Student number:

Total
2019 ACCT211: Main exam
Question 1 Part A Debit Credit A/c name & Amt
1 January 2018 R R direction

Dr Dividends declared (SOCIE) 125 000 1.0 G

Cr Shareholders for dividends (SOFP) 125 000 0.5 G
Final dividend declared

Dr Shareholders for dividends (SOFP) 25 000 0.5 0.5

Cr Dividends withholding tax payable 25 000 0.5
(SOFP) 
Dividend tax withheld
125 000 x 20%

Dr Income tax expense (P/L) 62 500 0.5 1.0

Cr Current tax payable: normal tax 62 500 0.5
(SOFP)
Under provision for prior year income
tax
750 000  – 687 500  = 62 500

Dr Income tax expense (P/L) 1 581 375 0.5 10.0

Cr Current tax payable: normal tax 1 581 375 0.5
(SOFP)
Provision for current taxation for 2018
Working 1

Dr Deferred tax (SOFP) 206 250 0.5 14.0

Cr Income tax expense (P/L) 206 250 0.5
Rate adjustment: Working 3

Dr Deferred tax (SOFP) 75 000 0.5 2.0

Cr Income tax expense (P/L) 75 000 0.5
Movement in deferred tax: Working 3

OR ALTERNATIVE if above 2 deferred

tax journal entries are combined:
Dr Deferred tax (SOFP) 281 250 1.0 16.0
Cr Income tax expense (P/L) 281 250 1.0
Rate adjustment & Movement in
deferred tax

Full dates and proper narrations  0.5

P/L/SOFP/Element indication & No 0.5
abbreviations 
6.5 28.5 35.0
AWARD MAXIMUM 34.5
Working 1: Current tax computation

R
Profit before taxation 5 062 500 from 0.5m
9 437 500 + 31 250 + 156 250 - 312 500 - 15000 SOCI
- 3 891 250 - 343 750 marks on SOCI
Permanent differences
Less: Dividend income (31 250) G 0.5
Less: Capital profit on sale (125 000) G 0.5
Marks awarded here or on W2: NOT BOTH!
Add: Taxable capital gain 100 000 W2 3.0
Marks awarded here or on W2: NOT BOTH!
Add: Non-deductible donations 15 000 G 0.5
5 021 250
Temporary differences
Add: Revenue received in advance (c/bal) 93 750 G 0.5
Less: Revenue received in advance (o/bal) (31 250) G 0.5
Less: Prepaid expense(c/bal) (187 500) G 0.5
Add: Prepaid expense (o/bal) 125 000 G 0.5
Add: depreciation 312 500 G 0.5
Less: wear and tear (187 500) G 0.5
Less: non capital profit on sale (31 250) G 0.5
Add: recoupment 156 250 W2 1.0
Marks awarded here or on W2: NOT BOTH!

Taxable profit 5 271 250

Current taxation x 30% 1 581 375 0.5m
TOTAL 10.0
Working 2: Disposal of equipment: Marks awarded here or on W1: NOT BOTH!

Accounting Tax

R R
Selling price = CA + 343 750 1.5 343 750
profit
CA/TB 187 500 62 500
Profit( 31 250 +125 000 ) 156 250 281 250
Capital profit/ Capital 125 000 g SP 343 750 – BC 218 750 1.0
gain = 125 000
Cost of equipment SP 343 750 – Capital profit
125 000

= 218 750 COST given

Non cap 31 250 g COST 218 750 – TB 62 500 1.0
profit/recoupment = 156 250
Taxable capital gain SP 343 750 – BC 218 750 0.5
= 125 000 x 80% = 100 000
100 000
Working 3: Deferred taxation

Details CA TB TD DT ADJUSTMENT
WORKING 3.1
EQUIPMENT
Open balance 7 218 750 5 250 000 (1 968 750) (787 500) 40% L
   
Disposal (187 500) (62 500) DR Def tax (L)
CR Tax exp
271 875 
Dep/W & T (312 500) (187 500)
Closing balance 6 718 750 5 000 000 (1 718 750) (515 625) 30% L
 

WORKING 3.2
IRIA
Open balance (31250) NIL 31 250 12 500 40% A
Movement DR DEF TAX
CR TAX EXP
15 625 
Closing balance (93 750) NIL 93 750 28 125 30% A

WORKING 3.3
Prepaid expense
Open balance 125 000 NIL  (125 000) (50 000)  40% L
Movement CR DEF TAX
DR TAX EXP
6 250 
Closing balance 187 500 NIL  (187 500) (56 250)  30% L

Summary PPE IRIA PREPAID TOTAL

Open balance (787 500) 12 500 (50 000) (825 000) L 40%
40% 
Rate change 206 250  DR DT CR TE
Opening balance (618 750)  L 30% =
restated 30% 825 000 /40
X30
Movement 75 000 DR DT CR TE
Closing balance (515 625) 28 125 (56 250) (543 750) L 30%
30% 
Part B 0.5
Fresh living Limited d
Statement of profit and loss and other comprehensive income
For the year ended 31 December 2018 

R
Revenue given 9 437 500 0.5
Investment income given 31 250 0.5
Other income (31 250 + 125 000) 156 250 1.0
Expenses (dep 312 500 + donation15 000 + (4218 750) 1.5
other exp 3 891 250)
Finance costs (343 750) 0.5
Profit before tax 5 062 500
Income tax As per Tax note (1 362 625) 0.5
expense
Profit for the year 3 699 875
Other 0
comprehensive
income
Total 3 699 875
comprehensive
income
To be awarded 5.0

Part C 0.5 d
Fresh living Limited
Statement of changes in equity
For the year ended 31 December 2018 
Ordinary Retained Total
share capital earnings

Opening balance Given 1 250 000 2 000 000 3 250 000

Total Per SOCI in 3 699 875 3 699 875 0.5m

comprehensive RE column
income

Dividend declared 62 500 + (187 500) (187 500) 1.0

125 000in
RE column

Closing balance 1 250 000 5 512 375 6 762 375 0.5

To be awarded 2.5
 Part D
Fresh living Limited 0.5 d
Statement of financial position as at 31 December 2018 

EQUITY AND LIABILITIES

Equity 6 762 375
Ordinary share capital SOCIE m 1 250 000 0.5m
Retained earnings SOCIE m 5 512 375 0.5m

Non-current liabilities 656 250

Deferred taxation: income tax W3 m (non-current) 543 750 0.5m
Loan liabilities Given  112 500 0.5
Current liabilities 2 862 625
Trade and other payables Given  250 000 0.5
Income received in advance Given  93 750 0.5
Shareholders for dividends 125 000  x 80% 100 000 1.0
Current tax payable: income 132 500 + 62 500 + 1 581 1 776 375 1.0
tax 375 
Must be disclosed separately
to CTP: Dividends
Dividends withholding tax 125 000  X 20% 25 000 1.0
Bank overdraft  617 500 0.5
Balance 10 281 250
AVAILABLE MARKS 7.0
AWARD MAXIMUM 6.0

Not part of the solution: Double check that SOFP balances

Assets
Plant 6 718 750
Investment in shares 1 000 000
Inventory 1 500 000
Accounts receivable 875 000
Rent expense prepaid 187 500
(Deductible for taxation
purposes when paid)
Balance 10 281 250
Part E 0.5 d
Fresh living Limited
Notes to the financial statements for the year ended 31 December 2018 
R
2018
11. Income tax expense
Current 1 643 875
• Current year 1 581 375 0.5m
• Prior year under provision 62 500 0.5m
Deferred (281 250)
• Current year movement (75 000) 0.5m
• Rate change on prior year (206 250) 0.5m
balance
Income tax expense as per statement of comprehensive 1 362 625 0.5m
income

Rate reconciliation
Applicable tax rate given 30% 0.5
Tax effect of:
Profit before tax (5 062 500 x 30%)m 1 518 750 0.5m
Less: exempt dividend income (31 250 x 30%)  (9 375) 0.5
Less: exempt capital profit (125 000 – 100 000) x 30% (7500) 0.5
Add: Non-deductible donation (15000 x 30%)  4 500 0.5
Prior year under-provision 62 500m 62 500 0.5m
Rate change (206 250)m (206 250) 0.5m
Income tax expense as per m to agree with total above 1 362 625 0.5m
statement of comprehensive
income
Effective tax rate 1 362 625m/5 062 500 m 26.91% 1.0
x 100
AVAILABLE MARKS 8.0
AWARD MAXIMUM 6.0
15. Deferred taxation
asset/(Liability)

2018 2017
The deferred tax balance is caused
by the following:
Property plant and equipment (515 625) (787 500) 1.0
Income received in advance 28 125 12 500 1.0
Expenses prepaid (56 250) (50 000) 1.0
(543 750) (825 000)
AVAILABLE MARKS 3.0
AWARD MAXIMUM 3.0
Question 2
(a) Development expenditure capitalized: 3.0 marks
In terms of IAS 38 Intangible Assets, research costs of R3 000 000 must be
recognized as an expense when incurred (this may not be capitalized). 0.5
With respect to the development costs:

o The company’s intention to complete the intangible asset for use or 0.5
sale and
o The company’s ability to use or sell the intangible asset 0.5

have not been demonstrated in terms of IAS 38: Intangible Assets. 0.5

Thus the development costs of R5 000 000 may not be capitalised.Therefore 1.0
none of the research & development expenditure may be capitalised to
intangible assets
3.0

b) Journals: R & D
Debit Credit Acc Amount
name
& dir
R R
31 December 2016
Dr Development costs expense(E)(SOCI) 540 000 0.5 0.5
 (720 000 * 9/12)
Dr Development: Cost asset (A)(SOFP) 180 000 0.5 0.5
(720 000 *3/12) 
Cr Bank/Liability (SOFP) 720 000 0.5 g
Development costs incurred (capitalisation began from 1 October 2016 being the date on
which all six criteria were met; costs expensed before this date)

31 December 2017
Dr Development: Cost asset (A)(SOFP) 640 00 0.5 g
Cr Bank/Liability (SOFP) 640 000 0.5
Development costs capitalized

Dr Impairment loss: development (SOCI) 140 000 0.5

Cr Accumulated impairment loss: 0.5 0.5m
development (-A)(SOFP)  140 000
CA: 820 m– RA:680 0.5
Impairment loss recognized

31 December 2018
Dr Development: Cost asset(A)(SOFP) 640 000 0.5 g
Cr Bank/Liability (SOFP) 640 000 0.5
Development costs capitalized

Dr Accumulated impairment loss: 140 000 0.5

development (-A)(SOFP)
Cr Impairment loss: development (SOCI) 140 000 0.5 1.0m
 0.5
Impairment loss reversed CA: 1320 m increased to RA of:1480 limited to historical
carrying amount costs 1460 m (costs capitalized: 180 + 640 + 640 – amortization: 0)
Available Marks: 9 AWARD MAXIMUM 8.0
 (c) Accounting Treatment: 13 marks
Letter format (Address/date/dear all three)

Address: XXX 0.5

Date: 31 December 2018
To: Financial Director – Vivo Limited
Re: Accounting Treatment – Licence and IAS 38: Intangible Assets

In order to capitalise the acquired licence as an intangible asset in the statement of financial
position, that licence would need to satisfy both the definition and recognition criteria 0.5
for an intangible asset as set out in IAS 38: Intangible Asset – if not, the cost must be
expensed.

Definition

IAS 38 defines an intangible asset as

- An asset  0.5
o resource controlled by the entity 0.5
o from past events 0.5
o from which future economic benefits are expected to flow to the entity 0.5

Application of asset definition

o resource controlled by the entity

The licence has been purchased and is therefore a resource controlled by Vivo Limited.
Resource: The licence is a resource as it is used by Vivo Ltd to collect toll fees at the
toll from which revenue is generated.  0.5
Control: Vivo has control as Vivo the power to obtain the future economic benefits (sales
revenue) flowing from this licence, and to restrict the access of others to these
benefits. This would be legally enforceable in a court of law. 1.0

o from past events

The past event is the purchase transaction of the licence, which occurred on 0.5
31 December 2018

o from which future economic benefits are expected to flow

Future economic benefits expected to flow from the purchase of the licence is the
collection of toll fees/revenue flowing to the entity. 0.5

0.5
- which is identifiable ,

Identifiability requires the item to be clearly distinguishable, which can be demonstrated if

the asset is separable i.e. the asset is capable of being separated from the entity and
0.5
sold, transferred or rented. 
Identifiability is met, as the licence is capable of being separated and arises from a legal
right as it has been sold individually and for a specific value in the sale transaction 0.5
which occurred on 31 December 2018. 

- non-monetary and 0.5

The licence is neither money held nor is it an asset to be received in a fixed or 0.5
determinable amount of money. 
 - without physical substance 0.5

Although there may be legal documentation on paper, the licence purchased has no
physical substance and is considered intangible. 0.5

Therefore, the licence meets the definition of an intangible asset. 0.5

Recognition Criteria

An intangible asset is recognized if:

- it is probable that future economic benefits attributable to the asset will flow 0.5
to the enterprise

It is probable that the licence will give rise to future economic benefits, which will arise
from the collection of toll fees. These benefits now accrue to Vivo limited, upon 0.5
purchase of the licence. The price of R10 million further reflects the probability that the
future economic benefits will flow to the entity. They would not have purchased the
licence if they did not believe that they would derive future economic benefits from it. 0.5

- the cost of the asset can be measured with reliability.  0.5

Cost which can be verified by referring to a source document such as invoice,

agreement or bank statement. Cost of the licence is reliably measured at the 0.5
purchase price of R10 million. 0.5

Conclusion
Since the both definition of an intangible asset and the recognition criteria have 0.5
been met, the licence should be recognized as an asset in terms of IAS 38: Intangible
Assets

Yours sincerely  0.5

Intern (Proper sign off/students must not use their names)
Communication Marks : Logical structure, bullet point form & layout (two sections clearly 0.5
distinguished with headings

Max Marks: 14 marks available Award maximum 13.0 13.0

 (d) Discussion: 11 marks

1. Useful Life
In terms of IAS 38: Intangible Assets, the useful life of the purchased intangible
asset can be classified as finiteor indefinite 1.0

Indefinite useful life means that there is no foreseeable limit to the period over which
the asset is expected to generate net cash inflows for the entity.  0.5

Finite useful life means that there is a foreseeable limit to the period over which the asset
is expected to generate net cash inflows for the entity.  0.5

Application:
The licence is an intangible asset with a finite useful life and must thus be 0.5
amortised.
• The finite useful life is 20 years. 0.5

Maximum 3.0
2. Residual Value
In terms of IAS 38: Intangible Assets, the residual value of an intangible asset
with a finite useful life shall be assumed to be zero  unless: 0.5

o There is a commitment by a third party to purchase the asset at the

end of its useful life; or 0.5
o There is an active market for the asset and: 0.5
o Residual value can be determined by reference to that market
and 0.5
o It is probable that such a market will exist at the end of the
asset’s useful life 0.5

Since there appears to be neither a commitment from a third party to

purchase the asset at the end of its useful life nor an active market for 1.0
the licence, the residual value must be zero.

Maximum 3.5
3. Amortisation
In terms of IAS 38: Intangible Assets, the amortisation of the purchased intangible
asset must begin from the date the asset is first available for use , which in 0.5
this case is 31 December 2018/1 January 2019 0.5

o Since the licence is a finite useful life asset, it must be amortised  0.5
o The amortisation period and the amortisation method for an intangible
asset with a finite useful life shall be reviewed at least at each financial 0.5
year-end.
o Amortisation is to be provided on the straight-line method (unless
another method) is considered more appropriate. 0.5
o Amortisation for the 2019 year would have been R 500 000
(R10 million - R 0)/20 1.5
o Amortisation for the 2018 year would be nil. 0.5

Maximum Marks 4.5

Total 11.0
(e) Journals: Aircraft
Debit Credit Acc Amount
name &
31 December 2018 direction
R R
Depreciation(E) (SOCI)  118 000 0.5 0.5
W1- Aircraft - bodywork: accumulated 20 000 0.5 0.5
depreciation (-A)(SOFP) 
W2- Aircraft - engine & propellers: 48 000 0.5 2.0
accumulated depreciation(-A)(SOFP) 
W3- Aircraft - inspection: accumulated 50 000 0.5 0.5
depreciation (-A)(SOFP)
Depreciation on aircraft bodywork
W1: 160 000 / 8 years
Depreciation on engine & propellers
W2: (400 000 – 160 000) x 6 000
/ 30 000 
Depreciation on aircraft inspection
W3: 200 000/4 years

Aircraft inspection: accumulated 200 000 0.5 g

depreciation (-A)(SOFP)
Aircraft inspection: cost (A)(SOFP) 200 000 0.5 g
De-recognition of aircraft inspection

Aircraft inspection: cost (A)(SOFP)  300 000 0.5 g

Bank (A)(SOFP)  300 000 0.5 g
Payment for major inspection of
aircraft

All Full Dates and narrations  0.5

SOFP/SOCI indication/no 0.5
abbreviations
Available Marks 8.5
Maximum marks 8.0