FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 SEMESTER 1 ‐ …

1

FEEDBACK TUTORIAL LETTER

ASSIGNMENT 1

SEMESTER 1 ‐ 2018

FINANCIAL ACCOUNTING 3B

[FAC312S]

TUTORIAL LETTER MEMO

SEMESTER 1/2018

Financial Accounting 3B

FAC312S

1

Course Name: Financial Accounting 3B Course Code: FAC312S Department: Accounting, Economics and Finance Course Duration: TYPE COURSE DURATION HERE NQF Level and Credit: Level 7, 12 Credits

Your marker-tutor for Financial Accounting 3B The Namibia University of Science and Technology has appointed Ms W.Gertze as marker-tutor for


Ms W.Gertze will be at your service, should you experience any problems with your studies or with the

assignments. Contact details are as follows:

Tel.: 083 207 2487

E-mail: [email protected]

Your moderator for ADD COURSE NAME HERE The Namibia University of Science and Technology has appointed MODERATOR NAME HERE as the

moderator for ADD COURSE NAME HERE

Tel.: telephone number here

E-mail: email address here

Your content-editor for ADD COURSE NAME HERE The Namibia University of Science and Technology has appointed CONTENT-EDITOR NAME HERE as the

moderator for ADD COURSE NAME HERE

Tel.: telephone number here

E-mail: email address here

ASSIGNMENT 1

The marker-tutor should

populate this

information. Moderator

and Content-Editor

should insert their

details.

Marker-Tutor to insert this

information

Moderator to insert this

information

Content-Editor to insert

this information


SEMESTER 1/2018


FAC312S

2

Start typing assignment memo here

QUESTION 1: Earnings per share 25 Marks 1. Basic EPS

2018 2017

Profit for the year 500 400

14% Non-cumulative Pref. Div. Paid — (20)

10% Cumulative Pref. Div. proposed (30) (30)

14% Non-cumulative Pref. Div. proposed (60) (40)

410 310

Earnings N$410 000 N$310 000

Ordinary Shares (given) 10 000 10 000

Basic EPS = N$41 = N$31

11 marks 2. Diluted EPS: convertible securities

2016 Current earnings N$310 000

Interest saved : N$50 000 x 10% x 8/12) 3 333

N$313 333

Diluted EPS = N$313 333

11 000 = N$28.48

No. of ordinary in issue 10 000 Potential shares (convertibles) 50 000/100 x 3 x 8/12 1 000 11 000 9 marks


SEMESTER 1/2018


FAC312S

3

3. Options

Diluted EPS = N$310 000

10 000 + [(1 000 x (40 – 30) /40 ]

= N$310 000 = N$30.24

(10 000 + 250) 5 marks

Question 2: Income taxes 30 marks

Definitions

(i) Carrying amount.

- The balance of an asset or liability in the accounting recors.

- Is determined by applying all relevant IFRS.

- Some items may have no carrying amount at all if an IFRS prohibits their recognition.

(ii) Tax base of an asset

- The amount attributable to an asset for tax purposes.

- Determined using tax laws not IFRS.

- Where economic benefits are taxable, the TB of an asset is the amount that will be deductible

for tax purposes against those economic benefits.

- Where the economic benefits are not taxable the TB is equal to CA.

(iii) Tax base of a liability

- Amount attributable to the liability for tax purposes.

- Is the CA less any amount that will be deductible for tax purposes for tax purposes in respect of

that liability in future periods.

- In the case of revenue received in advance the TB is its carrying amount less any amount of

revenue that will not be taxed in future periods.

(iv) Temporary difference

- The difference between the tax base and carrying amount of an asset or liability.

- Two types are taxable temporary difference and deductible temporary difference.

- Taxable temporary difference gives rise to differed tax liabilities.


SEMESTER 1/2018


FAC312S

4

- Deductible temporary difference result in deferred tax assets.

ASSET/LIABILITY CARRYING

AMOUNT

TAX

BASE

TEMPORARY

DIFFERENCE

DEFERRED

TAXATION

ASSET OR

LIABILITY

1. Plant 472,500 445,000 -27,500 -7,700 L

2. Land 800,000 0 800,000 0 Exempt

3. Buildings 889,375 0 889,375 0 Exempt

4. Warranty provision 20,000 0 20,000 5,600 A

5. Inventories 15,000 0 0 0 N/A

6. Trade receivables 36,000 39,000 3,000 840 A

Question 3: Statement of Cash Flows

Cash flows from operating activities

Net profit for the period (483,500 - 430,500 + 50,000 –

145,000)

Adjustment for:

Interest on loan

Loss on sale of vehicle

Depreciation

Cash flows from operations before working capital changes

Working capital changes:

Increase in creditors

Increase in inventory

Increase in trade receivables

Cash generated by operations

148 000

17 750

3 750

1 500

30 000

198 000

10 000

(45 000)

(70 750)

92 250


SEMESTER 1/2018


FAC312S

5

ASSIGNMENT 2

Start typing assignment memo here

QUESTION 1: The conceptual framework (18 marks)

- Identify that recognition would be as expense and liability.

- Refer to the framework for a definition of these two elements (i.e. expenses and liabilities).

(6 marks)

- Refer to the framework for the recognition criteria of these elements.

(6 marks) - Make a judgment based on these definitions and recognition criteria.

(6 marks) Note that no one side is correct or incorrect since there is debate on what is a past event in an audit

and hence there is no consensus on whether or not there is a present obligation at year end.

- The framework defines an expense defined as a decrease in economic benefits during the accounting period, in the form of outflows / depletions of assets (not applicable to this scenario) or an increase in liabilities (applicable to this scenario since the amount has not yet been paid), resulting in a decrease in equity other than distributions to equity participants.

- The Conceptual Framework states that ‘expenses are recognised in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably’.

- A liability is defined as a present obligation of the entity, as a result of past events, the settlement of which is expected to result in an outflow of economic benefits.

- The recognition criteria for a liability is that it should be probable that there will be an outflow of economic benefits and that the amount should be reliably determined.

Recognise a liability:

- The business traded throughout the year ending February 2018. This is the past event which creates a legal obligation for the entity to have an audit performed. There is therefore a present obligation as at 28 February 2018.

- Since an invoice has been received, the amount is reliably established at N$250 000. - To settle the invoice, future economic benefits will be sacrificed by the entity. - Since both the definition and the criteria are met, the entity should recognise a liability and an

expense. Do not recognise a liability or expense

- The performance of the audit is the obligating event. - Prior to 28 February 2018 no audit had been done.


SEMESTER 1/2018


FAC312S

6

- Therefore no present obligation existed as at 28 February 2018. - No expense or liability should therefore be recognised as at 28 February 2018 because the

definitions are not met.


SEMESTER 1/2018


FAC312S

7

QUESTION 2: Statement of cash flows. 27 marks

CASHCOW LTD

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED

31 DECEMBER 2018

N$

Net cash inflow from operating activities 26 000

Cash generated from operations (W1) 95 000

Dividends paid (25 000)

Taxation paid (normal) (W2) (44 000)

Net cash outflow from investing activities (6 000)

Replacement of property, plant and equipment (W3) 17 000

Proceeds on disposal of property, plant and equipment (11 000)

Net cash inflow from financing activities 10 000

Proceeds from the issue of ordinary shares (W4) 10 000

Net increase in cash and cash equivalents 30 000

Cash and cash equivalents at beginning of year 6 000

Cash and cash equivalents at end of year 36 000

(W1) Cash generated from Computation of profit

before taxation

Change in Retained earnings 18 000


SEMESTER 1/2018


FAC312S

8

Dividends – ordinary 36 000

Taxation (40 000 current + 5 000 DT) 45 000

Profit before taxation 99 000

Profit before taxation

99 000

Adjustments for:

Depreciation (W5) 8 000

Profit on sale of property, plant and equipment (4 000)

Operating profit before working capital change 103 000

Working capital changes (8 000)

Decrease in accounts payable N$8 000 – N$9 000 (1 000)

Increase in inventory N$12 000 –N$2 000 (10 000)

Decrease in accounts receivable N$4 000 –N$7 000 3 000

Cash generated from operations 95 000

(W 2)

Receiver of Revenue.

Opening Balance 3 000

Bank 44 000 Current tax 40 000

Closing balance 1 000

44 000 44 000


SEMESTER 1/2018


FAC312S

9

(W3)

Plant – Cost

Opening Balance 42 000 Sold 19 000

Bank 17 000 Scrap 5 000

Closing balance 35 000

59 000 59 000

(W4)

Share capital

Opening Balance 60 000

Issued 10 000

Closing Balance 70 000

70 000 70 000

(W5)

Plant – Accumulated depreciation

Sold 12 000 Opening Balance 28 000

Scrap 5 000

Closing Balance 19 000 Depreciation 8 000

36 000 36 000


SEMESTER 1/2018


FAC312S

10

Question 3 – Business Combinations (20 marks)

A. I. Business combination- a transaction in which an entity obtains control of

another. Control exists when an entity has the 3 elements of control

II. Control-is the influence an entity has on the operation of another.

Control has 3 elements: -power over the investee -exposure or rights to variable returns of the investee -ability to use its power over the investee to affect the investor’s return

III. Gain on bargain purchase- is the excess of the net assets of a business acquired in a business combination over its fair value of the consideration paid.

Journals in Salt Ltd’s books:

Debit Credit

Net assets Research Goodwill

800 000 85 000 232 476

Cash Equity shares Deferred payment Provision for legal costs

250 000 100 000 702 479 65 000

END OF TUTORIAL LETTER

Documents

FEEDBACK TUTORIAL LETTER ASSIGNMENT 1 SEMESTER 1 ‐ …