QUESTION 1                                                                                                          (29 marks)

 You are a consultant at Advanced (Pty) Ltd (Advanced). Advanced provides accounting and tax consulting services to various clients. Your client portfolio includes the following three allocated clients who have approached you regarding the recognition of assets and liabilities in terms of the revised Conceptual Framework for Financial Reporting 2018.

Client 1: Wizzkidz (Pty) Ltd 

Wizzkidz (Pty) Ltd (Wizzkidz) is a developer and retailer of children’s technological learning and educational games. The entity has a 30 June year-end. The managing director at Wizzkidz recently travelled overseas where he came across a reading, spelling, and vocabulary game which would improve the reading and comprehension of children in grades 1 to 6. He was so excited about the idea and had the technical team develop the application called ‘Wizzkidz Comprehension’. Wizzkidz has registered a patent for this application, and they will be the only company locally with the right to develop and retail the ‘Wizzkidz Comprehension’ application. This patent will ensure that Wizzkidz is the only designer, developer, and retailer of this application.

It is estimated that 1,5 million Wizzkidz Comprehension applications will be purchased and downloaded on smartphones and devices across South Africa.

Client 2: Easymove (Pty) Ltd

 Easymove (Pty) Ltd (Easymove) is a packing and moving company with a December year-end. Easymove’s main business is assisting customers packing up their homes and offices and transporting all their goods to their new homes and offices. The entity now wants to expand their service offering by including long distance moves between all the major cities and towns around South Africa. To expand their offering Easymove invested in 2 trucks which were purchased and delivered to their premises in Cape Town during December 2022. At the 2022 year-end, the outstanding balance payable to the supplier amounting to R500 000 had not been settled. The R500 000 is due to be paid by 31 January 2023.

Client 3: Accprac (Pty) Ltd 

Accprac (Pty) Ltd is an accounting practice that has invited you to be the guest presenter at their technical session update with their senior trainees and managers about the Conceptual Framework for Financial Reporting 2018. They have specifically requested that you address the enhancing qualitative characteristics of financial statements.

REQUIRED: 

  • With reference to Client 1: Wizzkidz (Pty) Ltd, discuss, in terms of The Conceptual Framework for Financial Reporting 2018, whether the patent may be recognised as an asset in the financial statements of Wizzkidz (Pty) Ltd for the year ended 30 June 2023.(13 marks)
  • With reference to Client 2: Easymove (Pty) Ltd, discuss, in terms of The Conceptual Framework for Financial Reporting 2018, whether the outstanding balance of R500 000 may be recognised as a liability in the financial statements of Easymove (Pty) Ltd for the year ended 31 December 2022.(13 marks)
  • With reference to Client 3: Accprac (Pty) Ltd, list and provide a brief explanation of any two enhancing qualitative characteristics of financial statements in terms of the Conceptual Framework for Financial Reporting (3 marks)

Competency Framework Reference: 

B1.1 Fundamental reporting concepts
b) Apply the qualitative characteristics and principles of useful information
d) Identify, define, and

frameworks

evaluate the different elements in reporting
e) Apply the recognition and de-recognition criteria to an element

QUESTION 2                                                                                                          (61 marks)

 Crispy (Pty) Ltd (Crispy) is a snack food-manufacturing company whose brands include a variety of chips. The company has a 30 June year-end.

You are presented with the following pre-adjustment trial balance of Crispy:

Pre-adjustment trial balance of Crispy (Pty) Ltd as at 30 June 2023: 

 

Account

 

Note

Debit

(R)

Credit

(R)

Share capital 1   750 000
Retained income (1 July 2022)     1 350 700
Drawings 2 ?  
Machinery – cost (1 July 2022) 3 1 800 000  
Machinery   – accumulated depreciation (1 July

2022)

 

3

   

720 000

Vehicles – cost (1 July 2022) 4 880 000  
Vehicles – accumulated depreciation (1 July

2022)

 

4

   

528 000

Investment – held for trading (1 July 2022) 5 20 000  
Trade debtors 6 25 000  
Bank   2 658 000  
Inventory 7 140 000  
Trade payables 8   218 550
Loan from Caploan Bank: 10% interest per annum 9   ?

 

Revenue     3 465 850
Interest income     10 200
Dividend received     4 200
Cost of sales   975 000  
Depreciation expense   ?  
Electricity expense   33 000  
Fuel expense   60 500  
Rent expense 10 156 800  
Salaries and wages   286 000  
Telephone expense   13 200  
    7 047 500 7 047 500

 The following transactions have not yet been accounted for in the pre-adjustment trial balance given above:

1. Share capital:  
   

2023

 

2022

Authorised shares 1 000 000 1 000 000
Issued shares 900 000 750 000

During the 2023 financial year, additional capital was injected into Crispy by issuing shares to existing shareholders at R2 per share.

2.    Drawings:

 The owner, Mr. Chippy, took chips from Crispy to give towards his daughter’s class party at school in celebration of her 8th birthday. The cost price of the chips amounted to R560, with a selling price of R820.

3.    Machinery:

 Crispy purchased a new machine on the 1st of December 2022 with a cost price of R580 000. The residual value of the machine was estimated to amount to R10 000. The new machine was purchased to replace an older machine which was sold on the 30th of November 2022. The carrying value of the machine was R170 000 on the date of sale. The original cost of the machine sold was R300 000, with accumulated depreciation of R130 000. The older machine was sold for an amount of R110 000. All transactions were completed on a cash basis. Apart from the new machine purchased, all other machinery had a residual value of nil. Machinery is depreciated over a period of 5 years on a straight-line basis.

4.  Vehicles:

 The cost price of the vehicles given in the pre-adjustment trial balance consists of the following:

Cost price Toyota Fortuner                                  R 620 000

Volkswagen Polo   R 260 000

During the current year, on 30 September 2022, the Toyota Fortuner was sold for R690 000. The Toyota Fortuner was originally bought on 1 July 2021 and had a residual value of R40 000. To replace the sold vehicle, Crispy purchased a Ford Ranger on 1 October 2022 for R550 000, with a residual value of R100 000. All transactions were completed on a cash basis. The Volkswagen Polo has an estimated residual value of R15 000. Vehicles are depreciated over a period of 5 years on a straight-line basis.

5.  Investments – held for trading:

 Crispy holds share investments for trading purposes. The shares are recorded in the records of Crispy at fair value through profit and loss. On 30 June 2023, the fair value of the share portfolio amounted to R25 000. No adjustments have been taken into account at year-end.

6.  Trade debtors:

 Trade debtors include an outstanding balance from a chain retail store that purchases chips from Crispy. They are only able to repay Crispy R800 of the R1 500 balance outstanding. The balance outstanding should be written off as bad debt.

7.  Inventory:

 The inventory balance as at 30 June 2023 is made up of the following: Finished goods                                                R 115 000

Raw materials                       R   25 000

During the year, prior to transactions which have not yet been recorded, a new competitor entered the market. As a result of the new competitor, Crispy’s Cheesy snacks range can only sell for R8 a packet, with selling costs amounting to R2 per packet. The cost price per packet is R10 each. There were 1 500 packets of Cheesy snacks on hand at year-end.  No adjustments were made to inventory at year-end.

8.  Trade payables:

 Crispy purchased raw materials on credit from a local supplier. The cost price of the raw materials acquired amounted to R75 000. The transaction has not yet been accounted for at year-end.

9.  Loan from Caploan Bank:

 On 1 June 2023, Crispy received a loan from Caploan Bank for an amount of R80 000, which is repayable in 4 years. Interest is payable annually at a rate of 10% per annum. No transactions relating to the loan have been accounted for at year-end.

10.  Prepaid expense:

 Crispy has paid rent for the 14-month period that ends on the 31st of August 2023.

11.  Income received in advance:

 Crispy received a payment of R125 000 from Zimba Chips, one of their top customers, on 22 June 2023. The delivery of the chips will take place on 7 July 2023. The transaction has not been accounted for at year end.

12.  Expenses:

 The following cash-paid expenses have not been accounted for during the month of June 2023:

  • Electricity and water – R3 000
  • Fuel expense – R5 500
  • Salaries and wages – R26 000
  • Telephone expense – R1 200

13.  Income tax expense:

 Income tax for the current year has been correctly calculated and amounted to R540 983. The balance was still outstanding at the financial year-end.

14.  Dividends paid:

 During the current financial year, Crispy declared and paid dividends of R55 000 to its ordinary shareholders.

REQUIRED:

 Prepare the Statement of Profit or Loss and Other Comprehensive Income of Crispy (Pty) Ltd for the financial year ended 30 June 2023 in accordance with International Financial Reporting Standards. Comparative figures are not required. Show all workings, and reference accordingly. (61 marks)

Note:

  • All amounts should be rounded to the nearest Rand. Show all calculations
  • Your answer must comply with International Financial Reporting Standards (IFRS).

Competency Framework Reference: 

 

D1.1

Financial reporting: in accordance with International Financial

Reporting Standards (IFRS)

a) Prepare, analyse, and evaluate general purpose financial statements

in accordance with IFRS for an entity, which could be a for-profit entity, an SME, a public sector entity or a not-for-profit entity

QUESTION 3                                                                                                          (10 marks)

 Olympia Ltd is the parent entity of the Olympia group and manufactures sporting equipment. Mr. Able holds the following positions:

  • Managing director of Olympia Ltd;
  • Controls Track Ltd through a 70% shareholding; and
  • Director of Sporty

Mr. and Mrs. Able are married in community of property.

Olympia Ltd is a subsidiary of Field Ltd. Field Ltd also controls Ball Ltd through its 80% shareholding in the ordinary shares of Ball Ltd.

Olympia Ltd owns an 85% shareholding in the ordinary shares of Sprint Ltd, a company that manufactures sporting memorabilia. Olympia Ltd also has a 20% shareholding in Direct Ltd, a company that manufactures sporting watches. The 20% shareholding in Direct Ltd constitutes significant influence.

The employees of Olympia Ltd are members of the Olympica Pension Fund, providing post-employment pension fund benefits to employees, and the Olympica Trade Union.

REQUIRED:

Indicate which of the parties are related to Olympia Ltd and which are not, in terms of IAS 24.(10 marks)

Competency Framework Reference: 

 

D1.1

Financial reporting: in accordance with International Financial

Reporting Standards (IFRS)

a) Prepare, analyse, and evaluate general purpose financial statements in accordance with IFRS for an entity, which could be a for-profit entity, an

SME, a public sector entity or a not-for-profit entity

Get Completed Answers on Financial Accounting for Companies

Answer 1: The recognition of patent as an asset in the financial statements of Wizzkidz (Pty) Ltd for the year ended 30 June 2023 using The Conceptual Framework for Financial Reporting 2018 implies that patent recognition requires ………….

answer

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