Camel Trading Limited leases an industrial site close to a game reserve. The company
recently obtained the approval for heavy plant and machinery to operate on the site for
a period of five years. The approval is in terms of a license granted by the government.
The Minister of Environment & Tourism approved the license because the main activity
of Camel Trading Limited is the production of environmentally friendly paper from
The plant was purchased on 1 October 2020 for N$1 000 000. Installation costs of
N$175 480 were incurred and paid over the months of October, November and
December 2020. The plant and machinery were in a condition necessary to be capable
of operating in the manner intended by management on 1 January 2021.
The plant and machinery has an estimated useful life of five years with no residual
value. In terms of the license, Camel Trading Limited is obliged to dismantle the plant
and machinery and restore the area at the end of its useful life. Future
decommissioning costs are expected to be N$120 000. The company uses a discount
rate of 10% to calculate the present value of the decommissioning costs.
The financial accountant prepared the following schedule reflecting the unwinding of the
discounted decommissioning costs to its present values:
a) Prepare all journal entries relating to the above transactions that would have been
processed in the accounting records of Camel Trading Limited for the years ended
31 December 2020 and 31 December 2021. Show all workings. (6)
b) Prepare the relevant extracts from the statement of profit or loss and other
comprehensive income for the year ended 31 December 2022 and from the
statement of financial position at 31 December 2022. Notes to the financial
statements are required in respect of provisions only. Show comparative figures.
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