QUESTION 1 (10 marks)

Electronicworld (Pty) Ltd (‘Electronic’) buys and sells television sets. During the current financial year, Electronic purchased television sets from its supplier, Gadgetwarehouse (Pty) Ltd (‘Gadget’), on 1 September 2022 and took delivery of the goods on 30 September 2022. The cash cost of the television sets was R4 000 000. Gadget provided Electronic with deferred settlement terms of the purchase price to 28 February 2023, which is 4 months beyond normal settlement terms. Normal settlement terms are one month from the delivery date.

The prevailing rate of interest on similar debt is 12% per annum. Gadget took the 12% interest rate per annum, quarterly, into consideration in determining the cost price of the television sets for Electronic. The purchase price of the television sets was settled by Electronic on 28 February 2023. Electronic has a February year-end.

REQUIRED:

Calculate the cost price of the television sets and the financing element, if any, that should be recognised in the books of Electronicworld (Pty) Ltd, in terms of IAS 2.18, deferred settlement terms.
(3 marks)

Provide the journal entries to account for the inventory transaction in the records of Electronicworld (Pty) Ltd for the financial year ended 28 February 2023. Narrations are required. (7 marks)

QUESTION 2 (27 marks)

Timely (Pty) Ltd is a sports watch manufacturer and distributor. Timely (Pty) Ltd distributes new sports watches as well as second-hand sports watches that customers trade in for later versions. The company has a 30 June year-end.

Below is an extract from the trial balance of Timely (Pty) Ltd for the 30 June 2023 year- end which the entity is in the process of finalising.

 R
Sales5 725 000
Purchases – raw materials (components)875 000
Purchases – second-hand watches277 347
Labour costs – hourly paid employees 
Factory staff210 000
Administration and selling staff180 000
Salaries and commissions 
Factory staff110 000
Administrative and sales staff240 000
Depreciation – plant and machinery40 000
Depreciation – office equipment5 655
Interest paid9 817
Interest received10 487
Dividends received5 000
Other expenses87 900
Retained earnings as at 1 July 2022230 000

Normal capacity at the factory of Timely (Pty) Ltd is 12 000 sports watches per year. Recent power outages have negatively affected the production at Timely (Pty) Ltd’s factory, reducing the actual production for the year to 85% of normal production levels.
Sports watches manufactured:

 20222023
 RR
Raw materials (cost price)12 00021 600
Work in progress (cost price)65 000Note 1

Note 1
Work in progress of Timely (Pty) Ltd has not been finalised for the June 2023 financial year-end. The production records indicate that 30% of the current year’s allocated production expenditure and materials used relate to sports watches that were still under production at the year-end. The demand for the latest watches is very high, and all manufactured watches are sold immediately once produced. Therefore, there are no manufactured watches finished goods on hand at year end. There were no raw material spillages during the year.

Timely (Pty) Ltd values raw materials, work in progress and finished goods on a first- in-out basis (FIFO).

Sports watches distributed to outlets for resale:
New and second-hand sports watches are distributed to outlets for resale. The information below relates to watches that have been traded in and are now distributed to outlets for resale:

 

Watch serial number

 

 

Date purchased

 

Purchase price

R

 

 

Date of sale

Estimated selling price 30

June 2023

R

SW00131 May 202111 0009 500
SW00215 March 20216 90013 May 20228 500
SW00328 June 202110 00012 000
SW0049 September 202213 00013 October 202315 000
SW00522 February 202314 00016 500

Sports watches on hand at 1 July 2022 were SW001, SW002 and SW003. There are no manufactured watches included in opening inventory. The net realisable value for opening inventory has remained unchanged from the previous year-end.

Sales staff earn a commission of 8% of the selling price.

REQUIRED:
Prepare the general journal entries required in the records of Timely (Pty) Ltd to recognise the cost of sales for the year ended 30 June 2023. Journal dates and nar- rations are not required.

QUESTION 3 (17 marks)

You have been provided with an extract of the financial statements of IT Mania Ltd for the June 2023 year-end.

IT Mania Ltd Statement of financial position as at 30 June 2023

AssetsRand
Non-current assets990 000
Cash and cash equivalents1 650 000
 2 640 000
Equity and liabilities 
Share capital (2 300 000 Class A shares)1 475 000
Retained earnings625 000
Liabilities (non-current liabilities plus current liabilities)540 000
 2 640 000

The directors of IT Mania Ltd passed a resolution on the 1st of May 2023 to repurchase 180 000 Class A shares at a maximum price of R4,55 per share.

IT Mania Ltd placed an order in the market and was able to buy back 150 000 Class A shares on the 1st of June 2023 at an open market price of R4,20 per share.

REQUIRED:

Prepare the relevant journal entries to account for the share buyback on 1 June 2023 in the records of IT Mania Ltd. Dates and narrations are not required for the journal entries.(8 marks)

Prepare the Extract of the Statement of Financial Position for IT Mania Ltd as at 30 June 2023 after the share buyback.(5 marks)

According to Section 48 of the Companies Act, No.71 of 2008, a company may repurchase its own shares. After the repurchase, the company must meet the solvency and liquidity requirements as set out in the Companies Act, No.71 of 2008. Discuss whether IT Mania Ltd meets the solvency and liquidity requirements after the share buyback. Provide supporting reasons / amounts for your answer.

QUESTION 4 (46 marks)

You have been provided with the draft annual consolidated financial statements of Solar (Pty) Ltd for the year ended 30 June 2023:

SOLAR (PTY) LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2023

  2023

Rand

Revenue 437 670 000
Cost of Sales (259 782 250)
Gross profit 177 887 750
Other income1375 000
Other expenses2(126 903 105)
Finance costs (450 000)
Profit before tax 50 909 645
Income tax expense3(14 422 700)
Profit for the year 36 486 945
Other comprehensive income 
Total comprehensive income for the year 36 486 945
 

Profit attributable to:

  
Owners of the parent 35 400 000
Non-controlling interest 1 086 945
  36 486 945

Total comprehensive income attributable to:

Owners of the parent35 400 000
Non-controlling interest1 086 945
 36 486 945

SOLAR (PTY) LTD
Consolidated Statement of Financial Position as at 30 June 2023

 Notes2023

Rand

2022

Rand

Assets   
Non-current assets   
Land at cost4160 000 000140 000 000
Plant and machinery456 250 00065 000 000
Vehicles44 512 2505 405 000
Total non-current assets 220 762 250210 405 000
 

Current assets

   
Inventory 41 200 00042 800 000
Trade receivables 36 200 00033 655 000
Financial assets – held for trading 740 000330 000
Bank and cash 39 343 06516 420 000
Total current assets 117 483 06593 205 000
Total assets 338 245 315303 610 000
 

Equity and Liabilities

   
Ordinary share capital 200 500 000200 500 000
Retained earnings 85 662 50051 350 000
Non-controlling interest 5 724 4455 000 000
Total equity 291 886 945256 850 000
 

Non-current liabilities

   
Long-term loans 14 760 55015 870 550
Deferred tax 28 000
Total non-current liabilities 14 788 55015 870 550
 2023

Rand

2022

Rand

 

Current liabilities

  
Current portion of long-term loans1 110 0001 110 000
Trade payables8 759 82012 559 450
Taxation payable: SARS19 700 00016 020 000
Shareholders for dividends2 000 0001 200 000
Total current liabilities31 569 82030 889 450
Total liabilities46 358 37046 760 000
Total equity and liabilities338 245 315303 610 000

SOLAR (PTY) LTD
Consolidated Statement of changes in equity for the year ended 30 June 2023

 Share

capital

Retained

earnings

Non-control-

ling interest

 

Total equity

 

Balance at 1 July 2022

 

 

200 500 000

 

 

51 350 000

 

 

5 000 000

 

 

256 850 000

Total comprehen-

sive income for the year

 

 

 

 

 

 

35 400 000

 

 

 

1 086 945

 

 

 

36 486 945

Dividends(1 087 500)(362 500)(1 450 000)
Balance at

30 June 2023

 

200 500 000

 

85 662 500

 

5 724 445

 

291 886 945

Notes:

1. Other income:
Other income consists of the following

 Rand
Fair value adjustment – held for trading investments150 000
Dividends received25 000
Profit on sale of machinery15 000
Profit on land expropriation185 000

2. Other expenses:
Other expenses consist of the following:

 Rand
Sundry expenses113 477 605
Depreciation – vehicles1 107 500
Depreciation – plant and machinery12 273 000
Loss on sale of vehicles45 000

3. Income tax expense:
Income tax expense in the statement of profit or loss and other comprehensive income consists of the following:

 Rand
Current tax14 394 700
Deferred tax28 000

An income tax rate of 28% is assumed.

4. Property, plant, and equipment:
Land:
Included in profit before tax is the profit made on the expropriation of land of a subsidiary in which Solar (Pty) Ltd has a 75% interest. The land had a cost (carrying amount) of R150 000 on 1 July 2022. Additional investments in land were made to expand operations. Land within the group is not leased to third parties.

Plant and machinery:
The carrying amount of machinery sold during the year was R650 000. Plant and machinery were acquired to expand the current production capacity.

Vehicles:
The carrying amount of vehicles sold was R215 000 on the date of sale. The vehicles were sold on the 30th June 2023.

The tax bases of all the assets are equal to the carrying amounts.

REQUIRED:

Prepare the Consolidated Statement of Cashflows using the indirect method for the financial year ended 30 June 2023 in accordance with International Financial Report- ing Standards (IFRS). (46 marks)

Get completed answers on the above questions on Financial Management

Answer 1: The cost price of the television sets and the financing element, if any, that should be recognised in the books of Electronicworld (Pty) Ltd is calculated as follows:

answer

Get completed answers on financial management as offered by the accounting assignment help South Africa experts of Student Life Saviour.


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