FEEDBACK TUTORIAL LETTER ASSIGNMENT 2 FIRST SEMESTER 2017 FINANCIAL ACCOUNTING 3A [FAC311S] 1
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$60 000. 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$300 000 = PMT x 3.6048 PMT = N$300 000 3.6048 = N$83 222 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 30/06/2014 300 000 83 222 3 47 222 252 778 30/06/2015 252 778 83 222 30 333 52 889 199 889 30/06/2016 199 889 83 222 23 987 59 235 140 654 30/06/2017 140 654 83 222 16 878 66 344 74 310 30/06/2018 74 310 83 222 8 912 74 310 0 416 110 116 110 300 000 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
01/07/2013 Machinery 300 000 Finance lease obligation 300 000 31/12/2013 Interest expense 18 000 Interest payable 18 000 Depreciation expense 30 000 Accumulated depreciation 30 000 30/06/2014 Finance lease obligation 47 222 Interest payable 18 000 Interest expense 18 000 83 222 31/12/2014 Interest expense 15 167 Interest payable 15 167 Depreciation expense 60 000 Accumulated depreciation 60 000 30/06/2015 Finance lease obligation 52 889 Interest payable 15 167 Interest expense 15 166 83 222 31/12/2015 Interest expense 11 994 Interest payable 11 994 Depreciation expense 60 000 Accumulated depreciation 60 000 30/06/2016 Finance lease obligation 59 235 Interest payable 11 994 Interest expense 11 993 83 222 31/12/2016 Interest expense 8 439 Interest payable 8 439 Depreciation expense 60 000 Accumulated depreciation 60 000 30/06/2017 Finance lease obligation 66 344 Interest payable 8 439 Interest expense 8 439 83 222 2
31/12/2017 Interest expense 4 459 Interest payable 4 459 Depreciation expense 60 000 Accumulated depreciation 60 000 30/06/2018 Finance lease obligation 74 305 Interest payable 4 459 Interest expense 4 457 83 222 31/12/2018 Depreciation expense 30 000 Accumulated depreciation 30 000 2. Financial statement disclosure COLL Ltd Income statement for the year ended December 31 st, 2013 2014 Operating expenses Depreciation 30 000 60 000 Finance cost 18 000 33 167 COLL Ltd Balance sheet as at December 31 st, 2013 2014 ASSETS Non-current assets Leased machinery 300 000 300 000 Less provision for depreciation (30 000) (90 000) 240 000 180 000 EQUITY AND LIABILITIES Non-current liabilities Finance lease obligation 300 000 252 778 Current liabilities Accruals and payables 18 000 15 167 Notes N$47 222 will be settled in 2014 being the current portion of the finance lease obligation in 2013 3
N$52 889 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 2 2.1 Meatco Ltd s general journal 30 marks 1/4/2015 Investment in ordinary shares 820 000 820 000 10 000 Beef Ltd ordinary shares of N$40 nominal bought for N$820 000 1/09/2015 60 000 Dividend received on Beef Ltd s ordinary shares: N$400 000 x 15% 60 000 15/11/2015 Investment in ordinary shares 12 000 Bought rights to 750 Beef Ltd ordinary shares at N$16 per share 30/11/2015 Investment in ordinary shares 120 000 Payment for ordinary shares bought through rights issue: Shares 10 000 x 1 / 8 = 1 250 Rights bought = 750 Total = 2 000 x N$60 per share = N$120 000 12 000 120 000 8/09/2016 48 000 48 000 Ordinary dividend received from Beef Ltd for year ended 30/06/2016: N$480 000 x 10% = N$48 000 1/10/2016 395 000 Investment in ordinary shares Disposal of 4 500 Beef Ltd ordinary shares for N$395 000 395 000 4
31/12/2016 Investment in ordinary shares 38 000 P&L: profit on disposal of shares Disposal of 4 500 Beef Ltd ordinary shares: Proceeds N$395 000 Less cost (N$952 000/480 000) x 180 000 357 000 Profit 38 000 38 000 INVESTMENT IN BEEF LTD ORDINARY SHARES Details Nominal Income Capital Details Nominal Income Capital 01/04/2015 400 000 820 000 01/09/2015 div 60 000 15/11/2015 rights 30/11/2015 appli 31/12/2015 Invest income 80 000 60 000 12 000 120 000 31/12/2015 Balance c/d 480 000 952 000 01/01/2016 Balance b/d 31/12/2016 P&L; profit Invest income 480 000 60 000 952 000 480 000 60 000 952 000 08/09/2015 480 000 952 000 div 48 000 01/10/2015 sale 180 000 395 000 38 000 31/12/2016 48 000 Balance c/d 300 000 595 000 480 000 48 000 990 000 480 000 48 000 990 000 2.2 UNAM s general journal 30/04/2016 Investment in 6% loan stock 720 000 4 000 Bought Swabou Ltd s N$200 000 6% loan stock at 362 cum.interest Amount paid N$200 000 x 3.62 = N$724 000 Less 4 months interest: N$200 000 x 6% x 4/12 = 4 000 Capital cost 720 000 724 000 30/06/2016 Interest received on Swabou Ltd 6% loan stock: N$200 000 x 6% x 6/12 30/11/2016 274 400 5
Investment in 6% loan stock 274 400 Proceeds from sale of N$80 000 Swabou Ltd s 6% loan at 343 ex.int 30/11/2016 Investment in 6% loan stock Adjustment for interest on loan: N$80 000 x 6% x 1/12 400 400 31/12/2016 Interest received on Swabou Ltd s 6% loan stock: N$200 000 x 6% x 6/12 31/03/2017 receivable 1 800 1 800 Accrual of 3 months interest income on 6% loan stock (1/1/2017 31/3/2017): N$120 000 x 6% x 3/12 = N$1 800 31/03/2017 P&L: profit on disposal 13 200 Investment in 6% loan stock Loss on disposal of N$80 000 loan stock: Proceeds (Cash N$274 400 + interest 400) N$274 800 Less cost N$(720 000/200 000) x 80 000 288 000 Loss on disposal 13 200 13 200 INVESTMENT IN SWABOU LTD 6% LOAN STOCK Details Nominal Income Capital Details Nominal Income Capital 30/04/2016 30/11/2016 200 000 4 000 720 000 Adjustment 400 80 000 274 400 31/03/2016 Int income 30/06/2016 int 30/11/2016 - sale 31/12/2016 int 31/03/2017 P&L: loss 13 200 9 400 Balance c/d 120 000 1 800 432 400 200 000 13 800 720 000 200 000 13 800 720 000 6
Question 3 25 marks 01/03/2016 Prepaid rent 288 000 VAT Control 43 200 331 200 31/12/2016 Rent expense 240 000 Maintenance expenses 12 000 VAT Control 1 800 13 800 01/03/2017 Rent expense 48 000 VAT Control 43 200 331 200 31/12/2017 Rent expense 240 000 Maintenance expenses 12 000 VAT Control 1 800 13 800 01/03/2018 Rent expense 48 000 VAT Control 43 200 331 200 31/12/2018 Rent expense 240 000 Maintenance expenses 12 000 VAT Control 1 800 13 800 01/03/2019 Rent expense 48 000 VAT Control 43 200 7
331 200 31/12/2019 Rent expense 240 000 Maintenance expenses 12 000 VAT Control 1 800 13 800 31/12/2020 Rent expense 48 000 Prepaid rent 48 000 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 3 000 000 Less liabilities (1 000 000) Book value of shares 2 000 000 Number of shares 400 000 Value per share 2 000 000 400 000 = N$5.00 b) Liquidation value Non-current assets 1 100 000 Goodwill 1 000 000 Current assets 100 000 Total liquidation value 2 200 000 Less liabilities (1 000 000) Liquidation value 1 200 000 Value per share 1 200 000 400 000 = N$3.00 c) Replacement cost Non-current assets 3 900 000 Current assets 100 000 8
Total liquidation value 4 000 000 Less liabilities (1 000 000) Liquidation value 3 000 000 Value per share 3 000 000 400 000 = N$7.50 d) Earnings yield Earnings available to shareholders Earnings yield = N$57 0.18 Total value N$3 200 000 Value per share = N$3 200 000 400 000 = N$8.00 9