Question 1 60 marks (90 minutes)

Please note that this question consists of two independent parts which should
please be answered in the same answer book

Part A 15 marks (22,5 minutes)

You are employed as a junior accountant at ClickAndPay Limited (“CAP”). CAP is a

leading e-commerce retailer in South Africa. Customers can order goods online through
CAP’s website or on the mobile application after which it is delivered directly to the
doorstep of the customer at a click of a button. CAP has a wide variety of products to
choose from with over 20 different departments including electronics, media, gaming,
fashion and books to name a few. Sales are made for cash or on credit. Credit is only
granted to customers after their credit application has been successful.

Amongst your duties include assisting in the creditors and debtors department depending
on the work allocation. CAP has a 30 September 2020 financial year end and accounts
for inventory on the perpetual system.

CAP received a statement from one of its electronics suppliers, Pear Limited (“Pear”),
dated as 30 September 2020. The statement indicated a debit balance of R218 450. As
per CAP’s accounting records an amount of R80 150 is payable to Pear. You noticed the
following discrepancies when you compared the statement to the accounting records of
CAP:

1. Invoice 3288 of R45 000 dated 15 September 2020 was omitted from the statement.
2. Invoice 3560 with an amount payable of R16 800 (reflecting the discounted price)
relates to goods bought during a special discount offer of 30% by Pear for spring
day. This was captured at the normal purchase prices in CAP’s accounting records.
These goods were still on hand on 30 September 2020.
3. Credit note 503 (dated as 18 September 2020) of R12 500 was debited on the
statement
4. Invoice 3788 (dated as 21 September 2020) for R20 100 was duplicated on the
statement.
5. An electronic fund transfer (EFT1418992) of R80 000 was made by CAP on
29 September 2020 which was not yet reflected on the statement.
6. The statement reflects invoice no. 3840 for R65 400 for which the invoice was only
received by CAP on 5 October 2020. The date on the corresponding goods received
note indicated as date of delivery is 30 September 2020.

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Coronavirus disease

During March 2020 the Coronavirus disease (also known as COVID – 19) started
spreading in South Africa. As a preventative measure the government locked-down the
country for 35 days from the 27 March until 30 April 2020. Most companies and
businesses (including CAP) were not be allowed to trade during this lock-down period as
only essential services were allowed to continue operating such as grocery stores and
pharmacies. Before the lock-down was implemented, CAP had a cash surplus balance.

You may IGNORE Value Added Tax (“VAT”).

You are required to:

1. Prepare the journal entries to correct the balance payable to Pear in CAP’s
accounting records as at 30 September 2020. Journal narrations are required.
(6 marks)

2. Prepare the remittance advice for Pear at 30 September 2020. (6 marks)

3. Discuss what possible accounting implications the lock-down period would have
had on CAP’s cash, accounts receivable and inventory balances on 31 March
2020. (3 marks)

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Part B 45 marks (67,5 minutes)

Blockland (Pty) Ltd (“Blockland”) is a national retailer and manufacturer of modern

handcrafted furniture and has retail stores across South Africa. You are employed in the
accounting department of Blockland and have been tasked with assisting with the
preparation of the statement of cash flows for the current financial year end of 30
September 2020. The following information is an extract from Blockland’s accounting
system (some of the closing entries has already been processed):

BLOCKLAND (PTY) LTD – TRIAL BALANCE AT 30 SEPTEMBER 2020

2020 2019
Notes Dr/(Cr) Dr/(Cr)
Land – cost 1 1 200 000 1 000 000
Buildings – cost 1 1 800 000 1 000 000
Delivery vehicles – cost 2 675 000 900 000
Buildings – accumulated depreciation 1 (216 000) (160 000)
Delivery vehicles – accumulated depreciation 2 (337 500) (300 000)
Trade and other receivables 3, 4 420 500 397 000
Cash 585 250 285 000
Inventory 5 390 000 350 000
Share capital 8 (1 850 000) (1 585 000)
Retained earnings (beginning of year) (1 217 000) (403 750)
Dividends declared 9 170 000 -
Trade and other payables 6 (431 000) (480 000)
Current tax payable (53 250) (40 000)
Dividend payable 9 (200 000) (150 000)
Sales 4 (4 172 750) (3 362 000)
Cost of sales 5 2 580 000 2 140 000
Operating expenses 7 593 750 333 750
Income tax expense 63 000 75 000
- -

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Notes
Through inspection of the journal entries and underlying accounting records you
determined the following:

1. Buildings are depreciated on the straight-line basis over 25 years. There were no
disposals of land or buildings during the year. There were additions during the
year paid in cash.
2. Delivery vehicles are depreciated on the straight-line basis over 6 years and
consists of 4 vehicles of a similar cost that were all bought on 1 October 2017. No
vehicles were purchased during the year. One of the delivery vehicles were sold
on 31 March 2020 for cash. A loss of R23 750 occurred with the disposal of the
delivery vehicle which is included in operating expenses.
3. Blockland paid R8 400 in total for fibre internet services for six months in advance
on 1 August 2020. This is included in the trade and other receivables closing
balance.
4. Blockland allows customers to purchase goods on credit after the necessary credit
worthiness checks have been performed. Approximately 40% of the sales during
the year was on credit. The allowance for credit losses increased from R35 700
to R58 500 during the year (these balances have been closed off to trade and
other receivables).
5. Blockland uses a perpetual system to account for inventory. Of the inventory
purchased during the year, 90% thereof was purchased on credit.
6. Included in trade and other payables are the following items:
• An accrual for electricity owed by Blockland. The last payment for electricity
was made in June 2020. Blockland’s electricity bill usually amounts to R36 000
annually.
7. All the relevant expenses have been closed off to operating expenses. Operating
expenses are settled in cash.
8. Blockland issued shares to existing shareholders during the year in order to raise
additional cash resources.
9. A total dividend of R170 000 was declared at the end of the 2020 financial year.

You may IGNORE Value Added Tax (“VAT”).

You are required to:

1. Prepare the statement of cash flows for Blockland (Pty) Ltd for the year ended
30 September 2020 using the direct method. (45 marks)
• Comparative figures are not required.
• Show all workings clearly.

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Question 2 60 marks (90 minutes)

Please note that this question consists of two independent parts which should
please be answered in the same answer book

Part A 20 marks (30 minutes)

You are the assistant accountant at Joy Candy (Pty) Ltd (“JC”). JC has a 30 June
financial year end. JC has been in the candy production and selling industry for two
decades and is seen as one of the top brands in the market. JC only sells to wholesalers
and not to the general public as this stage. JC is a registered VAT vendor. The applicable
VAT rate is 15%.

JC has been struggling to produce enough candy to supply the required demand of
orders received from wholesalers. This has prompted management to come to the
conclusion that an investment in an additional mixing machine is required. Mixing
machines are used to mix all the ingredients together before the candy is set in moulds.

Mixing machines

JC already had two mixing machines that were purchased on 1 July 2017 at a total cost
of R3 500 000. Both these machines had a nil residual value. A new mixing machine
was purchased on credit from a local VAT registered manufacturer during the current
year. The invoice amounted to R2 185 000 (VAT inclusive). The mixing machine was
delivered to the production plant on 31 January 2020. Delivery fees amounted to R50 000
(VAT exclusive). The delivery service was provided by a non-VAT vendor. Health
regulations require the machine to be inspected before production can commence.
Inspection was performed on 1 Feb 2020 and amounted to R115 000 (VAT inclusive).
The residual value on the new machine is also nil. JC has a 5-year straight-line
depreciation policy on machinery.

X-BOMB inventory

Inventory for JC comprises of the different ingredients (raw materials) that need to be
mixed to produce finished candy as well as the candy that has been produced. The
finished candy is sold to the wholesalers. One of the candies that JC sells is called X-
BOMB. The following transactions occurred regarding X-BOMB in the current financial
year:

• Sales invoices to wholesalers reflected that 12 000 packets of X-BOMB were sold.
All sales are made on credit.
• Credit notes to wholesalers revealed that 800 packets of X-BOMB were returned.
• Purchase invoices from an external supplier amounted to R500 000. Of these
purchases 40% was paid for in cash at the transaction date.

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 • X-BOMB has a cost of R22 per packet. A constant mark-up of 25% is applied to
arrive at the selling price per packet.

You are required to:

1. Prepare the journal entry to account for the cost price of the new mixing machine
in JC’s accounting records as at 30 June 2020. Journal narrations are required.
(5 marks)

2. Prepare the journal entry to account for the depreciation for ALL the machinery in
JC’s accounting records for the year ended 30 June 2020. Round your answer to
2 decimal places. Journal narrations are required. (5 marks)

3. Prepare the journal entries to account for the X-BOMB inventory transactions in
JC’s accounting records for the year ended 30 June 2020. Journal narrations are
required. You may IGNORE Value Added Tax (“VAT”) for this part of the required.
(10 marks)

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Part B 40 marks (60 minutes)

TechSavvy Limited ("TechSavvy") is a television retail chain operating in South Africa.

All of the televisions (inventory) are imported from China. TechSavvy has a strategy to
focus on selling only one model of television at a given time to take advantage of quantity
discounts on import purchases. Model DX5000 was sold during the current financial year.
TechSavvy has been operational for 20 years and has a 30 September financial year
end.

The following is an extract from the pre-adjustment trial balance as at 30 September

2020:
Notes Debit Credit
Share capital 1 3 200 000
Retained earnings (beginning of year) 1 150 000
Inventory (beginning of year) 2 518 000
Furniture and fittings – cost 3 350 000
Trade and other receivables 1 650 000
Trade and other payables 420 000
Bank (correct figure as at 30 September 3 918 500
2020)
9% Debentures 4 850 000
Loan from ABC Limited 5 37 000
Purchases 6 8 460 000
Office rent 7 650 000
Salaries 750 000
Administrative expenses 68 000
Electricity expense 120 000

Additional notes and information that must be taken into account before the preparation
of the financial statements are presented below. None of the transactions below are
included in the extract Trial Balance above, except if otherwise indicated.

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Notes
1. TechSavvy has an authorised share capital of 400 000 ordinary shares. All
ordinary shares in issue at 1 October 2019 were issued for R20 per share. On 1
June 2020, TechSavvy offered 25 000 ordinary shares to the public for 1 800
cents per share. All shares were purchased by the public. A commission of 1%
was paid to the underwriters with regards to the newly issued shares. Share issue
costs of R27 000 were incurred on the transaction. None of the transactions have
been recorded with regards to the share issue in the general ledger. All amounts
have been received into and paid out of the bank account of TechSavvy and have
been correctly reflected in the bank balance at year end.
2. There were 108 DX5000 televisions in stock at 30 September 2020. The cost of
these televisions amounted to R7 200 each. In mid-September 2020, an
improved television called the DX6000 was released in the market. The net
realisable value of DX5000 became lower than its cost by R300 per unit as a result
of this.
3. New furniture was purchased on 1 May 2020 for R140 500 from a creditor. The
purchase has not been recorded. The cost of furniture and fittings in the extract
above is before the additional furniture was purchased in the current year. All
furniture and fittings, before the additional purchases in the current year, was
purchased 1 October 2017. Furniture and fittings are depreciated on a straight-
line basis over a useful life of 5 years to a nil residual value. No entries were
recorded with regards to the depreciation for any of the furniture and fittings in
TechSavvy's general ledger.
4. All debentures per the trial balance were allotted on 1 May 2018. There are 68
debentures with a par value of R12 500 each. No interest was accounted for
during this year and was still outstanding as at 30 September 2020. The
debentures are redeemable at par on 30 April 2023.
5. The loan from ABC Limited is interest free and payable on 31 January 2022.
6. DX5000 Televisions are sold at R9 000 per unit. 1141 units were sold in the
current financial year. TechSavvy purchased R8 460 000 worth of DX5000
televisions during the year. These transactions have been correctly recorded in
the trial balance.
7. Office rent amounting to R50,000 for the month of October 2020 was paid in
September 2020. This was included in office rent expense in the trial balance.
8. Directors' fees: TechSavvy has three directors. They all attend four board
meetings each year per the Companies Act’s requirements. The rates per meeting
per director are as follows:
Mr. Abe - R4 000
Ms. Ntuli - R3 500
Ms. Padia - R3 500
None of the directors' fees have been accounted for in the pre-adjustment trial
balance. Directors' fees for the entire year are always paid after year end.

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 9. An ordinary dividend per share of 180 cents per share was declared on 30
September 2020 to be paid on 10 October 2020. 50% of the Ordinary
shareholders are subject to 20% dividend tax as these shareholders are
individuals, the other 50% are companies and therefore exempt from dividend tax.
10. Company income tax is calculated at a rate of 28%.

You are required to:

1. Prepare the Statement of Comprehensive Income of TechSavvy Limited for the

year ended 30 September 2020. (19 marks)
2. Prepare the Statement of Changes in Equity of TechSavvy Limited for the year
ended 30 September 2020. (8 marks)
3. Prepare the Statement of Financial Position of TechSavvy Limited as at 30
September 2020. (13 marks)

• Comparative figures are not required.

• Show all workings clearly.
• Round answers to the nearest Rand.
• Ignore Value Added Tax (“VAT”).

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