Baggage Solutions Ltd manufactures top of the range luggage bags that are extremely light weight, strong and durable. The company specialises in trolley bags, and these can be sold separately or as part of a set. The company’s financial year end is 31 March. The following information is available as at 31 March 2021. Land and buildings Baggage Solutions Ltd purchased land with a warehouse from Property Direct for R9 444 375, and the transfer of the land and building was concluded on 1 July 2019. The normal payment terms of Property Direct is 2 months after transfer date. The agreement between Baggage Solutions Ltd and Property Direct states that payment for the property should occur on 1 July 2020. The land constitutes 20% of the purchase price of the property. The useful life and residual value of the warehouse is 25 years and R900 000 respectively. On 1 April 2020 the fair value of the property is R8 700 000. Vacuum forming machine The machine was purchased on 1 April 2018, for R525 000. It is used to mould the shape of the trolley bag by forming a vacuum in the plastic through extreme heat. The machine has an estimated useful life of 10 years. On 30 November 2020, due to unscheduled loadshedding, the ceramic heater in the machine malfunctioned and had to be replaced. The ceramic heater is a significant component of the machine. The new heater cost R24 450 and its estimated useful life is 3 years. The accountant is expecting the next inspection cost to be R26 320, and wants to recognise a provision for this amount on 31 March 2021. Warranty Baggage Solutions Ltd sells all trolley bags with a warranty which covers the cost of repairs for any defects within the first year of purchase. Past experience and future expectations indicate the following pattern of probable repairs: 85% of goods sold – no defects – No repair cost 12% of goods sold – minor defects – R275 000 cost of repairs if all items has defects 3% of goods sold – Major defects – R550 000 cost of repairs if all items has defects In the prior year, a provision was raised for R75 500. Repair costs incurred and paid during the current year that relates to the prior year sales of trolley bags, amounted to R67 500. No further repair costs are expected to be incurred which relates to the prior year sales. Lawsuit During the current year, a customer instituted a claim against Baggage Solutions Ltd for damages and loss suffered of R85 000 during a business flight from George to Pretoria. He arrived in Pretoria to find his luggage and all his electronic equipment stored in it, damaged beyond repair. The legal advisors of Baggage Solutions Ltd, are of the opinion that it is possible that the entity will be found liable. The trial will be finalised in the following year. There is no possibility of claiming this amount from a third party resulting in reimbursement. Additional information: • The pre-tax market related interest rate is 9.5%. • The revaluation model is applied to both land and buildings. Revaluations are performed at the beginning of the year. • The cost model is applied to all other items of property, plant and equipment. Required: Prepare the journal entries to account for the revaluation of the land and buildings of Baggage Solutions Ltd for the year ended 31 March 2021.
Baggage Solutions Ltd manufactures top of the range luggage bags that are extremely light weight, strong and durable. The company specialises in trolley bags, and these can be sold separately or as part of a set. The company’s financial year end is 31 March.
The following information is available as at 31 March 2021.
Land and buildings
Baggage Solutions Ltd purchased land with a warehouse from Property Direct for R9 444 375, and the transfer of the land and building was concluded on 1 July 2019. The normal payment terms of Property Direct is 2 months after transfer date. The agreement between Baggage Solutions Ltd and Property Direct states that payment for the property should occur on 1 July 2020.
The land constitutes 20% of the purchase price of the property. The useful life and residual value of the warehouse is 25 years and R900 000 respectively.
On 1 April 2020 the fair value of the property is R8 700 000.
Vacuum forming machine
The machine was purchased on 1 April 2018, for R525 000. It is used to mould the shape of the trolley bag by forming a vacuum in the plastic through extreme heat. The machine has an estimated useful life of 10 years.
On 30 November 2020, due to unscheduled loadshedding, the ceramic heater in the machine malfunctioned and had to be replaced. The ceramic heater is a significant component of the machine. The new heater cost R24 450 and its estimated useful life is 3 years.
The accountant is expecting the next inspection cost to be R26 320, and wants to recognise a provision for this amount on 31 March 2021.
Warranty
Baggage Solutions Ltd sells all trolley bags with a warranty which covers the cost of repairs for any defects within the first year of purchase. Past experience and future expectations indicate the following pattern of probable repairs:
85% of goods sold – no defects – No repair cost
12% of goods sold – minor defects – R275 000 cost of repairs if all items has defects
3% of goods sold – Major defects – R550 000 cost of repairs if all items has defects
In the prior year, a provision was raised for R75 500. Repair costs incurred and paid during the current year that relates to the prior year sales of trolley bags, amounted to R67 500. No further repair costs are expected to be incurred which relates to the prior year sales.
Lawsuit
During the current year, a customer instituted a claim against Baggage Solutions Ltd for damages and loss suffered of R85 000 during a business flight from George to Pretoria. He arrived in Pretoria to find his luggage and all his electronic equipment stored in it, damaged beyond repair. The legal advisors of Baggage Solutions Ltd, are of the opinion that it is possible that the entity will be found liable. The trial will be finalised in the following year. There is no possibility of claiming this amount from a third party resulting in reimbursement.
Additional information:
Required:
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