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HIGHER EDUCATION PROGRAMMES
Academic Year 2022: January - June
Formative Assessment 2: Principles of Management Accounting
(HMAC230-1)
NQF Level, Credits: 6, 12
Weighting: 15%
Assessment Type: Paper-based Questions
Examiner: E. Slabbert
Educator: T. Davids
Due Date: 6 May 2022
Total: 100 marks
Instructions:
• This paper consists of 2 questions.
• It is based upon units 5-8 (Chapters 8-12) of your study guide.
• All questions are compulsory.
• Show all calculations.
• Round to two decimals where required.
• The SAICA Competency Framework Reference at the end of a question is for recordkeeping and will inform you which SAICA Competency is covered in the question.
QUESTION 1 (63 marks)
Heart Felt (Pty.) Ltd (“Heart Felt”) is a wood bench manufacturer located in Mpumalanga. Heart Felt handcrafts beautiful wooden benches which it sells to the public.
Wood is purchased from plantations in Waterval Boven, Mpumalanga. Once the wood has been delivered at Heart Felt’s premises, Heart Felt carpenters carve and assemble the benches. During the manufacturing process, 22 nails are used but their cost is immaterial compared to the wood required to create the bench.
It is considered that wood’s utilisation and conversion costs (i.e., direct labour, variable and fixed overheads) are incurred uniformly during production.
In order to manufacture a bench 4.4 meters of wood is required of which 1.1 meters are lost when the bench has been 55% completed. This is regarded as a normal loss.
The crafters spend 35 hours to manufacture a completed bench.
On 31 March 2022, 68 benches which were 20% complete were on hand, while 1 150 benches were on hand on 30 April 2022 which were 40% complete.
Manufacturing of 2 910 benches have been commenced with during April 2022, while 2 788 benches have been completed during this period.
Heath Felt employs a first-in-first-out (FIFO) costing method.
The following costs have been incurred:
R
Material cost of units as at 31 March 2022 100 060
Conversion cost of units as at 31 March 2022 230 400
Wood purchased during April 2022 790 000
Nails purchased during April 2022 18 200
Carpenters’ wages for April 2022 188 000
Inspector’s salary for April 2022 26 000
Cleaners’ remuneration for April 2022 12 000
Water and electricity for April 2022 6 000
Depreciation for April 2022 23 400
Required:
Prepare the process report (including the cost allocation statement) for Heart Felt (Pty). Ltd. on 30 April 2022.
Round to two decimals where required.
Remember, quantities are expressed as integers (whole numbers).
(63 marks)
Aligns to SAICA competencies:
C1.2 Decision-making based on budgeting and expenditure forecasting
a) Understand the budgeting and expenditure forecasting processes which translate the organisation’s business strategy into financial targets and tactical plans and that can be executed in a risk-controlled manner
b) Use effective and consistent modelling, planning and forecasting processes across business unit(s) to benchmark performance and trends for decisionmaking
QUESTION 2 (37 marks)
Ease Ltd. (“Ease”) is a luggage manufacturer in KwaZulu-Natal which manufactures various leather handbags. Amongst their famous handbags, is an everyday, allpurpose handbag called “Jane”.
Ease’s financial year-end is 31 May and proceeding into the last month of the 2022 financial year, Ease’s management accounting department had budgeted the following figures for Jane-handbags manufactured in May 2022:
Nature of cost, given per Janehandbag Cumulative total for Jane-handbags manufactured
Leather (R150 per meter) R9 180
Thread (3.4 meters) R289
Handbag-stitcher’s wage (R140 per hour) R52 360
Quality inspector’s monthly salary allocated to Jane-handbags R6 800
Total R68 629
Once a stitcher has made a handbag, it is inspected by the quality inspector to ensure that all handbags meet Ease’s standards. The quality inspector is paid a monthly salary of R24 000. This salary is allocated to the various handbags manufactured, based on the quantity of handbags manufactured. It was estimated that during May 2022, a total of 120 handbags will be manufactured by Ease of which 34 will be Janehandbags.
On 5 June 2022 when the May 2022 results were compiled in order to draft the financial statements for the 2022-financial year, the following were determined:
• 32 Jane-handbags and a total of 120 of all handbags have been manufactured.
• The total cumulative leather cost for Jane-handbags was R8 448 and that 1.65 meters of leather were used per handbag.
• Because the handbag-stitchers agreed they will be working as efficient as possible with the leather, their hourly wages were increased. This resulted in them being paid a total of R52 096 for the Jane-handbags manufactured during May 2022. Their hours required to make a Jane-handbag remained the same as budgeted.
• The actual thread for the Jane-handbags amounted to R3 per Jane-handbag.
The same quantity of thread per handbag was used as budgeted.
• The quality inspector’s actual salary was the same as budgeted.
Required:
2. Calculate the following variances for Jane-handbags in May 2022:
2.1. Direct material price variance
2.2. Direct material usage variance
2.3. Total direct material variance
2.4. Direct labour rate variance
2.5. Variable overhead rate variance
2.6. Fixed manufacturing overhead volume capacity variance
Round to two decimals where required.
(37 marks)
Aligns to SAICA competencies:
Decision-making based on budgeting and expenditure forecasting
Analyse the organisation’s actual performance (using financial and non- financial information) against the budgeting and expenditure forecasting information to interpret variances for decision-making
C1.3 Decision-making based on internal cost allocation and transfer pricing options
a) Evaluate key business processes with regard to costs and income allocation to identify performance issues

HIGHER EDUCATION PROGRAMMES
Academic Year 2022: January - June
Formative Assessment 2: Financial Accounting for Companies
(IFRS) (HFAC231-1)
NQF Level, Credits: 6, 14
Weighting: 15%
Assessment Type: Open book
Examiner: S. Khan
Educator S. Khan
Due Date: 6 May 2022
Total: 100 marks
Instructions:
• This assignment consists of three (3) questions.
• It is based on units 5-8 (Chapters 3, 4, 11) of your textbook.
• All the questions are compulsory.
• SHOW ALL CALCULATIONS
• The SAICA Competency Framework Reference at the end of a question is for recordkeeping and will inform you which SAICA Competency is covered in the question.
QUESTION 1 (40 marks)
Building Bricks Limited is a manufacturer who operates in the construction industry and manufactures as well as sells concrete bricks. The following information is available for the Month of January 2022:
a) Building Bricks Limited uses the perpetual inventory recording method for all types of inventory.
b) Production (manufacturing) of bricks is started only after receiving a confirmed sales order.
c) The main raw material used in the production of the bricks is cement.
d) Opening inventory of cement was 200kg at R12 per kg at 1 January 2022.
e) The company only had the following cement inventory transactions/occurrences during January 2022:
Date Description Quantity (Kg) Purchase price per kg in Rands
2 January Purchase 250 R11.20
14 January Purchase 250 R11
15 January Returns (Note 1) (50) -
18 January Destroyed (Note 2) (100) -
20 January Issued to the production of a batch of bricks for Order 003. See order 003 below. (200) -
Note 1: 50 kgs of the cement purchased on the 14th January was returned on the 15th January due to inferior quality
Note 2: Cement destroyed by rain on the 18th January had no scrap value and thus had to be written off on the same day.
Order 003
Building Bricks Limited recorded the following costs to produce the batch of 10 000 bricks ordered in January 2022:
Order 003 Cost in Rands
Raw materials (cement) used ?
Supervisor Salaries at the production plant 150 000
Direct labour hours (57 hours) 15 250
Consumables used e.g.sand, water 5 300
Depreciation of equipment used in production plant 70 000
Other variable costs 6 508
The customer who made the order for bricks, Point Properties Ltd, later mentioned that they actually only need 75% of the order. The Financial Manager of Building Bricks Limited responded by saying that it is fine with them as they will keep the remainder of bricks in their inventory for other customers who might later order some bricks. Thus only 7 500 bricks were sold to Point Properties Ltd on the 30th January 2022.
Building Bricks Limited conducted a physical stock-count of completed bricks on hand at 31 January 2022 that found 2400 bricks were on hand whereas the inventory control account in the accounting records showed 2 500 bricks on hand.
REQUIRED:
1.1) Calculate the cost of the cement issued to the production of the batch of bricks on the 20 January and the value of the closing inventory of cement at the end of January assuming the entity uses the weighted average method for valuation of inventory (cement) because it is homogenous.
Round off to two decimal places. (26 marks)
1.2) Assuming that normal production hours per batch are 60 hours, determine the
cost per unit for this batch of 10 000 bricks (Order 003). (7 Marks)
1.3) Prepare the journal entry to correct the inventory control account as a result of the shortage of bricks identified by the stock count. Narrations and the date is
not required. (4 marks)
1.4) On 31 January 2022, Building Bricks Limited determined that owing to the cheaper cost of bricks of a competitor, its own bricks can only be sold at R21.50 each. Determine the carrying amount of finished goods (bricks) in the statement of financial position of Building Bricks Limited at 31 January 2022 after taking all the information in the question into account.
Support your answer with reasons from IAS 2. (3 marks)
Aligns to SAICA competencies:
B1.2 Accounting information systems
a) Maintain an accounting information system that is manual, automated or a combination of both.
D1.1 Financial reporting: in accordance with International Financial Reporting
Standards (IFRS)
a) Prepare, analyse and evaluate general purpose financial statements in accordance with IFRS for an entity, which could be a for-profit entity, an SME, a public sector entity or a not-for-profit entity
QUESTION 2 (12 marks)
The following information pertains to Sweet Tooth Ltd for the year ended 31 December 2021:
a) Share capital as at 1 January 2021 was R 2 500 000. This refers to 2,5 million ordinary shares of R1 each that were in issue since incorporation.
b) On 1 June 2021, the public were invited to buy 500 000 ordinary shares at R2 per share regarding a new issue of shares. The directors further decided to underwrite the full share issue. The underwriting was done by Super Bank Ltd for an underwriting commission of R50 000.
By the offer’s closing date of 31 October 2021, the offer was oversubscribed for as 600 000 applications were received for the 500 000 shares. The shares were issued on the 1 November 2021. Share issue expenses (excluding the underwriter’s commission) relating to the issue totalled R 65 000. The share issue expenses as well as the underwriter’s commission were paid on the same day as the issue.
c) On the 31 December 2021, the directors of Sweet Tooth Ltd decided to reward its shareholders by declaring dividends of 20c per share. The dividends were still outstanding at 31 December 2021.
REQUIRED:
Prepare the journal entries to account for all the transactions in the books of Sweet Tooth Limited from all the information given in the question.
Dates and narrations are not required for the journal entries. (12 marks)
Aligns to SAICA competencies:
D1.1 Financial reporting: in accordance with International Financial Reporting
Standards (IFRS)
a) Prepare, analyse and evaluate general purpose financial statements in accordance with IFRS for an entity, which could be a for-profit entity, an SME, a public sector entity or a not-for-profit entity
Question 3 (48 marks)
Arabian Nights Ltd is a restaurant franchise that is known for its traditional décor and exotic cuisine. The following are extracts from Arabian Nights Ltd’s Statement of Comprehensive Income as well as the Statement of Financial Position for the financial year ended 31 December 2021.
Statement of Financial Position of Arabian Nights Ltd at 31 December 2021
ASSETS 2021 2020
Non-current assets 12 130 000 10 145 000
Property, plant and equipment [see (b) below] 11 560 000 9 745 000
Investments 570 000 400 000
Current assets 2 090 990 1 417 008
Inventory 430 000 370 000
Trade and other receivables 27 000 30 000
Prepaid insurance 36 000 45 000
Cash and cash equivalents 1 597 990 972 008
Total assets 14 220 990 11 562 008
EQUITY AND LIABILITIES
Equity attributable to owners 13 740 768 10 994 000
Share Capital (R1 ordinary shares) [see (a) below] 10 340 000 10 000 000
Retained earnings 3 330 768 994 000
Revaluation Surplus [see (b) below] 70 000 0
Total equity
Current Liabilities 480 222 568 008
Trade and other payables 124 000 345 000
Current tax payable 356 222 223 008
Total liabilities 480 222 568 008
Total equity and liabilities 14 220 990 11 562 008
Extracts from the Statement of Comprehensive Income (SCI) of Arabian Nights
Ltd for the financial year ended 31 December 2021
Profit before tax ?
Income tax expense 947 632
Profit for the year ?
Additional information:
a) Shares issued during the year were as follows:
• Bonus (capitalization) shares were issued in June 2021 to existing shareholders where 1 additional share was issued for every 100 shares held. There were 10 000 000 ordinary shares in issue at 1 January 2021.
• A new issue of ordinary shares occurred in October 2021. The share issue costs associated with this issue amounted to R30 000 and were paid in the same month
b) The following relates to transactions relating to PPE.
• Land was purchased for the first time during the year and it was decided to report it using the revaluation model. At 31 December 2021, the fair value of the land was higher than its cost.
• Other PPE consists of Furniture and Vehicles, both of which are measure and reported using the cost model.
• Furniture with a carrying value of R220 000 was completely destroyed when a fire broke out at one of Arabian Nights Ltd’s restaurants. Proceeds received from the insurance company relating to this amounted to R250 000 and was credited to the Gain on disposal of furniture account.
No other disposals of furniture took place during the year.
• A vehicle with a carrying value of R380 000 was disposed of for R360 000 cash. This was the only disposal of vehicles during the year.
• Total depreciation for vehicles and furniture amounted to R1 275 000 for the year. Land is not depreciated.
c) Dividends received from the investments amounted to 35 000.
d) No dividends were declared during the year.
REQUIRED:
Prepare the statement of cash flows for Arabian Nights Ltd for the financial year ended 31 December 2021, using the indirect method.
(48 marks)
Aligns to SAICA competencies:
D1.1 Financial reporting: in accordance with International Financial Reporting
Standards (IFRS)
a) Prepare, analyse and evaluate general purpose financial statements in accordance with IFRS for an entity, which could be a for-profit entity, an SME, a public sector entity or a not-for-profit entity