FACULTY COMMERCE, MANAGEMENT AND LAW

DEPARTMENT SCHOOL OF ACCOUNTING

PROGRAMME B. ACC CHARTERED ACCOUNTANCY (12BCHA)

SUBJECT FINANCIAL ACCOUNTING 1B

SUBJECT CODE AFI 3512

DATE OCTOBER/NOVEMBER 2022 TIME

TOTAL DURATION 3 HOURs MARKS 100

READING TIME 30 MIN WRITING TIME 2 HOURS & 30 MIN

Examiner: Mr. K. Mujende (UNAM)

Moderator: Mr. L.C. Steyn (NWU)

SUPPLEMENTARY EXAMINATION

Students will obtain the exam paper at the start of the reading time of 0.3 minutes per mark (100 x
0.3 = 30 minutes reading time). Students may NOT start writing in their answer books during the
reading time, but may make notes on the question paper. Thereafter, answer books will be handed
out and students will obtain 1.5 minutes per mark of writing time (100 x 1.5 = 150 minutes writing
time).

INSTRUCTIONS TO STUDENTS:
1. You are reminded that answers may NOT be written in pencil or erasable pen.
2. The marks shown against the requirement(s) for each question should be taken as an
indication of the expected length and the required depth of the answer.
3. Answer the questions using:
• Appropriate arrangement and presentation;
• Clarity of explanation;
• Logical argument; and
• Clear and concise language.
Marks will be awarded for the above.
4. Non-programmable calculators are allowed.
5. No smart watches are allowed.
6. All books must be handed in.
7. Clearly show all calculations.
8. Round all amounts to the nearest rand and all percentages to two decimal places.
9. Assume that all amounts are material except where the contrary is stated.
10. Your answer must adhere to the provisions of IFRS.

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AFI3512 Supplementary examination 2022 | Full-time

QUESTION 1 (30 MARKS, 45 MINUTES)

Damsy (Pty) Ltd (‘Damsy’) is a medium-sized meat supplier operating in Stellenbosch. Its business
operations entail the processing of beef and other meat products. Damsy subscribes to fair
treatment of animals and fair trade with its suppliers. Damsy has a 30 June financial year end. The
following are extracts from the financial statements of Damsy for the year ended 30 June 2022:

Damsy (Pty) Ltd

Statement of financial position
As at 30 June 2022
2022 2021
R R
ASSETS
Non-current assets 2 265 000 1 520 000
Land and buildings 1 215 000 850 000
Plant and equipment at carrying amount 460 000 130 000
Cost/Fair value 725 000 275 000
Accumulated depreciation (265 000) (145 000)
Listed investments 590 000 540 000

Current assets 1 395 237 798 397

Inventory 620 737 208 397
Trade and other debtors 727 500 525 000
Cash and cash equivalents 47 000 65 000

Total assets 3 660 237 2 318 397

EQUITY AND LIABILITIES

Equity 2 113 500 1 251 000
Share capital 1 025 000 625 000
Revaluations surplus 25 000 -
Retained earnings 1 063 500 626 000

Non-current liabilities 1 050 000 919 000

Long term loan 1 050 000 919 000

Current liabilities 366 737 278 397

Trade and other payables 336 737 253 397
SARS: Income tax payable 30 000 25 000

Total equity and liabilities 3 530 237 2 448 397

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AFI3512 Supplementary examination 2022 | Full-time

Damsy (Pty) Ltd
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2022
2022
R
Sales 4 842 000
Cost of sales (2 600 000)
Gross profit 2 242 000
Other expenses/income (1 154 500)
Profit before tax 1 087 500
Income tax expense (350 000)
Profit for the year 737 500
Other comprehensive income:
Revaluation surplus 25 000
Total comprehensive income for the year 762 500

Additional information:

1. Profit before tax is stated after accounting for amongst others, the following:
R
Profit on disposal of plant and equipment 15 000
Depreciation 165 000
Inventory write down 260 000
Credit losses:
Increase in allowance for credit losses 7 500
Credit losses written off (excluding increase in allowance) 9 000

2. Non-current assets
Plant and equipment with a gross carrying amount of R325 000 (cost) was sold and replacement
assets of R500 000 were purchased. All other property, plant and equipment were acquired for
expansion purposes.
Land and buildings were revalued during the year.
No disposals of listed investments were made during the year.

3. Equity
Dividends were declared for the reporting period ended 30 June 2022.
The entity issued capitalisation shares worth R100 000 in the current year out of retained
earnings. No shares were redeemed during the year.

4. Non-current liabilities
No repayments were made towards the loan, but an additional amount was borrowed.

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AFI3512 Supplementary examination 2022 | Full-time

5. Current liabilities
Included in trade and other payables is:
2022 2021
Accrued expenses 12 000 6 000
Trade payables 302 237 209 897
Shareholders for dividends 18 750 37 500
SARS: dividend withholding tax 3 750 0
Total 336 737 253 397
The applicable dividend’s tax rate is 20%.

MARKS
REQUIRED – QUESTION 1:
Subtotal Total

Prepare the statement of cash flows (direct method) for the year ended 30
June 2022 for Damsy (Pty) Ltd in accordance with IAS 7, Statement of
29
Cashflows. Comparative figures are not required.
Communications skills – presentation and layout. 1 30

TOTAL MARKS 30

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AFI3512 Supplementary examination 2022 | Full-time

QUESTION 2 (35 MARKS, 52.5 MINUTES)

GinDan (Pty) Ltd (“GinDan”) purchases various types bottles of gin from manufacturers (‘distillers’)
and sells them to customers in their Gin shops in various malls in South Africa. Gin is an alcoholic
drink flavoured with juniper berries. The company’s year ends on the last day of September. The
company memorandum of incorporation stated the following authorised share capital:
 Class A: 3 000 000 ordinary shares and
 Class B: 350 000 7% redeemable preference shares.

The trial balance of GinDan for the year ended 30 September 2022 is provided below:
Debit Credit
R R
Land and buildings 1,795,000
Equipment at cost 485,000
Accumulated depreciation: Equipment (30 Sept 2021) (175,000)
Motor Vehicles at cost 355,000
Accumulated depreciation: Motor vehicles (30 Sept 2021) (40,000)
Financial assets 230,000
Debtors 257,000
Inventory 129,000
Ordinary share capital (1 600 000 shares) (1,600,000)
7% Redeemable preference shares (200 000 shares) (250,000)
Retained earnings (218,000)
Creditors (285,500)
Bank overdraft (25,000)
Sales (1,390,500)
Cost of sales 505,500
Administrative expenses 71,300
Distribution expenses 85,700
Other operating expenses 70,500
Total 3,984,000 (3,984,000)

The following information pertains only to the current year and has not yet been taken into
account in the above trial balance:
 GinDan obtained a loan from BFN Bank for R300 000 on 1 December 2020. The interest on the
loan is 6% per annum, but it was agreed that the interest rate will increase by 2% annually on
the loan anniversary date. The interest is paid on a quarterly basis commencing on
the end of February 2021. The loan is repayable in six equal half-yearly instalments
commencing on 31 May 2021, over a three-year period. The loan balance as at 30 September
2022 before the above is taken into account is included in creditors in the trial balance above.
 On 1 January 2022, the directors obtained permission to redeem 30 000 7% redeemable
preference shares at par in cash, by the issue of ordinary shares at R1.50 each.
 On 1 July 2022, GinDan offered the remaining ordinary shares to the public at R1.5 per share.
The issue was underwritten at an underwriter’s commission of 3%. 80% of the shares were
taken by the general public and the shares were allotted on 31 July 2022 and the
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AFI3512 Supplementary examination 2022 | Full-time

 underwriter’s commission was paid on the same date. The share issued costs are set against
retained earnings.
 GinDan uses the perpetual inventory system and the year-end physical inventory count
revealed that inventory amounts to R119 000.
 The amount for motor vehicles in the trial balance above comprises one delivery van
purchased on 1 January 2021 for R355 000. The vehicle travelled 20 000 km for the financial
year ended 30 September 2021 and 15 000 km for the financial year ended 30 September
2022. The vehicle is used for the delivery of goods sold to customers.
 The depreciation of equipment is disclosed under other operating expenses, as the equipment
comprises various computer and printing equipment used by various departments for which
the entity could not accurately allocate to either the administrative or distribution functions.
 On 1 March 2022, GinDan purchased a vehicle for R350 000. The vehicle was purchased from
Avocar Ltd. GinDan agreed to issue 250 000 ordinary shares as consideration. This vehicle
travelled 15 500 km for the year. The vehicle is used by the accounting department. This has
not been recorded.
 Depreciation is provided as follows.
Land and buildings Not depreciated
Equipment 10% on the reducing balance method
Motor vehicles Units of production – the total estimated kilometres per vehicle is
177 500 km
 The financial asset is an investment in 15 000 ordinary shares of Agile Ltd. Agile Ltd declared a
dividend of R0.45 per share on 1 September 2022. This dividend was to be received on
12 October 2022.
 GinDan declared an ordinary dividend of 18 cents on 30 September 2022 which is to be paid on
2 November 2022.
 VAT, dividend tax and income tax may be ignored.
MARKS
REQUIRED – QUESTION 2
Sub-total Total
a) Prepare the statement of profit or loss and other comprehensive
income of GinDan (Pty) Ltd for the year ended 30 September 2022
based on the function of expenses method, in accordance with
International Financial Reporting Standards (IFRS). Comparative 11
figures are not required.
1
Communication skills – layout and structure 12
b) Prepare the statement of financial position of GinDan (Pty) Ltd
30 September 2022 in accordance with International Financial
Reporting Standards (IFRS). Comparative figures are not required. 22

Communication skills – layout and structure 1 23

TOTAL MARKS 35

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AFI3512 Supplementary examination 2022 | Full-time

QUESTION 3 (20 MARKS, 30 MINUTES)

Damian played tennis over weekends for fun, whilst hosting families and friends. Damian and his
friends were inspired by their passion for tennis and their willingness to nurture future world class
tennis players, they decided to start a tennis club named Devine Tennis Club (“DTC”) in 2010. The
non-profit organisation was registered in 2010. The club has a 31 December financial year end. The
following information was obtained from the accounting records of DTC:

DTC
Statement of receipts and payments for the year ended 31 December 2021
R
Receipts:
Balances 592 305
Bank 71 505
Savings account 520 800
Rent income 241 500
Membership fees 823 200
Entrance fees 157 500
Interest received (bank) 21 000
Interest received (savings account) 16 485
Legacy 630 000
Sales – tennis balls 70 665
Interest on fixed deposit (BAC Bank) 43 313
Donation received 105 000
2 700 968
Payments:
Creditors for tennis balls 18 375
Wages 595 980
Interest paid (loan) 58 590
Equipment (30/09/2021) 388 500
Stationary 16 800
Loan (30/06/2021) 315 000
Property taxes 44 730
Prizes 84 000
Honorarium 30 240
Fixed deposit BFN Bank (30/06/2021) 315 000
Balances 833 753
Bank 296 468
Savings account 537 285

2 700 968

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AFI3512 Supplementary examination 2022 | Full-time

DTC
Post-closing trial balance on 31 December 2020
Debit Credit
R R
Accumulated funds 2 294 250
Building and tennis courts 2 625 000
Equipment at cost 871 500
Accumulated depreciation: Equipment 273 000
Building and tennis courts 236 250
Inventory: Tennis balls 43 995
9% Loan 1 302 000
Prize fund 577 500
Fixed deposit at BFN Bank (15% p.a) 577 500
Income received in advance: Membership fees 16 800
Rent income 10 500
Creditors for tennis balls 29 400
Accrued income (Membership fees) 29 400
Bank 71 505
Savings account 520 800
4 739 700 4 739 700

Additional information:

1. Membership fees

 On 1 January 2021 the tennis club had 392 members.

 Membership fees are R2 100 per year, irrespective of the date of entry.
 Of the membership fees that were outstanding for 2020, six members were expelled and their
membership fees have to be written off. The other members paid their outstanding fees for 2020.
 Ten new members joined the club during the year. They paid their entrance fees and
membership fees in full.
 18 members paid their membership fees for 2022.
 Entrance fees are R15 750 per member.

2. Prize fund

 The prize fund was invested in a fixed deposit account at BFN bank at 15% interest.
 The interest received on the investment is used to buy prizes for the yearly club prize giving.
 Prizes for the year ended 31 December 2021 have already been allocated.

3. Legacy

 Half of the legacy amount received may be used by management as they see fit. The amount was
used to pay off a part of the loan.
 The balance was added to the prize fund and invested.

4. Inventory tennis balls on hand on 31 December 2021 – R22 575.

Creditors for tennis balls on 31 December 2021 – R26 775.

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AFI3512 Supplementary examination 2022 | Full-time

5. Equipment
 Equipment with a cost of R63 000 and a carrying amount of R21 000 on 1 January 2021 was
scrapped on 1 June 2021. Depreciation on equipment is calculated at 10% per year on the
carrying amount.
 Depreciation on buildings is calculated at 2% per year straight line.

6. Donation received
 A donation was received from Ms. L Scholes on 30/09/2021. Management can use the donation
as they see fit. The amount was invested immediately at BAC Bank at an interest rate of 10% per
year. Interest on the investment has not been received.

MARKS
REQUIRED – QUESTION 3 Sub-
Total
total
a) Prepare the following general ledger accounts for the year ended
31 December 2021:
i. Membership fees (close account off properly) 5
ii. Prize fund account and Accumulated prize fund income. 3 8
b) Prepare the statement of income and expenditure for the year ended
31 December 2021. Comparative figures are not required. 11

Communication skills – layout and structure 1 12

TOTAL MARKS 20

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AFI3512 Supplementary examination 2022 | Full-time

QUESTION 4 (15 MARKS, 22.5 MINUTES)

Dollar and Buddy are qualified chartered accountants and were great friends in University. They
both graduated cum-laude in the postgraduate degree (CTA). In addition, they were top 1 and 2
respectively in both the ITC and APC exams. They were both farmers at heart. They entered into a
partnership named Dollarbud farm 5 years ago, with the aim of buying piglets, breeding them then
selling pork carcasses to butcheries. The following balances were obtained from the accounting
records of Dollarbud farm as at 28 February 2022:
Debit Credit
R R
Capital: Dollar - 177 500
Capital: Buddy - 154 500
Current account: Dollar - 17 800
Current account: Buddy 7 800 -
Drawings: Dollar 55 400 -
Drawings: Buddy 56 800 -
Land and buildings 410 000 -
Machinery 85 000 -
Equipment 59 500 -
Trading inventory 68 200 -
Trade debtors 33 600 -
Bank (Dr) 12 500 -
Cash float 1 400 -
Mortgage loan: BFN Bank - 115 000
Trade and other payables - 13 600
Loan from Dollar - 5 800
Allowance for credit losses - 1 100
Accumulated depreciation: Machinery - 12 600
Accumulated depreciation: Equipment - 28 500
Profit for the year - 263 800
Total 790 200 790 200

Additional information not yet taken into account:

1. Included in insurance recorded under expenses is an amount of R470 for March 2022.
2. Dollar’s salary payment of R25 600 was debited to the salaries and wages expense account of
the partnership in arriving to profit for the year above.

Partnership agreement:
 R16 000 from the profit for the year must be transferred to the general reserve.
 Dollar received 8% per annum interest on capital for the first six months. He then contributed
R25 000 additional cash to the partnership and the interest rate was adjusted to
10% per annum. Buddy received 7% per annum interest on capital.
 The partners must each receive an annual salary of R32 500.
 Dollar and Buddy share profits and losses in the ratio of 3:1 respectively.

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AFI3512 Supplementary examination 2022 | Full-time

Admission of Teekay:
Teekay ,a chartered accountant, approached Dollar and Buddy as a friend and asked them to join the
partnership. Teekay was always late for class and never did any questions, he repeated CTA 3 times
and passed ITC on the 5th attempt and he ultimately passed ITC on his first attempt. On
28 February 2022, both Dollar and Buddy decided to allow him to join the partnership:
1. For the purpose of admitting Teekay, the partners agreed to accept the following formal
revaluations of assets:
Land and buildings R545 000
Equipment R 25 770
2. Teekay contributed R235 500 cash to obtain 1/4 of the net assets in the partnership. Dollar and
Buddy proposed that he be entitled to 1/3 of all future profits and the original partners would
continue to share profits and losses in the same ratio relative to each other. Teekay accepted the
offer.
3. The revaluation reserve need not be shown as a separate line item in the books of Dollarbud
farm.
4. The general reserve must, however, be shown as a separate line item.
5. Goodwill must not be shown in the accounting records of the new partnership.

MARKS
REQUIRED – QUESTION 4 Sub-
Total
total
a) Calculate the distributable profit in accordance with the stipulations of
the partnership agreement in order to prepare Dollarbud farm for
Teekay’s admission and prepare the distribution statement for the year
ending
28 February 2022. Comparative figures are not required. 6 6
b) Prepare all the journal entries in the general journal of Dollarbud farm on
28 February 2022 to account for revaluations and goodwill. Statement
indications should be shown. Journal narrations are not required.

NB: Show ALL calculations for goodwill and the new profit-sharing
ratio.
Ignore VAT.
9 9
15
TOTAL MARKS

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AFI3512 Supplementary examination 2022 | Full-time