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Events in 20X0-20X2 On 2 January 20X0, Makeit incorporates a wholly-owned separate legal entity, Open Safari, in the Republic of Africania (Africania) by contributing 10,000,000

  • Events in 20X0-20X2 On 2 January 20X0, Makeit incorporates a wholly-owned separate legal entity, Open Safari, in the Republic of Africania (Africania) by contributing £10,000,000 to form Open Safari's permanent capital. On 3 January 20X0, Open Safari obtains an £8,000,000 loan facility from a British bank. The loan is denominated in British pounds (£). The loan agreement obligates the bank to transfer £8,000,000 to Open Safari on 3 January 20X0 and Open Safari to transfer to the bank ten years later £13,031,157 on 2 January 20YO (in full and final settlement of the loan). Makeit guarantees all payments to the bank in the event that Open Safari defaults. Acquisition of land On 1 February 20X0, Open Safari purchases 1,000 hectares of undeveloped natural land called Freelands, an area of land in central Africania, for $10,000,000, with the aim of establishing an ecotourism business. The property is not fenced and adjoins a national park on all its boundaries except the western boundary, where Freelands adjoins privately owned undeveloped land that is currently unused. A wide range of indigenous plants and wild animals (including significant numbers of buffalo, crocodile, giraffe, hippopotamus, leopard, lion, zebra and a wide variety of antelope) inhabit Freelands and the surrounding lands. Law in Africania specifies that wild animals are the property of the owner of the land that they occupy. Neither elephant nor rhinoceros frequent Freelands because both species are no longer present in Africania because of heavy poaching during the civil war that plagued the country approximately a decade ago. Design of infrastructure The Bilkersens are inspired by the potential of the property to attract international tourists because visitors would be able to view native animals at close range in their natural habitat. Consequently, in February 20X0), the couple contract a leading Italian architect to design a luxury safari lodge. The construction phase is expected to take about three years to complete, The managers plan for the buildings to blend in with their setting and to have minimal impact on the environment. They therefore prefer to use local materials and building techniques, including thatch-grass roofing harvested from Freelands, for the lodge and staff accommodation buildings. In April 20X0 the plans for the lodge are finalised. They include the construction of a reception area, restaurant, lounge, swimming pool and an office from which to administer the lodge and safari operations. The plans also include a home for the Bilkersens, twenty smaller free-standing homes for the staff and eighteen movable, luxury aluminium-framed canvas safari tents for guests. When complete, the main lodge building will comprise the extemal structure (expected economic life 60 years), ducted air-conditioning (30 years), grass roof (20 years), fixtures and fittings (15 years), hard furniture (15 years) and soft furnishings (5 years). However, to maintain the upmarket image of the lodge, management expect to replace the grass roof, fixtures and fittings, hard furniture and soft furnishings at intervals of 10, 5, 3 and 2 years respectively. Management do not intend to replace the external structure or the ducted air-conditioning before the end of its economic life. Although the grass roof and the fittings will not have reached the end of their expected economic lives at the time of their expected replacement, removing these assets is expected to damage them to a degree that will render them worthless. Management intend to use the natural stone swimming pool for its entire 60-year economic life. The external structure of the residential buildings (homes) has an expected economic life of 60 years, the grass roof (20 years), furniture (15 years) and soft furnishings (5 years). Management intend to replace only those items at the end of their economic lives, at which point they will be worthless. The costs of disposal are expected to be insignificant. Because local legislation prohibits the disposal of all but the most biodegradable waste (for example, the grass roofing) on the entity's land, management expects to dispose of the removed fixtures and fittings at the nearest local government recycling plant, which is situated about 200 kilometres from the entity's land. The costs of dismantling, removing and disposing of those assets is likely to be significant. Although the fair value of the removed furniture and soft furnishings is likely to be significant at the date of their disposal, the entity's policy is to sell those fittings to their staff in exchange for a nominal amount of cash. Because the staff come from largely impoverished communities it is highly likely that all of the soft furnishings will be disposed of in this manner. This benefit also provides an incentive for the employees to stay in the employment of the company and to take greater care of the soft furnishings. Each safari tent has an aluminium frame (expected economic

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