FAC3702 Assignment 1 (COMPLETE ANSWERS) Semester 1 2024

FAC3702 Assignment 1 (COMPLETE ANSWERS) Semester 1 2024 ... 100 % TRUSTED workings, explanations and solutions. For assistance call or W.h.a.t.s.a.p.p us on +/ 2/ 5/ 4 /7 /7 /9 /5 /4 /0 /1 /3 /2 . FAC3702/2024/S1 2 KipKor Ltd is a sports shoe manufacturing company, situated in Mamelodi, Gauteng. The company has a 31 December year end. The following details relate to the assets of KipKor Ltd: Machine On 1 July 2022 Kipkor Ltd purchased a machine for an amount of R500 000. Included in the purchase consideration is an amount of R60 000 relating to inspection costs. The machine was available for use, as intended by management, on acquisition date. The machine must be inspected every 3 years to comply with safety regulations. Due to unforeseen circumstances, Kipkor Ltd had to inspect the machine on 31 December 2023 and incurred inspection costs amounting to R75 000. A residual value of Rnil was allocated to the machine and it is estimated that the machine will produce 600 000 units during its useful life. For the 2022 and 2023 financial years the machine produced 15 000 units and 45 000 units respectively. Delivery vehicle On 1 April 2023 KipKor Ltd purchased a second-hand delivery vehicle for an invoice amount of R150 000. A special arrangement was made with the seller to defer payment until 1 April 2024. On acquisition date the vehicle was available for use, as intended by management. On acquisition date it was estimated that the vehicle had an expected useful life of 5 years and a residual value of Rnil was allocated to the vehicle. Administration building KipKor Ltd owns an administration building that was initially held as an investment property on acquisition. The property was purchased on 1 January 2019 at a cost of R2 400 000 (Land: R700 000; Building: R1 700 000). During the 2022 financial year KipKor Ltd decided to rather occupy the administration building themselves instead of renting it out and subsequently took occupation of the administration building on 30 April 2022. On 30 April 2022 it was estimated that the building had a remaining useful life of 30 years and a residual value of R500 000 was allocated to the building. The fair values and net replacement values of the administration property on the respective dates were as follows: Land Building Total 30 April 31 December FAC3702/2024/S1 3 Additional information • Owner-occupied land is accounted for according to the revaluation model. Any revaluation surplus is realised on sale of the underlying asset. • Owner-occupied buildings, machinery and vehicles are accounted for according to the cost model • Investment property is accounted for according to the fair value model. The carrying amount of investment property will be recovered through sale of the property. • Depreciation on buildings and vehicles are provided according to the straightline method and depreciation on machinery is provided according to the units of production method. Depreciation will be provided on the most recent revalued amounts. • All the net replacement values, and fair values were determined by, an independent sworn appraiser. These values were determined with reference to current market prices, on an arm’s length basis, of similar properties in the same area. • The South African normal tax rate is 27%. 80% of capital gains are taxable. • The South African Revenue Service allows the following capital allowances: 1. No tax allowance on administration buildings. 2. A tax allowance on machinery according to the straight-line method over 5 years, not proportioned for part of the year. 3. A tax allowance on the delivery vehicle according to the straightline method over 4 years, not proportioned for part of the year. • Deferred tax is provided for on all temporary differences using the statement of financial position approach. There are no other temporary differences except those mentioned in the question. The company will have sufficient taxable profit in future against which any unused tax losses can be utilised. • Assume that the inspection costs are significant and regarded as a separate component of the machine. Major inspection costs are written off for taxation purposes when the costs are actually incurred. • The applicable post-tax discount rate is 8.76%. • Assume that land and buildings are regarded as separate asset classes and that all amounts are material. FAC3702/2024/S1 4 REQUIRED: (a) Prepare the property, plant and equipment note to the annual financial statements of KipKor Ltd for the year ended 31 December 2023 26 (b) Calculate the deferred tax balance in the statement of financial position of KipKor Ltd on 31 December 2023, relating to the property, plant and equipment, using only the statement of financial position approach. 10 (c) Prepare all the necessary journal entries to account for the following property, plant and equipment in the records of KipKor Limited for the years ended 31 December 2022 and 31 December 2023: i. Delivery vehicles ii. Administrative building • Entries relating to depreciation are not required • Dates are required • Show in which statement the journal will be processed e.g., P/L, OCI, SCE, SFP • Ignore narrations • Ignore tax 9 Accounting policy notes are not required. Round all amounts to the nearest Rand. Show all calculations. Ignore any VAT implications TOTAL 45