QUESTION ONE [20] Details of an acquisition of inventory by Rice Limited are as follows: Goods for resale where all purchased on credit on 1 July 2019. The marked price was R30 000, but a trade discount of R2 000 was granted along with an early settlement discount of 20% off the discounted price. The settlement discount was offered on the condition that the amount due was paid in full by 31 August 2019. The inventory was paid for on 2 September 2019 due to cash flow problems. Required: Provide journal entries relating to the acquisition of the inventory in Rice Limited's accounting records. [30] QUESTION TWO Richy Limited purchased a plant that cost R500 000 on 1 January 2016. Depreciation is provided over its useful life of 5 years using the straight line method to a nil residual value. Richy Limited measures plant under the revaluation model. The plant was revalued as follows: 01 January 2017 R120 000 01 January 2018 R50 000 01 January 2019 R50 000 Richy Limited transfers the maximum amount from the realised portion of the revaluation surplus to equity. Required: Prepare the journal entries for the plant for years ended 31 December 2016 to 2019. QUESTION THREE [25] Use the data provided to answer the questions that follow relating to Newtech Ltd for 2019: Abbreviated Statement of Financial Position: Assets Non Current/Fixed Inventory Receivables Cash 2019 4 200 000 400 000 1 550 000 600 000 6 750 000 2018 3 000 000 600 000 1 200 000 300 000 5 100 000 Equity and Liabilities Share Capital (R2 shares) Retained Income Long term Debt Payables 4 200 000 600 000 250 000 1 700 000 6 750 000 4 000 000 300 000 200 000 600 000 5 100 000 The abbreviated Statement of Comprehensive Income for the year ended 2019: Sales (10% on credit) 10 200 000 Cost of sales (80% on credit) 4080 000 Expenses 3 200 000 Net Income after Tax 2 000 000 Dividends 1 700 000 Retained Income 3 000 000 NB: Shares are currently trading at R2, 80 per share. 3.3. Calculate the acid test ratio for both years. (4) 3.4. Accounts Payable Turnover 3.4.1 Calculate the accounts payable period (in days), noting that Newtech Ltd has, after tough negotiations secured a 90 day account with all its creditors. Note: Use average accounts payable for this calculation. (4) 3.4.2. Offer constructive advice to Newtech Traders as to whether this is an ideal situation. (3) 3.5. Calculate the return on equity. Explain if the shareholders will be satisfied with the return. (4) 3.6. Calculate the inventory turnover ratio (use average inventory) and explain the significance of this ratio. (4) QUESTION FOUR [25] Quick fix Ltd is a manufacturing company engaged in the production of adhesives. The company has not performed well over the past three financial years. So as to improve on the poor past profits, the board approved a R1 000 000 advertising promotion during the year ended 31 December 2019 in order to generate increased sales in the future. The advertising promotion took place and was paid for) during December 2019. The accountant insists on recognizing the R1 000 000 payment as an asset at 31 December 2019. His reasoning is that future sales will increase as the number of customers grows due to the advertising campaign. Required: 1.1 Discuss whether you agree with the accountant, making reference to the framework. Provide an alternate treatment if you disagree. (20) REGENT BUSINESS SCHOOL (RBS) - JULY 2020 19 BACHELOR OF COMMERCE YEAR 2 - ACADEMIC AND ASSESSMENT CALENDAR - DISTANCE 1.2 One of the most important characteristics that a set of financial statements should have is reliability. Explain in terms of the framework, how to ensure that a set of financial statements is reliable