During September 2015 a delivery vehicle with a cost of R 340,000 and a carrying amount...

  

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During September 2015 a delivery vehicle with a cost of R 340,000 and a carrying amount at the date of the accident of R 90,000 was involved in an accident. The insurance valuation regarded the vehicle to be irreparable and that a net amount of R 270,000 (after deducting the purchase of the company at a price of R 60,000) would be paid in respect of the claim. The company sold the damaged vehicle to a "cut-shop" at a price of R 165,000, The vehicle was depreciated at the same rate as the wear and tear allowance for income tax purposes. At 01 March 2015 (the beginning of the current reporting period) the board decided that certain machinery used in the production process with a historical cost and carrying amount of R 1,740,000 and R 1,015,000 should be revalued. The gross replacement cost was estimated to be R 2,400,000 and the estimated useful life and residual values were considered to be 10 years and R 180,000 respectively. The machinery was depreciated on a straight-line basis to reduce the carrying amount to its residual value of zero over an estimated useful life of 6 years. 1.7. Question: (a) Discuss the difference, if any, between the revaluation and fair value methods of measuring the carrying amounts of assets in the financial statements. [4 marks] (b) Advise the board how the revaluation surplus should be treated over the remaining useful life of the machinery in the financial statements to comply with the financial reporting standards. [3 marks] All members of the board were given the right of taking goods for personal and household consumption at a maximum cost of R 9,000 per month- this was not included in the remuneration package as it was the family tradition and business practice. Any goods taken in excess of the stipulated maximum amount was claimed from their salaries. Furthermore, the members of the board were granted free use of the company's vehicles (registered in the name of the company but the members had exclusive use of the vehicles). The cost of running and maintaining the vehicles were the responsibilities of the members except for the senior members who were the immediate children of the founding father. The Professional Accounts of the company presented the following schedule to the board as part of their value added service to their clients: During September 2015 a delivery vehicle with a cost of R 340,000 and a carrying amount at the date of the accident of R 90,000 was involved in an accident. The insurance valuation regarded the vehicle to be irreparable and that a net amount of R 270,000 (after deducting the purchase of the company at a price of R 60,000) would be paid in respect of the claim. The company sold the damaged vehicle to a "cut-shop" at a price of R 165,000, The vehicle was depreciated at the same rate as the wear and tear allowance for income tax purposes. At 01 March 2015 (the beginning of the current reporting period) the board decided that certain machinery used in the production process with a historical cost and carrying amount of R 1,740,000 and R 1,015,000 should be revalued. The gross replacement cost was estimated to be R 2,400,000 and the estimated useful life and residual values were considered to be 10 years and R 180,000 respectively. The machinery was depreciated on a straight-line basis to reduce the carrying amount to its residual value of zero over an estimated useful life of 6 years. 1.7. Question: (a) Discuss the difference, if any, between the revaluation and fair value methods of measuring the carrying amounts of assets in the financial statements. [4 marks] (b) Advise the board how the revaluation surplus should be treated over the remaining useful life of the machinery in the financial statements to comply with the financial reporting standards. [3 marks] All members of the board were given the right of taking goods for personal and household consumption at a maximum cost of R 9,000 per month- this was not included in the remuneration package as it was the family tradition and business practice. Any goods taken in excess of the stipulated maximum amount was claimed from their salaries. Furthermore, the members of the board were granted free use of the company's vehicles (registered in the name of the company but the members had exclusive use of the vehicles). The cost of running and maintaining the vehicles were the responsibilities of the members except for the senior members who were the immediate children of the founding father. The Professional Accounts of the company presented the following schedule to the board as part of their value added service to their clients:

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