FAC4764 Study Pack 2

FAC3764/2023/Study pack 2
Department of Financial Accounting
IMPORTANT INFORMATION
This study pack contains integrated questions which will aid you in your preparation for
assessment 6.
These questions integrate learning units 1 to 7, which includes the following topics:
- The conceptual framework for financial reporting;

- Income taxes (IAS 12);
- Revenue from contracts with customers (IFRS 15);
- Leases (IFRS 16);
- Fair value measurement (IFRS 13);
- Property, plant and equipment (IAS 16);
- Investment property (IAS 40);
- Intangible assets (IAS 38);
- Impairment of assets (IAS 36);
- Non-current assets held for sale and discontinued operations (IFRS 5);
- Accounting policies, estimates and errors (IAS 8);
- The effects of changes in foreign exchange rates (IAS 21);
- Financial instruments (IAS 32, IFRS 7 and IFRS 9); and
- Employee benefits (IAS 19).
Please note that this study pack does NOT contain all the content and principles included in
learning unit 1 – 7. This study pack should NOT be seen as a scope for assessment 6.
Open Rubric
CONTENTS
Page
1 INTRODUCTION ............................................................................................................................ 3
2 LECTURERS AND CONTACT DETAILS ...................................................................................... 3
3 INTEGRATED QUESTIONS AND SOLUTIONS............................................................................ 4
2
Dear Student
1 INTRODUCTION
Within this study pack we include integrated questions and suggested solutions. These integrated
questions will help you to prepare for assessment 6.
Study pack 2 contains questions which integrates learning units 1 to 7, which includes the following
topics:
- The conceptual framework for financial reporting;

- Income taxes (IAS 12);
- Revenue from contracts with customers (IFRS 15);
- Leases (IFRS 16);
- Fair value measurement (IFRS 13),
- Property, plant and equipment (IAS 16);
- Investment property (IAS 40);
- Intangible assets (IAS 38);
- Impairment of assets (IAS 36);
- Non-current assets held for sale and discontinued operations (IFRS 5);
- Accounting policies, estimates and errors (IAS 8);
- The effects of changes in foreign exchange rates (IAS 21);
- Financial instruments (IAS 32, IFRS 7 and IFRS 9); and
- Employee benefits (IAS 19).
Please note that this study pack does NOT contain all the content and principles included in learning
unit 1 – 7. This study pack should NOT be seen as a scope for assessment 6.
You will notice some calculations are in brackets opposite certain items in our suggested solutions
dealing with company financial statements. These calculations are given for tuition purposes only and
consequently do not form part of the statutory disclosure requirements.
2 LECTURERS AND CONTACT DETAILS
Please use only the following e-mail address for all communication with your lecturers:
FAC3764@unisa.ac.za
Please use only the following telephone numbers for communication with your lecturers:
Lecturers Telephone number

Marilize Els 012 429 8766
Itani Phaduli 012 429 3232
Dumazile Selela 012 429 4848
Nosipho Gumede 012 429 4633
3
3 INTEGRATED QUESTIONS AND SOLUTIONS
QUESTION 1 (49 marks) (88 minutes)
Vhumatshelo Foods Ltd (“Vhuma Ltd”), is a leading manufacturer of essential and value-added foods in
South Africa. The company runs its operations under two divisions namely, Wheat division and Other
Grains division. As a manufacturer of super maize meal, special maize meal, samp, maize flour, and
instant maize porridge, Vhuma Ltd plays an important role in providing nutrition to the people of South
Africa and the Southern Africa Development Community (SADC) region. Vhuma Ltd has a 31 December
year end.
The following information relates to Vhuma Ltd’s divisions:
Wheat division
Vhuma Ltd acquired the Wheat division as a going concern from Sisonke Ltd on 1 July 20x19 for a total
consideration of R14 050 000. This division was acquired to enter the SADC regional market. The Wheat
division’s assets generate cash flows that are largely independent of the cash flows from other assets
within the business. The following information relates to the assets of the Wheat division at acquisition
date:
Fair Estimated Residual
values useful life value
R R
Land 3 250 000 N/A N/A
Building 3 000 000 18 years Insignificant
Milling machinery 4 500 000 6 years Insignificant
Intangible asset 1 800 000 Indefinite N/A
useful life
Total 12 550 000
The acquisition of the Wheat division met the definition of a business combination. The Wheat division
acquisition resulted in goodwill, which you may assume was correctly calculated, amounting to
R1 500 000 being recognised in the financial statements of Vhuma Ltd.
The Wheat division is tested for impairment annually. No impairment loss was recognised for the
financial years ending 31 December 20x19 and 31 December 20x20. During December 20x21, the
wheat products market experienced a huge influx of new wheat product producers resulting in low
demand for Vhuma Ltd’s wheat products and reduction in their market share within the SADC region.
As a result, the recoverable amount of the Wheat division was determined to be below its carrying
amount as at 31 December 20x21. Vhuma Ltd’s financial accountant correctly calculated the Wheat
division’s carrying amount before and after impairment on 31 December 20x21 as follows:
Carrying Carrying
amount before amount after
impairment impairment
R R
Land 3 250 000 2 744 257
Building 2 583 333 2 181 332
Milling machinery 2 625 000 2 216 515
Intangible asset 1 800 000 1 519 896
Goodwill 1 500 000 -
Wheat division 11 758 333 8 662 000
During the 20x22 financial year, some of Vhuma Ltd’s competitors suffered massive losses because of
border closures due to the Covid-19 pandemic and subsequently went out of business. Vhuma Ltd was
able to capitalise on the closure of these competitors’ businesses which led to a significant increase in
the demand for its wheat products across the SADC region. On 31 December 20x22, the recoverable
amount of the Wheat division was estimated as R10 900 000.
4
QUESTION 1 (continued)
On 31 December 20x22, the recoverable amount of the building and the milling machinery was
estimated as R2 200 000 and R1 900 000 respectively.
Other Grains division
Internally generated intangible asset – Grain Sorting Software
During the current financial year, Vhuma Ltd commenced with a research and development project for
Grain Sorting Software (GSS). The new GSS will assist with the grading and sorting of grain during the
packaging process.
The research process for the GSS commenced on 1 April 20x22. On 31 May 20x22, the project
champion submitted a report to the board of directors regarding the research on the GSS. On
31 May 20x22, the board of directors determined that the GSS satisfied the criteria for recognition as an
intangible asset and approved the development of the GSS. The development of the GSS was
completed on 30 September 20x22.
Vhuma Ltd hired two agricultural economists to research the requirements of the GSS during April and
May of the 20x22 financial year. Each agricultural economist billed Vhuma Ltd at an hourly rate of
R1 500. The total hours billed by the two agricultural economists during the 20x22 financial year
amounted to 880 hours.
Vhuma Ltd contracted a computer scientist to work on the development of the GSS. The computer
scientist’s six-month contract, for a monthly fee of R80 000, commenced on 1 June 20x22.
The water and electricity cost, directly attributable to the research and development of the GSS,
amounted to R118 800 and was incurred evenly during the period.
Vhuma Ltd consulted with an Associate Professor Engineer Bainomugisha, from the Makerere
University in Kampala, Uganda, during both the research and development phases of the project and
paid him a monthly consulting fee of R5 000.
Vhuma Ltd acquired a network server to assist with the processing of data during the development
phase of the GSS. The network server was acquired for R90 000 on 1 April 20x22. Vhuma Ltd estimated
a useful life of 5 years and an insignificant residual value for the network server.
All costs incurred by Vhuma Ltd during the research and development phase was paid for in cash.
Bela Bela land
To diversify their business portfolio, Vhuma Ltd’s board of directors resolved to acquire a piece of land
in Bela Bela. Vhuma Ltd acquired the land in Bela Bela on 1 October 20x20 at a cost of R800 000. The
land was acquired for capital appreciation. On 30 September 20x22, Vhuma Ltd’s board of directors
decided to sell the land to aid the business’ constrained cash flows. The land was available for sale in
its present condition and management believed the sale to be highly probable.
On 1 November 20x22, the board of directors of Vhuma Ltd approved the plan to sell the land. On
15 November 20x22, an advertisement for the sale of the Bela Bela land was placed in the local property
magazine at a price based on a valuation received from a reliable, independent sworn appraiser.
The sale of the land was expected to be completed on 31 March 20x23 for cash. On
31 December 20x22, the costs to sell the land were estimated to be R80 000.
5
The fair value of the Bela Bela land on the respective dates were as follows:
31 December 20x21 31 December 20x22

R R
Land 1 150 000 1 100 000
Accounting policies
The following is an extract from the accounting policies of Vhuma Ltd:
 Owner-occupied land, buildings, milling machinery and intangible assets are accounted for using
the cost model.
 Depreciation on the buildings, milling machinery and network server is provided for in accordance
with the straight-line method over the estimated useful lives of the assets.
 Amortisation on the Grain Sorting Software (GSS) is provided for in accordance with the straight-
line method over its estimated useful life.
 Investment property is accounted for using the fair value model.
Assumptions
 All amounts are material.

 Ignore all tax implications.
REQUIRED:
Marks
a) Discuss the subsequent measurement of the assets that form part of the Wheat 24½
division for the financial year ended 31 December 20x22.
 Limit your discussion to the implications of IAS 36, Impairment of Assets only,
and
 Support your discussion with amounts and calculations where appropriate.
b) Prepare the general journal entries to account for the costs incurred on the Grain 9
Sorting Software (GSS) in the accounting records of Vhuma Ltd for the year ended
31 December 20x22.
c) Draft a memorandum to the Chief Financial Officer of Vhuma Ltd to explain: 15½
 the correct classification and measurement, with reasons, of the Bela Bela land
in the annual financial statements of Vhuma Ltd for the year ended
31 December 20x22, and
 the correct classification and measurement, with reasons, of the Bela Bela land
in the annual financial statements of Vhuma Ltd for the year ended
31 December 20x23, if Vhuma Ltd’s directors retract from their decision to sell
the Bela Bela land. Assume that Vhuma Ltd will hold the Bela Bela land for
capital appreciation.
Note:
Your answer must comply with the requirements of International Financial Reporting
Standards (IFRS).
Accounting policy notes are not required.
Ignore comparative information
Show all calculations.
Journal dates and narrations are not required.
Round of all amounts to the nearest Rand.
[49]
6
Question 1 Suggested solution
a) Subsequent measurement of Vhuma Ltd’s Wheat division’s assets for the year ended
31 December 20x22.
Vhuma Ltd should assess at the end of each reporting period whether there is any indication that an
impairment loss recognised in prior periods for an asset or CGU (other than goodwill) may no longer
exist or have decreased.
There is such an indication as significant changes in the market in which Vhuma Ltd operates (SADC)
have taken place during the period, which had a favourable effect on Vhuma Ltd. This is clear from the
information that indicates that during the current financial year, some of Vhuma Ltd’s competitors went
out of business, which led to a significant increase in the demand for Vhuma Ltd’s wheat products across
the SADC region. Vhuma Ltd was able to capitalize on these closures and take advantage of the
increased demand for their products. Thus, the impairment loss previously recognised may possibly be
reversed because the circumstances that caused the impairment are no longer applicable.
An impairment loss recognised in prior periods for an asset other than goodwill is reversed if, and only
if, there has been a change in the estimates used to determine the asset’s recoverable amount since
the last impairment was recognised. If this is the case the carrying amount of the asset / CGU must be
increased to the recoverable amount. That increase is a reversal of an impairment loss.
Based on the above indication that the previously recognised impairment loss may no longer exist,
Vhuma Ltd should estimate the recoverable amount and determine the carrying amount of the division
on 31 December 20x22. The recoverable amount is given as R10 900 000. Vhuma Ltd should
calculate the carrying amount of the division on 31 December 20x22:
Working 1
Asset Calculation / Comment Carrying
amount
R
Land Land has an unlimited useful life and is a non-depreciable asset 2 744 257
Building Impaired to R2 181 332 at the end of December 20x21, thus 2 040 601
depreciation written off over the remaining useful life:
2 181 332 – (2 181 332 / (18 – 2½)years)
= 2 181 332 – (2 181 332 / 15½)
= 2 181 332 – 140 731 or
2 181 332 x (14½years/15½years)
Milling machinery Impaired to R2 216 515 at the end of December 20x21, thus 1 583 225
depreciation written off over the remaining useful life:
2 216 515 – (2 216 515 / (6 – 2½)years = 633 290)
= 2 216 515 – (2 216 515 / 3½
= 2 216 515 – 633 290 or
2 216 515 x (2½years/3½years)
Intangible asset The intangible asset has an indefinite useful life and not amortised 1 519 896
and no indication of individual impairment.
Goodwill Impaired to Rnil at the end of December 20x21. -
Division 7 887 979
7
Question 1 Suggested solution (continued)
Thus, the total impairment loss reversal is the increase of R3 012 021 from the carrying amount of
R7 887 979 to the recoverable amount of R10 900 000.
An impairment loss recognised for goodwill cannot be reversed in a subsequent period. A reversal of an
impairment loss for a CGU should be allocated to the assets of the CGU, except for goodwill, pro rata
with the carrying amounts of those assets.
In allocating a reversal of an impairment loss for a CGU, the carrying amount of an asset must not be
increased above the lower of its recoverable amount (if determinable) and its carrying amount that would
have been determined (net of amortisation or depreciation) had no impairment loss been recognised for
the asset in prior periods.
Vhuma Ltd should calculate the carrying amount of the division on 31 December 20x22 if no impairment
loss had been recognised:
Working 2
Asset Calculation / Comment Carrying Recoverable Lower
amount amount of
R R R
Land 3 250 000 not determined 3 250 000
Building 3 000 000 – ((3 000 000/18) x 3½) 2 416 667 2 200 000 2 200 000
Milling 4 500 000 – ((4 500 000/6) x 3½) 1 875 000 1 900 000 1 875 000
machinery
Intangible 1 800 000 not determined 1 800 000
asset
Division 9 341 667
Based on the above the reversal of the impairment loss is allocated to the assets as follows, while the
carrying amount (CA) of the asset is not increased above the lower of its recoverable amount and its
carrying amount that would have been determined had no impairment loss been recognised, as
indicated in the table above:
8
Working 3
CA before Allocation CA after
impairment impairment impairment
reversal loss reversal
allocation reversal allocation
R R R
Land Reversal: 3 012 021 x (2 744 257 / 2 744 257 505 743 3 250 000
7 887 979) = 1 047 893
Impairment: 2 744 257 + 1 047 893 =
3 792 150
Limited to (3 250 000 – 2 744 257=
505 743)
Building 3 012 021 x (2 040 601 / 7 887 979) = 2 040 601 159 399 2 200 000
779 203
2 040 601 + 779 203 = 2 819 804
Limited to 2 200 000 – 2 040 601 =
159 399
Milling 3 012 021 x (1 583 225 / 7 887 979) = 1 583 225 291 775 1 875 000
machinery 604 554
1 583 225 + 604 554 = 2 187 779
Limited to 1 875 000 – 1 583 225 =
291 775
Intangible 3 012 021 x (1 519 896 / 7 887 979) = 1 519 896 280 104 1 800 000
asset 580 372
1 519 896 + 580 372 = 2 100 268
Limited to 1 800 000 – 1 519 896 =
280 104
Division 7 887 979 1 237 021 9 125 000
Due the impairment reversal allocation limit reached for each asset, the full impairment reversal could
not be allocated.
b) Journal entries to account for research and development of GSS in 20x22

Dr Cr
R R
Research cost / Research expenses (P/L)w1 1 369 600
Grain Sorting Software / Intangible asset – Software (SOFP) w2 425 200
Bank / Cash 1 794 800
w1 20x22 GSS research costs

[1 April 20x22 – 31 May 20x22 = 2 months]
R
Agricultural economists’ salaries (1 500 X 880) 1 320 000
Consultation fee (5 000 X 2) 10 000
Water and electricity (118 800 / 6 X 2) 39 600
Total 1 369 600
w2 20x22 GSS capitalised development costs

[1 June 20x22 – 30 September 20x22 = 4 months]
R
Computer scientist salary (80 000 X 4) 320 000
Consultation fee (5 000 X 4) 20 000
Water and electricity (118 800 / 6 X 4) 79 200
Network server depreciation (90 000 / 5 X 4/12) 6 000
Total 425 200
9
c) Discussion of the correct accounting treatment of the Bela Bela land.
To: Vhuma Ltd’s Chief Financial Officer

From: FAC3764 student
Date: XXXX 20x23
Re: Discussion of the correct classification and measurement of the Bela Bela land in the accounting
records for the year ended 31 December 20x22 and 31 December 20x23 if Vhuma Ltd’s directors
retract from their decision to sell.
Correct accounting treatment of the land on 31 December 20x22
Classification
 During the current financial year ending 31 December 20x22, the board of directors of Vhuma Ltd
decided to sell the Bela Bela land. Vhuma Ltd must classify the Bela Bela land (non-current asset)
as held for sale if its carrying amount will be recovered principally through a sale transaction rather
than continuing use.
 Prior to reclassifying the Bela Bela land as a non-current asset held for sale, the following criteria
must be met:
- The Bela Bela land must be available for immediate sale in its present condition subject only to
terms that are usual and customary for sales of such assets and the sale must be highly
probable:
On 30 September 20x22, Vhuma Ltd’s board of directors decided to sell the land and the
information indicated that the land was available for sale in its present condition.
For the sale to be highly probable, the appropriate level of management must be committed to a
plan to sell the asset and an active programme to locate a buyer and complete the plan must be
initiated:
o On 1 November 20x22 the board of directors approved the plan to sell the land, and
o On 15 November 20x22 an advertisement for the sale of the land was placed in the local
property magazine (locate a buyer).
- The Bela Bela land must be actively marketed for sale at a price that is reasonable in relation
to its current fair value:
On 15 November 20x22 the price in the advertisement in the local property magazine was based
on a valuation received from a reliable, independent sworn appraiser (price reasonable in relation
to its current fair value).
- The sale must be expected to qualify for recognition as a complete sale within one year from
date of classification:
The sale of the Bela Bela land was expected to be completed on 31 March 20x23 for cash, which
is within a year from the date of classification.
- Actions required to complete the plan should indicate that it is highly unlikely that significant
changes to the plan will be made or that the plan will be withdrawn:
There is no evidence that otherwise suggests that management will make significant changes or
withdraw from the plan.
 Therefore, on 15 November 20x22 the Bela Bela land must be classified as a non-current asset
held for sale (NCAHFS) in terms of the requirements of IFRS 5.
 Therefore, on 31 December 20x22 the Bela Bela land must be classified as a NCAHFS in annual
financial statements of Vhuma Ltd.
10
Measurement of the non-current asset classified as held for sale
 In accordance with IFRS 5:15 a non-current asset classified as held for sale must be measured at
the lower of its carrying value and its fair value less cost to sell.
 Vhuma Ltd initially acquired the Bela Bela land for capital appreciation and therefore at initial
recognition the Bela Bela land was classified as investment property.
 The accounting policy of Vhuma Ltd is to account for investment property using the fair value
model in accordance with IAS 40, Investment property.
 In terms of IFRS 5:5(d), non-current assets accounted for in terms of the fair value model in
IAS 40, Investment property is exempt from the measurement provisions of IFRS 5 and thus the
measurement provisions of IFRS 5:15 does not apply.
 Therefore, on 31 December 20x22 the Bela Bela land must be measured at its fair value of
R1 100 000, without deducting the costs to sell on 31 December 20x22.
Correct accounting treatment if a change of plan to sell occurs during the year ended
31 December 20x23
 In accordance with IFRS 5:26, if the Bela Bela land that was classified as held for sale no longer
meets the criteria to be classified as held for sale, Vhuma Ltd must cease to classify the asset as
held for sale.
 Thus, the land will be reclassified and transferred back to investment property.
 Vhuma Ltd must remeasure the land at the lower of its carrying value (had it not been classified as
held for sale) and its recoverable amount at the date of reclassification. However, the land was
exempt from the measurement criteria of IFRS 5 and thus it will be measured at its fair value on
the date of reclassification.
 The land’s recoverable amount and its carrying value had it not been classified as held for sale
would be equal because the Bela Bela land is classified as investment property and is measured
at fair value.
Regards
FAC3764 student
11
Kalahari Ltd (“Kalahari”) is a vehicle wholesaler and retailer based in Modimolle Mookgophong, South
Africa. The company is listed on the Botswana Stock Exchange (BSE) and has a 30 September year
end.
Exchange rates and assumptions:
The following dates and exchange rates are applicable:

Spot rate
Date P1 = R
1 March 20x22 .......................................................................................................... 1,28
1 June 20x22 ............................................................................................................. 1,33
30 September 20x22 ................................................................................................. 1,40
Average rate for the period 1 October 20x21 to 30 September 20x22 ......................... 1,36
You may assume the following:

• All amounts are material.
• Ignore the implications of value-added tax.
• Kalahari uses the perpetual inventory system.
• Contracts with customers meet all the criteria of IFRS 15 par 9.
Taxation
Deferred tax is provided for on all temporary differences in accordance with the statement of financial
position approach. There are no other exempt or temporary differences except those mentioned in the
question. There is certainty beyond reasonable doubt that the company will have sufficient taxable profit
in future against which any deductible temporary differences can be utilised.
Additional information:
1. The following transactions have not yet been recorded in the accounting records of Kalahari for the
year ended 30 September 20x22:
1.1. Contract with Moremi Game Lodge

On 1 March 20x22, Kalahari sold and delivered 15 Electric Road Ranger Ecstasy bakkies to Moremi
Game Lodge (“Moremi”) for 825 038 Botswanan Pula (“P”) per bakkie.
The sales agreement stipulated the following contract terms:

• The total consideration of P825 038 per Electric Road Ranger Ecstasy bakkie will be paid on
1 June 20x24;
• Moremi may return any of the bakkies within 90 days from date of purchase; and
• Interest is payable on a pre-tax market related interest rate of 8,25% per annum (compounded
annually).
The Electric Road Ranger Ecstasy bakkies are new to the market and Kalahari sold these bakkies
for the first time to Moremi. Kalahari has no relevant historical evidence of returns or any other
available market evidence.
Kalahari purchases an Electric Road Ranger Ecstasy bakkie for R735 000 from its supplier.
None of the Electric Road Ranger Ecstasy bakkies were returned during the year. You may ignore
any expected costs to recover the returned Electric Road Ranger Ecstasy bakkies.
12
1.2. Sale of Martin Aston Luxury vehicle to Mr Naira
On 1 March 20x22, Kalahari sold and delivered a Martin Aston SUV to Mr. Naira for R3 800 000 cash.
The sales agreement of the Martin Aston SUV includes a six-month warranty that the Martin Aston
SUV will function as intended as it complies with agreed-upon specifications. Kalahari does not sell
these six-month warranties separately. The sales agreement further provides an extended warranty
for an additional two-year period during which Kalahari promises to repair the Martin Aston SUV if
necessary. Kalahari sells these extended warranties separately for R250 000.
Based on Kalahari’s experience with the six-month warranties, they estimate that the obligation can
be reliably measured at R40 000 per Martin Aston SUV. On 1 July 20x22, a defective reverse camera
had to be replaced, which amounted to R26 000. On 31 August 20x22, no further repairs or
replacements were necessary in terms of the six-month warranty. No costs were incurred in relation
to the extended warranty up until the end of the financial year.
Kalahari purchases the Martin Aston SUVs from a supplier in Knysna for R2 500 000 each. Kalahari
also sells these Martin Aston SUVs to customers in Botswana. The sales agreement of the Martin
Aston SUV to the Botswana customers however does not include any warranties and are sold for R3
606 000, which Kalahari regards as the stand-alone selling price of these Martin Aston SUVs.
2. The following was provided on the disclosure of the assets of Kalahari:
2.1. Property in Tshakhuma

On 1 November 20x20, Kalahari acquired a property in Tshakhuma for R3 500 000 (Land: R750 000;
Building: R2 750 000). The land portion is significant in relation to the total value of the property. The
property was acquired to rent it out to a newly established car dealership in Limpopo, Vhutete Ltd.
On acquisition date, the building had an estimated useful life of 30 years and an insignificant residual
value.
The fair values of the Tshakhuma property as determined by an independent sworn appraiser were
as follows:
Land Building
R R
30 September 20x21……………………………………………………… 850 000 2 850 000
30 September 20x22……………………………………………………… 780 000 2 550 000
In the audit steering committee meeting for the audit of the financial year ended 30 September 20x22,
the auditors of Kalahari indicated that the entity used the incorrect accounting policy to account for
the property in Tshakhuma. The auditors cited the following from the Kalahari approved accounting
policy: “Investment property is accounted for using the fair value model.” However, since acquisition,
Kalahari has accounted for the property using the cost model. The South African Revenue Service
indicated that they will not issue a revised assessment in respect of the 2021 year of assessment.
The Kalahari Junior Accountant prepared and presented you with the following correction of error
note in relation to the Tshakhuma property:
Prior period error

2022 2021
R R
Decrease in other expenses 91 667 84 028
2 750 000/ 30 years; 2 750 000 / 30 years X 11/12months
Decrease in profit 91 667 84 028
Increase in Investment property 91 667 84 028
Increase in equity 91 667 84 028
13
2.2. Property in Modimolle Mookgophong
On 1 April 20x21, Kalahari bought a property in Modimolle Mookgophong at a cost price of
R7 040 000 (Land: R540 000; Manufacturing building: R6 500 000). The land portion is significant in
relation to the total value of the property.
During May 20x21, Kalahari paid an additional R250 000 in cash to customise the manufacturing
building and ensure that it complies with all occupational health and safety standards. An additional
R150 000 was incurred for a launch function to officially open the property on 30 June 20x21.
The manufacturing building was available for use as intended by management on 31 May 20x21, but
Kalahari only took occupation of the building after the official launch. The building was estimated to
have a useful life of 20 years and a residual value of R400 000.
On 30 September 20x22, the management of Kalahari revised the remaining estimated useful life of
the manufacturing building to 15 years. The residual value remained unchanged.
It is the accounting policy of Kalahari to account for owner-occupied land and building in accordance
with the cost model. Depreciation on owner-occupied buildings is accounted for in accordance with
the straight-line method over the estimated useful life of the building.
2.3. Fleet of vehicles

On 1 February 20x20, Kalahari acquired a fleet of 10 vehicles to use in its operations for R3 750 000.
The vehicles were ready for use as intended by management on acquisition date and on that date,
the combined useful life of the fleet of vehicles was estimated as 120 000kms. The residual value
was estimated as insignificant.
On 1 June 20x21, the entire fleet was parked due to Covid 19 restrictions and border closures. On
30 September 20x21, the entire fleet was still not in use and the Kalahari management determined
the fair value, cost to sell and value in use of each vehicle to amount to R225 000, R15 000 and R205
000 respectively. The remaining estimated useful life and residual value of the vehicles remained
unchanged.
On 1 March 20x22, the board of directors of Kalahari took a strategic decision to sell the entire fleet
of vehicles due to the continued abandonment of the fleet as the delivery of new vehicles were
outsources based on the risk and cost saving benefit thereof. On that date, all requirements to be
classified has held for sale were met and management expected the sale to be concluded by
31 December 20x22 for cash. On 1 March 20x22, the fleet had a combined fair value less cost to sell
of R1 900 000.
The fleet clocked a combined distance of 18 000kms for the financial year ending
30 September 20x20, 4 800kms in 20x21 and 1 600kms in the current financial year. The kilometres
were incurred evenly throughout the year by all vehicles.
Vehicles are accounted for in accordance with the cost model. Depreciation on vehicles is written off
in accordance with the units of production method.
Taxation
The South African normal tax rate is 27%. The capital gains tax inclusion rate is 80%.
The South-African Revenue Service allows the following capital allowances:

 a 5% annual tax allowance on the buildings in terms of section 13(1) and section 13quin of the
Income Tax Act, according to the straight-line method; not apportioned for periods shorter than a
year.
 an annual tax allowance on vehicles in terms of section 11(e) of the Income Tax Act, according
to the straight-line method over 5 years, apportioned for periods shorter than a year.
14
REQUIRED:
Marks
(a) Prepare all the relevant general journal entries to correctly record additional 30
information 1.1 and 1.2 in the accounting records of Kalahari Ltd for the period
ending 30 September 20x22.
 You do not need to provide any tax related journal entries.

 Show the date of each journal entry.
(b) Critically discuss, with reasons, whether the correction or error note was correctly 14 ½
prepared by the junior accountant of Kalahari Ltd for the financial year ended
30 September 20x22.
 Discuss both correct and incorrect aspects of the accounting treatment and
disclosure requirements.
 Support all incorrect aspects of the accounting treatment and disclosure
requirements identified in the note with the correct accounting treatment or
disclosure requirement.
 Do not include calculations in your discussion.
 Do not discuss the casting and cross casting of the correction of error note.
 Do not discuss the consequential effects of any errors identified.
Communication mark – logical argument 1

(c) Disclose the following notes in the annual financial statements of Kalahari Ltd for
the year ended 30 September 20x22:
 Property, Plant and Equipment, 14½

 Non-Current Asset Held for Sale, 4
 Profit before tax. 11
Please note:
Standards (IFRS).

Comparative information is not required.
All calculations must be shown.
Calculations are to be done to the nearest Rand.
Show the dates of each journal entry.
Journal narrations are not required.
No abbreviations for general ledger account names in your journals may be used.
Indicate in your journals if it is a statement of financial position (SFP) or statement of
profit or loss and other comprehensive income (P/L) general ledger account.
[75]
15
Question 2 Suggested solution
a. Journal entries to account for revenue transactions
Contract with Moremi Game Lodge

Debit Credit
R R
1/3/20x22 Asset for right to recover asset sold to be returned/ 11 025 000
Right of return asset (SFP)
1
Inventory (SFP) 11 025 000
Right of return asset recognised for the bakkies sold
under with the 90 days return period.
Alternative journal
Trade Receivables 11 025 000
Contract liability 11 025 000
Right of return asset recognised for the bakkies sold
under with the 90 days return period.
1/6/20x22 Trade receivables (SFP) 14 046 276
2
Revenue/Sales (P/L) 14 046 276
Recognise revenue at the cash selling price after the
90 days right of return period.
1/6/20x22 Cost of sales (P/L) 11 025 000
Asset for right to recover asset sold to be 11 025 000
returned/ Right of return asset (SFP)
Recognise cost of sales after the 90 days right of
return period.
30/9/20x22 Trade receivable(SFP) 394 986
3
Interest income (P/L) 394 986
Recognise interest income on the outstanding capital
balance.
Trade receivable(SFP) 750 895
4
Foreign exchange gain / difference (P/L) 750 895
Revalue the accounts receivable balance at the year
end spot rate
1 Right of return asset calculation:
(15 X 735 000)
2 Present value calculation
Present value in pula per bakkie:
FV = 825 038
i = 8,25%
n= 2 years
PV = 704 074
Present value in Rand for entire contract:
P704 074 x 1,33 x 15
3 Interest income calculation
(P704 074 x 15) x 8,25% x 4/12months x 1,36
= P10 561 110 x 8,25% x 4/12months x 1,36
= P290 431 x 1,36
= R394 986
16
4 Revaluation of accounts receivable balance at year end spot rate
(R14 046 276 + R394 986) – ((P10 561 110 + P290 431) x 1,4)
= R14 441 262 – (10 851 541 x 1,4)
= R14 441 262 – (R15 192 157)
= R750 895
Sale of Martin Aston vehicles to Mr Naira
Debit Credit
R R
1 March 20x22 Bank (SFP) 3 800 000
Revenue / Sales (P/L) 3 553 6314
Contract liability / Income received in advance 246 3694
(balancing)(SFP)
Recognise revenue and contract liability as
separate performance obligations
1 March 20x22 Cost of sales (P/L) 2 500 000
Inventory (SFP) 2 500 0004
Recognise cost of sales for the sale of the vehicle
performance obligations
1 March 20x22 Warranty expense (P/L) 40 000
Provision for warranty expense (SFP) 40 0004
Recognise provision for the assurance type
warranty
1 July 20x22 Provision for warranty expense (SFP) 26 000
Bank (SFP) 26 0004
Recognise replacement cost against raised
provision.
31 August 20x22 Provision for warranty expense (SFP) 14 000
(40 000 – 26 000)
Warranty expense (P/L) 14 0004
Reverse unused provision after the lapse of the
six-month warranty.
4. Stand-alone selling prices of Martin Aston SUV and the 2-year extended warranty:
5.
Stand-alone
selling prices
R
Martin Aston SUV 3 606 000
2-year extended warranty 250 000
Total 3 856 000
Allocation of the transaction price to the performance obligations based on the stand-alone selling
prices
R
Martin Aston SUV (3 800 000 x (3 606 000/ 3 856 000) 3 553 631
2-year extended warranty (3 800 000 x (250 000/ 3 856 000) 246 369
3 800 000
17
b. Critical discussion of the correction of error note
Correct / Incorrect aspect Correct accounting treatment /

disclosure requirement
The nature of the prior period error was The nature of the prior period error should be
incorrectly not disclosed. disclosed as part of the correction of error note:
- Correction of error in respect of investment
property that was incorrectly accounted for using
the cost model instead of the fair value model from
the 20x21 financial year. Comparative figures
have been restated.
The current year error was incorrectly The amount of the correction is disclosed for each
included in the note. prior period presented, to the extent practicable.
The amount of the correction for the other The depreciation amount was incorrectly expensed on
expenses and investment property was an investment property measure at fair value and thus
correctly adjusted for the depreciation on the the junior accountant correctly included in the reversal
building that was incorrectly recognised in of the depreciation amount recognised in the
the 20x21 financial period. correction of error note.
The effect of the correction of the fair value For each period presented, the amount of the
adjustment was incorrectly omitted from the correction for each financial statement line item
note for the 20x21 financial period. affected should be disclosed.
The effect of the fair value gain arising from increased
fair value on 30 September 20x21 should be disclosed
for the following line items:
 Other income
 Investment property
The taxation effect of the correction of the For each period presented, the amount of the
error was incorrectly omitted from the note correction for each financial statement line item
for the 20x21 financial period. affected should be disclosed.
The effect of the correction of error should be
disclosed for the following line items:
 Income tax expense
 Deferred tax
The effect of the corrections on the profit was The net effect on the profit or loss after accounting for
incorrectly disclosed in the error note. the decrease in depreciation, increase in the fair value
gain and increase in the income tax expense should
have been disclosed as an increase in profit in the
note.
The amount of the correction at the The error did not affect the beginning of the prior
beginning of the earliest prior period period presented as the error occurred during the
presented was correctly omitted from the 20x21 period, which is the earliest prior period
error note. presented.
18
c. Kalahari Ltd
Notes to the annual financial statements for the year ended 30 September 20x22.
1) Property Plant, and Equipment

Land Building Vehicles
R R R
Carrying amount at beginning of the year 540 000 6 644 167 2 100 000
Gross carrying amount/Cost 540 000 16 750 000 3 750 000
Accumulated depreciation - 2(105 833) 4(712 500)
Accumulated impairment - 5(937 500)
Depreciation - 3(390 260) 6(34 568)
Transfer to non-current asset held for sale - - (2 065 432)

Carrying amount at end of the year 540 000 6 253 907 -
Gross carrying amount/Cost 540 000 6 750 000 -
Accumulated depreciation (496 093) -
Calculations:
1 6 500 000 + 250 000 = 6 750 000
2 (6 750 000 – 400 000) / 240months x 4months = 105 833
3 (6 750 000 – 105 833 – 400 000) / 16 = 390 260
4 3 750 000 X (22 8004.1 / 120 000) = 712 500
4.1 (18 000 + 4 800) = 22 800
5 Accumulated impairment calculation
Calculations R
Carrying value on 30 September 20x21 (3 750 000 – 712 500) 3 037 500
Recoverable amount 2 100 000
Higher of:
Fair value less cost to sell and (225 000 – 15 000) x 10 2 100 000
Value in use (205 000 x 10) 2 050 000
Impairment on 30 September 2022 937 500
6 (2 100 000 x 1 600kms / 97 200kms6.1 = 34 568

6.1 ((120000 – (18 000 – 4 800)) = 97 200
19
2) Non-Current Asset Held for Sale

A decision to dispose of the fleet of vehicles because the delivery of new vehicles was outsourced based
on the risk and cost saving benefit thereof was taken on 1 March 20x22 after approval by management.
It is expected that the assets will be sold for cash and the transaction will be completed by 31 December
20x22.
The non-current assets held for sale consist of:

R
Fleet of delivery vehicles 1 900 000
An impairment loss of R165 4321 was recognised on initial classification of the vehicle fleet as held for
sale and this amount was included under profit after tax on measurement on the face of the statement
of profit of loss and other comprehensive income.
1. 2 065 432 – 1 900 000 = 165 432
3) Profit before tax note
Profit before tax is calculated after the following:

20x22
Income R
Interest income 394 986
Expenses
Fair value adjustment 1370 000
Depreciation 2424 828
Impairment loss on Non-Current Asset Held for Sale 165 432
Included in the depreciation for the building is an increase in depreciation of R72 7603 resulting from a
change in estimate in the useful life of the building. The remaining estimated useful life at year end on
30 September 20x22, of the building changed from 224 months (18,67 years) to 180 months (15 years).
This change will result in a decrease in depreciation in future periods of R72 760.
1. (780 000 + 2 550 000) – (850 000 + 2 850 000)
2. (390 260 + 34 568)
3.
Before After Net change

change in change in Increase/
estimate estimate (Decrease)
R R R
Cost 6 750 000
Accumulated depreciation (105 833)
Carrying amount 30 September 20x21 6 644 167 6 644 167
Remaining estimated useful life 19,67 years 16 years
Depreciation for the year 3.1317 500 390 260 72 760
3.1 (6 750 000 – 400 000) / 20
Carrying amount 30 September 20x22 6 326 667 6 253 907

Remaining estimated useful life 18,67 years 15 years
Depreciable amount 30 September 20x22 5 926 667 5 853 907 (72 760)
20
Jam Pathways Ltd (JamPath) provides a broad range of logistical solutions throughout Southern Africa.
JamPath was founded in March 20x17 by Grey Rademan and has a 31 March year end. The company
elected International Financial Reporting Standards (IFRS) as the company’s financial reporting
framework.
The main operating divisions include general distribution, retail logistics and truck rental. The truck rental
division includes commercial vehicle rentals and full maintenance leasing.
JamPath had 200 000 ordinary shares in issue as at 31 March 20x23.
Contract with Reddy Logistics (Reddy)

On 15 June 20x22, JamPath entered into a lease agreement to lease one of its Volvo FH16 trucks to
Reddy, a company that transports timber, wood chip and forestry products to various furniture
manufacturers in KwaZulu-Natal and Gauteng. The agreement contains a lease in terms of IFRS 16,
Leases. The agreement stipulates the commencement date of the lease will be the day when the Volvo
truck is delivered to Reddy’s facilities.
Reddy had proposed to pay R410 000 bi-annually for the use of the truck. However, JamPath’s legal
counsel managed to convince Reddy to agree to pay R422 437 bi-annually in advance. The lease term
ends on 30 June 20x26. Jam Path incurred initial direct costs of R7 000 to negotiate the lease and the
market-related interest rate was 12% per annum.
The details in the JamPath fixed asset register reveal the following
Cost price ........................................................................................................... R3 023 500
Purchase date .................................................................................................... 1 April 20x21
Carrying amount on 1 April 20x22 ...................................................................... R2 437 800
Residual value ................................................................................................... R95 000
The truck was both ready for use and taken into use by JamPath on acquisition date.
The lease agreement further stipulates that ownership of the truck will be transferred to Reddy on
30 June 20x26, upon payment of the R80 000 residual value guarantee. On 1 July 20x22, the fair value
of the truck was R2 453 800.
The truck was made available to Reddy and brought to use on 1 July 20x22. It is the accounting policy
of JamPath to account for delivery vehicles in accordance with the cost model. Depreciation is
accounted for in accordance with the straight-line method over the estimated useful life of the delivery
truck. The expected useful life of the delivery truck was five years on the date of purchase by JamPath.
The South African Revenue Service grants a s11(e) allowance of four years, apportioned over time, for
these delivery trucks.
Human Resource matters
JamPath’s monthly payroll for the year ended 31 March 20x23 included gross salaries amounting to
R451 500 per month after the salary increase. (Refer to the minutes attached below).
Membership to the JamPath Provident Fund, a defined contribution plan, is compulsory for all
employees. The employer contributes 8% of the employee’s gross monthly salaries towards the
provident fund and the employees contribute 6%. JamPath’s leave cycle coincides with its financial year.
There are 252 working days per leave cycle.
21
All employees of JamPath are entitled to 28 working days of annual vacation leave per leave cycle. All
employees are required to take a minimum of 15 days annual leave per leave cycle. Employees who
earned 60% of the gross salaries of the company took all their leave during the year and the remaining
employees took on average only 22 days. Any unused leave days are accumulated to the next leave
cycle, limited to five days. Unused leave days in excess of five days are forfeited. Experience has shown
that on average only four of the five unused leave days that are carried forward are indeed taken during
the next leave cycle. The leave pay accrual for the year ended 31 March 20x22 amounted to R20 125.
There were no resignations or new appointments of employees during the financial year ended
31 March 20x23.
EXTRACT OF THE MINUTES OF THE FINANCE TEAM MEETING HELD ON 23 APRIL 20x23
1. Welcome and apologies:
The meeting was chaired by the Chief Financial Officer (CFO), Ms. Pam Madikizela. An apology
from the Senior Financial Manager, Ms. Rosey Sibeko was noted.
2. Team members in attendance:
 Financial Manager, Mr Tim Jordan
 Financial Accountant; and
 Other finance team members.
3. Adoption of the agenda:
The agenda was adopted without any further changes.
4. Matters arising from the previous meeting held on 26 March 20x23:
The minutes from the previous meeting was accepted without changes.
Preparation of JamPath’s financial statements for the year ended 31 March 20x23
5. In the absence of Ms Sibeko, Mr Jordan provided feedback in terms of the progress made to
date relating to the preparation of financial statements for the year ended 31 March 20x23.
6. The finance team confirmed the taxable income calculation for the year ended 31 March 20x23
to be R1 988 740. This amount is correct in all respects and has taken into account the lease
and human resource matters.
Human Resource matters

Ms Madikizela informed the team members that on 20 April 20x22, JamPath and SAPTI, a trade
union representing JamPath employees, reached an agreement that the employer, JamPath will pay
a salary increase of 5% to all employees of JamPath as from 1 July 20x22. It was further agreed that
JamPath will not backpay salary increases. Ms Madikizela mentioned that on 30 April 20x22 the
Board of Directors resolved that bonusses equal to a 13th cheque will in future be paid to all
employees at the end of June of each year.
Taxation
 The South-African normal tax rate is 27%. The capital gains tax inclusion rate is 80%.
 Deferred tax is provided for on all temporary differences in accordance with the statement of
financial position approach. The only temporary or exempt differences are those resulting from
the information given in the question. The company will have sufficient taxable profits and
capital gains in the future, against which any unused tax losses can be utilised.
22
REQUIRED
Marks
(a) Prepare all the journal entries required to account for the lease and the underlying asset 20
in the accounting records of JamPath, for the year ended 31 March 20x23.
Please note:
- Journal narrations and dates are required.
- Ignore taxation for this part of the question.
- No abbreviations for general ledger account names may be used.
(b) Disclose the following notes in the financial statements of JamPath for the year ended 25
31 March 20x23 as far as possible from the given information.
 Profit before tax
 Income tax expense note
Please note:
- Tax rate reconciliation is not required
Communication skills: presentation and layout 1

Please note:
Standards (IFRS).

Comparative figures are not required.
All calculations should be rounded off to the nearest rand.
All percentages calculated should be rounded to the nearest four decimals
Show all data input into your financial calculator, where applicable.
Ignore value-added tax (VAT).
46
23
QUESTION 3 Suggested solution
PART (a)
Journal entries in JamPath Ltd records
Date DR CR
R R
1 July 20x22 Depreciation (P/L) 146 425
((3 023 500) – 95 000) / 5 x 3/12)
Accumulated depreciation – Vehicles 146 425
(SFP)
Accounting for the depreciation on vehicle
before being leased out.
1 July 20x22 Gross investment in lease (SFP) 3 459 496
[(422 437 x 8) + 80 000]
Accumulated depreciation (SFP) 732 125
(3 023 500 – 2 437 800 + 146 425
OR 3 023 500 - 95 000 / 60 x 15)
Unearned finance income (SFP) 998 696
3 459 496 -2 460 800
Vehicles (SFP) 3 023 500
Profit on sale of delivery vehicle (P/L) 162 425
(2 453 800 – (2 437 800 – 146 425)
Bank (SFP) 7 000
Initial recognition of finance lease of delivery
vehicles
OR
Net investment in lease (SFP) 2 460 800
(R2 453 800 + 7 000) = 2 460 800)
Accumulated depreciation (SFP) 732 125
(3 023 500 – 2 437 800 + 146 425)
Vehicles (SFP) 3 023 500
Profit on sale of delivery vehicle (P/L) 162 425
(2 453 800 – (2 437 800 – 146 425)
Bank (SFP) 7 000
Bank (SFP) 422 437

Gross investment in lease (SFP) 422 437
Recognition of the first lease payment received
1 January 20x23 Unearned finance income (SFP) 220 261
(2 460 800 - 422 437 x 10,8058% [C1.1]
Finance income (P/L) 220 261
Recognition of finance income earned during
the six months ending 31 December 20x22
(1 July 20x22 to 31 December 20x22)
Bank 422 437
Gross investment in lease 422 437
Recognition of the second lease payment
received
31 March 20x23 Unearned finance income (SFP) 99 207
[(2 460 800 - 422 437) – (422 437 + 220 261)
x10,8058% x 3/6]
Recognition of finance income earned during
the three months ending 31 March 20x23
(1 Jan 20x23 to 31 March 20x23)
24
QUESTION 3 Suggested solution (continued)
PART (b)
JAMPATH LTD
NOTES FOR THE YEAR ENDED 31 MARCH 20x23
Profit before tax
Profit before tax is disclosed after the following items have been taken into account:
Other income R
Profit on sale of delivery vehicle 162 425
Finance income - finance lease 319 468
(220 261 + 99 207)
Expenses:
Employee benefit expense
Short-term employee benefits [C2] 6 139 152
Post-employment benefits or Defined-contribution plan expense [C3] 428 280
Income tax expense

R
Current tax
1 988 740 x 27% 536 960
Deferred tax [C4] (27 590)
 Current year movement in temporary differences (27 590)
Income tax expense per statement of comprehensive income. 509 370
Calculations
[C1]: Calculations relating to the lease
C1.1 Interest rate implicit in the lease
BGN: Payments received in advance

N: 8 (4 x 2)
FV: 80 000
PV: - 2 460 800 (2 453 800 + 7 000)
PMT: 422 437
COMPUTE i: 10,8058
C1.2 Unearned finance income
Gross investment in the lease R

Gross investment in lease (SFP) 3 459 496
[(422 437 x 8(2 x4) + 80 000]
Net investment in the lease (present value in C.1.1) (2 460 800)
998 696
OR
BGN: Payments received in advance
N: 8 (4 x 2)
FV: 80 000
PMT: 422 437
i: 10,8058
COMPUTE PV: - 2 460 799
Unearned finance income (balancing figure) 998 696
25
C.1.3 Amortisation table
Date Interest
Instalments @10,8058% Capital Closing balance
R R R R
2 460 800
1 July 20x22 422 437 - 422 437 2 038 363
1 January 20x23 422 437 220 261 202 176 1 836 187
30 June 20x23 422 437 198 414 224 023 1 612 165
1 January 20x24 422 437 174 207 248 230 1 363 935
30 June 20x25 422 437 147 384 275 053 1088 881
1 January 20x25 422 437 117 662 304 775 784 107
30 July 20x25 422 437 84 729 337 708 446 399
1 January 20x26 422 437 48 237 374 200 72 199
FV=80 000
[C2]: Short-term employee benefits
R
Short-term employee benefits 6 139 152
Gross salaries 5 353 500
A: Before increase: R451 500 x 100/105 = 430 000
430 000 x 3) = 1 290 000
B: After increase 451 500 x 9 = 4 063 500
A+B= 5 353 500
Annual bonus 430 000
Movement in leave pay accrual: 17 027
Prior year leave accrual (20 125)
Leave accrual to be taken in 20x23 leave cycle 37 152
(451 500 x 12 x 40% x 1,08 x 4/252)
Bonus accrual (451 500 x 9/12) 338 625
[C3]: Post-employment benefits
5 353 500 x 8% = R428 280
[C4]: CALCULATION OF THE DEFERRED TAX MOVEMENT

Deferred
Carrying Temporary tax
amount Tax base differences @ 27%
31 March 20x23 R R R R
Vehicle (a) - 1 511 750 (1 511 750)
Net investment in finance lease debtor 1 935 394 - 1 935 394
(b)
Bonus accrual (338 625) - (338 625)
Leave pay accrual (37 152) - (37 152)
47 867 12 924
DTL
31 March 20x22
Vehicle (c) 2 437 800 2 267 625 170 175
Leave pay accrual (20 125) - (20 125)
150 050 40 514 DTL
Deferred tax movement Dr Deferred tax expense (SFP),Cr Deferred tax (P/L) 27 590
Direction in tax note 27 590
26
a – (3 023 500 x 2/4) = 1 511 750

b – 1 836 187 + 99 207 = 1 935 394
c – (3 023 500 x 3/4) = 2 267 625
27
You are the senior accountant of Room N Roof Ltd, a property rental company based in Gauteng, South
Africa. The company has a 31 December year end.
Sandton property
Room N Roof Ltd owns an office park in Sandton that was originally purchased on 31 March 20x17 for
R2 500 000 (Land: R750 000; Building: R1 750 000). A portion of 90% of the floor space of the property
is currently being rented out to different companies whilst the remainder of the floor space of the property
is used by Room N Roof Ltd as its company head office. The 10% portion of the floor space of the
property occupied by Room N Roof Ltd can be considered insignificant and cannot be sold separately.
On acquisition date an estimated useful life of 25 years and a residual value of R750 000 was allocated
to the building. The building was available for use, as intended by management, as well as brought into
use on 1 May 20x17.
The carrying amount and tax base of the building, which you can assume to be correct, for the years
ended 31 December 20x17 and 31 December 20x18 are as follows:
Carrying
amount Tax base
R R
Cost .................................................................................................. 1 750 000 1 750 000
Depreciation / Wear and tear ........................................................... (26 667) (87 500)
Carrying amount / Tax base 31 December 20x17 ........................... 1 723 333 1 662 500
Depreciation / Wear and tear ........................................................... (40 000) (87 500)
Carrying amount / Tax base 31 December 20x18 ........................... 1 683 333 1 575 000
Despite the economic downturn, Sandton based properties are in high demand and property prices in
the area have escalated over the years. Management of Room N Roof Ltd took cognisance of this fact
and decided that the fair value model presents a more relevant and reliable indication of the Sandton
property’s value. Therefore, management changed the accounting policy for the valuation of the Sandton
property from the cost model to the fair value model.
An independent sworn appraiser determined the fair value of the land and building for the respective
periods as follows:
Land Building
R R
31 December 20x17 ......................................................................... 800 000 2 000 000
31 December 20x18 ......................................................................... 895 000 2 250 000
31 December 20x19 ......................................................................... 1 050 000 2 400 000
The chief financial officer advised you of management’s decision to account for the Sandton property at
its fair value rather than at cost less accumulated depreciation. He requested you to determine the
accounting implications of this decision and inform him of your findings.
28
Additional information
1. After the above-mentioned change in accounting policy, investment property is accounted for using
the fair value model. The carrying amount of the investment property will be recovered through sale.
2. Depreciation on buildings, accounted for under the cost model, is written off in accordance with the
straight-line method over the estimated useful lives of the buildings.
3. The South-African normal tax rate is 27%. The capital gains tax inclusion rate is 80%.
4. The SA Revenue Service allows a 5% annual building allowance on all the buildings, according to
section 13quin of the Income Tax Act, on the straight-line method, not apportioned for part of the
year.
5. The SA Revenue Service indicated that they will accept the new valuation model for the Sandton
property for tax purposes and that they will reopen the previous year’s tax assessments.
Assumptions
 Land and buildings are regarded as separate classes of assets.

 Ignore the implications of Value-Added Tax (VAT).
 All amounts are material.
REQUIRED:
Marks
a) Write a report to the chief financial officer of Room N Roof Ltd and discuss: 24½
 the accounting treatment; and

 the disclosure requirements
of management’s decision to account for the Sandton property at its fair value rather
than at cost less accumulated depreciation in the annual financial statements of Room
N Roof Ltd for the year ended 31 December 20x19.
 Discuss only the effect of this change in the valuation of investment property on the
relevant line items in the statement of financial position of Room N Roof Ltd for
the current year, including the effect on retained earnings at the beginning of
the year.
 Show all your calculations, including the tax implications
 Your answer must comply with the requirements of IAS 1, Presentation of financial
statements, IAS 8, Accounting policies, changes in accounting estimates and
errors and IAS 40, Investment property.
b) Disclose the investment property note to the annual financial statements of Room N 3½
Roof Ltd for the year ended 31 December 20x19 according to the requirements of
IAS 40, Investment Property. .
Please note:
Standards (IFRS).
Comparative amounts are not required, unless specifically stated.
Show all calculations.
Round off all amounts to the nearest Rand.
28
29
PART A
To: The Chief Financial Officer

Date: xx July 20x23
Subject: Accounting implications of management’s decision to measure the Sandton

property at its fair value rather than at cost less accumulated depreciation
Accounting treatment
This decision amounts to a voluntary change in accounting policy to account for investment property
according to fair value model instead of the cost model.
This change in accounting policy should be accounted for retrospectively and comparative figures
should be restated, according to the requirements of IAS 8, Accounting policies, changes in accounting
estimates and errors.
Disclosure Requirements
1. Notes to the annual financial statements
The following should be disclosed in the notes to the annual financial statements for a voluntary change
in accounting policy, according to the requirements of IAS 8, Accounting policies, changes in accounting
estimates and errors:
 The nature of the change in accounting policy (i.e. change from cost model to fair value model)
 Reason why the change in accounting policy provides more relevant and reliable information
(fair value is a better indication of the property value).
 The amount of the adjustment for each financial statement line item affected for the current
period and each prior period presented (i.e. the effect on the financial years ended 20x19, 20x18
and 20x17.
 The amount of the adjustment relating to periods before those presented (i.e. the cumulative
adjustment on the opening balance of retained earnings).
2. Statement of financial position
According to the requirements of IAS 1, Presentation of financial statements, a third statement of

financial position as at the beginning of the preceding period (1 January 20x18) should be presented if
there is a retrospective application of a change in accounting policy. This means an entity shall present
three statements of financial position as at:
(a) the end of the current period;
(b) the end of the preceding period; and
(c) the beginning of the preceding period. This third statement of financial position does not need to
be supported by notes.
30
The effect of the change in policy on the statement of financial position line items is as follows:
20x19
R
Increase in investment property (calc 12) 1 056 667
Increase in deferred tax (calc 13) (234 000)
Increase in equity 822 667
Increase in retained earnings at beginning of the year (calc 7) 554 347
ROOM N ROOF LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 20x19
1. Investment property
Land Buildings
(for calculation purposes) Total
R R R
Carrying amount at the beginning of the year 895 000 2 250 000 3 145 000
Fair value adjustment 155 000 150 000 305 000
Carrying amount at the end of the year 1 050 000 2 400 000 3 450 000
The fair value of the property was determined by an independent sworn appraiser on
31 December 20x19.
CALCULATIONS
31 December 20x18
Exempt Taxable/ Deferred tax
difference/ (Deductible) asset /
Carrying Tax temporary (liability)
amount base difference @ 27%
R R R R
Cost model
Land 750 000 750 000 - -
Building (calc 1) 1 683 333 1 575 000 108 833 (29 250)
Carrying amount land and buildings 2 433 333 2 325 000 108 833 (29 250)
Fair Value Model
Land (given) (calc 2) 895 000 750 000 145 000 (31 320)
Building (given) (calc 3) 2 250 000 1 575 000 675 000 (155 250)
Fair value land and buildings (calc 4) 3 145 000 2 325 000 820 000 (186 570)
1. 1 683 333 – 1 575 000 = 108 333 x 27% = 29 250

2. (895 000 – 750 000) x (80% x 27%) = 31 320
3. [(2 250 000 – 1 750 000) x (80% x 27%)] + [(1 750 000 – 1 575 000) x 27% = 155 250
4. 31 320 + 155 250 = 186 570
5. 186 570 – 29 250 = 157 320 (increase in deferred tax)
6. 3 145 000 – 2 433 333 = 711 667 (increase in investment property)
7. 711 667 – 157 320 = 554 347 (increase in retained earnings)
31
31 December 20x19
Exempt Taxable/ Deferred
difference/ (Deductible) tax asset /
Carrying Tax temporary (liability)
Amount base difference @ 27%
R R R R
Cost model
Land 750 000 750 000 - -
Building
Carrying amount – 31 December 20x18 1 683 333 1 575 000
Depreciation / Wear and tear (same as
20x18) (40 000) (87 500)
Carrying amount – 31 December 20x19 1 643 333 1 487 500 155 833 (42 075)
(calc 8)
Carrying amount land and buildings 2 393 333 2 237 500 155 833 (42 075)
Fair Value Model
Land (calc 9) 1 050 000 750 000 300 000 (64 800)
Building (calc 10) 2 400 000 1 487 500 1 012 500 (211 275)
Carrying amount land and buildings
(calc 11) 3 450 000 2 197 500 1 312 500 (276 075)
8. 1 643 333 – 1 487 500 = 155 833 x 27% = 42 075

9. (1 050 000 – 750 000) x (80% x 27%) = 64 800
10. [(2 400 000 – 1 750 000) x (80% x 27%)] + [(1 750 000 – 1 487 500) x 27%] = 211 275
11. 64 800 + 211 275 = 276 075
12. 3 450 000 – 2 393 333 = 1 056 667
13. 276 075 - 42 075 = 234 000
32
Flattering Soaps Ltd is a soap manufacturing company based in Cape Town, South Africa. The company
has a 30 June financial year end.
The following revenue transactions have taken place during the financial year ended 30 June 20x20:
Transaction 1: Sale to US company
On 1 January 20x20, Flattering Soaps Ltd entered into a contract for the sale of 10 boxes of soap to a
US based company. Due to the fact that Flattering Soaps Ltd anticipated that the Rand would deteriorate
in the foreseeable future, the transaction was dominated in US dollars ($). The total selling price of the
soaps sold amounted to $1 000 and the customer settled the amount on 10 February 20x20. The soaps
were shipped free on board on 31 January 20x20.
The following foreign exchange rates are applicable:

Spot rate
Date $1 = R
1 January 20x20 .................................................................. ....................... 14,50
31 January 20x20 ................................................................ ....................... 14,55
10 February 20x20 ............................................................... ....................... 14,20
The cost to manufacture the soaps amounted to R9 500.
The above transaction has not been recorded yet in the accounting records of Flattering Soaps Ltd.
Transaction 2: Cash sales
Flattering Soaps Ltd mainly sells soaps for cash to customers. The total cash sales of soaps for the year
ended 30 June 20x20 amounted to R1 200 000. Control of the soaps is transferred to the customer as
soon as the cash is received. Flattering Soaps Ltd’s policy is to allow customers to return the soaps,
within 30 days from date of purchase, for a full refund if they are unsatisfied with the product. Flattering
Soaps Ltd uses the expected value method and estimated, based on experience, that 10% of the soaps
sold will be returned. The cost of the soaps sold amounted to R900 000.
The inexperienced financial clerk of Flattering Soaps Ltd only recorded the following journal entries to
account for the above cash sales for the year:
Debit Credit
R R
Journal 1
Bank (SFP) 1 200 000
Revenue (P/L) 1 200 000
Recognition of revenue on sale of soaps.
Journal 2
Cost of sales (P/L) 900 000
Inventory (SFP) 900 000
Recognise cost of soaps sold
Assumptions:
1. Assume all amounts are material.

2. Ignore the implications of Value-Added Tax (VAT).
33
REQUIRED:
Marks
a) Prepare all the general journal entries (including cash transactions) in the accounting 10
records of Flattering Soaps Ltd to correctly account for transaction (1), the sale to the
US based company, for the financial year ended 30 June 20x20.
- No abbreviations for general ledger account names can be used.
- Journal narrations are not required.
- Show the date of each journal entry.
b) Discuss, with reasons whether transaction (2), the cash sales transaction, was 7
correctly recorded in the accounting records of Flattering Soaps Ltd for the financial
year ended 30 June 20x20.
Communication mark – Logical argument 1

Please note:
Standards (IFRS).
Show all the calculations.
Round off all amounts to the nearest Rand.
18
34
a) Journal entries for the year ended 30 June 20x20
Debit Credit
R R
1 January 20x20
Order date – no journal entry
31 January 20x20
J1 Transaction date
Accounts receivable (SFP) 14 550
Revenue (P/L) 14 550
($1 000 x 14,55)
J2 Cost of sales 9 500

Inventory 9 500
10 February 20x20
J3 Settlement date
Foreign exchange loss / difference (P/L) 350
Accounts receivable (SFP) 350
($1 000 x (14, 55 - 14,20))
J4 Bank (SFP) 14 200

($1 000 x 14,20)
Alternative to J3 and J4
Foreign exchange loss / difference (P/L)
[$1 000 x (14,55 – 14,20)] 350
Bank (SFP) ($1 000 x 14,20) 14 200
b) Cash sales of soaps
Based on the fact that dissatisfied customers are allowed to return the soaps within 30 days from date
of purchase for a full refund, these cash sales of soaps are regarded as sales with a right of return.
According to the requirements of IFRS 15, Revenue revenue should be recognised when control has
passed i.e. when the cash is received. For revenue transactions with a right of return, the following
should be recognised in the accounting records of Flattering Soaps Ltd:
Sales value of soaps sold

 Revenue only relating to the soaps sold and expected not to be returned i.e. 90% of R1 200 000
should be recognised. Therefore, revenue should be adjusted(debited) relating to the soaps sold
and expected to be returned i.e.10% of R1 200 000 = R120 000
 A refund liability should be credited relating to the soaps sold and expected to be returned, 10% of
R1 200 000 = R120 000
Cost of sales of soaps sold:
 A right of return asset should be debited relating to the cost of the soaps sold and expected to be
returned i.e.R900 000 x 10% = R90 000.
 Cost of sales should be credited relating to the cost of the soaps sold and expected to be returned
i.e. R900 000 x 10% = R90 000.
35
QUESTION 6 (50 marks)(90 minutes)
Hairdo Ltd is a producer and distributor of organic hair products. It was established in 20x05 based on
the need for affordable and eco-friendly products. It has a footprint in Southern Africa and has a 30 June
year end. The manufacturing plant is based in Tshwane.
1. Procurement of raw materials
Hairdo Ltd purchases all its coconut oil from Fab Hair Ltd. Mr Gray, the CEO of Hairdo Ltd, also holds
55% of the ordinary shares in Fab Hair Ltd. There is a supply agreement in place between Hairdo Ltd
and Lethabo Ltd to purchase the packaging for the hair oils and shampoos from Lethabo Ltd. Lethabo
Ltd applies a 25% markup on cost on all sales to Hairdo Ltd. Lethabo Ltd holds an 80% share of Hairdo
Ltd which it acquired in 20x18.
2. Lease agreement – manufacturing machine
Hairdo Ltd could not afford to purchase a new manufacturing machine from Intertech Ltd at its cash
price (fair value) of R1 230 000. A three-year contract was entered into with Intertech Ltd on
1 October 20x21, whereby:
• Intertech Ltd granted Hairdo Ltd the right to use the manufacturing machine.
• Hairdo Ltd would make bi-annual payments of R250 000 to Intertech Ltd. These payments will
be made in advance, starting on 1 October 20x21.
• Hairdo Ltd will have exclusive use of the manufacturing machine and will determine when, where
and how the machine will be used.
• Ownership of the manufacturing machine will be transferred to Hairdo Ltd on
30 September 20x24, after payment of a guaranteed residual value of R50 000. A further amount
of R20 000 is guaranteed by We Buy Machines, a business solely related to Intertech Ltd. The
estimated fair value of the machine on 30 September 20x24 is R220 000.
• The manufacturing machine was available for use, as intended by management on
1 October 20x21. On this date an estimated useful life of four years and a residual value of Rnil
for depreciation purposes, was allocated to the manufacturing machine.
On 1 October 20x21, Hairdo Ltd incurred and paid legal fees amounting to R24 000 in relation to the
above agreement. Intertech Ltd incurred sales commission of R7 500 and legal fees of R12 500.
3. Lease agreement – Generator
On 1 July 20x21, Hairdo Ltd entered into a one-year lease agreement with Power Ltd (lessor) over a
generator. Power Ltd undertook to insure the generator and to maintain it by having it serviced every
month. The contract stipulates that the payments are R120 000 for the year, of which R20 000 relates
to the annual insurance and R18 000 relates to the provision of the monthly maintenance services.
Similar insurance provided by third parties would normally cost R20 000 per year and the cost for the
monthly maintenance services would normally be R24 000 per year. The price to rent a similar generator
for a year without the additional maintenance services and insurance is R100 000.
36
4. Employee benefits
Hairdo Ltd paid annual salaries of R5 000 000 to its employees for the 20x21 and 20x22 financial years.
Due to the current financial crisis in the country no increases are expected in the 20x23 financial year.
It is the policy of the company to provide 20 working days leave to its employees. Hairdo Ltd operates
a five-day work-week. For the purpose of this question public holidays can be ignored.
The following are the leave statistics for the employees:

 End of June 20x21: an average of 9 days of the 20x21 financial year leave were unused
 End of June 20x22: an average of 14 days was used, coming from, on average:
 The 20x21 leave entitlement: 5 days
 The 20x22 leave entitlement: 9 days
The estimated future leave statistics for the year ending 20x23 are as follows:
An average of 12 days will be taken and on average this is expected to come from:
 20x21: 0 days
 20x22: 4 days
 20x23: 8 days
All three years consist of 365 calendar days each.
5. Issue of bonds
On 1 April 20x22, Hairdo Ltd issued bonds to raise capital. DigiSmart Ltd purchased 100 000 13,5%
bonds from Hairdo Ltd at their fair value of R22 per bond. The bonds have a par value of R20 and pay
coupon interest annually on 31 March. DigiSmart Ltd incurred and paid transaction costs of R18 750
related to this transaction. The bonds are mandatorily redeemable on 31 March 20x27 at their par value.
The objective of DigiSmart Ltd’s business model, regarding the investment in the Hairdo Ltd bonds, is
to collect the future contractual cash flows of interest and principal on specified dates. DigiSmart Ltd
has a 30 June year-end.
The credit risk on the investment in Hairdo Ltd’s bonds was consistently assessed as low as a result of
the financial backing received by its parent, Lethabo Ltd. The 12-month weighted probability of default
on the bonds was assessed as 12% on 1 April 20x22 and 14% on 30 June 20x22. In addition, the lifetime
weighted probability of default on the bonds was assessed as 18% on 1 April 20x22 and 22% on
30 June 20x22.
Taxation
Assume a SA normal tax rate of 27%.
The South African Revenue Service (SARS) grants an allowance of 40% on the cost price of the
manufacturing machine (refer point 2) not apportioned for part of the year in which the machine is
purchased.
37
REQUIRED:
Marks
(a) Disclose the information given in point 2 above, in the profit before tax note to 12½
the annual financial statements of Hairdo Ltd for the financial year ended
30 June 20x22.
(b) Calculate the deferred tax balance relating to the manufacturing machine, to be 6½
presented in the statement of financial position of Hairdo Ltd at 30 June 20x22.
You must indicate whether the deferred tax balance is an asset or liability.
(c) Identify (with discussion) the components of the contract (point 3 above) and 10½
calculate the amount of consideration that should be allocated to the lease
components.
(d) Calculate the leave-pay liability for Hairdo Ltd’s financial year ended
30 June 20x22 if:
(i) annual leave is carried forward and available for use in the next financial 2½
year and is paid out in cash at the end of the year following the next year,
if not used.
(ii) annual leave is carried forward and available for use in the next financial 1
year but simply expires if not used by the end of the next financial year.
(e) Prepare all the journal entries relating to the investment in the Hairdo Ltd bonds 14½
(point 5 above) in the accounting records of DigiSmart Ltd for the financial year
ended 30 June 20x22.
- Journal narrations are not required
Total 50
38
Part (a)
Hairdo Ltd
Notes to the financial statements for the year ended 30 June 20x22
Profit before tax

Profit before tax is stated after taking the following items into account:
R
Finance costs 133 722
Calculations:
Interest rate implicit in the lease (In advance: BGN mode)

N=6
PV = 1 250 000 (1 230 000 + 7 500 + 12 500)
PMT = 250 000
FV = 70 000 (50 000 + 20 000)
I = 9,5199% (19,0398% p.a.)
Present value of lease liability

N=6
PMT = 250 000
FV = 50 000
I = 9,5199% (19,0398% p.a.)
PV = 1 238 410
Right of use asset value

R
Initial measurement of lease liability 1 238 410
Initial direct cost of lessee 24 000
1 262 410
Depreciation of right of use asset

R
PV of lease excluding legal fees (1 238 410 / 4 x 9/12) 232 202
Legal fees (24 000 / 4 x 9/12) 4 500
236 702
Amortisation table
Payment Interest Balance
Date R R R
Opening balance before deposit 1 238 410
1/10/20x21 250 000 988 410
31/03/20x22 (988 410 x 9,5199%) 94 095 1 082 505
1/04/20x22 250 000 832 505
30/06/20x22 (832 505 x 9,5199% x 3/6) 39 627 872 132
Total 133 722
39
Part (b)
Deferred tax calculation
Deferred tax
asset /
Carrying Temporary (liability)
amount Tax base difference @ 27%
R R R R
Right of use asset
- Original (1 238 410 – 1 006 208 - 1 006 208 (271 676)
232 202)
- Legal fees (24 000 – 4 500) 19 500 - Exempt Exempt
Lease liability 872 132 - 872 132 235 476
(36 200)
Part (c)
Identification of the components of the contract.
The contract provides Hairdo Ltd with the right to use a generator and monthly maintenance services.
Although the contract states that part of the consideration also includes the provision of insurance, this
is not a good or service from which Hairdo Ltd benefits. Power Ltd benefits from the insurance. Provision
of insurance is thus not a separate component of the contract and is disregarded when allocating the
consideration to the components of the lease.
The right to use the generator is a lease component (since it is a right to use an asset).
The right to maintenance services is a non-lease component (they do not represent the right to use an
asset).
The total consideration is allocated based on the relative stand-alone price per lease component and
the aggregate stand-alone prices of all non-lease components.
Calculation of the consideration to be allocated to the lease components:
Stand-alone
prices
R
Stand-alone price per lease component 100 000
Stand-alone prices for all non-lease components 24 000
Total stand-alone prices 124 000
Annual contractual consideration allocated as follows:

Lease component (120 000 x 100 000 / 124 000) 96 774
Non-lease component (120 000 x 24 000 / 124 000) 23 226
120 000
The consideration allocated to the lease component is accounted for in terms of IFRS 16, either using
the simplified or the general approach.
The consideration allocated to the non-lease component is accounted for separately and expensed as
maintenance.
40
Part (d (i))
R
Rate per working day (5 000 000 / 365 x 7/5) 19 178
[Alternative calculation: (5 000 000 / 2601) = 19 231]
Liability on 30/6/20x22 (11 x 19 178) 210 958

[Liability following above alternative calculation: (11 x 19 231 = 211 541)]
1= 52 x 5
Part (d (ii))
R
Liability on 30/6/20x22 (4 x 19 178) 76 712
[Liability following above alternative calculation: (4 x 19 231 = 76 924)]
Part (e)
Debit Credit
R R
1 April 20x22
Investment in bonds (SFP) 2 218 750
Bank (SFP) 2 218 750
Initial recognition of bonds at fair value, plus transaction costs
(Fair value: 100 000 x R22) + Transaction costs: R18 750
Expected credit loss on financial assets (Impairment loss) (P/L) 266 250
Expected credit loss allowance (SFP) 266 250
Recognise impairment loss on bonds
(2 218 750 x 12%)
30 June 20x22
Investments in bonds (SFP) 58 644
Recognise effective finance income earned
(2 218 750 x 10,5724% (C1) x 3/12)
Expected credit loss on financial assets (Impairment loss) (P/L) 52 585

Expected credit loss allowance (SFP) 52 585
Recognise impairment loss on bonds
(2 218 750 + 58 644) x 14% = 318 835 year-end balance.
(318 835 – 266 250 = 52 585)
C1: Calculation of effective interest rate

PV = (100 000 bonds x R22) + R18 750 = -R2 218 750
FV = (100 000 bonds x R20) = R2 000 000
PMT = (2 000 000 x 13,5%) = R270 000
N=5
Comp I = 10,5724%
©
Unisa 2023
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FAC3764/2023/Study pack 2

Department of Financial Accounting

- The conceptual framework for financial reporting;

- The conceptual framework for financial reporting;

2 LECTURERS AND CONTACT DETAILS

Lecturers Telephone number

QUESTION 1 (49 marks) (88 minutes)

The following information relates to Vhuma Ltd’s divisions:

Other Grains division

Internally generated intangible asset – Grain Sorting Software

Bela Bela land

31 December 20x21 31 December 20x22

The following is an extract from the accounting policies of Vhuma Ltd:

 All amounts are material.

b) Journal entries to account for research and development of GSS in 20x22

w1 20x22 GSS research costs

w2 20x22 GSS capitalised development costs

Question 1 Suggested solution (continued)

c) Discussion of the correct accounting treatment of the Bela Bela land.

To: Vhuma Ltd’s Chief Financial Officer

Correct accounting treatment of the land on 31 December 20x22

Measurement of the non-current asset classified as held for sale

Exchange rates and assumptions:

The following dates and exchange rates are applicable:

You may assume the following:

1.1. Contract with Moremi Game Lodge

The sales agreement stipulated the following contract terms:

2. The following was provided on the disclosure of the assets of Kalahari:

2.1. Property in Tshakhuma

Prior period error

2.3. Fleet of vehicles

The South-African Revenue Service allows the following capital allowances:

 You do not need to provide any tax related journal entries.

Communication mark – logical argument 1

 Property, Plant and Equipment, 14½

Accounting policy notes are not required.

a. Journal entries to account for revenue transactions

Contract with Moremi Game Lodge

Correct / Incorrect aspect Correct accounting treatment /

1) Property Plant, and Equipment

Accumulated impairment - 5(937 500)

Depreciation - 3(390 260) 6(34 568)

Transfer to non-current asset held for sale - - (2 065 432)

6 (2 100 000 x 1 600kms / 97 200kms6.1 = 34 568

2) Non-Current Asset Held for Sale

The non-current assets held for sale consist of:

3) Profit before tax note

Profit before tax is calculated after the following:

Before After Net change

Carrying amount 30 September 20x22 6 326 667 6 253 907

Contract with Reddy Logistics (Reddy)

Human Resource matters

Communication skills: presentation and layout 1

Accounting policy notes are not required.

Bank (SFP) 422 437

Income tax expense

[C1]: Calculations relating to the lease

C1.1 Interest rate implicit in the lease