QUESTION 3

PART A

ICP has been conducting research into more advanced methods of manufacturing some of its chemical products. In 2018, they commenced with the construction of a plant located in Secunda. The plant became available for use on 1 January 2019. At this date, the expected future cost of restoring the environment to its natural state due to construction, as required by law, would be R10 million. This cost is expected to be incurred at the end of the plants life of 5 years. The waste caused in the process of manufacturing the chemicals in the plant must also be recycled at the end of 5 years. At the date the plant became available for use, this cost was reasonably estimated by an environmental specialist, who has many years of experience, to be N$ 5 million.

The directors reflected a provision amounting to N$ 15 million with respect to the above in the financial statements on 31 December 2019. On 31 December 2016, the directors have revised their initial estimates of the above. The N$10 million is now revised to N$ 13 million, while the N$ 5 million is revised to N$ 7 million.

The nominal market-related pre-tax interest rate is 12% per annum. Assume that time value of money is material for all periods more than three months.

REQUIRED:

Discuss the appropriate classification of the information relating to the chemical plant in the financial statements of ICP for the year ended 31 December 2020 in terms of IAS 8 Accounting policies, changes in accounting estimates and errors.

PART B

Mr. Shikongo is the Managing Director of Shikongo Limited, a company specializing in solving murders. Shikongo Limited owns a large amount of very costly forensic equipment.

The forensic equipment was purchased on 1 April 2017 at a cost of N$ 600 000.

All the time it was determined that the equipment would be depreciated on a straight-line basis over a 6-year period to a nil residual value.

The depreciation policy is consistent with the wear and tear allowance granted by the tax authorities

On 1 April 2019, the total life of the forensic equipment was re-estimated to be 10 years.

Shikongo Limited uses the reallocation method to account for changes in accounting estimates.

The tax rate has remained 30% since the companys inception.

REQUIRED:

Show how the above-mentioned information would be disclosed in the notes to the financial statements of Shikongo Limited for the year ended 31 March 2020,