Tutorial 2.
Ignore all taxes
FusionHome Technologies Ltd (“FusionHome”) is a manufacturer of stoves, fridges, freezers and other
large home appliances. Their products are sold via retail partners, online shopping platforms and via
their own website [Link].
FusionHome has transitioned from a pure manufacturing company to a technology and manufacturing
company. After many years in business, FusionHome developed their own line of AI-powered Fridges
and Freezers, under the brand name FridgeAssIst™. FusionHome has also recently developed
FridgeAssIst ActIve™, a phone application (‘app’) that allows customers to control their fridges via
their cell phones.
These AI-powered fridges will help to manage clients’ busy lifestyles by automatically creating
customized meal plans, weekly shopping lists and will even order the necessary food based on the
clients’ preferences and budget. It can also be linked to other Health applications to assist you in
achieving your lifestyle and fitness goals.
To make use of all the functionalities of the fridge, clients will however need to subscribe to
FridgeAssIst ActIve™, at an annual subscription fee. If the service is active, it will help minimise the
client carbon footprint by reducing energy usage and minimising food waste by actively managing
inventory (fridge contents). It will also help clients make more mindful purchase choices, by only
recommending retailers that prioritise sustainability in their business model.
New Plant in Gamoep:
Prior to the 2023 financial year, FusionHome’s plant was 100% dependent on electricity provided by
Eskom. During the 2023 financial year, management approved a plan to build new plant in Gamoep,
in the Northern Cape, that would use more sustainable sources of electricity. The area was selected
for the presence of a nearby large solar farm (more detail below). The plant was constructed and
developed over a 12-month period, from 1 January 2024 to 31 December 2024.
FusionHome spent R25 million to construct the new plant which was incurred evenly over the calendar
year. The new plant was financed with a loan of R25 million specifically raised for the project. Interest
is paid on the loan at 9% per annum with no instalments due or paid in FY2024. Surplus interest earned
on re-invested funds amounted to R300 000 for FY2024.
The new plant has a total estimated useful life of 30 years and with no residual value. The plant will
be ready for use on 30 June 2025.
Current (old) Plant in Gqeberha:
As part of FusionHome’s transition, the current plant will be sold as is; however, it cannot be sold prior
to the opening of the new location in Gamoep. The plant is currently performing well, and the only
reason for the pending shut-down is the long-term vision of FusionHome as a company.
As soon as construction started on the Gamoep plant, management of FusionHome started actively
seeking a buyer for the current (Gqeberha) plant. Management is committed to the sale and has no
alternative use for the plant as the new facility will have double the capacity of the current one.
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The following information is relevant to the measurement of the existing plant as at the end of the
current financial year:
FY2024 FY2023
Historic carrying amount R 9 500 000 R 11 400 000
Estimated fair value R 9 800 000 R 10 900 000
Estimated cost to sell R 135 000 R 123 000
Value in use R5 000 000 R 13 400 000
In addition, FusionHome has negotiated a settlement with factory staff whereby staff may avoid
retrenchment by moving to Gamoep, or training to become sales representatives elsewhere in the
country. Following discussions and engagements with the employees, FusionHome reliably estimated
the following costs:
• moving costs of R850 000 to be paid in FY2025;
• retraining costs of R70 000 that was already incurred and paid in FY2024 and a further R150 000
to be incurred and paid in FY2025; and
• retrenchment costs of R2 000 000.
Contract to acquire solar electricity:
Gamoep is home to a large solar farm that is owned and operated by Langalethu Limited
(‘Langalethu’). FusionHome will became one of the main customers of Langalethu effective from when
the new plant start operating.
According to the contract, FusionHome is entitled to the first 230KWh of electricity produced every
month. This is estimated to be around 30% of the farm’s capacity during peak periods. Langalathu has
arrangements with other customers whereby they will buy any electricity that is not sold to
FusionHome.
FusionHome is contracted to pay R350 000 per year to Langalethu for this arrangement.
Ncuthu-ne-Ncasa contract:
On 1 November 2023 FusionHome signed a contract with Ncuthu-ne-Ncasa (Ncuthu)—an upmarket
restaurant near the Guga’Sthebe area of the Langa township. According to the contract, FusionHome
was to renovate and update the kitchen fittings, fixtures and equipment. In return, FusionHome would
receive a fixed amount of R500 000 and a further amount determined based on the rating of the
renovation project by a local independent Foodie magazine. Foodie, FusionHome and Ncuthu are
unrelated parties. Foodie will not get any payment in return for the rating service and makes its money
from advertising.
The payment from Ncuthu to FusionHome is structured as follows per the contract:
• R100 000 deposit on 1 November 2023 with any further payments conditional on satisfactory
completion of the project;
• R200 000 on 1 June 2024 together with any bonus payments due to FusionHome, if any; and
• R200 000 on 1 March 2025.
During November and December 2023, FusionHome paid R120 000 towards costs of completing the
project. This included R15 000 of equipment for which control had not transferred to the customer
because it was not yet installed. The equipment was installed in January 2024.
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As at 31 December 2023 FusionHome could not reliably estimate the total cost to complete the
project, but reliably estimated that the total costs would be significantly lower than the R500 000 price
charged.
During January and February 2024, a further R165 000 was paid in relation to the completion of the
project. The project was completed as planned before the end of February 2024. A celebratory dinner
(costing R20 000) was held in March 2024, where Foodie magazine revealed the rating of new
restaurant and the bonus payment for the project was confirmed as R70 000.
The contract includes a warranty as standard. The warranty provides assurance to Ncuthu that the
fittings, fixtures and equipment will function as agreed, in line with industry standards for similar
contracts. The estimated costs to fulfil the conditions of the warranty were reliably estimated at
R17 000 as at 29 February 2024.
Zama Zangwa, a member of the marketing team with limited accounting training prepared the
following financial summary to be included in the presentation of the project highlights for the year-
end management meeting. The summary is meant to show the financial impact of the project on the
annual financial statements of FusionHome for the year ended 31 December 2024 (including
comparatives):
Impact on the statement of profit or loss for the year ended 31 December
2024 2023
Revenue R250 000 R 250 000
Cost of sales (fulfillment cost) (R 165 000) (R 120 000)
Impact on statement of financial position as at 31 December
2024 2023
Net increase/(decrease) in bank and cash R 235 000 (R 20 000)
(Decrease)/Increase in accounts receivable (R 150 000) R 150 000
Real effects of artificial intelligence (‘A.I.’):
During January 2025 prior to the publication of FusionHome’s annual financial statements, social
media started buzzing about A.I. spying on users. After doing some investigation, you learned that
FusionHome’s systems have been accessed by marketing bots (autonomous internet programs). These
programmes are able to track FusionHome’s customer behaviour and in response advertise products
to the customer that match with prior behaviour.
An example of this was a recent customer who started receiving advertising for baby products 9
months after they stopped stocking alcohol in their FusionHome fridge. The A.I. had correctly guessed
that the customer had had a baby. The customer thought of this as being intrusive, even though no
human being was monitoring her behaviour, or contacting her.
Additional information
• FusionHome has a 31 December financial year-end.
• FusionHome prepare financial statements in accordance with IFRS Accounting Standards.
• All transactions and amounts are considered material.
• Assume a fair interest rate of 9% per annum.
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Tutorial 2.2 Required Marks
(a) Calculate the carrying amount of the new plant as it would be presented in the 3
annual financial statements of FusionHome for the year ended 31 December
2024.
(b) Assume that the pending closure of the factory meets the definition of a
restructuring event in terms of IAS 37:
i. Discuss the measurement of the Gqeberha plant as at 31 December 2023 10
and as at 31 December 2024. Your discussion must include a detailed
consideration of the held for sale criteria in IFRS 5, Non-current Assets Held
for Sale and Discontinued Operations.
3
ii. Briefly discuss the measurement and recognition of the restructuring
provision. Workings are required.
X1(c): Communication skills 1
(c) Refer to the electricity contract with Langalethu:
Discuss whether the contract contains a lease. 4
(d) Identify, with reasons any errors and/omissions from the calculations presented 16
by Zama Mzangwa and give him guidance to help him correct the errors. Present
your response in a table as follows:
Error/omission Reason/Explanation
1….
• You are not required to re-perform the calculations or prepare the
corrected summary.
Y1(e): Critical thinking 1
(e) Advise on the steps to be taken by FusionHome in reaction to the social media 4
storm over the marketing from their artificial intelligence.
Total for Tutorial 2.2 42
Source FRIII Jan 2025 Q2
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