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FAC701Y-FINANCIAL ACCOUNTING 300-2ND OPP-DEC 2025 |
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n Am I B I A u n IVER s I TY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING (CHARTERTED ACCOUNTANCY)
COURSE CODE: FAC701Y
DATE: 14 NOVEMBER 2025
COURSE NAME: FINANCIAL ACCOUNTING
300
PAPER: PRACTICAL AND THEORY
DURATION: 180 MINUTES (3 HOURS)
READING TIME: 30 MINUTES
WRITING TIME: 150 MINUTES
MARKS: 100
ASSESSMENT 6 2025- OPPORTUNITY 2- INFORMATION
EXAMINERS:
MODERATOR:
G. Kafula
Z. Stellmacher
Z. Patel
INSTRUCTIONS
• This question paper is made up of TWO (2) questions.
• Answer BOTH questions in blue or black ink only. NO PENCIL.
• You are allowed to use a non-programmable or financial calculator and the IFRS standards
during the assessment.
• You are advised to pay due attention to expression and presentation. Failure to do so will cost
you marks.
• Start each question on a new page in your answer booklet and number your answers correctly.
• Show all your workings and where relevant, round all answers to two decimal places.
• Questions relating to this paper may be raised in the initial 30 minutes after the start of the
assessment. Thereafter, candidates must use their initiative to deal with any perceived errors or
ambiguities and any assumption made by the candidate should be clearly stated.
• Please take note that all names and case studies used are fictional.
THIS QUESTION PAPER CONSISTS OF 11 PAGES {Including this front page)
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QUESTION 1
50 MARKS
E-quip Ltd is a listed company that leases construction equipment to the public. In recent years, the
construction industry has experienced an upswing, and the company has made significant profits. E-quip Ltd
has decided to expand its operations by making the follow ing investments:
Mach Ltd
On 1 January 2024, Equip Ltd acquired 170 000 ordinary shares of Mach Ltd . As at acquisition date, E-quip
Ltd had control over Mach Ltd.
The identifiable assets and liabilities of Mach Ltd were fairly valued at the acquisition date, except for the
following:
• Accounts receivable:
• Land :
Overvalued by R 20 000
Undervalued by R 40 000.
The carrying value of land was R300 000 on 1 January 2024. On 31 December 2024, the land's fair value
was R420 000. The revaluation of land was not recorded in the accounting records of Mach Ltd as it applies
the cost model in terms of IAS16 as its policy for owner-occupied property.
The purchase consideration was settled as follows:
• Cash of R 150 000 was paid on the same date.
• 20 000 ordinary shares in Derm Ltd with a fair value of R 4.00 per share on 1 January 2024. These shares
were originally issued at a price of R 3 per share.
• Equipment, with a carrying amount of R 800 000 and a fair value R 900 000 on the acqu isition date.
The newly appointed assistant accountant, who has lim ited knowledge of Group Statements, passed the
following proforma at-acquisition journal:
Debit
Credit
Share capital
Retained earnings
Land (420 000 - 300 000)
Gain on bargain purchase
Accounts receivable
Investment in Mach Ltd (150 000 + 60 000 + 800 000)
Deferred tax [(120 000 x 27%) + (-20 000 x 27%)
Acquisition of Mach Ltd
170 000
1599 690
20 000
27 000
120 000
686 690
1 010 000
Sale transaction
On 31 December 20X22, E-quip Ltd sold 10% of its shares in Mach Ltd to the non-controlling shareholders
for R145 000.
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Logos Ltd
E-quip Ltd used the services of an external logistics company (B. Ltd) to deliver equipment to customers
country-wide. Due to the fast growth of E-quip Ltd, the Board of Directors, decided that it would be more
cost-effective to obtain shares in a logistics company for this purpose.
Equip Ltd acquired significant influence in Logos Ltd by purchasing 35 000 ordinary shares on 31 March 2024,
for R250 000. The assets and liabilities of Logos were fairly valued at acquisition date. At year-end, the
market value of the investment in Logos Ltd was R 295 000.
During the year, Logos Ltd purchased inventory from E-quip Ltd for R 350 000. E-quip Ltd sold the inventory
to Logos Ltd at a profit mark-up of 25% on the cost price. On 31 December 2024, Logos Ltd had inventory
on hand that was purchased from E-quip Ltd amounting to R 120 000.
The newly appointed assistant accountant prepared the following journal entries to account for the above
intragroup transaction of inventory for the year ending 31 December 2024.
Investment in associate {120 000 x 65%)
Cost of sales {120 000 x 35%)
Revenue
Elimination of unrealised profit in closing inventory
Debit
Credit
78 000
42 000
120 000
Income tax expense (78 000 x 27%)
Deferred tax
Tax implication of unrealised profit in closing inventory
Debit
Credit
21060
21060
The following are extracts from the financial statements of the entities in the E-quip Ltd Group for the year
ended 31 December 2024:
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STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2024
Revenue
Cost of Sales
Gross profit
Other income
Other expenses
Profit before tax
Income tax expense
PROFIT FOR THE YEAR
Other comprehensive income
E-quip
Ltd
R
6 592 455
(3 691911)
2 900 544
Mach Ltd Logos Ltd
R
3 522 401
(1099 422)
2 422 979
R
1 825 253
(899 991)
925 262
595 486
101567 232 548
(403 286)
(122 451) (133 452)
3 092 744
2 402 095 1024 358
(901 304)
(802 405) (319 633)
2191440
1599690 704 725
TOTAL COMPREHENSIVE INCOME FOR
THE
YEAR
2191440
1599 690 704 725
EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31
DECEMBER 2024
Balance at 1 January 2024
Changes in equity for 2024:
Profit for the year
Dividends paid (31 December 2024)
Balance at 31 December 2024
E-quip Ltd
Retained
earnings
R
Mach Ltd
Retained
earnings
R
Logos Ltd
Retained
earnings
R
1342 560 1010 011 545 205
2 191440
(400 000)
3134 000
1 599 690
(200 000)
2 409 701
704 725
(100 000)
1149 930
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STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2024
ASSETS
Non-current assets
Property, plant and equipment
Investment in Mach Ltd at cost
E-quip Ltd Mach Ltd logos Ltd
1 842 900
1130 000
944 655
756 311
Investment in Logos Ltd at cost
250 000
Total non-current assets
3 222 900 944 655 756 311
Current assets
Cash and cash equivalents
Inventory
Trade and other receivables
Total current assets
Total assets
1086 866
606 543
458 657
2 152 066
5 374 966
1245000
504 298
321608
2 070 906
3 015 561
921357
326 544
223 103
1471014
2 227 325
EQUITY
Share capital:
500 000 ordinary shares
200 000 ordinary shares
100 000 ordinary shares
Retained earnings
Total equity
1000 000
200 000
100 000
3 134 000 2 409 701 1149 930
4 134 000 2 609 701 1 249 930
LIABILITIES
Non-current liabilities
Deferred tax liability
Total non-current liabilities
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
320 000
320 000
198 000
198 000
121000
121000
920 966
920 966
5 374 966
207 860
207 860
3 015 561
856 395
856 395
2 227 325
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Other information
1. The profits of Mach Ltd and Logos Ltd were earned evenly throughout the current year.
2. Investments in subsidiaries, associates and joint ventures are measured at cost in E-quip Ltd's separate
financial statements.
3. The Equip Ltd Group measures non-controlling interests at their proportionate share of the acquiree's
identifiable net assets at the acquisition date.
4. Assume a normal tax rate of 27% and that Namibia is subject to capital gains tax. The capital gains tax
(CGT) inclusion rate is 80%. You may assume that both tax rates have remained unchanged.
5. Goodwill has correctly never been impaired.
6. Each share carries one vote and the issued share capital of all entities in the group remained unchanged
since 1 January 2024 .
7. All the companies within the E-quip Ltd Group have a 31 December year end.
YOU ARE REQUIRED TO:
Marks
a)
Critically discuss the accuracy (accounts and amounts) of the proforma at-
acquisition journal entry prepared by t_he new assistant to account for E-quip's
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investment in Mach Ltd in the E-quip Group's financial statements. Do NOT
prepare any correcting journal.
Your answer should include what the accountant did correctly and what she did
incorrectly.
b)
Prepare any correcting journal entries you deem necessary to correctly account
~or the sale of inventory from E-quip Ltd to Logos Ltd in the consolidated
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accounting records of the E-quip Ltd Group for the year ended 31 December
2024.
Prepare only the asset section of the consolidated statement of financial
c) position of the E-quip Ltd Group for the year ended 31 December 2024.
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d)
Prepare the "Investment in associate" note to the consolidated financial
statements of the E-quip Ltd Group as at 31 December 2024.
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The following information is not required:
• Unrecognised share of losses; and
• Risks relating to associates
e) Discuss the impact the sale transaction (selling 10% shares in Mach Ltd) on 31 5
December 2024 will have on the E-quip Group.
Your discussion should include the type of transaction it is and how the E-quip
Group will account (include amounts) for this transaction in the financial year.
Please note:
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Your answer must comply with the requirements of International Financial
Reporting Standards (IFRS).
Comparative figures to the consolidated financial statements are not required.
All calculations must be shown, and all amounts must be rounded off to the
nearest dollar.
Total Marks Question 1
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UNAM (Adapted)
QUESTION 2
SO MARKS
FarmX Ltd ("FarmX") is a farming enterprise based in Piesanghoek, Makhado, South Africa.
FarmX has over the years grown to become one of the largest producers of potatoes and
pumpkins in Africa. FarmX is listed on the Johannesburg Stock Exchange (JSE) and has a 31 -
March year end.
The following relates to some of the transactions, assets & liabilities of FarmX for the year
ended 31 March 2024:
1. Farm in KZN
On 1 February 2024, FarmX acquired a farm in KZN, KwaZulu-Natal for Rl 125 000. The farm
was acquired to be used as an expansion of its current potato farming business within the
KwaZulu Natal province . The strategic location of the farm and the favorable climate conditions
in the area make it the ideal location for potato farming. The farm spans an area of 650
hectares and features a large river running through it. FarmX is legally entitled to use the
water from the river for irrigation purposes. The river is one of the largest in South Africa and
never runs dry. Over the years, the river has proved to be a reliable water source for most
communities in the area.
On 1 April 2024, you received the following email from the group Chief Financial Officer (CFO) of
FarmX in relation to the river running through the farm:
From: Ms. Sibongile Ngomane {Group
CFO} To: FAC701 Y Student
Date: 1 April 2024
Subject: Recognition of the river in the financial
statements Good Day
Hope this emailfinds you well.
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I have been discussing the issue around the river flowing through the newly acquired KZN
farm with the Group Chief Executive Officer. He is of the view that this river should be
recognized as a separate asset in the FarmX financial statements.
This will also have a positive impact on the financial position of the
company. Kind Regards
Ms. Sibongile Ngomane CA {SA)
Group CFO - FarmX Ltd
2. Contract with SaveU supermarket
On 1 August 2023, FarmX entered into an agreement with SaveU supermarket in Eswatini to
supply potatoes at R20 per kg. The agreement stipulated that if SaveU supermarket buys more
than 10 000kgs of potatoes within a twelve-month period, the price per kg will be
retrospectively reduced to Rl 7. At the time of the agreement and throughout the period
when the potatoes were sold, it was expected that SaveU supermarket would qualify for the
rebate.
On 31 March 2024, FarmX delivered 8 S00kgs of potatoes to SaveU supermarket. FarmX still
estimated that the sales to SaveU would exceed 10 000kgs by 31 July 2024. All sales made to
SaveU supermarket are settled in cash on the date of delivery.
The junior accountant has prepared the following journal entry to account for the agreement
between FarmX and SaveU supermarket for the year ended 31 March 2024:
31 March 2024
Bank (SFP)
Revenue (P/L)
DR
170 000
CR
170 000
3. Spraying tractors
On 1 May 2022, the directors of FarmX decided to lease 5 spraying tractors from Bafana
leasing (Pty) Ltd ("Bafana") . The lease agreement was correctly determined to contain a lease
in terms of IFRS 16, Leases. Below is an extract from the signed lease agreement between
FarmX and Bafana:
Commencement date ....................................................... ..................................... .. 1 May 2022
Annual instalment (paid in arrears on 30 April) ......... ...... .. ...... ............................... R900 000
FarmX's incremental borrowing rate ....... ....... .. ............. ............................. ................... 12.3% p.a.
• The lease term is for a non-cancellable period of 3 years with an option to renew the
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lease for an additional 2 years. The directors of FarmX are not sure whether they will
exercise the renewal option as this will depend on the circumstances at the point of
renewal;
• FarmX incurred and paid legal and administrative costs of R75 000 to enter into the lease;
• Ownership of the tractors will not transfer to FarmX at the end of the lease term;
• The implicit interest rate is indeterminable;
• The tractors were estimated to have a useful life of 5 years on 1 May 2022;
• SARS recognizes the lease of the tractors as a rental agreement in terms of part (b} of the
definition of an instalment credit agreement in the VAT Act, which means all lease
payments are deductible when paid.
Additional information:
• The profit before tax of FarmX for the year ended 31 March 2024 amounted to RS 550
000. The profit was calculated before taking into account the effect of all the transactions
above but after taking into account the following:
o Dividends received in respect of a 20% shareholding interest acquired in a JSE listed
farming company, Chewa Ltd ("Chewa"} in 2023. Chewa declared a final dividend of
RSSO 000 to all registered shareholders on 31 December 2023 . The dividend was paid
on 28 February 2024.
o Legal fees amounting to R133 000 were incurred and paid by FarmX during the 2024
financial year. The legal fees are not deductible for tax purposes.
• The opening deferred tax liability as per the audited annual financial statements for the
year ended 31 March 2023, amounted to R22 646. You should assume this amount to be
correct in all respects, the information provided in the scenario is not sufficient to
recalculate it.
• The first and second provisional tax payments made during the current financial year,
which have not been recorded in the accounting records of FarmX, amounted to R190
000 and RSS 500 respectively. FarmX had an assessed loss of R122 000 for the year ended
31 March 2023. A deferred tax asset was provided for against the assessed loss as FarmX
anticipated to have sufficient taxable profit in future against which any unused tax losses
can be utilized .
• The South African normal tax rate is 27% and the capital gains inclusion rate is 80%. These tax
rates were also applicable in the previous financial year.
• The South African Revenue Service (SARS} allows a 5% annual building allowance on the
processing plant in terms of section 13(1) of the Income Tax Act, not apportioned for
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periods shorter than a year.
• SARS allows a tax allowance on tractors over a period of 5 years on the straight-line
method in terms of section ll(e) of the Income Tax Act, apportioned for periods shorter
than a year.
• Deferred tax is provided for on all temporary differences in accordance with the statement of
financial position approach. There are no other items causing temporary differences,
except for those mentioned in the question . The company will have sufficient taxable
profits and capital gains in the future, against which any unused tax losses can be utilized.
• All property, plant and equipment are accounted for on the cost model in accordance with IAS
16
Property, plant and equipment.
4. Assumptions
All amounts are material.
Ignore the implications of Value-Added Tax (VAT}.
YOU ARE REQUIRED TO:
a) Write a memorandum to the Group Chief Financial Officer (CFO} of
FarmX advising her on whether the river flowing through the KZN farm
is an asset and whether it can be recognized as a separate asset in the
accounting records of FarmX Ltd for the year ended 31 March 2024,
with reference to the Conceptual Framework.
Marks
14
Communication mark- Presentation
1
Communication mark- Logical argument
1
b) Critically evaluate, with reasons, the journal entry processed by the
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junior accountant of FarmX Ltd in respect of the agreement entered
into with SaveU supermarket for the financial year ended 31 March
2024.
• Discuss both correct and incorrect aspects of the journal entry
where applicable.
• Support your discussion with calculations and provide any
correcting journal entry/(s}, if any.
• Do not include any tax related discussions or calculations.
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c) Calculate the amount of current tax payable to the South African
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Revenue Service {SARS) as it would be disclosed in the statement of
financial position of FarmX Ltd as at 31 March 2024.
• The movement in temporary differences in the current tax
calculation should be calculated using the statement of financial
position approach.
• All assets and liabilities evident from the scenario should be
considered, even if they have no deferred tax consequences.
d} In a recent engagement with the Group Chief Financial Officer {CFO) of
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FarmX Ltd, she indicated that the company will not be paying any
income tax due to SARS as this may deprive the executive management
team from earning their bonuses.
Discuss any ethical considerations you may have regarding the
suggestion by the Group CFO around the non-payment of income tax
to the South African Revenue Services, in terms of the SAICA Code of
Professional Conduct (CPC) and any other applicable legislation.
Total Marks Question 2
so
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