Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mfolozi Limited ( hereafter referred to as Mfolozi ) is a company involved in environmental conservation. They are responsible for the cleaning of polluted rivers

Mfolozi Limited (hereafter referred to as Mfolozi ) is a company involved in environmental conservation. They are responsible for the cleaning of polluted rivers and the ocean in the Eastern Cape area. As a result of the province taking an intensive approach to improving tourism, Mfolozi was contracted to undertake the cleaning of the rivers and the ocean around Port St Johns, one of the targeted tourist attraction areas on the Wild Coast, at the mouth of Mfolozi River. Mfolozi s year end is 30 June and their financial statements will be authorised for issue on 25 July for the 2015 financial year. The after-tax discount rate is 7.2% per annum for all periods under review. The companys tax rate is 28%. During the year end audit, you have discovered the following matters which you raised as audit queries.QUERY 1 : The Port St Johns project required Mfolozi to install specialised machinery in the areawhich will be dismantled at the end of the assets useful life. The installation costs ofR140243(VAT inclusive) were incurred and paid on 1 July 2014. The future costs ofdismantling at the end of the assets useful life are estimated to be R845000. Thespecialised machinery will be depreciated on the straight-line basis over a period of six years to a nil residual value.Journal entry processed by the accountant, who is a CA(SA) on 1 July 2014:Dr CrEnvironmental Cleaning Expense 985243Provision for dismantling costs 845000Bank 140243Recognition of installation costs and future dismantling costs (140243+845000)REQUIRED MARKS1. Based on the information above, prepare the relevant journal entries required to correct the records of Mfolozi Limited for the year ended 30 June 2015. Ignore tax implication. Narrations are not required.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Banking And Finance Issues In Emerging Markets

Authors: William A. Barnett

1st Edition

1787564541, 9781787564541

More Books

Students also viewed these Accounting questions