10/112022 QUESTION 1 (25 marks) (45 minutes) Ingonyama Private Game Lodge Ltd ("Ingonyama") is an establishment based in Mdantsane, Eastern Cape. Ingonyama is a renowned game lodge best known for its majestic views of the Indian ocean, Elandsberg mountains and a variety of wildlife. Ingonyama has 100000 authorised shares and 75000 issued shares. Ingonyama has a 30 June financial year end. The annual financial statements of Ingonyama were presented to the board of directors for authorization for issue on 31 August 2022. The following information relates to specific transactions of Ingonyama for the year ended 30 June 2022: MyTravel application On 30 June 2021, during the procurement process for a new travel application, Ingonyama acquired the MyTravel application from Welnnovate Ltd. On the acquisition date, the directors of Ingonyama determined that the MyTravel application satisfied the definition of an intangible asset and all the criteria for recognition as an intangible asset in terms of IAS 38 intangible assets. The MyTravel application was acquired in an exchange transaction where Ingonyama gave up its luxurious holiday house in Plettenberg bay. On 30 June 2021, the date of the exchange, the carrying amount of the property was R2 800000 . The fair values of the Plettenberg bay property and the MyTravel application was determined to amount to R3 200000 and R2 950000 respectively on 30 June 2021. You may assume that the exchange transaction has commercial substance. Ingonyama paid R350 000 to a software developer to finalise the development of the MyTravel application. Ingonyama consulted with Mr.Gigabytes, an expert in application development and paid him a R35 000 monthly consultation fee for 3 months from 1 July 2021 . The development of the MyTravel application was concluded on 1 October 2021 and on this date the application was ready for use as intended by management. On 1 October 2021 , the application had an estimated useful life of 10 years and an estimated residual value of R355 000. The directors believed that a market exists and will continue to exist for the foreseeable future for the MyTravel application. The useful life and residual value of the security software remained unchanged throughout the period. Intangible assets are accounted for in accordance with the cost model. Amortisation is written off in accordance with the straight-line method over the asset's estimated useful life. Dividends declared On 15 July 2022, Ingonyama declared a dividend of 60 cents per share to its shareholders. The amount was paid out to the shareholders on 1 August 2022. Bokamoso Ltd debt ("Bokamoso") On 10 July 2022 , Ingonyama received a letter informing them of the start of a liquidation process against Bokamoso one of Ingonyama's largest corporate clients. Bokamoso suffered a major loss due to a fire that broke out at its largest factory in Matatiele on 28 June 2022. Bokamoso owed Ingonyama R2 750000 on 30 June 2022 . The liquidators informed Ingonyama that they will likely receive 30% of the amount owed as at 30 June 2022 . Hamba travel agency booking ("Hamba") On 1 June 2022 , Hamba travel agency booked one of the lodges at Ingonyama for a group of tourists from Uganda. The lodge booking was for the period 20 December 2022 to 2 January 2023. Hamba travel agency paid an amount of R750 000 for the booking on 15 June 2022 . Claims against Ingonyama On 20 June 2022 Ingonyama lost two court cases and was found liable for the claims instituted against the company. The amounts due by Ingonyama to the plaintiffs will however only be confirmed during the sentencing hearing scheduled for early August 2022 . The legal advisors of Ingonyama estimated at year end, on 30 June 2022 , that Ingonyama will be liable for the following amounts: - R250000 for a medical expense claim, instituted on 10 January 2022 by an employee of Ingonyama, who was injured on the company's premises while on duty. The claim will be deductible for tax purposes when it is settled. - R600 000 for a claim, instituted on 30 November 2021 by a competitor, against Ingonyama for breach of contract. The claim is regarded as of a capital nature for tax purposes and is not deductible for tax purposes when it is settled. Taxation The South-African normal tax rate is 28%. The South African Revenue Service allows a tax allowance of 5% on the expenditure on mobile applications, in terms of section 11(gC) of the Income Tax Act, according to the straight-line method; not apportioned for periods shorter than a year. The company provides for deferred tax on all temporary differences according to the statement of financial position approach. There are no other items causing temporary or exempt differences, except those evident in the question. There is certainty beyond reasonable doubt that the company will have sufficient taxable profit in future against which any deductible temporary differences can be utilised. Assumptions - All amounts are material, and you may ignore the implications of value-added tax. 10/112022 QUESTION 1 (25 marks) (45 minutes) Ingonyama Private Game Lodge Ltd ("Ingonyama") is an establishment based in Mdantsane, Eastern Cape. Ingonyama is a renowned game lodge best known for its majestic views of the Indian ocean, Elandsberg mountains and a variety of wildlife. Ingonyama has 100000 authorised shares and 75000 issued shares. Ingonyama has a 30 June financial year end. The annual financial statements of Ingonyama were presented to the board of directors for authorization for issue on 31 August 2022. The following information relates to specific transactions of Ingonyama for the year ended 30 June 2022: MyTravel application On 30 June 2021, during the procurement process for a new travel application, Ingonyama acquired the MyTravel application from Welnnovate Ltd. On the acquisition date, the directors of Ingonyama determined that the MyTravel application satisfied the definition of an intangible asset and all the criteria for recognition as an intangible asset in terms of IAS 38 intangible assets. The MyTravel application was acquired in an exchange transaction where Ingonyama gave up its luxurious holiday house in Plettenberg bay. On 30 June 2021, the date of the exchange, the carrying amount of the property was R2 800000 . The fair values of the Plettenberg bay property and the MyTravel application was determined to amount to R3 200000 and R2 950000 respectively on 30 June 2021. You may assume that the exchange transaction has commercial substance. Ingonyama paid R350 000 to a software developer to finalise the development of the MyTravel application. Ingonyama consulted with Mr.Gigabytes, an expert in application development and paid him a R35 000 monthly consultation fee for 3 months from 1 July 2021 . The development of the MyTravel application was concluded on 1 October 2021 and on this date the application was ready for use as intended by management. On 1 October 2021 , the application had an estimated useful life of 10 years and an estimated residual value of R355 000. The directors believed that a market exists and will continue to exist for the foreseeable future for the MyTravel application. The useful life and residual value of the security software remained unchanged throughout the period. Intangible assets are accounted for in accordance with the cost model. Amortisation is written off in accordance with the straight-line method over the asset's estimated useful life. Dividends declared On 15 July 2022, Ingonyama declared a dividend of 60 cents per share to its shareholders. The amount was paid out to the shareholders on 1 August 2022. Bokamoso Ltd debt ("Bokamoso") On 10 July 2022 , Ingonyama received a letter informing them of the start of a liquidation process against Bokamoso one of Ingonyama's largest corporate clients. Bokamoso suffered a major loss due to a fire that broke out at its largest factory in Matatiele on 28 June 2022. Bokamoso owed Ingonyama R2 750000 on 30 June 2022 . The liquidators informed Ingonyama that they will likely receive 30% of the amount owed as at 30 June 2022 . Hamba travel agency booking ("Hamba") On 1 June 2022 , Hamba travel agency booked one of the lodges at Ingonyama for a group of tourists from Uganda. The lodge booking was for the period 20 December 2022 to 2 January 2023. Hamba travel agency paid an amount of R750 000 for the booking on 15 June 2022 . Claims against Ingonyama On 20 June 2022 Ingonyama lost two court cases and was found liable for the claims instituted against the company. The amounts due by Ingonyama to the plaintiffs will however only be confirmed during the sentencing hearing scheduled for early August 2022 . The legal advisors of Ingonyama estimated at year end, on 30 June 2022 , that Ingonyama will be liable for the following amounts: - R250000 for a medical expense claim, instituted on 10 January 2022 by an employee of Ingonyama, who was injured on the company's premises while on duty. The claim will be deductible for tax purposes when it is settled. - R600 000 for a claim, instituted on 30 November 2021 by a competitor, against Ingonyama for breach of contract. The claim is regarded as of a capital nature for tax purposes and is not deductible for tax purposes when it is settled. Taxation The South-African normal tax rate is 28%. The South African Revenue Service allows a tax allowance of 5% on the expenditure on mobile applications, in terms of section 11(gC) of the Income Tax Act, according to the straight-line method; not apportioned for periods shorter than a year. The company provides for deferred tax on all temporary differences according to the statement of financial position approach. There are no other items causing temporary or exempt differences, except those evident in the question. There is certainty beyond reasonable doubt that the company will have sufficient taxable profit in future against which any deductible temporary differences can be utilised. Assumptions - All amounts are material, and you may ignore the implications of value-added tax