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Kar Jenkins has just been appointed the managing director of Car Cables Limited, a Manufacturer of motor vehicle cables and belts. Kar has extensive experience in this industry and has been appointed to help turn the company around however he has limited financial experience. The auditors have requested him to review the assets and perform impairment testing where there are indicators of impairment. Kar has come to you; the accountant requesting help and requested the following information from you.


  • What are indicators of impairment and what information should I consider when reviewing this?
  • The auditors spoke about recoverable amount – what is this and do I need to calculate this?
  • I have tried searching on Google about impairment and saw some information on fair value and value in use – What are these?
  • Google also speaks about impairment losses – What is an impairment loss?
  • I do have concerns over one of the assets on the floor – it is not functioning as it should so I am not sure whether this would be an impairment – please let me know whether it is and if yes, what journal entry will be required to be processed in this regard.


Fan Belt machine


Carrying amount 31 December 2020                                         R5 300 000

Value in use                                                                                     R4 146 124

Expected selling price                                                                   R5 220 000

Cost of delivery to potential customer                                      R27 500 Legal costs involved in the sale

Legal costs involved in the sale                                                  R22 000




Write a memo to Mr Kar Jenkins, answering all his queries (a) to (f) above. (Questions 24 marks + Communication & Format marks awarded – 2 marks = 26 marks total)




Style It (Pty) Limited signed a contract with Joey (the customer) on the 1 June 2020. The terms of the contract included the following:


  • Style It (Pty) Ltd would supply and install a Jacuzzi on the 1 July 2020 after which it would be required to supply and install an shower in the bathroom
  • The customer promised consideration of R25 000 payable by the 30th of September at the latest after both the jacuzzi and shower are installed.
  • The contract is cancellable in the event of non-performance
  • The stand-alone selling prices for the supplied and fitted products are as follows:
    • Jacuzzi R20 000
    • Shower R5 000
  • Style It (Pty) Ltd supplied and installed the jacuzzi on the 1st of July as agreed and the shower on the 5th of August.
  • Amount owing by Joey is paid over on the 25 September 2020.




Prepare the journal entries for the year ended 31st December 2020 in respect of the above transactions in the books of Style It (Pty) Ltd.


Marks will be awarded for dates and narrations.




Laylow Limited is a property investment company in Durban. It specialises in commercial letting of property including corporate buildings, flats and retail shopping outlets. During the recent civil unrest, one of the commercial properties owned by Laylow Limited was destroyed. ArtFood Limited, rented this property directly from Laylow Limited for the last 40 years thus Laylow Limited has had an excellent relationship with them. The building Laylow Limited is currently occupying, is owned by Laylow Limited) and used by them as admin offices. The building has a large first floor and ample parking which will be ideally suited to ArtFood Limited.


Laylow Limited has another vacant property which is ideally suited to Laylow Limited to use as their admin building and have been wanting to move the offices for the last few months. Laylow Limited has seen this as an ideal opportunity to move their admin offices from the building and then rent the building out to ArtFood Limited. ArtFood Limited was extremely grateful for this offer and has taken the offer up from the 1st of July 2020.


The following details relate to the building that Laylow Limited was occupying and will now be let to ArtFood Limited.


  • Purchased for R1 500 000 on the 1 January 2019 (useful life 50 years)
  • Fair Value of the building R1 550 000 30 June 2020
  • Fair Value R1 490 000 31 December 2020


During the year, Laylow Limited spent the following amounts on another investment property they own which consists of a block of flats:


  • R25 000 to replace on the globes in the building which blew during a power surge after loadshedding – 31 August 2020
  • R350 000 to build an extra floor on the rooftop to rent out as a penthouse under an operating lease – 30 September 2020
  • Damages to the lift system from the loadshedding – the lift system was quite outdated and therefore cannot be repaired. The lift system had to be replaced at a cost of R85 000. The FV of the damaged lift was R7 – 30 September 2020


Laylow Limited uses cost model to measure Property, Plant & Equipment and the Fair Value model to measure Investment Property. Laylow Limited has a 31st December year end.




  1. What is difference between an Investment Property & an Owner-Occupied Property (Tip – provide the definition of each type to determine the difference)
  1. When will transfers in and out of Investment property occur (list the criteria for a transfer to take place)?
  1. Prepare the journal entries in the books of Laylow Limited for the year ended 31st December 2020 for all the transactions as noted above.


Please include dates and narrations as marks will be awarded for this.




The directors of Money Investments Limited are considering two mutually exclusive projects. Both projects are concerned with the purchase of land for building. See details below.


Period Project A Project B
Initial outlay 0 –      100 000 –        60 000
Cash inflows 1 60 000 36 000
2 30 000 16 000
3 40 000 28 000




  1. What is capital budgeting?
  2. When looking at capital budgeting, do we take the accrual system into account. Give a reason for your answer.
  3. List 1 advantage AND 1 disadvantage of the payback period method
  4. Calculate the net present value of each of the projects above and state which of two projects should the directors accept and why. Assume a cost of capital/ required rate of return to be 10%


For REF… Use: #getanswers2002100 O