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Questions 1 - 1 0 relate to the annual financial statements of BabyCare Ltd that comply with the requirements of International Financial Reporting Standards. BabyCare
Questions relate to the annual financial statements of BabyCare Ltd that comply with the requirements of International Financial Reporting Standards.
BabyCare Ltd manufactures and sells various types of baby products across South Africa. The profit before tax in the draft annual financial statements of BabyCare Ltd for the years ended February and February amounted to R and R respectively, before taking into account all the information below:
During the preparation of the draft annual financial statements for the year ended February it was discovered that the inexperienced accountant incorrectly expensed import duties on three of its motor vehicles which were imported from Germany. The import duties incurred on the three vehicles imported from Germany were expensed instead of being capitalized in the accounting records of BabyCare Ltd for the year ended February Import duties of R on each motor vehicle were expensed and recorded in the accounting records of BabyCare Ltd on December
Depreciation and tax allowances on motor vehicles are both provided at per annum prorata on the straightline method. This incorrect allocation of the import duties is considered material and has not yet been corrected in the accounting records of BayCare Ltd for the year ended February
The SA Revenue Service indicated that they will reopen the previous year's tax assessment. The SA Revenue Service will also regard these import duty costs to be of a capital nature.
tax
The directors decided at a board meeting that the current inventory valuation method does not give a reliable presentation of the effect of inflation on the company's profits. The directors subsequently decided to change the accounting policy concerning the valuation of inventory from the weighted average method to the firstin firstout method. Unfortunately, the inventory valuations according to the firstin firstout method for the year could not be determined, due to a virus in the computer inventory costing program.
The following deferred tax schedule with the respective inventory values was provided to you by the financial accountant which you may assume to be correct:
tabletable February February tableCarryingamount
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