ACBP6222
2023 MEMO
2022 MEMO
Exam revision – National session
Part B (Question 5) – 2023 paper
2022 Paper
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
5.1
Transaction 1 – Local sales
Identify the performance obligations:
• Delivery of the machinery
• The 3 year service agreement
Allocation and recognition of revenue:
Mach-Das (Pty) must allocate the transaction price to the performance obligations
The allocation of the transaction price is based on the stand-alone selling prices of the
underlying goods and services at inception
An entity shall recognise revenue when the entity satisfies a performance obligation by
transferring the promised goods or services to a customer and the customer obtains
control of the goods
The above performance obligation will be settled at a point in time (delivery of the
machinery) and over time (providing the 3-year service agreement
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
5.1
Units sold = 10
Description Stand-alone Ratio Allocation of Total Revenue
selling price transaction
price
Machinery 656 000 80% 680 000 6 800 000
3- year service 164 000 20% 170 000 1 700 000
plan
820 000 850 000 8 500 000
Service income recorded for the period
1 700 000 x 6/36 = 283 333
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
5.1
Transaction 2 – International sales
Identify the performance obligations:
• Delivery of the machines to international clients
Allocation and recognition of revenue:
Mach-Das (Pty) must allocate the transaction price to the performance obligations
An entity shall recognise revenue when the entity satisfies a performance obligation by
transferring the promised goods or services to a customer and the customer obtains
control of the goods
The transaction price must be translated on the date of sale using the applicable spot
rate
At year end the outstanding amount (Trade and other receivables) must be restated
to the closing spot rate at year end
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
5.1
01 Aug 2023 Revenue / Debtor 18 750 000
($ 1 000 000 x R18.75)
31 Dec 2023 Debtor 19 150 000
($ 1 000 000 x 19.15)
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
Date Description Debit Credit
5.2
Local sales:
01 Jul 2023 Bank 8 500 000
Revenue 6 800 000
Deferred revenue / Contract liability 1 700 000
Cost of sales (300 000 x 10) 3 000 000
Inventory 3 000 000
31 Dec 2023 Deferred revenue / Contract liability 283 333
Revenue 283 333
International sales:
01 Aug 2023 Trade and other receivables 18 750 000
Revenue 18 750 000
31 Dec 2023 Trade and other receivables 400 000
(18 750 000 – 19 150 000)
Forex gain 400 000
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
5.3
Local sales – Fire
The fire occurred after year-end and before the financial statements were approved
The fire is a new condition and does not relate to a pre-existing condition
The fire is a non-adjusting event, and the loss will be recorded in the new year
The amount of the loss (5 x 300 000) could be considered material and thus the event
and information around the event can be disclosed
Memorandum: Question 5 (marks: 40) Ref: LU1, LU2, LU4
5.3
International sales – bankrupt debtor
The receipt of the letter occurred after year-end and before the financial statements
were approved
The debt relates to a pre-existing condition at year end, but it can be assumed that
the debtor was experiencing financial difficulties at year end
The bankruptcy is a adjusting event, and the loss will be recorded to credit losses
The debtor must also be written off to zero at year end
The spot rate at 15 March 2024 is irrelevant because the year-end numbers are to be
adjusted
Date Description Debit Credit
31 Dec 2023 Credit losses 19 150 000
Trade and other 19 150 000
receivables
2022 MEMO
Memorandum: Question 1 (marks: 25) Ref: LU10
1.
Before the distribution can be made, the provision of Section 46 of the Companies act
must be satisfied:
• The distribution must be pursuant to an existing legal obligation of the company or
a court order
• The board of directors, by way of resolution, has authorised the distribution
• It must reasonable appear that the company will satisfy the solvency and liquidity
test immediately after completing the proposed distribution, and
• The board of the company, by resolution, must have knowledge that it has applied
the solvency and liquidity test, and reasonably conclude that the company will
satisfy the solvency and liquidity test immediately after completing the proposed
distribution
Memorandum: Question 1 (marks: 25) Ref: LU10
1.
Distribution to be made:
Cash on hand x 60%
= 2 900 000 x 60%
= 1 740 000
Liquidity test:
Total current assets after distribution
7 300 000 – 1 740 000 = 5 560 000
Total current assets / Total current liabilities
= 5 560 000 / 2 900 000
= 1.92 : 1
Memorandum: Question 1 (marks: 25) Ref: LU10
1.
Solvency test:
Total assets after distribution
15 800 000 – 1 740 000 = 14 060 000
Total assets / Total liabilities
= 14 060 000 / 6 700 000
= 2.10 : 1
Conclusion:
Provided that all the requirements additional to the solvency and liquidity tests are
satisfied, the distribution of R 1 740 000 may be made to shareholders
Memorandum: Question 2 (marks: 25) Ref: LU9
Grant for water cleaning station:
Option 1: Deferred income
Branson Game reserve must credit the grant to deferred income and amortise it over the
useful life of the water cleaning station in order to match the grant income with the
relevant costs
In 2022, the entity recognises R2 500 (50 000 / 10 years x 6/12) in profit or loss
The journal entries are as follows:
Journal entry Debit Credit
Bank 50 000
Deferred income 50 000
Deferred income 2 500
Income from government grant 2 500
Memorandum: Question 2 (marks: 25) Ref: LU9
Option 2: Reduction in carrying amount
Branson Game reserve must deduct the grant amount from the carrying amount of the
water cleaning station. The recognition in profit or loss is then automatically reflected in
the depreciation charges.
The new carrying amount of a water cleaning station upon initial recognition is R70 000
(cost of R120 000 less grant of R50 000) and the annual depreciation charge is R7 000
(R70 000 / 10) instead of R12 000 (R120 000 / 10). In the first year it is R3 500
(6 months only)
The journal entries are as follows:
Journal entry Debit Credit
Bank 50 000
PPE 50 000
Depreciation 3 500
PPE 3 500
Memorandum: Question 2 (marks: 25) Ref: LU9
Grant for ecological measures in 2021 – 2025
The second grant is provided to compensate Branson Game Reserve for ecological
expenses for 2022 to 2025. In other words, it is a grant for current and future expenses.
Branson Game Reserve needs to recognise the income from the grant in the periods
when relevant expenses are incurred
The portion recognised in profit or loss in 2022 is calculated on a proportionate basis –
i.e R4 347.83 (R5 000 / R23 000 x R20 000)
The credit entry goes in profit or loss, but there, Branson has a choice to present the
grant income as a separate line item (that is easier) or to deduct it from the expenses
The journal entries are as follows:
Journal entry Debit Credit
Bank 20 000
Deferred income 20 000
Deferred income 4 347.83
Other income 4 347.83
Memorandum: Question 3 (marks: 60) Ref: LU8
Taxation
Closing balance – SARS 300 000 Opening balance – SARS 250 000
Bank (balancing figure) 270 000 Taxation expense 320 000
(570 000 – 300 000)
570 000 570 000
Property, plant and equipment (carrying amounts)
Opening balance 4 100 000 Closing balance 4 700 000
Right – of – use asset 700 000 Depreciation 1 100 000
Bank (balancing figure) 1 000 000
5 800 000 – 4 100 000 –
700 000
5 800 000 5 800 000
Memorandum: Question 3 (marks: 60) Ref: LU8
Lease liability (current and non-current portion)
Closing balance 3 300 000 Opening balance 2 850 000
(2 700 000 + 600 000) (2 300 000 + 550 000)
Bank (balancing figure) 250 000 Right – of – use asset 700 000
3 550 000 – 3 300 000
3 550 000 3 550 000
Memorandum: Question 3 (marks: 60) Ref: LU8
Bilo Ltd
Statement of Cash Flow for the year ended 30 June 2022
Cash Flow from Operating activities
Profit before tax 800 000
Adjustments for:
Depreciation 1 100 000
Interest expense 300 000
Operating profit before working capital changes 2 200 000
Changes in working capital:
Decrease in inventories
(1 900 000 – 1 800 000) 100 000
Increase in trade receivables
(2 500 000 – 2 000 000) (500 000)
Increase in trade payables
(1 400 000 – 1 200 000) 200 000
Memorandum: Question 3 (marks: 60) Ref: LU8
Bilo Ltd
Statement of Cash Flow for the year ended 30 June 2022 (continue)
Cash generated by operations 2 000 000
Interest paid (300 000)
Dividends paid (350 000)
Tax paid (270 000)
Net cash inflow from operating activities 1 080 000
Cash Flow from Investing activities
Payments for the acquisition of PPE (1 000 000)
Net cash outflow from investing activities (1 000 000)
Memorandum: Question 3 (marks: 60) Ref: LU8
Bilo Ltd
Statement of Cash Flow for the year ended 30 June 2022 (continue)
Cash Flow from Financing activities
Payment of lease liabilities (250 000)
Net cash outflow from financing activities (250 000)
Net increase in cash and cash equivalents
(1 080 000 – 1 000 000 – 250 000) (170 000)
Cash and cash equivalents at the beginning of the year (1 010 000)
Cash and cash equivalents at the end of the year (1 180 000)
Memorandum: Question 4 (marks: 20) Ref: LU7
4.1
Fairweather Limited
Extract from the Statement of profit or loss and other comprehensive
income for the year ended 31 December 2021
2021 2020
R R
Net profit 575 000 (W2) 425 000 (W1)
W1: 650 000 – (1 800 000 / 8) = 425 000
W2: 800 000 – (1 800 000 / 8) = 575 000
Memorandum: Question 4 (marks: 20) Ref: LU7
4.2
Fairweather Limited
Statement of changes in equity for the year ended 31 December 2021
Retained earnings
Opening balance – 1 January 2020 1 100 000
Prior period error (W3) 900 000
Total comprehensive income: Restated 2020 425 000
Opening Balance – 1 January 2020: Restated 2 425 000
Total comprehensive income: Restated 2021 575 000
Closing balance – 31 December 2021 3 000 000
W3: 1 800 000 – (1 800 000 / 8) x 4 = 900 000
*4 years – 2016 to 2019
Memorandum: Question 5 (marks: 15) Ref: LU6
5.1
Capitalisation period for the land and warehouse:
Land 1 March 2021 – 30 September 2021 (7 months)
Warehouse 1 April 2021 – 30 September 2021 (6 months)
5.2
Specific borrowing costs to be capitalised:
100 000 x 20% x 7/12
R11 667
5.3
General borrowings costs to be capitalised:
140 000 x 25.5% x 6/12
R17 850
Memorandum: Question 5 (marks: 15) Ref: LU6
5.4
Carrying amount of:
Land
120 000 + 11 667 = 131 667
Building
140 000 + 17 850 = 157 850
Memorandum: Question 6 (marks: 15) Ref: LU5
Earnings Shares Per share
Net profit for the year 1 800 000
Weighted average number of shares 120 000
outstanding during the year
Basic earnings per shares 15.00
Number of shares under option 25 000
Number of shares that would have (23 333)
been issued at fair value
(25 000 x 28 / 30)
Diluted weighted average number of 121 667
shares
Diluted earnings per share 14.79
Memorandum: Question 7 (marks: 20) Ref: LU4
The exchange differences on the loan payable are calculated as follows:
$ Exchange R
rate
Initial recognition: 1 August 2020 250 000 17.07 4 267 500
Foreign exchange 2021 (617 500)
Translation: 31 July 2021 250 000 14.60 3 650 000
Forex loss 2022 450 000
Translation: 31 July 2022 250 000 16.40 4 100 000
Memorandum: Question 7 (marks: 20) Ref: LU4
The interest expense is calculated as follows:
$250 000 x 6% = $15 000
$ Exchange R
rate
31 July 2021: Interest accrual 15 000 15.00 225 000
31 July 2021: Interest payment (15 000) 14.60 (219 000)
Exchange difference 2021 (Profit) 6 000
31 July 2022: Interest accrual 15 000 16.20 243 000
31 July 2022: Interest payment (15 000) 16.40 (246 000)
Exchange difference 2022 (Loss) (3 000)
