FAC3701 EXAM REVISION

FAC3701 EXAM REVISION TOGETHER WE PASS Tel: © 2016 Together We Pass. All rights reserved. WELCOME If you are reading this message then you are doing (FAC3701) with UNISA. These are being compiled by our Together We Pass team for our students who are registered for FAC3701 this term, and will be built upon year on year to create the best set of questions, with suggested solutions, with the possibility of including hints and tips in the future. Please note that this is not the exam scope, but this document will work as supplementary study material which will help you prepare for the coming exams. It’s work in progress and we will make changes and amendments to the document as we progress. Good luck this term, and we look forward to working with you! Our contact details should you need help: Together We Pass PHONE EMAIL WEB FB GGLE+ Together We Pass on Google Plus TWITR @togetherwepass © 2016 Together We Pass. All rights reserved. QUESTION 1 The following information relates to Furniture Limited, a manufacturer and retailer of chairs, for the year ended 28 February 2011: 1. The profit before tax of Furniture Limited for the year ended 28 February 2011 amounted to R690 000, according to the draft financial statements compiled by an inexperienced accounting clerk. The revenue of Furniture Limited for the year ended 28 February 2011 consisted of the following: royalties received amounting to R485 000 (2010: R220 000), cash on delivery sales amounting to R350 000 (2010: R50 000) and credit sales amounting to R250 000 (2010: R40 000). Included in cash on delivery sales above is an amount of R40 000 received on 2 February 2011 from Table Limited in respect of an order for paints which was only dispatched to Table Limited on 10 March 2011. Included in credit sales above is an amount of R10 000 owing by Radio Limited to Furniture Limited. However on 10 April 2011 Radio Limited indicated that they are unable to pay the money’s due as they were placed under liquidation and its creditors will probably only receive 10 cent in the rand as a liquidation dividend. Included in other income of Furniture Limited for the year ended 28 February 2011 are dividends received from an unlisted investment amounting to R60 000 (2010: R20 000) and an amount of R12 000 in respect of a profit realized on the sale of Pro Fan. Pro Fan was originally purchased on 1 March 2008 at a cost of R20 000 and sold on 1 March 2010 for R24 000. The carrying amount and tax base of Pro Fan on date of sale amounted to R12 000 and R10 000 respectively. 2. Furniture Limited purchased all its machinery on 1 March 2008 at a cost of R500 000 (excluding Pro Fan) on which date it was estimated that the machinery will have a useful life of 5 years and a R nil residual value. After the draft financial statements have been prepared, the directors of Furniture Limited re-estimated the remaining useful life of machinery and determined that their remaining useful life is actually only 2 years as they are already used to their full capacity. The residual value of the machinery remained unchanged at R nil. On 28 February 2010 the carrying amount and the tax base of the machinery (excluding Pro Fan) amounted to R300 000 and R250 000 respectively. This change in the useful life of machinery has not been recorded yet in the draft financial statements of Furniture Limited for the year ended 28 February 2011. The SA Revenue Service allows a capital allowance on machinery over 4 years according to the straight-line method. No other machinery were purchased or sold during the year except for Machine Max. 3. Included in current liabilities in the statement of financial position of Furniture Limited at 28 February 2011 is an amount of R20 000 in respect of royalties received for the period from 1 March 2011 to 30 June 2011 for the patent rights of “quick dry” paint manufactured by Furniture Limited. 4. The inexperienced accounting clerk made the following entries for the current year in the “current tax due to the SA Revenue Service” account in the general ledger of Furniture Limited: © 2016 Together We Pass. All rights reserved. Dr SA Revenue Service – current tax Cr 31/08/2010 Bank (1st provisional 50 000 tax payment for 2011) 30/09/2010 Bank (final payment 15 000 of assessment for 2010, including R4 000 interest and R6 000 penalties for the late submission of tax return) 28/02/2011 Bank (2nd 70 000 provisional tax payment for 2011) 135 000 01/03/2011 Balance b/d 115 000 01/03/2010 Balance b/d 20 000 (relating to 2010 tax year) 28/02/2011 Balance c/d 115 000 135 000 No provision for current tax has been made yet in the draft financial statements for the year ended 28 February 2011. 5. The SA Normal tax rate changed from 29% in 2010 to 28% in 2011. 50% of all capital gains are taxable. The company provides for deferred tax on all temporary differences according to the comprehensive basis using the statement of financial position approach. There are no other exempt or temporary differences except those mentioned in the question. There is certainty beyond any reasonable doubt, that the company will have sufficient taxable profit in the future against which any deductible temporary differences can be utilised. The deferred tax liability balance on 28 February 2010 amounted to R15 080, which you can assume to be correct. 6. The financial statements of Furniture Limited for the year ended 28 February 2011 were presented to the board of directors for authorization for issue on 20 April 2011. 7. Ignore any VAT implications 8. Assume all amounts to be material