Otjituuo Domestic Entity (OD Entity), is a small highway construction company based in Benoni, Johannesburg. The business

Fantastic news! We've Found the answer you've been seeking!

Question:

Otjituuo Domestic Entity (OD Entity), is a small highway construction company based in Benoni, Johannesburg. The business has been in operation for a number of years. OD Entity and all its suppliers are registered VAT sellers and VAT is calculated at 15%. The financial year end of OD Entity is 31 March.
The following table reflects the property, plant and equipment information at 1 April 2016.

	N$	N$	N$	N$
	Building	Equipment	Furniture	Plant
Cost	?	5 300 000	3 450 000	2 000 000
Accumulated depreciation	?	(2 500 000)	(2 415 000)	(1 480 000)
Carrying value	?	2 800 000	1 035 000	520 000

The following additional information is available:
1. Building

The building was constructed at a cost of N$ 5 000 000. The accounting policy of the entity is to depreciate the building on a straight line basis over a period of 25 years. The building was built next to a sensitive wetland and one of the conditions in the permit to build, was that sections close to the wetland would have to be rehabilitated after 25 years. It is reliably estimated that the present value of these rehabilitation costs would be N$ 570 000 excluding VAT. The rehabilitation costs meet the definition and recognition criteria of a liability. The residual value is estimated at N$ 1 500 000. The building was available and ready for use on 1 July 2012.

2. Equipment

Excavation equipment is depreciated on a straight line basis over an estimated useful life of 8 years with a residual value of N$ 300 000. On 31 March 2017, the construction manager, after reviewing the condition of the equipment, indicated that the total useful life of the equipment should be revised to 10 years with the residual value remaining unchanged.

3. Furniture

Furniture is also depreciated on a straight line basis over 10 years with no residual value. As a result of its recent poor condition, an expert was called in to evaluate the furniture. Her professional opinion is that the furniture is not the quality that was originally anticipated and has estimated that the recoverable amount of the furniture is N$ 510 000 on 31 March 2017.
4. Plant
The plant is used for crushing rocks removed from the civil sites. It is depreciated on a units of production method based on the number of tons of rocks crushed and has no residual value. Plant similar to the one owned by OD Entity are expected to crush 1 million tons of rocks over their useful lives. With advances in technology, it was established that a more fuel efficient and reliable model is on the market. RC Entity decided to trade-in the existing plant for a new plant on 1 October 2016 from PM Entity. Up to 30 September 2016, the existing plant had crushed 890 000 tons of rocks since it was brought into operation.
The new plant cost N$ 2 508 000 (VAT included) and PM Entity agreed to give OD Entity a VAT-inclusive trade-in credit of N$ 342 000 and the balance would be financed by the supplier’s loan facility.
The new plant is expected to crush 1,8 million tons of rocks over its useful life, and it has crushed 120 000 tons up to 31 March 2017.

Required:
a) Provide ALL journal entries relating to the plant for the period ended 31 March 2017.

- Journal narrations are not required.

- The effect on the accounting equation (A = E + L) is not required.

- The effect of journal entries on Profit & Loss (P&L), Statement of changes in Equity (SCE) and Statement of Financial Position (SFP) must be shown in brackets.

b) Disclose the Property, Plant and Equipment note to the financial statements of OD Entity for the reporting period ended 31 March 2017.
- When preparing the note, record the assets in the separate columns namely, Building, Equipment, Furniture and Plant.

- The Total column of the note is not required.

- Accounting policy notes are not required.

- Show all calculations and reference clearly.

- Round off to the nearest Dollar amount where applicable.