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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 ANSWERS
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FAC3703 Assignment 1Semester 2 2024 - DUE 7
September 2024
QUESTIONS WITH COMPLETE ANSWERS
[DATE]
[COMPANY NAME]
[Company address]
, 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
on 1 March 2024 to lease a delivery vehicle from VehiclesRus Ltd. The lease
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