Integrated assignment (Accounting 200 & Taxation 200) Background information Who they are Khoza Bazaar (Pty) Ltd ("Khoza Bazaar") is a retail company that owns and operates three large supermarkets in the South of Johannesburg. Where they come from Their founder is Jackson Khoza who opened the first retail store in 2009 in the South of Johannesburg, when he purchased the Covan Trading Store. Khoza's brother and sister, Marvin and Claire assisted him with the purchase. Khoza ran the supermarket with a focus on product availability, low prices and friendly customer service. By 2012, Khoza Bazaar had develop a reputation as the supermarket of choice in its area and the business had become very profitable. The business had also become cash positive because sales were on a cash only basis and suppliers expected payment on 30 days. In 2015, Marvin and Claire joined the business full time and the siblings began an expansion programme, opening two further stores in Soweto and Lenasia. The new stores followed the same formula to the letter and, in due course, became profitable enterprises. In 2017, the company expanded into the purchase and sale of affordable, good quality furniture. The furniture section was added to all three stores. Role players in Khoza Bazaar Jackson Khoza - CEO of Khoza Bazaar Marvin Khoza - COO of Khoza Bazaar Claire Khoza - CFO of Khoza Bazaar Busi Mboniswa - Financial manager of Khoza Bazaar Bradley Hayden - Financial Accountant of Khoza Bazaar Head office management The head office of Khoza Bazaar is situated on a piece of land owned by Khoza Bazaar in Glenvista. The head office is fully occupied by Khoza Bazaar and the accounting function of all three stores are managed by the head office accounting team under the leadership of Claire Khoza, the CFO. Warehouse Also situated on the piece of land in Glenvista is a large warehouse. The head office purchases the inventory for the three stores centrally where it is then stored in the warehouse. From the warehouse the inventory is distributed to the three stores based on their inventory levels and requirements. Khoza Bazaar owns several delivery vehicles to distribute the inventory as and when it is required at the stores. With the central warehouse and distribution facility, Khoza Bazaar is able to negotiate favourable prices and terms on the food and furniture items that they sell. It is Khoza Bazaar's policy to pay their suppliers within 30 days (unless the supplier offers early pay discounts). All food items are sold for cash at their stores, while Khoza Bazaar will offer credit to customers on the furniture sales after performing valid credit checks. Vacant Land On 5 June 2015, while expanding to Soweto and Lenasia, the company purchased a piece of land in Vanderbijlpark and planned to build a warehouse on it sometime in the future, if the company expand even further south to Vanderbijlpark and Vereeniging. The cost price of that piece of land was R5 000 000 Year end Khoza Bazaar has a 28 February year end. Value-added Tax You can ignore VAT for most of this assignment. Only in Task B (Part B Question 4) you will be required to answer a few short VAT questions. Financial statements of prior periods Attached is an extract from the financial statements of the previous period (28 February 2019): 2018 R'000 258 000 250 000 8 000 308 000 140 000 430 8 000 159 570 STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2019 Notes 2019 R'000 ASSETS Non-current assets 521 000 Property, plant and equipment 5 500 000 Intangible assets 11 000 Financial asset at fair value through other comprehensive income 10 000 Current assets 399 500 Inventories 170 000 Trade and other receivables 500 Financial assets at fair value through profit or loss 10 500 Cash and cash equivalents 218 500 Total assets 920 500 EQUITY AND LIABILITIES Total equity 489 900 Share capital 300 000 Retained earnings 172 900 Revaluation surplus 15 000 Mark-to-market reserve 2 000 Total liabilities 430 600 Non-current liabilities Long-term borrowings 250 000 Current liabilities 180 600 Trade and other payables 103 000 Current portion of long-term borrowings 10 000 Current tax payable 47 600 Bank overdraft 20 000 566 000 240 000 150 000 85 000 5 000 326 000 235 000 91 000 71 000 10 000 10 000 Total equity and liabilities 920 500 566 000 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2019 Share capital Revaluation Mark-to Retained surplus market earnings reserve R'000 R'000 R'000 R'000 Balance at 1 March 2017 150 000 5 000 43 000 Total comprehensive 51 500 income Dividend paid (9 500) Balance at 28 Feb 2018 150 000 5 000 85 000 Total comprehensive 10 000 2 000 102 500 Share capital issued 150 000 Dividend paid (14 600) income Balance at 28 Feb 2019 300 000 15 000 2 000 172 900 EXTRACT OF THE NOTES TO THE FINANCIAL STATEMENTS Vehicles Total Office equipment 50 000 75 000 50 000 80 000 250 000 305 000 5. Property, plant and equipment Land Carrying amount at 1 March 2018 150 000 Gross carrying amount 150 000 cost Accumulated depreciation Depreciation for the year Revaluation 10 000 Additions 105 000 Replacements Scrapping of assets Carrying amount at 28 February 2019 265 000 Gross carrying 265 000 amount/cost Accumulated depreciation (30 000) (38 000) (25 000) (5 000) (55 000) (43 000) 10 000 268 000 20 000 (5000) 163 000 20 000 (5000) 190 000 255 000 (65 000) 45 000 75 000 500 000 595 000 (30 000) (95 000) Integrated assignment (Accounting 200 & Taxation 200) Task B Bradley Hayden, the financial accountant of Khoza Bazaar provided you as the assistant accountant with the task of assisting with the cost calculation of the manufactured canned foods for the year ended 28 February 2020. He provides you with the following information: Canned foods manufactured On 1 May 2019, the manufacturing of the canned foods was started. Raw materials are purchased from local suppliers as well as imported from the USA. The raw materials are then distributed to the three lines that will be manufactured that was named, Can V (for the canned vegetables), Can F (for the canned fruit) and Can T (for the tomato and onion mix). 1. Raw materials locally purchased Khoza Bazaar purchased 200 000 kg of raw materials from local suppliers for R2.60 per kg. The suppliers were paid within 30 days. The purchases were delivered to the warehouse at R23 000 and was paid in cash on 2 May 2019. 2. Raw materials imported On 1 May 2019 (the transaction date) 40 000 kg of raw materials were imported from the USA at $1,5 per kg. The supplier in the USA was paid on 1 August 2019. The following spot rates apply: Date R:$1 1 May 2019 11,85 1 August 2019 12,45 Transport costs from the harbour to the factory in Johannesburg amounted to R12 000 and was paid in cash on 20 May 2019. 3. Raw materials issued to production 200 000 kg of raw materials from both locally purchased and imported in the ratio of 3:1 were used during the year in the manufacturing process in the following ratio - 1:2:2 (Can V, Can F and Can T). 4. Labour Wages for the period 1 May 2019 to 28 February 2020 amounted to R1 570 000 and were allocated as follows: - 80% related to factory workers, - 4% related to cleaning staff working in the factory, 6% related to cleaning staff working in the administrative offices; and 10% related to office workers in the administrative offices. All factory-related wages were considered to be variable. 10% of the factory workers' time were lost due to an unsanctioned protest. 5. Electricity The total electricity bill for the warehouse amounted to R585 000 for the period (1 May to 28 February). 80% related to the factory and 20% to the storage part of the warehouse. The factory-related electricity was considered to be variable. Wages and electricity were allocated to the production process as follows for the different lines - 20% (Can V), 35% (Can F) and 45% (Can T). 6. Other fixed overheads (for the period 1 May to 28 February) CAN V CAN F CANT Fixed overhead R230 000 R275 000 R310 000 Normal capacity 200 000 units 210 000 units 180 000 units Actual production 200 000 units 185 000 units 205 000 units 7. Other fixed overheads are allocated to the production process based on normal capacity. Leased machinery A special machine was acquired through a 5-year contract with Lee Ltd that will be used in the canning process. The agreement has the following stipulations: Khoza Bazaar will pay a once off fee on 1 March 2019 to the attorneys of R30 000 cash for drafting and concluding the contract; Khoza Bazaar will pay R550 000 on 28 February every year as consideration for the right to use the machine. The implicit interest rate in the contract is 17,283% compounded annually; At the end of the 5-year period, Khoza Bazaar is required to pay Lee Ltd an additional, final amount of R125 000 and ownership of the delivery vehicle does not transfer to Khoza Bazaar; Khoza Bazaar depreciates machinery over 5 years using the straight-line method and is allocated equally to the three production lines. Units produced There were no work-in-progress inventories at the end of the year. 80% of all finished goods were sold during the year. Sales price of manufactured goods The following sales prices apply to the canned goods: Can V = R15.75; Can F = R23.90; Can T = R18.20 8. 9. Part A (Accounting) Bradley requires you to provide him with the following calculations: 1. Manufactured cost per unit for each of the three product lines; 2. Value of all inventory items (raw materials, WIP and finished products) as at 28 February 2020; 3. Total sales value of manufacture goods for the year ended 28 February 2020. Please note: Round off all amounts to the nearest Rand, except for the cost per unit where two decimal places must be used. Show all your calculations clearly. Part B (Taxation) Part of your duties is to coordinate and attend the annual stock take for the canned foods division. 1. Bradley asked that you draw up a document with instructions for the counting team prior to the stock take. List 3 of those instructions. You can do this on PowerPoint (1 single slide ONLY), or handwritten. Marks will be awarded for applicable instructions, originality and correct spelling. (5) 2. After the stock take you made the following summary of canned foods counted. (Use the number of stock items and cost per unit in the table below for this part of the question only.) Stock item Total per count Damaged Cost per unit Number of sheets cans included units sold in total Can V 39 505 16 R3,57 160 000 Can F 37 090 80 6,27 148 000 Can T 40 980 7 6.86 164 000 Due to the nature of cans, and the possibility of food poisoning, the damaged cans have to be thrown away, and has no value. Use the above summary from the Stock take, to complete the following line items on the Income Tax return for the canned foods division: (Tip: Remember to indicate amounts that should be deducted with a "--, and do not add spaces between thousands and hundreds.) Show your calculations clearly in the "Calculation" column. (13) Calculation Amount Item Sales Opening stock Purchases Closing stock Integrated assignment (Accounting 200 & Taxation 200) Background information Who they are Khoza Bazaar (Pty) Ltd ("Khoza Bazaar") is a retail company that owns and operates three large supermarkets in the South of Johannesburg. Where they come from Their founder is Jackson Khoza who opened the first retail store in 2009 in the South of Johannesburg, when he purchased the Covan Trading Store. Khoza's brother and sister, Marvin and Claire assisted him with the purchase. Khoza ran the supermarket with a focus on product availability, low prices and friendly customer service. By 2012, Khoza Bazaar had develop a reputation as the supermarket of choice in its area and the business had become very profitable. The business had also become cash positive because sales were on a cash only basis and suppliers expected payment on 30 days. In 2015, Marvin and Claire joined the business full time and the siblings began an expansion programme, opening two further stores in Soweto and Lenasia. The new stores followed the same formula to the letter and, in due course, became profitable enterprises. In 2017, the company expanded into the purchase and sale of affordable, good quality furniture. The furniture section was added to all three stores. Role players in Khoza Bazaar Jackson Khoza - CEO of Khoza Bazaar Marvin Khoza - COO of Khoza Bazaar Claire Khoza - CFO of Khoza Bazaar Busi Mboniswa - Financial manager of Khoza Bazaar Bradley Hayden - Financial Accountant of Khoza Bazaar Head office management The head office of Khoza Bazaar is situated on a piece of land owned by Khoza Bazaar in Glenvista. The head office is fully occupied by Khoza Bazaar and the accounting function of all three stores are managed by the head office accounting team under the leadership of Claire Khoza, the CFO. Warehouse Also situated on the piece of land in Glenvista is a large warehouse. The head office purchases the inventory for the three stores centrally where it is then stored in the warehouse. From the warehouse the inventory is distributed to the three stores based on their inventory levels and requirements. Khoza Bazaar owns several delivery vehicles to distribute the inventory as and when it is required at the stores. With the central warehouse and distribution facility, Khoza Bazaar is able to negotiate favourable prices and terms on the food and furniture items that they sell. It is Khoza Bazaar's policy to pay their suppliers within 30 days (unless the supplier offers early pay discounts). All food items are sold for cash at their stores, while Khoza Bazaar will offer credit to customers on the furniture sales after performing valid credit checks. Vacant Land On 5 June 2015, while expanding to Soweto and Lenasia, the company purchased a piece of land in Vanderbijlpark and planned to build a warehouse on it sometime in the future, if the company expand even further south to Vanderbijlpark and Vereeniging. The cost price of that piece of land was R5 000 000 Year end Khoza Bazaar has a 28 February year end. Value-added Tax You can ignore VAT for most of this assignment. Only in Task B (Part B Question 4) you will be required to answer a few short VAT questions. Financial statements of prior periods Attached is an extract from the financial statements of the previous period (28 February 2019): 2018 R'000 258 000 250 000 8 000 308 000 140 000 430 8 000 159 570 STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2019 Notes 2019 R'000 ASSETS Non-current assets 521 000 Property, plant and equipment 5 500 000 Intangible assets 11 000 Financial asset at fair value through other comprehensive income 10 000 Current assets 399 500 Inventories 170 000 Trade and other receivables 500 Financial assets at fair value through profit or loss 10 500 Cash and cash equivalents 218 500 Total assets 920 500 EQUITY AND LIABILITIES Total equity 489 900 Share capital 300 000 Retained earnings 172 900 Revaluation surplus 15 000 Mark-to-market reserve 2 000 Total liabilities 430 600 Non-current liabilities Long-term borrowings 250 000 Current liabilities 180 600 Trade and other payables 103 000 Current portion of long-term borrowings 10 000 Current tax payable 47 600 Bank overdraft 20 000 566 000 240 000 150 000 85 000 5 000 326 000 235 000 91 000 71 000 10 000 10 000 Total equity and liabilities 920 500 566 000 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2019 Share capital Revaluation Mark-to Retained surplus market earnings reserve R'000 R'000 R'000 R'000 Balance at 1 March 2017 150 000 5 000 43 000 Total comprehensive 51 500 income Dividend paid (9 500) Balance at 28 Feb 2018 150 000 5 000 85 000 Total comprehensive 10 000 2 000 102 500 Share capital issued 150 000 Dividend paid (14 600) income Balance at 28 Feb 2019 300 000 15 000 2 000 172 900 EXTRACT OF THE NOTES TO THE FINANCIAL STATEMENTS Vehicles Total Office equipment 50 000 75 000 50 000 80 000 250 000 305 000 5. Property, plant and equipment Land Carrying amount at 1 March 2018 150 000 Gross carrying amount 150 000 cost Accumulated depreciation Depreciation for the year Revaluation 10 000 Additions 105 000 Replacements Scrapping of assets Carrying amount at 28 February 2019 265 000 Gross carrying 265 000 amount/cost Accumulated depreciation (30 000) (38 000) (25 000) (5 000) (55 000) (43 000) 10 000 268 000 20 000 (5000) 163 000 20 000 (5000) 190 000 255 000 (65 000) 45 000 75 000 500 000 595 000 (30 000) (95 000) Integrated assignment (Accounting 200 & Taxation 200) Task B Bradley Hayden, the financial accountant of Khoza Bazaar provided you as the assistant accountant with the task of assisting with the cost calculation of the manufactured canned foods for the year ended 28 February 2020. He provides you with the following information: Canned foods manufactured On 1 May 2019, the manufacturing of the canned foods was started. Raw materials are purchased from local suppliers as well as imported from the USA. The raw materials are then distributed to the three lines that will be manufactured that was named, Can V (for the canned vegetables), Can F (for the canned fruit) and Can T (for the tomato and onion mix). 1. Raw materials locally purchased Khoza Bazaar purchased 200 000 kg of raw materials from local suppliers for R2.60 per kg. The suppliers were paid within 30 days. The purchases were delivered to the warehouse at R23 000 and was paid in cash on 2 May 2019. 2. Raw materials imported On 1 May 2019 (the transaction date) 40 000 kg of raw materials were imported from the USA at $1,5 per kg. The supplier in the USA was paid on 1 August 2019. The following spot rates apply: Date R:$1 1 May 2019 11,85 1 August 2019 12,45 Transport costs from the harbour to the factory in Johannesburg amounted to R12 000 and was paid in cash on 20 May 2019. 3. Raw materials issued to production 200 000 kg of raw materials from both locally purchased and imported in the ratio of 3:1 were used during the year in the manufacturing process in the following ratio - 1:2:2 (Can V, Can F and Can T). 4. Labour Wages for the period 1 May 2019 to 28 February 2020 amounted to R1 570 000 and were allocated as follows: - 80% related to factory workers, - 4% related to cleaning staff working in the factory, 6% related to cleaning staff working in the administrative offices; and 10% related to office workers in the administrative offices. All factory-related wages were considered to be variable. 10% of the factory workers' time were lost due to an unsanctioned protest. 5. Electricity The total electricity bill for the warehouse amounted to R585 000 for the period (1 May to 28 February). 80% related to the factory and 20% to the storage part of the warehouse. The factory-related electricity was considered to be variable. Wages and electricity were allocated to the production process as follows for the different lines - 20% (Can V), 35% (Can F) and 45% (Can T). 6. Other fixed overheads (for the period 1 May to 28 February) CAN V CAN F CANT Fixed overhead R230 000 R275 000 R310 000 Normal capacity 200 000 units 210 000 units 180 000 units Actual production 200 000 units 185 000 units 205 000 units 7. Other fixed overheads are allocated to the production process based on normal capacity. Leased machinery A special machine was acquired through a 5-year contract with Lee Ltd that will be used in the canning process. The agreement has the following stipulations: Khoza Bazaar will pay a once off fee on 1 March 2019 to the attorneys of R30 000 cash for drafting and concluding the contract; Khoza Bazaar will pay R550 000 on 28 February every year as consideration for the right to use the machine. The implicit interest rate in the contract is 17,283% compounded annually; At the end of the 5-year period, Khoza Bazaar is required to pay Lee Ltd an additional, final amount of R125 000 and ownership of the delivery vehicle does not transfer to Khoza Bazaar; Khoza Bazaar depreciates machinery over 5 years using the straight-line method and is allocated equally to the three production lines. Units produced There were no work-in-progress inventories at the end of the year. 80% of all finished goods were sold during the year. Sales price of manufactured goods The following sales prices apply to the canned goods: Can V = R15.75; Can F = R23.90; Can T = R18.20 8. 9. Part A (Accounting) Bradley requires you to provide him with the following calculations: 1. Manufactured cost per unit for each of the three product lines; 2. Value of all inventory items (raw materials, WIP and finished products) as at 28 February 2020; 3. Total sales value of manufacture goods for the year ended 28 February 2020. Please note: Round off all amounts to the nearest Rand, except for the cost per unit where two decimal places must be used. Show all your calculations clearly. Part B (Taxation) Part of your duties is to coordinate and attend the annual stock take for the canned foods division. 1. Bradley asked that you draw up a document with instructions for the counting team prior to the stock take. List 3 of those instructions. You can do this on PowerPoint (1 single slide ONLY), or handwritten. Marks will be awarded for applicable instructions, originality and correct spelling. (5) 2. After the stock take you made the following summary of canned foods counted. (Use the number of stock items and cost per unit in the table below for this part of the question only.) Stock item Total per count Damaged Cost per unit Number of sheets cans included units sold in total Can V 39 505 16 R3,57 160 000 Can F 37 090 80 6,27 148 000 Can T 40 980 7 6.86 164 000 Due to the nature of cans, and the possibility of food poisoning, the damaged cans have to be thrown away, and has no value. Use the above summary from the Stock take, to complete the following line items on the Income Tax return for the canned foods division: (Tip: Remember to indicate amounts that should be deducted with a "--, and do not add spaces between thousands and hundreds.) Show your calculations clearly in the "Calculation" column. (13) Calculation Amount Item Sales Opening stock Purchases Closing stock