QUESTION 2 (25 marks)

Express Couriers (Pty) Ltd is a global leader in the logistics industry. The entity specialises in international shipping, courier services and transportation.

Financial statements:

Mr. Trial, the Accountant, prepared the financial statements for the 2022 financial year-end, which included the following:

Notes to the annual financial statements for the year ended 31 December 2022

1. Revenue

Revenue consists of services invoiced to customers.

2. Unlisted investments

The unlisted investments of the entity represent long-term investments carried at fair value.

Change in method of depreciation:

In the 31 December 2022 annual financial statements, the property plant and equip-ment note showed amongst others, the following: Rand
Vehicles purchased 1 July 2019	1 250 000
Accumulated depreciation	(530 000)
720 000

Express Couriers (Pty) Ltd accounted for depreciation on vehicles using the reducing balance method at 20% per annum. At a Board meeting held during the year, it was decided by the Directors that from 1 January 2022, vehicles would be depreciated using the straight-line method as it reflects the economic benefits of the vehicles ap-appropriately.

The total useful life of the vehicles had been originally estimated as 5 years. It can be assumed that the original estimate of 5 years has remained unchanged. No depreciation has been accounted for in the current financial year.

South African Revenue Service allows for wear and tear at 20% per annum using the reducing balance method. The income tax rate is 28%.

The entity will earn sufficient taxable income in the future to justify the creation of a deferred tax asset should it be necessary for the statement of financial position.

REQUIRED:

2.1) With reference to the information under Financial statements, suggest improvements to the revenue and unlisted investments accounting policy notes in the 31 December 2022 annual financial statements to better reflect the disclosure and reporting according to the requirements of IAS 8. You are not required to rewrite the accounting policy notes. (4 marks)

2.2) With reference to the information under Change in the method of depreciation, calculate the following to be included in the financial statements of Express Couriers (Pty) Ltd for the year ended 31 December 2022:

Depreciation and deferred tax effect for the current 2022 financial year; and

Depreciation and deferred tax effect for the year ended 31 December 2023. (12 marks)

2.3) Prepare all the necessary general journal adjustments to account for the change in accounting estimate in the 31 December 2022 financial statements of Express Couriers (Pty) Ltd. Journal dates and narrations are not required. (4 marks)

2.4) Discuss the note disclosure requirements relating to the change in accounting estimate as determined by IAS 8. (5 marks)

Note:

All amounts should be rounded to the nearest Rand. Show all calculations clearly.

Your answer must comply with International Financial Reporting Standards (IFRS).