Question $2$

Landlord Ltd is a manufacturing company with a $31$ December $2023$ year$-$end.

The following details are available relating to Landlord Ltd:

Property $1$

On $1$ November $2021$ Landlord Ltd purchased a vacant piece of land for R$3800000,$ with the intention to construct a manufacturing plant on the property. The construction of the plant commenced on $1$ January $2022$ and was completed on $15$ April $2022.$ Management considers the plant portion of the factory to be significant.

The following costs were incurred by Landlord Ltd in the construction of the plant

Construction cost R$5250000$

Site preparation fees R$500000$

Additional labour for construction R$85000$

Administration and general overheads R$472000$

Landlord Ltd paid the site preparation fees on $30$ November $2022.$ The normal credit terms of the local contractor are strictly $30$ days from the invoice date of $1$ April $2022.$

The property was available for use, as intended by management, on $1$ May $2022.$ The building has an estimated useful life of $25$ years and a residual value of R$2000000$ was allocated to it$.$

The land was revalued for the first time on $31$ December $2023$ by an independent sworn appraiser. The fair value was determined to be R$4200000.$

Property $2$

Landlord Ltd acquired land, with an office building on $1$ January $2023$ for R$11295000($Land: R$2981250$; Building: R$8313750).$ Landlord Ltd paid agent's commission and legal fees of R$282375$ and R$169425$ respectively. All costs were paid in cash. On acquisition date, a residual value of R$2500000$ and an estimated useful life of $25$ years was allocated to the building.

Between $1$ January $2023$ and $28$ February $2023,$ Landlord Ltd made improvements to the building amounting to R$1260000.$ The full amount for the construction work was paid on $28$ February $2023.$ The subsequent expenditure meets the subsequent recognition criteria, as contained in IAS $40,$ Investment Property.

Landlord Ltd occupies $15\%$ of the office building for their own administrative purposes, the remainder of the building is rented out. The land and buildings were available for use, as intended by management and rented out to the tenant on $31$ March $2023.$ A rental agreement with a tenant was signed on $31$ March $2023$ for a monthly rent of R$90000.$ The tenant took occupation of the building on $1$ April $2023.$ The cost of repainting the building at the end of the year, amounted to R$100000.$ The management of Landlord Ltd considers the $15\%$ to be insignificant.

QUESTION $2($continued$)$

An independent sworn appraiser provided the management of Landlord Ltd with the following fair values of this property:

$31$ December $2023$

Land R$3600000$

Building R$950000$

Total R $13100000$

Machinery

Landlord Ltd owns manufacturing machinery that was purchased on $15$ June $2021$ at a cost of R$620000.$ Machinery was available for use, as intended by management, on acquisition date. On acquisition date an estimated useful life of $700000$ units and a residual value of R$150000$ was allocated to the machinery.

From acquisition date to the beginning of the current financial year, Landlord Ltd produced $133000$ units, whilst $58000$ units were produced during the current financial year.

Lease

Landlord Ltd entered into a non$-$cancellable lease on $1$ January $2024$ to lease a machine from Birdi Ltd in order to be used in Landlord Ltd$\text{'}$s manufacturing process. Landlord Ltd did not elect the simplified accounting treatment for the machine. Birdi Ltd made the underlying asset available for use, as intended by management, by Landlord Ltd on $1$ February $2024.$ The details of the lease agreement are as follows:

Lease term: $4$ years

Annual instalments in arrears: R$500000$

Guaranteed residual value: R$150000$

Unguaranteed residual value: R$50000$

Fair Value of underlying asset: R$1500000$

Lessee's incremental borrowing rate: $10\%$

Useful life of the underlying asset: $5$ years

Additional information relating to the lease:

$1.$ Landlord Ltd made a payment to Birdi Ltd relating to the design of the machine of R$40000$ on $1$ January $2024.$

$2.$ Legal fees of R$15000$ to inspect the validity of the contract and initial direct costs of R$25000($assembling and transport costs$)$ were incurred by Landlord Ltd and they paid $40\%$ of this in cash. Initial direct costs of R$20000$ were incurred by Birdi Ltd and was paid in cash on $1$ February $2024.$

$3.$ Birdi Ltd agreed to partially reimburse Landlord Ltd for the initial direct costs incurred to the lease contract to the value of R$35000,$ to be received on $1$ February $2025.$ This is classified as being a lease incentive to the lessee.

$4.$ Landlord Ltd paid a non$-$refundable deposit of R$30000$ on $25$ November $2023$ to secure the lease.

QUESTION $2($continued$)$

$5.$ Landlord Ltd is required to pay an annual inspection fee of R$10000$ on $31$ December.

$6.$ It was estimated that the future dismantling cost to be paid at the end of the lease term would be R$45000.$ The pre$-$tax discount rate applicable to the dismantling provision is $15\%.$

$7.$ Ownership of the underlying asset will not transfer to the lessee at the end of the lease term and the cost of the right$-$to$-$use asset does not reflect that the lessee will exercise any purchase option.

$8.$ Investments

Landlord Ltd holds the following share investments:

$8000$ shares in EasyInvest Ltd at a cost of R$7$ per share, purchased on $15$ February $2023.$ Transaction cost to purchase the shares amounted to R$2850.$

$4500$ shares in Bondvest Ltd at a cost of R$5,50$ per share, purchased on $1$ May $2023.$ The transaction cost amounted to R$0,25$ per share.

The fair value of the share investments on $31$ December $2023$ are as follows:

EasyInvest Ltd: R $61000$

Bondvest Ltd: R$28000$

The shares held in EasyInvest Ltd is held for trading, whilst the shares in PropertyBond Ltd and Bondvest Ltd is not held for trading and is not a contingent consideration recognised by an acquirer in a business combination.

The following accounting policies are applied by Landlord Ltd Investment property is accounted for using the fair value model.

Owner occupied land is accounted for using the revaluation model.

Owner occupied buildings is accounted for using the cost model. Depreciation on buildings is accounted for in accordance with the straight$-$line method over the estimated useful life of the asset.

Right$-$of$-$use assets are accounting for according to the cost model.

Machinery is accounted for according to the cost model. Depreciation on machinery is accounted for on the units of production method.

$9.$ Ignore the implications of Value$-$Added Tax $($VAT$).$

$10.$ All amounts are material.

$11.$ A pre$-$tax discount rate of $9,8\%$ is relevant.

REQUIRED:

a$)$ Prepare all the relevant journal entries to correctly account for Property $2$ in the accounting records of Landlord for the year ended $31$ December $2023.$

Journal narrations are required

Dates are not required

b$)$ Prepare all the relevant journal entries to account for the share investments for the year ended $31$ December $2023.$

Please indicate in your journals if it is an SFP$,$ OCI or P$/$L account Indicate the date for each journal

Communication mark $-$ indicating correct account

c$)$ Disclose the following notes in the financial records for Landlord Ltd for the year ended $31$ December $2023$:

Property, plant and equipment

Investment property

Leases