Meatalicious Limited, a company with a 30 June 2020 year end, is a supplier of processed...

  

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Meatalicious Limited, a company with a 30 June 2020 year end, is a supplier of processed meat and meat related products. Meatalicious has several facilities (factories) where the meat products are processed. Meatalicious is growing rapidly due to the high demand for its products. New factory. Due to the rapid growth in the company, Meatalicious decided to expand its factory premises to process and produce more meat products. On 1 July 2019, Emile Vos, the Financial Director of Meatalicious Limited, signed an offer with Super Properties to purchase a factory for R1 500 000. The offer was accepted on 1 August 2019 at the offered price. The terms of the contract stated that the transfer of ownership of the property took place on 31 December 2019, on which date the factory was available for occupation by Meatalicious Limited. The property was paid for in cash by Meatalicious Limited on the 31 December 2019. At the year end, 30 June 2020, the market value of the property was R2 000 000. Court case instituted by the customer. On, 25 May 2020, a customer who purchased and consumed a pack of polony (a meat product) from Meatalicious Limited suffered from severe listeria symptoms such as convulsions, diarrhea and meningitis. The customer was hospitalised for a few days and alleged that his illness was due to the polony purchased from Meatalicious which he believed was contaminated with listeria and therefore took Meatalicious Limited to court. Meatalicious Limited is not insured against any claims of this nature. Legal action was instituted against Meatalicious Limited and investigations were conducted. Court proceedings were held on the 30 June 2020 on which day, it was indicated that a strand of the listeriosis infection was indeed found at one of Meatalicious Limited's facilities from where the polony originated. On the 30 June 2020, the Judge finally ordered Meatalicious Limited to pay compensatory damages of R80 000 to the customer. Meatalicious agreed to pay the amount, which is still owing on 30 June 2020. REQUIRED: 3.1.1) Prepare the general journal entry (if any) that would be processed on the 1 July 2019 in relation to the new factory. Give a reason for your answer. (2 marks) 3.1.2) Prepare the general journal entry to record the purchase of the factory in the books of Meatalicious Limited. Indicate clearly the date of the transaction. (2 marks) 3.1.3) Prepare the general journal entries necessary on the 30 June 2020 assuming that business recognises the asset at fair value. Include the closing off journal entry. (4 marks) 3.2) Discuss how the result of the legal case (damages amounting to R80 000) should be treated in the financial statements of Meatalicious Limited for the year ended 30 June 2020. Your answer should include full definitions and recognition criteria as outlined by IFRS in the conceptual framework. (10 marks) Aligned to SAICA competencies: III-2.1 III-2.2 Develops or evaluates accounting policies in accordance with IFRS Identifies the economic substance of financial transactions in order to correctly identify the appropriate IFRS and accounting treatment Accounts for the entity's routine transactions Analyses and calculates, or evaluates, the accounting for routine transactions (e.g. sales, cost of sales, operating expenses) Meatalicious Limited, a company with a 30 June 2020 year end, is a supplier of processed meat and meat related products. Meatalicious has several facilities (factories) where the meat products are processed. Meatalicious is growing rapidly due to the high demand for its products. New factory. Due to the rapid growth in the company, Meatalicious decided to expand its factory premises to process and produce more meat products. On 1 July 2019, Emile Vos, the Financial Director of Meatalicious Limited, signed an offer with Super Properties to purchase a factory for R1 500 000. The offer was accepted on 1 August 2019 at the offered price. The terms of the contract stated that the transfer of ownership of the property took place on 31 December 2019, on which date the factory was available for occupation by Meatalicious Limited. The property was paid for in cash by Meatalicious Limited on the 31 December 2019. At the year end, 30 June 2020, the market value of the property was R2 000 000. Court case instituted by the customer. On, 25 May 2020, a customer who purchased and consumed a pack of polony (a meat product) from Meatalicious Limited suffered from severe listeria symptoms such as convulsions, diarrhea and meningitis. The customer was hospitalised for a few days and alleged that his illness was due to the polony purchased from Meatalicious which he believed was contaminated with listeria and therefore took Meatalicious Limited to court. Meatalicious Limited is not insured against any claims of this nature. Legal action was instituted against Meatalicious Limited and investigations were conducted. Court proceedings were held on the 30 June 2020 on which day, it was indicated that a strand of the listeriosis infection was indeed found at one of Meatalicious Limited's facilities from where the polony originated. On the 30 June 2020, the Judge finally ordered Meatalicious Limited to pay compensatory damages of R80 000 to the customer. Meatalicious agreed to pay the amount, which is still owing on 30 June 2020. REQUIRED: 3.1.1) Prepare the general journal entry (if any) that would be processed on the 1 July 2019 in relation to the new factory. Give a reason for your answer. (2 marks) 3.1.2) Prepare the general journal entry to record the purchase of the factory in the books of Meatalicious Limited. Indicate clearly the date of the transaction. (2 marks) 3.1.3) Prepare the general journal entries necessary on the 30 June 2020 assuming that business recognises the asset at fair value. Include the closing off journal entry. (4 marks) 3.2) Discuss how the result of the legal case (damages amounting to R80 000) should be treated in the financial statements of Meatalicious Limited for the year ended 30 June 2020. Your answer should include full definitions and recognition criteria as outlined by IFRS in the conceptual framework. (10 marks) Aligned to SAICA competencies: III-2.1 III-2.2 Develops or evaluates accounting policies in accordance with IFRS Identifies the economic substance of financial transactions in order to correctly identify the appropriate IFRS and accounting treatment Accounts for the entity's routine transactions Analyses and calculates, or evaluates, the accounting for routine transactions (e.g. sales, cost of sales, operating expenses)

Answer rating: 100% (QA)

311 General Journal Entry to be processed on 1 July 2019 in relation to the new factory Debit Cash R1 500 000 Credit Property Plant and Equipment R1 5... View the full answer