FEEDBACK TUTORIAL LETTER 1ST SEMESTER 2017 ASSIGNMENT 1 FINANCIAL ACCOUNTING 310 [GFA711S]

Transcription

1 FEEDBACK TUTORIAL LETTER 1ST SEMESTER 2017 ASSIGNMENT 1 FINANCIAL ACCOUNTING 310 [GFA711S] 1

2 ASSIGNMENT ONE QUESTION 1 (IAS8: Changes in Accounting Estimates) 32 marks Assumption 1: Residual value reduced to N$ (re-allocation method) 31 December Accumulated depreciation: equipment Annual depreciation charge based on reduced residual value 31 December Accumulated depreciation: equipment Adjustment to annual depreciation due to reduction in residual value 4 marks WORKINGS Details Calculations Was Is Adjustment 1/1/2009 Cost 31/12/2014 Accumulated depn Carrying amount Residual value Depreciable amount Remaining useful life (230x100/115) (200 20) x 6/ years ( ) (20 000) years (12 000) years 31/12/2015 Carrying amount (18 000) (20 000) (2 000) (2 000) Future years depn: Original Revised Carrying amount (54 000) (60 000) (6 000) (8 000) 14/2 = 7 marks 1

3 Assumption 2: Residual value increased to N$ (re-allocation method) 31 December Accumulated depreciation: equipment Annual depreciation charge based on increased residual value 31 December 2016 Accumulated depreciation: equipment Adjustment to annual depreciation due to reduction in residual value 4 marks WORKINGS Details Calculations Was Is Adjustment 1/1/2009 Cost 31/12/2014 Accumulated depn Carrying amount Residual value Depreciable amount Remaining useful life (230x100/115) (200 20) x 6/ years ( ) (20 000) years (30 000) years 31/12/2015 Carrying amount (18 000) (15 500) Future years : Original Revised Carrying amount (54 000) (48 500) /2 = 7 marks 2

4 Assumption 3: Residual value increased to N$ December Accumulated depreciation: equipment Annual depreciation charge based on increased residual value 2 marks WORKINGS Details Calculations Was Is Adjustment 1/1/2009 Cost 31/12/2014 Accumulated depn Carrying amount Residual value Depreciable amount Remaining useful life (230x100/115) (200 20) x 6/ years ( ) (20 000) years ( ) years 31/12/2015 Carrying amount (18 000) (-0-) Future years : Original Revised Carrying amount (54 000) (-0-) /2 = 7 marks Note As per IAS16, depreciation ceases when the residual value exceeds or equal to the carrying amount. Since residual value of N$ exceeds the carrying amount of N$92 000, future depreciation shall be nil. shall only resume if and when the residual value drops to below the carrying amount. 1 mark 3

5 QUESTION 2 (IAS19: Employee Benefits) 28 marks Notes to the financial statements (1) Employee benefits Total charge (expense to the statement of profit or loss is made up of the following: N$ Leave pay Bonuses Defined benefit plan Total expense marks (1)(1) Leave pay Cost per day = N$ / 250 days = N$1 000 per day Total leave earned and unused in 2016 Leave earned in 2016 that will be taken in future (40 20 days) Leave to be taken in the future 320 days (20) days 300 days N$ Provision for employee benefits (300 days x N$1 000) Adjustment to 2015 provision Reduction in provision (20 days x N$1 000) (20 000) (Prior years accrued 20 leave days no longer required due to resignation) Net (year-end) adjustment

6 (1)(2) Bonuses N$ Total bonus that can be distributed (profit N$5 million x 10%) Bonus for new employees who do not qualify (50 000) (Bonus N$ x 8 new employees / 80 total employees) Required provision for distributable amount (Bonus N$ x 72 qualifying employees / 80 total employees) 8 employees were hired in July 2016, thus do not qualify because not been in employment for full year (1)(3) Defined benefit pension plan N$ Current service cost Return on plan assets (50 000) Finance charges (interest) on plan obligation Realised actuarial gain (10 000) Total cost for the year

7 (2) Journal entries 31 December 2016 Employee benefits expense Provision for leave pay Year-end provision for leave pay December 2016 Employee benefits expense Provision for bonuses Providing for the year s bonuses for employees December 2016 Employee benefits expense: Current service Finance charges Income (plan asset) Actuarial gain (plan asset) Provision for defined benefit plan Providing for the year s defined benefit pension plan

8 QUESTION 3 (IAS17: Leases - operating lease) 40 marks Lessee s books 30 June 2014 Rent expense Accrued rent expense Annual rent expense incurred for the year ended 30 June June 2015 Rent expense VAT Control Accrued rent expense Payment of first lease instalment June 2016 Rent expense VAT Control Accrued rent expense Settlement of second lease instalment marks 7

9 Lessor s books 30 June 2014 Rent income VAT Control Unearned rent income Receipt of first rentals June 2015 Unearned rent income Rent receivable Rent income VAT Control Receipt of second year rentals June 2016 Rent receivable Rent income VAT Control Receipt of third year rentals marks 8

10 Contingent rental income 31 December 2014 (N$6.90 x nautical miles) Rent income (N$6.00 x nautical miles) VAT control (N$0.90 x nautical miles) Amount received for contingent rent: nautical miles x N$ December 2015 (N$6.90 x nautical miles) Rent income (N$6.00 x nautical miles) VAT control (N$0.90 x nautical miles) Amount received for contingent rent: nautical miles x N$ December 2016 (N$6.90 x nautical miles) Rent income (N$6.00 x nautical miles) VAT control (N$0.90 x nautical miles) Amount received for contingent rent: nautical miles x N$ marks 9

11 WORKINGS 12 marks AVERAGE ANNUAL RENTAL EXPENSE AMOUNT YEAR INCLUDING VAT 15% NET AMOUNT 30/06/ /06/ /06/ TOTAL Average annual expense N$90 000/3 years = N$ AVERAGE ANNUAL RENTAL INCOME AMOUNT YEAR INCLUDING VAT 15% NET AMOUNT 30/06/ /06/ /06/ TOTAL Average annual income N$ /3 years = N$ Contingent rent income: Calculation per unit N$ Rent income 6.90 x 100/ VAT 6.90 x 15 / Total receipt

12 ASSIGNMENT TWO QUESTION 1 (IAS17: Leases - finance lease) 60 marks Loan obligation amortization schedule Year Opening Interest at Closing end Balance Payment 12% Principal Balance 28 Feb N$ N$ N$ N$ N$ marks Computation of interest expense Total payments as per agreement: N$250 x 3 instalments N$ Present value of lease payments: N$ x x marks (b) Namrock Ltd Journal entries 1 March 2013 Leased equipment Finance lease obligation Acquisition of equipment through a lease agreement dated 1 March 2013 Finance lease obligation Payment of first instalment on the commencement of the lease as per agreement dated.. 11

13 31 December 2013 Interest expense Accrued interest Interest incurred for the 10 months ended 31 December 2013: N$ x 10/12 = N December 2013 Accumulated depreciation leased equipment First year depreciation charge: (N$ / 4 years) x 10/12 months = N$ March 2014 Accrued interest Interest expense Finance lease obligation Settlement of second instalment Accrued interest N$ x 10/12 = N$ Interest expense N$ x 2/12 = N$ December 2014 Interest expense Accrued interest Interest incurred for the 10 months ended 31 December 2014: N$ x 10/12 = N$

14 31 December 2014 Accumulated depreciation leased equipment First year depreciation charge: (N$ / 4 years) x 12/12 months = N$ marks The following is an alternative solution 1 March 2013 Leased equipment Interest suspense Finance lease obligation Equipment leased from Coastal Hire Ltd as per lease agreement date 1 March 2013 Finance lease obligation 31 December 2013 Interest expense Interest suspense Interest incurred for the 10 months ended 31 December 2013: N$ x 10/12 = N$

15 31 December 2013 Accumulated depreciation leased equipment First year depreciation charge: (N$ / 4 years) x 10/12 months = N$ March 2014 Finance lease obligation Settlement of second lease instalment 1 March 2014 Interest expense Interest suspense Interest incurred for two months to 28 February December 2014 Interest expense Interest suspense Interest incurred for ten months to 31 December December 2014 Accumulated depreciation leased equipment First year depreciation charge: (N$ / 4 years) x 12/12 months = N$

16 (c) Namib Machines Ltd Investment income allocation table Gross investment Net investment (lease payments) (PV of lease payments) N$ N$ 1 st March 2013 at inception of the lease instalment ( ) ( ) th February 2014 interest 15% Balance st March instalment ( ) ( ) th February 2015 interest 15% Balance st March instalment ( ) ( ) marks Computation of unearned interest income N$ Total lease payments: N$ x 3 instalments Present value of lease payments N$ x x Unearned interest income marks 15

17 (a) Namrock Ltd Journal entries 1 January 2013 Purchases Purchase of equipment for lease to third parties March 2013 Gross investment Purchases Unearned interest income Lease of equipment to Namrock Ltd as per lease agreement dated March 2013 Gross investment First lease instalment received in advance as per lease agreement date. 31 December 2013 Unearned interest income Interest income Interest income earned for the first ten months ended 31 December 2013: N$ x 10/12 = N$ March 2014 Gross investment Receipt of second lease instalment as per agreement 16

18 31 December 2014 Unearned interest income Interest income Interest income earned for the two months ended 28 February 2014 N$ x 2/12 = N$ December 2014 Unearned interest income Interest income Interest income earned for the ten months ended 31 December 2014: N$ x 10/ marks 17

19 QUESTION 2 (IAS33: Earnings Per Share) 19 marks (a) Basic EPS for marks Earnings per share = Profit attributable to ordinary shareholders Diluted weighted average no. of ordinary shares EPS = N$ = N$2.50 per share (b) Diluted EPS for 2017 Calculation of diluted earnings N$ As reported Preference dividends (10% x ) (2 000) Profit attributable to ordinary shares Cumulative preference dividend Interest on loan (16% x ) % Diluted earnings Calculation of diluted ordinary shares Shares As reported Options [ x ( )] / Cumulative preference shares ( / 0.2) x % convertible loan ( / 0.5) x Diluted shares marks Diluted earnings per share = Diluted earnings Diluted weighted average no. of ordinary shares = N$ = N$0.96 per share 2 marks 18

20 QUESTION 3 (IAS21: Foreign Currency Transactions) 21 marks Journal entries 1 August 2015 Purchases (imports) Foreign creditors x N$ September 2015 Foreign creditors Forex gain Exchange difference at year end: x (N$ ) October 2015 Forex loss Foreign creditors Adjustment arising on settlement date: x (N$ ) October 2015 Foreign creditors Settlement of the foreign suppliers invoice: x N$ March 2015 Foreign loans Receipt of foreign loan: US x N$

21 30 September 2015 Forex loss Foreign loans Year-end adjustments: US$ x (N$ ) September 2015 Interest expense Forex gain Accrued interest Year-end accrual of interest on foreign loan US$ x N$11.70 x 14% x 7/12 = N$ US$ x N$11.60 x 14% x 7/12 = N$ February 2016 Accrued interest Interest expense Forex loss Payment of interest due: Amount due: US$ x N$11.80 x 14% = N$ Accrued interest: US$ x N$11.75 x 14% x 5/12 = N$ September 2016 Forex loss Foreign loans Year-end adjustments: US$ x (N$ ) = N$ marks 20

22 To prove the correctness of the entries, the following ledger accounts are prepared: FOREIGN CREDITORS 30 September 2015 Forex gain August 2015 Purchases Balance c/f October October 2015 Balance b/f Foreign gain FOREIGN LOANS 1 March September 2015 Balance c/f September 2015 Forex loss September 2016 Balance c/f October 2015 Balance b/f 30 September 2016 Forex loss