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FAC612S- FINANCIAL ACCOUNTING 202- 1ST OPP- NOV 2023 |
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nAmI BI AunIVERSITY
OF SCIEnCE Ano TECHno LOGY
FACULTYOF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENTOF ECONOMICS,ACCOUNTINGAND FINANCE
QUALIFICATION: BACHELOROF ACCOUNTING
QUALIFICATIONCODE: 07BOAC
LEVEL:6
COURSECODE:FAC612S
COURSENAME: FINANCIAL ACCOUNITNG 202
SESSION:NOVEMBER 2023
DURATION: 3 HOURS
PAPER:THEORY+ CALCULATIONS
MARKS: 100
EXAMINER(S)
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
Mr. C MAHIN DI, Mr. C SIMASIKUand Ms. S IFUGULA
MODERATOR: DR. D KAMOTHO
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2. Write clearly and neatly.
3. Start each question on a new page and number the answers clearly.
4. Do not write in pencil and do not use tip-ex, as this will not be marked.
5. Questions relating to the paper 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.
6. The names of people and businesses used throughout this assessment do not reflect
the reality and may be purely coincidental.
7. Show all workings!
PERMISSABLE MATERIALS
1. Non- programmable calculator
THIS QUESTION PAPERCONSISTSOF 7 PAGES(Excluding this front page)
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Question 1
(10 marks)
For multiple choice questions, only write down the correct answer in your answer booklet.
E.g., lA
1. What is the appropriate accounting treatment for Adjusting events after the
reporting date according to IAS 10?
A. No action is required; they are not considered in financial statements.
B. They should be disclosed in the notes to the financial statements.
C. They should result in adjustments to the financial statements.
D. They should lead to changes in accounting policies.
2. Which of the following is true regarding the treatment of non-adjusting events (events
occurring after the reporting date) under International Accounting Standard 10 (IAS
10)?
A. Non-adjusting events always require adjustments to the financial statements.
B. Non-adjusting events do not require disclosure in the financial statements.
C. If a Non-adjusting event is material, it should be disclosed in the notes to the
financial statements.
D. Non-adjusting events are never considered in the preparation of financial
statements.
3. A significant customer, with a substantial accounts receivable balance, declared
bankruptcy two weeks after the reporting date. How should this event be treated
according to IAS 10?
A. Adjust the accounts receivable balance in the financial statements.
B. Disclose the event in the notes to the financial statements.
C. Both A and Bare correct.
D. Ignore the event as it occurred after the reporting date.
4. Company X's financial year-end is December 31, 2021. On January 10, 2022, it
discovers that a major customer, which accounted for 20% of its total revenue in 2021,
has declared bankruptcy and will not be able to pay its outstanding receivables. What
type of event is this, and how should it be treated according to IAS 10?
A. Adjusting event; It should be disclosed in the notes to the financial statements.
B. Adjusting event; It should result in an adjustment to the financial statements.
C. Non-Adjusting event: It should be disclosed in the notes to the financial
statements.
D. Non-Adjusting event: It should result in an adjustment to the financial
statements.
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5. A company's financial statements for the year ended December 31, 2021, were
authorized for issue on February 15, 2022. On February 25, 2022, the company
discovered a significant error in its inventory valuation that materially affected the
financial statements. How should this error be addressed?
A. The error should be adjusted in the financial statements for the year ended
December 31, 2021.
B. The error should be disclosed in the notes to the financial statements for the
year ended December 31, 2021.
C. The error should be adjusted in the financial statements for the year ended
December 31, 2022.
D. The error should not be addressed in the financial statements.
6. A company's financial year-end is December 31. On January 10 of the following year,
the company becomes aware of a significant customer bankruptcy that occurred on
December 20 of the previous year, which was after the reporting date. How should
this event be accounted for in the company's financial statements?
A. It should be recognized as an adjustment in the current year's financial
statements.
B. It should be disclosed in the notes to the current year's financial statements if
material.
C. It should not be considered in the financial statements.
D. It should result in a restatement of the prior year's financial statements.
7. Which of the following is a non-adjusting event under IAS 10, "Events after the
Reporting Period"?
A. The discovery of a material error in the financial statements made after the
financial statements were authorized for issue.
B. A significant customer payment received on the reporting date, which was
expected but not yet received at the time of preparing the financial statements
C. A major fire at the company's warehouse that occurred two weeks after the
financial statements were authorized for issue.
D. A change in accounting policies to better reflect the economic substance of
transactions after the financial statements were authorized for issue.
8. Company XYZ has a reporting date of December 31, 2023. On January 15, 2024, they
receive notice of a lawsuit filed against them for a significant amount related to a
product liability issue arising from a product sold in December 2023. According to IAS
10, how should this event be treated in Company XYZ'sfinancial statements for the
year ended December 31, 2023?
A. It should be recognized as a liability and included in the financial statements
for 2023.
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B. It should be disclosed in the notes to the financial statements for 2023.
C. It should be recognized as a contingent liability in the financial statements for
2023.
D. It should be ignored as it occurred after the reporting date.
9. Why is it important for users to know the date when financial statements were
authorised for issue?
A. Because users of the financial statements need to know the nature and extent
of non-adjusting events that took place after this date.
B. Because users of the financial statements may judge whether financial
statements were issued in time.
C. Because the financial statements do not reflect events after this date.
D. Because users of the financial statements need to know the amount of profit
or loss that the entity generated during the reporting period, covered by these
statements.
10. Which of the following non-adjusting events would not result in disclosure.
A. A major business combination after the reporting period.
B. The destruction of a major production plant by a fire after the reporting period.
C. Announcing a plan to discontinue an operation.
D. Entering into insignificant commitments or contingent liabilities
Question 2
(20 marks)
Komady Limited is a manufacturer of electrical appliances. Due to a slow-down in the
economy, Komady does not have viable business opportunities to invest in. Excess cash is
invested in two different portfolios consisting of government bonds and equity instruments
respectively.
Portfolio 1 - Government bonds
The portfolio is held to earn contractual cashflows where the contractual cashflow comprises
of a return of the principal amount and interest on the principal.
Purchase price on acquisition date - 1 Januarv 2022
Transaction costs 1 January 2022
Maturity date
Coupon payment (payments in arrears on 31 December annually)
Redemption amount
N$
780 000
60 000
31/12/2026
45 000
900 000
All related cashflows took place on the due date. Assume that the acquisition price was equal
to the fair value on 01 January 2022. The effective interest rate has been determined as
6.60895%.
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Portfolio 2- Listed Shares
On 2 February 2022, 5,000 listed shares in Spures Ltd were purchased for N$ 100 000 with
brokerage fee of N$ 500. These shares form part of the portfolio of financial instruments that
are managed together and showed a pattern of short-term profit taking in the recent past.
The company does not intend to sell those shares in the near future. On 31 December 2022
the shares were trading for N$ 19 per share on the Namibian Stock Exchange (NSX).
Required:
a) Discuss how the Portfolio 1 in Government bonds should be measured and recognised
in terms of IFRS9- Financial Instruments.
(5)
b) Provide the general journal entries to account for the government bonds for the year
ended 31 December 2022. Journal narrations are required.
(8)
c) Provide the general journal entries to account for the listed shares for the year ended
31 December 2022.
(7)
Question 3
(35 marks)
You have been provided with the following information extracted from the records of Nelago
limited. The current reporting period relates to the 2023 financial year:
Statement of profit or loss and other comprehensive income for the year ended 31 October
2023.
N$
Revenue
6 460 000
Cost of sales
-3 003 000
Gross profit
3 457 000
Operating expenses
-2 574 000
Profit from operations
883 000
Finance costs
-65 000
Profit before tax
818 000
Taxation
-204 500
Profit for the year
613 500
Other comprehensive income
Gain on property revaluation
200 000
Total comprehensive income for the year
813 500
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Statement of financial position as at 31 October 2023.
2023
N$
Non-current assets
Property, plant and equipment
Note 1
2 095 000
2022
N$
1250 000
Current assets
Inventory
Trade receivables
745 800
263 500
341400
831500
187 500
265 500
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Prepaid insurance
Investments
Cash at bank
Cash in hand
63 000
75 400
2 500
52 500
230 000
93 500
2 500
Total assets
2 840 800
2 081500
Equity and liabilities
Equity
Ordinary share capital {N$1 shares)
Revaluation reserve
Retained earnings
2 096 900
400 000
300 000
1396 900
1226 200
190 000
100 000
936 200
Non-current liabilities
Long- term loan
400 000
500 000
Current liabilities
Trade payables
Taxation
Accrued finance costs
Bank overdraft
343 900
129 400
194 000
5 500
15 000
355 300
206 500
142 600
6 200
Total equity and liabilities
2 840 800
2 081500
Additional information:
1. Property, plant and equipment has been calculated as follows:
Carrying amount at 31 October
Property, plant and equipment at valuation
Accumulated depreciation
2023
2 095 000
3 620 000
-1 525 000
2022
1250 000
2 500 000
-1250 000
2. Operating expenses includes:
Depreciation
Losson disposal of non-current assets
Staff costs
Credit losses
N$
525 000
60000
1020 000
167 500
3. During the year ended 31 October 2023, non-current assets that had originally cost
N$500 000 and had a carrying amount of N$250 000 were disposed of. This was the
only disposal of non-current assets during the year. The company charges a full 12
months depreciation on all non-current assets held at 31 October.
4. During the year ended 31 October 2023 the company paid total dividends of
N$152 800.
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5. Insurance is included in operating expenses in the statement of profit or loss and other
comprehensive income.
Required:
a) Prepare the statement of cashflows for the reporting period ended 31 October 2023
in accordance with IFRSusing the direct method.
(25)
b) Prepare the reconciliation note of profit before tax with cash generated from
operations for the reporting period ended 31 October 2023.
(10)
Question 4
(20 marks)
Safari tours Ltd operates luxury bus touring company, offering tours to tourists throughout
Namibia. On 5 October 2022 one of the drivers was involved in an accident when the brakes
of the one of its luxury buses failed and the bus crashed into a building.
On 10 October 2022 Safari tours Ltd was sued by the owner of the building for damages of
N$500,000. The attorneys of Safari tours Ltd expects that the claim will succeed and that
Safari tours Ltd will have to pay N$500 000 for the damages. All indications are that the case
will probably be heard in court during the second half of 2023.
Required:
a) Discuss whether a provision should be recognised at the end of the reporting period
31 October 2022.
(7)
b) Provide the journal entries to account for the provision at 31 October 2022.
(2)
c) Assuming that at the end of 2023 the legal proceedings are still in progress.
The lawyers have however estimated that the court will rule that damages of
N$350 000 will have to be paid. In 2022 a provision was made for N$500 000.
i. Provide the required journal entry at 31 October 2023.
(3)
ii. Provide the following disclosure notes:
• Profit before tax
(2)
• Short-term provisions
(6)
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Question 5
(15 marks)
You have been provided the following information from the records of Hinda Limited for the
year ended 31 October 2023 and have been requested to assist with preparing
documentation regarding the taxation of the entity.
The profit before tax of Hinda Limited is N$300,000. This amount is calculated after taking the
following into account:
Depreciation on property, plant and equipment (PPE)
Dividends received (not taxable)
Profit on sale of PPE
Losson sale of PPE
Speeding fine (not deductible for tax purposes)
N$
60,000
12,000
10,500
15,000
1,350
The following information is also available:
Tax allowance on PPE
Recoupment on sale of PPE
Scrapping allowance on sale of PPE
N$
90,000
18,000
13,000
Required:
a) Determine the taxable income and current tax payable for the reporting period ended
31 October 2023. Assume a prevailing company tax rate of 30%.
(12)
b) Provide the general journal entries to account for the current tax payable
(3)
END OF QUESTION PAPER
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