FAC2602 EXAM PACK 2023 LATEST QUESTIONS WITH ANSWERS

FAC2602 EXAM PACK 2023 LATEST QUESTIONS WITH ANSWERS. QUESTION 1 (16 marks) (19 minutes) Valee Ltd is a manufacturer of luxury gift bags. Rancho Ltd is a retailer in the same industry. Valee Ltd decided to acquire shares in Rancho Ltd on 1 October 2019 as part of its growth and expansion strategy. The following items were extracted from the trial balances of Valee Ltd and Rancho Ltd on 30 September 2022: Credits Share capital - Ordinary shares (600 000 and 300 000 shares respectively) Valee Ltd R 600 000 Rancho Ltd R 300 000 - 12% Cumulative preference shares (50 000 shares) ................ - 100 000 Retained earnings – 01 October 2021 ....................................... Profit before tax ......................................................................... Accumulated depreciation .......................................................... 450 000 ? Long-term loan – Valee Ltd ........................................................ - 180 000 Bank overdraft ........................................................................... 300 000 - Debits Land and buildings ..................................................................... 000 Plant and machinery .................................................................. Investment in Rancho Ltd (fair value equal to cost price) ........... - 240 000 Ordinary shares ......................................................... 350 000 - - 20 000 12% Cumulative preference shares ............................. 50 000 - Long-term loan – Rancho Ltd ..................................................... 180 000 - Dividends paid ........................................................................... - ? Additional information 1. On the date of acquisition, the carrying amount of Rancho Ltd’s assets and liabilities were deemed to be equal to the fair value thereof. The retained earnings of Rancho Ltd at acquisition date amounted to R80 000. No preference dividends were in arrears at the date of acquisition. The share capital of both companies remained unchanged since incorporation. Assume each ordinary share carries one vote and that voting rights alone determine control. The group classifies the cumulative preference shares as equity. The group discloses goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired during the current year. 2. Rancho Ltd obtained a loan from Valee Ltd on 1 November 2021. The loan is repayable in 3-years and incurs interest at a rate of 10.5% per annum, payable in arrears. The interest for the current year has been accounted for by both companies. The interest does not qualify for capitalization, and it is expensed in the year in which it was incurred. 3. Rancho Ltd has been focusing on growth and expansion and as such did not pay any preference dividends since acquisition. All outstanding preference dividends, including the current year’s preference dividends, were declared, and paid at the end of the current financial year. No ordinary dividends were declared or paid by either company during the current year. S - The study-notes marketplace 5 FAC2602 Oct/Nov 2022 [TURN OVER] 4. To raise additional cash, Rancho Ltd sold machinery to Valee Ltd on 1 April 2021. The machinery had a carrying amount of R105 000 and was sold for R150 000. Valee Ltd calculates depreciation at 20% per annum on the reducing balance method. REQUIRED: Marks Draft the following pro-forma consolidation journal entries of the Valee Ltd Group for the year ended 30 September 2022, after taking the above-mentioned information into account: (a) Elimination of the intragroup interest on the long-term loan. (b) Elimination of the unrealized profit on the sale of the machinery as well as the current year’s depreciation relating to the machinery. (c) Elimination of the intragroup dividends and recording of the non-controlling interests’ share in the dividends. (3½) (7) (5½) TOTAL MARKS [16] Please note: Journal narrations are not required. Indicate clearly to which company each account refers. Show all calculations and round all amounts to the nearest Rand. Ignore the taxation effect on unrealized profits and/or losses, capital gains tax and dividends tax. S - The study-notes marketplace Downloaded by: slynnami | Distribution of this document is illegal Want to earn R1,135 per month? S - The study-notes marketplace 6 FAC2602 Oct/Nov 2022 [TURN OVER] QUESTION 2 (49 marks) (59 minutes) Kulule Ltd and Bright Airways Ltd are airline companies that operate both locally and internationally. Lockdown regulations had a significant negative impact on the airline and tourism industry. The financial year-end of both companies is on 31 May. Below is an extract from the trial balances of each entity on 31 May 2022: Kulule Ltd R Bright Airways Ltd R Credits Share capital – ordinary shares (150 000 and 200 000 shares respectively) .. Share capital – 8% cumulative preference shares (90 000 shares) ................. - 270 000 Retained earnings – 1 June 2021 ................................................................... Revaluation surplus ........................................................................................ Loan from Bright Airways Ltd .......................................................................... 5 986 700 3 289 540 853 400 4 773 280 2 110 600 - Trade and other payables ............................................................................... 700 Revenue ......................................................................................................... 000 Other income .................................................................................................. 900 49 878 170 31 648 480 Debits Investment in Bright Airways Ltd at fair value: - 120 000 Ordinary shares (cost price: R3 400 000) .............................. - 22 500 8% Cumulative preference shares (cost price: R210 000) ....... 3 400 000 210 000 - - Land and buildings ......................................................................................... 450 Property, plant, and equipment ....................................................................... 360 Inventory ......................................................................................................... 400 Trade and other receivables. .......................................................................... 400 Bank …………………………………………………………………………………. 670 Loan to Kulule Ltd ........................................................................................... - 853 400 Ordinary dividends declared and paid ............................................................. Preference dividends declared and paid ......................................................... - 43 200 Cost of sales ................................................................................................... 000 Other expenses .............................................................................................. 900 Income tax expense........................................................................................ 700 49 878 170 31 648 480 Additional information 1. Bright Airways Ltd experienced financial distress due to the pandemic. Kulule Ltd decided to acquire its interest in Bright Airways Ltd, hoping to improve its own financial situation as well, on 01 January 2020. At that date, the net assets of Bright Airways Ltd comprised of the following balances: share capital amounting to R800 000, preference share capital to the value of R270 000, retained earnings amounting to R 1 040 000 and revaluation surplus to the value of R 1 320 300. No preference dividends were in arrears at acquisition. Bright Airways Ltd classified the cumulative preference share capital as equity. S - The study-notes marketplace Downloaded by: slynnami | Distribution of this document is illegal Want to earn R1,135 per month? S - The study-notes marketplace 7 FAC2602 Oct/Nov 2022 [TURN OVER] QUESTION 2 (continued) 2. It is group policy to show goodwill at cost less impairment, and goodwill was not impaired during the current financial year. The issued share capital of both companies remained unchanged since incorporation. Assume that each ordinary share carries one vote and voting rights alone determine control. 3. At the date of acquisition, all assets, and liabilities of Bright Airways Ltd were measured at fair value, except for one asset - a runway used for emergency landings at OR Tambo International Airport. This land, with a carrying amount of R1 900 000, had a fair value of R2 140 000 at the acquisition date. Bright Airways Ltd’s accountant was so busy with the group accounting, that he only accounted for the revaluation in March 2021. On 1 June 2021, the revaluation surplus of Bright Airways Ltd amounted to R1 743 000. Kulule Ltd had no fluctuations in revaluation surplus in the 2022 financial year. 4. The interest on the intragroup loan is 5% per annum, payable annually in arrears. Interest has been accounted for by both companies. Capital repayments of R30 000 are made on 30 November each year. The interest does not qualify for capitalization and is expensed in the year it was incurred. 5. Bright Airways Ltd sold one of its aeroplanes to Kulule Ltd on 1 February 2021. The aeroplane was initially purchased by Bright Airways Ltd for R5 500 000 and at the date of sale, the accumulated depreciation amounted to R3 900 000. The aeroplane was sold to Kulule Ltd for R1 750 000. The group depreciates aeroplanes at 20% per annum on the reducing balance method. 6. Kulule Ltd has a kitchen for preparing in flight snacks and beverages. Since acquisition, Bright Airways Ltd purchases this inventory from Kulule Ltd at a consistent markup of cost plus 25%. Current year purchases from Kulule Ltd amounts to R1 620 000 and includes sandwiches, pastries and cooldrinks. At year end, 30% of Bright Airways Ltd’s inventory balance related to purchases from Kulule Ltd. On 31 May 2021, Bright Airways Ltd had inventory to the value of R1 100 000 on hand that was purchased from Kulule Ltd. 7. Preference dividends since 1 June 2020 were declared and paid on 31 May 2022. 8. Assume that the profit after tax for Bright Airways Ltd amounts to R6 776 300 for 2022. S - The study-notes marketplace Downloaded by: slynnami | Distribution of this document is illegal Want to earn R1,135 per month? S - The study-notes marketplace 8 FAC2602 Oct/Nov 2022 [TURN OVER] REQUIRED: Marks Prepare the following for the Kulule Ltd Group for the year ended 31 May 2022: (a) Consolidated statement of profit or loss and other comprehensive income. 29 (b) The retained earnings, revaluation surplus and non-controlling interests’ columns in the consolidated statement of changes in equity. 20 TOTAL MARKS [49] Please note: Your answer must comply with the requirements of International Financial Reporting Standards (IFRS). Notes to the consolidated statements and comparative figures are not required. Show all calculations and round off all amounts to the nearest Rand. Ignore the taxation effect on all unrealised profit and/or losses, capital gains tax and dividends tax. S - The study-notes marketplace Downloaded by: slynnami | Distribution of this document is illegal Want to earn R1,135 per month? S - The study-notes marketplace 9 FAC2602 Oct/Nov 2022 [TURN OVER] QUESTION 3 (31 marks) (37 minutes) The following information appears in the accounting records of MCUP Ltd for the financial year ended 30 September 2022: MCUP LTD STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER