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FAC601Y-FINANCIAL ACCOUNTING 200-1ST OPP-NOV 2024 |
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nAmlBIA unlVERSITY
OF SCIEn CE Ano TECHn OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING (CHARTERED ACCOUNTANCY)
QUALIFICATION CODE: 07 BACC
COURSE CODE: FAC601Y
LEVEL: 6
COURSE NAME: FINANCIAL ACCOUNTING
200
SESSION: 9 NOVEMBER 2024
PAPER: THEORY AND PRACTICAL
DURATION: 188 MIN
Reading time: 25 Min
Writing time: 163 Min
MARKS: 125
Final Assessment Opportunity 1 2024 - Required
EXAMINER(S) M E Cloete and C Mahindi
MODERATOR: G Katula
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QUESTION 1
TO BE ANSWERED ON A SEPARATE PAGE
YOU ARE REQUIRED TO:
MARKS
(a)
Discuss and indicate, with supporting reasons, the appropriate date (4)
of acquisition of Cooler Ltd by Heat Ltd.
(b)
Calculate the purchase price (total consideration) that Heat Ltd will (6)
pay for the assets and liabilities of Cooler Ltd.
(c)
Prepare the journal entries that would be necessary to account for (15)
the change in estimate of Frozen (pty) Ltd in the financial year ended
31 December 2024. Narrations are required.
(d)
Prepare the following disclosure relating to the change in estimate for
the year ended 31 December 2024 in accordance with the
International Financial Reporting Standards for Frozen (Pty) Ltd:
i) Statement of Comprehensive income;
(6)
ii) Profit before tax note; and
(4)
iii) Change in accounting estimate note;
(3)
Comparatives are required.
(e)
Prepare the journal entries that would be processed by Heat Ltd (12)
relating to its contract with Pick n Swipe for the year ended 31
December 2024 and 31 December 2025, to account for the 3-year
service contract. Narrations are required.
(f)
Discuss and justify, with reference to International Financial (10)
Reporting Standards, whether a provision for servicing costs of N$90
000 should be recognized as a liability in the financial statements of
Heat Ltd at 31 December 2024.
(Source: Adapted from GAAP Graded Questions - CL Service & DL Kolitz)
TOTAL MARKS: QUESTION 1
{60)
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QUESTION 2
TO BE ANSWERED ON A SEPARATE PAGE
YOU ARE REQUIRED TO:
(a)
Calculate the carrying amount of each category of inventory as at
31 October 2024.
MARKS
(17)
(b)
Present and disclose inventories in the statement offinancial position (4)
of Namibia Desert Manufacturers Limited as at 31 October 2024 in
accordance with the requirements of IAS 2 Inventories.
(c)
Briefly explain what is meant by the specific identification formula (4)
method that may be used in determining the cost of inventory items
and provide an appropriate example.
TOTAL MARKS: QUESTION 2
(25)
QUESTION 3
TO BE ANSWERED ON A SEPARATE PAGE
YOU ARE REQUIRED TO:
(a)
With regard to the new website, discuss the criteria used to
determine whether the costs incurred during the reporting period
ended 31 October 2025 will be capitalised.
MARKS
(10)
(b)
Discuss how the old website will be treated in the records of
(13)
ProConsult Limited for the reporting period ended 31 October 2024.
Show appropriate calculations.
TOTAL MARKS: QUESTION 3
(23)
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QUESTION 4
TO BE ANSWERED ON A SEPARATE PAGE
YOU ARE REQUIRED TO:
MARKS
(a)
Prepare the cash flows from Operating activities section of the
statement of cashflows of Windhoek Traders Limited for the
reporting period ended 31 August 2024 in compliance with IAS 7
Statement of cashflows using the indirect method. Show all
workings.
TOTAL MARKS: QUESTION 4
Presentation and Communication
TOTAL MARKS FINAL ASSESSMENT 6 OPPORTUNITY 1
(15)
(15)
(2)
(125)
<<END OF REQUIRED>>
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
.
QUALIFICATION : BACHELOR OF ACCOUNTING (CHARTERED ACCOUNTANCY)
QUALIFICATION CODE: 07 BACC
COURSE CODE: FAC601Y
SESSION: 9 NOVEMBER 2024
LEVEL: 6
COURSE NAME: FINANCIAL ACCOUNTING
200
PAPER: THEORY AND PRACTICAL
DURATION: 188 MIN
Reading time: 25 Min
Writing time: 163 Min
MARKS: 125
Final Assessment Opportunity 1 2024- INFORMATION
EXAMINER(S) M E Cloete and C Mahindi
MODERATOR: G Katula
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2 This paper consists of FOUR separate questions.
3. Write clearly and neatly.
4. Start each question on a new page and number the answers clearly.
5. No programmable calculators are allowed.
6. Round all numbers to the nearest whole number.
7. Show and reference all workings clearly.
8. 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.
9. Any resemblance to any people, places, organisations, or anything are purely
coincidental.
THIS QUESTION PAPER CONSISTS OF 6 PAGES (Including the front page)
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QUESTION 1
(60 Marks)
Heat Limited is a company listed on the Namibian Stock Exchange (NSX), operating in Namibia
that specializes in the manufacturing of solar equipment. Its products include items such as solar
lights, solar geysers etc. which it sells. Heat Ltd also provides maintenance services on the
products that it sells, to ensure that customers can use the products for long periods of time. Heat
Limited has a 31 December financial year end.
Cooler Limited
On 30 September 2023, Heat Limited decided to expand it's business by acquiring the assets
and liabilities of Cooler Limited (Cooler Ltd) in a business combination. Cooler Ltd has a 31
December year end. Heat Limited signed a legal agreement which states that it would obtain
direct control over majority of the assets and liabilities of Cooler Ltd on 1 October 2023, provided
that approval is obtained by the Competition Commission. The Competition Commission has been
known to reject similar transactions in the past, however, the management of Heat Ltd are of the
opinion that the Commission's approval is more of a formality and thus, they believe the assets
and liabilities of Cooler Ltd should be included in the financial statements of Heat Ltd from 1
October 2023. The final approval of the Competition Commission was however, only obtained on
1 January 2024. The assets and liabilities taken over in terms of the transaction represent a
"business" as defined in IFRS 3 Business combinations.
Heat Ltd has agreed to pay the following as consideration for Cooler Ltd:
• Heat Ltd will issue 100 000 of its own shares to Cooler Ltd. The average market
price from 1 October 2023 to 1 January 2024 was N$30 per share, and the
shares of Heat Ltd traded on the NSX at N$35 per share on 1 January 2024.
• Heat Ltd will make a cash payment of N$ 1 600 000 at the acquisition date and will
make a further cash payment of N$ 1 520 875 on 1 January 2027. The contract
states that no interest is charged on this amount. The market related interest rate
available to Heat Ltd for financing purposes is 15% per annum.
• Equipment with a carrying amount of N$ 420 000 and a fair value of N$ 750 000
was transferred to the owners of Cooler Ltd on 1 January 2024 as part of the
consideration as well.
Frozen (Pty) Ltd
One of Heat Ltd's other subsidiaries is Frozen (Pty) Ltd ("Frozen") who specializes in the sale
of ice-cream and frozen yoghurt. Frozen was acquired in 2017, when Heat identified an
opportunity in the market. Frozen has a 31 December year end.
In order to keep all its products at the right temperature, Frozen purchased equipment on 1
January 2021 for N$ 400 000. The equipment has the following details:
• This equipment has been depreciated at 20% per annum on the reducing balance
method, but during 2024, management made the decision to change the method of
depreciation to the straight-line method instead.
• Based on this, management estimated the equipment's remaining useful life to be 3 years
(calculated from 1 January 2024) and that its residual value is N$ 12 800.
• Frozen uses the re-allocation method to account for its changes in accounting estimates.
The below statements were drafted for inclusion in Frozen's individual financial statements for
the year ended 31 December 2024, but before taking into account the decision to change the
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method of depreciating equipment (i.e. journal entries processed had been based on the old
method of estimating depreciation).
Frozen (Pty)Ltd
Statement of Comprehensive Income (Draft)
For the year ended 31 December 2024
Revenue
Profit before depreciation
Depreciation - equipment
Profit before tax
Income tax expense
Profit for the period
Other comprehensive income
Total comprehensive income
2024 (N$)
520 000
352 080
(220 480}
131 600
(65 500}
66 100
0
66 100
2023 (N$)
460 000
320 000
(225 600}
94 400
(42 200}
52 200
0
52 200
Frozen (Pty)Ltd
Statement of Changes in equity (Draft)
For the year ended 31 December 2024
Share Capital
Balance 1 January 2023
Total comprehensive income
Dividends
Balance 31 December 2023
Total comprehensive income
Dividends
Balance 31 December 2024
100 000
100 000
100 000
Retained
Earnings
(20 000)
52 200
(10 000)
22 200
66 100
(14 000)
74 300
Total (N$)
80 000
52 200
(10 000)
122 200
66 100
14 000
174 300
Pick n Swipe
On 1 January 2024, Heat Ltd signed a contract with a customer, Pick n Swipe, agreeing to
provide maintenance services to Pick n Swipe for solar equipment bought. The services will be
provided over a 3-year period at a contract price of N$87 000, payable in advance.
The estimated costs of providing the annual maintenance services are as follows:
Year1
Year2
Year3
Estimated costs (N$)
21 750
32 625
48 900
Heat Ltd considers a reasonable mark up on cost of 20% for all its performance obligations.
Additional information relating to the contract:
• All services are performed at year end.
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• The effect of any financing component is considered insignificant.
• Each of the three annual services is considered to be individually distinct, in terms
of the contract.
In addition to the above, Heat has its own plant and machinery used to manufacture solar
equipment that needs to be serviced on an annual basis. In the process of finalizing the
financial statements for the year ended 31 December 2024, the financial manager noted
that the plant and machinery has moving components that require servicing.
The accountant has obtained quotes that estimate that the annual cost of servicing these
components will amount to N$90 000. He has hence authorized the following accounting
entry to be processed each month:
DR
CR
Servicing costs (SPL)
Provision for servicing costs (SFP)
Monthly provision of servicing costs.
7 500
7 500
The accountant is of the opinion that the balance in the provision for servicing costs account
of N$90 000 should be recognized as a liability on the statement of financial position at 31
December 2024 to cover the estimated N$90 000 servicing cost in January 2025.
QUESTION 2
(23 Marks)
Namibia Desert Manufacturers Limited (NDM) is a company based in Windhoek. They
manufacture safety equipment to be used by companies operating in the Green Hydrogen
industry. These equipment include amongst others Personal Protective Equipment, Monitoring
Equipment and Hazard detection devices.
The following information has been provided to you for the reporting period ended 31 October
2024.
Inventories
Finished goods
Raw materials: Fabrics
31-Oct-24 31-Oct-23
N$
N$
?
900,000
307,800 360,000
Production costs:
Raw materials: Fabrics (Incl. VAT)
Salaries and wages
Delivery costs from suppliers (Incl. VAT)
Transportation costs to customers (Incl VAT)
Administration costs
Depreciation Factory
3,915,000
810,000
265,500
531,000
1,912,500
202,500
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Additional information:
All amounts exclude VAT unless otherwise stated.
Inventories are valued at the lower of cost and net realisable value.
Sales for the period are N$7,383,000 (Incl. VAT). The entity maintains a constant gross profit
percentage of 25% on the selling price.
NDM Ltd utilises the perpetual inventory system to account for inventory and utilises the FIFO
method to value inventories.
QUESTION 3
(25 Marks)
ProConsult Accounting Services operates entirely online, providing financial consulting and
accounting services to a global clientele. The website serves two key functions: advertising
and promoting the firm's services, and facilitating client interactions, including document
submissions, consultation bookings, and payment processing.
On 31 October 2024, ProConsult's website was severely compromised as a result of a system
update which rendered the entire system non-functional. Due to the extensive damage, the
management of ProConsult made the decision to develop a new website. The old website's
domain and functionality were offered for sale to the NUST Informatics department, as it could
be repurposed as a teaching tool for cybersecurity students. All confidential information had
been removed from the old site to prevent any potential security breaches. The NUST will
undertake the repurposing of the website to a teaching tool themselves once the sale process
has been finalised.
The old website was initially being amortized over a four-year period with a nil residual value.
As of 1 November 2023, the website had a carrying amount of N$60,000, with a remaining
useful life of three years. It was determined that the old website could be sold for N$5,000, with
the sale expected to be finalized by 1 February 2025.
Development of the new website to facilitate client interactions commenced on 1 November
2024, with completion on 30 November 2024, on which date it became available for use. The
development of the new website cost N$150,000 and the entire amount was paid on the same
date.
ProConsult Limited accounts for Intangible assets using the cost model.
QUESTION 4
(17 Marks)
Windhoek Traders Ltd is a small manufacturer operating in Windhoek with a financial year end
of August. You have been presented with the below list of balances from the reporting periods
ended 31 August 2024 and 2023.
2024
Investment Property
i. 576,000
Property, plant and equipment (Carryinq amount) ii. 849,690
2023
522,000
330,300
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Investment in bonds
Inventory
Accounts receivable
Cash and cash equivalents
Ordinary share capital
Retained earninQs
LonQterm loan
Accounts payable
Bank overdraft
Shareholders for dividends
Current tax payable
iii.
54,000
72,000
117,000
19,800
1,688,490
648,000
790,290
126,000
32,400
-
72,000
19,800
1,688,490
36,000
97,200
72,000
-
1,057,500
576,000
217,800
144,000
39,600
21,600
54,000
4,500
1,057,500
Additional information:
1. The Investment property comprises a warehouse that is leased out to tenants in terms
of an operating lease. Windhoek Traders Ltd accounts for investment property using
the fair value model. There has not been any acquisition or disposal of investment
property during the current reporting period.
ii. The fixed asset register of reflects the following items of PPE:
Equipment at cost
Motor vehicles at cost
Accumulated depreciation: Equipment
Accumulated depreciation: Motor vehicles
2024
619,380
504,000
- 129,690
- 144,000
2023
342,000
270,000
- 162,000
- 119,700
During the financial year ended 31 August 2024, equipment with a cost price of
N$162,000 and accumulated depreciation of N$48,600 was sold. A profit on disposal
of the equipment was realised at an amount of N$3,600.
iii. The investment in bonds is a long-term investment the generates interest income on
an annual basis. The income from the investments in the current reporting period
amounted to N$15,300. Investment income from government bonds is classified as
income from operating activities.
iv. Dividends declared during the period amounted to N$63,000
v. Current tax for the period amounted to N$313, 110
vi. Revenue and cost of sales and other operating expenses amounted to N$1,440,000,
N$360,000 and N$148,770 respectively.
vii. Total finance cost for the reporting period ended 31 August 2024 amounted to
N$14,940.
viii. Profit before tax has correctly been determined at N$948,600.
<<END OF INFORMATION>>
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