FAC3702
EXAM PACK
, lOMoARcPSD|18222662
FAC3702
OCT/NOV 2024
Question 1 (50 marks: 90 minutes)
This question consists of two unrelated parts.
Part A
Sugarbird Limited hereafter, (“Sugarbird”) is a JSE listed company in the energy sector.
Sugarbird produces and installs solar panels. Sugarbird prepares its annual financial statements
in accordance with International Financial Reporting Standards (IFRS) and has a 30 June
financial year end.
The assets of Sugarbird are as follows:
1. Land
Sugarbird owns a single plot of land that was purchased on 1 July 2015 for R 2 million. An
independent appraiser estimated the fair value of the land to be as follows:
Date Fair Value
30 June 2018 R2 450 000
30 June 2021 R1 800 000
30 June 2024 R2 200 000
2. Office building
Sugarbird purchased an office building in the Randburg area to occupy as administrative offices.
The building was purchased on 1 June 2019 for R1 989 000 inclusive of transfer costs. The
office building is depreciated on a straight-line basis over its 20-year useful life with a R300 000
residual value. SARS does not grant any allowances for the administrative building.
Sugarbird built a reception area by the gate at a total cost of R600 000. The construction was
completed on 31 January 2024 and available for use on the same day. The reception is
depreciated over 20 years with no residual value.
3. Plant
On 1 July 2020, Sugarbird purchased a specialised plant at a cost of R3 300 000. The plant
needs to be removed and the land restored in 10 years’ time. At acquisition, Sugarbird estimated
that the cost to remove the plant and restore the land in 10 years’ time will cost R760 000.
The plant was available for use on 1 July 2020 and is depreciated on a straight-line method over
the total useful life of 10 years. The residual value was estimated at R600 000 at acquisition and
remained unchanged.
In the 2023 financial year, a major competitor in the energy industry achieved significant
technological advancements and led management to assess the recoverable amount of the plant
on 30 June 2023. In April 2024, it became apparent that the competitor’s new technology
developed was not commercially viable. Management reassessed the recoverable amount of
the plant as follows:
Detail 30 June 2023 30 June 2024
Fair value R2 150 000 R2 450 000
Value in use R2 030 000 R2 190 000
Cost of disposal R40 000 R46 000
South African Revenue Services (SARS) grants a 40:20:20:20 non-apportioned allowance per
annum.
4
, lOMoARcPSD|18222662
FAC3702
OCT/NOV 2024
4. Office furniture
Upon completion of the reception area at Randburg office, SugarBrid purchased Office furniture
from a local supplier for R245 005. The office furniture was ready for use on 1 February 2024
and brought into use on the same day. The office furniture is depreciated over 8 years on a
straight-line basis with a residual value of R45 000.
SARS grants a wear and tear allowance of 7 years pro-rata apportioned for parts of a year. The
residual value for tax purposes is Rnil.
5. Additional information
• Land is measured in accordance with the revaluation model and is revalued every
three years.
• Buildings, Plant and Office furniture are measured in accordance with the cost model.
• The discount rate is 8,7% after tax.
• The South African normal tax rate is 27%. The capital gains tax inclusion rate is
80%.
• Deferred tax is provided on the temporary basis evidenced in the above assets.
REQUIRED Marks
(a) Prepare journal entries for the land in point 1 for all the relevant financial years 8
in the accounting records of Sugarbird Limited.
(b) Prepare the property plant and equipment note in the financial statements of 25 ½
Sugarbird Limited for the year ended 30 June 2024.
(c) Calculate the deferred tax balance of Sugarbird Limited for the year ended 30 7
June 2024, using the statement of financial position approach.
NOTE:
• Your answer must comply with the requirements of International
Financial Reporting Standards (IFRS).
• Accounting policy notes arenot required.
• Ignore comparative information.
• Round off all amounts to the nearest Rand.
• Show all calculations.
• No abbreviations for general ledger accounts are allowed.
• Journal narrations are not required.
• Ignore Value Added Tax (VAT)
TOTAL 40 ½
5
, lOMoARcPSD|18222662
FAC3702
OCT/NOV 2024
Part B
Cape Town property
A block of flats with six stories was purchased on 1 March 2020 for R3 500 000. The first three
stories were occupied by SugarBird and uses as their administrative offices in Cape Town. The
top three stories are vacant but expected to be lease out.
REQUIRED Marks
(a) Discuss how SugarBird Limited should classify and measure the Cape Town
property in their financial statements. 9½
TOTAL 9½
6
EXAM PACK
, lOMoARcPSD|18222662
FAC3702
OCT/NOV 2024
Question 1 (50 marks: 90 minutes)
This question consists of two unrelated parts.
Part A
Sugarbird Limited hereafter, (“Sugarbird”) is a JSE listed company in the energy sector.
Sugarbird produces and installs solar panels. Sugarbird prepares its annual financial statements
in accordance with International Financial Reporting Standards (IFRS) and has a 30 June
financial year end.
The assets of Sugarbird are as follows:
1. Land
Sugarbird owns a single plot of land that was purchased on 1 July 2015 for R 2 million. An
independent appraiser estimated the fair value of the land to be as follows:
Date Fair Value
30 June 2018 R2 450 000
30 June 2021 R1 800 000
30 June 2024 R2 200 000
2. Office building
Sugarbird purchased an office building in the Randburg area to occupy as administrative offices.
The building was purchased on 1 June 2019 for R1 989 000 inclusive of transfer costs. The
office building is depreciated on a straight-line basis over its 20-year useful life with a R300 000
residual value. SARS does not grant any allowances for the administrative building.
Sugarbird built a reception area by the gate at a total cost of R600 000. The construction was
completed on 31 January 2024 and available for use on the same day. The reception is
depreciated over 20 years with no residual value.
3. Plant
On 1 July 2020, Sugarbird purchased a specialised plant at a cost of R3 300 000. The plant
needs to be removed and the land restored in 10 years’ time. At acquisition, Sugarbird estimated
that the cost to remove the plant and restore the land in 10 years’ time will cost R760 000.
The plant was available for use on 1 July 2020 and is depreciated on a straight-line method over
the total useful life of 10 years. The residual value was estimated at R600 000 at acquisition and
remained unchanged.
In the 2023 financial year, a major competitor in the energy industry achieved significant
technological advancements and led management to assess the recoverable amount of the plant
on 30 June 2023. In April 2024, it became apparent that the competitor’s new technology
developed was not commercially viable. Management reassessed the recoverable amount of
the plant as follows:
Detail 30 June 2023 30 June 2024
Fair value R2 150 000 R2 450 000
Value in use R2 030 000 R2 190 000
Cost of disposal R40 000 R46 000
South African Revenue Services (SARS) grants a 40:20:20:20 non-apportioned allowance per
annum.
4
, lOMoARcPSD|18222662
FAC3702
OCT/NOV 2024
4. Office furniture
Upon completion of the reception area at Randburg office, SugarBrid purchased Office furniture
from a local supplier for R245 005. The office furniture was ready for use on 1 February 2024
and brought into use on the same day. The office furniture is depreciated over 8 years on a
straight-line basis with a residual value of R45 000.
SARS grants a wear and tear allowance of 7 years pro-rata apportioned for parts of a year. The
residual value for tax purposes is Rnil.
5. Additional information
• Land is measured in accordance with the revaluation model and is revalued every
three years.
• Buildings, Plant and Office furniture are measured in accordance with the cost model.
• The discount rate is 8,7% after tax.
• The South African normal tax rate is 27%. The capital gains tax inclusion rate is
80%.
• Deferred tax is provided on the temporary basis evidenced in the above assets.
REQUIRED Marks
(a) Prepare journal entries for the land in point 1 for all the relevant financial years 8
in the accounting records of Sugarbird Limited.
(b) Prepare the property plant and equipment note in the financial statements of 25 ½
Sugarbird Limited for the year ended 30 June 2024.
(c) Calculate the deferred tax balance of Sugarbird Limited for the year ended 30 7
June 2024, using the statement of financial position approach.
NOTE:
• Your answer must comply with the requirements of International
Financial Reporting Standards (IFRS).
• Accounting policy notes arenot required.
• Ignore comparative information.
• Round off all amounts to the nearest Rand.
• Show all calculations.
• No abbreviations for general ledger accounts are allowed.
• Journal narrations are not required.
• Ignore Value Added Tax (VAT)
TOTAL 40 ½
5
, lOMoARcPSD|18222662
FAC3702
OCT/NOV 2024
Part B
Cape Town property
A block of flats with six stories was purchased on 1 March 2020 for R3 500 000. The first three
stories were occupied by SugarBird and uses as their administrative offices in Cape Town. The
top three stories are vacant but expected to be lease out.
REQUIRED Marks
(a) Discuss how SugarBird Limited should classify and measure the Cape Town
property in their financial statements. 9½
TOTAL 9½
6
