Question

QUESTION 1 (25 Marks: 45 minutes) Hold - on Limited is a breakfast cereal producer and distributor company that has recently acquired a very reputable and popular brand of cereal. Through the company's market research. the brand is expected to derive enormous value for the company, especially as the company has now opted to not only sell the brand of cereal locally, but internationally to South Africa. Botswana and Mozambique as well. The company has a sophisticated and functional distribution and logistics network to assist with the distribution of this cereal As part of the production of this new brand of breakfast cereal, the machine for N$ 1 200 made. It is expected to be used over a five year period to produce the already profitable brand of cereal. At the end of the five years, it is expected that the machine will be scrapped and thus has a zero residual value company purchased a 000 cash. The machine was delivered on the same day as the payment was Required: Discuss with reference to the Conceptual Framework, how the purchase of the machine should be recognized and measured. Your answer should include a discussion as to whether the machine should be recognized as either an asset or an expense. (15 marks) nts on a monthly basis. On 30 June 2013 ds Limited to deliver magazines at lits-Gids Limited delivers magazines to its clie iking Traders signed a one-year contact with Blits-Gi their business and immediately paid NS 9 000 for a full year's delivery Required: The financial year end of Blits-Gids is 28 February 2014, and they consult you on ho they should enter the transaction in the financial statements on 28 February 2014 Motivate your answer on the basis of the conceptual framework for the preparation presentation of financial statements. (5 marks) and

Answer 1

Q1. Answer:

The machine was acquired for the generation of the new brand of breakfast oat, so the machine ought to be perceived as interest in Assets. The cost ought to be perceived as devaluation which is figured by isolating the estimation of the machine by the quantity of advantages life.

1.2)

As the budgetary year of Blits-Lids is finishing on 28 February 2014, so from multi year (a year) the organization is having conveyance for 8 months (from 1 july 13 to 28 february 14) so 4 months conveyance contract sum ought to be taken as 'Prepaid Magazine conveyance, so passage to be made on Feb 28, 2014 is: Debit Repaid Magazine conveyance contract $3000 Credit Magazine Delivery contract cost $3000 $9000 - (9000' 4/12) = $3000

1.3)

a) Indicate pay acknowledged as money got.

b) pay acknowledged as intrigue is credited to the record

c) salary not understood as esteemed just expanded.

d) wage not understood as book an incentive on expanded.

e) salary not understood as profit is just proclaimed but rather paid. The statement could be turned around.

Q2. Answer:

1. Current Liabilities are those liabilities which are to be paid inside multi year. These liabilities are lenders, charges payable, exceptional costs, short-tern advances, Bank overdraft if not a lasting course of action Provision for tax collection, Bank Loan(S.T.) Interest because of settled liabilities in the event that it isn't aggregated, and so forth

b) Current Assets:- . Meaning of Current Assets-Current Assets are those advantage which are changed over into money inside multi year. These benefits are trade out hand, Cash at bankk. B/R, stock, prepaid costs, here and now speculation, shirt term attractive securities, work-in-prigress, Deposit with Bank(S.T .), cash at call and short notice, and so on.

c) As the financial statements are all interlinked, and have some dependencies on the other statement they are usually prepared in the following sequence

1) Income Statement It contains the profit and loss account details all of the companys revenues, expenses and tax cost which are used to create an overall profit figure for the company. As such, it Financials income from all revenue and expense accounts, as we as any profit or losses made over the financial year.

2) Statement of Retained Earnings: It demonstrate s how much of the profits earned by the company, or losses made, have been Retained in the company as shareholders equity.

3). Balance Sheet It exists to provide a snapshot of the company s assets, liabilities and shareholders equity, accorcing to the accounting equation. The total assets figure should be equal to the sum of the total liabilities and the total share holders equity, according to the accounting equation.

4) Statement of Cash Flows: It is somewhat unique amongst the financial statement, in that it does not actually reflect any change in the value of the company. Instead, it simply explain what changes have taken place to the company s cash balance over.