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:
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