Exam (elaborations)
FAC3764 Exam papers and Solutions
This is a combination of previous UNISA exams for CTA and Undergraduate that UNISA now uses for FAC3764 for the Undergraduates. Exam - Required & Memo.
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COLLEGE OF ACCOUNTING SCIENCESTEST 1: 12 MARCH 2019
READING
PAPER 4: FAC4864/NFA4864/ZFA4864
APPLIED FINANCIAL ACCOUNTING II
(40 Marks)
Time and Duration: 1 hour with 15 minutes reading time. Students MUST be seated by 14:00.
FOURTH SESSION 14:00 – 14:15 Handing out of Paper 4, answer scripts and 15 minutes
a separate REQUIRED section placed
upside down on the desk.
14:15 – 14:30 Reading time. 15 minutes
14:30 – 15:30 PAPER 4: FAC4864/NFA4864/ZFA4864 1 hour
15:30 – 15:45 Collection of Paper 4. 15 minutes
EXAMINATION PANEL AS APPROVED BY THE DEPARTMENT.
Please ensure that you have completed the cover of the answer book for this question in full i.e. name,
surname, address, student number, code of paper and test number.
This FAC4864/NFA4864/ZFA4864 (APPLIED FINANCIAL ACCOUNTING II) question paper consists
of 5 pages and is out of 40 marks.
THE USE OF A NON-PROGRAMMABLE CALCULATOR IS PERMISSIBLE.
This test paper remains the property of the University of South Africa and may not be removed from
the test venue.
PLEASE NOTE:
• The test is a limited open-book test: Students are allowed to take ONE COPY of the 2018/2019
version of the SAICA Handbook or any version published in one of the previous years into the
venue.
• Students will be allowed to highlight and to make notes on the question paper and consult their
allowed reference books during and after the 15 minutes reading time.
• The REQUIRED section must only be turned over once the invigilator announces this.
• All tests and examinations should be answered in ENGLISH only.
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, 2 FAC4864/NFA4864/ZFA4864
TEST 1
QUESTION 1 40 marks
Top Blinds Ltd is a company that specialises in the manufacturing and installation of blinds and security
shutters. Top Blinds Ltd is listed on the Johannesburg Stock Exchange and has a 31 December year
end.
On 1 March 2018, Top Blinds Ltd acquired a 55% controlling interest in Bamboo Ltd. Bamboo Ltd
supplies eco-friendly and sustainable products to manufacture bamboo blinds.
Top Blinds Ltd will be settling the purchase price at the dates as specified below:
On 1 March 2018 • R750 000 in cash.
• Issue of 25 000 ordinary shares in Top Blinds Ltd to the shareholders of
Bamboo Ltd.
• Issue of 70 000 mandatory redeemable, 8% cumulative R2 preference
shares in Top Blinds Ltd. The preference shares are redeemable three
years after the acquisition date, at a premium of 5% on the face value.
• Financial assets owned by Top Blinds Ltd, with a carrying amount of
R350 000 and a fair value of R420 000, transferred to the shareholders
of Bamboo Ltd.
• Included in the R750 000 cash payment is R18 500 share issue costs
related to the 25 000 issued ordinary shares and R22 300 acquisition-
related costs in respect of valuations and lawyers’ fees. Top Blinds Ltd
expensed these amounts in its separate financial statements.
On 28 February 2020 • R300 000 cash depending on the following:
• The profit before tax of Bamboo Ltd for the year ended
28 February 2020 increases by at least 5%. The fair value of this
obligation was deemed to be R165 000 on 1 March 2018 and
R185 000 on 31 December 2018.
All the assets and liabilities of Bamboo Ltd were deemed to be fairly valued at the acquisition date with
the exception of the following:
• Inventory was overvalued with R72 000. At 31 December 2018, 70% of the inventory was sold to
unrelated third parties.
• Bamboo Ltd has a unique customer list that consists of detailed information about customers. The
customer list’s terms of confidentiality prohibits Bamboo Ltd from selling this list. The fair value of
the customer list on 1 March 2018 amounted to R330 000. The customer list has an indefinite
useful life.
• Bamboo Ltd manufactures bamboo blinds that have a unique shape. Before the date of
acquisition, Bamboo Ltd incurred development costs of R220 000 concerning the development of
a trade dress (unique colour, shape and package design) for these blinds. Bamboo Ltd expensed
these development costs when incurred. The registration of the trade dress was not finalised at
the date of acquisition and the fair value was therefore estimated as R245 000 on 1 March 2018.
On 1 March 2018, it is expected that this trade dress will have a useful life of five years. The trade
dress was registered on 31 May 2018. Bamboo Ltd obtained the official valuation report on this
day which indicated that the fair value of the trade dress amounted to R280 000.
• On 1 March 2018, a liability with a fair value of R195 000 was correctly recognised in the
consolidated financial statements of the Top Blinds Ltd Group in accordance with IFRS 3. This
liability relates to a legal claim instituted against Bamboo Ltd. The previous shareholders agreed
to reimburse Top Blinds Ltd for 45% of the damages payable if the legal claim against Bamboo Ltd
is successful. The claim will not be deductible for taxation purposes should it be successful. The
fair value of the contingent liability remained unchanged at year end.
No additional assets, liabilities or contingent liabilities were identified at the acquisition date.
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, 3 FAC4864/NFA4864/ZFA4864
TEST 1
Bamboo Ltd revalued their investments in equity instruments on 28 February 2018. This was the only
revaluation on investments in equity instruments that Bamboo Ltd performed during the current financial
year.
Since the date of acquisition, Top Blinds Ltd has been selling inventory to Bamboo Ltd at a profit of 20%
on cost. Inventory purchased from Top Blinds Ltd, still on hand at year end amounted to R185 700. Total
sales from Top Blinds Ltd to Bamboo Ltd for the current financial year amounted to R320 000. Included
in the separate records of both Top Blinds Ltd and Bamboo Ltd on 31 December 2018 is an amount of
R77 800 that Bamboo Ltd still owes Top Blinds Ltd for inventory purchased on 31 December 2018.
On 1 August 2018, Top Blinds Ltd sold equipment with a carrying amount of R110 500 to Bamboo Ltd
for R150 000. The equipment had a remaining useful life of three years on that date.
Safe Shutters Ltd
Safe Shutters Ltd is a well-established company that manufactures quality security shutters. On
1 July 2017, Top Blinds Ltd acquired a 30% interest in Safe Shutters Ltd for a cash consideration of
R200 000 as well as the transfer of equipment. The equipment transferred to Safe Shutters Ltd at the
date of acquisition had a carrying amount of R90 000 and a fair value of R115 000 on 1 July 2017. This
equipment had a remaining useful life of three years on 1 July 2017. In addition to the cash payment of
R200 000, Top Blinds Ltd also paid lawyers’ fees of R10 000 on 1 July 2017. From 1 July 2017,
Top Blinds Ltd exercised significant influence over the financial and operating policy decisions of
Safe Shutters Ltd. Safe Shutters Ltd’s equity consisted of the following on 1 July 2017:
R
Ordinary share capital (100 000 shares) 100 000
Retained earnings 783 160
Revaluation surplus 250 400
1 133 560
All the assets and liabilities of Safe Shutters Ltd were deemed to be fairly valued at the acquisition date
and no additional assets or liabilities were identified.
During the current financial year, Safe Shutters Ltd sold inventory to Top Blinds Ltd at a gross profit
percentage of 25%. Included in Top Blinds Ltd’s inventory on hand on 31 December 2018 is inventory
amounting to R130 000 in respect of purchases from Safe Shutters Ltd.
ABC Logistics Ltd
Top Blinds Ltd is in the process of incorporating a new company, ABC Logistics Ltd. In accordance with
its proposed Memorandum of Incorporation, ABC Logistics Ltd’s agreed purpose will be to perform
administrative and operational activities necessary to run a delivery scheme for Top Blinds Ltd. In
accordance with this scheme, 100 employees who had been employed by Top Blinds Ltd, will become
shareholders and employees of ABC Logistics Ltd. Top Blinds Ltd plans to acquire 40% of the ordinary
share capital and voting rights of ABC Logistics Ltd. The remaining 60% of the ordinary share capital
will be allocated equally between the 100 employees. Each ordinary share confers one voting right to
the shareholder. The 100 employees have an agreement to vote in unison.
The relevant activities of ABC Logistics Ltd will include the following:
• Arranging financing in order to purchase 50 delivery vehicles to be used;
• Purchase of the delivery vehicles to be used by the employees; and
• Insurance for and maintenance of the delivery vehicles.
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, 4 FAC4864/NFA4864/ZFA4864
TEST 1
As per the Memorandum of Incorporation of ABC Logistics Ltd, the Managing Director can make all
decisions relating to the operations of the company (including those relating to the activities described
above), except for the selection of insurance and maintenance companies that should be used by
ABC Logistics Ltd. Top Blinds Ltd will have the right to select the insurance and maintenance companies
which ABC Logistics Ltd should use.
Mr J Jonas, one of the employees, was elected Managing Director by a majority vote by the other
employees.
Other financial information
The following is an extract from the separate trial balances of the different companies as at
31 December 2018:
Top Blinds Bamboo Safe Shutters
Ltd Ltd Ltd
R R R
Dr/(Cr) Dr/(Cr) Dr/(Cr)
Ordinary share capital (631 500) (200 000) (100 000)
Preference share capital (252 500) - -
Retained earnings (1 January 2018) (2 842 900) (2 397 746) (940 610)
Mark-to-market reserve (1 January 2018) (589 420) (333 060) -
Revaluation surplus (1 January 2018) (384 100) - (250 400)
Property, plant and equipment 3 000 580 2 391 790 1 219 810
Investments in equity instruments 672 950 765 800 -
Inventory 944 550 880 600 645 700
Cash and cash equivalents 286 340 158 530 80 690
Trade receivables 899 450 410 285 280 440
Trade payables (746 020) (389 650) (200 900)
Long-term borrowings (684 651) (100 540) (133 130)
Deferred tax (87 530) (120 485) (50 800)
Profit after tax for the year (1 800 710) (1 234 824) (445 800)
Fair value adjustments on investments in equity
instruments (240 600) (150 700) -
Gain on revaluation of land (170 000) - (280 000)
Dividends paid on 31 December 2018 500 000 320 000 175 000
Additional information
1. It is the accounting policy of Top Blinds Ltd to account for investments in subsidiaries and
investments in associates at cost in accordance with IAS 27.10(a) in its separate financial
statements.
2. It is the accounting policy of all the companies in the Top Blinds Ltd Group to account for all other
investments in equity instruments in accordance with IFRS 9 Financial Instruments. All the
companies in the Top Blinds Ltd Group irrevocably elected to present subsequent changes in the
fair value of these investments in other comprehensive income in a mark-to-market reserve.
3. All the companies in the Top Blinds Ltd Group have a 31 December year end.
4. The fair value of the ordinary shares of Top Blinds Ltd was R22 per share on 1 March 2018.
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