Assignment 2 Question 1 35 Marks Shipengo Limited owns two buildings as follows: – a head office… 1 answer below »

Assignment 2

Question 1 35 Marks

Shipengo Limited owns two buildings as follows:

– a head office building located in Windhoek; and

– another office building located in Rehoboth

Windhoek building

– The office building located in Windhoek is used as Shipengo Limited’s head office.

– The building was purchased on 1 January 2015 at a cost of N$ 1 200 000.

– A fire broke out on 30 June 2015, and completely destroyed this building.

Rehoboth building

– The property in Rehoboth was leased under an operating lease to a tenant, Kapana Limited. Kapana Limited was paying a monthly rental of N$ 15 000. After the fire, Shipengo Limited urgently needed new premises for its head office. Since Kapana Limited was always late in paying their lease rentals, Shipengo Limited decided to immediately evict them and move their head office to this building situated in Rehoboth.

– The building in Rehoboth was purchased on 1 January 2015 for N$ 500 000.

– On 30 June 2015, the fair value of the building in Rehoboth was N$ 950 000.

– There was no change in fair value at 31 December 2015.

– The total useful life was estimated to be 10 years from the date of purchase and the residual value was estimated to be nil.

Shipengo Limited uses:

– The cost model to measure its property, plant and equipment; and

– The fair value model for its investment properties

– Buildings are depreciated over 10 years.

REQUIRED

a) Define “investment Property” and “owner occupied property”. 4

b) Journalise the above transactions in the books of Shipengo Limited for the year ended 31 December 2015. Journal narrations are required 23

c) Disclose the investment property note and the profit before tax note in Shipengo Limited’s financial statements for the year ended 31 December 2015. 8

Question 2 35 Marks

Hafeni Limited changed its inventory valuation method from weighted average method to FIFO as this will result in fairer presentation as the matching of revenue and expenses will be improved.

The effect of the change is as follows:

Year-end inventory balances 2015

N$ 2014

N$ 2013

N$ 2012

N$

Weighted average method (old method)

15 000

14 000

12 000

10 000

FIFO method (new method)

18 000

15 000

14 000

11 000

The draft financial statements before the change in accounting policy are as follows:

HAFENI LIMITED

DRAFT STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2015

2015

N$ 2014

N$

Revenue

1 200 000

900 000

Cost of sales

(420 000)

(350 000)

Gross profit

780 000

550 000

Other costs

(220 000)

(200 000)

Profit before tax

560 000

350 000

Income tax expense

(235 200)

(136 500)

Profit for the year

324 800

213 500

Other comprehensive income for the year

Total comprehensive income for the year

324 800

213 500

HAFENI LIMITED

DRAFT STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2015

Retained earnings

N$

Balance: 1/1/2014

67 500

Total comprehensive income: 2014

213 500

Balance: 31/12/2014

281 000

Total comprehensive income: 2015

324 800

Balance : 31/12/2015

605 800

REQUIRED

Prepare the statement of profit or loss and other comprehensive income, statement of changes in equity, statement of financial position and the relevant notes of Hafeni Limited for the year ended 31 December 2015 in accordance with International Financial Reporting Standards.

Question 3 30 Marks

Omaheke Limited’s share capital as at 01 January 2014 was as follows:

– 500 000 ordinary shares issued at N$0.50 each

– 200 000 8% non cumulative non-redeemable preference shares issued at N$ 2 each

On 30 September 2014, the company announced a rights issue of 1 ordinary share for every 4 shares held at a price of N$2.20. The market price at this date was N$2.50. All the shareholders took up the offer on this date.

The results of operations of Omaheke Limited are as follows:

OMAHEKE LIMITED

RESULTS OF OPERATIONS

FOR THE YEAR ENDED 31 DECEMBER 2014

2014

N$ 2013

N$

Profit before tax

750 000

730 000

Income tax expense

(400 000)

(300 000)

Profit for the period

350 000

430 000

Ordinary dividend declared

(40 000)

(30 000)

Preference dividend declared

(32 000)

(32 000)

Retained earnings for the year

278 000

368 000

Retained earnings – beginning of the year

568 000

200 000

Retained earnings – end of the year

846 000

568 000

REQUIRED

a) Calculate the earnings per share and dividend per share (13)

b) Prepare the earnings per share and dividend per share note for inclusion in the notes to the financial statements for the year ending 31 December 2014 (4)

c) Prepare an extract of the statement of changes in equity for the year ending 31 December 2014. (13)

Comparatives are required.

THE END

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