XXXXXXXXXXMODULE NAME: MODULE CODE: ACCOUNTING 3A ACBP7311 ASSESSMENT TYPE: REVISED EXAMINATION PAPER TOTAL MARK ALLOCATION: 180 MARKS TOTAL TIME: The time given to students to complete this...

20 2020 MODULE NAME: MODULE CODE: ACCOUNTING 3A ACBP7311 ASSESSMENT TYPE: REVISED EXAMINATION PAPER TOTAL MARK ALLOCATION: 180 MARKS TOTAL TIME: The time given to students to complete this assessment will be indicated on your module in Learn. By submitting this assessment, you acknowledge that you have read and understood all the rules as per the terms in the registration contract, in particular the assignment and assessment rules in The IIE Assessment Strategy and Policy (IIE009), the intellectual integrity and plagiarism rules in the Intellectual Integrity Policy (IIE023), as well as any rules and regulations published in the student portal.INSTRUCTIONS:1. Please adhere to all instructions. These instructions are different from what is normally present, so take time to go through these carefully.2. Independent work is required. Students are not allowed to work together on this assessment. Any contraventions of this will be handled as per disciplinary procedures in The IIE policy.3. No material may be copied from original sources, even if referenced correctly, unless it is a direct quote indicated with quotation marks.4. This is an open‐book assessment.5. Assessments must be submitted in a format as detailed below:a. Ensure that you save a copy of your responses.b. The document name must be your Name.Student number.Module Code.c. Once completed the assessment, upload your document under the submission link inthe correct module in Learn. Additional instructions: Calculators are allowed. Answer All Questions. Show all calculations, where applicable (marks may be awarded for this). Instructions for assessments including numerical calculationso You will only be able to submit scanned/photo of handwritten document or Microsoft word or excel documents.o You may use Excel. If Excel is used, then all calculations must be shown in order to receive method marks.If you are using a Word Document: Use the following to reflect your calculations: Multiply x – small letter x or * Division / forward slash Addition and subtraction + and ‐ © The Independent Institute of Education (Pty) Ltd 2020Page 1 of 11
20 2020  Square‐roots and equations – using the function insert ‐ equation. Tables – using the function insert ‐ table Working with tables – use merge and split cell functions through right click function. Fitting tables to pages – Autofit to window/content through right click function. Layout of table – Section breaks and landscape orientation through layout – breaks andlayout orientation in the ribbon. If you are not familiar with all the functions in word it is recommended that you rather do ahardcopy if possible.If you are completing in a hardcopy/ by hand: Ensure that all your pages are numbered on the top right‐ hand side of the page – e.g. 1 of12. Perform your calculations as you normally would. Please work neatly so that you do not losemarks because your lecturer cannot read your writing. Either (i) Scan your pages OR (ii) photograph your pages. Ensure that the pages are in thecorrect order. Label your photographs as follows: Name.Student number.Module Code.Page 1; (for eachpage. Once completed upload your document under the submission link in the correct module inLearn. © The Independent Institute of Education (Pty) Ltd 2020Page 2 of 11
20 2020Question 1 ________ (Marks: 60) Pro‐Property Ltd (“Pro‐Property” or “The Company”) entered into the following transactions during the year ended 30 June 2020:Transaction 1On 1 July 2019, Pro‐Property Ltd entered into an agreement with a customer to construct a plant over a period of 12 months for a total price of R25 000 000. The agreement includes an obligation to obtain machinery for the plant and transfer it to the customer at cost. Control of the machinery will be transferred to the customer six months after the construction of the plant begins. Pro‐ Property measures its performance by using the percentage of costs incurred compared to the total estimated costs of the project. The total estimated cost of the project is R22 200 000, of which machinery represents a significant portion.Pro‐Property Ltd purchased the machinery from a supplier for R8 000 000 on 1 January 2020 and delivered it to the customer’s premises without being involved in the design or manufacture of the machinery. On the same date of delivery, the total project cost incurred (including the cost of the machinery) amounted to R16 800 000.The accountant recorded revenue of R20 350 000 on this transaction.Transaction 2Pro‐Property Ltd entered into an agreement on 1 January 2020 with a customer for the sale of a truck mounted crane including a two‐year service plan for a total of R6 000 000. The truck was delivered on 1 June 2020 on which date the customer paid in full. The customer may also acquire the truck mounted crane from Pro‐Property Ltd without a service plan for a stand‐alone price of R5 600 000. Pro‐Property Ltd regularly sells two‐year service plans to customers on a stand‐alone basis for R800 000.The accountant recorded the full R6 000 000 in revenue that was paid by the customer. © The Independent Institute of Education (Pty) Ltd 2020Page 3 of 11
20 2020 Transaction 3On 1 July 2019, Pro‐Property Ltd received a payment of R9 700 000 from a customer, which was the regular selling price of a crane truck, on the condition that Pro‐Property must deliver the product to the customer on 30 June 2022. The financing component of this transaction is significant. The market related interest rate at the time of the transaction was 12%.The accountant recorded the R9 700 000 payment received as Revenue.Required: Q.1.1Record the adjusting journal entries in the books of Pro‐ Property Ltd, for transactions 1 to 3 above, to correctly record revenue in terms of IFRS 15 – Revenue from contracts with customers for the year ended 30 June 2020.All narrations are required.Round all figures to the nearest Rand.Hint: Show all workings in arriving at the amount of the journal to be processed. Marks will be awarded.Mark allocation Transaction 1: 10 marks Transaction 2: 10 marks Transaction 3: 10 marks (30) Q.1.2Pro‐Property Ltd had a net profit before tax of R88 800 000. This net profit included the transactions above BEFORE any of the adjustment entries per Q.1.1 above. Assume that the cost of sales of the above transactions had already been correctly accounted for in determining the profit before taxation.In addition, the following transactions were included in calculating the net profit before taxation: Pro‐Property Ltd spent R2 700 000 on research and development. SARS allows150% deduction on research and development. Pro‐Property Ltd incurred a late payment penalty from the SARS of R680 000. © The Independent Institute of Education (Pty) Ltd 2020(30)Page 4 of 11
20 2020  Pro‐Property Ltd received dividends from investments to the value of R5 600 000. Depreciation for the year amounted to R7 300 000. The wear and tear allowance for the year amounted to R8 700 000. During the year Pro‐Property Ltd sold equipment for proceeds of R5 600 000. The equipment had a cost of R6 000 000 and a carrying amount of R4 000 000 and a tax base of R4 800 000. Pro‐Property Ltd had an assessed loss of R4 800 000 carried forward from 2019. The tax rate for all years under review was 28%.The accountant recorded a current taxation expense of R24 864 000.Round all figures to the nearest Rand or percentage.Required: Q.1.2.1Calculate the current taxation payable, of Pro‐Property Ltd for the year ended 30 June 2020, using all the information provided above and in accordance with IAS 12 – Income taxes. Show all workings as marks will be allocated. (17)Q.1.2.2 Record the adjusting journal entry required for the current taxation (3) payable per Q.1.2.1 above.Q.1.2.3 Prepare the SA Normal Tax note including the tax reconciliation for the year (10) ended 30 June 2020. © The Independent Institute of Education (Pty) Ltd 2020Page 5 of 11
20 2020Question 2 _____ ___ (Marks: 60) InvestCo Ltd is an investment company and earns its revenue from long term investments. These investments range from equity instruments to investment property and other non‐current assets. InvestCo Ltd has a year ended 30 June 2020. The following details at year end are available:Transaction 1On 30 June 2020, InvestCo Ltd’s listed investments, consisting of 480 000 ordinary shares in a listed property trust. At 30 June 2020 the shares were trading at a total net market value of R128.50 after brokerage fees of 2.5% were deducted. These investments are traded in an active market.The fair value of these investments was R53 808 000 at 30 June 2019.These investments were classified as measured at fair value through other comprehensive income.Transaction 2InvestCo Ltd obtained a 15% interest in Bull (Pty) Ltd on 31 January 2016 for R1 480 000. Bull (Pty) Ltd is a transport company in the food sector. The company transports fresh food products around the country in 18‐wheeler trucks. The fair value and carrying amount of the investment was R1 280 000 at 30 June 2019. On 30 June 2020, the accountant of InvestCo Ltd calculated the fair value of the investment in Bull (Pty) Ltd using adjusted after‐tax earnings yield of 16% before considering a private company risk premium of 4%.Before‐tax earnings of R8 400 400 included a once‐off insurance payment of R12 500 000 from a freak explosion, caused when one of the 18‐wheeler trucks’ fuel tanks exploded and damaged the other four trucks that were in the parking lot at that time. The five trucks had a carrying value of R1 500 000 million each at the time of the explosion. Earnings are expected to grow by a minimum of 5% into the foreseeable future.The tax rate is 28%.This investment was designated as measured at fair value through other comprehensive income. © The Independent Institute of Education (Pty) Ltd 2020Page 6 of 11
20 2020 Transaction 3On 1 July 2018, InvestCo Ltd issued 100 000 8% convertible debentures of R1 200 each. The debentures must be converted to ordinary shares at a ratio of 3 ordinary shares for every1 debenture as at 30 June 2022. The interest is payable annually in arrears.The market in which these debentures are traded became inactive and one cannot rely on quoted prices or on the market prices of similar instruments. On 30 June 2020, the risk‐free rate was 9% and the risk premium for non‐performance was estimated to be 3%.The Fair value of these investments at 30 June 2019 was R118 720 845.Transaction 4On 30 June 2020, InvestCo Ltd had a machine with a carrying amount of R7 000 000, that was held for sale. The machine was written down to a fair value of R5 200 000, less costs to sell of 12%, resulting in a loss, which was included in profit or loss for the current year. The value in use was calculated as R4 240 000.Transaction 5InvestCo Ltd has a commercial office building that is rented out to third parties. The fair value of the building was R5 600 000 at 30 June 2019. In its current use, the present value of the net cash flows of future earnings was calculated at R5 700 000 on 30 June 2020. On 30 June 2020 the building could be sold in the open market for R6 100 000 before transaction costs of 2%. This open market value was determined with reference to similar buildings, situated in the same location, that are currently in the market.Required: Q.2.1Calculate the fair values for each of the transactions 1 to 5, to comply with International Reporting Standards (IFRS), for InvestCo Ltd for the year ended 30 June 2020.Round all figures to the nearest Rand or Percentage. © The Independent Institute of Education (Pty) Ltd 2020(35)Page 7 of 11
20 2020 Mark allocation: Transaction 1: 6 marks Transaction 2: 14 marks Transaction 3: 7 marks Transaction 4: 5 marks Transaction 5: 3 marks Q.2.2Calculate the fair value adjustment for transactions 1 to 5, to comply with International Reporting Standards (IFRS), for InvestCo Ltd for the year ended 30 June 2020.Clearly indicate whether the adjustment is a gain or loss.Mark allocation: Transaction 1: 2 marks Transaction 2: 2 marks Transaction 3: 2 marks Transaction 4: 2 marks Transaction 5: 2 marks (10) Q.2.3To increase the quality of presentation and disclosure, IFRS 13 Fair value measurement, has established a three‐level hierarchy system to categorise the inputs to valuation techniques.For each of the five transactions listed above, state whether the level of inputs would be classified as Level 1, Level 2 or Level 3 within the hierarchy.Justify your answer by providing a brief explanation in your own words for your choice. © The Independent Institute of Education (Pty) Ltd 2020(15)Page 8 of 11
20 2020Question 3 ___ ____ ____ (Marks: 60) Eastern Cape Fashions Ltd is a fashion retailer with stores in three different zones – Port Elizabeth, Umtata and Queenstown. Their Queenstown store has made a loss for the last two consecutive years. On 30 September 2019 a detailed plan to discontinue the Queenstown store operations was approved by the board of directors and a public announcement was made. The plan involved the once off sale of assets and liabilities.On 31 March 2020 there was no realistic opportunity for withdrawal of the sale arrangements and a binding sale was concluded. It is expected that the plan for discontinuance of the Queenstown store will be completed by the 31 August 2020. Eastern Cape Fashions Ltd has a 30 June financial year end.Extract from the statement of financial position at 30 June 2020: QueenstownPort Elizabeth and Umtata (R’s)40 000 000 8 000 000 7 000 000 3 000 000 (R’s)Property, plant and equipment Current assetsLong‐term liabilitiesCurrent liabilities8 000 000 1 600 000 3 600 000 2 400 000 Extract of performance for continuing operations for the period ended 30 June 2020: 20202019Port Elizabeth and Umtata (R’s)50 000 000 20 000 000 18 000 000 Port Elizabeth (R’s)Umtata (R’s)20 000 000 9 600 000 5 200 000 RevenueCost of sales Other expenses32 000 000 14 400 000 12 000 000 © The Independent Institute of Education (Pty) Ltd 2020Page 9 of 11
20 2020 Extract of performance for discontinuing operations for the period ended 30 June 2020: 2020 (R’s)2019 (R’s) RevenueCost of sales Other expensesCost of discontinuance:7 900 000 5 000 000 4 800 0006 400 000 5 800 000 1 100 000 Provision for direct costs of discontinuance (tax deductible) Severance pay paid to employees (not tax deductible)Fines paid due to cancellation of contracts ( not tax deductible)2020 (R’s)2019 (R’s)132 000 560 000 120 000420 000 Other Information for the year ended 30 June 2020: 2020(R’s)Finance costs (continuing operations)Additional information: The Queenstown store was closed on 30 June 2020. The assets and liabilities of the Queenstown store meet all the criteria to be classified as adisposal group. On 31 March 2020 the fair value less costs to sell the disposal group was R2 300 000. There is no difference between the tax base and the carrying amount of the property, plantand equipment. There are no temporary differences other than those evident from the question. Assume the tax rate is 28% for all the periods presented. 600 000 © The Independent Institute of Education (Pty) Ltd 2020Page 10 of 11
202020Required: Q.3.1Prepare the statement of profit and loss and other comprehensive income of Eastern Cape Fashions Ltd for the year ended 30 June 2020 according to the requirements of IFRS 5, Non‐current assets held for sale, and discontinued operations.Accounting policy notes are not required.Comparative figures are required.Show all workings as marks will be allocated. (40) Q.3.2Prepare the tax expense note as it would appear in the notes to the financial statements of Eastern Cape Fashions Ltd for the year ended 30 June 2020.Comparative figures are required. (10) Q.3.3Prepare the note of non‐current assets held for sale for the year ended 30 June 2020 according to the requirements of IFRS 5, Non‐current assets held for sale, and discontinued operations. © The Independent Institute of Education (Pty) Ltd 2020END OF PAPER(10)Page 11 of 11
Aug 23, 2021
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