Answer ALL the following questions QUESTION 1 (15 Marks) 1.1 Discuss the recognition criteria, measurement and disclosure requirements of a provision, in your discussion also define liability and provision (10 marks) 1.2 Identify whether the following can be recognised as either a contingent liability, provision or contingent asset? (5 marks) a) ABC Limited is expecting that 5% of each debtors book value of R2 000 000 will not be recovered b) An employee was injured at work and is suing his company for R10 000 000. The lawyers have advised that it is unlikely that the claim will be unsuccessful. c) If a company has decided to restructure the division but has not informed the affected employees and there is no formal plan developed. d) A manufacturer offers a warranty to a customer for its products the product warranty in the contract specifies the conditions under which the manufacturer will compensate for defective goods. e) Company A has filed a lawsuit against RT Ltd. There is a fair chance of Company A winning the case. How will it be recognized in the books of Company A? QUESTION 2 (25 Marks) Use the information below to answer the required question INFORMATION 1. Plant was purchased on 2 January 2020 for R100 000. The depreciation rate 10%, wear & tear rate 20%. 2. Equipment was purchased on 30 June 2019 for R80 000. The depreciation rate 20%, wear &tear rate 25% 3. Land was Purchased for R200 000 on 1 January 2018. 4. The trade receivable balance as at 31 December 2021was R35 000. 5. Interest receivable as at 31 December 2022 is R10 000 6. Dividends receivable balance from wholly owned subsidiary at 31 December 2022 for R7500 7. R400 000 is being claimed for residual damages from products sold. It seems likely that the company will have to pay for damages. The damages will be tax deductible. Applicable tax rate for deferred tax purposes should be 28%. Land is NOT depreciated and allowed by SARS to have any allowances. Dividends are not taxable Carrying amount Tax base Temporary Difference DTL/ DTA REQUIRED: Calculate deferred tax for the year ended 31 December 2021 and 2022 2 QUESTION 3 (26 Marks) 3.1 Use the information below to answer the required question (12 marks) INFORMATION XUZ Ltd purchased a building on 1 October 2021. The following costs were incurred: Original purchase price R4 620 000 Admin and overhead R 225 000 Transfer/Legal fees R 300 000 The building had a residual value of R400 000 and an estimated useful life of 20 years On 31 December 2021, the fair value was R445 000, costs to sell R100 000 and restructuring costs R125 000 and the value in use was R425 000. Assume a tax rate of 28 % REQUIRED: Calculate the impairment loss for the year ended 31 December 2021 3.2 Prepare the journal for the impairment loss and tax implications, for the impairment loss as identified in 3.1 (5 marks) 3.3 Taking into consideration the impairment of assets, what is the indicator review and what factors the indicator review depends on? Briefly discuss (5 marks) 3.4 The relevant cash flows are those cash inflows and outflows that can be directly linked to the use of an asset or cash generating unit. To establish these cash flows, discuss what factors need to be considered? (4 marks) QUESTION 4 (20 Marks) 4.1 Use the information below INFORMATION AB Ltd acquired 85% of the ordinary shares of CF Ltd. The net assets were fairly valued on 1 January 2021 except for machinery that were undervalued by R450 000. The machine was purchased on 1 January 2020 for R1 000 000 and had a useful life of 6 years. No adjustments at acquisition for the above matter. Assume a tax rate of 28% REQUIRED: Prepare the journal entries (with narrations) for the year ended 31 December 2022 (10 marks) 4.2 Read the information below: INFORMATION AB wanted to achieve a 25% GP for each sale completed. Inventory sales between AB and CF Ltd amounted to R1650 000 for the year ended 31 December 2022. Inventory on hand in CF Ltd previously purchased from AB Ltd: R675 000 (31 December 2022) R550 000 (31 December 2021) Assume a tax rate of 28% REQUIRED: Prepare the journal entries (with narrations) for the year ended 31 December 2022. (10 marks) 3 QUESTION 5 (14 Marks) 5.1 INFORMATION AD Ltd purchased a machine to the value of R345 000 (vat inclusive) on 1 January 2021. They estimated the residual value to be R10 000 and the useful life to be 10 years. On 1 January 2023, the useful life was determined that only 5 years was remaining and a residual value of R5 000. Assume a tax rate of 30% REQUIRED: Disclose the change in estimate for the year ended 31 December 2023. (10 marks) 5.2 Discuss how the following errors should be corrected 5.2.1 Errors that occurred in the current period (2 marks) 5.2.2 Immaterial errors from prior period (1 mark) 5.2.3 Material error from prior period (1 marks)