QUESTION $1$

$[38$ MARKS$]$

$[69$ MINUTES$]$

IGNORE TAXATION & VAT

Hold Ltd is a South African company operating in the construction industry. Hold Ltd

is listed on the JSE Ltd and has been a key player in the construction industry since

Hold Ltd has a $31$ December year$-$end.

In January $2020,$ the board members of Hold Ltd decided to expand their business

and identified that in order to fund this expansion, they will need to obtain a foreign

loan as the interest rates are better suited for the needs of the company and they will

have to purchase inventory from a foreign supplier, who has better quality inventory,

as their market research has identified that better quality inventory will address the

needs of their customers. Hold Ltd entered into the following foreign transactions:

Transaction $1$

On $1$ January $2020$ Hold Ltd obtained a loan of $$200000$ at a market$-$related interest

rate of $10\%$ per annum. Hold Ltd is required to make a repayment of $$30000$ annually

in arrears with the first payment due on $31$ December $2020.$

Transaction $2$

On $1$ September $2020$ Hold Ltd placed an order amounting to $$120000$ to purchase

inventory from a supplier in the USA. The inventory was shipped free on board, at the

agreed port of departure. The inventory was delivered to the Port Newark$-$Elizabeth

Marine Terminal, New Jersey $($USA$),$ on $28$ September $2020,$ which is the agreed port

of departure. The inventory was loaded on the ship on $28$ September $2020$ but the

ship only departed to South Africa on $10$ October $2020.$

The total amount owing was paid on $1$ January $2021.50\%$ of the inventory was still on

hand by $31$ December $2021,$ and its estimated net residual value was R$891000.$

End of Question $1$

$\backslash$table$[[$The following exchange rates apply:,US$$1=$ R$],[1$ January $2020,],[,16,00],[28$ September $2020,16,28],[31$ December $2020,16,10],[31$ January $2021,16,15],[31$ December $2021,16,20],[$Average $1$ January $2020-31$ December $2020,16,05],[$Average $1$ January $2021-31$ December $2021,16,11]]$

$\backslash$table$[[$REQUIRED$,$MARKS$],[,,\backslash$table$[[$Sub$],[$total$]],$Total$],[($a$),\backslash$table$[[$Prepare the journal entries to account for the foreign loan in$],[$the accounting records of Hold Ltd for the years ended$],[31$ December $2020$ and $31$ December $2021.$ Only prepare$],[$the interest table for the years required by the question.$],[$Dates and narrations are required.$]],25,25],[($b$),\backslash$table$[[$Prepare the journal entries to account for the inventory$],[$purchased from the supplier in the USA in the accounting$],[$records of Hold Ltd for the years ended $31$ December $2020],[$and $31$ December $2021.]],13,13],[,$TOTAL,,$38]]$