QUESTION 1 (30 marks) (68 minutes) The following balances were extracted from the accounting records of Brakes Ltd for the financial year ended 28 February 2022: Debit/ (Credit) Revenue ...................................................................................................... Administrative expenses: ............................................................................. R (8 140 000) 2 077 000 Bank charges ............................................................................................... Salaries and wages ..................................................................................... Advertising ................................................................................................... Auditors remuneration: - Fees for audit ........................................................................................... - Expenses ................................................................................................. 24 000 1 900 000 110 000 35 000 8 000 Distribution costs ......................................................................................... Other operating expenses (including finance costs, depreciation and lease payments) (additional information 2,3,6,8) ................................................... Other operating income ............................................................................... Motor vehicles at cost .................................................................................. Right-of-use asset (additional information 8) ............................................... Land and buildings at cost ........................................................................... Investments in Bikes Ltd at cost .................................................................. Investments in Trikes Ltd at cost ................................................................. Finance lease liability (additional information 8) .......................................... Income tax expense (after all adjustments have been taken into account) 26 000 890 000 (76 000) 480 000 ? 1 600 000 40 000 500 000 ? 95 000 Additional information: 1. Brakes Ltd maintained a consistent 40% gross profit percentage throughout the current year. 2. A credit sales transaction that took place on 28 February 2022 with a total consideration of R200 000, was not yet recorded. The sale consisted of a significant financing component, with a condition that the amount must be paid on 28 February 2023. Brakes Ltd determined that the amount that reflects the credit risk is 13,5% per annum. FAC2601/Ass03/2/2023 9 ASSESSMENT 03 (Second semester) (continued) 3. Included in other operating expenses is an amount of R4 000 in respect of lease payments for five photocopying machines from Xerox Ltd. The contract is a lease in terms of IFRS 16. Brakes Ltd elected to apply the recognition exemption in respect of low value assets to this lease agreement (IFRS 16.5). The following information is applicable to the lease contract: - The lease term is 3 years. - The lease was entered into on 2 January 2022. - The lease payments are R2 000 per month for the first 6 months and R3 000 per month for the 6 months thereafter. The lease instalments for the last two years are R4 000 per month. These monthly payments are for all five machines in total. - At the commencement of the lease Brakes Ltd had the option to extend the lease for a year at R800 per month and it was reasonably certain that they would exercise this option to extend the lease. - 5% of every lease payment goes towards covering the maintenance costs incurred and to be paid for by Xerox Ltd. Brakes Ltd accounts for lease and nonlease components separately (IFRS 16.12). 4. Other operating income consists of: Dividends received from the following companies: - Trikes Ltd ............................................................................................... - Bikes Ltd ................................................................................................ R 40 000 36 000 5. The issued ordinary share capital of Bikes Ltd is R160 000 (shares issued at R2 each). Brakes Ltd purchased 20 000 shares in Bikes Ltd at a cost of R2,00 each. The market value of the shares on 28 February 2022 was R2,50 per share. These shares have been obtained for speculative purposes. Brakes Ltd owns 100 000 of the 2 400 000 issued shares in Trikes Ltd, purchased for R500 000. The shares of Trikes Ltd are traded on the Johannesburg Securities Exchange and the market value per share was R5,50 each on 28 February 2021. The market value on 28 February 2022 was R6,50 per share. These shares were classified as financial assets at fair value through other comprehensive income. 6. Property, plant and equipment are depreciated at the following rates and methods: Motor vehicles - 25% per annum using the straight-line method. Machinery - 20% per annum using the straight-line method. Buildings - the straight-line method over its expected useful life of 20 years. FAC2601/Ass03/2/2023 10 ASSESSMENT 03 (Second semester) (continued) 7. Land and buildings consisted of the following: - Land with a building thereon, purchased on 1 March 2020 for R500 000 and R1 100 000 respectively. The land was revalued to R900 000 on 1 March 2021 by J John, an independent sworn appraiser. The land and building are situated on Plot 25, Pretoria East, Tshwane and is owner occupied. 8. Brakes Ltd entered into a contract with Spade Ltd on 1 March 2021, whereby Brakes Ltd will lease a machine for a period of four years. The installments are R132 000 and are payable annually in arrears. The interest rate implicit in the lease is 12,1104% per year. Ownership of the machine will transfer to Brakes Ltd at the end of the lease term at no additional cost. The contract is classified as a lease in terms of IFRS 16 Leases. Depreciation for all assets have been accounted for under operating expenses with the exception of the leased asset. The machine has a useful life of five years. REQUIRED: Marks a) Prepare the statement of profit or loss and other comprehensive income of Brakes Ltd for the financial year ended 28 February 2022 in compliance with the requirements of the Companies Act (2008) and International Financial Reporting Standards (IFRS). 30 30 Please note: Ignore comparative figures. All calculations must be shown and referenced. Round off to the nearest Rand.