The machinery had an original estimated useful life of four years and a remaining useful life of three years at the date of acquisition. This machinery was classified as property, plant, and equipment under the cost model, in the accounting records of Isabella. It is the accounting policy of Isabella Ltd to recognise depreciation over the asset's estimated useful life on a straight-line basis. It is the groups accounting policy to write off depreciation on its new machinery consistent with the tax allowances granted by the South African Revenue Services.

Transactions with Isabella

7. During the current year, Isabella sold selected fine fragrances and beauty products amounting to R188 000 to Spree Ltd. Isabella sells inventory to Spree Ltd at a profit mark-up of 30% on the cost price. On 30 June 2023, Spree Ltd had inventory valued at R85 000 on hand which was purchased from Isabella.

Investment in Invest Global Ltd Bonds

8. On 1 February 2023, Spree Ltd purchased 9 500 bonds from Invest Global Ltd with a fair value of R120 per bond and incurred R5 000 transaction costs that were directly attributable to the acquisition of the bonds, settled in cash on the same date. The bonds are redeemable at par value of R100 each on 30 January 2027 and interest is paid annually, in arrears, on 31 January, at a coupon rate of 12%. Spree Ltd holds the investment in Invest Global bonds with the objective of collecting future contractual cashflows of principal and interest at specific dates until maturity date. The bonds were not regarded as credit impaired on initial recognition and the credit risk has not increased at any stage since purchase.

The 12-month probability of default was assessed at 2% and 4% on 1 February 2023 and 30 June 2023, respectively, while the lifetime probability of default was measured at 3% and 5% on 1 February 2023 and 30 June 2023, respectively.

9. The impact of the investment in Invest Global Ltds bonds has been accounted for in Spree Ltd profit for the year end 30 June 2023.

Matters arising from the preparation of consolidated financial statements for the year ended 30 June 20x23.

10. While preparing the consolidated financial statements for the year ended 30 June 2023, Mrs Julie Smith CA(SA) had indicated that despite your email indicating the amount at which the investment in Invest Global bonds should be disclosed in the consolidated statement of financial position as at 30 June 2023, she firmly believes that accounting for the effect of expected credit losses in this investment is not necessary since the credit risk is low on this instrument and this requirement is more relevant to financial institutions. Therefore, she intends to remove the allowance for expected credit losses from the calculation.

Additional information

The Spree Ltd Group applies the cost model to all items of property, plant, and equipment in terms of IAS 16, Property, Plant and equipment.

Spree Ltd measures its investments in Zahara Ltd and Isabella (Pty) Ltd at cost in its separate accounting records in terms of IAS 27, Separate Financial Statements.

The Spree Ltd Group accounts for joint ventures using the equity method, in accordance with IAS 28, Investments in Associates and Joint Ventures.

The Spree Ltd Group elected to measure non-controlling interests in an acquiree at fair value at the date of acquisition.

Page 8 of 9

REQUIRED:

a)

b)

Marks

FAC3764 Assessment 9

QUESTION 2 (Continued)

The South African normal tax rate is 27% and the capital gains tax inclusion rate is 80%. You may assume that both the tax rates have been effective and remained unchanged since 28 February 2021.

The income and expenses of all companies within the Spree Ltd Group were earned evenly throughout the current year except where specifically indicated.

Each share carries one vote and the share capital of each of the companies in the Spree Ltd Group has remained unchanged since incorporation.

Prepare only the non-current assets and equity sections of the Consolidated 23 statement of financial position of the Spree Ltd Group as at 30 June 2023.