QUESTION 55 Marks Transaction 1 Namibia Consolidated Diamond mines (NCDM) was established in the Northern side of Namibia in 2019, after acquiring the right to relocate the litananga community to Kunene region. The company has a 30 June year end. NCDM destroyed and cleared all housing structures and started the oval shaped diamond mining process on 1July 2019. At that time the company did not pay any compensation to the relocated communities and there was no legislation obligating the company to compensate displaced communities or any other environmental related laws obligating mining companies to restore the land on which they mine. Namibia is now in the process of passing a project-based compensation for any project-based displacement of communities, and a new land restoration law for all mining entities. The company received confirmation that the new laws would be enacted within the next 3 years. The company has no policy regarding project-based displacements compensations and land restoration. It has also not made any public statements regarding any intentions to compensate communities or restore land. NCDM made use of a project-based displacements compensation expert and environmental expert to estimate the financial impact that the displacement and land restoration would have for the company. The two experts' findings show that a total cost of N$300000000 would be required to cover compensation costs for the relocation of the litananga community and the cost of restoration would be N$12500000 by the year the entity ceases its operations. The report was received on 10 May 2020 and the financial statements of NCDM were authorised on 31 August 2020. The two new laws i.e., compensation and restoration law enacted on 1 October 2020, and it states that any company in Namibia is lawfully required to compensate villagers for any project-based displacements carried out after the enactment of this law and to restore the land on which mining operations have taken place. The Compensation entails constructing a 3 bedroomed house for each displaced villager, drilling communal boreholes in the new community, clearing farmland for each villager, providing agricultural inputs, groceries for 12 months (till the next harvesting season) and a sum of N$150000 for each villager. Restoration entails restoring the land to its original condition prior to mining. It is estimated that the mining operations would cease on 1 October 2031 exactly 10 years from enactment. The post-tax rate is 6,5% and the normal tax rate for Namibian Mining entities is 35%. It is the policy of NCDM to measure Property Plant and equipment in terms of the cost model. IAS 16: Property plant and equipment is depreciated over 10 years on a straight-line method.The post-tax rate was 6,5% for the period up to 30 June 2021 and the rate changed on 1 July 2021 to 7,8%. The tax rate remained at 35%. Transaction 2 Ignore value-added tax. NCDM had been concerned about the continuity of the business given the 31 October 2031 closing of the mine. In 2020, NCDM's finance director a Chartered Accountant Mr Gabrinth suggested that NCDM could also venture into Consultants through a Chartered Accountancy firm since the Mine already had a sizeable number of Chartered accountants working under it. The directors of NCDM warmed up to this idea and launched NCDM Accounting firm on 1July 2020, in Windhoek whose year-end is 30 June. The company has been expanding exponentially both from the clientele base and the number of certified accountants (CAs,ACCAs and CPAs) joining the company. Every year the University of Namibia's third-year and fourth-year accounting students are approached for their work readiness vacation work, to assist with the finalisation of the financial statements. During the 2022 financial year, you were contracted for a two-week period, to do your vacation work with NCDM. During this period, you had to assist with updating and preparing the fixed asset register. NCDM Ltd has, since incorporation, been renting offices at Havana. At the beginning of 2021 financial year, the company started negotiating to construct NCDM's own office next to the Groove mall, as a strategy for prestige, publicity and to attract more clients. NCDMLtd contracted Group Four Contractors ('Group Four') which constructed Maerua Mall, to construct NCDM's desired state of the art office park. Due to the structure and location of the office park, Group Four advised that it will take a substantial period of time to complete the desired office park and it will cost N$3000 000. NCDM was not in a financial position to be able to finance the construction and therefore took out a loan equal to the contract amount (at an interest rate of 10% per year, compounded annually on 31 March) from the FBC Bank on 1 April 2021, specifically to finance the construction of the office park. The surplus funds were invested in a fixed deposit account on 1 April 2021, earning interest at 8.5% per annum, receivable on 31 March every year. The amounts of interest earned are given. Construction began on 1 May 2021 and was only completed and the building available for use, on 28 February 2022. Construction had to cease for the month of November due to heavy rain during the beginning of that month. The rain is a normal occurrence during this time of the year and having to wait for the ground to dry, was expected. On 1 December construction resumed. The total interest earned on the fixed deposit for the construction period amounted to N$145500. The total interest earned from 1 July 2021 to 30 June 2022 amounts to N$155000. The bank statement of March 2022 reflects a direct deposit pertaining to the interest on the fixed deposit of only N$101250. There was no repayment of the loan capital during the year. The total cost of construction amounted to N$2250000. Management of NCDM Ltd considers a period of six months or more, to be a substantial period of time. The office park was occupied on 15 May 2022. On the 30th of June 2022, the carrying amount of