On 31 May 2023, the recoverable amount of the I-track application was correctly determined to amount to R1 360000 . Contract with Zamalek Coal Ltd (\"Zamalek\") On 1 January 2023, Masana signed a contract with Zamalek to transport 10000 tons of coal from Piet Retief to the Richards Bay Port Terminal during the second quarter of the calendar year at R320 per ton. The terms of the contract further stipulate that Masana would give Zamalek a \20 discount for any future coal transportation services done during the third quarter of the calendar year. The contract between Masana and Zamalek is a valid contract in terms of IFRS 15. Transport of the 10000 tons coal as agreed upon within the signed contract, was completed by Masana by the end of 30 June 2023. Masana intends to offer a \5 discount to all its customers during the third quarter of the calendar year as part of a marketing strategy. In terms of the contract, Zamalek cannot use the \5 discount in addition to the contractually stipulated \20 discount offer. On 1 January 2023, Masana estimated that Zamalek will require transportation services for 15000 tons of coal at a price of R395 per ton during the third quarter of the calendar year. In addition, Masana estimated that there is a \90 likelihood that Zamalek will use the discount offered in the signed contract. Page 3 of 5 QUESTION 1 (continued) Fleet of trucks On 1 July 2020, Masana acquired a fleet of 5 trucks to use in its operations for R1 450000 , each. The purchase price of the entire fleet was paid in full, and the fleet was ready for use as intended by management on acquisition date. Each truck was estimated to have a 5-year useful life and an insignificant residual value. The estimated useful life and residual value remained unchanged throughout the period. On 1 July 2021, Masana's directors decided to lease out the fleet of trucks to Dynamo Trans Ltd (\"Dynamo\") from 1 July 2021 until 30 June 2023, due to the continued strike at the Richards Bay Port Terminal. According to the lease agreement, Masana would receive lease payments amounting to R1 980 000, paid annually in arrears. The lease payments will increase by \10 each year. Ownership of the trucks will not transfer to Dynamo at the end of the lease period. Masana incurred R250 000 initial direct costs at the inception of the lease. Masana appointed an IFRS specialist during the 2023 financial year to ensure that all accounting transactions are accounted for in accordance with International Financial Reporting Standards. In a meeting held with the junior accountant of Masana, the IFRS specialist discovered that the entity has been incorrectly accounting for the lease with Dynamo. The junior accountant confirmed that she accounted for the lease since inception thereof, as follows: - No trucks were derecognised; - No depreciation was recognised on the trucks from 1 July 2021 ; - Lease payments of R 1980000 was recognised as income in both the 2022 and 2023 financial years; and - The initial direct costs incurred at inception of the lease were immediately recognised as an expense. Masana accounts for vehicles in accordance with the cost model and depreciation is provided for on the on the straight-line method over the estimated useful life of the asset. The IFRS specialist requested the junior accountant to prepare a correction of error note in relation to the accounting of the lease between Masana and Dynamo and the following note was presented by the junior accountant at a finance team meeting: Correction of error note During the 2022 financial year, expenses and income relating to an operating lease were incorrectly accounted for Employee matters For the financial year ended 30 June 2023, Masana's total annual net salary amounted to R3 500000 , whilst Masana withheld a total of R650 000 employee tax payable to the South African Receiver of Revenue (SARS). In a recent executive management meeting held on the 3 July 2023, the Chief Financial Officer, a registered CA(SA) proposed that the employee tax payable to SARS withheld for the month ended 30 June 2023 , should be used to fund the performance bonus of the executive management. He added that it is unlikely that SARS will query the non-declaration and non-payment of the withheld employee tax if it does not happen frequently. accounted for the lease since inception thereof, as follows: - No trucks were derecognised; - No depreciation was recognised on the trucks from 1 July 2021 ; - Lease payments of R 1980000 was recognised as income in both the 2022 and 2023 financial years; and - The initial direct costs incurred at inception of the lease were immediately recognised as an expense. Masana accounts for vehicles in accordance with the cost model and depreciation is provided for on the on the straight-line method over the estimated useful life of the asset. The IFRS specialist requested the junior accountant to prepare a correction of error note in relation to the accounting of the lease between Masana and Dynamo and the following note was presented by the junior accountant at a finance team meeting: Correction of error note During the 2022 financial year, expenses and income relating to an operating lease were incorrectly accounted for. Empioyee matters For the financial year ended 30 June 2023, Masana's total annual net salary amounted to R3 500000 , whilst Masana withheld a total of R650 000 employee tax payable to the South African Receiver of Revenue (SARS). In a recent executive management meeting held on the 3 July 2023, the Chief Financial Officer, a registered CA(SA) proposed that the employee tax payable to SARS withheld for the month ended 30 June 2023, should be used to fund the performance bonus of the executive management. He added that it is unlikely that SARS will query the non-declaration and non-payment of the withheld employee tax if it does not happen frequently. Page 4 of 5 QUESTION 1 (continued) Assumptions All amounts are material, and you may ignore the implications of Value-Added Tax (VAT). Taxation The South-African normal tax rate is \27. The capital gains tax inclusion rate is \80. The junior accountant correctly calculated all applicable tax bases. The South African Revenue Service does not issue revised assessments on prior years. QUESTION 1 (50 marks) (90 minutes) Masana Transport Ltd (\"Masana\") is a transport and logistics company based in Kwakhethomthandayo, Kwazulu-Natal. Masana has become one of the largest transportation and logistics companies in Southern Africa. Masana is listed on the Johannesburg Stock Exchange (JSE) and has a 30 June year end. Masana's presentation currency is ZAR. The following relates to some of the transactions, assets, and liabilities of Masana for the year ended 30 June 2023: Debentures On 1 July 2022, Masana issued 100000 debentures in the Egyptian Stock Exchange, for EGP4 300000 . The debentures bore a fixed coupon rate of \8 per annum, compounded annually. Masana paid EGP172 000 transaction costs, in cash, on 1 July 2022. The coupon interest rate is payable annually in arrears on 30 June and the debentures are compulsory redeemable on 30 June 2027, for EGP60 each. These are the only debentures issued by Masana. They were issued with the intent to raise funds and not to make any short-term profits. The accountant has determined that the fair value of the debentures do not provide any more relevant information, nor does it prevent any accounting mismatch. The debentures are Egyptian Pound denominated and all transactions related to the issued debentures are settled in Egyptian Pounds. The following dates and exchange rates are applicable: Date 1 July 2022 30 June 2023 Trans-Tech Division Masana has a separate division that specialises in fleet tracking technologies, named the Trans-Tech Division. During the 2023 financial year, a competitor entered the market and launched a fleet tracking solution that was more efficient and cost effective than the tracking solutions offered by Masana. As a result, there was a significant decline in the demand for the tracking solutions offered by Masana. On 31 May 2023, Masana's board of directors made the decision to sell the Trans-Tech division due to the declining competitive edge. Consequently, Masana's directors decided to focus only on transportation and logistics in future. On 31 May 2023, all the requirements to be classified as held for sale were met and management expected the sale to be concluded, in a single transaction by 31 December 2023, for cash. On 31 May 2023, the Trans-Tech division had a fair value less cost to sell and value in use amounting to R2 350000 and R2 400000 , respectively. The carrying amount of the respective assets of the Trans-Tech division on 31 May 2023, were as follows: 1-track application... Inventory (Net realisable value amounting to R250 000) Trade and other receivables \\( \\mathbf{R} \\) On year-end on 30 June 2023, the carrying amount of the Trans-Tech division equalled the fair value less cost to sell there-of. Page 2 of 5 QUESTION 1 (continued) Masana accounts for intangible assets in accordance with the cost model and amortisation is provided for on the straight-line method over the estimated useful life of the asset. Masana carries its inventory at the lower of its carrying amount and net realisable value. Masana accounts for changes in accounting estimates in accordance with the reallocation method. Note 1 During the 2021 financial year, Masana commenced with a research and development project to development a new tracking application called I-track. The application will provide real-time tracking data such as Global Positioning Systems (GPS) locations and full-trip history on any vehicle with an installed device. The application uses radio frequency and GPS tracking technology to detect and counteract signal jamming. The research of the l-track application commenced on the 1 October 2020. On 1 March 2021, the board of directors determined that the I-track application satisfied all the criteria for an intangible asset recognition and approved the development of the application. The development of the application was concluded on 30 April 2021. Masana employed a software developer to work on the application during both the research and development phase of the application. The software developer earns a monthly salary of R300 000 . During April 2021, Masana consulted with Professor Web, an expert in application testing and paid her a once-off consultation fee of R750 000, on 30 April 2021. Masana used an Integrated Development Environment (IDE) software in the development and coding of the I-track application. The IDE was acquired on 01 July 2019, for R4 500000 . The IDE was available for use as intended by management on the acquisition date and on this date the IDE had an estimated useful life of 6 years and an insignificant residual value. On 1 July 2020, management estimated that the IDE had a remaining useful life of 4 years. The residual value of the I-track application remained unchanged throughout the period. The total electricity cost, directly attributable to both the research and development of the I-track application amounted to R288 000 and was incurred evenly during the period. On 1 May 2021, the I-track application was available for use as intended by management. On this date an estimated useful life of 10 years and a residual value of R325 000 was allocated to the I-track application. On 31 May 2023, the recoverable amount of the I-track application was correctly determined to amount to R1 360000