Shapumba Ltd is a company that operates 3 different leisure lodges in the north and north-eastern part

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Question:

Shapumba Ltd is a company that operates 3 different leisure lodges in the north and north-eastern part of Namibia. The company’s reporting period ends on 30 June. The following relevant accounting policies of Shapumba Ltd are presented to you: - Vehicles are depreciated at 10% per year on cost price with no residual value. - The company values its inventory according to the weighted average cost method using the historical cost model. - The company subsequently measures investment property according to the fair value model. The company is preparing the financial statements for the reporting period ended 30 June 2017 and has requested your assistance and advice on the following matters. The financial statements will be approved on 20 August 2017. Ignore VAT in all the matters.

MATTER 1

On 1 February 2015 Shapumba Ltd purchased equipment with an invoice price of N$ 645 800 by entering into a loan agreement with the Development Bank. The equipment is pledged as security for the loan. The loan instilments will consist of equal monthly instilments over a period of 4 years and a final residual payment of N$ 55 000. The interest rate applicable on this lease agreement is 10% per year, compounded monthly. All payments due have been paid on time each month. The equipment is depreciated on the straight line basis over 8 years with no residual value.

Required:

Disclose the long term borrowings note applicable to the lease liability in the Statement of Financial Position of Shapumba Ltd on 30 June 2017 in accordance with International Financial Reporting Standards.

MATTER 2

On 10 January 2016 Shapumba Ltd purchased vacant land at a price of N$ 800 000. The land is situated about 10 kilometers from Shapumba Ltd.’s closest operations and was purchased with the sole aim of selling it at a profit after 5 years. Because of its ideal location and the developments that commenced in the area after Shapumba Ltd purchased the land, a sworn valued estimates the fair value on 30 June 2017 at N$ 1 660 000. The Chief Financial Officer (CFO) is however of the opinion that the value of the land on the Statement of Financial Position on 30 June 2017 should be kept at the original cost price of N$ 800 000. He also stated that the new value would just attract unnecessary taxes.

Required:

With reference to relevant International Financial Reporting Standards, define investment property and also discuss whether you think the land should subsequently be measured at cost price or fair value.