LUCIANO SCHOOL OF LAW & SOCIAL SCIENCES [LSLSS]

Transcription

1 Fac3702/ep/ag EXAMPACK FAC3702 LUCIANO SCHOOL OF LAW & SOCIAL SCIENCES [LSLSS] 2015 Authored by: L Kamanga

2 P a g e 1 Contents OCTOBE/NOVEMBE MAY / JUNE OCTOBE / NOVEMBE OCTOBE / NOVEMBE 2013 EXAM PACK MAY/JUNE

3 P a g e 2 OCTOBE/NOVEMBE 2011 SOLUTION 1: POPETY, PLANT ND EQUIPMENT, INVESTMENT POPETY, IMPAIMENT OF ASSETS, NOW CUENT ASSETS HELD FO SALE AN DISCOUNUED OPEATIONS 1. POP INVEST LTD STATEMENT OF POFIT O LOSS AND OTHE COMPEHENSIVE INCOME FO THE YEA ENDED 30 JUNE 2011 DISCONTINUED OPEATIONS evenue ( ) Other income (c3) Other Expenses ( ) (79 000) Finance costs ( ) ( ) Profit before tax Income tax expenses (c4) (6248) Profit for the year discontinued operation POP INVEST LIMITED NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENDED 30 JUNE POPETY, PLANT AND EQUIPMENT Land Buildings Vehicles Carrying amount 1 July Cost Accumulated Depreciation (- ) ( (i) ) - Additions Depreciation - (18045) 6(v) (8167) 7(i) Impairment loss (7iii) - - (21833)

4 P a g e 3 evaluation (i) (v) - Carrying amount - 30 June Gross carrying amount (v) Accumulated depreciation and impairment loss ( -) ( (v) ) (30 000) 7iv) Land and Buildings in Bedfordview, Gauteng were revalued for the first time on 30 June 2011 by an independent sworn appraiser. If the assets had been carried at cost less accumulated depreciation, the carrying amount would have amounted to (Land: and buildings: ) (c8). An impairment loss of was accounted for on Motor Vehicles due to the negative publicity received by the manufacturer in the, media. The recoverable amount of the vehicle was determined to be the fair value less cost to sell Investment Property Land Building total Carrying amount 1 July Fair value adjustment 60001(iii) (iii) Transfer to non- current asset held for sale ( ) ( ) ( ) The fair values we determined on 31 January 2011 by an independent, sworn appraiser. This is when a detailed formular plan of disposal was at a stage of completion and no realistic possibility of withdrawal existed Non - current Assets held for sale A decision to dispose of property due to the fact that the return on the investment properties located in the Western Cape did not meet management s expectations was taken by the board of directors. On 31 January 2011 a detailed formular plan of disposal was approved and publicly announced. The formular sales plan was at a stage of completion where no realistic possibility

5 P a g e 4 of withdrawal existed Management expects that a binding sales agreement for the property will be concluded by 30 September The property will be sold for cash. The non current assets held for sale consist of the following: Investment Property Struis baai CALCULATIONS 1. Property in Struisbaai Western Cape (a) Land Carrying amount Historical cost Fair Vlue Adjustment Exempt difference Temporary difference Deferred tax (asset Liability) Cost-28 February Fair value adjustment-30 June 2010 (i) Carrying amount (9324) (ii) 30 June 2010 Fair value adjustment January 2011(iii) Transfer to Non current Asset Held for sale Fair value adjustment June 2011 (iv) Carrying amount 30 June (11375) (v)

6 P a g e 5 (i) Fair value adjustment 30 June 2010 : Land Fair value 30 June Cost 28 February Fair value adjustment 30 June (ii) Deferred Tax liability Land 30 June 2010 Temporary difference X 66.6% x 28% = x 28% x 66.6% = 9324 (iii) Fair value adjustment 31 January 2011 fair value 31 January Fair value 31 June Fair value adjustment 31 January (iv) Fair value adjustment 30 June 2011 Fair value 30 June Fair value 31 January Fair value adjustment 30 June (v) deferred Tax 30 June 2011 Temporary difference x 66.6% x 28% = (61 000x66.6% x 28%) = Property in Struisbaai Western Cape Building Carrying amount Historical cost Fair value Adjustment Tax base Temporary Difference Deferred Tax (asset liability) Cost 28 February

7 P a g e Fair value adjustment - 30 June 2010 (i) Fair value adjustment 31 January 2011 (iii) Transfer to Non Current Assets Held for sale Fair vale adjustment 30 June 2011 (iv) Carrying amount 30 June (18648) (iv) (22 005) (v) (i) Fair value adjustment 30 June 2010 Fair value 30 June Cost 28 February Fair value adjustment 30 June (ii) Deferred tax 30 June 2010 Temporary difference x 66.6% x 28% = x 66.6.% x 28% = (iii) Fair value adjustment 31 January Building Fair value 31 January Fair value 30 June

8 P a g e 7 (iv) Fair value adjustment 30 June 2011 Building Fair value 30 June Fair value 31 January Fair value adjustment 30 June (v) Temporary difference x 66.6% x 28% = C3. Other Income Fair value adjustment 31 January 2011 : Land c1(a) (iii) Buildings (c2 (iii) Fair value adjustment 30 June 2011 : Land c1(a) (iv) 5000 Buildings c2 (iv) C4. Income Tax Expense Current Tax Discontinued Operations Profit before tax (profit statement) Fair value adjustment on non current assets (c3) (29 000) Taxable Income 3000 Current tax at 28% (3000 x 28%) 840 Deferred Tax Discontinued Operations Movement in deferred tax [ (c1 (a) (ii) (c2 (ii) ] 5408 Dr P and L Normal Tax Benefit ( ) 6248 C5. Property in Bedfordview, Gauteng Land Carrying Historical evaluation Exempt Tempor Deferred tax Amount cost difference ary asset /

9 P a g e 8 Cost 30 September 2009 evaluation 30 June 2011 (i) Carrying amount 30 June 2011 differen (liability) ce (18648) (ii) (i) evaluation 30 June 2011 Value 30 June Cost evaluation (ii) Deferred Tax Temporary difference x x 0.28 = x x 0.28 = C6. Property in Bedfordview, Gauteng Building Carrying Amount Historical cost evaluation Tax Base Temporary Difference deferred tax asset/liability Cost September 2009 Depreciation: 30 (12857) (12857) (i) June 2010 (i) Tax allowance : (35 000) 30 June 2010 (ii) Carrying (iii) (6200) (iv)

10 P a g e 9 amount - 30 June 2010 evaluation (v) Depreciation 30 June 2011 Carrying amount 30 June (18045) (v) (17143) (vi) (902) (vii) (35 000) (ii) (19600 ) (viii) (i) Depreciation : 30 June 2010 cost esidual Value Useful life X Period of use = x 9/12 = September 30 June 30 9 months (ii) Tax Allowance 30 June 2010 cost period of use = = (iii) Temporary Difference Temporary Difference = Carrying Amount Tax Base = = (iv) Deferred Tax Deferred Tax = Temporary difference x 28% = x 28% = 6200

11 P a g e 10 NB. When carrying amount of Asset > Tax Base, there is, deferred Tax Liability When carrying amount of asset < Tax Base, there is deferred Tax Asset When carrying amount of Liability > Tax Base, there is Deferred Tax Asset When carrying amount of Liability < Tax Base, there is Deferred Tax Liability (v) Total useful life in months (35x12) =420months Total months of asset use prior to current year 9 months (30 =9months September 2009 to 30 June 2010) emaining useful life at beginning of year 411 months Current year 12months emaining useful life at end of year 399months Depreciable Value on Date of evaluation = New Value esidual Value = = Depreciation per year = Depreciable Value x 12 emaining useful life = x = Valuation at beginning of year = value at end of year + Depreciation for the year = = evaluation = value at beginning of year carrying amount at beginning of year = = 30902

12 P a g e 11 (vi)historical cost Depreciation cost esidual Value usefuk life = 35 = (vii) evaluation - Depreciation revaluation useful life at start of year (vi) = 411 (vi) x 12 = 902 (viii)deferred Tax Temporary Difference x 28% = x 28% = C7 Motor Vehicle Carrying Historical Tax Base Temporary Deferred Amount cost Difference Tax asset

13 P a g e 12 (liability) Cost 31 March Depreciation 30 June (8167) (i) (8167) 2011 (i) Tax allowance (ii) Impairment loss - 30 June (21833) (21833) 2011 (iii) Carrying amount - 30 June (i) Depreciation (cost esidual Value) Total Units (estimated useful life) x Total Distance for Period ( ) = x 7000 (ii) Tax allowance (cost ) = useful life years = (iii) Impairment Loss Impairment Loss = carrying Amount ecoverable = ( ) = 21833

14 P a g e 13 (iv) Depreciation and Impairment Loss Depreciation (i) 8167 Impairment Loss (iii) Total C8. Carrying amount at start of year (cb) Depreciation year ended 30 June 2011 ( ) 35 (17143) NOTES The South African evenue Service does not differentiate between owner occupied properties and investment property. It only provides capital allowances on properties if they are used in the manufacturing process or if the building is a residential building where the occupants are employees of the parent entity, commercial buildings or hotel buildings. Land and any other residential buildings do not attract capital allowances. When applying the fair value model, there will be a deferred tax equivalent to the fair value adjustment multiplied by the capital gains tax rate multiplied by the income tax rate. This applied to land. If an asset satisfies the conditions for it to be categorized from property, plant and equipment to non current assets held for sale on the date the conditions are met and if using the revaluation model, a revaluation has to be done on that particular date. In this question, a detailed plan of disposal was approved and publicly announced on 31 January Therefore, this will be the date on which we transfer the asset to non current assets held for sale. When using the fair value model and if the commercial building was acquired on after, April 2007, there is deferred tax on the fair value adjustment multiplied the capital gains tax (66.6%) multiplied by the tax rate (28%). Fair value adjustments are non taxable profits, as such they should be reversed by being added to profit before tax when determining current tax.

15 P a g e 14 Property, Plant and Equipment This only includes the property in Bedfordview, Gauteng and the vehicles since the Property in Struisbaai, Western Cape was an investment property. evaluation If the revaluation is performed at the end of the financial year the revalued amount is worked back to the beginning of the year and the depreciation for the current year is based on the recalculated revalued amount. Impairment Loss If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. The difference is known as the impairment loss. The ecoverable amount is the higher of an asset s fair value less costs to sell and its value in use. In this particular question, it is stated that there is no reason to believe that the motor vehicles value in use materially exceeds its fair value less cost to sell. As a result, it is reasonable to assume that the value in use is equivalent to the fair value less costs to sell. SOLUTION 2: INTANGIBLE ASSETS, THE EFFECTS OF CHANGES IN FOEIGN EXCHANGE ATES AND FINANCIAL INSTUMENTS 1. NEW TV LIMITED GENEAL JOUNAL D C 01 January 2011 Investment in shares - Iron TV Limited (100 x 125) Transaction costs 500 Bank June 2011

16 P a g e 15 Investment in shares (140 x ) 1500 Fair value adjustment January 2011 No entries are made 1 February 2011 Prepayment (SFP) (5 000 X 7.30) Bank June Foreign exchange difference (P/L) FEC Liability (SFP) X ( ) 1400 Firm commitment asset (SFP) 1400 Foreign exchange difference 1400 Films/ intangible asset ( x 7.33) + (5000 x 7.30) Foreign creditor ( x 7.33) Prepayment Films/ intangible asset (SFP) 1400 Firm commitment asset (SFP) 1400 Foreign Creditor ( x 7.33) FEC liability x ( ) 1400 Bank ( x 7.40) June Foreign exchange loss x ) Foreign creditor 250 FEC asset 500 Foreign exchange profit 500 ( x ( )

17 P a g e 16 Armotisation Accumulated armotisation ( )/2) x 1/12 3. NEW TV LLIMITED NOTES TO THE FINANCIAL STTEMENTS FO THE YEA ENDED 30 JUNE POFIT BEFOE TAX Profit before tax includes the following: Income Foreign exchange profit ( ) 250 Expenses Armortisation (c1) Loss on derecognition of intangible asset (c2) INTANGIBLE ASSETS Broadcasting Licence Films Total Carrying amount at beginning of year Cost Accumulated armortisation (c2) ( ) (-) Armotisation (c1) ( ) (15323) ( ) Additions (c4) Derecognistion (c2) ( ) - ( ) Carrying amount at end of year Cost Accumulated armortisation - (15323) (15323)

18 P a g e 17 The films have a carrying amount of at end of year and a remaining useful life of 23months (2years - 1 month) at year end. 3. Cost of films Balance 1 June 2011 ( % ) x 7.33 (sport rate ) Prepayment (5000x spot rate on prepayment date) Foreign exchange loss on FEC of on date of maturity [7.40 (FEC rate) (spot rate)] x Total cost (initial ) of films NOTE The firms are armotised as from 1 June 2011, the date on which the risks and rewards associated with the films were transferred to New TV Limited.

19 P a g e 18 MAY / JUNE 2012 SOLUTION 1: POPETY, PLANT AND EQUIPMENT, INVESTMENT POPETY AND THE EFFECTS OF CHANGES IN FOEGN EXCHANGE ATES 1. CHOCOCOFFEE LIMITED GENEAL JOUNAL Debt Credit 1 December 2010 Machine (3000 x 10.3 (sport rate) Creditor Cash flow hedge reserve (Oc1) 3000 x (10.30(spot 450 rate ) (FEC inception rate)) FEC liability 450 Machine 450 Cash flow hedge reserve (Oc1) December 2010 Foreign exchange loss 3000 x (10.36 (spot rate 31 /12/10) Spot rate 01/12/10) Creditor 990 FEC asset ( ) 360 FEC liability 450 Foreign exchange profit 3000 x (1042 FEcrate 31/12/ ) 810 FEC rate 01/12/10) 30 June 2011 Creditor 210 Foreign exchange profit 210

20 P a g e x(10.36(spot rate 31/12/10) Spot rate 30/06/11 Foreign exchange loss 390 FEC asset 360 FEC liability 30 [3000 x (10.42 FEC rate 30/06/ ) FET liability 30 Creditor (3000 x 10.29) Bank (3000 x 10.30) NOTES At the point when the transaction will be recorded or at year end, the FEC is valued by multiplying the foreign currency amount of the FEC by the difference between the contracted forward rate and the forward rate available for a similar FEC for the remaining period, till maturity of the original contract. A forward exchange contract asset or liability is then raised. If it is an effective ledge, the profit or loss is recognized in other comprehensive income as in this particular case. If the ledger of a forecast transaction subsequently results in the recognition of a financial asset or financial liability. (a) The relative gains and losses that would have been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the asset acquired or liability assumed affects profit or loss. (b) It shall reclassify the unrecoverable amount into profit or loss, if an entity expects that a all or a portion of a loss recognized in other comprehensive income will not be recovered in none or more future periods. (c) If a Ledger of a forecast transaction subsequently results in the recognition of a non financial asset or a non financial liability: Either

21 P a g e 20 (d) eclassify the association adjustment in the same period or periods during which the asset acquired or liability assumed affects profit or loss. (e) emove associated gains and loss that were recognized in other comprehensive income and include them in the initial cost or other carrying amount of the asset or liability 2. CHOCO COFFEE LIMITED NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENDED 31 DECEMBE 2011 POPETY, PLANT AND EQUIPMENT Land Building Machine Total Carrying amount at 01 January Cost (c3(i) Accumulated Depreciation - (15 000) c2(i) - (15000) Additions evaluation Depreciation - (98289) 8 (2554) 5 (100843) Transfer to investment property ( ) ( ) 4 - ( ) Carrying amount at end of year Gross carrying amount (iv) Accumulated depreciation - (75 789) (2554) (78343) 3. Calculate of Deferred Tax Carrying Amount Tax Base Exempt Differenc e Temporary Difference Tax ate Deferred Tax Liability oasting Machine(c5) % 1096 Processing Plant Land %x

22 P a g e 21 (c1) % Processing Plant Building % (c2) Administration Property % x 7459 Land (c3) 66.6% Administration Property % x 6527 Building (c4) 66.6% Office Block Land (ca) %x % Office Block Building (c10) % x 66.6% CALCULATIONS C1 POCESSING PLANT LAND Cost-30 September 2010 evaluation ( ) Carrying amount 31 December 2011 Total carrying Amount Historical carrying amount evaluation Excempt Difference Temporary Difference Deferred tax asset/ (liability) (46620) 1 1. Deferred tax Liability ( ) x 66.6% x 28% = C2 POCESSING PLANT

23 P a g e 22 Building Cost 30 September 2010 Depreciation 31 December 2010(i) Tax allowance -31 December 2010(ii) Carrying amount 31 December 2010 evaluation January 2011 (iv) Depreciation 31 December 2011(iv) Tax allowance 31 December 2010 (ii) Carrying amount 31 December 2011 Total carrying Amount Historical carrying Amount evaluation Tax Base Temporary Difference Deferred Tax Asset (Liability) (15000) (15000) ( ) (23800) (iii) (75 789) (iv) (60 000) (v) (15789) (v) ( ) ( )( iv) (i) Depreciation x October December = NB: There is no depreciation for the month of September since the asset was ready for use at the end of the month (30 September 2010), therefore, it had not been used during the month of September. (ii) Tax allowance 2010

24 P a g e = NB: It is stated that SAS does not proportion the tax allowance for part of the year. (iii) Deferred Tax Liability - 31 December x 0.28 = (iv) evaluation 01 January 2011 New value 31 December emaining useful life 31 December 2011 (25x12-15) 285 months Yearly Depreciation after revaluation ( ) x 12/ Valuation at start of year ( ) Carrying amount start of year ( evaluation 01 January (v) Depreciation 31 December 2011 Total Historical cost ( ) 25 (60 000) evaluation (v) Deferred tax 31 December x 28% = C3 Administration Building Land Total Historical evaluation Exempt Temporary Deferred carrying carrying / fair value Difference Difference Tax amount amount Adjustment Asset / (Liability)

25 P a g e 24 Cost February evaluation 1 November ( ) Transfer to investment property Fair value adjustment ( ) Carrying amount 31 December 2011) (7450) (i) (i) Deferred tax Liability x 28% x 66.6% = 7459 C4. ADMINISTATION BUILDING Building COST 1 February 2011 Depreciation-1 November 2011 ( ) x 9/12 evaluation 1 November 2011 ( ) Total Historical evaluation/ Exempt carrying carrying fair value Difference amount amount Adjustment Temporary Deferred tax Difference asset/liability) (22500) (22500)

26 P a g e 25 Transfer to investment property ate reduction ( x 66.6%) Fair value adjustment ( ) Carrying amount 31 December (5600 (iv) ) (2797) (6527) (i) Deferred Tax x 28% = 5600 (ii) Deferred Tax x 28% x 66.6 = 2797 C5 Machinery Total carrying amount Tax base Temporary difference Deferred tax asset / liability at 28% Cost 1 December 2010 (i) Depreciation 31 December 2011 (ii) (2554) Tax allowance 31 December 2011 (6018) (iii) Carrying amount 31 December (iv)

27 P a g e 26 (i) Cost Cost at spot rate (10.03 x 3000) Loss on FEC rate ( ) x (ii)depreciation ( ) 10 = 2554 (iii) (iv) Tax Allowance / 5 = 6018 Deferred Tax 3914 x 28% = 1096 C6. evaluation Land Processing Plant(c1) Administration Building (3) C7. evaluation Buildings Processing Plant (c2) Administration Building (c4) C8. Depreciation : Buildings Processing plant (c2) Administration Building (c4)

28 P a g e 27 C9. Office Block Land Cost 1 March 2011 Fair value adjustment ( ) Carrying amount (31 December 2011 Total carrying Historical carrying Fair value Adjustment Exempt difference Temporary difference Deferred tax asset/liability amount amount (18648) Deferred Tax x 66.6% x 28% = C10 Building Building Total carrying Amount Historical carrying Amount Fairvalu e Adjust ment Exempt Difference Temporary Difference Deferred the Asset/ (Liability) at 28% Cost 1 March Fair value Adjustment ( ) Carrying amount 31 December 2011) (65268) Deferred tax = x 66.6% x 28%

29 P a g e 28 = SOLUTION 2: INTANGIBLE ASSETS, IMPAIMENT OF ASSETS HELD FO SALE AND FINANCIAL INSTUMENTS PAT A 1. KOI KOI LIMITED CALCULATION OF THE IMPAIMENT LOSS FO THE WAYA WAYA PATENT FO THE YEA ENDED 31 DECEMBE 2011 Cost 1 January 2005 ( ) Impairment 1 January December 2011 ( ) x Carrying amount just before impairment test Fairvalue Costs to sell (60 000) Fair value less costs to sell Value in use (financial calculator) CF 0 = CF 1 = CF 2 = % = CF 3 = % = I = 15% COMP NPV = Higher of fair Value less costs to sale and value in use value in use Impairment Loss Carrying amount just before impairment Higher of fair values less cost to sell and value in use ( ) Impairment Loss NOTES

30 P a g e 29 Wherever the carrying amount of an asset exceeds the recoverable amount, the difference is recognized as impairment loss. ecoverable amount refers to the higher of an asset s fair value less costs to sell and its value in use. Fair value is the amount obtainable from the sale of an asset in an arm s length transaction between knowledgeable, willing parties, less the costs incurred to sell the asset. Costs to s ell refers to the incremental costs directly attributable to the selling of an asset, excluding finance costs and income tax expenses e.g. legal costs and costs of transporting asset to selling place. Value in use is the present value of future cash flows expected to be derived from the asset. 2. Intangible asset, a Waya Waya battery patent was impaired during the year due to numerous customers complaints about detective batteries already sold to customers. As a result, some detective batteries had to be recalled and replaced. The impairment loss amounted to The recoverable amount of the asset is based on the value in use and a pre-tax discount rate of 15%. The impairment loss was included in profit / loss in the statement of profit or loss and other comprehensive income, under the other expenses. 3. Calculation of Total cost of the setlopo patent to be capitalised Salaries ( x 4/6) Consumable ( x 4/6) Depreciation ( (c1) )/5 x 4/ Costs capitalised C1. Cost of Machinery FV = ( ) = I = 15% /12 N = 8 (10-2) (total months normal credit terms COMP PV =

31 P a g e 30 : Cost = = NOTES Only the development costs are capitalized. esearch costs are recognized as an expense when incurred. The given costs were incurred over a six months period, February to July. Two months up to 31 March were the research phase; therefore, development took four months (April to July). Since the costs were incurred evenly, the costs are apportioned on a pro rata basis to determine the development costs. General overhead expenditure can be directly attributed to preparing the asset for use. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. 4. Internal generated intangible asset Setlopo patent Patent Internally generated Carrying amount at beginning of year - Cost - Accumulated Armotisation - Development costs capitalized (see 3 above) Armortisation (640991/15) x 5/12 (August to December) (17805) Transfer to non current asset held for sale Carrying at end of year - Cost -

32 P a g e 31 Accumulated armortisation - 5.Non current assets held for sale A decision to dispose of the setlopo patent because it was not generating income as initially anticipated was taken on 30 December 2011 by management. It is expected that the patent will be s old by 29 February 2012 for cash. Patent An impairment loss of ( ) was recognized on initial classification of the property as held for sale and this amount was included under loss after tax on measurement on the face of the statement of profit or loss and other comprehensive income in the other expenses line item. PAT B Workings: Present value of the principal (PV) FV = I = 9% N = 3 PMT = 0 Present value of the principal (PV) Present value of the interest (PV) ( payable annually in arrears for three years FV = 0 PMT = X 7% = N = 3 I = 9% Total liability component Equity component (balancing figure)

33 P a g e 32 Proceeds of the bond issue GENEAL JOUNAL Debit Credit 2011 January 2 Bank Equity component of convertible bond Liability component of c onvertible bond December 31 Finance cost ( x 9%) Liability Component of convertible Bond ( ) Bank NOTES The issuer of a non derivative financial instrument shall evaluate the terms of the financial instrument to determine whether it contains both a liability and on equity component. Such components are supposed to be separately classified as financial liabilities, financial assets or equity instruments. An entity recognizes separately the components of a financial instrument that: (i) Creates a financial liability to the entity, and (ii) Grants an option to the holder of the instrument to convert it into an equity instrument of the entity.

34 P a g e 33 OCTOBE / NOVEMBE 2012 SOLUTION 1: POPETY, PLANT AND EQUIPMENT, INVESTMENT POPETY, INTANGIBLE ASSETS AND IMPAIMENT OF ASSETS PAT A LOGO LOGIC LIMITED NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENDED 30 JUNE 2012 POPETY, PLANT AND EQUIPMENT 1.1. Land Buildings Total Carrying amount beginning of year Cost Accumulated Depreciation - (86250) (2(i) (86250) Additions evaluations (i) ) (ii) Depreciation - ( ) (209101) Transfer to investment Property ( ) 8 ( ) Carrying amount end of year Gross Carrying amount (4iii) Accumulated Depreciation (2(iii) ( ) (i) (ii) evaluation : Land = evaluation: Buildings = (iii) Depreciation: Buildings =

35 P a g e 34 The properties were revalued by Mr. Mabula, an indpependent sworn appraiser for the first time on 30 June The carrying amount of the land and buildings, if it was at cost minus accumulated depreciation would have amounted to (land: , building (C2). NOTES In this particular question it was stated that 50% of capital gains are taxable not 66.6%. There is no tax allowance on the office buildings according to SAS. The office building is transferred from Property, Plant and equipment to investment property on 1 May 2012 (the date when logo logic evacuated the office building and the date on which a lease contract was signed with Blue Bell Limited to rent the office building from this date, the building was no longer occupied, it was now ready for its use as an investment property. CALCULATIONS C1. Manufacturing Building Land Cost 1 October 2010 evaluation surplus( ) Carrying amount 30 June 2012 Carrying Amount Historical Cost evaluation Exempt Difference Temporary Difference Deferred Tax Asset/ (Liability) (28 000) 1 (i) x 50% x 28% =

36 P a g e 35 C2. Manufacturing Building Carrying Amount Historical cost evaluation Tax Base Temporary Difference Deferred Tax Asset/ (Liability) Cost October Accumulated (86250) (86250) Depreciation 30 June 2011(i) Tax Allowance (ii) ( ) Carrying Amount June 2011 evaluation Surplus June 2012 (iii) Depreciation 30 (127434) (111581) (15852) June 2011 (iv) Tax allowance 30 ( ) June 2012 (ii) Carrying amount (30 June 2012) ) ( ) (iv) (i) ( ) 30 x 9/12 = (ii) = (iii) Total Useful Life 30 x 12 =360months Total life used by 30 June 2012 (October 2010 June 2012) =21months emaining useful life - 30 June 2012 =339months Net eplacement Value 30 June esidual Value 30 June 2012 ( )

37 P a g e 36 Depreciable value over remaining 339months Depreciation per year after revaluation ( x 12/339) Net replacement Value 30 June Caring amount (after revaluation) -1 July Carrying amount (before revaluation 1 July evaluation Surplus (iv) Depreciation : evaluation Total useful life Total life used by 30 June 2011 emaining useful life at beginning of year 360months 9months 315 months Depreciation on historical cost = ( ) x 12/351 = Depreciation on revaluation = ( x 12/351) = (v)temporary difference = = Deferred tax Liability = x 28% = C3. Office Building Land Carrying amount Historical cost evaluation (fair value Adjustment) Exempt Difference Temporary Difference Deferred Tax Asset Liability) Cost 1 July evaluation (May

38 P a g e ( ) Carrying Amount 1 May 2012 Fair value adjustment 30 June 2012 ( ) Carrying Amount - 30 June (i) Deferred tax Liability = x 50% x 28% = C4. Office Building Carrying Amount Historical cost evaluation Fair value Adjustment Tax base Temporary Difference Deferred Tax Asset (Liability) Building Cost 1 July Deprecation 1 (81667) (81667) May 2012 (i) Carrying Amount May 2012 evaluation 1 May ( ) Carrying amount May 2012 Fair value adjustment 30 June 2012 ( ) Carrying amount 30 June (ii)

39 P a g e 38 (i) ( ) x 10/12 (July 2011 April 2012 ) = (ii) x 50% x 28% = Deferred Tax Analysis of Temporary differences: Property, Plant and Equipment: Manufacturing Building Land (c1) ( x 50% x 28%) (28 000) Building Accelerated tax allowance (c2) (53 807) ( ) x 28% Building revaluation surplus net of related depreciation: ( x 28%) (c2) (125393) Office Building: Fair value adjustment and revaluation (c3) ( x 50% x 28%) (12 600) Building : Fair value adjustment and revaluation (c4) ( x 50% x 28%) (28 000) ( ) PAT B POPMUSIC LIMITED NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENBDED 30 JUNE Intangible Assets Carrying amount at beginning of year Cost

40 P a g e 39 Accumulated Armotisation and Impairment Loss (i) ( ) Armotisation ( (42857 (15 x )(see (i)below) eversal of impairment loss (c1) Carrying amount at the end of year Cost Accumulated armortisation and impairment ( ) i Accumulated Armotisation and Impairment Loss Cost Accumulated Armotisation ( x ( (15 x 12) May 2009 June ( ) Carrying Amount 30 June ecoverable Amount Higher of fair value less cost to sell ( ) and value in ( ) use ) Impairment Loss Accumulated armortisation and impairment loss = = The remaining useful life of the intangible asset with a carrying amount of at year end, is estimated at 142 months [15 x (1 May June 2012)] C1. Intangible asset Historical cost After impairment Cost Accumulated armortisation (i) above ( ) ( ) Impairment (i) above ( ) Carrying amount at 30 June Current year armortisation ( / 180 ) x12) (52 000) ( /( x 12) (42857)

41 P a g e 40 Carrying amount after current year armotisation eversal of impairment ( ) Carrying amount 30 June Impairment loss reversal The previous impairment of the distribution rights due to increased demand caused by a very successful worldwide image makeover project initiated to improve ohanna s image. The reversal of the impairment loss amounted to The reversal was limited to the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. SOLUTION 2: NON CUENT ASSETS HELD FO SALE, THE EFFECT OF CHANGES IN FOEIGN EXCHANGE ATES AND FINANCIAL INSTUMENTS. PAT A GELATO LIMITED GENEAL JOUNAL Debit Credit 31 May 2011 Machinery (8000 x 7.42) Foreign creditor June 2011 Foreign exchange difference / loss (8000 x ( ) 240

42 P a g e 41 Foreign creditor 240 Foreign exchange difference / loss (8000x( ) 160 FEC Liability July Machinery Bank 31 August Foreign exchange difference/loss (8000 x ( ) 560 Foreign creditors EEC liability 160 Foreign exchange difference / profit 160 Foreign exchange Creditor (8000 x 7.52) Bank (8000 x 7.50) Foreign exchange difference/ profit 160 ( ) x June Depreciation ( ) x Accumulated Depreciation : Machinery GELATO LIMITED STATEMENT OF POFIT AND LOSS AND OTHE COMPEHENSIVE INCOME FO THE YEA ENDED 30 JUNE 2012 Discounted operation evenue ( ) Cost of sales (c1) (17 000)

43 P a g e 42 Gross profit Other expenses ( ) (34 000) Loss before tax (20 000) Income tax benefit (20 000) x 28% 5600 Loss after tax (14 400) Loss after tax of re- measurement of disposal group (3600) Loss with measurement of disposal group to fair value less cost to sell (c2) (5000) Income tax benefit (5000 x 28%) 1400 Loss for the year from discontinued operations CALCULATIONS 1. Cost of sales Cost of sales (1 April June 2012) Opening stock 8000 Purchases - Closing stock (3000) 5000 Total cost of sales = cost of sales (1July March 2012 ) + cost of sales (1 April June 2012) = = Calculation of disposal group value on initial classification Carrying Impairment Amount 31 Loss March 2012 Allocated Carrying Amount After Impairment Carrying amount 30 June 2012

44 P a g e 43 Inventory Delivery vehicles (1701) Furniture and fittings (3299) (5000) Impairment Loss = carrying Amount of Disposal Group Fair value less cost to sell = = 5000 Allocation of Impairment Loss Furniture and fittings = 5000 x = Delivery vehicles = 5000 x = GELATO LIMITED NOTES TO THE FINANCIAL STATEMENT FO THE YEA ENDED 30 JUNE 2012 DISPOSAL GOUP A decision to dispose of assets, due to a significant decrease in sales of the Pretoria outlet to an unacceptable value caused by the relocation of the anchor tenant of the shopping centre, was taken in March 2012 after approval of a detailed formal disposal plan of the disposal of the outlet. All other requirements for classification of the disposal group for the outlet as held for sale were also met on this date. It is expected that the disposal group will be sold for cash and that the disposal will be completed by 1 January The disposal group under discussion comprise

45 P a g e 44 ASSETS Property, plant and Equipment ( )(c2) inventory PAT B Debit Credit Initial measurement 1 February 2012 Investment in shares (1200 x 10) (SFP) Transaction costs (profit / loss) 750 Bank SFP) Subsequent measurement 30 June 2012 Investment in shares 1200 x (13-10)SFP 3600 Fair value adjustment (profit / loss) 3600

46 P a g e 45 OCTOBE / NOVEMBE 2013 EXAM PACK SOLUTION 1: THE EFFECT OF CHANGES IN FOEIGN EXCHANGE ATES, INTANGIBLE ASSETS, NON CUENT ASSETS HELD FO SALE AND F INANCIAL INSTUMENTS 1. FAMCO LIMITED GENEAL JOUNAL 1 September 2011 Debit Credit Deposit/ prepayment (12.35x35 000x10%) Bank October 2011 Machinery (35 000x (2.15) Accounts payable ( ) Deposit / prepayment FEC Asset ( )x( x 90%) 7560 Foreign exchange profit February 2012 Foreign exchange loss ( ) x (35 000x 90%) Foreign creditor FEC Asset ( ) x ( x 90%) 1575 Foreign exchange profit May 2012 Foreign exchange loss ( ) x ( x 90%) Foreign creditor Foreign exchange loss 7560 FEC Asset 7560 Foreign exchange loss 1575 FEC Asset 1575 Foreign Creditor (14.05 x x 90% Foreign exchange loss Bank (14.78 x x 90% Intangible Assets Internally Generated Intangible Other Intangible Assets

47 P a g e 46 Assets Carrying amount at beginning of year Cost Accumulated Armotisation ( ) x 10/12 - ( Additions (c1) Armotisation ( ) x 9/12 (59 625) Impairment [ ( ) ) ] ( ) Transfer to non current assets held for sale ( ) Carrying amount at end of year Cost Accumulated Armotisation - - CALCULATIONS 1. Cost of organo pest patent Salaries ( x 5/ Water and electricity ( x 5/12) Depreciation on machine ( ) 15 x 3/12) CALCULATIONS Intangible assets Historical After impairment Carrying amount - 30 November 2012 ( ) Current year armortisation (1 December 2012 / 28 February (19875) 2013 ) ( ) x 3/ / (10 x 12-19) x 3 (14851) Carrying amount at year end eversal of impairment Present value of the principal (PV) Nil Present value of the interest Fv = 0 PMT = X 8.5% = N = 4 I = 10% Total liability component Equity component (balancing figure)

48 P a g e 47 Proceeds of the bond issue Debit Credit 15 April 2012 Bank Equity component of convertible bond (SFP) Liability component of convertible bond April 2016 Equity component of convertible bond Share Capital Non Current Assets Held for Sake A decision to dispose of the Pest Away patent, due to the need to focus more on organic markets, was taken on 30 November All the criteria as set out in IFSs for classifying an asset as held for sale, were net on that date. It is expected that the assets will be sold for cash and that the disposal will be completed by 31 May The non current assets held for sale comprise Assets Intangible asset Pest Away patent An impairment loss of was recognized on initial classification of the intangible asset as held for sale and this amount was included under loss after tax on measurement on the face of the statement of profit or loss and other comprehensive income.

49 P a g e 48 SOLUTION 2: POPETY, PLANT AND EQUIPMENT, INVESTMENT POPETY AND IMPAIMENT OF ASSETS DISCO LIMITED NOTES TO THE FINANCIAL STATEMENTS FO THE YEA ENDED 28 FEBUAY POPETY, PLAT AND EQUIPMENT Land Buildings Delivery Vehicles Carrying Amount at beginning of year Cost Accumulated Depreciation - ( ) ( ) evaluations Depreciation ( ) ( ) Transfer to investment property ( ) ( ) Impairment of assets (v) (38092) Carrying Amount at end of year Cost / Gross carrying Amount Accumulated Depreciation and Impairment - (437500) ( ) (i) evaluations Land (c1) (c3) = (ii) evaluations Buildings (c2) (c4) = (iii) Depreciation Buildings (c2)

50 P a g e 49 (iv) Depreciation : Delivery Vehicles X (v) Impairment on Delivery Vehicle PMT = N = 3 I = 10 PV = Value in use = Fair value less costs of disposal = ecoverable amount = Carrying amount ecoverable amount ( ) NOTE: No depreciation from date of accident as the vehicle was not being used so there were no units of production (mileage covered) during repair. 2. Calculation of deferred Tax Land Buildings 1-3 (i) (55944) -Building 4 (c3) (20513) Buildings Buildings 1-3 (c2) ( ) -Building 4 (79 000) Deferred tax liability at year end (435457)c CALCULATIONS

51 P a g e Land Buildings 1-3 Carrying Amount 1 March 2012 evaluation 28 February 2013 ( ) Carrying Amount 28 February 2013 Carrying Historical evaluation Exempt Temporary Amount cost Difference Difference Deferred Tax Asset (Liability) (55944) (ii) Deferred Tax Liability x x 28% = Buildings Building 1-3 Carrying Amount 1 March 2012 evaluation surplus (iv) Carrying Amount Historical Cost evaluation Tax Base Temporary Difference Deferred Tax Asset/ (Liability) (ii) ( ) (iii) Depreciation(iv) (145283) ( ) (20 283) Tax allowance (4500 ( ) ) Carrying Amount 28 February ( ) (i) = (ii) Tax Base 1 March 2012 Cost 1 September Tax allowance (1 September February 2012): x 3 20 Tax Base 1 March 2012 ( )

52 P a g e (iii) Deferred Tax Liability 1 March x 28% = (iv) Buildings valuation 28 February esidual value 28 February 2013 ( ) Depreciable Amount 28 February Total useful life Total used life (1 September February 2013) emaining useful life 30 yrs 3yrs 6months 26 yrs 6months Depreciation / yr = [ (26x12 +6) ] x Carrying Amount - 28 February Gross carrying Amount after revaluation 01 March Carrying Amount before revaluation 01 March 2012 (i) evaluation Surplus (v)historical Cost Depreciation ( ) 12 = (vi) = (vii) = (viii) x 28% = Land Building 4 Carrying Historical evaluation Exempt Temporary Deferred Amount cost Fair Value Difference Difference Tax Asset/ Adjustment (Liability) Carrying amount

53 P a g e 52 March 2012 evaluation 1 March 2012 ( ) Carrying amount 1 March 2012 Fair value adjustment 28 February 2013 ( ) (20 513) (i) x 66.6% x 28% 4. Carrying Historical evluation Tax Base Temporary Deferred Amount cost Fair Value Difference Tax Adjustment Asset/ (Liability) Carrying amount 1 March (i) (iii) (33833) (ii) evaluation ( ) (33833) Fair value Adjustment February 2013) ( ( ) Improvements Tax allowance (15 00 (57 143) ) + ( ) Carrying amount (79 000)

54 P a g e 53 February 2013) (i) = x 28% = x 28% = (ii) Tax Base 1 March 2012 Cost 1 September ( Tax allowance (1 September February 2012): x 3 20 Tax Base March

55 P a g e 54 MAY/JUNE 2014 SOLUTION 1: INTANGIBLE ASSETS, IMPAIMENT OF ASETS, FINANCIAL INSTUMENTS AND THE EFFECTS OF CHNGES IN FOEIGN EXCHANGE ATES 1. HEALTHZONE LTD GENEAL JOUNAL DEBIT CEDIT 01 June 2013 Intangible Asset Pump up Licence Creditor ( x 10.89) September 2013 Creditor ( ) 700 Foreign exchange profit 700 Creditor Bank December 2013 Creditor ( ) x Foreign exchange profit 900 FEC Asset ( ) x Foreign exchange profit 5700 Creditor ( x 10.86) Bank (10.67 x ) FEC Asset 5700

56 P a g e NOTES TO THE FINNCIAL STTEMENTS FO THE YEA ENDED 28 FEBUAY 2014 Profit has been calculated after taking the following into account Income Foreign exchange profit ( ) 7300 Expenses Armotisation intangible Asset (c1) (21780) Impairment of asset (c1) (113820) esearch costs (c2) (446429) 2.2. Intangible Assets Internally Other Generally Carrying amount at beginning of year - - Cost - - Accumulated armotisation - - Additions Impairment ( ) - Armotisation (21780) - Carrying amount at end of year Cost Accumulated Impairment and Armotisation ( ) - The remaining useful life of development costs relation to the internally generated vitamin enriched water fomula with a cost and carrying amount of is estimated to be 10years. The remaining useful life of the pump licence with a carrying amount of , is estimated to be 14years 3 months (15yrs 9months).

57 P a g e Impairment Loss The intangible asset, a pump-up licence to manufacture and sell energy drinks was impaired during the year due to more competitors of similar energy drinks who entered the market due to the popularity of energy drinks in South Africa. The impairement amounted to The recoverable amount of the asset is based on the value in use and a pretax discount rate of 12%. CALCULATIONS 1. Armortisation Armortisation Pump up Licence Cost ( x 10.89) Armotisation ( x 10.89) 15 x 9/12 (21780) ecoverable amount ( ) Impairment NOTE: ecoverable amount is the higher of value in use ( in this case) and the fair value less costs to sell ( ). Therefore is the recoverable amount. 2. Internally Generated Intangible Asset Costs esearch Costs (2 x x 3) : salaries researchers Salary : new researcher Water and electricity ( x 3/7) General administrative and training expenses x 3/ Total research costs

58 P a g e 57 Development costs Salaries (3 x x 4) Water and electricity ( x 4/7) General administrative and training expenses ( x 4/7) Total Development costs 68857