QUESTION $(50$ marks$)(90$ minutes$)$

Kunutu Ltd $($Kunutu$)$ is a JSE listed company operating in the construction sector in South Africa. The

company was incorporated in the early $2000$s by Charlie Kunutu CA$($SA$),$ who is the Chief Financial

Officer of the entity. Over the years, Kunutu has evolved into a major South African manufacturer,

distributor and marketer of clay bricks, clay pavers, tiles and a range of building materials. The following

information has been provided for the financial year ended $31$ January $2024$:

$1.$ Foreign currency exchange transactions

Due to a local shortage of French Pattern Travertine tiles, Kunutu Ltd had to purchase the inventory

from a supplier in France. On $5$ October $2023,$ Kunutu placed a cancellable order amounting to $210000$

to purchase inventory from the supplier. The inventory was shipped free on board, at the agreed port of

departure. The inventory was loaded on the ship on $15$ October $2023,$ but the ship only departed to

South Africa on $21$ October $2023.$

The purchase price of the inventory was payable in two equal instalments of $105000$ each on

$5$ January $2024$ and $5$ February $2024.$

Kunutu sold $40\%$ of the inventory on credit to a South African customer on $25$ January $2024.$

The applicable exchange rates were as follows:

Date $1=$ R

$5$ October $202319\mathrm{.}10$

$15$ October $202319\mathrm{.}35$

$21$ October $202319\mathrm{.}60$

$5$ January $202419\mathrm{.}20$

$31$ January $202420\mathrm{.}10$

$5$ February $202420\mathrm{.}39$

Average rate: $1$ February $2023$ to $31$ January $202419\mathrm{.}89$

$2.$ Paver production plant

Original Cost: $1$ February $2021$ R$4950000$

Carrying amount: $1$ February $2023($correctly calculated$)$ R$4050000$

The plant became available for use as intended by management on $1$ February $2021.$ The residual value

of the plant is considered negligible and remained unchanged through$-$out the period. On

$31$ January $2024,$ there were indications that demand for the pavers produced by the plant had

decreased materially. It was estimated that $33000$ units of pavers could be produced annually by the

plant over its remaining useful life of $8$ years. The selling price per unit is estimated at R$45,$ while the

production cost per unit is estimated at R$25.$ On $31$ January $2024,$ brokers indicated that the plant could

be sold on the open market at a price of R$3500000.$ A fee of $5\%$ of the selling price would be paid to

the brokers to conclude the transaction.

A pre$-$tax discount rate of $15\%$ p$.$a$.,$ compounded annually, is regarded as appropriate.

FAC$3764$ Assessment $4$

Page $4$ of $8$

QUESTION $($continued$)$

$3.$ Waterfall City property

Kunutu purchased a $10-$storey building in Waterfall City on $1$ February $2021$ for a cost price of

R$4200000.$ From $1$ February $2021,$ nine of the ten floors were let out to tenants at a fixed monthly rental

of R$10500$ per floor while one of the floors was occupied by Kunutu. The nine floors were fully occupied

throughout the current year. The estimated useful life of the building was estimated to be $30$ years and

a residual value of R$300000$ was allocated to it$.$

The fair values of the property, as determined by an independent sworn appraiser, were as follows on

the respective dates:

R

$31$ January $20224100000$

$31$ January $20234350000$

$31$ January $20244500000$

$4.$ Investment in bonds

On $1$ February $2023,$ Kunutu purchased bonds in Maputla Ltd at a discount of R$40107$ of the face value

of the bonds, which was also the fair value at this date. A coupon rate of $12\%$ per annum is payable biannually in arrears on the last day of July and January. The bonds will be settled at their face value of

R$500000$ on $31$ January $2028.$ Transaction costs of R$5000$ were incurred in cash and paid by Kunutu

to purchase the bonds. Kunutu holds these bonds within a business model whose objective is to collect

contractual cash flows consisting of interest and principal. The investment in bonds were not considered

to be credit$-$impaired at any stage. The $12-$month expected credit losses were estimated to be R$13500$

and R$15000$ on $1$ February $2023$ and $31$ January $2024,$ respectively.

$5.$ Employee benefit costs

The following information relates to the employee benefit costs of Kunutu$$s manufacturing division:

Number of employees $70$

Leave days balance on $31$ January $2024($in total$)222$ days

Average monthly gross salary expense $($in total$)$ R$1250000$

Average monthly defined contribution plan payment $($in total$)$ R$250000$

$(40\%$ employee contribution: $60\%$ employer contribution$)$

Salaries are paid on the last day of each month.

You may assume that there are $260$ working days in a year and that all employees receive the same

remuneration. Kunutu pays the monthly Pay$-$As$-$You$-$Earn taxation, amounting to R$1100$ per employee,

to the South African Revenue Services on the fifth day of each following month.

All employees are entitled to $20$ days leave per calendar year, which is forfeited if not been taken by

June of the following calendar year. Upon termination of employment, any