Oak Timber Ltd $($Oak$)$ is a large company listed on the Johannesburg Stock Exchange. Oak

has a $30$ June financial year end and early adopted all applicable accounting standards since

they became available. Oak operates in the forestry sector and operates a sawmill and a

plywood plant as well as warehouses and distribution facilities. Plant and machinery are

accounted for on the cost model in terms of IAS $16$ and are depreciated over their useful lives

on the straight$-$line method.

Below you will find some information with regards to the assets and liabilities of Oak:

$1.$ Inventory

The following inventory information is available for the financial year ended $30$ June $2022$:

Cost $($N$$)$

Raw material balance on $30$ June $2022250000$

Raw material issued to the production process $400000$

Work$-$in$-$progress balance at $1$ July $2021140000$

Direct labour costs $600000$

Variable overhead costs $50000$

Fixed overhead costs $($Note A$)?$

Goods completed during the $2022$ financial year $($Note B$)1200000$

Finished goods balance on $30$ June $2022($Note B$)345000$

Note A:

$$ The only fixed overhead costs incurred relates to the depreciation of the machinery as

listed in the asset register below $($section $2).$ Actual production for the year was

$200000$kg$.$

Note B:

$$ There was no opening balance for finished goods.

$$ Normal production capacity is $250000$ kg of finished goods per year.

$$ Oak adds $20\%$ to the cost of goods to determine the selling price. The estimated selling

price of the finished goods on hand at the end of the year, will be $20\%$ less than the

normal sales price due to economic factors. The cost to sell the finished goods is N$nil.

$$ The net realisable value of raw materials and the work$-$in$-$progress was found to be

higher than the cost price at the beginning and end of the year.

$16$

$2.$ Asset Register

Sawmill

The first stage of preparing timber for commercial use is tree felling. A forestry worker will

determine when and which trees should be cut down, depending on when they reach their

economically mature stages.

Stage two involves the transport and storage of the logs to the sawmill. The trees are usually

cut into smaller lengths on$-$site and then picked up by a timber truck, which transports the

timber to the sawmill.

After arriving at the sawmill, stage three of the process commences. Trees are debarked and

cut into the required lengths. Then they are cut into boards, using a circular saw. The sawing

process also consists of two stages; the first stage is rough sawing and the second stage is

called $$re$-$sawing$$ and refers to more precise cutting and finishing.

Stage four is where seasoning of the natural wood takes place. This is the process of removing

excess moisture content from the wood. Finally, the wood is treated against rot and fire and is

now in its completed form as either structural or industrial timber. The two types, i$.$e$.$ structural

or industrial timber, are distinguished only by thickness and length.

Plywood plant

The sawmill supervisor selects timber that meet the requirements and send it to the plywood

plant. Plywood is made of three or more thin layers of wood bonded together with an adhesive.

Most plywood is pressed into large, flat sheets used in building construction. Other plywood

pieces may be formed into simple or compound curves for use in furniture, boats, and aircraft.

Below is a summary of the asset register with regards to the sawmill and the plywood plant:

Asset

no

Asset description Note

no

Asset

class

Total

useful

life in

years

Carrying

amount at

$30$ June $2021$

Carrying

amount at

$30$ June $2022$

$110$ Industrial round saws $1$ Machinery Note $1$ N$$1230000*$ N$$750000*$

$1120$ Handheld round

saws

$2$ Machinery $3$ N$$350000*$ N$$275000*$

$21$ Debarking machine $3$ Machinery $8$ N$$633000*$ N$$551177*$

$22$ Plywood press $4$ Machinery $10$ N$$530000*?$

$*$All amounts have been correctly calculated after taking all relevant information into

account.

$$ Note $1$: The industrial round saws $($industrial saws$)$ consist of two components each $($the

industrial saw itself and component X$),$ which is recognised as separate components. The

industrial saw is depreciated over ten years and component X is depreciated over three

years. The residual value of the industrial saws as well as component X are considered

to be insignificant.

On $30$ June $2022,$ component X of five industrial saws were replaced when the carrying

amount of these components amounted to N$ $55000($in total for all five components$).$

The components were sent to a scrapyard and N$ $1000$ was received for all five

components in total. This came as a surprise since it does not usually happen that

$17$

scrapyards pay for these types of components. The total cost $($paid for in cash$)$ to replace

component X of the five industrial saw