ASSIGNMENT 1:
Question 1
OVERVIEW
Mr Fish and Mr Sole have been friends since they played rugby on the same team at university more than ten years ago. After completing their studies, Mr Fish moved to Gansbaai and Mr Sole to Arniston, where both began small fishing business. They both operated as sole proprietors, owing small fishing vessels and selling the daily catch to local restaurants, hotels and butcheries. Both business have been reasonably profitable, but sales have been confined to their local coastal towns.
Formation of partnership
Over a year ago they entered into discussions regarding the possibility of combining their operations and expanding their sales to customer in other coastal towns. They felt that by combining their business they would be able to share their resources, knowledge and skills. As the saying goes, no one of us is as smart as all of us'. In order to ensure that their operation ran as efficiently as possible, they invited Mr Lobster, a recently qualified chartered accountant, to join their business.
Mr Lobster advised that the best way to run their business would be as a partnership, rather than by means of a company or close corporation. They decided to call the partnership Catching Something Fishy (‘CSF').
Partnership agreement
a) On 1 January 2010 a partnership agreement was drawn and CSF commenced trading. The partnership agreement stated the following:
b) Each partner will contribute R100 000 in cash.
c) Mr Fish and Mr Sole will each contribute their fishing vessels, valued at R50 000 each, to the partnership.
d) The partnership will use fixed capital accounts (this means that capital accounts will not change after the initial capital is contributed).
e) Profits and Losses will be shared equally amongst the 3 partners.
f) Mr Fish and Mr Sole are each entitled to receive a monthly salary of R5 000, WHILE Mr Lobster will receive a salary of R6 000 PER MONTH.
g) Mr Fish will make a loan to the partnership of R200 000 ON 1 January 2010. The loan will attract interest at a rate of 10% per annum (year). Interested will be paid in arrears on 31 December each year.
h) Interest of 2% per annum will be charged on capital account balances.
Trial balance as at 31 December 2010
The following is the trial balance of CSF as at 31 December 2010. The trial balance include all accounts of the partnership but some numbers are yet to be calculated:
|
|
Debit
|
Credit
|
|
Capital accounts:
|
|
|
|
Mr Fish
|
|
?
|
|
Mr Sole
|
|
?
|
|
Mr Lobster
|
|
?
|
|
Current Accounts:
|
|
|
|
Mr Fish
|
|
?
|
|
Mr Sole
|
|
?
|
|
Mr Lobster
|
|
?
|
|
Loan (at 10%) from Mr Fish
|
|
200 000
|
|
Office equipment - cost
|
25 000
|
|
|
Motor vehicle - cost
|
240 000
|
|
|
Fishing vessels - cost
|
100 000
|
|
|
Accumulated depreciation:
|
|
|
|
Office equipment
|
|
5 000
|
|
Motor Vehicles
|
|
40 000
|
|
Fishing vessels
|
|
20 000
|
|
Inventory
|
20 000
|
|
|
Trade receivables
|
150 000
|
|
|
Trade payables
|
|
20 000
|
|
Bank
|
130 000
|
|
|
Sales
|
|
720 000
|
|
Cost of sales
|
283 000
|
|
|
Depreciation
|
65 000
|
|
|
Salaries
|
?
|
|
|
Interest expense
|
?
|
|
Required
1) What are the advantages and disadvantage to Mr Fish, Mr Sole and Mr Lobster of forming a partnership rather than a close corporation or a company?
2) Calculate the interest expense to be recognised in the income statement for the year ended 31 December 2010.
3) Calculate the total profit appropriated to Mr Sole for the 2010 year. (HINT: In order to do this, prepare the appropriation of profit account.)
4) Calculate the current account balances that should be reflected in the trial balance and statement of financial position of CSF as at 31 December 2010.
5) Prepare the statement of profit or loss and other comprehensive income and statement of changes in equity of CSF for the year ended 31 December 2010.
6) What would the balances in the capital and current accounts be fixed capital accounts were not used?
Question 2
Mark and Tom are partners in a computer store trading as Blink Computers. They share profits and losses in the ratio 3:2
On 28 February 20.10 the statement of position indicated the following:
|
BLINK COMPUTERS
STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 20.10
|
|
ASSETS
|
|
|
Non - current assets
|
|
|
Property, plant and equipment (land and buildings)
|
1 000 000
|
|
Current Assets
|
|
|
Inventory
|
220 000
|
|
Cash and cash equivalent (land and buildings)
|
44 000
|
|
Total assets
|
1 264 000
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
Equity
|
|
|
Capital: Mark
|
400 000
|
|
Capital: Tom
|
200 000
|
|
Current account : Mark
|
350 000
|
|
Current account : Tom
|
150 000
|
|
General reserve
|
100 000
|
|
|
|
|
Non - current liabilities
|
|
|
Interest - free long term loan
|
64 000
|
|
|
|
|
Total equity and liabilities
|
1 264 000
|
1. On 1 March 20.10 Travis obtained a one third (1/3) interest in the partnership by depositing R650 000 into the cheque account of the partnership.
2. The partners do not want to show the general reserve on the statement of financial position after the admission of Travis.
3. The partner agreement states the following:
a) Each partner is entitled to salary of R5 000 per month.
b) Partners are entitled to interest on capital of 10% of the opening balance of their capital accounts. Newly admitted partners earn 10% of their capital contribution apportioned for the number of months that they served as partners.
4. Sales for the year amounted to R3 000 000. All sales were made in cash.
5. Inventory purchases for the year amounted to R2 500 000. All purchases were made in cash.
6. Inventory on hand at 28 February 20. 11 amounted to R320 000.
7. Operating expenses of R160 000 was incurred and paid in cash during the year. Land and buildings are not depreciation.
8. Cash withdrawals by the partners during the year were as follows:
Mark R65 000
Tom R30 000
Travis R75 000
Total R170 000
Required:
1) Calculate the new profit share ratio after the admission of Travis o1 March 2010. (2 marks)
2) Provide the journal entries to record the admission of Travis on 1 March 20.10. Journal narrations are not required. (6 marks)
3) Prepare the statement of financial position of the partnership on 28 February 20.11 Comparative figures are not required. (8 marks)
Question 3
Fourie and Fouche are in partnership, which operates as a general dealer and their profit sharing ratio 3:2. The following statement of financial position appears in their books on 30 June 20.4:
|
|
R
|
|
Capital
|
3 000
|
|
Fourie
|
18 000
|
|
Fouche
|
12 000
|
|
Assets
|
30 000
|
|
Land and building at cost
|
10 000
|
|
Furniture at carrying value
|
2 000
|
|
Goodwill
|
2 000
|
|
Inventory
|
1 400
|
|
Debtors (after allowance for credit losses of R 1000)
|
3 000
|
|
Bank
|
1 000
|
|
Liabilities (creditors)
|
2 000
|
It was agreed on 30 June 20.4 to admit Van Romburg as partner on the following conditions:
a) The goodwill that is currently shown in the partnership must be written off.
b) The allowance for credit losses must be increased to R 2000.
c) Land and building must be re-valued to the market value of R90 000.
d) Van Romburg will receive 1/5 of the future profits, which will be surrendered in equal parts by the current partners.
e) Van Romburg must bring in R120 000 in cash of which R26 750 is for capital and the rest for goodwill.
f) Goodwill must be shown in the books of the new partnership.
g) Fourie and Fouche have to pay in or withdraw cash so that their capital contribution are in comparison with Van Romburg in the ratio 5/10 and 2/10 respectively.
Required
1. Show the capital accounts of the partners to carry out the above mentioned.
2. Show what the realization account would look like in the ledger, should the partnership be liquidated prior to Van Romburg's joining. (
Assume that the asset would realize as follows; Land and buildings, R90 000. Other assets, R10 000.
Question 4
Diana and Nolothando have operated a clothing business called Fabulous Fashions for the past few years. The two became friends after meeting at a fashion design course in their first year of study. Shortly after qualifying in 2007, the two decided to combine their immense talent and flair for fashion and began producing their own designs through a partnership. The partnership began trading on 1 January 2008 and profits and losses were shared equally between the partners. The partners use fixed capital accounts.
Prior year statement of financial position
The following is the statement of financial position of Fabulous Fashion as at 31 December 2009.
|
Statement of financial position of Fabulous Fashion as at 31 December 2009
|
|
Non- current assets:
|
446 000
|
|
Property, plant and equipment - cost
|
743 000
|
|
Property, plant and equipment - accumulated - accumulated
depreciation
|
(297 000)
|
|
Current Assets:
|
929 000
|
|
Inventory
|
543 000
|
|
Trade receivable
|
274 000
|
|
Bank
|
112 000
|
|
|
1 375 000
|
|
Total Assets
|
|
|
Equity
|
1 084 500
|
|
Capital account : Diana
|
225 000
|
|
Capital account: Nolothando
|
225 000
|
|
Current account: Diana
|
356 000
|
|
Current account: Nolothando
|
278 500
|
|
Current liabilities
|
290 500
|
|
Trade payables
|
73 000
|
|
Short - term loan (10% per annum)
|
217 500
|
|
Total equity and liabilities
|
1 375 000
|
Admission of a new partner
In January 2017 Tharuna, Diana's neighbour, returned home after spending two years working for fashion house in Milan. Inspired to begin producing her own designs, she approached Diana and Nolothando and asked to join Fabulous Fashions. The Partners agreed and admitted Thaurana to the partnership on 1 January 2010, knowing that Thaurana would assist considerably in bringing their designs in line with overseas trends.
On 1 January 2010 the fair value of the assets and liabilities of Fabulous Fashions were as follows:
|
Goodwill
|
?
|
|
Property, plant and equipment
|
566 000
|
|
Trade receivable
|
244 000
|
a) Tharuna would be entitled to 20% of the profit and losses of the new partnership. Nolothando and Diana would each be entitled to 40% of the profits and losses.
b) Tharuna contributed R254 900 in cash, which included an amount of R20 000 relating to her share of goodwill in the partnership.
c) The new partnership would be called Fabulous International Fashions, and would continue to use the books of the previous partnership.
d) Capital account balances would attract interest at a rate of 5% per annum.
Dissolution of partnership
During the 2010 financial year, inspired by Tharuna's stories of working overseas, Nolothando and Diana began to feel that they too wanted to spend some time working in a foreign country.
Nolothando was offered a job designing women's clothes at DKNI and Diana was offered a position in Zurich to work as a designer for the national soccer team. It was decided that the partnership would dissolve, by way of a simple dissolution on 31 December 2010, and that Tharuna would continue to run the business as a sole proprietor.
The net profit earned by Fabulous International fashions for the year ended 31 December 2010, was R636 745. No drawings were made and no additional capital contributions were granted during the year.
Tharuna undertook to purchase the inventory and equipment from the partnership for an amount of R2, 6 Million on 31 December 2010. The debtors balance was recovered in full as it related to only one debtor who settled his account on 1 January 2011. The short-term loan needed to be repaid up on dissolution of the partnership and full trade payables balance was settled. Dissolution costs amounted to R15 000.
Current year statement of financial position
The following is an extra of the statement of financial position of fabulous fashions as at 31 December 2010.
|
Statement of financial position of Fabulous Fashions as at 31 December 2010
(extract)
|
|
Non - current assets:
|
|
|
Goodwill
|
?
|
|
Property, plant and equipment - cost
|
566 000
|
|
Property, plant and equipment - accumulated depreciation
|
(113 000)
|
|
|
3 309 645
|
|
Current Assent:
|
|
|
Inventory
|
2 080 000
|
|
Trade receivables
|
460 000
|
|
Bank
|
769 645
|
|
Total assets
|
?
|
|
Equity
|
?
|
|
Current liabilities:
|
1 696 500
|
|
Trade payables
|
1 278 500
|
|
Short term loan (10% per annum)
|
418 000
|
|
Total liabilities
|
|
Required:
1) Calculate the goodwill to be recognised on 1 January 2010 when the new partnership, Fabulous International Fashions, is formed.
2) Discuss what goodwill is. Given an example of what Fabulous Fashions may have done that may have given rise to goodwill.
3) Prepare the journal entries required to record the admission of Tharuna to the partnership.
4) Prepare the equity section of the statement of financial position of Fabulous International Fashions at 31 December 2010, immediately prior to the dissolution.
5) Process the journal entries to account for the dissolution of Fabulous International Fashions.
ASSIGNMENT 2:
Question 1
On 1 January 20x0, the company was incorporated with an authorised share capital of 150 000 ordinary shares and 50 000 preference shares (fixed annual dividend of 10c/share). The post - closing trial balance of Coral Limited as at December 20x2 after the provisional statement of profit or loss & other comprehensive income was drafted is shown.
Coral Limited
POST-CLOSING TRIAL BALANCE AS AT 31 DECEMBER 20x2
|
Details
|
Fol.
|
Debit
|
Credit
|
|
Ordinary share capital (100 000 shares @R1
each
|
B1
|
|
|
100 000
|
00
|
|
Ordinary share premium
|
B2
|
|
|
5 000
|
00
|
|
Retained earnings
|
B3
|
|
|
43 000
|
00
|
|
Preference share capital (40 000 preference
shares @R1 Each
|
B4
|
|
|
40 000
|
00
|
|
Land and buildings
|
B5
|
100 000
|
00
|
|
|
|
Plant and Machinery
|
B6
|
60 000
|
00
|
|
|
|
Underwriting commission - Preference shares
|
B7
|
4 000
|
00
|
|
|
|
Share issue expenses - preference shares
|
B8
|
2 000
|
00
|
|
|
|
Bank
|
B9
|
22 000
|
00
|
|
|
|
|
|
188 000
|
00
|
188 000
|
00
|
Additional information
The directors decided, with the necessary general meeting approval, to implement these decision on 1 January 20x3 in this order:
1) The authorised share capital must be converted to 150 000 ordinary shares @ no par value.
2) The preference shares are to be redeemed at a premium of 5c/share.
3) The redemption of the preference shares must be financed partly from the issue of 10 000 ordinary shares @R2/share and partly out of the current bank balance.
4) The ordinary share were offered to the public.
a. The issue was underwritten in full by Down -Under Ltd for an underwriting commission of 6%
b. The public subscribed for 8 000 shares.
c. All the shares were allotted on January 20x3.
d. Share issue expenses amounted to R500.
5) The directors wish to write of all commission and share issue expenses immediately after the redemption of the preference shares.
6) Subsequent to the above transactions, there must be a capitalisation issue of one ordinary share for every eight already held at the current market price of R2,00 per share.
You are required to:
1. Show the general journal entries for the decision on 01 January 20x3.
Question 2
Part 1
Define the following terms:
a) Retained earnings.
b) Redeemable cumulative preference shares.
c) Memorandum of Incorporation (MoI)
d) Limited liability.
e) Authorised share capital.
Part 2
Diraster Ltd (‘Diraster') is a hedge fund that is listed on the JSE Ltd with a 31 January year end. Diraster researches various investment options on behalf of clients and invests their money according to their preferences. Massief Diraster, the CEO and founder of Diraster, has never been very good at the administration and accounting side of the business and often loses documents. He has approached you for help, but ca only offer you certain information.
Trial balance extract at 31 January 2009
|
|
Note
|
Debit
|
Credit
|
|
Long - term loan
|
4
|
|
4 500 000
|
|
Interest payable
|
4
|
|
350 625
|
|
Application and allotment
|
1
|
|
5 382 000
|
|
Shareholders for ordinary dividend
|
2
|
|
60 000
|
|
Shareholder for preference dividend
|
3
|
|
?
|
|
Stated capital (2 000 000 ordinary shares)
|
1
|
|
8 000 000
|
|
Preference share capital
|
3
|
|
?
|
|
Retained earnings - closing balance
|
|
|
25 988 000
|
Notes
1) 754 000 ordinary shares were issued on 28 February 2009. R120 000 was returned to application due to an oversubscription.
2) The underwriter was paid commission of 2%.
3) Diraster accounting policy with respect to share issue costs is to minimise distributable reserves.
4) Underwriting commission was not accrued in the previous final year.
5) The dividend payable from the previous financial year was settled on 3 February 2009.
6) Diraster declared and paid an ordinary interim dividend of 7 cents per share on 15 February 2009 and declared a final dividend of 5 cents per share on 30 January 2010.
7) The final dividend was paid on 3 February 2010.
8) Diraster had issued 30 000, R3, 6% cumulative preference shares on 1 February2007.
9) Preference shares have never been issued at a premium.
10) If declared, preference dividends are paid on 1 February.
11) The R60 000 ordinary dividend of the prior financial year was the first dividend ever to be declared by Diraster.
12) The long- term bears simple interest at 8, 5% on the outstanding balance.
13) Two capital repayments of R700 000 and R800 000 were made on 31 June 2009 and 31 December 2009 respectively.
14) Interest is payable annually on 28 February.
15) The net profit in the income statement is started at R7 654 000 for the year ended 31 January 2010.
16) This is before any of the above information has been taken into account.
Required
1) Calculate the price at which each ordinary share was issued in the current year.
2) Prepare all the journal entries that should be processed in the 2010 financial year that relate to the share issue.
3) Calculate the dividends paid to ordinary and preference shareholders during the year ended 31 January 2010. If in your opinion any of the dividend in the question should not be included in the calculation, briefly justify your reasoning.
4) Calculate the dividend amount that will be shown in Diraster statement of changes in equity for the year ended 31 January 2010. If in your opinion any of the dividends in the question should not be included in the calculation, briefly justify your reasoning.
5) Calculate the net profit of Diraster for the year ended 31 January 2010.
6) Prepare the equity and liabilities section of Diraster statement of financial position as at 31 January 2010.
7) Calculate the total asset value of Diraster as at 31 January 2010.
Question 3
PART 1
These balances and totals are from Mark and Brake Ltd who manufactures sport equipment:
|
Inventory: 1 March 20x7
|
|
|
Raw material
|
14 400
|
|
Work-in progress (WIP)
|
9 500
|
|
Finished goods
|
52 000
|
|
Delivery vehicle at cost
|
19 000
|
|
Plant and machinery at cost
|
120 000
|
|
Office furniture at cost
|
6 000
|
|
Bank
|
11 400
|
|
Accumulated depreciation on 1 March 20x7:
|
|
|
Delivery vehicles
|
3 800
|
|
Plant and Machinery
|
36 000
|
|
Office furniture
|
1 200
|
|
Water and electricity:
|
|
|
Factory
|
6 200
|
|
Office
|
320
|
|
Purchase of raw material
|
144 000
|
|
Customs duty on raw material
|
3 400
|
|
Freight in on raw material
|
7 200
|
|
Insurance paid :
|
|
|
Factory
|
2 520
|
|
Office
|
840
|
|
Insurance paid in advance 1 March 20x7
|
|
|
Factory
|
960
|
|
Office
|
260
|
|
Allowance for bad debts on 1 March 20x7
|
830
|
|
Account receivable
|
16 600
|
|
Factory wages
|
73 000
|
|
Indirect labour
|
9 600
|
|
Salaries:
|
|
|
Sale personnel
|
17 40
|
|
Office personnel
|
11 600
|
|
Factory overheads
|
4 560
|
|
Stationary
|
760
|
|
Sales
|
260 400
|
Additional information:
1. Inventory on hand 28 February 20x8:
- Raw material R13 400
- Work - in- progress R10 700
- Finished goods R60 000
2. Depreciation should be provided for on the reducing-balance method:
- Delivery vehicle 20% p.a.
- Plant and machinery 15%p.a.
- Office furniture 5%p.a
3. Insurance is payable one year in advance on 1 July.
4. Finished goods are transferred from the factory to the sales department at production cost plus 25%
You are required to:
Prepare a work - in - progress inventory account for the year ended 28 February 20x8.
PART 2
Mr Len Naidoo, the owner of Widget Distributors, has in the past imported widgets. However, from 1 January 20x8, he decided to manufacture the widgets himself.
Here is the abridged statement of financial position of Widget Distributors at 31 December 20x7:
|
Capital - Len Naidoo
|
2 000
|
Inventory (1 000 units)
|
800
|
|
Accounts payable
|
1 000
|
Accounts receivable
|
700
|
|
|
|
Bank
|
1 500
|
|
|
3 000
|
|
3 000
|
From a scrutiny of vouchers and other documents you find that these transaction have taken place during the year ended 31 December 20x8:
1. Cash transaction as per the cash book:
Receipts:
Capital introduced by Mr Naidoo R10 000
Accounts receivable R6 000
Cash sales R2 000
Payments:
Accounts payable R7 000
Drawings- Mr Naidoo R2 500
Wages paid to manufacturing staff R3 000
Rent for factory R1 200
Hire of specialised machinery R1 300
2. Amount owing, totalling R3 500 were written off as bad debts.
3. 5 500 units were sold.
4. A royalty of 10 cents per completed unit manufactured during the year is payable in arears on 1 January of the following year.
5. In addition, the following balance at 31 December 20x8 were determined:
- Accounts payable - raw material R3 500
- Accounts receivable - trade debtors R1 200
- Inventory: Finished goods (4 500 units) R?
- Work - in - progress (2 000 units) R?
- Raw material R2 500
6. Inventory is valued at factory cost using the first - in first - out basis.
7. Work - in - progress at 31 December 20x8 was 75% complete in respect of raw material, and 45% complete in respect of direct labour and overheads.
You are required to:
1) Prepare the statement of the cost of goods manufactured for Widget distributors for the year ended 31 December 20x8.
2) Calculate the gross profit of Widget Distributors for the year ended 31 December 20x8.
Question 4
These balances were taken from the books of Amigo CC as at 30 June 20x2.
|
Members contribution:
|
|
|
Mpho (60%)
|
300 000
|
|
Jansen (40%)
|
200 000
|
|
Loan to members:
|
|
|
Mpho
|
100 000
|
|
Jansen
|
60 000
|
|
Long-term loan
|
200 000
|
|
Loan from member - Jansen
|
180 000
|
|
Property, plant and equipment
|
700 000
|
|
Net profit - 1 July 20x1
|
200 000
|
|
Gross sales
|
2 2000 000
|
|
Cost of sales
|
900 000
|
|
Operating expenses
|
106 000
|
|
Long term-investment
|
500 000
|
|
Inventories
|
500 000
|
|
Account receivable
|
400 000
|
|
Bank
|
164 000
|
|
Accounts payable
|
250 000
|
Additional information:
1) Mpho and Jansen, the only members, contributed R300 000 and R200 000 respectively during the year. Theses transaction must still be recorded.
2) Interest on the loans is to be accrued as:
a. To members 15% p.a
b. From members 10% p.a
3) Included in the operating expenses were the salaries of R20 000 and R30 000 paid to Mpho and Jansen respectively.
4) Property, plant and equipment were revalued at R300 000 above their carrying value.
5) Members decided to distribute 80% of the profit. Tax must be provided at 28%.
You are required to:
1) Prepare the statement of profit or loss & other comprehensive income for Amigo CC for the year ended 30 June 20x2.
2) Prepare the members net investment statement.