HLAA130-1 July-Dec2024 SA1 Exam Revision PDF

July - December 2024 Summative Assessment - Examination Revision Module: Legal Aspects of Accounting (HLAA1301) Instructions: In preparation for the upcoming Summative Assessment 1, please see below 30 example Multiple- Choice Questions with solutions: Question...

July - December 2024 Summative Assessment - Examination Revision Module: Legal Aspects of Accounting (HLAA1301) Instructions: In preparation for the upcoming Summative Assessment 1, please see below 30 example Multiple- Choice Questions with solutions: Question 1 As the financial manager of Cartelli Civils (Pty) Ltd you must provide your auditors with the company’s public interest score. Your company is a civils construction company that does contractual work for numerous government and private entities nationwide. Your junior bookkeeper has provided you with the following summarised information, she believes you’ll require to calculate the public interest score with: - Turnover R 136 000 000 - Net profit for the year R 24 000 000 - Ordinary share capital R 100 000 000 - Shareholders with direct interest 5 - Average number of employees 3 255 - Third party liabilities R 62 740 000 Based on the provided information, what would Cartelli’s public interest score for their 2024 financial year equate to? A. 3 459 B. 1 628 C. 3 559 D. 3 308 1 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: A. 3 459 (Auditing Notes chapter 3) Question 2 HUT (Pty) Ltd has compiled a list of possible independent accounting professionals who can assist them in preparing their financial statements for them. Which one of the following selections on their list will qualify as an independent accounting professional? A. Linda as their external auditor, who is registered with SAICA as a chartered accountant and forms part of HUT’s external audit team. B. Cecilia who is a member of SAIPA, the sole proprietor of her own consulting and bookkeeping company and is the sister of the financial director. C. Jack and Jill Accountants and Auditors who are registered with SAICA and IRBA and have been suggested to them by one of their regular customers. D. Markus who is a registered member with CIMA and is the majority shareholder of HUT’s holding company Tatooine Ltd. Solution: C. Jack and Jill Accountants and Auditors who are registered with SAICA and IRBA and have been suggested to them by one of their regular customers. (Auditing Notes chapter 3) 2 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 3 Badger Co (Pty) Ltd is a subsidiary of Bender Ltd, who is listed on the JSE. Badger Co’s PI score amounted to 85 at the end of their 2019 financial year, and they compile their financial statements internally. Based on the provided information, would Badger Co have to have their financial statements audited, and if yes or no, why? A. No, because Badger Co’s public interest score would not place them in a bracket which would require them to be audited. B. Yes, because Badger Co’s public interest score would place them in a bracket which would require them to be audited. C. Yes, because Badger Co compiles its financial statements internally and would thus be required to have them audited. D. Yes, because Badger Co is a subsidiary of a company listed on the JSE. Solution: D. Yes, because Badger Co is a subsidiary of a company listed on the JSE. (Auditing Notes chapter 3) Question 4 In which one of the following instances would the relevant company not have to have its financial statements audited nor reviewed? A. Stark (Pty) Ltd has a public interest score of 62 and 100% of its shares belongs to one shareholder who is a natural person and the only director of the company. Stark independently compiles its financial statements. B. Quicksilver Ltd is a public company, which has a public interest score of 55 and its shares are equally owned by five shareholders. C. Hulk Plant Hire (Pty) Ltd has a public interest score of 77 and is a subsidiary of Thanos Construction (Pty) Ltd. D. Strange Construction (Pty) Ltd has a public interest score of 105 and compiles its annual financial statements internally. 3 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: A. Stark (Pty) Ltd has a public interest score of 62 and 100% of its shares belongs to one shareholder who is a natural person and the only director of the company. Stark independently compiles its financial statements. (Auditing Notes chapter 3) Question 5 Ted, as the financial manager of Congo Corp (Pty) Ltd, needs to assess whether the company would still have to have its financial statements audited or not. The company has downscaled significantly due to the poor economic climate, and has laid off a large number of employees due to its financial circumstances. You have compiled a list with the following information you believe would be relevant: - Turnover for the year amounted to R 170 million - Total liabilities due to third parties amounted to R 35 million - The company has 10 shareholders who are not on the company’s payroll - The company had 150 employees at the beginning of its financial year and 94 at the end of its financial year - The company held no assets in fiduciary capacity. With regards to the given information, which one of the following statements would be true? A. If Ted prepares the company’s financial statements as a CA registered with SAICA, the company would only have to have its financial statements reviewed by a registered auditor. B. If the company makes use of an independent accounting professional to externally prepare the financial statements, the company would only have to have its financial statements independently reviewed by a registered auditor. C. The company would still have to have its financial statements audited by a registered auditor, regardless of whether the financial statements are internally or externally prepared. D. The company would not have to have its financial statements reviewed or audited. 4 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: B. If the company makes use of an independent accounting professional to externally prepare the financial statements, the company would only have to have its financial statements independently reviewed by a registered auditor. (Auditing Notes chapter 3) Question 6 Sally is in the process of performing her independent review procedures on her client. As one of her analytical review procedures, she compared her client’s financial statements’ revenue to the revenue which has been declared on her client’s VAT201s (which gets signed off by the financial director before being submitted on eFiling). Based on the results, it seemed like her client has materially misstated their VAT201 returns to pay less VAT. Which one of the following actions should Sally take with regards to the regulations stipulated in the companies’ act? A. Sally should discuss it with her client after performing and finishing her review procedures, and assist them in correcting the matter. B. Sally should report the misstatement as a reportable irregularity to the Commission without delay, by providing them with all the necessary information of the misstatement. C. Sally should report the misstatement as a reportable irregularity to the Commission within three days of discovering the irregularity, after discussing it with the company’s management and those charged with governance. D. Sally would not have to report the omission to the Commission, as it would not form part of her independent review procedures. Solution: B. Sally should report the misstatement as a reportable irregularity to the Commission without delay, by providing them with all the necessary information of the misstatement. (Auditing Notes chapter 3) 5 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 7 Adam AI (Pty) Ltd has a public interest score of 520 in its second consecutive year, and is required to appoint a social and ethics committee. Which one of the following additional criteria must Adam AI adhere to, regarding the appointment of a social and ethics committee, as per the companies act? A. Adam AI would need to have their financial statements audited after appointing such a committee. B. All the members of the committee must comprise of non-executive directors. C. Adam AI would have to appoint such a committee within the next year, after the date of meeting the 500-point requirement. D. One of the functions of the committee would be to promote the company’s goodwill. Solution: C. Adam AI would have to appoint such a committee within the next year, after the date of meeting the 500-point requirement. (Auditing Notes chapter 3) Question 8 After inspecting the minutes of your client’s annual general meeting, one of the junior audit trainees on your audit team compiled a list with the names and details of entities which could possibly be related to your client in terms of the companies act. Which one of the following entities would be considered as being a related party as per the act? A. Frog Tree IT (Pty) Ltd was appointed as the IT consultants of your client and 100% of its shares are owned by your client’s managing director’s stepson. B. Your client uses RADAR Telecom Ltd to provide the company with telecommunication services. Your company’s CEO holds 0.05% of RADAR’s JSE listed shares. C. Happy Lawns Gardening services is a sole proprietorship which also provides services to the senior bookkeeper of your client’s company. D. Speed of Light Ltd is listed on the JSE, and your company holds a non-controlling percentage of shares in the company as an investment asset. 6 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: A. Frog Tree IT (Pty) Ltd was appointed as the IT consultants of your client and 100% of its shares are owned by your client’s managing director’s stepson. (Auditing Notes chapter 3) Question 9 As part of your risk assessment procedures, you need to verify if your client, Ronin Enterprises, meets the requirements of the solvency and liquidity test as per the companies act. You have summarized the following information: - Company’s total assets R 370 million - Company’s total liabilities R 148 million Ronin Enterprises has furthermore notified you that they plan on distributing dividends of R 1.50 per share, 4 months after their 2024 financial year end. Does Ronin meet the requirements of the solvency and liquidity test according to the companies act, and will the distribution be deemed legal? A. Ronin Enterprises does not pass the solvency and liquidity test and will not be allowed per the act to distribute the declared dividends. B. Ronin Enterprises does not pass the solvency and liquidity test but will still be allowed per the act to distribute the declared dividends. C. Ronin Enterprises passes the solvency and liquidity test, but not to the standard where a distribution will be possible, if they want to adhere to the companies act. D. Ronin Enterprises passes the solvency and liquidity test and the distribution of dividends will comply with the necessary requirements of the act. Solution: D. Ronin Enterprises passes the solvency and liquidity test and the distribution of dividends will comply with the necessary requirements of the act. (Auditing Notes chapter 3) 7 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 10 Which one of the following would be a requirement for a company to be classified as a personal liability company in terms of the companies act? A. The company’s name must end with the expression (Pty) Ltd or (Proprietary) Limited B. The company’s MOI must include the clause which states that the company’s directors and past directors are jointly and severally liable, together with the company, for any debts or liabilities that were incurred during their terms of office. C. The company must be incorporated for public benefits. D. The company can offer securities to the public. Solution: B. The company’s MOI must include the clause which states that the company’s directors and past directors are jointly and severally liable, together with the company, for any debts or liabilities that were incurred during their terms of office. (Auditing Notes chapter 3) Question 11 Your friend, Frank Castle, has notified you that he wants to register a new VIP security company. You have explained to him that the companies act prohibits certain criteria to be used in a company’s name. Which one of the following company names can be used for his company? A. 0% Tolerance Security (Pty) Ltd B. SA Defense Force Security (Pty) Ltd C. Thief Killer Security (Pty) Ltd D. Castle Security (Pty) Ltd Solution: D. Castle Security (Pty) Ltd (Auditing Notes chapter 3) 8 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 12 Charles has applied to register his company, Xavier School for the Gifted NPC. He has provided the commission with all his personal details and the company’s information. Charles made use of a template MOI for an NPC, which he downloaded from Google, and which he only had to update with his necessary details. He furthermore paid the required fee and filed a notice of incorporation with the MOI. Within a week of his registration, Charles received a letter from the commission stating that his application has been rejected. Which one of the following would be the most likely reason why the commission has rejected his application? A. Section 13 of the companies act states that a non-profit company must be incorporated by three or more persons. B. Charles’s company name does not comply with section 11 of the companies act, and would be deemed inappropriate. C. The MOI which Charles has used cannot be used in accordance to section 15 of the companies act. D. The fee paid by Charles does not comply with the required fee for the specific registration, according to section 13 of the companies act. Solution: A. Section 13 of the companies act states that a non-profit company must be incorporated by three or more persons. (Auditing Notes chapter 3) 9 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 13 When Casablanca (Pty) Ltd registered their company, they included a provision in their MOI which states that the company must have its financial statements audited by a registered auditor annually, even though the company is not required to in accordance with the Companies Act. Which one of the following statements is true regarding the scenario? A. Casablanca must adhere to the Companies Act, and the provision that has been included in the MOI will thus not have any legal grounds to be audited. B. According to the Companies Act the MOI may include provisions that are stricter than the requirements included in the act, and Casablanca would thus have to adhere to the provision of the MOI and have its financial statements audited. C. Casablanca may only include the additional provision in its MOI if its public interest score requires it to be audited. D. Casablanca can annually decide if they want their financial statements to be audited or not, as the Companies Act does not require them to be audited. Solution: B. According to the Companies Act the MOI may include provisions that are stricter than the requirements included in the act, and Casablanca would thus have to adhere to the provision of the MOI and have its financial statements audited. (Auditing Notes chapter 3) 10 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 14 Kody Inc. is a personal liability company which has been liquidated. In terms of the Companies Act, which one of the following statements can be considered as being true? A. In terms of the Companies Act the directors and past directors of Kody Inc cannot be held liable for any liabilities or obligations that the company has incurred. B. In terms of the Companies Act the directors and past directors of Kody Inc will be jointly and severely liable for any liabilities or obligations that the company has incurred along with the company. C. In terms of the Act only the juristic person that holds shares in Kody Inc will be held liable for any liabilities or obligations that the company incurred. D. In terms of the Companies Act any directors or past directors of Kody Inc can only be held liable for the liabilities or obligations of the company, if it has been stated in the company’s MOI. Solution: B. In terms of the Companies Act the directors and past directors of Kody Inc will be jointly and severely liable for any liabilities or obligations that the company has incurred along with the company. (Auditing Notes chapter 3) Question 15 The commission has reason to believe that the directors of High-Table Trading (Pty) Ltd has been trading recklessly, and has issued the company with a notice to show cause of why the company should be permitted to continue carrying on its business. How long does High-Table Trading have to satisfy the commission that it is not contravening the act? A. 30 days B. 20 days C. 60 days D. 21 days Solution: B. 20 days (Auditing Notes chapter 3) 11 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 16 Stig (Pty) Ltd is your new audit client. In a questionnaire you have prepared for them, they have stated that they keep their accounting records and other documentation in written format for two years, after which they shred and recycle it. They do however keep electronic copies of all these records on several backup facilities, for up to ten years. Is your client in contravention of the act, and why or why not? A. Stig (Pty) Ltd is in contravention of the act, as section 24 of the act requires that a written format of the company’s documentation should be kept for up to seven years. B. Stig (Pty) Ltd is in contravention of the act as section 24 of the act states that the company should keep its accounts, financial information and documentation for as long as it trades or conducts business. C. Stig (Pty) Ltd is not in contravention of the act, as section 24 of the act states that the company’s accounts, financial information and documents can be kept in electronic format which allows it to be printed for up to seven years. D. Stig (Pty) Ltd is not in contravention of the act, as section 24 of the act requires that a written format of the company’s documentation should be kept for two years. Solution: C. Stig (Pty) Ltd is not in contravention of the act, as section 24 of the act states that the company’s accounts, financial information and documents can be kept in electronic format which allows it to be printed for up to seven years. (Auditing Notes chapter 3) 12 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 17 Mr. Pierce holds shares in Amped Ltd. During its financial year Amped did not perform well, and its share price plummeted. Mr. Pierce was furious about this and has written a letter to the chair of the board of Amped Ltd. stating that he has the legal right to view the minutes of the last annual general meeting to determine if the company was aware of where it was heading. Is Amped obliged to supply Mr. Pierce with the requested information? A. Amped Ltd. does not have to supply Mr. Pierce with the minutes of the last annual general meeting, as the act does not include this information to have to be available to a person who holds beneficial interest in the company. B. Amped Ltd. is obliged by section 26 of the act to supply Mr. Pierce with any information, as he holds beneficial interest in the company. C. Mr. Pierce can only obtain this information by obtaining a court order which allows him to do so. D. Amped Ltd. would only be obliged to provide Mr. Pierce with certain sections of the minutes which relates to his request as stated in section 26 of the companies act. Solution: B. Amped Ltd. is obliged by section 26 of the act to supply Mr. Pierce with any information, as he holds beneficial interest in the company. (Auditing Notes chapter 3) 13 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 18 Small Plant Hire (Pty) Ltd has not kept an asset register for several years for its assets with a carrying value of R 2 million. Is Small Plant Hire in contravention with the companies act, and what does the companies act state regarding the keeping of accounting records? A. Small Plant Hire (Pty) Ltd is not in contravention of the companies act, as only public companies and non-profit companies are required to keep and maintain fixed asset registers. B. Small Plant Hire (Pty) Ltd is in contravention of section 28 of the companies act, which requires any and all companies to keep fixed asset registers for all assets with a carrying value of more than R 1 million. C. Small Plant Hire (Pty) Ltd is in contravention of section 28 of the companies act, which requires any and all companies to keep accurate and complete accounting records in one of the official languages of the Republic. D. Small Plant Hire (Pty) Ltd is not in contravention of the companies act, as a fixed asset register does not form part of the accurate and complete accounting records a company is required to keep. Solution: C. Small Plant Hire (Pty) Ltd is in contravention of section 28 of the companies act, which requires any and all companies to keep accurate and complete accounting records in one of the official languages of the Republic. (Auditing Notes chapter 3) 14 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 19 Which one of the following options is a requirement of the financial statements a company provides to any person for any reason? A. The annual financial statements provided to a third party must be an audited set of financial statements. B. The annual financial statements provided to a third party must include a signed audit report and audit opinion in terms of the act. C. The annual financial statements provided to a third party must include a tax computation, which provides a full breakdown of how the business’s tax expenses have been calculated in terms of the act. D. The annual financial statements provided to a third party must present fairly the state of affairs and business of the company, and explain the transactions and financial position of the business in terms of the act. Solution: D. The annual financial statements provided to a third party must present fairly the state of affairs and business of the company, and explain the transactions and financial position of the business in terms of the act. (Auditing Note chapter 3) Question 20 Spektree (Pty) Ltd has a financial year end of 28 February 2024. Which date should Spektree have prepared their annual financial statements by, based on the requirements of the companies act? A. 31 March 2024 B. 31 August 2024 C. 28 February 2024 D. 31 May 2014 Solution: B. 31 August 2024 (Auditing Notes chapter 3) 15 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 21 Bluebird Couriers Ltd. paid and provided the following remunerations and benefits to its directors during their 2024 financial year: Salaries R 13 998 000 Bonuses R 2 000 000 Travel allowances R 1 200 000 Telephone allowance R 360 000 Company’s contribution to pension fund R 600 000 Directors contribution to pension fund R 600 000 Professional membership fees paid R 50 000 In terms of the companies act, what total value from the provided info would need to be included and disclosed in Bluebird Couriers Annual financial statements? A. R 18 808 000.00 B. R 13 998 000.00 C. R 18 158 000.00 D. The directors would not have to disclose their remuneration Solution: C. R 18 158 000.00 (Auditing Notes chapter 3) Question 22 What does it mean when a company’s name is followed by the abbreviated expression, (RF)? A. The company is a public company with listed shares B. The company’s MOI contains certain restrictions i.e. restrictions of trade C. The company’s rights to trade its shares has been forfeited D. The company is liquid and has enough reserve funds to cover its debts 16 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: B. The company’s MOI contains certain restrictions i.e. restrictions of trade (Auditing Notes chapter 3) Question 23 Eszray (Pty) Ltd has been approached by one of its directors to provide them with a personal loan, which will serve as a deposit on a holiday home. The company’s MOI does not restrict any such loans, and the board is satisfied that the terms of the loan are fair and reasonable to the company. Which other requirement should be adhered to according to the companies act, before the loan can be granted? A. The board needs to pass a special resolution, and the loan granted and paid within two years thereof. B. The board needs to pass an ordinary resolution, and the loan granted and paid within two years thereof. C. The director requesting the loan should personally pass the solvency and liquidity test, before and after the loan has been granted. D. The directors need to sign a formal written agreement, stating the terms and repayments of the loan along with its interest rate. Solution: A. The board needs to pass a special resolution, and the loan granted and paid within two years thereof. (Auditing Notes chapter 3) Question 24 Liquid Veg (Pty) Ltd has resolved and authorized that 10% of its net profits be distributed as dividends to its shareholders. How many days does Liquid Veg have to pay the declared dividends to its shareholders? A. 30 days B. 21 days C. 360 days D. 120 days 17 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: D. 120 days (Auditing Notes chapter 3) Question 25 Boabab Ltd has sent out a notice to its shareholders to notify them of the annual general meeting. Which other document must be included with the notice? A. A copy of the memorandum of incorporation B. A copy of the annual financial statements C. A copy of the following financial year’s budget D. A copy of the company’s latest annual return Solution: B. A copy of the annual financial statements (Auditing Notes chapter 3) Question 26 The board of Rock Lee Ltd has notified its shareholders of a meeting, where it will be decided if the company will go ahead in investing in a new business venture. Rock Lee has 20 shareholders each, holding an equal number of shares in the company. How many of the shareholders must be present at the meeting, before it may begin, as stated by the companies act? A. 20 Shareholders B. 10 Shareholders C. 5 Shareholders D. 2 Shareholders Solution: C. 5 Shareholders (Auditing Notes chapter 3) 18 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 27 Several of the shareholders of Donald Ltd want the company’s MOI to be amended. What type of resolution would have to be passed by the shareholders for the amendment to be valid, and be in compliance with the companies act? A. A special resolution B. An ordinary resolution C. A formal resolution D. An amendment resolution Solution: A. A special resolution (Auditing Notes chapter 3) Question 28 In which one of the following scenarios would the person be ineligible or disqualified from being the director of a company in terms of the companies act? A. Clark Wentzel, a rehabilitated insolvent individual, has been appointed as the Managing Director of Wing It Transport (Pty) Ltd. B. The shareholders of Avocado Cutlery (Pty) Ltd have decided to appoint Avocado Cutlery (Pty) Ltd as one of its own directors. C. Gus Jung was released from prison 20 years ago and has been appointed as a director of Free- Your-Mind (Pty) Ltd. D. Stephany Spielberg is 18 years of age and has opened her own registered private company, of which she is the director. Solution: B. The shareholders of Avocado Cutlery (Pty) Ltd have decided to appoint Avocado Cutlery (Pty) Ltd as one of its own directors. (Auditing Notes chapter 3) 19 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024 Question 29 Aurelia is a director of Pompei Excavators (Pty) Ltd. She holds personal financial interest in Young Milo (Pty) Ltd whose services Pompei Excavators are planning to make use of in their next project, and which will be decided at the next board meeting. What does the act require with regards to Aurelia’s financial interest in Young Milo (Pty) Ltd? A. Pompei Excavators (Pty) Ltd would be in contravention of the companies act if they decide to make use of Young Milo’s services, while Aurelia is still serving on the board. B. Pompei Excavators (Pty) Ltd can vote on the matter, if at least 25% of the board of directors is present to decide on the matter, and Aurelia’s vote will not be counted. C. If Aurelia’s interest in Young Milo (Pty) Ltd is of insignificance, she can partake in all the proceedings regarding the decision-making process of the meeting. D. Aurelia must disclose her interest in Young Milo (Pty) Ltd and the nature of it, in the meeting before the matter is considered and discussed. Solution: D. Aurelia must disclose her interest in Young Milo (Pty) Ltd and the nature of it, in the meeting before the matter is considered and discussed. (Auditing Notes chapter 3) Question 30 Abu is the CEO of Diamond in the Rough Ltd and his brother, Lago, its financial director. Abu has been notified by their auditors that his brother Lago might be involved in fraudulent activities in one of Diamond in the Rough’s subsidiaries. As part of the standards of directors’ conduct section in the companies act, what is Abu required to do? A. Abu should notify the local authorities of his brother’s fraudulent activities as soon as possible. B. Abu is obliged to communicate the information to the board at the earliest practical opportunity. C. Abu should obtain more evidence regarding the matter before communicating it to the board. D. Abu should dismiss his brother from his position without communicating the matter to any other parties, and hold him liable for any damages the company has incurred. 20 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024  Solution: B. Abu is obliged to communicate the information to the board at the earliest practical opportunity. (Auditing Notes chapter 3) 21 HLAA130-1-Jul-Dec2024- SA1-Exam Revision-PM-V.1-01112024