R ASSIGNMENT 01 (first semester) (40 marks) (72 minutes) ABC-Office Ltd is a manufacturer and retailer of office furniture in South Africa. The company has a 31 December year end. Property A On 1 July 2017, ABC-Office Lid purchased property A a manufacturing property at a cost of R$ 400 000 (land: R1 600 000, building: R3 800 000). On acquisition date it was determined that the building had an estimated useful life of 25 years and a residual value of R600 000 was allocated to it. The building was available for use, as intended by management, as well as brought into use on 1 August 2017 The fair values of the land, on the respective dates, as determined by an independent swom appraiser. were as follows: 31 December 2017 1 600 000 31 December 2018 1 680 000 31 December 2019 1 680 000 31 December 2020 1 720 000 On 31 December 2020, t was determined that the remaining useful le of the building remained unchanged, whilst the residual value of the building increased to R750 000 Property B On 1 January 2019. ABC-Office Lid purchased property B which will be used for its own administrative purposes at a cost of R1 920 000 (land: R770 000, building: R1 150 000). The administration building was available for use, as intended by management as well as brought into use, on acquisition date. On acquisition date, a residual value of Rnil and a useful life of 30 years, which both remained unchanged throughout the period, were allocated to the administration building, During the current financial year the management of ABC-Office Lid decided to relocate their administration department to Property A Property B was subsequently sold on 30 September 2020 for R2 250 000 On 31 December 2019, the fair value of the land, as determined by an independent sworn appraiser. amounted to R920 000 The balance of the accumulated depreciation of the administration building on the respective dates, which you can assume to be correct, was as follows: R Accumulated depreciation on 31 December 2019. 38 333 Accumulated depreciation on 30 September 2020 67083 Property C On 1 May 2019. ABC-Office Lid acquired property Cat a cost of R2 900 000 (land. R1 300 000; building R1 600 000), with the intention to earn rental income from t. On 1 July 2019. ABC-Office Lid entered into a five (5) year lease contract with a lessee who will use the property for commercial purposes. The building was brought into use on 1 July 2019. 1 Open Hube ASSIGNMENT 01 (first semester) (continued) Property (continued) The fair values of the property, on the respective dates, as determined by an independent swom appraiser, were as follows: 31 December 2019 31 December 2020 R R Land 1 350 000 1 370 000 Building 1 640 000 1 695 000 Vehicles On 1 March 2018, ABC-Office Ltd purchased a company motor vehicle at a cost of R190 000. The motor vehicle was available for use, as intended by management, as well as brought into use on acquisition date. On 1 April 2020, ABC-Office exchanged this motor vehicle for a delivery vehicle. The delivery vehicle was available for use, as intended by management, as well as brought into use on 1 April 2020. The following information, which you can assume to be correct, is applicable to the motor vehicle and delivery vehicle: Motor vehicle Delivery vehicle Estimated useful life in kilometers 150 000 195 000 Total kilometers travelled during the 2018 and 2019 financial years 34 000 Not applicable Total kilometers travelled during the 2020 financial year 1 600 26 000 Residual value R50 000 R80 000 Carrying amount on 31 December 2019 R158 267 Not applicable Carrying amount on 31 March 2020 R156 774 Not applicable Fair value on 1 April 2020 - reliably determined due to the existence of an active market for both the motor vehicle and the delivery vehicle R167 000 R170 000 Accounting policies The following is an extract from the accounting policies of ABC-Office 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 and vehicles are accounted for using the cost model Investment property is accounted for using the fair value model. The carrying amount of the investment property will be recovered through the sale of the property. Depreciation on buildings are provided for according to the straight-line method over the estimated useful lives of the assets. Depreciation on vehicles are provided for according to the units of production method. ASSIGNMENT 01 (first semester) (continued) Taxation The South-African normal tax rate is 28%. The capital gains tax inclusion rate is 80% The SA Revenue Service allows a 5% annual building allowance on all the buildings, according to Section 13(1) and 13quin of the Income Tax Act respectively, on the straight-line method. not apportioned for part of the year. Deferred tax is provided for on all temporary differences in accordance with the statement of financial position approach. There are no other items causing temporary or exempt differences except those mentioned in the question. The company will have sufficient taxable profits and capital gains in future against which any unused tax losses can be utilised Assumptions Land and buildings are regarded as separate classes of assets. All amounts are material Ignore the implications of Value Added Tax (VAT) REQUIRED Marks (a) Prepare the relevant general journal entry in the accounting records of ABC-Office 5 Ltd, to correctly account for the exchange of the motor vehicle on 1 April 2020 (b) Prepare the following notes to the annual financial statements of ABC-Office Lid for 35 the year ended 31 December 2020: Property, plant and equipment (A total column is not required) Investment property Deferred tax (Only relating to the properties) Please note: Your answer must comply with the requirements of International Financial Reporting Standards (IFRS) Journal narrations are not required. No abbreviations for general ledger account names may be used. Accounting policy notes are not required. Ignore comparative information Show all calculations. Round all amounts to the nearest Rand. [40] 3 R ASSIGNMENT 01 (first semester) (40 marks) (72 minutes) ABC-Office Ltd is a manufacturer and retailer of office furniture in South Africa. The company has a 31 December year end. Property A On 1 July 2017, ABC-Office Lid purchased property A a manufacturing property at a cost of R$ 400 000 (land: R1 600 000, building: R3 800 000). On acquisition date it was determined that the building had an estimated useful life of 25 years and a residual value of R600 000 was allocated to it. The building was available for use, as intended by management, as well as brought into use on 1 August 2017 The fair values of the land, on the respective dates, as determined by an independent swom appraiser. were as follows: 31 December 2017 1 600 000 31 December 2018 1 680 000 31 December 2019 1 680 000 31 December 2020 1 720 000 On 31 December 2020, t was determined that the remaining useful le of the building remained unchanged, whilst the residual value of the building increased to R750 000 Property B On 1 January 2019. ABC-Office Lid purchased property B which will be used for its own administrative purposes at a cost of R1 920 000 (land: R770 000, building: R1 150 000). The administration building was available for use, as intended by management as well as brought into use, on acquisition date. On acquisition date, a residual value of Rnil and a useful life of 30 years, which both remained unchanged throughout the period, were allocated to the administration building, During the current financial year the management of ABC-Office Lid decided to relocate their administration department to Property A Property B was subsequently sold on 30 September 2020 for R2 250 000 On 31 December 2019, the fair value of the land, as determined by an independent sworn appraiser. amounted to R920 000 The balance of the accumulated depreciation of the administration building on the respective dates, which you can assume to be correct, was as follows: R Accumulated depreciation on 31 December 2019. 38 333 Accumulated depreciation on 30 September 2020 67083 Property C On 1 May 2019. ABC-Office Lid acquired property Cat a cost of R2 900 000 (land. R1 300 000; building R1 600 000), with the intention to earn rental income from t. On 1 July 2019. ABC-Office Lid entered into a five (5) year lease contract with a lessee who will use the property for commercial purposes. The building was brought into use on 1 July 2019. 1 Open Hube ASSIGNMENT 01 (first semester) (continued) Property (continued) The fair values of the property, on the respective dates, as determined by an independent swom appraiser, were as follows: 31 December 2019 31 December 2020 R R Land 1 350 000 1 370 000 Building 1 640 000 1 695 000 Vehicles On 1 March 2018, ABC-Office Ltd purchased a company motor vehicle at a cost of R190 000. The motor vehicle was available for use, as intended by management, as well as brought into use on acquisition date. On 1 April 2020, ABC-Office exchanged this motor vehicle for a delivery vehicle. The delivery vehicle was available for use, as intended by management, as well as brought into use on 1 April 2020. The following information, which you can assume to be correct, is applicable to the motor vehicle and delivery vehicle: Motor vehicle Delivery vehicle Estimated useful life in kilometers 150 000 195 000 Total kilometers travelled during the 2018 and 2019 financial years 34 000 Not applicable Total kilometers travelled during the 2020 financial year 1 600 26 000 Residual value R50 000 R80 000 Carrying amount on 31 December 2019 R158 267 Not applicable Carrying amount on 31 March 2020 R156 774 Not applicable Fair value on 1 April 2020 - reliably determined due to the existence of an active market for both the motor vehicle and the delivery vehicle R167 000 R170 000 Accounting policies The following is an extract from the accounting policies of ABC-Office 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 and vehicles are accounted for using the cost model Investment property is accounted for using the fair value model. The carrying amount of the investment property will be recovered through the sale of the property. Depreciation on buildings are provided for according to the straight-line method over the estimated useful lives of the assets. Depreciation on vehicles are provided for according to the units of production method. ASSIGNMENT 01 (first semester) (continued) Taxation The South-African normal tax rate is 28%. The capital gains tax inclusion rate is 80% The SA Revenue Service allows a 5% annual building allowance on all the buildings, according to Section 13(1) and 13quin of the Income Tax Act respectively, on the straight-line method. not apportioned for part of the year. Deferred tax is provided for on all temporary differences in accordance with the statement of financial position approach. There are no other items causing temporary or exempt differences except those mentioned in the question. The company will have sufficient taxable profits and capital gains in future against which any unused tax losses can be utilised Assumptions Land and buildings are regarded as separate classes of assets. All amounts are material Ignore the implications of Value Added Tax (VAT) REQUIRED Marks (a) Prepare the relevant general journal entry in the accounting records of ABC-Office 5 Ltd, to correctly account for the exchange of the motor vehicle on 1 April 2020 (b) Prepare the following notes to the annual financial statements of ABC-Office Lid for 35 the year ended 31 December 2020: Property, plant and equipment (A total column is not required) Investment property Deferred tax (Only relating to the properties) Please note: Your answer must comply with the requirements of International Financial Reporting Standards (IFRS) Journal narrations are not required. No abbreviations for general ledger account names may be used. Accounting policy notes are not required. Ignore comparative information Show all calculations. Round all amounts to the nearest Rand. [40] 3