Warehouse: On the 1 September 2020, FHL purchased a warehouse at the airport to store packages before they are transported. The cost of the warehouse is as follows: Purchase Price R17 000 000 Transfer Fees R 550 000 Installation of Shelving R 250 000 Staff Training R 75 000 The warehouse has a useful life of 30 years. Management’s policy is to revalue the warehouse every two years from the date of purchase. The entity adopts the net replacement value method for revaluations. The Financial Director is of the opinion that this method “minimises the impact on profits more than the gross replacement value” method. On the 2nd anniversary of the purchase of the warehouse, an independent valuator who is competent and is an industry expert in valuing warehouses of this nature and has determined the fair value of the warehouse to be R18 000 000. The Financial Director has also approved a policy that the revaluation surplus may be transferred to retained earnings as the asset is used. 22 2022 Q.3.2 Prepare the journal entries in respect of the warehouse for the year ended 31 December 2022. Journal Narrations are required.
FlyHiLow Ltd (FHL) is a courier company based at the Cape Town International Airport. FHL offers
transport and logistics services.
The details of FHLs assets are as follows:
Cargo Planes:
FHL offers international delivery and has a fleet of two cargo planes as follows:
Purchase Date Cost
Airbus A300-600ST 01-Jan-22 4 600 000
Boeing 737 -300F 01-Jul-20 5 300 000
FHL follows the component approach in the depreciation of the cargo planes.
The engine is
The cost of the engine of the cargo planes is 30% of the total cost. The Airbus A300-600ST engine
also had to be calibrated at an additional cost of R200 000 and was taken into use on 1 March
2022. All other aircraft was taken into use on the date of purchase.
Each of the planes have 8500 estimated flying hours.
22 2022
The following information is available in respect of flying hours for the past four financial years:
Flying Hours
FY 2020 850
FY 2021 1200
FY 2022 650
You may assume that flying hours are consistent for each month of the year.
Warehouse:
On the 1 September 2020, FHL purchased a warehouse at the airport to store packages before
they are transported.
The cost of the warehouse is as follows:
Purchase Price R17 000 000
Transfer Fees R 550 000
Installation of Shelving R 250 000
Staff Training R 75 000
The warehouse has a useful life of 30 years. Management’s policy is to revalue the warehouse
every two years from the date of purchase.
The entity adopts the net replacement value method for revaluations. The Financial Director is of
the opinion that this method “minimises the impact on profits more than the gross replacement
value” method.
On the 2nd anniversary of the purchase of the warehouse, an independent valuator who is
competent and is an industry expert in valuing warehouses of this nature and has determined the
fair value of the warehouse to be R18 000 000.
The Financial Director has also approved a policy that the revaluation surplus may be transferred
to
22 2022
Q.3.2 Prepare the
31 December 2022.
Journal Narrations are required.
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