Question $3$

$20$ Marks

Oak Timber Ltd $(\text{'}$Oak$\text{'})$ is a large company listed on the Johannesburg Stock Exchange. Oak

has a $30$ June financial year end and early adopted all applicable accounting standards since

they became available. Oak operates in the forestry sector and operates a sawmill and a

plywood plant as well as warehouses and distribution facilities. Plant and machinery are

accounted for on the cost model in terms of IAS $16$ and are depreciated over their useful lives

on the straight$-$line method.

Below you will find some information with regards to the assets and liabilities of Oak:

Inventory

The following inventory information is available for the financial year ended $30$ June $2022$:

Note A:

The only fixed overhead costs incurred relates to the depreciation of the machinery as

listed in the asset register below $($section $2).$ Actual production for the year was

$200000$kg$.$

Note B:

There was no opening balance for finished goods.

Normal production capacity is $250000kg$ of finished goods per year.

Oak adds $20\%$ to the cost of goods to determine the selling price. The estimated selling

price of the finished goods on hand at the end of the year, will be $20\%$ less than the

normal sales price due to economic factors. The cost to sell the finished goods is N$nil.

The net realisable value of raw materials and the work$-$in$-$progress was found to be

higher than the cost price at the beginning and end of the year.

"All amounts have been correctly calculated after taking all relevant information into

account.

Required

Prepare the following notes to be disclosed in the financial statements of Oak for the financial

year ended $30$ June $2022$ as far as it relates to the information provided:

Inventory note

Profit before tax note