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FAC701Y-FINANCIAL ACCOUNTING 300-1ST OPP-NOV 2025 |
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nAmlBIA UnlVERSITY
OF SCI En CE Ano TECH n OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING {CHARTERTED ACCOUNTANCY)
COURSE CODE: FAC701Y
DATE: 09 OCTOBER 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 1- 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 8 PAGES (Including this front page)
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QUESTION 1
47 MARKS
Snap Ltd (Snap) is a photography company that was established in the early 2000's. The
company specialises in photography of events, portraits and fashion . The staff complement
has grown over the years, and Snap has become a well-known name in the photography
circles, both in Namibia and internationally. You are assisting the reporting team to finalise
the Snap Ltd Group (Snap Group) financial statements for the year ended 30 September 2024.
The following companies are part of Snap's portfolio.
Snap holds 75% of the ordinary share capital in lnsta. It acquired control of lnsta in 2019. lnsta
is involved in digital printing. The company was also established in the 2000's when the
demand for professional photography printing was increasing.
Shortly after acquisition, lnsta started selling inventory to Snap. lnsta charges a mark-up of
25% on cost price. Total sales for the current year amounted to N$ 978 000 (2023: N$789 500).
On 30 September 2024, Snap had inventory on hand purchased from lnsta of N$164 500
(2023: N$255 000).
lnsta wanted to expand its network and grow its footprint within the photography space. lnsta
approached companies that are external to the Snap Group - Lebelo (Pty) Ltd (Lebelo) and
Codak (Pty) Ltd (Codak). lnsta, Lebelo and Codak contractually agreed to form a new company
named TacTic (Pty) Ltd (TacTic) and have joint control over it. TacTic will oversee the marketing
and brand awareness of the companies. TacTic is a separate juristic person and registered as
a company in terms of the Companies Act. The financial year end was agreed to be same as
the other companies within the group.
All three parties manage TacTic and act collectively to direct the activities that significantly
affect the returns of the arrangement. All decisions about the relevant activities require the
unanimous consent of lnsta, LebeloF and Codak. Any cash flow shortages of TacTic will be
financed by the parties in accordance with their ownership interest. TacTic will own all its
assets and liabilities and none of the three parties have rights to the residual interest ofTicTac.
Each party paid N$56 000 for a 33,3% share of the equity shares of TacTic. No gain on bargain
purchase nor goodwill arose from this transaction. Operations in TacTic began on 1 February
2024. TacTic incurred a loss of N$66 500 for the period ended 30 September 2024.
Snap acquired a 48% interest in Gramalot on 1 April 2024. At that date, Gramalot had a share
capital of N$500 000. The purchase consideration of N$1 600 000 will be settled in cash on 1
December 2024. The other two shareholders, Athi Quthing (AthiQ) and Khaya Noah hold a
20% and 32% interest, respectively. Each share entitles the holder to one vote. Any decisions
regarding the operating and financial activities of Gramalot require majority vote.
AthiQ's involvement in the entity is minimal due to her various commitments and she signed
an agreement on 28 May 2024, with Snap, appointing Snap as her proxy for her vote for all
shareholder meetings as of 1 June 2024. AthiQ is still entitled to her share of returns generated
by Gramalot.
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An assessment of Gramalot's identifiable net assets was done by Snap on 1 April 2024 and it
revealed the following:
•
Land with a carrying amount of N$750 000, had a fair value of N$857 000.
•
Office equipment with a carrying amount of N$280 550, had a fair value of N$328 500.
The remaining useful life of the office equipment was 5 years with no residual value.
On 1 June 2024, the fair value of the land had increased to N$861 000, and the office
equipment's fair value was now N$317 550 with the carrying amount being N$224 440.
The trial balances for the year ending 30 September 2024 of the companies within the Snap
Group have been prepared by the respective bookkeepers and accountants in each company
and the extracts are given below.
Snap
lnsta
Gramalot
Dr I (Cr}
Dr/ (Cr}
Dr I (Cr}
N$
N$
N$
Profit before tax
(4 575 000}
(2 832 000} (1750000}
Tax expense (P/L}
1268 750
873 360
512 500
Dividends declared - 27 September 2024 750 000
550 000
265 000
Retained earnings - 1 October 2017
(3 553 900}
(2 954 000} (1680 000}
Sn ap's bookkeeper has provided some notes on the following transaction in Snap's accounting
records:
On 1 April 2024, Snap issued a Rl 000 000 6% convertible bonds to third parties external to
the Snap group. The bonds can be converted into a fixed number of ordinary shares of Snap
at the option of the bond holder on 31 March 2027. The bookkeeper incorrectly recognised
the cash received and raised the liability of N$1 000 000. He also recognised interest expense
of N$30 000, which is included in other expenses.
Annual fair interest rates on similar bonds without the conversion option are as follows:
11 April 2024
10%
30 September 2024
9%
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Additional information
1. The Snap Group applies the cost model on all its property, plant and equ ipment in
terms of
/AS 16, Property, Plant and equipment.
2. The Snap Group measures its non-controlling interest at their proportionate share of
the acquiree's identifiable net assets at the acquisition date.
3. Investments in subsidiaries, associates and joint ventures are measured at cost in
Snap's separate financial statements.
4. You may assume a fair pre-tax interest rate of 7%, compounded annually.
5. The Namibian normal tax rate is 27% and the capital gains inclusion rate is 80%. You
may assume that both tax rates have remained unchanged since 1 January 2019.
6. You may assume that profits have been earned evenly throughout the year.
7. The goodwill in Gramalot has never been impaired.
8. All the companies in the Snap Group have a 30 September year end.
r,,ou ARE REQUIRED TO
Marks
a) Discuss whether the joint arrangement In TacTic (Pty} Ltd should be classified as a
joint operation or a joint venture in accordance with IFRS 11, Joint Arrangements in 8
the consolidated financial statements of the Snap Group.
Regardless of your answer in (a), you may assume, where necessary, that TacTic is
a joint venture
for the remainder of the question.
b) Assuming that from 1 June 2024 Snap Ltd has control of Gramalot, Calculate the 13
goodwill or gain from a bargain purchase amount that would arise on
acquisition of Gramalot by Snap for the year ended 30 September 2024.
You may assume that Snap has control of Gramalot from 1 June 2024.
c) Prepare the pro forma consolidation journal entries in respect of the 10
intragroup
transaction between Snap and lnsta that will be processed for the year ended
30 September 2024.
d) Prepare an extract from the statement of profit or loss and other comprehensive 15
income
of Snap Group for the year ended 30 September 2024. Start your extract at the profit
before tax line item. You may ignore the attribution of profits between parent and
non-
controlling interests.
Communication skills: Layout and
1
presentation
Total Marks Question 1
47
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QUESTION 2
53 MARKS
Chocolat Ltd is a listed company, established in 2019, which produces organic chelate. The
founders of the company identified the gap in the market for chocolate with a limited sugar
content. The company's head office and manufacturing plant is based in Swakopmund. The
year-end of the company is 30 June.
Lease agreement - manufacturing machine
Chocolat Ltd entered a lease agreement to lease a new manufacturing machine from Lezzee
Ltd at its cash price of N$1 250 000 for a period of three years as of 1 October 2021. The
terms of the contract are as follows:
• Lezzee Ltd granted Chocolat Ltd the right to use the manufacturing machine. Chocolat
Ltd will have exclusive use of the machine and make all decisions regarding the use of
the machine.
• Chocolat Ltd would make bi-annual payments of N$ 250 000 to Lezzee Ltd. These
payments will be made in advance, starting on 1 October 2021.
• Ownership of the manufacturing machine will be transferred to Chocolat Ltd on 30
September 2024, after payment of a guaranteed residual value of N$ 50 000.
• The manufacturing machine was available for use, as intended by management on 1
October 2021. On this date, an estimated useful life of four years and a residual value
of N$ nil for depreciation purposes was allocated to the manufacturing machine.
• On 1 October 2021, Chocolat Ltd incurred and paid legal fees amounting to N$ 24 000
in relation to the above agreement.
Acquisition of warehouse in Windhoek
On 1 October 2020, Chocolat Ltd purchased a warehouse in Windhoek for N$ 42 million to
store raw materials. The warehouse has an estimated useful life of 20 years with no residual
value and is accounted for using the cost model.
On 30 June 2022, the warehouse was damaged due to a fire. On that date, the warehouse's
value-in-use and fair value less disposal were assessed by an independent expert to be N$ 35
million and 33 million respectively.
Employee benefits
Chocolat Ltd paid annual salaries of N$ 5 000 000 to its employees for the 2021 and 2022
financial years. Due to the current financial crisis in the country no increases are expected in
the financial year.
It is the policy of the company to provide 20 working days leave to its employees. Chocolat
Ltd operates a five-day workweek. For the purpose of this question public holidays can be
ignored.
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The following are the leave statistics for the employees:
• End of June an average of 9 days of the 2021 financial year leave were unused
• End of June an average of 14 days was used, coming from, on average:
✓ The 2021 leave entitlement: 5 days
✓ The 2022 leave entitlement: 9 days
The estimated future leave statistics for the year ending 2023 are as follows:
• An average of 12 days will be taken and on average this is expected to come from:
2021:
0
days
2022:
4
days
2023: 8 days
All three years consist of 365 calendar days each.
Issue of bonds
On 1 April 2022, Chocolat Ltd issued bonds to raise capital. D Ltd purchased 100 000 13,5%
bonds from Chocolat Ltd at their fair value of N$ 22 per bond. The bonds have a par value of
N$ 20 and pay coupon interest annually on 31 March. D Ltd incurred and paid transaction
costs of N$ 18 750 related to this transaction. The bonds are mandatorily redeemable on 31
March at their par value. The objective of D Ltd's business model, regarding the investment in
the Chocolat Ltd bonds, is to collect the future contractual cash flows of interest and principal
on specified dates. D Ltd has a 30 June year-end.
The credit risk on the investment in Chocolat Ltd's bonds was consistently assessed as low as
a result of the financial backing received by its parent, L Ltd. The 12-month weighted
probability of default on the bonds was assessed as 12% on 1 April and 14% on 30 June 2022.
In addition, the lifetime weighted probability of default on the bonds was assessed as 18% on
1 April 2022 and 22% on 30 June 2022.
Other investments
The investment portfolio of Chocolat Ltd on 30 June 2024, includes the following
investments:
• Government bonds which are redeemable in two years time, were purchased at an
amount of N$ 1 400 000 (Face value: N$ 1 500 000) on 1 July 2019 by Chocolat Ltd.
The coupon interest rate is 10 % per annum, payable bi-annually on the face value of
the bonds. The bonds were redeemed on 30 June 2021 at N$ 1 800 000.
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The effective interest rate is 16.32688 % per annum on the bonds (8.16444 % bi-
annual interest rate). The market related interest rate for the year amounted to
12.45 %.
• Investment in listed shares of Cocoa Ltd which are actively traded .
• Investment in convertible debentures. The debentures were issued on 1 July 2021 at
a face value of N$ 10 each (considered to be fair value on issue date). The
debentures offer interest based on a coupon rate of 12 %. The debenture holder has
the option to convert the debentures into 2 000 ordinary shares on 30 June 2024. If
the debentures are not converted, they will be redeemed on this date at N$ 10 each .
Taxation
Assume a normal tax rate of 27%.
The Namibian Revenue Agency (NAM RA} grants an allowance of 40% on the cost price of the
manufacturing machine not apportioned for part of the year in which the machine is
purchased.
VOU ARE REQUIRED TO
Marks
a) Disclose the information given above pertaining the manufacturing machine's 10
lease, in the profit before tax note to the annual financial statements of Chocolat
Ltd for the financial year ended 30 June.
You may assume an annual interest rate of 19.04 % per annum.
Show all calculations as marks may be awarded thereto.
b)
Calculate the deferred tax balance relating to the manufacturing machine, to be
presented in the statement of financial position of Chocolat Ltd at 30 June 2022.
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~ou must indicate whether the deferred tax balance is an asset or liability.
c)
Explain and calculate how the warehouse damage on 30 June 2022 should be 10
accounted for in Chocolat's financial statements, if at all. Ignore any tax
implications.
d) Calculate the leave-pay liability for Chocolat Ltd's financial year ended 30 June
if:
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• annual leave is accumulating and available for use in the next financial year.
It is vesting at the end of the year following the next year, if unused .
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• annual leave is accumulating and available for use in the next financial year.
It is non-vesting if unused by the end of the next financial year.
e) Write a memorandum to the Chief Executive Officer of Chocolat Ltd in which you 10
explain the classification of the financial instruments in the investment portfolio.
Exclude the bonds issued by Chocolat Ltd in you answer.
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f)
Prepare all the journal entries relating to the investment in the Chocolat Ltd 13
bonds in the accounting records of D Ltd for the financial year ended 30 June.
Uournal narrations are not required .
rrotal Marks Question 2
53
UN/SA (Adapted)
END
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