Homework Answers

Question five:

As per IAS 38, Development costs can either qualify or not qualify for capitalization. Research and Expenditure are also part of Intangible Assets. J& Son is a manufacturing company that manufactures foldable plastic tables. It has engaged in some developments and below are the forecasted sales from 2017 to 2020 for the company.

2017 2018 2019 2020

Sales from Other Activities 500 700 800 800

Sales from Fold-up tables 0 500 700 900

Development Costs (600) 0 0 0

Required:

Show how the development costs should be treated if the cost qualify for capitalization, capitalizing it in line to sales. (NB: Amortize every year in relation to the sales each year)

Question four:

i)When a new partner was admitted into partnership, he had to pay $5,000 as goodwill.There was a squabble between the senior partner and the bookkeeper. Thebookkeeper’s argument was that the money needs to be credited to the account of newpartner because after all it is his money”. However senior partner strongly disagreed tothis treatment.

Required:

Give your advice as to the proper treatment of this $5,000. Explain your reasons fully.

ii)Teko and Thuto are partners in a firm sharing profits in the ratio of 3:2. They admit Keiso as a new partner. Teko sacrificed 1/5 of his share and Thuto 1/4 of his share in favour of Keiso. Calculate new profit sharing ratio of Teko, Thuto and Keiso.

iii) Assume Teko and Thuto’s share capitals are $40,000 and &30,000 respectively. Keiso will invest $18,000 for one-third interest in capital. Goodwill is recorded.Show the journal entries.

Question one

On the 1st May, Nkandla Ltd undertook a contract for R680, 000. Nkandla incurred the following expenses during the year:

Materials issued from stores 65,000

Materials purchased for the contract 30,000

Plant installed at cost 42,000

Wages paid 105,600

Wages accrued due on the 31st Dec 31,500

Direct expenses paid 27,300

Direct expenses accrued due 31st Dec 1,700

Establishment 5,800

Notes:

Of the plant and material charged to the contract, the plant which cost R2, 000 and materials costing R1, 500 were lost. Some of the materials costing R3, 000 were sold for R3, 900. On the 31st Dec, the plant which cost R200 was damaged, rendering itself useless. The work certified was R240, 000 and 80% of the same was received as cash. The cost of work done but uncertified was R1, 000. Depreciation on plant was charged at the rate of 10% per annum.

Required:

(a) Prepare the contract account for the year ended 31st December.

Question two:

(a) Harcourt Ltd bought furniture on hire purchase from Nkalimeng Furnitures on January 2017. If Harcourt pays the full amount immediately, he will pay $120,000. Instead, he decided to make down payment of $25,000, and pay the remaining balance in instalments. The first instalment of $12,000 was paid in December 2017. The next 3 instalments of $20,500 were also paid at the end of the 2018, 2019 and 2020 respectively. He had to pay the balance in 2021.

Required: calculate the total interest paid by Harcourt Ltd.

(b) Create a scenario to demonstrate how Hire Vendor will account for the items bought under

hire purchase. Hint: your scenario must include the following:

i)Asset a/c

ii)Suppliers a/c

iii)Hire purchase interest a/c

iv)Statement of financial position extract

v)The instalments should be paid three times