COURSE: ACCOUNTANCY IIA

Assignment 3
The following assignment must be attempted so that you will be able to answer multiple choice questions based on this assignment. The questions will be available on Edulink on Monday 19 March and Tuesday 20 March until 12midnight. Answering of the multiple choice question on Edulink will constitute the hand-in of the assignment. No other submissions will be accepted. You can consult with your lecturers, tutors or peers for assistance with areas of this assignment that you may struggle with. This assignment was carefully selected to assist you in learning key concepts necessary in Accounting 2A. Please also remember that this assignment might be the assignment that counts towards 5% of your semester mark. Good luck!

COURSE: ACCOUNTANCY IIA

ASSIGNMENT 3 Case study Neolithic Ltd started operating as a manufacturer of agricultural equipment on 1 March 2008. The following pre-adjustment trial balance was extracted from the accounting records for the reporting period ended 28 February 2010: Revenue Share capital Payables Retained earnings (1 March 2009) Accumulated depreciation (1 March 2009) Interest bearing loan 12% Cumulative preference shares Dividends received from subsidiary Dividends received from other investments Cost of sales Investments Inventory Receivables allowances for sales returns from customers Distribution costs Administration costs Bank interest Production costs Operating lease charges on distribution trucks Other operating costs Property, plant & equipment Receivables (28 Feb 2009: 450 000) Bank ADDITIONAL INFORMATION: 1. Revenue consist of the following: Sale of agricultural equipment Service fees received in advance The company started offering services on equipment on a monthly basis from 1 June 2009. Service fees are received annually in advance and Neolithic Ltd recognised the entire service fee amount in revenue. (Service fees have no effect on cost of sales). 2. 3. R3 500 000 R1 800 000 Note 1 2 5 8 2 1 575 000 400 000 250 000 200 000 400 000 350 000 10 000 550 000 30 000 50 000 3 620 000 600 000 190 000 8 225 000 R R 5 300 000 500 000 150 000 840 000 585 000 625 000 200 000 15 000 10 000

3 4 1 7

8 225 000

Issued share capital consist of 250 000 ordinary shares of R2 each. 12% Preference shares are non-redeemable. Investments: Shares in Agriform (Pty) Ltd (10% shareholding) 100 000 ordinary shares at R1,00 each. Shares in Organix Ltd (60% shareholding) 200 000 ordinary shares at fair value of R1,50 each.

COURSE: ACCOUNTANCY IIA

ASSIGNMENT 3 (CONTINUED) 4. Inventory is valued at the lower of cost or net realisable value measured on the FIFO basis. The balance on 28 February 2010 comprise: Finished goods Work in progress 5. Property plant and equipment Accumulated depreciation (1 March 2009) 50 000 240 000 175 000 120 000 585 000 Carrying amount 950 000 960 000 645 000 480 000 3 035 000 R200 000 R50 000

Cost Property Production plant Equipment Vehicles 5.1 1 000 000 1 200 000 820 000 600 000 3 620 000

Depreciation on production plant has been provided at 20% p.a. on a straight line basis. The directors resolved to change the depreciation rate from 20% to 25% straight line following a review of similar production plants in industry. The plant was acquired and brought into use on 1 March 2008 at a cost of R1 200 000. No plant was sold or purchased in the last two years. The South African Revenue Services (SARS) allows a section 12C allowance on plant at 40%:20%:20%:20%.

5.2

Administrative equipment is depreciated at 25% p.a. on cost. New equipment was purchased on 1 June 2009 at R100 000. Installation costs for the equipment amounted to R20 000. SARS allows a wear and tear allowance in terms of S11e at 20% p.a. The remaining balance of the equipment was purchased and brought into use on 1 March 2008 at a cost of R700 000. Distribution vehicles are depreciated at 20% p.a. on a reducing balance method. The carrying amount at 1 March 2009 was R480 000. After providing for depreciation for the reporting period ending 28 February 2010, the vehicles market crashed and the recoverable value of the entire fleet of vehicles was R300 000. SARS allows a S11e wear and tear allowance at 25% p.a. on cost. Property is depreciated at 5% on a straight line basis. Any expenses relating to property are classified as other operating costs. SARS considers the property to be of a capital nature and does not allow any deduction on related expenses. A client balance of R50 000 is included in receivables. The client was declared insolvent during the current reporting period. The bookkeeper had not recognised this transaction. Included in distribution costs are fines paid to the Department of Transport for overloads on trucks amounting to R30 000. Interest bearing loan represents a loan from AKSA Bank at an effective interest of 12% acquired on 1 June 2009. The loan is repayable in 5 equal instalments from 1 June 2010 and interest payable on the same day. No provision was made for the interest. The ordinary dividend of R50 000 and the 12% preference dividends were declared on 28 February 2010. These dividends have not yet been recognised in the accounting records. The tax rate has been consistent at 28%.

5.3

5.4

6. 7. 8.

9. 10.

COURSE: ACCOUNTANCY IIA

ASSIGNEMENT 3 (CONTINUED) REQUIRED: 1. 2. Calculate the amount that will be recognised as revenue in the statement of comprehensive income for the reporting period ended 28 February 2010. (Note 1) Calculate the depreciation on the production plant for the current reporting period. Present the effect of the change in accounting estimate as it would be presented in the notes to the financial statements. (Note 5.1) Calculate the depreciation and impairment loss (where applicable) and carrying amounts for the reporting period ended 28 February 2010 for the following items: (Notes 2 - 4): 3.1 3.2 3.3 4. 5. Property Equipment Vehicles

3.

Calculate the current and deferred tax amounts for the reporting period ended 28 February 2010. Assume an accurately calculated profit before tax of R856 254. Present the asset section to the statement of financial position for the reporting period ended 28 February 2010. Notes to the financial statements are not required.