You have been presented with the following separate scenarios for the year ended 31 May 2020.Scenario 1During the financial year ending 31 May 2020 Mkhize Ltd manufactured a machine for its ownuse. Costs incurred are summarised as follows: Direct materials R 4 500 000 Direct labour R3 250 000 Production overheads 75% of labour cost.The machine was completed and put into use on 1 December 2019. All machines are depreciated at a rate of 15% per annum on the reducing balance method. Mkhize Ltd applies a 35% mark‐up on cost in determining the selling price of goods. Scenario 2During 2020 the directors of Chana Ltd decided to value its industrial plant to market value.The plant was acquired on 1 June 2015 at a cost of R45 000 000 and had an estimated useful life of 15 years on the date of acquisition. The plant was valued at R41 500 000 on 1 June 2019. Plant is carried using the revaluation method and depreciation is on the straight‐ line basis.Required:Q.4.1 Calculate the depreciation charge for the year ended 31 May 2020 for both scenarios, as well as the carrying value of both items as at 31 May 2020.Q.4.2 Prepare the journal entries for Scenario 2 only that would be processed on 1 June 2019 in respect of the revaluation of the plant if the entity uses the elimination method to revalue items. All answers must comply with the requirements of International FinancialReporting Standards (IFRS), in particular IAS16 – Property, plant and equipment.All calculations must be shown as marks will be allocated.Round all amounts to the nearest rand.No journal narrations are required.
You have been presented with the following separate scenarios for the year ended 31 May 2020.
Scenario 1
During the financial year ending 31 May 2020 Mkhize Ltd manufactured a machine for its own
use. Costs incurred are summarised as follows:
Direct materials R 4 500 000
Direct labour R3 250 000
Production
The machine was completed and put into use on 1 December 2019. All machines are
Scenario 2
During 2020 the directors of Chana Ltd decided to value its industrial plant to market value.
The plant was acquired on 1 June 2015 at a cost of R45 000 000 and had an estimated useful life of 15 years on the date of acquisition. The plant was valued at R41 500 000 on 1 June 2019. Plant is carried using the revaluation method and depreciation is on the straight‐ line basis.
Required:
Q.4.1 Calculate the depreciation charge for the year ended 31 May 2020 for both scenarios, as well as the carrying value of both items as at 31 May 2020.
Q.4.2 Prepare the
All answers must comply with the requirements of International Financial
Reporting Standards (IFRS), in particular IAS16 – Property, plant and equipment.
All calculations must be shown as marks will be allocated.
Round all amounts to the nearest rand.
No journal narrations are required.
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