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Raw materials that are used in the manufacturing of bats, which had a total value of R200 000. o There was no work in progress. The bats are manufactured at the warehouse which has a normal operating capacity of 100 000 direct labour hours per annum. The entity allocates the fixed overheads to the bats on the basis of direct labour hours. Faf incurred the following costs in the process of manufacturing 2 000 cricket bats during the current year: Description Cost per unit Direct labour cost 550 Other variable costs (excluding materials and |250 labour) Advertising cost 50 Sales delivery cost 25 The total raw material purchased amounted to during the current period amounted to R700 000 while the total fixed production overhead costs (excluding the items included in the table above) were determined to be R600 000. The actual direct labour hours for the year was determined to be 90 000 hours. The value of the raw materials purchased during the year but unused at the end of the year amounted to R100 000. The cricket bats are sold to customers at a mark-up of 25% on cost. The total number of bats sold during the year was 1 840 units and there was no work in progress. During the year-end inventory count, it was determined that 10 bats were missing and could not be located. On 2 April 2020 there was a flood that damaged the raw materials storage section of the warehouse resulting in the raw materials available at year end date being damaged. Faf will not be able to be use the damaged material in the manufacturing of bats, however the entity can sell the material to artists, thus the net realisable value was determined to be R65 000. Patent On 1 April 2019, Faf purchased a patent to manufacture ultra-thin cricket batting gloves that are pain resistant for R720 000. The patent was available for use on 1 April 2019, but manufacturing Page 4 of 12of the gloves only commenced on 1 May 2019 after proper training was provided to the employees of Faf. The useful life of the patent was estimated at 5 years. However, the legal life of the patent is 4 years and the legal life can be extended by a further 2 years at an insignificant cost. Account receivables On 10 April 2020, the entity received information that Aussie distributors, one of their major clients had filed for bankruptcy as such the amount owed to them would not be recoverable. On 31 March 2020, the total accounts receivable balance of R225 000 included an amount of R75 000 Aussie distributors. Additional information: The year end of the company is 31 March. . The profit for the year was correctly calculated as R120 000 after considering all the information above. The long term borrowing and the trade and other payables were correctly determined as R2 500 000 and R258 663 as at 31 March 2020. The financial statements of Faf were authorised for issue on 16 May 2020 by the board of directors and approved by the shareholders on 30 May 2020. Accounting policies Separately identifiable components of property, plant and equipment are depreciated separately if the useful life of these components differ. The building is measured on the revaluation model. Machinery and vehicle are measured on the cost model. Investment property is measured in accordance with the fair value model. Inventory is measured at the lower of cost and net realisable value by applying the weighted average costing method, where the weighted average costing method is calculated on a periodic basis. Ignore VAT for this question Page 5 of 12You are required to: Marks A Prepare an extract of the Property, Plant and Equipment note for the 2020 27 financial year. Only the reconciliation is required. Accounting policies are not required. Total column is not requiredOn 31 December 2019, management realised that the machine had a faster wear and tear then they initially estimated. On this date they decided to change their estimate and they believed that after the current financial year, the machine would be able to be used for another year. Thereafter it would hold no more economic value. The business had purchased a Hyundai 1-ton delivery vehicle for R340 000 on the 1" of April 2017. On this day management believed that the vehicle would be used for 200 000 km before it would be sold at a residual value of R80 000. Over the years the Hyundai was giving many problems and therefore on 30 September 2019 it was sold for a profit of R2 000. On 1" October 2019 a new Toyota 1-ton delivery vehicle was purchased for R320 000 . This vehicle was fitted with an additional GPS system to assist the driver to make his deliveries faster by using the GPS system and avoiding traffic. This GPS system was fitted for an additional R80 000 . The Toyota is expected to be driven for 300 000 km before it will be sold at a residual value of R100 000. The driver of the delivery vehicle uses a logbook to keep track of the mileage done on the vehicle, please see below his logbook: Year ended Hyundai (km) Toyota (km) 31 March 2018 40 000 31 March 2019 60 000 31 March 2020 40 000 30 000 Extract of the Prior year Statement of Financial Position as at 31 March 2019 Equity ZAR Share Capital 80 000 Retained Earnings 290 000 Revaluation surplus 50 000 Cricket bats The opening inventory on 1 April 2019 consisted of the following:- o 150 bats which had total weighted average cost of R214 500. Page 3 of 12Question 1: Faf Industries (55 Marks - 82.5 Minutes) A few years ago, Faf Du Plessis thought about the future of his cricketing career and he realised that he had to retire from international cricket very soon and if he still wanted to make a living after that he would have to find a different source of income. As he had a great passion of cricket and he knew there was a gap in the South African market. He decided to invest some money and start his own manufacturing business. At present all cricket bats sold in South Africa are either made from English willow or Kashmiri willow. There is no local wood used in making cricket bats. Therefor Faf had decided to tap into this market by starting Faf Industries (Pty) Ltd. which will manufacture cricket bats locally with South African willow. Fixed assets Faf purchased a building a few years ago for a cost of R2 800 000. After reading a bit about IFRS for SMEs Faf liked the idea of measuring his building on the revaluation model per section 17. On the last day of the previous financial year the building was revalued to its fair value of R1 400 000. On the day of revaluation, it was also noted that the building had a remaining useful life of 7 years. On 31 December 2019, Faf thought that it was better for him to rent out his building and rather earn money from rental income. On 31 December 2019 the entire building was transferred to investment property. The fair value of the building just before the transfer was R1 200 000 and the value had increased by R50 000 as at year end. The Machine used to produce the cricket bats was purchased on the 1 April 2018 at a cost of R900 000. This cost included the main motor of the machine which costs R300 000 and was considered to be a significant component. Management believed that the motor will need to be replaced every 3 years and the entire machine would last 8 years. Machinery is measured on the cost model and depreciated based on the straight-line method