Top Grip (Pty) Ltd is a leading manufacturer of running shoes and a stylish athleisure clothing range. The company manufactures four ranges of running shoes, which include stability, trail, race, and everyday collections. Each running shoe range as well as the clothing range is manufactured using a specific machine. The company has a December financial year-end.

The following is a breakdown of the carrying amount of machinery in the accounting records of Top Grip (Pty) Ltd on 1 January 2023:

	Note	Rand
Stability machine	1	775 200
Race machine	2	1 885 000
Everyday machine	3	1 159 000
		3 819 200

Note 1: Stability machine

The stability machine was purchased on 1 October 2019 and has been available for use since that date.

The cost price of the stability machine amounts to R2 000 000, with a residual value amounting to R50 000. Additional directly attributable costs include the following:

	Rand
Transport costs	85 000
Installation costs	37 000
Administration fees	12 000
	134 000

During the current financial year, there has been a rapid advancement in technology and a later version of the stability machine is now available. Due to the age and condition of the machine, it is no longer producing as many stability running shoes as in prior years.

At year-end, management determined the fair value of the stability machine to be R240 000, with costs of disposal amounting to R20 000. The value in use was determined by management amounting to R185 000.

Note 2: Race machine

The race machine was originally purchased on 1 April 2020 for an amount of R3 900 000 and was available for use from 1 June 2020. The residual value of the race machine was Rnil.

The race machine has been damaged as a result of surges that occur when the power returns after the rotational power cuts during loadshedding. Due to the damage caused, the race machine has not been used since 30 June 2023 which was its last day of use before retirement from active use. The selling price of the scrap value of the race machine was estimated at R125 000 on 30 June 2023. The race machine was insured and Top Grip (Pty) Ltd submitted a claim to Insure (Pty) Ltd for the replacement of the damaged machine.

Note 3: Everyday machine

Top Grip (Pty) Ltd purchased the everyday machine on 1 April 2022 amounting to R1 850 000 and was available for use on the same date. The residual value of the everyday machine was R10 000.

The everyday machine was damaged due to a waterpipe burst at the Top Grip (Pty) Ltd factory building which occurred in December 2022. An impairment loss amounting to R415 000 was recognized during the 2022 financial year-end.

On 31 December 2023, management determined the fair value less costs of disposal of the everyday machine to be R1 250 000. The value in use was determined by management amounting to R1 310 000.

Note 4: Clothing brand range

The management of Top Grip (Pty) Ltd purchased a clothing brand from a new designer who will specialise in stylish athleisure wear, called Cool Wear, on 13 October 2023 for an amount of R500 000. Management is of the opinion that this brand will attract new customers and expand its presence in the industry.

Although the Cool Wear brand is not ready for immediate use it is sure to be a success. The brand is currently in the process of being registered in the name of Top Grip (Pty) Ltd and will be finalized during the 2024 financial year-end.

Additional information:

• Ignore all income tax implications.
• Top Grip (Pty) Ltd uses the cost model for property, plant, and equipment.
• All machines measured under the cost model are depreciated on the straight-line basis over the assets useful life. Machines have a useful life of 5 years.

REQUIRED:

1.1) Discuss, with supporting calculations, whether an impairment loss in terms of IAS 36 should be recognized with regards to the Stability machine, Race machine, and the Cool Wear brand in the annual financial statements of Top Grip (Pty) Ltd as at 31 December 2023. Round all answers to the nearest Rand.

Marks will be awarded as follows:

Stability machine: 18 marks

Race machine: 7 marks

Cool Wear brand: 3 marks

(28 marks)

1.2) Prepare allthe general journal entries to account for the Everyday machine in the annual financial statements of Top Grip (Pty) Ltd as at 31 December 2023 so as to be in compliance with the International Financial Reporting Standards.

Journal dates and narrations are not required. Round all answers to the nearest Rand.