Starlight Ltd is an entity that specialises in the recycling of waste such as plastic, paper, cardboard
etc. The entity has a 30 April financial year end. It has been discovered that even though plastic is
collected for recycling, a significant portion is incinerated and is then disposed of in landfills. This
is due to the plastic being contaminated and thus cannot be handled by mechanical recycling,
which is currently the only recycling technology that is available on a large scale. Starlight Ltd has
identified a gap in the market for chemical plastic recycling.
The following information is available at the reporting date, 30 April 2021.
Chemical recycling plant
Starlight Ltd leased a large piece of industrial land from the municipality and erected a chemical
plastic recycling plant on the property. As per the rental agreement with the municipality, the
entity is obligated to dismantle the plant and restore the land to its original state at the end of the
useful life of the plant. The plant is estimated to have a useful life of 20 years. The cost to
dismantle the plant and restore the land is estimated at R4 750 000. An appropriate discount rate
after tax is 9%.
The costs incurred during construction were as follows:
Site preparation costs                                                   160 474
Raw materials, labour, production overheads             15 207 880
Abnormal wastage – raw materials and labour costs       217 500
Engineer fees                                                                 980 500
Installation and assembly costs                                     670 700
Costs incurred to test functionality of the plant           275 900
Sale of samples produced                                               75 900
Losses incurred during initial operation of the plant      350 900
Construction of the plant was completed on 1 April 2018. The plant was available for use on 1
May 2018. Management brought the plant into use on 1 July 2018

Paper recycling plant
The entity purchased a second-hand paper recycling plant on 1 May 2020. The total cost incurred
at acquisition date amounted to R790 000, which included an inspection cost of R150 000. The
plant has an estimated useful life of 8 years and a residual value of R120 000. The plant has to
have a major inspection after every 15 000 hours of use to comply with safety regulations.
The plant operates 24 hours per day and has minimal down-time for general maintenance only.
From 1 May 2020 to 30 April 2021 the plant operated 8 500 hours from 1 May 2020 to 30 April
Severance packages
During the last quarter of the financial year ended 30 April 2020, it became apparent that Starlight
Ltd needed to employ more skilled workers, and that a significant part of the current work force
has become redundant. The affected employees had the option to upskill themselves through
training provided by the entity.
For those employees who did not take the option to upskill themselves, the board of directors
decided on 30 April 2020 to terminate their contracts and agreed to the payment of severance
packages to the redundant employees.
• Estimated costs to train the employees in the following year amounted to R250 000.
• Estimated costs of severance packages amounted to R1 250 000.
On 31 May 2020 severance packages amounting to R1 300 000 were paid to the redundant
employees according to their service contracts.
Q.1.1 Prepare the journal entries to account for
• The estimated dismantling and restoration costs of the chemical recycling
plant of Starlight Ltd for the year ended 30 April 2019.

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