RESPONSIBLE REPORTING 100 (RRP100)

Learning Opportunity 6 (LO6) – 16 August 2023

adjusted for 2024
(31 marks; 62 minutes)
RRP 100 Team

QUESTION ONE (23.5 MARKS; 47 MINUTES)

BEAT LIMITED (Beat) is a reputable manufacturer of high-quality musical equipment.

Beat is listed on the Johannesburg Stock Exchange (JSE). Beat has a 31 December
financial reporting date and is not a VAT vendor.

The following details relate to the equity balances of Beat as at 31 December 2021:
Details Notes Rands
Class A: ordinary share capital 1&2 5 500 000
Non-cumulative convertible preference share capital 1&2 1 250 000
Retained earnings 3 9 287 500
Total equity 16 337 500

Additional information:

1. The following information relates to Class A: ordinary share capital (points 1.1 to
1.3) and non-cumulative convertible preference shares (points 1.4 to 1.6) for the
2021 financial year:

1.1. The authorised number of Class A: ordinary shares remained unchanged since
incorporation at 23 000 000 shares. Class A: ordinary shares possess voting
rights and are entitled to a variable distribution when declared. On
31 December 2020, the Class A: ordinary share capital balance comprised of
1 000 000 Class A: ordinary shares that were issued at R1.75 per share at
incorporation.

1.2. On 1 February 2021, Beat offered the public 500 000 Class A: ordinary shares.
On that date, a prospectus pertaining to this public offering was published on the
company’s website. The prospectus indicated a share issue price of R7.50 per
share. Subscriptions for this offering were accepted from the day the prospectus
was made available on the company’s website until 28 February 2021. By
1 March 2021, Beat had received a total of R4 000 000 in subscriptions. On
15 March 2021, the 500 000 Class A: ordinary shares were allotted and issued
to the new shareholders. Beat incurred share issue costs amounting to 5% of the
value of the shares issued. It is the accounting policy of Beat to recognise share
issue costs under retained earnings.

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 1.3. On 31 December 2021, Beat declared total Class A: ordinary share dividends of
R750 000.

1.4. At incorporation Beat had 5 000 000 authorised non-cumulative convertible

preference shares. The non-cumulative convertible preference shares receive a
fixed dividend of R0.75 per share. The non-cumulative convertible preference
shares are classified as equity, and, the dividends are apportioned for part of a
year.

1.4.1. On 1 June 2021, Beat concluded its first and only issue of non-cumulative
convertible preference shares since incorporation. The non-cumulative
convertible preference shares were all issued to Treble Limited for R2.50 per
share. Treble Limited funded the purchase of these non-cumulative
convertible preference shares with non-discretionary cash reserves. It is the
accounting policy of Treble Limited to measure all share investments in
accordance with IFRS 9: Financial Instruments. Therefore, Treble Limited
automatically classified this financial asset to be measured at fair value
through profit or loss.

1.5. On 31 December 2021, the non-cumulative convertible preference share

dividends were declared and the dividends were only paid on 7 January 2022.

1.6. Beat’s non-cumulative convertible preference shares are listed on the JSE’s
Alternative Exchange board (AltX board). On 31 December 2021, the non-
cumulative convertible preference shares were trading at R3.15 per share.

2. The following information relates to Class A: ordinary share capital (points 2.1 to
2.3) and non-cumulative convertible preference shares (points 2.2 and 2.4) for the
2022 financial year:

2.1. On 30 April 2022, the shareholders of Beat passed a special resolution

authorising a capitalisation issue. As part of the capitalisation issue, all
shareholders were granted one (1) additional Class A: ordinary share for every
four (4) Class A: ordinary shares they held on 30 April 2022. The special
resolution required the capitalisation issue to take place using the prevailing
market price per share for the Class A: ordinary share on 30 April 2022. On
30 April 2022, the Beat Class A: ordinary shares were trading at R8.40 per share
on the JSE’s main board.

2.2. On 1 May 2022, the shareholders of Beat authorised the conversion of 40% of
the issued non-cumulative convertible preference shares into Class A: ordinary
shares. The conversion basis was six (6) Class A: Ordinary shares for every
one (1) non-cumulative convertible preference share.

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 2.3. On 31 December 2022, Beat declared a dividend of R0.20 per share for all Class
A: ordinary shares in issue on that date. However, this dividend remained unpaid
as at 31 December 2022.

2.4. On 31 December 2022, the non-cumulative convertible preference shares were

trading at R5.15 per share on the JSE’s AltX board.

3. Profit before tax amounted to R2 100 000 for the year ended 31 December 2022.
However, the profit before tax for 2022 was calculated before accounting for any
of the transactions mentioned above. The income tax expense was correctly
calculated to be R400 000 for the year ended 31 December 2022. Furthermore,
the profit for the year (profit after tax) for the year ended 31 December 2021 was
correctly calculated to be R1 600 000.

REQUIRED:

1. Present the statement of changes in equity of Beat Limited for the year ended
31 December 2022, in accordance with International Financial Reporting
Standards (IFRS). (18.0)

NOTE: - Round all final calculated amounts to the nearest Rand.

- The total column is not required.
- All calculations must be shown and cross referenced.
- Comparative amounts are required.
- Ignore dividend tax implications.

(Note: the solution includes a revaluation surplus which is outside the scope of 2024,
but left in solution that you can see another type of equity item)

2. Prepare the general journal entry(ies) of Treble Limited for the year ended
31 December 2021 only. (5.5)

NOTE: - Round all final amounts to the nearest Rand.

- Limit your answer to the 2021 financial year, and only record
the information presented in points 1.4 to 1.6.
- Indicate the component of the financial statements affected
(e.g. P/L (Profit or Loss); OCI (Other Comprehensive Income);
Equity; SFP (Statement of Financial Position)).
- Journal dates and narrations are not required.
- Ignore all tax implications.
- Assume all amounts are material.

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QUESTION TWO (7.5 MARKS; 15 MINUTES)

This question consists of seven (7) unrelated multiple choice questions. Please select
the most correct answer(s).

1. Which framework allows the use of Last-In-First-Out (LIFO) as an inventories

valuation method?

A. United States Generally Accepted Accounting Practices (US GAAP).

B. International Financial Reporting Standards (IFRS).
C. International Financial Reporting Standards for Small and Medium-sized
Entities (IFRS for SMEs).
D. Sustainable Development Goals (SDGs).
E. Generally Recognised Accounting Practice (GRAP).
F. It is not allowed by any framework
(0.5)

2. Which of the following is a qualitative characteristic of information in financial

statements prepared using IFRS for SMEs?

A. Consistency.
B. Materiality.
C. Accuracy.
D. Legal form over economic form.
E. Going concern assumption.
(0.5)

3. IFRS for SMEs allows the use of the revaluation model for which category of
Property, Plant, and Equipment?

A. All property, plant, and equipment for which the fair value can be reliably
determined.
B. Only land and buildings.
C. Only land.
D. Revaluation model is not allowed under IFRS for SMEs.
(0.5)

(Question two continues on the next page)

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4. Which of the following framework(s) require the disclosure of the circumstances
that led to the reversal of an inventories write-down/impairment? (You may select
more than one option).

A. United States Generally Accepted Accounting Practices (US GAAP).

B. International Financial Reporting Standards (IFRS).
C. International Financial Reporting Standards for Small and Medium-sized
Entities (IFRS for SMEs).
D. Sustainable Development Goals (SDGs).
E. Generally Recognised Accounting Practice (GRAP).
F. All of the above frameworks require this disclosure.
(1.5)

5. Which of the following framework(s) do not require the disclosure of accounting

judgements involved in selection of the depreciation method and estimation of
useful life for Property, Plant and Equipment? (You may select more than one
option).

A. United States Generally Accepted Accounting Practices (US GAAP).

B. International Financial Reporting Standards (IFRS).
C. International Financial Reporting Standards for Small and Medium-sized
Entities (IFRS for SMEs).
D. Sustainable Development Goals (SDGs).
E. Generally Recognised Accounting Practice (GRAP).
F. All of the above frameworks do not require this disclosure.
(1.0)

6. ZILLOW LIMITED has 100 000 ordinary shares in issue since incorporation. The
company has a 30 June financial reporting date. On 28 June 2023, Zillow Limited
declared a final ordinary share dividend of R0.25 per share. However, the ordinary
share dividend was only paid on 16 August 2023. From the statements below,
select which statement most accurately describes how the dividends should be
presented in the financial statements.

A. Dividends of R25 000 should be presented in the Statement of Profit or Loss

and Other Comprehensive Income for the year ended 30 June 2023.
B. Dividends of R25 000 should be presented in the Statement of Profit or Loss
and Other Comprehensive Income for the year ended 30 June 2024,
because the dividends were only paid on 16 August 2023. This satisfies the
accrual principle of accounting.
C. Dividends of R25 000 should be presented in the Statement of Profit or Loss
and Other Comprehensive Income in the year that the related income from
the shares issued was recognised. This satisfies the matching principle of
accounting.

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 D. Dividends of R25 000 should not be presented in the Statement of Profit or
Loss and Other Comprehensive Income as dividends is a distribution to the
owners.
(1.0)

7. CRYTOZOO LIMITED has a 31 December financial reporting date. The following

information relates to the inventories balance:

Details R
Inventories balance as at 31 December 2022 875 000
Inventories balance as at 31 December 2021 670 500
Total inventories purchased for the 2022 financial year 5 625 000
Cost price of inventories returned by a customer on 35 000
28 December 2022 (see below).

The following transactions have not been recorded in the financial records of
Crytozoo Limited. Therefore, the followings transactions have not been accounted
for in the inventories balance as at 31 December 2022:

 On 15 December 2022, Crytozoo Limited was informed by its supplier that

Crytozoo Limited will receive a cash bulk rebate of 5%. The cash bulk rebate
will be levied on the total purchases Crytozoo Limited made during the 2022
financial year.

 The returned inventories received on 28 December 2022, were in good

condition and could be resold normally.

Select the cost of sales that will be presented by Crytozoo Limited on their
Statement of Profit or Loss and Other Comprehensive Income for the year-ended
31 December 2022.

A. R5 583 250
B. R5 493 250
C. R5 385 500
D. R5 174 250
E. R5 139 250
F. R5 106 000
G. R5 104 250
H. None of the above options.
(2.5)

[END OF QUESTION PAPER]

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