FAC3702

FASSET CLASS 3
SECOND SEMESTER
 Important FASSET Information
• Have you signed and submitted your contract?

• Sign the attendance register

• Complete the evaluation/feedback form

Marked assignments and solutions will be
released Monday 30 September (see tutorial
letter under additional resources)

Fasset class 3 slides will be released Monday

30 September
 Agenda for today

• May / June 2019 exam paper discussion

– Question 1
• Property, plant and equipment; Deferred tax; Non-
current assets held for sale
– Question 2
• Changes in foreign exchange rates; Intangible assets;
Impairment loss (discussion only)
Complete question 1 in time allocated
Step 1: Calculate time allocated (1.8 minutes per mark)
Step 2: Read the required
Step 3: Read through the given information (in detail and making notes whilst reading)

39 x 1.8 = 
70 minutes
QUESTION 1: REQUIRED: Marks
(a) Disclose the following notes to the annual financial statements of Cape Cafe Ltd for the year ended 39
30 June 2018:

 Property, plant and equipment (A total column is not required)

 Investment property
 Non-current asset held for sale

(b) Calculate the deferred tax balance on 30 June 2018 of Cape Cafe Ltd according to the statement of financial 13
position approach ONLY relating to the Cape Town and Knysna properties. Clearly indicate in your
answer the carrying amount, tax base, temporary difference and applicable tax rate used.

13 x 1.8 = 
23 minutes
 Year‐end
Cape Cafe Ltd is a restaurant group based in the Western Cape. The company has a 30 June year-end.

The following details regarding the assets of the company are available:
Everything 
Purchase  Start 
Property, Cape Town classified as PPE!!!
date Cost depreciation
On 1 July 2014, Cape Cafe Ltd purchased the property located on erf 722, Cape Town at a cost of R2 130 000 (land:
R780 000; building: R1 350 000). It was available for use, as intended by management, as well as brought into use, on
this date. According to the terms of a five (5) year operating lease agreement, 25% of the floor space of the building is
leased out for R55 000 per month. The remaining 75% of the floor space of the building is used by Cape Cafe Ltd for
their own purposes. The directors of Cape Cafe Ltd consider the 25% of the floor space of the building to be an
insignificant portion. The building has an estimated useful life of 25 years and a residual value of R270 000.

On 30 June 2018 management revalued the land for theUseful life + residual value

first time. On this date, an independent sworn appraiser
determined the fair value of the land to be R950 000. On 30 June 2018 it was determined that the remaining useful life
of the building remained unchanged, whilst the residual value of the building increased to R570 000. No decision has
been made by the company to sell this property.

Land 
Change in estimate  revaluatioin
(residual value)
Please note! Marks are awarded for using the correct PRINCIPLES according to IFRS, 
not just for amounts

Ensure that you always UNDERSTAND
what you are doing and WHY you are 
doing it

If you understand the principles, 
you will be able to apply them 
in any given scenario.
 Question 1 discussion
PPE note Separate columns for 
land and buildings

Property, plant and equipment

Land Building Equipment Delivery vehicle
R R R R
Carrying amount at the beginning of year 1 300 000 2 096 400 100 200 -
Cost 1 300 000 2 250 000 138 700 -
Accumulated depreciation - (153 600) (38 500) -
Additions/Acquisitions/Purchases - - - 140 000
Disposals/Derecognitions (520 000) (843 000)
Depreciation - (62 564) (28 233) (6 000)
Revaluations 170 000 - - -
Transfer to non-current assets held for sale - - (71 967) -
Carrying amount at the end of year 950 000 1 190 836 - 134 000
Gross carrying amount/Cost 950 000 1 350 000 - 140 000
Accumulated depreciation and
impairment losses - (159 164) - (6 000)

Remember narrative 
information
780 000 + 520 000 = 1 300 000
IF more than 2 assets in 1 column, show calculation for totals 1 350 000 + 900 000 = 2 250 000
29 564 + 33 000 = 62 564
NB! Change in residual  Cape Town Property (Building)
Change in residual value = 
value
no effect on tax
1.2 Building
Tempo-rary Deferred tax
Total carrying differ-rence asset / (liability)
amount Tax R @28%
R Base R
R
Cost 1 July 2014 1 350 000 1 350 000
Accumulated depreciation (calc 1.2.1) / Building allowance
(calc 1.2.2) (129 600) (202 500)
Carrying amount 1 July 2017 1 220 400 1 147 500 72 900 (20 412)
Depreciation (calc 1.2.3) (29 564) -
Building allowance (calc 1.2.4) - (67 500)
Useful life 
Carrying amount 30 June 2018 (calc 1.2.5) 1 190 836 1 080 000 110 836 (31 034)
= 25 years
1.2.1. (1 350 000 – 270 000) / 300 x 36 = 129 600 OR (1 350 000 – 270 000) / 25 x 3 = 129 600

1.2.2. 1 350 000 x 5% x 3 years = 202 500 1. 1/7/14 – 30/6/15

1.2.3. (1 220 400 – 570 000) / 264 x 12 = 29 564 OR (1 220 400 – 570 000) / 22 = 29 564
2. 1/7/15 – 30/6/16
3. 1/7/16 – 30/6/17
1.2.4. 1 350 000 x 5% = 67 500

1.2.5. (1 190 836 – 1 080 000) x 28% = 31 034

Use remaining useful life @ 
Use CA @ beginning of the  beginning of the year (300 –
year, NOT cost 36)
 Franschhoek Property (Building)

2.2. Building
Carrying
amount
R
Cost 1 September 2016 900 000
Accumulated depreciation (calc 2.2.1) (24 000)
Carrying amount 30 June 2017 876 000
Depreciation (calc 2.2.2) Derecognise CA on  (33 000)
Carrying amount 31 May 2018 the date of sale 843 000
Derecognition (843 000)
Carrying amount 30 June 2018 -

1/11/16 – 30/6/2017

2.2.1. (900 000 - 180 000) / 240 x 8 = 24 000 OR (900 000 - 180 000) / 20 x 8/12 = 24 000

2.2.2. (900 000 – 180 000) / 240 x 11 = 33 000 OR (900 000 – 180 000) / 20 x 11/12 = 33 000

Sold on 31/5/2018
Depreciation from 1/7/17 –
31/5/18
 Transferred to NCAHFS Kitchen equipment

4. Equipment
Carrying amount
R
Cost 1 April 2016 (calc 4.1) 138 700
Accumulated depreciation (calc 4.2) NB! Transferred @ CA (38 500)
Carrying amount 1 July 2017 Impairment takes place after  100 200
Depreciation 2018 (calc 4.3) (28 233)
Transfer to NCAHFS transferred to NCAHFS 71 967
Impairment loss 1 June 2018 (calc 4.4) (1 967)
Carrying amount 1 June 2018 70 000
Impairment loss 30 June 2018 (calc 4.5) (5 000)
Carrying amount 30 June 2018 65 000

All costs directly attributable to bringing the asset to the 
location and condition necessary for it to be capable to 
operate in manner intended by management
4.1. 118 800 + 10 400 + 9 500 = 138 700
1/4/16 – 30/6/16
4.2. (138 700 - 15 500) / 48 x 15 = 38 500 OR (138 700 – 15 500) / 4 x 15/12 1/7/16 – 30/6/17 
4.3. (138 700 - 15 500) / 48 x 11 = 28 233 OR (138 700 – 15 500) / 4 x 11/12

4.4. 71 967 - 70 000 = 1 967 Transferred no NCAHFS on 

1/6/18 (1/7/17 – 1/6/18 = 
11)
 Delivery vehicle

Carrying
amount
R
Cost 1 February 2018 140 000
Depreciation (calc 5.1) (6 000)
Carrying amount 30 June 2018 134 000

5.1 (140 000 – 50 000) / 150 000 x 10 000 = 6 000

The R6 000 is not capitalised = NOT costs directly attributable 
to bringing the asset to the location and condition necessary 
for it to be capable to operate in manner intended by 
management 
 Investment Property note

Land Building Total

R R R
Carrying amount at the beginning of the year 1 210 000 1 480 000 2 690 000
Fair value adjustment 200 000 180 000 380 000
Carrying amount at the end of the year 1 410 000 1 660 000 3 070 000

Valuations were performed on 30 June 2018 by an independent sworn appraiser.

Remember narrative  Fair value adjustment done in prior year. 
information Opening balance is NOT cost price, but FV at end 
of prior year.
 Non-current asset held for sale note

Non-current asset held for sale

On 1 June 2018, Cape Café Ltd decided to dispose of the equipment because of the high maintenance costs thereof. On 1 June
2018, all the requirements for classification as held for sale were met. It is expected that the sale will be completed by 31 July
2018 for cash.

Non-current assets held for sale consist of the following:

Kitchen Equipment - oven R65 000

A pre-tax impairment loss of R1 967 was recognised on initial classification as held for sale and is included in other expenses on
the face of the statement of profit and loss and other comprehensive income.

A pre-tax impairment loss of R5 000 was recognised on subsequent measurement as held for sale and is included in other
expenses on the face of the statement of profit and loss and other comprehensive income.

A total pre-tax impairment loss of R6 967 was recognised on initial classification and subsequent measurement as held for sale
and is included in other expenses on the face of the statement of profit and loss and other comprehensive income.

Non‐current asset disclosed at LOWER of carrying amount and fair value less cost to sell
 Non-current asset held for sale note (continued)
4. Equipment
Carrying amount
R
Cost 1 April 2016 (calc 4.1) 138 700
Accumulated depreciation (calc 4.2) (38 500)
Carrying amount 1 July 2017 100 200
Depreciation 2018 (calc 4.3) (28 233)
Transfer to NCAHFS 71 967
Impairment loss 1 June 2018 (calc 4.4) (1 967)
Carrying amount 1 June 2018 70 000
Impairment loss 30 June 2018 (calc 4.5) (5 000)
Carrying amount 30 June 2018 65 000

Test for impairment ON transfer date AND at year end

On date of classification: At year end:
CA = 71 967 CA = 70 000
Fair value = 70 000 Fair value = 65 000
Impairment loss = R1 967 Impairment loss = 5 000
 Deferred tax calculation

R
Cape Town Property - Land (950 000 – 780 000) x 80% x 28% NB! Required was to CALCULATE (38 080)

Cape Town Property - Building (1 190 836 – 1 080 000) x 28%

deferred tax, NOT disclose (31 034)

Knysna Property – Land (1 410 000 – 1 100 000) x 80% x 28% (69 440)

Knysna Property – Building [(1 660 000 – 1 400 000) x 80% x 28% +
(1 400 000 – 1 260 000) x 28%] (97 440)

Tax base calculations Cape Town Building Knysna Building

Cost 1 350 000 1 400 000
Prior years tax allowance (calc 1.1 & 1.3) (202 500) (70 000)
Carrying amount beginning of the year 1 147 500 1 330 000
Current year tax allowance (calc 1.2) (67 500) (70 000)
Carrying amount at the end of the year 1 080 000 1 260 000

1. 1 350 000 x 5% x 3 years = 202 500

1/7/14 – 307/16 = 3 years

2. 1 350 000 x 5% = 67 500

3. 1 400 000 x 5% = 70 000

Take note: Non – depreciable asset, thus
CA – Cost = 28% x 80%
Cost – Tax base = 28%
 Question 2 discussion
(a) JOURNAL ENTRIES
DR CR
R R Dates are NB!
1 March 2017
Transaction date
J1 Licence 1 822 800
Creditor / Trade payables / Account payables 1 822 800 $10 000 paid in cash 
(140 000 x 13,02)
immediately. Only $140 000 
J2 Licence
Bank / Cash
130 200
130 200 recognised as creditor, $10 
(10 000 x 13,02)
000 bank / cash NOT 
Alternative to J1 & J2:
Licence 1 953 000
creditor
Bank/Cash 130 200
Creditor 1 822 800

31 March 2017
Year end
J3 Foreign exchange difference / loss (P/L) 54 600
Creditor / Trade payables / Account payables 54 600
[140 000 x (13,41 – 13,02)]

28 February 2018
Payment date
J4 Creditor / Trade payables / Account payables 245 000
Foreign exchange difference / gain (P/L) 245 000
[140 000 x (13,41 – 11,66)]

J5 Creditor / Trade payables /Accounts payable 1 632 400

Bank / Cash (140 000 x 11,66) 1 632 400
 Intangible assets note

1. Intangible assets Purchased / Other: Internally

Licence generated: Total
R Software R
Cost from J1  R
Carrying amount at the beginning of year + J2 1 920 450 - 1 920 450
Cost 1 953 000 - 1 953 000
Accumulated amortisation (32 550) - (32 550)
Additions through internal development - 1 101 250 1 101 250
Amortisation included in cost of sales (390 600) (36 708) (427 308)
Impairment loss included in cost of sales (179 350) - (179 350)
Carrying amount at the end of year 1 350 500 1 064 542 2 415 042
Cost 1 953 000 1 101 250 3 054 250
Accumulated amortisation and impairment losses (602 500) (36 708) (639 208)

The purchased intangible asset has a remaining useful life of 47 months (3 years and 11 months).
Narrative information
The internally generated intangible asset has a remaining useful life of 58 months (4 years and 10 months).

The Licence was impaired during the year due to a new competitor entering the market. The impairment loss amounted to R179 350. The
recoverable amount is based on value in use and is determined using a pre tax discount rate of 9,5% per annum. The impairment loss
was included in profit/loss in the statement of profit or loss and other comprehensive income, in the cost of sales line item.

2.1.1 1 822 800 + 130 200 = 1 953 000

2.1.2 1 953 000 / 60 = 32 550 OR 1 953 000 / 5 x 1/12 = 32 550
2.1.3 1 953 000 / 60 x 12 = 390 600
2.1.4 1 101 250 / 60 x 2 = 36 708
 Intangible assets note – Purchased asset

2.1.6 Calculate current year depreciation 
BEFORE impairment 
Cost 1 953 000
Amortisation (32 550 + 390 600) (423 150)
1 529 850
Recoverable amount: Higher of (1 350 500)
Fair value less costs to sell R1 290 000 Recoverable amount is HIGHEST of Fair 
Value in use R1 350 500
Impairment loss value less cost and value in use 179 350
 Intangible assets note – Internally generated
Research = expensed to P/L Research Development
Development = capitalised to IA note 01/06/17 – 31/08/17 01/09/17 – 31/01/18
3 months 5 months
R R
Engineer: 95 000 x 3 285 000
Engineer: 95 000 x 4 380 000
Engineer: 95 000 x 1,075 x 1 102 125

Senior researcher: 35 000 x 3 x 3 315 000

Senior researcher: 35 000 x 4 x 3 420 000
Senior researcher: 35 000 x 1,075 x 3 112 875

Water and electricity: 17 250 x 3 ; 17 250 x 5 51 750 86 250

651 750 1 101 250
7.5% salary increase for month of January
three senior researchers to work exclusively on
the research and development of the software
Research = started 1 June 2017 until 31 
August 2017
Development = from 1 September 2017 until 
31 January 2018
 Contact details
Mrs M Evans (012) 429 8606
Mrs M Els (012) 429 8766
Mr DO Khumalo (012) 429 4408
Mrs F Jaffer (012) 429 4110

FAC3702-19-S2@unisa.ac.za

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