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CACC021 IAS 21 - Tutorial Question (2025) (1)

Cakebatter Ltd, a South African company, ordered baking equipment from PastryCo Ltd in 2019, with a total invoice of $200,000. Due to cash flow issues, Cakebatter paid $150,000 by January 31, 2020, and settled the remaining balance by April 30, 2020. The document requires journal entries for the transactions and a memorandum explaining the discrepancy between the recorded payable and the actual payment made.

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2 views

CACC021 IAS 21 - Tutorial Question (2025) (1)

Cakebatter Ltd, a South African company, ordered baking equipment from PastryCo Ltd in 2019, with a total invoice of $200,000. Due to cash flow issues, Cakebatter paid $150,000 by January 31, 2020, and settled the remaining balance by April 30, 2020. The document requires journal entries for the transactions and a memorandum explaining the discrepancy between the recorded payable and the actual payment made.

Uploaded by

nsovowaylon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CACN022 EXAMINATION

QUESTION 3 [20 MARKS | 32 MINUTES]

Cakebatter Ltd (hereafter “Cakebatter”) is a South African company who bakes and
sells cakes and other pastries. The functional currency of the company is the South
African Rand and its financial year end is 31 December. Some of Cakebatter’s baking
equipment reached the end of its useful life and had to be replaced.

On 30 September 2019 an order was placed with PastryCo Ltd (hereafter “PastryCo”),
an American company specialising in the baking equipment needed by Cakebatter to
replace their batter mixing equipment. Cakebatter uses the batter mixing machine to
ensure that the batter of all the baked goods that they sell is evenly mixed.

PastryCo confirmed on 31 October 2019 that the order has been approved. The
equipment was shipped free on board on 30 November 2019. The invoice amount was
$200 000, payable on 31 January 2020. Due to some small adjustments that had to
be made to the equipment, the equipment became available for use on 1 February
2020. The useful life of the machinery is 5 years and the residual value is R 50 000. It
is the company’s policy to depreciate machinery using the straight line method over
its useful life.

Due to some cash flow problems, Cakebatter was only able to pay $ 150 000 on 31
January 2020. The remainder of the outstanding balance was settled on 30 April 2020.
No interest was charged by PastryCo.

The following exchange rates are relevant:

Date Spot rate


$:R

30 September 2019 1: 15.00


31 October 2019 1: 15.42
30 November 2019 1 :15.55
31 December 2019 1 :15.70
31 January 2020 1: 15.83
28 February 2020 1: 15.88
31 March 2020 1: 15.90
30 April 2020 1: 15.65
31 May 2020 1: 15.87
31 December 2020 1: 15.92

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CACN022 EXAMINATION

You are the accountant of Cakebatter responsible for compiling the draft annual
financial statements for the financial year ended 31 December 2019. After reading the
draft annual financial statements on 6 May 2020 the operating director (who does not
have a background in accounting) had some concerns regarding the correctness of
some of the figures. He noted that the amount payable to the foreign creditor as
reflected on the annual financial statements does not agree to the amount that was
paid to the foreign creditor.

REQUIRED: MARKS
a) Prepare all the relevant journal entries to account for the [14]
above transactions for the financial year ended 31 December
2020.

- Dates and narrations are required.

b) Prepare a memorandum to the operating director in which you [6]


explain why there was a difference between the amount
recorded as payable to the foreign creditor in the annual
financial statements for the financial year ended 31 December
2019 and the amount that was actually paid to the foreign
creditor.

8|Page

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