QUESTION 4 [40 MARKS]

Malusi & Co has the following balances at 31 March 2022

Further information provided:

1. The sales revenue figure includes an amount of R30-million relating to sales to customers under sale or return agreements. The expiry date for the return of the goods is 30 April 2022. A mark-up of 20% is charged on the cost of these sales.

2. New property was acquired on 1 April 2021. The cost was R250-million. For depreciation purposes, the asset is separated into the elements shown below:

The accounting policy is to depreciate elements of the property on a straight-line basis. The new property replaced an existing one that was sold on the same date for R92-million. The cost of the disposed property was R51-million and had a carrying amount of R80-million at the date of sale. The gains on this property sale were calculated based on the original cost. The sold property had not been depreciated, on the basis that the depreciation charge would not be material.

Plant and machinery is depreciated at 20% on reducing balance method.

3. The development expenditure balance in the accounts represents amounts deferred in previous years and pertain to the development of a new product. Unluckily, in the current year, government introduced legislation that bans this type of product. As a result, the project was abandoned as there is no prospect of the government changing its mind on the law. Malusi & Cos directors are of the view that the development expenditure be written off as opposed to its previous deferment. This would be a change in accounting policy and would be written off as a prior period adjustment.

4. A provision for corporate tax for the year to 31 March 2022 amounting to R18-million is required.

Required:

a. Prepare Malusi & Cos income statement for the year to 31 March 2022. (10)

b. Prepare Malusi & Cos statement of financial position as at 31 March 2022. This statement should be prepared in accordance with IFRSs. (15)

c. Discuss the acceptability of the companys previous accounting policy regarding nondepreciation of property and proposed treatment of deferred development expenditure. (15)

NB: Show all working. Include Introduction, Body and Conclusion.

\begin{tabular}{l|r|r} & \multicolumn{1}{|c|}{R} & R \\ \hline Sales revenue & & 360,650,000 \\ \hline Cost of sales & 200,050,000 & \\ \hline Distribution costs & 25,600,000 & \\ \hline Administration expenses & 17,300,000 & \\ \hline Loan note interest paid & 2,000,000 & \\ \hline Dividend paid & 13,500,000 & \\ \hline Property at cost & 250,000,000 & \\ \hline Plant and equipment & 190,900,000 & \\ \hline Depreciation 1 April 2021 - plant and equipment & & 35,800,000 \\ \hline Development expenditure & 32,000,000 & \\ \hline Profit on disposal of non-current assets & & 41,000,000 \\ \hline Trade receivables & 117,000,000 & \\ \hline Inventories 31 March 2022 & 30,700,000 & \\ \hline Cash and cash equivalents & 32,950,000 & \\ \hline Trade payables & & \\ \hline Tax - over provision in year to 31 March 2021 & & 30,540,000 \\ \hline Equity shares at 50 cents each & & 1,200,000 \\ \hline 10\% Loan note (issued 2020) & & 300,000,000 \\ \hline Retained earnings at 1 April 2021 & & 60,000,000 \\ \hline & & 82,810,000 \\ \hline \end{tabular} \begin{tabular}{|l|c|c|} \hline \multicolumn{1}{|c|}{ Element } & Cost & Life \\ \hline & (R) & \\ \hline Land & 70,000,000 & Freehold \\ \hline Heating and cooling system & 30,000,000 & 10 years \\ \hline Lifts & 40,000,000 & 10 years \\ \hline Building & 110,000,000 & 50 years \\ \hline \end{tabular}