JUNE 2020 MAIN EXAMINATION

TAKE HOME ASSESSMENT QUESTION & ANSWER BOOKLET

PROGRAMME BACHELOR OF COMMERCE

MODULE ACCOUNTING 3

STUDENT NUMBER

IDENTITY NUMBER

SURNAME

FIRST NAME

EMAIL

CELL

INSTRUCTIONS TO CANDIDATES:
1. This is an official assessment of REGENT Business School and only bona-fide students are entitled to write the
assessment for the modules they are registered for.
2. Students are required to type in the answers in the question & answer booklet below each question.
3. No hand written submissions will be processed.
4. The completed assessment must be submitted within the stipulated timeframe.
5. Students are reminded to submit their work as their own – no group work is permitted.
6. Students are reminded to convert their completed assessment to PDF before uploading onto the student portal.
7. Candidates are required to answer ALL questions.
8. This is an open book examination.

DATE: 18 June 2020 TIME: 08h00 – 13h00

DURATION: 5 hours MARKS: 100

EXAMINER: F Joossub MODERATOR: T Bassa

FOR OFFICIAL USE ONLY

QUESTIONS 1 2 3 4 5 6 7 8 9 10
EXAMINER
MODERATOR
QA

This question paper consists of three (3) typed pages excluding the cover page
QUESTION ONE [18]
Isdaka Ltd is a manufacturer and distributor of mining equipment. One of the company’s competitors
instituted legal action against Isdaka Ltd. Before year-end (30 June 2019), the company’s legal
representatives advised that, although losing the case was unlikely, legal fees and settlement costs
could amount to R900 000 in the event that the court case was lost.

On 12 March 2020, the judge presiding over the case ruled that Isdaka Limited should pay R1 000
000 to the plaintiff as well as pay all of the plaintiff’s legal fees, which amounted to R180 000. The
financial statements had not yet been authorised for issue at the time of the court ruling.

Required:
Discuss how this information should be treated in the financial statements of Isdaka Ltd.
Include all relevant definitions

QUESTION TWO [35]

Catering4U Limited had a profit before tax of R500 000 in 2018 and R450 000 in 2019 after taking
into account dividend income of R15 000 in 2018 and R8 000 in 2019. The entity declared dividends
of R5 000 in 2018 and R7 000 in 2019. There were no unutilised credits brought forward from 2017.
No amount was owing to or by the SARS (South African Revenue Services) on the 1 January 2018.
No payments were made to or received by SARS in either 2018 or 2019. The rate of secondary tax
on net dividends declared is 12.5%. The normal tax rate is 30%. The entity recognises deferred tax
assets. There are no other temporary or permanent differences in either year. There are no
components of other comprehensive income.

Required:
2.1. Calculate the current secondary tax and deferred tax adjustments (if any) for the 2018 and
2019 financial years. (7)
2.2. Calculate the current normal and deferred tax adjustments (if any) for the 2018 and 2019
financial years (8)
2.3. Prepare the journal entries for the tax related journals for the 2018 and 2019 financial
years. (5)
2.4. Prepare the taxation expense disclosure from the notes to the financial statements for the
2019 financial year with 2018 as the comparative. (15)

QUESTION THREE [20]

On the 1 January 2018, Easy Stone Limited, acquired the popular brand, Just Brick It
for an amount of R3 500 000 which was paid in full on this date. Legal fees of R150 000
was spent in acquiring this brand. The legal fees were paid on the 31st of March 2018.

1
Staff training on the brand and its operations amounted to R100 000. Training took place in March
and April 2018 to allow for trading from the 1st of June 2018. Sales of this brand commenced from
the 1 June 2018.

Required:
3.1. Discuss with reason whether Just Brick It can be recognized as an Intangible asset with
reference to IAS 38. (12)
3.2. Explain the correct accounting treatment for Just Brick It in the financial statements of
Easy Stone (Pty) Ltd. (8)

QUESTION FOUR [15]

ColdIce Limited presented their financial statements for the year ended 28 February 2018 to the
board of directors on 31 May 2018 for approval.

The following events have taken place after the reporting period:
• The accountant of Cold Ice Limited received notification on 01 April 2018 that DryIce
limited, a customer of the company, was in liquidation and that ColdIce Limited will be
paid 40% of the outstanding debt. It was further determined that ColdIce Limited was
aware that DryIce Limited was experiencing financial difficulties at year end. The
amount owed by DryIce Limited was R 60 000 which was included in Trade
Receivables at reporting date.

• During March 2018, a water pipe burst causing damage to the warehouse and to
stock, amounting to R 350 000 and R 140 000 respectively. The damage was not
covered by the insurance policy.

• A customer sued ColdIce Limited on 15 March 2018 for selling substandard products
to them during 2017. ColdIce Limited appointed attorneys to defend the action. Initial
legal costs amounted to R 25 000. The attorneys advised ColdIce Limited that it was
too early to determine the costs of the case or the outcome.

Required:
4.1. For each of the above-mentioned cases, state whether it is an adjusting event or a
non-adjusting event after the reporting period. Provide reasons to substantiate your
answer (9)

2
4.2. Explain the disclosure that is required in each case. (6)

QUESTION FIVE [12]

PULSE Limited is a JSE listed company, involved in the construction business.

The following information relates to PULSE Limited for the financial year ended 31 December 2018:

On 01 March 2018, PULSE Limited was awarded a government contract to construct a bridge in the
Elandeni area. The completion date of the project is 31 October 2018.

Since the bridge is to be built over a river, the contract stipulates that the river and the area
around the river must be restored to its original condition at the completion of the contract.

Construction of the bridge commenced on 30 June 2018. PULSE Limited has a policy to
restore the environment at each site where they have completed a project. This policy builds
their image and promotes public relations.
On 01 March 2018, the present value of the environmental restoration is estimated at
R1 500 000.

At year end, PULSE Limited owes its employees an estimated amount of R455 000 in
respect of past services. This will be paid out as long service leave. The payment date has
not been finalised.

Required:
5.1. Provide journal entries for the above information for the year ended 31 December 2018 (4)
5.2. Provide for reasons for the accounting treatment of the above information (8)

END OF QUESTION PAPER