Exam paper for second semester: Financial Accounting 3

Adam, S.

Du Plessis, D.

Khumalo, L.

Ngwenya, F., Ms.

Van der Watt, H.S., Mr.

Name not available

 
 
Department of Commercial Accounting 
 
Financial Accounting 3B 
SUBJECT CODE: FAC33B3/FAC3BB3 
 
Final Assessment Opportunity 2015 
Date:  31 October 2015 
 
 
Time: 180 minutes Marks: 100 
 
Assessors: S Adam 
 D Du Plessis   
 L Khumalo 
    
 
Internal Moderator: Mr HS van der Watt 
External Moderator: Ms F Ngwenya   
 
INSTRUCTIONS: 
 This paper consists of 8 pages (including the cover page). 
 Answer all questions.  Show all calculations and workings clearly. 
 Start each question on a new page in your answer book. 
 Silent, non-programmable calculators may be used. 
 Where applicable, round all calculations to the nearest Rand. 
 
 
Question  Topic  Marks  Time 
1 
2 
3 
4 
5 
6 
 Theory – Various 
Statement of cash flows 
EPS & Financial Instruments 
Consolidations 
Consolidations 
Financial statement analysis 
 10 
20 
15 
25 
22 
8 
   18 minutes 
36 minutes 
27 minutes 
45 minutes 
40 minutes 
14 minutes 
    100  180 minutes 
 
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
2 
 
Question 1                                                                                                  (15 marks) 
 
1.1 Fill in the missing word/s: (4) 
 
In certain instances, a company may buy back its own shares from its shareholders. This may 
only be done, however, subject to sections 46 and 48 of the Companies Act. In terms of section 
46: 
(a) No distribution may be made to shareholders unless there is a -
___________________to do so. 
(b) The board has authorised the distribution by resolution and the _________________ 
will be met afterwards. 
(c) After the buy-back, there must be 
___________________________________________ 
 
1.2 State whether the following sentences are true or false:      (6) 
 
a. One of the benefits of the statement of cash flows is to enable users to assess the 
liabilities of the company’s cash flows. 
b. Operating activities are the principal revenue-producing activities of the entity. 
c. Financial Statement analysis is useful to all the following users: Investors, debtors, 
employees, managers, stock market analysts and auditors. 
d. Horizontal analysis is a type of financial statement analysis that helps to identify any 
large or unusual fluctuations. 
e. Headline Earnings per Share (HEPS) is the share of profits for the reporting period 
attributable to ordinary (Class A) shareholders, including amounts that relate to re-
measurements that do not relate to the operating or trading performance of the entity. 
f. An entity shall prepare consolidated financial statements that include the entity and 
all Special Purpose Entities that are controlled by the entity. 
 
 
[10]  
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
3 
 
Question 2                                                                                                  (20 marks) 
 
Martmass (Pty) Ltd is a large retailing company that has branches all over South Africa. Their 
main form of business is the buying and reselling products to the general public. The following 
information related to the reporting period ended December 2015. 
 R 
Accounts receivable (01/01/2015) 6 000 000 
Accounts receivable (31/12/2015) 1 400 000 
Inventory (01/01/2015) 9 500 000 
Inventory (31/12/2015) 14 500 000 
Accounts payable (01/01/2015) 13 500 000 
Accounts payable (31/12/2015) 9 500 000 
Bad debts 1 200 000 
Credit sales 22 200 000 
Proceeds on disposal of motor vehicle 200 000 
Depreciation on motor vehicle (up to December) 150 000 
Other operating expenses 22 250 000 
Interest received 150 000 
Tax receivable (01/01/2015) 4 500 000 
Tax payable (31/12/2015) 9 500 000 
 
Additional Information: 
 The credit sales constituted 20% of total sales. 
 Cost of sales is 50% of total sales. 
 A motor vehicle was bought on the 1st of January 2015 and sold at the end of the year. 
 Depreciation on motor vehicles are calculated on a 3 year straight line basis (there is 
no residual value). 
 Other expenses include depreciation. 
 The tax expense for the year amounted to R14 500 000. 
 The profit before tax for the period was R33 400 000. 
 
REQUIRED: 
Present the Cash Flows from Operating Activities section of the Statement of Cash flows for 
Martmass (Pty) Ltd for the reporting period ended 31 December 2015.  
(Show all calculations)   
[20] 
  
  
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
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Question 3                                                                                                  (15 marks) 
 
Fire (Pty) Ltd, “Fire”, is a logistics company which has had troubles due to the rising fuel 
costs as well as the uncertainty in the economy. As a result, shareholders have grown 
nervous and numerous restructurings have taken place. 
The company has a 31 December reporting period end. 
On 1 January 2013, Fire had 60 000 Class A and 20 000 cumulative 10% Class B shares in 
issue. On 1 July 2013, 30 000 more Class A shares were issued in an attempt to improve 
the entity’s liquidity. 
On 1 May 2014 Fire issued another 30 000 Class A shares in a further attempt to improve 
liquidity. 
During August of 2014, oil prices started deteriorating significantly so a resolution was 
passed by the directors and a share consolidation took place where every 5 Class A shares 
were converted to 2 Class A shares. 
Fire generated profits after tax of R850 000 and R600 000 for the 2014 and 2013 years 
respectively. 
The Class B shares had a face value of R12 each. 
 
REQUIRED: 
 
3.1 Calculate the basic earnings per share of Fire (Pty) Ltd for the reporting periods 
ended 31 December 2014 as well as the comparative figure for the reporting period 
ended 31 December 2013. Show all workings. 
 [15] 
  
 
 
 
 
 
  
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
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Question 4                                                                                                  (25 marks) 
 
Glam (Pty) Ltd has been designing and selling wedding gowns and dresses to clients in and 
around Johannesburg for the past 3 years. The company is performing well and has in the 
past also invested in the equity of Smart (Pty) Ltd. 
 
Glam (Pty) Ltd has acquired 52 000 shares in Smart (Pty) Ltd on the 30 June 2013 for  
R1 750 000. On this date Smart (Pty) Ltd had 70 000 Class A shares in issue, a share 
capital of R500 000 and retained earnings of R250 000 and all the assets and liabilities of 
Smart (Pty) Ltd were considered to be at their fair value. 
 
Glam (Pty) Ltd has also adopted the accounting policy of measuring its investments in 
financial instruments at fair value through profit or loss. The fair value of Glam (Pty) Ltd’s 
investment in Smart (Pty) Ltd was R1 800 000 on 30 June 2014. 
 
Glam (Pty) Ltd made a profit of R400 000 and declared and paid dividends of R80 000 on 30 
June 2015. Smart (Pty) Ltd made a profit of R220 000 and declared and paid dividends of 
R50 000 on 30 June 2015. 
 
The statements of financial position of the two companies as at 30 June 2015 are as follows: 
    Glam  
(Pty) Ltd 
  Smart 
(Pty) Ltd 
ASSETS   
Property, plant and equipment 700 000 979 000 
Investment in Smart (Pty) Ltd 1 900 000 - 
Inventory 
Trade Receivables 
Loan – Smart (Pty) Ltd 
Bank 
500 000 
130 000 
1 200 000 
215 000 
1 156 000 
300 000 
- 
2 320 000 
 4 645 000 4 755 000 
   
EQUITY AND LIABILITIES   
Share capital (Glam = 100 000 Class A shares,  
Smart = 70 000 Class A shares) 
1 000 000 500 000 
Retained earnings 
Loan – Glam (Pty) Ltd 
1 645 000 
- 
1 055 000 
1 200 000 
Long term loans 2 000 000 1 990 000 
 4 645 000 4 755 000 
  
Glam (Pty) Ltd had an opening balance of Retained Earnings of R1 325 000. Glam (Pty) Ltd 
issued 10 000 shares on 1 June 2015 for R100 000 and Smart (Pty) Ltd did not issue any 
shares.  
 
REQUIRED: 
 
4.1 Prepare the analysis of owner’s equity for the Glam Smart Group for the reporting                                                                        
period ended 30 June 2015.   (9) 
    
4.2 Prepare the consolidated Statement of Changes in Equity for the Glam Smart Group for 
the reporting period ended 30 June 2015. (16) 
 
Show ALL workings.                                                                            [25] 
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
6 
 
Question 5                   (20 marks) 
 
On 1 July 2009 Buyco (Pty) Ltd acquired 160 000 shares in Boughtco (Pty) Ltd at a 
cost of R500 000. On this date Buyco (Pty) Ltd had 500 000 Class A shares in issue 
and Boughtco (Pty) Ltd had 200 000 Class A shares in issue.  Neither company has 
issued any shares since then. 
 
The following is an extract of Boughtco (Pty) Ltd’s Statement of Financial Position as 
at 30 June 2009: 
 
Share capital R300 000 
Retained earnings R280 000 
 R580 000 
 
The following is an extract from the accounting records of the two companies at       
30 June 2011: 
 
 Buyco (Pty) 
Ltd 
R 
Boughtco 
(Pty) Ltd 
R 
Debits   
Property, plant and equipment 290 000 330 000 
Investment in Boughtco (Pty) Ltd 560 000 - 
Trade receivables 210 000 140 000 
Bank 60 000 242 000 
Inventories 140 000 330 000 
Income tax expense 90 000 64 000 
Dividends declared 50 000 24 000 
 1 400 000 1 130 000 
Credits   
Share capital 400 000 300 000 
Retained earnings: SoFP (1 July 2010) 450 000 466 000 
Mark-to-market reserve: SoFP (1 July 2010) 60 000   - 
Creditors 130 000 210 000 
Profit before tax 360 000 154 000 
 1 400 000 1 130 000 
 
REQUIRED: 
 
5.1 Prepare the pro-forma journal entries for the consolidation of the Buyco Group 
for the year ended 30 June 2011, as far as the information above allows. Journal 
narrations are not required.          (14) 
  
5.2 Prepare the consolidated statement of profit or loss and other comprehensive 
income for the Buyco Group for the year ended 30 June 2011, as far as the 
information above allows.           (6) 
 
Comparatives are NOT required. 
[20]  
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
7 
 
Question 6                                                                                                  (8 marks) 
 
Furniture ‘R Us is a furniture retailer, and is listed on the JSE since 1997. The company has 
shown stable growth due to opening new stores, as well as good growth in older stores. 
You are a specialist in Turnaround Management and the CEO approached you for advice. 
He feels the company is not profitable enough and will appreciate any advice. 
You receive the following abstracted audited information for the reporting period ended 
December 2015: 
 
STATEMENT OF FINANCIAL POSITION 2015 2014 
 R’000 R’000 
EQUITY AND LIABILITIES   
Equity and Reserves   
Share capital 25 000 25 000 
Share premium 26 400 26 400 
13% Convertible preference shares 15 000 15 000 
Retained earnings 53 810 32 450 
Deferred Tax 290 190 
   
Non-current Liabilities   
Long term loan 8 000 8 000 
12% Redeemable preference shares 30 000 30 000 
   
Current Liabilities   
Bank overdraft (25%) 43 092 - 
Creditors 65 820 11 971 
SARS - 250 
Shareholders for Dividends 4 000 1 800 
Total Equity and Liabilities 271 412 150 61 
   
ASSETS   
Non-current Assets   
Fixed assets 105 848 70 560 
Investments 5 000 5 000 
   
Current Assets   
Bank - 27 500 
Inventory 58 902 15 345 
Debtors 101 664 32 456 
Total Assets 271 412 150 861 
   
STATEMENT OF COMPREHENSIVE INCOME   
Sales 428 634 190 021 
Gross profit 201 825 110 234 
Net profit before interest and tax 72 093 40 217 
Finance costs 15 573 4 800 
Net profit before tax 56 520 35 417 
Tax 16 391 10 271 
Net profit 40 129 24 146 
 
After looking at the information, you had a meeting with the CEO and become aware of the 
following: 
FINANCIAL ACCOUNTING 3B: FAC33B3/FAC3BB3       Final assessment opportunity 
2015 
 
8 
 
1. The shareholders for dividends consist of 20% (2014:20%) of the declared dividends. 
The remaining 80% has already been paid. 
2. Inventory and debtors reflect what is considered average levels for the year. 
3. The convertible preference shares are convertible at the discretion of the board of 
directors. 
4. The board of directors regards non-interest bearing debt to be part of assets. 
5. The growth in fixed assets is due to the opening of new branches in South Africa. 
Most properties are used on a finance lease basis, but all the furniture and 
equipment are owned by Furniture ‘R Us. 
6. Only 10% of sales are for cash, 90% of sales are on the “Furniture ‘R Us Care Plan”, 
a credit plan which allows a 90 day interest free payback period. 
REQUIRED: 
Discuss the relevant financial ratios for Furniture ‘R Us for the reporting periods 2014 to 
2015 and give suggestions for improvements where necessary: 
 Debt Management        (8) 
 
[8] 
 


Financial Accounting 3B

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