Raingo Limited applies the cost model to its plant, details of which follow: Cost C 100 000 Purchase

 
   

Need your ASSIGNMENT done? Use our paper writing service to score better and meet your deadlines.  

Raingo Limited applies the cost model to its plant, details of which follow:

Cost

C 100 000

Purchase date:

1/1/20X1

Useful life

5 years

• Details of the machinery’s estimated recoverable amount over the years is as follows:

 

C

31/12/20X1

70 000

31/12/20X2

65 000

31/12/20X3

30 000

• All residual values are assessed to be zero and this has remained unchanged since acquisition.

• Depreciation is provided using the straight-line method over its useful life.

• The drop in the plant’s value at the end of 20X3 was due to damage caused during a riot on the factory premises in 20X3. Similar damage was caused during a similar riot in 20X1. The damage incurred during the 20X1riots was repaired in 20X2.

• The company has pledged the plant as security for a loan. Details of the loan will be provided in note 6 of the notes to the financial statements for the year ended 31December 20X3.

• The company directors signed a contract involving the construction of a plant to be completed by April 20X4 at an expected cost to the company of C 500 000. Since construction had not yet begun at year-end, a liability for this amount has not yet been recognised.

Part A:

Required:

a) Show the journal entries for each of the three years ended 31December 20X3.

b) Disclose the above in the notes to the financial statements for the year ended 31 December 20X3 in accordance with International Financial Reporting Standards.

Ignore tax.

Part B:

The tax authorities:

• allow a deduction for tax purposes of 20% of the cost of the asset per annum;

• levy normal corporate income tax at 30%.

There are no temporary or permanent differences other than those mentioned above.

Required:

a) Show the journal entries for each of the three years ended 31December 20X3.

b) Disclose the above in the notes to the financial statements for the year ended 31 December 20X3 in accordance with International Financial Reporting Standards.