CLASS EXAMPLE 1: PART A (SOLUTION)

CALCULATIONS: DISMANTLING PROVISIONS

FV (Future value) 500 000

I (Discount rate) 10%
N (Period) 5
Compute PV (Present value) 310 461
AMORT BAL [1-1] (Balance at 31/12/2022) 341 507
AMORT INT [1-1] (Interest for the year – 2022) 31 046

CALCULATIONS: PLANT

Cash price (including installation) 4 500 000

Provision for dismantling cost 310 461
4 810 461

Depreciation 4 810 461 / 5 962 092

CA at 31/12/2022 4 810 461 / 5 x 4 3 484 369

JOURNALS:

DATE ACCOUNT DEBIT CREDIT

01/01/2022 Plant at cost (SFP) 4 810 461
Provision for dismantling cost (SFP) 310 461
Bank (SFP) 4 500 000
Recognition of plant and provision for
dismantling cost

31/12/2022 Finance charges (P/L) 31 046

Provision for dismantling cost (SFP) 31 046
Unwinding of the discount – 2022

31/12/2022 Depreciation (P/L) 962 092

Plant: Accumulated depreciation (SFP) 962 092
Depreciation for the year
CLASS EXAMPLE 1: PART B (SOLUTION)

ENTITY A
[EXTRACT FROM] STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022
R
ASSETS
Non-current assets
Property, plant and equipment 1. 3 848 369
EQUITY AND LIABILITIES
Non-current liabilities
Provisions 2. 341 507

ENTITY A
[EXTRACTS FROM THE] NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDING 31 DECEMBER 2022
2022
R
1. Property, plant and equipment
Plant
Carrying amount at the beginning of the year -
Cost -
Accumulated depreciation -
Additions 4 810 461
Depreciation (962 092)
Carrying amount at the end of the year 3 848 369
Cost 4 810 461
Accumulated depreciation (962 092)
 2022
R
2. Provisions
Balance at the beginning of the year -
Provision raised 310 461
Increase in present value – unwinding of discount: Finance charges 31 046
Balance at the end of the year 341 507

The plant is expected to be decommissioned on 31/12/2026 and is expected to result in cash

outflows of R500 000. The amount of the outflow is uncertain due to changing prices. The timing
of the outflow is uncertain due to the changing asset usage, which may result in a longer or
shorter useful life. Major assumptions include the 10% interest rate and the 5-year useful life
remaining unchanged.
CLASS EXAMPLE 3: PART A (SOLUTION)
CALCULATIONS: DISMANTLING PROVISIONS (OLD)

FV (Future value) 500 000

I (Discount rate) 10%
N (Period) 5
Compute PV (Present value at 01/01/2022) 310 461
AMORT BAL [2-2] (Balance at 31/12/2023) 375 657
AMORT INT [2-2] (Interest for the year – 2023) 34 151

CALCULATIONS: DISMANTLING PROVISIONS (NEW)

FV (Future value) 700 000

I (Discount rate) 10%
N (Period) 3
Compute PV (Present value at 31/12/2023) 525 920
Change in estimate (525 920 – 375 657) 150 263

CALCULATIONS: PLANT

Depreciation 4 810 461 / 5 962 092

CA at 31/12/2023 4 810 461 / 5 x 3 2 886 277

Change in estimate 150 263
3 036 540
Impairment (2 550 000 – 3 036 540) (486 540)
CA at 31/12/2023 (lower of CA or RA) 2 550 000

JOURNALS:

DATE ACCOUNT DEBIT CREDIT

31/12/2023 Finance charges (P/L) 34 151
Provision for dismantling cost (SFP) 34 151
Unwinding of the discount – 2023
DATE ACCOUNT DEBIT CREDIT
31/12/2023 Plant at cost (SFP) 150 263
Provision for dismantling costs (SFP) 150 263
Change in estimated future costs

31/12/2023 Depreciation (P/L) 962 092

Plant: Accumulated depreciation (SFP) 962 092
Depreciation for the year

31/12/2023 Impairment (P/L) 486 540

Plant: Acc depreciation and impairment (SFP) 486 540
Impairment of plant to recoverable amount
CLASS EXAMPLE 3: PART B (SOLUTION)

ENTITY A
[EXTRACT FROM] STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
2023 2022
R R
ASSETS
Non-current assets
Property, plant and equipment 1. 2 550 000 3 848 369
EQUITY AND LIABILITIES
Non-current liabilities
Provisions 2. 525 920 341 507

ENTITY A
[EXTRACTS FROM THE] NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDING 31 DECEMBER 2022
2023 2022
R R
1. Property, plant and equipment
Plant
Carrying amount at the beginning of the year 3 848 369 -
Cost 4 810 461 -
Accumulated depreciation (962 092) -
Additions - 4 810 461
Depreciation (962 092) (962 092)
Increase due to change in estimate of dismantling 150 263 -
provision
Impairment (486 540) -
Carrying amount at the end of the year 2 550 000 3 848 369
Cost 4 960 724 4 810 461
Accumulated depreciation (2 410 724) (962 092)
 2023
R
2. Provisions
Balance at the beginning of the year 341 507
Increase in present value – unwinding of discount: Finance charges 150 263
Increase in provision – increased future costs 34 151
Balance at the end of the year 525 920

The plant is expected to be decommissioned on 31/12/2026 and is expected to result in cash

outflows of R700 000 (2022: R500 000). The amount of the outflow is uncertain due to changing
prices. The timing of the outflow is uncertain due to the changing asset usage, which may result
in a longer or shorter useful life. Major assumptions include the 10% interest rate and the 5-
year useful life remaining unchanged.
CLASS EXAMPLE 6 (SOLUTION)
CALCULATIONS: DEFERRED TAX

Deferred tax asset /

Carrying value Tax base Temporary difference (liability)
31/12/2022 (4 500 000 / 4 x 3)
Plant 3 484 369 3 375 000 473 369 (127 810)
Provision (341 507) - (341 507) 92 207
(35 603)
31/12/2023 (4 500 000 / 4 x 2)
Plant 2 550 000 2 250 000 300 000 (81 000)
Provision (525 920) - (525 920) 141 998
60 998

Deferred tax movement: 60 998 – (-35 603) = 96 601

JOURNAL

DATE ACCOUNT DEBIT CREDIT

31/12/2023 Deferred tax asset / (liability) (SFP) 96 601
Income tax expense (P/L) 96 601
Deferred tax movement on plant and provision for dismantling