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AT(SA): Financial Statements: Practice assessment 1 Data and Tasks The practice assessment counts 240 marks and learners need to earn a minimum of 168 marks (70%) to achieve competence. Task 1 You have been provided with the following information for Karin Jewellers Ltd for the financial year ended 30 April 2017:  Additional notes  Trial balance Additional notes: 1. All operations are continuing operations. 2. Valuation of non-current assets:  Land and buildings are classified as owner-occupied property and is carried under the revaluation model. It is not depreciated.  Land and buildings must be revalued to R3 494 000 at 30 April 2017.  Depreciation should be provided as follows: - Equipment and machinery at 10% on the straight-line basis. - Depreciation on equipment and machinery is apportioned between cost of sales and administrative expenses in the ratio 40:60. - Motor vehicles at 15% on the reducing balance basis. - Depreciation on motor vehicles is allocated to selling and distribution costs. 3. Inventories on hand at 30 April 2017 amounted to R2 010 762. 4. Bad debts of R67 215 still have to be written off. Bad debts form part of administrative expenses. 5. Finance costs of R83 424 must still be accrued for. 6. There were no share issues during the current year. FNST – Practice assessment 1 1

Karin Jewellers Ltd Trial balance for the year ended 30 April 2017 Account name Debit Credit R R Share capital 1 237 800 Share premium 3 036 750 Retained earnings - 01/05/2016 2 040 181 Revaluation reserve - 01/05/2016 344 000 Equipment and machinery 7 629 400 Equipment and machinery - Accumulated depreciation 2 288 820 Motor vehicles 1 076 100 Motor vehicles - Accumulated depreciation 275 100 Land and buildings 3 326 000 Investments 2 465 788 Loan account 6 673 914 Allowance for doubtful debts 56 867 Debtors control 2 843 379 Inventories - 01/05/2016 1 997 824 Bank 1 479 347 Creditors control 1 757 229 Taxation liability 93 182 Sales 34 120 550 Purchases 21 093 742 Selling and distribution costs 3 876 155 Administrative expenses 4 267 831 Finance costs 887 634 Taxation (charge for the year) 856 922 Dividends paid 247 560 Dividends received 123 289 Total 52 047 682 52 047 682 a) Prepare the Statement of comprehensive income for Karin Jewellers Ltd for the financial year ended 30 April 2017, in accordance with International Financial Reporting Standards. (42) b) Prepare the Statement of changes in equity for Karin Jewellers Ltd for the financial year ended 30 April 2017. (17) Show all your calculations. If your amounts are incorrect, marks will be earned in the calculations supporting those amounts. A list with possible line item descriptions have been provided in the answer booklet. FNST – Practice assessment 1 – Data and Tasks 2

Task 2 You have been provided with the following information for Island Ltd for the financial year ended 30 June 2017:  Additional notes  Statement of comprehensive income  Statement of financial position Additional notes: 1. All sales and inventory purchases were on credit. 2. Other income comprises dividends received of R141 500 and profit on disposal of property, plant and equipment of R42 789. The sold property, plant and equipment had a carrying value of R2 136 423. 3. Administrative expenses include depreciation for the year of R2 989 083. 4. A dividend of R2 871 912 was paid during the year. 5. Island Ltd accounts for dividends and interest received as part of cash flows from investing activities, and dividends paid as part of cash flows from financing activities. Island Ltd Statement of comprehensive income for the year ended 30 June 2017 Note R Revenue 80 333 783 Cost of sales -35 347 374 Gross profit 44 986 409 Other income 2 184 289 Selling and distribution costs -8 901 056 Administrative expenses 3 -23 261 743 Operating profit 13 007 899 Finance costs -1 607 567 Profit before taxation 11 400 332 Taxation -3 208 112 Profit for the year 8 192 220 Island Ltd FNST – Practice assessment 1 – Data and Tasks 3

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Statement of financial position as at 30 June 2017 2017 2016 Note R R ASSETS Non-current assets Property, plant and equipment 2 37 363 544 34 717 059 Current assets Inventories 8 027 943 8 891 229 Trade and other receivables 8 237 198 7 804 322 Cash and cash equivalents 909 370 17 174 511 16 695 551 Total assets 54 538 055 51 412 610 E QUITY AND LIABILITIES Equity Share capital 7 487 650 4 325 100 Share premium 20 938 350 12 625 565 Retained earnings 14 446 650 9 126 342 Total equity 42 872 650 26 077 007 Non-current liabilities Interest-bearing borrowings 5 255 667 10 673 326 Current liabilities Trade and other payables 4 763 411 4 493 714 Tax payable 1 646 327 1 932 654 Bank overdraft 8 235 909 6 409 738 14 662 277 Total liabilities 11 665 405 25 335 603 Total equity and liabilities 54 538 055 51 412 610 a) Determine the cash generated from operations for Island Ltd for the year ended 30 June 2017, using the indirect method. (16) b) Prepare the Statement of cash flows for Island Ltd for the year ended 30 June 2017. (41) Clearly show all outflows / decreases in cash flows and cash paid in calculations with a MINUS sign. Show all your calculations, if your amounts are incorrect, marks may be earned in the calculations supporting those amounts. A list with possible line item descriptions have been provided in the answer booklet. FNST – Practice assessment 1 – Data and Tasks 4

Task 3 a) The IASB Conceptual Framework for Financial Reporting identifies two underlying assumptions when preparing financial statements. Select the two (2) underlying assumptions from the list provided below: Accrual basis Materiality Relevance Going concern Reliability (2) b) Select three (3) elements of financial statements, in accordance with the IASB Conceptual Framework for Financial Reporting. Capital Drawings Assets Liabilities Revenue Expenses (3) c) How does the Conceptual Framework for Financial Reporting define income? (6) d) A company owns plant and machinery that originally cost R5 300 000. At the end of the current financial year, the accumulated depreciation on this plant and machinery amounts to R3 260 500. The fair value less costs to sell is estimated as R2 000 000 and the present value of future cash flows is estimated as R2 100 000. Should the plant and machinery be impaired? (1) e) A company has entered into two lease agreements: Lease A is for a period of two years with a monthly instalment of R420. The original cost of the asset R28 000 and is estimated to have a useful life of six years. Lease B is for a period of six years at a monthly instalment of R380. The original cost of the asset R22 000 and is estimated to have a useful life of seven years. Which of these leases will be classified as a finance lease? (1) f) Indicate whether the following statement is true or false. A contingent liability is not recognised in the financial statements. (1) FNST – Practice assessment 1 – Data and Tasks 5

Task 4 Cinnamon and Cloves (Pty) Ltd is busy expanding their business and have acquired a number of properties. The directors are unsure about the accounting treatment of these properties, as some of the properties will be used by the company and some will be used for investment purposes. Prepare brief notes for the directors to answer the following questions: a) Define the following terms: 1) An investment property 2) An owner-occupied property (7) b) What is the definition of the fair value of a property? (4) c) Name two (2) conditions that should be met when using the fair value model as the accounting treatment of investment property. (2) FNST – Practice assessment 1 – Data and Tasks 6

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Task 5 Topaz Ltd acquired 70% of the shares of Colourstone Ltd on the 1 st of July 2016 for R3 800 000. At that date the share capital of Colourstone Ltd amounted to R3 000 000, the share premium was R1 200 000 and the retained earnings was R715 630. You have been provided with the following information for the two companies for the financial year ended 30 June 2017:  Additional notes  Statement of financial position Additional notes: 1. At 1 July 2016, the carrying amount of land and buildings of Colourstone Ltd was R300 000 less than the fair value (you may ignore any possible impact on depreciation). 2. Topaz Ltd sold inventory with a cost of R220 000 to Colourstone Ltd for R280 000 on credit. Half of this inventory has been sold by Colourstone Ltd by the end of the financial year and R40 000 is still owing to Topaz Ltd on 30 June 2017. 3. Non-controlling interest is measured at their proportionate share of the net assets. FNST – Practice assessment 1 – Data and Tasks 7

Statement of financial position as at 30 June 2017 Topaz Ltd Colourstone Ltd R R ASSETS Non-current assets Property, plant and equipment 4 037 961 5 017 095 Investment in Colourstone Ltd 3 800 000 7 837 961 5 017 095 Current assets Inventories 802 794 689 122 Trade and other receivables 719 823 432 278 Cash and cash equivalents 1 430 653 364 625 2 953 270 1 486 025 Total assets 10 791 231 6 503 120 EQUITY AND LIABILITIES Equity Share capital 4 120 000 3 000 000 Share premium 2 236 700 1 200 000 Retained earnings 2 736 100 1 010 630 Total equity 9 092 800 5 210 630 Non-current liabilities Interest-bearing borrowings 1 145 650 895 746 Current liabilities Trade and other payables 552 781 396 744 Total liabilities 1 698 431 1 292 490 Total equity and liabilities 10 791 231 6 503 120 Prepare the consolidated statement of financial position for the year ended 30 June 2017 for Topaz Ltd and its subsidiary. (47) Show all your calculations, if your amounts are incorrect, marks will be earned in the calculations supporting those amounts. A list with possible line item descriptions have been provided in the answer booklet. FNST – Practice assessment 1 – Data and Tasks 8

Task 6 You have been provided with the following information for Landies Ltd for the financial year ended 30 June 2016:  Statement of comprehensive income  Statement of financial position Landies Ltd Statement of comprehensive income for the year ended 30 June 2016 R Revenue 8 367 161 Cost of sales -3 882 111 Gross profit 4 485 050 Selling and distribution costs - 791 161 Administrative expenses -1 587 917 Operating profit 2 105 972 Finance costs - 968 323 Profit before taxation 1 137 649 Taxation - 328 542 Profit for the year 809 107 FNST – Practice assessment 1 – Data and Tasks 9

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Landies Ltd Statement of financial position at 31 June 2016 R ASSETS Non-current assets Property, plant and equipment 3 188 764 Current assets Inventories 780 351 Trade and other receivables 584 754 Cash and cash equivalents 72 361 1 437 466 Total assets 4 626 230 EQUITY AND LIABILITIES Equity Share capital 757 610 Share premium 888 121 Retained earnings 1 971 552 Total equity 3 617 283 Non-current liabilities Interest-bearing borrowings 367 726 Current liabilities Trade and other payables 263 411 Taxation payable 377 810 641 221 Total liabilities 1 008 947 Total equity and liabilities 4 626 230 Prepare the following financial ratios to assist with the analysis of the financial statements. Round your answer to 2 decimal places. Clearly indicate the unit of measurement. Ratio Gross profit percentage Return on assets Current ratio Inventory turnover Gearing ratio (10) FNST – Practice assessment 1 – Data and Tasks 10

Task 7 A friend has inherited some shares in Monty Ltd and can’t decide whether to keep the shares or maybe even buy some more shares. She has invited you for coffee for an opinion on how well the management is utilising the company resources. She has provided you with certain ratios relating to Monty Ltd, as well as the industry averages of those ratios: Monty Ltd Industry averages Gearing 62.1% 78.4% Interest cover 7.3 times 4.0 times Current ratio 1.8:1 1.6:1 Acid test ratio 0.9:1 0.6:1 a) Using only the ratios above, comment on the performance of the company (better or worse) compared to the industry averages. (23) b) Using only the ratios above, advise your friend, with reasons , on whether or not she should keep her shares in the company. (9) (32) Task 8 Harrow Ltd owns plant and machinery that originally cost R600 000. The accumulated depreciation at the beginning of the current year amounted to R260 000. Harrow Ltd disposed of part of the plant, which had cost R120 000, with accumulated depreciation of R65 000 at the start of the financial year, for R62 000. No depreciation is charged in the year of disposal. The depreciation for the current year amounts to R70 000. The accountant has asked you to complete the note to the financial statements. Clearly indicate deductions with a minus sign. (8) FNST – Practice assessment 1 – Data and Tasks 11

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