FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting

CAMPUSES APK and SWC
MODULE NAME Accounting 1B
MODULE CODE ACC01B1

SEMESTER Second Semester

ASSESSMENT Assessment Opportunity 2
OPPORTUNITY, YEAR 2023

SUGGESTED SOLUTION
QUESTION 1 (SUGGESTED SOLUTION – 40 MARKS)

a)

A contract is defined as an agreement between two or more parties that creates

enforceable rights and obligations. (1)

Step 1 of the revenue model is to identify the contract (1)

Contracts are only accounted for if ALL of the following 5 criteria are met:

1. the parties to the contract have approved the contract (in writing, orally or in accordance
with other customary business practices) and are committed to perform their respective
obligations (1)YES. Wezo has indicated their approval of the contract with customers by
getting into the special agreement with club members. (1) Customers have indicated their
approval by taking up and paying for the special (1).

2. the entity can identify each party’s rights regarding the goods or services to be
transferred(1); YES. Wezo has the right to receive payment (1), and the customers have
the right to receive a bicycle in exchange for payment (1).

3. the entity can identify the payment terms for the goods or services to be transferred(1);
YES. The customers pay monthly instalments of R2500 for the special(1).

4. the contract has commercial substance (i.e. the risk, timing or amount of the entity’s future
cash flows is expected to change as a result of the contract) (1) YES. The sales
values/cash inflows exceed the cost prices for the bicycles (1) (cash inflows are higher
than cash outflows as the GP margin is 20%); and

5. it is probable that the entity will collect the consideration to which it will be entitled in
exchange for the goods or services that will be transferred to the customer (1). YES. It is
probable that Wezo will receive the consideration, as customers have been vetted(1)

Maximum 14 marks

b.

Land(1) Buildings(1) Total

Carrying amount beginning of the year 2 000 000 3 538 000
Gross carrying amount (1) 2 000 000(1) 3 600 000
Accumulated depreciation - (62 000) (C1)

Additions at cost - -
Disposals at carrying amount - -
Gross carrying amount
Accumulated depreciation
 Depreciation -(1) (117 520) (C2)
Impairment loss (20 480)(C3)

Gross carrying amount (1) 2 000 000 3 600 000(1)

Accumulated depreciation - (179 520)(P)
Accumulated impairment loss (20 480) (P)
Carrying amount end of the year (1) 2 000 000(1) 3 400 000

Calculations:

Depreciation on buildings:
C1:2022: (3 600 000 – 500 000(1)) x 4%(1) x 6/12(1) = 62 000
C2:2023: (3 600 000 – 62 000(P) – 600 000(1)) x 4%(1) x 12/12 = 117 520

Impairment:
Carrying amount = 3 420 480 (3 600 000 – 62 000 – 117 520)
Fair value less costs to sell = 3 600 000 – 300 000 = 3 300 000(2)
Value in use = 3 400 000

Recoverable amount is the higher = 3 400 000(P)

Impairment = 3 420 480 – 3 400 000 = 20 480(P)

Maximum 21 marks

c. Intangible assets are assets that are without physical substance(1), identifiable(1) and are
non-monetary(1).

Maximum 3 marks

d. Amortisation: (500 000 x 100/115(1))/ 5(1) = 86 957

Maximum 2 marks
QUESTION 2 (SUGGESTED SOLUTION – 30 MARKS)

Part (a)

Definition Application

Financial instrument is a contract that gives • The contract under discussion is the
rise to a financial asset for one entity (1) and subscription contract between WeC and
a financial liability or equity instrument of Yellow (1)
another entity (1) • It results in a financial asset in the records
of WeC (1) and
• an equity instrument in the records of
Yellow (1) (the ordinary shares are part of
Yellow’s equity)

Available 5
Max 4

Part (b)

Date Description DR CR
15 Jun Investment in Yellow (SFP)** 13 200 000 (1)P
23
Bank (SFP) 13 200 000 (1)P
(600 000 x R22) = 13 200 000 # (1)

Brokerage fees (P/L) 950 000 (1)

VAT input (SF)P 142 500 (1)
Bank (SFP) 1 092 500 (1)
Recognition of investment in Yellow
(950 000 x 15/100 = 142 500

30 Sep Investment in Yellow (SFP) 1 800 000 (1)P

23
Profit on fair value adjustment (P/L) 1 800 000 (1)P
Recognition of the fair value
adjustment
([25 x 600 000] – 13 200 000) (1)

Dates and narrations (1)

Available 10
Max 8
Note to markers
**Some students combined the journal on 15 June into one journal. Please look out for that.

# Some students don’t show calculations. If a student has 13 200 000, although they did not
show the calculation, they should get one mark for calculation.

Part (c)

WECONNECT LTD
NOTES TO THE FINANCIAL STATEMENT FOR THE FINANCIAL YEAR ENDED
30 SEPTEMBER 2023 (1)

4. Investment in subsidiary (1)

R
450 000 (75%) Ordinary shares in Blue (Pty) Ltd at cost price (1) 3 900 000 (1)
(4 150 000 (1) – 250 000 (1))

5. Income from subsidiary

R
Dividends (450 000 x R1,10c) (1) 495 000 (1)P
Management fee (60 000 x 12) (1) 720 000 (1)P

Note to markers
Some students don’t show calculations. If a student wrote 495 000 without showing calculations,
they should get 2 marks for that line.

6. Other financial investments

R
At fair value (1)
600 000 (8%) Ordinary shares in Yellow Ltd (1) 15 000 000 (1)

Long-term deposits
Term deposits 942 000 (1)P
(900 000 + 42 000) (1)

Total other financial investments 15 942 000

7. Income from other financial investments

Deposits
Term deposits 42 000 (1)P
(900 000 x 8% x 7/12) = 42 000 (1)

Total income from other financial investments 42 000

8. Profit before tax

The profit before tax is stated after taking the following into account:
R
Income
Profit with the fair value adjustment of investments in shares 1 800 000 (1)P

Expenses
Impairment loss of subsidiary 250 000 (1)
Brokerage fees 950 000 (1)

Available 19
Max 18
QUESTION 3 (SUGGESTED SOLUTION – 30 MARKS)

a) Journal entries
Date Description DR CR
J1 02/09/22 Machinery/ Equipment (SFP) 510 000 (1)
VAT input (SFP) (586 500 x 15/115) 76 500 (1)
Loan from Supplier Fish (SFP) 586 500 (1)
Recognise machinery and accompanying
loan.

J2 31/08/23 Depreciation – machinery (P/L) 127 500

Accumulated depreciation – machinery 127 500 (1P)
(SFP) (510 000 x 25%)(1)
Recognise depreciation expense on
machinery for 2023.

J3 31/08/23 Interest expense (P/L) 66 300 (1)

Loan from Supplier Fish (SFP) 66 300 (1)
Recognise interest expense on supplier’s
loan for 2023.

J4 31/08/23 Loan from Supplier Fish (SFP) 171 459 (1)

Bank (SFP) 171 459 (1)
Partially derecognise supplier’s loan due
to payment.

Note to marker: Award all 4 marks if student combined J3 and J4 as follows:

31/08/23 Loan from Supplier Fish (SFP) 105 159

Interest expense (P/L) 66 300
Bank (SFP) 171 459

J5 01/08/23 Right-of-use asset (SFP) 655 000 (1)

Lease liability (SFP) 655 000 (1)
Recognise right-of-use asset as well as
lease liability.

J6 31/08/23 Interest (P/L) 6 004 (1)

Lease liability (SFP) 6 004 (1)
Recognise interest on lease liability.
72 050 x 1/12 = 6 004(1)

J7 31/08/23 Depreciation – right-of-use asset (P/L) 18 194

Accumulated depreciation – right-of-use 18 194 (1P)
asset (SFP) (655 000/3 x 1/12 (1))
Recognise depreciation expense on right-
of-use asset for August 2023.
 J8 15/09/22 Provision for claim for damages – (SFP) 13 500 (1)
Claim for damages expense – defective 1 000 (1)
bicycle (P/L)
Bank (SFP) 14 500 (1)
Derecognise provision due to settlement
of the obligation.

J9 31/08/23 Investment property (SFP) 330 000 (1)

Profit with fair value adjustment of 330 000 (1)
investment property (P/L)
Recognise profit with the subsequent
measurement of investment property.
1 mark for dates and narrations
Available 22 marks
Maximum 18 marks

b) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2023

4. INVESTMENT PROPERTY

2023
R
At fair value (1)
Balance at the beginning of the year 3 500 000 (1)
Additions at cost 0
Disposals at fair value 0
Profit/(loss) on fair value adjustment 330 000 (1)
Balance at the end of the year 3 830 000

Investment property situated in Johannesburg CBD was acquired on 1 September 2019 for
R2 900 000. The property will be rented out, in accordance with an operating lease agreement.
(1)

The fair value of the investment property is determined by an independent expert, who possesses
the appropriate qualification and experience. (1)

5. LONG-TERM BORROWINGS

Secured (1)
Supplier’s loan 404 841 (1)
Machinery is pledged as security for the loan.
(1)
The loan bears interest at 13% (1) per year
and is repayable in 4 instalments of R171 459
each from 31 August 2023. (1)
Less: current portion of the loan transferred to (118 830) (1)
current liabilities.
286 011
1 mark for presentation
Available/ maximum 12 marks