The following balances were extracted from the accounting records of Brakes Ltd for the
financial year ended 28 February 2022:
Revenue ......................................................................................................(R8 140 000)
Administrative expenses: .............................................................................R2 077 000
Bank charges ...............................................................................................R24 000
Salaries and wages .....................................................................................R1 900 000
Advertising ...................................................................................................R110 000
Auditors’ remuneration:
- Fees for audit ...........................................................................................R35 000
- Expenses .................................................................................................R8 000
Distribution costs .........................................................................................R26 000
Other operating expenses (including finance costs, depreciation and lease
payments) (additional information 2,3,6,8) ...................................................R890 000
Other operating income ...............................................................................(R76 000)
Motor vehicles at cost .................................................................................R480 000.
Right-of-use asset (additional information 8) ...............................................?
Land and buildings at cost ...........................................................................R1 600 000
Investments in Bikes Ltd at cost ..................................................................R40 000
Investments in Trikes Ltd at cost .................................................................R500 000
Finance lease liability (additional information 8) ..........................................?
Income tax expense (after all adjustments have been taken into account)…..R95 000

Additional information:
1. Brakes Ltd maintained a consistent 40% gross profit percentage throughout the
current year.
2. A credit sales transaction that took place on 28 February 2022 with a total
consideration of R200 000, was not yet recorded. The sale consisted of a significant
financing component, with a condition that the amount must be paid on
28 February 2023. Brakes Ltd determined that the amount that reflects the credit
risk is 13,5% per annum.
3. Included in other operating expenses is an amount of R4 000 in respect of lease
payments for five photocopying machines from Xerox Ltd. The contract is a lease in
terms of IFRS 16. Brakes Ltd elected to apply the recognition exemption in respect
of low value assets to this lease agreement (IFRS 16.5). The following information
is applicable to the lease contract:
- The lease term is 3 years.
- The lease was entered into on 2 January 2022.
- The lease payments are R2 000 per month for the first 6 months and R3 000 per
month for the 6 months thereafter. The lease instalments for the last two years
are R4 000 per month. These monthly payments are for all five machines in total.
- At the commencement of the lease Brakes Ltd had the option to extend the lease
for a year at R800 per month and it was reasonably certain that they would
exercise this option to extend the lease.
- 5% of every lease payment goes towards covering the maintenance costs
incurred and to be paid for by Xerox Ltd. Brakes Ltd accounts for lease and nonlease components separately (IFRS 16.12).
4. Other operating income consists of:
Dividends received from the following companies:
- Trikes Ltd ...............................................................................................R40 000
- Bikes Ltd ................................................................................................R36 000
5. The issued ordinary share capital of Bikes Ltd is R160 000 (shares issued at
R2 each). Brakes Ltd purchased 20 000 shares in Bikes Ltd at a cost of R2,00 each.
The market value of the shares on 28 February 2022 was R2,50 per share. These
shares have been obtained for speculative purposes.
Brakes Ltd owns 100 000 of the 2 400 000 issued shares in Trikes Ltd, purchased
for R500 000. The shares of Trikes Ltd are traded on the Johannesburg Securities
Exchange and the market value per share was R5,50 each on 28 February 2021.
The market value on 28 February 2022 was R6,50 per share. These shares were
classified as “financial assets at fair value through other comprehensive income”.
6. Property, plant and equipment are depreciated at the following rates and methods:
Motor vehicles - 25% per annum using the straight-line method.
Machinery - 20% per annum using the straight-line method.
Buildings - the straight-line method over its expected useful life of
20 years.
7. Land and buildings consisted of the following:
- Land with a building thereon, purchased on 1 March 2020 for R500 000 and
R1 100 000 respectively. The land was revalued to R900 000 on 1 March 2021
by J John, an independent sworn appraiser. The land and building are situated
on Plot 25, Pretoria East, Tshwane and is owner occupied.
8. Brakes Ltd entered into a contract with Spade Ltd on 1 March 2021, whereby
Brakes Ltd will lease a machine for a period of four years. The installments are R132 000
and are payable annually in arrears. The interest rate implicit in the lease is 12,1104% per
year. Ownership of the machine will transfer to Brakes Ltd at the end of the lease term at no
additional cost. The contract is classified as a lease in terms of IFRS 16 Leases.
Depreciation for all assets have been accounted for under operating expenses with
the exception of the leased asset. The machine has a useful life of five years.
REQUIRED:
a) Prepare the statement of profit or loss and other comprehensive
income of Brakes Ltd for the financial year ended 28 February 2022 in
compliance with the requirements of the Companies Act (2008) and
International Financial Reporting Standards (IFRS).

Answer rating: 100% (QA)

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