DRB Ltd is an engineering consulting company that is listed on the JSE Limited. The company had an exceptionally profitable financial year, ended 31 December 20.18 and it expects to maintain its profitability in the near future.

Question

The following information is provided to you for the financial year ended 31 December 20.18:

Office buildings
The company acquired land in Johannesburg for the construction of its own office buildings. The construction of the buildings commenced on 1 January 20.18 and is expected to be completed at the end of June 20.19. Three of DRB Ltd’s 12 employees were allocated to the project, for the whole duration thereof. On 31 December 20.18 the project had met all of its targets and DRB Ltd awarded these three employees a special bonus (in addition to any other bonus – refer to point 4) amounting to R15 000 each, which will be paid on 31 January 20.19.

Salaries
The following net salaries were paid over to employees: (you may assume that all 12 employees receive the same remuneration.)

Monthly              Yearly

R                             R

Gross Basic Salary                                                                                        480 000               5 760 000

Medical aid contributions                                                                            (80 000)               (960 000)

Provident fund contributions                                                                       (43 500)               (522 000)

Taxation: Pay-as-you-earn                                                                           (100 000)            (1 200 000)

In addition to the above, DRB Ltd also contributed the following towards their employees for the year ended 31 December 20.18:

R

Medical aid fund                                                                                                                              480 000

Provident fund                                                                                                                                 290 000

Additional provident fund contributions                                                                                         50 000

820 000

All payments are made at the end of each month, except the payment to the South African Revenue Service (SARS) which is paid on the 7th of the following month and the additional provident fund contribution (refer to point 1.6).

During December 20.18 management approved a 5% salary increase for all of its employees for the 20.19 financial year. This 5% increase applies to medical aid and the provident fund as well.

3. Leave

Each employee is entitled to 25 days of vacation leave per year. Unused leave accumulates for one year and it will be paid out to employees if it has not been utilised during this period. Any leave payments to employees, who did not utilise their leave by the due date, are calculated on their gross basic salary and paid net of any taxation. You may assume that there are 260 working days in a year.

The following information, pertaining to DRB Ltd.’s leave accrual balance, was made available to you:
Leave accrual 1 January 2018 days; 96     R93928
Leave utilised during 20.18 financial year  days: 336      R?

DRB Ltd estimates that 50% of unutilised leave on 31 December 20.18 will be utilised in the 20.19 financial year.

On 1 November 20.18 one of DRB Ltd.’s employees, allocated to a project in Pretoria, went on maternity leave for four months. According to the company’s leave policy, maternity leave will only be fully paid to the employee if the employee returns to the company for the same period that the maternity leave was taken.

The company does not expect any resignations in the following financial year.

Bonus
On 31 December 20.18 DRB Ltd awarded a R25 000 bonus to each of its 12 employees, based on the year’s exceptional financial performance. Employees have to remain in the service of DRB Ltd until 31 December 20.19 to receive 70% of the bonus and they need to remain in the service of DRB Ltd until 31 December 20.20 to receive the remaining 30% of the bonus.

Defined contribution plan
On 31 December 20.18, due to the company’s exceptional financial performance, an additional provident fund contribution was granted to two retired employees who were part of the founding directors of the company. The intention of the incentive was also to retain existing employees. On 8 January 20.19 R50 000 was paid towards this contribution.

General information

• You may assume that the normal income tax rate is 28%.

• DRB Ltd presents the analysis of their expenses recognised in profit or loss using a classification based on their function.

REQUIRED:
With reference to the above information only, disclose the following for DBR Ltd in the financial statement for the year ended 31 December 20.18
1. The statement of financial position
2. Profit before tax note
Please note:
1. You may assume that all amounts are material
2. Round off all amounts to the nearest rand
3. Comparative fiqures are not required
4. Your answer must comply with Internal Financial Reporting Standards (IFRS)

GPT-4o mini · Answer

To prepare the statement of financial position and the profit before tax note for DRB Ltd as of 31 December 20.18, we'll follow the given information and relevant accounting principles under IFRS.

1. Statement of Financial Position as at 31 December 20.18

Assets

Non-Current Assets
- Office Buildings (Work in Progress) R ???*
Current Assets
- Cash and Cash Equivalents R ???*
- Accounts Receivable R ???*
- Prepaid Expenses (Medical Aid Contributions) R 480 000
- Prepaid Employee Benefits (Provident Fund) R 290 000

Total Assets R ???*

Equity and Liabilities

Equity
- Share Capital R ???*
- Retained Earnings R ???*
Non-Current Liabilities
- Retirement Benefit Obligations R ???*
Current Liabilities
- Accounts Payable R ???*
- Salaries Payable (including Special Bonus) R 135 000** (Bonus)
- Leave Payable R 93,928
- Accrued Bonus Payable R 300,000*** (Bonus for performance)
- Tax Liability R ???*
- Other Current Liabilities R ???*

Total Equity and Liabilities R ???*

2. Profit Before Tax Note

To calculate profit before tax, we need to disclose the components of income and expenses for the year.

Revenue: R ???*

Expenses:

Salaries and Wages:
- Gross Salaries (Total for all employees) R 5,760,000
- Medical Aid Contributions (Employer portion) R 480,000
- Provident Fund Contributions R 290,000
- Additional Provident Fund Contribution R 50,000
Total Salaries and Wages Expense: R 6,580,000
Leave Expense Accrual
- Total Leave Accrual as of 31 December 20.18:
  - Leave Accrual not used = 96 days at Gross Basic Salary / 260 days
  - Average Daily Salary = (R 5,760,000 / 12 months / 30 days) = R 16,000
  - Daily Leave Amount = R 16,000 / 30 = R 533.33 per day
  - Total leave accrual = R 933,928 for 96 days.
Bonus Expense:
- Total Bonus for Year = R 25,000 * 12 = R 300,000
  - 70% is recognized for 1 year (R 210,000)
  - 30% is recognized for 2 years (R 90,000) - do not recognize this year

Total Expenses for the year:

Profits Before Tax = Revenue - Total Expenses

Summary

In preparing the statement of financial position and the profit before tax note, specific amounts would require more details about assets and equity. However, the listed elements serve as a framework based on the information presented.

*The "R ???" denotes areas where assumptions or additional information would allow for specific amounts to be entered. You would complete this based on the actual financial position and any additional relevant financial documents provided to ensure accurate reporting.

Do ensure that taxes, specific deferred tax liabilities or assets, and other liabilities are detailed based on further analysis of the company's financial records as required for full compliance with IFRS.