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FAC3702 EXAM PACK 2023
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FAC3702EXAM
PACK 2023
QUESTIONS WITH
ANSWERS
,QUESTION 1
The following financial information relates to ABC Limited for the year ended 30 April 2014:
1. Machine
Date R
Cost 1 May 2011 500 000
Residual value 1 May 2011 50
Revalued amount on a net replacement value basis 000 30 April 2014 410 000
Depreciation rate - 20% per annum straight-line
The tax base on 1 May 2013 was R200 000 which would be deductible in equal amounts on
30 April 2014 and 30 April 2015 against taxable income.
On 1 May 2013 there was a deferred tax liability of R36 000 due to the temporary difference in respect
of the wear and tear on the machine.
The estimates of the original useful life and residual value remained unchanged after the revaluation.
During 2014 the board of directors decided to disclose the machine in future at the net
replacement value. The revaluation on 30 April 2014 was performed by a sworn appraiser, W Mass,
on the net replacement value basis with reference to prices of similar new assets in an active
market. It is company policy that the revaluation surplus will be realised on disposal of the machine.
2. Investment property
On 31 August 2013 ABC Limited sold its only investment property for R1 600 000. Since ABC
Limited had already decided during the financial year ended 30 April 2013 to sell the investment
property, the 2004 financial statements reflected a deferred tax balance that was correctly
calculated and provided based on the intention to sell. Investment property was previously
accounted for according to the fair value model.
No tax allowances were granted on the property.
Details of the disposed investment property are as follows:
Deferre
Fair Temporar d tax
Date Cost value y liability
R R difference R
R
Land 1 November 2011 250 000 - -
Land 30 April 2013 - 350 000 -100 15 000
Building 1 November 2011 750 000 - 000 -
Building 30 April 2013 - 1 100 000 -350 52 500
000
1 000 000 1 450 000 450 000 67 500
© 2015 Together We Pass. All rights reserved.
,Rental income from the investment property for the current period amounted to R56 000.
Operating expenses incurred in 2014 in connection with the investment property while being
leased out were R22 000.
3. Profit before tax
The profit for the current period after taking into consideration all of the above-mentioned information
is R600 000.
4. Tax rate
The tax rate is 30% for all the applicable periods.
REQUIRED:
Disclose only the given information in the applicable notes to the annual financial statements
of ABC Limited for the year ended 30 April 2014. Your answer must comply with the requirements
of Generally Accepted Accounting Practice.
The following are not required:
- accounting policy notes
- comparative figures
, QUESTION 2
WWW Ltd is a pharmaceutical company that manufactures and sells medicine. WWW Ltd applies
the cost model to account for all intangible assets.
The following information is applicable to WWW Ltd:
Licence
On 1 October 2012, WWW Ltd acquired a licence for R2 140 000 to manufacture and sell
alternative medicine. The licence was awarded by the National Health Department for 10 years and is
amortised accordingly over this period.
On 28 February 2014 a material impairment loss of R145 333 was written off against the licence, due
to the fact that a second similar licence was awarded to WWW Ltd’s main competitor. The
recoverable amount was based on the licence’s value in use of R1 691 500. The remaining useful life
of the licence remained unchanged.
On 5 December 2014 the licence that was awarded to WWW Ltd’s competitor had been withdrawn
due to non-compliance with certain legal requirements. It is expected that this will have a positive
effect on the future expected cash inflows of WWW Ltd. On 28 February 2005 the value in use (based
on a pre-tax discount rate of 20%) was determined at R1 750 000 and was used by WWW Ltd as the
basis for the recoverable amount.
The licence and reversal of impairment loss are material to the financial statements of WWW
Ltd.
Development costs
During the year ended 28 February 2015 WWW Ltd commenced with intensive research on a
component which will improve the production speed of tablet manufacturing machines.
On 15 September 2014 the component met all the criteria for recognition as an internally
generated intangible asset. The component was available for use on 1 February 2015 but only put
into use on 1 March 2015. The expected useful life of the capitalised development costs
(component), once completed, is 10 years.
The following costs were incurred during the year in respect of the research and development of the
component:
01/06/201 15/09/201 01/02/201
4- 4- 5-
Expenses 14/09/201 01/02/201 28/02/201
Salaries of engineers on project 4 000
105 R 5 000
135 R 5- R
General administrative expenses 17 500 22 500 -
Material 50 000 110 000 -
Consumables 15 000 20 000 -
Normal wastage 4 000 9 000 -
Abnormal wastage - 3 000 -
Training of staff - - 35 000
A specialised machine with a cost price of R220 000 was acquired by WWW Ltd on 30
September 2014 to assist the research department with the development of the above-mentioned
and similar future components. The machine was used in the development process of the component
from 1 October 2014 until 31 January 2015. The machine was used in the production factory for
the remainder of the financial year.
The capitalised development costs are material to WWW Ltd’s financial statements.
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