Learning unit 5: Topic 3 – IFRS 5 (Non-current assets held for sale and

discontinued operations)
Activity 5.9 (Question)

Question 1 (37 marks) (67 minutes)

Dimba Mining Ltd is a mining company with a 28 February financial year-end. The company’s head office is
located in Johannesburg, Gauteng with mining projects across South Africa. A coal mine in Mpumalanga and
a natural gas extraction mine in the Northern Cape are among the mining projects.

Coal mine – Mpumalanga

To increase the cash flow of Dimba Mining Ltd, the managers decided to sell off the assets of the coal mine
in a single transaction. On 30 September 20x21, all the criteria to classify the disposal group as held for sale,
as stipulated in IFRS 5, Non-current Assets Held for Sale and discontinued operations, were met. The sale
is expected to be completed by 30 April 20x22, for cash. The fair value less cost to sell off the disposal group
on 30 September 20x21 and 28 February 20x22 amounted to R2 400 000 and R2 470 000 respectively. The
carrying amount of the disposal group on 28 February 20x22 equalled the fair value less cost to sell off the
disposal group.

The following is an extract from the trial balance of Dimba Mining Ltd for the year ended 28 February 20x21:
DR CR
Note R R
Coal mine - Mpumalanga

Investment property (fair value) 1 1 850 000

Machinery (drilling riggs) (carrying amount) 2 470 128
Intangible asset 3 ?
Inventory (carrying amount) 4 50 000
Trade creditors (carrying amount) 5 135 500

The following notes relate to the assets that form part of the coal mine:

Note 1:
Investment property consists of land that was held for capital appreciation and was correctly accounted for
at year-end in terms of IAS 40, Investment Property. The fair value of the land was determined to be
R1 855 000 and R1 905 000 respectively on 30 September 20x21 and 28 February 20x22. The fair values
were determined by an independent sworn appraiser.

Note 2:
Dimba Mining Ltd originally purchased the drilling rigs on 1 March 20x19 at the cost of R665 500. The drilling
rigs were shipped to the mine in Mpumalanga at the cost of R25 300. The drilling rigs were available for use,
as intended by management, on 1 April 20x19. You can assume that the carrying amount of R470 128, as
reflected in the above trail balance on 28 February 20x21, was correctly calculated.

Note 3:
Dimba Mining Ltd holds the exclusive rights to the Tunnel Vision Software in South Africa. Tunnel Vision is
used to operate tunnel boring machines with state-of-the-art precision. The exclusive rights were purchased
at the cost of R545 300 on 1 June 20x18 and was available for use, as intended by management, on the
same date. Legal fees amounting to R8 900 were paid in cash on 1 May 20x18 to finalise the transaction.

Dimba Mining Ltd purchased the rights for a period of ten years, after which the rights can be sold for R7 250.
QUESTION 1 (continued)

Note 4
The carrying amount and net realisable value of the inventory on 30 September 20x21 amounted to R45 000
and R42 000 respectively. There were no changes to the carrying amount or net realisable value of the
inventory at year-end.

Note 5
The trade creditors had a carrying amount of R95 000 and R75 000 on 30 September 20x21 and
28 February 20x22 respectively.

The related income and expenditure of the coal mine, which you can assume to be correct, are as follows:
1 March 20x21 1 October 20x21
to to
30 September 20x21 28 February 20x22
R R
Revenue ............................................................................ 580 000 120 000
Cost of sales .................................................................... 20 000 2 500
Other expenses (excluding depreciation and amortisation) 32 600 5 800

Additional information

• It is company policy to account for investment property according to the fair value model.
• It is company policy to account for machinery and intangible assets according to the cost model.
• It is company policy to account for inventory at the lower of carrying amount and net realisable value.
• It is company policy to provide for depreciation and amortisation in accordance with the straight-line
method over the expected useful lives of the assets.
• The South African normal tax rate is 28%.

Assumptions

• All amounts are material.

• Ignore the implications of Value-Added Tax (VAT).

REQUIRED: Marks

a) Prepare the statement of profit or loss and other comprehensive income of 21

Dimba Mining Ltd for the financial year ended 28 February 20x22, relating only to
the discontinued operation of the coal mine (ignore any deferred tax
implications).

b) Disclose the following current assets held for sale note to the annual financial 16
statements of Dimba Mining Ltd for the year ended 28 February 20x22.
Please note:
Your answer must comply with the requirements of International Financial
Reporting Standards (IFRS).
Comparative figures are not required.
Accounting policy notes are not required.
Show all calculations.
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