Question2: a) Ignore VAT. A company has signed a contract to deliver 10 000 units of their product to a customer in the next financial year, at a price per unit of R100. Due to recent increases in the price of the materials required to produce the product, the company expects the cost per unit to be R120. There is a R300 000 penalty payable by either party if they choose to cancel the contract. What is the effect of this information on the current year's financial statements? O A. A liability of R300 000 and an expense of R300 000 B. A liability of R300 000 and an asset of R300 000 OC. A liability of R200 000 and an expense of R200 000 D. There is no effect on the current year's financial statements. O E. A liability of R200 000 and an asset of R200 000 Reset Selection b) Suppose that operating profit has been increased by rent income. Which of the following statements is true? O A. On the indirect method, when reconciling operating profit to cash generated from operations, rent income received will be subtracted from operating profit and added to the line-item "cash received from customers". OB. On the indirect method, when reconciling operating profit to cash generated from operations, rent income will be subtracted from operating profit and added to the line-item "cash received from customers". C. On the indirect method, when reconciling operating profit to cash generated from operations, rent income will be subtracted from operating profit and added to cash received from "other" customers when calculating the line-item "cash received from customers". OD. On the indirect method, when reconciling operating profit to cash generated from operations, rent income earned will be subtracted from operating profit and added to the line-item "cash received from customers". O E. None of the statements provided in this question is correct. Reset Selection c) Suppose that operating profit has been reduced by an impairment loss. Which of the following statements is true? O A. On the indirect method, when reconciling operating profit to cash generated from operations, the impairment loss will be added to operating profit. This is because the impairment loss is a non-cash item. O B. None of the statements provided in this question is correct. OC. On the indirect method, when reconciling operating profit to cash generated from operations, the impairment loss will be subtracted from operating profit. This is because the impairment loss is a non-cash item. OD. On the indirect method, when reconciling operating profit to cash generated from operations, the impairment loss will be added to operating profit. This is because the impairment loss is a non-cash item that should be disclosed in the investing activities section of the statement of cash flows. O E. On the indirect method, when reconciling operating profit to cash generated from operations, the impairment loss will be subtracted from operating profit. This is because the impairment loss is a non-cash item that should be disclosed in the investing activities section of the statement of cash flows. Reset Selection d) The following information was reported in the financial statements of Company B Ltd for the year ended 30 November 2020: Current assets: 2020 2019 Trade receivables 11 000 20 000 Which of the following statements is true? O A. None of the statements provided in this question is correct. OB. Trade receivables has decreased from 2019 to 2020, which indicates that sales income in the current financial year is more than payments received from debtors. On the indirect method, when reconciling operating profit to cash generated from operations, the decrease in trade receivables will be added to operating profit. OC. Trade receivables has decreased from 2019 to 2020, which indicates that sales income in the current financial year is less than payments received from debtors. On the indirect method, when reconciling operating profit to cash generated from operations, the decrease in trade receivables will be added to operating profit. O D. Trade receivables has decreased from 2019 to 2020, which indicates that sales income in the current financial year is less than payments received from debtors. On the indirect method, when reconciling operating profit to cash generated from operations, the decrease in trade receivables will be subtracted from operating profit. O E. Trade receivables has decreased from 2019 to 2020, which indicates that inventory sold in the current financial year is more than payments received from debtors. On the indirect method, when reconciling operating profit to cash generated from operations, the decrease in trade receivables will be subtracted from operating profit. Reset Selection e) The following information was reported in the financial statements of Company A Ltd for the year ended 30 November 2020: Current liabilities: 2020 2019 Trade payables 23 000 16 000 Which of the following statements is true? O A. Trade payables has increased from 2019 to 2020, which indicates that inventory sold in the current financial year was less than payments to suppliers. On the indirect method, when reconciling operating profit to cash generated from operations, operating profit will be adjusted by adding the increase in trade payables. O B. Trade payables has increased from 2019 to 2020, which indicates that purchases of inventory in the current financial year were greater than payments to suppliers. On the indirect method, when reconciling operating profit to cash generated from operations, operating profit will be adjusted by adding the increase in trade payables. OC. None of the statements provided in this question is correct. OD. Trade payables has increased from 2019 to 2020, which indicates that purchases of inventory in the current financial year were greater than payments to suppliers. On the indirect method, when reconciling operating profit to cash generated from operations, operating profit will be adjusted by subtracting the increase in trade payables. O E. Trade payables has increased from 2019 to 2020, which indicates that purchases of inventory in the current financial year were less than payments to suppliers. On the indirect method, when reconciling operating profit to cash generated from operations, operating profit will be adjusted by adding the increase in trade payables. Reset Selection f) Assume dividends tax of 20% Impilo Ltd has a year-end of 30 November. The notes to the statement of financial position at 30 November 2019 showed that Impilo Ltd has an authorised share capital 5 400 000 Class B shares with no voting rights, but a right to a fixed, cumulative annual distribution of 8% of a face value of R5, preferred to Class A dividends. In years where a tranche of Class B shares is issued, dividends on that tranche will be apportioned based on the number of months between the date of issue and the date of declaration. There had only been one share issue prior to the 2020 financial year. 1 000 000 Class B shares had been issued at a price of R3. On 1 May 2020, a new issue of 400 000 Class B shares was made. On 1 November 2020, Class B dividends were declared. The last dividend declaration had been made on 1 November 2017. All dividends are paid 3 months after declaration. For both tranches of Class B shares, 30% of shareholders are SA-resident companies. The journal entry to process the declaration of the Class B dividends on 1 November 2020 will be as follows. (For account names, you do not need to include the bracketed info. For values, write the full rand value, excluding the "R".) DR CR Shareholders for dividends (L) CR The closing entry for Class B dividends on 30 November 2020 will be as follows: (For the account names, you do not need to include the bracketed info. You do not need to insert values below.) DR XXX XXX CR XXX XXX g The accounting term that describes determining the amount at which an asset or liability will be reported on the statement of financial position is h) The accounting term that describes reporting an asset or liability on the statement of financial position is