Mother Hupboard Ltd

Mother Hupboard Ltd is a manufacturer of kitchen cabinets. The company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). The current reporting date of Mother Hupboard Ltd is 30 June 2023.

Mother Hupboard Ltd purchased manufacturing equipment at a total cost of R15 million on 1 July 2020. The manufacturing equipment was available for use as intended by management immediately. The manufacturing equipment is accounted for on the revaluation model of IAS 16 Property, Plant and Equipment. On 1 July 2020, the estimated useful life of the manufacturing equipment was 25 years, with an insignificant residual value. These estimates remained unchanged. The manufacturing equipment is depreciated on the straight-line method over its estimated useful life. Deprecation is based on the most recent revalued amount.

The manufacturing equipment was revalued for the first time on 1 July 2022 to a net replacement cost of R16 445 000. The correctly calculated carrying amount of the manufacturing equipment was R13,8 million on 1 July 2022, before taking the revaluation into account.

During the year ended 30 June 2023, it came to management’s attention that the machine was not performing as originally expected. Based on this, management determined the value in use of the machine to be R10 million on 30 June 2023, while the fair value less costs to sell amounted to R9 million on the same date.

 The corporate tax rate is 27%.

Source: Adapted Smit, A. 2024.