Telstar Limited was incorporated on 2 January 2015. On 3 January 2015, the company ordered plant...

 

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Telstar Limited was incorporated on 2 January 2015. On 3 January 2015, the company ordered plant from Germany at a cost of E1 million. The plant was loaded free on board in Hamburg on 1 March 2015, when the spot rate was R10,55=E1. The plant arrived on Telstar Limited's premises on 1 April 2015 when the spot rate was R9.51 = E1. The supplier was also paid on 1 April 2015. On 31 December 2015, the spot rate was R10.30 = E1. The following additional costs (all immediately settled by cheque) were incurred on installing the plant at Telstar Limited's Pietermaritzburg premises during April 2015: 0 R1 million on a special foundation that has an estimated useful life of 2 years at which time it must be replaced; O R800 000 on professional fees, labour and materials to modify the plant to South African Bureau of Standards specifications; 0 R1,2 million on calibration and inspection costs that are required by law to be conducted before production commences and at three yearly intervals thereafter, R200 000 road transport and other sundry costs of getting the plant to Pietermaritzburg: 0 and 0 R500 000 was spent on materials and labour in testing to ensure that the plant was functioning properly (before bringing it into commercial production). R100 000 of this cost was recovered by selling, as scrap, the inventories produced in the testing process. The plant was brought into commercial production on 1 May 2015 and operated at a loss of R1 million during May after which it operated profitably. The imported plant has an estimated useful life of 5 years with no residual value. Telstar Limited provides for depreciation on the straight-line method. In accordance with IAS 37 a R2 million provision for environmental restoration was raised in respect of contamination caused by installing the plant. Required: Prepare the journal entries (including cash entries) to record all matters relating to the property. plant and equipment and the related foreign creditor in Telstar Limited's accounting records for the year ended 31 December 2015. BABY LIMITED (5 marks) On 1 January 2015, a fire started by striking workers destroyed 90% of one of Baby Limited's factory buildings (classified as property, plant and equipment) whose carrying amount on that date was R100 million. Unfortunately Baby Limited had underinsured against such eventualities and therefore received only R40 million (excluding VAT) in full and final compensation from the company's insurers. Baby Limited expended R30 million (excluding VAT) of the insurance proceeds in partly restoring the building. On 12 January 2015, when the partial restoration had been completed and manufacturing activities resumed in the factory, the directors changed their estimate of the building's remaining useful life from 10 years to 5 years. All of the company's other factory buildings are still depreciated on the straight-line method to nil residual values over 20 years. Baby Limited accounts for changes in accounting estimates on the reallocation method. Required: DISCUSS how Baby Limited should account for the transactions and events presented above in its 2015 annual financial statements. Ignore income taxation effects. Telstar Limited was incorporated on 2 January 2015. On 3 January 2015, the company ordered plant from Germany at a cost of E1 million. The plant was loaded free on board in Hamburg on 1 March 2015, when the spot rate was R10,55=E1. The plant arrived on Telstar Limited's premises on 1 April 2015 when the spot rate was R9.51 = E1. The supplier was also paid on 1 April 2015. On 31 December 2015, the spot rate was R10.30 = E1. The following additional costs (all immediately settled by cheque) were incurred on installing the plant at Telstar Limited's Pietermaritzburg premises during April 2015: 0 R1 million on a special foundation that has an estimated useful life of 2 years at which time it must be replaced; O R800 000 on professional fees, labour and materials to modify the plant to South African Bureau of Standards specifications; 0 R1,2 million on calibration and inspection costs that are required by law to be conducted before production commences and at three yearly intervals thereafter, R200 000 road transport and other sundry costs of getting the plant to Pietermaritzburg: 0 and 0 R500 000 was spent on materials and labour in testing to ensure that the plant was functioning properly (before bringing it into commercial production). R100 000 of this cost was recovered by selling, as scrap, the inventories produced in the testing process. The plant was brought into commercial production on 1 May 2015 and operated at a loss of R1 million during May after which it operated profitably. The imported plant has an estimated useful life of 5 years with no residual value. Telstar Limited provides for depreciation on the straight-line method. In accordance with IAS 37 a R2 million provision for environmental restoration was raised in respect of contamination caused by installing the plant. Required: Prepare the journal entries (including cash entries) to record all matters relating to the property. plant and equipment and the related foreign creditor in Telstar Limited's accounting records for the year ended 31 December 2015. BABY LIMITED (5 marks) On 1 January 2015, a fire started by striking workers destroyed 90% of one of Baby Limited's factory buildings (classified as property, plant and equipment) whose carrying amount on that date was R100 million. Unfortunately Baby Limited had underinsured against such eventualities and therefore received only R40 million (excluding VAT) in full and final compensation from the company's insurers. Baby Limited expended R30 million (excluding VAT) of the insurance proceeds in partly restoring the building. On 12 January 2015, when the partial restoration had been completed and manufacturing activities resumed in the factory, the directors changed their estimate of the building's remaining useful life from 10 years to 5 years. All of the company's other factory buildings are still depreciated on the straight-line method to nil residual values over 20 years. Baby Limited accounts for changes in accounting estimates on the reallocation method. Required: DISCUSS how Baby Limited should account for the transactions and events presented above in its 2015 annual financial statements. Ignore income taxation effects.

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Telstar Limited The journal entries to record all matters relating to the property plant and equipment and the related foreign creditor in Telstar Lim... View the full answer