PULSE Limited is a JSE listed company, involved in the construction business. The following information relates to
Question:
PULSE Limited is a JSE listed company, involved in the construction business. The following information relates to PULSE Limited for the financial year ended 31 December 2018: On 01 March 2018, PULSE Limited was awarded a government contract to construct a bridge in the Elandeni area. The completion date of the project is 31 October 2018. Since the bridge is to be built over a river, the contract stipulates that the river and the area around the river must be restored to their original condition at the completion of the contract. Construction of the bridge commenced on 30 June 2018. PULSE Limited has the policy to restore the environment at each site where they have completed a project. This policy builds its image and promotes public relations. On 01 March 2018, the present value of the environmental restoration is estimated at R1 500 000. At year-end, PULSE Limited owes its employees an estimated amount of R455 000 in respect of past services. This will be paid out as long as service leave. The payment date has not been finalized.
Required:
1.1 Provide journal entries for the above information for the year ended 31 December 2018.
1.2 Provide reasons for the accounting treatment of the above information.