Question 1: (25 marks)

On 14 November 2023 Flying Solo Airlines (Pty) Ltd had a sale on their return tickets from Johannesburg to Cape Town. As a result, 15 return airline tickets of R1250 each were sold to passengers travelling in May 2024.

Payment for these tickets were made by the passengers on the 15 November 2023 and transferred into Flying Solo Airlines (Pty) Ltd’s bank account. Payment was reflected in the bank account on the 17 November 2023.

The financial year end of Flying Solo Airline (Pty) Ltd is 31 December 2023.

Required:

Advise Flying Solo Airline (Pty) Ltd on how the sale of the airline tickets should be classified and measured in the financial statements for the year ended 31 December 2023.

Your answer should refer to the elements of financial statements as identified in the Conceptual Framework.

Question 2:

The year-end of Sweet Cravings Ltd. is 31 December 2023. The following information is presented to you:

1. The profit before tax for 2023 was R375 000 and the taxable income was R396 250.

2. Profit before tax for 2023 includes a tax fine of R5000.

3. The statement of financial position as at 31 December 2023 shows an income received in advance of R10 000.

4. The rent expense is paid annually in advance on 1 March. Rent payments were as follows:

1 March 2022: R42 000

1 March 2023: R48 000

5. On 1 January 2021, Sweet Cravings Ltd. purchased equipment with a cost price of

R150 000. On 30 September 2022 additional equipment to the value of R40 000 was purchased. On 31 March 2023 equipment with a cost price of R15 000, originally purchased on 1 January 2021, was sold for R8750. Depreciation is calculated at 25% per annum on the straight-line basis.

6. The tax base of equipment was R84 000 on 31 December 2023 and R125 000 on 31
December 2022.

7. There are no other items which give rise to temporary or other differences, except for those indicated in the above-mentioned information.

8. Assume a tax rate of 28%.

YOU ARE REQUIRED TO:

a) Calculate the profit or loss on sale of equipment on 31 March 2023. (4)

b) Disclose the equipment note to the statement of financial position at 31 December 2023. Comparative figures are required. (9)

c) Disclose the deferred tax note to the statement of financial position at 31 December 2023. Comparative figures are required. (9)

d) Disclose the income tax expense note to the statement of comprehensive income for the year ended 31 December 2023. Comparative figures are not required. (8)

Question 3:

Trucks Limited has a 30 June year end and operates on a five day working week. The conditions of employment at Trucks Limited stipulate that each employee is entitled to a 20 paid working day vacation per annum. Truck Limited’s employee profile and recent leave statistics are as follows:

There have been no salary increases for the past two years and none is expected in the next financial year.
No employee joined or left the company for the past two years.
Management has correctly forecasted the number of day’s vacation to be taken in the following year for a number of years.
Salaries were increased by 20% on 01 July 2024.

Required:

a) Calculate the leave pay provision (if any) as at 30 June 2024 (10)
b) Calculate the leave pay provision (if any) if the leave is accumulating but not vesting as at 30 June 2024. (10)

Question 4:

The following information was obtained from the financial statements of See Shell Ltd for the year ended 29 February 2024.

Additional Information:

1. Credit sales are equal to 20% of the total sales.
2. Credit purchases for the financial year is R40 000.
3. Inventory for the previous year amounted to R 100 000.
4. Debtors for the previous year amounted to R 160 000.
5. Creditors for the previous year amounted to R 80 000.

Required:

Calculate the following ratios;

a) Current Ratio (3)
b) Acid-test Ratio (4)
c) Stock turnover rate (3)
d) Debtors collection period (4)
e) Creditors collection period (4)
f) Comment on the liquidity position of the business from your calculations above (7)

Answers to Above Questions on Flying Solo Case Study

Answer 1: The elements of financial statements identified in the conceptual framework as applicable in the given case scenario of Flying Solo Airlines are the concept of classification, measurement, and recognition principle. It is also important to consider the timing of recognition while analysing the case study of Flying Solo Airlines.