UNIVERSITY OF THE WESTERN CAPE
TERM TEST 2
12 OCTOBER 2024
MODULE NAME : FINANCIAL ACCOUNTING 132
MODULE CODE : FIA132
DURATION: 180 MINUTES MARKS: 100
EXAMINER: MR L TSHONGWANA
INTERNAL MODERATOR: MRS M OTTO
QUESTION MARKS MINUTES
1 55 99
2 29 52
3 11 20
4 5 9
TOTAL 100 180
LECTURER’S INSTRUCTIONS TO STUDENTS:
1. Answer all questions.
2. Write your student number, surname and name on the first page of your answer sheet.
3. If possible, rename your answer sheet to your student number, surname and name.
4. Show all workings clearly and to the nearest rand.
5. Reference all workings appropriately.
6. Start a new question on a separate page.
7. This is an assessment which must be completed by the individual student and thus, students
may not receive or give aid to another student during the assessment period.
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Question 1 (55 marks: 99 minutes)
IGNORE VAT.
Assume an income tax rate of 27%, Capital Gains Tax rate of 80% and dividend
tax of 15%.
ToyZone Ltd is a company that owns several successful toy stores. The company has a
30 June year-end. You have been provided with the following information:
Extract from the Statement of Financial Position of ToyZone Ltd as at 30 June 2023:
2023 2022
Total assets 244,500,000 133,500,000
Equity and liabilities
Share capital: Class A ? 48,000,000
Accumulated profits ? 80,000,000
Share capital: Class B 2,000,000 1,000,000
Total liabilities 4,000,000 4,500,000
Total equity and liabilities ? 133,500,000
Extract from the Notes to the Annual Financial Statements of ToyZone Ltd for the year
ended 30 June 2023:
7: Trade and other receivables
Description 2023 2022
Trade receivables 985,400 1,026,000
Other receivables: Prepaid expenses 279,500 325,000
10: Trade and other payables
Description 2023 2022
Trade payables 1,569,000 1,302,600
Other payables: Accrued expenses 295,000 285,000
South African Revenue Services – Income Tax ?? 5,112,000
Shareholders for dividends ?? 786,400
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11. Authorised share capital
Class of share Description
50,000,000 Class A shares Class A shares: Voting rights, no right to a fixed
distribution
12,000,000 Class B shares Class B shares: No voting rights, right to a fixed,
cumulative distribution with a face value of R5
and fixed distribution of 10%
Additional information:
a. The profit for the year before tax (before taking into account additional
information j) amounted to R14,500,000. Taxable income constitutes 115% of profit
before tax. The tax assessment for the year ended 2022 was received and
amounted to R4,987,500. A capital profit of R65,000 (not included in taxable income)
was calculated. Two provisional payments were made during the year, which
amounted to R3,500,000.
b. The number of Class A shares issued at 30 June 2022 amounted to 12,000,000
c. The new issue of 3,125,000 Class A shares took place on 31 May 2023 and was
underwritten by NFB Business for a commission of 10%, based on the total number
of shares that was offered in the prospectus. The share issue was undersubscribed
and NFB Bank had to take up 25% of the shares offered to the public. Share issue
costs (excluding underwriters commission) of 88 cents per share issued, were
incurred. The total cash received from the share issue (before share issue expenses
and the underwriter’s commission) was R15,625,000. Assume all share issue costs
were paid cash on date it was incurred.
d. The new issue of Class B shares were allotted on 1 February 2023. On 15 January
2023, the closing date for applications, the offer had been over-subscribed by 30%.
It was decided to issue the initial offered in the prospectus. No share issue costs
were incurred. This was the only issue of Class B shares for the 2023 financial
period.
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e. Dividends were declared for all classes of shares. Class A dividends of 20 cents per
share were declared on 1 May 2023. Dividends were paid on 10 July 2023.
f. The company consistently applies a 60% mark up on cost. The company reported
cost of sales of R43,567,700 for the year ended, which was after the company
processed inventory write downs due to damage and loss.
g. 80% of income from the sale of goods is represented by credit sales.
h. Included in cost of sales is an amount relating to selling expenses, R3,500.
i. On 1 July 2022, the allowance for doubtful debts account had a balance of R41,000.
Trade receivables that were written off during the year ended 30 June 2023
amounted to R51,750. The accountant reliably estimated that only 95% of the total
on the debtors list on 30 June 2023 was recoverable.
j. ToyZone Ltd rents retail space from a landlord in Cape Town. The rental agreement
states that monthly rental payments of R5,600 are made in arrears on the first day
of each month. All rental payments during the year ended 30 June 2023 were
made on time. The monthly rental payments increased by 8% on 1 April 2023. The
bookkeeper records all rental payments as rent expense. No adjustments have
been made at 30 June 2023.
k. Net operating costs for the year ended 30 June 2023 amounted to R9,654,000 and
included the following:
Bad debts expense ?
Depreciation expense 763,450
Profit on sale of non-current asset 35,700
Salaries and wages expense 2,160,000
Water and electricity expense 940,000
Rent expense ?
Interest expense 542,100
l. Inventory closing balance at 30 June 2022 amounted to R1,256,000 and at 30
June 2023 amounted to R1,195,000.
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You are required to:
1. Refer to additional (b) and (c)
Prepare all the general journal entries that would have been processed by ToyZone
Ltd to record the share issue for the year ended 30 June 2023. Dates are required.
(11 marks)
2. Refer to additional information (j)
Prepare the rent expense account as it would appear in the general ledger of
ToyZone Ltd for the year ended 30 June 2023 (5 marks)
3. Refer to additional information (a)
Prepare the general journal entries that should have been processed in the
accounting records of ToyZone Ltd for the year ended 30 June 2023. (7 marks)
4. Refer to all the relevant information
Prepare the Statement of Changes in Equity for the year ended 30 June 2023. The
total column is not required. (9 marks)
5. Prepare the Operating activities section in the Statement of Cash Flows of ToyZone
Ltd for the year ended 30 June 2023, using the direct method. Show all workings
clearly. (22 marks)
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Question 2 (29 marks: 52.2 minutes)
Assume a VAT rate of 15%
Assume all amounts are inclusive of VAT, unless stated otherwise
CrazyShop Ltd purchases and sells widgets to the general public through outlets in
Cape Town and Johannesburg. CrazyShop Ltd.’s head office and factory are situated in
Cape Town. Due to the nature of the company's operations, CrazyShop Ltd has a large
investment in specialised machinery and a fleet of vehicles which are used to deliver the
widgets both to the company's outlets and directly to their clients. CrazyShop Ltd has a
31 July year end.
You have recently been appointed as the financial manager of CrazyShop Ltd and you
have been tasked to record the transactions related to the Property, Plant and
Equipment and other related issues in preparation for the 2023 financial year end audit.
The extract of the fixed asset register provides the information related to the different
classes of Property, Plant and Equipment as at 1 August 2022.
Cost Residual Value
Date
Items (excl. VAT) (excl. VAT)
acquired
R R
Delivery vehicle A 160,000 30,000 01-Sep-19
Sewing Machine 600,000 150,000 01-Sep-19
Badging Machine 750,000 75,000 01-Nov-19
Cutting Machine 950,000 100,000 01-Mar-20
Additional Information:
a. On 30 November 2022, CrazyShop Lid decided to upgrade delivery vehicle A for
a newer model. The purchase price of delivery vehicle B was R230,000. The
dealership where delivery vehicle A was originally purchased, structured a deal
to exchange delivery vehicle A for delivery vehicle B, with the balance settled in 6
equal instalments. The dealership agreed to trade delivery vehicle A for R70,000
(Excl. VAT). The residual value and useful life for delivery vehicle B is the same
as that for delivery vehicle A. The delivery vehicle B was available for use on 30
November 2022.
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b. On 1 September 2022, CrazyShop Ltd decided to acquire a forklift (equipment)
for R138,000 to help move the inventory around the store. A deposit of 20% was
paid on 1 September 2022 and the remainder was paid on 31 December 2022.
Installation costs and staff training costs amounting to R5,750 and R2,875
respectively was paid on 1 September 2022 as well. No residual value is
applicable for the forklift.
c. On 31 July 2022, one of the employees accidently damaged the cutting machine
by dropping a metal button into the cutting machine. The damage was not
significant but, reduced the speed of the cutting process. An assessment of the
recoverable amount at that date was performed by management. The fair value
less cost of disposal was R450,000 (excl. VAT) and the value in use R500,000
(excl. VAT). The accumulated depreciation of the cutting machine on 31 July
2022 was R205,417. At 31 July 2023, the initial indicators of impairment
reversed. The fair value less cost of disposal was R460,000 (excl. VAT) and the
value in use R475,000 (excl. VAT)
Accounting Policies:
The Cost Model is used for all items of Property, plant and equipment
Delivery vehicles are depreciated using the straight-line basis and has a useful
life of 5 years.
Equipment are depreciated using the straight line basis and has a useful life of 8
years.
Machinery items are depreciated using the straight line basis and has a useful
life of 10 years.
You are required to:
1. Refer to additional information (a).
For delivery vehicle A, prepare the asset disposal, accumulated depreciation and
delivery vehicle B cost account in the general ledger of CrazyShop Ltd for the
year ended 31 July 2023. (14 marks)
2. Refer to additional information (b).
Calculate the cost of the forklift acquired on 1 September 2022 and provide a
reason why the cost is included or excluded as part of the cost of the asset.
(2 marks)
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3. Refer to additional information (c).
Prepare the general journal entries that should be recorded in the accounting
records of CrazyShop Ltd to take into account the impairment loss/reversal of
impairment at 31 July 2022 and at 31 July 2023. (13 marks)
Question 3 (11 marks: 20 minutes)
IGNORE VAT
Izimbali Ltd is an amusement park in the Paarl area. The company has a 31 October
year end. Mr Mbali, the owner of the amusement park, has asked you for assistance.
You have been given the following information about the amusement park:
In order to enter the amusement park, each person has to pay an entrance fee of
R195. During the 2023 financial year, a total of 6,245 paying visitors passed through
the entrance gates of the amusement park. All entrance fees were paid in cash on
entering the amusement park, except for the following group bookings:
a On 10 December 2022, Mrs Dlamini booked a section of the amusement park for
. friends and family for the 15 December 2022. The booking amounted to R50,000
and everyone attended that day.
b On 20 September 2023, a consulting firm paid entrance fees for 290 of its
. employees, which may be redeemed by the employees at any time. 40% of the
employees visited the amusement park on 30 September 2023 and the rest
visited the amusement park on 3 November 2023.
You are required to:
1. Refer to information (b)
Discuss, in terms of the conceptual framework, the credit entry in the journal that
should have been processed on 20 September 2023. (6 marks)
2. Refer to information (a) and (b)
Prepare the general journal entries that should have been recorded in the
accounting records for the year ended 31 October 2023. (5 marks)
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Question 4 (5 marks: 9 minutes)
Ignore VAT
Assume a fair interest rate of 13%
Net&Care Ltd (Net&Care) is a company which operates in the medical field. Net&Care
Ltd has a financial year end of 30 June. Net&Care Ltd purchased a machine from
Medinc Ltd (Medinc). The machine was purchased on the 1 July 2022 but was available
for use on the 1 August 2022. The agreement between Net&Care Ltd and Medinc
stated that the machine will be delivered on 1 July 2022, but payment will be made on
30 June 2023. This agreement was created especially for Net&Care Ltd and is beyond
normal credit terms. On the 30 June 2023, Net&Care Ltd is obligated to pay R565,000
to Medinc. The machine has a useful life of 10 years and a residual value of R50,000.
You are required to:
Prepare the general journal entries that should be processed in the accounting records
of Net&Care Ltd for the years ended 30 June 2023. Dates are required. (5 marks)
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