ACC201: Financial Accounting II Exam Pack – Rhodes University (RU) BCom Accounting

A comprehensive, exam-focused study guide for Rhodes University (RU) BCom Accounting – ACC201: Financial Accounting II, aligned with typical second-year syllabi used in South African universities (including RU, UNISA’s FAC2601/FAC2602 style outcomes, and CUT’s FAC21A). These notes emphasise the style and depth expected in RU mid-year and final exams. The focus is on the application of IFRS, workings, and clear explanations, helping you move from rote learning to exam‑ready problem solving.

1. Overview of ACC201 at Rhodes University and Exam Strategy

ACC201 at Rhodes University (RU) is a second-year Financial Accounting module typically taken by BCom Accounting students in their second year, first semester. While each year’s detailed syllabus may vary slightly, the core themes remain stable and align strongly with mainstream IFRS-based Financial Accounting II content taught at other South African institutions such as UNISA (FAC2601/FAC2602) and Central University of Technology (CUT) – FAC21A.

1.1 Typical ACC201 Syllabus Structure at RU

Although the RU departmental guide is the final authority, a common ACC201 structure at Rhodes includes:

Conceptual Framework and Presentation
- IAS 1: Presentation of Financial Statements
- IFRS Conceptual Framework: qualitative characteristics, recognition criteria
- Statement of profit or loss and other comprehensive income (SOCI/SCI)
- Statement of financial position (SFP)
- Statement of changes in equity (SCE)
- Basic statement of cash flows (overview, not deep exam focus at ACC201 level)
Property, Plant and Equipment (PPE) – IAS 16
- Cost model and revaluation model
- Depreciation methods, residual value, useful life
- Subsequent expenditure (capital vs revenue)
- Revaluation surplus and its movement in equity
- Disposal of PPE and related profit/loss
Intangible Assets – IAS 38 and Goodwill
- Recognition criteria for intangibles
- Internally generated vs acquired intangibles
- Amortisation and impairment
- Basic goodwill concepts (usually linked with business combinations content)
Inventories – IAS 2
- Cost formulas (FIFO, weighted average)
- Net realisable value (NRV)
- Write‑down and reversal of write‑down
- Manufacturing inventories (briefly)
Revenue from Contracts with Customers – IFRS 15
- Five‑step revenue recognition model
- Performance obligations, transaction price allocation
- Over time vs point in time recognition
- Simple multiple‑element contracts
Financial Instruments (Introductory) – IFRS 9 & IFRS 7
- Basic definitions: financial assets, financial liabilities, equity instruments
- Recognition and derecognition
- Measurement categories (amortised cost, FVOCI, FVTPL – high level)
- Trade receivables and simple expected credit loss (ECL) example
Leases (Overview) – IFRS 16
- Basic lessee accounting (right‑of‑use asset, lease liability)
- Difference between short‑term/low value exemptions and standard treatment
- Lease payments, interest expense, depreciation
Provisions, Contingent Liabilities and Contingent Assets – IAS 37
- Recognition criteria for provisions
- Measurement and present value
- Distinguishing provisions vs accruals vs contingent liabilities
- Typical exam scenarios: warranties, legal claims, onerous contracts
Events after the Reporting Period – IAS 10
- Adjusting vs non‑adjusting events
- Dividends declared after year‑end
- Going concern and subsequent events
Basic Groups / Consolidation Introduction (if included)
- Control concept (IFRS 10)
- Simple parent–subsidiary relationships
- Investment in subsidiary vs consolidation
- Very basic elimination of intra‑group balances (if covered in ACC201 at RU; in some years, this is shifted more to ACC301/ACC302).

Exact coverage can shift, but ACC201 generally blends asset‑based standards (IAS 16, IAS 38, IAS 2) with presentation and revenue, focusing on single‑company accounts and only light group topics if at all.

1.2 Assessment Structure and Exam Weightings

While specific numbers can change, a common pattern at Rhodes for ACC201 is:

Class test(s): 20–30% of semester mark
Assignments / Tutorials / Online quizzes: 10–20%
Final exam: 50–60% of overall ACC201 mark

The final exam is typically 2–3 hours, with 3–5 long‑form questions. Common design features:

Question 1: Comprehensive SFP + SCI preparation
- Full or partial set of financial statements for a single entity
- Mix of adjustments involving PPE, revenue, inventories, provisions, post‑year‑end events
Question 2: PPE / Intangibles
- Detailed movements schedule, revaluation, depreciation, disposals
- Often requires both calculations and journal entries
Question 3: Revenue / Financial Instruments
- Application of IFRS 15 to scenario(s)
- Simple trade receivables and expected credit loss provision
Question 4: Provisions and Events after Reporting Date
- Conceptual discussion plus numerical example
- Distinguishing provisions vs contingencies, adjusting vs non‑adjusting events
Question 5: Short, theory‑heavy or mixed MCQ/short answers
- Conceptual Framework
- Presentation classification questions (current vs non‑current, OCI items, etc.)

Students who have also seen UNISA FAC2601 / FAC2602 exam packs or CUT FAC21A past papers will recognise the strong overlap in structure and standard.

1.3 Exam Technique: What ACC201 Markers Reward

Markers at RU (similar to UNISA and CUT markers) emphasise:

Method marks
- Show clear calculations, labels, and intermediate steps.
- Even if the final number is wrong, method marks can rescue a question.
IFRS language
- Use standard phrases: “recognise as an expense”, “capitalise as part of the cost of PPE”, “present as other comprehensive income”, etc.
- Refer to specific standards (e.g. “In terms of IAS 16 …”) where you can.
Logical structure
- For numerical questions: show a workings section and reference it in your final answer.
- For theory questions: structure as short paragraphs or bullet points with headings.
Answering what is asked
- If the question asks for journal entries, do not waste time preparing full T‑accounts.
- If asked to explain a concept, do not only give a formula – add a brief sentence that shows understanding.
Professional layout
- Clearly separated sections: SFP, SCI, notes to the accounts.
- Use lines and totals (double underline final totals).
- Avoid abbreviations that are not standard accounting abbreviations.

1.4 Study Strategy Linking ACC201 (RU) to Other South African Universities

Because the ACC201 content parallels UNISA’s FAC2601/FAC2602 and CUT’s intermediate financial accounting subjects, you can:

Use UNISA FAC2601/FAC2602 past exam questions as extra practice.
Review CUT FAC21A tutorials for additional numerical practice, especially on PPE, provisions, and basic financial instruments.
Align terminology with IFRS: the standards do not change across universities, so learning IFRS terms makes your knowledge portable.

Remember that Rhodes University (RU: BCom Accounting) expects a relatively high conceptual standard: you are not just plugging numbers into a formula. You are expected to think like an accountant and justify treatments within the IFRS framework.

2. Property, Plant and Equipment (IAS 16) – High-Value ACC201 Topic

PPE is consistently one of the largest topics in ACC201 at RU and in equivalent modules such as UNISA FAC2601 and CUT FAC21A. It appears in almost every major exam question and affects both the Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income.

2.1 Definition and Recognition of PPE

Under IAS 16, PPE are:

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

To recognise an item as PPE, two conditions must be met:

Probable future economic benefits will flow to the entity; and
The cost can be measured reliably.

Common exam trick: Ask whether an item should be expensed or capitalised. For example:

Routine repairs – do not increase future economic benefits; usually expensed.
Major overhaul that extends useful life – often capitalised as part of the asset’s carrying amount.

2.2 Initial Measurement of PPE

Initially, PPE is measured at cost, including:

Purchase price (including import duties and non‑refundable taxes, less discounts and rebates).
Directly attributable costs to bring the asset to its present location and condition (e.g. site preparation, delivery, installation, testing).
Initial estimate of costs of dismantling and removing the asset and restoring the site (where there is a present obligation).

Excluded from cost (must be expensed):

Opening a new facility (e.g. advertising, staff training).
Administrative and general overheads not directly attributable.
Initial operating losses while demand builds.
Abnormal waste of materials, labour, or other resources.

Example – Initial cost calculation

Rhodes Ltd purchases machinery with the following costs:

Purchase price (including VAT at 15%): R460 000
Trade discount: 10% on gross price
Delivery costs: R12 000
Installation and testing: R8 000
Training costs for staff: R5 000
Annual insurance: R6 000

Step 1: Remove VAT and discount
Assume the R460 000 is VAT inclusive. VAT portion = R460 000 × 15 / 115 = R60 000
Net price excl. VAT = R400 000
Less 10% trade discount = R40 000
Purchase price = R360 000

Step 2: Add directly attributable costs
Delivery = R12 000
Installation & testing = R8 000

Step 3: Exclude non‑capitalisable costs
Training costs expensed
Annual insurance expensed

Total cost of machinery = R360 000 + R12 000 + R8 000 = R380 000

2.3 Subsequent Measurement Models: Cost vs Revaluation

After recognition, IAS 16 allows two models:

Cost model
- Carrying amount = Cost – Accumulated Depreciation – Accumulated Impairment
- Simple, commonly used, especially in exam questions.
Revaluation model
- Asset carried at a revalued amount, being fair value at revaluation date less subsequent depreciation and impairment.
- Revaluations must be sufficiently regular to keep the carrying amount close to fair value.
- Applies to a whole class of PPE (e.g. all buildings, all machinery of a certain type).

Revaluation surplus is generally recognised in Other Comprehensive Income and accumulated in equity under “Revaluation surplus”, unless it reverses a revaluation decrease of the same asset previously recognised in profit or loss.

Example – Simple revaluation

Rhodes Ltd owns a building:

Cost: R1 000 000
Accumulated depreciation at revaluation date: R200 000
Carrying amount: R800 000
Fair value at revaluation date: R1 100 000

Increase = R1 100 000 – R800 000 = R300 000
Journal entry:

Dr PPE: Building ………………… R300 000
Cr Revaluation surplus (OCI) … R300 000

New carrying amount = R1 100 000. Future depreciation must be based on the revalued amount and remaining useful life.

2.4 Depreciation: Methods and Estimates

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
Diminishing balance (reducing balance)
Units of production

Straight-line method

Annual depreciation = (Cost – Residual value) / Useful life (years).

Example – Straight-line depreciation

Machinery cost R380 000, residual value R20 000, life 10 years:

Depreciable amount = R380 000 – R20 000 = R360 000
Annual depreciation = R360 000 / 10 = R36 000

IAS 16 requires that useful life, residual value and depreciation method be reviewed at least at each financial year‑end. Changes are treated as a change in accounting estimate and applied prospectively.

2.5 Disposal of PPE

When PPE is disposed of (sold, scrapped, etc.), you:

Remove the cost and accumulated depreciation from the accounts.
Recognise any proceeds from disposal.
Recognise profit or loss (difference between proceeds and carrying amount) in profit or loss.

Example – Disposal

Rhodes Ltd sells machinery:

Cost: R200 000
Accumulated depreciation: R140 000
Carrying amount: R60 000
Proceeds: R55 000 (bank)

Entry:

Remove asset and accumulated depreciation:
- Dr Accumulated depreciation ………… R140 000
- Cr PPE: Machinery ……………………… R140 000
Record bank and derecognise asset balance:
- Dr Bank ………………………………………… R55 000
- Dr Loss on disposal (P/L) …………… R5 000
- Cr PPE: Machinery ……………………… R60 000

Loss = R55 000 – R60 000 = R5 000

2.6 Subsequent Expenditure and Componentisation

IAS 16 distinguishes between:

Day‑to‑day servicing (repairs and maintenance) – expensed.
Major inspections / overhauls – capitalised if recognition criteria are met.
Replacement of parts – capitalise new part, derecognise carrying amount of replaced part.

Componentisation: Significant parts of an asset with different useful lives must be depreciated separately (e.g. aircraft engines vs frame).

Example – Component depreciation

An aircraft cost R5 000 000, broken into:

Airframe: R3 000 000, 20 years
Engines: R2 000 000, 10 years

Depreciation per year:

Airframe: R3 000 000 / 20 = R150 000
Engines: R2 000 000 / 10 = R200 000
Total = R350 000 per year

If engines are replaced after 10 years for R2 500 000:

Derecognise old engines (carrying amount R0 if fully depreciated).
Capitalise new engines at R2 500 000 and start new depreciation.

2.7 Revaluation: Exam-Level Detail

In ACC201, revaluation questions may involve:

Upward revaluation, later downward revaluation, or vice versa.
Depreciation before and after revaluation.
Revaluation surplus movement and transfers to retained earnings.

Example – Upward followed by downward revaluation

Initial cost: R500 000, useful life 10 years, no residual. After 3 years, carrying amount:
- Depreciation per year = R50 000
- Accumulated depreciation after 3 years = R150 000
- Carrying amount = R350 000
Fair value at year 3: R420 000
Increase = R70 000 → OCI (Revaluation surplus).
After another 2 years (year 5), assume straight‑line on revalued amount over remaining 7 years:
- Depreciable amount (year 3 onwards) = R420 000
- Remaining life = 7 years
- New depreciation = R60 000 per year
After 2 years (years 4 and 5), accumulated depreciation since revaluation = R120 000, carrying amount at year 5 = R300 000.
At year 5, fair value drops to R280 000. Decrease = R20 000.
- First reduce Revaluation surplus (previously R70 000, still fully unused).
- So, Dr Revaluation surplus (OCI) R20 000; Cr PPE R20 000.

Revaluation surplus balance after this = R50 000.

Exam often asks:

Show PPE note with cost, accumulated depreciation, carrying amount.
Show revaluation surplus movement in equity.
Provide journal entries for revaluation.

2.8 Link to Other Institutions (UNISA & CUT) and ACC201 Exam Focus

At UNISA (FAC2601/FAC2602) and CUT (FAC21A), PPE revaluation and disposal form core long questions. Rhodes ACC201 typically mirrors this, but with possibly fewer standards in a single question, allowing deeper PPE detail:

Expect at least 1 major PPE question (15–30 marks).
Be ready for a combined question: PPE plus provisions (dismantling costs) or borrowing costs (IAS 23) for qualifying assets (if covered).

Strong PPE understanding is a high‑yield investment for ACC201 at Rhodes and any South African university’s second‑year Financial Accounting curriculum.

3. Intangible Assets (IAS 38), Goodwill, and Related Issues

Intangible assets and basic goodwill frequently appear in ACC201 tests and exams at RU and are widely tested in UNISA FAC2601/FAC2602 and CUT intermediate accounting subjects. This section focuses on:

Recognition and measurement of intangibles
Research vs development costs
Amortisation and impairment
Basic goodwill concepts (as a bridge to later ACC3xx consolidation courses)

3.1 Definition and Key Features of Intangible Assets

IAS 38 defines an intangible asset as:

An identifiable non‑monetary asset without physical substance.

Key attributes:

Identifiable
- Separable (capable of being sold, transferred, licensed, rented, or exchanged), or
- Arising from contractual or other legal rights.
Control
- The entity has power to obtain future economic benefits and restrict others’ access.
Future economic benefits
- For example: revenues from sale of products using the intangible, cost savings, or other benefits.

Common examples:

Patents
Copyrights
Trademarks
Computer software
Licences and franchises
Customer lists (if acquired)
Mastheads and publishing titles (if acquired)

Goodwill is also an intangible, but IAS 38 does not cover goodwill; it is dealt with in IFRS 3 – Business Combinations. However, ACC201 often references goodwill conceptually.

3.2 Recognition Criteria for Intangible Assets

An intangible asset is recognised if:

It is probable that future economic benefits will flow to the entity; and
The cost of the asset can be measured reliably.

This mirrors PPE conditions but with a stronger emphasis on identifiability and control.

Internally generated goodwill is never recognised as an asset.

3.3 Research vs Development (Common Exam Trap)

IAS 38 draws a sharp line between:

Research phase – original and planned investigation to gain new scientific or technical knowledge.
Development phase – application of research findings to a plan or design for the production of new or substantially improved products or processes.

Treatment:

Research costs: always expensed when incurred.
Development costs: capitalised as an intangible asset only if all six specific criteria are met.

Six development criteria (summarised):

Technical feasibility of completion.
Intention to complete and use or sell the asset.
Ability to use or sell the intangible.
Probable future economic benefits (e.g. existence of a market, or internal usefulness).
Availability of adequate resources to complete and use/sell.
Ability to measure reliably the expenditure attributable to the intangible during its development.

Exam note: Often only some criteria are clearly met; if one fails, all development costs must be expensed.

Example – Research vs development

Rhodes Tech Ltd works on a new software product:

2023: Spends R600 000 exploring several approaches, with no specific product design or commercial plan.
2024: Identifies a specific product, obtains technical feasibility and a detailed business plan, and spends a further R900 000.

Assume 2024 costs meet all six development criteria.

Treatment:

2023 costs (R600 000): Research – expense in profit or loss.
2024 costs (R900 000): Development – capitalise as an intangible asset.

3.4 Initial Measurement of Intangible Assets

Intangibles are measured initially at cost. Cost depends on how acquired:

Separate acquisition
- Purchase price (including import duties and non‑refundable taxes, less discounts).
- Directly attributable costs for preparing the asset for its intended use.
Business combination (e.g. Rhodes Ltd acquires another company)
- Recognise identifiable intangible assets at fair value at acquisition date (if they meet definition and recognition criteria) separately from goodwill.
Internally generated
- Only development phase capitalised if criteria met; research expensed.

Costs include:

Employee benefits arising directly from bringing the asset to working condition.
Fees to register a legal right.
Amortisation of patents and licences used in developing the asset.

Costs excluded and expensed:

Selling, administrative, and other general overheads.
Inefficiencies and initial operating losses.
Costs of training staff.

3.5 Subsequent Measurement: Amortisation and Impairment

After recognition, intangibles are measured using:

Cost model, or
Revaluation model (rare in practice and in exams, as active markets for intangibles are uncommon).

Amortisation:

Intangibles with finite useful lives are amortised over their useful life.
Amortisation method should reflect the pattern of consumption of future economic benefits (often straight‑line).
Intangibles with indefinite useful lives are not amortised, but tested annually for impairment.

Example – Amortisation

An acquired patent:

Cost: R300 000
Legal life: 10 years
Management expects economic benefits for full 10 years.
No residual value.

Annual amortisation (straight‑line) = R300 000 / 10 = R30 000

Journal:

Dr Amortisation expense ………… R30 000
Cr Accumulated amortisation … R30 000

3.6 Impairment of Intangible Assets (Basic ACC201 Treatment)

If events or changes indicate that an intangible asset might be impaired, its recoverable amount must be estimated:

Recoverable amount = higher of fair value less costs to sell and value in use.

If Recoverable amount < Carrying amount, recognise an impairment loss:

Dr Impairment loss (P/L)
Cr Intangible asset / Accumulated impairment

For goodwill and indefinite‑life intangibles, an impairment test is done annually, even if no indicators exist (in more advanced modules like ACC301/ACC302).

3.7 Goodwill – Conceptual Introduction

In ACC201 at RU, goodwill is often introduced conceptually, with detailed purchase price allocation and impairment tests postponed to later modules.

Concept:

Goodwill arises in a business combination when the purchase consideration exceeds the fair value of the identifiable net assets acquired.

Basic formula:

Goodwill = Purchase consideration – Fair value of identifiable net assets acquired

Goodwill is:

Recognised as an intangible asset with indefinite life.
Not amortised; tested annually for impairment.
Internally generated goodwill is not recognised.

Example – Simple goodwill

Rhodes Ltd acquires 100% of Eastcape Ltd for R1 500 000. Fair value of net assets acquired:

PPE: R1 200 000
Inventory: R200 000
Trade receivables: R150 000
Trade payables: R100 000

Net assets = R1 200 000 + R200 000 + R150 000 – R100 000 = R1 450 000
Goodwill = R1 500 000 – R1 450 000 = R50 000

3.8 Exam-Style Issues on Intangibles for ACC201 at RU

Common exam tasks:

Classify items as research, development, PPE, intangible, or expense.
Compute cost of an intangible from several cost items.
Record amortisation and prepare carrying amount calculations.
Distinguish finite vs indefinite useful life.
Provide short written explanations of treatment, citing IAS 38.

Example exam prompt:

“Rhodes Innovations Ltd incurred the following costs in relation to a new product:
– R350 000 exploring alternative materials (no clear product yet);
– R500 000 after development of a prototype with demonstrated feasibility;
– R80 000 marketing costs.
The criteria in IAS 38.57 for capitalising development costs are met from the date of the prototype.
Required: Indicate how each expenditure item should be treated in terms of IAS 38 in the 2024 financial statements.”

Expected answer:

R350 000: research → expense.
R500 000: development meeting criteria → capitalise as intangible.
R80 000: marketing → expense.

3.9 Links to UNISA and CUT Syllabi

At UNISA, similar content appears in FAC2601, and exam questions often ask to:

Distinguish research vs development.
Capitalise development costs and amortise the intangible.
Perform basic impairment checks.

At CUT, intangible assets are integrated with PPE and investment property topics in FAC21A and related modules. Rhodes ACC201 is fully consistent with these expectations, though RU often emphasises:

Clear referencing to IAS 38.
Good explanation of why development costs are capitalised or expensed.
Tight logical structuring in short‑form written answers.

Mastering intangibles in ACC201 at RU builds a strong foundation for advanced accounting modules and professional exams such as SAICA APC or ACCA papers, where IFRS 3 and complex goodwill impairment feature heavily.

4. Revenue (IFRS 15), Inventories (IAS 2) and Basic Financial Instruments (IFRS 9) in ACC201

This section covers three heavily tested areas in RU’s ACC201 exam pack and in comparable modules at UNISA (FAC2601/FAC2602) and CUT (FAC21A/FAC22A):

Revenue recognition under IFRS 15
Inventories under IAS 2
Introductory financial instruments under IFRS 9 (focusing on trade receivables and simple ECL)

4.1 Revenue from Contracts with Customers – IFRS 15

IFRS 15 provides a five‑step model:

Identify the contract with a customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to the performance obligations.
Recognise revenue when (or as) each performance obligation is satisfied.

4.1.1 Step 1: Identify the Contract

A contract is an agreement creating enforceable rights and obligations. Requirements:

Approved by parties.
Identifiable rights and payment terms.
Commercial substance.
Probable that consideration will be collected.

If criteria are not met, no contract exists for IFRS 15 purposes.

4.1.2 Step 2: Identify Performance Obligations

A performance obligation is a promise to transfer a distinct good or service.

A good or service is distinct if:

The customer can benefit from it on its own or with other readily available resources; and
It is separately identifiable from other promises in the contract.

Examples of separate performance obligations:

Sale of equipment plus significant installation service.
Sale of a product plus substantive ongoing after‑sales service.

Non‑distinct services (e.g. minor installation or training that does not add significant value) are combined with the main good as a single performance obligation.

4.1.3 Step 3: Determine the Transaction Price

Transaction price is the amount of consideration the entity expects to be entitled to in exchange for transferring goods or services, excluding amounts collected on behalf of third parties (VAT).

Consider:

Variable consideration (discounts, rebates, bonuses).
Significant financing component.
Non‑cash consideration.
Consideration payable to a customer.

For ACC201, the focus is usually basic fixed-price contracts and simple discounts.

4.1.4 Step 4: Allocate Transaction Price

If there is more than one performance obligation, allocate the transaction price based on relative stand‑alone selling prices.

Example – Allocation

Rhodes Electronics Ltd sells:

A television (stand‑alone price: R8 000)
Two‑year extended warranty (stand‑alone price: R2 000)

Contract price for the bundle: R9 000.
Total stand‑alone prices = R8 000 + R2 000 = R10 000.

Allocation:

TV: R9 000 × (8 000 / 10 000) = R7 200
Warranty: R9 000 × (2 000 / 10 000) = R1 800

Revenue recognised:

TV: at point of transfer (delivery) – R7 200.
Warranty: over two years – R900 per year.

4.1.5 Step 5: Recognise Revenue

Revenue is recognised when (or as) the entity satisfies a performance obligation by transferring control of a good or service to the customer. Control is transferred:

Over time, or
At a point in time.

Over time if one of these criteria is met:

Customer simultaneously receives and consumes benefits (e.g. cleaning services).
Customer controls the asset as it is created or enhanced (e.g. building on the customer’s land).
Asset has no alternative use to the entity and the entity has an enforceable right to payment for performance to date.

Otherwise, revenue is recognised at a point in time (typical for sale of goods).

4.2 Inventories – IAS 2

IAS 2 covers inventories:

Assets held for sale in the ordinary course of business, in the process of production, or in the form of materials or supplies.

Key concepts:

Measurement at lower of cost and net realisable value (NRV).
Determination of cost.
Cost formulas: FIFO and Weighted Average.

4.2.1 Measurement of Inventories

Cost includes:

Purchase cost (including import duties and non‑refundable taxes, less discounts).
Conversion costs (direct labour, allocation of fixed and variable overheads).
Other costs to bring inventories to present location and condition.

NRV = estimated selling price in the ordinary course of business – estimated costs of completion – estimated selling costs.

Inventories are carried at lower of cost and NRV.

Write‑down: If NRV < cost, recognise an expense:

Dr Cost of sales / Inventory write‑down expense
Cr Inventory (or allowance for inventory write‑down)

Example – NRV test

Rhodes Retail Ltd has inventory with cost R100 000. Selling price expected: R110 000. Costs to complete: R5 000. Selling costs: R8 000.

NRV = R110 000 – R5 000 – R8 000 = R97 000
Carrying amount = lower of cost (R100 000) and NRV (R97 000) → R97 000

Write‑down = R3 000.

4.2.2 Cost Formulas – FIFO and Weighted Average

IAS 2 permits:

FIFO (First‑In, First‑Out)
Weighted average cost

LIFO is not allowed under IFRS.

Example – FIFO

Rhodes Stores inventory transactions:

1 Jan: Opening inventory – 100 units @ R10 = R1 000
5 Jan: Purchase – 50 units @ R11 = R550
20 Jan: Purchase – 80 units @ R12 = R960
31 Jan: Sold 150 units.

Under FIFO, issues are from earliest inventory:

100 units @ R10 = R1 000
50 units @ R11 = R550
Cost of sales = R1 550
Closing inventory:
Remaining: 30 units @ R12 = R360

Example – Weighted average

Total units available: 100 + 50 + 80 = 230
Total cost: R1 000 + R550 + R960 = R2 510
Average cost per unit = R2 510 / 230 ≈ R10.913

COGS for 150 units ≈ 150 × 10.913 = R1 636.95 (round as required)
Closing inventory for 80 units ≈ 80 × 10.913 = R873.04

ACC201 often tests both methods in short numerical questions, with emphasis on careful calculation and rounding.

4.3 Financial Instruments – IFRS 9 (Intro Level)

ACC201 at RU generally introduces basic financial instruments, often focusing on:

Definition of financial assets and liabilities.
Trade receivables at amortised cost.
Simple expected credit loss (ECL) allowance.

4.3.1 Definitions

Financial asset: cash, an equity instrument of another entity, or a contractual right:

To receive cash or another financial asset; or
To exchange financial instruments under favourable conditions.

Financial liability: contractual obligation:

To deliver cash or another financial asset; or
To exchange financial instruments under unfavourable conditions.

Equity instrument: residual interest in assets of an entity after deducting all its liabilities (e.g. ordinary shares).

Common ACC201 examples:

Trade receivables (financial asset).
Trade payables (financial liability).
Bank loans (financial liability).

4.3.2 Initial and Subsequent Measurement – Trade Receivables

Initial recognition: at fair value (usually the invoice amount) plus or minus transaction costs (for amortised cost assets).

Subsequent measurement: at amortised cost, which for short‑term trade receivables usually equals the invoiced amount less allowance for ECL.

4.3.3 Impairment – Expected Credit Loss (ECL) Model

IFRS 9 uses an expected credit loss model. For trade receivables without a significant financing component, entities apply a simplified approach:

Recognise lifetime expected credit losses from initial recognition.

ACC201 typically requires:

Calculating a simple loss allowance based on a percentage of outstanding receivables.
Recording journal entries for recognition and adjustment of allowance.

Example – ECL allowance

Rhodes Traders has trade receivables of R200 000 at year‑end. Based on past experience and future expectations, expected credit loss rate = 5%.

Loss allowance = 5% × R200 000 = R10 000

If previous allowance balance was R8 000:

Additional allowance needed = R10 000 – R8 000 = R2 000

Journal:

Dr Impairment loss / Bad debts expense … R2 000
Cr Allowance for expected credit losses … R2 000

If customers default later and specific receivables are written off, reduce both receivable and allowance.

5. Provisions (IAS 37), Events After Reporting Date (IAS 10), and Presentation (IAS 1) – Exam Integration

ACC201 exams at RU frequently integrate provisions, events after the reporting period, and presentation issues into a single, medium‑sized question. These topics also align closely with UNISA’s FAC2601/FAC2602 and CUT’s intermediate financial accounting modules.

5.1 Provisions and Contingencies – IAS 37

5.1.1 Definitions

Provision: a liability of uncertain timing or amount.

Conditions for provision recognition:

A present obligation (legal or constructive) from a past event exists.
It is probable that an outflow of resources will be required.
The amount can be estimated reliably.

If (1) or (2) is not met, do not recognise a provision; consider a contingent liability disclosure if appropriate.

Contingent liability:

A possible obligation depending on uncertain future events, or
A present obligation that is not recognised because it is not probable or cannot be measured reliably.

Contingent asset:

A possible asset from past events whose existence will be confirmed by uncertain future events; not recognised, but disclosed if inflow is probable.

5.1.2 Measurement of Provisions

Measure at best estimate of expenditure required to settle present obligation at reporting date, considering:

Risks and uncertainties.
Present value if time value of money is material (discounting).
Future events that may affect amount (e.g. technological changes).

Example – Warranty provision

Rhodes Appliances sells fridges with 1‑year warranties. Based on experience:

3% of sales will require repair at average cost R500 each.
2024 sales: 10 000 units at R3 000 each.

Expected warranty cost = 10 000 × 3% × R500 = R150 000

Provision at year‑end:

Dr Warranty expense ……………………………………… R150 000
Cr Provision for warranty obligations ……… R150 000

As claims occur next year, actual repair costs reduce the provision:

Dr Provision for warranty obligations ……… Rx
Cr Bank / Inventory / Payables ………………… Rx

If final actual cost differs from estimate, adjust provision accordingly.

5.1.3 Onerous Contracts

An onerous contract is one in which:

The unavoidable costs of meeting the obligations exceed the economic benefits expected to be received.

Recognise a provision for the present obligation under the contract.

Example: Rhodes Ltd has a non‑cancellable lease contract where future lease payments exceed the economic benefits from using the leased asset. The excess is provided for as an onerous contract.

5.2 Events After the Reporting Period – IAS 10

Events after reporting period are those occurring between the end of the reporting period and the date when financial statements are authorised for issue.

Two types:

Adjusting events – provide evidence of conditions that existed at reporting date; require adjustment of amounts in the financial statements.
Non‑adjusting events – indicate conditions that arose after reporting date; do not adjust amounts, but disclose if material.

5.2.1 Examples of Adjusting Events

Settlement of a court case after year‑end that confirms the entity had a present obligation at year‑end.
Information indicating an asset was impaired at year‑end (e.g. customer bankruptcy after year‑end where financial difficulties existed before year‑end).
Discovery of fraud or errors that show financial statements were incorrect.

5.2.2 Examples of Non-Adjusting Events

Major business combination after year‑end.
Destruction of a factory by fire after year‑end (if no indication of impairment at year‑end).
Announcing a major restructuring after year‑end.
Declaring dividends after reporting date (these are disclosed but not recognised as a liability at year‑end).

ACC201 exams at RU often present short scenarios and require classification as adjusting/non‑adjusting and appropriate treatment.

Example – Adjusting vs non-adjusting

Reporting date: 31 December 2024
FS authorised: 31 March 2025

Scenario A: On 15 January 2025, a major customer owing R300 000 at 31 Dec 2024 is declared bankrupt. Financial difficulties were known before year‑end.

Adjusting event – impairment of receivable existed at year‑end.
Adjust receivables and recognise additional ECL.

Scenario B: On 10 February 2025, a fire destroys inventory that was in good condition on 31 Dec 2024.

Non‑adjusting event – no indication at year‑end.
Disclose nature and financial effect.

5.3 Presentation of Financial Statements – IAS 1

IAS 1 sets out the overall presentation, structure and minimum content requirements for financial statements.

5.3.1 Components of a Complete Set of Financial Statements

According to IAS 1, a complete set includes:

Statement of financial position (SFP) at the end of the period.
Statement of profit or loss and other comprehensive income (SOCI/SCI).
Statement of changes in equity (SCE).
Statement of cash flows (per IAS 7).
Notes, including summary of significant accounting policies and other explanatory information.
Comparative information for the previous period.

5.3.2 Current vs Non-Current Classification

An asset is current if:

It is expected to be realised in the entity’s normal operating cycle;
It is held primarily for trading;
It is expected to be realised within 12 months after reporting date; or
It is cash or a cash equivalent.

All others are non‑current.

A liability is current if:

It is expected to be settled in the normal operating cycle;
It is held for trading;
It is due to be settled within 12 months; or
The entity does not have an unconditional right to defer settlement for at least 12 months.

Everything else is non‑current.

Exam tasks often ask you to classify assets and liabilities correctly in an SFP, a common integrated question in RU ACC201, UNISA FAC2601 and CUT intermediate modules.

5.3.3 Other Comprehensive Income (OCI)

IAS 1 requires separate presentation of:

Profit or loss; and
Other comprehensive income.

OCI items include, for example:

Changes in revaluation surplus for PPE (IAS 16).
Certain gains/losses on financial instruments classified at FVOCI.
Exchange differences on translating foreign operations (more advanced).

In ACC201, the main OCI item is often revaluation surplus on PPE.

Example – SCI structure (simplified)

Profit or loss section:

Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses (including impairment)
Finance costs
Profit before tax
Income tax expense
Profit for the year

Other comprehensive income section (examples):

Gain on revaluation of PPE (IAS 16)
Income tax relating to components of OCI

Total comprehensive income for the year.

5.4 Integrated Exam Question Patterns for ACC201 (RU)

A classic ACC201 exam question at RU might present a trial balance plus additional information including:

PPE acquisitions, disposals, and revaluations.
Inventories requiring NRV adjustments.
Trade receivables and ECL allowance adjustments.
Provisions for legal claims or warranties.
Events after reporting date requiring classification as adjusting/non‑adjusting.
Equity movements and dividends.

You may be asked to:

Prepare a Statement of Profit or Loss and Other Comprehensive Income.
Prepare a Statement of Financial Position.
Provide selected notes to the financial statements (PPE note, provisions note).
Justify treatment for selected items (e.g. why a particular event is a non‑adjusting event).

Markers reward students who:

Clearly label each adjustment and link to relevant IFRS.
Show workings for all complex calculations.
Present financial statements with a professional layout (headings, subtotals, rounding consistency).

By systematically mastering PPE (IAS 16), Intangibles (IAS 38), Revenue (IFRS 15), Inventories (IAS 2), Financial Instruments (IFRS 9), Provisions (IAS 37), Events After Reporting Date (IAS 10), and Presentation (IAS 1), a Rhodes University BCom Accounting student taking ACC201: Financial Accounting II will be well‑positioned to excel not only in RU exams, but also in comparable second‑year financial accounting assessments at UNISA (e.g. FAC2601/FAC2602), CUT, and other South African universities.