QUESTION 1 (65 marks) Flysafe Ltd is a low-cost airline operator with a 30 June year-end. There are daily flights to Johannesburg, Cape Town, Durban, Gqeberha, East London, Bloemfontein, and George. The company has a fleet of aeroplanes that operates from its air bases in Cape Town and George. The following is an extract from the Notes to the Annual Financial Statements of Flysafe Ltd for their 30 June 2023 financial year-end: FLYSAFE LTD EXTRACT FROM THE NOTES OF THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023 Aeroplanes Carrying amount on 1 July 2022 2 706 667 Cost 3 050 000 Accumulated depreciation (343 333)

The following transactions, relating to Aeroplanes, have not yet been accounted for during the current financial year: Boeing 747-8 Flysafe Ltd purchased a new Boeing 747-8 on 1 January 2023 for an amount of R1 250 000. The R1 250 000 is payable on 31 December 2023. A market-related interest rate of 7% per annum is used for similar debt. Other costs incurred to bring the Boeing 747-8 to the location and condition necessary for it to be operating in a manner as intended by the Flysafe Ltd management team are as follows: Transport costs R250 000 Installation costs R120 000 Professional fees engineers R300 000 Administration costs - finance and administration personnel R80 000 The additional costs were paid immediately on 1 January 2023. The Boeing 747-8 was available for use from 1 March 2023. The Boeing 747-8 had a residual value of Rnil.

Airbus A350-800 Flysafe Ltd currently has an Airbus A350-800 which accommodates 200 to 250 passengers with a maximum range of 13 000 km. The Airbus A350-800 was originally acquired on the 1st of January 2020 for an amount of R1 300 000 and had a residual value of R120 000. The original cost price is included in the opening balance of the cost of Aeroplanes in the note to the annual financial statements. A new and improved A350-800XS has however been launched. With the launch of the new A350-800XS, the fair value of the A350-800 has been affected and now amounts to R1 100 000, with costs to sell of R285 000. The value in use of the A350-800 amounts to R990 000. Depreciation on the Airbus A350-800 has not been accounted for during the current year yet.

Boeing 737-800 Included in the cost opening balance of Aeroplanes is a Boeing 737-800 which was purchased on 1 July 2020 for an amount of R950 000. The acquisition cost of R950 000 includes the inspection and maintenance costs of R200 000. This aeroplane should be inspected and maintained every three years at a cost of approximately R200 000 per inspection. On 1 July 2020, the acquisition date, it was decided that these inspection costs would be separately capitalised and depreciated. On 30 June 2023, the aeroplane was inspected and maintained for the first time at a cost of R200 000. The estimated costs of the next inspection to take place during June 2026 are approximately R220 000. The Boeing 737-800 had a residual value of Rnil.

Heavy Jet Flysafe Ltd has a Heavy Jet that burns fossil fuel which releases CO2 emissions and is a significant contributor to climate change. After an emergency board meeting held on 30 September 2022, it was decided that the Heavy Jet would be withdrawn from use immediately. The withdrawal of the Heavy Jet is in support of one of Flysafe Ltds strategic objectives which are to ensure environmental sustainability and reduce the impact on the natural environment.

The Heavy Jet had an original cost price of R800 000 on 1 July 2021, the date of purchase, with a residual value of nil and a carrying amount of R768 000 on 1 July 2022. The original cost price is included in the opening balance of the cost of Aeroplanes in the note to the annual financial statements.

Company restructure The Board of Directors held a meeting on 28 June 2023 to discuss their restructuring plan for the company. A decision was made to downscale the George air base and have fewer aeroplanes at this base because there are minimal flights operating on this route throughout the year. The busiest periods are the June school holidays and the December festive season. Due to the downscale, Flysafe Ltd will embark on a restructuring programme where staff will be relocated to the Cape Town air base, including some retrenchments of staff. The airbus A350-800 will be relocated to Cape Town which will be used on the new route to Mauritius. Flysafe Ltd aims to start the process during July 2023 and have it completed by 22 October 2023. A detailed formal plan with all the details of the downscale has been communicated and distributed to all employees on the 29th of June 2023. The costs involved in the downscale are the following: Relocation of staff from the George air base R280 000 Retrenchment packages for staff approximately 50 employees R920 000 Marketing costs for new Mauritius route R55 000 Training of staff who are continuing service at the Cape Town air base R35 000 Moving costs of airbus A350-800 R360 000 Consulting costs with engineers who will be involved in the relocation of the airbus A350-800 R80 000 Penalty upon termination of the lease of an administration building at the George airbase R 85 000

Additional information Flysafe Ltd uses the cost model for subsequent measurement of property, plant and equipment and depreciates all its property, plant, and equipment on a straightline basis. There were no changes in the useful lives and residual values of the assets identified during the financial year end under review. All aeroplanes are depreciated for a period of 25 years. No depreciation for the current year has been accounted for yet.

REQUIRED: 1.1) Prepare all general journal entries to separately account for the Aeroplanes in the records of Flysafe Ltd for the financial year ended 30 June 2023 in accordance with the International Financial Reporting Standards. Journal dates are required. Journal narrations are not required. Journals are required to account for the following: Boeing 747-8 (18 marks) Airbus A350-800 (12 marks) Boeing 737-800 (7 marks) Heavy Jet (10 marks) (Total: 47 marks)

1.2) Discuss, with reference to IAS 37, whether the company restructure should be recognised as a provision in the books of Flysafe Ltd. No calculations are required. (18 marks)