FNA260S: Financial Accounting II Exam Notes (CPUT – National Diploma in Accounting)

These exam notes are tailored for Cape Peninsula University of Technology (CPUT) students registered for FNA260S: Financial Accounting II, as part of the National Diploma in Accounting. The focus is on the core topics often examined in second‑year financial accounting at CPUT and overlapping content commonly searched for under related papers like FNA260S CPUT exam notes, financial accounting 2 study guide CPUT, and similar modules at UNISA (e.g. FAC2601) and CUT. Content is aligned with IFRS‑based financial reporting, with emphasis on exam‑style explanations, pro‑forma layouts, and common pitfalls.

1. Core IFRS Framework and Conceptual Foundations

1.1 Role of FNA260S in the CPUT National Diploma in Accounting

In the CPUT National Diploma in Accounting, FNA260S: Financial Accounting II builds directly on first‑year modules such as FNA140S: Financial Accounting I. Where introductory courses focus on the accounting cycle, double‑entry, and basic financial statements, FNA260S moves into:

Application of International Financial Reporting Standards (IFRS) and IFRS for SMEs.
More complex measurement and recognition issues.
Preparation of company financial statements (including equity, tax, and dividends).
Selected special topics (e.g. property, plant and equipment; leases; revenue; provisions).

Many exam questions at CPUT assume you already know basic debit/credit rules and the structure of the Statement of Profit or Loss and Other Comprehensive Income (SPLOCI) and Statement of Financial Position (SOFP). The FNA260S exam typically tests your ability to apply IFRS principles to practical scenarios rather than just reproduce theory.

1.2 The IASB Conceptual Framework: Key Elements

The Conceptual Framework for Financial Reporting issued by the IASB underpins all IFRS. It is often examined in Section A or theory questions.

1.2.1 Objective of General Purpose Financial Reporting

The main objective is:

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Implications for exam answers:

Emphasise decision‑usefulness.
Focus on resources (assets), claims (liabilities and equity), and changes in resources and claims (income and expenses).

1.2.2 Qualitative Characteristics

Fundamental qualitative characteristics:

Relevance
- Information is relevant if it is capable of making a difference to decisions.
- Includes predictive value and confirmatory value.
- Materiality is an entity‑specific aspect of relevance (an item is material if omitting or misstating it could influence decisions).
Faithful representation
- Information must be complete, neutral, and free from error.
- Note: “Free from error” does not mean perfectly accurate, but that there are no errors in the process used to produce the information and that estimates are described appropriately.

Enhancing qualitative characteristics:

Comparability (across time and entities).
Verifiability (independent observers could reach a similar conclusion).
Timeliness (available in time to influence decisions).
Understandability (classified, characterised, and presented clearly and concisely).

Exam tip: A typical short question may ask you to “Explain two qualitative characteristics of useful financial information and apply each to a given scenario.” Always include definition + brief application.

1.3 Elements of Financial Statements and Definitions

Knowing these definitions precisely, as per the Conceptual Framework, is critical.

Asset: A present economic resource controlled by the entity as a result of past events.
Liability: A present obligation of the entity to transfer an economic resource as a result of past events.
Equity: The residual interest in the assets of the entity after deducting all its liabilities.
Income: Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
Expenses: Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

Exam marker expectations:

Definitions must be substantially correct.
Avoid mixing up “future economic benefits” (asset) vs “transfer of an economic resource” (liability).
Always mention “result of past events” and “present obligation/present economic resource”.

1.4 Recognition and Derecognition Criteria

For an asset or liability to be recognised:

It must meet the definition of an element.
It must be relevant and provide faithful representation.
Recognition must provide information that is useful (benefits > cost).

Derecognition occurs when:

The asset no longer meets the definition of an asset (e.g. control is lost), or
The liability is extinguished (e.g. settled, cancelled, or expires).

Example exam scenario:

A company pays a 12‑month insurance premium in advance. Explain whether the payment should be recognised as an asset or an expense at year‑end.

Key reasoning:

At the date of payment, the full amount is an asset (prepaid expense) because it represents a future economic resource (future insurance cover).
Over time, that asset is expensed as the coverage is consumed.

1.5 Measurement Bases

Common measurement bases used under IFRS and IFRS for SMEs:

Historical cost
- Assets: amount of cash paid or fair value of the consideration given.
- Liabilities: amount of proceeds received or consideration paid.
Current value measures
- Fair value: price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Value in use: present value of future cash flows from continuing use and ultimate disposal.
- Fulfilment value: present value of cash outflows expected to fulfill the liability.

Exam questions often ask you to distinguish between cost model and revaluation model (IAS 16) or fair value vs. cost. Always link the measurement base to the relevant IFRS and explain why it is appropriate.

1.6 Constraints and Underlying Assumptions

Accrual basis of accounting:
- Transactions recognised when they occur, not when cash is received or paid.
- Revenue and expenses are matched in the correct reporting period.
Going concern assumption:
- Financial statements are prepared on the basis that the entity will continue in operation for the foreseeable future (at least 12 months).
- If not, alternative bases (like liquidation values) must be used and disclosed.
Cost constraint:
- The benefits of providing information should justify the cost.

In an FNA260S theory question, you may be asked to identify and explain the underlying assumptions used in preparing the financial statements of a CPUT‑based SME manufacturing entity; link your explanation to accrual and going concern.

2. Property, Plant and Equipment (IAS 16) and Depreciation

Property, plant, and equipment (PPE) is a common focus area in the FNA260S exam at CPUT. You must understand initial recognition, subsequent measurement, depreciation, disclosures, and often disposal of PPE.

2.1 Definition and Recognition of PPE

Under IAS 16: Property, Plant and Equipment, PPE are:

Tangible items that:
- are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
- are expected to be used during more than one period.

Recognition criteria:

Probable that future economic benefits will flow to the entity.
Cost can be measured reliably.

Examples relevant to South African SMEs and CPUT‑style case studies:

Delivery vehicles used by a Cape Town distribution company.
Manufacturing equipment used by a small factory in Bellville.
Office buildings, machinery, and fixtures.

2.2 Initial Measurement of PPE

PPE is initially measured at cost, comprising:

Purchase price (including import duties, non‑refundable taxes, less trade discounts and rebates).
Directly attributable costs to bring the asset to the location and condition necessary for it to be capable of operating as intended:
- Site preparation.
- Delivery and handling.
- Installation and assembly.
- Testing (less proceeds from sale of samples during testing).
- Professional fees.
Initial estimate of dismantling and restoring costs (present value).

Example:

A CPUT‑linked SME buys machinery for R250 000, plus VAT (fully claimable), transport R10 000, installation R15 000, testing R5 000, and receives R2 000 from sale of test products during testing. No dismantling costs. Cost of PPE:

Purchase price: R250 000
Transport: R10 000
Installation: R15 000
Testing: R5 000 − R2 000 = R3 000

Total cost = R250 000 + R10 000 + R15 000 + R3 000 = R278 000

VAT is not included because it is recoverable.

2.3 Subsequent Measurement: Cost vs Revaluation Model

After recognition, an entity may choose either:

Cost model
- Carrying amount = cost − accumulated depreciation − accumulated impairment losses.
Revaluation model
- PPE carried at revalued amount = fair value at revaluation date − subsequent depreciation and impairment.
- Revaluations must be done sufficiently regularly so that carrying amount does not differ materially from fair value.

Revaluation surplus:

Increase in value recognised in Other Comprehensive Income (OCI) and accumulated in Revaluation Surplus (equity), unless it reverses a previous decrease recognised in profit or loss.
Decrease in value recognised in profit or loss, unless it reverses a previous surplus on the same asset in equity.

Exam tip for FNA260S:

You may be asked to pass revaluation journal entries and show the effect on the Statement of Changes in Equity.
Always remember to recalculate depreciation based on the new revalued amount and remaining useful life.

2.4 Depreciation Methods and Calculations

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Depreciable amount = Cost (or revalued amount) − Residual value.

Common methods:

Straight‑line method
- Depreciation = (Cost − Residual value) / Useful life.
- Results in equal annual charges.
Reducing balance (diminishing balance)
- Depreciation = Carrying amount at start of year × Depreciation rate.
- Results in higher charges in earlier years.
Units of production
- Depreciation based on usage (e.g. hours run, units produced).

2.4.1 Straight‑Line Method Example

A company (as in a typical CPUT exam question) acquires equipment for R300 000 on 1 July 20X1. Useful life = 5 years, residual value R30 000. Year‑end: 31 December.

Depreciable amount = R300 000 − R30 000 = R270 000
Annual depreciation = R270 000 / 5 = R54 000

For the first year (6 months: July–December):

Depreciation = R54 000 × 6/12 = R27 000

Journal entry at 31 Dec 20X1:

Dr Depreciation expense R27 000
Cr Accumulated depreciation – equipment R27 000

Exam hint: Always adjust for partial years and the specific acquisition date.

2.4.2 Change in Estimate Example

If, after 2 years, the entity revises the remaining useful life or residual value, this is a change in accounting estimate and applied prospectively.

Suppose, at 1 Jan 20X3, remaining useful life is revised to 4 years (from that date) and residual value to R20 000:

Calculate carrying amount at 1 Jan 20X3:

Cost: R300 000
Depreciation for 20X1: R27 000
Depreciation for 20X2: full year R54 000
Accumulated depreciation = R81 000
Carrying amount = R300 000 − R81 000 = R219 000

New depreciable amount = R219 000 − R20 000 = R199 000
Depreciation per year from 20X3 onward = R199 000 / 4 = R49 750

2.5 Disposal of PPE

When an item of PPE is disposed of or no future economic benefits are expected, it must be derecognised. The gain or loss on disposal is:

Proceeds on disposal − Carrying amount.

Example:

Carrying amount of vehicle = R80 000. Sold for R95 000 cash.

Gain = R95 000 − R80 000 = R15 000.

Journal entry:

Dr Bank R95 000
Dr Accumulated depreciation – vehicle (balancing, if needed)
Cr Vehicle (cost)
Cr Gain on disposal of vehicle R15 000

In exam presentations, you may be required to show:

Non‑current assets note (movement schedule).
Profit or loss (gain or loss on disposal under “Other income/expenses”).

2.6 Repairs, Maintenance, and Capitalisation vs Expense

Distinguish between:

Repairs and maintenance (routine, day‑to‑day) → Expense in profit or loss.
Capital expenditure (improves asset beyond originally assessed performance or extends useful life) → Capitalise to asset.

Example: A factory machine’s motor is replaced with a higher‑capacity motor that significantly increases production capacity. Cost of replacement may be capitalised, while the old motor is derecognised.

Exam pitfall: Students often capitalise all major expenditure. Always ask: Does this create future economic benefits beyond the originally assessed standard of performance?

2.7 IFRS vs IFRS for SMEs Considerations

In many South African contexts, including CPUT case studies, entities often apply IFRS for SMEs:

PPE is also measured at cost less accumulated depreciation and impairment, but the revaluation model is not allowed under IFRS for SMEs.
Disclosure requirements are generally less extensive, but still require movements in carrying amounts and depreciation policies.

Make sure you state the framework used if required in the question (IFRS vs IFRS for SMEs), especially in theory questions comparing frameworks.

3. Intangible Assets, Impairment, and Provisions (IAS 38, IAS 36, IAS 37)

3.1 Intangible Assets (IAS 38)

An intangible asset is:

An identifiable non‑monetary asset without physical substance.

Recognition requires:

Identifiability (separable or arises from contractual/legal rights).
Control by the entity.
Probable future economic benefits.
Cost can be measured reliably.

Typical intangible assets in exam questions:

Purchased patents, trademarks, licenses.
Computer software developed in‑house or purchased.
Capitalised development costs (if criteria are met).

3.1.1 Research vs Development

IAS 38 distinguishes between:

Research phase
- Original and planned investigation with the prospect of gaining new knowledge.
- All expenditure must be expensed when incurred.
Development phase
- Application of research findings to a plan or design for the production of new or substantially improved products, before commercial production.
- Expenditure can be capitalised as an intangible asset if all of the following are demonstrated:
  - Technical feasibility.
  - Intention to complete and use or sell.
  - Ability to use or sell.
  - Probable future economic benefits (e.g. existence of market).
  - Availability of resources to complete.
  - Ability to measure expenditure reliably.

Exam hint: Many FNA260S questions test whether students can separate research and development costs and apply correct treatment.

3.1.2 Amortisation and Useful Life

Intangible assets with finite useful lives are amortised over their useful lives on a systematic basis consistent with the pattern of consumption of benefits (often straight‑line).

Intangible assets with indefinite useful lives (e.g. some brands) are:

Not amortised.
Tested annually for impairment under IAS 36.

Example:

A patent costing R120 000 has a legal life of 10 years and no residual value; amortisation is straight‑line.

Annual amortisation = R120 000 / 10 = R12 000.

If purchased on 1 March, year‑end 31 December, first year’s amortisation:

10 months use → R12 000 × 10/12 = R10 000.

3.2 Impairment of Assets (IAS 36)

Impairment occurs when an asset’s carrying amount exceeds its recoverable amount.

Recoverable amount = higher of:
- Fair value less costs of disposal (FVLCD)
- Value in use (present value of future cash flows).

If carrying amount > recoverable amount → recognise impairment loss.

3.2.1 Indicators of Impairment

IAS 36 provides internal and external indicators, such as:

Significant decline in market value.
Adverse changes in technology, markets, economic or legal environment.
Increase in market interest rates.
Obsolescence or physical damage.
Poor performance (worse than expected).

Exam questions often present a scenario (e.g. new technology makes an older machine less useful) and ask for calculation and journal entry.

3.2.2 Impairment Calculation Example

A machine has carrying amount of R200 000 (cost R300 000, accumulated depreciation R100 000). Recoverable amount is R160 000.

Impairment loss = R200 000 − R160 000 = R40 000.

Journal entry:

Dr Impairment loss (P/L) R40 000
Cr Accumulated impairment – machine R40 000

New carrying amount = R160 000.

Subsequent depreciation is based on the impaired carrying amount.

If the asset is part of a cash‑generating unit (CGU), impairment needs to be allocated to assets within the CGU, subject to limits (e.g. not reducing below individual asset’s recoverable amount).

3.3 Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

IAS 37: Provisions, Contingent Liabilities and Contingent Assets is a key standard in FNA260S, especially for exam questions combining theory and calculation.

3.3.1 Definitions

Provision: A liability of uncertain timing or amount.
Contingent liability:
- A possible obligation from past events confirmed only by uncertain future events not wholly within the entity’s control; or
- A present obligation that is not recognised because either:
  - It is not probable that an outflow of resources will be required; or
  - The amount cannot be measured reliably.
Contingent asset:
- A possible asset arising from past events, confirmed only by uncertain future events not wholly within the entity’s control.

3.3.2 Recognition Criteria for a Provision

A provision is recognised when:

The entity has a present obligation (legal or constructive) as a result of a past event (obligating event).
It is probable (more likely than not >50%) that an outflow of resources will be required.
A reliable estimate can be made.

If these criteria are not met, you have either a contingent liability or no obligation.

3.3.3 Measurement of Provisions

Best estimate of expenditure required to settle the obligation at reporting date.
If a range of outcomes is possible:
- Use expected value (probability‑weighted) for large populations.
- Use the most likely outcome for a single obligation if that best reflects the obligation.
Discount to present value if the time value of money is material.

Example:

A CPUT‑based retailer gives a one‑year warranty on goods sold. Based on past experience:

80% of goods: no defects.
15%: minor defects (cost R100 per unit).
5%: major defects (cost R400 per unit).

If 1 000 units sold in the year:

Expected cost = 1 000 × [(0.15 × R100) + (0.05 × R400)]
= 1 000 × [R15 + R20] = 1 000 × R35 = R35 000.
Provision for warranty: R35 000.

Journal entry:

Dr Warranty expense R35 000
Cr Provision for warranty R35 000

3.3.4 Contingent Liabilities and Assets

Contingent liabilities are not recognised, only disclosed in the notes, unless the possibility of outflow is remote (then no disclosure required).
Contingent assets are not recognised, but disclosed when inflow of benefits is probable. When inflow is virtually certain, the asset is recognised.

Exam advice: Always show reasoning:

“Because the probability of outflow is possible but not probable, this is a contingent liability which is disclosed but not recognised.”

3.4 Onerous Contracts

An onerous contract is one where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received.

A provision is recognised for the present obligation under the contract.

Example:

A company has a non‑cancellable contract to supply goods for R100 000. Due to cost increases, it will cost R120 000 to fulfill the contract. The contract is onerous:

Provision = R120 000 − R100 000 = R20 000.

Though detailed calculation may not always appear in FNA260S exams, the concept is examinable.

4. Companies, Equity, Taxation, and Dividends

FNA260S for the CPUT National Diploma in Accounting places strong emphasis on company financial statements, especially:

Share capital and reserves.
Dividends.
Taxation (current tax and basic deferred tax).
Preparation of the Statement of Changes in Equity (SOCIE).

4.1 Share Capital: Ordinary and Preference Shares

A company raises equity by issuing:

Ordinary shares (common shares).
Preference shares (which may be equity or liability depending on rights).

4.1.1 Ordinary Share Capital

Key exam‑relevant concepts:

Authorised share capital: Maximum number/value of shares the company can issue (per MOI).
Issued share capital: Shares actually issued to shareholders.
Shares may be issued:
- At par value (less common in modern structures).
- At no par value (stated as number of shares & total contributed capital).
- At a premium (above par/no‑par notionally).

Example:

CPUT‑linked exam company, Capetown Traders Ltd, has authorised 1 000 000 ordinary shares of R1 each. It issues 200 000 shares at R1.50 each.

Share capital (par) = 200 000 × R1 = R200 000.
Share premium = 200 000 × (R1.50 − R1) = 200 000 × R0.50 = R100 000.

Journal entry:

Dr Bank R300 000
Cr Ordinary share capital R200 000
Cr Share premium R100 000

If no par value:

Dr Bank R300 000
Cr Stated capital R300 000.

4.1.2 Preference Shares

Cumulative vs non‑cumulative:
- Cumulative: unpaid dividends accumulate.
- Non‑cumulative: unpaid dividends lapse.
Participating vs non‑participating:
- Participating: may share in additional dividends after preference and ordinary dividend.
- Non‑participating: fixed dividend only.

Exam focus:

Classification as equity or liability:
- If the issuer has a contractual obligation to deliver cash (e.g. mandatory redemption, fixed dividend that must be paid), preference shares are often liabilities.
- If dividend payments are at the discretion of the issuer, preference shares are equity.

4.2 Reserves and Retained Earnings

Common equity components:

Share capital / stated capital.
Share premium (if par value regime).
Revaluation surplus (from IAS 16).
Retained earnings (accumulated profits not distributed as dividends).

FNA260S exam questions often require you to reconcile retained earnings:

Opening retained earnings + Profit after tax − Dividends (ordinary + preference) ± Prior period adjustments = Closing retained earnings.

4.3 Dividends: Interim and Final

Types of dividends:

Interim dividends: Declared and paid during the financial year.
Final dividends: Declared after year‑end when financial statements are approved.

Accounting treatment:

A liability for dividends arises when declared (i.e. when the company has a present obligation).
Proposed but not declared final dividends after reporting date are non‑adjusting events under IAS 10 and disclosed in notes only.

Example:

On 15 December 20X5, Capetown Traders Ltd declares an interim dividend of 10 cents per share on 200 000 shares, payable 31 January 20X6.

Journal entry on declaration:

Dr Retained earnings R20 000
Cr Dividends payable R20 000

Payment:

Dr Dividends payable R20 000
Cr Bank R20 000

In SPLOCI, dividends are not an expense; they are distributions of profit and shown in SOCIE.

4.4 Income Tax: Current Tax (and Basic Deferred Tax)

FNA260S tends to focus on current tax with limited or introductory coverage of deferred tax.

4.4.1 Current Tax

Steps:

Start with accounting profit before tax.
Adjust for:
- Non‑deductible expenses (add back).
- Non‑taxable income (subtract).
- Timing differences (e.g. depreciation vs capital allowances).
Arrive at taxable income.
Apply relevant corporate tax rate (e.g. 28% for many exam scenarios, though SA rates can change; always use the rate given in the question).
Determine current tax expense and income tax payable.

Example:

Accounting profit before tax: R500 000. Non‑deductible fines R10 000, tax‑exempt income R5 000. Tax rate 28%.

Taxable income = R500 000 + R10 000 − R5 000 = R505 000.
Current tax expense = 28% of 505 000 = R141 400.

Journal entry:

Dr Income tax expense R141 400
Cr Income tax payable (or SARS: Income Tax) R141 400

4.4.2 Deferred Tax (Basic Principle)

Deferred tax arises from temporary differences between carrying amount of assets/liabilities and their tax base.

Taxable temporary differences → deferred tax liabilities.
Deductible temporary differences → deferred tax assets (to extent probable that taxable profit will be available).

Example (very simplified):

PPE cost R100 000; accumulated depreciation (accounting) R20 000 → carrying amount R80 000.
Tax base (tax allowances) R60 000.
Temporary difference = R80 000 − R60 000 = R20 000 (taxable).
Deferred tax liability = R20 000 × 28% = R5 600.

Though FNA260S at CPUT may keep deferred tax basic, it is often tested at least conceptually or in short calculation questions.

4.5 Statement of Changes in Equity (SOCIE)

The SOCIE shows movements in equity for the period. Typical columns:

	Share Capital	Share Premium	Revaluation Surplus	Retained Earnings	Total Equity
Balance at 1 Jan 20X5	XX	XX	XX	XX	XX
Issue of shares	XX	XX			XX
Revaluation surplus			XX		XX
Profit for the year				XX	XX
Dividends				(XX)	(XX)
Balance at 31 Dec 20X5	XX	XX	XX	XX	XX

Exam expectations:

Show opening balances, individual movements (issue of shares, revaluation, profit, dividends), and closing balances.
Retained earnings movement should agree with profit after tax from SPLOCI minus dividends.

5. Presentation of Financial Statements and Exam Technique for FNA260S

5.1 Structure of IFRS Financial Statements (IAS 1)

IAS 1: Presentation of Financial Statements requires a complete set of financial statements including:

Statement of Financial Position (SOFP) at the end of the period.
Statement of Profit or Loss and Other Comprehensive Income (SPLOCI) for the period.
Statement of Changes in Equity (SOCIE).
Statement of Cash Flows (IAS 7).
Notes, including significant accounting policies and other explanatory information.

In FNA260S, the most common exam requirements are:

Prepare a SOFP and SPLOCI from a trial balance.
Prepare extracts or specific notes (e.g. PPE note, equity note).
Show basic cash flow sections or reconciliations.

5.2 Statement of Profit or Loss and Other Comprehensive Income

The SPLOCI can be presented as:

Single statement (profit or loss and OCI in one), or
Two statements (separate profit or loss and statement of OCI).

At FNA260S level, a single statement is usually used.

Basic format (by function or nature of expense):

By function (typical exam layout):

Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses
Finance costs
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income (e.g. revaluation surplus net of tax)
Total comprehensive income

Exam points:

Classify items correctly (e.g. finance costs separate).
Show gross profit calculation clearly.
Ensure that profit for the year is used correctly in SOCIE.

5.3 Statement of Financial Position (SOFP)

Presented as:

Assets
- Non‑current assets (PPE, intangible assets, investment property, etc.)
- Current assets (inventory, trade receivables, cash, etc.)
Equity and Liabilities
- Equity (share capital, reserves, retained earnings).
- Non‑current liabilities (long‑term borrowings, deferred tax liabilities, provisions).
- Current liabilities (trade payables, current portion of borrowings, tax payable, etc.).

Key exam expectations:

Classify correctly (based on 12‑month rule).
Present items in order of liquidity (depending on local practices, but IFRS does not mandate strict order).
Ensure totals balance: Total assets = Total equity + total liabilities.

5.4 Typical FNA260S Exam Question Structure (CPUT)

Based on past patterns in CPUT FNA260S: Financial Accounting II:

Question 1 (25–30 marks): Preparation of financial statements of a company from a trial balance and additional information.
Question 2 (20–25 marks): PPE, revaluations, disposals, and related notes.
Question 3 (20 marks): Provisions, contingencies, impairment, and intangibles.
Question 4 (15–20 marks): Theory questions on conceptual framework, IAS 1, IAS 16, IAS 38, IAS 37, or short calculations (EPS, basic tax, etc.).

Students often search online for “FNA260S CPUT past exam papers and memos” and “FNA260S financial accounting 2 exam tips”. The following technique advice is structured to align with these common needs.

5.5 Exam Technique: How to Approach a Full Financial Statements Question

Read the required section first
- Identify whether you must prepare:
  - Complete SPLOCI and SOFP, or
  - Extracts/notes.
Scan the trial balance and additional information
- Underline or tick each item as it is processed.
- Note any adjustments (accruals, prepayments, depreciation, provisions, etc.).
Set up pro‑formas early
- Draw quick working formats:
  - PPE note (opening balance, additions, disposals, revaluation, depreciation).
  - Tax calculation (profit before tax to taxable income).
  - Provision calculations.
Process adjusting entries logically
- For each adjustment:
  - Write a mini journal in workings.
  - Post amounts to the relevant line item in pro‑forma statements.
Leave “tricky” items for later if stuck
- Move past one difficult adjustment; do not lose time.
- Return if time remains.
Check arithmetic and cross‑links
- Profit after tax in SPLOCI should link to SOCIE.
- Closing PPE in note should agree with PPE in SOFP.
- Retained earnings closing balance ties to SOFP and SOCIE.

5.6 Common Pitfalls and How to Avoid Them

Not adjusting for accruals and prepayments
- Example: Unearned income still recognised as revenue.
- Strategy: Always check additional information for cut‑off adjustments.
Mixing cost and revaluation amounts incorrectly
- Students often forget that after revaluation, depreciation must be recalculated based on revalued amount and remaining useful life.
Incorrect classification of items
- Classifying current portion of long‑term loan as non‑current.
- Recording dividends as an expense instead of equity movement.
Ignoring framework and standard names in theory questions
- In conceptual questions, always refer to the Conceptual Framework and relevant standard (IAS 1, IAS 16, IAS 37, IAS 38, IAS 36) by name and number.
Time management
- Spending too long on a single calculation and failing to attempt other questions.

5.7 Integrated Example: Mini Case Study

The following simplified case illustrates integration of multiple FNA260S topics.

Scenario
CapeTech Ltd (hypothetical company used in CPUT‑style assessments) provides the following information for the year ended 31 December 20X5:

Trial balance includes:
- Ordinary share capital (R1 par) R400 000 (400 000 shares).
- Retained earnings (1 Jan 20X5) R150 000.
- PPE at cost R600 000; accumulated depreciation R120 000.
- Inventory R80 000.
- Trade receivables R90 000.
- Trade payables R70 000.
- Revenue R1 000 000.
- Cost of sales R600 000.
- Administrative expenses R150 000.
- Distribution costs R50 000.
- Bank R30 000.
- Income tax paid during the year R120 000 (preliminary).

Additional information:

PPE is depreciated at 10% per year on cost (straight‑line).
A revaluation of PPE on 31 Dec 20X5 determined fair value as R520 000. Before revaluation, carrying amount was R480 000.
Corporate tax rate 28%. Accounting profit before tax, before revaluation surplus and tax, is R180 000.
Directors declared a final dividend of 5 cents per share on 15 January 20X6.

Step‑by‑step analysis

Depreciation:
- Cost R600 000; 10% = R60 000 for the year.
- Add R60 000 to accumulated depreciation: R120 000 + R60 000 = R180 000.
- Carrying amount before revaluation: R600 000 − R180 000 = R420 000.
- Note: If exam data says “Before revaluation, carrying amount was R480 000”, reconcile; perhaps additional assets acquired or adjustments exist in full question. For this simplified example, use given figure of R480 000 as pre‑revaluation carrying amount.
Revaluation surplus:
- Fair value R520 000; carrying amount R480 000.
- Revaluation surplus = R40 000.
- Recognise in OCI and Revaluation Surplus.
Profit before tax:
- Given as R180 000 (before revaluation surplus and tax).
- Revaluation surplus goes to OCI, not P/L.
Tax:
- Tax expense = 28% × R180 000 = R50 400.
- Journal (simplified, ignoring deferred tax):
  - Dr Income tax expense R50 400
  - Cr Income tax payable R50 400
- Compare with preliminary tax paid R120 000:
  - The overpayment of R69 600 (R120 000 − R50 400) is a tax receivable (asset).
Profit for the year:
- Profit before tax: R180 000
- Income tax expense: R50 400
- Profit for the year = R129 600.
Retained earnings movement:
- Opening retained earnings: R150 000
- Add profit for the year: R129 600
- Less dividends: final dividend declared 15 Jan 20X6 → non‑adjusting (no liability at 31 Dec 20X5; disclose only).
- Closing retained earnings = R279 600.
Equity section extract:

Equity	R
Ordinary share capital	400 000
Revaluation surplus	40 000
Retained earnings	279 600
Total equity	719 600

SOFP extract (selected items):

Non‑current assets: PPE R520 000.
Current assets: Inventory R80 000; Trade receivables R90 000; Bank R30 000; Tax receivable R69 600.
Equity: as above R719 600.
Liabilities: Trade payables R70 000; Income tax payable nil (since overpaid, it is now a receivable).

This mini case touches on:

Depreciation and revaluation (IAS 16).
Equity (share capital, retained earnings, revaluation surplus).
Taxation and tax receivable.
Events after reporting date (dividends declared).

5.8 Study Strategy for FNA260S (CPUT) and Related South African Modules

Students often search for “FNA260S CPUT financial accounting 2 exam notes”, “FAC2601 UNISA study notes”, and “ACC26xx CUT accounting 2 exam tips”. While syllabi differ slightly, the core IFRS content overlaps. A robust study plan includes:

Master the standards most frequently examined:
- IAS 1, IAS 16, IAS 36, IAS 37, IAS 38, IAS 10, IAS 12 (basic), IFRS for SMEs sections on PPE and provisions.
Practice from past papers and tutorials:
- Time yourself as if in exam conditions.
- Mark your work using memoranda if available.
Summarise each topic:
- Create one‑page summaries for each standard:
  - Definition.
  - Recognition criteria.
  - Measurement rules.
  - Typical journal entries.
  - Example calculations.
Combine theory with practical examples:
- Do not only memorise definitions; apply them to short scenarios.
Formula and format memorisation:
- Formats for SOFP, SPLOCI, SOCIE.
- Depreciation formulas.
- Provision calculations.
Group study and discussion:
- Explaining a concept to a fellow student (e.g. at CPUT Bellville campus) can strengthen understanding.

By aligning study efforts with the FNA260S: Financial Accounting II outcomes and focusing on the recurring IFRS topics outlined above, CPUT National Diploma in Accounting students can significantly improve their performance in both tests and the final examination.