Reference no: EM132643536

Ignore Value-added tax (VAT).

Sail-Away (Pty) Ltd ('Sail'), was incorporated in 2015 and has a financial year end of 30 September. The company operates daily from the Houtbay harbour and transfers tourists to Penquin Island.

• The company has two well equipped catamarans. The first boat was purchased on 1 August 2018 for R2 200 000. The cost was divided into the hull costed at R1 150 000, two engines at a total cost of R350 000 and the interior furnishings and equipment at R700 000. The accounting policy adopted by the company is to write off the hull on the straight-line basis over the estimated lifetime of ten years, with an estimated residual value of R35 000. The engines are written off by using the production unit method. The estimated capacity of an engine was based on 200 000 sea miles travelled, with an estimated residual value of R10 000 per engine. Up to 30 September 2019 a total of 120 000 sea miles have been travelled and in the 2020 financial year a further 20 000 sea miles were done by these two engines. The interior furnishings and equipment are written off at 20% per annum on the diminishing balance method, with no expected residual value.
• The first boat was converted into an upmarket fishing charter boat with the acquisition of the second boat. The conversion required that the interior furnishings and equipment of the old boat be changed somewhat to accommodate deep sea fishing. Interior furnishings and equipment bought on 1 August 2018, with a carry value of R69 600 as at 1 October 2019, was sold for R20 000 on 1 November 2019 and simultaneously new interior furnishings and equipment were purchased for R180 000.
• On 1 October 2019, the two engines were re-conditioned at a total cost of R60 000. The company estimated that this re-conditioning has changed the useful estimated capacity of the engines to a total of 300 000 sea miles and it also increased the estimated residual value to R12 000 per engine. It was decided to account for the change in estimate by using the re-allocation method.
• The second boat was acquired on 1 November 2019 at a cost of R6 500 000, broken down as R3 000 000 for the hull, R680 000 for the two engines and the interior furnishings and equipment at R2 820 000. The estimated residual values were R120 000 for the hull and R15 000 per engine. Interior furnishings and equipment have the same assumptions as those for the first boat, except that a residual value of R40 000 is expected. The capacity of the engines is estimated at 400 000 sea miles. A total of 30 000 sea miles were travelled by the new boat in the current financial year.

Problem 1: Prepare the IAS 16 Property, plant and equipment note to the statement of financial position of Sail-Away (Pty) Ltd as at 30 September 2020