QUESTION 1 16 MARKS AA Entity and all its suppliers are registered VAT vendors. Where applicable, VAT is charged at 15%. AA Entity sells crockery at a mark-up percentage of 25% gross profit on cost price. AA Entity is insured for potential inventory losses due to fire for an amount of R218 500 (including VAT). On 21 July 2019, a fire broke out in the store room of AA Entity which destroyed almost all of AA Entity’s trade inventories, except for trade inventories with a cost price of R80 000 that the entity could salvage. BB (Pty) Ltd Accounting Entries Assignment.This salvaged trade inventory items are still in a very good condition and will be sold at the normal selling price. AA Entity uses the periodic inventory system and therefore does not know what the value of trade inventories on hand was on 21 July 2019. The last inventory count was performed at the reporting date on 30 June 2019 and the inventory records reflected trade inventories on hand at a cost price of R341 000 on that date. The total value of supplier’s invoices for trade inventories purchased since the reporting date until the date of the fire, amounted to R59 280. The total value of sales invoices made out to customers since the reporting date until the date of the fire amounted to R159 600. REQUIRED 1.1 Recognise the loss in respect of trade inventories destroyed in the fire in the records (general journal) of AA entity for the reporting period ending 31 July 2019. (3)

1.2 Calculate the value of the insurance compensation that will probably be paid by the insurance company in respect of the trade inventories destroyed in the fire. (10) Recognise the insurance compensation in the records (general journal) of AA entity for the reporting period ending 31 July 2019. (3) QUESTION 2 12 MARKS Mist (Pty) Ltd is a company with a reporting period of 30 June. Currently the company’s accountant is preparing the financial statements for the year ending 30 June 2019. Mist (Pty) Ltd operates from a building it is leasing from a property developer. Mist (Pty) Ltd occupied the building on 1 July 2016 and pays monthly rental. The monthly rentals as from 1 July 2017 are R14 000 and there is an 10% annual increase. The lease agreement is for four years. BB (Pty) Ltd Accounting Entries Assignment.

REQUIRED

2.1 Provide the necessary journal entries for the reporting of 30 June 2019. (6) 2.2 Identify differences between an operating lease and a finance lease. (6) QUESTION 3 22 MARKS BB (Pty) Ltd is a company in the Capricorn district. The company is in the business of manufacturing clothes. The company has a financial reporting period of 28 February. Currently the company is preparing the financial statements for the period ending 28 February 2019. Below are independent scenarios which do not affect each other. Scenario A On 1 June 2018, BB (Pty) Ltd made two critical investment which are as follows; Investment 1 On 1 June 2018 BB (Pty) Ltd purchased 6 000 000 (60% interest) of the issued ordinary shares in Brexit (Pty) Ltd for R8 000 000. Brexit (Pty) Ltd on 1 February 2019 declared dividends amounting to R10 000 000 payable to the shareholders registered on this date. On the 18th of February 2019 Brexit paid out the dividend payable. There was no change in the issued share capital since 1 June 2018 in Brexit (Pty) Ltd. Investment 2 On 2 June 2018 BB acquired 15% interest in Chick Ltd for R2 500 000 excluding transaction costs as a long-term investment by purchasing 140 000 ordinary shares of the total issued shares in the company. On 15 January 2019 Chick Ltd declared an interim dividend of R15 per share to its registered shareholders as at this date. The dividend cash payment was done on 29 January 2019. As at 28 February 2019 the market value of Chick Ltd shares was R25.86 per share. BB (Pty) Ltd Accounting Entries Assignment.REQUIRED Provide the journal entries to record the transactions above and show them separately. (12) Scenario B On 1 April 2015, BB (Pty) Ltd acquired a label (trademark) to use for its clothing. The label is a renowned to use for its clothing. The label is renowned internationally. The cost of label was R875 000. The estimated useful life of the trademark is 10 years. On 1 March 2017, it was estimated that the remaining useful life is 6 years. On 28 February 2019, it was determined that the recoverable amount of the trademark is R250 000 and the remaining useful life remained unchanged. REQUIRED Recognise the all the transactions above as journal in the accounting records of BB (Pty) Ltd which relate to the trademark (10).BB (Pty) Ltd Accounting Entries Assignment.