On $20$ June $2022,$ Sookim Ltd $($hereafter $$Sookim$)$ signed a purchase agreement to acquire

property. The property represents an office complex and is situated in Johannesburg. The

purchase agreement stated that the purchase amount is R$10$ million. A sworn valuer allocated

the purchase amount of R$10$ million as follows: land of R$2$ million and buildings of R$8$ million.

The legal fees incurred on this transaction amounted to R$200000.$

On $1$ July $2022,$ the deeds office registered the property in the name of Sookim. On the same

day, a mortgage bond of R$8\mathrm{.}5$ million was obtained from Stars Bank. The mortgage bond was

registered against the property. Stars Bank paid the amount, on behalf of Sookim, directly to the

seller on $1$ July $2022.$ The outstanding balance, including the legal fees, was settled on the

same day by means of an electronic funds transfer.

The bond agreement reflects the interest rate as a fixed rate of $10\%$ per year. The mortgage

bond is repayable in $20$ annual equal instalments of R$998407.$ The first instalment is payable

on $30$ June $2023.$

Depreciation on buildings is written off at $2\%$ per year on the cost using the straight$-$line method.

An extract of the repayment schedule, in respect of the mortgage bond, is as follows:

Date Total Capital portion Interest at $10\%$

per year

Amortised cost

$01/07/22$ Loan $8500000$

$30/06/23$ Instalment $19984071484078500008351593$

$30/06/24$ Instalment $29984071632478351598188346$

$30/06/25$ Instalment $39984071795728188358008773$

$30/06/26$ Instalment $49984071975298008777811244$

$30/06/27$ Instalment $59984072172827811247593962$

In accordance with an operating lease agreement, the property is leased out to a small

business. The lease term is $5$ years from $1$ January $2023,$ at an equal monthly rent of R$22000,$

and is repayable every month in arrears. The rental payments were paid accordingly. The total

maintenance cost of the property amounted to R$13000$ on $30$ June $2023$ and was paid

accordingly on this date.

Sookim purchased the property for purposes of capital appreciation as well as to earn rental

income. Sookim decided to account for the property in terms of the fair value model.

An independent sworn valuer determined the following fair value on $30$ June $2023$ as R$12$

million, of which land is R$3$ million and buildings of R$9$ million.

Ignore VAT

REQUIRED

a$)$ Recognise, by means of journal entries, the transactions in the accounting records of

Sookim for the reporting period ended $30$ June $2023.$

$(13$ marks$)$

b$)$ Prepare the investment property note and long$-$term borrowings note as it would appear

in the financial statements of Sookim for the financial year ending $30$ June $2023.$

Accounting policies and comparative figures are NOT required.