FINANCIAL REPORTING AND ANALYSIS (FRA262)

SPECIMEN PAPER

SECTION A (20 MARKS)

QUESTION 1

1.1 Which of the following statements is true regarding the application of IFRS for SMEs? (2)

a) A large company that is listed on the JSE cannot apply IFRS for SMEs, but must apply full IFRS
in preparing its financial statements.
b) A smaller entity that is not listed on the JSE cannot apply IFRS, but may apply IFRS for SMEs
in preparing its financial statements.
c) A large company that is not listed on the JSE cannot apply IFRS for SMEs, but may apply full
IFRS in preparing its financial statements.
d) A smaller entity that is listed on the JSE cannot apply full IFRS, but must apply IFRS for SMEs
in preparing its financial statements.

1.2 Which of the following options forms part of the recognition criteria of an asset? (2)

a) It is held for the purpose of earning passive income.

b) It is expected to last less than one reporting period.
c) It is held for the purpose of trade.
d) It can only be intangible.

1.3 Which of the following options correctly describes a present economic resource? (2)

a) Something that has the potential to generate economic benefits for an entity.
b) Something that had the potential to generate economic benefits for an entity.
c) Something that could have the potential to generate economic benefits for an entity.
d) Something that has a low potential of generating economic benefits for an entity.

1.4 What are the five steps in the revenue recognition process? (2)

a) Identify a contract with the customer; Identify performance obligations; Determine the
transaction price; Allocate the cost price to performance obligations; Recognise revenue
when or as performance obligations are satisfied.
 b) Identify a contract with the customer; Identify performance obligations; Determine the
transaction price; Allocate the transaction price to performance obligations; Recognise
revenue when or as performance obligations are satisfied.

c) Identify a contract with the supplier; Identify performance obligations; Determine the
transaction price; Allocate the price to performance obligations; Recognise revenue when or
as performance obligations are satisfied.

d) Identify a contract with the customer; Identify performance obligations; Determine the fair
market price; Allocate the cost price to performance obligations; Recognise revenue when or
as performance obligations are satisfied.

1.5 What is the purpose of the statement of cash flows? (2)

a) It shows the financial performance of an entity for a financial year.

b) It shows how an entity has generated and used cash flows during the financial year.
c) It shows the movements in all components of equity for the financial year.
d) It shows the financial position of an entity at the reporting date.

1.6 The following note to the financial statements of PPE Ltd is provided to you:

2. Property, plant and equipment 2024

Carrying amount at 1 March 2023 1 500 000

Cost 2 000 000

Accumulated depreciation (500 000)

Additions at cost 250 000

Disposals at carrying amount (91 200)

Depreciation for the year (35 800)

Carrying amount at 28 February 2024 1 623 000

Cost 2 158 800

Accumulated depreciation (535 800)

Based on the information given above, at what amount will property, plant and equipment be
disclosed in the financial statements of PPE Ltd at 28 February 2024? (2)

a) 1 500 000

b) 2 158 800

c) 2 000 000

d) 1 623 000

1.7 The following extract from the financial statements of EXP Ltd is provided to you:

Statement of profit or loss and other comprehensive income for the year ended
31 December 2024

2024

Operating expenses

Finance costs 500 000

Select the answer which correctly describes the extract provided above? (2)

a) Finance costs have been incorrectly disclosed under operating expenses and must be
disclosed below the operating profit line.

b) Finance costs may be disclosed under operating expenses, but it is more correct to disclose it
below the operating profit line.

c) Finance costs have been correctly disclosed under operating expenses and must not be
disclosed below the operating profit line.

d) Finance costs may be disclosed under operating expenses, but may also be disclosed below
the profit before tax line.
1.8 An entity purchases computer equipment at a cost of R115 000 (including VAT) and the entity is
able to claim the VAT. The equipment is purchased using cash. Which of the following options
correctly shows how to recognise the purchase of the computer equipment? (2)

a) Dr. Computer equipment 100 000

Dr. Input VAT 15 000

Cr. Bank 115 000

b) Dr. Computer equipment 115 000

Cr. Input VAT 15 000

Cr. Bank 100 000

c) Dr. Bank 100 000

Dr. Input VAT 15 000

Cr. Computer equipment 115 000

d) Dr. Bank 115 000

Cr. Input VAT 15 000

Cr. Computer equipment 100 000

1.9 APEX Ltd purchased the following inventory items during the 2024 financial year:

 10 February: 501 units at R560 each

 26 May: 54 units at R530 each
 18 August: 300 units at R640 each.

What is the value of inventory on hand at year end if 99 units are remaining and the weighted
average costing method is applied? (2)

a) 58 031,37
b) 61 943,60
c) 56 905,89
d) 50 653,26
1.10 REV Ltd is a construction company with a 31 December year-end. During the year ended 31
December 2024 the company received a tender to construct an apartment complex for a property
development agency. The transaction price amounts to R650 000 000 and the phases of completion
are estimated as follows:

Year 1: 40%

Year 2: 35%

Year 3: 25%

Calculate the amount revenue to be recognised in Year 3? (2)

a) R260 000 000

b) R162 500 000

c) R227 500 000

d) R272 500 000

SECTION B (50 MARKS)

QUESTION 1 (15 MARKS)

Ignore VAT.

APX Ltd is a manufacturer of computer equipment. The following information relates to the year
ended 30 June 2024, being the company’s first year of operation. There were no finished goods nor
work-in-progress units on hand at the beginning of the year.

Not R
e

Raw materials purchased N1 3 543 000

Salaries and wages N2 1 837 500

Transport costs of raw materials to production facility 246 270

Depreciation N3 300 000

Selling costs N4 54 500

Volume rebate N1 ???

Notes:

N1: APX Ltd received a volume rebate of 10% on the cost of raw materials purchased.

N2: Salaries and wages can be allocated to the following departments:

Percentage Department

65% Manufacturing

30% Sales

5% Administration

N3: APX Ltd’s investment in property, plant and equipment is largely attributed to the production
facility and the minority relates to the sales and administration departments. Hence, 95% of the
depreciation charge can be allocated to the production facility.

N4: Selling costs are incurred at the point of sale of finished goods.
N5: APX Ltd measures inventories at the lower of cost and net realisable value and applies the FIFO
cost formula.

N6: The actual number of units produced during the year amounted 46 000 and 27 000 units were
sold during the year.

N7: There were no raw materials nor work-in-progress stock on hand at year end.

N8: There were no net realisable value adjustments during the year.

REQUIRED:

1.1 Calculate the value of inventory on hand as at 30 June 2024. (10)

1.2 Prepare the inventories note to the financial statements for the year ended 30 June 2024 in
which you must disclose the closing balances of raw materials, work-in-progress and finished goods.
(5)

QUESTION 2 (15 MARKS)

All amounts exclude VAT except if stated otherwise.

The following incomplete property, plant and equipment note to the financial statements of PPE Ltd
is provided to you:

APX Ltd

Notes to the financial statements for the year ended 30 June 2024

2. Property, plant and equipment

Vehicles Furniture and Machinery

Fittings
R R
R

Carrying amount at 1 July 2023 1 000 000 66 000 3 337 500

Cost 1 750 000 120 000 4 450 000

Accumulated depreciation (750 000) (54 000) (1 112 500)

Additions - 2.2 -
 Disposals 2.1 - -

Depreciation (116 667) 2.2 (741 667)

Impairments - - 2.3

Carrying amount at 31 December xxxxx xxxxx Xxxxx

2024

Cost xxxxx xxxxx Xxxxx

Accumulated depreciation (xxxxx) (xxxx) (xxxx)

Additional information:

 It is APX Ltd’s accounting policy to depreciate property, plant and equipment as follows:
o Vehicles – 10% per annum on the straight-line method.
o Furniture and fittings - 20% per annum on the reducing balance method.
o Machinery – 16,67% per annum on the straight-line method.

 Three vehicles with the same cost were purchased 1 July 2022. During June 2024 it was
decided to sell one of the vehicles (Registration no. CFM103913) at a selling price of
R350 000. The vehicle was sold on 30 June 2024 and was in use until that date.

 Furniture with a cost price of R13 500 (VAT inclusive) was purchased on 31 December 2023.

 On 30 June 2024, machinery was tested for impairment and the recoverable amount was
determined as R2 350 000.

REQUIRED:

2.1 Calculate the profit/loss on disposal of the vehicle (Registration no. CFM103913). (4)

2.2 Calculate the depreciation for the year on furniture and fittings. (4)

2.3 Calculate the impairment loss (if any) on the machinery. (4)
2.4 Disclose the following line items in the operating expenses section of the statement of profit or
loss and other comprehensive income for the year ended 30 June 2024:

 Profit (or loss) on disposal of assets

 Depreciation for the year on all asset classes
 Impairment losses

Provide an appropriate heading to the extract of your statement. (3)

QUESTION 3 (15 MARKS)

ROCK Limited is a property investment company that lets apartments to young professionals. The
company has a 28 February year end and is a registered VAT vendor.

Mayfair Construction Limited is property development company that develops apartment and office
buildings. Mayfair also has a 28 February year end and is also a registered VAT vendor.

During the year ended 29 February 2024 Mayfair Construction signed an agreement to develop a
new apartment block for ROCK. The development project is expected to span over 4 financial years
and the most important terms of the agreement are as follows:

Mayfair Construction is to commence construction on 1 March 2023 and it is to be completed on 28

February 2027. The contract price amounts to R120 million (excluding VAT).

Invoicing schedule:

Mayfair plans to invoice ROCK at the end of each financial year. ROCK has an obligation to settle the
invoice at 30 June of the following financial year. This invoicing schedule aligns with the completion
of each construction phase and ensures that revenue is recognised accordingly. The building is to be
completed as follows:

• 29 February 2024: 20%

• 28 February 2025: 35%

• 38 February 2026: 25%

• 28 February 2027: 20%

Contract costs:

All costs associated with the project are paid in cash as they are incurred. The financial manager of
Mayfair has accurately costed the project as follows:

• 29 February 2024: R15 million (Incl. VAT)

• 28 February 2025: R12 million (Incl. VAT)

• 31 February 2026: R18 million (Incl. VAT)

• 31 February 2027: R20 million (Incl. VAT)

REQUIRED:

Prepare the general journal of Mayfair Construction (Pty) Ltd for the years ended 29 February 2024
AND 28 February 2025 to record the revenue earned and costs incurred for those years.

Note:

• Journal narrations and dates are required.

• Show all calculations clearly and cross-reference calculations to journal entries.

• A heading to the general journal is required.

• Closing entries are not required.

• Consider VAT where necessary. (15)

QUESTION 4 (5 MARKS)

The following information is provided for SAM Ltd and HUA Ltd:

SAM Ltd HUA Ltd

R R

Trade receivables 510 000 236 500

Inventories 225 000 313 000

Cash and cash equivalents 11 200 33 500

Trade payables 20 000 27 000

Accrued expenses 30 500 42 000

REQUIRED:

Calculate the acid-test ratio for SAM Ltd and HUA Ltd. (4)

Compare the companies’ acid-test ratios to each other and conclude which company is in a better
liquidity position. Provide a reason for your conclusion (1)

SECTION C (30 MARKS)

QUESTION 1 (30 MARKS)

Ignore VAT.

The following information is provided to you as it relates to CAP Ltd:

CAP Limited

Statement of comprehensive income for the year ended 31 December 2024

Note 2024

Revenue 2 350 500

Cost of sales (1 200 650)

Gross profit 1 149 850

Other income 91 200

Profit on sale of assets 91 200

Operating income 1 241 050

Operating expenses (396 820)

Administration costs 95 000

Bad debts 3 550

Communication costs 2 500

Depreciation 25 650
 Impairment losses 10 280

Employee costs 258 840

Operating profit 844 230

Investment income 2 390

Finance costs (12 650)

Profit before tax 833 970

Taxation (225 172)

Profit for the year 608 798

The following statement of financial position balances were also provided:

2024 2023
R R
Trade and other receivables 245 098 532 000
Inventories 321 570 50 800
Trade and other payables 160 502 243 020
Tax payable N1 123 800
Shareholder’s loans payable: long-term 250 000 250 000
Property, plant and equipment (carrying amount) N2 2 980 000
Financial assets at fair value through profit or loss 10 000 10 000
Share capital 100 000 100 000
Retained earnings N3 461 760
Bank overdraft 53 200 -

Additional information:
N1: The only movement in the tax payable account for the year is the income tax expense per the
statement of comprehensive income. No taxes were paid during the year.

N2: There were no additions or disposals to property, plant and equipment during the year. All
impairment losses relate to PPE.

N3: A board resolution was reached to not declare or pay dividends until the company has been
operational for at least five years. Therefore, all profits are reinvested in the business to build up
sufficient reserves for expansion.
REQUIRED:

1.1 Prepare the cash generated from operations note to the financial statements of CAP Ltd for the
year ended 31 December 2024. (15)

1.2 Prepare the statement of financial position as at 31 December 2024. (15)

TOTAL: 100 MARKS