2025 AEGROTAT TEST QUESTION (33 MARKS)

Nhlaka Enterprises is an innovative entrepreneurial company that has embraced technology to reach its mainly young customer
base. They run an online retail business and are looking to expand their business operations.

In 2022, the company was granted a sizable subsidy by the Department of Trade and Industry. The subsidy is broken down into 4
grants, each attaching very specific terms and conditions. The following information is available regarding the incentives allocated:

GTANT DETAILS:

Non-Monetary Land Grant

 A plot of land was given to the company, situated in Hammarsdale, Kwa-Zulu Natal. The fair value of the land is R5 million.
 Nhlaka Enterprises is required to erect a warehouse and distribution centre on this land from where they must conduct
their expanded business activities for a minimum period of 10 years.
 This property may not be sold or used for any other purposes. The land was transferred on 1 January 2022.

Asset Grant: Warehouse

 A subsidy of R7.2 million towards the cost of building a warehouse and distribution centre. The subsidy was received on
31 January 2022.
 This warehouse and distribution centre must be built on the land subject to the grant in Hammarsdale.
 The warehouse and distribution centre must operate for a minimum period of 10 years.

Labour Subsidy

 A labour subsidy grant of R3 million towards the employment of unemployed youth under the age of 35 years. This grant
was received on 31 January 2022.
 The condition of this grant is that Nhlaka Enterprises must employ at least 50 unemployed youth under the age of 35,
from the local suburbs who are South African citizens, for a minimum period of 4 years.

Operating Costs Subsidy

 An operating costs subsidy of R2.4 million was received on 31 January 2022. This subsidy must be used to subsidise
operating costs of the warehouse and distribution centre.
 A condition of this grant is that at least the following amount of goods must be distributed during the first 5 years of
operation:

 2022: 16 tonnes

 2023: 20 tonnes

 2024: 20 tonnes

 2025: 24 tonnes

 2026: 24 tonnes
The following events actually took place:

a) Nhlaka Enterprises incurred an actual cost of R20 000 000 in building the warehouse and distribution centre. The expected
useful life of the warehouse and distribution centre is 12 years. The building commenced on 2 January 2022, and the
warehouse was stocked and ready for use on 1 April 2022.
b) The annual labour cost of Nhlaka Enterprises is R3.6 million per annum. Labour costs are expected to increase by 5% annually
for the next 4 years. Nhlaka Enterprises began trading on 1 April 2022 when the warehouse opened. All the staff was recruited
and commenced duties on 1 April 2022.
c) It is the policy of Nhlaka Enterprises to account for non-monetary grants at fair value.
d) The operations manager of the warehouse has indicated that based on current performance and the informal current trading
performance of Nhlaka Enterprises, the conditions set out in the operating costs subsidy will be met easily. He does not
expect any repayment clauses to be considered. (No penalties are to be expected.)
e) It is the policy of the company to show grant income separately in the Statement of Profit or Loss and Other Comprehensive
Income.

REQUIRED:

1.1 Prepare the journal entries to record the transaction from the above information for the years ended 31 December
2022, 2023 and 2024 for Nhlaka Enterprises. Narrations are NOT required. Round off all workings to the next whole
number. (13)
1.2 Prepare an extract from the Statement of profit or loss and other comprehensive income for the years ended 31 December
2022,2023 and 2024, showing all items of income and expense from the grants above for Nhlaka Enterprises. Round off all
workings to the next whole number. (11)
1.3 Using the information from above, prepare the statement of financial position of Nhlaka Enterprises at 31 December 2022,
2023 and 2024, showing all the relevant account categories affected by the information given in the question. (9)

NB: SHOW ALL WORKINGS.

An extract of Zambezi Limited’s draft financial statements for the year ended 31 March 2025 is shown
below:
Zambezi Limited
Draft Statement of Profit or loss and other comprehensive income for the year ended 31 March 2025
2025 2024
R R
Profit before tax 2 964 836 2 842 964
Tax (889 496) (852 889)
Profit for the year 2 075 340 1 990 075

Zambezi Limited
Draft Statement of Changes in Equity for the year ended 31 March 2025
Details Share Retained
Capital Earnings
Balance at 1 April 2023 6 000 000 1 247 779
Total comprehensive income 1 990 075
Ordinary dividend (450 000)
Balance at 1 April 2024 6 000 000 2 787 854
Total comprehensive income 2 075 340
Ordinary dividend (450 000)
Balance at 31 March 2025 6 000 000 4 413 194
Zambezi Ltd, a manufacturer of digital toys, values inventories at the lower of cost and NRV, with cost
determined using the weighted average (WA) method.
The value of closing inventory at 31 March 2023, 2024 and 2025 was originally computed as follows:
 2023 R327 900
 2024 R247 600
 2025 R367 400
During the year ended 31 March 2025, management decided that the cost of inventories should rather be
determined using the first- in-first-out (FIFO) basis to better reflect the physical flow of inventories.
Closing inventories at 31 March 2025 were calculated on the FIFO basis as follows:
 2023 R372 600
 2024 R312 400
 2025 R502 800
Profit before tax, before adjusting for the change in policy, for the years ended 31 March 2023 to 31 March
2025 was as follows:
 2023 R2 126 874 (fully taxable)
 2024 R2 842 964 (fully taxable)
 2025 R2 964 836 (fully taxable)
Assume a tax rate of 30% (round off all workings to a round number). SARS indicated that they will allow for
the changes for only 2025.
The issued share capital consists of 6 000 000 ordinary shares. A dividend of R450 000 is paid annually.

REQUIRED:
1.1 Show the workings for Change in profit for the three years (before and after tax) as a result of the change in policy.
1.2 Show the workings for the change in effect on the results of Zambezi Limited due to the change in accounting policy.
1.3 Show the workings for calculation of profit before tax for the current and comparative year.
1.4 Show the calculation of current taxation for the current and comparative year.
1.5 Calculate the deferred tax adjustment (comparative is required)?
1.6 Show your workings for the tax note for the current and comparative year.
1.7 Prepare the statement of profit or loss and other comprehensive income of Zambezi Limited for the year ended 31 March
2025.
1.8 Prepare the statement of changes in equity of Zambezi Limited for the year ended 31 March 2025.