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FAC612S - FINANCIAL ACCOUNTING 202 - 2ND OPP - JAN 2020 |
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“a
NAMIBIA UNIVERSITY
OF SCIENCE AND TECHNOLOGY
Faculty of Management Sciences
Department of Accounting, Economics and Finance
QUALIFICATION : BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 07BACC
COURSE: FINANCIAL ACCOUNTING 202
LEVEL: 7
COURSE CODE: FAC612S
SESSION: JANUARY/FEBRUARY 2020
PAPER: THEORETICAL FRAMEWORK
DURATION: 3 HOURS
MARKS: 100
SECOND OPPORTUNITY EXAMINATION QUESTIONS
EXAMINER(S)
W. GERTZE, A. SIMASIKU, C. SIMASIKU AND DR JO AKANDE
MODERATOR:
D. KAMOTHO
INSTRUCTIONS
1. This examination paper is made up of four (4) questions
2. Answer ALL questions in blue or black ink
3. Start each question on a new page in your answer sheet & show all your
workings
4. Questions relating to this test may be raised in the initial 30 minutes after the
start of the paper. Thereafter, candidates must use their initiative to deal with any
perceived error or ambiguities & any assumption made by the candidate should
be clearly stated.
PERMISSIBLE MATERIALS
1. Non-programmable calculator may be used
2. The examination scripts must be handed over to the invigilators before
leaving the examination hall.
THIS QUESTION PAPER CONSIST OF 6 PAGES (excluding this front page)
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Question 1
Wharton anticipates capital expenditure in a few years and so invests its excess cash
into short- and long-term financial assets so it can fund the expenditure when the need
arises. Wharton will hold these assets to collect the contractual cash flows, and, when
an opportunity arises, the entity will sell financial assets to re-invest the cash in financial
assets with a higher return. The managers responsible for this portfolio are remunerated
on the overall return generated by the portfolio.
As part of this policy, Wharton purchased N$50,000 par value of loan notes at a 10%
discount on their issue on 1 January 2016. The redemption date of these loan notes is
31 December 2019. An interest coupon of 3% of par value is paid annually on 31
December. Transaction costs of N$450 were incurred on the purchase. The annual
internal rate of return on the loan notes is 5.6%.
At 31 December 2016, due to a decrease in market interest rates, the fair value of these
loan notes increased to N$51,000.
Required
a. Discuss the classification, and with suitable calculations, provide the
necessary journal to record the asset for the year ended 31 December 2016.
15 marks
b. Provide journals for the year ended 31 December 2017 if the loan note was
reclassified at amortised cost during the year 2016 and the new model took
effects immediately.
10 marks
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QUESTION 2
(25 marks)
Below are the statement of financial position for Fat Limited as at 31 December 2018
and 31 December 2017 and the statement of profit and loss and other
comprehensive Income for the year ended 31 December 2018
ASSETS
Non —current assets
Property Plant and Equipment
Development cost
2018
N$ 000
528
2017
NS 000
447
Current assets
Inventory
Trade receivables
Investment
Cash
Total Assets
EQUITY AND LIABILITIES
Equity
N$1 Ordinary shares
Share premium
Revaluation surplus
Retained earnings
413
238
28
111
790
599
240
140
100
938
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Non —current Liabilities
Provision for warranties
6% Debentures
Current liabilities
Income tax payable
Trade payables
Total Equity and Liabilities
30
25
150
0
180_
25
af
193
230
1428
32
232
264
1139
Statement of profit or Loss and other Comprehensive Income
Revenue
Cost of sales
Gross profit
Expenses
Finance costs
Profit on sale of equipment
Profit before tax
Income tax expense
Profit for the year
900
550
350
(245)
(9)
Tf
103
(30)
_f3.
Additional information:
1. Deferred development expenditure amortised during 2018 was N$ 25 000
2. Additions to property, plant and equipment totalling N$ 167 000 were made.
Proceeds from the sale of equipment were N$ 58 000, giving rise to a profit of
N$7000. No other items of property, plant and equipment were disposed of
during the year.
3. Finance costs represent interest paid on the new 6% debentures issued on 1
January 2018
4. Current assets investments represent treasury bills acquired. The company
deems these to represent cash equivalents
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5. Dividends paid during the year amounted to N$ 65 000
6. Expenses include wages paid of N$ 44 000 and bad debts of N$ 12 000
Required
Prepare a statement of cash flows for Fat Limited for the year ended 31
December 2018 using the indirect method in accordance with IAS 7
Statement of Cash Flows.
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Question 3
(25 marks)
Quest (Pty) Ltd is a company operating in the local stationary supplies industry. It
has branches all over Namibia and has a 31 March 2019 year end. The accountant
prepared the following relating to the current and deferred tax for the 2019 year end.
Current Tax calculation:
Profit before tax
Depreciation - Plant
Depreciation — Motor Vehicles
Wear & Tear - Plant
Wear & Tear — Motor Vehicles
Fines
Claim received (non-taxable)
Prepaid Insurance
N$
430,000
120,000
43,000
(160,000)
(27,520)
5,000
(68,000)
(32,000)
Taxable Income
Current Tax @ 28%
310,480
86,934
Deferred Tax calculation:
31 March 2019
Plant
Motor Vehicles
Insurance
31 March 2018
Plant
Motor Vehicles
Additional notes:
Carrying
Amount
560.000
86,000
32,000
678,000
680.000
129.000
809,000
Tax
Base
480,000
110,080
-
590,080
Temporary | Deferred tax
difference | (asset)/liability
@28%
N$
| 80,000
22,400
| (24,080)
(6,742)
32,000
8,960
| 87,920
24,618
640,000 | 40,000
137,600 | (8,600)
777,600 | 31,400
11,600
(2,494)
9,106
1. The tax rate changed from 29% in 2018 to 28% in 2019.
2. Deferred tax is provided for all temporary differences using the Statement of
Financial Position approach.
3. All calculations prepared above are correct.
Required:
Prepare all the relevant notes applicable (including the tax rate reconciliation in
both N$ and %) to current and deferred tax in the annual financial statements of
Quest Ltd for the year ended 31 March 2019. Ignore comparative figures and
accounting policy notes.
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Question 4
25 Marks
The financial statements of Mossie Ltd for the year ended 31 December 2013 were
presented to the board of directors for authorisation for issue on 20 March 2014. You
are the accountant of the company. The following events occurred after the reporting
date:
1. Owing to the current economic recession and to increased competition, the selling
price of Mossie Ltd, main product was considerably reduced on 15 February 2014.
The lower selling price will cause a 15% decrease in gross profit in respect of the
main product. It is estimated that total comprehensive income for the year ended 31
December 2014 will decrease by N$500,000 before tax.
2. The board of directors decided to declare N$20,000 additional ordinary dividends on
15 February 2014. The dividends will be paid on 5 April 2014.
3. Dik Daan, a debtor, sent a letter to all his creditors on 18 March 2014 stating that he
was terminating business owing to financial difficulties. He suggested an offer of
compromise of N$0.20 in N$1. The amount owing by Dik Daan to Mossie Ltd
amounts to N$20,000 and is included in receivables at the reporting date. (Assume
that the transactions were in the normal course of business.)
4. On 15 January 2014, a customer sued Mossie Ltd for failing to meet specifications on
certain goods supplied. The case was taken to court and judgement has not been
passed. The attorneys of Mossie Ltd notified the financial director that the company
will probably lose the case and that costs and compensation (which are tax
deductible) will be approximately N$100, 000. The inventory was delivered during
2013.
Required:
For each of the above 1 to 4 above;
a. Identify whether an adjusting or non-adjusting event took place.
(4 Marks)
b. Briefly discuss the effect of the event on the financial statements as at
December 2013.
(8 Marks)
c. Provide an extract of the financial statements of Mossie Ltd as at 31
December 2013 disclosing the details in b. above so as to comply with the
requirements of the International Financial Reporting Standards (IFRS)
(13 Marks)
Assume that all amounts are material and that the company is a going concern,
notwithstanding the effect of the above events on the financial statements.
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