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FNA210 - Financial Accounting 2A Assignment - Damelin
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Assignment Task
Questions
1. Presentation & Preparation of Financial Statements IAS1
The following trial balance relates to Deontay at 30 September 2009:
| Revenue (note (i)) | R’000 | R’000 |
| Cost of sales | 380,000 | |
| Distribution costs | 246,800 | |
| Administrative expenses (note (ii)) | 17,400 | |
| Loan interest paid (note (iii)) | 50,500 | |
| Investment income | 1,000 | |
| Profit on sale of investments (note (iv)) | 1,300 | |
| Current tax (note (v)) | 2,200 | |
| Freehold property – at cost 1 October 2000 (note (vi)) | 2,100 | |
| Plant and equipment – at cost (note (vi)) | 63,000 | |
| Brand – at cost 1 October 2005 (note (vi)) | 42,200 | |
| Accumulated depreciation – 1 October 2008 – building | 30,000 | |
| plant and equipment | 8,000 | |
| Accumulated amortisation – 1 October 2008 – brand | 19,700 | |
| Available-for-sale investments (note (iv)) | 9,000 | |
| Inventory at 30 September 2009 | 26,500 | |
| Trade receivables | 38,000 | |
| Bank | 44,500 | |
| Trade payables | 13,400 | |
| Equity shares of 20 cents each | 52,000 | |
| Other reserve (note (iv)) | 5,000 | |
| 5% convertible loan note 2012 (note (iii)) | 36,860 | |
| Retained earnings at 1 October 2008 | 575 400 | 575 400 |
Additional information
(i) Deontay’s revenue includes R16 million for goods sold to Pending on 1 October 2008.The terms of the sale are that Deontay will incur ongoing service and support costs of R1·2 million per annum for three years after the sale. Deontay normally makes a grossprofit of 40% on such servicing and support work. Ignore the time value of money.
(ii) Administrative expenses include an equity dividend of 4·8 cents per share paid duringthe year.
(iii) The 5% convertible loan note was issued for proceeds of R20 million on 1 October 2007.It has an effective interest rate of 8% due to the value of its conversion option.
(iv) During the year Deontay sold an available-for-sale investment for R11 million. At the date of sale it had a carrying amount of R8·8 million and had originally cost R7 million. Deontay has recorded the disposal of the investment. The remaining available-for-sale investments (the R26·5 million in the trial balance) have a fair value of R29 million at 30 September 2009. The other reserve in the trial balance represents the net increase in the value of the available-for-sale investments as at 1 October 2008. Ignore deferred taxon these transactions.
(v) The balance on current tax represents the under/over provision of the tax liability for theyear ended 30 September 2008. The directors have estimated the provision for income tax for the year ended 30 September 2009 at R16·2 million.
(vi) Non-current assets: The freehold property has a land element of R13 million. The building element is being depreciated on a straight-line basis. Plant and equipment is depreciated at 40% per annum using the reducing balance method. Deontay’s brand in the trial balance relates to a product line that received bad publicity during the year which led to falling sales revenues. An impairment review was conducted on 1 April 2009 which concluded that, based on estimated future sales, the brand had a value in use of R12 million and a remaining life of only three years. However, on the same date as the impairment review, Deontay received an offer to purchase the brand for R15 million. Prior to the impairment review, it was being depreciated using the straight-line method over a 10-year life. No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September 2009. Depreciation, amortisation and impairment charges are all charged to cost of sales.
2. Sharon Limited purchased inventory on credit from Lungi Limited at a cost of R1 000 Lungi Limited allows a settlement discount of 5% if payment is made within 30 days. Sharon Limited uses a perpetual inventory system.
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