FRK121 EXAMINATION – 2023

SUGGESTED SOLUTION

QUESTION 1 (WRITTEN) (20 marks; 40 minutes)

LUMINOUS LIMITED
Statement of cash flows for the year ended 31 December 2022

R
Cash flows from operating activities 11 800
Cash received from clients ^ (Calc. 1) 406 500 (4.0)
Cash paid to suppliers and employees ^ (Calc. 4) (355 200) (7.5)
Cash generated by operations ^ 51 300
Interest received ^ 3 000
(0.5)
Interest paid (Calc. 7) (10 500)
(1.5)
Dividends paid (Calc. 8) (17 000)
(1.5)
Income tax paid (Calc. 9) ^ (15 000)
(3.5)
Presentation marks (2.5)
TOTAL [21.0]
BUT MAX [20.0]
Additional (not required):

Cash flows from investing activities (39 500)

Purchases of non-current assets:
- Additions for expansion (Calc. 10) (18 500)
- Additions for replacement (Calc. 11) (33 100)
Proceeds from sale of non-current assets (given) 7 100
Decrease in financial assets (Calc. 12) 5 000

Cash flows from financing activities 35 000

Increase in ordinary share capital 30 000
(R110 000 – R80 000)
Decrease in redeemable preference share capital (10 000)
(R30 000 – R20 000)
Increase in long-term loan 15 000
(R60 000 – R45 000)

Net increase in cash and cash equivalents for the year 7 300
Cash and cash equivalents at the beginning of the year 13 000
Cash and cash equivalents at the end of the year 20 300

Page 1 of 12
CALCULATIONS

1. Cash receipts from clients

R
Cash received from clients for sale of inventory (Calc. 2) [2.5] 385 500
Cash received from clients for other income (Calc. 3) [1.5] 21 000

406 500

2. Cash received from clients for sale of inventory

Debtors (net amount)

R R
Balance (net) ^ 19 000 Bank (Balancing) 385 500
Sales (R100 000 x 100/25) ^ 400 000 Credit losses ^ 6 500
Adjustment to the allowance ^ 2 000 Balance (net) ^ 29 000
for expected credit losses
421 000 421 000
[2.5]
3. Cash received from clients for other income

Rent income
R R
Income receivable (reversal of ^ 18 000 Income receivable (adjustment ^ 12 000
previous year) current year)
Profit or loss ^ 15 000 Bank (Balancing) 21 000
33 000 33 000
[1.5]
4. Cash paid to suppliers and employees

R
Cash paid to suppliers of inventory (Calc. 5) [3.0] (331
000)
Cash paid to other suppliers and employees (Calc. 6) [4.5] (24
200)
(355 200)

5. Cash paid to suppliers of inventory

Inventories
R R
Balance ^ 40 000 Cost of sales (R100 000 x 75/25) ^ 300 000
Creditors (Balancing) 328 000 Donation ^ 8 000
Balance ^ 60 000
368 000 368 000

Creditors
R R
Bank (Balancing) 331 000 Balance ^ 16 000
Balance ^ 13 000 Inventories [2.0] 328 000

344 000 344 000

[3.0]
Page 2 of 12
6. Cash paid to other suppliers and employees
Alternative 1:
R
Gross profit ^ 100 000

Other income: ^ 17 000

Rent income 15 000
Adjustment to the allowance for expected credit losses 2 000

Other expenses: (60 800)

Amortisation on patent ^ (11 000)
Credit losses ^ (6 500)
Depreciation ^ (25 300)
Impairment loss on patent ^ (10 000)
Donation ^ (8 000)

Net finance (cost) (R3 000 – R5 000) ^ (2 000)

Other cash expenses (Balancing figure) (24 200)

Profit before tax ^ 30 000

Alternative 2 Alternative 3
R R
Gross profit ^ 100 000 ^ (100 000)
Profit before tax ^ (30 000) ^ 30 000
Net expenses 70 000 (70 000)

Other income: ^ 17 000 ^ (17 000)

Rent income 15 000 (15 000)
Adjustment to the allowance for expected credit losses 2 000 (2 000)

Other expenses: (60 800) 60 800

Amortisation on patent ^ (11 000) ^ 11 000
Credit losses ^ (6 500) ^ 6 500
Depreciation ^ (25 300) ^ 25 300
Impairment loss on patent ^ (10 000) ^ 10 000
Donation ^ (8 000) ^ 8 000

Net finance (cost) (R3 000 – R5 000) ^ (2 000) ^ 2 000

Other cash expenses (Balancing figure) 24 200 (24 200)

[4.5]

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7. Interest paid

Interest expense
R R
Bank (Balancing) 10 500 Expenses payable ^ 4 500
(reversal of previous year)
Prepaid expense (adjustment ^ 1 000
current year)
Profit or loss ^ 5 000
10 500 10 500
[1.5]
8. Dividends paid

Shareholders for dividends

R R
Bank (Balancing) 17 000 Balance ^ 8 000
Balance ^ 1 000 Dividends declared ^ 10 000
(2 000 + 8 000)
18 000 18 000
[1.5]
9. Income tax paid

Retained earnings
R R
Dividends declared (given) ^ 10 000 Balance ^ 23 000
Asset replacement reserve ^ 5 000 Profit for the year (Balancing) 21 500
Balance ^ 29 500
44 500 44 500

Current tax payable

R R
Bank (Balancing) 15 000 Balance ^ 12 500
Balance ^ 6 000 Income tax expense 8 500
(R30 000 ^ – R21 500[2.0])
21 000 21 000
[3.5]
10. Expansion of non-current assets

Buildings
R R
Balance 0 Balance 18 500
(R17 100 + R1 400)
Bank (Balancing) 18 500
18 500 18 500

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11. Replacement of non-current assets

Equipment
R R
Balance 55 000 Asset realisation 25 100
Bank (Balancing) 33 100 Balance 63 000
88 100 88 100

12. No cash movements in non-current assets

Land
R R
Balance 32 000 Balance 40 000
Revaluation reserve 8 000
40 000 40 000

Patent
R R
Balance 44 000 Amortisation 11 000
Impairment loss 10 000
Balance 23 000
44 000 44 000

13. Financial assets

Investment
R R
Balance 40 000 Bank (Balancing) 5 000
Balance 35 000
40 000 40 000

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QUESTION 2 (ONLINE) (17 marks; 34 minutes)

Calcu Limited
Statement of changes in equity for the year ended 31 December 2022

Redeemable Asset
Calculations to Ordinary share Revaluation
preference share Retained earnings replacement
complete capital reserve
capital reserve

Balance on 31 Dec 2021 3 000 000 [a] (C4) 537 500 [b] 2 400 000 [c] 150 000 [d] (C6) 120 000 [e]

Shares issued (C3) 2 400 000 [f] (C5) 2 000 000 [g] 0 [h]
Total comprehensive
1 082 125 160 000
income for the year
COMPLETE (C1) 1
Profit for the year 082 125
CALCULATION 1
Revaluation surplus 0 [i] (C7) 160 000 [j]
COMPLETE (C2) (692
Dividends 500)
CALCULATION 2
Transfers to reserves (100 000) [k] 100 000 [l]

Balance on 31 Dec 2022 5 400 000 2 537 500 3 119 650 250 000 280 000

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CALCULATIONS:

CALCULATION 1: Profit for the year

R
Profit before tax calculated by bookkeeper 1 600 000
Adjustment for information point 5.1 [m] (17 875)
110 000 x 25% = 27 500 shares x R0.20 per share x 12/12 = R5 500
110 000 x 75% = 82 500 shares x R0.20 per share x 9/12 = R12 375
Adjustment for information point 5.2 [n] (80 000)
Cost per calculator: R200 x 100/160 = R125
NRV per calculator: R120 – R5 = R115
Therefore, write-down to NRV: 8 000 calculators x (R125 – R115)
Income tax expense (R1 500 000 x 28%) [o] (420 000)
Profit for the year 1 082 125

The profit for the year must be [p] added (type added or subtracted) in [q] retained earnings (type the name of the column)

CALCULATION 2: Dividends

Class of shares R
Ordinary shares [r] 480 000
2 000 000 shares + 1 200 000 shares = 3 200 000 shares x R0.15 per share
Redeemable preference shares classified as equity [s] 212 500
250 000 shares x R0.25 per share = R62 500 x 12/12 = R62 500
800 000 shares x R0.25 per share = R200 000 x 9/12 = R150 000
Redeemable preference shares classified as a liability [t] 0
Total dividend 692 500

The dividends must be [p] subtracted (type added or subtracted) in [q] retained earnings (type the name of the column)

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CALCULATION 3: Ordinary shares issued

1 200 000 shares x R2.00 per share R2 400 000

CALCULATION 4: Redeemable preference shares (opening balance)

250 000 shares x R2.15 per share R537 500

CALCULATION 5: Redeemable preference shares issued

800 000 shares x R2.50 per share R2 000 000

CALCULATION 6: Revaluation reserve (opening balance)

R1 620 000 – R1 500 000 R120 000

CALCULATION 7: Revaluation reserve (movement)

R1 780 000 – R1 620 000 R160 000

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 QUESTION 3 (ONLINE) (15 marks; 30 minutes)

SECTION A (4)

1. A
2. D
3. B

SECTION B
3.1 (6.5)

a) Return on equity = Profit for the year / Equity x 100

R121 283 / R454 593 x 100/1 = 26.68% or 27%
Comment: It is better for Aneesa to invest the money in Marvellous Muffins
because the return is higher. 2.5

b) Acid test ratio: Current assets – Inventory: Current liabilities

R195 858 – R52 581: R62 475
R143 277 : R62 475
R2.29 : R1 2.0

c) Profit margin = Net profit / Sales x 100/1

R121 283 / R438 860 x 100/1
27.64% 2.0

3.2

Marvellous Muffins
Property, plant and equipment (4.5)
Baking
Vehicles equipment
R R
Carrying amount – 30 September 2022 322 100 153 900
Cost 350 000 190 000
Accumulated depreciation (27 900) (36 100)

Movements during the year

Acquisitions [i] 80 000 -
Depreciation [ii] (19 200) [iii] (15 390)
Disposals - [iv] (47 200)

Carrying amount – 30 September 2023 382 900 91 310

Cost ? [v] 137 600
Accumulated depreciation ? (46 290)

3.3 A (1 BONUS)

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Calculations:

[i] R80 000

[ii] (R350 000 – R50 000) / 400 000 = R0.75 x 25 600km = R19 200
Or [(R350 000 – R50 000) / 400 000] x 25 600km

[iii] R153 900 x 10% = R15 390

[iv] R47 200

[v] R91 310 + R46 290 = R137 600

Page 10 of 12
QUESTION 4 (ONLINE) (10 marks; 20 minutes)

Kudu Hunting Expeditions

Statement of net investment of partners for the year ended 31 May 2023

Asset
Distribution of Loans to/from Total
Capital replacement Current accounts
profit partners investment
reserve
R R R R R R
C1 C2
Balance on 1 June 2022 906 000 25 000 - 219 600 [1] 182 000 [2] XXX
Profit for the year 1 125 890 [4] 1 125 890 [5]
Transfer to reserves 100 000 [3] XXX
Salaries to partners (480 000) [6] XXX
Bonus to partner (64 589) [7] XXX
C3
Interest on current accounts XXX 16 896 [8]
Interest on drawings 9 255 [9] (9 255) [10]
Profit distribution XXX 473 660 [11]
Payment on loans 0 [12] (50 000) [13]
C4
[14] Drawings (541 700) [15]
Balance on 31 May 2023 XXX XXX XXX XXX XXX XXX

CALCULATIONS

1. R253 200 – R33 600 = R219 600

2. R132 000 + R50 000 = R182 000
3. (R253 200 x 8%) - (R33 600 x 10%) = R16 896
4. R274 200 + R267 500 = R541 700

Page 11 of 12
QUESTION 5 (ONLINE) (8 marks; 16 minutes)

No Statement Mark
1 Statement of financial position
2 Statement of income and expenditure
3 Statement of financial position
4 Statement of income and expenditure
5 Statement of income and expenditure
6 Statement of financial position
7 Statement of income and expenditure
8 Statement of financial position
9 Statement of income and expenditure
10 Statement of financial position
11 Statement of income and expenditure
12 Statement of income and expenditure
13 Statement of financial position
14 Statement of income and expenditure
15 Statement of income and expenditure
16 Statement of financial position

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