FEEDBACK ON PREVIOUS EXAMINATION PAPERS
f f f f
OCTOBER / NOVEMBER 2011
f f f
SOLUTIONf1:fACCOUNTINGfPOLICIES,fHANGERSfINfACCOUNTINGfESTIMATESfANDfERR
ORS,fIASf10f(AC107)f–fEVENTSfAFTERfTHEfREPORTINGfPERIODf1AS12f(AC102)f–
f INCOMEfTAXESfANDfIASf18f(AC111)fREVENUE
Questionf1.1.
CalculationfoffcorrectedfprofitfbeforefTaxfoffrainbowfLimitedfforfthefyearfendedf28fFebruaryf2011
R
Provisionalfprofit 690f000
Cashfonfdeliveryfsalesf–freversed (40f000)
Creditflossf[f10f000f–f0.10) (9000)
Changefinfaccountingfestimatef(300f000f/f2f–f500f000f/f5) (50f000)
Interestf–ftax (4000)
Realtiesf–ftaxf2010 (6000)
Correctedfprofit 581000
Questionf2
CalculationfoffcurrentfTaxfRainbowfLimitedfforfyearfendedf28fFebruaryf2011
R
Profitfbeforeftaxf(seef91)fabove) 581f000
Exemptfdifferences (52f000)
Interestfonftax 4f000
Penaltiesfonftax 6000
Dividendsfreceived (60f000)
Capitalfprofitfonfsalefoffmachinef(24f000f–f20f000)fxf(100f–f50%) (2000)
TemporaryfDifferences 87f000
Cashfonfdeliveryfsales 40f000
Profitfonfsalefoffmachinef(20f000f–f12f000) (8f000)
Recoupmentfonfsalefoffmachinef(20f000f–f10f000) 10f000
,Depreciationf (300f000f÷f2f) 150f000
Taxfallowancef(500f000f÷f 4) (125f000)
Royaltiesfreceivedfinfadvance 20f000
Taxablefincome 616f000
Currentftaxf(616f000fxf28%) 172f480
Questionf3
CalculationfoffdeferredfTaxfBalancefinfthefStatementfoffFinancialfpositionfoffRainbowfLimitedfasfatf2
8fFebruaryf2011
Carrying TaxfBase TemporaryfDif DeferredfTax
amount
f ference Assetf/fLiability)fat
f 28f%
R R R R
Cashfonfdeliveryfsales 40f000 - 40f000 11200
Royaltiesfreceivedfinfadvance 20f000 - 20f000 5600
(ii)
machinery 150f000f(i) 125f000f 25f000 (7000)
Deferredftaxfasset 9800
MachineryfcarryingfAmount
R
Carryingfamountf :fbeginningf offyear 300f000
Depreciationf (300f000f÷f 2) (150f000)
Carryingfamountf:fendfoffyear 150f000
NB:fThefassetfisfdepreciatedfoverfthefrevisedfusefulflife.
,(ii) Machinery:fTaxfBase
R
Taxfbasef:fbeginningfoffyear 250f000
Taxfallowancef(500f000f÷f 4) (125f000)
Taxfbasef-f endfoffyear 150f000
Questionf4
TaxfRatefReconciliation R
Standardftaxf(581f000f(1)f28%) 162680
ExemptfDifferences
Interestfonftaxf(4000fxf28%) 1120
Penaltiesfonftaxf(6f000fxf28%) 1680
Dividendsfreceivedf(60f000fxf28%) (16800)
Capitalfprofitfonfsalefoffmachineryf(20f000fxf28%) (560)
Adjustmentsftoftaxfratef(15f080fxf1/29) (520)
Overfprovisionf2010f [f 20f000f–f(15f000f–f4000f–f6000)f] (15f000)
132f600
Questionf5fRainbo
wfLimited
NOTESfTOfTHEfFINANCIALfSTATEMENTSfFORfTHEfYEARfENDEDf28fFEBRUARYf2011
Profitf beforef tax 2011 2010
Profitfafterftaxfisfstatedfafterftakingftheffollowingfinto R R
account
Revenuefconsistsfof: 485f000 220f000
Royaltiesfreceived 560f000
Salefoffgoodsf(250f000f+f350f000f–f40f000 90f000
40f000f+f50f000
, Otherfincome
Dividendsfreceived 60f000 20f000
Profitfonfrealizationfoffmachinery 12f000 -
Expenses
Depreciationf (300f000f/f2) 150f000
(500f000f+f20f000)f÷f 5 104f000
Includedfinfdepreciationfforf2011fisfafchangefinfestimatefoffR50f000f(300f000/2f -
f 500f000/5),farisingffromfthefdecisionf tofchangefthefremainingfusefulflifefinfthefcurrentfyearftof onlyf2fy
earsfasfthef machineryfhadf alreadyfbeenfusedftoffullyfcapacity.fThisfchangefwillfresultfinfdecreasefin
f depreciationfinffuturefperiodfoffR50f000.
NOTES
1. CalculationfoffProfitfbeforeftax
Cashfonfdeliveryfsalesfarefrecognizedfwhenfdeliveryfhasfbeenfmadefandfcashfreceived.fThef
R40f000freceivedfonf2fFebruaryf2011ffromfGlowf Limitedfwasfinfrespectf offanforderfoffpaintsf
whichfwasfonlyfdispatchedfonf10fMarchf2011f(afterfyearfendf–
f 28fFebruaryf2011),fasfsuchfthisfshouldfnotfbefpartfoffthefsalesfforfthefcurrentffinancialf year.
ThefunrecoverablefdebtfbyfstonefLimited,fR9000f[R10f000fXf(1Rf–
f R0.90)]fisfanfadjustingfeventfafterfthefreportingfperiod.fThefbankruptcyf offafcustomerfwhichf
occursfafterfreportingfperiodfusuallyfconfirmsf thatfaflossfalreadyfexistedfonfthefreportingfdat
efandfthisf shouldfbefadjustedfaccordinglyfbyfwritingfofffthefunrecoverablefamountfasfafcreditfl
oss.
Thefchangefinfaccountingfestimatefresultsffromfthefchangefinfthefremainingfusefulflife.fThefr
emainingfusefulflifefoff2fyearsfwillfbefusedftofallocatefthefcarryingfamountfatfthefbeginningfofft
hefyearf(R300f000).fThisfwillfresultfinfdepreciationfoffR150f000f(R300f000
÷f5).fTheforiginalfdepreciationfwasfR100f000f(R500f000f÷f5).fThefdifferencefisfthefchangefinf
accountingfestimate.
2. CalculationfoffcurrentfTax
Dividendsfreceivedfandfafportionfoff capitalfgainsfonfprofitsfonfthefsalefoffassetsfwhichf isfnotft
axablefarefexemptf income.
f f f f
OCTOBER / NOVEMBER 2011
f f f
SOLUTIONf1:fACCOUNTINGfPOLICIES,fHANGERSfINfACCOUNTINGfESTIMATESfANDfERR
ORS,fIASf10f(AC107)f–fEVENTSfAFTERfTHEfREPORTINGfPERIODf1AS12f(AC102)f–
f INCOMEfTAXESfANDfIASf18f(AC111)fREVENUE
Questionf1.1.
CalculationfoffcorrectedfprofitfbeforefTaxfoffrainbowfLimitedfforfthefyearfendedf28fFebruaryf2011
R
Provisionalfprofit 690f000
Cashfonfdeliveryfsalesf–freversed (40f000)
Creditflossf[f10f000f–f0.10) (9000)
Changefinfaccountingfestimatef(300f000f/f2f–f500f000f/f5) (50f000)
Interestf–ftax (4000)
Realtiesf–ftaxf2010 (6000)
Correctedfprofit 581000
Questionf2
CalculationfoffcurrentfTaxfRainbowfLimitedfforfyearfendedf28fFebruaryf2011
R
Profitfbeforeftaxf(seef91)fabove) 581f000
Exemptfdifferences (52f000)
Interestfonftax 4f000
Penaltiesfonftax 6000
Dividendsfreceived (60f000)
Capitalfprofitfonfsalefoffmachinef(24f000f–f20f000)fxf(100f–f50%) (2000)
TemporaryfDifferences 87f000
Cashfonfdeliveryfsales 40f000
Profitfonfsalefoffmachinef(20f000f–f12f000) (8f000)
Recoupmentfonfsalefoffmachinef(20f000f–f10f000) 10f000
,Depreciationf (300f000f÷f2f) 150f000
Taxfallowancef(500f000f÷f 4) (125f000)
Royaltiesfreceivedfinfadvance 20f000
Taxablefincome 616f000
Currentftaxf(616f000fxf28%) 172f480
Questionf3
CalculationfoffdeferredfTaxfBalancefinfthefStatementfoffFinancialfpositionfoffRainbowfLimitedfasfatf2
8fFebruaryf2011
Carrying TaxfBase TemporaryfDif DeferredfTax
amount
f ference Assetf/fLiability)fat
f 28f%
R R R R
Cashfonfdeliveryfsales 40f000 - 40f000 11200
Royaltiesfreceivedfinfadvance 20f000 - 20f000 5600
(ii)
machinery 150f000f(i) 125f000f 25f000 (7000)
Deferredftaxfasset 9800
MachineryfcarryingfAmount
R
Carryingfamountf :fbeginningf offyear 300f000
Depreciationf (300f000f÷f 2) (150f000)
Carryingfamountf:fendfoffyear 150f000
NB:fThefassetfisfdepreciatedfoverfthefrevisedfusefulflife.
,(ii) Machinery:fTaxfBase
R
Taxfbasef:fbeginningfoffyear 250f000
Taxfallowancef(500f000f÷f 4) (125f000)
Taxfbasef-f endfoffyear 150f000
Questionf4
TaxfRatefReconciliation R
Standardftaxf(581f000f(1)f28%) 162680
ExemptfDifferences
Interestfonftaxf(4000fxf28%) 1120
Penaltiesfonftaxf(6f000fxf28%) 1680
Dividendsfreceivedf(60f000fxf28%) (16800)
Capitalfprofitfonfsalefoffmachineryf(20f000fxf28%) (560)
Adjustmentsftoftaxfratef(15f080fxf1/29) (520)
Overfprovisionf2010f [f 20f000f–f(15f000f–f4000f–f6000)f] (15f000)
132f600
Questionf5fRainbo
wfLimited
NOTESfTOfTHEfFINANCIALfSTATEMENTSfFORfTHEfYEARfENDEDf28fFEBRUARYf2011
Profitf beforef tax 2011 2010
Profitfafterftaxfisfstatedfafterftakingftheffollowingfinto R R
account
Revenuefconsistsfof: 485f000 220f000
Royaltiesfreceived 560f000
Salefoffgoodsf(250f000f+f350f000f–f40f000 90f000
40f000f+f50f000
, Otherfincome
Dividendsfreceived 60f000 20f000
Profitfonfrealizationfoffmachinery 12f000 -
Expenses
Depreciationf (300f000f/f2) 150f000
(500f000f+f20f000)f÷f 5 104f000
Includedfinfdepreciationfforf2011fisfafchangefinfestimatefoffR50f000f(300f000/2f -
f 500f000/5),farisingffromfthefdecisionf tofchangefthefremainingfusefulflifefinfthefcurrentfyearftof onlyf2fy
earsfasfthef machineryfhadf alreadyfbeenfusedftoffullyfcapacity.fThisfchangefwillfresultfinfdecreasefin
f depreciationfinffuturefperiodfoffR50f000.
NOTES
1. CalculationfoffProfitfbeforeftax
Cashfonfdeliveryfsalesfarefrecognizedfwhenfdeliveryfhasfbeenfmadefandfcashfreceived.fThef
R40f000freceivedfonf2fFebruaryf2011ffromfGlowf Limitedfwasfinfrespectf offanforderfoffpaintsf
whichfwasfonlyfdispatchedfonf10fMarchf2011f(afterfyearfendf–
f 28fFebruaryf2011),fasfsuchfthisfshouldfnotfbefpartfoffthefsalesfforfthefcurrentffinancialf year.
ThefunrecoverablefdebtfbyfstonefLimited,fR9000f[R10f000fXf(1Rf–
f R0.90)]fisfanfadjustingfeventfafterfthefreportingfperiod.fThefbankruptcyf offafcustomerfwhichf
occursfafterfreportingfperiodfusuallyfconfirmsf thatfaflossfalreadyfexistedfonfthefreportingfdat
efandfthisf shouldfbefadjustedfaccordinglyfbyfwritingfofffthefunrecoverablefamountfasfafcreditfl
oss.
Thefchangefinfaccountingfestimatefresultsffromfthefchangefinfthefremainingfusefulflife.fThefr
emainingfusefulflifefoff2fyearsfwillfbefusedftofallocatefthefcarryingfamountfatfthefbeginningfofft
hefyearf(R300f000).fThisfwillfresultfinfdepreciationfoffR150f000f(R300f000
÷f5).fTheforiginalfdepreciationfwasfR100f000f(R500f000f÷f5).fThefdifferencefisfthefchangefinf
accountingfestimate.
2. CalculationfoffcurrentfTax
Dividendsfreceivedfandfafportionfoff capitalfgainsfonfprofitsfonfthefsalefoffassetsfwhichf isfnotft
axablefarefexemptf income.
