FA260US Financial Accounting Assignment Solutions

Question 1

Shapumba Ltd is a company that operates 3 different leisure lodges in the north and north-eastern part of Namibia. The company’s reporting period ends on 30 June.

The following relevant accounting policies of Shapumba Ltd are presented to you:

• Vehicles are depreciated at 10% per year on cost price with no residual
• The company values its inventory according to the weighted average cost method using the historical cost model.
• The company subsequently measures investment property according to the fair value

The company is preparing the financial statements for the reporting period ended 30 June 2017 and has requested your assistance and advice on the following matters. The financial statements will be approved on 20 August 2017.

Ignore VAT in all the matters.

MATTER 1

On 1 February 2015 Shapumba Ltd purchased equipment with an invoice price of N$ 645 800 by entering into a loan agreement with the Development Bank. The equipment is pledged as security for the loan. The loan instilments will consist of equal monthly instilments over a period of 4 years and a final residual payment of N$ 55 000. The interest rate applicable on this lease agreement is 10% per year, compounded monthly. All payments due have been paid on time each month. The equipment is depreciated on the straight line basis over 8 years with no residual value.

Required:

Disclose the long term borrowings note applicable to the lease liability in the Statement of Financial Position of Shapumba Ltd on 30 June 2017 in accordance with International Financial Reporting Standards.                                            

Note: Round disclosed amounts to the nearest Dollar.

MATTER 2

On 10 January 2016 Shapumba Ltd purchased vacant land at a price of N$ 800 000. The land is situated about 10 kilometers from Shapumba Ltd.’s closest operations and was purchased with the sole aim of selling it at a profit after 5 years.

Because of its ideal location and the developments that commenced in the area after Shapumba Ltd purchased the land, a sworn valued estimates the fair value on 30 June 2017 at N$ 1 660 000.

The Chief Financial Officer (CFO) is however of the opinion that the value of the land on the Statement of Financial Position on 30 June 2017 should be kept at the original cost price of N$ 800 000. He also stated that the new value would just attract unnecessary taxes.

Required:

With reference to relevant International Financial Reporting Standards, define investment property and also discuss whether you think the land should subsequently be measured at cost price or fair value.

Question 2

Ozondje Limited is furniture retailer of innovative accessories for home in Omaruru. The post-closing entry trial balance for the year ended 30 September 2018 and the – closing entry trial balance for the year ended 30 September 2019 are shown below.

Additional information 

1. Depreciation N$ 120 000 on the plant and equipment was expensed during 2020.
2. Plant and equipment with a cost of N$ 50 000 were sold during the year and a loss of N$ 10 000 was incurred.
3. An investment acquired for N$ 30 000 during the year was disposed of before the year end.
4. Long –term loans of N$ 100 000 were repaid during the year.

You are required to:

Prepare a statement of cash flows for Ozondje Limited for the year ended 31 December 2020, using the indirect method.

Question 3

Tanya Turner owns an art gallery, African Art, which sells paintings, sculptures and ceramics by artists currently working throughout Africa. Tanya purchases the art directly from the artists for re-sale by her gallery. The transactions entered into by Africa Art during June 2018, its first month of business, are listed below:

June 1 Tanya invested the following in the business: cash of N$ 25 000, furniture and fittings   costing N$ 700 and inventory (paintings and sculptures) costing N$ 18 500. Paid N$ 3 100 for two months ‘rent in advance for the gallery.

• Paid the N $ 2 400 annual premiums on an insurance policy taken out in the name of the business.
• Purchased inventory (ceramics) costing N$ 680 and additional fittings costing N$ 90, on credit.
• Sold and delivered a panting to a client and collected N$ 4 000 cash in full payment. The cost of the painting sold was N$ 2 000
• Paid the gallery assistant’s salary, amounting to N$ 960
• Sold and delivered a sculpture to Jan van Dyck and invoiced him N$ 7 800, to be paid within 30 The cost of the sculpture sold was N$ 4 600.
• Purchased additional furniture on credit, costing N$ 40. 19 Paid for the inventory and furniture purchased on 4 June.
• Received N$ 7 800 from Jan van Dyck for the sculpture delivered on 16
• Tanya withdrew N$ 2 000 from the business for her personal
• Paid for the furniture purchased on 18
• Sold an oil painting to Andy Campbell and invoiced him N$ 1 400, to be paid within 30 The cost of the oil painting sold was N$ 800.
• Paid the gallery assistance’s salary amounting to N$. Paid the June telephone and electricity accounts, totalling N$ 170. Paid for advertising expenses incurred in June, costing N$ 110.

YOU REQUIRED TO:

(a) Record all of the above transactions in the general journal of African Art for June 2018.

(b) Post the entries to the general ledger of African Art.

(c) Prepare a trial balance at 30 June 2018.

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