FEEDBACK TUTORIAL LETTER ASSIGNMENT 2 FIRST SEMESTER 2017 FINANCIAL ACCOUNTING 3A [FAC311S]

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June Wiggins
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1 FEEDBACK TUTORIAL LETTER ASSIGNMENT 2 FIRST SEMESTER 2017 FINANCIAL ACCOUNTING 3A [FAC311S] 1

2 Question 1 28 marks Most students found some difficulties in determining the payment of the lease. They just divided the fair value by 5 and got N$ The payment must be calculated using the present values. Another problem was failure to distinguish between the lease period and the accounting period. Because the two periods are different there will always be either prepayments or payables. 1. First is to calculate the payment of the lease. The payment will be calculated from the present value expression Fair value = PMT x PVIFA at 12% for 5 years. The payments are made at the end of the year; therefore it is an ordinary annuity. N$ = PMT x PMT = N$ = N$ After calculating the payment, the loan amortization table need to be constructed to determine the amount of interest for each year throughout the lease period. Loan amortization table Beginning Interest at Ending Date balance Payment 12% Principal balance 30/06/ /06/ /06/ /06/ /06/ Journal entries may be done now. But you must remember that the accounting year is different from the lease period; therefore adjustments must be made on recording interest. 1

3 01/07/2013 Machinery Finance lease obligation /12/2013 Interest expense Interest payable Depreciation expense Accumulated depreciation /06/2014 Finance lease obligation Interest payable Interest expense /12/2014 Interest expense Interest payable Depreciation expense Accumulated depreciation /06/2015 Finance lease obligation Interest payable Interest expense /12/2015 Interest expense Interest payable Depreciation expense Accumulated depreciation /06/2016 Finance lease obligation Interest payable Interest expense /12/2016 Interest expense Interest payable Depreciation expense Accumulated depreciation /06/2017 Finance lease obligation Interest payable Interest expense

4 31/12/2017 Interest expense Interest payable Depreciation expense Accumulated depreciation /06/2018 Finance lease obligation Interest payable Interest expense /12/2018 Depreciation expense Accumulated depreciation Financial statement disclosure COLL Ltd Income statement for the year ended December 31 st, Operating expenses Depreciation Finance cost COLL Ltd Balance sheet as at December 31 st, ASSETS Non-current assets Leased machinery Less provision for depreciation (30 000) (90 000) EQUITY AND LIABILITIES Non-current liabilities Finance lease obligation Current liabilities Accruals and payables Notes N$ will be settled in 2014 being the current portion of the finance lease obligation in

5 N$ will be settled in 2015 being the current portion of the finance lease obligation in 2014 There are two ways you can disclose the current portion of the finance lease obligation; either showing it on the face of the balance sheet or disclose it in the notes as have been done here. Question Meatco Ltd s general journal 30 marks 1/4/2015 Investment in ordinary shares Beef Ltd ordinary shares of N$40 nominal bought for N$ /09/ Dividend received on Beef Ltd s ordinary shares: N$ x 15% /11/2015 Investment in ordinary shares Bought rights to 750 Beef Ltd ordinary shares at N$16 per share 30/11/2015 Investment in ordinary shares Payment for ordinary shares bought through rights issue: Shares x 1 / 8 = Rights bought = 750 Total = x N$60 per share = N$ /09/ Ordinary dividend received from Beef Ltd for year ended 30/06/2016: N$ x 10% = N$ /10/ Investment in ordinary shares Disposal of Beef Ltd ordinary shares for N$

6 31/12/2016 Investment in ordinary shares P&L: profit on disposal of shares Disposal of Beef Ltd ordinary shares: Proceeds N$ Less cost (N$ / ) x Profit INVESTMENT IN BEEF LTD ORDINARY SHARES Details Nominal Income Capital Details Nominal Income Capital 01/04/ /09/2015 div /11/2015 rights 30/11/2015 appli 31/12/2015 Invest income /12/2015 Balance c/d /01/2016 Balance b/d 31/12/2016 P&L; profit Invest income /09/ div /10/2015 sale /12/ Balance c/d UNAM s general journal 30/04/2016 Investment in 6% loan stock Bought Swabou Ltd s N$ % loan stock at 362 cum.interest Amount paid N$ x 3.62 = N$ Less 4 months interest: N$ x 6% x 4/12 = Capital cost /06/2016 Interest received on Swabou Ltd 6% loan stock: N$ x 6% x 6/12 30/11/

7 Investment in 6% loan stock Proceeds from sale of N$ Swabou Ltd s 6% loan at 343 ex.int 30/11/2016 Investment in 6% loan stock Adjustment for interest on loan: N$ x 6% x 1/ /12/2016 Interest received on Swabou Ltd s 6% loan stock: N$ x 6% x 6/12 31/03/2017 receivable Accrual of 3 months interest income on 6% loan stock (1/1/ /3/2017): N$ x 6% x 3/12 = N$ /03/2017 P&L: profit on disposal Investment in 6% loan stock Loss on disposal of N$ loan stock: Proceeds (Cash N$ interest 400) N$ Less cost N$( / ) x Loss on disposal INVESTMENT IN SWABOU LTD 6% LOAN STOCK Details Nominal Income Capital Details Nominal Income Capital 30/04/ /11/ Adjustment /03/2016 Int income 30/06/2016 int 30/11/ sale 31/12/2016 int 31/03/2017 P&L: loss Balance c/d

8 Question 3 25 marks 01/03/2016 Prepaid rent VAT Control /12/2016 Rent expense Maintenance expenses VAT Control /03/2017 Rent expense VAT Control /12/2017 Rent expense Maintenance expenses VAT Control /03/2018 Rent expense VAT Control /12/2018 Rent expense Maintenance expenses VAT Control /03/2019 Rent expense VAT Control

9 /12/2019 Rent expense Maintenance expenses VAT Control /12/2020 Rent expense Prepaid rent The maintenance may not necessarily be apportioned as such because the payment takes place at the beginning. You may only apportion the expense not the payment. This is just an alternative way of doing it. Question 4 In replacement cost method, goodwill is not considered. The value of a share using the following methods: 17 marks a) Book value N$ Total assets Less liabilities ( ) Book value of shares Number of shares Value per share = N$5.00 b) Liquidation value Non-current assets Goodwill Current assets Total liquidation value Less liabilities ( ) Liquidation value Value per share = N$3.00 c) Replacement cost Non-current assets Current assets

10 Total liquidation value Less liabilities ( ) Liquidation value Value per share = N$7.50 d) Earnings yield Earnings available to shareholders Earnings yield = N$ Total value N$ Value per share = N$ = N$8.00 9

FAC STUDY UNIT 11 - IAS 17 Leases (lessees only)

FAC STUDY UNIT 11 - IAS 17 Leases (lessees only) FAC2601 - STUDY UNIT 11 - IAS 17 Leases (lessees only) Contents LEASES CLASSIFICATION... 2 LESSEE FINANCE LEASE... 3 JOURNAL ENTRIES... 3 ILLUSTRATIVE EXAMPLE FINANCE LEASE LESSEE WITH END PAYMENT... 5