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FAC3702 Assignment 1 Semester 2 2024
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FAC3702 Assignment 1 Semester 2 2024
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FAC3703(a) Journal Entries for Woodworks Ltd (Transaction 1)
Woodworks Ltd has entered into a lease agreement with Ozone Ltd for machinery.
Here’s how the entries would look in Woodworks Ltd’s books:
1. On 1 March 2023: When the lease is recognized, the machinery is brought onto
Woodworks Ltd's books as a right-of-use asset, and a lease liability is
recognized. The asset and liability should be recorded at the present value of the
lease payments.
o Debit: Right-of-Use Asset (R420,000 + R10,000 initial direct costs)
o Credit: Lease Liability (Present value of future lease payments)
o Credit: Bank (For initial direct costs paid by Woodworks Ltd - R15,000)
2. On 31 July 2023: Woodworks Ltd makes the first lease payment of R90,000.
The payment includes both an interest portion and a reduction of the principal.
o Debit: Lease Liability (For the reduction of the principal portion of the
lease payment)
o Debit: Interest Expense (For the interest portion of the lease payment)
o Credit: Bank (R90,000)
3. On 28 February 2024: The second lease payment is made. Similar to the first
payment, this also reduces the lease liability and includes an interest component.
o Debit: Lease Liability (For the reduction of the principal portion of the
lease payment)
o Debit: Interest Expense (For the interest portion of the lease payment)
o Credit: Bank (R90,000)
4. On 28 February 2024: Recognize the depreciation of the right-of-use asset.
Since the machinery has a useful life of 5 years and the asset is depreciated over
the shorter of the useful life or lease term (which is 3 years in this case), the
depreciation should be calculated as:
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