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Bake Away Ltd, a company located in Johannesburg, South Africa, produces and sells biscuits, cakes,
pastries, cookies and a variety of ready-mix cake products. Bake Away Ltd is listed on the JSE and has a
30 June year end.
The details of one of the company’s assets are as follows:
Baking equipment
On 1 July 20x21, management ordered baking equipment from an American-based supplier at the cost of
$55 900. On 1 August 20x21 the baking equipment was shipped free on board (FOB) and Bake Away Ltd
settled $25 000 of the cost on this date. The remainder of the outstanding amount is payable to the supplier
on 31 July 20x22.
The baking equipment was available for use as intended by management, and was brought into use on
1 October 20x21. On the acquisition date, an estimated useful life of six years and a residual value of Rnil
was allocated to the baking equipment.
The following exchange rates are applicable:
Spot rate
Date $1 = R
1 July 20x21 .................................................................................................................. 14,21
1 August 20x21 ............................................................................................................. 14,36
1 October 20x21 ........................................................................................................... 14,45
30 June 20x22 .............................................................................................................. 14,55
The junior accountant of Bake Away Ltd processed only the following two journal entries to account for the
acquisition of the baking equipment:
Debit Credit
R R
Journal 1 – 1 July 20x21
Equipment (SFP) 794 339
Trade payables (SFP) ($55 900 x 14,21) 794 339
Recognition of acquisition of equipment.
Journal 2 – 1 August 20x21
Trade payables (SFP) 359 000
Bank (SFP) ($25 000 x 14,36) 359 000
Recognise payment made to American supplier
The following is an extract from the accounting policies of Bake Away Ltd:
Equipment is accounted for in accordance with the cost model.
Depreciation of assets is provided for according to the straight-line method over the estimated useful lives
of the assets.
Assumptions
All amounts are material.
Ignore all tax implications.
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