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RRP 200
________________________________________________
QUESTION 1 (27 marks)
(Source: Year test 1 2014)
An extract from the accounting records of FROG LIMITED as at 30 April 2014 is
provided to you:
Note 2014
R
Non-current assets
Property, plant and equipment at cost 26 970 000
- Land 1 8 000 000
- Factory building 1 11 970 000
- Factory machinery 2 7 000 000
Current assets
Inventories at cost 3 6 850 000
Notes:
1. Land and factory building
The land and factory building were acquired and ready for use as intended by
management on 1 May 2005. The land and factory building are accounted for on
the cost model of IAS 16, Property, Plant and Equipment. Land is not depreciated.
Depreciation on the factory building was written off on the straight-line method
over the originally estimated total useful life of 21 years and an originally estimated
insignificant current residual value on 1 May 2005.
On 29 April 2014, the estimated current residual value was changed to R520 000.
The estimated total useful life remained unchanged.
2. Factory machinery
The factory machinery was acquired and ready for use as intended by
management on 1 May 2012. On this date, it had an estimated total useful life of
7 years and an estimated insignificant current residual value. Depreciation is
written off on the straight-line method over the total estimated useful life, according
to the cost model of IAS 16, Property, Plant and Equipment.
On 30 April 2014, management established that the factory machinery was not
performing at the level originally envisaged by management. The remaining useful
life was revised as a result of this indicator on 30 April 2014. A cash flow budget
was prepared, based on market predictions. This budget, for the new remaining
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Email: rrp200@up.ac.za
, 2
useful life of the factory machinery, was approved by management on
30 April 2014 (assume all cash flows occur at the end of each financial year).
1 May 2014 –
30 April 2017
Future cash inflows per annum R1 500 000
Future cash outflows per annum R250 000
Estimated net selling price on 30 April 2017 Insignificant
Appropriate pre-tax discount rate 6%
The fair value of the factory machinery as at 30 April 2014 amounted to
R1 800 000, whilst the cost of disposal amounted to R50 000.
3. Inventories
An extract from the pre-adjustment inventories schedule as at 30 April 2014 is
provided to you:
R
Finished goods at cost 850 units 850 000
Raw materials at cost 40 000 units 6 000 000
3.1 Five units of raw materials are used to produce one unit of finished goods.
The raw materials are not held for resale, but are solely used in the
production of finished goods. The cost to replace the raw materials on
30 April 2014 amounted to R120 per unit.
3.2 On 30 April 2014, the selling price of finished goods amounted to R920 per
unit. The cost to sell the finished goods amounted to R25 per unit.
3.3 On 30 April 2015, 400 units of the raw materials that had been on hand on
30 April 2014, were still on hand. The cost to replace these raw materials
amounted to R148 per unit. All other production costs have remained
unchanged since 2014. All finished goods on hand on 30 April 2014 were
sold during the 2015 financial year. The net selling price of the finished
goods amounted to R1 350 per unit on 30 April 2015.
Additional information:
1. There was no indication of impairment at the end of any financial year, other than
those evident from the information provided.
2. Frog Limited uses the perpetual inventories system and inventories are measured
on the first-in, first-out basis.
3. Frog Limited makes use of a “Profit before tax” note to disclose all separately
disclosable income and expense items.
RRP 200 Integrated questions handout 3 2024
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