Lesutu Fisheries is a company fishing the Katse Damand selling the fish to the public via a retail outlet in a nearby village. Lesutu Fisheries has two small fishing boats that were purchased for a total amount of C 30 000 (C 15 000 per boat) on 1 January 20X0. The cost of transporting the boats to the dam was C7,000 (in total), and the cost of varnishing the boats with marine varnish (to protect against rotting in the water) was C 13 000 (in total). In order to improve the company image, the board of directors decided to paint the boats in its company colours of yellow and blue. This was done immediately after applying the protective varnish at a total cost of C 10 000.
The company uses the cost model to measure its assets. The boats are depreciated over their estimated economic useful life of 3 years on the straight-line basis. The current selling price of similar boats in the same condition expected of the boats after 3 years is C 5 000 (C 2 500 per boat), before taking into account the estimated cost of delivery of the boats to the purchaser of C 3 000 (C 1 500 per boat). At 30 June 20X0. the financial year-end of Lesutu Fisheries, the boats collided with each other in the dam. The market value per boat dropped to C 7 000 as a result, before taking into account expected selling costs of C 4 000 per boat. The accountant is reluctant to make any adjustments since the most recent management approved budgets reflects a relatively unchanged profit forecast from the use of the two damaged boats – a net present value of C 30 000 from the use of the two damaged boats (C 15 000 per boat) and an estimated net present value of the net proceeds from the sale of the two damaged boats at the end of their useful life of C 2 000 (C 1000 per boat).
Lesutu Fisheries received an insurance payout on 3 July 20X0 of C 25 000 (C 12 500 per boat). The two damaged boats were traded in for two new boats valued at C 33 000 (C 16 500 per boat) on 4 July 20X0. The trade-in value received for the two damaged boats was C 9 000 (C 4 500 per boat) and the balance owing was paid by cheque. The two new boats are to be depreciated at 20% per annum on the straight line method to a zero residual value.
a) Calculate the total amount at which the original boats should initially be measured.
b) Calculate the recoverable amount and the impairment loss, if applicable, at 30 June 20X0.
c) Journaleseall transactions affecting the fleet of boats up to the year ended 30 June 20X1.
Ignore deferred tea and VAT.