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Assume that the plant complies with the definition of a qualifying asset in terms of
BUSINESS ACCOUNTING 300 / 310 IAS 23, Borrowing Costs.
DEPARTMENT OF
On 31 December 2010 the plant was not yet available for use as intended by
IAS 23: Borrowing costs ACCOUNTING management.
Homework questions – 2021
UP You may ignore all taxation implications.
HC Verster
REQUIRED:
QUESTION 1 (12½ marks, 19 minutes) a. Calculate the carrying amount of the plant that should be included in the
statement of financial position of Jasmin Limited at 31 December 2010.
The following information is available for Jasmin Limited for the year ended (2)
31 December 2010:
b. Disclose only the note on finance cost in the financial statements of Jasmin
Jasmin Limited is in the process of constructing a new plant at an estimated cost of Limited for the year ended 31 December 2010. (6½)
R5 000 000. Construction commenced on 1 April 2010 and the expected date of
completion is 30 June 2011. Your answer should comply with International Financial Reporting Standards (IFRS).
On 1 January 2010 a bank overdraft facility amounting to R3 000 000 was obtained NOTE: - The total finance cost incurred should also be calculated and
at an interest rate of 11% per annum, specifically to finance the construction of the disclosed.
plant. - Comparative amounts are not required.
- Show all your calculations.
Expenses in respect of the project have been incurred at the end of the month as - Round all calculated amounts off to the nearest Rand.
follows: - Round percentages off to two decimals.
R
c. Under which circumstances should the capitalisation of borrowing costs not be
30 April 2010 1 600 000 suspended in terms of IAS 23, Borrowing Costs? (2)
30 June 2010 1 400 000
30 September 2010 500 000 d. Briefly discuss the accounting treatment of a qualifying asset, if the carrying
amount of the asset exceeds the recoverable amount thereof, while borrowing
The expenses in respect of the project were firstly financed from the specific bank costs are still being capitalised. Your answer should comply with IAS 23,
overdraft facility, and thereafter from the general financing structure of the entity. Borrowing Costs. (2)
The general financing structure of the company consisted of the following for the
year ended 31 December 2010:
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12% Debentures 2 000 000

13% Bank loan 5 000 000

The debentures were issued on 1 January 2010 and matures on 31 December 2015
at par. The bank loan was obtained on 1 July 2010 and is repayable in two annual
instalments on 31 December 2012 and 31 December 2013.

The accountant determined that an amount of R210 221 must be capitalised for the
year ended 31 December 2010. You can assume that this amount is correct. The
weighted average capitalisation rate on the general loans amounted to 12,71% per
annum.
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QUESTION 2 (40 marks, 60 minutes) 3. Property in Cape Town (stand 470)

BushTec Limited is a manufacturer and retailer of outdoor equipment and clothing. 3.1 BushTec Limited acquired the land in Cape Town on 1 January 2018 for
The following information in respect of the non-current assets of the entity for the R7 500 000. The property was acquired with the intention to use it as the
year ended 31 December 2018, is available: headquarters of the entity.

1. Extract from accounting policy 3.2 On 2 January 2018, BushTec Limited commenced with the construction of a
building that is a qualifying asset in terms of IAS 23, Borrowing Costs. The
1.1 Owner-occupied land is accounted for in accordance with the revaluation building had an estimated cost of R8 300 000. BushTec Limited incurred the
model. Revaluations are performed every two years by an independent sworn
following expenses in respect of the construction of the building evenly
valuer. Any revaluation surplus realises on sale of the asset. Land is not
throughout the following periods:
depreciated.
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1.2 Investment property is accounted for in accordance with the fair value model. 2 January – 28 February 2018 2 000 000
1 March – 30 April 2018 3 000 000
1 May – 30 June 2018 4 000 000
1.3 All other property, plant and equipment are accounted for in accordance with
the cost model and are written off on a straight-line basis over their estimated
3.3 BushTec Limited obtained a bank overdraft facility of R9 000 000 on
useful lives. 2 January 2018, to specifically fund the construction of the building. You may
accept the following amounts as being correctly calculated by the accountant:
2. Property in Johannesburg (stand 1372)
Note that amounts are R
given. You must just know
2.1 On 1 July 2014, BushTec Limited acquired a property in Johannesburg at a Total amount of finance costs incurred where to use it. 816 666
cost of R5 000 000. R3 300 000 of the cost of the property can be allocated to Total amount of finance costs capitalised 186 666
the land. The property housed all the operations of the entity since its
acquisition. The building had an estimated useful life of 20 years on 3.4 Construction was completed on 30 June 2018. The building was available for
1 July 2014, with an insignificant residual value. The building was available for use as intended by management immediately and had an estimated useful life
use as intended by management immediately. of 20 years, with a residual value of R200 000.

2.2 Management decided to revalue the land every two years, commencing on 4. Machinery
1 January 2016. The first revaluation was performed by an independent sworn
4.1 BushTec Limited acquired machine Bushbaby on 1 January 2013 for
valuer at a fair value of R3 225 000.
R3 750 000. Machine Bushbaby had an estimated useful life of 10 years on
1 January 2013, with a residual value of R250 000.
2.3 The second revaluation was performed on 1 January 2018 and resulted in a
revaluation surplus of R350 000 (pre-tax).
4.2 On 31 December 2017, an impairment loss of R400 000 was recognised in
respect of machine Bushbaby since a competitor started importing machine
2.4 On 1 July 2018, the entity moved all their operations to the property in Cape
BetaRock, an improved version of machine Bushbaby.
Town (refer to point 3). The property in Johannesburg was leased to tenants in
terms of operating lease agreements from 1 July 2018 for a period of ten years.
4.3 During 2018 it became clear that machine BetaRock produced sub-standard
outdoor equipment and the machine was immediately withdrawn from the
2.5 The following fair values are available in respect of the land and building of the
market. The recoverable amount of machine Bushbaby had to be recalculated
property in Johannesburg:
on 31 December 2018 and the following information was available:
Land Building
Estimated cash inflows from the use of machine Bushbaby:
R R R
31 December 2019 475 000
1 July 2018 3 800 000 1 440 000 31 December 2020 550 000
31 December 2018 3 900 000 1 500 000 31 December 2021 630 000
31 December 2022 640 000
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The accountant also determined that the entity should be able to sell machine REQUIRED:
Bushbaby for R250 000 at the end of 2022. A discount rate of 15% per annum
(pre-tax) was regarded as appropriate. a. Calculate the value in use of machine Bushbaby on 31 December 2018 (refer to
point 4). Your answer must comply with International Financial Reporting
4.4 The fair value of machine Bushbaby amounted to R1 855 670 on Standards (IFRS). (3)
31 December 2018 and sales commission of 3% was applicable. The services
of the employee who operated machine Bushbaby will be terminated at a cost NOTE: - Round all calculated amounts to the nearest Rand.
of R40 000. The fair value of machine Bushbaby was determined with - Show all your calculations.
reference to quoted prices in an active market, based on level 1 inputs.
b. Calculate the fair value less costs of disposal of machine Bushbaby on
4.5 The useful life and residual value of machine Bushbaby remained unchanged 31 December 2018 (refer to point 4). Your answer must comply with International
since acquisition. Financial Reporting Standards (IFRS). (1)

4.6 Machine Bushbaby belongs to the manufacturing segment. NOTE: - Round all calculated amounts to the nearest Rand.
- Show all your calculations.
5. Additional information
c. Prepare only the “Property, plant and equipment” note to the financial
5.1 Assume a corporate tax rate of 28% and that 80% of capital gains are taxable. statements of BushTec Limited for the year ended 31 December 2018, in
accordance with International Financial Reporting Standards (IFRS). (28)
5.2 Ignore Value Added Tax (VAT).
NOTE: - The total column is not required.
- Narrative information in respect of any revaluation is not required.
- Use separate columns for land and buildings in the property, plant
and equipment note. Do not include each property separately.
- Accounting policy notes and comparative amounts are not
required.
- Round all calculated amounts to the nearest Rand.
- Show all your calculations.

d. Prepare only the “Other comprehensive income” section of the statement of

profit or loss and other comprehensive income of BushTec Limited for the year
ended 31 December 2018, in accordance with International Financial Reporting
Standards (IFRS). (5)

NOTE: - Comparative amounts are not required.

- Round all calculated amounts to the nearest Rand.
- Show all your calculations.

e. Why is full compliance with International Financial Reporting Standards (IFRS)

difficult for small and medium-sized entities (SMEs)? (2)

f. Assume that BushTec Limited is not publicly accountable and that they prepare
their annual financial statements in accordance with IFRS for SMEs.

Assume that some of the above properties comply with the definition of
investment property. Briefly discuss the initial and subsequent measurement
of the properties in terms of IFRS for SMEs. (1)
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