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FAC3762 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }
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FAC3762 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }
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EXAMPLE 1
Sharp Ltd entered into a finance lease on 1 January 20.17 whereby Sharp Ltd leases a grader to Point Ltd.
The lease is a finance lease in terms of IFRS 16, Leases.
The terms of the lease are as follows:
Cost of the grader: R500 000
Estimated useful life of grader: 5 years with Rnil residual value
Period of lease agreement: 4 years
Annual instalment: R176 907 (first instalment on 31/12/20.17)
Sharp Ltd incurred legal fees of R10 000 to secure the lease agreement. Ignore depreciation, income tax
and VAT.
REQUIRED
(a) Prepare the amortisation table of the abovementioned finance lease
agreement regarding the initial recognition on 1 January 20.17 of the lease in
the accounting records of Sharp Ltd.
(b) Prepare the journal entries for the recording of the lease over the period of
the lease agreement in the accounting records of Sharp Ltd.
Your answers must comply with the International Financial Reporting Standards
(IFRS).
Round all amounts to the nearest Rand.
SOLUTION 1
LESSOR: FINANCE LEASE
The lessor must account for the lease as a receivable at an amount equal to the
net investment in the lease.
Net investment in the lease is the gross investment in the lease discounted at
the interest rate implicit in the lease.
It is important that you study the definitions of these terms, which are provided at
the beginning of the learning unit.
Step 1: Calculate the interest rate implicit in the lease (IRIL)
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Present value of: Fair value of leased asset
IRIL = Lease payments + = +
Unguaranteed residual value Initial direct costs of lessor
Set HP and Sharp EL-738 Set HP and Sharp EL-738 calculators on 1P/YR calculators on 1P/YR as there is one
instalment per year.
N =4 (1 payment per year x 4 years)
PV = (500 000 + 10 000) (fair value + initial direct costs of lessor)
PMT = 176 907
FV = 0+0 (guaranteed and unguaranteed residual values to the lessor)
Comp I = 14,52090% per annum
INITIAL DIRECT COSTS
Only the initial direct costs of the lessor are considered when calculating the
interest rate implicit in the lease.
Step 2: Calculate unearned finance income Guaranteed and unguaranteed residual values
Step 3: Prepare the amortisation table at R510 000
(a) Amortisation table
Interest at Closing
Payment date 14,5209% Instalment Capital balance
R R R R
01/01/20.17 510 000
31/12/20.17 74 057 176 907 102 850 407 150
31/12/20.18 59 122 176 907 117 785 289 365
31/12/20.19 42 018 176 907 134 889 154 476
31/12/20.20 22 431 176 907 154 476 —
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197 628 707 628 510 000
(b) Journal entries
Dr Cr
R
R
R
Gross investment in the lease (4 x 176 907) + (0 + 0) 707 628
Unearned finance income (707 628 – 510 000) (balancing figure) (197 628)
Net investment in the lease (step 2) 510 000
01/01/20.17 Gross investment in finance lease (SFP) 707 628
Bank (SFP) 10 000
Unearned finance income (SFP) 197 628
Equipment (SFP) 500 000
Recognise lease receivable and initial direct
costs and derecognise equipment (grader)
Dr Cr
R R
31/12/20.17 Bank (SFP) 176 907
Gross investment in finance lease (SFP) 176 907
Recognise first instalment received
Unearned finance income (SFP) 74 057
Finance income (P/L)
Recognise finance income as profit
176 907
74 057
31/12/20.18 Bank (SFP)
Gross investment in finance lease (SFP) 59 122
176 907
Unearned finance income (SFP)
Finance income (P/L) 59 122
31/12/20.19 Bank (SFP) 176 907
Gross investment in finance lease (SFP) 176 907
Unearned finance income (SFP) Finance 42 018
income (P/L) 42 018
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