SPU

Financial Accounting 2A / Accounting 2A – 2024

Class practice question - PPE
Question
Gala Limited has been manufacturing electronic items since 2011. The following information is
supplied to you:

1. Land
At the start of the business in 2010, the company purchased land for R800 000. A contract
for the clearing of the land amounted to R200 000 was concluded. The clearing was
necessary before the construction of the factory building could have commenced.

The market value of land was R4 000 000 on 31 December 2014. The value of the land was
determined by using the cost approach in an active market.

2. Building
Gala Ltd erected a factory building to the value of R1 500 000 on the land. It was completed
and ready for use on 1 January 2011. The valuation of this building was done by Mr. Capp,
an independent appraiser and a member of the Institute of Valuers, on 31 December 2014.
He valued the building at R2 000 000.
In 2012, the directors decided that Gala Limited needed to erect an additional building.
Construction work began on 1 January 2013 and on 31 December 2013 the total cost
capitalised amounted to R1 000 000.
During the current financial year 2014, a further R700 000 was capitalized towards the new
building. On 31 December 2014, the new building was still under construction. On 1 January
2014, Gala Limited bought a construction vehicle with the sole purpose of being utilized for
the building. The construction vehicle costs R500 000 and is depreciated at 50% p.a., using
the straight-line method. Due to the nature of the construction work done, Gala Limited
expected a nil residual value at the end of the construction period.
The above-mentioned R700 000 did not include any costs regarding the construction
vehicle. All the relevant provisions of depreciation, etc. regarding the construction vehicle
must still be made and entered into the books of Gala Limited for the current financial year.

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3. Plant
Gala Limited purchased a new plant on 1 January 2011 for R 2500 000. All additional costs
incurred in relation to the plant up to 1 January 2011 were as follows (ignore VAT):
R
Description of cost:
Delivery and installation costs 360 000
Staff training 100 000
Testing to ensure that the plant is fully operational
before the start of production 140 000
Launch party 50 000
Initial operating loss 60 000
On 1 January 2011, the plant was fully operational and in use. Depreciation is provided over
its useful life of 5 years to a nil residual value using the straight-line method.
4. Delivery vehicles
On 1 January 2011, Gala Limited bought delivery vehicles with a value of R1 000 000. They
write off depreciation at 15% per annum on the straight-line method. Except for the
transactions discussed below, there were no other transactions taking place regarding the
delivery vehicle since 1 January 2011. It is accepted that the delivery vehicle has no residual
value.
On 1 July 2014 one of the original delivery vehicles, costing R300 000, was traded in for a
new delivery vehicle that costs R500 000. The old vehicle was traded in for R180 000.
On 1 November 2014, another delivery vehicle was in an accident and it was written off in
total. The cost price of this delivery vehicle was R240 000. R50 000 was received from the
insurance company. The delivery vehicle was not replaced.
5. Additional information:
➢ Property, plant and buildings are revalued every four years according to the company’s
policy.
➢ None of the assets have ever been impaired in the past.
➢ There was no other movement of property, plant and equipment during 2014 other than
the information supplied above.
YOU ARE REQUIRED TO:
Disclose the "Property, plant and equipment" of Gala Limited in the notes to the statement of
financial position on 31 December 2014 in accordance with IAS 16.
NOTE: The accounting policy notes are not required. Ignore VAT in all transactions.
Calculate only to the nearest Rand. SHOW ALL YOUR CALCULATIONS

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