UNIVERSITY OF JOHANNESBURG
COLLEGE FOR BUSINESS AND ECONOMICS
DEPARTMENT OF COMMERCIAL ACCOUNTING
FAC22B2
UNIT 1: Practical Question 1 - Property, plant and equipment Week 2
Learning objectives
• Identify the correct acquisition date
• Identify the date at which to start depreciating the asset
• Identify the method of acquisition and its effect (acquired by way of cash or cash
equivalent)
• Calculate depreciation expense using different depreciation methods
• Account for subsequent expenditure (either as improvement costs or day-day
servicing costs).
• Derecognition of a PPE item
• Prepare journal entries and correcting journal entries
Questions taken from FAC22B2 2023 (TEST 1)
Question 1 – Property, Plant and Equipment (7 marks)
Siyandiza (Pty) Ltd is an airline company that owns a few aeroplanes to generate income from
flying passengers in South Africa.
Below is information about the company’s items of property, plant and equipment.
Acquisition Residual Depreciation Total Useful Life/
Name Note Cost
date Value Method Depreciation rate
Aeroplane: 1 July 2020
Frame 1 2 000 000 500 000 Straight Line 15 years
Engine 1 1 000 000 200 000 Units of production 2 000 000 km
Notes:
1. Aeroplane: The aeroplane has two main parts (frame and engine).
a. Engine: The following km were recorded in the 2023 financial year
• 600 000 km were expected to be recorded.
• 700 000 km were actually recorded.
.
The company’s year-end is 30 June. Ignore VAT implications.
Required:
a. Should the frame and engine be accounted for as significant components of the
aeroplane? Give a reason for your answer (2)
b. Calculate the depreciation expense for the aeroplane for the year ended 30 June 2023
(5)
Question 2 - Property, Plant and Equipment (18 marks)
AmaGuitar (Pty) Ltd bought two assets during the current year:
AmaGuitar is an entertainment company. Due to the high cost of petrol, management decided
to sell its current WV TGI 4 litre in exchange for a Kipanto 1.6 litre with We Buy Wheels (Pty)
Ltd. Below are the details of the vehicles on the date of the exchange (1 June 2022). The risk
and rewards of ownership were transferred on 1 June 2022.
The following balances relate to the two vehicles on 1 June 2022. The fair value for both
vehicles can be measured reliably.
Cost Carrying Amount Fair Value
VW TGI R700 000 R550 000 R450 000
Kipanto R300 000 R300 000 R320 000
AmaGuitar dropped off the WV TGI at We Buy Wheels on 1 June 2022. The Kipanto was
ready for collection on 1 June 2022. However, the Kipanto was only collected on 20 June
2022. The Kipanto can be used from the day the road-worthy test, license disk and insurance
are obtained. All of these were obtained on 30 June 2022. As at 30 June 2022, Kipanto useful
life was 4 years.
The driver at AmaGuitar was involved in an accident whilst driving the Kipanto on 23
September 2022. The car was taken to the panelbeaters for repairs. The total value of the
repairs was R56 000. These repairs fixed the damage caused by the accident. However,
management also asked the panel beaters to do additional work that improves the future
economic benefits of the vehicle. This additional work amounted to R25 000. All these costs
were incurred and paid for in cash on 30 September 2022. The remaining useful life was
assessed on 30 September 2022, and it had not changed. All vehicles are depreciated to zero
residual value using the straight-line method.
AmaGuitar has a 30 June financial year end.
Required:
a. On which date can AmaGuitar start depreciating the Kipanto? Give a reason for your
answer (2)
b. What is the cost of the Kipanto on the initial measurement in AmaGuitar’s financial
statements? Give a reason for your answer (2)
c. Provide the journal entries to account for the initial measurement for the transaction.
You are required to include date, classification of transactions and show all workings (6)
d. Provide the journal entries to account for the transactions on 30 September 2022. (3)
e. Calculate the depreciation expense for the Kipanto for the year ended 30 June 2023 (5)
