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FAC3761 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }

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FAC3761 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }

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  • November 18, 2024
  • 77
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
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QUESTION 1 (41 marks)
Ngu-X Ltd is a company that produces mathematical digital video disks (DVD s) for high school
students. The company has a 31 March year-end. The following information relates to the assets of
the company:

Property - Johannesburg
On 1 October 20.08 the company purchased a manufacturing property for R8 000 000 (Land: R2 300
000; Building: R5 700 000). The residual value of the building on acquisition date was estimated to be
R5 000 000. The property was available for use, as intended by management, on the acquisition date.
The building is expected to have a useful life of 20 years. Both the residual value and useful life of the
building remained unchanged throughout the period.

The land was revalued for the first time on 31 March 20.11. On this date the fair value of the land was
determined to be R2 400 000.

On 1 February 20.12 the directors of the company decided to sell the Johannesburg property and to
relocate their manufacturing operations to Port Elizabeth. A binding sales agreement was concluded
on 1 February 20.12 and the Johannesburg property was sold for R5 800 000.

Property - Port Elizabeth
As a result of the decision to relocate its manufacturing operations to Port Elizabeth, Ngu-X Ltd
acquired a manufacturing property in Port Elizabeth on 1 February 20.12 for R9 000 000 (Land: R2
000 000; Building: R7 000 000). The property was available for use, as intended by management, as
well as brought into use on acquisition date. On acquisition date the residual value of the building was
estimated to be R4 500 000. The estimated useful life of the building was determined to be 25 years.
Both the residual value and useful life of the building remained unchanged throughout the period. No
revaluation of this property was performed in the current financial year as the property will only be
revalued every two years.

DVD recording machine
The directors decided to sell the company s existing DVD recording machine because the relocation
costs to move the existing machinery to Port Elizabeth were too expensive. All the requirements for
classification of the asset as held for sale were met on 30 November 20.11. A binding sales
agreement regarding the machine was concluded on this date and management expects the cash sale
to be completed on 10 April 20.12.

The recording machine was originally acquired on 1 March 20.09 for R1 800 000 and was available for
use, as intended by management, as well as brought into use on acquisition date. On acquisition date
the useful life of the machine was determined to be 700 000 units and the residual value R300 000.

From acquisition date until 31 March 20.11 the machine produced 65 000 units. During the current
financial year until 30 November 20.11, the machine had produced 80 000 units. The machine s fair
value less costs to sell on 30 November 20.11 was determined to be R1 500 000 and remained
unchanged on 31 March 20.12.

Additional information
1. The following accounting policies apply to the assets of Ngu-X Ltd:
• Owner-occupied land is accounted for using the revaluation model. It is the policy of the
company to realise any revaluation surplus upon disposal of the underlying asset. It is
company policy that revaluations will be made with sufficient regularity to ensure that carrying
amounts do not differ materially from which would be determined using fair values at the end of
the reporting period.
• Owner-occupied buildings are accounted for using the cost model.


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• Machinery is accounted for using the cost model.
• Depreciation on buildings is provided for according to the straight-line method over the
estimated useful lives of the buildings. Depreciation on machinery is provided for according to
the units of production method.
QUESTION 1 (continued)
2. The fair value of the land was determined by Prof Charac, an independent sworn appraiser, who
holds a recognised and relevant professional qualification. Prof Charac has recent experience in
the location and category of the properties being valued. The fair values were determined with
reference to current market prices on an arm s length basis of similar properties in the same area.

3. The South African Revenue Service allows the following capital allowances:
• An annual building allowance of 5% on the manufacturing building according to section 13(1) of
the Income Tax Act, on a straight-line method, not apportioned for a part of the year.
• A tax allowance on the machinery over 6 years according to section 11(e) of the Income Tax
Act on the straight-line method, apportioned for part of the year.

4. The SA normal tax rate is 28%. The capital gains tax inclusion rate is 80%.

5. Deferred tax is provided for on all temporary differences using the statement of financial position
approach. There are no other items causing temporary or exempt differences except those
identified in the question. The company will have sufficient profit in future against which any
unused tax losses can be utilised.

6. Assume all amounts are material.
REQUIRED
1. Prepare only the following notes to the annual financial statements of Ngu-X
Ltd for the year ended 31 March 20.12:
1.1. Property, plant and equipment. (A total column is not required.)
1.2. Non-current assets held for sale (26‰)

Your answer must comply with the requirements of IFRS.
• Accounting policy notes are not required.
• Show all calculations.
• Round all calculations to the nearest rand.
• Ignore comparative information.  Ignore any VAT implications.
2. Calculate the deferred tax balance in the statement of financial position of
NguX Ltd on 31 March 20.12, using the statement of financial position
approach.
(14‰)
Your answer must comply with the requirements of IFRS.
• Show all calculations.
• Round all calculations to the nearest Rand.

QUESTION 1 SUGGESTED SOLUTION
1. NGU-X LTD
NOTES FOR THE YEAR ENDED 31 MARCH 20.12
1.1 Property, plant and equipment
Land Buildings Machinery Total
R R R R



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2 400 000 5 700 000 1 800 000 9 900 000
Carrying amount at the beginning of the year
2 400 000 5 612 500 660
714 9 673 214 Gross carrying - (87 500) (139 286) (226 786)
amount / Cost 2 000 000 7 000 000 - 9 000 000
Accumulated depreciation - (45 834) (171 429) (217 263)
(calc 2.1 + 4.2) (2 400 000) (5 583 333) - (7 983 333)
Additions
Depreciation (calc 2.3 + 3.1 + 4.3) - - (1 489 286) (1 489 286)
Derecognition (calc 1) 2 000 000 6 983 333 - 8 983 333
Transfer to non-current assets held for sale
2 000 000 7 000 000 - 9 000 000
(calc 4)
- (16 667) - (16 667)
Carrying amount at the beginning of the year
Gross carrying amount / Cost
Accumulated depreciation

1.2. Non-current asset held for sale

A decision to dispose of the DVD recording machine was taken after approval of a detailed formal
disposal plan due to the fact that the relocation costs to move the machinery to Port Elizabeth was
too expensive. The plan regarding the sale of the machine was at a stage of completion on 30
November 20.11 where no realistic possibility of withdrawal existed. It is expected that the sale will be
completed by 10 April 20.12. The sale will be made for cash.
R
Machinery 1 489 286

2. Deferred Tax
Deferred
Carrying Tax base Exempt Temporary Tax tax amount R difference
difference rate liability
R R R R R
Building Port Elizabeth property 6 983 333 6 650 000 - 333 333 28% 93 333 Recording machine
1 489 285 875 000 - 614 285 28% 172 000
Total deferred tax liability 265 333
Calculations:
1. Johannesburg - Land
Deferred
tax asset/
Historical (liability)
Carrying carrying Revaluation Exempt Temporary 28% x
amount amount s difference difference 80%
R R R R R R
Cost 1 October 20.08 2 300 000 2 300 000 - 2 300 000 - -
Revaluation (calc 1.1) 100 000 - 100 000 - - -

Carrying amount
31 March 20.11
(calc 1.2) 2 400 000 2 300 000 100 000 2 300 000 100 000 (22 400)
Derecognition (2 400 000) (2 300 000) (100 000) (2 300 000)




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