QUESTION TWO $[28]$

Macaroni Limited has an investment property which it purchased at a cost of R$20$million on the $1$st of

January $2018.$ Macaroni Limited used this property for their admin division from date of purchase till

the $31$st of December $2019.$ Macaroni Limited found a more suitable smaller property for their admin

division and will take occupation from the $1$st of January $2020.$ Macaroni Limited entered into an

operating lease with Cheese Limited for Cheese Limited to lease the purchased building from the $1$

st

of January $2020.$

The building was to be used as an office block for Cheese Limited. The $5-$year lease was entered

into on the $1$st of January $2020$ and has the following terms:

$-$ Lease rentals of a R$100000$ per month payable in advance on the $1$st day of each month

$-$ Macaroni Limited is responsible for the maintenance of the building

The fair value of the investment property at $31$st of December $2020$ was R$25$ million.

During the $2020-$year, Macaroni Limited incurred R$350000$ expenditure on the property as follows:

$-$ R$25000$ to replace on the globes in the building which blew during a power surge after

loadshedding $31$ August $2020$

Page $3$ of $6$

$-$ R$175000$ to build an extra parking floor to rent out to Macaroni Limited $($under an operating

lease$)$ who leases a building next door however has run out of parking space $30$ September

$2020$

$-$ Damages to the lift system from the loadshedding $$ the lift system was quite outdated and

therefore cannot be repaired. The lift system had to be replaced at a cost of R$150000.$ The FV

of the damaged lift was R$27000.30$ September $2020$

Macaroni Limited accounts for investment property using the fair value model and property, plant

and equipment using the cost model. Buildings classified as property, plant & equipment are

depreciated on the straight line method to nil residual values over an expected life of $20$ years.

Required:

Prepare the journal entries to record the above transactions in the books of Macaroni Limited for the

year ended $31$st December $2020.($Please include dates, narrations and workings as marks are