Honeygold Limited (hereafter Honeygold) is a South African company that produces and distributes organic beeswax products. The company has a financial year end of 30 June. The following information is available with regard to assets in the records of Honeygold as at 1 July 2020: Category of asset Cost price Accumulated depreciation Land and buildings 10 000 000 615 000 Plant and machinery 7 800 000 2 925 000 Motor vehicles 12 000 000 4 375 000 Computer equipment 5 640 000 1 175 000 Land and buildings The land and buildings were purchased on 1 July 2018. At the time of purchase, it was determined that buildings comprise 75 % of the cost price of land and buildings. At that stage management also estimated the buildings to have a useful life of 25 years and a residual value of R 120 000. On 30 June 2021 management revised their estimated useful life of the buildings to be only 20 years and made a new estimation that based on the revised useful life, the residual value of the building would now be R 228 000. Plant and machinery Plant and machinery are depreciated over 5 years and have residual values of nil. On 1 August 2020 Honeygold acquired a new machine for a purchase price of R 1 437 000 (including VAT). Honeygold had to pay installation fees of R 50 000 to a team of experts who installed the new machine. The experts also stayed on site to assist the employees of Honeygold with the testing of the machine. The following details regarding the sale of products produced during the testing stage is available: Cost of producing test items R 80 000 Proceeds from selling test items R 60 000 The machine was ready and available for use on 30 September 2020. On 1 June 2021 Honeygold acquired a new plant at a total cost of R 172 500 (including VAT). Current legislation requires the plant to be dismantled and the site to be restored at the end of the plant’s useful life. At the date of acquisition the directors determined that the present value of the future estimated cost of dismantling the plant and restoring the site will be R 135 000. As at year end the engineers of Honeygold were still busy with modifications to the plant and it was not yet available for use. Motor vehicles Motor vehicles are depreciated over 4 years and the residual value of vehicles is calculated as 30% of cost price. A vehicle that was acquired on 1 January 2018 at an original cost price of R 780 000 was sold on 1 January 2021 for R 445 000. Computer equipment Computer equipment is depreciated over 5 years and has no residual value. Additional information: The straight-line method of depreciation is used for all assets, except for computer equipment, which is depreciated using the reduced balance method. Honeygold uses the cost model to measure property, plant and equipment. From the date the assets as detailed above were acquired to the beginning of the current financial period no additions or disposals of any assets took place. Honeygold is a registered VAT vendor and all amounts exclude VAT unless otherwise stated. 

REQUIRED: MARKS

a) Prepare the property, plant and equipment note to the annual financial statements of Honeygold for the financial year ended 30 June 2021. The accounting policy note and comparative figures are not required. Note: Show all calculations as marks will be awarded. The total column is not required. Round all amounts of to the nearest Rand. . Communication skills: Presentation [27] [1]

b) Prepare the profit or loss on sale of asset general ledger account in the records of Honeygold for the financial year ended 30 June 2021. [8] 

c) The director of Honeygold does not understand why the profit or loss on sale of asset general ledger account indicates that a profit was made on the sale of the motor vehicle. Explain to the director why the account reflects a profit even though the motor vehicle was sold for less than the amount it was originally purchased for. [4]

Answer rating: 100% (QA)

ANSWER a Property plant and equipment Cost Land and buildings 10 000 000 Plant and machinery 7 800 0... View the full answer