FAC3764 2024 Study Pack 3

FAC3764/2024/Study pack 3
Department of Financial Accounting
IMPORTANT INFORMATION
This study pack contains integrated questions which will aid you in your preparation for assessment 4.
These questions integrate learning units 1 to 8.
Please note that this study pack does NOT contain all the content and principles included in learning
unit 1 – 8. This study pack should NOT be seen as a scope for assessment 4.
It is important to note that all knowledge obtained from the successful completion of first and second
year FAC modules are still applicable, and CAN be assessed within this module. Therefore, it is
important to note that any topic/concept/principle taught within FAC modules in prior academic years
can be assessed within any of the FAC3764 assessments.
CONTENTS
Page
1 INTRODUCTION .......................................................................................................................... 3
2 LECTURERS AND CONTACT DETAILS ..................................................................................... 3
3 INTEGRATED QUESTIONS AND SOLUTIONS .......................................................................... 5
2
Dear Student
1 INTRODUCTION
Within this study pack we include integrated questions and suggested solutions. These integrated
questions will help you to prepare for assessment 4.
Study pack 3 contains questions which integrate learning units 1 to 8, which include the following topics:
- The conceptual framework for financial reporting;

- Income taxes (IAS 12);
- Revenue from contracts with customers (IFRS 15);
- Leases (IFRS 16);
- Fair value measurement (IFRS 13),
- Property, plant and equipment (IAS 16);
- Investment property (IAS 40);
- Intangible assets (IAS 38);
- Impairment of assets (IAS 36);
- Non-current assets held for sale and discontinued operations (IFRS 5);
- Accounting policies, changes in estimates and errors (IAS 8);
- The effects of changes in foreign exchange rates (IAS 21);
- Financial instruments (IFRS 9, IAS 32, IFRS 7);
- Employee benefits (IAS 19);
- Group financial statements (IFRS 3, IFRS 10, IAS 27)
Please note that this study pack does NOT contain all the content and principles included in learning
unit 1 – 8. This study pack should NOT be seen as a scope for assessment 4.
It is important to note that all knowledge obtained from the successful completion of first and second
year FAC modules are still applicable, and CAN be assessed within this module. Therefore, it is
important to note that any topic/concept/principle taught within FAC modules in prior academic years
can be assessed within any of the FAC3764 assessments.
You will notice some calculations are in brackets opposite certain items in our suggested solutions
dealing with company financial statements. These calculations are given for tuition purposes only and
consequently do not form part of the statutory disclosure requirements.
You will notice that some sentences within the suggested solution to discussion questions are written in
Italics. These items written in Italics are provided as part of the suggested solution to provide context to
the solution or for tuition / explanatory purposes but are not awarded any marks.
2 LECTURERS AND CONTACT DETAILS
Please use only the following e-mail address for all communication with your lecturers:
FAC3764@unisa.ac.za
3
3 Please use only the following telephone numbers for communication with your lecturers:
Lecturers Telephone number

Edwin Mashaba 012 429 3943
Itani Phaduli 012 429 3232
Dumazile Selela 012 429 4844
Mothebudi Seabi 012 429 4677
4
4 INTEGRATED QUESTIONS AND SOLUTIONS
QUESTION 1 (28 marks) (50 minutes)
You are the senior accountant of Room N Roof Ltd, a property rental company based in Gauteng, South
Africa. The company has a 31 December year end.
Sandton property
Room N Roof Ltd owns an office park in Sandton that was originally purchased on 31 March 20x17 for
R2 500 000 (Land: R750 000; Building: R1 750 000). A portion of 90% of the floor space of the property
is currently being rented out to different companies whilst the remainder of the floor space of the property
is used by Room N Roof Ltd as its company head office. The 10% portion of the floor space of the
property occupied by Room N Roof Ltd can be considered insignificant and cannot be sold separately.
On acquisition date an estimated useful life of 25 years and a residual value of R750 000 was allocated
to the building. The building was available for use, as intended by management, as well as brought into
use on 1 May 20x17.
The carrying amount and tax base of the building, which you can assume to be correct, for the years
ended 31 December 20x17 and 31 December 20x18 are as follows:
Carrying
amount Tax base
R R
Cost ............................................................................................... 1 750 000 1 750 000
Depreciation / Wear and tear ......................................................... (26 667) (87 500)
Carrying amount / Tax base 31 December 20x17 .......................... 1 723 333 1 662 500
Depreciation / Wear and tear ......................................................... (40 000) (87 500)
Carrying amount / Tax base 31 December 20x18 .......................... 1 683 333 1 575 000
Despite the economic downturn, Sandton based properties are in high demand and property prices in
the area have escalated over the years. Management of Room N Roof Ltd took cognisance of this fact
and decided that the fair value model presents a more relevant and reliable indication of the Sandton
property’s value. Therefore, management changed the accounting policy for the valuation of the Sandton
property from the cost model to the fair value model.
An independent sworn appraiser determined the fair value of the land and building for the respective
periods as follows:
Land Building
R R
31 December 20x17....................................................................... 800 000 2 000 000
31 December 20x18....................................................................... 895 000 2 250 000
31 December 20x19....................................................................... 1 050 000 2 400 000
The chief financial officer advised you of management’s decision to account for the Sandton property at
its fair value rather than at cost less accumulated depreciation. He requested you to determine the
accounting implications of this decision and inform him of your findings.
5
QUESTION 1 (continued)
Additional information
1. After the above-mentioned change in accounting policy, investment property is accounted for using
the fair value model. The carrying amount of the investment property will be recovered through sale.
2. Depreciation on buildings, accounted for under the cost model, is written off in accordance with the
straight-line method over the estimated useful lives of the buildings.
3. The South-African normal tax rate is 27%. The capital gains tax inclusion rate is 80%.
4. The SA Revenue Service allows a 5% annual building allowance on all the buildings, according to
section 13quin of the Income Tax Act, on the straight-line method, not apportioned for part of the
year.
5. The SA Revenue Service indicated that they will accept the new valuation model for the Sandton
property for tax purposes and that they will reopen the previous year’s tax assessments.
Assumptions
 Land and buildings are regarded as separate classes of assets.
 Ignore the implications of Value-Added Tax (VAT).
 All amounts are material.
REQUIRED:
Marks
a) Write a report to the chief financial officer of Room N Roof Ltd and discuss: 24½
 the accounting treatment; and

 the disclosure requirements
of management’s decision to account for the Sandton property at its fair value rather than at
cost less accumulated depreciation in the annual financial statements of Room N Roof Ltd for
the year ended 31 December 20x19.
 Discuss only the effect of this change in the valuation of investment property on the
relevant line items in the statement of financial position of Room N Roof Ltd for the
current year, including the effect on retained earnings at the beginning of the year.
 Show all your calculations, including the tax implications
 Your answer must comply with the requirements of IAS 1, Presentation of financial
statements, IAS 8, Accounting policies, changes in accounting estimates and errors and
IAS 40, Investment property.
b) Disclose the investment property note to the annual financial statements of Room N Roof Ltd 3½
for the year ended 31 December 20x19 according to the requirements of IAS 40, Investment
Property.
Please note:
Your answer must comply with the requirements of International Financial Reporting Standards
(IFRS).
Accounting policy notes are not required.
Comparative amounts are not required, unless specifically stated.
Show all calculations.
Round off all amounts to the nearest Rand.
[28]
6
QUESTION 1 Suggested solution
PART A
To: The Chief Financial Officer

Date: xx July 20x23
Subject: Accounting implications of management’s decision to measure the Sandton

property at its fair value rather than at cost less accumulated depreciation
Accounting treatment
This decision amounts to a voluntary change in accounting policy to account for investment property
according to fair value model instead of the cost model.
This change in accounting policy should be accounted for retrospectively and comparative figures
should be restated, according to the requirements of IAS 8, Accounting policies, changes in accounting
estimates and errors.
Disclosure Requirements
1. Notes to the annual financial statements
The following should be disclosed in the notes to the annual financial statements for a voluntary change
in accounting policy, according to the requirements of IAS 8, Accounting policies, changes in accounting
estimates and errors:
 The nature of the change in accounting policy (i.e. change from cost model to fair value model)
 Reason why the change in accounting policy provides more relevant and reliable information
(fair value is a better indication of the property value).
 The amount of the adjustment for each financial statement line item affected for the current
period and each prior period presented (i.e. the effect on the financial years ended 20x19, 20x18
and 20x17.
 The amount of the adjustment relating to periods before those presented (i.e. the cumulative
adjustment on the opening balance of retained earnings).
2. Statement of financial position
According to the requirements of IAS 1, Presentation of financial statements, a third statement of

financial position as at the beginning of the preceding period (1 January 20x18) should be presented if
there is a retrospective application of a change in accounting policy. This means an entity shall present
three statements of financial position as at:
(a) the end of the current period;
(b) the end of the preceding period; and
(c) the beginning of the preceding period. This third statement of financial position does not need to
be supported by notes.
7
QUESTION 1 Suggested solution (continued)
The effect of the change in policy on the statement of financial position line items is as follows:
20x19
R
Increase in investment property (calc 12) 1 056 667
Increase in deferred tax (calc 13) (234 000)
Increase in equity 822 667
Increase in retained earnings at beginning of the year (calc 7) 554 347
ROOM N ROOF LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20x19
1. Investment property
Land Buildings
(for calculation purposes) Total
R R R
Carrying amount at the beginning of the year 895 000 2 250 000 3 145 000
Fair value adjustment 155 000 150 000 305 000
Carrying amount at the end of the year 1 050 000 2 400 000 3 450 000
The fair value of the property was determined by an independent sworn appraiser on
31 December 20x19.
CALCULATIONS:
31 December 20x18
Exempt Taxable/ Deferred tax
difference/ (Deductible) asset /
Carrying Tax temporary (liability)
amount base difference @ 27%
R R R R
Cost model
Land 750 000 750 000 - -
Building (calc 1) 1 683 333 1 575 000 108 833 (29 250)
Carrying amount land and buildings 2 433 333 2 325 000 108 833 (29 250)
Fair Value Model

Land (given) (calc 2) 895 000 750 000 145 000 (31 320)
Building (given) (calc 3) 2 250 000 1 575 000 675 000 (155 250)
Fair value land and buildings (calc 4) 3 145 000 2 325 000 820 000 (186 570)
1. 1 683 333 – 1 575 000 = 108 333 x 27% = 29 250

2. (895 000 – 750 000) x (80% x 27%) = 31 320
3. [(2 250 000 – 1 750 000) x (80% x 27%)] + [(1 750 000 – 1 575 000) x 27% = 155 250
4. 31 320 + 155 250 = 186 570
5. 186 570 – 29 250 = 157 320 (increase in deferred tax)
6. 3 145 000 – 2 433 333 = 711 667 (increase in investment property)
7. 711 667 – 157 320 = 554 347 (increase in retained earnings)
8
QUESTION 1 Suggested solution (continued)
31 December 20x19
Exempt Taxable/ Deferred
difference/ (Deductible) tax asset /
Carrying Tax temporary (liability)
Amount base difference @ 27%
R R R R
Cost model
Land 750 000 750 000 - -
Building
Carrying amount – 31 December 20x18 1 683 333 1 575 000
Depreciation / Wear and tear (same as
20x18) (40 000) (87 500)
Carrying amount – 31 December 20x19 1 643 333 1 487 500 155 833 (42 075)
(calc 8)
Carrying amount land and buildings 2 393 333 2 237 500 155 833 (42 075)
Fair Value Model
Land (calc 9) 1 050 000 750 000 300 000 (64 800)
Building (calc 10) 2 400 000 1 487 500 912 500 (211 275)
Carrying amount land and buildings
(calc 11) 3 450 000 2 197 500 1 212 500 (276 075)
8. 1 643 333 – 1 487 500 = 155 833 x 27% = 42 075

9. (1 050 000 – 750 000) x (80% x 27%) = 64 800
10. [(2 400 000 – 1 750 000) x (80% x 27%)] + [(1 750 000 – 1 487 500) x 27%] = 211 275
11. 64 800 + 211 275 = 276 075
12. 3 450 000 – 2 393 333 = 1 056 667
13. 276 075 - 42 075 = 234 000
9

Jam Pathways Ltd (JamPath) provides a broad range of logistical solutions throughout Southern Africa.
JamPath was founded in March 20x17 by Grey Rademan and has a 31 March year end. The company
elected International Financial Reporting Standards (IFRS) as the company’s financial reporting
framework.
The main operating divisions include general distribution, retail logistics and truck rental. The truck rental
division includes commercial vehicle rentals and full maintenance leasing.
JamPath had 200 000 ordinary shares in issue as at 31 March 20x23.
Contract with Reddy Logistics (Reddy)

On 15 June 20x22, JamPath entered into a lease agreement to lease one of its Volvo FH16 trucks to
Reddy, a company that transports timber, wood chip and forestry products to various furniture
manufacturers in KwaZulu-Natal and Gauteng. The agreement contains a lease in terms of IFRS 16,
Leases. The agreement stipulates the commencement date of the lease will be the day when the Volvo
truck is delivered to Reddy’s facilities.
Reddy had proposed to pay R410 000 bi-annually for the use of the truck. However, JamPath’s legal
counsel managed to convince Reddy to agree to pay R422 437 bi-annually in advance. The lease term
ends on 30 June 20x26. Jam Path incurred initial direct costs of R7 000 to negotiate the lease and the
market-related interest rate was 12% per annum.
The details in the JamPath fixed asset register reveal the following
Cost price ........................................................................................................ R3 023 500
Purchase date .................................................................................................. 1 April 20x21
Carrying amount on 1 April 20x22 ..................................................................... R2 437 800
Residual value ................................................................................................. R95 000
The truck was both ready for use and taken into use by JamPath on acquisition date.
The lease agreement further stipulates that ownership of the truck will be transferred to Reddy on
30 June 20x26, upon payment of the R80 000 residual value guarantee. On 1 July 20x22, the fair value
of the truck was R2 453 800.
The truck was made available to Reddy and brought to use on 1 July 20x22. It is the accounting policy
of JamPath to account for delivery vehicles in accordance with the cost model. Depreciation is
accounted for in accordance with the straight-line method over the estimated useful life of the delivery
truck. The expected useful life of the delivery truck was five years on the date of purchase by JamPath.
The South African Revenue Service grants a s11(e) allowance of four years, apportioned over time, for
these delivery trucks.
Human Resource matters
JamPath’s monthly payroll for the year ended 31 March 20x23 included gross salaries amounting to
R451 500 per month after the salary increase. (Refer to the minutes attached below).
Membership to the JamPath Provident Fund, a defined contribution plan, is compulsory for all
employees. The employer contributes 8% of the employee’s gross monthly salaries towards the
provident fund and the employees contribute 6%. JamPath’s leave cycle coincides with its financial year.
There are 252 working days per leave cycle.
10
All employees of JamPath are entitled to 28 working days of annual vacation leave per leave cycle. All
employees are required to take a minimum of 15 days annual leave per leave cycle. Employees who
earned 60% of the gross salaries of the company took all their leave during the year and the remaining
employees took on average only 22 days. Any unused leave days are accumulated to the next leave
cycle, limited to five days. Unused leave days in excess of five days are forfeited. Experience has shown
that on average only four of the five unused leave days that are carried forward are indeed taken during
the next leave cycle. The leave pay accrual for the year ended 31 March 20x22 amounted to R20 125.
There were no resignations or new appointments of employees during the current financial year.
EXTRACT OF THE MINUTES OF THE FINANCE TEAM MEETING HELD ON 23 APRIL 20x23
1. Welcome and apologies:
The meeting was chaired by the Chief Financial Officer (CFO), Ms. Pam Madikizela. An apology
from the Senior Financial Manager, Ms. Rosey Sibeko was noted.
2. Team members in attendance:
 Financial Manager, Mr Tim Jordan
 Financial Accountant; and
 Other finance team members.
3. Adoption of the agenda:
The agenda was adopted without any further changes.
4. Matters arising from the previous meeting held on 26 March 20x23:
The minutes from the previous meeting was accepted without changes.
Preparation of JamPath’s financial statements for the year ended 31 March 20x23
5. In the absence of Ms Sibeko, Mr Jordan provided feedback in terms of the progress made to
date relating to the preparation of financial statements for the year ended 31 March 20x23.
6. The finance team confirmed the taxable income calculation for the year ended 31 March 20x23
to be R1 988 740. This amount is correct in all respects and has taken into account the lease
and human resource matters.
Human Resource matters

Ms Madikizela informed the team members that on 20 April 20x22, JamPath and SAPTI, a trade
union representing JamPath employees, reached an agreement that the employer, JamPath will pay
a salary increase of 5% to all employees of JamPath as from 1 July 20x22. It was further agreed that
JamPath will not backpay salary increases. Ms Madikizela mentioned that on 30 April 20x22 the
Board of Directors resolved that bonusses equal to a 13th cheque will in future be paid to all
employees at the end of June of each year.
11
Taxation
 The South-African normal tax rate is 27%. The capital gains tax inclusion rate is 80%.
 Deferred tax is provided for on all temporary differences in accordance with the statement of
financial position approach. The only temporary or exempt differences are those resulting from
the information given in the question. The company will have sufficient taxable profits and
capital gains in the future, against which any unused tax losses can be utilised.
REQUIRED
Marks
(a) Prepare all the journal entries required to account for the lease and the underlying asset 20
in the accounting records of JamPath, for the year ended 31 March 20x23.
Please note:
- Journal narrations and dates are required.
- Ignore taxation for this part of the question.
- No abbreviations for general ledger account names may be used.
(b) Disclose the following notes in the financial statements of JamPath for the year ended 25
31 March 20x23 as far as possible from the given information.
 Profit before tax
 Income tax expense note
Please note:
- Tax rate reconciliation is not required
Communication skills: presentation and layout 1

Please note:
Your answer must comply with the requirements of International Financial Reporting
Standards (IFRS).

Comparative figures are not required.
All calculations should be rounded off to the nearest rand.
All percentages calculated should be rounded to the nearest four decimals
Show all data input into your financial calculator, where applicable.
Ignore value-added tax (VAT).
[46]
12
QUESTION 2: Suggested solution
PART (a)
Journal entries in JamPath Ltd records
Date DR CR
R R
1 July 20x22 Depreciation (P/L) 146 425
((3 023 500) – 95 000) / 5 x 3/12)
Accumulated depreciation – Vehicles 146 425
(SFP)
Accounting for the depreciation on vehicle
before being leased out.
1 July 20x22 Gross investment in lease (SFP) 3 474 496
[(422 437 x 8) + 80 000 (GRV) + 15 000
(UGRV)]
Accumulated depreciation (SFP) 732 125
(3 023 500 – 2 437 800 + 146 425
OR 3 023 500 - 95 000 / 60 x 15)
Unearned finance income (SFP) 1 013 696
3 474 496 - 2 460 800
Vehicles (SFP) 3 023 500
Profit on sale of delivery vehicle (P/L) 162 425
(2 453 800 – (2 437 800 – 146 425)
Bank (SFP) 7 000
Initial recognition of finance lease of delivery
vehicles
OR
Net investment in lease (SFP) 2 460 800
(R2 453 800 + 7 000) = 2 460 800)
Accumulated depreciation (SFP) 732 125
(3 023 500 – 2 437 800 + 146 425)
Vehicles (SFP) 3 023 500
Profit on sale of delivery vehicle (P/L) 162 425
(2 453 800 – (2 437 800 – 146 425)
Bank (SFP) 7 000
Bank (SFP) 422 437

Gross investment in lease (SFP) 422 437
Recognition of the first lease payment received
1 January 20x23 Unearned finance income (SFP) 222 246
(2 460 800 - 422 437 x 10,9031% [C1.1]
Finance income (P/L) 222 246
Recognition of finance income earned during
the six months ending 31 December 20x22
(1 July 20x22 to 31 December 20x22)
Bank (SFP) 422 437
Gross investment in lease (SFP) 422 437
Recognition of the second lease payment
received
13
QUESTION 2: Suggested solution (continued)
31 March 20x23 Unearned finance income (SFP) 100 209

[((2 460 800 - 422 437) – 422 437 + 222 246) x
10,9031% x 3/6]
Finance income (P/L) 100 209
Recognition of finance income earned during
the three months ending 31 March 20x23
(1 Jan 20x23 to 31 March 20x23)
PART (b)
JAMPATH LTD
NOTES FOR THE YEAR ENDED 31 MARCH 20x23
Profit before tax
Profit before tax is disclosed after the following items have been taken into account:
Other income R
Profit on sale of delivery vehicle 162 425
Finance income - finance lease 322 455
(222 246 + 100 209)
Expenses:
Depreciation 146 425
Employee benefit expense
Short-term employee benefits [C2] 6 139 152
Post-employment benefits or Defined-contribution plan expense [C3] 428 280
Income tax expense

R
Current tax
1 988 740 x 27% 536 960
Deferred tax [C4] (27 590)
 Current year movement in temporary differences (27 590)
Income tax expense per statement of comprehensive income. 509 370
Calculations
[C1]: Calculations relating to the lease
C1.1 Interest rate implicit in the lease
BGN: Payments received in advance

N: 8 (4 x 2); FV: 95 000; PV: - 2 460 800 (2 453 800 + 7 000); PMT: 422 437
Compute I: 10,9031
14
C1.2 Unearned finance income
Gross investment in the lease R

Gross investment in lease (SFP) 3 474 496
[(422 437 x 8(2 x 4) + 80 000(GRV) + 15 000 (UGRV) (95 000 – 80 000)]
Net investment in the lease (present value in C.1.1) (2 460 800)
1 013 696
OR
BGN: Payments received in advance
N: 8 (4 x 2); FV: 95 000; PMT: 422 437; I: 10,9031
COMPUTE PV: - 2 460 800
Unearned finance income (balancing figure) 1 013 696
C.1.3 Amortisation table
Date Interest
Instalments @10,9031% Capital Closing balance
R R R R
2 460 800
1 July 20x22 422 437 - 422 437 2 038 363
1 January 20x23 422 437 222 246 200 191 1 836 187
30 June 20x23 422 437 200 418 222 019 1 612 165
1 January 20x24 422 437 176 211 246 226 1 363 935
30 June 20x25 422 437 149 365 273 072 1088 881
1 January 20x25 422 437 119 592 302 845 784 107
30 July 20x25 422 437 86 572 335 865 446 399
1 January 20x26 422 437 49 952 372 485 72 199
30 June 20x26 - 9 340 95 000
[C2]: Short-term employee benefits
R
Short-term employee benefits 6 139 152
Gross salaries 5 353 500
A: Before increase: R451 500 x 100/105 = 430 000
430 000 x 3) = 1 290 000
B: After increase 451 500 x 9 = 4 063 500
A+B= 5 353 500
Annual bonus 430 000
Movement in leave pay accrual: 17 027
Prior year leave accrual (20 125)
Leave accrual to be taken in 20x23 leave cycle 37 152
(451 500 x 12 x 40% x 1,08 x 4/252)
Bonus accrual (451 500 x 9/12) 338 625
15
[C3]: Post-employment benefits
5 353 500 x 8% = R428 280
[C4]: CALCULATION OF THE DEFERRED TAX MOVEMENT

Deferred
Carrying Temporary tax
amount Tax base differences @ 27%
31 March 20x23 R R R R
Vehicle (a) - 1 511 750 (1 511 750)
Net investment in finance lease debtor 1 935 394 - 1 935 394
(b)
Bonus accrual (338 625) - (338 625)
Leave pay accrual (37 152) - (37 152)
47 867 12 924
DTL
31 March 20x22
Vehicle (c) 2 437 800 2 267 625 170 175
Leave pay accrual (20 125) - (20 125)
150 050 40 514 DTL
Deferred tax movement Dr Deferred tax expense (SFP),Cr Deferred tax (P/L) 27 590
Direction in tax note 27 590
a – (3 023 500 x 2/4) = 1 511 750

b – 1 836 187 + 99 207 = 1 935 394
c – (3 023 500 x 3/4) = 2 267 625
16
Flattering Soaps Ltd is a soap manufacturing company based in Cape Town, South Africa. The company
has a 30 June financial year end.
The following revenue transactions have taken place during the financial year ended 30 June 20x20:
Transaction 1: Sale to US company
On 1 January 20x20, Flattering Soaps Ltd entered into a contract for the sale of 10 boxes of soap to a
US based company. Due to the fact that Flattering Soaps Ltd anticipated that the Rand would deteriorate
in the foreseeable future, the transaction was dominated in US dollars ($). The total selling price of the
soaps sold amounted to $1 000 and the customer settled the amount on 10 February 20x20. The soaps
were shipped free on board on 31 January 20x20.
The following foreign exchange rates are applicable:

Spot rate
Date $1 = R
1 January 20x20 ................................................................. ...................... 14,50
31 January 20x20 ............................................................... ...................... 14,55
10 February 20x20 .............................................................. ...................... 14,20
The cost to manufacture the soaps amounted to R9 500.
The above transaction has not been recorded yet in the accounting records of Flattering Soaps Ltd.
Transaction 2: Cash sales
Flattering Soaps Ltd mainly sells soaps for cash to customers. The total sales for the year ended 30
June 20x20 amounted to R8 500 000. Included in total sales is an amount of R1 200 000 for cash sales
made during the month of June 20x20. Control of the soaps is transferred to the customer as soon as
the cash is received. Flattering Soaps Ltd’s policy is to allow customers to return the soaps, within 30
days from date of purchase, for a full refund if they are unsatisfied with the product. Flattering Soaps Ltd
uses the expected value method and estimated, based on experience, that 10% of the soaps sold will
be returned. The cost of the soaps sold amounted to R900 000.
The inexperienced financial clerk of Flattering Soaps Ltd only recorded the following journal entries to
account for the above cash sales for the year:
Debit Credit
R R
Journal 1
Bank (SFP) 1 200 000
Revenue (P/L) 1 200 000
Recognition of revenue on sale of soaps.
Journal 2
Cost of sales (P/L) 900 000
Inventory (SFP) 900 000
Recognise cost of soaps sold
17
Assumptions:
1. Assume all amounts are material.

2. Ignore the implications of Value-Added Tax (VAT).
REQUIRED:
Marks
a) Prepare all the general journal entries (including cash transactions) in the accounting 10
records of Flattering Soaps Ltd to correctly account for transaction (1), the sale to the
US based company, for the financial year ended 30 June 20x20.
- No abbreviations for general ledger account names can be used.
- Journal narrations are not required.
- Show the date of each journal entry.
b) Discuss, with reasons whether transaction (2), the cash sales transaction, was 7
correctly recorded in the accounting records of Flattering Soaps Ltd for the financial
year ended 30 June 20x20.
Communication mark – Logical argument 1

Please note:
Standards (IFRS).
Show all the calculations.
Round off all amounts to the nearest Rand.
[18]
18
a) Journal entries for the year ended 30 June 20x20
Debit Credit
R R
1 January 20x20
Order date – no journal entry
31 January 20x20
J1 Transaction date
Accounts receivable (SFP) 14 550
Revenue (P/L) 14 550
($1 000 x 14,55)
J2 Cost of sales 9 500
Inventory 9 500
10 February 20x20
J3 Settlement date
Foreign exchange loss / difference (P/L) 350
Accounts receivable (SFP) 350
($1 000 x (14, 55 - 14,20))
J4 Bank (SFP) 14 200
($1 000 x 14,20)
Alternative to J3 and J4
Foreign exchange loss / difference (P/L)
[$1 000 x (14,55 – 14,20)] 350
Bank (SFP) ($1 000 x 14,20) 14 200
b) Cash sales of soaps

Based on the fact that dissatisfied customers are allowed to return the soaps within 30 days from date
of purchase for a full refund, these cash sales of soaps are regarded as sales with a right of return.
According to the requirements of IFRS 15, Revenue revenue should be recognised when control has
passed i.e. when the cash is received. For revenue transactions with a right of return, the following
should be recognised in the accounting records of Flattering Soaps Ltd:
Sales value of soaps sold

 Revenue only relating to the soaps sold and expected not to be returned i.e. 90% of R1 200 000
should be recognised. Therefore, revenue should be adjusted(debited) relating to the soaps sold
and expected to be returned i.e.10% of R1 200 000 = R120 000
 A refund liability should be credited relating to the soaps sold and expected to be returned, 10% of
R1 200 000 = R120 000
Cost of sales of soaps sold:

 A right of return asset should be debited relating to the cost of the soaps sold and expected to be
returned i.e.R900 000 x 10% = R90 000.
 Cost of sales should be credited relating to the cost of the soaps sold and expected to be returned
i.e. R900 000 x 10% = R90 000.
19
Bevmart Ltd is a manufacturer of fast-moving consumer goods, situated in Midrand, South Africa. The
company is listed on the JSE and has a 30 June year end (the current financial year has 365 days).
Bevmart Ltd has two manufacturing divisions, processed foods, and fresh foods (this includes fresh and
flash frozen fruits and vegetables).
Bevmart Ltd operates a 5-day working week. All employees are entitled to 20 days of accumulating
leave per year, vesting.
The following information relates to the fresh and frozen foods division as well as some of the assets of
the company:
Fresh and frozen foods division (FF division)
The FF division of Bevmart Ltd manufactures and packages both fresh and flash frozen foods. During
the current financial year, the management of Bevmart Ltd noticed a decline in the orders for their FF
division products. The marketing division of Bevmart Ltd embarked on a consumer research project, the
results of the study showed that as part of cost-saving measures, consumers are planting their own
community vegetable gardens, providing fresh fruits and vegetables to the community, resulting in the
decline in demand for store bought fruits and vegetables. On 30 June 20x23, the recoverable amount
of the FF division was estimated to be R1 450 000.
The FF division consists of the following assets:
Goodwill (carrying amount) ........................................................................................... R125 000

Packaging machinery.................................................................................................... Note 1
Inventory ....................................................................................................................... Note 2
Delivery vehicle............................................................................................................. Note 3
1. Bevmart Ltd purchased the packaging machinery on 5 August 20x20 at a cost of R1 575 000. An
amount of R18 500 was paid in cash, on 6 August 20x20, for the delivery of the packaging
machinery. Since the packaging machinery is very specialised, Bevmart Ltd had to pay a consultant
R5 700 to train their employees on how to use the packaging machine effectively. The packaging
machinery was available for use, as intended by management, and brought into use on 1 September
20x20. The packaging machinery has an estimated useful life of 7 years and a residual value of
R185 000 was allocated to it. On 30 June 20x23, the recoverable amount of the packaging
machinery was estimated to be R950 000.
2. On 30 June 20x23, the carrying amount and net realisable value of the inventory amounted to
R48 000 and R45 000, respectively.
3. Bevmart Ltd purchased the delivery vehicle, which was specifically customised for the transport of
flash frozen vegetables on 30 April 20x21, at a cost of R723 850. On acquisition date, the delivery
vehicle was wrapped at a cost of R95 000, in specific Bevmart Ltd branding, to assist with public
brand awareness. The delivery vehicle was available for use, as intended by management, and
brought into use, on 31 May 20x21. On acquisition date, the delivery vehicle had an estimated useful
life of 850 000km. No residual value was allocated to the delivery vehicle. On 1 July 20x22,
20
management of Bevmart Ltd estimated the remaining useful life of the delivery vehicle to only be
650 000km, due to the bad road conditions in South Africa. The delivery vehicle travelled
135 458km’s and 123 500km’s for the 20x22 and 20x23 financial years, respectively. The
recoverable amount of the delivery vehicle on 30 June 20x23, was unknown.
As part of the financial year end procedures, the junior accountant of Bevmart Ltd, prepared the following
two calculations:
Impairment loss of the FF division on 30 June 20x23

R
Goodwill ..................................................................................................................... 125 000
1
Packaging machinery................................................................................................. 1 026 786
Inventory .................................................................................................................... 48 000
2
Delivery vehicle.......................................................................................................... 532 774
Carrying amount of FF division .................................................................................. 1 732 560
Recoverable amount .................................................................................................. (1 450 000)
Impairment loss on FF division................................................................................... 282 560
1
[(1 575 000 + 18 500 + 5 700) – [(1 599 200 - 185 000) / 84 months x 34 months = 1 026 786
2
(723 850 + 95 000) – (818 850 / 850 000 x 135 458) – (818 850 / 650 000 x 123 500) = 532 774
Allocation of impairment loss of the FF division on 30 June 20x23 Carrying

amount
Amount after
allocated allocation
R R
Goodwill (125 000 / 1 732 560 x 282 560) ............................................ 20 386 104 614
Packaging machinery (1 026 786 / 1 732 560 x 282 560)..................... 167 457 859 329
Inventory (48 000 / 1 732 560 x 282 560)............................................. 7 828 40 172
Delivery vehicle (532 775 / 1 732 560 x 282 560) ................................ 86 889 445 885
282 560 1 450 000
Monitoring software
Bevmart Ltd purchased an artificial intelligence monitoring software on 4 April 20x23, from an
international software developer, at a cost of $185 000. The full invoice amount is payable by
Bevmart Ltd on 31 August 20x23. The software will be used to monitor the speed and driving habits of
Bevmart Ltd’s drivers. The software was available for use, as intended by management, on
1 May 20x23. On acquisition date it was determined that the software has an estimated useful life of 8
years, and no residual value was allocated to it. The speed and driving habit report created by the
monitoring software, if found favorable by the insurance company, will be used to calculate a monthly
insurance rebate.
21
The following exchange rates are applicable:

$1 = 1R
4 April 20x23 .......................................................................................................... 15,80
1 May 20x23 .......................................................................................................... 15,87
30 June 20x23 ....................................................................................................... 15,96
31 August 20x23 .................................................................................................... 16,10
Preservative formula
During the prior financial year, the management of Bevmart Ltd embarked on a research and
development project to develop a healthier preservative alternative, to be used in the production of
processed foods. The research commenced on 1 July 20x22 and on 1 September 20x22 all the criteria
for the recognition of an internally generated intangible asset were met. The development of the formula
was completed on 28 February 20x23. The formula was available for use, as intended by management,
on 1 March 20x23. The formula has an estimated useful life of 10 years and a residual value of Rnil was
allocated to it.
The following costs were incurred during the research and development phase:
1 July 20x22 –
28 February 20x23
R
General administrative costs .................................................................... 158 650
Water and electricity ................................................................................ Note 1
Salaries – laboratory technicians ............................................................. Note 2
Depreciation – laboratory equipment........................................................ Note 3
Vehicle ..................................................................................................... Note 4
1. Total water and electricity cost incurred for the period 1 July 20x22 to 28 February 20x23 amounted
to R164 550. The costs were incurred evenly throughout the period.
2. Three laboratory technicians, which are permanent employees of Bevmart Ltd, worked full time on
the research and development of the formula in the 20x23 financial year. Each laboratory assistant
is paid a monthly salary of R55 000. Bevmart Ltd’s permanent employees receive a 6% increase on
1 July of each year. All Bevmart Ltd’s permanent employees took 15 days annual leave during the
current 20x23 financial year. Once development of the preservative formula was completed, these
three laboratory technicians started a new research project.
3. Laboratory equipment was used for the period 1 September 20x22 until 31 December 20x22, during
the development of the formula. The total depreciation on the laboratory equipment, for the full 20x23
financial year, which you can assume has been calculated correctly, amounted to R75 000.
4. The research and development division of Bevmart Ltd donated a brand-new SUV to an employee
of the Department of Health, who will assist Bevmart Ltd to ensure the approval and classification of
their new formula as a “healthier and safer than any other preservatives currently available”, is
obtained. The vehicle was purchased on 1 February 20x23, at a cost of R1 150 000. The vehicle
was delivered to the employee of the Department of Health, on acquisition date. On acquisition date
it was determined that the vehicle has an estimated useful life of 5 years, and no residual value has
been allocated to it.
22
Additional information:
1. Bevmart Ltd has the following accounting policies:

 Machinery is accounted for in accordance with the cost model. Depreciation is provided for on
the straight-line method over the estimated useful life.
 Vehicles are accounted for in accordance with the cost model. Depreciation is provided for on the
units of production method.
 Intangible assets are accounted for in accordance with the cost model. Amortisation is provided
for on the straight-line method over the estimated useful life.
 Inventory is carried at the lower of its carrying amount and net realisable value.
2. Changes in accounting estimates are accounted for in accordance with the reallocation method.
Assumptions:
 You may ignore the implications of public holidays;

 The leave cycle of BevMart Ltd is 1 July 20x22 to 30 June 20x23.
 All amounts are material; and
 You may ignore the implications of Value-Added Tax (VAT).
23
REQUIRED:
Marks
a) Critically discuss the impairment loss and allocation of impairment loss 24
calculations of the FF division, as prepared by the junior accountant of
Bevmart Ltd on 30 June 20x23. (You can assume that the casting and cross
casting of the calculations prepared by the junior accountant is correct.)
Include within your discussion a corrected impairment loss calculation of the FF

division of Bevmart Ltd on 30 June 20x23.
Communication skill – Logical argument 1
b) Disclose the profit before tax note in the annual financial statements of Bevmart 22
Ltd for the year ending 30 June 20x23.
Include all the relevant disclosable income and expenses items resulting from the
information given in the question together with disclosure regarding the change in
useful life of the delivery vehicle.
c) Advise the CFO of Bevmart Ltd, whom is a CA(SA), on the legal and ethical 3
considerations of the donation of the SUV by the research and development
division to the employee of the Department of Health, once he becomes aware of
it.
Please note:
Standards (IFRS).
Comparative information is not required.
All calculations must be shown.
Calculations are to be done to the nearest Rand.
[50]
24
a) Critically discuss the junior accountant’s impairment loss and allocation of impairment loss
calculations on the FF division.
Impairment loss calculation:
 The junior accountant correctly included all 4 assets of the FF division in the calculation of the
carrying amount of the FF division on 30 June 20x23.
 The junior accountant correctly calculated the impairment loss of the FF division as on
30 June 20x23, as the difference between the carrying amount and the recoverable amount of the
FF division.
 Goodwill was correctly included in the calculation of the carrying amount of the FF division at an
amount of R125 000.
 Packaging machinery:
o The carrying amount of the packaging machinery as on 30 June 20x23 amounting to
R1 026 786, was incorrectly calculated.
o The cost of R1 575 000 was correctly capitalised towards the cost of the packaging
machinery.
o The delivery cost constitutes a directly attributable cost and therefore the R18 500 was
correctly capitalised towards the cost of the packaging machinery.
o The fees to train employees to use the packaging machinery was incorrectly capitalised
towards the cost of the machinery. The fees to train the employees to use the packaging
machine is not a directly attributable cost and should thus not be capitalised towards the
cost of the packaging machinery, it should be expensed to the statement of profit or loss
and other comprehensive income.
o The correct residual value of R185 000 was used to calculate the depreciable amount of the
packaging machinery.
o The correct total useful life of 7 years, converted to 84 months, was used to calculate the
carrying amount of the packaging machinery on 30 June 20x23.
o The correct depreciation period since available for use, until year-end on 30 June 20x23,
totalling 34 months, was used to calculate the carrying amount of the packaging machinery
on 30 June 20x23.
o The recoverable amount on the packaging machinery is available on 30 June 20x23, the
junior accountant should have tested the machinery for impairment. The recoverable amount
was lower than the carrying amount and therefore an impairment loss should have been
accounted for where the carrying amount was written down to the recoverable amount.
 Inventory:
o The carrying amount of the inventory was included in the calculation of the carrying amount
of the FF division at the incorrect value.
o According to IAS 2, Inventory is carried at the lower of the carrying amount and net realisable
value. On 30 June 20x23 the inventory had a net realisable value of R45 000, which is lower
than the carrying amount and thus the inventory should be included in the carrying amount
of the FF division at R45 000.
 Delivery vehicle
o The carrying amount of the delivery vehicle as on 30 June 20x23 amounting to R532 774,
was incorrectly calculated.
o The cost of R723 850 was correctly capitalised towards the cost of the delivery vehicle.
25
o The cost of the delivery vehicle was calculated incorrectly, the R95 000 paid to wrap the
vehicle in Bevmart Ltd branding, is not necessary to get the asset into the location and
condition necessary to be used, as intended by management. OR The R95 000 can be seen
as advertising cost which is not a directly attributable cost to be capitalised towards the cost
of the delivery vehicle.
o The depreciable amount of the delivery vehicle was correctly calculated with no residual
value being deducted from the cost there-of as no residual value was allocated to the
vehicle.
o The inputs used to calculate the accumulated depreciation was correct. The junior
accountant correctly used the total useful life of 850 000km’s and the distance travel from
the date that the delivery vehicle was available for use until the end of the previous financial
year of 135 458km’s. Due to the fact that depreciation on delivery vehicles is accounted for
using the units of production method, the junior accountant was correct to not apportion the
accumulated depreciation from the date the asset was available for use.
o The current year depreciation on the delivery vehicle was calculated incorrect. The useful
life of the delivery vehicle was changed from 850 000km to 650 000km in the current
financial year. This should be treated as a change in estimate. As a result, the current year
depreciation on the delivery vehicle should be calculated using the carrying amount at the
beginning of the year and not the original cost.
o The remainder of the inputs used to calculate the current year depreciation was correct. The
junior accountant correctly used the new estimated remaining useful life of 650 000km’s
together with the total distance of 123 500km’s travelled in the current financial year.
o As a result of the fact that the recoverable amount on the delivery vehicle is not available on
30 June 20x23, the junior accountant correctly could not have tested the delivery vehicle for
impairment.
The correct carrying amount of the FF division is:
Goodwill 125 000

Packaging machinery 950 000
Carrying amount
(1 575 000 + 18 500) – [(1 593 500 – 185 000) / 84 x 34] 1 023 393
Recoverable amount (950 000)
Impairment loss 73 393
Inventory 45 000
Delivery vehicles 492 882
Carrying amount at the beginning of the year
723 850 – (723 850 / 850 000 x 135 458) 608 496
Current year depreciation (608 496 / 650 000 x 123 500) (115 614)
Carrying amount of CGU 1 612 882
26
The correct impairment loss of the CGU is as follows:

Carrying amount of CGU (from above) 1 612 882
Recoverable amount (1 450 000)
Impairment loss on CGU 162 882
The junior accountant was correct to allocate the impairment loss to the assets within the CGU, but
unfortunately made the following mistakes in the allocation of the impairment loss:
1. The impairment loss should first be fully set off against the goodwill amount of R125 000, it should
not be allocated to goodwill on a pro-rata basis.
2. Since inventory is outside of the scope of IAS 36 measurement, the impairment loss should not be
allocated to inventory.
3. Since the packaging machine’s recoverable amount is known, the asset was already impaired to the
recoverable amount. No further impairment loss should be allocated to the packaging machinery.
4. The remaining impairment loss on the CGU should thus all be allocated to the delivery vehicle.
b) Profit before tax note for the year ended 30 June 20x23
Profit before tax is stated after taking the following into account:
R
Expenses
Inventory write down / Write down of inventory expense (48 000 – 45 000) 3 000
General administration costs 158 650
Impairment loss
Machinery (from a) 73 393
Cash generating unit (from a) 162 882
Depreciation
Packaging machinery [(1 593 500 – 185 000) / 84 x 12] 201 214
OR [(1 593 500 – 185 000) / 7]
Delivery vehicles (from a) 115 614
Original estimate (723 850 / (850 000 x 123 500)) 105 171
Change in estimate (105 171 – 115 614) 10 443
Laboratory equipment (75 000 – 25 000 calc 1) 50 000
Research cost (41 138 + 330 000 + 6 710) (calc 1) 377 848
Employee benefits (55 000 x 3 x 4months) + (40 260 x 4/12) 673 420
Amortisation
Purchased software [(185 000 x 15,80) / 96 x 2months 60 896
OR [(185 000 x 15,80) / 8years x 2/12]
Internally generated formula (calc 1) 38 618
Foreign exchange loss/ Foreign exchange difference [185 000 x (15,96 – 15,80)] 29 600
The estimated useful life of the delivery vehicle was changed from 850 000km’s to 650 000km’s.
The (increase)/decrease in profits caused by the change in estimate is as follows:
 Current year’s profits: 10 443
 Future profits: (10 443)
27
Calculations:
1. Internally generated intangible asset
Research Development
1 September
1 July 20x22 – 20x22 –
31 August 28 February
20x22 20x23
2 months 6 months
Water and electricity
164 550 x 2/8 41 138
164 550 x 6/8 123 412
Employee benefits
Salaries (55 000 x 3) x 2 months); 330 000 990 000
(55 000 x 3) x 6 months)
Leave pay accrual
Effective cost per day
= 55 000 x 1,06 x 12 months = 699 600 / 365 days
= 1 917 x 7/5
= 2 684 per day per employee
(20 – 15) x R2 684 x 3 employees = R40 260 per year

(40 260 x 2/12); (40 260 x 6/12) 6 710 20 130
Depreciation on lab equipment

(75 000 x 4/12) 25 000
377 848 1 158 542
Amortisation (1 158 542 / 120 x 4) (38 618)
OR (1 158 542 / 10 x 4/12)
1 119 924
c) Ethical considerations regarding the donation of the SUV
The CFO is a qualified chartered accountant, a CA(SA), and must adhere to the SAICA Code of
Professional Conduct, which requires all CA (SA)’s to comply with the relevant laws of South Africa.
The donation of the SUV to an employee from the department of health, will be made to ensure approval
and classification of the new formula for a specific purpose, to be endorsed as healthier and safer than
any other product.
This is not a donation but should rather be seen as a bribe. The bribing of any state official is against
the law in South Africa (Prevention and combatting of corrupt activities act (PRECCA)). Although the
CFO did not buy the vehicle or pay the bribe himself, he will still be complicit in the bribe if he does not
report it to the relevant authorities.
28
By being involved in the bribing of a state employee, the CFO is acting against the PRECCA act and
therefore it constitutes non-compliance with the laws and regulations. Non-compliance with laws and
regulations are non-adherence to the SAICA Code of Professional Conduct. Involvement in illegal acts
is unethical and therefor the donation of the SUV will be seen as unethical.
29
Masana Transport Ltd (“Masana”) is a transport and logistics company based in Kwakhethomthandayo,
Kwazulu-Natal. Masana has become one of the largest transportation and logistics companies in
Southern Africa. Masana is listed on the Johannesburg Stock Exchange (JSE) and has a 30 June year
end. Masana’s presentation currency is ZAR.
The following relates to some of the transactions, assets, and liabilities of Masana for the year ended
30 June 20x23:
Debentures
On 1 July 20x22, Masana issued 100 000 debentures in the Egyptian Stock Exchange, for EGP4 300
000. The debentures bore a fixed coupon rate of 8% per annum, compounded annually. Masana paid
EGP172 000 transaction costs, in cash, on 1 July 20x22. The coupon interest rate is payable annually
in arrears on 30 June and the debentures are compulsory redeemable on 30 June 20x27, for EGP60
each.
These are the only debentures issued by Masana. They were issued with the intent to raise funds and
not to make any short-term profits. The accountant has determined that the fair value of the debentures
do not provide any more relevant information, nor does it prevent any accounting mismatch.
The debentures are Egyptian Pound denominated and all transactions related to the issued debentures
are settled in Egyptian Pounds.
The following dates and exchange rates are applicable:

Date Spot rate
EGP1 = R
1 July 20x22 .................................................................................................................... R0,58
30 June 20x23 ................................................................................................................. R0,52
Average exchange rate for the period 1 June 20x22 – 30 June 20x23 ............................. R0,64
Trans-Tech Division
Masana has a separate division that specialises in fleet tracking technologies, named the Trans-Tech
Division.
During the 20x23 financial year, a competitor entered the market and launched a fleet tracking solution
that was more efficient and cost effective than the tracking solutions offered by Masana. As a result,
there was a significant decline in the demand for the tracking solutions offered by Masana.
On 31 May 20x23, Masana’s board of directors made the decision to sell the Trans-Tech division due
to the declining competitive edge. Consequently, Masana’s directors decided to focus only on
transportation and logistics in future. On 31 May 20x23, all the requirements to be classified as held for
sale were met and management expected the sale to be concluded, in a single transaction by
31 December 20x23, for cash. On 31 May 20x23, the Trans-Tech division had a fair value less cost to
sell and value in use amounting to R2 350 000 and R2 400 000, respectively.
30
The carrying amount of the respective assets of the Trans-Tech division on 31 May 20x23, were as
follows:
R
I-track application ......................................................................................... Refer to note 1
Inventory (Net realisable value amounting to R250 000) ............................. 270 000
Trade and other receivables ....................................................................... 850 000
On year-end on 30 June 20x23, the carrying amount of the Trans-Tech division equalled the fair value
less cost to sell thereof.
Masana accounts for intangible assets in accordance with the cost model and amortisation is provided
for on the straight-line method over the estimated useful life of the asset.
Masana carries its inventory at the lower of its carrying amount and net realisable value.
Masana accounts for changes in accounting estimates in accordance with the reallocation method.
Note 1
During the 20x21 financial year, Masana commenced with a research and development project to
development a new tracking application called I-track. The application will provide real-time tracking
data such as Global Positioning Systems (GPS) locations and full-trip history on any vehicle with an
installed device. The application uses radio frequency and GPS tracking technology to detect and
counteract signal jamming.
The research of the I-track application commenced on the 1 October 20x20. On 1 March 20x21, the
board of directors determined that the I-track application satisfied all the criteria for an intangible asset
recognition and approved the development of the application. The development of the application was
concluded on 30 April 20x21.
Masana employed a software developer to work on the application during both the research and
development phase of the application. The software developer earns a monthly salary of R300 000.
During April 20x21, Masana consulted with Professor Web, an expert in application testing and paid her
a once-off consultation fee of R750 000, on 30 April 20x21.
Masana used an Integrated Development Environment (IDE) software in the development and coding
of the I-track application. The IDE was acquired on 01 July 20x19, for R4 500 000. The IDE was
available for use as intended by management on the acquisition date and on this date the IDE had an
estimated useful life of 6 years and an insignificant residual value. On 1 July 20x20, management
estimated that the IDE had a remaining useful life of 4 years. The residual value of the I-track application
remained unchanged throughout the period.
The total electricity cost, directly attributable to both the research and development of the I-track
application amounted to R288 000 and was incurred evenly during the period.
On 1 May 20x21, the I-track application was available for use as intended by management. On this date
an estimated useful life of 10 years and a residual value of R325 000 was allocated to the I-track
application.
31
On 31 May 20x23, the recoverable amount of the I-track application was correctly determined to amount
to R1 360 000.
Contract with Zamalek Coal Ltd (“Zamalek”)
On 1 January 20x23, Masana signed a contract with Zamalek to transport 10 000 tons of coal from Piet
Retief to the Richards Bay Port Terminal during the second quarter of the calendar year at R320 per
ton. The terms of the contract further stipulate that Masana would give Zamalek a 20% discount for any
future coal transportation services done during the third quarter of the calendar year. The contract
between Masana and Zamalek is a valid contract in terms of IFRS 15. Transport of the 10 000 tons coal
as agreed upon within the signed contract, was completed by Masana by the end of 30 June 20x23.
Masana intends to offer a 5% discount to all its customers during the third quarter of the calendar year
as part of a marketing strategy. In terms of the contract, Zamalek cannot use the 5% discount in addition
to the contractually stipulated 20% discount offer.
On 1 January 20x23, Masana estimated that Zamalek will require transportation services for 15 000
tons of coal at a price of R395 per ton during the third quarter of the calendar year. In addition, Masana
estimated that there is a 90% likelihood that Zamalek will use the discount offered in the signed contract.
Fleet of trucks
On 1 July 20x20, Masana acquired a fleet of 5 trucks to use in its operations for R1 450 000, each. The
purchase price of the entire fleet was paid in full, and the fleet was ready for use as intended by
management on acquisition date. Each truck was estimated to have a 5-year useful life and an
insignificant residual value. The estimated useful life and residual value remained unchanged
throughout the period.
On 1 July 20x21, Masana’s directors decided to lease out the fleet of trucks to Dynamo Trans Ltd
(“Dynamo”) from 1 July 20x21 until 30 June 20x23, due to the continued strike at the Richards Bay Port
Terminal. According to the lease agreement, Masana would receive lease payments amounting to
R1 980 000, paid annually in arrears. The lease payments will increase by 10% each year. Ownership
of the trucks will not transfer to Dynamo at the end of the lease period. Masana incurred R250 000 initial
direct costs at the inception of the lease.
Masana appointed an IFRS specialist during the 20x23 financial year to ensure that all accounting
transactions are accounted for in accordance with International Financial Reporting Standards. In a
meeting held with the junior accountant of Masana, the IFRS specialist discovered that the entity has
been incorrectly accounting for the lease with Dynamo. The junior accountant confirmed that she
accounted for the lease since inception thereof, as follows:
• No trucks were derecognised;
• No depreciation was recognised on the trucks from 1 July 20x21;
• Lease payments of R 1 980 000 was recognised as income in both the 20x22 and 20x23 financial
years; and
• The initial direct costs incurred at inception of the lease were immediately recognised as an expense.
32
Masana accounts for vehicles in accordance with the cost model and depreciation is provided for on the
on the straight-line method over the estimated useful life of the asset.
The IFRS specialist requested the junior accountant to prepare a correction of error note in relation to
the accounting of the lease between Masana and Dynamo and the following note was presented by the
junior accountant at a finance team meeting:
Correction of error note

During the 20x22 financial year, expenses and income relating to an operating lease were incorrectly
accounted for.
20x23 20x22
R R
Effect on the statement of comprehensive income
Increase in depreciation expense [(1 450 000 x 5) / 5] 1 450 000 1 450 000
Decrease in profit 1 450 000 1 450 000
Effect on the statement of financial position

Decrease in property, plant, and equipment (1 450 000) (1 450 000)
Decrease in equity (1 450 000) (1 450 000)
Employee matters
For the financial year ended 30 June 20x23, Masana’s total annual net salary amounted to R3 500 000,
whilst Masana withheld a total of R650 000 employee tax payable to the South African Receiver of
Revenue (SARS). In a recent executive management meeting held on the 3 July 20x23, the Chief
Financial Officer, a registered CA(SA) proposed that the employee tax payable to SARS withheld for
the month ended 30 June 20x23, should be used to fund the performance bonus of the executive
management. He added that it is unlikely that SARS will query the non-declaration and non-payment of
the withheld employee tax if it does not happen frequently.
Assumptions
All amounts are material, and you may ignore the implications of Value-Added Tax (VAT).
Taxation
The South-African normal tax rate is 27%. The capital gains tax inclusion rate is 80%.
The junior accountant correctly calculated all applicable tax bases.
The South African Revenue Service does not issue revised assessments on prior years.
33
REQUIRED:
Marks
a) Prepare all the relevant general journal entries to correctly account for the debentures 10
in the accounting records of Masana Transport Ltd on 30 June 20x23.
Please note:
• Include applicable foreign exchange related journals (if any).
• Ignore any tax implications.
• Journal narrations are not required.
b) Disclose the following notes in the annual financial statements of Masana Transport Ltd 20
for the year ended 30 June 20x23:
• Non-current assets held for sale,
• Deferred tax (Only relating to the contract with Zamalek Coal Ltd)
c) Critically discuss whether the correction of error note as prepared by the junior 16
accountant of Masana Transport Ltd for the financial year ended 30 June 20x23, is
correct and complete.
Please note:
• The junior accountant correctly classified the lease with Dynamo Trans Ltd as an
operating lease.
• Where relevant, substantiate your critical discussion by stating the correct
accounting treatment or disclosure requirements as prescribed by the
requirements of International Financial Reporting Standards (IFRS).
• You do not have to include corrected calculations in your discussion.
• Do not discuss the casting and cross casting of the correction of error note.
• Do not discuss the consequential effects of any errors identified.
Communication skills – logical argument 1

d) Discuss any ethical concerns you may have regarding the proposal by the Chief 3
Financial Officer of Masana Transport Ltd, regarding the non-payment of employee
tax to the South African Revenue Service, in terms of the SAICA Code of Professional
Conduct and any other applicable legislation.
Please note:
Standards (IFRS).
Round off all calculations to the nearest Rand.
Comparative amounts are not required.
[50]
34
Required A:
Journal entries to account for the issued debentures in the annual financial statements.
Debit Credit
30 June 20x23 R R
Interest expense / Finance cost (P/L) (calc 1) 397 662

Debenture liability/ Debentures / Debentures: Amortised cost (SFP) 397 662
Interest expense recognised for the year
Debenture liability/ Debentures / Debentures: Amortised cost (SFP) (calc 2) 322 242
Foreign exchange gain / Foreign exchange difference (P/L) 322 242
Remeasurement of the debentures to the spot rate at year-end
Debenture liability/ Debentures / Debentures: Amortised cost (SFP) 178 880

Bank / Cash (SFP) 178 880
(344 000 X 0,52)
Recognition of coupon payment on 30 June 20x23
Workings:
Calculation 1: Debenture interest expense
Effective interest rate

PV = 4 128 000 (4 300 000 – 172 000); FV = -6 000 000 (60 x 100 000); PMT = -344 000 (4 300 000 x 8%)
N = 5 years
Compute I = 15,05%
Interest expense
(4 128 000 x 15,052% from calculation above) = 621 347 X 0,64 =397 662
Calculation 2: Foreign exchange difference
R
Foreign exchange difference due to initial debenture recognised.
4 128 000 X (0,58 – 0,52) 247 680
Foreign exchange difference due to interest expense recognised 74 562

621 347 (0,64 – 0,52) 322 242
OR: Alternative Calculation 2
Debenture balance in EGP: 4 128 000 + 621 347 – 344 000 = 4 405 347
Debenture balance converted to Rand: 4 405 347 x 0,52 = R2 990 780
Debenture balance in Rand: (4 128 000 x 0,58 = 2 394 240); 2 394 240 + 397 622 – 178 880 =
2 613 022
Foreign exchange difference: 2 613 022 – 2 290 780 = 322 242

35
b) Notes to the annual financial statements of Masana Transport Ltd for the year ended
30 June 20x23:
a. Non-current asset held for sale

A decision to sell the Trans-Tech division was taken on 31 May 20x23, due to the declining competitive
edge. It is expected that the sale will be completed by the 31 December 20x23 for cash.
Non-current assets held for sale consist of:

R
I-track application/ Intangible asset (calc 3 and 4) (1 325 299 – 75 299 ) 1 250 000
Inventory 250 000
Trade and other receivables 850 000
An impairment loss of R75 299 (calc 4) was recognised on initial classification of the Trans-Tech division
as held for sale and this amount was included under profit after tax on measurement on the face of the
statement of profit or loss and other comprehensive income.
Workings:
Calculation 3: Carrying amount of the I-Track application immediately before classification
Research period: 1 October 20x20 until 28 February 20x21 = 5 months

Development period: 1 March 20x21 until 30 April 20x21 = 2 months
R
Development cost of I-track application
Salary – Software developer (300 000 X 2) 600 000
Electricity (288 000 X 2 / 7) 82 286
Consultation costs 750 000
Amortisation [ 4 500 000 – (4 500 000 / 6)] / 4 x 2/12] 156 250
Total cost of the I-track application 1 588 536
Accumulated amortisation
(1 588 536 – 325 000) / 120 x 25 (263 237)
Carrying amount as at 31 May 20x23 1 325 299
Calculation 4: Impairment of the Trans-Tech division as at 31 May 20x23
R
I-track tracking application 1 325 299
Inventory 250 000
Trade and other receivables 850 000
Carrying value of the Trans-Tech division as at 31 May 20x23 2 425 299
Fair value less cost to sell 2 350 000
Impairment loss (2 425 299 - 2 350 000) 75 299
36
Allocation of the impairment to the assets in the disposal group

Full impairment is allocated to the intangible asset/ I-track application
Carrying amount of the I-track application (1 325 299 – 75 299) 1 250 000
b. Deferred tax
Deferred tax
asset/(liability)
R
Contract liability (639 9208 – 0) x27% 172 778
Workings:
Calculation 5
7
Contract liability
R
Performance obligation stand-alone selling prices
Transportation of 10 000 tons of coal (10 000 x 320) 3 200 000
Discount voucher (15 000 x 395) x 90% x 15%1 799 875
1
(20% - 5%)
3 999 875
Allocation of the transaction price
Transportation of 10 000 tons of coal (3 200 000 x 3 200 000 / 3 999 875) 2 560 080
Discount voucher (3 200 000 x 799 875 / 3 999 875) 639 920
c) Discussion of the correction of error note.
Correct, incorrect or incomplete aspects Correct accounting treatment and or

disclosure requirements
The narrative disclosure information
requirements in terms of IAS 8:49(a) pertaining to
the nature of the prior period error, was correctly
included in as part of the prior period error note.
The junior accountant incorrectly included a A correction of a prior period error note only
correction within the current financial year. i.e includes effects on prior periods (with
year ended June 20x23, within the prepared prior comparatives (if applicable)). Errors in the current
period error note. year should be accounted for as adjustments in
the process of preparing and finalizing the
financial statements.
The junior accountant correctly included the
increase in depreciation in the prior period error
note to account for the depreciation of the trucks.
37

The junior accountant correctly disclosed the
decrease in the carrying amount of property,
plant and equipment, because of the corrected
depreciation in the prior period error note.
The junior accountant incorrectly expensed the In accordance with IFRS 16, initial direct costs
initial direct costs incurred in relation to the lease incurred in relation to an operating lease are
and failed to disclose the effect of this accounting added to the cost of the leased asset and
error on depreciation, within the prior period error depreciated over the lease period. This will in turn
note compiled by herself. affect the depreciation expense that needs to be
accounted for.
The junior accountant incorrectly omitted to The total lease instalments receivable (including
disclose the corrected lease rental income within the 10% escalation in year 2) should be measured
the prepared prior period error note. on a straight-line basis over the period of the
lease.
The correction should be the difference between
the annual straight-lined total lease rental income
which amounts to R2 079 000 and the amount of
R1 980 000 that was recognised during the 20x22
financial year.
The effects of the correction of errors on the The combined income tax expense effect of the
income tax expense line item was incorrectly increase in depreciation, change in the lease
omitted in the correction of error note as rental income and increase in the depreciation
presented by the junior accountant. because of the straight-lined initial direct costs
should be included in the prior period error note at
a tax rate of 27%.
The noted errors will affect the carrying amount The net change in the carrying amount of the
of the property, plant and equipment which will property, plant and equipment (trucks) resulting
result in a deferred tax consequence. This from the correction of the noted errors will have
deferred tax correction was not disclosed in the an impact on the deferred tax balance as of
prepared prior period error note. 30 June 20x22. An applicable tax rate of 27% will
be applied in the calculation of the correction of
the deferred tax balance.
The difference between the straight-lined lease
rental income amounting to R2 079 000 and the
actual receipt of rental income of R1 980 000 will
result in a lease receivable which was not
included within the correction of error note that
was prepared by the junior accountant.
38

The deferred tax effect resulting from the lease The recognition of a lease receivable due to the
receivable was not accounted for in the prior difference in the straight-lined lease rental income
period error note as presented by the junior of R2 079 000 and the actual receipt of the lease
accountant. rental income of R1 980 000, will have an impact
on the deferred tax balance and thus should be
included within the disclosure of the prior period
error note. An applicable tax rate of 27% will be
applied in the calculation of the deferred tax
balance.
The junior accountant was correct to disclose the The correction of all the noted errors will however
net effect of the correction of the prior period result in a change to the Rand value of the net
errors on profits and equity within the prepared effect on profit and equity. Also take note that the
prior period error note. The junior accountant in correction of all the noted errors might result in an
addition also correctly concluded based on increase in profit and/or equity. Special attention
his/her interpretation of the correction of errors, is therefore needed to correctly conclude whether
on a decrease in profit and decrease in equity. the correction of errors will decrease or increase
the profit and equity of the company.
The net effect on the retained earnings due to the
correction of errors in the statement of financial
position was not disclosed within the presented
prior period error note.
39
d) Ethical concerns regarding the proposal by the Chief Financial Officer of Masana Transport
Ltd in relation to the non-payment of employee tax payable to the South African Receiver of
Revenue.
 The CFO is a CA(SA) and must comply with the requirements of the SAICA Code of Professional
Conduct.
 In accordance with the tax act, an employer should withhold a percentage of an employee’s salary
and pay it over to SARS. The tax withheld is collected on behalf of SARS and should be paid before
the 7th day of the following month.
 The proposal by the Chief Financial Officer (CFO) is illegal and not compliant with laws and
regulations of South Africa.
 The proposal by the CFO is indicative of his lack of integrity and is unethical. Together with the non-
compliance with laws and regulations the CFO is in direct contravention of the SAICA Code of
Professional Conduct.
 The CFO should withdraw his proposal to the executive management team and ensure that the
employee tax withheld for the period ended 30 June 20x23 is declared and paid over to SARS within
the prescribed period.
40
The following are the trial balances of Dune Ltd, Crow Ltd and Berry Ltd for the year ended
31 March 20x17:
Dune Crow Berry

Ltd Ltd Ltd
Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R
Share capital - 100 000 ordinary shares (100 000) - -
- 50 000 ordinary shares - (50 000) -
- 25 000 ordinary shares - - (25 000)
Mark-to-market reserve - (3 920) -
Retained earnings - 1 April 20x16 (870 000) (249 000) (260 000)
Deferred tax on mark-to-market reserve - (1 080) -
Revenue (840 000) (248 000) (190 000)
Other income (28 800) (6 500) -
Cost of sales 504 000 149 000 85 500
Finance charges - 5 000 -
Other expenses 88 000 35 000 45 000
Income tax expense 77 504 18 340 16 660
Dividends paid - 31 March 20x17 6 400 6 000 10 000
Bank, inventories and trade receivables 263 100 50 050 51 000
Trade and other payables (85 000) (120 000) (113 755)
Investment in Crow Ltd at cost price 325 000 - -
Investment in Berry Ltd at cost price 195 500 - -
Investment in Sand Ltd at fair value - 45 000 -
Property, plant and equipment 464 296 370 110 380 595
- - -
Additional information
1. Dune Ltd acquired control of Crow Ltd on 1 April 20x15 by acquiring 40 000 ordinary shares in
Crow Ltd when the retained earnings of Crow Ltd amounted to R349 000. The assets and liabilities
of Crow Ltd were fairly valued at date of acquisition.
2. Dune Ltd acquired control of Berry Ltd on 1 April 20x16 by acquiring 15 000 ordinary shares in
Berry Ltd. The assets and liabilities of Berry Ltd were fairly valued at the date of acquisition except
for the land. A sworn appraiser valued the land at R300 000. This was R54 847 above the original
cost price thereof.
3. During the year ended 31 March 20x17 Crow Ltd sold inventory to Dune Ltd for R18 000. The
inventory was still on hand at 31 March 20x17. Crow Ltd sold the inventory to Dune Ltd at cost plus
20%.
4. On 1 April 20x16, Crow Ltd acquired a 5% interest in Sand Ltd for R40 000. On 31 March 20x17, the
investment in Sand Ltd was revalued to its fair value of R45 000.
41
5. During the year ended 31 March 20x17 Crow Ltd paid R5 000 interest to Dune Ltd. The interest was
charged on a short-term loan from Dune Ltd to Crow Ltd that was repaid by the end of the financial
year. The interest paid by Crow Ltd was included in “finance charges” and the interest received by
Dune Ltd was included in “other income”.
6. During the year ended 31 March 20x17 Crow Ltd paid management fees of R10 000 to Dune Ltd.
The management fees paid by Crow Ltd were included in “other expenses” and the management
fees received by Dune Ltd were included in “other income”.
7. Crow Ltd classifies its simple investments in equity instruments at fair value, in accordance with
IFRS 9 Financial Instruments and fair value adjustments are recognised in the mark-to-market
reserve.
8. The Dune Ltd Group elected to measure non-controlling interests at their proportionate share of the
acquiree’s identifiable net assets at acquisition date.
9. The SA normal tax rate is 27% and capital gains tax is calculated at 80% thereof. You may assume
that both the tax rates have remained unchanged since 1 April 20x15.
10. Each share carries one vote and the issued share capital of all the entities in the group remained
unchanged since 1 April 20x15.
REQUIRED:
Marks
a) Discuss the accounting treatment of a gain from bargain purchase that arises as a 2
result of the acquisition of an interest in a subsidiary during the current year.
b) Prepare the consolidated statement of profit or loss and other comprehensive income 12
of the Dune Ltd Group for the year ended 31 March 20x17.
c) Prepare the consolidated statement of changes in equity of the Dune Ltd Group for 8
the year ended 31 March 20x17.
d) Prepare the consolidated statement of financial position of the Dune Ltd Group as at 20
31 March 20x17
Please note:
All answers must comply with the requirements of International Financial Reporting
Standards (IFRS).
All amounts should be rounded to the nearest Rand.
Comparative figures and notes to the consolidated financial statements are not required.
[42]
42
PART A
A gain on bargain purchase is the gain resulting from the acquisition of an interest in a subsidiary at less
than net asset value. The gain is recognised, immediately on the acquisition date, in profit/loss (P/L) in
‘other income' in the consolidated statement of profit or loss and other comprehensive income.
PART B
DUNE LTD GROUP

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 20x17
R
Revenue (840 000 + 248 000 + 190 000 – 18 000(C1)) 1 260 000
Cost of sales (504 000 + 149 000 + 85 500 – 18 000(C1) + 3 000(C1)) (723 500)
Gross profit 536 500
Other income (28 800 + 6 500 - 5 000(interest) – 10 000(management fees) –
4 800(div) (6 000 x 80%) – 6 000(div) (10 000 x 60%) + 1 300 (gain on bargain
purchase)) 10 800
Other expenses (88 000 + 35 000 + 45 000 – 10 000(management fees)) (158 000)
Finance charges (5 000 – 5 000) -
Profit before tax 389 300
Income tax expense (77 504 + 18 340 + 16 660 – 810(C1)) (111 694)
PROFIT FOR THE YEAR 277 606
Other comprehensive income:

Items that will not be reclassified to profit or loss:
Fair value adjustment on equity instruments, net of tax 3 920
Other comprehensive income for the year, net of tax 3 920
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 281 526
Profit for the year attributable to:

Owners of the parent (277 606 – 26 136) 251 470
Non-controlling interests (9 000d + 17 136j) 26 136
277 606
Total comprehensive income for the year attributable to:

Owners of the parent (281 516 – 26 920) 254 596
Non-controlling interests (26 136 + 784) 26 920
281 516
43
PART C
DUNE LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 MARCH 20x17
Non-
Mark-to- control-
Share market Retained ling Total
capital reserve earnings Total interests equity
R R R R R R
Balance at 1 April 20x16 100 000 - 790 000 1 890 000 59 8002 949 800
Changes in equity for 20x17
Acquisition of subsidiary - - - - 131 200i 131 200
Total comprehensive income
for the year - 3 136 251 470 254 606 26 920 281 526
Profit for the year - - 251 470 251 470 26 136 277 606
Other comprehensive income
- fair value adjustment - 3 1364 - 3 136 784 3 920
3
Dividends paid - - (6 400) (6 400) (5 200) (11 600)
Balance at 31 March 20x17 100 000 3 136 1 035 070 1 138 206 212 720 1 350 926
1
870 000 – 80 000b = 790 000 or 870 000 + ((249 000 – 349 000) x 80%) = 790 000
2
79 800(J8) – 20 000(J9) = 59 800c
3
4 000k + 1 200e = 5 200
4
3 920 x 80% = 3 136
44
PART D
DUNE LTD GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20x17
ASSETS R
Non-current assets
Property, plant and equipment (464 296 + 370 110 + 380 595 + 54 847(C2)) 1 269 848
Goodwill 5 800a
Investment in equity instruments 45 000
Total non-current assets 1 320 648
Current assets
Bank, inventories and trade receivables (263 100 + 50 050 + 51 000 - 3 000(C1)) 361 150
Total current assets 361 150
Total assets 1 681 798
EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Share capital 100 000
Retained earnings 1 035 070
Other components of equity (mark-to-market reserve) 3 136
1 138 206
Non-controlling interests (68 384g + 144 336l) 212 720m
Total equity 1 350 926
Non-current liabilities
Deferred tax (1 080(given) + 11 847(J5)(C3) – 810(J2)(C1)) 12 117
Total non-current liabilities 12 117
Current liabilities
Trade and other payables (85 000 + 120 000 + 113 755) 318 755
Total current liabilities 318 755
Total liabilities 331 034
Total equity and liabilities 1 681 798
45
CALCULATIONS
C1 Unrealised profit in closing inventories R

Closing inventories on hand at 31 March 20x17 (given) 18 000
Unrealised profit in closing inventories (18 000 x 20/120) 3 000
Tax effect on unrealised profit (3 000 x 27%) 810
C2 Revaluation of land R
Revaluation (given) 54 847
Deferred tax (54 847 x 80% x 27%) (11 847)
43 000
C3 Profit for the year R

Revenue 248 000
Cost of sales (149 000)
Other income 6 500
Other expenses (35 000)
Finance charges (5 000)
Income tax expense (18 340)
47 160
After-tax effect of unrealised profit in inventory
[(3 000(18 000 x 20/120) – (810(3 000 x 27%))] (2 190)
45 000
46
C4 Analysis of owners’ equity of Crow Ltd

Dune Ltd
100% 80% 20%
Total At Since NCI
R R R R
At acquisition
Share capital 50 000 40 000 10 000
Retained earnings 349 000 279 200 69 800
399 000 319 200 79 800
Equity represented by goodwill 5 800 5 800a -
Consideration and NCI 404 800 325 000 79 800
Since acquisition
Accumulated loss (249 000 – 349 000) (100 000) (80 000)b (20 000)
59 800c
Current year
Profit for the year (C3) 45 000 36 000 9 000d
Dividends paid (6 000) (4 800)f (1 200)e
Other comprehensive income – fair value
adjustment on investment in equity instruments
(Mark-to-market reserve) (given) 3 920 3 136 784n
347 680 (45 664) 68 384g
C5 Proof of goodwill of Crow Ltd (IFRS 3.32)

R
Consideration transferred at acquisition date. 325 000
Non-controlling interests ((50 000 + 349 000) x 20%) 79 800
404 800
Net amount of identifiable assets acquired, and liabilities assumed at acquisition date
(50 000 + 349 000) (399 000)
Goodwill 5 800
47
C7 Analysis of owners’ equity of Berry Ltd

Dune Ltd
100% 60% 40%
Total At Since NCI
R R R R
At acquisition
Share capital 25 000 15 000 10 000
Retained earnings. 260 000 156 000 104 000
Revaluation of land (C2) 43 000 25 800 17 200
328 000 196 800 131 200 i
Equity represented by gain on bargain purchase (1 300) (1 300) h -
Consideration and NCI 326 700 195 500 131 200
Current year
Profit for the year1 42 840 25 704 17 136 j
Dividends paid (10 000) (6 000) m (4 000) k
359 540 19 704 144 336 l
1
Profit for the year R
Revenue 190 000

Cost of sales (85 500)
Other expenses (45 000)
Income tax expense (16 660)
42 840
C8 Proof of gain on bargain purchase of Berry Ltd (IFRS 3.32)

R
Consideration transferred at acquisition date. 195 500
Non-controlling interests (25 000 + 260 000 + 43 000(C2) x 40%) 131 200
326 700
Net amount of identifiable assets acquired and liabilities assumed at acquisition date
(25 000 + 260 000 + 43 000(C2)) (328 000)
Gain on bargain purchase (1 300)
48
C9 Pro-forma consolidation journals

Dr Cr NCI
R R R
J1 Revenue 18 000
Cost of sales 18 000
Elimination of intragroup sales
J2 Cost of sales 3 000
Deferred tax 810
Inventories 3 000
Income tax expense 810
Elimination of intragroup profit included in inventories (C1)
J3 Other income (management fee received) 10 000
Other expenses (management fee paid) 10 000
Elimination of intragroup management fees paid
J4 Other income (interest received) 5 000
Finance charges (interest paid) 5 000
Elimination of intragroup interest paid
J5 Property, plant and equipment 54 847
Revaluation surplus 43 000
Deferred tax 11 847
Revaluation of land (C2)
J6 Share capital
Retained earnings 25 000
Revaluation surplus 260 000
Other income (gain on bargain purchase) 43 000
Investment in Berry Ltd 1 300 h
Non-controlling interests (SFP) 195 500
Elimination of owners’ equity at acquisition of Berry Ltd 131 200 131 200 i
J7 Share capital 50 000
Retained earnings 349 000
Goodwill 5 800a
Investment in Crow Ltd 325 000
Non-controlling interests (SFP) 79 800 79 800
Elimination of owners’ equity at acquisition of Crow Ltd
J8 Non-controlling interests (SFP) 20 000
Accumulated loss – beginning of year 20 000
Recording of non-controlling interests in accumulated (20 000)
loss – beginning of year since acquisition of Crow Ltd
((249 000 – 349 000) x 20%)
J9 Non-controlling interests (P/L) 17 136
Non-controlling interests (SFP) 17 136 17 136j
Recording of non-controlling interests in current year’s
profit for the year of Berry Ltd (42 8402 x 40%)
49
Dr Cr NCI
R R R
J10 Non-controlling interests (P/L) 9 000
Non-controlling interests (SFP) 9 000 9 000 d
Recording of non-controlling interests in current year’s
profit for the year of Crow Ltd (45 000(C4) x 20%)
J11 Mark-to-market reserve 784
Non-controlling interests (SFP) 784 784n
Recording of non-controlling interests mark-to-market
reserve (3 920 x 20%)
J12 Other income (dividend received) (P/L) 4 800
Non-controlling interests (SFP) (6 000 x 20%) 1 200 (1 200)e
Dividend paid 6 000m
Elimination of intragroup dividend and recording of
non-controlling interests therein
J13 Other income (dividend received) (P/L) 6 000
Non-controlling interests (SFP) (10 000 x 40%) 4 000 (4 000)k
Dividend paid 10 000
Elimination of intragroup dividend and recording of
non- controlling interests therein
212 720m
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FAC3764/2024/Study pack 3

Department of Financial Accounting

These questions integrate learning units 1 to 8.

- The conceptual framework for financial reporting;

2 LECTURERS AND CONTACT DETAILS

Lecturers Telephone number

4 INTEGRATED QUESTIONS AND SOLUTIONS

QUESTION 1 (28 marks) (50 minutes)

 the accounting treatment; and

QUESTION 1 Suggested solution

To: The Chief Financial Officer

Subject: Accounting implications of management’s decision to measure the Sandton

1. Notes to the annual financial statements

2. Statement of financial position

According to the requirements of IAS 1, Presentation of financial statements, a third statement of

QUESTION 1 Suggested solution (continued)

ROOM N ROOF LTD

NOTES FOR THE YEAR ENDED 31 DECEMBER 20x19

Fair Value Model

1. 1 683 333 – 1 575 000 = 108 333 x 27% = 29 250

QUESTION 1 Suggested solution (continued)

Fair Value Model

8. 1 643 333 – 1 487 500 = 155 833 x 27% = 42 075

QUESTION 2 (46 marks) (83 minutes)

Contract with Reddy Logistics (Reddy)

Human Resource matters

Communication skills: presentation and layout 1

Accounting policy notes are not required.

QUESTION 2: Suggested solution

Bank (SFP) 422 437

QUESTION 2: Suggested solution (continued)

31 March 20x23 Unearned finance income (SFP) 100 209

Income tax expense

C1.1 Interest rate implicit in the lease

BGN: Payments received in advance

QUESTION 2: Suggested solution (continued)

C1.2 Unearned finance income

Gross investment in the lease R

C.1.3 Amortisation table

[C2]: Short-term employee benefits

QUESTION 2: Suggested solution (continued)

[C3]: Post-employment benefits

5 353 500 x 8% = R428 280

[C4]: CALCULATION OF THE DEFERRED TAX MOVEMENT

a – (3 023 500 x 2/4) = 1 511 750

QUESTION 3 (18 marks) (32 minutes)

Transaction 1: Sale to US company

The following foreign exchange rates are applicable:

The cost to manufacture the soaps amounted to R9 500.

Transaction 2: Cash sales

1. Assume all amounts are material.

Communication mark – Logical argument 1

QUESTION 3: Suggested solution

a) Journal entries for the year ended 30 June 20x20

b) Cash sales of soaps

Sales value of soaps sold

Cost of sales of soaps sold:

QUESTION 4 (50 marks) (90 minutes)

Fresh and frozen foods division (FF division)

The FF division consists of the following assets: