QUESTION 1 (42 marks)

Waves (Pty) Ltd is a company in Jefferys Bay that manufactures surfboards and various surfing equipment. Waves (Pty) Ltd has a 30 June financial year-end.

Wave (Pty) Ltd has been renting its current manufacturing plant from a third party, but the board of directors has approved the purchase of a piece of land and constructing its own manufacturing plant.

Purchase of land
The land was purchased on 31 October 2023 for R5 000 000. The full purchase price was financed through a loan from ROAM Bank on 31 October 2023. The loan is repayable in 10 annual instalments, with the first payment due on 1 November 2024. The loan bears interest at a market-related rate of 11% per annum.

Transfer duty of R25 500 was paid in cash on 31 October 2023 on the purchase of the land.

Restoration of land
Part of the purchase agreement terms, when Waves (Pty) Ltd purchased the land, was that they have an obligation to restore the land to its original state once they cease operating from the land.

The manufacturing plant that Waves (Pty) Ltd plans on constructing will have a useful life of 15 years, and they estimate that it will cost them R2 000 000 to restore the land at the end of the manufacturing plant’s useful life.

REQUIRED:

With reference to the information under Purchase of land, prepare ALL the general journal entries required in the records of Waves (Pty) Ltd for the 30 June 2024 financial year to account for the purchase of the land.
• Round all amounts to the nearest Rand where applicable.
• Journal dates and narrations are not required.
(9 marks)

With reference to the information under Purchase of land, prepare ALL the journal entries required in the records of Waves (Pty) Ltd for the 30 June 2025 financial year to account for the transactions relating to the loan from RAOM Bank.
• Round all amounts to the nearest Rand where applicable.
• Journal dates and narrations are not required.

(19 marks)

With reference to the information under Restoration of land, discuss whether the restoration of the land will qualify as a provision as defined in IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. (14 marks)

QUESTION 2 (30 marks)

Blue Dot (Pty) Ltd is a company that has a 31 March financial year-end.

The following is an extract from the company’s fixed asset register as at 31 March 2023:

Additional information:
1. The label machine had an estimated useful life of 6 years and has been in use for 2.5 years on 31 March 2023. On 1 April 2023, it became evident that due to the rapid change in technology, the useful life of the label machine needs to be reduced to 4 years. Therefore, effective 1 April 2023, the useful life of the label machine was changed from 6 years to 4 years.

2. On 1 February 2024, Blue Dot (Pty) Ltd ordered a packing machine with a cost price of R570 000. The machine was delivered to Blue Dot (Pty) Ltd’s premises on 15 February 2024, and delivery costs of R5 500 were paid. The machine was installed at a cost of R10 500 and was ready for use on 29 February 2024. The packing machine is depreciated using the straight-line method, and its use- ful life and residual value were estimated as 6 years and R125 000, respec- tively.

REQUIRED:

Prepare an extract from Blue Dot (Pty) Ltd’s Statement of Financial Position at 31 March 2024 and Statement of Profit or Loss and Other Comprehensive Income for the year ending 31 March 2024 to show the balances relating to their property, plant and equipment accounted for in accordance with IAS 16 – Property, plant and equipment.
• Comparative amounts are not required.
• Round all answers to the nearest Rand.
• Show all calculations.
(30 marks)

QUESTION 3 (28 marks)

Jogger (Pty) Ltd is a company with a 31 December financial year-end. In recent years, the company has been doing exceptionally well, and they have excess cash that they are looking to invest to further grow their resources.

The board of directors has therefore approved the following investment transactions during the 2024 financial year.

Transaction 1
On 15 March 2024, Jogger (Pty) Ltd purchased 10 000 ordinary shares on the JSE Ltd for an amount of R112 per share. This was also the fair value at the acquisition date. The related transaction costs amounted to R11 200. The fair value of the 10 000 shares was R115 per share on 31 December 2023. All amounts were paid for in cash.

Jogger (Pty) Ltd is planning on holding these shares as a long-term investment and, therefore, irrevocably chose to recognise the gains and losses resulting from the fair value adjustments on these shares in other comprehensive income.

Transaction 2
On 1 January 2024, Jogger (Pty) Ltd purchased 10 125 listed debentures at a price of R105 per debenture. The debentures are 11% R120 debentures and are redeemable at par value on 31 December 2027.

Transaction costs amounted to R2 500. Interest is payable annually on 31 December. The purchase price is equal to the fair value at the transaction date. The debentures are held within a business model with the objective to collect contractual cash flows that are solely payments of principal and interest on the principal outstanding at spec- ified dates.

REQUIRED:

Prepare ALL the journal entries relating to Transaction 1 in the records of Jog- ger (Pty) Ltd for the year ended 31 December 2024.
• Journal dates and narrations are not required.
• Show all calculations.
(8 marks)

With reference to the requirements of IFRS 9 – Financial instruments, briefly explain how your answer in 3.1 would differ if Jogger (Pty) Ltd did not irrevocably choose to recognise the gains and losses resulting from the fair value adjustments on these shares in other comprehensive income.
(5 marks)

Prepare ALL the journal entries relating to Transaction 2 in the records of Jog- ger (Pty) Ltd for the year ended 31 December 2024.
• Journal dates and narrations are not required.
• Show all calculations.

Answers to Above Financial Questions

Answer 1: The general journal entries required in the records of Waves (Pty) Ltd for the 30 June 2024 financial year to account for the purchase of the land are prepared as follows:

Hire the best financial accounting expert from the team of writers of Student Life Saviour South Africa for best assistance to above questions.