Question 5

BVQs trial balance at 31 March 2013 is shown below:

Notes R000 R000

6% Loan notes (issued 2010, redeemable at par 2020) 600

Administrative expenses 357

Leased delivery vehicles (vi) 324

Cash and cash equivalents 118

Cost of sales 1,873

Distribution costs 226

Equity dividend paid 1 December 2012 70

Income tax (i), (iii) 27

Inventory at 31 March 2013 198

Land and buildings at cost (vii) 2,553

Loan interest paid 18

Ordinary Shares R1 each, fully paid at 31 March 2013 1,400

Finance lease liability at 31 March 2012 268

Finance lease payment on 1 April 2012 74

Plant and machinery at cost (iv) 3,888

Provision for deferred tax at 31 March 2012 (iii) 362

Provision for buildings depreciation at 31 March 2012 (v) 190

Provision for delivery vehicle depreciation at 31 March 2012 (v) 65

Provision for plant and machinery depreciation at 31 March 2012 (v) 2,489

Retained earnings at 31 March 2012 728

Sales revenue 4,364

Trade payables 176

Trade receivables 916

10,642 10,642

Additional information:

(i) The income tax balance in the trial balance is a result of the under provision of tax

for the year ended 31 March 2012.

(ii) There were no sales of non-current assets during the year ended 31 March 2013.

(iii) The tax due for the year ended 31 March 2013 is estimated at R180,000 and the

deferred tax provision should be increased by R31,000

(iv) Due to a general downturn in the economic environment property prices in

Country X reduced during the year to 31 March 2013. BVQ also suffered a

reduction in sales demand and decided to sell one of its specialist machines on 31

March 2013. The machine had cost R180,000 on 1 April 2011. The market value of

the machine at 31 March 2013 was R73,000. BVQs management was confident

that they have a buyer ready to buy the machine at that price, but at 31 March

2013 the sale had not been agreed. It will cost BVQ R800 to get the machine ready

to sell.

(v) Depreciation is charged on buildings using the straight line method at 3% per

annum. The cost of land included in land and buildings is R1,653,000. Plant and

equipment is depreciated using the reducing balance method at a rate of 30% per

year. All property, plant and equipment depreciation is treated as an

administrative expense. Vehicles are depreciated using the straight line method.

(vi) BVQ leased its fleet of delivery vehicles through a finance lease on 1 April 2011.

The fair value of the vehicles at that date was R324,000. The lease is for 5 years

and payments of R74,000 are made every April in advance. The interest rate

implicit in the lease is 7.12%.

(vii) BVQ carried out an impairment review of its land and buildings on 31 March

2013 and calculated that they had suffered impairment of R103,000.

Required: (a) Explain why BVQ might have carried out an impairment review of its land and buildings on 31 March 2013. (3 marks) (b) Prepare the statement of profit or loss and a statement of changes in equity for BVQ for the year to 31 March 2013 and a statement of financial position at that date, in accordance with the requirements of International Financial Reporting Standards. (27 marks) Notes to the financial statements are not required, but all workings must be clearly shown. Do not prepare a statement of accounting policies. (Total for Question Three = 30 marks)