QUESTION 1 (60 marks)

Peak Performance Technologies Ltd (hereafter “PPT”) stands at the forefront of innovation and manufacturing of advanced sports equipment. The company has captured the market with its state-of-the-art products, pushing boundaries in both design and functionality. The financial extracts below detail the statement of financial position as of 30 June 2024 and figures from the statement of profit and loss and other comprehensive income.

Statement of financial position of Peak Performance Technologies Ltd as at 30 June 2024:

    2024   2023
  Note R   R
ASSETS        
Non-current assets   1 690 000   1 275 000
Property, plant, and equipment 1 1 085 000   820 000
Investments 2 605 000   455 000
Current assets   751 900   157 000
Inventory   108 000   70 000
Trade receivables 3 97 850   57 000
Prepaid operating expenses 4 33 000   30 000
Cash and cash equivalents   513 050  
Total assets   2 441 900   1 432 000
EQUITY AND LIABILITIES        
Equity attributable to owners   450 000   300 000
Share   capital:   Class A   10   000   shares

(01/07/2023)

  300 000   300 000
5      
Share capital: 6% Class B 1 000 shares

(30/06/2024)

  150 000  
5      
Revaluation reserve: Land 1 263 050  
Retained earnings 5 766 200   648 305
Total equity   1 479 250   948 305
 

Non-current liabilities

   

820 000

   

320 000

Long-term loan: 7.5 % p.a. 6 820 000 320 000
Current Liabilities   142 650   163 695
Bank overdraft     37 445
Trade payables   96 000   56 000
Accrued operating expenses   13 650   15 250
Dividends payable 5 10 000   16 000
SARS (income tax payable)   23 000   39 000
Total liabilities   962 650   483 695
Total equity and liabilities   2 441 900   1 432 000

Extracts from the statement of profit or loss and other comprehensive income of Peak Performance Technologies Ltd for the year ended 30 June 2024

  2024

R

Profit before tax 190 000
Income tax expense (51 300)
Profit for the year 138 700

Additional information:
All information below has already been correctly accounted for:

1. Property, plant, and equipment:
• Land was independently revalued.
• New equipment purchases totalled R217,000 in cash.
• Old equipment was sold at a R32 000 loss, with an initial cost of R80 000 and a carry value of R75 000 on the date of sale.
• No impairments occurred.

2. Investment Activities:
• PPT owns shares in SuperShorts (Pty) Ltd. During the 2024-year, additional shares were bought for R198 000, and some shares were sold at a 20% profit, totaling an R9 600 gain.
• Dividend income of R17 500 was received and included under other income.

3. Trade Receivables:
• The amount of Trade Receivables reported here represents the net figure on the statement of financial position. This net figure is arrived at after adjusting the gross trade receivables.
• Specifically, a 5% allowance for doubtful debts has been applied to the gross trade receivables to account for potential non-collection.
• Additionally, bad debts amounting to R12 375, which were identified as uncollectible due to insolvency, have been written off and are reflected in the allowance for doubtful debts.

4. Prepaid Expense:
• The annual insurance contract runs from 1 January to 31 December, with a 10% annual increase in the premium. PPT has been using the same insurer for the last few years.
• Insurance for the year is always paid in full on 1 January.
• This is the only prepaid expense PPT has.

5. Equity Transactions:
• Dividends of R20 805 for Class A shares were declared for the 2024 financial year.
• On 30 June 2024, PPT issued 1 000 new 6% Class B preference shares for R150 000 cash.

6. Borrowings:
• An additional long-term loan was procured on 1 December 2024 for expansion.
• Interest is fixed and remains unchanged from the previous years.
• Interest paid on the overdraft was R1 750.

REQUIRED:

Prepare the Statement of Cash Flows for Peak Performance Technologies Ltd for the year ending 30 June 2024, employing the indirect method. Show all calculations and reference accordingly.

Deferred tax and dividends tax are not to be considered in your preparation.

QUESTION 2 (40 marks)

SolarNova Ltd. (“SolarNova”) is at the forefront of creating cutting-edge solar- powered gadgets, contributing to sustainable solutions across South Africa. The company operates with a financial year-end on 30 June.

Below is an extract from the statement of financial position as it stood at the end of the financial year on 30 June 2024:

SolarNova Ltd.
Statement of financial position as at 30 June 2024
  2024

(R’000)

2023

(R’000)

EQUITY AND LIABILITIES    
Class A shares ? 735 000
9% Class B shares 369 500 134 000
Retained earnings ? 250 100
Loan: Money Bank 2 200 000 3 003 000
Total equity and liabilities ? 4 122 100

Share Information:
Outlined in the table below are details regarding SolarNova Ltd.’s authorised share capital structure:

Share Type Quantity Details
Class A Shares 40 000 authorised shares

7 350 issued shares (as of

1 July 2023)

–  Carry voting rights

–  No fixed dividend

9% Class B Shares 17 500 authorised shares –  No voting rights

–  Cumulative fixed dividend

–  Par value: R100 per share

Additional transactions and financial events for the 2024 financial year have been appropriately recorded and reflected in the financial statements above:

1. On 30 September 2023, SolarNova Ltd. made a public offering of 4 800 Class A shares. UW (Pty) Ltd underwrote the issuance, charging a commission of 5%. By 1 November 2023, which marked the close of the offering, 88% of the offered shares had been applied for by the public and paid in cash. The share issuance grossed R1 200 000, exclusive of a R15,25 per share issue-related expense and the underwriters’ commission paid in cash.
2. An issuance of Class B shares was proposed to the public at par value on 1 April 2024. The offering, which closed on 30 May 2024, attracted 12% more applications than the available shares, leading to a situation of oversubscription. On 31 May 2024, SolarNova Ltd. proceeded to allot only the available Class B shares and did not issue shares to cover the additional 12% oversubscribed applications, adhering to the predetermined number of shares available for issuance.
3. SolarNova Ltd. declared a dividend of R1,80 per share for Class A shareholders on 5 June 2024, remitting payments on 1 July 2024.
4. The statement of profit or loss and other comprehensive income reported a net comprehensive income after tax (pre-dividend tax) of R1 400 000 for the 2024 financial year.
5. The Corporate Income Tax rate is 27%, and the Dividend Tax rate is 20%.

REQUIRED:

Determine the total income tax expense that would appear on SolarNova Ltd.’s statement of profit or loss and other comprehensive income for the year ended 30 June 2024. Assume the accounting profit is equal to the taxable income. (3 marks)

Prepare the appropriate general journal entries for SolarNova Ltd., relating to the shares issued during the 2024 financial year. Dates and narrations are not required. (19 marks)

Prepare the statement of changes in equity for SolarNova Ltd. for the year ending 30 June 2024.
• Total columns are not required.
• Show all calculations.
• Please make use of the following layout to help structure your answer.

Descriptions Class A shares 9% Class B shares Retained earnings
Balances at beginning… R xxx R xxx R xxx

Answers to Above Questions on Financial Accounting Reporting

Answer 1: The Statement of Cash Flows for Peak Performance Technologies Ltd for the year ending 30 June 2024, employing the indirect method is prepared as follows:

answer

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