accounting
COLLEGE OF LAW AND MANAGEMENT STUDIES SCHOOL OF ACCOUNTING, ECONOMICS AND FINANCE ACCOUNTING 101 (ACCT101) Assessment 3: 30 June 2021 (On-line via Learn) Instructions to candidates (Must be read before attempting the test): 1) Assessment 3 contributes 50% towards your Final Mark. 2) The assessment is made up of 2 questions for a total of 80 Marks. 3) Students are advised that they will only be allowed one attempt at the assessment. 4) The test is open for the duration of 24 hours. It will open on the 30 June 2021 at 10am and close on 1st July 2021 at 10am. No late attempts will be considered. 5) Students must include their names and student number on each page of the submission document. Each page should be numbered. 6) Please note that you will be charged with misconduct if you present someone else’s work or ideas. This is unacceptable, and if you are found guilty, you will become subject to the university’s normal rules that apply in such circumstances. It is possible that disciplinary action will be taken against you. 7) Declaration of Authenticity: By clicking on “start attempt” you hereby declare that the content of this assessment is your own work and that all content submitted was completed by yourself. You also declare that you have not divulged either your answers or the information contained within this assessment to any person, whether a University of KwaZulu-Natal student or otherwise. Question 1 (20 marks, 30 minutes) Ndlovu Attorneys is a partnership between Nomthemba, Nandi, Njabulo and Ndumiso. The partners share profits in the ratio 1:2:4:5 respectively. The partnership has a 31 May 2021 year end. On 31 May 2021, Nandi approached the partners, as she had decided due to her ill health, to retire from the legal profession and as a result from the partnership. The trial balance of Ndlovu Attorneys on 31 May 2021 is shown below. Ndlovu Attorneys Trial balance as at 31 May 2021 DR CR R R Capital Account – Nomthemba 20 000 Capital Account – Nandi 40 000 Capital Account - Njabulo 80 000 Capital Account - Ndumiso 100 000 Current Account – Nomthemba 10 000 Current Account – Nandi 6 000 Current Account – Njabulo 2 000 Current Account - Ndumiso 10 000 Land and Buildings 900 000 Plant and equipment 150 000 Furniture and Fittings 12 000 Trade Receivables 16 000 Trade Payables 28 000 Bank Overdraft 5 000 Sales 1 299 000 Cost of Sales 475 000 Stationery 1 500 Interest Expense 1 500 1 578 000 1 578 000 The partnership decided that Goodwill should not be recorded as an asset in the accounts of the partnership and that no private cash settlement will take place between the partners either. Upon Nandi’s retirement from the partnership on 31 May 2021, the following information is deemed important 1. Land and buildings have a fair market value of R1 250 000 2. Plant and equipment are considered to be valued at R120 000 3. Nomthemba, Njabulo and Ndumiso will share profits/losses in the ratio of 2:2:1 4. The partnership is considered to be worth R750 000 5. Nandi will be paid out in cash upon leaving the partnership 6. Nonthemba will contribute R150 000 more cash to the partnership after Nandi retires Required Marks 1. Calculate the value of goodwill of the existing partnership before Nandi retires 8 2. Calculate the partner’s capital account balances that the new partnership (i.e. after Nandi’s retirement) will reflect on the Statement of Financial Position on 31 May 2021 and provide the goodwill ledger account N.B. Round all answers off to the nearest rand 12 Total 20 Question 2 (60 marks, 90 minutes) SleepE Ltd is a manufacturer of high quality pillows. The company distributes its products to various wholesalers and retailers across South Africa. The following information relates to the company for the year ended 31 December 2020: SleepE Ltd Trial balance as at 31 December 2020 Note DR R CR R Balance sheet accounts Preference share capital 1,22 300 000 Ordinary share capital 1,2,23 600 000 Retained earnings (1 January 2020) 285 000 Goodwill 4 20 000 Debentures 19 35 000 Mortgage bond (12% p.a.) 20 160 000 Investment in Dreamz Ltd 4 40 000 Fixed deposit 16 25 000 Trade receivables 12,13 47 600 Trade payables 53 800 Inventory 7 59 880 Fuel (asset) 15 12 800 Stationery (asset) 17 2 670 Provision for bad debts 13 1 440 Building, at cost 10 930 000 Plant, at cost 11 142 000 Equipment, at cost 8 180 000 Vehicles, at cost 9 135 000 Accumulated depreciation on building 10 42 000 Accumulated depreciation on equipment 8 36 000 Accumulated depreciation on vehicles 9 21 000 Bank 84 870 Petty cash 1 100 SA revenue service 24 56 460 Nominal accounts Sales 6 766 295 Cost of sales 6 359 380 Debtor’s allowances 6 540 Audit fees 14 16 000 Bad debts 12,13 2 360 Bank charges 1 800 Director’s fees 24 000 Dividend income (Dreamz Ltd)) 5 2 000 Interest on fixed deposit 16 1 125 Interest on mortgage bond 20 15 600 Interim dividend on ordinary shares 23 20 000 Rent income 18 26 200 Salaries 75 000 Share issue expenses 3 65 000 Sundry office expenses 6 800 2 329 860 2 329 860 Adjustments and additional information: 1. On 1 January 2020, the issued share capital consisted of: R 100 000 non-redeemable preference shares, issued at R3 each 300 000 1 000 000 ordinary shares, issued at 34c each 340 000 2. On 30 September 2020, SleepE Ltd increased its ordinary share capital by issuing 200 000 ordinary shares at R1,30 each. No transactions were recorded. 3. Share issue expenses were incurred and these are to be written off against retained earnings. 4. SleepE Ltd acquired its investment in Dreamz Ltd on 1 January 2020 and paid R20 000 goodwill. Goodwill is to be written off. 5. On 30 June 2020, Dreamz Ltd paid an interim dividend equal to 5% of the investment amount and a cheque was received and recorded by SleepE Ltd in July 2020. On 31 December 2020, a final dividend of 9% of the investment amount was declared by Dreamz Ltd, but no cheque has been received as yet for this amount. 6. It was ascertained that a credit sales invoice for R2 400 (cost: R1 600) had been omitted from the accounting records. This transaction still needs to be recorded. 7. A stock take was performed on 31 December 2020 and the value of inventory was determined to be R57 000. 8. Equipment has a residual value of R20 000 and is depreciated at 15% p.a., using the diminishing balance method. A provision for the current years’ depreciation still needs to be made. 9. The company owns one vehicle, purchased on 1 January 2019. During 2019 the vehicle travelled 35 000 kilometers. On 31 December 2020 the vehicle had travelled a total of 68 500 kilometers. Depreciation on vehicles is calculated using the unit of output method and still needs to be calculated for the 2020 year of assessment. The vehicle is expected to travel a total of 225 000 kilometers over its useful life. 10. The carrying amount of the building was R870 300 as at 31 December 2020. 11. The installation of the plant was completed on 31 December 2020 and no depreciation is to be written off in the current year. 12. A debtor who owes R500 has been declared insolvent. SleepE Ltd received a final settlement cheque equal to 40c in the R1, and wrote the balance off as irrecoverable. These transactions must still be recorded. 13. Provision for bad debts is to be provided at 4% of trade receivables. 14. Audit fees still owing at 31 December 2020 amounted to R3 500. 15. The total amount if unused fuel at 31 December 2020 was R520. 16. The fixed deposit matures on 30 September 2021. Interest on the fixed deposit has only been received for the period 1 January 2020 to 30 September 2020. 17. Stationery to the value of R2 200 was used during the year. 18. A portion of the building has been let to a tenant for the full year and rent has been received for January 2021. The January 2021 rent includes a 10% increase. No journal entries have been processed regarding rental income. 19. Debentures consist of 1 750, 8% debentures at R20 each. No interest on debentures has been recorded. 20. The capital amount of the mortgage bond is redeemed at R20 000 per year, payable on 1 July each year, until fully paid. Total interest for the year is R20 400. 21. The company has a general reserve of R32 000. No transactions for this reserve have been processed. 22. The directors declared a dividend of 27c per