QUESTION 1 (40 Marks)
BSG Solutions buys and sells computer accessories and also offers computer training to business clients. The firm’s financial year–end is 31 December.

Additional Information;
All the appropriate reversal entries were processed correctly on 1 January 2023.
1. The bookkeeper has not recorded the following items relating to the financial year ended 31 December 2023.
• Stationary on hand on 31 December 2023 amounted to R 10 478 at cost.
• A telephone bill for R 5 664 relating to the month of December 2023 was received on 4 January 2024, and no entries had been made for it.
• A sales invoice for R 28 320 relating to computer accessories costing R 14 160 sold to Karoo Traders on 31 December 2023 had not been recorded.
• The prepaid insurance of R163 123 (see the pre-adjustment trial balance) includes an amount of R101 952 paid on 31 August 2023, covering the year from 1 September 2023 to 31 August 2024.
• The fixed deposit investment was made on 1 May 2023 and earns interest at 10% per annum. The interest on this investment is received quarterly in arrears (on 1 August, 1 November, 1 February and 1 May)
• The fees income of R 337 008 (refer to trial balance) includes an amount of R32 568 (received in December 2023), which relates to computer training provided in January 2024.
2. The physical count concluded on 31 December 2023 revealed that inventory on hand had a cost of R 501 440 and a net realizable value (NRV) of R494 360.

Required:
a) Prepare the journal entries required to record each transaction on additional information point 1. No narrations are required. (15 marks)
b) Prepare the statement of comprehensive income for BSG Solutions for the year ended 31 December 2023. (10 marks)
c) Prepare the statement of financial position for BSG Solutions as at 31 December 2023. (15 marks)
Round off answers to the nearest rand.

QUESTION 2 (30 Marks)

Gabex is a retailer buying and selling leather handbags. The following information relates to the month ended 29 February 2024.

On 29 Feb 2024, 88 units were on hand. The net realisable value of these items was R82.60 per unit.
Additional Information:

• The only sale during the month of Feb 2024 was a sale of 62 units on 15 Feb 2024.

Required;

a) (3 marks)

Determine the cost of closing inventory on the FIFO cost allocation method.

b) (7 marks)

Prepare the cost of sales and inventory accounts in the General Ledger for the month ended 29 Feb 2024, using the FIFO cost allocation method, assuming the periodic recording system was used. (Adjusting and closing entries should be included)
c) (10 marks)

Prepare the cost of sales and inventory accounts in the General Ledger for the month ended 30 Feb 2024, using the FIFO cost allocation method, assuming the perpetual recording system was used. (Adjusting and closing entries should be included)

d) (10 marks)

Prepare the cost of sales and inventory accounts in the General Ledger for the month ended 29 Feb 2024, using the weighted average cost allocation method, assuming the perpetual recording system was used. (Adjusting and closing entries should be included)

QUESTION 3 (12 Marks)
PART A
Consider the following situations:

Situation 1
Karoo Tours is a company operating in the travel and tours industry. Due to changes in regulations placing many restrictions on travel, Karoo Tours suffered immense losses during the current year ended 31 March 2024. They decided to discontinue their operations with effect from 1 May 2024, however, Karoo’s financial statements for the year ended 31 March 2024 were prepared using the same basis as last year when they were a profitable company.

Situation 2
The financial results of Fresh Farmers fluctuate erratically from year to year. The directors of Fresh Farmers, therefore, decided to create certain provisions in years of higher profits and adjust those provisions in the years of lesser profits to present profits at a consistent level from year to year.

PART B
Consider the following general concepts relating to financial information:
• Use of the same cost formula for stock valuation which was used in the previous period.
• Users of the financial statements need the most up-to-date information as soon as possible after the financial year-end so that the information is current and relevant for the economic decisions made by the users.
• Information that assists in estimating net future cash flows and when in the future the cash flows are likely to be produced. It can influence the decisions made by users.
• The cost of small calculators may be charged to expenses instead of being capitalized.

REQUIRED:
a) Identify and explain the accounting concepts/principles relevant to each of the above two situations mentioned in PART A. (2 x 2 = 4 marks)

b) State whether you agree with how the financial statements are presented in each of the two situations mentioned in PART A, and if not, suggest what adjustment should be made to the financial statements. (2 x 2 = 4 marks)

c) Identify what qualitative characteristic/accounting concept is being referred to in each of the letters (a) to (d) in PART B. (4 marks)

QUESTION 4 (18 Marks)
Kaule Ltd is a healthy-food restaurant franchise that has been operating successfully in South Africa for more than a decade. Their menu is made to fit all kinds of diets and always has a healthy variety of choices.
The franchise gained international popularity after a tweet holding one of its products in the gym.
The tweet subsequently boosted the company’s sales and profits and continues to do so. As a result, the owner of the franchise is of the opinion that an amount of R1 million for goodwill relating to the product should be recognized as an asset in the annual financial statements of the company for the year ended 30 December 2023.

Required:

Discuss whether or not the owner of Kuale Ltd can recognize the R1 million as an asset (goodwill) in the annual financial statements. Your answer should include full definitions and recognition criteria as outlined by IFRS in the conceptual framework. (18 marks)

Answers to Above Questions on Financial Accounting

Answer 1: The journal entries required to record each transaction on additional information point 1. are mentioned below:

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