Exam FAC2602-2014-10-E-1.pdf

Exam FAC2602-2014-10-E-1.pdf - UNIVERSITY EXAMINATIONS FAC...

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Unformatted text preview: UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS FAC 2502 Octoben'November 2014 SELECTED ACCOUNTING STANDARDS AND SIMPLE GROUP STRUCTURES Durahon 2 Hours 100 Marks EXAMINATION PANEL AS APPOINTED BY THE DEPARTMENT Use of a non-programmable pocket calculator Is permissmle Closed book examination This examination question paper remains the property of the University of South Africa and may not be removed from the examrnatlon venue This paper consists of EIGHT (8) pages. PLEASE NOTE: 1 TI‘IIS paper conSIsts of THREE (3) questions 2 All questrons must be answered 3 Basrc worklngs, where applicable. must be shown 4. Ensure that you are handed the correct examination answer book (blue colour for Accountmg) by the Inwgdator 5 Each question attempted must be commenced on a new (separate) page 6 PROPOSED TIMETABLE Question Time in minutes Su_bj_ect fmancral statements Marks _Grou- fmancral statements - ournais Statement of cash flows -1: QUESTION 1 (45 marks) (54 minutes) FAC2602 OCTfN CV 2014 Carson Ltd and Bates Ltd are part of a group of companies Both companies manufacture household equment The tollowmg represent extracts from the fmancra] statements of Carson Ltd and Its subsrdtary Bates Ltd STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 2014 Assets Property at fatr value Machmeryat carrymg amount Plant at carrying amount investment In Bates Ltd at tatr value - 240 000 ordtnary shares (cost price R1 300 000) - 25 000 10% cumulatlve preference shares (cost prtce R40 000) Inventory Trade and other receivables Bank — Ctty Bank Equrty and liabilities Share capital - Ordrnary shares (200 000/300 000 shares) - 10% Cumulative preference shares {100 000 shares) Revaluation surplus Retamed earnmgs Trade and other payables Bank overdraft — Ctty Bank Carson Ltd Fl 2 000 000 500 000 1 200 000 1 300 000 40 000 300 000 484 000 200 000 W 400 000 800 000 3 340 000 1 484 000 6 024 000 Bates Ltd Fl 1 500 000 300 000 800 000 500 000 1 340 000 4 440 000 500 000 100 000 450 000 2 800 000 570 000 20 000 4 4497000 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2014 Balance at 1 November 2013 Changes in equity for 2014 Total comprehenswe Income for the year Profit for the year Dawdend paid. Ordmary Preference Balance at 31 October 2014 Retained earnings Carson Ltd Ft 2 048 000 1 372 000 (so 000) 3 340 000 Retained earnings Bates Ltd Fl 1 545 000 1 365 000 (50 000) 160 000! 2 800 000 [TURN OVER] 3 FAC2602 OCT/NOV 2014 QUESTION 1 (continued) Additional information 1 Acgursrtlon and general Information Carson Ltd acqurred Its Interest m Bates Ltd on 1 November 2010. On this date the retained earnlngs of Bates Ltd amounted to R850 000. On the same day a property of Bates Ltd, which had a carrying amount of B300 000, was valued at R550 000 ThlS revaluation was recorded In the Manual records of Bates Ltd It Is the policy of the group to revalue property every two years The only other revaluation occurred on 31 October 2012 Thereafter the value remained unchanged untal 31 October2014. Since 1 November 2010. Bates Ltd has not purchased or sold any property At date of acqursmon, consuder the carrymg amounts of all the other assets and llabIIItIes ot Bates Ltd to be equal to the fair values thereof No drvrdend was declared or paid by Bates Ltd during the period 1 November 2008 to 31 October 2013 Assume each ordmary share carnes one vote and that voting rights alone determine control Furthermore, It IS also group policy to disclose goodwrll at cost less Impairment In the consolidated fmancual statements Goodwrll was not Impaired during the current year The parent guarantees the overdraft of the subsrdlary's bank account lntragroug transactions Since 1 November 2010, Carson Ltd purchases all Its Inventories from Bates Ltd at the regular selling pnce determined by Bates Ltd, Wthh IS cost plus 25%. Carson Ltd’s Inventory at 31 October 2013 amounted to R250 000 Carson Ltd sold a machlne to Bates Ltd on 1 May 2012 for R295 000 The machine cost Carson Ltd R400 000 when It was bought on 1 May 2010 The group prowdes for deprecratlon at 20% per annum according to the straight-llne method Carson Ltd dlscounted F110 000 of the R15 000 bllls recewable from Bates Ltd at the bank before the explry date of 31 December 2016 The remaining bills are Included In trade and other receivables and trade and other payables respectlvely. Carson Ltd had surplus space available In therr office burldmg and decrded to lease the extra office space at R10 000 per month to Bates Ltd. payable In advance, With effect from 1 January 2013. Bates Ltd also agreed to pay a deposrt equal to two months’ Instalments The deposrt has been recorded as trade and other receivables and trade and other payables respectively rrur-m oven] 4 FA02602 OCT/N CV 2014 QUESTION 1 (continued) REQUIRED: Draft the followmg consolidated statements of the Carson Ltd Group as at 31 October 2014 a) The statement of changes In equnty - only the retamed earnings column, b) The statement of tmanCIal posmon Your answer must comply With the requwements of [ntematlonal Fmancnal Reportmg Standards (IFRS) Note: - Notes to the consolidated statements are not requured - Ignore the taxation eftect on unreallsed protlts and/or losses, as well as capital gains tax - Round off all amounts to the nearest Rand [TURN OVER] 5 FAC2602 OCT/NOV 2014 QUESTION 2 (26 marks) (31 minutes) McLaren Ltd and Williams Ltd have had a good busrness relationship for a number of years, buying motor vehicles and spare parts to and from one another. The foliowmg Information regarding McLaren Ltd and Williams Ltd have been prowded to you STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JANUARY 2014 McLaren Williams Ltd Ltd H Ft Revenue 1 206 000 1 040 000 Cost of sales 7&0 0% , (564 0001 Gross profit 466 000 476 000 Administrative expenses (65 000) (48 000) DepreCIation (130 0001 £120 0001 Profit before tax 271 000 308 000 Income tax expense (75 680) {86 240) PROFIT FOR THE YEAR 195 120 221 760 Other comprehenswe income for the year - -_fi_ TOTAL COMPREHENSIVE INCOME FOR THE YEAR 195 120 221 760 Additional information 1. Due to the abovementioned mutual benefICIal relationship, the board members of McLaren Ltd deCIded to buy ordinary shares and 12% cumulative preference shares m Williams Ltd on 1 September 2013 McLaren Ltd bought the followmg investment in Williams Ltd at cost which was also the fair value at date of purchase' Fl 42 400 Ordinary shares 930 000 10 000 12% Cumulative preference shares 28 000 On 1 September 2013 Williams Ltd's owners‘ eqUIty conSISted of 53 000 Ordinary shares 53 000 25 000 12% Cumulative preference shares 25 000 Retained earnings — 1 February 2013 718 635 it is the group’s policy to show goodwnl at cost in the fmancral statements Assume that the carrying amounts of all other assets and liabilities were equal to the fair values thereof Assume each ordinary share carries one vote and that voting rights alone determme control 2 On 1 February 2013 the preference diVidends for the preVIous year were in arrears All arrear preference dwidends were paid on 31 January 2014 [TURN oven] 6 FAC2602 OCT/NOV 2014 QUESTION 2 (continued) 3 McLaren Ltd purchased a vehicle from Williams Ltd on 1 March 2013 at cost pnce plus 20% 1t re a truck that McLaren Ltd uses to transport other vehrcles The cost of the truck In Wllllams Ltd’s financ1al records was R350 000 On 30 September 2013 McLaren Ltd bought another truck from Williams Ltd at cost prrce plus 10% The cost of the truck was F1230 000 Both vehrcles were classmed as plant and equrpment in Williams Ltd's tinanCIal records 4. Both companies deprecrate vehicles at 15% per annum according to the straight—[me method 5 Wriliams Ltd purchases all Its Inventones from McLaren Ltd at cost pnce ptus 25% The accountant calculated that R105 000 of the inventory on hand at year end was purchased from McLaren Ltd Since 1 September 2013 6 All Income and expenses of McLaren Ltd and erlrams Ltd were earned evenly throughout the year, except where othenNise Indicated 7 Assume a taxation rate of 28% and that all Income 18 taxabte and all expenses are tax deductible Income tax must be apportioned accordrng to the profit before tax tor the period Ignore any other tax Implications HEQUiFtED: Draft the followrng pro-torma consolrdatIOn journal entries of the McLaren Ltd Group for the period ended 31 January 2014, after taking the above-mentioned rnformatron Into account a) Elrmrnate the owners' equity at acqursrtron (171/2) b) Elrminate the current year’s deprecratron assocrated wrth the sale of the vehrcte (4) on 30 September 2013 c) Eliminate the Intragroup preference dwtdends and record the non-controlling interests 1n the preference dlvrdends (41/2) Indicate clearly to which company each account refers to Journal narrations are not requared. ' Show all calculations and round off all amounts to the nearest Rand - Ignore the taxation effect on unrealrsed profits and/or losses as well as capital garns tax [TURN oven} FAC2602 OCT/NOV 2014 QUESTION 3 (29 marks) (35 minutes) The lollowmg balances were extracted from the accounting records of Fragile Ltd for the finanCIal year ended 31 August 2014 201 4 2013 R R Credits Share capital (300 000/250 000 ordinary shares) 800 000 500 000 Revaluation surplus 145 000 105 000 Retained earnings — beginning of year 777 938 518 720 Deferred tax 20 300 14 700 Trade and other payables 455 000 588 000 Dwndends payable 60 000 50 000 Short-term borrowmgs 140 000 40 000 Revenue 2 985 000 2 182 000 Drwdends received 10 000 10 000 Other Income 148 000 31 000 Interest Income — 11 000 Tax payable 224 479 116 362 Accumulated deprecratlon — plant and machinery 148 000 118 000 Long-term borrowrngs 320 000 250 000 6 033 717 4 534 782 Debits Land and buildings at valuation 940 000 800 000 Plant and machinery at cost 550 000 400 000 Inventory 264 600 160 000 Trade and other receivables 680 000 500 000 Investments 750 000 550 000 Bank 192 007 150 000 Cost of sales 1 840 000 1 420 000 Other expenses 480 000 379 500 Income tax expense - normal 224 190 116 362 - deferred 5 600 ~ DIVIdends declared 85 000 40 000 Interest paid 22 320 718 Q 6 033 717 4 534 782 Additional information 1 The company sold a Significant portion of Its Investments In the current year 1n order to Improve liS cash posmon. The total proceeds amounted to 8300 000 Other Income consrsts of profit on sale of Investments amounting to R48 000 and a farr value adjustment on the company’s Investments to the value of R100 000. Included in other expenses IS a loss on sale of plant and machinery of R6 000 and a deprecratlon expense for plant and machinery amounting to R38 000 These are the only non-cash flow Items Included In other expenses [TURN OVER] B FA02602 OCT/NOV 2014 QUESTJON 3 (continued) 3 The company declared and paid an Intenm drvrdend of 10 cents per share on 28 February 2014 The company Issued additional shares on 1 August 2014 THIS was followed by the declaratlon of a tmal dlvrdend of 20 cents per share 4 The Increase In long—term borrowmgs was utilised In full to purchase addrtlonal plant and machlnery to Increase the company’s production capacrty 5 It IS the company’s poltcy to revalue Its land and bUIIdIngs every three years Any addltlonal Investment In land and bulldlngs was to expand production capacrty REQUIRED: Draft the statement of cash flows of Fraglle Ltd. according to the direct method, for the year ended 31 August 2014, after adjusting for all entries mentioned above Your answer must comply WIth the requrrements of Internattonal Fmancral Reportmg Standards (lFFIS) Note: - Round oft all amounts to the nearest Rand - Show all calculations - No comparative figures are requrred The notes to the statement of cash flows are not requrred UNISA 2014 ...
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