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FAC3703 Assignment 1 Semester 2 2024 - DUE 7 September 2024
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FAC3703 Assignment 1 Semester 2 2024 - DUE 7 September 2024 QUESTIONS WITH DETAILED ANSWERS
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FAC3703 Assignment 1Semester 2 2024 - DUE 7
September 2024
QUESTIONS WITH ANSWERS
, FAC3703 Assignment 1 Semester 2 2024 - DUE 7 September 2024
Ozone Ltd Ozone Ltd is neither a manufacturer nor a dealer that leases
ozone friendly machinery that reduces the emission of harmful chemicals.
Ozone has a 28/29 February year-end. As part of its business strategies,
Ozone Ltd entered into the following transactions: Transaction 1 Ozone Ltd
entered into an agreement with Woodworks Ltd in which Ozone Ltd leased
machinery to Woodworks Ltd. The contract between the two companies
contains a lease in terms of IFRS 16, Leases. Ozone Ltd purchased this
machine on 1 March 2023 at a cost of R420 000. FAC3703/02/2024 The
lease agreement for the machine is as follows: Fair value of the machine
on 1 March 2023 R420 000 Lease commencement date 1 March 2023
Lease instalments payable bi-annually in arrears on 31 July and 28
February R90 000 Guaranteed residual value at the end of the lease term
R15 000 Unguaranteed residual value at end of the lease term R5 000
Lease term 3 years Initial direct costs incurred by Ozone Ltd R10 000 Initial
direct costs (Legal Fees) incurred by Woodworks Ltd R15 000 Woodworks
Ltd will take ownership of the machinery at the end of the lease term upon
payment of the guaranteed residual value. The machinery has a useful life
of 5 years at the beginning of the lease term and a Rnil residual value. The
profit before tax of Woodworks Ltd for the year ended 29 February 2024
amounted to R1 500 000 before the lease transaction was taken into
account. Assume the deferred tax balance at 1 March 2023 was Rnil. For
tax purposes, the legal fees incurred by Woodworks Ltd are not regarded
as expenses as it was not incurred in the production of income and is
capital in nature. Transaction 2 Ozone Ltd entered into a lease agreement
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