Mukatshi Ltd a manufacturer operates in an environment for which a fund has been established for environmental
Question:
Mukatshi Ltd a manufacturer operates in an environment for which a fund has been established for environmental rehabilitation purposes. It is compulsory for all businesses who operate in this specific environment to contribute. The fund is managed by independent trustees. The company’s interest in the fund is estimated at 10%. Mukatshi Ltd provided a provision of R100 000 (10% of total costs) for the rehabilitation cost on 1 January 2018 (the date on which the fund was established).
The R100 000 provision is the present value of the cost discounted at 10% over 10 years.
2019 | 2018 | |
R | R | |
Funds contributed by Mukatshi Ltd during the financial year | 12 000 | 10 000 |
Fair value of fund’s assets at year end | 300 000 | 110 000 |
During 2018 and 2019 the information relating to the fund is as follows for the years ended 31 December:
It is not possible to allocate any portion of the rehabilitation expenses to any asset. Mukatshi Ltd does not have control or joint control of, or any significant influence over the fund.
Provide the journal entries in respect of the rehabilitation fund in the books of Mukatshi Ltd for the years ended 31 December 2018 and 2019.
Please note:
• Ignore any normal income tax implications.
• Ignore any Value-Added Taxation (VAT) implications.
• Journal narrations are not required.
• Your answer must comply with International Financial Reporting Standards (IFRS).
Economics of Strategy
ISBN: 978-1118319185
6th edition
Authors: David Besanko, David Dranove, Mark Shanley, Scott Schaefer