QUESTION 1 (12 marks)
FutureTech is a software development company that specialises in creating custom business software solutions. The company has a 31 December year end.
You are presented with the Statement of Financial Position of FutureTech for the year ended 31 December 2023:
|Property, plant, and equipment||100 000||90 000|
|Investment Bonds||200 000||200 000|
|300 000||290 000|
|Inventory||30 000||25 000|
|Trade receivables||20 000||15 000|
|Bank||50 000||40 000|
|100 000||80 000|
|Total assets||400 000||370 000|
Equity and liabilities Equity
|Capital||200 000||200 000|
|Retained earnings/Accumulated profit||145 000||105 000|
|Total equity||345 000||305 000|
|Loan||40 000||45 000|
|40 000||45 000|
|15 000||20 000|
|Total equity and liabilities||400 000||370 000|
The following transactions occurred during the 2023 financial year:
1. FutureTech sold goods worth R120 000 on credit.
2. FutureTech paid R18 000 to suppliers for inventory purchases.
3. FutureTech paid R10 000 for operating expenses.
4. FutureTech received dividends of R5 000 from its investment.
5. FutureTech paid R8 000 in income taxes.
6. FutureTech paid R2 000 in interest expenses on the bank loan.
Prepare only the Operating Activities section of FutureTech’s Statement of Cash Flows for the year ended 31 December 2023, using the direct method.
QUESTION 2 (20 marks)
TechFusion Ltd. is an innovative technology company specialising in the development of sophisticated software solutions. TechFusion Ltd. has a financial year-end of 31 December.
During the 2023 financial year, the company undertook a series of transactions involving the following:
1. Issuing Class A and Class B Shares:
TechFusion Ltd. issued 1 000 Class A shares at R100 per share and 2 000 10% Class B shares at R200 per share. The Class B share are non-cumulative with no voting rights. All amounts were received in cash by year end.
The company declared and paid dividends on both Class A and Class B shares. A dividend of R3 per Class A share was declared.
3. Company Tax and Normal Tax:
TechFusion Ltd. made a taxable profit of R300 000 and must still pay company tax (at a rate of 27%) on the profit made.
TechFusion Ltd. issued R100 000 worth of 5% debentures on 1 January 2023. Interest on the debentures are payable on 31 December each year.
Prepare the necessary general journal entries to record transactions 1 – 4 in the accounting records of TechFusion Ltd. for the financial year ended 31 December 2023. Dates and narrations are not required. Be sure to clearly label each entry with the appropriate transaction number.(16 marks)
Indicate and describe how transaction 1 and 2 impacts the accounting elements on the Statement of financial position (assets, liabilities, and equity). Instructions:
• Identify which account(s)/elements will increase and which will decrease as a result of the transaction.
QUESTION 3 (15 marks)
Zephyr Ltd. is a manufacturing company. They have a December financial year-end. The equity of Zephyr Ltd. at 1 January 2023 comprised the following:
Share capital (Class A shares) 5 000 000
Retained earnings 800 000
Revaluation surplus 150 000
The authorised share capital of the company is 3 million Class A shares. Issued Class A shares at 31 December 2022 amounted to 1 000 000 shares.
The following transactions occurred during the year ended 31 December 2023:
1. On 30 April 2023, an interim dividend of R0.30 per share was declared.
2. On 30 June 2023, 500 000 Class A shares were issued at R5 per share.
3. Share issue expenses of R80 000 were written off to the share capital account.
4. On 31 December 2023, a final dividend of R0.40 per share was declared.
5. The total comprehensive income for the year was R2 500 000.
6. There was a revaluation of the company’s investment portfolio, resulting in a gain of R300 000. Ignore tax on the revaluation. The company elects to record all revaluation gain/losses on this/their investment portfolio in other comprehensive income.
7. The company tax charge of R500 000 should be accrued for the 2023 financial year.
Prepare the Statement of Changes in Equity of Zephyr Ltd. for the financial year ended 31 December 2023. The total column is not required, however the closing balance at year end must be presented.
Start by using the following:
|Share Capital (R)||Retained Earnings (R)||Revaluation Surplus (R)||Total Equity (R)|
|Balance at 01 January
5 000 000
|Not applicable for this question|
QUESTION 4 (30 marks)
Quality Tech Solutions Ltd. is a technology consulting firm with a 31 December year- end. The company plans to expand its operations by acquiring new software licenses.
Extract from the Notes to the Statement of Financial Position as at 31 December 2022:
Share Class Authorised Share Capital Issued Share Capital
Class A Shares 400 000 250 000
Class B Shares 100 000 –
To finance the software licences, the directors have decided to issue 150 000 Class A shares at an issue price of R12 per share.
The offer is made to existing shareholders on 1 July 2023. On the closing date, 10 July 2023, shareholders had applied and paid for 120 000 Class A shares. The directors issued the shares on 15 July 2023.
The directors engaged Capital Partners Ltd. as the underwriter for the share issue, with an underwriter’s commission of 2% on the total value of shares issued. The underwriter’s commission is payable to Capital Partners Ltd. on 15 July 2023. No entries have been recorded to account for the underwriter’s commission.
Additionally, on 01 September 2023, the company decided to issue 50 000 9% Class B shares at an issue price of R15 per share. All the shares were subscribed and paid for on 01 September 2023. The Class B share are cumulative with no voting rights.
Class B dividends were declared for the current year but not yet paid.
• No other share issue costs are applicable except the commission cost.
Calculate the underwriter’s commission payable to Capital Partners Ltd.(1 mark)
Prepare the general journal entries that Quality Tech Solutions Ltd. should record to account for the underwriter’s commission. Include the relevant dates.(6 marks)
Prepare the general journal entries that Quality Tech Solutions Ltd. should record to account for the application and issue of the Class A shares for the year ended 31 December 2023. Include the relevant dates.(9 marks)
Prepare the general journal entries Quality Tech Solutions Ltd. should record to account for all transactions related to the Class B shares for the year ended 31 December 2023. Include the relevant dates.(10 marks)
Assume Quality Tech Solutions Ltd. did not declare any Class B dividends during the 2024 financial year. Discuss whether Quality Tech Solutions Ltd will be required to raise a dividend liability in the 2024 financial year. Your discussion should include the dividend characteristics of the Class B shares.
QUESTION 5 (23 marks)
InnovateTech Solutions is a technology consulting firm specialising in providing innovative solutions to businesses. You have been provided with the following financial information for the year ended 31 December 2023.
Extract of the Statement of Financial Position of InnovateTech Solutions as at 31 December 2023
|Property, plant and equipment (PPE)||3 677 120||4 596 400|
|Trade receivables||139 434||121 868|
|Prepaid operating expenses||52 500||35 000|
|Accrued dividend income||80 000||–|
|Class A 300 000 shares||?||1 600 000|
|Class B||5 000 000||5 000 000|
|Loan||1 000 000||600 000|
|SARS (Income tax payable)||577 462||143 500|
|Accrued operating expenses||36 750||26 000|
|Total equity and liabilities||?||?|
Extract of the Statement of Profit or Loss and Other Comprehensive Income of InnovateTech Solutions as at 31 December 2023
|2 035 000|
|Interest paid||(136 250)|
|Profit before tax||2 138 750|
Property, plant, and equipment did not undergo any capital movements, revaluations nor any impairments during the year.
Authorised share capital includes 3 million Class A shares. On 1 May 2023, 200 000 Class A shares were offered to the public at R12 each. The share issue was underwritten by LNC Bank for an agreed commission of 4%. Applications for the shares closed on 31 May 2023. The issue was oversubscribed by 20%. On 1 June 2023, the shares were issued by the company, and any unsuccessful applications were refunded. Share issue costs (excluding the underwriter’s commission) amounted to R240 000. The share issue costs, and the underwriter’s commission were paid in cash on the day that the shares were allotted. Class A shares have voting rights and no right to a fixed distribution.
Authorised share capital includes 500 000, R10, 15% Class B shares. The Class B shares were issued at R10 on 31 December 2019. Class B shares have no voting rights and have the right to a fixed cumulative distribution. Class B share dividends were declared and paid on 31 December 2023.
Prepare only the Operating Activities section of InnovateTech Solutions’s Statement of Cash Flows for the year ended 31 December 2023, using the indirect method.(23 marks)
Answers to the Above Questions on Financial Management
Answer 1: The Operating Activities section of FutureTech’s Statement of Cash Flows for the year ended 31 December 2023, using the direct method is prepared as follows:
Get completed answers on the questions above on financial management as offered by the accounting assignment help South Africa experts of Student Life Saviour.
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