 870 14 260 870
Depreciation March 20X1 = 14 260 870 x 15% x 1/12 months = 178 261 178 261 2
Depreciation 20X2 = (14 260 870 - 178 261) X 15% = 2 112 391 2 112 391
Depreciation 20X3= (14 260 870 - 178 261 - 2 112 391) X 15% = 1 795 533 1 795 533 1
Depreciation 20X4 = (14 260 870 - 178 261 - 2 112 391 - 1 795 533) X 15% = 1 526 203 1 526 203
Current year depreciation until fire = (14 260 870 - 178 261 - 2 112 391 - 1 795 533 - 1 526 203) x
15% x 5/12 months = 540 530 540 530 3
Carrying amount before fire = 14 260 870 - 178 261 - 2 112 391 - 1 795 533 - 1 526 203 - 540 530 =
8 107 952 8 107 952
After the fire carrying amount = CU5 500 000 5 500 000 1
Current year depreciation after the fire = 5 500 000 x 15% x 7/12 = 481 250 481 250

Motor vehicles
BMW 1 series
Carrying amount 1 April 20X4 = 360 000 x (35 months/60 months) OR 2 years 11 months (RUL = 5 yrs - 2 yrs & 1
month)/5 yrs = CU210 000
Depreciation = 360 000 x 12/60 months = CU72 000
BMW X5
Carrying amount 1 April 20X4 = 720 000 x (39 months/60 months) OR 3 years 3 months (RUL = 5 yrs - 1 yr & 9
months)/5yrs = CU468 000
Depreciation = 720 000/60 x 8 = CU96 000
Disposal carrying amount = 468 000 - 96 000 = 372 000
Loss on disposal = 372 000 - 220 000 = 152 000
BMW 4 Series
Cost = 520 000
Depreciation = 520 000 x 4/60 months = 34 667
Toyota
Carrying amount 1 April 20X4 = (280 000 x 2) = CU560 000 x (45 months/60 months) OR 3 years 9 months (RUL = 5
yrs - 1 yr & 9 months)/5 yrs = CU420 000

Page 3 of 4
 Question 3.4: Clean Air (Pty) Ltd
Depreciation 20X5 = (280 000 x 2)x 12/60 months= 112 000
Mini van
Carrying amount 1 April 20X4 = 220 000 x (40 months/60 months) OR 3 years 4 months (RUL = 5 yrs - 1 yr & 8
months)/5 yrs = CU146 667
Depreciation 20X5 = 220 000x 12/60 months = 44 000

Carrying amount of all vehicles at 1 April 20X4 = 210 000 + 468 000+ 420 000+ 146 667 1 244 667 2

Depreciation for 20X5 = 72000+96000+34667+112000+44000 358 667 1

Furniture and fittings

Carrying amount as at 31 March 20X4 (1 565 217 - 722 609) 842 609
Cost = 1 800 000 x (100/115)= 1 565 217 1 565 217 1
Depreciable amount = 1 565 217 - 120 000 (residual value) = 1 445 217 1 445 217 2
Accumulated depreciation = (1 445 217/8) x 4 years = 722 609 722 609

Depreciation for 20X5 = 1 445 217/8 = 180 652 180 652 1

Page 4 of 4
S17- PPE/Q1: Macarons by Macey

Macarons by Macey (MBM) is a private company that sells hand-made macarons in the Johannesburg
region. The year-end of the company is 31 December 2020. In 2008, Macey, who is the sole owner of
the company, decided to follow her dreams of becoming a pastry chef. She undertook a pastry making
course in Paris that year and trained under the award-winning macaron maker, Pierre Herme, for a
period of two years thereafter. Under Pierre Herme, Macey learnt how to mix unusual flavours from
all over the world to create the world’s finest macarons.

Once Macey perfected her macaron making skills, she decided to relocate back to South Africa to start
up her own macaron business. The company produces the macarons in a central kitchen in
Johannesburg and then distributes them to the Macarons by Macey kiosks which are situated in all
the major malls.

Training under Pierre Herme

Macron by Macey’s kiosk in

Nelson Mandela Square

Page 1 of 2
Property, plant and equipment

MBM has an electric mixer, delivery vehicles and buildings.

The mixer is a huge industrial mixer used to beat egg whites for the macaron shell. The mixer was
purchased on 1 July 2019 for an amount of R 80 000. On 31 March 2020, the motor of the mixer had
to be replaced due to an electric surge after load shedding in the area. The cost to replace the engine
amounted to R 18 000 and is payable in 12 months’ time as the entity agreed was cash strapped at
that point in time. The estimated cost of the engine at the time of purchasing the mixer was R 12 000.
The new motor has a useful life which is equal to the old motor’s remaining useful life.

A delivery vehicle was purchased on 1 January 2018 for an amount of R 480 000. The vehicle had an
estimated useful life of 5 years and a zero residual value. On 1 January 2020, the residual value was
re-estimated to be R 20 000.

Additional information:

• Equipment has a useful of 8 years.

• All items of PPE are measured on the cost model.

• A discount rate of 10% per annum is applicable.

You are required to:

A. Provide the journal entries relating to the electric mixer for the 2019 and 2020 (22)
financial years.

B. Calculate the following:

• The depreciation on the mixer for the current period (1 Jan 2020 – 31 Dec (3)
2020)
(4)
• The depreciation on the vehicle for the current period (1 Jan 2020 – 31 Dec
2020)

C Provide the accounting policy for property, plant and equipment only. (4)

D. Provide all the note disclosures for the information under the heading “Property, (25)
plant and equipment” for the financial year ending 31 Dec 2020.

Comparatives and total columns are not required.

Page 2 of 2
 Question 3.1: Multiple Choice: PPE
Time: 9 min
Marks 6
Level Core

4 C According to IFRS for SME's, the residual value of an asset is the estimated amount that an entity 2
would currently obtain from disposal of the asset, after deducting the estimated costs of disposal,
if the asset were already of the age and in the condition expected at the end of its useful life. The
residual value would be CU330 000.
7 A It should be considered whether an assessment has been annually carried out on the useful lives 2
as required by section 17. If an assessment has not been carried out annually, the change in
useful life may constitute a correction of error; however, if the assessment has been annually
carried out, the change in useful life is to be accounted for as a change in estimate and
prospectively accounted for.

10 D Section 17.21 requires a number of factors to be considered in determining the useful life of an 2
asset. These factors include the expected use of the asset, expected wear and tear, technical or
commercial obsolescence and legal or similar limits on the use of the asset. The useful life would
be 3 years as the legal licence to distribute is 3 years without certainty of renewal.

Page 1 of 3
 Question 3.3: Miscellaneous

Time: 63 min
Marks: 42
Level: Introductory

A: Cost model versus revaluation model

Section 17 of IFRS for SME's allows an entity to choose between the cost model and the
revaluation model 1
Under the cost model, an entity shall measure items of PPE, after initial recognition, at its cost
less accumulated depreciation and accumulated impairment losses.(s17.15A) 1
Under the revaluation model, an entity shall measure an item of PPE whose fair value can be
measured reliably at a revalued amount; this being its fair value at the date of the revaluation
less any subsequent accumulated depreciation and subsequent accumulated impairment
losses (s17.15B) 1

C: Application of the revaluation model to different classes of PPE

Section 17.15B states that if an item of property, plant and equipment is revalued, the entire
class of property, plant and equipment to which that asset belongs shall be
revalued (s17.15B). 1

This implies that different items within the same designation (such as vehicles) cannot have
different measurement bases applied. However, different items belonging to different
designations, such as a vehicle and an item of machinery, can be measured differently under
the cost or revaluation model. 1

D: Regularity of revaluation

Section 17.15B requires that revaluations be made with sufficient regularity to ensure that the
carrying amount does not differ materially from that which would be determined using fair
value at the end of the reporting period.
1
Revaluations do not need to be performed each year but regularly enough to ensure that the
balance reflected as the carrying amount in the statement of financial position is not
significantly different from its fair value.
1

F: Journal entries

i
Details Dr Cr
Accumulated depreciation on plant (SOFP) (W1) 180 000 1
Plant(SOFP) 180 000 1
Reversal of accumulated depreciation upon revaluation
Revaluation surplus (OCI) (W1) (270 000 - 243 000) 27 000 1
Impairment Loss (P/L) 13 000
Plant(SOFP) 40 000 1
Recognition of revaluation decrease against existing revaluation surplus

Page 2 of 3
 Question 3.3: Miscellaneous

Workings
W1
Carrying amount of plant before revaluation on 31 December 20X5 405 000
Fair value on 31 December 20X5 450 000
Revaluation surplus on 31 December 20X5 45 000 2

Revaluation surplus on 31 December 20x5 45 000

Release of revaluation surplus to equity -18 000
Balance of revaluation surplus on 31 December 20x7 27 000

Accumulated depreciation up until 31 December 20X7 (450/5*2) -180 000

Carrying amount before revaluation on 31 December 20X7 270 000
Fair value on 31 December 20X7 230 000
Decrease in value -40 000 2
Revaluation decrease (OCI) -27 000
Impairment loss (P/L) -13 000

Statement of changes in equity (extract) for the year ended 31 December 20X7

Revaluation
Surplus
Balance at the beginning of year (45 000 - 9 000) 36 000 1
Revaluation of plant -9 000 1
Total Comprehensive Income -27 000
Balance at year -end -

G: Accounting for revaluation

Section 17.15D of IFRS for SME's states that if an asset’s carrying amount is decreased as a
result of a revaluation, the decrease shall be recognised in profit or loss. However, the
decrease shall be recognised in other comprehensive income to the extent of any credit
balance existing in the revaluation surplus in respect of that asset. The decrease recognised in
other comprehensive income reduces the amount accumulated in equity under the heading
of revaluation surplus (s17.15D).
2

This means that for the year ended 31 December 20X5, the decrease in the equipment's
carrying amount of (450-395) CU55 000 would be split between a decrease of CU20 000 of
the existing revaluation surplus balance, and a decrease to profit and loss of CU35 000.
2

Page 3 of 3
 Accounting II

TUTORIAL PACK
ACCN 2000 & 2009
BLOCK 2
MARGO STEELE SCHOOL OF ACCOUNTING
COMMERCE, LAW AND MANAGEMENT FACULTY
ACCN 2000A/2009A
Provisional Tutorial Schedule for Acc 2 – 2024 (Block 2)
NOTE: Most questions refer to the IFRS for SMEs tutorial book (e.g., 1.1) with the solutions in your
tutorial pack, questions not in tutorial book (e.g., S1/Q1) will be found in your tutorial pack followed by
the solution. Unseen tutorials are to be completed during the weekly scheduled tutorial session.

Week Week Topic Tut questions Difficulty Corrections

Number Starting Level
Date
8 8 April Investment 4.1: True or false? Easy Changes to tut book:
2024 property & (Week 8 – Tut 1) MCQ 6 option A
Feedback should be section 17,
session Test not section 18.
1 4.2: Dream spaces Easy Ignore deferred tax.
(Week 8 – Tut 2)
4.4: Snogwarts Medium -
(Week 8 – Tut 3)
Unseen: Medium The property was
4.8: M&M Note A & C sold on 31 January
pertaining to investment 20x4.
property only
(Week 8 – Tut 4)
9 15 April Intangible 3.12: True or False? Easy Changes to tut book:
2024 assets other (Week 9 – Tut 1) MCQ 9 option D
than goodwill should say “If the
entity is unable to
establish reliability
the useful life of the
brand, management
are allowed to
estimate but the
estimate should not
exceed 10 years.”
Unseen: Medium -
3.13: Healthy Tots
(Week 9 – Tut 2)
3.15: Designer Threads Medium -
(Week 9 – Tut 3)
10 22 April Inventories S13/Q1: True/false Easy -
2024 (Week 10 – Tut 1)
S13/Q2: Gifts Galore Medium -
(Week 10 – Tut 2)

Unseen: Hard -
S13/Q3: Moonlight

Page 1 of 3
 Week Week Topic Tut questions Difficulty Corrections
Number Starting Level
Date
(Week 10 – Tut 3)

S13/Q4: Zakumi Medium -

(Week 10 – Tut 4)
11 29 April Government S24/Q1: SD (Pty) Limited Medium -
2024 grants & (Week 12 – Tut 1)
Specialised S24/Q2: KK (Pty) Limited Medium -
activities (Week 12 – Tut 2)
S24/Q3: Safaris with Zahara Easy -
(Week 12 – Tut 3)
Unseen: Hard -
S34/Q1: Deluxe Patties (Pty)
Limited (Week 12 – Tut 4)
12 6 May Revenue 11.1: Analysis of transactions Easy Point 3: selling price
2024 – ignore point 9 of wine is R115 per
(Week 13 – Tut 1) bottle.
11.3: Giovanni Persace Medium -
(Week 13 – Tut 2)
11.4: Design Plus Medium -
(Week 13 – Tut 3)
Unseen: Hard Remove the
11.12: Brain tech sentence – The fair
(Week 13 – Tut 4) value of each point
is CU25.
Add to the final para
– Experience shows
that Brain Tech’s
average cost to
service the machine
is CU5000 per
annum.
13 13 May Revenue 11.2: Short scenarios Medium -
2024 (Week 14 – Tut 1)
11.6: Parnassus Consulting Hard Required D should
(Week 14 – Tut 2) say:
Discuss when the
revenue for the sale
of data can be
recognised. Detailed
calculations of the
amount of revenue
are required.

Page 2 of 3
 Week Week Topic Tut questions Difficulty Corrections
Number Starting Level
Date
11.7: Beyonce Bouncee – Medium
required A only
(Week 14 – Tut 3)
Unseen: Hard -
11.11: Designer threads
(Week 14 – Tut 4)
14 20 May Events after 10.1: True or false? 5,6,7,8,9 Easy -
2024 the end of (Week 17 - Tut 1)
the reporting 10.4: JC and associates Easy -
period &
(Week 16 – Tut 2)
June exam
review Unseen: Medium -
Green goods and the
cupcake company (Week 17
– Tut 3)
24 May 2024 – 30 May 2024: Study break

Page 3 of 3
 Q4.1

Time: 30 min
Marks 20
Level Core

1 A As per s16.2 : investment property is property (land or a building, or part of a building, 2

or both) held by the owner or by the lessee under a finance lease to earn rentals or for
capital appreciation or both, rather than for:

(a) use in the production or supply of goods or services or for administrative

purposes, or
(b) sale in the ordinary course of business.

2 ADE A The building is classified as an item of investment property by the entity (lessor). It is a 2
property held to earn rentals. The land is classified as investment property. It is property
held for capital appreciation.
The land is not held for sale in the ordinary course of business.The IFRS for SME's does
not specify how to classify land that is held for an undetermined
purpose.

3 A, B s16.4-Mixed use property shall be separated between investment property and 2

property, plant and equipment. However, if the fair value of the investment property
component cannot be measured reliably without undue cost or effort, the entire
property shall be accounted for as property, plant and equipment in accordance with
Section 17.

4 A,C and D s16.5-An entity shall measure investment property at its cost at initial recognition. The 2
cost of a purchased investment property comprises its purchase price and any directly
attributable expenditure such as legal and brokerage fees, property transfer taxes and
other transaction costs. If payment is deferred beyond normal credit terms, the cost is
the present value of all future payments. An entity shall determine the cost of a self-
constructed investment property in accordance with paragraphs 17.10–17.14.

5 E The intention is to recover the economic benefits of the land and building through use 2
rather than to hold it for capital appreciation.

6 A s16.7-An entity shall account for the property as investment property using the cost 2
model in Section 17.

7 B CU1 200 000 + CU100 000 + CU20 000 = CU1 320 000. The costs to repair and paint the 2
property and the lease rental should not be capitalised.

8 B PV = 692 312, N =10, PMT = 120 000, I =11.5%, FV = 0; PV + 100 000 + 20 000 = 812 2
132.

9 A, B and D Under the cost model , determine a useful life of the investment property and 2
depreciate the property at the end of each reporting date and a change from the cost
model to the fair value model should be accounted fro prospectively.

10 A A gain arising from the fair value adjustment to investment property should be 2
accounted for in the current year net profit.

Page 1 of 4
 Q4.1

Page 2 of 4
 Q4.2

Time: 9 min
Marks: 6
Level: Introductory
Journal entries
Details Dr Cr
A : Cost Model
Property, plant & equipment (500 000*80%) 400 000 1
Investment property 400 000 1
Recognising the transfer of investment property to PPE

B :Fair Value Model

Investment property 150 000 1
Fair value gain(P&L) 150 000 1
Recognising the fair value gain on investment property
Property, plant & equipment (900 000*80%) 720 000 1
Investment property 720 000 1
Recognising the transfer of investment property to PPE

Page 3 of 4
 Q4.4

Time: 30 min
Marks: 20
Level: Intermediate
A:
LAND BUILDING TOTAL
01 01 20x6 400000,00 1600000,00 2,000,000 1
Depreciation - -25000,00 -25000,00 W1 1
30 06 20x6 400000,00 1575000,00 1975000,00
December 20x6 - -25000,00 -25000,00 1
Capitalise lift and renovation - 250000,00 250000,00 1
Depreciation from 1 Jan 20x7
to 30 June 20x7
- -29310,34 -29310,34 W2 1
Balance as at 30 June 20x7

400000,00 1770689,66 2170689,66

Depreciation 20x8 -58620,69 W3 1
Depreciation 20x9 -58620,69
Depreciation 20y0 -58620,69
Depreciation 20y1 -58620,69
Depreciation 20y2 -58620,69
Depreciation 20y3 -58620,69 1

Balance as at 30 June 20y3 400000,00 1418965,52 1818965,52 1

W1 (1 600 000 - 100 000) /30 x6/12 25 000 1

W2 (1 575 000 - 25 000 + 250 000 - 100 000) / 29 x 6/12 29 310,34 1
(1 575 000 - 25 000 + 250 000 - 100 000) / 29
W3 58 620,69 1

B:
20y4 20y3 20y2 20y1
Balance at beginning of year 3 000 000 2 650 000 2 250 000 2 250 000
Fair Value Adjustment I/S 200 000 350 000 400 000 -
Balance at end of year 3 200 000 3 000 000 2 650 000 2 250 000
1 1 1 2 5

C:
Cost Model
30 06 20y4 Dr Cr
Depreciation expense 58 620,69 1
Accumulated depreciation 58 620,69 1

Fair Value Model

30 06 20y4
Investment property 200 000 1
Fair value gain I/S 200 000 1

Page 4 of 4
 Question 3.12: Multiple Choice - Intangible assets
Time: 30 min
Marks 20
Level Core

1 B The FroYo brand meets the definition of an intangible asset as it is a non-monetary, 2

identifiable (can be separated from the entity and arises from contractual rights) asset
(resource controlled by FroYo as only FroYo can use the brand, arising from the purchase
which will result in an inflow of economic benefits through sales of the frozen yoghurt).
The cost of the brand can be reliably measured at CU3 500 000: it is probable that there
will be an inflow of economic benefits and the brand is not internally generated. The brand
can, therefore, be capitalised as an intangible asset.

2 B Costs of the production staff may be analysed and costs directly attributable to the 2
production of inventory (frozen yoghurt) may be capitalised to inventory, in accordance
with section 13.

3 B The cost of CU300 000 should be capitalised as an intangible asset as the licences 2
purchased are non-monetary, identifiable (as they arise from contractual rights) asset
(licences are controlled by FroYo, as a result of the purchase of the licences which will
result in an inflow of economic benefits in the form of less competition). The cost of the
licences acquired can be reliably measured, it is probable that there will be an inflow of
economic benefits and the licences are not internally generated. The balance of the
amount paid related to the purchases of the other tangible assets bought as part of the
total acquisition.

4 B The customer list is a non-monetary, identifiable (as it can be separated from the entity) 2
asset (as it is a resource controlled by FroYo, arising from its services in the Cape Town
branch). There will be an inflow of future economic benefits either in the form of direct
marketing to the customers on the list or by selling it, so the definition of an intangible is
met. However, it is not probable that these benefits will flow as FroYo cannot influence
whether or not its Cape Town customers will buy from them when visiting Johannesburg.
Also, it is internally generated and the recognition criteria has not been met. The customer
list may not be capitalised by FroYo.

5 B The recipes are non-monetary, identifiable (as they can be sold separately) assets (as it is a 2
resource FroYo now controls arising from acquisition of Crumbles, and there will be an
inflow of benefits from using the recipe to make and sell cupcakes; thus it meets the
definition of an intangible asset). However, there is no history or evidence of exchange
transactions for the same or similar assets so the cost cannot be reliably measured which
means the recognition criteria is not met. The recipes would form part of goodwill
recognised on the business combination.
6 C Trade secret 1 may be capitalised as an intangible asset as it is non-monetary, 2
identifiable,(as the process may be separated from the business and sold) asset (as the
process is a resource controlled by FroYo as only the founders and mixers know the
process, arising from the past event of the purchase of the business and will result in an
inflow of economic benefits from the sale of the cupcakes). The cost of the process can be
reliably measured, it is probable that there will be an inflow of economic benefits and the
process is acquired from Crumbles and is not internally generated. Trade secret 2 is widely
available in international cookbooks and is, therefore, not identifiable nor is it controlled
by Crumbles/FroYo. Trade secret 2 cannot be capitalised.

Page 1 of 4
 Question 3.12: Multiple Choice - Intangible assets
7 A The definition of an intangible asset is met as the contracts with customers are non- 2
monetary, identifiable (as they are contractual and may be separated from the business)
asset (as they are a resource controlled by FroYo as the contracts are with FroYo, arising
from a past event being the purchase of the business and contracts and will result in an
inflow of economic benefits in fulfilling the contract). The cost of the contracts can be
reliably estimated and it is probable that there will be an inflow of economic benefits when
the contracts are fulfilled. The definition and recognition criteria are met and the contracts
may be capitalised.

8 C The experimentation costs of CU1 240 000 do not meet the definition of an intangible 2
asset as they are non-monetary, identifiable (as they can be separated) but do not meet
the definition of an asset as it is not probable that economic benefits will flow to the
entity. The recognition criteria are also not met as, even though the costs can be reliably
estimated, it is not probable that there will be an inflow of economic benefits and the costs
are internally generated.
9 D Section 18.20 requires that where an entity is unable to estimate reliably the useful life of 2
an intangible asset, a useful life of 10 years should be applied.

10 C The 'cupcake bubble' bursting is indicative of an impairment. The 'Crumbles' brand trade 2
secrets recognised, distribution licences, inventory and plant and equipment should be
assessed for potential impairment.

Page 2 of 4
 Question 3.15: Designer Threads
Time: 53 min
Marks 35
Level Intermediate

A 1: Accounting for the Designer Threads and Chocolate Star brands

Designer Threads has purchased the brand Chocolate Star, a premium South African clothing brand. Designer
Threads is the sole retailer of Chocolate Star garments. The brand was purchased for CU8 600 000 on 1 January
20x2. 1
Per section 18.2 of IFRS for SME's, an intangible asset is defined as 'an identifiable, non-monetary asset without
physical substance.' 1
The Chocolate Star Brand purchased is identifiable as it results from a contractual arrangement and may be
sold separately from the entity. The brand is non-monetary and does not have physical substance. 1
It is a resource controlled by Designer Threads as the company can restrict how the brand is used, the past
event was when the brand was purchased and selling clothes under the brand will result in an inflow of future
benefits. 3
The definition of an intangible asset is met. 1
It is probable that there will be an inflow of economic benefits as a result of using the brand, as management
would not have purchased the brand if they did not believe that it would result in future sales.
1
The cost of the brand can be reliably measured as the purchase price is CU 8 600 000 and the brand is not
internally generated as it was bought. The Chocolate Star brand should be capitalised. 3
The intangible asset should be amortised over its useful life of 5 years to its residual value. 1

Designer Threads has in the current year decided to launch its own clothing line to be sold under the brand,
Designer Threads. The costs to develop the brand have amounted to CU 2 500 000. The brand was developed
after extensive consumer research was conducted at a cost of CU 650 000 included in the CU 2 500 000. 1
The brand meets the definition of an intangible asset as it is identifiable (can be sold separately to the entity), it
is non-monetary and lacks physical substance. The brand is also controlled by the entity (as only Designer
Threads may decide who can use the brand), from a past event (from the development of the brand) and
results in an inflow of economic benefits (from sales of the garments). 4
The costs can be reliably estimated at CU1 850 000 and it is probable that there will be an inflow of economic
benefits according to market research conducted. The brand is, however, internally generated and should be
expensed. 3
Research costs are specifically required to be expensed in accordance with s18.14. An entity shall recognise
expenditure incurred internally on an intangible item, including all expenditure for both research and
development activities, as an expense when it is incurred unless it forms part of the cost of another asset that
meets the recognition criteria in this IFRS (s18.14).
B: Intangible Asset Note

Separately acquired brands are disclosed at historical cost. The brand acquired has a finite useful life and is
carried at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line
method to allocate the cost of the brand over its estimated useful life of 5 years. The brand is reviewed for
impairment whenever events or circumstances change which indicates that the carrying amount may not be
recoverable. An impairment loss is recognised for the difference between the carrying amount of the brand
and its recoverable amount. The recoverable amount is the higher of the brand's fair value less costs to sell and
value in use. 4

Carrying amount as at 28 February 20x3 6 593 333 1

Page 3 of 4
 Question 3.15: Designer Threads
Cost 8 600 000 1
Accumulated amortisation -2 006 667 2

Movements
Additions -
Disposals -
Amortisation -1 720 000 1
Impairment -2 373 333 2

Carrying amount as at 28 February 20x4 2 500 000 1

Cost 8 600 000 1
Accumulated amortisation and imp -6 100 000 2

Workings
As at 28 February 20x3:
Accumulated amortisation = 8 600 000 - [(8 600 000/60 months) x 14 months]
Cost 8 600 000
Useful life: 5 years

Carrying amount at 28 February 20x4 4 873 333

Value of the brand 2 500 000
Impairment 2 373 333

Page 4 of 4
S13 - Inventory/Q1: Test your knowledge – True or False (Tut 1)
(28 Marks – 42 Minutes)

Please complete the 5 MCQs below:

Question 1

The cost of inventories does not include:

o (a) salaries of factory staff.

o (b) storage costs necessary in the production process before a further production stage
and selling costs.
o (c) abnormal amounts of wasted materials and selling costs.

Question 2

An entity must assign the cost of inventories by:

o (a) using the LIFO cost formula.

o (b) using specific identification of individual costs for inventories that are not ordinarily
interchangeable and, for inventories that are ordinarily interchangeable, the first in first
out (FIFO) method or the weighted average cost formula.
o (c) specific identification of individual costs for inventories that are ordinarily interchangeable,
and, for inventories that are not ordinarily interchangeable, the first in-first out (FIFO) method or
the weighted average cost formula.

Question 3

On 1 January 20X1 an entity acquired 100 units of goods for sale in the ordinary course of business for
R100,000. On 1 March 20X1 20 further units were acquired for R20,400. On 1 August 20X1 30 units were
sold for R33,000. The entity assigns the cost of inventories by using the first-in, first-out (FIFO) formula. On
31 December 20X1, the entity must measure the carrying amount of the 90 units of goods at:

o (a) R 100,000
o (b) R 90,000
o (c) R 90,400
o (d) R 91,800

Question 4

A retailer of perishable produce seeks to avoid obsolescence by arranging its produce in such a
way that customers are most likely to purchase the oldest inventory first. The cost formula
that is most appropriate for the entity is:

o (a) first-in, first out (FIFO)

o (b) last-in, first-out (LIFO)
o (c) weighted average cost
o (d) specific identification

Page 1 of 6
Question 5

A property developer must classify properties that it holds for sale in the ordinary course of business as:

o (a) inventory
o (b) property, plant and equipment
o (c) financial asset
o (d) investment property

Page 2 of 6
S13 - Inventory/Q2: Gifts Galore (Pty) Limited (Tut 2)
(25 Marks – 37.5 Minutes)

Gifts Galore (Pty) Limited (GG) is a corporate gifts store situated in Sandton. GG specialises in custom-
made corporate gifts and serves the majority of all the big corporates in downtown Sandton.

On 1 January 2019, GG accepted an order for 7,000 custom-made corporate gifts. On 3 January 2019
the entity purchased raw materials to be consumed in the production process for R 550,000, including
R 50,000 refundable purchase taxes. As these raw materials were purchased from a foreign country
additional R 60 000 import duties were paid.

To get the container of raw materials from the harbour in Durban to Sandton, an additional R 10 000
was invoiced to GG for transport. However as GG deals with the transport company on a frequent
basis a 10% discount was agreed on the invoice price.

The purchase price was funded by raising a loan of R 555,000 (including R 5,000 loan-raising fees). The
loan is secured by the inventories.

During January 2019 the entity designed the corporate gifts for the customer.

Design costs included:

• Cost of external designer = R 7,000

• Labour = R 3,000

During February 2019, the entity’s production team developed the manufacturing technique and
made further modifications necessary to bring the inventories to the conditions specified in the
agreement. The following costs were incurred in the testing phase:

• Material, net of R 3,000 recovered from the sale of the scrapped output = R 21,000
• Labour = R 11,000
• Depreciation of plant used to perform the modifications = R 5,000

During February 2019 the entity incurred the following additional costs in manufacturing the
customised corporate gifts:

• Consumable stores = R 55,000

• Labour = R 65,000
• Depreciation of plant used to perform the modifications = R 15,000

Once the goods were ready, a further R 2 000 was spent on storing the goods within GG’s premises.

The customised corporate gifts were ready for sale on 1 March 2019. No abnormal wastage occurred
in the development and manufacture of the corporate gifts.

Page 3 of 6
 Required Marks
1. Calculate the total cost of the custom-made corporate gift. Your answer should be 25
presented in a tabulated form with the below headings.

Description Calculation or Reason R Reference to IFRS for SMEs

Example – Costs of Purchase price should 8 000 13.6
purchase be included

Page 4 of 6
S13 - Inventory/Q4: Zakumi (Pty) Limited (Tut 4)
(12 marks – 18 Minutes)

Zakumi (Pty) Limited is a sports equipment store in Johannesburg. Zakumi was incorporated in South
Africa in 2010 to take advantage of the football fever in South Africa just before the 2010 FIFA World
Cup. Two childhood friends Ronaldo and Messi own the entity. The entity sells all types of sporting
equipment and gear. The year-end of the entity is 30 June.

Extract of trial balance as at 30 June 2019.

Sales ?
Cost of sales ?
Gross profit 1 800 000
Inventory 3 050 000

The information below relates to the 2019 financial year-end.

1. Inventory is carried at the lower of cost and the expected selling price, less costs to complete
the inventory and make the sale. The inventory amount per the trial balance above is made
up of raw materials worth R 740 000, work in progress of R 1 230 000 and finished goods of
1080 000. Inventory is measured on a first-in first-out basis. Of the R 740 000 raw materials,
R 200 000 was pledged as security for a R 220 000 loan taken from Bank Zero.

2. The entity has a gross profit percentage of 60%

Required Marks
1. Prepare an extract of the notes to the financial statements with all the relevant 10
disclosure relating to inventory (including the impact on the profit before tax note)

Page 6 of 6
S13 - Inventory/Q3: Moonlight Pharmaceuticals (Pty) Ltd (Tut 3)
(35 marks – 52 minutes)

Moonlight Pharmaceuticals (Pty) Ltd (MP) is a manufacturing company based in Durban. The company
produces a number of different products manufactured in terms of a licence agreement with an
international medical research and development company based in the UK. MP prepares financial
statements in terms of IFRS for SMEs.

Manufacturing plant

During the current financial year, MP manufactured 95 600 units of a new nasal decongestion spray.
This was in shortfall of the planned production levels of 105 556 units and resulted in an 91% utilisation
rate compared to total normal capacity.

The manufacturing plant incurred the following expenditure:

Table 1: Total Cost Summary

Details Amount ( R )
Raw materials 75 000
Labour cost (variable) 92 000
Machine overheads (variable) 100 000
Total plant facility costs (fixed) 95 000
Selling and distribution costs 29 000

The accountant was unfamiliar with the accounting for manufacturing costs. As a result, he posted the
costs incurred in Table 1 to the individual temporary asset accounts.

Additional Information

Sales amounted to 92 000 units. The opening 2000 units, according to management’s variable
costing system, had a cost of R3.10 per unit.
Approximately 10% of the machine overheads were the result of incorrect machine fitting and
product wastage. The original budgeted waste allocation was 4%.
The predetermined fixed overhead rate based on a 5-year projected normal capacity level was
R0.90 per unit.
Inventory moves on a first-in, first-out basis.

Required Marks
1. Prepare the journal entries required to account for costs of the manufacturing plant’s 16
activities.
2. Provide a brief explanation of the accounting for the machine overhead and plant 7
facility costs in Table 1.
3. Calculate the cost of the units sold during the current financial, assuming the use of 4
the weighted average costing system.
4. To the extent possible, prepare the relevant extracts from the notes of the financial 8
statements for Moonlight Pharmaceuticals (Pty) Ltd for the current financial year.
Only the notes relating to inventory are required.

Page 5 of 6
S13 - Inventory/Q1: Test your knowledge – True or False
Marks 10

Question 1-5 from the tutorial pack

1C see paragraph 13.13 2

2B see paragraphs 13.17 and 13.18 2

Calculation: 70 units × R1,000 each = R70,000 (cost of the remaining units 2

3C purchased on 1 January).
R70,000 + R20,400 (cost of the units purchased on 1 March) = R90,400.

4A see paragraph 13.18 2

5A see paragraph 13.1(a) 2

Page 1 of 3
S13 - Inventory/Q2: Gifts Galore (Pty) Limited
Marks 27
1 Total cost of custom-made inventory
Reference to IFRS
Description Calculation or Reason R
for SMEs
Purchase price of raw material,
costs of purchase excluding the refundable purchase 500 000 13.6
tax of R 50 000 2
import duties are non refundable
costs of purchase 60 000 13.6
and will be included in the cost
2
Transport costs are included in the
costs of purchase cost after deducting the discount. 9 000 13.6
(10 000 x (100-10)%) 2
Included in the measurement of
Loan-raising fee - 11.8
the liability 1
Recognised as an expense in profit
Borrowing Costs - 25.2
or loss 1
Costs of conversion Direct labour 3 000 13.8 2
Costs of external designer as
Costs of conversion 7 000 13.8
incurred for this specific order. 2
costs of raw materials used net of
Costs of conversion 21 000 13.8
the scrapped 2
Costs of conversion Direct labour 11 000 13.8 2
Depreciation of plant used to
Costs of conversion perform the modifications included 5 000 13.8
in the cost 2
Purchase price of consumable
costs of purchase 55 000 13.6
stores included in the cost. 2
Costs of conversion Direct labour 65 000 13.8 2
Depreciation of plant used to
Costs of conversion perform the modifications included 15 000 13.8
in the cost 2
Costs excluded from Storage costs once the item is
- 13.13
inventories ready is exlcuded from the cost.
2
751 000 1

Page 2 of 3
S13 - Inventory/Q4: Zakumi (Pty) Limited
Marks 13

1 Zakumi (Pty) Ltd 0.5

Extract from the notes to the financial statements for the year ended 30 June 2019 0.5

1: Accounting policies

Inventory is carried at the lower of cost and the expected selling price, less costs
to complete the inventory and make the sale. The cost of inventory includes all
purchase conversion costs incurred to bring the inventory to present location and
condition. Inventory is measured on a first-in first-out basis. 3

2: Inventory 2019 0.5

ZAR 0.5
Inventory in the statement of financial position comprises:

Raw materials 740 000 1

Work in progress 1 230 000 1
Finished goods 1 080 000 1
Total Inventory 3 050 000 1

At 30 June 2019 R 200 000 of the entity's raw materials were pledged as security
for a R 220 000 loan from Bank Zero. 1

10. Profit before tax

Cost of goods sold 1 200 000 1

Gross profit percentage 60%

Gross profit 1 800 000
Gross profit percentage = gross profit/sales
Sales = Gross profit/Gross profit percentage 3 000 000 1

Cost of sales = sales - Gross proft 1 200 000 1

Page 3 of 3
S24/Q1: SD (PTY) LIMITED (16 marks; 24 minutes) (Tut 1)

SD (Pty) Limited (SD) is a company that specialises in road maintenance. The company’s
registered office is in Nkandla.

On 2 January 2013 SD received an upfront cash payment of R800 000 from Government. The
condition of the grant is that SD must use 50% of the funds to acquire machinery (once this
condition is met SD will be entitled to 50% of the funds). SD bought the new machinery on 2
August 2013. SD will be entitled to the remainder of the funds immediately when it starts
with the construction of the road in Nkandla, a rural village situated in Kwa-Zulu Natal. The
construction of the road in Nkandla commenced on 5 February 2014.

Required:
(a) Prepare the journal entries to account for the Government Grant in the (5)
financial statements of SD (Pty) Limited for the year ended 31 December 2013.
(b) Show how the government grant will be disclosed in the statement of profit (1)
and loss and other comprehensive income for the year ended 31 December
2013.
(c) Disclose the government grant in the notes to the financial statements for the (10)
year ended 31 December 2013.

Page 1 of 3
S24/Q2: KK (PTY) LIMITED (10 marks; 15 minutes) (Tut 2)

KK (Pty) Limited (KK) is a company that specialises in the manufacture of water bottles. The
registered offices and the plant for KK is situated in Khayelitsha. KK have been praised by the
local government for creating job opportunities for youth in Khayelitsha. At the moment KK
employs 300 youth from Khayelitsha.

On 1 June 2013, the local government subsidised KK with R3 000 000, so that it can buy an
additional plant in order create more employment. After buying the new plant, KK will be able
to hire approximately 120 more employees. There were no conditions attached to this
subsidy.

Required:
(a) Prepare the journal entries to account for the government grant in the financial (2)
statements of KK (Pty) Limited for the year ended 31 December 2013.
(b) Show how the government grant will be disclosed in the statement of profit (1)
and loss and other comprehensive income for the year ended 31 December
2013.
(c) Disclose the government grant in the notes to the financial statements for the (7)
year ended 31 December 2013.

Page 2 of 3
S24/ Q3 SAFARIS WITH ZAHARA (5 marks; 7.5 minutes) (Tut 3)

Safaris with Zahara (SWZ) is a private company administrated from Hazyview, Mpumalanga.
The year-end of the entity is 31 December 2016. The entity’s primary operations include
providing luxury camping experiences in the Kruger National Park as well as providing guided
safaris to tourists. The entity operates in a malaria-free environment and has earned a
reputation for offering guests a unique and personal luxury African safari experience. This is
due to the entity’s ability to combine nature, relaxation and comfort. The entity also prides
itself on employing only the most experienced game ranges. The profit before tax for the
period was correctly calculated at R 5 600 000.

Save the Rhino initiative

On 1 July 2015, the department of tourism granted the entity R 330 000. This amount was
conditional upon the entity advertising a save the rhino campaign to its clients for a period of
3 years. The entity has printed informative leaflets that are given to tourists before game
drives, discussing the campaign. Additionally, game rangers provide commentary on rhinos
and its endangerment during the game drives. The entity met the conditions for the first year
and it intends to meet the conditions for rest of the period. If the condition is not met in any
of the 3 years, a third of the amount will be re-payable to the department.

Required:
(a) Disclose the information of the save the Rhino campaign in the notes of Safaris (5)
by Zahara for the 2016 financial year-end.

Page 3 of 3
S34/Q1 – DELUXE PATTIES (PTY) LTD (8 marks; 12 minutes) (Tut 4)

Deluxe Patties (Pty) Ltd (“DP”) is a company operating in Tabazimbi. The company breeds
cows which are to be sold to a slaughterhouse on maturity.

The company has a 31/December/2020 financial year-end.

As at 1/January/2020, DP has a cattle of 1600 cows. 920 of these are female with an average
weight of 720kg, whereas the rest are bulls with an average weight of 1 000kg. The fair value
per female cow is R5 600 and R8 200 per bull on 1/January/2020. Costs to sell per cow
(regardless of gender) are R650.

Towards the end of December 2020, some of the cows gave birth. A total of 37 new calves
were counted at 31/December/2020. On this date, the fair value of the cows were as follows:

• R5 900 per fully-grown female cow

• R8 350 per fully-grown male bull
• R4 150 per calf (regardless of gender)
• Costs to sell (regardless of gender or maturity) is R700 per animal.

Required

Required:
(a) Discuss when an entity is permitted to account for their biological assets under (2)
the cost model in terms of section 34 of IFRS for SMEs.
(b) Prepare the note disclosure for the biological asset for Deluxe Patties (Pty) Ltd (6)
for the financial period ended 31/December/2020.
Accounting policies and comparatives are NOT required.

Page 1 of 1
S24/Q1: SD (PTY) LIMITED (TUT 1 SOLUTION)

Journal entries to account for the government grant in the books SD (Pty) Limited

for the year ended 31 December 2013.

02-Jan-13

Dr Bank 800 000 1

Cr Government grant liability 800 000 1

To recognise the receipt of the government grant 0.5

02-Aug-13

Dr Government grant liability 400 000 1

Cr Government grant income 400 000 1

To recognise the income from the government grant as 0.5

condition is met

Statement of profit and loss and other comprehensive income

for the year ended 31 December 2013

Other income 400 000 1

Page 1 of 5
Notes to the financial statements for the year ended 31 December 2013.

Accounting policies

Government grants

Government grants are recognised at the fair value of the asset received or receivable (1). A 2
grant without specified future performance conditions is recognised in income when the
grant proceeds are receivable. A grant that imposes specified future performance conditions
is recognised in income when those conditions are met (1).

Government grants are presented separately from the assets to which they relate (1). 3
Government grants recognised in income are presented separately in the notes. Government
grants received before the income recognition criteria are satisfied are presented as a
separate liability in the statement of financial position (1). No amount is recognised for those
forms of government assistance that cannot reasonable have a value placed on them.
However, the entity discloses information about such assistance (1).

Profit before tax

Government grant for acquiring new machinery 400 000 1

Government grant liability

On 2 January 2013, the government received an upfront grant of R800 000 from the 1
government in respect of road maintenance. The grant is conditional on the entity purchasing
machinery for R400 000 with half of the grant proceeds and the remainder R400 000 is
conditional on the entity beginning construction on a road to Nkandla.

R 400 000 of the grant has been recognised as income for meeting the condition of acquiring 1
machinery in the current year. The remaining R400 000 government grant liability will only be
recognised as income when the construction begins. This condition is expected to be met in 1
February 2014.
1

Page 2 of 5
S24/Q2: KK (PTY) LIMITED (TUT 2 SOLUTION)

Journal entries to account for the government grant in the books SD (Pty) Limited for the
year ended 31 December 2013.

02-Jun-13

Dr Bank 3 000 000 1

Cr Government grant income 3 000 000 1

To recognise the government grant received with no 0.5

condition

Statement of profit and loss and other comprehensive income for the year ended 31
December 2013

Other income 3 000 000 1

Notes to the financial statements for the year ended 31 December 2013.

Accounting policies

Government grants

Government grants are recognised at the fair value of the asset received or receivable (1). 2
A grant without specified future performance conditions is recognised in income when the
grant proceeds are receivable. A grant that imposes specified future performance conditions
is recognised in income when those conditions are met (1).

Government grants are presented separately from the assets to which they relate (1). 3
Government grants recognised in income are resented separately in the notes. Government
grants received before the income recognition criteria are satisfied are presented as a
separate liability in the statement of financial position (1). No amount is recognised for those
forms of government assistance that cannot reasonable have a value placed on them.
However, the entity discloses information about such assistance (1).

Profit before tax

Page 3 of 5
Government grant for acquiring new machinery 3 000 000 1

Government grant of R3 000 000 have been recognised as income for the year ended 31 1
December 2013. This government grant was received on 1 June 2013 as a subsidy to buy an
additional plant in order to increase employment, a total amount of R3 000 000 was
received.

Page 4 of 5
S24/ Q3 SAFARIS WITH ZAHARA (TUT 3 SOLUTION)

Page 5 of 5
 Question 11.1: Analysis of transactions
Time: 34 min
Marks: 23
Level: Core

1. Section 23 revenue of goods applies. The Tealeaf must measure revenue from the sale of tea at CU450
2
(CU50 x 10 %= CU5 , CU50-5 = CU45 , CU45x 10kg = 450)

2. Home and House must measure revenue of Furniture World at CU40 500 (CU500 x 90% x 90 units) after
deducting the early settlement discount while revenue from Ooh La La must measured at CU45 000 (90units 2
x CU500) as the settlement discount will not be granted to Ooh La La.

3. The wine dealer must measure revenue at CU100 (as principal) for each unit sold (i.e. CU115 list price less
1
CU15 collected as an agent on behalf of the government).

4. Designer Luggage must measure revenue from the sale of goods at CU900 for each unit of goods
transferred to Plush Boutique. The Designer Luggage must also recognise a warranty provision under s21
(liability) for the limited right of return. Plush Boutique is acting as a principal for the sale to the customers
as it has exposure to the significant risks and rewards associated with the sale of goods (e.g. inventory 2
obsolescence, defective goods returned, setting sales price). Plush Boutique must measure revenue from
the sale of goods at CU1 000 for each unit of goods sold to the customers. For each unit sold, Plush
Boutique must recognise an expense of CU900 for cost of goods sold.

5. Since there is a CU347 107 difference between the cash price of CU1 652 893 and the amount due under
the two years’ interest-free credit arrangement, the arrangement is in effect a financing transaction as well
as the sale of goods. Assuming that the implicit discount rate is reasonable (considering, for example, the
time value of money and the credit standing of the customer), the entity must recognise revenue from the 1
sale of goods on the first day of its annual reporting period of CU1 652 893. Furthermore, the entity must
recognise interest revenue of respectively CU165 289 and CU181 818 in the current annual reporting period
and the next calculated, using the effective interest method as illustrated below.

Using a spreadsheet or a financial calculator, the imputed rate of interest is calculated at 10 per cent per
year (i.e. the rate that discounts the nominal amount (CU2 000 000) payable in two years’ time to the
current cash sales price of the goods (CU1 652 893)). The revenue arising from the sale of goods is the
current cash selling price CU1 652 893 (i.e. the present value of the future payment). Interest revenue for 2
the year of the sale is CU165 289—calculation: CU1 652 893 present value × 10 per cent (the imputed rate
of interest). Interest revenue for the next year is CU181 818—calculation: (CU1 652 893 present value +
CU165 289 interest accrued) × 10 per cent—the imputed rate of interest.

6. The exchange of gold for a diamond cutting machine is an exchange of dissimilar goods. The jeweller
must measure revenue from the sale of goods (gold) at CU100,000 (i.e. this is considered to be the fair value
of the landing rights (the consideration) received—see paragraph 23.3). In this case the fair value of the
2
consideration received in the exchange transaction is most readily measurable by reference to the fair value
of the gold—a commodity traded in an active market. Calculation: 100 ounces of gold × CU1 000 per ounce
= CU100 000.

7. The security firm has entered into a sale that has multiple elements. The sale transaction has several
2
components:
•        sale of a good, including installation—the burglar alarm system;
•        providing alarm system maintenance services;
•        providing armed response services and

Page 1 of 5
 Question 11.1: Analysis of transactions
•        a financing component related to the payment for the sale and servicing of the alarm system and for the
armed response services provided to the customer (see paragraph 23.5).
The security firm must allocate the fair value of the consideration receivable from the customer to the
separately identified components of the transaction. Furthermore, it must apply the recognition criteria to
the separately identified components of the transaction (for the sale of the goods see paragraphs
23.10–23.13, for the rendering of services see paragraphs 23.14–23.16 and for the financing transaction see
paragraphs 23.28–23.29 (a)). In this case, installation is not treated as a separate component of a
transaction because the customer would not purchase the system without installation and the entity does 3
not offer installation services if it does not also sell the system. When installation is incidental to the sale of
goods, any fees related to installation are recognised when goods are sold (see appendix to section 23,
examples 2 and 14). A seller normally recognises revenue from the sale of goods when the buyer accepts
delivery and installation and inspection are complete as that is usually when the significant risks and
rewards of ownership of the goods are transferred (see paragraph 23.10).

8. The security firm must recognise revenue from the provision of the armed response service on a straight-
line basis over the two-year period (i.e. CU417 per month = R10 000 revenue ÷ 24 months). Call-outs take
1
place only when the alarm is triggered in the two-year contract period. The frequency and timing of these
events cannot be determined.
Revenue will be recognised as follows:
Year ended June 20X4: CU10 000 × 6 ÷ 24 months = CU2 500. 1
Year ended June 20X5: CU10 000 × 12 ÷ 24 months = CU5 000 1
Year ended June 20X6: CU10 000 × 6 ÷ 24 months = CU2 500. 1

9. IGNORE THIS POINT 1

10. In the year ended 31 December 20X4, Entity A should not recognise dividend revenue for the dividend
proposed on 18 December 20X5. Entity A is not entitled to receive the dividend of CU20 000 until the board 1
of directors approve it on 28 February 20X5.

Page 2 of 5
 Question 11.3: Giovanni Parsace Coffee Machines
Time: 22 min
Marks: 15
Level: Introd

Journal entries

Details Dr Cr
01 08 20X4
Accounts receivable 59 900 1
Revenue from sale of goods 50 000 1
Unearned finance charges ¹ 9 900 1
Recording the sale
Cost of sales 45 000 1
Inventory 45 000 1
Recording of cost of sale
Bank 10 000 1
Accounts receivable 10 000 1
Recording the first payment
31 12 20X4
Unearned finance charges 2 500 1
Interest income 2 500 1
Recording interest revenue on sale

¹ Unearned finance charges are netted off against accounts receivable in statement of financial position

Workings
Amortisation table - sale of machine
Total Capital Interest
1 August 20X4
Sale 50 000 50 000 -
Bank -10 000 -10 000 -
40 000 40 000 -
31 July 20X5 Interest 6 000 - 6 000
Bank -20 000 -14 000 -6 000
26 000 26 000 -
31 July 20X6 Interest 3 900 - 3 900
Bank -29 900 -26 000 -3 900 3
0 0 0

Time apportionment
20X4
Interest income: CU6 000 x 5/12 = CU2 500
20X5
Interest income first 7 months = CU6 000 x 7/12 = CU3 500
Interest income next 5 months = CU3 900 x 5/12 = CU1 625
Total = CU3 500 + CU1 625 = CU5 125 3
20X6
Interest income for 7 months = CU3 900 x 7/12 = CU2 275

Page 3 of 5
 Question 11.3: Giovanni Parsace Coffee Machines
Alternate solution - not separately accounting for the unearned finance charges

Details Dr Cr
01 08 20X4
Accounts receivable 50 000
Revenue from sale of goods 50 000
Recording the sale
Cost of sales 45 000
Inventory 45 000
Recording of cost of sale
Bank 10 000
Accounts receivable 10 000
Recording the first payment
31 12 20X4
Accounts receivable 2 500
Interest income 2 500
Recording interest revenue on sale
31 07 20X5
Accounts receivable 3 500
Interest income 3 500
Recording interest revenue on sale
Bank 20 000
Accounts receivable 20 000
Recording the first paymen
31 12 20X5
Accounts receivable 1 625
Interest income 1 625
Recording interest revenue
31 07 20X6
Accounts receivable 2 275
Interest income 2 275
Recording interest revenue
Bank 29 900
Accounts receivable 29 900
Recording the first payment

Total revenue from interest 9 900

Total revenue from sale of goods 50 000

Page 4 of 5
 Question 11.4: Design Plus
Time: 30 min
Marks: 20
Level: Interm
The main business of Design Plus is the provision of interior decorating solutions, therefore, income received
from the contract should be recognised as revenue. 1
The revenue received represents revenue from rendering of a service and, therefore, the following criteria
should be met: 1
The amount of revenue can be reliably measured (contract price is CU31 500 000) 2
There is a probable inflow of economic benefits (the hotel is owned by an established international hotel
group and so the risk of default is minimal) 1
The costs can be reliably estimated (extensive research has been done on the costs and can be considered to
be reliable) 1
The stage of completion can be reliably measured (based on the costs incurred to date and the estimated
costs to complete) 1

As at 31 December 20X4:
Work in terms of the contract has commenced and the date of completion has been set at 31 December
20X5. Additionally as the outcome of the contract can be estimated at that stage with the contract price set
at CU31 500 000 and costs estimated at that point are the costs incurred to date (CU8.184 million) and costs
estimated to complete (CU12.276 million), the contract is expected to be profitable. 3
The stage of completion may be calculated to be: costs incurred/ total costs
8 184 000/ (8 184 000+12 276 000) = 40 % 1
Revenue to be recognised as at 31/12/20X4:
Revenue = 40% x CU31 500 000 = CU12 600 000 2
Cost of sales = CU8 184 000
Profit = CU4 416 000 1

As at 31 December 20X5:
The contract was incomplete as at this date, costs incurred to date amounted to CU20.52 million (CU8.184m
+ CU12. 336m). Total costs to complete amount to CU23.3 million (CU20.52m + CU2.78m). 2
Penalties are expected to be incurred of CU700 000 for the 2 months that the contract has run over time.
Total costs = CU700 000 + CU23 300 000 = CU24 000 000. 1
Revenue to be recognised as at 31/12/20X5:
Stage of completion = CU20.52m/CU24m = 85.5 % 1
Revenue= CU31 500 000 x 85.5% - (revenue already recognised) = CU26 932 500 - CU12 600 000 = CU14 332 1
Cost of sales = CU20 520 000 – CU8 184 000 = CU12 336 000
Profit = CU1 996 500 1

Page 5 of 5
 Question 11.2: Analysis of transactions
Time: 30 min
Marks: 20
Level: Core

1. S23A.3 states that the seller recognises revenue when the buyer takes title, provided:
a. it is probable that delivery will be made; 1
b. the item is on hand, identified and ready for delivery to the buyer at the time the sale is recognised; 1
c. the buyer specifically acknowledges the deferred delivery instructions and 1
d. the usual payment terms apply. 1
Revenue is not recognised when there is only an intention to acquire or manufacture the goods in time for
delivery. 1

2. S23A.4 states that the seller normally recognises revenue when the buyer accepts delivery and the
installation and inspection are complete. However, revenue is recognised immediately upon the buyer’s
acceptance of delivery when: 1
a. the installation process is simple, for example, the installation of a factory-tested television receiver that
requires only unpacking and connection of power and antennae, or 1
b. the inspection is performed only for the purposes of final determination of contract prices, for example,
shipments of iron ore, sugar or soya beans. 1

3. S23A.6 states that the shipper recognises revenue when the goods are sold by the recipient to a third
party. 1

4. S23A.8 states that the seller recognises revenue from such sales when the goods are delivered. However,
when experience indicates that most sales of this kind are consummated, revenue may be recognised when a
significant deposit is received, provided the goods are on hand, identified and ready for delivery to the buyer.
1

5. S23A.11 states that the seller generally recognises revenue from such sales when the risks and rewards of
ownership have been transferred. However, when the buyer is acting, in substance, as an agent, the sale is
treated as a consignment sale and only recognised when the goods are sold by the intermediate party. 1

6. S23A.12 states that when the items involved are of similar value in each time period, the seller recognises
revenue on a straight-line basis over the period in which the items are dispatched. When the items vary in
value from period to period, the seller recognises revenue on the basis of the sales value of the item
dispatched in relation to the total estimated sales value of all items covered by the subscription. 2

7. S23A.18 states that the seller recognises installation fees as revenue by reference to the stage of
completion of the installation, unless they are incidental to the sale of a product, in which case they are
recognised when the goods are sold. 1

8. S23A.20 states that media commissions are recognised when the related advertisement or commercial
appears before the public. Production commissions are recognised by reference to the stage of completion of
the project. 1

9. S23A.22 states that the seller recognises revenue from artistic performances, banquets and other special
events when the event takes place. When a subscription to a number of events is sold, the seller allocates the
fee to each event on a basis that reflects the extent to which services are performed at each event. 1

Page 1 of 6
 Question 11.2: Analysis of transactions
10. S23A.24 Revenue recognition depends on the nature of the services provided. If the fee
permits only membership, and all other services or products are paid for separately, or if there is a separate
annual subscription, the fee is recognised as revenue when no significant uncertainty about its collectability
exists. If the fee entitles the member to services or publications to be provided during the membership
period, or to purchase goods or services at prices lower than those charged to non-members, it is recognised
on a basis that reflects the timing, nature and value of the benefits provided.
1
11. S23A.25 states that franchise fees may cover the supply of initial and subsequent services, equipment
and other tangible assets, and know how. Accordingly, franchise fees are recognised as revenue on a basis
that reflects the purpose for which the fees were charged. 1

12. S23A.33 states that the software developer recognises fees from the development of customised
software as revenue by reference to the stage of completion of the development, including completion of
services provided for post-delivery service support. 1

13. S23A.34 states that the licensor recognises fees and royalties paid for the use of an entity’s assets (such
as trademarks, patents, software, music copyright, record masters and motion picture films) in accordance
with the substance of the agreement. As a practical matter, this may be on a straight-line basis over the life of
the agreement, for example, when a licensee has the right to use specified technology for a specified period
of time. 1

Page 2 of 6
 Question 11.6: Parnassus
Time: 33 min
Marks: 22
Level: Interm

A: Components of revenue

For the current reporting year, the entity entered into the following transactions for which revenue
needs to be recognised:
Sales of goods ( the modem and anti-virus software respectively) 1
Rendering of services ( selling of data and once-off connection fee) 1

B: Revenue from the sale

The revenue from the sale of the modem and from the anti-virus software is revenue from the sale of
goods and will be recognised when the following criteria are met:
The entity has transferred to the buyer the significant risks and rewards of ownership of the goods (risks
and rewards of ownership of the modem as well as the anti-virus software are transferred to the buyer
on purchase of the modem and on entering into the contract). 1
The entity retains neither continuing managerial involvement to the degree usually associated with
ownership, nor effective control over the goods sold. (The customer owns the modem and the anti-virus
software and bears the risk of damage to the modem. The customer is also responsible for any further
updates to be installed on the software.) 1
The amount of revenue can be measured reliably (selling prices for both the modem and the anti-virus
software have been provided at CU499 and CU550 respectively, calculated below). 1
It is probable that economic benefits associated with the transaction will accrue to the entity (a credit
check is performed on all customers before they are granted contracts). 1
The costs incurred or to be incurred in respect of the transaction can be measured reliably (cost prices
for both the modem and the anti-virus software can be reliably measured as the company uses a 25%
gross profit percentage). 1
As all the requirements have been met, both sales can be recognised as revenue once the customer takes
delivery. 1

C: Measurenemt of revenue

Para 23.3 states that an entity shall measure revenue at the fair value of the consideration received or
receivable.
Revenue from the sale of the modems will be recognised at CU499 which is the fair value of the
consideration received. 1
Revenue from the sale of the anti-virus software package has been included in the monthly premiums
being paid by the customer. The monthly payments should, therefore, be divided into its components,
being revenue from the provision of services and revenue from the sale of the software.
2
The revenue to be recognised from the sale of the anti-virus software is CU550 which is the normal
selling price of the software. 1

D: Revenue from data and connection fee

Revenue received from the provision of the data service and the connection fee payable by the customer
represents revenue from rendering of services.
Revenue from the rendering of services is recognisable when the following requirements are met:
The amount of revenue can be measured reliably.
Page 3 of 6
 Question 11.6: Parnassus

Provision of data services: The monthly fee can be divided into its components being revenue from the
sale of the anti-virus software, interest earned on late payment of the anti-virus software and revenue
from the provision of the data. Thus the amount of CU329 needs to be broken down into the three parts.
1
The present value of the monthly payments is:
PMT = CU329
I = 10%/12
n = 24
Cal PV = 7 129.71, of this CU550 relates to the sale of the anti-virus 1
Then calculate portion of the monthly payment that relates to the provision of data:
PV = 6 579.71 (7 129.71 - 550)
n = 24
I = 10%/12

Cal PMT = 303.62 (portion of the monthly payment that relates to the provision of data) 1

Thus the amount of revenue from the provision of data can be reliably measured at CU303.62 p.m. 1

The connection fee: The amount payable by customers is CU199 paid once-off to content then to the
network. 1

It is probable that the economic benefits associated with the transaction will accrue to the entity.
For both: A credit check is performed on all customers before they are given a contract and it is probable
that economic benefits will accrue to the entity
1

The stage of completion of the transaction at the end of the reporting period can be measured reliably.
Provision of data: The contract period is 24 months so the stage of completion can be measured reliably
The connection fee: Once the service has been rendered that connects the customer
1
The costs incurred for the transaction and the costs to complete the transaction can be reliably
measured.
For both: The company uses a 25% gross profit percentage so the costs can be reliably measured 1

The revenue to be recognised from the provision of data will be measured at its fair value of CU303.63
each month as the service is rendered and the revenue from the connection fee of CU199 can be
recognised when the service that connects the customer is rendered . 2

Page 4 of 6
 Question 11.7: Beyoncé Bouncee
Time: 36 min
Marks: 24
Level: Interm

A: Revenue

Gym contracts
Revenue from gym contracts should be included as follows in the 20X4 financial statements:
Monthly contract fee: CU575 x 100/115 = CU500 (revenue should be accounted for net of VAT) 1
January: 50 x CU500 x 2 = CU50 000 1
February: 30 x CU500 = CU15 000 1
The gym contracts can be classified as the “rendering of services” as per section 23. 1
Revenue from the rendering of services is recognised when all the following criteria are met:
*       the revenue can be reliably measured:
The revenue as stated in each of the individual client's contracts is CU575 (including VAT) per month and
1
the VAT ratio is known – therefore, the revenue is reliably measurable at CU500 per month, per client.
*       the transaction related costs can be reliably measured: 1
The costs can be determined as the lease payments are the only costs incurred in respect of the gym and
1
the amounts related to the lease are known.
*       it is probable that the economic benefits expected will accrue to the entity: 1
Queen B does credit checks on all clients before offering them contracts.
*       the stage (percentage) of completion can be reliably measured:
According to Section 23, when services are performed by an indeterminate number of acts over a specified
period of time, revenue is recognised on a straight-line basis over the specified period, unless there is
2
evidence that some other method better represents the stage of completion. It would be appropriate to
recognise the revenue evenly over the period of the contract.

Gym fees exchanged for accounting services

When goods or services of dissimilar nature are exchanged in a transaction that has commercial
substance, this generates revenue and should be accounted for. The revenue should be measured at the
2
value of the goods or services received, unless this value cannot be reliably measured, in which case the
value of goods or services rendered may be used.
The gym fees should be included in the financial statements as revenue, amounting to CU1 500. It should
be recognised on a straight-line basis over the term of the contract, therefore at CU125 (1 month) in the 2
20X4 financial statements.

Sales with settlement discount

Discounts granted to debtors for prompt payment should be estimated at the date of the sales transaction
and should be deducted directly from revenue. The reason for this is that the fair value of the amount 2
receivable is net of the discount.
Sales revenue should, therefore, be included as follows in the 20X4 financial statements: 1
CU27 600 x 100/115 x 15% = CU3 600.00 1
CU27 600 x 100/115 x 85% x 98% = CU19 992.00 1
Total sales: CU23 592.00

A: Journals for operating lease

Details Dr Cr
28 02 20X4
Rental expense (CU6 500 x 2 months) 13 000 1
Maintenance fees (CU1 000 x 2 months) 2 000 1

Page 5 of 6
 Question 11.7: Beyoncé Bouncee
Prepaid rental (balance) 1 000 1
Bank/Accounts payable (CU8 000 x 2 months) 16 000 1

Workings 1
Rent expense
((8 000 – 1 000[1]) x 18) + ((6 000 – 1 000) x 6) = 156 000
156 000 / 24 = CU6 500 per month
Maintenance fees
(1 000 x 18 + 1 000 x 6)/24 = 1 000 per month

Page 6 of 6
 Q10.1 True or False
Time: 15 min
Marks: 10
Level: Core

Section:

5 D S32’s scope states that’s this section defines events after the end of the reporting 32.1 2
period and sets out principles for recognizing, measuring and disclosing those events
so A, B and C are all considered within the scope of S32.

6 C Events after the end of the reporting period are defined as those events, favourable 32.2 - 32.3 2
and unfavourable, that occur between the end of the reporting period and the date
when the financial statements are authorized for issue. There are two types of
events – adjusting and non-adjusting.
Therefore A & B are considered correct as they both outline the definition of S32.

7 A Events after the end of the reporting period INCLUDE all events up to the date when 32.4 2
the financial statements are authorized for issue. Therefore A is false as it uses the
word EXCLUDES these events.

8 C According to S32.5 both A and B would be considered adjusting events after the end 32.5 2
of the reporting period. Therefore both would be considered adjusting events.

9 B According to S32.8 If an entity declares dividends to holders of its equity instruments 32.8 2
after the end of the reporting period, the entity shall not recognize those dividends
as a liability at the end of the reporting period. Therefore the correct recognition
and measurement in terms of S32 is B, and not A, C or D.

Page 1 of 3
 Q10.4 JC AND Associates
Time: 29 min
Marks 19
Level: Interm

A: With regards to Query 1 and 2, discuss whether these are adjusting or non-adjusting events.

Events after the end of the reporting period are those events, favourable and unfavourable, that occur
between the end of the reporting period and the date when the financial statements are authorised for 1
issue.

Query 1
The financial year end is 31 December 20X1. Since the financial statements were authorised for issue on the 28th
of February 20X2, and the error was identified on the 25th of February 20X2, this falls within the above described 1
timeline and is classified as an event after the reporting period.

The uncovering of this error provides evidence of a condition that existed at the end of the
1
the 31 December 20X1 financial year (as at 31 December 20X1, there was a mathematical error).
This is therefore an adjusting event 1

Query 2
The financial year end is 30 September 20X1. Since the financial statements were authorised for issue on the 31st
of December 20X1, and the rain damage occurred on the 17th of November 20X1, this falls within the above 1
described timeline and is classified as an event after the reporting period.

This conditions (the damaged properties) arose after the end of the reporting period, and is therefore a non-
1
adjusting event.

B: With regards to Query 1, provide the journals that the accountant would need to process on 25 February
20X1 to ensure that the financial statements are presented fairly, in all material respects.

Dr Depreciation 3 750
1
Cr Accumulated Depreciation 3 750
[(120 000 - 20 000) / 4 * 9/12] - [(120 000 - 20 000) / 5 * 9/12] 1

C: Assuming that for Query 1 the accountant only identified the error on 1 March 20X2, what journals would
need to be processed to correct for the prior period error in the 2021 financial year?

Dr Retained Earnings 3 750

1
Cr Accumulated Depreciation 3 750
[(120 000 - 20 000) / 4 * 9/12] - [(120 000 - 20 000) / 5 * 9/12] 1

Page 2 of 3
 Q10.4 JC AND Associates

D: Using utilitarian theory of ethics, comment on the conduct of the financial director in Query 2.

The financial director is using his position to exert pressures on their inferiors to act in a certain matter. 1

Utilitarianism is an ethical theory that determines right from wrong by focusing on outcomes.
Utilitarianism holds that the most ethical choice is the one that will produce the greatest good for the 1
greatest number.
It is safe to assume that if every superior in the work place used their position in power to pressure
1
inferiors, it would not result in the greatest amount of happiness.

From this, we can conclude that the actions of the financial director are unethical. 1

E: Critically analyse the financial director’s statement in Query 3.

Events after the end of the reporting period are those events, favourable and
unfavourable, that occur between the end of the reporting period and the date 1
when the financial statements are authorised for issue

The financial year end is 30 June 20X1. Since the financial statements were authorised for issue on the 31st of
August 20X1, and the dividend was declared on the 30th of August 20X1, this falls within the above described 1
timeline and is classified as an event after the reporting period.

However, as at 30 June 20X1, the entity did not have any obligation to pay out a dividend. 1
This means that the event is a non-adjusting event. 1
The CFO is therefore incorrect in instructing a journal to be processed for the 20X1 financial year. 1

Page 3 of 3