Question 1 (Marks: 25)

This question consists of three independent parts.

Part A (5)

The Financial Manager of First News Publications Ltd has come across the article below and has approached you for advice on the appropriate treatment of the event which has occurred after the year-end date of 29 February 2024.

As the financial statements have yet to be authorised for issue, he wants to know whether the financial statements should be adjusted considering the information that has been discovered.

Required:

Discuss whether the event above is an adjusting or non-adjusting event. In the case of an adjusting event, describe the adjustment to the financial statements. No journal entries are required.

Answers must comply with the requirements of International Financial Reporting Standards (IFRS), in particular, IAS 10 – Events after the reporting period.

Part B
(10)

The following information is relevant to Cheapair Ltd for the year ended 31 December 2023:

• The financial statements are due to be finalised, after the company’s annual audit on

29 February 2024.

• The shareholders will approve the financial statements at the next shareholder’s meeting, scheduled to take place on 31 March 2024.
• The financial statements will be authorised for issue on 31 March 2024. The following event took place after 31 December 2023:
On 5 February 2024, one of the warehouses of Cheapair Ltd was severely damaged due to flash flooding experienced in the area. The appropriate processes were followed to submit a claim to their insurers.

The investigation into the insurance claim had not been finalised at the time of the issue of the financial statements, however, a preliminary report was available, estimating damages that amount to R3 000 000 and indicating that there was no reason that the claim would not be approved.

The Financial Manager of Cheapair Ltd has requested your consultation on how the R3 000 000 should be recognised (if at all) in the financial statements for the year ended 29 February 2024.

Required:

Advise the Financial Manager on what effect, if any, the insurance claim would have on the financial statements for the year ended 29 February 2024. Your answer must comply with the requirements of International Financial Reporting Standards (IFRS), in particular IAS 10
– Events after the reporting period. Your discussion should include:
• Whether the event is an adjusting or non-adjusting event (with reasons)

• Where the event is adjusting, provide the appropriate journal entry (narrations are

NOT required)
• Where the event is non-adjusting, discuss whether any disclosure needs to be made in the notes to the financial statements.

Part C

ABS Motor (Pty) Ltd declared the following two dividends on the following dates:

• A dividend of R300 000 on 1 January 2024.

• A dividend of R600 000 on 10 March 2024.

ABS Motor (Pty) Ltd has a 29 February year-end. Financial statements are expected to be issued on 01 April 2024.

Required:

Discuss whether the events are adjusting or non-adjusting events. Where the events are adjusting, provide the appropriate journal entries (narrations are not required); and where the events are non-adjusting, discuss whether any disclosures need to be made in the notes to the financial statements of ABS Motors (Pty) Ltd for the year ended 29 February 2024.

Answers must comply with the requirements of International Financial Reporting Standards (IFRS), in particular, IAS 10 – Events after the reporting period.

Question 2 (Marks: 35)

Answer the questions below.

Q.2.1 Kermit Ltd sells machinery to a customer, Elmo Ltd on 01 March 2024.

The details of the contract are as follows:

1. Elmo Ltd takes delivery of the machine on 01 March 2024.

2. Kermit Ltd charges R460 000 including VAT for the machine.

3. The settlement date is 31 May 2024 with two months being the usual settlement period allowed for credit customers.

Required:

Considering the above scenario, identify and explain the five steps which need to be followed by Kermit Ltd when recognising the revenue from the contract entered into with Elmo Ltd. (15)

Q.2.2 Leather4Me Ltd sold a machine at a selling price of R65 000 on 01 July 2023.

Included in the sales contracts with the customers is a 3-year servicing agreement, commencing from the date of sale. The machine was delivered to the customer on the same day.

The usual selling price of the machine and the service agreement is R75 000 and R12 500 per annum.

On 01 July 2023, the financial manager of Leather4Me Ltd recognised R65 000 as revenue.

Required:

Using the information provided, identify and briefly explain and quantify how revenue should be recognised during the 2023 financial year and at
31 December 2023. Comment on whether the amount recognised by the financial manager on 01 July 2023 is correct. (20)

Answers must be in accordance with International Financial Reporting Standards (IFRS), specifically IFRS 15 – Revenue from contracts with customers.

Notes:

• Round off to two decimal places where necessary.

• Ignore the impact of the time value of money.

Round off to the nearest Rand where necessary.

Question 3 (Marks: 40)

This question consists of three independent parts.

Part A

Answer the questions below:

Fozzie Ltd has for the past five years paid 7,5% of its net profit as a bonus. The bonus is divided amongst all the employees of the entity at year-end. Fozzie Ltd has a 31 December year-end.

Net profit at 31 December 2023 R2 500 000 (10)

Required:

Shares in profits or any bonuses given to employees for services rendered constitute employee benefits in terms of IAS 19 Employee Benefits.

Considering the above statement and the provisions of IAS 19, discuss whether based on the above scenario the cost of the bonus should be recognised at 31 December 2023.

Part B

The following transactions occurred in the books of Landscaping Rocks Ltd with regard to their employees:
• Each employee contributed 6.5% of their gross salary to the defined contribution plan. The company makes an equal contribution to the retirement scheme.
• The gross salary of all employees was R2 500 000.

• PAYE was R240 000.

• At year-end, on 31 December 2023, there were 25 employees who together had a total of 20 days that qualified for paid leave. An average rate of R300 per day is estimated for leave pay. The amounts will be paid in January 2024.
• The company pays its employees a performance bonus if the annual revenue is above R12 000 000. They are collectively paid 5% of the amount exceeding R12 000 000. At the end of the year, revenue had reached R15 400 000. Bonuses were paid out on 31 December 2023.

Required (15)

Prepare the journal entries to record the above transactions on 31 December 2023.

Note:

• Show all your workings.

• No journal narrations are required.

• Round all amounts to the nearest Rand.

• Your answer must comply with the requirements of International Financial Reporting Standards (IFRS).

Part C
During 2023, Patio Furniture Ltd made the decision to reduce its workforce by 4%. It should be assumed that the decision taken was not a restructuring in terms of IAS 37. (15)

As a result, the directors of Patio Furniture Ltd decided on 01 December 2023, that a voluntary redundancy offer would be made to all employees who are older than 50 years of age (40 employees are within this age category).

Each employee was offered R2 200 000 should they agree to terminate employment by 29 February 2024.
The terms of the offer stipulated that Patio Ltd could not withdraw the offer at any stage. At 31 December 2023, 20 employees accepted the offer, whereas at the date the offer was made, it was expected that 80% of eligible employees would accept the offer.

Required:

Discuss how the above would be accounted for on 1 December 2023 and on 31 December 2023.

Show the relevant journal entries.

Answers must comply with International Financial Reporting Standards (IFRS), specifically IAS 19 Employee benefits.

Answers to Above Questions on Financial Reporting

Answer 1: In order to decide whether the above events are adjusting or non adjusting events, it is important to consider the international financial reporting standards while deciding their impact. An analysis of all those events by applying IAS 10 is performed as follows:

Hire the accounting assignment help experts of Student Life Saviour in South Africa to get answers to all the above questions on financial reporting.