CACN011 - Financial Accounting in South Africa Assignment - University of Limpopo

Assignment Task

Questions

1. Which of the following statements are correct?

• A business entity is an organisation that uses economic resources for the primary goal of maximising profit.
• A company is formed as a separate legal entity apart from its owners and is therefore known as an unincorporated entity.
• Considering a private company, shareholders and management are normally the same group of persons.

2. An entrepreneur forming a new business entity in South Africa can choose from four forms of business ownership; a sole proprietorship, a partnership, a company, or a close corporation

• A business entity organised as a sole proprietorship is:
• Owned partly by the owner and partly by lenders.
• A separate accounting and legal entity.
• A separate legal entity but not a separate accounting entity.
• A separate accounting entity but not a separate legal entity.
• Financed only by the owner and never by lenders.

3. The activities of business entities are of interest to a wide range of users. According to the Conceptual Framework for Financial Reporting, primary users:

• Include investors, lenders, other creditors, and government authorities.
• Are those with a financial but not an ownership interest in the business entity.
• Refer to the management of the business entity.
• Are those without any direct financial interests in the business entity.
• Are an entity’s potential and existing investors, lenders, and other creditors.

4. Which of the following statements is correct?

• Investors are the owners of a business entity.
• Investors and the business entity are the same accounting entity.
• Financial information relating to a business entity is produced from the perspective of the business entity.
• Management prepares information for the primary users.

5. Which of the following statements are correct?

• Users of financial statements are assumed to have a reasonable knowledge of business, economic activities, and accounting and a willingness to study the information with reasonable diligence.
• Information has the quality of relevance when it is capable of making a difference in to the decisions of users.
• Information has the quality of faithful representation when it is complete, neutral and free from error.
• Users must be able he compare the financial statements of an entities over time to identify trends in its financial position and performance.

6. According to the conceptual framework, which of the following statements best describes the objective of general-purpose financial reporting?

• To prepare the statement of comprehensive income and statement of financial position for a specific period.
• To record transactions into a book of original entry referred to as a journal, from there transfer the details into a list of accounts called a ledger, and then summarise the ledger balances by preparing a trial balance.
• To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
• To measure the business entity’s performance by subtracting cash outflows from cash inflows to arrive at a net cash flow for the period.
• To select data, a process that data and produce information about a business entity.

7. Which of the following statements are correct?

• Primary users are those with an ownership interest in the business entity, including lenders and employees.
• Equity investors are those users with a financial but not an ownership interest in the business entity.
• Primary users exclude government authorities.
• Equity investors are those users with an ownership interest in the business entity.
• Management’s primary relationship with the entity is that of a capital provider.

8. Which of the following statements are correct in terms of the Conceptual Framework?

• The two fundamental qualitative characteristics are relevance and faithful representation.
• Timeliness and cost/benefit are constraints that need to be satisfied in order to achieve faithful representation.
• For information to be capable of making a difference to the decisions of users it must have confirmatory value or predictive value or both.
• Enhancing qualitative characteristics include comparability, timeliness, understandability, and verifiability.
• Information faithfully represents economic transactions when it is free from material error, neutral and complete.

8. Dr Vee Tee MBChB is a doctor who practices in Mankweng. Information [extracted from accounting records] relating to medical supplies for the three months to 28 February 2023 is provided below

The medical supplies used during the three months to February 2023 amount to:

• R23 700
• R27 000
• R 3 300
• R20 800
• R24 300

9. Benito Company began the year with an equity of R630 000. During the 2019 financial year, the company recorded revenues of R900 000, expenses of R684 000, and paid dividends of R72 000. What was Benito’s equity at the end of the year?

• R 918 000.
• R 774 000.
• R1 458 000.
• R 846 000.

10. Marilu(Pty) Limited began the year with an equity of R225 000. During the year, Marilu issued additional ordinary shares in exchange for cash of R315 000, recorded expenses of R900 000, and paid dividends of R60 000. If Marilu’s ending equity was R690,000, what was the company’s revenue for the year?

• R1 050 000.
• R1 110 000.
• R1 365 000.
• R1 425 000.

11. Thomas Kutai and Petti Sibanoni worked to promote and register Tom Petti Enterprises (Pty) Limited to start clearing and forwarding services of solar panels in the Southern African regions. The company’s financial year end is 31 December. Transactions for Tom Petti Enterprises (Pty) Limited for January 2023 are presented below. January:

• Issued ordinary shares in exchange for R500 000 cash. The cash was paid into the company bank account.
• Purchased land costing R280 000 in cash. The land is a future site for the construction of warehouses.
• Purchased equipment costing R200 000 for R30 000 cash and the remainder on the account. The seller agreed to have the remainder of the purchase price settled at the end of April 2023. The equipment is depreciable from the date it becomes available for use by the company
• Purchased office supplies on account for R8 000.
• Paid R10 000 for a one-year insurance policy to protect the business against theft and fire.
• Received R30 000 cash for clearing and fording services performed for an importer of solar panels to Bulawayo.
• Billed R40 000 for cargo clearing and forwarding services for solar panels imported to Eswatini.
• Received R15 000 in respect of services previously performed on the account
• Paid salaries to employees for R25 000.
• Declared and paid dividends of R10 000.

12. Sami Daudi is an engineering graduate whose final year research project examined the recycling of disposable coffee cups. He started a new business entity on 1 November 2022 called Furaha Tena (Pty) Limited and decided to have a financial year end to be 28 February March of each year

The summarised transactions of Furaha Tena (Pty) Limited for the month of November 2022 are as follows:

• Sam deposited R100 000 cash in a bank account in the name of his new business entity, Furaha Tena (Pty) Limited.
• Paid R1 500 for three months’ rent, from 1 November to 31 January (see also transaction XI)
• Purchased second-hand recycling equipment costing R150 000. Paid R20 000 in cash with the balance to be paid within three months with interest calculated at 12 per cent per annum. The equipment is expected to have a useful life of ten years, after which it will be worthless (see also transaction X).
• Bought used coffee cups from a national coffee shop chain for R5 000 in cash to use for recycling.
• Recycled the used coffee cups and sold them for R40 000 on credit to schools in the business neighbourhood.
• Paid salaries of R6 000.
• Paid R4 000 for various administrative expenses.
• Distributed R5 000 to Sami for his use.
• Unrecycled coffee cups on hand at the end of November 2022 had a cost of R1 000.
• Recognised the equipment usage (depreciation) for the reporting period ended 30 November 2022.
• Recognise the rent usage for the reporting period ended 30 November 2022.
• Accrued interest on the note payable for 30 days.

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