Retail World Ltd

Ignore VAT

Since its founding as a single retail business in $1970,$ Retail World Ltd $($RW$)$ has significantly grown its customer base and is now a listed company on the Namibia Stock Exchange. It operates multiple stores across Namibia and India. RW has also diversified by investing in various businesses and has several subsidiaries and investments in associates, forming the RW Group. The company has financed all its operations and capital expenditures through Namibian sources. RW$\text{'}$s financial year ends on $30$ September. RW$$s finance department has an internship program with the University of Namibia, taking in student interns during the busy months of August and September. You are one of the lucky students selected this year. The following information is provided to you: Katutura Shop Construction

The business already has stores in Maruala mall, but the marketing department noticed that few people from densely populated townships $($like Katutura$)$ visit this high$-$end shopping center. In May $2021,$ the board of directors approved a financial strategy to build a new store in Katutura.

The directors believe that borrowing to fund business expansion is a smart investment when an entity can plan, manage, and leverage debt effectively. RW secured a loan facility with NED Bank, which allows them to borrow up to NAD$100$ million to fund construction costs as needed. The bank charges $15\%$ interest per annum, and RW can invest surplus funds at a rate of $6\%$ per annum.

The project qualifies as an asset for capitalization starting on $1$ October $2021.$

The company borrowed NAD$40$ million on $1$ October $2021$ and immediately invested NAD$5$million, with the remaining funds used for construction. Another borrowing of NAD$30$ million was made on $1$ November $2021,$ with NAD$10$ million invested on the same day and the balance used for construction. On $31$ December $2021,$ the company withdrew NAD$18$ million from its investments and borrowed the remaining amount of the loan facility on $31$ March $2022,$ using NAD$20$ million immediately for construction and investing the rest. On $1$ June $2022,$ construction

$4$ was halted due to a strike by the building contractor$$s employees, resuming on $1$ August $2022.$ RW spent the remaining loan and investment funds on $1$ August $2022,$ completing the project, which was ready for final inspection by $30$ September $2022$ and was authorized for use the same day. Depreciation on the building is charged at $10\%$ per annum, and NAMRA allows a $5\%$ annual wearand$-$tear allowance on the store building. Purchase of Inventory

The Indian business ties through the RW Indian branch are instrumental in RW bulky and affordable purchase of inventory sold in Namibia. The operation has maintained its inventory deliveries to RW Namibia and RW has enjoyed economies of scale through the bulky purchases. RW purchases all its inventory from INdia and sells it in Namibia; all its labour and other overhead costs are incurred in the Namibian currency $($NAD$)/$N$$.$ RW receipts are kept in the NAD. On $1$ August $2023,$ RW placed an inventory order of $500000$ boxes @ R$500$ with a Indian giant retailer

i$.$e$.$ Tech $8$ Ltd$.$ The order is cancellable. On the same day, RW entered a $3-$month Forward exchange contract for an equivalent value. Tech $8$ Ltd had to house the inventory at their Port Novorossiysk warehouse from the $16$th to the $30$th of August because the Port officials were on strike. The goods were finally shipped Customer Insurance and Freight $($RW paid for insurance costs$)$ on $31$ August $2023.$ The goods arrived at the Walvis Bay harbour on $29$ September $2023$ and Tech $8$ LTD was paid on $31$ October $2023.$ The following foreign currency rates are provided: Dates Spot rates Forward rateBuying rate Selling rate

$1$ August $20231=$ N$$0\mathrm{.}171=$N$$0\mathrm{.}181=$N$$0\mathrm{.}24$

$30$ August $20231=$N$$0\mathrm{.}181=$N$$0\mathrm{.}211=$N$$0\mathrm{.}26$

$31$ August $20231=$N$$0\mathrm{.}251=$N$$0\mathrm{.}271=$N$$0\mathrm{.}28$

$30$ September$20231=$N$$0\mathrm{.}231=$N$$0\mathrm{.}251=$N$$0\mathrm{.}29$

$31$ October $20231=$N$$0\mathrm{.}251=$N$$0\mathrm{.}30$ N$/$A

Assume that all hedging criteria were satisfied $($therefore$,$ there is no need to test for hedge effectiveness$).$ Warranties

RW provides a one$-$year warrantee on all its products, in which products with defects will either be repaired or replaced. The warranties cannot be purchased separately and are solely for assurance

of the performance of the goods. RW has a standing binding agreement with its Indian suppliers

that they will refund $80\%$ of the cost to repair any goods that were obtained defective from the

source. Past experience indicates that it is probable $($i$.$e$.,$ more likely than not$)$ that there will be

some claims under the guarantees, and it is estimated that the costs of repairs or replacements will amount to N$ $500,000$ during the $2023$ financial year.

Required

$1.$ calculate and journalise the borrowing costs in connection with the Katutura Shop construction at $30$ Sep $2022$

$2.$ Provide journal entries to record the purchase of inventory from india

$3.$Determine the functional currency of rw