1

Pheku (Pty) Ltd is a construction company that prepares its financial statements to 31 March each year. During the year ended 31 March 2021, the company commenced a contract that is supposed to take more than a year to complete. The contract summary at 31 March 2021 is as follows:

                                                                       M’000

Progress payment                                          2 500

Contract price                                                 3 778

Work certified complete                                  2 531

Contract costs incurred to 31 March 2021      2 983

     *Estimated total costs at 31 March 2021   3 480

     *Estimated total costs mean costs already incurred together with additional costs to complete the contract.

Required:

(a) Using the work certified accounting policy, calculate the effect of the above contract on the financial statements as 31 March 2021 (8 marks)

NB: Show the statement of Comprehensive income and Statement of Financial Position (Extracts) after calculating the profit

2

A lease rental of M57,194,200 was paid on 1 April 2018. It is the first of 5 annual payments in advance for rental of an item of equipment that has a cash purchase price of M240,000,000. The auditors have calculated the implicit rate in the lease as 10% per annum. The right of use is to be depreciated on a straight line basis over the life of the lease.

Required:

Assuming the company’s financial year starts on 1 April and ends on 31 March

a) Prepare a lease amortisation schedule to show the repayment of the lease 

b) Prepare Statement of Comprehensive Income/Statement of Profit or Loss for the year ended 31 March 2020 and Statement of financial position (extracts) as at 31 March 2020 and show the following :

  i) Financial charge

  ii) Right-of-use Asset

  iii) Lease liability both current and non-current assets 

3

Answer the following questions per IFRS16 Contract with customers

(a) A company pays M11 000 for a ticket on a scheduled flight. In terms of the airline’s customer loyalty programme, once a customer has purchased ten flights. He is entitled to a free flight. In other words, the customer pays for ten flights and receives eleven. You are required to show how the transaction above will be treated (i.e. dealt with and recorded) in the books of the Airline company 

(b) An entity sells books to a customer for M1 million for immediate payment, but the control over the books only passes to the entity in two years’ time. A fair rate of interest is considered to be 12% p.a. You are required to explain the substance of this transaction and make the relevant entries in the books of the Company (seller of the books)