Pepper Limited (hereafter Pepper) is an investment company that operates in South Africa. The company has...
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Pepper Limited (hereafter "Pepper) is an investment company that operates in South Africa. The company has a 31 July financial year end. The following information regarding transactions entered into by Pepper has not yet been accounted for: Bonds acquired Pepper purchased bonds, bearing interest at 8% per annum at a nominal value of R 750 000 (also the fair value of bonds) on 1 August 2020 and paid a total amount of R 757 500, which included R 7 500 for brokerage costs, on that same day. The bonds are compulsorily redeemable at R 800 000 on 31 July 2023. From acquisition date, Pepper intended to hold the bonds to sell and therefore the bonds have been classified as fair value through profit or loss. The fair value of the bonds was R 745 000 and R 770 000 on 31 July 2021 and 31 July 2022 respectively. The bonds were sold on 31 July 2022 for R 770 000. The effective interest rate is 9.622% while the market interest rate for similar bonds were 10.01%. Investment in the shares of Salt Limited On 1 February 2021, Pepper purchased 400 000 ordinary shares in Salt Limited (hereafter "Salt") for a total purchase price of R 4 200 000 and paid for them in cash. Transactions costs, which were paid in a separate transaction amounted to R 50 000. Salt has an issued share capital of 500 000 ordinary shares and no other class of shares are in issue. The management of Pepper wanted to make sure that they purchased enough shares to obtain control of Salt as they wanted to influence the operations of Salt and in turn, the returns they earn from Salt. On 31 August 2021, Salt declared and paid a dividend of 16 cents per share in respect of the previous financial year. During the month of July 2022, Pepper experienced some cash flow problems. The chief financial officer explained to management that they will keep control over Salt, as long as their shareholding exceeds 50% of the total shares. On 31 July 2022, Pepper sold 75 000 of the shares in Salt that they previously purchased. 3| Page CACN022: TEST 2 The share price of Salt can be tracked on the share market as follows: R 13.50 R 15.75 31 July 2021 31 July 2022 2022 Pepper elected to account for their investment in Salt at fair value through other comprehensive income in their separate financial statements. Lease of large LED flat screen On 1 August 2021, Pepper entered into an agreement for the lease of a large LED flat screen for their open plan trading office. The flat screen will enable some of the investors to see a number of listed companies and their most recent share prices at the same time. The flat screen is specifically identified in the lease agreement and the supplier does not have substantive substitution rights. The share price of Salt can be tracked on the share market as follows: 31 July 2021 R 13.50 31 July 2022 R 15.75 Pepper elected to account for their investment in Salt at fair value through other comprehensive income in their separate financial statements. Lease of large LED flat screen On 1 August 2021, Pepper entered into an agreement for the lease of a large LED flat screen for their open plan trading office. The flat screen will enable some of the investors to see a number of listed companies and their most recent share prices at the same time. The flat screen is specifically identified in the lease agreement and the supplier does not have substantive substitution rights. The duration of the lease is for 5 years, and ownership of the flat screen does not transfer to Pepper at the end of the lease. Pepper is required to make lease payments. of R 7 500 in arrears every year for 5 years, starting on 31 July 2022. Pepper incurred legal fees of R 875 directly related to the lease. Pepper calculates depreciation using the straight-line basis. The useful life of the flat screen was determined to be 6 years. The interest rate implicit in the lease is 10%. The assistant accountant recorded the following journals to account for the lease: 1 August 2021 Dr Other expenses (SPL) Cr Bank (SFP) Dr Flat screen TV (SFP) Cr Lease liability (SFP) (7 500 x 5) 31 July 2022 Dr Lease liability (SFP) Cr Bank (SFP) Dr Depreciation (SPL) Cr Accumulated depreciation (SFP) (37 500/6) 4|Page REQUIRED: CACN022: TEST 2 875 37 500 Communication skill: Dates and narrations 7 500 6 250 Note: • Round all amounts to the nearest Rand. . Show your calculations clearly. 37 500 7 500 875 6 250 a) Prepare the necessary journal entries to account for the bonds acquired by Pepper Limited for the financial years ended 31 July 2021 and 31 July 2022. 2022 MARKS [23] [2] The share price of Salt can be tracked on the share market as follows: 31 July 2021 R 13.50 31 July 2022 R 15.75 Pepper elected to account for their investment in Salt at fair value through other comprehensive income in their separate financial statements. Lease of large LED flat screen On 1 August 2021, Pepper entered into an agreement for the lease of a large LED flat screen for their open plan trading office. The flat screen will enable some of the investors to see a number of listed companies and their most recent share prices at the same time. The flat screen is specifically identified in the lease agreement and the supplier does not have substantive substitution rights. The duration of the lease is for 5 years, and ownership of the flat screen does not transfer to Pepper at the end of the lease. Pepper is required to make lease payments. of R 7 500 in arrears every year for 5 years, starting on 31 July 2022. Pepper incurred legal fees of R 875 directly related to the lease. Pepper calculates depreciation using the straight-line basis. The useful life of the flat screen was determined to be 6 years. The interest rate implicit in the lease is 10%. The assistant accountant recorded the following journals to account for the lease: 1 August 2021 Dr Other expenses (SPL) Cr Bank (SFP) Dr Flat screen TV (SFP) Cr Lease liability (SFP) (7 500 x 5) 31 July 2022 Dr Lease liability (SFP) Cr Bank (SFP) Dr Depreciation (SPL) Cr Accumulated depreciation (SFP) (37 500/6) 4|Page REQUIRED: CACN022: TEST 2 875 37 500 Communication skill: Dates and narrations 7 500 6 250 Note: • Round all amounts to the nearest Rand. . Show your calculations clearly. 37 500 7 500 875 6 250 a) Prepare the necessary journal entries to account for the bonds acquired by Pepper Limited for the financial years ended 31 July 2021 and 31 July 2022. 2022 MARKS [23] [2] Pepper Limited (hereafter "Pepper) is an investment company that operates in South Africa. The company has a 31 July financial year end. The following information regarding transactions entered into by Pepper has not yet been accounted for: Bonds acquired Pepper purchased bonds, bearing interest at 8% per annum at a nominal value of R 750 000 (also the fair value of bonds) on 1 August 2020 and paid a total amount of R 757 500, which included R 7 500 for brokerage costs, on that same day. The bonds are compulsorily redeemable at R 800 000 on 31 July 2023. From acquisition date, Pepper intended to hold the bonds to sell and therefore the bonds have been classified as fair value through profit or loss. The fair value of the bonds was R 745 000 and R 770 000 on 31 July 2021 and 31 July 2022 respectively. The bonds were sold on 31 July 2022 for R 770 000. The effective interest rate is 9.622% while the market interest rate for similar bonds were 10.01%. Investment in the shares of Salt Limited On 1 February 2021, Pepper purchased 400 000 ordinary shares in Salt Limited (hereafter "Salt") for a total purchase price of R 4 200 000 and paid for them in cash. Transactions costs, which were paid in a separate transaction amounted to R 50 000. Salt has an issued share capital of 500 000 ordinary shares and no other class of shares are in issue. The management of Pepper wanted to make sure that they purchased enough shares to obtain control of Salt as they wanted to influence the operations of Salt and in turn, the returns they earn from Salt. On 31 August 2021, Salt declared and paid a dividend of 16 cents per share in respect of the previous financial year. During the month of July 2022, Pepper experienced some cash flow problems. The chief financial officer explained to management that they will keep control over Salt, as long as their shareholding exceeds 50% of the total shares. On 31 July 2022, Pepper sold 75 000 of the shares in Salt that they previously purchased. 3| Page CACN022: TEST 2 The share price of Salt can be tracked on the share market as follows: R 13.50 R 15.75 31 July 2021 31 July 2022 2022 Pepper elected to account for their investment in Salt at fair value through other comprehensive income in their separate financial statements. Lease of large LED flat screen On 1 August 2021, Pepper entered into an agreement for the lease of a large LED flat screen for their open plan trading office. The flat screen will enable some of the investors to see a number of listed companies and their most recent share prices at the same time. The flat screen is specifically identified in the lease agreement and the supplier does not have substantive substitution rights. The share price of Salt can be tracked on the share market as follows: 31 July 2021 R 13.50 31 July 2022 R 15.75 Pepper elected to account for their investment in Salt at fair value through other comprehensive income in their separate financial statements. Lease of large LED flat screen On 1 August 2021, Pepper entered into an agreement for the lease of a large LED flat screen for their open plan trading office. The flat screen will enable some of the investors to see a number of listed companies and their most recent share prices at the same time. The flat screen is specifically identified in the lease agreement and the supplier does not have substantive substitution rights. The duration of the lease is for 5 years, and ownership of the flat screen does not transfer to Pepper at the end of the lease. Pepper is required to make lease payments. of R 7 500 in arrears every year for 5 years, starting on 31 July 2022. Pepper incurred legal fees of R 875 directly related to the lease. Pepper calculates depreciation using the straight-line basis. The useful life of the flat screen was determined to be 6 years. The interest rate implicit in the lease is 10%. The assistant accountant recorded the following journals to account for the lease: 1 August 2021 Dr Other expenses (SPL) Cr Bank (SFP) Dr Flat screen TV (SFP) Cr Lease liability (SFP) (7 500 x 5) 31 July 2022 Dr Lease liability (SFP) Cr Bank (SFP) Dr Depreciation (SPL) Cr Accumulated depreciation (SFP) (37 500/6) 4|Page REQUIRED: CACN022: TEST 2 875 37 500 Communication skill: Dates and narrations 7 500 6 250 Note: • Round all amounts to the nearest Rand. . Show your calculations clearly. 37 500 7 500 875 6 250 a) Prepare the necessary journal entries to account for the bonds acquired by Pepper Limited for the financial years ended 31 July 2021 and 31 July 2022. 2022 MARKS [23] [2] The share price of Salt can be tracked on the share market as follows: 31 July 2021 R 13.50 31 July 2022 R 15.75 Pepper elected to account for their investment in Salt at fair value through other comprehensive income in their separate financial statements. Lease of large LED flat screen On 1 August 2021, Pepper entered into an agreement for the lease of a large LED flat screen for their open plan trading office. The flat screen will enable some of the investors to see a number of listed companies and their most recent share prices at the same time. The flat screen is specifically identified in the lease agreement and the supplier does not have substantive substitution rights. The duration of the lease is for 5 years, and ownership of the flat screen does not transfer to Pepper at the end of the lease. Pepper is required to make lease payments. of R 7 500 in arrears every year for 5 years, starting on 31 July 2022. Pepper incurred legal fees of R 875 directly related to the lease. Pepper calculates depreciation using the straight-line basis. The useful life of the flat screen was determined to be 6 years. The interest rate implicit in the lease is 10%. The assistant accountant recorded the following journals to account for the lease: 1 August 2021 Dr Other expenses (SPL) Cr Bank (SFP) Dr Flat screen TV (SFP) Cr Lease liability (SFP) (7 500 x 5) 31 July 2022 Dr Lease liability (SFP) Cr Bank (SFP) Dr Depreciation (SPL) Cr Accumulated depreciation (SFP) (37 500/6) 4|Page REQUIRED: CACN022: TEST 2 875 37 500 Communication skill: Dates and narrations 7 500 6 250 Note: • Round all amounts to the nearest Rand. . Show your calculations clearly. 37 500 7 500 875 6 250 a) Prepare the necessary journal entries to account for the bonds acquired by Pepper Limited for the financial years ended 31 July 2021 and 31 July 2022. 2022 MARKS [23] [2]
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2011 2010 Net income 2929 2920 Total Assets 46630 43705 Common shareholders eq... View the full answer
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Accounting Principles
ISBN: 978-1119048473
7th Canadian Edition Volume 2
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak
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