FA3703 EXAM
PACK 2023
UPDATED REVISION
PACK
, Stuvia.com - The study-notes marketplace
1
FAC3703 MayJun 2017
Paper 1
Suggested solution
Question 1
a) Calculate employee benefits
W1.
Salary: (275 000 x 9 months [Apr – Dec]) 2 475 000
(275 000 x 3 months [Jan – Mar] x 100/110) 750 000
Bonus paid: 275 000
Bonus obligation OB: (275 000 x 1/12) (22 917)
Bonus obligation CB: (275 000 x 1,1 x 1/12) 25 208
Leave obligation OB: (52 145)
Leave obligation CB: (24 – 6 – 8) = 10 days x 60% = 6 days 62 857
.’. 6 days x 275 000x 12x 80%
252 days
Shortterm employee benefits 3 513 003
W2. (2 475 000 + 750 000) (W1) x 7,5% = 241 875
W3. Termination benefit = 123 000
W4. Government grant relating to salaries = 45 000 x 9/36 = 11 250
.’. Employee benefits to be disclosed in profit before tax note:
(3 513 003 (W1) + 241 875 (W2) + 123 000 (W3) – 11 250 (W4) = 3 866 628
* Illustrative PBT note:
2. Profit before tax
Profit before tax includes:
Expenses
Employee benefits 3 866 628
Shortterm employee benefits (3 513 003 (W1) – 11 250 (W4)) 3 501 753
Defined contribution plan expense (W2) 241 875
Termination benefits 123 000
b) Discussion of related party
Ms Smith owns 25% of WWT and therefore has significant influence over WWT.
Mr Lampard owns 80% of Rubber Ltd and therefore has control over Rubber Ltd.
Ms Smith the fiancée of Mr Lampard. It could be argued that they are close family even
though this type of relationship is not specifically addressed by IAS 24.
Assuming that Ms Smith and Mr Lampard are close family, Rubber Ltd and WWT are
related parties owing to Ms Smith’s significant influence over WWT and Mr Lampard’s
control over Rubber Ltd.
FAC3703 MayJun 2017 (Paper 1) suggested solution
, 2
c) i) Discussion re recognition of government grant
A government grant is initially recognised when the amount is received or receivable – which
was received on 1 April 2016, and when it is reasonably assured that the conditions attached
will be met, i.e., that the entity will not retrench any staff under 35 years of age.
The subsequent recognition of a government grant depends on the type of grant and the
accounting policy of the entity. This government grant is an incomebased grant as it relates
to a youth wage subsidy. In addition, it relates to future employment payments of youth
employed by the entity.
The government grant is initially recognised as a liability in the statement of financial position,
and then recognised as a deduction against the related expense, i.e., employee benefits, over
the period of the condition attached, i.e., 3 years.
ii) Calculation balance of government grant in statement of financial position
Government grant received recognised as deferred income liability 45 000
Amount realise in profit or loss as deduction against employee benefits (11 250)
(45 000 x 9/36) 33 750
d) Calculation of movement in deferred tax
CA TB TD DT@ 28%
Leave pay obligation 52 154 52 154 14 603 A
Bonus obligation 22 917 22 917 6 417 A
Deferred tax asset at 31 December 2016 21 020 A
CA TB TD DT@ 28%
Leave pay obligation 62 857 52 154 14 603 A
Bonus obligation 25 208 22 917 6 417 A
Government grant def inc liability 33 750 33 750 9 450 A
Deferred tax asset at 31 December 2016 34 108 A
.’. Movement in deferred tax balance = 34 108 A – 21 020 A
= 18 088
Deferred tax (SFP) 18 088
Income tax expense: deferred tax (PL) 18 088
e) 1 – c
2 – b (62 857 (W1) x 40/60)
3–a
4–b
5–b
6 – ? (In our opinion there is no correct answer as the government grant to be realised in
2017 would be (40 500 x 12/36) less any change in estimate relating to the repayment
of R4 500. The amount recognised in 2016 of 11 250 (c)(ii) versus what should have
been recognised on the government grant of R40 500 x 9/36 = 10 125, is 1 125.
The total grant to be recognised in PL for 2017 is therefore 12 375 (13 500 – 1 125). It
appears as if UNISA meant for option d to be selected.)
, 3
Question 2
a) Disclosure of notes in financial statements
VS Con Ltd
Notes to the financial statements for the year ended 29 February 2016
2016
2. Profit before tax
Profit before tax includes:
Income
Profit on disposal of machinery (500 000 – 450 000 (note 3)) 50 000
Finance income 127 437
Funds invested (7 900 (shares) + 2 041 (loan)) 9 941
Capitalised (2 041)
Expenses
Finance costs 33 400
Total (37 400 + 31 262 (W1)(J3)) 68 662
Capitalised (W2) (35 262)
Depreciation (51 000 (W1)(J5) + (90 000 + 71 290 (note 3)) 212 290
3. Property, plant and equipment
Machinery Flowline
Carrying amount at 1 March 2015 540 000
Cost 900 000
Acc depreciation (900 000 x 24/60) (360 000)
Additions 1 283 221
Cost 1 250 000
Borrowing costs (35 262 (W2) – 2 041 (W2)) 33 221
Depreciation (900 000 x 6/24); (1 283 221 x 2/36) (90 000) (71 290)
Disposal (450 000)
Cost (900 000)
Acc depreciation (360 000 + 90 000) 450 000
Carrying amount at 29 February 2016 1 211 931
Cost 1 283 221
Accumulated depreciation (71 290)
3. Lease liability
VS Con Ltd entered into a lease agreement on 31 August 2015 machinery. The lease term is 5 years.
The instalments are R65 000 payable biannually in arrears, commencing 29 February 2016. The
effective interest rate per annum is 12,5%. VS Con Ltd paid R10 000 legal fees to enter into the lease
agreement. Ownership of the delivery vehicle will transfer to the company Ltd at the end of the lease
term on payment of the guaranteed residual value of R50 000.
PACK 2023
UPDATED REVISION
PACK
, Stuvia.com - The study-notes marketplace
1
FAC3703 MayJun 2017
Paper 1
Suggested solution
Question 1
a) Calculate employee benefits
W1.
Salary: (275 000 x 9 months [Apr – Dec]) 2 475 000
(275 000 x 3 months [Jan – Mar] x 100/110) 750 000
Bonus paid: 275 000
Bonus obligation OB: (275 000 x 1/12) (22 917)
Bonus obligation CB: (275 000 x 1,1 x 1/12) 25 208
Leave obligation OB: (52 145)
Leave obligation CB: (24 – 6 – 8) = 10 days x 60% = 6 days 62 857
.’. 6 days x 275 000x 12x 80%
252 days
Shortterm employee benefits 3 513 003
W2. (2 475 000 + 750 000) (W1) x 7,5% = 241 875
W3. Termination benefit = 123 000
W4. Government grant relating to salaries = 45 000 x 9/36 = 11 250
.’. Employee benefits to be disclosed in profit before tax note:
(3 513 003 (W1) + 241 875 (W2) + 123 000 (W3) – 11 250 (W4) = 3 866 628
* Illustrative PBT note:
2. Profit before tax
Profit before tax includes:
Expenses
Employee benefits 3 866 628
Shortterm employee benefits (3 513 003 (W1) – 11 250 (W4)) 3 501 753
Defined contribution plan expense (W2) 241 875
Termination benefits 123 000
b) Discussion of related party
Ms Smith owns 25% of WWT and therefore has significant influence over WWT.
Mr Lampard owns 80% of Rubber Ltd and therefore has control over Rubber Ltd.
Ms Smith the fiancée of Mr Lampard. It could be argued that they are close family even
though this type of relationship is not specifically addressed by IAS 24.
Assuming that Ms Smith and Mr Lampard are close family, Rubber Ltd and WWT are
related parties owing to Ms Smith’s significant influence over WWT and Mr Lampard’s
control over Rubber Ltd.
FAC3703 MayJun 2017 (Paper 1) suggested solution
, 2
c) i) Discussion re recognition of government grant
A government grant is initially recognised when the amount is received or receivable – which
was received on 1 April 2016, and when it is reasonably assured that the conditions attached
will be met, i.e., that the entity will not retrench any staff under 35 years of age.
The subsequent recognition of a government grant depends on the type of grant and the
accounting policy of the entity. This government grant is an incomebased grant as it relates
to a youth wage subsidy. In addition, it relates to future employment payments of youth
employed by the entity.
The government grant is initially recognised as a liability in the statement of financial position,
and then recognised as a deduction against the related expense, i.e., employee benefits, over
the period of the condition attached, i.e., 3 years.
ii) Calculation balance of government grant in statement of financial position
Government grant received recognised as deferred income liability 45 000
Amount realise in profit or loss as deduction against employee benefits (11 250)
(45 000 x 9/36) 33 750
d) Calculation of movement in deferred tax
CA TB TD DT@ 28%
Leave pay obligation 52 154 52 154 14 603 A
Bonus obligation 22 917 22 917 6 417 A
Deferred tax asset at 31 December 2016 21 020 A
CA TB TD DT@ 28%
Leave pay obligation 62 857 52 154 14 603 A
Bonus obligation 25 208 22 917 6 417 A
Government grant def inc liability 33 750 33 750 9 450 A
Deferred tax asset at 31 December 2016 34 108 A
.’. Movement in deferred tax balance = 34 108 A – 21 020 A
= 18 088
Deferred tax (SFP) 18 088
Income tax expense: deferred tax (PL) 18 088
e) 1 – c
2 – b (62 857 (W1) x 40/60)
3–a
4–b
5–b
6 – ? (In our opinion there is no correct answer as the government grant to be realised in
2017 would be (40 500 x 12/36) less any change in estimate relating to the repayment
of R4 500. The amount recognised in 2016 of 11 250 (c)(ii) versus what should have
been recognised on the government grant of R40 500 x 9/36 = 10 125, is 1 125.
The total grant to be recognised in PL for 2017 is therefore 12 375 (13 500 – 1 125). It
appears as if UNISA meant for option d to be selected.)
, 3
Question 2
a) Disclosure of notes in financial statements
VS Con Ltd
Notes to the financial statements for the year ended 29 February 2016
2016
2. Profit before tax
Profit before tax includes:
Income
Profit on disposal of machinery (500 000 – 450 000 (note 3)) 50 000
Finance income 127 437
Funds invested (7 900 (shares) + 2 041 (loan)) 9 941
Capitalised (2 041)
Expenses
Finance costs 33 400
Total (37 400 + 31 262 (W1)(J3)) 68 662
Capitalised (W2) (35 262)
Depreciation (51 000 (W1)(J5) + (90 000 + 71 290 (note 3)) 212 290
3. Property, plant and equipment
Machinery Flowline
Carrying amount at 1 March 2015 540 000
Cost 900 000
Acc depreciation (900 000 x 24/60) (360 000)
Additions 1 283 221
Cost 1 250 000
Borrowing costs (35 262 (W2) – 2 041 (W2)) 33 221
Depreciation (900 000 x 6/24); (1 283 221 x 2/36) (90 000) (71 290)
Disposal (450 000)
Cost (900 000)
Acc depreciation (360 000 + 90 000) 450 000
Carrying amount at 29 February 2016 1 211 931
Cost 1 283 221
Accumulated depreciation (71 290)
3. Lease liability
VS Con Ltd entered into a lease agreement on 31 August 2015 machinery. The lease term is 5 years.
The instalments are R65 000 payable biannually in arrears, commencing 29 February 2016. The
effective interest rate per annum is 12,5%. VS Con Ltd paid R10 000 legal fees to enter into the lease
agreement. Ownership of the delivery vehicle will transfer to the company Ltd at the end of the lease
term on payment of the guaranteed residual value of R50 000.
