Part a Donahue Ltd purchased a plant on 1 July 2018 for N$300 000. The entity incurred transfer fees of N$90 000. The expected dismantling cost at the end of the useful life of the plant is N$200 000. The applicable discount rate after tax (tax rate 25.75%) 6.3% Useful life 12 years The plant is erected on rented premises and the rental agreement requires dismantling of the plant at the end of its useful life. Assume that Inland Revenue services gives a 25% allowance on the plant and allows a deduction when dismantling costs are paid. The dismantling costs are reassessed on 1 July 2019 at N$220 000. Required: 1.1 Prepare journal entries relating to the change in dismantling cost estimate on 1 6 July 2016 Part b On 1 January 2017 Kuntan Ltd entered into an operating lease contract for premises in the Windhoek Weinhill Mall. The lease is to run for a period of 4 years (contract expires on 31 December 2020). As a result of several factors , the board of directors decided on 31 December 2018 to move the entity to Merua Mall with effect from 2 January 2019. However the lease contract determines the following: Operating lease payments per year (no escalation) N$10 000 Fine payable on early cancellation of the contract N$20 000 The premises cannot be sub-let. The company's year end is 31 December. A 12% market disc rate is expected to be applicable over a lease period. Required: 1.2 Discuss and determine the impact of the issue in the financial statements in 2019 14 and 2020. Parta Sandra has been appointed as the accountant of Sisera Ltd. The company is currently in the process of constructing a new plant for the production of a new product known as Jos Panda. The board of directors became aware of IAS 23 and approached Sandra for advice. Sandra obtained the following information: The board of directors appointed a committee to research the project. The committee estimated that it would take twenty months to complete the plant. Construction on the plant commenced on 12 June 2019 Expenditure associated with the project has already been capitalized to the cost of the plant No borrowing costs have been capitalized to date The project has been /will be financed as follows: -Use of a general overdraft facility at an interest rate of 24% per annum until 31 October 2019. -The issue of debentures on 1 November 2019 at an interest rate of 12% per annum, redeemable at a premium of 5%. These debentures will be issued specifically to finance the project. The company's reporting date is 31 October 2019. Required: Advise Sandra and the board of directors on the following: 2.1 Whether the interest paid on the overdraft facility for the period 12 June 8 2019 to 31 October 2019 may be capitalized to the plant. Whether the interest paid on the debentures as well as the premium on future 5 redemption can be capitalized to the plant. Total 13 Part b The following cases appear in the books of A Ltd: 9%-Convertible preference shares. These preference shares are compulsory convertible into ordinary shares on a 1:1 basis after 5 years. The preference dividends are non- cumulative. 10%-Redeemable preference shares. These preference shares pay compulsory, cumulative dividends and are compulsory redeemed in cash after 5 years. 11%-Redeemable preference shares. These preference shares' dividends are under discretion of A Ltd and A Ltd can choose to redeem them after 5 years. 12%-Redeemable preference shares. These preference shares pay compulsory, cumulative dividends. They will be redeemed after 5 years if A Ltds net profit percentage has increased by at least 5% over the 5-year period. 13%-Convertible debentures. The holder of these debentures has the choice to choose after 5 years that the debentures are redeemed in cash, or that they are converted into ordinary shares in A Ltd. 14%-Debentures. These debentures will never be redeemed, but pay 14% interest each year. Required: 2.2 12 Indicate whether each of the above instruments will be presented as debt (financial liabilities) or equity in the financial statements of A Ltd