2024 Accounting 100 Tutorial 4

TUTORIAL 4 (103 MARKS)

Lumber Entity is a small logging enterprise and operates from Mpumalanga. Lumber Entity and all of
its suppliers are registered VAT vendors in accordance with the VAT Act and the applicable VAT rate
is 15%.
Lumber Entity has a reporting date of 31 March. The following balances with respect to property,
plant and equipment were extracted from the records of Lumber Entity on 1 April 2023:
Dr Cr
R R
Building 2 250 000
Accumulated depreciation: Buildings 750 000
Conveyor 3 750 000
Accumulated depreciation: Conveyor 2 250 000
Sawmill 2 500 000
Accumulated depreciation: Sawmill 1 247 032
Delivery Truck 1 500 000
Accumulated depreciation: Delivery Truck 600 000
Furniture 400 000
Accumulated depreciation: Furniture 160 000
Accumulated impairment: Furniture 15 000

The following transactions and events have not been taken into account for the reporting period
ended 31 March 2024:
1. Building:
The building is depreciated on a straight line basis over its useful life of 20 years with a residual value
of R250 000. On 1 April 2023 a professional property expert indicated that the remaining useful life
of the building is 10 years.
2. Conveyor:
The policy of Lumber Entity is to depreciate the conveyor on the units of production method with no
residual value. The conveyor is expected to convey 12 500 000 tons of logs over its useful life from
the plantation to the processing plant. In the current reporting period, the conveyor carried 1 050 000
tons of logs.
The conveyor has broken down several times in the last two reporting periods and an assessment
by an expert indicates that the recoverable amount on 31 March 2024 is R1 100 000.
The conveyor was purchased by means of a supplier’s loan. The table below reflects the amortisation
schedule of the loan:
Date Instalment Interest Amortised cost
of loan
1 Apr 2021 4 275 000
31 Mar 2022 1 290 711 342 000 3 326 289
31 Mar 2023 1 290 711 266 103 2 301 680
31 Mar 2024 1 290 711 184 134 1 195 103
31 Mar 2025 1 290 711 95 608

All payments on the supplier’s loan are up to date although the current year’s payment has not been
recorded.
1
2024 Accounting 100 Tutorial 4

3. Sawmill:
The sawmill is depreciated on the diminishing balance method at a rate of 21% per annum over its
useful life of 10 years with a 0% residual value.
On 31 January 2024 an unfortunate incident occurred when the sawmill was burnt beyond repair in
an accidental fire. The insurance entity paid out R855 000 on 1 March 2024 for the claim. A new
Sawmill was also acquired on 1 March for R2 760 000 in cash.
4. Vehicles:
Lumber Entity owns a large delivery truck. The accounting policy is to depreciate delivery trucks on
a straight-line basis with no residual value over 5 years.
On 2 January 2024, the delivery truck was traded in for a new one. The price of the new delivery
truck is R1 995 000 from Mpuma Trucks Entity. Mpuma Trucks Entity offered a trade-in credit of R798
000 on the old truck. The balance of the purchase was paid for in cash
5. Furniture:
The depreciation for the current reporting period on furniture has been correctly calculated as
R75 000. On 31 March 2024, Furniture with a cost of R100 000, accumulated depreciation of
R55 000 on 31 March 2024 and accumulated impairment of R15 000 was donated to a local primary
school.

Required:
a) Prepare the journal entries for the above transactions for the reporting period ended 31 March
2024. (51)
b) Disclose the PPE note for the financial statements of Lumbar Entity for the reporting period ended
31 March 2024. (46)
c) Present the Statement of profit or loss of Lumbar Entity for the reporting period ended 31 March
2024 as far as the above information permits. (6)
Note:
Round calculated amounts to the nearest Rand where applicable.
Journal narrations are not required.
The total column for the PPE note is not required.

2
2024 Accounting 100 Tutorial 4

PART A Journal entries (SOLUTION – 51 MARKS)

Date Dr Cr
31 Mar. 2024 Depreciation (P/L) (w.1) 125 000 ✓
Accumulated depreciation: Buildings (SFP) 125 000 ✓

Recognise depreciation on buildings

Date Dr Cr
✓
31 Mar. 2024 Depreciation (P/L) (w.2) 315 000
Accumulated depreciation: Conveyor (SFP) 315 000 ✓

Recognise depreciation on the Conveyor

Date Dr Cr

31 Mar. 2024 Impairment (P/L) (w.2) 85 000 3c

Accumulated impairment: Conveyor (SFP) 85 000 ✓

Recognise impairment on Conveyor

Date Dr Cr
✓
31 Mar. 2024 Interest expense (P/L) 184 134
Supplier’s loan (SFP) 184 134 ✓

Recognise interest on supplier’s loan

Date Dr Cr
✓
31 Mar. 2024 Supplier’s loan (SFP) 1 290 711
Bank (SFP) 1 290 711 ✓

Recognise repayment of supplier’s loan instalment

4
2024 Accounting 100 Tutorial 4

Date Dr Cr
✓
31 Jan. 2024 Depreciation (P/L) (w.3) 219 269
Accumulated depreciation: Sawmill (SFP) 219 269 ✓
Recognise depreciation on the old Sawmill for 10
months

Date Dr Cr
✓
31 Jan 2024 Accumulated depreciation: Sawmill (SFP) (w.3) 1 466 301
✓
Loss on write-off of Sawmill (P/L) (w.3) 1 033 699
✓
Sawmill (SFP) 2 500 000
Recognise write-off of fire-damaged Sawmill

Date Dr Cr
✓
1 Mar. 2024 Sawmill (SFP) (2 760 000*100/115) 2 400 000
✓
VAT Input (SFP) 360 000
✓
Bank (SFP) 2 760 000
Recognise acquisition of new Sawmill

Date Dr Cr
✓
1 Mar. 2024 Bank (SFP) 855 000
✓
VAT Output (SFP) 111 522
✓
Proceeds from insurance (P/L) 743 478
Recognise proceeds on insurance for the Sawmill

5
2024 Accounting 100 Tutorial 4

Date Dr Cr
✓
31 Mar. 2024 Depreciation (P/L) (w.3) 42 000
Accumulated depreciation: Sawmill (SFP) 42 000 ✓
Recognise depreciation on the new Sawmill for 1
month

Date Dr Cr
✓✓
31 Dec. 2023 Depreciation (P/L) (w.4) 225 000
Accumulated depreciation: Vehicles (SFP) 225 000 ✓

Recognise depreciation on the old delivery vehicle

Date Dr Cr
2 Jan. 2024 Accumulated depreciation: Vehicles (SFP) (w.4) 825 000 ✓
✓
Vehicles (SFP) 1 500 000
✓
VAT Output (SFP) (798 000*15/115) 104 087
3c
Profit on trade-in of vehicle (P/L) (w.4) 18 913
✓
Vehicles (SFP) (1 995 000*100/115) 1 734 783
✓
VAT Input (SFP) (1 995 000*15/115) 260 217
✓✓
Bank (SFP) (1 995 000 - 798 000) 1 197 000
Recognise trade-in of old vehicle for new vehicle

Date Dr Cr
✓✓
31 Mar. 2024 Depreciation (P/L) (w.4) 86 739
Accumulated depreciation: Vehicles (SFP) 86 739 ✓

6
2024 Accounting 100 Tutorial 4

Recognise depreciation on the new delivery vehicle

Date Dr Cr
✓
31 Mar. 2024 Depreciation (P/L) 75 000
Accumulated depreciation: Furniture (SFP) 75 000 ✓

Recognise depreciation on the furniture

Date Dr Cr
31 Mar. 2024 Accumulated depreciation: Furniture (SFP) 55 000 ✓

Accumulated impairment: Furniture (SFP) 15 000

✓
Furniture (SFP) 100 000
VAT Output ((100 000 – 55 000 – 15 000) ✓
*15/100) 4 500
Donation ((100 000 – 55 000 – 15 000) *115/100)
(w.5) 34 500 4c
Recognise acquisition of donation of furniture

7
 2024 Accounting 100 Tutorial 4

PART B: Property, plant and equipment (46 MARKS)

Building Conveyor Sawmill Delivery truck Furniture Total
R R R R R R
Carrying amount beginning of the year 1 500 000 ✓ 1 500 000 ✓ 1 252 968 ✓ 900 000 ✓ 225 000 ✓ 5 377 968
Gross carrying amount 2 250 000 ✓ 3 750 000 ✓ 2 500 000 ✓ 1 500 000 ✓ 400 000 ✓ 10 400 000
Accumulated depreciation (750 000) ✓ (2 250 000) ✓ (1 247 032) ✓ (600 000) ✓ (160 000) ✓ (5 007 032)
Accumulated impairment (15 000) ✓ (15 000)

Additions 2 400 000 ✓ 1 734 783 ✓ 4 250 000

Disposal at carrying amount (675 000) ✓ (30 000) ✓ (705 000)

Gross carrying amount (1 500 000) ✓ (100 000) ✓ (1 600 000)
Accumulated depreciation 825 000 ✓ 55 000 ✓ 880 000
Accumulated impairment 15 000 ✓ 15 000

Derecognition at carrying amount (1 033 699) ✓ (1 033 699)

Gross carrying amount (2 500 000) ✓ (2 500 000)
Accumulated depreciation 1 466 301 ✓ 1 466 301

Depreciation (125 000) ✓ (315 000) ✓ (261 269) ✓ (311 739) ✓ (75 000) ✓ (1 008 008)
Impairment (85 000) ✓ (85 000)

Gross carrying amount 2 250 000 ✓ 3 750 000 ✓ 2 400 000 ✓ 1 734 783 ✓ 300 000 ✓ 10 534 783
Accumulated depreciation (875 000) ✓ (2 565 000) ✓ (42 000) ✓ (86 739) ✓ (180 000) ✓ (3 748 739)
Accumulated impairment - (85 000) ✓ - (85 000)
Carrying amount end of year 1 375 000 1 100 000 2 458 000 1 648 044 120 000 6 701 044

8
2024 Accounting 100 Tutorial 4

PART C: Statement of profit or loss (6 MARKS)

Lumbar Entity
Statement of profit or loss for the period ended 31 March 2024
Notes
Other income
Profit on trade-in of vehicle (Refer to journals) 18 013 ✓p
Proceeds from insurance 743 478 ✓p

Depreciation (Refer to PPE Note) (1 090 519) ✓p

Impairment (Refer to PPE Note) (85 000) ✓p
Interest on supplier’s loan (Refer to journals) (184 134) ✓p
Donation of Furniture (Refer to journals) (34 500) ✓p
Loss on write-off of Sawmill (Refer to journals) (1 033 699) ✓p

Workings/Calculations
1. Building
Cost 2 250 000
Accumulated depreciation (750 000)
Carrying value on 1 Apr. 2023 1 500 000

Depreciation for the current year ((1 500 000 – 250 000)/10) (125 000)

Change in estimate calculations - Depreciation based on old

estimate
Cost 2 250 000
Previous depreciation ((2 250 000 – 250 000)/20 years) per annum (100 000)

2. Conveyor
Cost 3 750 000
Accumulated depreciation (2 250 000)
Carrying value on 1 Apr. 2023 1 500 000

Step 1: Depreciation for the current year (3 750 000*1 050 000/12 500
000) (315 000)

Step 2: Impairment test

Carrying value on 31 March 2024 1 185 000 ✓
Recoverable amount (1 100 000) ✓

5
2024 Accounting 100 Tutorial 4

Impairment 85 000 ✓

3. Sawmill
Old Sawmill
Cost 2 500 000
Accumulated depreciation (1 247 032)
Carrying value 1 252 968

Depreciation for the current year (1 252 968*21%*10/12) (219 269) ✓

Carrying value on 31 January 2024 (also Loss on derecognition) 1 033 699 ✓

New Sawmill
Cost (2 760 000✓*100/115✓) 2 400 000
Depreciation for the current year (2 400 000*21%*1/12) 42 000

4. Delivery truck
Old delivery truck
Cost 1 500 000
Accumulated depreciation (600 000)
Carrying value 900 000

Depreciation for the current year (1 500 000/5*9/12) (225 000)

Carrying value on 02 Jan. 2024 675 000

Trade in credit (798 000✓*100/115✓) (693 913) (2)

Therefore profit on trade-in 18 913 ✓

New delivery truck

Cost (1 995 000*100/115) 1 734 783
Depreciation (1 734 783/5*3/12) (86 739)

5. Furniture
Donated furniture
Cost 100 000
Accumulated depreciation (55 000) ✓
Accumulated impairment (15 000) ✓
Carrying value on 31 March 2024 30 000 ✓
Donation expense (30 000*115/100) 34 500 ✓