Grease two deep 20cm-round cake pans; line bases with baking paper.
Beat water, oil and baking powder in a large bowl with an electric mixer on low speed for about 30 seconds or until combined. Add remaining ingredients; beat mixture on low speed for one minute or until just combined. Increase speed to medium; beat for about three minutes or until mixture is smooth and thick. Divide mixture evenly among prepared pans.
Cook in a moderate oven, 180C, for about 35 minutes or until cooked when tested. Stand cakes in pans for five minutes; turn onto a wire rack to cool.
Creamy vanilla frosting. Beat margarine in a small bowl with an electric mixer until light and fluffy. Gradually add icing-sugar, beating until combined. Beat in water and vanilla extract until just combined.
Sandwich cakes together with one-third of the frosting. Spread remaining frosting over top and sides of cake. Decorate with hundreds and thousands